10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2009

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.

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Common Stock, $.02 Par Value per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ 

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):

Large accelerated filer o Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company þ

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 July 31, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $6,382,000 based on the average of the bid and asked prices on such date.

As of April 22, 2009, there were 20,875,109 shares of the registrants Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

PART I
	ITEM 1. Business
EX-4.14
EX-10.8.5
EX-10.16
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32

PART I

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

The statements contained in this Annual Report on Form 10-K of PDG Environmental, Inc. (“PDG,” the “Corporation,” the “Company,” “us,” or “we”), including, but not limited to those contained in Item 1, “Business,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with statements in other reports filed with the Securities and Exchange Commission (the “SEC”), external documents and oral presentations, which are not historical facts are considered to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be expressed in a variety of ways, including the use of forward-looking terminology such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential,” or “continue” the negatives thereof or other comparable terminology. We do not undertake any obligation to publicly update any forward-looking statements.

These forward-looking statements, and any forward-looking statements contained in other public disclosures of the Company which make reference to the cautionary factors contained in this Form 10-K, are based on assumptions that involve risks and uncertainties and are subject to change based on the considerations described below. We discuss many of these risks and uncertainties in greater detail in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.” These and other risks and uncertainties may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.

The following discussion should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes contained in this Annual Report on Form 10-K.

ITEM 1. Business

Overview

PDG Environmental, Inc., the registrant, is a holding Corporation which, through our wholly-owned operating subsidiaries, provides environmental and specialty contracting services including asbestos and lead abatement, microbial remediation, emergency response, loss mitigation and reconstruction, demolition and related services throughout the United States. We were incorporated in Delaware on February 9, 1987.

We have three operating subsidiaries; Project Development Group, Inc., which is incorporated in Pennsylvania; PDG, Inc., which is incorporated in Pennsylvania and Enviro-Tech Abatement Services Co., which is incorporated in North Carolina.

On March 17, 2008, the Corporation announced its new brand image, FlagshipPDG. The brand change is designed to achieve broader market awareness, and communicate a consistent message to customers, employees and shareholders. This is part of our continuing effort to penetrate new markets as well as improving our effort to cross marketing our total services to our extensive existing client base. The Corporation’s stock symbol (PDGE) did not change as a result of the change of brand name. In addition, the legal names of the Corporation and its subsidiaries remained the same.

Description of the Business

Historically, we have derived the majority of our revenues from the abatement of asbestos. In recent years, we have broadened our offering of services to include a number of complementary services, which utilize our existing infrastructure and personnel. The following is a discussion of each of the major services we provide.

Asbestos Abatement

The asbestos abatement industry developed due to increased public awareness in the early 1970’s of the health risks associated with asbestos, which was extensively used in building construction.

Asbestos, which is a fibrous mineral found in rock formations throughout the world, was used extensively in a wide variety of construction-related products as a fire retardant and insulating material in residential, commercial and industrial properties. During the period from approximately 1910 to 1973, asbestos was commonly used as a construction material in structural steel fireproofing, as thermal insulation on pipes and mechanical equipment and as an acoustical insulation material. Asbestos was also used as a component in a variety of building materials (such as plaster, drywall, mortar and building block) and in caulking, tile adhesives, paint, roofing felts, floor tile and other surfacing materials. Most structures built before 1973 contain asbestos containing materials (“ACM”) in some form and surveys conducted by the United States federal government have estimated that 31,000 schools and 733,000 public and commercial buildings contain friable ACM. In addition, many more industrial facilities are known to contain other forms of asbestos.

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In the early 1970’s, it became publicly recognized that inhalation or ingestion of asbestos fibers was a direct cause of certain diseases, including asbestosis (a debilitating pulmonary disease), lung cancer, mesothelioma (a cancer of the abdominal and lung lining) and other diseases. Friable ACM were designated as a potential health hazard because these materials can produce microscopic fibers and become airborne when disturbed.

The Environmental Protection Agency (the “EPA”) first banned the use of asbestos as a construction material in 1973 and the federal government subsequently banned the use of asbestos in other building materials as well.

During the 1980’s the asbestos abatement industry grew rapidly due to increasing public awareness and concern over health hazards associated with ACM, legislative action mandating safety standards and requiring abatement in certain circumstances, and economic pressures on building owners seeking to satisfy the requirements of financial institutions, insurers and tenants. During the last ten years the industry has remained stable with revenues tracking the general economic cycle.

We have experience in all types of asbestos abatement including removal and disposal, enclosure and encapsulation. Asbestos abatement projects have been performed in commercial buildings, government and institutional buildings, schools, hospitals and industrial facilities for both the public and private sector. Asbestos abatement work is completed in accordance with EPA, Occupational Safety and Health Administration (“OSHA”), state and local regulations governing asbestos abatement operations, disposal and air monitoring requirements.

Disaster Response / Loss Mitigation

The disaster response / loss mitigation industry responds to natural and man-made disasters including fires, floods, hurricanes, tornadoes, and sudden water intrusion events. Services provided include emergency response, loss mitigation and structural drying, for both buildings and infrastructure. We have experience and have provided services in all areas of the emergency response / restoration industry.

While we have historically provided this service, the hurricane season in fiscal 2005 and 2006 became a major driver for this service offering. In fiscal 2005, we responded to the four hurricanes that impacted Florida and the Gulf Coast, providing services to resorts, governmental entities such as counties and school districts, commercial operations and residential buildings. In fiscal 2006, we responded to hurricanes Katrina, Rita and Wilma. In fiscal 2009, we responded to hurricane Ike that impacted the Texas and Louisiana Gulf Coast. Contracts are typically on a cost plus basis due to uncertainties relative to the magnitude and type of procedures required.

Reconstruction

The reconstruction and restoration industry responds to natural and man-made disasters including fires, floods, hurricanes, tornadoes, and sudden water intrusion events. Services are usually provided after the impact of the event has been assessed by the property owner and their insurance company. While we previously provided a limited amount of reconstruction services, the acquisition of Flagship Services Group, Inc. (“Flagship”) in August 2005 provided entry to this market on a nationwide basis. Flagship previously provided reconstruction services to commercial and residential clients throughout the United States.

Flagship traditionally acted as a general contractor, sub-contracting all aspects of a reconstruction contract. Contracts are typically on a fixed-price basis or time and material basis. Since the acquisition of Flagship, the majority of the work performed on reconstruction contracts has been performed by subcontractors, although we have directly provided drying, loss mitigation and demolition thereby enhancing the services offered to our reconstruction clients.

Mold Remediation

Health professionals have been aware of the adverse health effects of exposure to mold for decades, but the issue has gained increased public awareness in recent years. Studies indicate that 50% of all homes contain mold and that the increase in asthma cases over the past 20 years can be linked to mold exposure.

We provide mold remediation services in both commercial and residential structures. Such services include decontamination, application of biocides and sealant, removal of building systems (drywall, carpet, etc.), and disposal of building furnishings. We have experience in remediation, detailing methods and performing microbial (mold, fungus, etc.) abatement in commercial, residential, educational, medical and industrial facilities.

Lead Abatement

During the 1990’s, the lead abatement industry developed due to increased public awareness of the dangers associated with lead poisoning. While lead poisoning takes many forms, the most serious and troubling in the United States is the danger posed to children and infants from the ingestion of lead, primarily in the form of paint chips containing lead. Ingestion of lead has been proven to reduce mental capacities and is especially detrimental to children in the early stages of development.

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The low income and public housing markets, due to the age of the structures, contain a significant amount of lead paint that is flaking and peeling. In response to this problem many municipal and state governments have developed programs to remediate the structures. We have experience in utilizing various methods to remove lead-based paint that is adhered to surfaces and the removal of loose and flaking lead-based paint and dust or lead-contaminated soil. Removal methods include chemical stripping, wet scraping, needle gun, high-pressure water / vacuum and abrasive blasting. High-efficiency particulate air (“HEPA”) vacuums are utilized for dust and debris clean up. Analysis of removed material, as required, is performed to assure proper disposal of lead-contaminated waste and debris generated from removal operations. We complete such lead removal work in accordance with EPA, OSHA, state and local regulations governing lead removal operations, disposal and air monitoring requirements.

Demolition

The demolition industry has a wide range of applications and services. We have currently limited our services to the performance of select interior and structural demolition. Our experience includes interior and structural demolition in occupied buildings at times utilizing specially equipped air filtration devices to minimize airborne dust emissions in occupied areas.

This work has been a natural progression from asbestos abatement work, which often requires significant interior demolition to access asbestos material for removal.

Operations

Our operating subsidiaries provide services on a project contract basis. Individual projects are competitively bid, although most contracts with private owners are ultimately negotiated. The majority of contracts undertaken are on a fixed-price basis. The length of the contracts is typically less than one year; however, larger projects may require two or more years to complete.

Larger and longer-term contracts are billed on a progress basis (usually monthly) in accordance with the terms of the contract. Smaller and shorter duration contracts are billed upon completion. Larger and longer-term contracts, which are billed on progress basis, may contain a provision for retainage whereby a portion of each billing (10% in many cases) is held by the client until the completion of the contract or until certain contractually defined milestones are met.

We monitor contracts by assigning responsibility for each contract to a project manager who coordinates the project until its completion. The contracted work is performed by an appropriately licensed labor force in accordance with regulatory requirements, contract specifications and our written operating procedures which describes worker safety and protection procedures, air monitoring protocols and abatement methods.

Our operations are nationwide. The majority of our national marketing efforts are performed by members of senior management located in the headquarters facility in Pittsburgh, Pennsylvania. Regional marketing and project operations are also conducted through branch offices located in Paramus, New Jersey (serving the New York City metropolitan area); Hazleton and Export, Pennsylvania; Fort Lauderdale, Florida; Dallas, Texas; Los Angeles, California; Las Vegas, Nevada; and Rock Hill, South Carolina. While our subsidiaries are able to perform work throughout the year, weather conditions can limit the extent and time of work that can be performed on certain types of projects. During fiscal 2009, the offices in Tampa, Florida, and New Orleans, Louisiana, were closed and the projects are now being performed by other offices.

Business Strategy

With over 20 years of business experience, the Corporation has developed long standing relationships with its customer base. The Corporation will continue to leverage these relationships for future business opportunities as well as cross-sell additional services not typically provided to this customer base.

To the extent that we are able to identify appropriate candidates consistent with our business objectives, we intend to acquire additional reconstruction and restoration companies that service metropolitan population centers or regions with high population densities. While the former Flagship operation that we acquired in August 2005 has a nationwide footprint, we will continue to pursue attractive reconstruction and restoration companies that we believe will give us entry to customers and / or markets where we believe we do not have adequate exposure. We believe that we would be able to derive additional operational and marketing efficiencies from such acquisitions due to the presence of our existing management structure, employee base and customer contacts.

Suppliers and Customers

We purchase the equipment and supplies used in our business from a number of suppliers. One of these suppliers accounted for 35.1% and 26.5% of our purchases in fiscal 2009 and 2008, respectively. The items are purchased from the vendor’s available stock and are not covered by a formal long-term agreement.

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In fiscal 2009, we estimated that approximately 65% of our operating subsidiaries’ revenues were derived from private sector clients, 22% from government contracts and 13% from public institutions. In fiscal 2008, we estimated that approximately 70% of our operating subsidiaries’ revenues were derived from private sector clients, 14% from government contracts and 16% from public institutions. Due to the nature of our business, which involves large contracts that are often completed within one year, customers that account for a significant portion of revenue in one year may represent an immaterial portion of revenue in subsequent years. For fiscal year 2009, only one customer accounted for 10% of our consolidated revenues. For fiscal 2008, only one customer accounted for 12% of our consolidated revenues.

Licenses

We are licensed and / or certified in all jurisdictions where required in order to conduct our operations. In addition, certain management and staff members are licensed and / or certified by various governmental agencies and professional organizations.

Insurance and Bonds

We maintain liability insurance for claims arising from our business. The policy insures against both property damage and bodily injury arising from the contracting activities of our operating subsidiaries. Obtaining adequate insurance is a problem faced by us and the environmental industry as a whole due to the limited number of insurers and the increasing cost of coverage. To the best of our knowledge, we currently have insurance sufficient to satisfy regulatory and customer requirements.

We also provide workers’ compensation insurance, at statutory limits, which covers all of our employees of our operating subsidiaries. We believe that we are fully covered by workers’ compensation insurance with respect to any claims that may be made by current and former employees relating to any of our operations. The amount of workers’ compensation insurance maintained varies from state to state in which our business operates and is not subject to any aggregate policy limits.

In line with industry practice, we are often required to provide payment and performance bonds to customers under fixed-price contracts. These bonds indemnify the customer should we fail to perform our obligations under the contract. If a bond is required for a particular project and we are unable to obtain an appropriate bond, we may not be able to pursue that project. We have a bonding facility but, as is typically the case, the issuance of bonds under that facility is at the surety’s sole discretion. Depending upon future economic conditions and volatility in the insurance market, bonds may be more difficult to obtain in the future or they may be available at significant additional cost.

Competitive Conditions

Conditions in the specialty contractor industry are highly competitive. The industry is fragmented and includes both small firms and large diversified firms, which have the financial, technical and marketing capabilities to compete on a national level. The industry is not dominated by any one firm. We principally compete on the basis of competitive pricing, a reputation for quality and safety, and the ability to obtain the appropriate level of insurance and bonding.

Regulatory Matters

The environmental remediation industry is generally subject to extensive federal, state and local regulations, including the EPA’s Clean Air Act and OSHA requirements. As outlined below, these agencies have mandated procedures for monitoring and handling asbestos and lead containing material during abatement projects and the transportation and disposal of ACM and lead following removal.

Current EPA regulations establish procedures for controlling the emission of asbestos fibers into the environment during removal, transportation or disposal of ACM. The EPA also has notification requirements before removal operations can begin. Many state authorities and local jurisdictions have implemented similar programs governing removal, handling and disposal of ACM.

The health and safety of personnel involved in the removal of asbestos and lead are protected by OSHA regulations which specify allowable airborne exposure standards for asbestos workers and allowable blood levels for lead workers, engineering controls, work area practices, supervision, training, medical surveillance and decontamination practices for worker protection.

We believe we are in compliance with all of the federal, state and local statutes and regulations that affect our asbestos and lead abatement business.

The other segments of the environmental and specialty contractor industry that we operate in are not currently as regulated as the asbestos and lead abatement industries.

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Backlog

We had a backlog of orders totaling approximately $34.5 million and $56.4 million in January 31, 2009 and 2008, respectively. At January 31, 2009, our backlog consisted of $17.7 million of booked orders and an additional $16.8 million of orders in final negotiation stage or open ended purchase orders which will likely become booked orders in the first quarter of fiscal 2010. At January 31, 2008, our backlog consisted of $35.6 million of booked orders and an additional $20.8 million of orders in final negotiation stage or open ended purchase orders which became booked orders in the first quarter of fiscal 2009. Of the total amount booked and in final negotiation stage at January 31, 2009, $18.3 million consisted of uncompleted work on fixed-price contracts and an estimated $16.2 million of work to be completed on time and materials or unit price contracts. Of the total amount booked and in final negotiation stage at January 31, 2008, $39.2 million consisted of uncompleted work on fixed-price contracts and an estimated $17.2 million of work to be completed on time and materials or unit price contracts. From time to time we enter into fixed-price subcontracts, which tend to reduce our risk on fixed-price contracts.

The backlog represents the portion of contracts, which remain to be completed at a given point in time. As these contracts are completed, the backlog will be reduced and a corresponding amount of revenue will be recognized. We are currently working on nearly all of the contracts in our January 31, 2009, backlog and anticipate that approximately 95% of this backlog will be completed and realized as revenue by January 31, 2010, in accordance with the terms of the applicable contracts. The remaining 5% is expected to be completed and realized as revenue subsequent to January 31, 2010. Approximately 80% of the backlog existing at January 31, 2008, was completed and recognized as revenue by January 31, 2009, and we expect that 20% of such backlog will be completed and realized as revenue during fiscal 2010.

Employees

As of January 31, 2009, we employed approximately 102 senior managers and support staff in our headquarters in Pittsburgh, Pennsylvania, and branch offices located in Paramus, New Jersey; Hazleton, Pennsylvania; Export, Pennsylvania; Fort Lauderdale, Florida; Los Angeles, California; Dallas, Texas; Las Vegas, Nevada and Rock Hill, South Carolina. The staff employees include accounting, administrative, sales and clerical personnel as well as project managers and field supervisors. We also employ laborers for field operations based upon specific projects; therefore, the precise number of our employees at any one time varies based upon the projects in progress. Approximately 400 laborers and supervisors are employed on a steady basis, with casual labor hired on an as-needed basis to supplement the work force. The majority of the services provided relative to disaster reconstruction are provided by subcontractors.

A portion of the field laborers who provide services to us are represented by a number of different unions. In many cases, we are a member of a multi-employer plan. Management considers its employee labor relations to be good.

Web Site Postings

Our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC are available to the public free of charge through the SEC’s website, a link to which is included on our website, as soon as reasonably practicable after making such filings. Our website can be accessed at the following address: www.FlagshipPDG.com and a link to our filings with the SEC can be found by clicking on “Public Filings” at the following address: http://www.flagshippdg.com/investor_relations. The information found on our website or that may be accessed through our website is not part of this report and is not incorporated herein by this reference.

ITEM 1A. Risk Factors

We wish to caution each reader of this Form 10-K to consider the following factors and other factors discussed herein and in other past reports, including but not limited to our prior year Form 10-K and quarterly Form 10-Q reports filed with the SEC. Our business, operating results and financial condition could be materially affected by any of the following risks. The factors discussed herein are not exhaustive. Therefore, the factors contained herein should be read together with other information included in this Annual Report on Form 10-K and reports and documents that we file with the SEC from time to time, which may supplement, modify, supersede or update the factors listed in this document.

The timing of cash flow is difficult to predict, and any significant delay in the contract cycle could materially impair our cash flow.

The timing of our cash receipts from contracts receivable is unpredictable. In many cases we are a subcontractor to the general contractor on the project and, therefore, we often must collect outstanding contracts receivable from the general contractor, which, in turn, the general contractor must collect from the customer. As a result, we are dependent upon the timing and success of the general contractor in collecting contracts receivable as well as the credit worthiness of the general contractor and the customer. Additionally, many of our contracts provide for retention of a portion of our billings until the project has been accepted by the owner. As our activities are usually early in the contract cycle, if we are acting as a subcontractor, the retainage (typically 5% to 10% of the contract value) may be held until the project is complete. This time frame may be many months after our completion of our portion of the contract. This delay further subjects us to the credit risk associated with the general contractor and the owner of the project. We can and often do avail ourselves of lien rights and other security common to the construction industry to offset the aforementioned credit risk. Unexpected delays in receiving amounts due from customers can put a strain on our cash availability and cause us to delay

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payments to vendors and subcontractors. Additionally, even if we have successfully completed our work on a project and there are no disputes regarding our performance of such work, any disputes between the general contractor and the owner regarding other aspects of the completed projects by entities other than us could result in further delays, or could prevent, payment for our work.

At January 31, 2009, we had approximately $4.8 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 contracts claims and / or unapproved change orders. Of the $23.6 million in contracts receivable, approximately $2.9 million of contracts receivable represented contract claims and / or unapproved change orders. We expect to process change orders or pursue contract claims for at least the full amount of these costs relative to the aforementioned contracts.

Losses expected to be incurred on contracts in progress are charged to earnings in the period such losses are known. Contract revenue reflects the original contract price adjusted for approved change orders and estimated minimum recoveries of unapproved change orders and claims. We recognize unapproved change orders and claims to the extent that related costs have been incurred and when it is probable that they will result in additional contract revenue and their value can be reliably estimated.

We are dependent upon our loan agreement and other financing to finance operations, and the failure to maintain this financing or to obtain replacement refinancing, would have a material adverse effect on our operations.

As of February 28, 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.

At January 31, 2009, we were not in compliance with all of the covenants of our debt agreement. The bank subsequently waived certain covenants and amended the loan agreement in order to enable us to retroactively be in compliance at January 31, 2009. At January 31, 2008, we were in compliance with all of the covenants of our debt agreement.

At January 31, 2009, the amount borrowed on the revolving line of credit was $14,689,000 with an unused availability of $606,000.

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.

Our loan agreement contains restrictive covenants that limit our financial and operational flexibility and our ability to pay dividends.

Our loan agreement contains restrictive covenants that limit our ability to incur debt, require us to maintain certain financial ratios, such as a debt service coverage ratio and leverage ratio, and restrict our ability to pay dividends. Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions and we may be unable to comply with these covenants in the future. A breach of any of these covenants could result in a default under this loan agreement which could result in additional interest payments to become due and payable both to our senior lender pursuant to this loan agreement and to the subordinated lender pursuant to the Subordinated Notes. If we default, our senior lender will no longer be obligated to extend revolving loans to us and both the senior and subordinated lenders could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, our lender could proceed against the collateral granted to it to secure the indebtedness. The result of these actions would have a significantly negative impact on our results of operations and financial condition.

These restrictions may also adversely affect our ability to conduct and expand our operations. Adequate funds may not be available when needed or may not be available on favorable terms. Even if adequate funds are available, our loan agreement may restrict our ability to raise additional funds. If we are unable to raise capital, our finances and operations may be adversely affected.

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A continuing downturn in the U.S. economy may adversely affect our revenues, results of operations and financial condition.

Demand for our services and our ability to collect payment is increasingly dependent upon the strength of the U.S. economy. If current economic conditions continue, the construction business, which contributes to the demand for our services, could be even more adversely affected than experienced to date, which in turn could adversely affect our revenues, results of operations and financial condition. Many factors could continue to adversely affect regional or U.S. economic growth. Some of these factors include:

• poor availability of credit to those that use our services,

• continued downturns in the construction business,

• continued recession in the United States economy,

• reduced levels of economic activity in the United States economy.

The recent challenging economic conditions also may impair our ability to collect timely payments or otherwise constrict the demand for our services. As a result, revenues may decline and reserves for doubtful accounts and write-offs of contracts receivable may increase.

We are subject to the risk and uncertainties experienced by contractors.

We operate a labor-intensive business throughout the United States. Therefore, we are subject to employee risks inherent in the construction industry including employee fraud, fictitious employees, employee theft, violation of federal, state and / or local regulations and fraudulent workers’ compensation claims among other risks. While we actively monitor our branch offices and have controls in place at both the branch office and corporate level to ensure that our control procedures are complied with, our decentralized operation and the job site nature of our construction activities, (at any time we have in excess of 150 projects in process), subject us to the risk that illegal activities may be occurring that we are unaware of.

If we are unable to maintain adequate insurance and sufficient bonding capacity, our operations would be significantly impaired.

The number and size of contracts that we can perform is directly dependent upon our ability to obtain sufficient insurance and bonding. We maintain an insurance and bonding program consistent with our operational needs. However, there have been events in the national economy, which have adversely affected the major insurance and surety companies. This has resulted in a tightening of the insurance and bonding markets, which has resulted in increasing costs and the availability of certain types of insurance and surety capacity either decreasing or becoming non-existent. We believe our current insurance and bonding programs will be sufficient to satisfy our needs in the future. However, if such programs are insufficient, we may be unable to secure and perform contracts, which would substantially impair our ability to operate our business.

Additionally, we may incur liabilities that may not be covered by insurance policies, or, if covered, the dollar amount of such liabilities may exceed our policy limits. Such claims could also make it difficult for us to obtain adequate insurance coverage in the future at a reasonable cost. A partially or completely uninsured claim, if successful and of significant magnitude, could cause us to suffer a significant loss and reduce cash available for our operations.

If our insurance costs increase significantly, these incremental costs could negatively affect our financial results.

Environmental remediation operations may expose our employees and others to dangerous and potentially toxic quantities of hazardous products. Such products may cause cancer and other debilitating diseases. Although we take precautions to minimize worker exposure and have not experienced any such claims from workers or others, there can be no assurance that, in the future, we will avoid liability to persons who contract diseases that may be related to such exposure. Such persons potentially include employees, persons occupying or visiting facilities in which contaminants are being, or have been, removed or stored, persons in surrounding areas, and persons engaged in the transportation and disposal of waste material. In addition, we are subject to general risks inherent in the construction industry. We may also be exposed to liability from the acts of our subcontractors or other contractors on a work site. The costs related to obtaining and maintaining workers’ compensation, professional and general liability insurance and health insurance have been increasing. If the cost of carrying such insurance continues to increase significantly, we will recognize an associated increase in costs that may negatively impact its margins. This could have an adverse impact on our financial condition and the price of our common stock.

We depend upon a few key employees and the loss of these employees would severely impact us.

Our success is dependent upon the efforts of our senior management and staff. We do not have employment agreements with any of our executives except with our Chief Executive Officer, John Regan, who has a three-year employment agreement, expiring March 15, 2012. If key individuals leave us, we could be adversely affected if suitable replacement personnel are not quickly recruited. Our

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future success depends on our ability to continue to attract, retain and motivate qualified personnel. There is competition for qualified personnel and in some markets there is a shortage of qualified personnel in the business in which we operate. If we are unable to continue to attract or retain highly qualified managerial, technical and marketing personnel, the development, growth and future success of our business could be adversely affected.

A significant number of our contracts are awarded via competitive bid and are priced as fixed fees, and a failure to accurately estimate the cost of such work could result in significant financial losses.

A significant amount of our business is performed on a contract basis as a result of competitive bidding and is priced at fixed fees. We must estimate the costs involved with the applicable contract prior to submitting a bid and, therefore, if awarded the contract bears the risk if actual costs exceed the estimated costs. Cost overruns on projects covered by such contracts, due to such things as unanticipated price increases, unanticipated problems, inefficient project management, inaccurate estimation of labor or material costs or disputes over the terms and specifications of contract performance or change orders could have a material adverse effect on us and our operations. In addition, in order to remain competitive in the future, we may have to continue to enter into more fixed-price contracts.

The environmental remediation business is subject to significant government regulations, and the failure to comply with any such regulations could result in fines or injunctions, which could materially impair or even prevent the operation of our business.

The environmental remediation business is subject to substantial regulations promulgated by governmental agencies, including the EPA, various state agencies and county and local authorities acting in conjunction with such federal and state entities. These federal, state and local environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage, and disposal of hazardous materials and the remediation of contaminated sites. Our business often involves working around and with volatile, toxic and hazardous substances and other highly regulated materials, the improper characterization, handling or disposal of which could constitute violations of United States federal, state or local laws and regulations and result in criminal and civil liabilities. Environmental laws and regulations generally impose limitations and standards for certain pollutants or waste materials and require us to obtain a permit and comply with various other requirements. Governmental authorities may seek to impose fines and penalties on us, or revoke or deny issuance or renewal of operating permits, for failure to comply with applicable laws and regulations. We are also exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such substances or materials.

The environmental health and safety laws and regulations to which we are subject are constantly changing, and it is impossible to predict the effect of such laws and regulations on us in the future. We cannot predict what future changes in laws and regulations may be or that these changes in the laws and regulations will not cause us to incur significant costs or adopt more costly methods of operation.

The microbial remediation portion of our business currently is largely unregulated. As this business grows it is likely that government regulation will increase. We cannot predict how the regulations may evolve or whether they may require increased capital and / or operating expenditures to comply with the new regulations.

The failure to obtain and maintain required governmental licenses, permits and approvals could have a substantial adverse effect on our operations.

Certain portions of the environmental and specialty contracting industry are highly regulated. In portions of our business we are required to have federal, state and local governmental licenses, permits and approvals for our facilities and services. We cannot be assured of the successful outcome of any pending application or demonstration testing for any such license, permit or approval. In addition our existing licenses, permits and approvals are subject to revocation or modification under a variety of circumstances. Failure to obtain timely or to comply with the conditions of, applicable licenses permits or approvals could adversely affect our business, financial condition and results of operations. As our business expands and as new procedures and technologies used in our business are introduced, we may be required to obtain additional operating licenses, permits or approvals. We may also be required to obtain additional operating licenses, permits or approvals if new environmental legislation or regulations are enacted or promulgated or existing legislation or regulations are amended, reinterpreted or enforced differently than in the past. Any new requirements that raise compliance standards may require us to modify our procedures and technologies to conform to more stringent regulatory requirements. There can be no assurance that we will be able to continue to comply with all of the environmental and other regulatory requirements applicable to the business we operate.

The receipt of contract awards is unpredictable, and the failure to adjust our overhead structure to meet an unexpected decline in revenue could significantly impact our net income.

We are an environmental and specialty contractor and as such are affected by the timing of the award of large contracts. Therefore, backlogs, revenues and income are subject to significant fluctuation between quarters and years. Since our overhead structure is reasonably fixed, we may not be able to rapidly adjust our operating expenses to meet an unexpected decline in revenue, which could materially and adversely affect revenue and net income.

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The environmental remediation and specialty contracting industries are highly competitive and we face substantial competition from other companies.

The environmental remediation and specialty contracting industries are very competitive. Many of our competitors have greater financial, managerial, technical and marketing resources than we have. To the extent that competitors possess or develop superior or more cost-effective environmental remediation solutions or field service capabilities, or otherwise possess or acquire competitive advantages compared to us, our ability to compete effectively could be materially adversely affected.

Our operating results may vary from quarter-to-quarter, causing our stock price to fluctuate.

Our operating results have in the past been subject to quarter-to-quarter fluctuations, and we expect that these fluctuations will continue, and may increase in magnitude, in future periods. Demand for our services is driven by many factors, including national and regional economic trends, the occurrence of unanticipated natural disasters, changes in governmental regulation and our success in being awarded contracts, among other items. These fluctuations in customer demand for our services can create corresponding fluctuations in quarter-to-quarter revenues, and therefore results in one period may not be indicative of our revenues in any future quarter. In addition, the number and timing of large individual contracts are difficult to predict, and large individual sales have, in some cases, occurred in quarters subsequent to those we anticipated, or have not occurred at all. The loss or deferral of one or more significant contracts in a quarter could harm our operating results. It is possible that in some quarters our operating results will be below the expectations of public market analysts or investors. In such events, or in the event adverse conditions prevail, the market price of our common stock may decline significantly. It is also possible that in some quarters our operating results, particularly with respect to disaster response, will be unusually high due to the occurrence of unanticipated natural disasters. In these situations, our operating results in subsequent financial quarters may decline, which could cause a decline in the market price of our common stock.

We cannot give any assurance that we will be able to secure additional financing to meet our future capital needs.

Our long-term capital requirements will depend on many factors, including, but not limited to, cash flow from operations, the level of capital expenditures, working capital requirements and the growth of our business. We may need to incur additional indebtedness or raise additional capital to fund the capital needs of our operations or related growth opportunities. To the extent additional debt financing cannot be raised on acceptable terms, we may need to raise additional funds through public or private equity financings. No assurance can be given that additional debt or equity financing will be available or that, if such financing is available, the terms of such financing will be favorable to us or to our stockholders. If adequate funds are not available, we may be required to curtail our future operations significantly or to forego expansion opportunities.

A significant portion of our voting power is held by our directors, officers and significant stockholders, whose interest may conflict with those of our other stockholders.

Currently our directors and officers as a group beneficially own approximately 9.8% of our voting securities. Accordingly, acting together, they may be able to substantially influence the election of directors, management and policies and the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets.

In addition, one stockholder, unrelated to the Corporation, has filed a Schedule 13-G noting ownership of our common stock in excess of 5% of our outstanding common shares. Accordingly, that stockholder may be able to substantially influence the election of directors, management and policies and the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets. From time to time, these unrelated stockholders may have interests that differ from those of our other stockholders.

There may be limited liquidity in our common stock and its price may be subject to fluctuation.

Our common stock is currently traded on the OTC Bulletin Board and there is only a limited market for our common stock. We cannot provide any assurances that we will be able to have our common stock listed on an exchange or quoted on NASDAQ or that we will continue to be quoted on the OTC Bulletin Board. If there is no market for trading our common stock, our stockholders will have substantial difficulty in trading in it and the market price of our common stock will be materially and adversely affected.

SEC rules concerning sales of low-priced securities may hinder re-sales of our common stock.

