SECURITIES AND EXCHANGE COMMISSION ~~Washington, D.C. 20549~~

Washington, D.C. 20549

FORM 10-K

(Mark One)


[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the year ended June 30, ~~2002~~2003


[ ]		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 333-64745

PENHALL INTERNATIONAL CORP. ~~(Exact name of registrant as specified in its charter)~~

~~ARIZONA~~ (~~State~~Exact orname ~~other jurisdiction~~ of ~~incorporation~~registrant oras ~~organization)~~specified ~~86-0634394~~in ~~(I.R.S.~~its ~~Employer Identification No.~~charter)

1801 PENHALL WAY, ANAHEIM, CA 92803 (Address of principal executive offices) (Zip Code) (714) 772-6450


ARIZONA		86-0634394
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~(Registrant’s~~1801 ~~telephone~~PENHALL ~~number~~WAY, ~~including~~ANAHEIM, ~~area~~CA ~~code~~92803 (Address of principal executive offices) (Zip Code)

(714) 772-6450
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by ~~check mark whether~~ the ~~registrant~~number ~~(1) has~~of ~~filed~~shares ~~all~~outstanding ~~reports required to be filed by Section 13 or 15(d)~~ of ~~the~~each ~~Securities Exchange Act~~ of ~~1934~~ ~~during~~ the ~~preceding 12 months (or for such shorter period that the~~issuer’s ~~registrant~~classes ~~was~~of ~~required~~common ~~to file such reports)~~stock, ~~and~~as ~~(2) has~~of ~~been subject to such filing requirements for~~ the ~~past~~latest ~~90 days.~~practicable ~~Yes [X] No [ ]~~date.


CLASS AND TITLE OF CAPITAL STOCK		SHARES OUTSTANDING AS OF SEPTEMBER 29, 2003

Common Stock, $.01 Par Value		986,552

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. [X]

AsIndicate ofby ~~September~~check mark whether the registrant (1) ~~20,~~has ~~2002,~~filed ~~there~~all ~~were~~reports required ~~986,015~~to ~~shares~~be filed by Section 13 or 15(d) of the ~~registrant’s~~Securities Exchange Act of ~~common~~1934 ~~stock~~during ~~outstanding,~~the ~~all~~preceding of12 months ~~which~~(or ~~were~~for ~~owned~~such byshorter ~~affiliates~~period ofthat the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X ] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

DOCUMENTS INCORPORATED BY REFERENCE:
None

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
PART III
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
	ITEM 9a. CONTROLS AND PROCEDURES
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION.
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBITS INDEX
EXHIBIT 10.12
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.20
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 12
EXHIBIT 21
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

TABLE OF CONTENTS


PART I
	ITEM 1. BUSINESS	1
	ITEM 2. PROPERTIES	7
	ITEM 3. LEGAL PROCEEDINGS	8
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	8
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	8
	ITEM 6. SELECTED FINANCIAL DATA	9
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	10
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.	17
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	17
PART III
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	50
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	50
	ITEM 11. EXECUTIVE COMPENSATION.	51
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	52
	ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	53
	ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES	53
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	54
SIGNATURES		57
EXHIBIT INDEX		58
EXHIBIT 12
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

PART I

ITEM 1. BUSINESS

GENERAL

Penhall consists of Penhall International Corporation, an Arizona ~~Corporation~~corporation, and ~~two~~a wholly owned ~~subsidiaries~~subsidiary, Penhall Company ~~and Penhall Rental Corporation~~, ~~both~~a California ~~Corporations~~ corporation. Penhall Company has three wholly owned subsidiaries, Penhall Investments, a California Corporation, Bob Mack Company, Aa California ~~Corporation~~ corporation, and Penhall Leasing, a California single member limited liability company (collectively Penhall International Corporation and the five subsidiaries are the “Company” or “Penhall”).

Penhall was founded in 1957 and is one of the largest operated equipment rental providers in the United States. Penhall differentiates itself from other equipment rental companies by providing specialized services in connection with infrastructure projects through renting equipment along with skilled operators on an hourly or fixed-price quote basis (“Operated Equipment Rental Services”) to serve construction, industrial, manufacturing, governmental and residential customers. In addition, Penhall complements its Operated Equipment Rental Services by providing the same type of services on a fixed-price contract basis for long-term projects. Penhall employs over 800 skilled operators and has ~~761~~710 units in its diverse operated equipment rental fleet, which includes a broad selection of equipment ranging from smaller items such as diamond abrasive saws and coring units, to large equipment such as backhoes, excavators, water trucks and concrete grinders. Penhall provides its services from 38 locations in 17 states, ~~with a presence in some of the fastest growing states in terms of construction spending and population growth,~~ including ~~its primary market, California, as well as other strategic markets including~~ Arizona, Colorado, Nevada, Texas, Georgia, North and South Carolina, Oregon, New York and Utah. Penhall has a diverse base of over 14,000 customers. With the exception of the California Department of Transportation ~~(which represented less than 1% of total revenue in fiscal 2002 and 6% in fiscal 2001)~~, no one customer has accounted for more than 5% of its total revenue in any of the past five fiscal years. Penhall has a reputation for high quality service, which results in a high degree of customer loyalty, and management believes that a significant percent of its revenues are derived through repeat business from existing customers. Penhall has increased its revenues from $95.3 million in fiscal 1997 to $~~161~~159.26 million in fiscal ~~2002~~2003 through 1) increased rental fleet utilization, 2) increasing its rental equipment fleet, 3) acquisitions, and 4) opening of new offices.

Through its skilled operators and equipment rental fleet, Penhall performs new construction, rehabilitation and demolition services in connection with infrastructure projects. For short duration assignments, typically lasting from several hours to a few weeks, Penhall generally provides Operated Equipment Rental Services on an hourly or fixed-price quote basis. Services provided in this manner include specialized work such as highway and airport runway grooving and asphalt cutting, as well as demolition work such as concrete breaking, removal and recycling. For longer duration projects, which may last from a few days to several years, Penhall provides services on a fixed-price contractual basis. Services provided in this manner include work for highway, airport and building general contractors, federal, state and municipal agencies and for property owners. A majority of fixed-price contract revenues are derived from long-term highway projects, which have an average contract length of approximately ten months. Penhall strives to maximize utilization of its operated equipment rental fleet and uses its fixed-price contract services to (i) market its Operated Equipment Rental Services, (ii) increase utilization of its operated equipment rental fleet and (iii) differentiate it from other equipment rental competitors. As part of a fixed-price contract project, Penhall is responsible for completion of an entire job or project, and typically employs its Operated Equipment Rental Services. On average, approximately 2827% of Operated Equipment Rental Services revenues are generated from fixed-price contracts.

The operated equipment rental industry is a specialized niche segment of the highly fragmented United States equipment rental industry. As of June 30, 2001, there were an estimated 17,000 equipment rental companies in the United States, and no single company represented more than 7% of total market revenues in 1999. ~~According~~Based toon industry sources, ~~the~~it ~~United~~is ~~States~~estimated ~~equipment~~that ~~rental~~the U.S. equipment rental industry ~~grew~~has grown from approximately $~~600~~6.5 ~~million~~billion in annual rental revenues in ~~1982~~1990 to ~~an estimated~~about $2824 billion in ~~1999, representing an approximate Compounded Annual Growth Rate (CAGR) of 25~~2002.~~4%.~~ Management believes that the operated equipment rental industry has grown at a similar rate during this period. This represents a compound annual growth ~~has~~rate of approximately 11.5%, although in the past two years industry rental revenues decreased by about $2 billion. The recent downturn in industry revenues is a reflection of the significant slowdown in private non-residential construction activity, which declined 16% in 2002 according to Department of Commerce data as well as significantly lower state highway and bridge spending due to state budget deficits. The Company is particularly sensitive to changes in state highway and non-residential construction activity because these sectors have been principal users of the Company’s services. The long term growth of the equipment rental industry has been driven primarily by construction spending and continued outsourcing of equipment needs by construction and industrial companies. While ~~customers~~ customers traditionally have rented equipment for specific purposes such as ~~supplementing~~ supplementing capacity during peak periods and in connection with special projects, customers are increasingly looking to rental operators to provide an ongoing, comprehensive supply of equipment, enabling such customers to benefit from the economic advantages and convenience of rental.