Because our common stock has a market price that is less than five dollars per share and our common stock is not listed on an exchange or quoted on NASDAQ and is traded on the OTC Bulletin Board, brokers and dealers who handle trades in our common stock are subject to certain SEC rules when affecting trades in our common stock. Additionally, the compensation that the brokerage firm and the salesperson handling a trade receive and legal remedies available to the buyer are also subject to SEC rules. These requirements may hinder re-sales of our common stock and may adversely affect the market price of the common stock.

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Our strategy will include making additional acquisitions that may present risks to the business.

Making additional strategic acquisitions is part of our strategy. For example, on August 25, 2005, we completed the acquisition of certain assets of Flagship and its affiliated companies. Our ability to make future acquisitions will depend upon identifying attractive acquisition candidates and, if necessary, obtaining financing on satisfactory terms. Acquisitions may pose certain risks to us. These risks include the following:

• we may be entering markets in which we have limited experience;

• the acquisitions may be potential distractions to us and may divert resources and managerial time;

• it may be difficult or costly to integrate an acquired business’ financial, computer, payroll and other systems into our own;

• we may have difficulty implementing additional controls and information systems appropriate for a growing Corporation;

• some of the acquired businesses may not achieve anticipated revenues, earnings or cash flow;

• we may have unanticipated liabilities or contingencies from an acquired business;

• we may have reduced earnings due to amortization expenses, goodwill impairment charges, increased interest costs and costs related to the acquisition and its integration;

• we may finance future acquisitions by issuing common stock for some or all of the purchase price which could dilute the ownership interests of the stockholders;

• acquired companies will have to become, within one year of their acquisition, compliant with SEC rules relating to internal control over financial reporting adopted pursuant to the Sarbanes-Oxley Act of 2002;

• we may be unable to retain management and other key personnel of an acquired Corporation; and

• we may impair relationships with an acquired Corporation’s employees, suppliers or customers by changing management.

If we are unsuccessful in meeting the challenges arising out of our acquisitions, our business, financial condition and future results could be materially harmed. Additionally, to the extent that the value of the assets acquired in any prior or future acquisitions, including goodwill or intangible assets with indefinite lives, becomes impaired, we would be required to incur impairment charges that would affect earnings. Such impairment charges could reduce our earnings and have a material adverse effect on the market value of our common stock.

We are required to file and to keep effective a shelf registration statement for stockholders and if we are unable to do so for the required period we may be required to make additional payments to the holders of the Common Stock issued in connection with the July 2005 private placement of our securities.

In connection with the private placements, we entered into registration rights agreements with the Common Stockholders and Preferred Stockholders. Under these registration rights agreements, we 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 us 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 we will be obligated to pay the Preferred and Common Stockholders up to 12% of their purchase price per annum. On November 21, 2005, our 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 year ended January 31, 2009 and 2008, and the liability was recorded in accrued liabilities in the year ended January 31, 2006. On May 10, 2006, the Post Effective Amendment #1 was declared effective by the SEC. As of May 14, 2009, the Corporation has utilized sixty-seven of 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.

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We may be subject from time to time to legal proceedings, and any adverse determinations in these proceedings could materially harm our business.

We are a party to a number of legal proceedings brought against us which have arisen in the normal course of business. These proceedings typically relate to contract issues or counter claims. Litigation is subject to inherent uncertainties, and we cannot predict the outcome of any matters. Were an unfavorable ruling to occur, we may be liable for monetary damages and other costs of litigation, which may have a material adverse impact on our results of operations, cash flows and / or financial position for the period in which the ruling occurs and may result in an event of default in our loan agreement with Huntington Bank or our subordinated notes with the subordinated lender. Even if we are entirely successful in a lawsuit, we may incur significant legal expenses and our management may expend significant time in the defense. An adverse resolution of a lawsuit or legal proceeding could negatively impact our financial position and results of operations.

ITEM 2. Properties

As of January 31, 2009, we lease certain office space for our executive offices in Pittsburgh, Pennsylvania, totaling 6,466 square feet. In addition, a combination of warehouse and office space is leased in Los Angeles, California (13,500 square feet); Hazleton, Pennsylvania (2,900 square feet); Fort Lauderdale, Florida (10,000 square feet); Rock Hill, South Carolina (15,400 square feet); Dallas, Texas (15,800 square feet); Las Vegas, Nevada (4,952 square feet); Phoenix, Arizona (5,310 square feet); Portland, Oregon (6,761 square feet); and Paramus, New Jersey (5,391 square feet). We also own an 18,000 square foot office / warehouse situated on approximately six (6) acres in Export, Pennsylvania, which is subject to a mortgage of $227,000 at January 31, 2009.

ITEM 3. Legal Proceedings

We are subject to dispute and litigation in the ordinary course of business. We are not aware of any pending or threatened litigation that we believe is reasonably likely to have a material adverse effect on us, based upon information available at this time.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock has traded on the OTC Bulletin Board since September 1996. Prior to that, it was listed for trading on NASDAQ Small Cap (Symbol: PDGE) and the information presented for the following periods reflects the high and low bid information as reported by the OTC Bulletin Board. The prices below may not represent actual transactions. These quotations reflect inter-dealer prices, without retail markup, markdown or commissions.

	Market Price Range
	Fiscal 2009				Fiscal 2008
	High		Low		High		Low
First Quarter	$	0.56	$	0.41	$	0.87	$	0.63
Second Quarter		0.51		0.34		1.19		0.84
Third Quarter		0.45		0.17		1.17		0.88
Fourth Quarter		0.20		0.12		0.95		0.48

At April 22, 2009, we had 1,510 stockholders of record and the closing trading price was $0.11 per share.

We have not historically declared or paid dividends with respect to our common stock and have no intention to pay dividends in the foreseeable future. Our ability to pay dividends is prohibited due to limitations imposed by our banking agreement, which requires the prior consent of the bank before dividends are declared. Additionally, the private placement of our preferred stock in July 2005 contained restrictions on the payment of dividends on our common stock until the majority of the preferred stock has been converted into our common stock or redeemed.

ITEM 6. Selected Financial Data

As a smaller reporting company, the Corporation has elected scaled disclosure reporting obligations and therefore is not required to provide the information requested by this Item 6.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, our audited financial statements and notes thereto, and other financial information included elsewhere in this Annual Report on Form 10-K.

Certain statements contained in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “could”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, “potential”, or “continue”, the negative of these terms or other comparable terminology. Actual events or results may differ materially from any forward-looking statement as a result of various factors, including those described in Item 1A above under “Risk Factors”.

Overview

Through our operating subsidiaries, we provide environmental and specialty contracting services including asbestos and lead abatement, insulation, microbial remediation, disaster response, loss mitigation and reconstruction, demolition and related services.

The following paragraphs are intended to highlight key operating trends and developments in our operations and to identify other factors affecting our consolidated results of operations for the two years ended January 31, 2009.

Contract revenues are recognized on the percentage of completion method measured by the relationship of total costs incurred to total estimated contract costs (cost-to-cost method). The majority of the Corporation’s contracts are fixed-price contracts; therefore, any change in estimated costs to complete a contract will have a direct impact upon the revenues and related gross margin recognized on that particular contract.

Contract costs represent the cost of our laborers working on our contracts and related benefit costs, materials expended during the course of the contract, periodic billings from subcontractors that worked on our contracts, costs incurred for project supervision by our personnel and depreciation of machinery and equipment utilized on our contracts.

Selling, general and administrative expenses consist of the personnel at our executive offices and the costs related to operating that office and the Corporation as a whole including marketing, legal, accounting and other corporate expenses, the costs of management and administration at our branch offices, office rental, depreciation and amortization of corporate and non-operational assets and other costs related to the operation of our branch offices.

Interest expense consists primarily of interest charges on our line of credit but also includes the interest expense of term debt with our lending institution.

Interest expense for preferred dividends and accretion of discount consists of the 8% dividend on the Series C Preferred Stock sold in July 2005 as part of the private placement of our securities and accretion of the related discount.

Other income (expense) components are as described in our statement of operations.

The income tax provision is the amount accrued and payable to the federal government and the various state taxing authorities. Until fiscal 2005, no amounts have been due to the federal government as we had a net operating loss carryforward, which had been sufficient to offset taxable income in recent years. As of January 31, 2009 and 2008, we again have no amounts due to the federal government as we have a net operating loss carryforward.

Critical Accounting Policies

The preparation of financial statements requires the use of judgments and estimates. Our critical accounting policies are described below to provide a better understanding of how we develop our judgment about future events and related estimations and how they impact our financial statements. A critical accounting estimate is one that requires our most difficult, subjective or complex estimates and assessments and is fundamental to our results of operation. We identified our most critical accounting estimates to be:

• Revenue Recognition,

• Billing Realization / Contracts Receivable Collectability,

• Claims Recognition,

• Recoverability of Goodwill and Intangible Assets,

• Income Taxes,

• Recoverability of Deferred Tax Assets, and

• Mandatorily Redeemable Convertible Preferred Stock

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We based our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We believe the following are the critical accounting policies used in the preparation of our consolidated financial statements, as well as the significant estimates and judgments affecting the application of these policies. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in this report. We have discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures presented below.

Revenue Recognition

Revenue is recognized using the percentage-of-completion method. A significant portion of our work is performed on a fixed-price basis. The balance of our work is performed on variations of cost reimbursable and unit price approaches. Contract revenue is accrued based upon the percentage that actual costs to date bear to total estimated costs. We utilize the cost-to-cost method as we believe this method is less subjective than relying on assessments of physical progress. We follow the guidance of the Statement of Position 81-1, “Accounting for Performance of Construction Type and Certain Production Type Contracts,” for accounting policy relating to our use of the percentage-of-completion method, estimating costs, revenue recognition and unapproved change order / claim recognition. The use of estimated costs to complete each contract, the most widely recognized method used for percentage-of-completion accounting, is a significant variable in the process of determining income earned and is a significant factor in the accounting for contracts. The cumulative impact of revisions to total cost estimates during the progress of work is reflected in the period in which these changes become known. Due to the various estimates inherent in our contract accounting, actual results could differ from these estimates.

Contract revenue reflects the original contract price adjusted for approved change orders and estimated minimum recoveries of unapproved change orders and claims. We recognize unapproved change orders and claims to the extent that related costs have been incurred when it is probable that they will result in additional contract revenue and their value can be reliably estimated. Losses expected to be incurred on contracts in progress are charged to earnings in the period such losses are known.

Billing Realization / Contracts Receivable Collectability

We perform services for a wide variety of customers including governmental entities, institutions, property owners, general contractors and specialty contractors. Our ability to render billings on in-process jobs is governed by the requirements of the contract and, in many cases, is tied to progress towards completion or the aforementioned specified mileposts. Realization of contract billings is in some cases guaranteed by a payment bond provided by the surety of our customer. In all other cases we are an unsecured creditor of our customers, except that we may perfect its rights to payment by filing a mechanics lien, subject to the requirements of the particular jurisdiction. Payments may be delayed or disputed by a customer due to contract performance issues and / or disputes with the customer. Ultimately, we have recourse to the judicial system to secure payment. All of the aforementioned matters may result in significant delays in the receipt of payment from the customer. As discussed in the previous section under “Revenue Recognition”, there can be no assurances that future events will not result in significant changes to the consolidated financial statements to reflect changing events.

We extend credit to customers and other parties in the normal course of business after a review of the potential customer’s credit worthiness. Additionally, management reviews the commercial terms of significant contracts before entering into a contractual arrangement. We regularly review outstanding receivables and provide for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, management makes an evaluation of required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. As a result of the above factors, at January 31, 2009 and 2008, the days revenue in contracts receivable was approximately 102 days and 92 days, respectively.

Claims Recognition

Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that we seek to collect from customers or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price or other causes of anticipated additional costs incurred by us. Recognition of amounts as additional contract revenue related to claims is appropriate only if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. We must determine if:

• there is a legal basis for the claim;

• the additional costs were caused by circumstances that were unforeseen by us and are not the result of deficiencies in our performance;

• the costs are identifiable or determinable and are reasonable in view of the work performed; and

• the evidence supporting the claim is objective and verifiable.

If all of these requirements are met, revenue from a claim is recorded only to the extent that we have incurred costs relating to the claim.

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Recoverability of Goodwill and Intangible Assets

Effective February 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” which states that goodwill and indefinite-lived intangible assets are no longer to be amortized but are to be reviewed annually for impairment. The goodwill impairment analysis required under SFAS No. 142 requires us to allocate goodwill to our reporting units, compare the fair value of each reporting unit with our carrying amount, including goodwill, and then, if necessary, record a goodwill impairment charge in an amount equal to the excess, if any, of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill. The primary method we employ to estimate these fair values is the discounted cash flow method. This methodology is based, to a large extent, on assumptions about future events, which may or may not occur as anticipated, and such deviations could have a significant impact on the estimated values calculated. These assumptions include, but are not limited to, estimates of future growth rates, discount rates and terminal values of reporting units. See further discussion in Notes 13 and 14 to our Consolidated Financial Statements.

At January 31, 2009, goodwill and intangible assets on our balance sheet totaled $2,489,000 and $4,026,000, respectively. At January 31, 2008, goodwill and intangible assets on our balance sheet totaled $2,614,000 and $4,718,000 respectively. The goodwill and intangible assets are primarily attributable to the acquisition of the former Tri-State Restorations, Inc. (“Tri-State”) operation in June 2001 that now operates as our Los Angeles office and the acquisition of the former Flagship Services Group, Inc. (“Flagship”) operation in August 2005 that now operates as our Dallas office. The remaining goodwill and intangible assets relates to three smaller acquisitions and deferred costs related to our bank financing. The payment of the initial purchase price for the Tri-State and Flagship acquisitions initially generated a moderate amount of goodwill but the majority was created by the subsequent payment of contingent purchase price under the asset purchase agreement which provided for a four year and eighteen-month, respectively, earn-out for the former owners based upon the net profits of the Los Angeles and Dallas offices, respectively.

We have concluded that the net remaining recorded value of goodwill and intangible assets has not been impaired as a result of an evaluation as of January 31, 2009 and 2008.

Income Taxes

We provide for income taxes under the liability method as required by SFAS No. 109 “Accounting for Income Taxes”.

Deferred income taxes result from timing differences arising between financial and income tax reporting due to the deductibility of certain expenses in different periods for financial reporting and income tax purposes.

We file a consolidated federal income tax return. Accordingly, federal income taxes are provided on the taxable income, if any, of the consolidated group. State income taxes are provided on a separate company basis.

Recoverability of Deferred Tax Assets

At January 31, 2009, the gross deferred tax assets totaled $5.1 million. At January 31, 2009, it was determined that the recognition of the deferred income tax assets would not all be realized. Therefore, a valuation allowance of $1.2 million has been recorded and the net deferred tax assets totaled $3.9 million at January 31, 2009.

At January 31, 2008, the net deferred tax assets totaled $3.9 million. At January 31, 2008, it was determined that the recognition of deferred income tax assets would be appropriate as it is more likely than not that all of the deferred tax assets would be realized. Therefore, a valuation reserve was not necessary at that time.

Mandatorily Redeemable Convertible Preferred Stock

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 of $600,000 (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 $4,993,226, 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

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Note would be issued by the Company with substantially the same terms as the Subordinated Note. Due to the execution of the Exchange Agreement, $4.4 million of the Series C Preferred Stock has been classified as a long-term liability and $0.1 million has been classified as a current liability as of January 31, 2009.

The transaction was accounted for in accordance with SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities and Emerging Issue Task Force No. 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 SFAS No. 150. Although the preferred includes conversion provisions, they were deemed to be non-substantive at the issuance date. Subsequent to the issuance, our 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 stock. Per SFAS No. 150, there is to be no reassessment of the non-substantive feature.

After valuing the warrants for the purchase of our common stock issued with the convertible Preferred Shares, the beneficial conversion contained in the Preferred Shares and the costs associated with the Preferred Stock portion of the financing, the remainder was allocated to the convertible preferred stock. The difference between this initial value and the face value of the Preferred Stock will be accreted back to the Preferred Stock as preferred dividends utilizing an effective method. The accretion period is the shorter of the four-year term of the preferred or until the conversion of the preferred stock. In accordance with SFAS No. 150, the accretion of the discount on the preferred stock is classified as interest expense in the Consolidated Statement of 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. In accordance with SFAS No. 150, the preferred stock dividend is classified as interest expense in the Consolidated Statement of Operations.

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 our Common Stock may not trade the stock) in excess of the number permitted in the registration rights agreements. On November 21, 2005, our 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 years ended January 31, 2009 and 2008, and the liability was recorded in accrued liabilities.

Accounting Policy Changes

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.

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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 Corporation expects to adopt SFAS No. 141R on February 1, 2009.

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 adoption of the standard, effective February 1, 2009, is not expected to have a significant impact on the Corporation’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 adoption of the standard, effective February 1, 2009, is not expected to have a significant impact on the Corporation’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 adoption of the standard is not expected to have a significant impact on the Corporation’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 adoption of the standard, effective February 1, 2009, is not expected to have a significant impact on the Corporation’s consolidated financial statements.

Results of Operations

Year Ended January 31, 2009 Compared to Year Ended January 31, 2008

During the year ended January 31, 2009 (“Fiscal 2009”), contract revenues decreased $13.4 million or 13.8% to $83.7 million compared to $97.1 million during the year ended January 31, 2008 (“Fiscal 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 $9.8 million in revenues generated from asbestos abatement projects and approximately $3.4 million for non-asbestos projects during Fiscal 2009, as compared to Fiscal 2008. In addition, claim adjustments of $2.3 million caused revenues to be lower in Fiscal 2009 versus Fiscal 2008. The claim adjustments were for contracts completed in prior years.

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Contract costs decreased $9.3 million to $73.7 million in Fiscal 2009 from $83.0 million in Fiscal 2008 primarily a result of the decreased contract revenues. The gross margin in Fiscal 2009 decreased $4.2 million to $9.9 million compared to $14.1 million Fiscal 2008 as a result of the decreased contract revenues and claim adjustments of $2.3 million resulting in a 2.6% decrease in gross margin as a percentage of revenue to 11.9% in 2009 from 14.5% in 2008.

Selling, general and administrative expenses increased $0.4 million to $13.6 million in 2009 as compared to $13.2 million in Fiscal 2008. The increase is primarily the result of an increase of $0.7 million of bad debt expense, due to settlement of older contract claims, offset by lower costs for Sarbanes Oxley compliance and other professional services. As a percentage of contract revenues, selling, general and administrative expense increased by 2.7% to 16.3% in Fiscal 2009 from 13.6% in Fiscal 2008 as a result of the above and a lower revenue base.

The corporation reported a loss from operations of $3.7 million for Fiscal 2009 compared to income from operations of $0.8 million for Fiscal 2008, a decrease of $4.5 million as a direct result of the factors discussed above.

Interest expense decreased to $0.8 in Fiscal 2009 compared to $1.1 in Fiscal 2008 as a result of lower interest rates in Fiscal 2009.

Non-cash interest expense for preferred dividends and accretion of the discount relates to the private placement of $5.5 million of redeemable convertible preferred stock in July 2005 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 were mandatorily redeemable, the actual dividend and the accretion of the discount associated with the preferred stock were required to be reflected as interest expense. Fiscal 2009 had a $1,063,000 expense, which included the actual dividend of $305,000 and the accretion of the discount associated with the preferred stock of $758,000. Fiscal 2008 had an $896,000 expense, which included the actual dividends of $305,000 and the accretion of the discount associated with the preferred stock of $591,000.

In Fiscal 2009, a benefit of $354,000 was recorded for estimated taxes. In Fiscal 2008, a provision of $6,000 was recorded for estimated taxes.

At January 31, 2009, the Corporation has approximately $6.8 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 January 31, 2009, the gross deferred tax assets totaled $5.1 million. At January 31, 2009, it was determined that the recognition of the deferred income tax assets would not all be realized. Therefore, a valuation allowance of $1.2 million is reserved and the net deferred tax assets totaled $3.9 million at January 31, 2009.

Liquidity and Capital Resources

Fiscal 2009

During Fiscal 2009, we experienced an increase in cash and cash equivalents of $224,000 as cash and cash equivalents increased from $90,000 at January 31, 2008, to $314,000 at January 31, 2009. The increase in cash and cash equivalents in Fiscal 2009 was attributable to $2,908,000 cash provided by financing activities offset by $513,000 used in investing activities, and $2,171,000 cash used in operating activities.

The $2.2 million of cash used in operating activities consisted primarily of a net loss of $5.2 million adjusted for $4.9 million of non-cash charges: depreciation ($1.0 million), amortization ($0.8 million), accrued interest and dividends on preferred stock ($1.1 million), provision for the cost of stock based compensation ($0.4 million), and the provision for receivable allowance ($1.6 million).

After adjusting for these non-cash charges and credits, the resulting cash basis net loss of $0.3 million, was increased by a $1.9 million change in the working capital utilized by us which consisted primarily of a decrease in costs in excess of billings ($1.8 million) off set by an increase in contracts receivable ($1.3 million) and decreases in accounts payable ($0.3 million), billing in excess of costs ($0.7 million) and net changes in other current asset and current liability accounts ($1.4 million) resulting in a net use of $2.2 million cash in operating activities. The decrease in cash from operating activities was driven largely by a decrease in accrued liabilities of $1.9 million due to the timing of payouts of compensation related items.

The $0.5 million used in investing activities consisted of the purchase of property, plant and equipment ($0.3 million), payment for the earnout liability ($0.1 million), and a decrease in other assets ($0.1 million).

The $2.9 million of cash provided by financing activities consisted of net debt proceeds ($4.2 million), offset by insurance premium financing which has been contracted for and will be paid out over the next several months ($1.3 million).

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Fiscal 2008

During Fiscal 2008, we experienced a decrease in cash and cash equivalents of $68,000 as cash and cash equivalents decreased from $158,000 at January 31, 2007, to $90,000 at January 31, 2008. The decrease in cash and cash equivalents in Fiscal 2008 was attributable to $2,444,000 cash used by financing activities and $752,000 used by investing activities, which were nearly offset by $3,128,000 cash provided by operating activities.

The $3.1 million of cash provided by operating activities consisted primarily of a net loss of $0.9 million adjusted for $2.7 million of non-cash charges: depreciation ($1.1 million), amortization ($0.8 million), deferred income tax benefit ($0.4 million), accrued interest and dividends on preferred stock ($0.9 million), and the provision for the cost of stock based compensation ($0.3 million).

After adjusting for these non-cash charges and credits, the resulting cash basis net income of $1.8 million, was increased by a $1.3 million reduction in the working capital utilized by us which consisted primarily of a increase in contracts receivable ($1.1 million), an increase in accounts payable ($2.3 million), a decrease in billing in excess of costs ($1.6 million) and net changes in other current asset and current liability accounts ($1.7 million) resulting in a net use of $3.1 million cash in operating activities. The operating activities were largely impacted by the increase in revenues from fiscal 2007 resulting in increased in contracts receivable and costs in excess of billings. Accounts payable was higher as a result of higher levels of work derived from the use of subcontractors during the later part of the fourth quarter of fiscal 2008. The decrease in billings in excess of costs was due to the completion of work for a customer who typically was invoiced on a progress basis ahead of the work schedule.

The $0.8 million used in investing activities consisted of the purchase of property, plant and equipment ($0.7 million) and a decrease in other assets ($0.1 million).

The $2.4 million of cash used by financing activities consisted of net debt payments ($1.6 million), insurance premium financing which was contracted and paid out over several months ($0.9 million), reduced by proceeds from the exercise of stock options and warrants ($0.1 million).

As of January 31, 2009, we have a $16.5 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.

At January 31, 2009, we were not in compliance with all of the covenants of our debt agreement. The bank subsequently waived certain covenants and amended the loan agreement in order to enable us to retroactively be in compliance at January 31, 2009. At January 31, 2008, we were in compliance with all of the covenants of our debt agreement.

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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, the Corporation has elected scaled disclosure reporting obligations and therefore is not required to provide the information requested by this Item 7A.

ITEM 8. Financial Statements and Supplementary Data

Our consolidated financial statements and the report of Malin, Bergquist and Company LLP are attached to this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference.

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ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9AT. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Prior to the filing of this Annual Report on Form 10-K, an evaluation was performed under the supervision of and with the participation of the Corporation’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Corporation’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”), as amended. Based on that evaluation, the CEO and the CFO concluded that, as of January 31, 2009, the Corporation’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required financial disclosure.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended January 31, 2009, there were no changes in the Corporation’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Corporation’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Corporation’s internal control over financial reporting includes those policies and procedures that:

(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;
(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and
(iii)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial reporting as of January 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on management’s assessment and those criteria, management has concluded that the Corporation’s internal control over financial reporting was effective as of January 31, 2009.

This Annual Report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only management’s report in this Annual Report.

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ITEM 9B. Other Information

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 (the “Amendment”). The Amendment waives the Company’s and its subsidiaries non-compliance with certain financial covenants as of January 31, 2009 and made certain revisions to the financial covenants for the period ended January 31, 2010. The Amendment also extended the maturity date of the underlying loan to August 3, 2010, and sets the interest rate at prime plus 0.75% with a floor from the prime rate at 4.25%. A copy of the Amendment is attached hereto as Exhibit 10.8.5, the terms of which are incorporated in this Section 9B by reference.

Exchange of Series C Preferred Stock

On May 14, 2009, the Company and Radcliffe SPC, Ltd., for and behalf of the Class A Convertible Crossover Segregated Portfolio (“Radcliffe”), its sole remaining preferred shareholder, entered into an exchange agreement (the “Exchange Agreement”) and certain related documents pursuant to which the remaining 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 as the Subordinated Note 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 Exchange Agreement also requires that the Company engage and retain an investment banking firm to provide advice to the Company with respect to the advisability of a Qualified Transaction (as defined in the Exchange Agreement); however, the Company is under no obligation to enter into or consummate a Qualified Transaction at any time.

The principal amount of the Subordinated Note is $4,993,226, 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. The Subordinated Notes contains certain customary events of default. 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 substantially the same terms as the Subordinated Note. If the Company enters into a Change of Control, the Company is obligated to have the successor entity assume the Company’s obligations under the Subordinated Notes, and their may be a redemption right if the Company is unable to comply with the timing requirements with respect to a Change of Control.

A copy of the Exchange Agreement and the Subordinated Note are attached hereto as Exhibits 4.14 and 10.16, respectively, the terms of each are incorporated in this Section 9B by reference.

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PART III

ITEM 10. Directors and Executive Officers and Corporate Governance

The following table sets forth information regarding the executive officers and directors of the Corporation.

Name, Age and
Principal Occupation	Certain Other Information
John C. Regan (65) Chairman, President, and Chief Executive Officer of PDG Environmental, Inc.	Mr. Regan has served in each of his present positions since December 1990 and has served as a Director since April 1989. He is the founder of Project Development Group, Inc., now our wholly-owned subsidiary, which engages in asbestos abatement and specialty contracting services, and has served as that corporation’s Chairman and President since 1984. Mr. Regan also served as Chairman of the Board of Directors of PDG Remediation, Inc. (PDGR), a company which provided remediation services to assist customers in complying with environmental laws and regulations, from July 1994 until August 1996.
Richard A. Bendis (62)  President and CEO of the Bendis Investment Group LLC	Mr. Bendis has served as a Director since 1986. Mr. Bendis is the Founder, President and Chief Executive Officer of the Bendis Investment Group LLC, {BIG} a Global financial intermediary firm that has a formal joint venture management agreement with Drawbridge Special Opportunities Advisors LLC, an affiliate of the Fortress Investment Group, {NYSE, FIG}. Most recently, Mr. Bendis served as Chairman, President and CEO of True Product ID, a global publicly traded anti-counterfeiting company {NASDAQ, TPDI}. Previously, he had been the Founder, President and CEO of Innovation Philadelphia {IP}. IP is a public/private partnership dedicated to growing the wealth and the workforce of the Greater Philadelphia Region. Prior to 2001, he was President and CEO of Kansas Technology Enterprise Corporation {KTEC}, an entity formed to encourage investment and growth in the State of Kansas. Mr. Bendis, also, has been a corporate executive with Quaker Oats, Polaroid, Texas Instruments, Marion Laboratories, Kimberly Services and Continental Healthcare Systems. Continental was an Inc. 500 software company, which he successfully took public on NASDAQ {CHSI}. In addition, Mr. Bendis founded and managed R.A.B. Ventures, a venture capital firm which invested in early-stage technology and healthcare businesses. He is a frequent international consultant and speaker for the United Nations, NATO and The European Commission, and serves on several not-for-profit Boards.
Edgar Berkey (68) Management Consultant	Dr. Berkey has served as Director since 1998. He is a nationally recognized expert on alternative energy and environmental technologies. In 2007, he retired as Vice President and Chief Quality Officer of Concurrent Technologies Corporation and formed E. Berkey and Associates, a management consulting firm. He is a member and Chairman of advisory committees for the U.S. Department of Energy and National Laboratories and was previously on the Science Advisory Board of the U.S. Environmental Protection Agency. He serves on the board of several growing companies in the environmental remediation, waste water engineering, and constructions management fields, Chester Engineers of Pittsburgh and North Wind, Inc. of Idaho Falls, Idaho. He is the former President and co-founder of the Center for Hazardous Materials Research. Dr. Berkey previously served on the Corporation’s Board of Directors from 1991-1995. He resigned from the Corporation’s Board of Directors in 1995 to serve as a Director of PDG Remediation, Inc., which at that time was an affiliate of the Corporation. He resigned from the Board of Directors of PDG Remediation, Inc. in 1996.
James D. Chiafullo (51) Shareholder/Director, Cohen & Grigsby Secretary of PDG Environmental, Inc.	Mr. Chiafullo has served as a Director since July 1998 and as Secretary since May 2003. Since 1999, Mr. Chiafullo has been a Director in the law firm of Cohen & Grigsby, P.C. headquartered in Pittsburgh. Prior to joining Cohen & Grigsby, P.C., Mr. Chiafullo was a Partner with Thorp Reed & Armstrong. Prior to joining Thorp Reed & Armstrong, Mr. Chiafullo was a lawyer with Gulf Oil Corporation in Houston, Texas. Cohen & Grigsby, P.C. provide legal services to us. Mr. Chiafullo is a member of the Board of Directors of the Western Pennsylvania Epilepsy Foundation and of the Community Bank Board of First National Bank of Pennsylvania.

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Name, Age and
Principal Occupation	Certain Other Information
Edwin J. Kilpela (63) Independent Business Consultant	Mr. Kilpela has served as a Director since July 1997. Since 2006 he has been an independent consultant to small and mid-sized companies. From 2003 until 2006, he served as the President and CEO of Soil Safe, Inc. a privately held environmental company located in Baltimore, MD. From 1998 until 2002, Mr. Kilpela was an independent business consultant to small and mid-sized environmental companies. From 1997 to 1998 he was President and Chief Executive Officer of Noxso Corporation, a developmental environmental company. From 1996 until 1997 he was President of Ansaldo Ross Hill. Mr. Kilpela was with Westinghouse Electric Corporation from 1968 to 1996 including serving as General Manager of the Environmental Services Division from 1991 to 1996.
Nicola (“Nick”) Battaglia (42) Chief Financial Officer of PDG Environmental, Inc.	Effective May 23, 2007, Mr. Battaglia was named Chief Financial Officer. Prior to joining our company, Mr. Battaglia worked at StanCorp Financial Group, a public financial services company as Assistant Vice President of the Asset Management Group. From 1999 to 2006, Mr. Battaglia served as Chief Financial Officer and Treasurer of Invesmart where he oversaw the accounting/tax, finance and treasury functions of the company. Prior to that, Mr. Battaglia worked for 11 years at Arthur Andersen where he provided audit, accounting and business advisory services for a diverse client base.

EXECUTIVE OFFICERS

Executive Officers
Name	Age	Position Held
John C. Regan	65	Chairman, President, and Chief Executive Officer
Nick Battaglia	42	Chief Financial Officer (a)
James D. Chiafullo	51	Secretary (b)

The registrant has determined that there are no other executive officers other than the officers identified above.

(a)	Mr. Battaglia was named Chief Financial Officer effective May 23, 2007.
(b)	Mr. Chiafullo has served as Secretary of the registrant since May 2003.

Board Composition and Committees

The Board of Directors currently has five directors, four of whom (Messrs. Bendis, Berkey, Chiafullo and Kilpela) the Board has determined are “independent” as defined in Section 121(A) of the listing standards of the American Stock Exchange (which is the standard used by the Board in determining whether a director is independent).

During the fiscal year ended January 31, 2009, there were six regular meetings of the Board of Directors, and all of the incumbent directors attended the meetings of the Board of Directors. All of the incumbent directors attended meetings of the committees of the Board of Directors on which they served during such fiscal year.

The Board of Directors currently has three committees: the Audit Committee, the Compensation Committee and the Nominating Committee.

Audit Committee

The Audit Committee is primarily concerned with the accuracy and effectiveness of the audits of our financial statements by our internal accounting staff and our registered independent auditors. The Audit Committee’s function is to review our quarterly and annual financial statements with our registered independent auditors and management; review the scope and results of the audit of our financial statements by the registered independent auditors; approve all professional services performed by the registered independent auditors and related fees; recommend the retention or replacement of the registered independent auditors and periodically review our accounting policies and internal accounting and financial controls. The Audit Committee is also responsible for establishing and overseeing our internal reporting system relating to accounting, internal accounting controls and auditing matters. The Audit Committee is governed by a written charter adopted in 2000 and subsequently amended by our Board of Directors.

The Audit Committee presently consists of Messrs. Bendis, Berkey and Kilpela. The Board of Directors has determined that each of Messrs. Bendis, Berkey, and Kilpela is an “independent director” as that term is defined by Rule 10-A-3 under the Securities Exchange Act of 1934, as amended. Mr. Bendis serves as Chairman of the Audit Committee. The Board has determined that Mr. Bendis is an “audit committee financial expert”, as that term is defined in Item 401(h)(2) of Regulation S-K. The Audit Committee met once during the fiscal year ended January 31, 2009.

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Compensation Committee

The Compensation Committee is responsible for administering the Corporation’s Employee Incentive Stock Option Plan, designating the employees eligible to participate in such plan, the number of options to be granted and the terms and conditions of each option. The Compensation Committee also reviews the performance of the Corporation’s Chief Executive Officer and makes recommendations with respect to the compensation of the Corporation’s Chief Executive Officer. The Chairman of the Compensation Committee is Mr. Kilpela, and the other members of the Compensation Committee are Mr. Berkey and Mr. Chiafullo. In addition to being “independent” under the AMEX listing standards, each member of the Compensation Committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Compensation Committee met three times during the fiscal year ended January 31, 2009.

Nominating Committee

The Nominating Committee makes recommendations to the Board of Directors regarding the size and composition of the Board of Directors.

The Nominating Committee presently consists of Messrs. Kilpela, Bendis and Berkey with Mr. Berkey serving as Chairman. The Nominating Committee did not formally meet during the fiscal year ended January 31, 2009, but did consider candidates for the Board of Directors. The Board of Directors has determined that each member of the Nominating Committee is “independent” under applicable SEC rules.

Identification and Evaluation of Nominees for Directors

The Nominating Committee regularly assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating Committee through current members of the Board, professional search firms, employees, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating Committee, and may be considered at any point during the year.

The Nominating Committee considers stockholder recommendations for candidates for the Board. In evaluating such recommendations, the Nominating Committee uses the same qualification standards as are used for all other candidates. To recommend a prospective nominee for the Nominating Committee’s consideration, the Nominating Committee requires that a stockholder must have held no less than 10,000 shares of our stock for a continuous 12-month period. Stockholder recommendations must be submitted in writing to the Corporation’s Corporate Secretary at PDG Environmental, Inc., 1386 Beulah Road, Building 801, Pittsburgh, PA 15235 and must include (a) the proposed candidate’s personal and business information, (b) the class and number of Corporation’s securities he/she owns, (c) a description of all arrangements or understandings between the stockholder and the nominee and any other person or persons (naming such persons or persons) pursuant to which the nomination is to be made by the stockholder and (d) all other information regarding the stockholder’s proposed nominee that is required to be disclosed in solicitations of proxies for elections of directors in an election contest, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and Rule 14a-11 thereunder (including such person’s written consent to be named in the proxy statement as a nominee and to serving as a director if elected). Recommendations must also be accompanied by personal references including a supporting statement from the recommending stockholder regarding a proposed candidate’s character and judgment.

In addition, the bylaws of the Corporation permit stockholders to nominate directors for election at an annual stockholder meeting. Any such nomination must be in accordance with our bylaws.

The Nominating Committee utilizes a variety of methods for identifying and evaluating candidates for director. In evaluating the qualifications of the candidates, the Nominating Committee considers many factors, including, issues of character, judgment, integrity, independence, age, expertise, diversity of experience, length of service, other commitments and other characteristics which the Nominating Committee deems important in their directors. A candidate should have sufficient financial or accounting knowledge to add value to the financial oversight role of the Board of Directors. The Nominating Committee evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors. The Nominating Committee also considers each individual candidate in the context of the current perceived needs of the Board as a whole. While the Nominating Committee has not established specific minimum qualifications for director candidates, the Nominating Committee believes that candidates and nominees must reflect a Board that is comprised of directors who have competency in the following areas: (i) industry knowledge; (ii) accounting and finance (including expertise of at least one director who would qualify as a “financial expert” as that term is defined in the SEC rules; (iii) business judgment; (iv) management; (v) leadership; (vi) business strategy; (vii) crisis management; (viii) corporate governance; (ix) risk management and (x) such other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to audit committee members.

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Code of Ethics

We have adopted a Code of Business Ethics for directors and executive officers (including our principal executive officer and principal financial officer, and other individuals performing similar functions) (the “Code of Ethics”). A copy of the Code of Ethics is available upon request, free of charge, by contacting our Corporate Secretary at PDG Environmental, Inc., 1386 Beulah Road, Building 801, Pittsburgh, PA 15235. Pursuant to Exchange Act rules, a copy of the Code of Ethics is incorporated herein by reference as Exhibit 14 to this Annual Report on Form 10-K.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Messrs. Berkey, Chiafullo and Kilpela. None of these individuals served as one of the Corporation’s compensated officers or employees at any time during the fiscal year ended January 31, 2009. Mr. Chiafullo has served as corporate secretary, a non-compensated position. None of the Corporation’s current executive officers has ever served as a member of the board of directors or compensation committee of any other entity that has or has had one or more executive officers serving as a member of our board of directors or compensation committee.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our equity securities to file initial reports of beneficial ownership (Form 3) and reports of changes in beneficial ownership (Forms 4 and 5) of common stock and other equity securities of ours with the Securities and Exchange Commission (“SEC”). Officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Our information regarding compliance with Section 16(a) is based solely on a review of the copies of such reports furnished to us by our executive officers, directors and greater than 10% beneficial owners. During the fiscal year ended January 31, 2009, we believe that all of our executive officers, directors and greater than 10% beneficial owners complied with all applicable Section 16(a) filing requirements.

ITEM 11. Executive Compensation

Compensation Discussion and Analysis

Compensation program objectives and philosophy

As a smaller reporting company, the Company’s disclosure with respect to its compensation is limited to anyone serving as the Company’s principal executive officer (“PEO”) during the prior year, and the next two most highly compensated executive officers whose compensation exceeds $100,000. These individuals are listed in the Summary Compensation Table and are referred to as “Named Executive Officers” or “NEOs” throughout.

We are still a founder-managed company and not a heavily executive laden company and because John Regan, the founder, is subject to an employment agreement with the Company that provides for annual automatic renewal, the extent of the work by the Compensation Committee has been limited. In particular, the annual work of the Compensation Committee is to meet and decide the annual compensation for the NEOs. The Compensation Committee recommends bonuses for the NEOs for the most recently completed year, which are ultimately approved by the Board of Directors. In Fiscal 2008, the members of the Compensation Committee concluded that the annual base salary of the PEO was increased from $250,000 to $275,000, effective October 1, 2007. In Fiscal 2009, the annual base salary of the PEO was decreased from $275,000 to $246,060, and the annual base salary of the other NEO was decreased from $160,000 to $144,000 effective, December 15, 2008, as part of a cost reduction plan which included wage decreases for senior management. In addition, no bonus awards were made in Fiscal 2009 and 2008, due to company performance.

The future of the Company requires that a plan and compensation philosophy be in place to hire and maintain talented executives in the future. Although the Compensation Committee has not adopted a formal charter, the members of the committee are guided by the following principles:

• To pay salaries to our NEOs that are competitive in our industry and our geographical market.

• To use, assuming that it makes sense for the Company, executive pay practices that are commonly found in companies engaged in a similar industry.

• To maintain a ‘pay for performance’ outlook, particularly in our incentive programs.

• To pay salaries, and award merit increases, on the basis of the individual executive’s performance and contributions to our organization.

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To attain these goals, we have created an executive compensation program which consists of base pay, a short term cash bonus program and a stock option program and employee benefits.

Our executive compensation program rewards executives for company and individual performance. Company and individual performance are strongly considered when we grant base pay increasers and equity awards. The pool of funds to be used for our short term bonus program is decided by the Board of Directors. For all management and supervising employees of the Company, other than the PEO, the PEO decides such bonuses. The Board, with the recommendation of the Compensation Committee, decides the PEO’s bonus, if any. For the fiscal years ended January 31, 2009 and 2008, no bonus was paid to the PEO because of the loss incurred in the operation of the business.

The role of the Compensation Committee

Our Compensation Committee has not adopted a formal charter. The Compensation Committee performs the following functions regarding compensation for the NEO:

• Review and approve the Company’s goals relating to PEO compensation.

• Evaluate the PEO’s performance in light of the goals.

• Make recommendations to the board regarding compensation to be paid to the other NEOs.

• Annually review, for all NEOs, annual base salary, short term bonus, long term incentives, employment-related agreements and special benefits.

The components of our executive compensation program

Our executive compensation program consists of three elements: base pay; short term cash bonus and grants of fair market value options in our stock. We use this mix of programs for a variety of reasons:

• As a package, these types of programs are typically offered by the types of companies from which we would seek executive talent.

• As a package, these particular programs provide both a current and a long term incentive for the executive officers, thereby aligning the executives’ interests with shareholders’.

• These programs, as a package, provide the executives with short and long term rewards; this serves as a retention, as well as, a motivational device for the executives.

We believe that the package of executive compensation programs that we offer fits our needs well. Our program is competitive; we are able to attract and retain the executive talent that we need to successfully run our business. We do not maintain any type of non-qualified deferred compensation program (either a defined benefit or a defined contribution program) for executives. We currently believe that the long term incentive component of our executive compensation program, which uses fair market value stock options, provides executives with an incentive as well as putting a portion of their compensation at risk if our share price declines; we do not currently feel the need to provide additional long term incentives to our executives. In regard to our PEO, we believe that his holdings of Company Stock are a strong incentive to him to manage the Company in a manner that maximizes stockholder value.

Taken as a whole, we believe that our executive compensation program is a cost-effective method of providing competitive pay to our NEOs.

Our process for setting executive pay

The Compensation Committee’s focus is to determine the compensation of the Principal Executive Officer and to review the proposals of the Principal Executive Officer regarding the compensation for his direct reports, which include the NEOs.

Our process for determining the value of each component of executive pay functioned in the following manner for 2009:

Base pay: Base compensation for all of our NEOs is either provided for in their respective employment agreement, in the case of Mr. Regan, our PEO, or based on market rates. The PEO makes a recommendation for executive base pay increases for the other NEOs to the Compensation Committee. The Compensation Committee reviews the information provided by the PEO and its supporting data, and makes a determination of annual base pay increases. In Fiscal 2008, the base salary of the PEO was increased from $250,000 to $275,000, effective October 1, 2007. In Fiscal 2009, the base salary of the PEO was decreased from $275,000 to $246,060 and the

26

base salary of the CFO was decreased from $160,000 to $144,000 effective, December 15, 2008, as part of a cost reduction plan which included wage decreases for senior management.

Annual bonus: Our annual bonus program for executives is based on the discretion of the Compensation Committee. No annual bonuses were awarded to NEOs in Fiscal Year 2009 because of the loss incurred in the operation of the business during Fiscal Year 2008.

As the bonus awards are not determined based on any particular Company metric or metrics related to financial performance, the Company does not have a policy that would require that recipients return the bonus to the Company in the event that a restatement of the Company’s financial statements results in a detriment to the Company.

Equity grants: In connection with the award of equity grants, the Principal Executive Officer provides the Compensation Committee with a proposal for equity grants as part of the employment contract process. The amount of the grant is based on various factors, including the equity grant ranges for the position which the Company maintains. The Compensation Committee reviews the Principal Executive Officer’s proposal and the underlying information, and makes its determination as to the grant. Mr. Battaglia, the CFO of the Company, was granted 24,000 options in fiscal 2009. This award was provided as part of the wage decrease described above.

We establish the exercise price for our options in the following manner:

For a new hire, the Board approves the grant and establishes the price based on the Company’s closing price on the day of Compensation Committee approval; however, if the executive has not yet started employment as of the date of Compensation Committee approval, the price is set as the Company’s closing price on the executive’s first day of work.

For a new contract for a current executive, the Board approves the grant and establishes the price based on the Company’s closing price on the day of Board approval.

Amounts realized in a prior year from annual bonuses or equity awards are not a factor in determining current year equity grants.

We believe that the grant of fair market value stock options, even though there is now a financial statement impact as a result of FAS 123(R) before the options are exercised, these grants continue to provide substantial benefits to the Company and the executive. We benefit because:

• The options align the executive’s financial interest with the shareholders’ interest.

• As we do not maintain any other long term incentive plans or non-qualified deferred compensation programs, the options help us retain the executives.

The executives benefit because:

• They can realize additional income if our shares increase in value.

• They have no personal income tax impact until they exercise the options.

We do not maintain any equity ownership guidelines for our NEOs. We have adopted a corporate policy which expressly prohibits any NEO from trading in derivative securities of our Company, short selling our securities, or purchasing our securities on margin at any time. We do not time the granting of our options with any favorable or unfavorable news relating to our Company. Proximity of any awards to an earnings announcement, market event or other event related to us is purely coincidental.

Because we feel that each of our NEOs provides unique services to us, we do not use a fixed relationship between base pay, short term bonus and equity awards. When the Compensation Committee or the full Board makes the final decisions about a NEOs total compensation package for a year, the three elements (base pay, short term bonus and equity award) are considered both individually and as a complete package. We do not take into account amounts that a NEO may have realized in a year as a result of short term bonus awards or stock option exercises when we establish pay levels and goals for the current year. Overall, we believe that our total compensation program for executives is reasonable while being competitive with market peers.

Summary Compensation Table

The following table sets forth for the fiscal years ended January 31, 2009 and 2008, compensation awarded to, paid to, or earned by, anyone serving as our Principal Executive Officer and those other executive officers with compensation in excess of $100,000 per year during fiscal year ended January 31, 2009 (the “Named Executive Officers”):

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													Change in
													Pension Value
													and
													Nonqualified
											Non-Equity		Deferred
							Stock		Option		Incentive Plan		Compensation		All Other
Name and			Salary (A)		Bonus		Awards		Award (B)		Compensation		Earnings		Compensation (C)
Principal Position	Year		($)		($)		($)		($)		($)		($)		($)		Total
John C. Regan,		2009	$	275,000		—		—		—		—		—	$	47,800	$	343,305
Chairman & CEO		2008	$	258,333		—		—		—		—		—	$	44,460	$	302,793
Nick Battaglia,		2009	$	160,000		—		—	$	82,431		—		—		—	$	254,431
CFO		2008	$	91,077		—		—	$	54,954		—		—		—	$	146,031

(A)	Represents actual cash compensation.
(B)	Represents the fair value of the 100,000 vested options grated to Mr. Battaglia on May 23, 2007, under the Employee Incentive Option Plan. The valuation method used is described in the notes to the financial statements included in the Company’s annual report.
(C)	All Other Compensation consists of the following:
	*$15,600 and $16,800 in annual auto allowance in fiscal 2009 and 2008, respectively,
	*$11,400 and $7,300 in annual club membership dues in fiscal 2009 and 2008, respectively,
	*$4,000 and $3,360 in personal financial planning services in fiscal 2009 and 2008, respectively, and
	*$16,800 and $17,000 in supplemental life & disability premiums in fiscal 2009 and 2008, respectively.

Grants of Plan-Based Awards for 2009

All Other

All Other

Grant

Stock

Option

Exercise

Date Fair

Estimated Future Payouts

Estimated Future Payouts

Awards:

Awards:

or Base

Value of

Under Non-Equity Incentive

Under Equity Incentive Plan

Number of

Number of

Price of

Stock

Plan Awards

Awards

Shares of

Securities

Option

and

Grant

Threshold

Target

Threshold

Target

Stock or

Underlying

Awards

Option

Name

Date

($)

($)

Maximum

($)

($)

Maximum

Units (#)

Options (#)

($/Sh)

Awards

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(j)

(j)

(k)

(l)

John C. Regan, Chairman & CEO

—

—

—

—

—

—

—

—

—

—

—

Nick Battaglia, CFO

1/23/09

—

—

—

—

—

—

—

24,000

$

0.16

3,462

Option Exercises and Stock Vested Table

	Option Awards				Stock Awards
	Number of Shares		Value Realized on		Number of Shares		Value Realized on
Name	Acquired on Exercise (#)		Exercise ($)		Acquired on Vesting (#)		Vesting ($)
(a)	(b)		(c)		(d)		(e)
John C. Regan, Chairman & CEO		—		—		—		—
Nick Battaglia, CFO		—		—		—		—

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Outstanding Equity Awards at Year End

The following table shows the number of shares covered by exercisable and unexercisable options held by the Named Executive Officers on January 31, 2009. There were no other outstanding equity awards as of January 31, 2009.

					Equity
					Incentive Plan
					Awards:
	Number of		Number of		Number of
	Securities		Securities		Securities
	Underlying		Underlying		Underlying
	Unexercised		Unexercised		Unexercised		Option		Option
Name and Principal	Options (#)		Options (#)		Unearned		Exercise		Expiration
Position	Exercisable		Unexercisable		Options		Price ($)		Date
(a)	(b)		(c)		(d)		(e)		(f)
John C. Regan,		60,000		—		—	$	0.396		3/16/2010
Chairman & CEO (1)		10,000		—		—	$	0.583		1/31/2010
		20,000		—		—	$	0.44		1/31/2011
		20,000		—		—	$	0.506		1/8/2012
		20,000		—		—	$	0.209		1/31/2013
		50,000		—		—	$	0.65		5/14/2010
		250,000		—		—	$	1.52		2/22/2015
Nick Battaglia,		100,000		400,000		—	$	0.90		5/23/2017
CFO (2)		—		24,000		—	$	0.16		1/23/2019

(1)	All options issued to Mr. Regan are vested as of January 31, 2009.
(2)	100,000 options issued to Mr. Battaglia are vested as of January 31, 2009.

Post-employment compensation

Mr. Regan has an employment agreement, effective March 15, 2004 for a three-year term. Upon the expiration of the basic three-year term of the agreement, the agreement is automatically renewed annually for a three-year period until such time as we elect to terminate Mr. Regan’s employment agreement. The agreement provided for a $250,000 annual base salary (subsequently adjusted to $275,000 in Fiscal 2008 and then temporarily adjusted to $246,060 in Fiscal 2009). The base salary and life and disability insurance benefit shall continue for a three-year period following the date of termination, the death of Mr. Regan, the disability of Mr. Regan or Mr. Regan’s resignation due to a substantial change in ownership of our company or membership of the Board of Directors. In addition, all of Mr. Regan’s rights under the Company’s stock option and incentive plan and all other incentive bonus plans shall fully and completely vest upon the date of such termination and any early termination provisions provided for in such plans shall not apply to rights or options granted to Mr. Regan.

A termination for ‘cause’ occurs if Mr. Regan has:

• been adjudicated guilty of illegal activities involving moral turpitude by a court of competent jurisdiction;

• committed any act of fraud or intentional misrepresentation intended to harm the Company;

• engaged in serious misconduct, which conduct has materially adversely affected the good will or reputation of the Company and which conduct Mr. Regan has not cured within 10 days following written notice from the Board regarding such conduct;

• materially breached the employment agreement, and which breach Mr. Regan has not cured within 30 days following written notice from the Board regarding such breach; or

• habitually failed to perform the duties and responsibilities of his employment as set forth in his employment agreement or as may be assigned or delegated to him from time to time by the Company or the Board, and which failure Mr. Regan has not cured within 30 days following written notice from the Board regarding such failure.

If Mr. Regan is terminated for cause, he shall receive only six months of base salary and life and disability insurance benefit.

A “substantial change in ownership” means:

• the sale of over 50% of our assets; or

• the replacement or change of over 65% of the Board in one fiscal year.

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For purposes of the table information regarding post employment payments, we assume the following:

• Mr. Regan does not have any severance benefit reduced as a result of obtaining employment with a new employer.

• For substantial change in ownership purposes, a substantial change in ownership occurred on January 31, 2009.

• Termination of employment occurs on January 31, 2009, and the termination of employment for substantial change of ownership purposes is not for cause.

Post-Employment Payments Table

				Severance		Death,
		Severance		Not for		Disability or		Change in
Name and Principal Position		for Cause		Cause		Retirement		Control
John C. Regan,	Base Salary	$	123,030	$	738,180	$	738,180	$	738,180
Chairman & CEO	Life and Disability Insurance	$	8,400	$	50,400	$	50,400	$	50,400
Nick Battaglia,	Base Salary		—		—		—		—
CFO	Life and Disability Insurance		—		—		—		—

Compensation of Directors

The following table sets forth the compensation paid to our non-employee directors in 2009.

	Fees
	Earned or						Non-Equity		Nonqualified
	Paid in		Stock		Option		Incentive Plan		Deferred		All Other
	Cash		Awards		Awards		Compensation		Compensation		Compensation		Total
Name	($)		($)		($)		($)		($)		($)		($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Richard A. Bendis	$	26,000		—	$	5,415		—		—		—	$	31,415
Edgar Berkey	$	18,000		—	$	5,415		—		—		—	$	23,415
James D. Chiafullo	$	17,000		—	$	5,415		—		—		—	$	22,415
Edwin J. Kilpela	$	19,000		—	$	5,415		—		—		—	$	24,415

Each non-employee director of the Corporation will receive an annual retainer of $10,000 and $1,500 per meeting in person plus reimbursement for their actual expenses incurred in attending such meetings or $500 per meeting via telephone. The Audit Committee Chairman will receive an annual retainer of $10,000 and each additional audit committee member will receive an annual retainer of $2,000. The Compensation Committee Chairman will receive an annual retainer of $4,000 and each additional compensation committee member will receive an annual retainer of $2,000. In addition, the Corporation has established the 1990 Non-Employee Director Stock Option Plan (the “Non-Employee Plan”) which provides for the grants of options to non-employee directors to purchase an aggregate of up to 600,000 shares of Common Stock. Under the Non-Employee Plan, the exercise price of options granted shall be 100% of the fair market value of such shares on the date such options are granted subject to adjustment as provided in the plan. The options expire ten years from the date of grant. Options granted under the Non-Employee Plan do not qualify as incentive stock options under the Internal Revenue Code.

During Fiscal Year 2009, the Corporation granted and vested options covering 15,000 shares of common stock to each non-employee director of the Corporation at an exercise price per share of $0.40, which was the fair market value of such shares on the date the options were granted. The options expire ten years from the date of grant.

Employee directors are not compensated for their role as directors with the exception that employee directors are eligible for grants under the 1990 Employee Director Stock Option Plan (the “Employee Director Plan”). Pursuant to the Employee Director Plan, participants may purchase an aggregate of up to 500,000 options for shares of Common Stock subject to adjustment in the event of any change in the Common Stock. Under the Employee Director Plan, the exercise price of options granted shall be 100% of the fair market value of such shares on the date such options are granted. The Corporation did not grant any options under the Employee Director Plan in the fiscal year ended January 31, 2009.

Compensation Committee Report

The Compensation Committee has reviewed the “Compensation Discussion and Analysis” included above, and has reviewed this document with members of our management team. Based upon the review and discussions that the Compensation Committee had with management regarding the Compensation Discussion and Analysis, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Form 10-K for the fiscal year ended January 31, 2009 and our proxy statement relating to the annual meeting of stockholders in 2009.

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Members of the Compensation Committee:

James D. Chiafullo
Edgar Berkey
Edwin J. Kilpela, Chairman

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table is as of the end of the most recent fiscal year (January 31, 2009) and reflects all compensation plans under which equity securities of the Corporation are authorized for issuance.

					(c)
					Number of Securities
			(b)		remaining available
			Weighted average		for future
	(a)		Exercise		issuances under equity
	Number of		price of		compensation plans
	Securities to be		outstanding		(excluding securities
	issued upon options,		options,		reflected
Plan Category	warrants and rights		warrants and rights		in column (a))
Equity compensation plans approved by security holders (1)		3,118,311	$	0.71		1,063,105
Equity compensation plans not approved by security holders (2)		10,000	$	0.65		—
Total		3,128,311	$	0.71		1,063,105

(1)	Includes the Incentive Stock Option Plan, the Non-Employee Director Plan and Employee Director Plan.
(2)	Includes 10,000 non-qualified stock options issued to Richard Bendis, our director, for consulting performed in 1991. The options are at an exercise price of $0.65 and expire on May 14, 2010.

Security Ownership

The following table sets forth information with respect to the beneficial ownership of the Corporation’s Common Stock as of May 12, 2009, by:

• each person who is known by us to beneficially own 5% or more of our outstanding common stock;

• each of our Named Executive Officers;

• each of our executive directors; and

• all of our officers and directors as a group.

Beneficial ownership is determined in accordance with SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose. In computing the number of shares beneficially owned by a person, we have included shares for which the named person has sole or shared power over voting or investment decisions and also any shares of Common Stock which the named person has the right to acquire, through conversion or option exercise, or otherwise, within 60 days after May 12, 2009. Beneficial ownership calculations for 5% stockholders are based solely on publicly-filed Schedule 13Ds or 13Gs, which 5% stockholders are required to file with the SEC.

Except as otherwise indicated, and subject to applicable community property laws, to the Corporation’s knowledge, the persons named below have sole voting and investment power with respect to all shares of Common Stock held by them. As of May 12, 2009, there were 20,875,109 shares of Common Stock outstanding.

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Unless otherwise indicated, the address of each beneficial owner listed below is c/o Corporate Secretary, PDG Environmental, Inc., Westinghouse Science & Technology Center, 1386 Beulah Road, Building 801, Pittsburgh, Pennsylvania 15235.

	Amount and Nature		Percentage of Class of
	of Beneficial		Common Shares
Name of Beneficial Owner	Ownership of Stock		Owned
John C. Regan (1) (2) (3)		2,320,680		10.9
Richard A. Bendis (1) (4)		140,250		*
Edgar Berkey (1) (5)		145,000		*
James D. Chiafullo (1) (6)		105,000		*
Edwin J. Kilpela (1) (7)		145,000		*
Nick Battaglia (2) (8)		200,000		*
Arnold Schumsky (9)		1,230,071		5.9
All of our directors and executive officers as a group including those named above (6 persons) (10)		3,055,930		14.0

*	Indicates less than 1%.
(1)	Director
(2)	Named Executive Officer
(3)	Includes 300,000 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Employee Director Plan and 130,000 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Employee Incentive Stock Option Plan.
(4)	Includes 115,250 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Non-Employee Director Plan and 10,000 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to non-qualified stock options.
(5)	Includes 55,000 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Non-Employee Director Incentive Stock Option Plan.
(6)	Includes 85,000 shares of Common Stock that may be acquired pursuant to options within 60 days after May 12, 2009, granted under the Non Employee Director Incentive Stock Option Plan.
(7)	Includes 105,000 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Non-Employee Director Plan.
(8)	Includes 200,000 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Employee Incentive Stock Option Plan.
(9)	Consists of 1,230,071 shares of Common Stock held by Arnold Schumsky. Mr. Schumsky disclaims beneficial ownership of his shares except to the extent of his pecuniary interest in these shares. Mr. Schumsky’s address is 145 E27th Street, New York, NY 10016.
(10)	Includes 1,000,250 shares of Common Stock that may be acquired within 60 days after May 12, 2009, pursuant to options granted under the Employee Incentive Stock Option Plan, the Employee Director Plan and the Non-Employee Director Plan.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships And Related Transactions

At January 31, 2009, we maintained outstanding personal loans to Mr. Regan in the principal amount of $95,000 and related accrued interest of $55,000. This personal loan is evidenced by a demand note. This loan was made to provide Mr. Regan with funds to satisfy personal obligations. The loan to Mr. Regan was made in a series of installments from April 1990 to August 1990. The amount specified represents the highest outstanding balances of the loans during our fiscal year.

Mr. Chiafullo is a Director of Cohen & Grigsby, P.C. which is our legal counsel. During the year ended January 31, 2009, Cohen & Grigsby billed us $431,000 for legal services.

Other than the transactions disclosed herein, we have not entered into any material transactions with any director, executive officer, beneficial owner of five percent (5%) or more of our Common Stock, or family members of such person, in which the amount involved exceeds $120,000.

Although no written formal policy or ratification of related party transactions exists, in practice the Board of Directors must approve all such transactions in advance of any company commitment.

32

Director Independence

Our Board of Directors is comprised of five individuals, four of whom (Messrs. Bendis, Berkey, Chiafullo and Kilpela) the Company has determined are independent under SEC rules.

ITEM 14. Principal Accountant Fees and Services

Malin, Bergquist and Company, LLP, served as independent auditors for the Corporation for the fiscal year ended January 31, 2009.

Fees Billed by Malin, Bergquist and Company, LLP during Fiscal Year 2009 and 2008

During the fiscal years ended January 31, 2009 and 2008, Malin, Bergquist and Company, LLP acted as our independent registered public accounting firm and aggregate fees billed for various audit, audit-related and non-audit services were as follows:

	2009		2008
Audit Fees(1)	$	97,300	$	101,140
Audit-Related Fees (2)		18,880		46,990
Tax Fees(3)		41,850		45,000
All Other Fees(4)		—		—
	$	158,030	$	193,130

(1)	Audit fees were for professional services rendered for the audits of our financial statements, quarterly review of the financial statements included in our Quarterly Reports on Form 10-Q, or services that are normally provided by Malin, Bergquist and Company, LLP in connection with the statutory and regulatory filings or engagements for the fiscal years ended January 31, 2009 and 2008.
(2)	Fees paid in connection with audit-related matters,
(3)	Tax fees include tax return preparation, tax compliance, tax planning and tax advice.
(4)	Malin, Bergquist and Company, LLP did not bill us any additional fees that are not disclosed under “Audit Fees,” “Audit-Related Fees” or “Tax Fees.”

Our Audit Committee pre-approves the provision of all audit and non-audit services (including tax services) by the independent auditors and also approves all audit and non-audit engagement fees and terms with the independent auditors. All audit and non-audit services provided by Malin, Bergquist in 2009 and 2008 were approved in advance by the Audit Committee, and no fees were paid in 2009 or 2008 under a de minimus exception that waives pre-approval for certain non-audit services.

33

PART IV

ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1) and (2) The following consolidated financial statements and financial statement schedule of the registrant and its subsidiaries are included in Item 8.

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of January 31, 2009 and 2008	F-2
Consolidated Statements of Operations for the Years Ended January 31, 2009 and 2008	F-4
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended January 31, 2009 and 2008	F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 2009 and 2008	F-6
Notes to Consolidated Financial Statements for the Years Ended January 31, 2009 and 2008	F-7
Schedule II — Valuation and Qualifying Accounts	F-25

All other schedules for PDG Environmental, Inc. and its subsidiaries, for which provision is made in the applicable accounting regulations of the SEC, are either not required under the related instructions, not applicable, or the required information is shown in the consolidated financial statements or notes thereto.

(a) (3) Exhibits:

Included after audited financial statements

34

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, PDG Environmental, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PDG Environmental, Inc.
 

/s/ John C. Regan  

John C. Regan, 

Chairman and Chief Executive Officer 

Date: May 15, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of PDG Environmental, Inc. and in the capacities and on the dates indicated.