THE REORGANIZATION

Penhall International, Inc., a California corporation (“PII”), prior to the consummation of the Transactions (as defined below) conducted all its operations through Phoenix Concrete Cutting, Inc., an Arizona corporation (the “Company”), and the Penhall Company, a California corporation (“PenCo”). As of June 30, 1998, PII, the stockholders of PII, the Company, and Penhall Acquisition Corp., an Arizona Corporation (the “Issuer” or “PAC”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, the Company formed PCC Merger Sub, a California corporation and wholly-owned subsidiary (“PCC Merger Sub”), which on August 4, 1998, was merged with and into PII (the “Reorganization Merger”), with the result that (i) PII continued as the surviving corporation, (ii) each stockholder of PII had his or her common equity in PII converted into common equity in the Company, (iii) PII received common equity in the Company approximately equal in value to the value of its common equity in the Company immediately prior to the consummation of the Reorganization Merger and (iv) the Company received common equity in PII such that the Company became the corporate parent of and owns all the outstanding capital stock of PII (which continues to hold all the outstanding capital stock of PenCo). Pursuant to the Merger Agreement, immediately following the Reorganization Merger, the Issuer merged with and into the Company (the “Recapitalization Merger” and, together with the Reorganization Merger, the “Mergers”), with the Company continuing as the surviving corporation (the “Surviving Corporation”). Prior to or simultaneously with the consummation of the Recapitalization Merger, the Issuer entered into a new senior secured credit facility (the “New Credit Facility”) providing for $20.0 million of Term Loans (as defined therein) and up to $30.0 million of Revolving Loans (as defined therein), and all indebtedness of PII except $3.7 million of notes payable was repaid (the “Refinancing”). Following the consummation of the Mergers, the Company changed its corporate name to “Penhall International Corp.” and PII changed its corporate name to “Penhall Rental Corp.”

The aggregate consideration paid upon consummation of the Recapitalization Merger (the “Merger Consideration”) was approximately $136.2 million. Pursuant to the Merger Agreement, (i) certain management stockholders of PII (the “Existing Management Stockholders”) agreed to convert a portion of the common equity in the Company received by them pursuant to the Reorganization Merger into $8.7 million of common and preferred equity of the Surviving Corporation (the “Equity Rollover”), (ii) the National Christian Charitable Foundation, Inc., (Foundation), a foundation formed by the Company’s former majority shareholder received $10.0 million of preferred equity of the Surviving Corporation in lieu of $10.0 million of cash Merger Consideration otherwise payable to it in the Recapitalization Merger, and (iii) BRS and certain persons affiliated with Bruckmann, Rosser and Sherrill & Co., L.P., (BRS), (together with BRS, the “BRS Entities”) and the New Management Stockholders (consisting of certain existing management and certain new management shareholders) purchased $21.1 million and $0.2 million, respectively, of common and preferred equity of the Surviving Corporation (the “Equity Contribution” and, together with the Mergers, the Refinancing and the Equity Rollover, the “Recapitalization”). Following the consummation of the Recapitalization, the BRS Entities held approximately 62.5% of the Common stock, par value $.01 per share, of the Surviving Corporation (“Common stock”), 100.0% of the Series A Preferred stock, par value $.01 per share, of the Surviving Corporation (“Series A Preferred stock”) and 43.3% of the Series B Preferred stock, par value $.01 per share, of the Surviving Corporation (“Series B Preferred stock”), the Management Stockholders held approximately 37.5% of the Common stock and 38.6% of the Series B Preferred stock, the Foundation held 100% of the Senior Exchangeable Preferred stock and PII held approximately 18.1% of the Series B Preferred stock.

In connection with the Recapitalization in August of 1998, the Issuer issued $100,000,000 of 12% Senior Notes due 2006 (the “Existing Notes”). As part of the Recapitalization, the Company became the successor obligor under the ~~Exiting~~Existing Notes. In order to satisfy certain obligations of the Company and the Guarantors (consisting of the Company’s wholly-owned subsidiaries) contained in the Registration Rights Agreement, dated August 4, 1998 (the “Registration Rights Agreement”) by and among the Issuer, the Company, the Guarantors, BT Alex. Brown Incorporated (“BTAB”) and Credit Suisse First Boston (collectively with BTAB, the “Initial Purchasers”) with respect to the initial sale of the Existing Notes, the Company offered to exchange an aggregate principal amount of up to $100,000,000 of its 12% Senior Notes due 2006 (the “New Notes”) for a like principal amount of the Existing Notes outstanding in December 1998. The New Notes and the Existing Notes are hereinafter collectively referred to as the “Notes.” The terms of the New Notes are identical in all material respects to those of the Existing Notes, except for certain transfer restrictions and registration rights relating to the Existing Notes. The New Notes were issued pursuant to, and are entitled to the benefits of, the Indenture (as defined) governing the Existing Notes.

The foregoing transactions, the application of the proceeds therefrom and the payment of related fees and expenses, are collectively referred to herein as the “Transactions.”

~~Penhall was obligated to make approximately $3 million of tax gross-up~~2 ~~payments to certain members of Management on or before September 15, 1998. The~~ Company made such payments out of working capital on September 15, 1998. During the fiscal years ended June 30, 1998 and 1999, Penhall realized tax benefits of approximately $3 million in the form of reduced tax payment

obligations or refunds of tax overpayments as a result of deductions for certain of such tax gross-up payments and deductions with respect to employee stock options.

EQUIPMENT RENTAL FLEET

Penhall owns and operates a well-maintained fleet of ~~761~~710 units of operated equipment, including excavators, stompers, backhoes, compressors, “bobcats,” crushing equipment, saws, drills and grinding, asphalt milling, and ~~grooving~~ grooving equipment. Penhall also carries state-of-the-art manually-operated and remote-controlled breakers, which provide access to contaminated, hazardous or limited access areas and which have been used for hazardous projects such as the demolition of decommissioned nuclear power plants. The Company employs skilled operators, including trainees, for each piece of equipment it operates. The following table is a summary of Penhall’s operated equipment rental fleet as of June 30, ~~2002~~2003:

DESCRIPTION	QUANTITY
Diamonds		~~401~~359
Compressors		~~107~~108
Excavators		2824
Grinders		21
Backhoes		5250
Bobcats		61
Tankers		2726
Stompers		98
Loaders		32
Milling		17
Miscellaneous		3534
Total Units		~~761~~710

In addition to its ~~761~~710-unit operated equipment rental fleet, Penhall maintains an additional fleet of 3736 tankers, 1921 ~~Grinders~~grinders, and 1117 miscellaneous pieces of equipment, which are used exclusively on fixed-price contracts. Also, Penhall has an inventory of approximately ~~536~~436 Bare Equipment Rentals, which are rented out on an hourly, daily, weekly or monthly basis without ~~skilled~~ skilled operators. Bare Equipment Rentals include personnel lifts, forklifts, front-end loaders and light towers. Each Penhall location has ~~it’s~~its own shop and repair and maintenance staff that routinely maintains and repairs the equipment ~~rental~~ rental fleet.

SERVICES

Penhall, through its operated equipment rental fleet and skilled operators, serves its customer base in a wide variety of infrastructure projects, including new construction, rehabilitation and demolition projects, and provides specialized services such as highway and airport runway grooving, asphalt cutting, concrete coring and demolition work. These services are available singly but are more commonly provided by Penhall in conjunction with other services necessary to their application to a particular project, including breaking, excavating, removing and recycling of construction materials. Penhall also provides services in connection with earthquake retrofit projects, particularly in California, which include retrofitting of highways, buildings, bridges and tunnels in order to bring them in compliance with more stringent earthquake safety laws. Moreover, the Company is the largest provider of grinding services in the United States.