/s/ John C. Regan	May 15, 2009
John C. Regan
Chairman and Chief Executive Officer (Principal Executive Officer and Director)
/s/ Nicola Battaglia	May 15, 2009
Nicola Battaglia
Chief Financial Officer (Principal Financial and Accounting Officer)

Richard A. Bendis, Director	By /s/ John C. Regan
	John C. Regan, Attorney-in-Fact
	May 15, 2009
Edgar Berkey, Director	By /s/ John C. Regan
	John C. Regan, Attorney-in-Fact
	May 15, 2009
James D. Chiafullo, Director	By /s/ John C. Regan
	John C. Regan, Attorney-in-Fact
	May 15, 2009
Edwin J. Kilpela, Director	By /s/ John C. Regan
	John C. Regan, Attorney-in-Fact
	May 15, 2009

35

PDG ENVIRONMENTAL, INC.
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS, CERTAIN EXHIBITS and SCHEDULES

36

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Stockholders of PDG Environmental, Inc.

We have audited the accompanying consolidated balance sheets of PDG Environmental, Inc. and its subsidiaries (the “Corporation”) as of January 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PDG Environmental, Inc. and its subsidiaries as of January 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 18 to the consolidated financial statements, during May 2009, the Corporation exchanged its Mandatorily Redeemable Cumulative Convertible Series C Preferred Stock for a subordinated secured promissory note and amended its credit agreement with Huntington Bank.

/s/ Malin, Bergquist & Company, LLP

Pittsburgh, Pennsylvania
May 14, 2009

F-1

CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.

	January 31,
	2009			2008
ASSETS
Current Assets
Cash and cash equivalents	$	314,000		$	90,000
Contracts receivable, net of $1,079,000 allowance in 2009 and net of $1,286,000 allowance in 2008		20,677,000			22,154,000
Costs and estimated earnings in excess of billings on uncompleted contracts		3,180,000			3,325,000
Inventories		616,000			689,000
Income taxes receivable		355,000			—
Deferred income tax asset		983,000			1,111,000
Other current assets		344,000			94,000
Total Current Assets		26,469,000			27,463,000
Property, Plant and Equipment
Land		42,000			42,000
Leasehold improvements		373,000			372,000
Furniture and fixtures		253,000			253,000
Vehicles		1,485,000			1,544,000
Equipment		9,793,000			9,505,000
Buildings		485,000			485,000
		12,431,000			12,201,000
Less: accumulated depreciation		(10,786,000	)		(9,859,000	)
		1,645,000			2,342,000
Intangible Assets, net of accumulated amortization of $2,490,000 and $1,930,000 in 2009 and 2008, respectively		4,026,000			4,718,000
Goodwill		2,489,000			2,614,000
Deferred Income Tax Asset		2,948,000			2,804,000
Contracts Receivable, Non Current		1,820,000			677,000
Costs and estimated earnings in excess of billings on uncompleted contracts, Non Current		1,630,000			3,327,000
Other Assets		345,000			300,000
Total Assets	$	41,372,000		$	44,245,000

See accompanying notes to consolidated financial statements.

F-2

CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.

	January 31,
	2009			2008
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	9,411,000		$	9,729,000
Billings in excess of costs and estimated earnings on uncompleted contracts		1,125,000			1,832,000
Accrued income taxes		44,000			255,000
Accrued liabilities		2,742,000			4,921,000
Current portion of long-term debt		303,000			412,000
Mandatorily redeemable cumulative convertible Series C preferred stock		137,000			—
Total Current Liabilities		13,762,000			17,149,000
Long-Term Debt		15,045,000			10,679,000
Mandatorily redeemable cumulative convertible Series C preferred stock, $1,000 par value, 6,875 shares authorized and issued and 3,812.5 outstanding shares at January 31, 2009 and 2008 (liquidation preference of $4,886,000 and $4,581,000 at January 31, 2009 and 2008, respectively)		4,372,000			3,446,000
Total Liabilities		33,179,000			31,274,000
Commitments and Contingencies
Stockholders’ Equity
Common stock, $0.02 par value, 60,000,000 shares authorized and 20,875,109 and 20,814,276 shares issued and outstanding January 31, 2009 and 2008, respectively		418,000			418,000
Common stock warrants		1,628,000			1,628,000
Paid-in capital		20,111,000			19,728,000
Accumulated deficit		(13,926,000	)		(8,765,000	)
Less treasury stock, at cost, 571,510 shares at January 31, 2009 and 2008		(38,000	)		(38,000	)
Total Stockholders’ Equity		8,193,000			12,971,000
Total Liabilities and Stockholders’ Equity	$	41,372,000		$	44,245,000

See accompanying notes to consolidated financial statements.

F-3

CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.

	For the Years Ended January 31,
	2009			2008
Contract Revenues	$	83,671,000		$	97,084,000
Contract Costs		73,744,000			82,996,000
Gross Margin		9,927,000			14,088,000
Gain (Loss) on Sale of Fixed Assets		(4,000	)		9,000
Non-Cash Impairment Charge for Operating Lease		—			52,000
Selling, General and Administrative Expenses		13,598,000			13,230,000
Income (Loss) from Operations		(3,675,000	)		815,000
Other Income (Expense):
Interest Expense		(845,000	)		(1,152,000	)
Deferred Interest Expense Preferred Dividends		(305,000	)		(305,000	)
Non-Cash Expense Accretion Discount Preferred Stock		(758,000	)		(591,000	)
Interest and Other Income		68,000			330,000
		(1,840,000	)		(1,718,000	)
(Loss) Before Income Taxes		(5,515,000	)		(903,000	)
Income Tax (Benefit) Provision		(354,000	)		6,000
Net (Loss)	$	(5,161,000	)	$	(909,000	)
(Loss) Per Common Share — Basic:	$	(0.25	)	$	(0.04	)
(Loss) Per Common Share — Diluted:	$	(0.25	)	$	(0.04	)
Average Common Shares Outstanding		20,833,000			20,664,000
Average Dilutive Common Stock Equivalents Outstanding		—			—
Average Common Shares and Dilutive Common Stock Equivalents Outstanding		20,833,000			20,664,000

See accompanying notes to consolidated financial statements.

F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
PDG ENVIRONMENTAL, INC.
FOR THE TWO YEARS ENDED JANUARY 31, 2009

			Common											Total
	Common		Stock		Paid-in			Treasury			Accumulated			Stockholders’
	Stock		Warrants		Capital			Stock			Deficit			Equity
Balance at January 31, 2007	$	411,000	$	1,628,000	$	19,245,000		$	(38,000	)	$	(7,856,000	)	$	13,390,000
Issuance of 142,000 shares under Employee Incentive Stock Option Plan		3,000				72,000									75,000
Issuance of 90,000 shares under Non-Employee Director Stock Option Plan		2,000				68,000									70,000
Employee issuance of 100,000 shares of restricted common stock						48,000									48,000
Compensation expense under SFAS 123(R)						258,000									258,000
Issuance of 25,000 shares of restricted stock		1,000				(1,000	)								—
Incentive payment paid with 14,830 shares		1,000				27,000									28,000
Issuance of 24,000 shares of restricted stock for services						11,000									11,000
Net Loss												(909,000	)		(909,000	)
Balance at January 31, 2008	$	418,000	$	1,628,000	$	19,728,000		$	(38,000	)	$	(8,765,000	)	$	12,971,000
Issuance of 12,000 shares under Employee Incentive Stock Option Plan						2,000									2,000
Employee issuance of 100,000 shares of restricted common stock						48,000									48,000
Compensation expense under SFAS 123(R)						299,000									299,000
Issuance of 24,000 shares of restricted stock for services						34,000									34,000
Net Loss												(5,161,000	)		(5,161,000	)
Balance at January 31, 2009	$	418,000	$	1,628,000	$	20,111,000		$	(38,000	)	$	(13,926,000	)	$	8,193,000

See accompanying notes to consolidated financial statements.

F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.

	For the Years Ended January 31,
	2009			2008
Cash Flows From Operating Activities:
Net (loss)	$	(5,161,000	)	$	(909,000	)
Adjustments to Reconcile Net Income to Cash Provided by (Used in) Operating Activities:
Depreciation		1,005,000			1,085,000
Amortization		786,000			773,000
Deferred Income Taxes		(16,000	)		(435,000	)
Interest expense for Series C preferred stock accretion of discount		758,000			591,000
Non-cash Interest expense for Series C preferred stock dividends		305,000			305,000
Stock based compensation		381,000			345,000
Loss (Gain) on sale of fixed assets		4,000			(9,000	)
Provision for receivable allowance		1,632,000			4,000
Impairment charge for operating lease		—			52,000
		(306,000	)		1,802,000
Changes in Operating Assets and Liabilities:
Contracts receivable		(1,298,000	)		(1,078,000	)
Costs and Estimated Earnings in Excess of Billings on uncompleted contracts		1,842,000			(1,045,000	)
Inventories		73,000			(136,000	)
Accrued income taxes		(211,000	)		526,000
Other current assets (Prepaid Insurance)		708,000			1,423,000
Accounts payable		(318,000	)		2,326,000
Billings in excess of costs and estimated earnings on uncompleted contracts		(707,000	)		(1,589,000	)
Accrued liabilities		(1,954,000	)		899,000
Total Changes		(1,865,000	)		1,326,000
Net Cash Provided by (Used in) Operating Activities		(2,171,000	)		3,128,000
Cash Flows From Investing Activities:
Purchase of property, plant and equipment		(283,000	)		(674,000	)
Proceeds from sale of fixed assets		9,000			27,000
Payment of accrued earnout liability		(100,000	)		—
Changes in other assets		(139,000	)		(105,000	)
Net Cash Used in Investing Activities		(513,000	)		(752,000	)
Cash Flows From Financing Activities:
Proceeds from debt		4,619,000			—
Proceeds from exercise of stock options and warrants		2,000			145,000
Payment of premium financing liability		(1,313,000	)		(983,000	)
Principal payments on debt		(400,000	)		(1,606,000	)
Net Cash Provided by (Used in) Financing Activities		2,908,000			(2,444,000	)
Net increase (decrease) in cash and cash equivalents		224,000			(68,000	)
Cash and cash equivalents, beginning of year		90,000			158,000
Cash and Cash Equivalents, End of Year	$	314,000		$	90,000
Supplementary disclosure of non-cash Investing and Financing Activity:
(Decrease) in goodwill and accrued liabilities for earnout liability	$	(125,000	)	$	(37,000	)
Financing of annual insurance premium	$	1,313,000		$	983,000
Non-cash purchase of fixed assets financed through capital leases	$	38,000		$	214,000

See accompanying notes to consolidated financial statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PDG ENVIRONMENTAL, INC.

For the Two Years Ended January 31, 2009

NOTE 1 — NATURE OF BUSINESS

PDG Environmental, Inc. is a holding Corporation which, through its wholly-owned operating subsidiaries, provides environmental and specialty contracting services including asbestos and lead abatement, insulation, microbial remediation, emergency response and restoration, loss mitigation and reconstruction, demolition and related services.

The Corporation provides these services to a diversified customer base located throughout the United States. The Corporation’s business activities are conducted in a single business segment — Environmental Services. Services are generally performed under the terms of fixed-price contracts or time and materials contracts with a duration of less than one year, although larger projects may require two or more years to complete. The Corporation primarily operates in the North Eastern, Southern, and Western portions of the United States.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Corporation to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities, and the reported amounts of revenue and expenses. The Corporation believes the most significant estimates and assumptions are associated with revenue recognition on construction contracts, valuation of acquired intangibles and valuation of contracts receivable, income taxes, stock based compensation and contingencies. If the underlying estimates and assumptions upon which the consolidated financial statements are based change in the future, actual amounts may differ from those included in the accompanying consolidated financial statements.

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries. All material inter-company transactions have been eliminated in consolidation.

Revenues and Cost Recognition:

Revenues from fixed-price and modified fixed-price contracts are recognized on the percentage-of-completion method, measured by the relationship of total cost incurred to total estimated contract costs (cost-to-cost method). Revenues from time and materials contracts are recognized as services are performed. It is the Corporation’s policy to combine like contracts from the same owner for the purposes of revenue recognition.

Contract costs include direct labor, material and subcontractor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, depreciation, repairs and insurance. Selling, general and administrative costs are charged to expense as incurred. Bidding and proposal costs are also recognized as an expense in the period in which such amounts are incurred. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured.

Claims Recognition:

Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that the Corporation seeks to collect from customers or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price or other causes of unanticipated additional costs incurred by the Corporation. Recognition of amounts as additional contract revenue related to claims is appropriate only if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. The Corporation must determine if:

• there is a legal basis for the claim;

• the additional costs were caused by circumstances that were unforeseen by the Corporation and are not the result of deficiencies in our performance;

• the costs are identifiable or determinable and are reasonable in view of the work performed; and

• the evidence supporting the claim is objective and verifiable.

F-7

If all of these requirements are met, revenue from a claim is recorded only to the extent that the Corporation has incurred costs relating to the claim.

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts:

Costs and estimated earnings in excess of billings on uncompleted contracts reflected in the consolidated balance sheets arise when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Also included in costs and estimated earnings on uncompleted contracts are amounts the Corporation seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to scope and price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Such amounts are recorded at estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the construction costs incurred in connection with claim amounts. Claims and unapproved change orders made by the Corporation involve negotiation and, in certain cases, litigation. In the event that litigation costs are incurred by us in connection with claims or unapproved change orders, such litigation costs are expensed as incurred although the Corporation may seek to recover these costs. The Corporation believes that it has an established legal basis for pursuing recovery of these recorded unapproved change orders and claims, and it is management’s intention to pursue and litigate such claims, if necessary, until a decision or settlement is reached. Unapproved change orders and claims also involve the use of estimates, and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims and unapproved change orders may be made in the near-term. If the Corporation does not successfully resolve these matters, a net expense (recorded as a reduction in revenues), may be required, in addition to amounts that have been previously provided for. Claims against the Corporation are recognized when a loss is considered probable and amounts are reasonably determinable.

Cash and Cash Equivalents:

Cash and cash equivalents consist principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Corporation maintains demand and money market accounts at several domestic banks. From time to time, account balances may exceed the maximum available Federal Deposit Insurance Corporation coverage. As of January 31, 2009 account balances exceeded the maximum available coverage.

Contracts Receivable and Allowance for Uncollectible Accounts:

Contracts receivable are recorded when invoices are issued and are presented in the consolidated balance sheet net of the allowance for uncollectible accounts. Contracts receivable are written off when they are determined to be uncollectible. The allowance for uncollectible accounts is estimated based on the Corporation’s historic losses, the existing economic conditions in the construction industry and the financial stability of its customers.

Payments for services are normally due within 30 days of billing, although alternate terms may be included in contracts or letters of engagement as agreed upon by the Corporation and the customer. The nature of the construction industry is such that increased days revenue in receivables would not be considered outside the norm due to the nature of the payers which would include governmental entities, insurance companies and other parties whose typical pay cycle is longer than 30 days. Contracts receivable are not normally collateralized. The Corporation does not routinely charge interest on past due contracts receivable. As of January 31, 2009 and 2008, the Corporation’s risk of loss for contracts receivable was limited to the amounts recorded on the Consolidated Balance Sheets as of those dates. Specific allowances for particular contracts receivable are recorded when circumstances indicate collection is doubtful. A general allowance for all contracts receivable based on risk related to the volume and age of all other contracts receivable is recorded to provide for unforeseen circumstances. Bad debt expense is reflected in other selling, general and administrative expenses on the Consolidated Statements of Operations when allowances on contracts receivable are increased or when accounts written off exceed available allowances.

Inventories:

Inventories consisting of materials and supplies used in the completion of contracts are stated at the lower of cost (on a first-in, first-out basis) or market.

Property, Plant and Equipment:

Property, plant and equipment is stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the improvements. The estimated useful lives of the related assets are generally three to thirty years. Equipment, which comprised the majority of the Corporation’s fixed assets are primarily depreciated over three to five-years. Depreciation expense totaled $1,005,000 and $1,085,000 in 2009 and 2008 respectively.

F-8

Goodwill and Intangibles:

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. With respect to identifiable intangible assets, we consider customer and subcontractor relations, non-compete agreements and other assets. In accordance with SFAS No. 142 Goodwill and Other Intangible Assets goodwill and intangibles are reviewed at least annually for impairment. Unless circumstances otherwise dictate, annual impairment testing is performed in the fourth quarter.

Income Taxes:

The Corporation provides for income taxes under the liability method as required by SFAS No. 109. On February 1, 2007, the Corporation implemented FIN No. 48, which prescribes measurement attributes and a recognition threshold, as well as criteria for subsequently recognizing, derecognizing and measuring uncertain tax positions for financial reporting purposes.

Deferred income taxes result from timing differences arising between financial and income tax reporting due to the deductibility of certain expenses in different periods for financial reporting and income tax purposes.

The Corporation files a consolidated federal income tax return. Accordingly, federal income taxes are provided on the taxable income, if any, of the consolidated group. State income taxes are provided on a separate company basis.

Stock Based Compensation:

The Corporation accounts for stock-based awards under SFAS 123(R) using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of restricted stock and restricted stock units is determined based on the number of shares granted and the quoted price of our common stock. The fair value of stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current estimates.

Fair Value of Financial Instruments:

As of January 31, 2009 and 2008, the carrying value of cash and cash equivalents, contracts receivable, accounts payable, notes payable and current maturities of long-term debt approximated fair value because of their short maturities.

Earnings Per Common Share:

Earnings per common share are computed by dividing consolidated net income (loss) by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing consolidated net income (loss) by the weighted average number of common shares outstanding during the period, including any potentially dilutive outstanding securities, such as options and warrants. The potentially dilutive outstanding securities are calculated using the treasury stock method.

NOTE 3 — 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

F-9

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 Corporation expects to adopt SFAS No. 141R on February 1, 2009.

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 adoption of the standard, effective February 1, 2009, is not expected to have a significant impact on the Corporation’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 adoption of the standard, effective February 1, 2009, is not expected to have a significant impact on the Corporation’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 adoption of the standard is not expected to have a significant impact on the Corporation’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 adoption of the standard, effective February 1, 2009, is not expected to have a significant impact on the Corporation’s consolidated financial statements.

F-10

NOTE 4 — CONTRACTS RECEIVABLE

At January 31, 2009 and 2008, contracts receivable consist of the following:

	2009			2008
Billed completed contracts	$	5,092,000		$	6,026,000
Contracts in Progress		18,484,000			18,091,000
		23,576,000			24,117,000
Less allowance for Uncollectible Accounts		(1,079,000	)		(1,286,000	)
Net Contracts Receivable	$	22,497,000		$	22,831,000

At January 31, 2009 and 2008, contracts receivable for billed completed contracts of $5.1 million and $6.0 million, respectively, is based on full completion of the project. The remaining $18.5 million and $18.1 million of contracts receivable at January 31, 2009 and 2008, respectively, is related to ongoing projects. At January 31, 2009 and 2008, approximately $1.1 million and $1.3 million were included as allowance for doubtful accounts.

Contracts receivable at January 31, 2009 and 2008 include $1.9 million and $2.4 million, respectively, of retainage receivables. At January 31, 2009 and 2008, a portion of the contracts receivable balance, $1.8 million and $0.7 million, respectively, has been classified as non-current because the Corporation does not anticipate realizing the amount within the normal operating cycle. For the year ended January 31, 2009, one customer, a demolition contractor, accounted for 10% of the Corporation’s consolidated revenues. For the year ended January 31, 2008, one customer, a private sector manufacturing client located in the northeast, accounted for more than 10% of the Corporation’s consolidated revenues.

At January 31, 2009 and 2008, contracts receivable included $3.2 million and $6.0 million, respectively, of billings which have been billed to the customer more than one hundred twenty days prior to the respective year-end. The Corporation continuously reviews the credit worthiness of customers and, when feasible, requests collateral to secure the performance of services.

NOTE 5 — COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Details related to contract activity are as follows:

	January 31,
	2009		2008
Revenues earned on uncompleted contracts	$	64,955,000	$	75,623,000
Less: billings to date		61,270,000		70,803,000
Net Under Billings	$	3,685,000	$	4,820,000

Included in the accompanying consolidated balance sheets under the following captions:

	January 31,
	2009			2008
Costs and estimated earnings in excess of billings on uncompleted contracts	$	4,810,000		$	6,652,000
Billings in excess of costs and estimated earnings on uncompleted contracts		(1,125,000	)		(1,832,000	)
Net Under Billings	$	3,685,000		$	4,820,000

At January 31, 2009, the Corporation had approximately $4.8 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 $23.6 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.

At January 31, 2008, the Corporation had approximately $6.7 million of costs and estimated earnings in excess of billings on uncompleted contracts. Included in this amount is approximately $4.3 million of costs related to contract claims and unapproved change orders. Of the $24.1 million in contracts receivable, approximately $3.1 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.

F-11

At January 31, 2009 and 2008, a portion of the costs and estimated earnings in excess of billings balance, $1.6 million and $3.3 million, respectively, has been classified as non-current because the Corporation does not anticipate realizing the amount within the normal operating cycle.

Accounts payable include amounts due to subcontractors totaling approximately $3.0 million as of January 31, 2009. The retainage portion (pending completion and customer acceptance of certain jobs) is approximately $0.7 million as of January 31, 2009.

Accounts payable include amounts due to subcontractors totaling approximately $3.2 million as of January 31, 2008. The retainage portion (pending completion and customer acceptance of certain jobs) is approximately $1.3 million as of January 31, 2008.

During the year ended January 31, 2009, a decrease of $2.3 million in revenue and margin was recorded for changes in the estimated recovery from four contract claims in various offices. During fiscal 2009, $0.7 million of revenue and margin on significant contracts claim status was written off.

During the year ended January 31, 2008, a $0.5 million decrease in revenue and margin was recorded for a change in the estimated recovery from a contract claim in our Los Angeles, California office.

NOTE 6 — ACCRUED LIABILITIES

Accrued liabilities are as follows:

	January 31,
	2009		2008
Wages, commissions, bonuses and withholdings	$	1,387,000	$	3,068,000
Accrued union and fringe benefit		529,000		260,000
Additional acquisition consideration		—		226,000
Contractor’s finders fees		—		238,000
Accrued Workers’ Compensation		164,000		223,000
Subcontractor fees		518,000		462,000
Other		144,000		444,000
Total Accrued Liabilities	$	2,742,000	$	4,921,000

NOTE 7 — LONG-TERM DEBT

Long-term debt of the Corporation less amounts due within one year is as follows:

	January 31,
	2009		2008
Term loan due in monthly installments of $3,687 including interest at 7.75%, due in August 2015	$	227,000	$	253,000
Equipment note due in monthly installments of $9,639 including interest at 7.25%, due in August 2009		63,000		170,000
Revolving line of credit expiring on June 30, 2010 and bearing interest at the prime rate plus 1.5%		14,689,000		10,070,000
Equipment financed under capital leases, due in monthly installments of $11,805 including interest at 8.57% to 13.97%, due October 2009 — December 2013		207,000		307,000
Equipment financed under capital leases, due in monthly installments of $4,916 including interest at 0.00% to 5.12%, due November 2008		—		48,000
Vehicles financed under capital leases, due in monthly installments of $13,064 including interest at 3% to 6%, due April 2008 — June 2012		162,000		243,000
		15,348,000		11,091,000
Less amount due within one year		303,000		412,000
	$	15,045,000	$	10,679,000

The cost and accumulated depreciation of equipment under capital lease obligations at January 31, 2009, is approximately $607,000 and $317,000, respectively. The cost and accumulated depreciation of vehicles under capital lease obligations at January 31, 2009, is approximately $647,000 and $496,000, respectively. The current portion of the total capital lease obligations is $212,000 at January 31, 2009.

The cost and accumulated depreciation of equipment under capital lease obligations at January 31, 2008, is approximately $596,000 and $178,000, respectively. The cost and accumulated depreciation of vehicles under capital lease obligations at January 31, 2008, is approximately $656,000 and $409,000, respectively. The current portion of the total capital lease obligations is $286,000 at January 31, 2008.

F-12

The line of credit, equipment note and commitment for future equipment financing are at an interest rate of prime plus 1.5% with financial covenant incentives which may reduce the interest rate to prime plus 1% or prime (at January 31, 2009, prime was 3.25%). The mortgage 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.

At January 31, 2009, the line of credit available was approximately $15,295,000. This amount is based upon the borrowing base calculation which is a factor of qualified contracts receivable and a percentage of qualified inventories. On January 31, 2009, the balance on the line of credit was $14,689,000 with an unused availability of $606,000.

Huntington Bank holds a blanket security interest in the assets of the Corporation.

Maturity requirements on long-term debt and capital lease obligations are $303,000 in fiscal 2010, $14,816,000 in fiscal 2011, $82,000 in fiscal 2012, $46,000 in fiscal 2013, $41,000 in fiscal 2014 and $60,000 thereafter.

The Corporation paid approximately $863,000 and $1,155,000 for interest costs during the years ended January 31, 2009 and 2008, respectively.

The Corporation has not historically declared or paid dividends with respect to the common stock. The Corporation’s ability to pay dividends is prohibited due to limitations imposed by the aforementioned banking agreement, which requires the prior consent of the bank before dividends are declared. Additionally, the private placement of preferred stock in July 2005 contained restrictions on the payment of dividends on the Corporation’s common stock until the majority of the preferred stock has been converted or redeemed.

The Huntington Bank Loan Agreement and subsequent amendments include various covenants relating to matters affecting the Corporation including the annual required evaluation of the debt service coverage, debt to worth, and the tangible net worth. The Corporation did meet the covenant requirements as of January 31, 2008. However, at January 31, 2009, we were not in compliance with all of the covenants of our debt agreement. The bank subsequently waived certain covenants and amended the loan agreement in order to enable us retroactively to be in compliance at January 31, 2009.

NOTE 8 — INCOME TAXES

Significant components of the provision for income taxes are as follows:

	For the Years Ended January 31,
	2009			2008
Current:
Federal	$	—		$	(123,000	)
State		18,000			564,000
		18,000			441,000
Deferred:
Federal		7,000			(279,000	)
State		(379,000	)		(156,000	)
		(372,000	)		(435,000	)
Total income tax provision (benefit)	$	(354,000	)	$	6,000

The reconciliation of income tax computed at the federal statutory rates to income tax expense is as follows:

	For the Years Ended January 31,
	2009			2008
Tax at statutory rate	$	(1,931,000	)	$	(316,000	)
State income taxes, net of federal tax benefit		(130,000	)		255,000
Research and Development and Minimum Tax Credits		—			(511,000	)
Non-deductible preferred stock dividend and accretion		372,000			346,000
Non-deductible stock option expense		104,000			100,000
Correction of Prior Period Tax Matters		(91,000	)		40,000
Valuation Allowance		1,237,000			—
Other		85,000			92,000
	$	(354,000	)	$	6,000

F-13

The significant components of the Corporation’s deferred tax assets as of January 31, 2009 and 2008, are as follows:

	2009		2008
Deferred tax assets:
Book over tax amortization	$	429,000	$	361,000
Allowance for contracts receivable		480,000		497,000
Net operating loss carryforwards		3,082,000		1,973,000
Research and Development and Alternative Tax Credit carryforwards		713,000		535,000
Accrued Liabilities		373,000		490,000
Other		130,000		135,000
Gross deferred tax assets		5,207,000		3,991,000
Deferred tax liabilities:
Tax over book depreciation		39,000		76,000
Gross deferred tax liabilities		39,000		3,915,000
Less Valuation Allowance		1,237,000		—
Net deferred tax assets	$	3,931,000	$	3,915,000

The Corporation’s deferred tax assets as of January 31, 2009 and 2008, are classified as follows:

	2009		2008
Current asset	$	983,000	$	1,111,000
Long term asset		2,948,000		2,804,000
Net deferred tax assets	$	3,931,000	$	3,915,000

At January 31, 2009, the Corporation has approximately $6.8 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 January 31, 2009, the gross deferred tax assets totaled $5.1 million. At January 31, 2009, it was determined that the recognition of the deferred income tax assets would not all be realized. Therefore a valuation allowance of $1.2 million is reserved and the net deferred tax assets totaled $3.9 million at January 31, 2009.

At January 31, 2008, the net deferred tax assets totaled $3.9 million. At January 31, 2008, it was determined that the recognition of deferred income tax assets would be appropriate as it is more likely than not that all of the deferred tax assets would be realized. Therefore a valuation reserve was not necessary at that time.

All goodwill generated in fiscal 2009 and 2008 is deductible.

The Corporation paid approximately $0.3 million and $0.1 million for federal and state income and franchise taxes during the years ended January 31, 2009 and 2008, respectively. Subsequent to January 31, 2009, the company received a $0.4 million refund of federal income tax payments made in prior fiscal years. During the year ended January 31, 2008, the Corporation received a $0.1 million refund of federal income tax payments made in the prior fiscal year.

Uncertainty Regarding Income Taxes

On February 1, 2007, the Corporation implemented FIN No. 48, which prescribes measurement attributes and a recognition threshold, as well as criteria for subsequently recognizing, derecognizing and measuring uncertain tax positions for financial reporting purposes. For the Corporation and its subsidiaries, United States federal income tax returns are filed on a consolidated basis and California income tax returns are filed on a unitary basis for the group. The Corporation and its subsidiaries also file various state income tax returns on a single corporation basis. The Corporation believes it is no longer subject to United States federal or state income tax examinations by tax authorities for years before fiscal 2002. There were no income tax examinations in progress when the Corporation implemented FIN No. 48.

The Corporation reviewed its previously recognized tax benefits and determined that no material uncertainty was indicated as of the implementation of the new standard. Consequently, no material adjustments were recorded upon implementation of FIN No. 48 to establish liabilities for unrecognized tax benefits. The Corporation also reviewed the tax benefits it expects to recognize for fiscal 2009 in estimating federal and state income tax provisions for the year ended January 31, 2009, and determined that no material uncertainty was indicated regarding the expected tax benefits. Consequently, a tabular reconciliation of the beginning and ending amount of unrecognized tax benefits and any additions, reductions and changes has been omitted.

F-14

Based on the Corporation’s determination that no material uncertainty was indicated regarding previously recognized or expected tax benefits, no accrual for interest and penalties was recognized upon implementation of FIN No. 48 or for the year ended January 31, 2009. As the Corporation has significant net operating loss carryforwards, even if certain of the Corporation’s tax positions were disallowed, it is not foreseen that the Corporation would have to pay any taxes in the near future. Consequently, the Corporation does not calculate the impact of interest or penalties on amounts that might be disallowed.

NOTE 9 — NOTES RECEIVABLE — OFFICERS

At January 31, 2009 and 2008, the Corporation had approximately $132,000 in notes receivable from its employees in the form of personal loans, which are due on demand. A breakdown of the notes receivable balance at January 31, 2009, by executive officer is as follows: John C. Regan, Chairman — $95,000 of principal and $55,000 of related accrued interest. Two other individuals owe the remaining amount. The notes and related accrued interest receivable are classified at January 31, 2009 and 2008, as Other Assets on the consolidated balance sheets.

NOTE 10 — COMPENSATION PLANS

In December 2004, the FASB issued SFAS No. 123R “Share-Based Payment” (“SFAS No. 123R”), a revision to SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and superseding APB Opinion No. 25 “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, including obtaining employee services in share-based payment transactions. SFAS No. 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date and all unvested stock options outstanding as of the effective date. The Corporation adopted the provision of the Statement effective February 1, 2006 using the “modified prospective transition” method.

The Corporation maintains a qualified Incentive Stock Option Plan (the “Plan”), which provides for the grant of incentive options to purchase an aggregate of up to 5,500,000 shares of the common stock of the Corporation to certain officers and employees of the Corporation and its subsidiaries. All options granted have 10-year terms.

In fiscal year 2009, options to purchase 661,061 shares of the Corporation’s common stock were granted under the Plan. These options vest upon the passage of time. In fiscal year 2008, options to purchase 505,000 shares of the Corporation’s common stock were granted under the Plan. These options vest upon the passage of time.