Specialty Services:

	•		Cutting. Cutting is the use of diamond abrasive saws to cut concrete and asphalt. This service is frequently utilized in new construction to provide rectangular openings in walls or floors, and is generally more efficient than framing and forming the opening while the concrete is being poured. Flat sawing also is commonly used in modifying existing structures and road rehabilitation.
	•		Coring. Coring is the use of rotary drills to create holes ranging from less than one inch to 42 inches in diameter. This service is most frequently utilized both in new construction and in retrofit of existing facilities to create spaces needed for installation of ventilation ducts, conduits, electrical and other cables, and mechanical passageways. Coring is also used in the Company’s earthquake retrofit projects.

	•		Cutting. Cutting is the use of diamond abrasive saws to cut concrete and asphalt. This service is frequently utilized in new construction to provide rectangular openings in walls or floors, and is generally more efficient than framing and forming the opening while the concrete is being poured. Flat sawing also is commonly used in modifying existing structures and road rehabilitation.

	•		Coring. Coring is the use of rotary drills to create holes ranging from less than one inch to 42 inches in diameter. This service is most frequently utilized both in new construction and in retrofit of existing facilities to create spaces needed for installation of ventilation ducts, conduits, electrical and other cables, and mechanical passageways. Coring is also used in the Company’s earthquake retrofit projects.

	•		Grinding. Grinding is the use of diamond abrasive grinders to mill away excess material as necessary to attain a uniform, level finish on flat surfaces, such as highways, airport runways and industrial floors. Grinding is also utilized as a maintenance process to extend the useful life of highways by evening the wear patterns caused by years of heavy traffic, to prevent cracking and subsequent failure of the surface.

	•		Grooving. Grooving is the use of diamond abrasive groove cutting machines to provide safety grooving of flat services. This service is commonly provided in connection with the construction or modification of highways and airport runways and provides for better tire traction on these surfaces.

• Grinding. Grinding is the use of diamond abrasive grinders to mill away excess material as necessary to attain a uniform, level finish on flat surfaces, such as highways, airport runways and industrial floors. Grinding is also utilized as a maintenance process to extend the useful life of highways by evening the wear patterns caused by years of heavy traffic, to prevent cracking and subsequent failure of the surface. • Grooving. Grooving is the use of diamond abrasive groove cutting machines to provide safety grooving of flat services. This service is commonly provided in connection with the construction or modification of highways and airport runways and provides for better tire traction on these surfaces. • Sawing and Sealing. Sawing and sealing is the cutting of concrete and the introduction of high-strength epoxy cement and sealant into cracks or spaces to avoid water intrusion into the surface and to provide additional structural strength. • Asphalt Milling. Asphalt milling is the grinding of asphalt and concrete surfaces. This service uses equipment with carbide tools to change the elevation of existing roadways as part of highway rehabilitation projects. The work is performed using a fleet of various size machines, ranging from 200 horsepower, 48” wide machines to 800 horsepower, 8 1/2’ wide machines. This service may also involve road reclamation and asphalt recycling.

	•		Sawing and Sealing. Sawing and sealing is the cutting of concrete and the introduction of high-strength epoxy cement and sealant into cracks or spaces to avoid water intrusion into the surface and to provide additional structural strength.

	•		Asphalt Milling. Asphalt milling is the grinding of asphalt and concrete surfaces. This service uses equipment with carbide tools to change the elevation of existing roadways as part of highway rehabilitation projects. The work is performed using a fleet of various size machines, ranging from 200 horsepower, 48” wide machines to 800 horsepower, 8 1/2’ wide machines. This service may also involve road reclamation and asphalt recycling.

Other Services:

• Breaking. Breaking is the use of manually-operated or, in hostile environments, remotely-controlled high-energy hydraulic breaking equipment to remove concrete. This service was most visibly utilized by Penhall in the removal of large sections of the Nimitz Freeway in Oakland, California, following the 1989 earthquake, and in the removal of damaged freeway bridges and overpasses in southern California following the 1994 earthquake. Breaking equipment is more commonly used in less dramatic settings, such as interior renovation of industrial buildings to adapt them to a new use, and in removal of existing structures in preparation for redevelopment of the real estate. The Company has designed and used remotely-controlled breakers for modification and removal of facilities contaminated with radioactive material, such as nuclear power stations and development laboratories. • Clearing and Removal. Clearing and removal is the use of excavators and other heavy-duty equipment to remove broken concrete and other material from a site to a point of recycling or disposal. • Crushing and Recycling. Crushing and recycling is the use of specialized equipment to reduce the size of the material to a consistent specification, separating out the steel reinforcing material for sale as scrap, and providing an aggregate material suitable for use as construction fill material and roadbase material. Such recycling provides a valuable environmental benefit by conserving solid waste landfill space, and converting a waste into a usable product. • Compaction. Compaction is the preparation of subsoil base and fill ~~materials~~material to a specification suitable for new construction on the site. Compaction services typically are provided together with removal services in the site preparation process for new construction or redevelopment.

OPERATIONS

Penhall provides the rental of operator assisted equipment through (i) Operated Equipment Rental Services, performed on an hourly as well as a fixed-price quote basis, and (ii) fixed-price contracts, in which Penhall is responsible for the completion of a particular project.

Penhall’s Operated Equipment Rental Services involve short duration assignments lasting from several hours to a few weeks and typically generate revenues of less than $7,500. Services provided on this basis include specialized work such as highway and airport runway grooving, asphalt cutting, and demolition work such as concrete breaking, removal, and recycling. Although all lines of equipment are rented for these types of projects, a given project will typically use only one piece of equipment. Operated Equipment Rental Services are typically provided on an hourly basis or for a project with pre-determined specifications, and Penhall quotes a bid to perform and invoice the customer for the project.

Penhall’s services are made available to customers through its 38 regional locations. Penhall maintains a basic equipment rental fleet and operators at each of its 38 locations. If necessary, equipment can be shipped from any of Penhall’s locations to projects at remote sites. Rental fees for Penhall’s equipment range from $80 to $430 per hour and encompass both the equipment and the operator’s time.

remote sites. Rental fees for Penhall’s equipment range from $80 to $430 per hour and encompass both the equipment and the operator’s time.

Penhall solicits and receives business over the telephone, by facsimile, by written purchase order or through Penhall salesmen. Each day Penhall’s dispatcher at each location is responsible for the allocation of resources to meet the customer’s service and timing requirements. The dispatcher matches all of the work requests for that day to available equipment and operators. Each of Penhall’s skilled operators has an expertise with a particular piece of equipment. Depending on the requirements for that day, an operator may be assigned from one to four jobs on a given day. An operator’s time is allocated by job through job tickets, which generate both payroll and customer billing data.

Historically, Penhall rented its equipment only in conjunction with the services of a Penhall employee as the operator. However, in 1996, Penhall started operating rental yards and offering Bare Equipment Rentals, or renting equipment without operators. To date, such Bare Equipment Rentals have not yet constituted a significant part of Penhall’s revenues.

Contract pricing utilizes the same equipment and services provided through its Operated Equipment Rental Services; however, these services involve longer duration assignments lasting from a few days to several years and may ~~generates~~generate revenues of between $7,500 and $10,000,000. Services provided on this basis include work for highway, airport and building general contractors, federal, state and municipal agencies and for property owners. Fixed-price contract projects typically use multiple types of equipment concurrently and require a Penhall supervisor to coordinate the safe and efficient function of Penhall’s workmen and equipment. For fixed-price contract projects, Penhall typically employs the use of its Operated Equipment Rental Services as well as outside rental equipment and sub-contractors. Although Penhall has obtained contractor’s licenses in 26 states (not including 24 states, which do not require licensing), it typically provides its services in the capacity of a subcontractor under prime or general contracts in approximately half of its fixed-price contract projects.

The majority of Penhall’s fixed-price contracts are obtained through competitive bidding for general contractors. Penhall determines whether to bid on a project primarily on the basis of the type of work involved. Other factors, including the time of the project, Penhall’s ongoing project schedule and any particular risks involved also affect Penhall’s determination whether to bid on a project. In preparing a bid, Penhall’s estimators analyze material, labor and all other cost components of the proposed project. Penhall also will make its own determination of the quantity of items needed for the project and assess any special risks involved. Penhall must specify in its bid a fixed-price per unit within the range of the estimated quantity to be provided under the contract. Generally, within this range, no adjustments in unit prices are made and Penhall is committed to provide the items at the fixed unit prices specified in its bid, and any unforeseen increase in the cost of the items over the prices bid is borne by Penhall. Penhall has not borne a significant amount of cost increases in connection with its fixed-price contracting services.

Penhall sometimes contracts directly with Federal, state or local governments or agencies, and in addition some of its work performed for general contractors may relate to a general or prime contract with a governmental entity. Generally the contracting agency reserves the right to terminate the contract with the general contractor, without cause, for its own convenience. In that event, Penhall generally is entitled to be paid its costs for the work performed to the date of termination. Penhall has not historically experienced any material contract cancellations.

SALES AND MARKETING

Penhall maintains a sales and estimating force of approximately 120 people, with at least two salespersons based at ~~each~~most of Penhall’s operating locations calling on both new and existing customers. These salespeople provide estimates and prepare bids for projects. Management believes that its fixed-price contract services serve as a unique marketing tool for its Operated Equipment Rental Services and help to increase the utilization of Penhall’s operated equipment rental fleet. Penhall also regularly participates in industry trade shows and conferences, and advertises in trade journals.

PURCHASING AND SUPPLIERS

Penhall’s size, status in the industry and relationships enable it to purchase equipment directly from manufacturers at prices and on terms that Penhall believes to be more favorable than are available to its smaller competitors. Penhall’s procurement of equipment for its rental fleet is generally coordinated through its headquarters in Anaheim, California, while smaller inventory items are typically purchased at the divisional level. Penhall’s suppliers must meet specified standards of quality and experience, and include well-known equipment manufacturers such as Caterpillar, John Deere, Ingersoll-Rand, Kenworth, General Motors Company and Ford Motor Company. The favorable pricing, service, training and information that Penhall receives from its suppliers represent what Penhall believes to be a significant competitive advantage. Management continually analyzes the effectiveness, quality and profitability of Penhall’s equipment and addresses equipment procurement issues. Penhall maintains no long-term supply or purchasing contracts and believes that it could readily replace any of its existing suppliers if it were no longer advantageous to purchase equipment from such suppliers.

believes to be a significant competitive advantage. Management continually analyzes the effectiveness, quality and profitability of Penhall’s equipment and addresses equipment procurement issues. Penhall maintains no long-term supply or purchasing contracts and believes that it could readily replace any of its existing suppliers if it were no longer advantageous to purchase equipment from such suppliers.

CUSTOMERS

Most of Penhall’s customers consist of highway, airport and building general contractors and subcontractors, and Federal, state and municipal agencies in various construction, industrial, manufacturing, governmental and residential markets. Some of Penhall’s major customers include the Mississippi Department of Transportation, Granite Construction, All American Asphalt, and Denver International Airport. During fiscal ~~2002~~2003, Penhall served over 1114,000 customers and no one customer ~~has~~ accounted for more than 23% of Penhall’s revenues. Management believes that a significant percent of Penhall’s revenues represented repeat business from existing customers.

COMPETITION

The operated equipment rental industry is a specialized niche of the overall equipment rental industry and is highly competitive. Penhall’s competitors include large national rental companies, regional companies, smaller independent businesses and equipment vendors, which sell and rent equipment to customers. The industry is also highly fragmented, and primarily consists of many relatively small, independent businesses typically serving discrete local markets within 30 to 50 miles of the equipment rental location, with few multi-location regional or national operators. Traditionally, large Operated Equipment Rental Services companies have focused their operations on providing a broad array of services to relatively large customers, primarily in medium to large metropolitan markets, while generally serving smaller markets through delivery from distant major markets.

Competitive factors in the operated equipment rental industry include breadth of product lines, the availability of equipment and skilled operators, the condition of equipment, service, name recognition, proximity to customers and price. Penhall believes that it is able to successfully compete in the markets that it serves because of its reputation and large fleet of equipment. In addition, certain of the services provided by Penhall, such as diamond saw cutting services, are highly specialized and therefore not widely available; the market for these services therefore tends to be somewhat less competitive. Management does not believe that Penhall faces any significant competitor on a national scale, as the operated equipment rental industry is characterized primarily by local providers offering a limited array of services.

Management believes the operated equipment rental industry benefits from the continuing trend among businesses to outsource non-core operations to reduce capital investment, convert costs from fixed to variable and minimize the downtime, maintenance, repair and storage associated with equipment ownership. Customers are increasingly using Operated Equipment Rental Services companies to provide a comprehensive supply of equipment and operators.

Penhall’s fixed-price contract projects are obtained through competitive bidding. In many cases, a performance bond is required by a customer before a contract is awarded. Penhall believes that its bonding capacity is a competitive advantage over smaller, less financially stable competitors. Moreover, Penhall believes that it is able to compete effectively for fixed-price contract jobs because of its extensive resources and relationships with general contractors.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

Penhall currently holds a United States trademark and service mark with respect to the “Penhall” name and logo, which it believes are of particular importance to Penhall’s business. Except with respect to the “Penhall” name and logo, Penhall is not dependent on any intellectual property rights.

MANAGEMENT INFORMATION SYSTEM

Penhall utilizes a management information system, which was implemented in fiscal 1997 and subsequently upgraded. The management information system gives management the ability to analyze certain cost results by line of equipment and location. This information network is used to make decisions with respect to investments in new equipment as well as certain other competitive decisions. In addition, the system provides information with respect to contract work in progress, which is used by project managers and contract division management to monitor the status of jobs in progress.

RADIO COMMUNICATIONS

Penhall licenses from Motorola and, in one case, from an individual, the right to operate and install certain radio repeater equipment at a number of sites in the State of California. This equipment allows Penhall and its operators in the field to communicate with each other by radio.

In connection with the radio communications referred to above, Penhall holds several licenses from the Federal Communications Commission (“FCC”) that allow it to broadcast over certain designated radio frequencies. These licenses may not be assigned without the FCC’s consent.

LABOR RELATIONS

As of June 30, ~~2002~~2003 Penhall Company had approximately 1,~~500~~300 full-time employees. The Company also hires, on an as-needed basis, equipment operators when work in progress necessitates additional personnel.

Approximately, ~~600~~750 of Penhall’s employees are represented by various labor unions. The Company’s unionized work force is divided into approximately 30 certified or lawfully recognized bargaining units.

~~With the exception of eight agreements, all agreements expiring during~~6 ~~Fiscal 2002 have been renewed or extended. The eight pending agreements~~ represent only approximately sixty employees. It is anticipated that all eight agreements will be renewed without any disruption to operations. There are seven agreements expiring during fiscal 2003, all at the very end of the fiscal year. No discussions have begun on those agreements. There is no reason to believe that any expiration will have a material effect on Fiscal 2003 operations. There are currently no unfair labor practice charges pending against Penhall either before the National Labor Relations’ Board or the courts.

ITEM 2. PROPERTIES

Penhall is headquartered in Anaheim, California. As of June 30, 2002 Penhall owned or leased 38 facilities which are used for equipment yards and accompanying office space. The following table sets forth the location and square footage of each of such facilities.