During fiscal 2009, options to purchase 11,667 shares of the Corporation’s common stock at exercise prices ranging from $0.19 to $0.31 per share were exercised, resulting in proceeds of $2,477 to the Corporation. During fiscal 2008, options to purchase 142,000 shares of the Corporation’s common stock at exercise prices ranging from $0.19 to $0.87 per share were exercised, resulting in proceeds of $75,130 to the Corporation.

The Corporation also maintains the 1990 Stock Option Plan for Employee Directors (the “Employee Directors Plan”), which provides for the grant of options to purchase an aggregate of up to 500,000 shares of the Corporation’s common stock. Options to purchase 250,000 and 50,000 shares of the Corporation’s common stock at an exercise price of $1.52 per share and $0.65 per share, respectively, have been granted under the Employee Director Plan. At January 31, 2009 and 2008, all of the options granted under the Employee Directors Plan were exercisable.

The 1990 Stock Option Plan for Non-Employee Directors (the “Non-Employee Directors Plan”) provides for the grant of options to purchase an aggregate of up to 600,000 shares of the Corporation’s common stock. At January 31, 2009, all of the 360,250 outstanding options granted under the Non-Employee Directors Plan were exercisable at prices ranging from $0.26 per share to $2.23 per share. Options for 60,000 shares at an exercise price of $0.40 were granted during the current year. The options vested immediately at the date of the grant. During fiscal 2009, no options to purchase shares of the Corporation’s common stock were exercised. During fiscal 2008, options to purchase 90,000 shares of the Corporation’s common stock at exercise prices ranging from $0.76 to $0.79 per share were exercised, resulting in proceeds of $69,600 to the Corporation.

F-15

The following table summarizes information with respect to the Plan for the two years ended January 31, 2009:

	Weighted					Option
	Average		Number of			Price Range
	Exercise Price		Shares			Per Share
Outstanding at January 31, 2007	$	0.76		1,923,617		$	0.19 - $1.82
Granted	$	0.90		505,000		$	0.88 - $0.90
Forfeited — Reusable	$	0.87		(65,950	)	$	0.19 - $1.38
Exercised	$	0.53		(142,000	)	$	0.19 - $0.87
Outstanding at January 31, 2008	$	0.80		2,220,667		$	0.19 - $1.82
Granted	$	0.16		661,061		$	0.16 - $0.55
Forfeited — Reusable	$	0.95		(412,000	)	$	0.19 - $1.38
Exercised	$	0.21		(11,667	)	$	0.19 - $0.31
Outstanding at January 31, 2009	$	0.61		2,458,061		$	0.16 - $1.82
Exercisable at January 31, 2009	$	0.72		1,347,000		$	0.19 - $1.82
Exercisable at January 31, 2008	$	0.72		1,440,667		$	0.19 - $1.82

At January 31, 2009, the Corporation’s outstanding options relative to the Plan are as follows by exercise price range:

	Weighted				Weighted
	Average		Number of		Average
Exercise Price Range	Exercise Price		Shares		Remaining Life
$0.00 to $0.50	$	0.26		1,267,061		6.23
$0.50 to $1.00	$	0.80		755,000		6.39
$1.00 to $1.50	$	1.15		341,000		6.40
$1.50 to $2.00	$	1.82		95,000		6.93
Total	$	0.61		2,458,061		6.33

At January 31, 2008, the Corporation’s outstanding options relative to the Plan are as follows by exercise price range:

	Weighted				Weighted
	Average		Number of		Average
Exercise Price Range	Exercise Price		Shares		Remaining Life
$0.00 to $0.50	$	0.36		645,167		2.48
$0.50 to $1.00	$	0.88		1,331,000		6.91
$1.00 to $1.50	$	1.38		149,500		7.14
$1.50 to $2.00	$	1.82		95,000		7.93
Total	$	0.80		2,220,667		5.68

At January 31, 2009, the Corporation’s vested options relative to the Plan are as follows by exercise price range:

	Weighted				Weighted
	Average		Number of		Average
Exercise Price Range	Exercise Price		Shares		Remaining Life
$0.00 to $0.50	$	0.36		613,500		2.30
$0.50 to $1.00	$	0.69		347,500		4.22
$1.00 to $1.50	$	1.17		291,000		9.70
$1.50 to $2.00	$	1.82		95,000		6.93
Total	$	0.72		1,347,000		4.72

F-16

At January 31, 2008, the Corporation’s vested options relative to the Plan are as follows by exercise price range:

	Weighted				Weighted
	Average		Number of		Average
Exercise Price Range	Exercise Price		Shares		Remaining Life
$0.00 to $0.50	$	0.36		625,167		2.41
$0.50 to $1.00	$	0.81		596,000		4.62
$1.00 to $1.50	$	1.38		149,500		7.14
$1.50 to $2.00	$	1.82		70,000		7.93
Total	$	0.72		1,440,667		4.09

A total of 1,111,061 non-vested stock options were outstanding as of January 31, 2009, 479,281 in 2010, 429,281 in 2011, 102,500 in 2012, and 100,000 in 2013, unless forfeited earlier.

The Corporation utilizes a closed-form model (Black-Scholes) to estimate the fair value of stock option grants on the dates of the grant. The following tables include information regarding assumptions for options granted in fiscal 2009 under the Corporation’s stock option plans and the weighted average fair values of options granted for fiscal 2009 and 2008.

Risk Free Interest Rate		2.14% — 3.84	%
Expected Dividend Yield		0.00	%
Expected Life of Options	10 years
Expected Volatility Rate		98.16% — 101.19	%
Options originally issued at or above market:
Weighted average fair value of options granted during fiscal 2009	$	0.17
Weighted average fair value of options granted during fiscal 2008	$	0.82

Compensation expense for the fair value of share-based payment arrangements was $299,000 and $258,000 for fiscal 2009 and 2008, respectively. Based on estimates for outstanding non-vested options as of January 31, 2009, the Corporation anticipates future expense will be recognized of $166,000 during 2010, $131,000 during 2011, $82,000 during 2012 and $27,000 during 2013.

The following table summarizes information with respect to non-qualified stock options for the two years ended January 31, 2009:

	Option
	Number of		Price Range
	Shares		Per Share
Outstanding and Exercisable at January 31, 2007		10,000	$	0.65
No Activity		—		—
Outstanding and Exercisable at January 31, 2008		10,000	$	0.65
No Activity		—		—
Outstanding and Exercisable at January 31, 2009		10,000	$	0.65

NOTE 11 — 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 Shares”), (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 Shares 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, 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.

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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 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 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 Warrant 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

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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.

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 SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities and EITF No. 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 SFAS 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 SFAS 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 fiscal 2009 and 2008, the accretion of the aforementioned discount was $607,000 and $473,000, respectively. In accordance with SFAS 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 years ended January 31, 2009 and 2008, the accrued dividend was $305,000 and $305,000, respectively, for both the initial

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private placement in July 2005 and the subsequent exercise of the over-allotment option for additional shares of Preferred Stock. Of the total accrued dividend at January 31, 2009 and 2008, of $1,073,000 and $768,000, respectively, there were no conversions of Series C Preferred Stock into Common Stock. In accordance with SFAS 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 $151,000 and $118,000 for the years ended January 31, 2009 and 2008, respectively, and was classified as interest expense in the Statement of Consolidated 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. On May 10, 2006 the Post Effective Amendment #1 was declared effective by the SEC. On February 15, 2007 the Post Effective Amendment #4 was declared effective by the SEC. As of May 14, 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.

Conversion of Preferred Stock to Common Stock

Beginning in late November 2005, four holders voluntarily converted 860 shares of Series C Preferred Stock and received 895,521 shares of Common Stock. The conversion resulted in 35,521 shares of Common Stock being issued relative to accrued dividends on the Series C Preferred Stock. The aforementioned conversion resulted in a charge against income in fiscal 2006 of approximately $502,000 for the related unamortized discount relative to the converted shares.

During the year ended January 31, 2007, seven holders voluntarily or in response to a mandatory conversion call by the Corporation, converted 2,202.5 shares of Series C Preferred Stock and received 2,325,631 shares of Common Stock. The conversion resulted in 123,132 shares of Common Stock being issued relative to accrued dividends on the Series C Preferred Stock. The aforementioned conversion resulted in a charge against income for the year ended January 31, 2007 of $1,214,000 for the related unamortized discount relative to the converted shares. During the years ended January 31, 2009 and 2008, there were no conversions of preferred stock to common stock.

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Exercise of Warrants for Common Stock

During the years ended January 31, 2009 and 2008, there were no warrants exercised for common stock.

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 years ended January 31, 2009 and 2008 and the liability was recorded in accrued liabilities.

NOTE 12 — PRIVATE PLACEMENT OF SECURITIES — MARCH 2004

On March 4, 2004 the Corporation closed on a private placement transaction pursuant to which it sold 1,250,000 shares of Common Stock, (the “Shares”), to Barron Partners, LP (the “Investor”) for an aggregate purchase price of $500,000. In addition, the Corporation issued two warrants to the Investor exercisable for shares of its Common Stock (the “Warrants”). The Shares and the Warrants were issued in a private placement transaction pursuant to Rule 506 of Regulation D and Section 4(2) under the Securities Act of 1933, as amended. Offset against the proceeds is $51,000 of costs incurred in conjunction with the private placement transaction, primarily related to the cost of the registration of the common stock and common stock underlying the warrants, as discussed in the fourth paragraph of this note.

The First Warrant provided the Investor the right to purchase up to 1,500,000 shares of the Corporation’s Common Stock. During the year ended January 31, 2005 Barron exercised the First Warrant in full at an exercise price of $0.80 per share warrants resulting in proceeds of $1,200,000 to the Corporation.

The Second Warrant provides the Investor the right to purchase up to 2,000,000 shares of the Corporation’s Common Stock. The Second Warrant has an exercise price of $1.60 per share resulting in proceeds of $3,200,000 to the Corporation upon its full exercise and expires five years from the date of issuance. The warrant holder may exercise through a cashless net exercise procedure after March 4, 2005, if the shares underlying the warrant are either not subject to an effective registration statement or, if subject to a registration statement, during a suspension of the registration statement. The Corporation has reserved sufficient shares of its common stock to cover the issuance of shares relative to the unexercised warrants held by the Investor.

In connection with these transactions, the Corporation and the Investor entered into a Registration Rights Agreement. Under this agreement, the Corporation was required to file within ninety (90) days of closing a registration statement with the SEC for the purpose of registering the resale of the Shares and the shares of Common Stock underlying the Warrants. The Corporation’s registration statement was declared effective by the SEC on June 30, 2004. In the event that the Investor is not permitted to sell its Shares pursuant to the registration statement as a result of a permitted Black-Out Period (as defined in the Registration Statement) being exceeded or otherwise, then the Corporation will be obligated to pay the Investor liquidated damages equal to 18% of the Investor’s purchase price per annum.

The Corporation utilized the proceeds from the sale of its Common Stock for general business purposes and to partially fund its acquisition strategy.

The Corporation granted the Investor the right of first refusal on certain subsequent offerings of the Corporation’s securities and has agreed to maintain a listing of its common stock on the OTC Bulletin Board or another publicly traded market and cause its common stock to continue to be registered under Section 12 (b) or (g) of the Exchange Act of 1934.

The net proceeds to the Corporation from the offering, after costs associated with the offering, of $449,000 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 $287,000.

As of March 4, 2009, the Second Warrant expired.

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NOTE 13 — GOODWILL

The changes in the carrying amount of goodwill for the years ended January 31, 2009 and 2008, are as follows:

	2009			2008
Balance, beginning of year	$	2,614,000		$	2,651,000
Goodwill adjusted during the year		(125,000	)		(37,000	)
Impairment losses		—			—
Balance, end of year	$	2,489,000		$	2,614,000

Goodwill decreased by $125,000 and $37,000 during the year ended January 31, 2009 and 2008, respectively, primarily due to the reduction of contingent consideration reflected on the open balance sheet for the acquisition of the former Flagship operations in August 2005, and the acquisition of Tri-State Restoration, Inc. (“Tri-State”) in June 2001, in accordance with EITF No. 95-8 Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination. The payment of contingent consideration relative to Tri-State is based upon the operating income of the former Tri-State operation based upon operating results through May 31, 2005. The payment of contingent consideration relative to Flagship is based upon the operating income of the former Flagship operation based upon operating results through February 2007.

In conformance with SFAS No. 142, Goodwill and Other Intangible Assets” we performed impairment tests based upon the year-end balances. No impairments were noted.

NOTE 14 — INTANGIBLE ASSETS

The components of intangible assets for the years ended January 31, 2009 and 2008 are as follows:

	2009			2008
Covenant-not-to-compete	$	78,000		$	78,000
Customer relationships		5,796,000			5,796,000
Subcontractor relationships		530,000			530,000
Deferred financing costs		94,000			226,000
Other		18,000			18,000
		6,516,000			6,648,000
Accumulated amortization		(2,490,000	)		(1,930,000	)
	$	4,026,000		$	4,718,000

Covenants-not-to-compete are amortized over the life of the respective covenant which range from 2 to 5 years. Customer relationships are amortized over the estimated remaining life of those relationships, which are three to ten years. Subcontractor relationships are amortized over the estimated remaining life of those relationships, which are estimated at five years. Deferred financing costs are amortized over the remaining life of the debt instrument which is one to one and one half years. Amortization expense was $786,000 and $773,000 for the years ended January 31, 2009 and 2008, respectively.

Amortization of intangibles during the next five fiscal years is anticipated to be as follows: 2010 — $741,000, 2011 — $640,000 and 2012 — $577,000, 2013 — $577,000 and 2014 — $577,000.

NOTE 15 — NET LOSS PER COMMON SHARE

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

	For the Years Ended January 31,
	2009			2008
Numerator:
Net (Loss)	$	(5,161,000	)	$	(909,000	)
Preferred stock dividends and accretion of discount		—			—
Numerator for basic earnings per share—(loss) available to common stockholders		(5,161,000	)		(909,000	)
Effect of dilutive securities:
Preferred stock dividends		—			—
Numerator for diluted earnings per share—(loss) available to common stock after assumed conversions	$	(5,161,000	)	$	(909,000	)

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	For the Years Ended January 31,
	2009			2008
Denominator:
Denominator for basic earnings per share—weighted average shares		20,833,000			20,664,000
Effect of dilutive securities:
Employee stock options		—			—
Warrants		—			—
Dilutive potential common shares		—			—
Denominator for diluted earnings per share—adjusted weighted-average shares and assumed conversions		20,833,000			20,664,000
Basic (loss) per share	$	(0.25	)	$	(0.04	)
Diluted (loss) per share	$	(0.25	)	$	(0.04	)

For the years ended January 31, 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.

At January 31, 2009 and 2008, 1,368,060 warrants for the purchase of the Corporation’s common stock at an exercise price of $1.11 per share, 2,321,178 warrants for the purchase of the Corporation’s common stock at an exercise price of $1.33 per share and 2,000,000 warrants for the purchase of the Corporation’s common stock at an exercise price of $2.00 per share were outstanding. The warrants with exercise prices of $1.11 and $1.33 per share expire on July 1, 2010 and the warrants with an exercise price of $2.00 per share expire on March 4, 2009.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

The Corporation leases certain facilities and equipment under non-cancelable operating leases. Rental expense under operating leases aggregated $818,000 and $851,000 for the years ended January 31, 2009 and 2008, respectively. Minimum rental payments under these leases with initial or remaining terms of one year or more at January 31, 2009, aggregated $1,811,000 and payments due during the next five fiscal years are as follows: 2010 — $716,000, 2011 — $540,000, 2012 — $237,000, 2013 — $174,000 and 2014 — $144,000.

We are a party to a number of compliance proceedings which have arisen in the normal course of business. Compliance proceedings include payroll tax, union dues and safety violation assessments. All assessments are currently being disputed. We are unable to determine the resolution of these proceedings and have not accrued a liability for any of these items. We believe that the nature and number of these proceedings are typical for a construction firm of our size and scope.

We are a party to a number of legal proceedings brought against us which have arisen in the normal course of business. These proceedings typically relate to contract issues or counter claims. Litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations, cash flows and / or financial position for the period in which the ruling occurs. We currently believe, after consultation with counsel, that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations or cash flows.

Any of our pending compliance or legal proceedings is subject to early resolution as a result of our ongoing efforts to settle. If and when any of these compliance and legal proceedings will be resolved through settlement is neither predictable nor guaranteed.

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NOTE 17 — QUARTERLY RESULTS (UNAUDITED)

The Corporation had the following results by quarter:

	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Year
Year Ending January 31, 2009
Revenues	$	17,715,000		$	23,207,000		$	28,134,000		$	14,615,000		$	83,671,000
Gross margin		2,233,000			3,054,000			4,364,000			276,000			9,927,000
Income (loss) before income taxes		(1,661,000	)		(1,010,000	)		705,000			(3,549,000	)		(5,515,000	)
Net income (loss)	$	(1,144,000	)	$	(732,000	)	$	342,000		$	(3,627,000	)	$	(5,161,000	)
Earnings (loss) per share
Basic	$	(0.05	)	$	(0.04	)	$	0.02		$	(0.17	)	$	(0.25	)
Diluted	$	(0.05	)	$	(0.04	)	$	0.02		$	(0.17	)	$	(0.25	)
Year Ending January 31, 2008
Revenues	$	21,700,000		$	26,638,000		$	26,616,000		$	22,130,000		$	97,084,000
Gross margin		3,693,000			4,041,000			2,742,000			3,612,000			14,088,000
Income (loss) before income taxes		403,000			669,000			(1,221,000	)		(754,000	)		(903,000	)
Net income (loss)	$	314,000		$	505,000		$	(1,000,000	)	$	(728,000	)	$	(909,000	)
Earnings (loss) per share
Basic	$	0.02		$	0.02		$	(0.05	)	$	(0.04	)	$	(0.04	)
Diluted	$	0.01		$	0.02		$	(0.05	)	$	(0.04	)	$	(0.04	)

NOTE 18 — 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 .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 $4,993,226, 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, $4.4 million of the Series C Preferred Stock has been classified as a long-term liability and $0.1 million has been classified as a current liability as of January 31, 2009.

F-24

PDG ENVIRONMENTAL, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

For the years ended
January 31, 2009 and 2008

	Balance at		Additions					Balance
	beginning		charged					at close
	of year		to income		Deductions(1)			of year
2009 Allowance for uncollectible accounts	$	1,286,000	$	757,000	$	(964,000	)	$	1,079,000
2008 Allowance for uncollectible accounts	$	1,290,000	$	35,000	$	(39,000	)	$	1,286,000

⁽¹⁾ Uncollectible accounts written off, net of recoveries.

F-25

(a) (3) Exhibits:

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	Exhibit Index	Numbering System
2.1	Asset Purchase Agreement among Flagship Services, Group, Inc., a Texas corporation, Flagship Reconstruction Partners, Ltd., a Texas limited partnership, Flagship Reconstruction Associates — Commercial, Ltd., a Texas limited partnership, and Flagship Reconstruction Associates — Residential, Ltd., a Texas limited partnership, and Certain Sole Shareholder Thereof. and PDG Environmental, Inc., a Delaware corporation and Project Development Group, Inc., a Pennsylvania corporation, filed as Exhibit 2.1 to the registrant’s Current Report on Form 8-K dated August 25, 2005, is incorporated herein by reference.
3.1	Certificate of Incorporation of the registrant and all amendments thereto, filed as Exhibit 3.1 to the registrant’s Annual Report on Form 10-K for the year ended September 30, 1990, is incorporated herein by reference.
3.2	Certificate of Amendment to the Certificate of Incorporation of the registrant, approved by stockholders on June 25, 1991, filed as Exhibit 3(a) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1991, is incorporated herein by reference.
3.3	Amended and Restated By-laws of the registrant, filed as Exhibit 4.2 to the registrant’s registration statement on Form S-8 of securities under the PDG Environmental, Inc. Amended and Restated Incentive Stock Option Plan as of June 25, 1991, are incorporated herein by reference.
4.1	Certificate of the Powers, Designation, Preferences, and Relative, Participating, Optional or Other Rights, and the Qualifications, Limitations or Restrictions of the Series A, 9.00% Cumulative Convertible Preferred Stock, filed as Exhibit H with the registrant’s preliminary proxy materials on July 23, 1990 (File No. 0-13667), is incorporated herein by reference.
4.2	Certificate of Amendment of Certificate of the Powers, Designation, Preferences and Relative, Participating, Optional or Other Rights, and the Qualifications, Limitations, or Restrictions of the Series A 9% Cumulative Convertible Preferred Stock (par value $0.01 per share), filed as Exhibit 4(a) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1993, is incorporated herein by reference.
4.3	Certificate of Powers, Designation, Preferences and Relative, Participating, Optional or Other Rights, and the Qualifications, Limitations or Restrictions of the Series B, 4.00% Cumulative, Convertible Preferred Stock, filed as Exhibit 4.2 to the registrant’s registration on Form S-3 on March 17, 1993, is incorporated herein by reference.
4.4	Loan Agreement dated August 3, 2000 between Huntington Bank and PDG Environmental, Inc., PDG, Inc., Project Development Group, Inc. and Enviro-Tech Abatement Services Co., filed as Exhibit 4.4 to the registrant’s Annual Report on Form 10-K for the year ended January 31, 2001, is incorporated herein by reference.
4.5	Common Stock Purchase Warrant to purchase 250,000 shares of Common Stock of PDG Environmental, Inc. among Flagship Services, Group, Inc., a Texas corporation, Flagship Reconstruction Partners, Ltd., a Texas limited partnership, Flagship Reconstruction Associates — Commercial, Ltd., a Texas limited partnership, and Flagship Reconstruction Associates — Residential, Ltd., a Texas limited partnership, and PDG Environmental, Inc., a Delaware corporation, filed as Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated August 25, 2005, is incorporated herein by reference.
4.6	Common Stock Purchase Warrant to purchase 150,000 shares of Common Stock of PDG Environmental, Inc. among Flagship Services, Group, Inc., a Texas corporation, Flagship Reconstruction Partners, Ltd., a Texas limited partnership, Flagship Reconstruction Associates — Commercial, Ltd., a Texas limited partnership, and Flagship Reconstruction Associates — Residential, Ltd., a Texas limited partnership, and PDG Environmental, Inc., a Delaware corporation, filed as Exhibit 4.2 to the registrant’s Current Report on Form 8-K dated August 25, 2005, is incorporated herein by reference.

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	Exhibit Index	Numbering System
4.7	Certificate of Designation of Series C Preferred Stock, filed as Exhibit 4.1 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.8	Registration Rights Agreement between PDG Environmental, Inc. and Common Stock Purchasers, dated July 1, 2005, filed as Exhibit 4.2 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.9	Form of Common Purchase Warrant issued to Common Investors, filed as Exhibit 4.3 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.10	Registration Rights Agreement between PDG Environmental, Inc. and Series C Convertible Preferred Stock Purchasers, dated July 1, 2005, filed as Exhibit 4.4 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.11	Form of Preferred Purchase Warrant issued to Preferred Investors, dated July 1, 2005, filed as Exhibit 4.5 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.12	Form of Preferred Purchase Warrant issued to Preferred Investors, dated July 1, 2005, filed as Exhibit 4.6 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.13	Form of Preferred Purchase Warrant issued to Preferred Investors, dated July 1, 2005, filed as Exhibit 4.7 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
4.14	Exchange Agreement for Series C Preferred Stock, dated May 14, 2009, filed herewith.
10.1 *	Indemnity Agreement dated as of the first day of July 1990 by and among Project Development Group, Inc. and John C. and Eleanor Regan, filed as Exhibit 10.1 to the registrant’s Annual Report on Form 10-K for the year ended September 30, 1990, is incorporated herein by reference.
10.2 *	Assumption Agreement entered into as of the fourteenth day of December 1990 among Project Development Group, Inc., and John C. and Eleanor Regan, filed as Exhibit 10.2 to the registrant’s Annual Report on Form 10-K for the year ended September 30, 1990, is incorporated herein by reference.
10.3 *	PDG Environmental, Inc. Amended and Restated Incentive Stock Option Plan as of June 25, 1991, filed as Exhibit 10.3 to the registrant’s Annual Report on Form 10-K for the year ended January 31, 1992, is incorporated herein by reference.
10.4 *	PDG Environmental, Inc. 1990 Stock Option Plan for Employee Directors, filed as Exhibit 10.4 to the registrant’s Annual Report on Form 10-K for the year ended January 31, 1992, is incorporated herein by reference.
10.5 *	PDG Environmental, Inc. 1990 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.5 to the registrant’s Annual Report on Form 10-K for the year ended January 31, 1992, is incorporated herein by reference.
10.6 *	Demand note between the registrant and John C. Regan, filed as Exhibit 10.4 to the registrant’s Annual Report on Form 10-K for the transition period from October 1, 1990 to January 31, 1991, is incorporated herein by reference.
10.7 *	Demand note between the registrant and Dulcia Maire, filed as Exhibit 10.6 to the registrant’s Annual Report on Form 10-K for the transition period from October 1, 1990 to January 31, 1991, is incorporated herein by reference.
10.8	Amended and Restated Loan Agreement, dated June 14, 2006, is made by and among PDG Environmental, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services, Inc., PDG, Inc., and Flagship Restoration, Inc. and Sky Bank (now The Huntington Bank National Association), filed as Exhibit 10 to the Company’s Current Report on Form 8-K filed on June 20, 2006, is incorporated herein by reference.

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		of Sequential
	Exhibit Index	Numbering System
10.8.1	Second Amendment to Amended and Restated Loan Agreement dated as of July 31, 2007, among the Company and its subsidiaries and Sky Bank, filed as Exhibit 10.8.1 to the Company’s Current Report on Form 8-K filed on August 6, 2007 is incorporated herein by reference.
10.8.2	Third Amendment to Amended and Restated Loan Agreement dated as of September 2, 2008, among the Company and its subsidiaries and Huntington Bank, filed as Exhibit 10.8.2 to the Company’s Current Report on Form 8-K filed September 8, 2008 is incorporated herein by reference.
10.8.3	Fourth Amendment to Amended and Restated Loan Agreement dated as of October 16, 2008, among the Company and its subsidiaries and Huntington Bank, filed as Exhibit 10.8.3 to the Company’s Current Report on Form 8-K filed on October 20, 2008 is incorporated herein by reference.
10.8.4	Seventh Amended and Restated Facility D Note dated as of October 16, 2008, among the Company and its subsidiaries and Huntington Bank, filed as Exhibit 10.8.4 to the Company’s Current Report on Form 8-K filed on October 20, 2008 is incorporated herein by reference.
10.8.5	Fifth Amendment to Amended and Restated Loan Agreement dated as of May 14, 2009, among the Company and its subsidiaries and Huntington Bank, filed herewith.
10.9 *	Employee Agreement dated February 15, 2004 for John C. Regan filed as Exhibit 10 of the PDG Environmental, Inc. Current Report on Form 8-K dated February 28, 2005, is incorporated herein by reference.
10.10	Asset Purchase Agreement dated June 15, 2001 by and among Tri-State Restoration, Inc. Project Development Group, Inc. and PDG Environmental, Inc., filed as Exhibit 2 of the registrant’s Interim Report on Form 8-K dated July 6, 2001, is incorporated herein by reference.
10.11	Stock Purchase Agreement between PDG Environmental, Inc. and Barron Partners LP, dated March 4, 2004 along with Registration Rights Agreement between PDG Environmental, Inc. and Barron Partners, First Warrant to purchase shares of PDG Environmental, Inc. and Second Warrant to purchase shares of PDG Environmental, Inc. filed as Exhibits 10.1, 10.2, 10.3 and 10.4 of the registrant’s Interim Report on Form 8-K dated March 12, 2004, is incorporated herein by reference.
10.12	Promissory Note among Flagship Services, Group, Inc., a Texas corporation, Flagship Reconstruction Partners, Ltd., a Texas limited partnership, Flagship Reconstruction Associates — Commercial, Ltd., a Texas limited partnership, and Flagship Reconstruction Associates — Residential, Ltd., a Texas limited partnership, and PDG Environmental, Inc., a Delaware corporation, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated August 25, 2005, is incorporated herein by reference.
10.13	Securities Purchase Agreement between PDG Environmental, Inc. and Common Stock Purchasers, dated July 1, 2005, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
10.14	Securities Purchase Agreement between PDG Environmental, Inc. and Series C Convertible Preferred Stock Purchasers, dated July 1, 2005, filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K dated July 1, 2005, is incorporated herein by reference.
10.15	Twelfth Modification of Open-Ended Mortgage and Security Agreement, dated December 30, 2005, is made by and among PDG Environmental, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services, Inc., and PDG, Inc., and Huntington Bank, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K dated January 3, 2006, is incorporated herein by reference.
10.16	Subordinated Secured Note by the Company in favor of Radcliffe SPC, Ltd. dated May 14, 2009 in the principal amount of $4,993,226 due August 31, 2010, filed herewith.
14	Code of Ethics filed as Exhibit 14 to the registrant’s Annual Report on Form 10-K for the year ended January 31, 2004, is incorporated herein by reference.
21	List of subsidiaries of the registrant, file herewith.

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	Exhibit Index	Numbering System
23	Consent of independent registered public accounting firm, file herewith.
24	Power of attorney of directors, file herewith.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, file herewith.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, file herewith.
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Amended Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, file herewith.
*	Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K.

EX-4.14

EXHIBIT 4.14

EXCHANGE AGREEMENT

     This EXCHANGE AGREEMENT (this “Agreement”) is entered into as of May 14, 2009, by and among PDG Environmental, Inc. a Delaware corporation (the “Company”), and Radcliffe SPC, Ltd., for and on behalf of the Class A Segregated Portfolio, a company organized under the laws of the Cayman Islands (“Holder”).

RECITALS

     WHEREAS, Holder desires to exchange 3,812.5 shares of the Company’s Series C Convertible Preferred Stock, par value $0.01 per share (the “Exchange Shares”), issued pursuant to that certain Securities Purchase Agreement dated as of July 1, 2005, by and among the Company, Holder and the other purchasers party thereto (the “Securities Purchase Agreement”), with such designations, rights and preferences as described in the Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock dated June 30, 2005 (the “Certificate of Designation”), for a subordinated secured promissory note from the Company due August 31, 2010 in an initial principal amount of $4,993,226 in substantially the form attached hereto as Exhibit A (the “Note”), and the Company desires to issue the Note to Holder in exchange for the Exchange Shares, on the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the foregoing recitals and for good and other valuable consideration hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I
EXCHANGE OF SHARES FOR NOTES

     Section 1.1 Authorization of Note . The Company has authorized the issuance of the Note to Holder as contemplated hereby.

     Section 1.2 Exchange of Exchange Shares. Subject to Section 4.1 hereof, at the Closing (as defined in Section 1.3 below), the Company shall issue to Holder the Note in exchange for the surrender of the Exchange Shares to the Company. This Agreement, the Note, , that certain Security Agreement by and between the Company and Holder dated as of the date hereof (the “Security Agreement”), and that certain Subordination Agreement (the “Subordination Agreement”), and all other documents executed in connection herewith or therewith are collectively referred to herein as the “Transaction Documents.”

     Section 1.3 Closing. The closing of the transactions contemplated by the Transaction Documents pursuant to this Agreement (the “Closing”) shall take place at the offices of Drinker Biddle & Reath LLP, One Logan Square, 18^th and Cherry Streets, Philadelphia, PA 19103, at 10:00 a.m. local time, on the date hereof, or at such other time or place as the Company and Holder may mutually agree (such date is hereinafter referred to as the “Closing Date”). At the Closing, subject to the satisfaction or waiver of the conditions set forth in Section 4.1 hereof: (i) Holder shall present, transfer and deliver the Exchange Shares to the Company; and in

consideration thereof, (ii) the Company shall issue and deliver the Note to Holder. The Exchange Shares shall be treated as “retired” by the Company upon their surrender.