LOCATION	APPROX. SQUARE FEET
Anaheim, California		18,300
Gardena, California		3,850
Camarillo, California		3,600
San Leandro, California		6,000
Sacramento, California		8,000
San Diego, California		5,600
Riverside, California (1)		9,000
Santa Clara, California (1)		9,950
Irvine, California (1)		9,500
Bakersfield, California (1)		4,000
Burbank, California		6,200
Phoenix, Arizona		12,900
Austin, Texas		6,100
Grapevine, Texas (1)		11,000
Denver, Colorado		15,100
Austell, Georgia (1)		8,000
Las Vegas, Nevada		11,000
Portland, Oregon (1)		24,000
Salt Lake City, Utah (1)		10,500
Rogers, Minnesota (1)		11,000
Birmingham, Alabama (1)		2,000
Golden Valley, Minnesota (1)		24,000
Superior, Wisconsin (1)		4,000
Morrisville, North Carolina (1)		15,000
Charlotte, North Carolina (1)		6,000

LOCATION	APPROX. SQUARE FEET
Greensboro, North Carolina (1)		5,184
Wilmington, North Carolina (1)		2,000
Greenville, South Carolina (1)		3,500
Columbia, South Carolina (1)		3,500
Charleston, South Carolina (1)		5,000
Buffalo, New York (1)		3,000
Kansas City, Missouri (1)		5,000
Seattle, Washington (1)		2,000
Fresno, California (1)		4,500
Richmond, Virginia (1)		1,000
Reno, Nevada (1)		900
Tucson, Arizona (1)		1,500
Visalia, California (1)		13,600

With the exception of two agreements, all agreements expiring during Fiscal 2003 have been renewed or extended. The two pending agreements represent approximately 11 employees. It is anticipated that both agreements will be renewed without any disruption to operations. There are six agreements expiring during fiscal 2004, all at the very end of the fiscal year. No discussions have begun on those agreements. There is no reason to believe that any expiration will have a material effect on Fiscal 2004 operations. There are currently no unfair labor practice charges pending against Penhall either before the National Labor Relations’ Board or the courts.

ITEM 2. PROPERTIES

Penhall is headquartered in Anaheim, California. As of June 30, 2003 Penhall owned or leased 38 facilities which are used for equipment yards and accompanying office space. The following table sets forth the location and square footage of each of such facilities.


	APPROX.
	SQUARE
LOCATION	FEET

Anaheim, California		18,300
Gardena, California		3,850
Camarillo, California		3,600
San Leandro, California		6,000
Sacramento, California		8,000
San Diego, California		5,600
Riverside, California (1)		9,000
Santa Clara, California (1)		9,950
Irvine, California (1)		9,500
Bakersfield, California (1)		4,000
Burbank, California		6,200
Phoenix, Arizona		12,900
Austin, Texas		6,100
Grapevine, Texas (1)		11,000
Denver, Colorado		15,100
Austell, Georgia (1)		8,000
Las Vegas, Nevada		11,000
Portland, Oregon (1)		24,000
Salt Lake City, Utah (1)		10,500
Rogers, Minnesota (1)		11,000
Birmingham, Alabama (1)		2,000
Golden Valley, Minnesota (1)		11,000
Superior, Wisconsin (1)		4,000
Morrisville, North Carolina (1)		15,000
Charlotte, North Carolina (1)		6,000
Greensboro, North Carolina (1)		5,184
Wilmington, North Carolina (1)		1,000
Greenville, South Carolina (1)		3,500
Columbia, South Carolina (1)		3,500
Charleston, South Carolina (1)		5,000
Buffalo, New York (1)		3,000
Kansas City, Missouri (1)		6,000
Seattle, Washington (1)		2,000
Fresno, California (1)		4,500
Richmond, Virginia (1)		1,000
Reno, Nevada (1)		800
Tucson, Arizona (1)		1,500
Visalia, California (1)		13,600

(1) Leased property.

Penhall presently leases 27 sites in 16 states (collectively, the “Leased Sites”). The average remaining term of the leases under which the Leased Sites are held (collectively, the “Real Property Leases”) is approximately 5 years (assuming the exercise of all option periods). The Real Property Leases for the following four Leased sites have remaining terms of less than three years: (i) Santa Clara, California — October 31, ~~2002~~2005, (ii) Buffalo, New York — November 30, 2003, (iii) Seattle, Washington — ~~January~~ July 31, ~~2003~~2004, (~~iii~~iv) Riverside, California — June 30, 2005 ~~(iv) Columbia~~, ~~South Carolina — month to month, (v) Greenville, South Carolina — month to month.~~

(v) Columbia, South Carolina — month to month, (vi) Fresno, California – June 30, 2004, (vii) Tucson, Arizona – July 31, 2004, and (viii) Greenville, South Carolina — month to month.

ITEM 3. LEGAL PROCEEDINGS

Penhall is from time to time involved in legal proceedings arising in the ordinary course of business. Penhall believes there is no outstanding litigation, which could have a material impact on its financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter ended June 30, ~~2002~~2003.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s common equity is not publicly traded and, accordingly, an established market does not exist for such common equity. The Company did not pay any dividends in fiscal ~~2001~~2002 or ~~2002~~2003. The Indenture contains covenants ~~that~~ that restrict, among other things, the ability of the Company to incur ~~additional~~ additional indebtedness, pay dividends or make certain other Restricted Payments (as defined therein), enter into transactions with affiliates, allow ~~its~~ its subsidiaries to make certain payments, create liens, make certain asset dispositions and merge or consolidate with, or transfer substantially all of ~~it’s~~its assets to another person, or engage in certain change of control transactions. As part of the Recapitalization, the Issuer issued the Existing Notes in accordance with Rule 144A of the Securities Act of 1933, as amended. In December 1998, the Company filed a registration statement and the Existing Notes were exchanged for registered notes. As part of the Recapitalization, the Company became the successor obligor under the Existing Notes. See “Business — the Reorganization”.

ITEM 6. SELECTED FINANCIAL DATA

		FISCAL YEAR ENDED JUNE 30,
		1998			1999			2000			2001			2002
		1999			2000			2001			2002			2003
		(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues		$	~~101~~143,~~170~~446		$	~~143~~173,~~446~~060		$	~~173~~175,~~060~~769		$	~~175~~161,~~769~~242		$	~~161~~159,~~242~~617
Cost of revenues			72101,~~395~~389			~~101~~119,~~389~~854			~~119~~124,~~854~~408			~~124~~122,~~408~~418			~~122~~128,~~418~~048
Gross profit			2842,~~775~~057			4253,~~057~~206			5351,~~206~~361			5138,~~361~~824			3831,~~824~~569
General and administrative expenses			1832,~~673~~570			3228,~~570~~474			28,~~474~~347			28,~~347~~364			2827,~~364~~935
Reorganization expenses			13,~~207~~501			~~3,501~~43			43—			—			—
Other compensation			3,271			—			—			—			—
Other operating income			1,121			1,228			1,408			1,360			1,360
Other operating income			644			1,121			1,228			1,408			1,360
Earnings before interest expense and income taxes			7,107			25,917			24,422			11,820			4,994
Earnings before interest expense and income taxes			6,268			7,107			25,917			24,422			11,820
Interest expense			14,334			15,591			15,263			14,293			14,355
Interest expense			1,036			14,334			15,591			15,263			14,293
Earnings (loss) before income taxes			(7,227	)		10,326			9,159			(2,473	)		(9,361	)
Earnings (loss) before income taxes			5,232			(7,227	)		10,326			9,159			(2,473	)
Income tax expense (benefit)			(1,388	)		4,376			3,900			(856	)		(3,441	)
Income tax expense (benefit)			2,531			(1,388	)		4,376			3,900			(856	)
Net earnings (loss)			(5,839	)		5,950			5,259			(1,617	)		(5,920	)
Net earnings (loss)			2,701			(5,839	)		5,950			5,259			(1,617	)
Accretion of preferred stock to redemption value			(2,304	)		(2,854	)		(3,207	)		(3,615	)		(4,074	)
Accretion of preferred stock to redemption value			—			(2,304	)		(2,854	)		(3,207	)		(3,615	)
Accrual of cumulative dividends on preferred stock			(2,323	)		(2,946	)		(3,263	)		(3,794	)		(4,325	)
Accrual of cumulative dividends on preferred stock			—			(2,323	)		(2,946	)		(3,263	)		(3,794	)
	Net earnings (loss) available to common stockholders	$	(10,466	)	$	150		$	(1,211	)	$	(9,026	)	$	(14,319	)
Net earnings (loss) available to common stockholders		$	2,701		$	(10,466	)	$	150		$	(1,211	)	$	(9,026	)
EARNINGS (LOSS) PER SHARE:
	Basic	$	.63		$	(8.16	)	$	.15		$	(1.22	)	$	(9.16	)
	Basic and diluted		(8.16	)		.15			(1.22	)		(9.16	)		(14.52	)
	Diluted		.62			(8.16	)	$	.15		$	(1.22	)	$	(9.16	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
	Basic		4,277,888			1,282,996			1,000,953			995,747			985,345
	Basic and diluted		1,282,996			1,000,953			995,747			985,345			986,406
	Diluted		4,355,303			1,282,996			1,000,953			995,747			985,345
OTHER DATA:
Adjusted EBITDA (1)		$	2031,~~931~~129		$	3140,~~129~~481		$	40,~~481~~676		$	4029,~~676~~005		$	2921,~~005~~727
Adjusted EBITDA margin (2)			2021.7	%		2123.74	%		23.41	%		2318.10	%		1813.06	%
Net cash provided by (used in) operating activities		$	~~16,628~~(487	)	$	~~(487~~20,282	)	$	2015,~~282~~732		$	1517,~~732~~609		$	1712,~~609~~649
Net cash used in investing activities		$	(1721,~~047~~188	)	$	(2117,~~188~~228	)	$	(17,~~228~~697	)	$	(1712,~~697~~482	)	$	(122,~~482~~958	)
Net cash provided by (used in) financing activities		$	~~(23~~24,526	)	$	24(4,~~526~~030	)	$	~~(4,030~~886	)	$	~~886~~48		$	48(15,712	)
Depreciation and amortization		$	811,~~870~~652		$	1114,~~652~~521		$	1416,~~521~~254		$	1617,~~254~~185		$	1716,~~185~~733
Capital expenditures		$	1214,~~287~~456		$	1418,~~456~~093		$	18,~~093~~469		$	189,~~469~~495		$	94,~~495~~222
Units of operated equipment rentals at end of period			~~497~~623			~~623~~664			~~664~~747			~~747~~761			~~761~~710
Number of locations at end of period			2232			3231			3137			3738			38
Ratio of earnings to fixed charges (3)			~~5.3x~~—			—1.6	x		1.6x6	x		~~1.6x~~—			—
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END:
Total assets		$	88114,~~323~~163		$	~~114~~122,~~163~~162		$	~~122~~126,~~162~~962		$	~~126~~132,~~962~~915		$	~~132~~112,~~915~~473
Long-term obligations, including current maturities			18131,~~564~~324			~~131~~125,~~324~~235			125,~~235~~208			~~125~~128,~~208~~970			~~128~~117,~~970~~395
Stockholders’ equity (deficit)			43,606			(66,965	)		(62,787	)		(61,075	)		(65,990	)
Stockholders’ deficit			(66,965	)		(62,787	)		(61,075	)		(65,990	)		(75,944	)

(1) Adjusted EBITDA represents earnings before interest expense, income taxes, depreciation and amortization, adjusted to exclude stock-related compensation expense, reorganization costs and other compensation (for discussion of the Company’s stock-related compensation expense and reorganization costs and other compensation, see notes 8 and 1, respectively, to the Company’s consolidated financial statements). Adjusted EBITDA is presented because Management believes it provides useful information regarding a company’s ability to incur and/or service debt. Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America or as a measure of a company’s profitability or liquidity.

109

~~for~~ The ~~net~~following ~~income,~~chart ~~cash~~depicts ~~flows,~~the orreconciliation ~~other~~of ~~consolidated~~Net ~~income or~~ cash ~~flow~~provided ~~data prepared~~ by (used) in ~~accordance~~operating ~~with~~activities ~~accounting~~to ~~principles~~Adjusted ~~generally accepted in the United States of America or as a measure of a company’s profitability or liquidity.~~EBITDA:

The following chart depicts the components of Adjusted EBITDA:


		FISCAL YEAR ENDED JUNE 30,

		1999			2000			2001			2002			2003

Net cash provided by (used in) operating activities		$	(487	)	$	20,282		$	15,732		$	17,609		$	12,649
Interest expense less amortization of debt issuance costs			13,523			14,706			14,379			13,408			13,042
Current tax (expense) benefit			—			1,979			2,644			(120	)		(2,093	)
Provision for doubtful receivables			(282	)		(340	)		(146	)		(340	)		(767	)
Gain on sale of assets			420			305			422			300			485
Net change in operating assets and liabilities, net of acquisitions			5,585			3,506			7,645			(1,852	)		(1,589	)
Stock related compensation expense			8,869			—			—			—			—
Reorganization costs			3,501			43			—			—			—

	Adjusted EBITDA	$	31,129		$	40,481		$	40,676		$	29,005		$	21,727

		FISCAL YEAR ENDED JUNE 30,
	(2)	Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total revenues.
		1998		1999			2000		2001		2002
	(3)	For the purpose of computing the ratio of earnings to fixed charges, “earnings” consists of earnings before income taxes and fixed charges. “Fixed Charges” consist of interest expense, which includes amortization of debt issuance costs and the interest portion of the Company’s rent expense. Earnings were insufficient to cover fixed charges by $7,337,000, $2,473,000, and $9,361,000 for 1999, 2002, and 2003 respectively.
Net earnings (loss)		$	2,701	$	(5,839	)	$	5,950	$	5,259	$	(1,617	)
Interest expense			1,036		14,334			15,591		15,263		14,293
Income tax expense (benefit)			2,531		(1,388	)		4,376		3,900		(856	)
Depreciation and amortization			8,870		11,652			14,521		16,254		17,185
Stock related compensation expense			1,315		8,869			—		—		—
Reorganization costs			1,207		3,501			43		—		—
Other compensation			3,271		—			—		—		—
	Adjusted EBITDA	$	20,931	$	31,129		$	40,481	$	40,676	$	29,005

(2)		Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total revenues.
(3)		For the purpose of computing the ratio of earnings to fixed charges, “earnings” consists of earnings before income taxes and fixed charges. “Fixed Charges” consist of interest expense, which includes amortization of debt issuance costs and the interest portion of the Company’s rent expense. Earnings were insufficient to cover fixed charges by $7,337,000 and $2,473,000 for 1999 and 2002, respectively

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of the results of operations and financial condition of Penhall should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto, included in Part II of this report.

GENERAL

Penhall was founded in 1957 in Anaheim, California with one piece of equipment, and today is one of the largest Operated Equipment Rental Services companies in the United States. Penhall differentiates itself from other equipment rental companies by providing specialized services in connection with infrastructure projects through renting equipment along with skilled operators to serve customers in the construction, industrial, manufacturing, governmental and residential markets. In addition, Penhall complements its Operated Equipment Rental Services with fixed-price contracts, which serve to market its Operated Equipment Rental Services business and increase utilization of its operated equipment rental fleet. Penhall provides its services from 38 locations in 17 states, with a presence in some of the fastest growing states in terms of construction spending and population growth.

From fiscal 1998 to fiscal 2002, revenue and Adjusted EBITDA have grown at a CAGR of 12.3% and 8.6%, respectively, due primarily to management’s successful implementation of a strategy focused on (i) maximizing high-margin Operated Equipment Rental Services revenues through increased equipment rental fleet utilization, (ii) controlling overhead and (iii) successfully integrating Penhall’s acquisitions and start-up locations.

The operated equipment rental industry is a specialized niche of the highly fragmented United States equipment rental industry, in which there are approximately 17,000 companies. Penhall has taken advantage of consolidation opportunities by acquiring small companies in targeted markets as well as by establishing new offices in those markets. Since 1998, Penhall has effected eight strategic acquisitions, including:

1. HSI, a Minnesota-based firm acquired in April 1998, 2. Daley Concrete Cutting, a South Carolina-based division of U.S. Rentals acquired in October 1998, 3. Lipscomb Concrete Cutting, a North Carolina-based company acquired in November 1998, 4. Prospect Drilling and Sawing, a Minnesota-based company acquired in June 1999, 5. Advance Concrete Sawing and Drilling, Inc., a California-based company acquired in September 2000, 6. H&P Sawing and Drilling, a Kansas City, Missouri-based Company acquired in March 2002, 7. Bob Mack Company, California based company acquired in March 2002, and 8. Arizona Curb Cut Company, an Arizona based company acquired in April 2002.