     Section 1.4 Consummation of Transactions. All acts, deliveries and confirmations comprising the Closing, regardless of chronological sequence, shall be deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery or confirmation of the Closing, and none of such acts, deliveries or confirmations shall be effective unless and until the last of the same shall have occurred.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except as set forth on a Disclosure Schedule delivered by the Company to Holder on the date hereof (the “Disclosure Schedule”), the Company represents and warrants to Holder as of the date of this Agreement and as of the Closing Date as follows:

     Section 2.1 Organization and Qualification. The Company and each of its direct and indirect subsidiaries (collectively, the “Subsidiaries”) is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated or organized, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify or be in good standing would have a Material Adverse Effect. For purposes of this Agreement, “Material Adverse Effect” means any effect which, individually or in the aggregate with all other effects, reasonably would be expected to be materially adverse to (a) the ability of the Company to perform its obligations under this Agreement or the other Transaction Documents, including, without limitation, the payment in full of all amounts then due under the Note, or (b) the business, operations, properties, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole.

     Section 2.2 Authorization; Enforcement. (a) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents, and to issue the Note in accordance with the terms hereof; (b) the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Note) have been duly authorized by all necessary corporate action, (c) this Agreement constitutes, and, upon execution and delivery by the Company of the other Transaction Documents, such Transaction Documents will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and general principles of equity. Neither the execution, delivery nor performance by the Company of its obligations under this Agreement or the other Transaction Documents, nor the consummation by it of the transactions contemplated hereby or thereby (including, without limitation, the

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issuance of the Note) requires any consent or authorization of the Company’s stockholders except as set forth on Schedule 2.5.

     Section 2.3 Capitalization. Except as set forth on Schedule 2.3, (a) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, nor are any such issuances, contracts, commitments, understandings or arrangements contemplated, (b) there are no contracts, commitments, understandings or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act; (c) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem or otherwise acquire any security of the Company or any of its Subsidiaries; and (d) the Company does not have any shareholder rights plan, “poison pill” or other anti-takeover plans or similar arrangements. Schedule 2.3 sets forth all of the securities or instruments issued by the Company or any of its Subsidiaries that contain anti-dilution or similar provisions, and, except as and to the extent set forth thereon, the sale and issuance of the Note will not trigger any anti-dilution adjustments to any such securities or instruments. The Company has filed with the Securities and Exchange Commission true, correct and complete copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s Bylaws as in effect on the date hereof (the “Bylaws”), and all other instruments and agreements governing securities convertible into or exercisable or exchangeable for capital stock of the Company, all of which instruments and agreements are set forth in Schedule 2.3. The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or any such Subsidiary.

     Section 2.4 Issuance of Note. The issuance of the Note will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company or any other person, except as set forth on Schedule 2.4. Assuming the accuracy of the representations and warranties of Holder contained in Section 3.3 hereof, the offer, sale and issuance of the Note will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all other applicable securities laws.

     Section 2.5 No Conflicts; Consents. The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Note) will not (a) result in a violation of the Certificate of Incorporation or Bylaws, (b) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment (including, without limitation, the triggering of any anti-dilution or similar provisions),

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acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (c) result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws, rules and regulations and rules and regulations of any self-regulatory organizations to which either the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except, with respect to clauses (b) and (c), for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations that would not, individually or in the aggregate, have a Material Adverse Effect). Except as set forth on Schedule 2.5, the Company is not required to obtain any consent, approval, authorization or order of, or make any filing or registration with, any court or governmental body, agency or any regulatory or self-regulatory agency (each, a “Governmental Entity”) or other third party (including, without limitation, pursuant to any Material Contract (as defined in Section 2.7 below)) in order for it to execute, deliver or perform any of its obligations under this Agreement or any of the other Transaction Documents.

     Section 2.6 Compliance. The Company is not in violation of its Certificate of Incorporation, Bylaws or other organizational documents and no Subsidiary is in violation of any of its organizational documents. Neither the Company nor any of its Subsidiaries is in default (and no event has occurred that with notice or lapse of time or both would put the Company or any of its Subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party (including, without limitation, the Material Contracts), except for (i) actual or possible violations, defaults or rights that would not, individually or in the aggregate, have a Material Adverse Effect, and (ii) as set forth on Schedule 2.6. The businesses of the Company and its Subsidiaries are not being conducted, and shall not be conducted so long as any Holder owns any of the Securities, in violation of any law, ordinance or regulation of any Governmental Entity, except for possible violations the sanctions for which either individually or in the aggregate have not had and would not have a Material Adverse Effect. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company or any Subsidiary, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, provincial or foreign regulatory authorities that are material to the conduct of its business, and neither the Company nor any of its Subsidiaries has received any notice of proceeding relating to the revocation or modification of any such certificate, authorization or permit.

     Section 2.7 SEC Documents, Financial Statements. Other than the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009, which will be filed with the SEC on or before May 15, 2009, since December 31, 2006, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC

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pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, the “SEC Documents”). The Company has delivered or made available to Holder true and complete copies of the SEC Documents. As of their respective dates, the SEC Documents (a) complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and (b) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings made prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto (subject to any restatements of such financial statements in subsequent filings made prior to the date hereto). Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), consistently applied, during the periods involved (except as may be otherwise indicated in such financial statements or the notes thereto or, in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, immaterial year-end audit adjustments). Except as set forth in the financial statements of the Company included in the Select SEC Documents (as defined below), the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business with non-affiliated third parties subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business with non-affiliated third parties and not required under GAAP to be reflected in such financial statements, which liabilities and obligations referred to in clauses (i) and (ii), individually or in the aggregate, are not material to the condition (financial or otherwise) or operating results of the Company. To the extent required by the rules and regulations of the SEC applicable thereto, the Select SEC Documents contain a complete and accurate list of all material contracts (as defined in Item 601(b)(10) of Regulation S-K) to which the Company or any Subsidiary was or is a party or by which the Company or any Subsidiary was or is bound or to which any of the properties or assets of the Company or any Subsidiary was or is subject as of the date of filing of such Select SEC Document (each, a “Material Contract”). Except as set forth in the Select SEC Documents and the Fifth Amendment to Amended and Restated Loan Agreement by and among the Company and its Subsidiaries and The Huntington National Bank on May 14, 2009, none of the Company, its Subsidiaries or, to the best knowledge of the Company, any of the other parties thereto is in breach or violation of any Material Contract, which breach or violation would have a Material Adverse Effect. For purposes of this Agreement, “Select SEC Documents” means the Company’s (A) Proxy Statement for its 2008 Annual Meeting, (B) Annual Report on Form 10-K for the fiscal year ended January 31, 2008 (the “2008 Annual Report”), (C) Quarterly Reports on Form 10-Q for the fiscal quarters ended

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April 30, 2008, July 31, 2008, and October 31, 2008, and (D) Current Reports on Form 8-K filed since October 31, 2008.

     Section 2.8 Internal Accounting Controls. Except as set forth on Schedule 2.8, the Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosures controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of a date within 90 days prior to the filing date of the 2008 Annual Report and the Company’s most recently filed Quarterly Report on Form 10-Q (each such date, an “Evaluation Date”). The Company presented in the 2008 Annual Report and its most recently filed Quarterly Report on Form 10-Q the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the respective Evaluation Date. Since the Evaluation Date for the 2008 Annual Report, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls.

     Section 2.9 Absence of Certain Changes. Except as set forth in the Select SEC Documents and Schedule 2.9, since January 31, 2008, there has been no change or development giving rise to a Material Adverse Effect. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy or receivership law, nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings with respect to the Company or any of its Subsidiaries.

     Section 2.10 Transactions With Affiliates. Except as set forth in the Select SEC Documents, none of the officers, directors, or employees of the Company or any of its Subsidiaries is presently a party to any transaction with the Company or any of its Subsidiaries that would require disclosure pursuant to Item 404 of Regulation S-K under the Exchange Act.

     Section 2.11 Absence of Litigation. Except as set forth in the Select SEC Documents and Schedule 2.11, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or Governmental Entity (including, without limitation, the SEC) pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, any of its Subsidiaries, or any of their respective directors or officers in their capacities as such. There are no facts known to the Company or its Subsidiaries which,
if known

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by a potential claimant or Governmental Entity, could reasonably serve as the basis for a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect.

     Section 2.12 Intellectual Property. Each of the Company and its Subsidiaries owns or is duly licensed (and, in such event, has the unfettered right to grant sublicenses) to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, inventions, discoveries, processes, scientific, technical, engineering and marketing data, object and source codes, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, “Intangibles”) necessary for the conduct of its business as now being conducted and as presently contemplated to be conducted in the future. Schedule 2.12 sets forth a list of all material Intangibles owned and/or used by the Company in its business. To the knowledge of the Company and its Subsidiaries, neither the Company nor any Subsidiary of the Company infringes or is in conflict with any right of any other person with respect to any third party Intangibles. Neither the Company nor any of its Subsidiaries has received written notice of any pending conflict with or infringement upon such third party Intangibles. Neither the Company nor any of its Subsidiaries has entered into any consent agreement, indemnification agreement, forbearance to sue or settlement agreement with respect to the validity of the Company’s or its Subsidiaries’ ownership of or right to use its Intangibles and there is no reasonable basis for any such claim to be successful. The Intangibles are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and in good standing. The Company and its Subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Intangibles used pursuant to licenses. To the Company’s knowledge, no person is infringing on or violating the Intangibles owned or used by the Company or its Subsidiaries.

     Section 2.13 Title. Except as set forth on Schedule 2.13, the Company and its Subsidiaries have good and marketable title in fee simple to all real property owned by the Company and its Subsidiaries and good and merchantable title to all personal property purported to be owned by them that is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, security interests, encumbrances and defects except for (a) liens for current taxes, assessments, charges, levies or claims not yet delinquent, (b) liens imposed by law to carriers, warehousemen, mechanics, laborers, materialmen and the like and other liens imposed by law and incurred in the ordinary course of business for obligations for sums not yet due, (c) for liens in respect of pledges or deposits under workers’ compensation laws, unemployment insurance and social security laws or to or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or surety or similar bonds used in the ordinary course of business and/or (d) any easements, rights-of-way, encroachments, real property leases, royalties, restrictions and other similar title exceptions or encumbrances, none of which, individually or in the aggregate, materially affect the value of such property or materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially

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interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

     Section 2.14 Tax Status. Except as set forth in the Select SEC Documents, the Company and each of its Subsidiaries has made or filed all foreign, U.S. federal, state, provincial and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to any statute of limitations relating to the assessment or collection of any foreign, federal, state, provincial or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.

     Section 2.15 Key Employees. The name of each of the Company’s directors is disclosed in the Select SEC Documents. No Key Employee is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its Subsidiaries to any material liability with respect to any of the foregoing matters. No Key Employee has, to the knowledge of the Company and its Subsidiaries, any intention to terminate or limit his employment with, or services to, the Company or any of its Subsidiaries, nor is any such Key Employee subject to any constraints which would cause such employee to be unable to devote his full time and attention to such employment or services. For purposes of this Agreement, “Key Employee” means the Company’s Chief Executive Officer and Chief Financial Officer identified in the Select SEC Documents and any individual who assumes or performs any of the duties of such officers.

     Section 2.16 Employee Relations. Except as set forth on Schedule 2.16, neither the Company nor any of its Subsidiaries is involved in any material union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer (as defined in Rule 501(f) of the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, result in a Material Adverse Effect.

     Section 2.17 Insurance. The Company and each of its Subsidiaries has in force fire, casualty, product liability and other insurance policies, with extended coverage, in such types and amounts with respect to its business and properties, on both a per occurrence and an aggregate basis, as are customarily carried by persons engaged in the same or similar business as

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the Company. No default or event has occurred that could give rise to a default under any such policy.

     Section 2.18 Environmental Matters. There is no environmental litigation or other environmental proceeding pending or, to the knowledge of the Company or any of its Subsidiaries, threatened by any governmental regulatory authority or others with respect to the current or any former business of the Company or any of its Subsidiaries or any partnership or joint venture currently or at any time affiliated with the Company or any of its Subsidiaries. No state of facts exists as to environmental matters or Hazardous Substances (as defined below) that involves the reasonable likelihood of a material capital expenditure by the Company or any of its Subsidiaries that may otherwise have a Material Adverse Effect. No Hazardous Substances have been treated, stored or disposed of, or otherwise deposited, in or on the properties owned or leased by the Company or any of its Subsidiaries or by any partnership or joint venture currently or at any time affiliated with the Company or any of its Subsidiaries in violation of any applicable environmental laws. The environmental compliance programs of the Company and each of its Subsidiaries comply in all respects with all environmental laws, whether foreign, federal, state, provincial or local, currently in effect. For purposes of this Agreement, “Hazardous Substances” means any substance, waste, contaminant, pollutant or material that has been determined by any governmental authority to be capable of posing a risk of injury to health, safety, property or the environment.

     Section 2.19 Solvency. The Company (a) is currently able to pay its debts as they become due, (b) has funds and capital sufficient to carry on its business and all business in which it is about to engage, and (c) owns property having a value at both the fair valuation and at fair salable value in the ordinary course of the Company’s business greater than the amount required to pay the Company’s debts as they become due. Neither the Company nor any of its Subsidiaries was insolvent immediately prior to the date of this Agreement and neither the Company nor any of its Subsidiaries will be rendered insolvent by the execution and delivery of this Agreement, the issuance of the Note hereunder and/or the consummation of the Transaction Documents.

     Section 2.20 Bulletin Board. The Company’s Common Stock is currently quoted on the Over-the-Counter Bulletin Board (the “Bulletin Board”). The Company is not in violation of the quotation eligibility requirements of the Bulletin Board, does not reasonably anticipate that the Common Stock will be removed from quotation on the Bulletin Board for the foreseeable future, and has not received any notice regarding the possible removal from quotation of the Common Stock on the Bulletin Board.

     Section 2.21 Acknowledgment Regarding Holder’s Purchase of the Note. The Company acknowledges and agrees that Holder is acting solely in the capacity of an arm’s length investor with respect to this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, and that Holder is not (a) an “affiliate” of the Company (as defined in Rule 144 under the Securities Act (including any successor rule, “Rule 144”)) or (b) to the knowledge of the Company, a “beneficial owner” of more than five percent (5%) of the Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act). The Company further acknowledges that Holder is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the other Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by

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Holder or any of its representatives or agents in connection with this Agreement or the other Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to Holder’s purchase of the Note. The Company further represents to Holder that the Company’s decision to enter into this Agreement and the other Transaction Documents and to issue the Note has been based solely on the independent evaluation by the Company and its representatives.

     Section 2.22 No General Solicitation or Integrated Offering. Neither the Company nor any distributor participating on the Company’s behalf in the transactions contemplated hereby (if any) nor any person acting for the Company, or any such distributor, has conducted any “general solicitation” (as such term is defined in Regulation D) with respect to the Note being offered hereby. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Note being offered hereby under the Securities Act or cause this offering of Note to be integrated with any prior offering of securities of the Company for purposes of the Securities Act, which result of such integration would require registration under the Securities Act, or any applicable stockholder approval provisions.

     Section 2.23 No Brokers. Except as set forth on Schedule 2.23, the Company has taken no action that would give rise to any claim by any person for brokerage commissions, finder’s fees or similar payments by Holder relating to this Agreement or the transactions contemplated hereby. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the principal amount of the Note to any person or entity so as to bring the sale of such Note by the Company within the registration provisions of the Securities Act or any other applicable securities laws.

     Section 2.24 Acknowledgment Regarding Note. The Company’s directors and executive officers have considered and understand the nature of the Note being issued hereunder. The Transaction Documents are sufficient to create in favor of Holder a security interest in the Collateral (as such term is defined in the Security Agreement) in which a security interest may be created by written agreement under Article 9 of the Delaware Uniform Commercial Code. Upon the filing of a financing statement in the office of the Secretary of State of the State of Delaware, Holder will have a valid perfected security interest in all of the Collateral in which a security interest may be perfected by the filing of a financing statement under Article 9 of the Delaware Uniform Commercial Code. The Company’s Board of Directors (the “Board”) has determined in its good faith business judgment that the issuance of the Note hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders.

     Section 2.25 Suppliers. Since October 31, 2008, no supplier of the Company or its Subsidiaries has canceled, materially modified, or otherwise terminated its relationship with the Company or its Subsidiaries or decreased materially its supply of the services or products of the Company or its Subsidiaries, nor does any supplier have, to the Company’s knowledge, any plan or intention to do any of the foregoing. The Company has no reason to believe that any of its or its Subsidiaries’ suppliers will experience a manufacturing disruption, a failure to dedicate adequate resources to the production, assembly or testing of the Company’s or its Subsidiaries’

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products, or financial instability, or that any such supplier will be unable to successfully transition its manufacturing capabilities to the future needs of the Company and its Subsidiaries.

     Section 2.26 Disclosure. All information relating to or concerning the Company and/or any of its Subsidiaries set forth in this Agreement or provided or otherwise made available to Holder pursuant to Section 3.4 hereof or otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDER

     Holder represents and warrants to the Company as of the date of this Agreement and as of the Closing Date as follows:

     Section 3.1 Purchase for Own Account, Etc. Holder is purchasing the Note for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Holder understands that it must bear the economic risk of this investment indefinitely, unless the Note is registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering the resale of the Note. Notwithstanding anything in this Section 3.1 to the contrary, by making the representations herein, Holder does not agree to hold the Note for any minimum or other specific term and reserves the right to dispose of the Note at any time in accordance with or pursuant to a registration statement or an exemption from the registration requirements under the Securities Act.

     Section 3.2 Accredited Investor Status. Holder is an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D and is sophisticated in financial matters and is able to evaluate the risks and benefits of the transactions contemplated by this Agreement and the other Transaction Documents.

     Section 3.3 Reliance on Exemptions. Holder understands that the Note is being offered and sold to Holder in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and Holder’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Holder set forth herein in order to determine the availability of such exemptions and the eligibility of Holder to acquire the Note.

     Section 3.4 Information. Holder has had an opportunity to ask questions and receive answers concerning the Company and its Subsidiaries. Holder and its counsel have been furnished all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Note which have been specifically requested by Holder or its counsel. Neither such inquiries nor any other investigation conducted by Holder or

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its counsel or any of its representatives shall modify, amend or affect Holder’s right to rely on the Company’s representations and warranties contained in Article II of this Agreement. Holder understands that its investment in the Note involves a high degree of risk.

     Section 3.5 Governmental Review. Holder understands that no United States federal or state agency or any other government or Governmental Entity has passed upon or made any recommendation or endorsement of the Note.

     Section 3.6 Authorization; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of Holder and is a valid and binding agreement of Holder enforceable against Holder in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and general principles of equity.

     Section 3.7 No Conflicts; Consent. The execution, delivery and performance of this Agreement and the other Transaction Documents by Holder and the consummation by Holder of the transactions contemplated hereby and thereby (including, without limitation, the delivery of the Exchange Shares for cancellation) does not conflict with, violate or result in the breach of, or create any lien or encumbrance on the Exchange Shares pursuant to any law, rule, regulation, order, judgment, decree, agreement or instrument to which Holder is a party or Holder or the Exchange Shares are subject or by which Holder is bound. No consent, approval, authorization or order of, or any filing or registration with any Governmental Entity or other third party is necessary in order for Holder to execute, deliver or perform any of its obligations under this Agreement or any of the other Transaction Documents.

     Section 3.8 Residency. Holder is a resident of the Cayman Islands.

     Section 3.9 Finders’ Fees. No agent, broker, investment banker, person or firm acting on behalf of or under the authority of Holder is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated hereby.

     Section 3.10 Ownership of Exchange Shares. Holder is the record and beneficial owner of the Exchange Shares and Holder has valid beneficial ownership of such interests, free and clear of all security interests, claims, liens, pledges, options, encumbrances, charges, agreements, voting trusts, proxies and other arrangements or restrictions whatsoever.

ARTICLE IV
CONDITIONS TO CLOSING

     Section 4.1 Conditions to Closing.

          (a) Conditions to Holder’s Closing Obligations. The obligation of Holder to surrender the Exchange Shares in exchange for the Note to be issued to Holder at the Closing is subject to the satisfaction or waiver of each of the following conditions precedent:

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               (i) The representations and warranties made by the Company in Article II hereof shall have been true and correct on and as of the date hereof and shall be true and correct as of the Closing Date as if made on the Closing Date (except to extent such representations and warranties speak as of an earlier date), and the Company shall have performed and complied with all covenants and provisions of this Agreement required to be performed or complied with by it at or prior to the Closing.

               (ii) (A) No law, statute, rule, regulation or restriction shall have been promulgated, enacted or entered that restrains, enjoins, prevents, prohibits or otherwise makes illegal the issuance of the Note, the performance by Holder and the Company of any of their respective obligations under this Agreement, the Note or the consummation of the transactions contemplated hereby or thereby; (B) no preliminary or permanent injunction or other order shall have been issued and remain in effect by any court or Governmental Entity that restrains, enjoins, prevents, prohibits or otherwise makes illegal the issuance of the Note, the performance by Holder or the Company of any of their obligations under this Agreement, the Note, or the consummation of the transactions contemplated hereby or thereby; and (C) no court or Governmental Entity shall have instituted any action, suit, proceeding or investigation that seeks to restrain, enjoin, prevent, prohibit or otherwise make illegal the issuance of the Note, the performance by Holder or the Company of any of their obligations under this Agreement, the Note, or the consummation of the transactions contemplated hereby or thereby.

               (iii) The Company shall have duly executed and delivered each of the Transaction Documents to Holder at the Closing, and the Subordination Agreement delivered to Holder shall have been executed by The Huntington National Bank (the “Senior Lender”).

               (iv) The Company shall have obtained any and all consents, permits and waivers, including those from applicable Governmental Entities, necessary or appropriate for consummation of the transactions contemplated by this Agreement, each in form and substance reasonably satisfactory to Holder, and shall have provided copies of all such consents, permits and waivers to Holder at or prior to the Closing.

               (v) The Company shall have delivered to Holder, at the Closing, a copy of the resolutions or unanimous written consent of the Board approving the issuance of the Note, the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder, duly certified by an officer or other representative of the Company as true and correct and in full force and effect as of the Closing Date.

               (vi) The Company shall have paid the fees and expenses of the legal counsel for Holder, in accordance with Section 5.4, which reimbursement shall have been made pursuant to written instructions provided by Holder for such purpose.

               (vii) The Company shall have delivered or otherwise made available to Holder copies of all other documents of the Company as Holder shall reasonably request in connection with the transactions contemplated by this Agreement.

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          (b) Conditions to Company’s Closing Obligations. The obligation of the Company to issue the Note in exchange for the Exchange Shares at the Closing is subject to the satisfaction or waiver of each of the following conditions precedent:

               (i) The representations and warranties made by Holder in Article III hereof shall have been true and correct on and as of the date hereof and shall be true and correct as of the Closing Date as if made on the Closing Date, and Holder shall have performed and complied with all covenants and provisions of this Agreement required to be performed or complied with by them at or prior to the Closing.

               (ii) (A) No law, statute, rule, regulation or restriction shall have been promulgated, enacted or entered that restrains, enjoins, prevents, prohibits or otherwise makes illegal the issuance of the Note, the performance by Holder and the Company of any of their respective obligations under this Agreement, the Note or the consummation of the transactions contemplated hereby or thereby; (B) no preliminary or permanent injunction or other order shall have been issued and remain in effect by any court or Governmental Entity that restrains, enjoins, prevents, prohibits or otherwise makes illegal the issuance of the Note, the performance by Holder or the Company of any of their obligations under this Agreement, the Note or the consummation of the transactions contemplated hereby or thereby; and (C) no court or Governmental Entity shall have instituted any action, suit, proceeding or investigation that seeks to restrain, enjoin, prevent, prohibit or otherwise make illegal the issuance of the Note, the performance by Holder or the Company of any of their obligations under this Agreement, the Note, or the consummation of the transactions contemplated hereby or thereby.

               (iii) Holder shall have delivered original stock certificates representing the Exchange Shares to the Company at the Closing, duly endorsed for surrender to the Company or an original affidavit of loss with respect thereto in form and substance reasonably satisfactory to the Company.

ARTICLE V
COVENANTS

     Section 5.1 Issuance of Additional Note. For long as the Note held by Holder shall remain outstanding:

          (a) If the Company has not entered into a letter of intent or other written understanding between the Company and an independent third party or parties (a “Qualified Letter of Intent”) containing a bona fide offer (subject only to the negotiation of definitive documentation and other reasonable and customary conditions) to engage in a transaction pursuant to which:

               (i) there would be a Change of Control (as defined below) of the Company; and/or

               (ii) the Note would be repaid in full (including any applicable premium) or refinanced on terms acceptable to Holder in its sole discretion

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(in either case, a “Qualified Transaction”) by the date which is six months from the Closing Date (the “Transaction Deadline”), the Company will issue to Holder an additional note in the principal amount of $600,000 on terms substantially the same as the Note contemplated by this Agreement (the “Additional Note”). The Additional Note shall be executed and delivered to Holder within five business days following the Transaction Deadline or at such other time as the Company and Holder may mutually agree.

          (b) If a Qualified Letter of Intent is in place on the Transaction Deadline and (i) the Company has not closed the Qualified Transaction by the date that is 60 days after the Transaction Deadline, (ii) the Qualified Letter of Intent is terminated after the Transaction Deadline, or (iii) the Qualified Transaction is otherwise abandoned after the Transaction Deadline and prior to consummation, the Company shall execute and deliver the Additional Note to Holder within three business days following the earliest to occur of the events specified in clauses (i), (ii), and (iii) of this Section 5.1(b).

          (c) If an Additional Note is issued pursuant to this Section 5.1, (i) the Company shall make the representations and warranties set forth in Article II of this Agreement and (ii) the Holder shall make the representations and warranties set forth in Article III (except for Section 3.10) of this Agreement at the time such Additional Note is issued.

          (d) For purposes of this Agreement, a “Change of Control” of the Company shall mean any of the following events:

                    (A) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation resulting in the combined voting power of the securities of the Company ordinarily having the right to vote in the general election of directors (calculated as provided in paragraph (d) of Rule 13d-3 in the case of rights to acquire such securities) immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) more than a majority of the combined voting power of the securities of the Company (or such surviving entity) immediately after such merger or consolidation;

                    (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company;

                    (C) the dissolution and liquidation of the Company;

                    (D) any person or “group” (other than a benefit plan sponsored by either the Company or a subsidiary of the Company) becoming the “beneficial owner,” directly or indirectly, of securities representing a majority of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from the rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in paragraph (d) of Rule 13d-3 in the case of rights to acquire such securities).

                    (E) during any 12-month period, directors of the Company in office at the beginning of such period ceasing for any reason to constitute a majority of the Board, unless the election, or nomination for election by the Company’s stockholders, of at least 75% of the directors who were not directors at the beginning of such period was approved by vote of at least

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two-thirds of the directors in office at the time of such election or nomination who were directors at the beginning of such period.

For purposes hereof, the terms “group” and “beneficial owner” shall have the meanings given to them in Rule 13d-3; and “Rule 13d-3” shall mean Rule 13d-3 under the Securities Exchange Act of 1934.

     Section 5.2 Investment Bank. From and after the Closing, the Company will engage and retain a nationally recognized, reputable investment banking firm, reasonably acceptable to Holder and Senior Lender, to provide advice to the Company with respect to the advisability of a Qualified Transaction. Under no circumstances shall this requirement be construed to be a requirement that the Company enter into or consummate, or that the Board approve, a Qualified Transaction by the Transaction Deadline or at any time. Holder expressly acknowledges and agrees that nothing contained in this Agreement or the Transaction Documents shall in any way impose any obligation on or in any way limit the Board’s discretion or duties or obligations imposed by law.

     Section 5.3 Publicity. Unless required to do so by law, neither the Company nor Holder shall issue any press release or other public statement relating to this Agreement or the transactions contemplated hereby without the prior approval of the other party. To the extent such disclosure is required by law, Company and Holder agree to provide reasonable notice and opportunity to review such press release or other public statement to the extent time permits for Company or Holder to make the required disclosure in the time and manner required by law.

     Section 5.4 Costs and Expenses. The Company shall pay all reasonable costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of the Agreement. At the Closing, the Company shall pay the reasonable fees and expenses of the legal counsel for Holder incurred in connection with the drafting, negotiation, execution, delivery and closing of this Agreement. Prior or at the Closing, Holder shall provide to the Company an invoice setting forth in reasonable detail such costs and expenses, including such reasonable legal fees and expenses, for which the Holder seeks payment pursuant to this Section 5.4.

     Section 5.5 Future and Current Investments and Activities.

          (a) The Company acknowledges and agrees, with respect to Holder, that: (i) Holder and its affiliates engage in a wide variety of activities and have investments in many other companies; (ii) it is critical to Holder that Holder and its affiliates be permitted to continue to develop their current and future business and investment activities without any restriction arising from an investment by Holder in the Company or any other relationship, contractual or otherwise, between Holder and any of its affiliates, on the one hand, and the Company or any of its affiliates, on the other hand; (iii) from time to time, in connection with the foregoing activities of Holder and its affiliates (collectively, the “Activities”), Holder and its affiliates may have information that may be useful to the Company or its other members (which information may or may not be known by any managers designated by Holder), and none of Holder, its affiliates nor any managers so designated shall have any duty to disclose any information known to such person or entity to the Company or any of its other members; (iv) the relationship of Holder and its affiliates with the Company and its affiliates shall not interfere with or impose conditions or

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restrictions on any of the Activities of Holder or any of its affiliates; and (v) Holder and its affiliates shall be free to engage in the Activities in any capacity, whether active or passive, without any obligation or liability to the Company or to any of its other members (including, without limitation, any obligation to offer the Company or any of the other members a right to acquire, participate or have any interest of any nature whatsoever in any of such Activities), and no managers designated by Holder shall have any liability solely by reason of any such Activities (it being understood that no action by any managers so designated in connection with any such Activities shall be deemed to constitute as such a breach by such director of any duty owed to the Company); provided, however, that this Section 5.5 shall not relieve Holder, its affiliates or any managers designated by Holder of its, his or her duty of confidentiality with respect to information pertaining to the Company.

          (b) The Company hereby waives, to the full extent that it may do so under applicable law, any claim arising under the corporate opportunity or any similar doctrine, and expressly renounces any interest or expectancy of the Company in, or being offered an opportunity to participate in, any business opportunities presented to Holder or any of its affiliates from whatever source other than the Company.

ARTICLE VI
MISCELLANEOUS

     Section 6.1 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania (without giving effect to any conflicts or choice of law provisions that would cause the application of the domestic substantive laws of any other jurisdiction). The Company and Holder irrevocably consent to the exclusive jurisdiction of the United States federal courts and the state courts located in the City of Pittsburgh in the County of Allegheny in the Commonwealth of Pennsylvania, in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company and Holder irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding in such forum. The Company and Holder further agree that service of process upon the Company or Holder mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of Company and Holder to serve process in any other manner permitted by law. The Company and Holder agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. None of the parties hereto has agreed with or represented to any other party that the provisions of this section will not be fully enforced in all instances.

     Section 6.2 Indemnification.

          (a) Holder Indemnification.

               (i) In consideration of Holder’s execution and delivery of this Agreement and the other Transaction Documents and exchange of the Exchange Shares for the Note hereunder, and in addition to all of the Company’s other obligations under this Agreement

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and the other Transaction Documents, from and after the Closing, the Company shall defend, protect, indemnify and hold harmless Holder and all of its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement, collectively, the “Holder Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Holder Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Holder Indemnified Liabilities”), incurred by any Holder Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby or (iii) any cause of action, suit, claim, order, proceeding or process brought or made against such Holder Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (A) the execution, delivery, performance or enforcement of this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, or (B) the status of such Holder as an holder of securities of the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Holder Indemnified Liabilities which is permissible under applicable law.

               (ii) Promptly after receipt by any Indemnitee of notice of the commencement of any action (including any governmental action), such Indemnitee shall, if a claim for indemnification in respect thereof is to be made against the Company, deliver to the Company a written notice of the commencement of such action, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, however, that the Company shall not be entitled to assume such defense and an Indemnitee shall have the right to retain its own counsel with the fees and expenses to be paid by the Company, if, in the reasonable opinion of counsel retained by the Company, the representation by such counsel of the Indemnitee and the Company would be inappropriate due to actual or potential conflicts of interest between such Indemnitee and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both the Indemnitee and the Company and any such Indemnitee reasonably determines that there may be legal defenses available to such Indemnitee that are in conflict with those available to the Company. The Company shall pay for only one separate legal counsel for the Indemnitees, and such legal counsel shall be selected by Holder. The failure to deliver written notice to the Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnitee under this Section 6.2, except to the extent that the Company is actually prejudiced in its ability to defend such action. The indemnification required by this Section 6.2 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

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          (b) Company Indemnification.

               (i) In consideration of Company’s execution and delivery of this Agreement and the other Transaction Documents and issuance of the Note hereunder, and in addition to all of Holder’s other obligations under this Agreement and the other Transaction Documents, from and after the Closing, Holder shall defend, protect, indemnify and hold harmless Company and its Subsidiaries and all of each of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement, collectively, the “Company Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Company Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Company Indemnified Liabilities”), incurred by any Company Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by Holder in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any agreement or obligation of Holder contained in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby or (iii) any cause of action, suit, claim, order, proceeding or process brought or made against such Company Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby. To the extent that the foregoing undertaking by Holder may be unenforceable for any reason, Holder shall make the maximum contribution to the payment and satisfaction of each of the Company Indemnified Liabilities which is permissible under
applicable law.

               (ii) Promptly after receipt by any Company Indemnitee of notice of the commencement of any action (including any governmental action), such Company Indemnitee shall, if a claim for indemnification in respect thereof is to be made against Holder, deliver to Holder a written notice of the commencement of such action, and Holder shall have the right to participate in, and, to the extent Holder so desires, to assume control of the defense thereof with counsel mutually satisfactory to Holder and Company Indemnitee; provided, however, that Holder shall not be entitled to assume such defense and a Company Indemnitee shall have the right to retain its own counsel with all reasonable and necessary fees and expenses to be paid by the Company, if, in the reasonable opinion of counsel retained by the Company, the representation by such counsel of Company Indemnitee and the Company would be inappropriate due to actual or potential conflicts of interest between such Company Indemnitee and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both Company Indemnitee and Holder and any such Company Indemnitee reasonably determines that there may be legal defenses available to such Company Indemnitee that are in conflict with those available to Holder. Holder shall pay for only one separate legal counsel for Company Indemnitees, and such legal counsel shall be selected by Company. The failure to deliver written notice to Holder within a reasonable time of the commencement of any such action shall not relieve Holder of any liability to any Company Indemnitee under this Section 6.2(b), except to the extent that Holder is actually prejudiced in its

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ability to defend such action. The indemnification required by this Section 6.2(b) shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable.

     Section 6.3 Waiver of Jury Trial. Each of the parties hereto hereby voluntarily and irrevocably waives trial by jury in any action or other proceeding brought in connection with this agreement or any of the transactions contemplated hereby. No party has agreed with or represented to any other party that the provisions of this section will not be fully enforced in all instances.

     Section 6.4 Prevailing Party’s Costs and Expenses. The prevailing party in any mediation, arbitration or legal action to enforce or interpret this Agreement shall be entitled to recover from the non-prevailing party all costs and expenses, including reasonable attorneys’ fees, incurred in such action or proceeding.

     Section 6.5 Cumulative Remedies; Failure to Pursue Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise. Except where a time period is specified, no delay on the part of any party in the exercise of any right, power, privilege or remedy hereunder shall operate as a waiver thereof, nor shall any exercise or partial exercise of any such right, power, privilege or remedy preclude any further exercise thereof or the exercise of any other right, power, privilege or remedy.

     Section 6.6 Equitable Remedies. The parties hereto agree that irreparable harm would occur in the event that any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached, and that money damages are an inadequate remedy for breach of the Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an injunction or injunctions to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically such terms and provisions of this Agreement, such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity.

     Section 6.7 Amendment and Waiver. No provision of this Agreement may be amended, modified or waived except upon the written consent of the Company and Holder. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

     Section 6.8 Assignment; Binding Effect. The rights and obligations set forth herein may not be assigned or delegated by the Company or Holder without the prior written consent of the others, except that any Holder may assign, in whole or in part, its rights and delegate its obligations hereunder (including, without limitation, the right to purchase any or all of the Note) to any affiliate of Holder without obtaining the prior written consent of the Company. This

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Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, legal representatives and permitted assigns.

     Section 6.9 Notices. Except as otherwise expressly provided herein, all demands, notices, requests, consents and other communications required or permitted under this Agreement shall be in writing and shall be personally delivered or sent by facsimile machine (with a confirmation copy sent by one of the other methods authorized in this section), commercial (including Federal Express) or U.S. Postal Service overnight delivery service, or deposited with the U.S. Postal Service mailed first class, registered or certified mail, postage prepaid, as follows:

(i)	if to the Company:
	PDG Environmental, Inc. 1386 Beulah Road, Building 801 Pittsburgh, Pennsylvania 15235 Telephone: (800) 972-7341, Ext. 16 Facsimile: (412) 243-4900 Attention: John C. Regan, CEO
	with a copy simultaneously transmitted by like means (which transmittal shall not constitute notice hereunder) to:
	Cohen & Grigsby, P.C. 625 Liberty Avenue Pittsburgh, Pennsylvania 15222-3152 Telephone: (412) 297-4831 Facsimile: (412) 209-1825 Attention: James D. Chiafullo, Esq.
(ii)	if to Holder:
	Radcliffe SPC, Ltd. for and on behalf of the Class A Segregated Portfolio c/o Radcliffe Capital Management, L.P. 50 Monument Road, Suite 300 Bala Cynwyd, PA 19004 Facsimile: 610-617-0580 Attention: Christopher L. Hinkel

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with a copy (which copy shall not constitute notice) to:

Drinker Biddle & Reath LLP
One Logan Square
18^th & Cherry Streets
Philadelphia, PA 19103
Facsimile: (215) 988-2757
Attention: Stephen T. Burdumy, Esq.

Notices shall be deemed given upon the earlier to occur of (i) receipt by the party to whom such notice is directed; (ii) if sent by facsimile machine, the day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) such notice is sent if sent (as evidenced by the facsimile confirmed receipt) prior to 5:00 p.m. U.S. Eastern Time, or the day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) after which such notice is sent if sent after 5:00 p.m. U.S. Eastern Time; (iii) if sent by overnight delivery service, the first business day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) following the day the same is deposited with the commercial carrier or U.S. Postal Service; or (iv) if sent by first class mail, registered or certified, postage prepaid, the fifth day (other than a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is directed) following the day the same is deposited with the U.S. Postal Service. Each party, by notice duly given in accordance herewith, may specify a different address for the giving of any notice hereunder.

     Section 6.10 Severability. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or application to other persons or circumstances, shall not be affected thereby, and each term and provision of this Agreement shall be enforced to the fullest extent permitted by law.

     Section 6.11 Survival.

          (a) The representations, warranties, covenants and agreements made herein, in the Disclosure Schedule and other documents delivered pursuant hereto shall survive the Closing contemplated hereby.

          (b) The disclosures in the Disclosure Schedule hereto shall relate only to the representations and warranties to which they expressly refer and to no other representation or warranty in this Agreement. In the event of any inconsistency between the statements made in the body of this Agreement and those contained in the Disclosure Schedule (other than an express exception to a specifically identified statement), those in this Agreement shall control.

     Section 6.12 Construction. Whenever the context requires, the gender of any word used in this Agreement includes the masculine, feminine or neuter, and the number of any word includes the singular or plural. Unless the context otherwise requires, all references to articles and sections refer to articles and sections of this Agreement, and all references to schedules are to schedules attached hereto, each of which is made a part hereof for all purposes.

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     Section 6.13 Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

     Section 6.14 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document, and all counterparts shall be construed together and shall constitute one instrument. A facsimile or photocopied signature shall be deemed to be the functional equivalent of an original for all purposes.

     Section 6.15 Entire Agreement. This Agreement and the Disclosure Schedule and Schedules and Exhibits hereto, the Note and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties hereto pertaining to the subject matter hereof and supersede all prior understandings and agreements pertaining thereto, whether oral or written.

     Section 6.16 Further Assurances. Each party hereto shall use its reasonable best efforts to comply with all requirements imposed hereby on such party and to cause the transactions contemplated hereby and by the other agreements contemplated herein to be consummated as contemplated hereby or thereby and shall, from time to time and without further consideration, either before or after any Closing, execute such further instruments and take such other actions as any other party hereto shall reasonably request in order to fulfill its obligations under this Agreement and such other agreements, to effectuate the purposes of this Agreement and such other agreements.

     Section 6.17 Retirement and Cancellation of Exchange Shares. At the Closing, the Exchange Shares shall be retired and canceled, and the certificates formerly representing such Exchange Shares shall be marked void. Upon cancellation of the Exchange Shares, (i) all designations, rights and preferences set forth in the Certificate of Designation shall cease with respect to the Exchange Shares and Holder’s ownership of the Exchange Shares, (ii) any and all Premium (as such term is defined in the Certificate of Designation) due to Holder under or in connection with the Certificate of Designation shall cease to accrue, (iii) the payment of outstanding amounts of Premium accrued on the Exchange Shares shall be fully satisfied by the issuance of the Note, and (iv) the obligations of the Company and any Subsidiary pursuant to the Securities Purchase Agreement and the Registration Rights Agreement dated July 1, 2005 entered into in connection therewith (the “Registration Rights Agreement”) as such obligations relate to the Exchange Shares shall terminate, except, in each case, for any indemnification obligations of the Company or any Subsidiary thereunder with respect to matters prior to the date of the Closing, which indemnification obligations shall remain in full force and effect. Except as provided in this Section 6.17, the Securities Purchase Agreement, the Certificate of Designation and the Registration Rights Agreement shall in all other respects remain in full force and effect and unaltered by the transactions contemplated hereby or any Transaction Document.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above stated.

COMPANY:
PDG ENVIRONMENTAL, INC.
By:	/s/ John C. Regan
Name:	John C. Regan
Title:	Chief Executive Officer
HOLDER:
RADCLIFFE SPC, LTD. for and on behalf of the Class A
Segregated Portfolio
By:	Radcliffe Capital Management, L.P.
	By: RGC Management Company, LLC
	By:	/s/ Gerald F. Stahlecker
	Name:	Gerald F. Stahlecker
	Title:	Managing Director

(Signature page to Exchange Agreement)

EX-10.8.5

EXHIBIT 10.8.5

FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
AND
AMENDMENT TO LOAN DOCUMENTS

     THIS FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT AND AMENDMENT TO LOAN DOCUMENTS is made and entered into as of May 14, 2009 (“Amendment”) by and among PDG Environmental, Inc., a Delaware corporation (“Parent”), Project Development Group, Inc., a Pennsylvania corporation (“Project”), Enviro-Tech Abatement Services, Co., a North Carolina corporation (“Enviro-Tech”), and PDG, Inc., a Pennsylvania corporation (“PDG”), (Parent, Project, Enviro-Tech and PDG collectively, the “Initial Borrowers”), Flagship Restoration, Inc., a Delaware corporation (“Flagship”), and Servestec, Inc., a Florida corporation (Initial Borrowers, Flagship and Servestec (“Servestec”), collectively, the “Borrowers”) and The Huntington National Bank, successor in interest to Sky Bank (“Bank”).

     WHEREAS, the Bank has provided certain loans to Borrowers pursuant to the terms of a an Amended and Restated Credit Agreement dated as of June 9, 2006, as amended by a Waiver and First Amendment to Amended and Restated Loan Agreement dated as of May 15, 2007, Second Amendment to Amended and Restated Loan Agreement dated as of July 31, 2007, Third Amendment to Amended and Restated Loan Agreement dated September 22, 2008 and Fourth Amendment to Amended and Restated Loan Agreement dated October 16, 2008 between the Borrowers and the Bank (together with all prior and future amendments, extensions, modifications and restatements thereof, the “Credit Agreement”); and

     WHEREAS, the loans made in accordance with the Credit Agreement (“Loans”) are evidenced by (i) the Facility A Note in the original principal amount of $400,000, (ii) the Facility D Note in the maximum aggregate amount of $15,000,000, and (iii) the Facility F Loans in the original principal amount of $400,000 executed by Borrowers in favor of the Bank; and

     WHEREAS, the indebtedness and obligations evidenced by the Notes are secured by, among other things, Borrowers’ accounts, accounts receivable, the proceeds and products of the foregoing, and all other property identified in the Security Agreements executed by Borrowers in favor of the Bank (together with all prior and future amendments, extensions, modifications and restatements thereof, collectively the “Security Agreements”) and Borrowers’ real property and all other property identified in the Open-End Mortgage and Security Agreement executed by Project in favor of the Bank (together with all prior and future amendments, extensions, modifications and restatements thereof, collectively, the “Mortgage”); and

     WHEREAS, the Credit Agreement, the Notes, the Security Agreements, the Mortgage and this Amendment, and any and all other documents, agreements, and instruments entered into in connection with any of the foregoing are collectively referred to as the “Loan Documents”; and

     WHEREAS, Flagship has filed a Certificate of Dissolution Before the Issuance of Shares with the Secretary of State of this State of Delaware effective March 5, 2009; and

    WHEREAS, the Borrowers have requested the Bank to amend certain provisions of the Loan Documents, including the Facility D Expiry Date, as defined in the Credit Agreement and to waive certain existing defaults; and

     WHEREAS, the Bank is willing to amend certain provisions of the Loan Documents and to waive certain existing defaults, subject to the terms and conditions set forth in this Amendment; and

     NOW THEREFORE, the parties hereto for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, covenant and agree as follows:

     1. Affirmation of Recitals. The recitals set forth above are true and correct and incorporated herein by reference.

     2. Definitions. All capitalized terms used herein, but not otherwise defined, shall have the meaning ascribed to such terms in the Loan Documents.

     3. Amendments to Certain Definitions in Section 1.01 of the Credit Agreement. Effective from and after the date hereof, the following provisions of Section 1.01 of the Credit Agreement shall be amended as follows:

          (i) The following defined term “Bonded Receivables” shall be inserted into Section 1.01 of the Credit Agreement in the appropriate alphabetical order:

          “Bonded Receivables” shall mean accounts receivable which otherwise qualify as a Qualified Account and arise from work, jobs or projects for which a payment and/or performance bond has been issued or is otherwise subject to surety bonds.

          (ii) The following defined term “Borrowers” shall mean PDG Environmental, Inc., a Delaware corporation, Project Development Group, Inc., a Pennsylvania corporation, Enviro-Tech Abatement Services, Inc., a North Carolina corporation, PDG, Inc., a Pennsylvania corporation, and Servestec, a Florida corporation, jointly and severally.

          (iii) The defined term “Facility D Expiry Date” shall mean August 3, 2010.

          (iv) The following defined term “Facility D Loan Amount” shall be amended and restated as follows:

          “Facility D Loan Amount” shall mean:

(a) For the period commencing on the Fifth Amendment Date through and including August 30, 2009, the Facility D Loan Amount shall be an amount not to exceed $15,000,000;

2

(b) For the period commencing August 31, 2009 and continuing through November 29, 2009, the Facility D Loan Amount shall be an amount not to exceed $14,500,000; and

(c) For the period commencing November 30, 2009 and continuing through the Facility D Expiry Date, the Facility D Loan Amount shall be an amount not to exceed $14,000,000.

          (v) The following defined term “Lockbox Agreement” shall be inserted into Section 1.01 of the Credit Agreement in appropriate alphabetical order.

“Lockbox Agreement” shall mean the Lockbox Agreement in form and substance satisfactory to the Bank executed by the Borrowers in favor of the Bank and dated as of the Fifth Amendment Date, together with any amendments, modifications or extensions thereof. The Lockbox Agreement shall supersede and replace any prior Lockbox Agreement of the Borrowers in favor of the Bank. The Lockbox Agreement constitutes a Loan Document.

          (vi) The following defined term “Maximum Bonded Receivables” shall be amended and restated as follows:

          “Maximum Bonded Receivables” shall mean:

(a) For the period commencing on the Fifth Amendment Date through and including January 29, 2010, the Maximum Bonded Receivables shall be an amount not to exceed one hundred percent (100%) of Bonded Receivables for such period;

(b) On January 30, 2010, the Maximum Bonded Receivables shall be an amount not to exceed ninety percent (90%) of Bonded Receivables; and

(c) On February 28, 2010 and on the last day of each successive calendar month thereafter, the Maximum Bonded Receivables shall be reduced by ten percent (10%) from the amount of Maximum Bonded Receivables permitted for the preceding calendar month.

          (vii) The following defined term “Fifth Amendment shall be inserted into Section 1.01 of the Credit Agreement in appropriate alphabetical order:

          “Fifth Amendment” shall mean that certain Fifth Amendment to Amended and Restated Loan Agreement by and among the Bank and the Borrowers dated the Fifth Amendment Date.”

          (viii) The following defined term “Fifth Amendment Date” shall be inserted into Section 1.01 of the Credit Agreement in appropriate alphabetical order:

3

“Fifth Amendment Date” shall mean May 14, 2009.”

     (ix) The following defined term “Subordination Agreement” shall be inserted into Section 1.01 of the Credit Agreement in the appropriate alphabetical order.

“Subordination Agreement” shall mean that certain Subordination and Intercreditor Agreement by and between the Parent, the Bank and the Subordinated Lender dated as of the Fifth Amendment Date, as amended, modified or supplemented from time to time. The Subordination Agreement shall constitute a Loan Document.

     (x) The following defined term “Subordinated Indebtedness” shall be inserted into Section 1.01 of the Credit Agreement in the appropriate alphabetical order.

“Subordinated Indebtedness” shall have the meaning given to such term in the Subordination Agreement.

     (xi) The following defined term “Subordinated Lender” shall be inserted into Section 1.01 of the Credit Agreement in the appropriate alphabetical order.

“Subordinated Lender” shall mean Radcliffe SPC, Ltd., for and on behalf of the Class A Convertible Crossover Segregated Portfolio.

     (xii) The following defined term “Subordinated Lien” shall be inserted into Section 1.01 of the Credit Agreement in the appropriate alphabetical order.

“Subordinated Lien” shall mean the subordinate lien granted by Parent to Subordinated Lender in certain assets of the Parent pursuant to that certain Security Agreement, dated May 14, 2009, among Parent, Bank and Subordinated Lender, subject to the terms and conditions of the Subordination Agreement.

     (xiii) The following defined term “Unpaid Claims Proceeds” shall be inserted into Section 1.01 of the Credit Agreement in the appropriate alphabetical order.

“Unpaid Claims Proceeds” shall have the meaning given to such term in Section 13 of the Fifth Amendment.

     4. Amendment and Restatement of Section 2.05(b) of the Credit Agreement. Section 2.05(b) entitled “Interest on Facilities D and F” shall be amended and restated as follows:

“(b) Interest on Facilities D and F. The aggregate outstanding principal balance of the Facility D Loan, for the period commencing on the Fifth Amendment Date and continuing through and including the Facility D Expiry Date, shall bear interest at the greater of (i) the rate per annum equal to the Prime Rate (which shall in no event be less than 4.25% per annum) plus three quarters of one percent (.75%), or (ii) five percent (5%) per annum. The aggregate outstanding principal balance of the Facility F

4

Loans shall bear interest at a rate per annum equal to seven and one quarter of one percent (7.25%).”

     5. Amendment and Restatement of Section 2.08 of the Credit Agreement. Section 2.08 of the Credit Agreement shall be amended and restated as follows:

“Borrowers shall pay to Bank a commitment fee for the Fifth Amendment to Amended and Restated Loan Agreement between the Borrowers and the Bank payable in full on December 15, 2009 of $75,000 (the “Amendment Fee”). On June 30, 2009 and on each June 30 thereafter, Borrowers shall pay the Bank a commitment fee in advance in the amount of 1% of the Facility D Loan Amount.”

     6. Deletion of Section 2.14 of the Credit Agreement. Section 2.14 entitled “Interest Rate Incentive Pricing” shall be deleted in its entirety.

     7. Amendment to Section 5.01 of the Credit Agreement.

     (i) Effective from and after the date hereof, Section 5.01(e) of the Credit Agreement entitled “Borrowing Base Certificates and Other Reports” shall be amended and restated as follows:

“(e) Borrowing Base Certificates and Other Reports. Borrowers shall furnish to Bank a Borrowing Base Certificate within fifteen (15) days after the end of each calendar month. In addition, within fifteen (15) days after the end of each calendar month, Borrowers will deliver to Bank a schedule of all of their accounts receivable, identifying all accounts, and the aging thereof by open invoice for each project of each Borrower (the “Accounts Aging Report”), and the aging thereof by open invoice for each customer of each Borrower, and such other reports concerning the accounts receivable as Bank shall require, all certified as to accuracy by the President or any Vice President of Parent and all in such form as Bank shall require. Borrowers shall also promptly provide Bank with all information requested by Bank with respect to any account debtor. In addition, within thirty (30) days after the end of each calendar month, Borrowers shall provide Bank with a schedule of accounts payable and monthly back-log reports and monthly job status reports, including an explanation of any significant variances from the previous month’s reports and demonstration of adequate bidding and proper margins, all certified as to accuracy by the appropriate officer of Parent and all in such form as Bank shall require.”

     (ii) Section 5.01 (f) shall be amended to include the following as the last four sentences thereof:

“Borrowers shall engage an independent auditor to perform a field audit by no later than April 30, 2009. The auditor and the scope of the audit shall be satisfactory to the Bank in its sole discretion. In addition, the

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Borrowers acknowledge that they have engaged Boenning & Scattergood, Inc. to provide certain consulting services to the Borrowers. Borrowers shall provide the Bank with a true, correct and complete copy of any assessments, reports, examinations and recommendations prepared by Boenning & Scattergood, Inc. no later than May 15, 2009.

     (iii) The following language shall be added to Section 5.01 of the Credit Agreement as Section (l) thereof:

“(l) The Borrowers represent and warrant to Bank that they have engaged Compass Advisory Partners (“Compass”) to evaluate the Borrowers. Borrowers agree that they will provide Bank copies of all reports prepared by Compass within five (5) days of issuance to the Borrowers, and shall provide the Bank with such other information as the Bank may request. The Borrowers shall promptly address any areas of deficiency noted by Compass and shall either a) implement the actions recommended by Compass or b) provide a written explanation to the Bank of the Borrowers’ failure to implement such recommendations. The Bank, in its sole discretion, may require the Borrowers to employ the services of Compass or such other consultant agreeable to Bank for further evaluation as required by the Bank.”

     8. Financial Covenants.

     (i) Section 5.13 Debt Service Coverage Ratio is hereby amended and restated in its entirety to read as follows:

“Borrowers shall maintain a Debt Service Coverage Ratio after the date hereof in the following amounts, which shall be tested at the end of each fiscal year on a rolling four quarter basis:

For January 31, 2010 1.21 to 1.0”

     (ii) Section 5.14 Debt to Worth Ratio is hereby amended and restated in its entirety to read as follows:

“Borrowers shall maintain a Debt to Worth Ratio of not greater than 2.80 to 1.0 on January 31, 2010.”

     (iii) Section 5.15 Net Worth is hereby amended and restated in its entirety to read as follows:

“Borrowers shall maintain a Net Worth of at least $8,400,000 on January 31, 2010.”

     9. Liens. The following language shall be added to Section 6.01 of the Credit Agreement as Section (f) thereof:

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(f) the Subordinated Lien, subject to the terms and conditions of the Subordination Agreement.”

     10. Indebtedness. The following language shall be added to Section 6.02 of the Credit Agreement as Section (d) thereof:

“(d) the Subordinated Indebtedness; subject to the terms and conditions of the Subordination Agreement, and that monthly payments of Subordinated Indebtedness permitted pursuant to the Subordination Agreement shall be paid from Parent’s cash flow (and no other source, including, without limitation, Unpaid Claims Proceeds). The Borrowers shall not suffer or permit any modification or amendment to the Subordination Agreement or any documents evidencing or relating to the Subordinated Indebtedness or Subordinated Lien that does not comply with the requirements of Section 4.7 of the Subordination Agreement.”

     11. Default. The following language shall be added to subsection (g) of Section 7.01 of the Credit Agreement as clause (iv) thereof:

“(iv) a “default” or an “event of default” shall occur under any note evidencing the Subordinated Indebtedness or any part thereof, if the effect of such default shall permit the Subordinated Lender, or any permitted assignee thereof, to cause all or a part of the Subordinated Indebtedness to become due before its stated maturity.”

     12. Waiver. Borrowers have provided Bank with draft financial statements for the period ended January 31, 2009 (collectively, the “Draft Statements”). The Draft Statements disclose violations of the (i) Debt Service Coverage Ratio covenant; (ii) the Debt to Worth Ratio covenant, and (iii) the Net Worth covenant, in the amounts set forth in the Draft Statements for the periods set forth therein (the “Reported Defaults”). Subject to the terms and conditions set forth in this Agreement, the Bank hereby waives the Reported Defaults. This waiver does not, either implicitly or explicitly, alter, waive or amend any other provisions of the Loan Documents, nor indicate an agreement on the part of the Bank to grant any additional future waivers for covenant defaults or other defaults of the Loan Documents, or any defaults of financial covenants in excess of the Reported Defaults as disclosed in the Draft Statements.

     13. Mandatory Prepayments. The Borrowers hereby agree that any amounts that they, or any of them, recover from account debtors for unpaid claims (collectively, the “Unpaid Claims Proceeds”) shall be immediately paid to the Bank and applied to the repayment and reduction of amounts due to Bank with respect to Facility D Loans, including all costs and expenses thereunder in such order as the Bank may determine in its sole and absolute discretion. In no event shall the Unpaid Claims Proceeds be paid to the Subordinated Lender for repayment of the Subordinated Indebtedness. Any failure of Borrowers to comply with this Section 13 shall constitute a payment default under Section 7.01(a) of the Credit Agreement.

     14. Asset Based Monitoring and Lock Box. On or before the Fifth Amendment Date, Borrowers will open an account or accounts at Bank controlled by Bank on terms

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acceptable to Bank in its sole discretion into which all accounts receivable and other income of any kind generated by the Borrowers will be deposited on terms acceptable to Bank in its sole discretion, for the sole benefit of Bank (such account or accounts, all funds at any time on deposit therein and any proceeds, replacements or substitutions of such account or funds therein, are referred to herein as the “Lockbox Account”). The Lockbox Account will be maintained by Bank for the purpose of receiving and holding all income and any amounts whatsoever paid to Borrowers and shall be subject to the terms of the Lockbox Agreement. Within seven (7) days after the Fifth Amendment Date, Borrowers shall instruct all account debtors to send their payments directly to the Lockbox Account. In the event any Borrower directly receives any payments, Borrower shall immediately deposit such amounts in the Lockbox Account or pay them over to Bank. Borrower further agrees that it shall comply with all asset based monitoring requirements of the Bank, as the Bank may now or hereafter require in its sole and absolute discretion.

     15. Appraisal, Title Searches and Lien Searches.

     (i) Borrowers hereby acknowledge and agree that the Bank will order an updated real estate appraisal of the real property encumbered by the Mortgage. The costs of such reports and investigations shall be borne by Borrowers in accordance with Section 21 of this Amendment. The appraisal shall be conducted on or before December 31, 2009.

     (ii) No later than June 30, 2009, Borrowers shall provide a title search performed by a title company acceptable to the Bank in all respects which will confirm that the Bank’s first mortgage position is intact, subject only to liens permitted under the Credit Agreement. Any modification of the Mortgage will, at the Bank’s option, be insured under the existing title policy, and Borrowers shall pay the cost of such title insurance, including any endorsements in accordance with Section 22 of this Amendment. In addition, no later than June 30, 2009, Borrowers shall provide lien searches satisfactory to the Bank in all respects on each of the Borrowers , which lien searches shall confirm that the Bank has a first lien security interest in all the assets of the Borrowers, subject only to liens permitted under the Loan Agreement. The cost of such searches shall be borne by the Borrowers in accordance with Section 22 of this Amendment.

     16. Representations and Warranties.

     (i) Each Borrower has and will continue to have corporate power and authority to execute, deliver and perform the provisions of this Amendment, the other Loan Documents, and the Credit Agreement as amended hereby and to execute and deliver the instruments required by the provisions of the Credit Agreement as amended hereby to be executed and delivered by it; and all such action has been duly and validly authorized by all necessary corporate proceedings on the part of each Borrower.

     (ii) The execution and delivery of this Amendment and the carrying out of this Amendment, the other Loan Documents, and the Credit Agreement as amended hereby will not violate any provisions of law or the articles of incorporation or bylaws of any

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Borrower or of any agreement or other instrument to which any Borrower is a party or by which it is bound or to which it is subject.

     (iii) This Amendment and the other Loan Documents, which have been duly and validly executed and delivered by Borrowers, and the Credit Agreement as amended hereby, constitute legal, valid and binding obligations of each Borrower enforceable in accordance with the terms hereof and thereof.

     (iv) The representations and warranties by the Borrowers contained in the Credit Agreement and the other Loan Documents are correct and accurate on and as of the date hereof.

     (v) The corporate existence of Flagship has been duly dissolved and Flagship has no outstanding debts, including without limitation, any outstanding indebtedness to the Bank. The remaining Borrowers consent to the termination of Flagship as a “Borrower” party, and hereby ratify their joint and several obligations under the Credit Agreement, the Notes and the other Loan Documents.

     (vi) No event has occurred and is continuing and no condition exists which constitutes an Event of Default or Potential Default.

     17. Amendment of Security Agreements; Collateral.

(a) Effective from and after the date hereof, each of the Security Agreements shall be amended as follows:

     (1) the following defined term “Deposit Accounts” shall be inserted in Section 1 in the appropriate alphabetical order:

“Deposit Accounts” shall have the meaning given to that term in the Code, but in any event shall include, but not be limited to, any demand, time, savings, passbook or similar account; and

     (2) The defined term “Collateral” shall be amended and restated as follows:

“Collateral” shall mean collectively, the Accounts, Deposit Accounts, Chattel Paper, Documents, Investment Property, Equipment, Fixtures, General Intangibles, Instruments, Inventory and Proceeds of each of them.

(b) The Obligations shall continue to be secured by a first priority security interest in and lien upon all of the Borrowers’ inventory, accounts, accounts receivable, and the proceeds and products thereof, and all of the other property that may be identified in the Security Agreement and the Mortgage. In no event shall the Borrowers suffer or permit any payment or performance bonds to

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encumber any accounts receivable arising from any work, jobs or project other than those accounts receivable directly arising from the specific bonded work, jobs or projects.

     18. Conditions to this Amendment. The obligation of the Bank to enter into this Amendment and to continue to make any loan or advance under the Credit Agreement is subject to the satisfaction of the following further conditions:

(a)	This Amendment shall have been duly executed by the Borrowers and delivered to the Bank;
(b)	The Mortgage Modification attached hereto as Exhibit A has been duly executed by Project, appropriately acknowledged by a notary public and delivered to the Bank;
(c)	The Subordination Agreement attached hereto as Exhibit B has been duly executed and delivered by the Borrowers and the Subordinated Lender;
(d)	The Lockbox Agreement attached hereto as Exhibit C has been duly executed and delivered by the Borrowers to the Bank;
(e)	Corporate resolutions and other certifications by or on behalf of the Borrowers, in form and substance required by the Bank in its sole and absolute discretion and such resolutions and certifications shall have been delivered to the Bank on the date of this Amendment;
(f)	The Borrowers shall pay to the Bank the Amendment Fee on or before December 15, 2009 and shall pay Bank all other fees provided for in Section 22 hereof on the date of this Amendment; and
(g)	The Borrowers shall provide an opinion of counsel in form and substance satisfactory to the Bank.
(h)	Current, original Good Standing Certificates of each of the Borrowers and the Certificate of Dissolution of Flagship.