1110

	5.		Advance Concrete Sawing and Drilling, Inc., a California-based company acquired in September 2000,

	6.		H&P Sawing and Drilling, a Kansas City, Missouri-based Company acquired in March 2002,

	7.		Bob Mack Company, California based company acquired in March 2002, and

	8.		Arizona Curb Cut Company, an Arizona based company acquired in April 2002.

During the same period, Penhall established operations in six new markets by opening offices in Dallas, Richmond, Fresno, Buffalo, Reno, and Seattle.

Penhall derives its revenues primarily from services provided for infrastructure related jobs. Penhall’s Operated Equipment Rental Services are provided primarily under hourly rentals, which are complemented by long-term fixed-price contracts. The following table shows the breakdown of the components of revenue for the periods indicated:

		FISCAL YEAR ENDED JUNE 30,	~~FISCAL YEAR ENDED JUNE 30,~~
			2000							2001							2002
		2001							2002							2003
			$			% OF TOTAL				$			% OF TOTAL				$			% OF TOTAL
					% OF							% OF							% OF
						(DOLLARS IN THOUSANDS)
		$			TOTAL				$			TOTAL				$			TOTAL
Hourly Service Rentals			$	121,256			70.1	%		$	126,068			71.7	%		$	118,058			73.2	%
		(DOLLARS IN THOUSANDS)
Long Term Service Contracts(1)				51,804			29.9				49,701			28.3				43,184			26.8
Hourly Service Rentals		$	126,068			71.7	%		$	118,058			73.2	%		$	115,844			72.6	%
	Total Revenues		$	173,060			100.0	%		$	175,769			100.0	%		$	161,242			100.0	%
Long Term Service Contracts (1)			49,701			28.3	%			43,184			26.8	%			43,773			27.4	%
Total Revenue		$	175,769			100.0	%		$	161,242			100.0	%		$	159,617			100.0	%

(1)

Excludes services performed by the operated equipment rental divisions on long-term contracts.

Revenue growth is influenced by infrastructure change, including new construction, modification, and regulatory changes. Penhall’s revenues are also impacted positively after the occurrence of natural disasters, such as the 1989 and 1994 earthquakes in Northern and Southern California. Other factors that influence Penhall’s operations are demand for operated rental equipment, the amount and quality of equipment available for rent, rental rates and general economic conditions. Historically, revenues have been seasonal, as weather conditions in the spring and summer months result in stronger performance in the first and fourth fiscal quarters than in the second and third fiscal quarters.

The principal components of Penhall’s operating costs include the cost of labor, equipment rental fleet maintenance costs including parts and service, equipment rental fleet depreciation, insurance and other direct operating costs. Given the varied, and in some cases specialized, nature of its rental equipment, Penhall utilizes a range of periods over which it depreciates its equipment on a straight-line basis. On average, Penhall depreciates its equipment over an estimated useful life of six years with a 10% residual value.

Penhall invests in and maintains a large and versatile fleet of rental equipment ranging from relatively small items such as diamond abrasive saws and coring units to larger equipment, including backhoes, excavators, water trucks and concrete grinders. Used equipment is sometimes sold in the ordinary course of business, and gains on sales of assets, net are recognized in “Other Operating Income” in Penhall’s consolidated statements of operations. In fiscal ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003, gains on sales of assets from such equipment sales were $~~305~~422,000, $~~422~~300,000 and $~~300~~485,000, respectively.

The following table shows the number of units in Penhall’s operated equipment rental fleet for the following periods:

	FISCAL YEAR ENDED JUNE 30,
	2000			2001			2002
	2001			2002			2003
Beginning of Period		~~623~~664			~~664~~747			~~747~~761
# Units Purchased		75135			~~135~~60			6012
# Units Disposed		(3452	)		(5246	)		(4663	)
End of Period		~~664~~747			~~747~~761			~~761~~710

~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~11

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to long-term construction contracts, accounts receivable, goodwill, long-lived assets, self-insurance, contingencies and litigation. The Company bases its estimates on current information, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policy affects its more significant judgments and estimates used in the preparation of its consolidated financial statements:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to long-term construction contracts, accounts receivable, goodwill, long-lived assets, self-insurance, contingencies and litigation. The Company bases its estimates on current information, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:

Revenue Recognition on Long-Term Construction Contracts

Income from construction operations is recorded using the percentage-of-completion method of accounting. The Company has two types of contracts. The first type of contract is fixed unit in which the percentage of completion is determined based on the units completed as a percentage of estimated total units. The second type of contract is lump sum in which percentage of completion is determined based on costs incurred to date as compared to total estimated costs at completion. If estimated total costs on any contract indicate a loss, the Company provides currently for the total loss anticipated on the contract. For long-term contracts, which extend beyond fiscal year ends, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which facts requiring the revision become known. All remaining revenue and costs are recognized as work is performed.

Valuation of Long-Lived Assets and Goodwill

Goodwill represents the excess of purchase price over fair value of net assets acquired. Prior to 2003, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally 15 years. The Company assessed recoverability by determining whether the amortization of the goodwill balance over its remaining life would be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, was measured based on projected discounted future operating cash flows using a discount rate reflecting the Company’s average cost of funds. The assessment of the recoverability of goodwill would be impacted if estimated future operating cash flows were not achieved. Amortization expense related to goodwill amounted to approximately $687,000 and $609,000 for the years ended June 30, 2001 and 2002, respectively.

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 141, “Business Combinations” and No. 142 “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001, clarifies the recognition of intangible assets separately from goodwill and requires that unallocated negative goodwill be written off immediately as an extraordinary gain. SFAS No. 142, which was effective for fiscal years beginning after December 15, 2001, requires that ratable amortization of goodwill be replaced with periodic tests of goodwill impairment and that intangible assets, other than goodwill, which have determinable useful lives, be amortized over their useful lives. The Company has adopted these accounting standards effective July 1, 2002, and accordingly, no amortization of goodwill was recorded in 2003. As a result of the transitional and annual goodwill impairment tests that were completed during fiscal 2003, it was determined there was no impairment of goodwill. The Company’s annual test will be performed in May of each year. There were no adjustments to identifiable intangible assets’ useful lives or recorded balances as a result of the adoption of SFAS No. 142.

We assess the impairment of identifiable intangibles, long-lived assets and related goodwill annually as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include:

	•		Significant underperformance relative to expected historical or projected future operating results;

	•		Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

	•		Significant negative industry or economic trends;

	•		Unanticipated competition; and

	•		EBITDA relative to net book value

RESULTS OF OPERATIONS

Results of Operations

Year Ended June 30, 2003 Compared to Year Ended June 30, 2002

Revenues. Revenues for Fiscal 2003 were $159.6 million compared to $161.2 million for the prior year, a decrease of $1.6 million or 1.0%. A $0.6 million increase in contract revenue (1.4% increase) was offset by a $2.2 million decrease in service revenues (a 1.9% decrease). The lower revenues is a reflection of the significant slowdown in private non-residential construction activity, which declined 16% in 2002 according to Department of Commerce data as well as significantly lower state highway and bridge spending due to deficits in many state budgets.

Penhall operated through 38 locations in 17 states at June 30, 2002 and 2003. At June 30, 2003, Penhall’s operated rental fleet consisted of 710 units compared to 761 units at June 30, 2002, a decrease of 6.7%. A majority of the unit disposals in fiscal 2003 occurred during the later part of the fiscal year.