     19. Acknowledgment of No Claims. Each of the Borrowers acknowledges and agrees that it (a) has no claims, counterclaims, setoffs, actions or causes of action of any kind or nature whatsoever against the Bank or any of its directors, officers, employees, agents, attorneys, legal representatives, successor or assigns, that directly or indirectly arise out of or are based upon or in any manner connected with any Prior Related Event, (b) certifies that there is no impairment of the validity or enforceability of this Amendment or any of the Loan Documents to which it is a party, and (c) hereby waives and releases the same. As used herein the term “Prior Related Event” means any transaction, event, circumstance, action, failure to act or occurrence

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of any sort or type, whether known or unknown, which occurred, existed, was taken, was permitted or begun prior to the execution of this Amendment and occurred, existed, was taken, was permitted or begun in accordance with, pursuant to or by virtue of any of the terms of this Amendment or any of the Loan Documents (or prior iterations thereof), or which was related or connected in any manner, directly or indirectly, to the loans made or secured pursuant thereto or evidenced thereby.

     20. No Bankruptcy Intent. Each of the Borrowers represents and warrants that it has no present intent (i) to file any voluntary petition under any chapter of the Bankruptcy Code, title 11 U.S.C., or in any manner seek relief, protection, reorganization, liquidation or dissolution, or similar relief for borrowers under any other state, local, federal or other insolvency laws, either at the present time, or at any time hereafter, or (ii) directly or indirectly to cause any involuntary petition to be filed against any Borrower, or directly or indirectly to cause any Borrower to become the subject of any proceedings pursuant to any other state, federal or other insolvency law providing for the relief of borrowers, either at the present time, or at any time hereafter, or (iii) directly or indirectly to cause any interest of any Borrower to become the property of any bankrupt estate or the subject of any state, federal or other bankruptcy, dissolution, liquidation or insolvency proceedings.

     21. No Fraudulent Intent. Neither the execution and delivery of this Amendment, nor the performance of any actions required hereunder or described herein is being consummated by any Borrower with or as a result of any actual intent by such Borrower to hinder, delay or defraud any entity to which such Borrower is not or will hereafter become indebted.

     22. Reimbursement of Expenses. The Borrowers, jointly and severally, agree to pay or cause to be paid and save the Bank harmless against liability for the payment of all out-of-pocket expenses incurred by the Bank, including without limitation, appraisals, environmental consultants, accountants and other professional experts or independent contractor fees, costs and expenses and fees and reasonable expenses of legal counsel (a) arising in connection with the development, preparation, printing, execution, administration, interpretation and performance of this Amendment and any of the Loan Documents, (b) relating to any requested amendments, waivers or consents pursuant to the provisions hereof or thereof whether or not such are implemented, and (c) arising in connection with the enforcement of this Amendment or any Loan Documents, including the proof and allowability of any claim arising thereunder, whether in bankruptcy or receivership proceedings or otherwise and monitoring and otherwise participating in any bankruptcy, receivership or similar proceeding involving or affecting the Borrower or any other person or entity which may have any liability for any of the obligations of the Borrower under this Amendment and the Loan Documents.

     23. Notices. Any notice or other written communication required hereunder shall be in writing and shall be deemed to have been validly delivered (a) upon deposit in the United States mail, with proper postage prepaid, (b) by hand delivery, or (c) by overnight express mail courier, and addressed to the party to be notified at the following address or to such other address as each party may designate for himself or herself in writing by like notice:

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To the Borrowers or any of them:	To the Bank:
PDG Environmental, Inc.	The Huntington National Bank
1386 Beulah Road, Building 801	230 West Pike Street
Pittsburgh, PA 15235	Clarksburg, WV 26301
Attention: John C. Regan with a copy to:	Attention: Debra Flanigan Vice President Special Assets Group
James D. Chiafullo, Esq. Cohen & Grigsby, P.C.	with a copy to:
625 Liberty Avenue	Suzanne Ewing, Esq.
Pittsburgh, PA 15222-3152	Buchanan Ingersoll & Rooney
	20th Floor, One Oxford Centre
	Pittsburgh, PA 15219

     24. Due Authority; Valid and Binding. Each of the Borrowers represents that its execution and delivery of this Amendment and the carrying out of this Amendment and the Loan Documents to which it is a party, as amended hereby, will not violate any provisions of the law, its articles of incorporation or bylaws, or of any agreement or other instrument to which it is a party or by which it is bound or to which it is subject. Each of the Borrowers further represent that this Amendment has been duly authorized by all necessary action and this Amendment and the Loan Documents to which it is a party, as amended, constitute legal, valid and binding obligations of such party, enforceable in accordance with the terms hereof.

     25. Entire Agreement; Governing Law. This Amendment sets forth the entire agreement relating to the subject matter hereof and supersedes all prior statements, agreements and understandings, whether written or oral, relating thereto. None of the provisions hereof may be waived, changed or terminated, except by a writing signed by the parties hereto. This Amendment and the respective rights and obligations created hereby shall be interpreted in accordance with and governed by the laws of the Commonwealth of Pennsylvania applicable to contracts made and to be wholly performed within such Commonwealth. The paragraph titles contained in this Amendment are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement to the parties hereto.

     26. Jurisdiction and Venue. The parties hereto agree that the United States District Court for the Western District of Pennsylvania and the Court of Common Pleas of Allegheny County, Pennsylvania, may have jurisdiction to hear and determine any claims or disputes as to matters pertaining to this Amendment or any matter arising therefrom. The parties hereto hereby expressly submit and consent in advance to such jurisdiction and venue in any proceeding commenced against the parties in either of such courts. Notwithstanding the foregoing, the parties hereto reserve to themselves the right to assert federal court jurisdiction based upon diversity of citizenship or any other basis upon which such federal jurisdiction may be properly claimed and asserted and, to such end, reserve to themselves the right to remove any action commenced in the Court of Common Pleas of Allegheny County, Pennsylvania, to the United States District Court for the Western District of Pennsylvania if such removal be authorized by law.

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     27. WAIVER OF JURY TRIAL. THE PARTIES HERETO EACH WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY CONTROVERSY ARISING OUT OF OR RELATING TO THIS AMENDMENT.

     28. ACKNOWLEDGMENT OF DISCLOSURE AND WAIVER OF CONFESSION OF JUDGMENT RIGHTS.

(g)

EACH OF THE BORROWERS HEREBY ACKNOWLEDGES AND AGREES THAT THE NOTE CONTAINS PROVISIONS UNDER WHICH THE BANK MAY ENTER JUDGMENT BY CONFESSION AGAINST THE BORROWERS. EACH OF THE BORROWERS BEING FULLY AWARE OF ITS RIGHTS TO PRIOR NOTICE AND A HEARING ON THE VALIDITY OF ANY JUDGMENT OR OTHER CLAIMS THAT MAY BE ASSERTED AGAINST IT BY THE BANK HEREUNDER BEFORE JUDGMENT IS ENTERED, IT HEREBY FREELY AND KNOWINGLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE BANK ENTERING JUDGMENT AGAINST IT BY CONFESSION PURSUANT TO THE TERMS THEREOF.

(h)

EACH OF THE BORROWERS ALSO ACKNOWLEDGES AND AGREES THAT THE NOTE CONTAINS PROVISIONS UNDER WHICH THE BANK, TO THE EXTENT PERMITTED BY APPLICABLE LAW MAY, AFTER ENTRY OF JUDGMENT AND WITHOUT EITHER NOTICE OR A HEARING, ATTACH, LEVY OR OTHERWISE SEIZE PROPERTY OF THE BORROWERS IN FULL OR PARTIAL PAYMENT OF THE JUDGMENT, BEING FULLY AWARE OF ITS RIGHTS AFTER JUDGMENT IS ENTERED (INCLUDING, WITHOUT LIMITATION, THE RIGHT TO MOVE TO OPEN OR STRIKE THE JUDGMENT), EACH OF THE BORROWERS HEREBY FREELY, KNOWINGLY AND INTELLIGENTLY WAIVES THESE RIGHTS AND EXPRESSLY AGREES AND CONSENTS TO THE BANK’S TAKING SUCH ACTIONS AS MAY BE PERMITTED UNDER APPLICABLE STATE AND FEDERAL LAW WITHOUT PRIOR NOTICE TO IT.

     29. Time is of the Essence. Time shall be of the strictest essence in the performance of each and every one of the Borrowers’ obligations hereunder including, without limitation, the obligations to make payments to the Bank, to furnish information to the Bank and to comply with all reporting information.

     30. No Waiver of Rights under the Loan Documents. The Bank expressly reserves any and all rights and remedies available to it under this Amendment, the Loan Documents, any other agreement or at law or in equity or otherwise. No failure to exercise, or delay by the Bank in exercising any right, power or privilege hereunder or under any of the Loan Documents shall preclude any other or further exercise thereof, or the exercise of any other right, power or

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privilege. The rights and remedies provided in this Amendment and the Loan Documents are cumulative and not exhaustive of each other or of any right or remedy provided by law or equity or otherwise. No notice to or demand upon any Borrower in any instance shall, in itself, entitle any Borrower to constitute a waiver of any right of the Bank to take any other or further action in any circumstance without notice or demand.

     31. No Commitment. This Amendment is not intended as a commitment by the Bank to modify the Loan Documents in any respect or otherwise, except to the extent expressly set forth herein, and the Bank hereby specifically confirms that it makes no such commitment and specifically advises that no action should be taken by any Borrower based upon any understanding that such a commitment exists or on any expectation that any such commitment will be made in the future.

     32. No Third Party Beneficiaries. This Amendment is made for the sole benefit and protection of the Bank and the Borrowers and their respective successors and permitted assigns. By execution of this Amendment, the Bank does not intend to assume and is not hereby assuming any obligation to any third party. No third party shall be or shall be deemed a beneficiary of this Amendment.

     33. Marshalling; Payments Set Aside. The Bank shall not be under any obligation to marshall any assets in favor of any Borrower or any other person or against or in payment of any or all of the Obligations. To the extent that a payment or payments are made to the Bank or the Bank enforces any of its liens, and such payment or payments or the proceeds of such enforcement or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Borrowers, or any of them, a trustee, receiver or any other person under any law including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of any such restoration, the obligation or part thereof and any lien relating thereto originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement had not occurred.

     34. Voluntary Agreement. Each of the Borrowers represents and warrants that it is represented by legal counsel of its choice and that it has consulted with counsel regarding this Amendment, that it is fully aware of the terms contained herein and that it has voluntarily and without coercion or duress of any kind entered into this Amendment.

     35. Severability. In case any one or more of the provisions of this Amendment should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, and such invalid, illegal or unenforceable provision shall be deemed modified to the extent necessary to render it valid while most nearly preserving its original intent.

     36. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

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     37. Binding Agreement. This Amendment shall be binding upon and shall inure to the benefit of the Borrowers and the Bank and their respective heirs, successors and assigns; provided, however, that the Borrowers may not assign any of their rights or duties hereunder without the prior written consent of the Bank.

[SIGNATURES APPEAR ON THE NEXT PAGE.]

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     WITNESS the due execution hereof with the intent to be legally bound.

ATTEST:	PDG ENVIRONMENTAL, INC.
By:	By:	/s/ John C. Regan
ATTEST:	PROJECT DEVELOPMENT GROUP, INC.
By:	By:	/s/ John C. Regan
ATTEST:	ENVIRO-TECH ABATEMENT SERVICES, CO.
By:	By:	/s/ John C. Regan
ATTEST:	PDG, INC.
By:	By:	/s/ John C. Regan
ATTEST:	SERVESTEC, INC.
By:	By:	/s/ John C. Regan

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ATTEST:	THE HUNTINGTON NATIONAL BANK
By:	By:	/s/ Debra Flanigan
		Debra Flanigan, Vice President

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EX-10.16

EXHIBIT 10.16

     This Subordinated Secured Note is subject to the Subordination and Intercreditor Agreement, dated as of May 14, 2009 (the “Intercreditor Agreement”), among the Company, the Holder and The Huntington National Bank, its successors and assigns (the “Senior Lender”), under which this Note and the Company’s obligations hereunder are subordinated in the manner set forth therein to the prior payment of certain obligations to the holders of Senior Indebtedness as defined therein.

SUBORDINATED SECURED NOTE

NEITHER THE ISSUANCE OR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION IN A GENERALLY ACCEPTABLE FORM OF COUNSEL, WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER AND BE REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE.

PDG ENVIRONMENTAL, INC.

Subordinated Secured Note

Issuance Date: May 14, 2009 Principal: U.S. $4,993,226

          FOR VALUE RECEIVED, PDG Environmental, Inc., a Delaware corporation (the “Company”), hereby promises to pay to Radcliffe SPC, Ltd., for and on behalf of the Class A Segregated Portfolio, a company organized under the laws of the Cayman Islands, or registered assigns (“Holder”) the amount set out above as the Principal (as adjusted by any PIK Adjustment under Section 2(c) below, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the rate of 8.00% per annum (the “Interest Rate”), from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, redemption or otherwise (in each case, in accordance with the terms hereof). This Subordinated Secured Note is issued pursuant to the

Exchange Agreement (as defined below) on the Closing Date (including all Subordinated Secured Notes issued in exchange, transfer or replacement hereof, this “Note” and, together with any other Subordinated Secured Notes issued pursuant to the Exchange Agreement, the “Notes” and such other Subordinated Secured Notes, the “Other Notes”). Certain capitalized terms used herein are defined in Section 21. Capitalized terms not otherwise defined herein have the meanings set forth in the Exchange Agreement.

          (1) MATURITY. On the Maturity Date, the Holder shall surrender the Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges, if any. The “Maturity Date” shall be August 31, 2010.

          (2) PAYMENTS OF INTEREST AND PRINCIPAL. Company shall make monthly cash payments of Principal and Interest to Holder in the amount of $50,000 (the “Monthly Payment”) on the first day of each month (each, a “Payment Date”), provided that if the Interest payable on any Payment Date shall exceed $50,000, then for that month the Monthly Payment shall be the amount of such Interest. Notwithstanding the foregoing or any applicable Interest Rate or Default Rate, the cash portion of the Monthly Payment shall not exceed $50,000 per month for so long as the Senior Indebtedness remains outstanding.

               (a) Interest. Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of a 360-day year comprised of twelve 30-day months and shall be payable in arrears on each Payment Date during the period beginning on the Issuance Date and ending on, and including, the Maturity Date (each, an “Interest Date”) with the first Interest Date being June 1, 2009. Interest shall be payable on each Interest Date in cash. Interest on this Note shall accrue at the Interest Rate. From and after the occurrence of an Event of Default, the Interest Rate shall be increased to 2.0% (the “Default Rate”). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default.

               (b) Principal. The excess of the Monthly Payment over the amount of Interest due on any given Payment Date shall be applied to the principal amount of this Note without prepayment premium or penalty.

               (c) In-Kind Payment. In the event that (a) the Interest due on a given Interest Date exceeds the Monthly Payment for such date permitted pursuant to Section 2, or (b) due to the terms of the Intercreditor Agreement, Company cannot make or Holder cannot accept cash payments of Interest on this Note, then the dollar amount of such unpaid Interest for that Payment Date shall be added to the Principal amount of this Note (a “PIK Adjustment”). Interest on each PIK Adjustment shall accrue from the Interest Date in respect of which such PIK Adjustment was made until repayment of the principal and payment of all accrued Interest in full.

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               (d) In the event that any interest rate(s) or premiums provided for in this Section 2 shall be determined to be unlawful, such interest rate(s) shall be computed at the highest rate permitted by applicable law. Any payment by the Company of any interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the principal amount of this Note without prepayment premium or penalty; if no such principal amount is outstanding, such excess shall be returned to the Company.

          (3) EVENTS OF DEFAULT; RIGHTS UPON EVENTS OF DEFAULT.

               (a) Events of Default. Each of the following events shall constitute an “Event of Default” to the extent such events exist and continue beyond any applicable grace or cure period and have not otherwise been waived in writing:

               (i) the Company’s failure to pay to the Holder any Monthly Payment or any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note or any other Transaction Document (as defined in the Exchange Agreement);

               (ii) either the Company or any Subsidiary thereof shall fail to pay, when due, or within any applicable grace period, any payment with respect to any Indebtedness in excess of $50,000 due to any third party, or otherwise be in breach or violation of any agreement for monies owed or owing in an amount in excess of $50,000, which breach or violation permits the other party thereto to declare a default or otherwise accelerate amounts due thereunder unless such default is waived in writing delivered to the Holder;

               (iii) the Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;

               (iv) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the liquidation of the Company or any of its Subsidiaries;

               (v) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company and, if instituted against the Company or any subsidiary of the Company by a third party, shall not be dismissed within 60 days of their initiation;

               (vi) a final judgment or judgments for the payment of money aggregating in excess of $50,000 are rendered against the Company or any of its Subsidiaries, which judgments are not, within 60 days after the entry thereof, bonded,

3

discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a creditworthy party shall not be included in calculating the $50,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within 60 days of the issuance of such judgment;

               (vii) a material breach of any representation, warranty, covenant or other term or condition of this Note or any other Transaction Document by the Company;

               (viii) any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes.

               (b) Acceleration. If an Event of Default occurs under Section 3(a)(iii), (iv) or (v), then the outstanding principal of, all accrued Interest on, and any other amounts due under, this Note shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. If any other Event of Default occurs and is continuing, the Holder, by written notice to the Company, may declare the principal of, all accrued Interest on, and any other amounts due under, this Note to be immediately due and payable. Upon such declaration, such principal, Interest and other amounts shall become immediately due and payable. The Holder may rescind an acceleration and its consequences if all existing Events of Default have been cured or waived, except nonpayment of principal, Interest or other amounts that have become due solely because of the acceleration, and if the rescission would not conflict with any judgment or decree.

          (4) RIGHTS UPON AND CHANGE OF CONTROL.

               (a) Assumption. The Company shall not enter into or be party to a Change of Control unless the Successor Entity and, if an entity other than the Successor Entity is the entity whose capital stock or assets the holders of the Common Stock are entitled to receive as a result of such Change of Control, such other entity (the “Other Entity”), assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 4(a) pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder prior to such Change of Control, including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity or Other Entity, as applicable, evidenced by a written instrument substantially similar in form and substance to the Notes and with appropriate provisions such that the rights and interests of the Holder and the economic value of this Note are in no way diminished by such Change of Control, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by such holder and having similar ranking and security to the Notes, and satisfactory to the Holder. Upon the occurrence of any Change of Control, the Successor Entity or the Other Entity, as applicable, shall succeed to, and be substituted for (so that from and after the date of such Change of Control, the provisions of this Note referring to the “Company” shall refer instead to

4

the Successor Entity or the Other Entity, as applicable), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity or such Other Entity, as applicable, had been named as the Company herein.

               (b) Redemption Right. At least forty-five (45) days before the consummation of a Change of Control, but in no event later than fifteen (15) days prior to the record date for the determination of stockholders entitled to vote with respect thereto (or, with respect to a tender offer, or a change in the Board of Directors, if the Company is unable to comply with this time requirement because of the nature of the Change of Control, as soon as the Company reasonably believes that the Change of Control is to be consummated), but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Change of Control Notice”). If the terms of a Change of Control change materially from those set forth in a Change of Control Notice, the Company shall deliver a new Change of Control Notice and the time periods in this clause (b) shall be calculated based upon the Holder’s receipt of the later Change of Control Notice. At any time during the period (the “Change of Control Period”) beginning after the Holder’s receipt of a Change of Control Notice and ending on the date that is fifteen (15) Trading Days after the later of the consummation of such Change of Control or delivery of the Change of Control Notice, the Holder may require the Company to redeem all of this Note by delivering written notice thereof (“Change of Control Redemption Notice”) to the Company. The Note shall be redeemed by the Company in cash at a price equal to the sum of (i) the amount of any accrued and unpaid Interest on the Principal through the date of such redemption payment together with the amount of any accrued and unpaid Late Charges and (ii) an amount equal to one hundred and ten percent (110%) of the Principal then outstanding (the “Redemption Price”).

               (c) The provisions of this Section 4 shall apply similarly and equally to successive Change of Controls and shall be applied without regard to any limitations on the redemption of this Note. Redemptions required by this Section 4 shall be made in accordance with the provisions of Section 8 to the extent applicable and shall have priority over payments to stockholders and all other Indebtedness other than the Senior Indebtedness in connection with a Change of Control. To the extent redemptions required by this Section 4 are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments.

          (5) VOLUNTARY PREPAYMENT. The Company may prepay this Note in whole or in part at any time upon ten (10) Business Days prior written notice to the Holders. On the date of such prepayment, the Company shall pay any accrued and unpaid Interest on the Principal through the date of such prepayment together with the amount of any accrued and unpaid Late Charges and the Principal.

          (6) SECURITY. This Note and the Other Notes are secured to the extent and in the manner set forth in the Security Documents.

          (7) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, Bylaws or through any

5

reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.

          (8) REDEMPTION MECHANICS. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 4(b), the Company shall deliver the applicable Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Company’s receipt of such notice otherwise.

          (9) COVENANTS.

               (a) Rank. All payments due under this Note (a) shall rank pari passu with all Other Notes and (b) shall be senior to all other Indebtedness of the Company and its Subsidiaries, other than (i) Senior Indebtedness, (ii) the obligations of the Company or its Subsidiaries under any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on such Person’s balance sheet and (iii) Indebtedness permitted by clause (v) of the definition of “Permitted Liens.”

               (b) Incurrence of Indebtedness. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by the Notes and (ii) Permitted Indebtedness.

               (c) Existence of Liens. So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.

               (d) Restricted Payments. The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, (i) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Permitted Indebtedness, whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an Event of Default has occurred and is continuing, (ii) declare or pay any cash dividend or distribution on the Common Stock or (iii) redeem, repurchase or otherwise acquire or retire for value any shares of Common Stock (as defined in the Exchange Agreement).

          (10) CONSENT TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The written consent of the Holder shall be required for any change or amendment to this Note or the Other Notes.

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          (11) TRANSFER. This Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company.

          (12) REISSUANCE OF THIS NOTE.

               (a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 12(d)), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 12(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that the outstanding Principal represented by this Note may be less than the Principal amount stated on the face of this Note following redemption of any portion of this Note.

               (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 12(d)) representing the outstanding Principal.

               (c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 12(d) and in principal amounts of at least $100,000) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

               (d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 12(a) or Section 12(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued Interest and Late Charges on the Principal and Interest of this Note, from the Issuance Date.

          (13) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note.

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The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          (14) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

          (15) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.

          (16) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          (17) NOTICES; PAYMENTS.

               (a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.9 of the Exchange Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore.

               (b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by wire transfer of immediately available funds in accordance with the Holder’s wire transfer instructions provided to the Company by the Holder. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and the extension of the due date thereof shall be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Principal or other amounts due under the

8

Transaction Documents, other than Interest, which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of 2.00% per annum from the date such amount was due until the same is paid in full (“Late Charge”).

          (18) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

          (19) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Exchange Agreement.

          (20) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the Commonwealth of Pennsylvania, without giving effect to any choice of law or conflict of law provision or rule (whether of the Commonwealth of Pennsylvania or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the Commonwealth of Pennsylvania.

          (21) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:

               (a) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

               (b) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

               (c) “Eligible Market” means the Nasdaq National Market, The Nasdaq Capital Market, The New York Stock Exchange, Inc. or the American Stock Exchange.

               (d) “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) “capital leases” in accordance with generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either

9

case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

               (e) “Exchange Agreement” means the Exchange Agreement dated as of May 14, 2009 between the Company and Holder.

               (f) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Change of Control.

               (g) “Permitted Indebtedness” means (A) Senior Indebtedness, (B) unsecured Indebtedness incurred by the Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement acceptable to the Holder and approved by the Holder in writing, and which Indebtedness does not provide at any time for (1) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any principal or premium, if any, thereon until 91 days after the Maturity Date or later and (2) total interest and fees at a rate in excess of the Interest Rate hereunder, (C) the obligations of the Company or its Subsidiaries under any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on such Person’s balance sheet and (D) Indebtedness permitted by clause (v) of the definition of “Permitted Lien.”

               (h) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) any Lien incurred to secure Senior Indebtedness, (v) Liens securing the purchase price of assets purchased or leased by the Company or Subsidiaries in the ordinary course of business; provided that such Lien shall not extend to or cover any other property of the Company or its Subsidiaries, provided that such liens do not exceed an aggregate value of $500,000, (vi) Liens securing the Company’s obligations under the Notes, and (vii) Liens in respect of pledges or deposits under workers’ compensation laws, unemployment insurance and

10

social securities laws or to or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or surety or similar bonds used in the ordinary course of business.

               (i) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

               (j) “SEC” means the United States Securities and Exchange Commission.

               (k) “Security Documents” means the Security Agreement, dated May 14, 2009, between the Company and the Holder.

               (l) “Senior Indebtedness” means the principal of (and premium, if any), interest on, and all fees and other amounts (including, without limitation, any reasonable out-of-pocket costs, enforcement expenses (including reasonable out-of-pocket legal fees and disbursements), collateral protection expenses and other reimbursement or indemnity obligations relating thereto) payable by Company under or in connection with Amended and Restated Credit Agreement, dated as of June 9, 2006, among Senior Lender, Company, Project Development Group, Inc., Enviro-Tech Abatement Services, Inc., PDG, Inc., Flagship Restoration, Inc. and Servestec, Inc. as amended and restated from time to time. Senior Indebtedness shall also include any Indebtedness incurred in connection with any refinancing of Senior Indebtedness in accordance with the terms and restrictions in the Intercreditor Agreement.

               (m) “Successor Entity” means the Person, which may be the Company, formed by, resulting from or surviving any Change of Control or the Person with which such Change of Control shall have been made, provided that if such Person is not a publicly traded entity whose common stock or equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity shall mean such Person’s Parent Entity.

               (n) “Trading Day” means any day on which trading the Common Stock is reported on the Over-the-Counter Bulletin Board or Eligible Market that is the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00 p.m., New York Time).

          (22) DISCLOSURE. Except as provided otherwise herein, upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within four Business Days after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information, relating to the Company or its Subsidiaries, the Company shall indicate to the Holder contemporaneously with

11

delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

          (23) CONSENT TO JURISDICTION; JURY TRIAL WAIVER. The Company and the Holder irrevocably consent to the exclusive jurisdiction of the United States federal courts and the state courts located in the City of Pittsburgh in the County of Allegheny of the Commonwealth of Pennsylvania, in any suit or proceeding based on or arising under this Note and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in such forum. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of the Holder to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

          (24) CONFESSION OF JUDGMENT.

               (a) THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST THE COMPANY. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE COMPANY, THE COMPANY, FOLLOWING CONSULTATION WITH COUNSEL, AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS THE COMPANY HAS, OR MAY HAVE, TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING BEFORE ENTRY OF JUDGMENT UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE JURISDICTION SET FORTH IN SECTION 23.

               (b) THE COMPANY HEREBY EMPOWERS ANY CLERK, OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR THE COMPANY AFTER ANY EVENT OF DEFAULT IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER IN THE JURISDICTION SET FORTH IN SECTION 23 OR ELSEWHERE AND CONFESS JUDGMENT AGAINST THE COMPANY FOR ALL, OR ANY PART OF, THE UNPAID PRINCIPAL AND ACCRUED INTEREST, TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS’ FEES, AND FOR SUCH PURPOSE THE ORIGINAL OR ANY PHOTOCOPY OF THIS NOTE AND AN AFFIDAVIT OF THE HOLDER OR THE HOLDER’S COUNSEL AVERRING TO THE EVENT OF DEFAULT SHALL BE A GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORIZATION SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME. THE COMPANY HEREBY WAIVES ALL ERRORS AND RIGHTS OF

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APPEAL, AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY, IN ANY ACTION TO ENFORCE ITS LIABILITY HEREON.

[Signature Page Follows]

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     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.

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

(Signature Page to Subordinated Secured Note)

EX-21

EXHIBIT 21

SUBSIDIARIES OF PDG ENVIRONMENTAL, INC.

Name of Subsidiary	State of Formation
Project Development Group, Inc.	PA
PDG, Inc.	PA
Enviro-Tech Abatement Services Co.	NC
Servestec, Inc.	FL
PDG of Delaware, Inc.*	DE
DPI Energy, Inc.*	PA
Asbestemps, Inc.*	DE
Applied Environmental Technology, Inc.*	DE
Applied Consulting & Technical Services, Inc.*	DE

* Inactive subsidiaries

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Post Effective Amendment #2 to Form S-2 on Form S-1 (File No. 333-128508) and on Forms S-8 (Nos. 333-116079, 33-40699 and 33-40700) of PDG Environmental, Inc. of our report dated May 14, 2009, relating to the consolidated financial statements and financial statement schedules of PDG Environmental, Inc. and Subsidiaries included in the Annual Report on Form 10-K for the year ended January 31, 2009.

/s/ Malin, Bergquist & Company, LLP

Pittsburgh, Pennsylvania
May 14, 2009

EX-24

EXHIBIT 24

POWER OF ATTORNEY

KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG Environmental, Inc., a Delaware Corporation, does make, constitute and appoint John C. Regan, with full power and authority his true and lawful attorney-in-fact and agent, for him and his name, place and stead in any and all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form 10-K for the year ended January 31, 2009, and to file such Annual Report, so signed, with all exhibits thereto, with the Securities and Exchange Commission, hereby further granting unto said attorney-in-fact full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person; the undersigned hereby ratifies and confirms all that said attorney and agent, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL THIS 16th day of January 2009.

/s/ Richard A. Bendis	(SEAL)
Richard A. Bendis, Director

EXHIBIT 24

POWER OF ATTORNEY

KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG Environmental, Inc., a Delaware Corporation, does make, constitute and appoint John C. Regan, with full power and authority his true and lawful attorney-in-fact and agent, for him and his name, place and stead in any and all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form 10-K for the year ended January 31, 2009, and to file such Annual Report, so signed, with all exhibits thereto, with the Securities and Exchange Commission, hereby further granting unto said attorney-in-fact full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person; the undersigned hereby ratifies and confirms all that said attorney and agent, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL THIS 16th day of January 2009.

/s/ Edgar Berkey	(SEAL)
Edgar Berkey, Director

EXHIBIT 24

POWER OF ATTORNEY

KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG Environmental, Inc., a Delaware Corporation, does make, constitute and appoint John C. Regan, with full power and authority his true and lawful attorney-in-fact and agent, for him and his name, place and stead in any and all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form 10-K for the year ended January 31, 2009, and to file such Annual Report, so signed, with all exhibits thereto, with the Securities and Exchange Commission, hereby further granting unto said attorney-in-fact full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person; the undersigned hereby ratifies and confirms all that said attorney and agent, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL THIS 16th day of January 2009.

/s/ James D. Chiafullo	(SEAL)
James D. Chiafullo, Director

EXHIBIT 24

POWER OF ATTORNEY

KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG Environmental, Inc., a Delaware Corporation, does make, constitute and appoint John C. Regan, with full power and authority his true and lawful attorney-in-fact and agent, for him and his name, place and stead in any and all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form 10-K for the year ended January 31, 2009, and to file such Annual Report, so signed, with all exhibits thereto, with the Securities and Exchange Commission, hereby further granting unto said attorney-in-fact full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person; the undersigned hereby ratifies and confirms all that said attorney and agent, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, THE UNDERSIGNED HAS HEREUNTO SET HIS HAND AND SEAL THIS 16th day of January 2009.

/s/ Edwin J. Kilpela	(SEAL)
Edwin J. Kilpela, Director

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, John C. Regan, certify that:

1.	I have reviewed this Annual Report on Form 10-K of PDG Environmental, Inc. (the “Registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles.

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

By:	/s/ John C. Regan
	John C. Regan
	Chief Executive Officer
	Dated: May 15, 2009

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Nicola Battaglia, certify that:

1.	I have reviewed this Annual Report on Form 10-K of PDG Environmental, Inc. (the “Registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the generally accepted accounting principles.

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

By:	/s/ Nicola Battaglia
	Nicola Battaglia
	Chief Financial Officer
	Dated: May 15, 2009

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF SARBANES-OXLEY ACT

Pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of PDG Environmental, Inc. herby certify that the Annual Report of PDG Environmental, Inc. on Form 10-K for the fiscal year ended January 31, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of PDG Environmental, Inc.

By:	/s/ John C. Regan
	John C. Regan
	Chief Executive Officer
	Dated: May 15, 2009
By:	/s/ Nicola Battaglia
	Nicola Battaglia
	Chief Financial Officer
	Dated: May 15, 2009