Gross Profit. Gross profit totaled $31.6 million in Fiscal 2003, a decrease of $7.3 million or 18.7% from Fiscal 2002. Gross profit as a percentage of revenues decreased from 24.1% in Fiscal 2002 to 19.8% in Fiscal 2003. The decrease in gross profit from Fiscal 2002 to Fiscal 2003 is primarily attributable to increased competition, cost overruns on some contracts, and an increase of $1.7 million in insurance costs during Fiscal 2003. The decrease in gross profit as a percentage of revenues was due to increased competition, an increase in insurance costs, decrease in equipment utilization, and a change in the mix of work. Although the amount of Contract Revenue only increased $0.6 million during Fiscal 2003, the amount of subcontracted work and materials associated with the Contract Revenue increased by $5.9 million. Typically, the markup on subcontracted work and materials is significantly less than the markup on self performed work.

General and Administrative Expenses. General and administrative expenses were $27.9 million in Fiscal 2003 compared to $28.4 million in Fiscal 2002. As a percent of revenues, general and administrative expenses were 17.5% in Fiscal 2003 compared to 17.6% in Fiscal 2002. The small decrease in general and administrative expenses as a percentage of revenues during Fiscal 2003 is primarily attributable to decreases of $0.4 million in incentive compensation, $0.5 million in payroll and related expenses, and $0.6 million in goodwill amortization partially offset by a $0.7 million increase in insurance costs and a $0.4 million increase in bad debt expense.

Interest Expense. Interest expense was $14.4 million in Fiscal 2003 compared to interest expense of $14.3 million in Fiscal 2002. The increase in interest expense is attributable to a write-off of $0.3 million of debt issuance costs associated with the Credit Facility replaced by the The New Credit (as defined below) offset by lower interest rates and decreased borrowings during Fiscal 2003.

Income Tax Benefit. The Company recorded an income tax benefit of $3.4 million, or 36.8% of loss before income taxes in Fiscal 2003, compared to an income tax benefit of $0.9 million, or 34.6% of loss before income taxes in Fiscal 2002. The increase in the income tax benefit is attributable to a higher loss before income tax in Fiscal 2003.

Year Ended June 30, 2002 Compared to Year Ended June 30, 2001

Revenues. Revenues for fiscal 2002 were $161.2 million, compared to revenues of $175.8 million for the prior year, a decrease of $14.5 million or 8.3%. Lower revenues in 2002 were primarily a result of a weaker economy, a significant downturn in commercial building construction, and increased competition.

Penhall operated through 38 locations in 17 states at June 30, 2002, compared to 37 locations in 17 states at June 30, 2001. At June 30, 2002, Penhall’s operated rental fleet consisted of 761 units compared to 747 units at June 30, 2001, an increase of 1.9%. A majority of the additional units in fiscal 2002 were acquired during the later part of the fiscal year as part of the Bob Mack Company and Arizona Curb Cut acquisitions.

Gross Profit. For fiscal year 2002, gross profit was $38.8 million compared to gross profit of $51.4 million for fiscal year 2001, a decrease of $12.5 million, or 24.4%. As a percent of revenue, gross profit was 24.1% in fiscal year 2002 compared to 29.2% in fiscal year 2001. The decrease in gross profit in 2002 was due primarily to the decrease in utilization of the equipment rental fleet in fiscal 2002 and an increase of $3.6 million in the cost of insurance. Utilization rates were lower due to the softening of the commercial construction market and increased competition in most of the Company’s markets. The increased cost of insurance in 2002 is a result of Penhall renewing its insurance near the end of fiscal 2001 in an adverse insurance market after emerging from a three year policy which was purchased during a favorable insurance market.

General and Administrative Expenses. General and administrative expenses were $28.4 million in fiscal year 2002 compared to $28.3 million in fiscal year 2001, an increase of $0.01 million or 0%, which is primarily attributable to a $1.1 million decrease in wages, primarily incentive compensation, offset by operating increases mainly attributable to a full year of costs associated with new offices and additional partial year operating costs associated with the Bob Mack Company and Arizona Curb Cut acquisitions. As a percentage of revenues, general and administrative expenses were 17.6% in fiscal 2002 compared to 16.1% in fiscal 2001. The increase in general and administrative expenses as a percent of revenues occurred because many of these types of expenses remain somewhat constant, and do not increase or decrease in proportion to the increases or decreases in revenues.

Interest Expense. Interest expense was $14.3 million in fiscal 2002 compared to $15.3 million in fiscal 2001, a decrease of 6.4%. The decrease is attributable to the lower borrowings and lower interest rates during fiscal 2002.

Income Tax Expense (Benefit). The Company recorded an income tax benefit of $0.9 million, or 34.6% of losses before taxes in fiscal 2002 as compared to an income tax expense of $3.9 million, or 42.6% of earnings before income taxes in fiscal 2001. The lower effective tax rate on the loss in fiscal 2002 is due to unconsolidated state tax liabilities of Penhall Company and a 45% reduction of the California net operating loss.

Year Ended June 30, 2001 Compared to Year Ended June 30, 2000

Revenues. Revenues for fiscal 2001 were $175.8 million, compared to revenues of $173.1 million for the prior year, an increase of $2.7 million or 1.6%. The increase was due primarily to the opening of new offices in Reno, Nevada, Seattle, Washington, Buffalo,

New York, and Richmond, Virginia, as well as the acquisition of Advance Concrete Sawing & Drilling, Inc. in Bakersfield, California and H&P Sawing & Drilling in Kansas City, Missouri. The increased revenue from the new offices and acquisitions was partially offset by lower revenues in Southern California and Highway Services. The Company faced increased competition in most of its markets, particularly those served by the divisions in Southern California and Minnesota.

Penhall operated through 37 locations in 17 states at June 30, 2001, compared to 31 locations in 13 states at June 30, 2000. At June 30, 2001, Penhall’s operating fleet consisted of 747 units compared to 644 units at June 30, 2000, an increase of 16.0%. A majority of these new units were put in place during the later part of the fiscal year.

Gross Profit. For fiscal year 2001, gross profit was $51.4 million compared to gross profit of $53.2 million for fiscal year 2000, a decrease of $1.8 million, or 3.4%. As a percent of revenue, gross profit was 29.2% in fiscal year 2001 compared to 30.7% in fiscal year 2000. The decrease in gross profit in 2001 was due primarily to the decrease in utilization of the equipment rental fleet in fiscal 2001. Utilization rates were lower due to the softening of the commercial construction market and increased competition in most of the Company’s markets, particularly those markets serviced by the Minnesota and the Southern California divisions.

General and Administrative Expenses. General and administrative expenses were $28.3 million in fiscal year 2001 compared to $28.5 million in fiscal year 2000, a decrease of $0.2 million or .7%. As a percentage of revenues, general and administrative expenses were 16.1% in fiscal 2001 compared to 16.5% in fiscal 2000, a decrease of 0.4%. The reduction in general and administrative expenses as a percent of revenues occurred because many of these types of expenses remain somewhat constant, and do not increase or decrease in proportion to the increases or decreases in revenues.

Reorganization Expenses. Reorganization expenses, consisting primarily of closing fees and legal expenses, were $0 in fiscal 2001 and $43,000 in fiscal 2000. These expenses were associated with the reorganization of the Company, which occurred in August 1998, and are non-recurring expenses.

Other Operating Income. Other operating income, consists primarily of gains and losses on the sale of fixed assets, interest income, and discounts earned. Other operating income in fiscal 2001 of $1.4 million is only slightly higher than the $1.2 million in fiscal 2000. Most of the fiscal 2001 increase is due to increases in gains on sales of assets.

Interest Expense. Interest expense was $15.3 million in fiscal 2001 compared to $15.6 million in fiscal 2000, a decrease of 2.1%. The decrease is attributable to the lower interest rates during fiscal 2001.

Income Tax Expense. The Company recorded income tax expense of $3.9 million, or 42.6% of earnings before income taxes in fiscal 2001, compared to an income tax expense of $4.4 million, or 42.4% of earnings before taxes in fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

It is anticipated that the Company’s principal uses of liquidity will be to fund working capital, meet debt service requirements and finance the Company’s strategy of pursuing strategic acquisitions and expanding through internal growth. The Company’s principal sources of liquidity are expected to be cash flow from operations and borrowings under the New Credit Facility. (“The New Credit”). ~~Facility~~The ~~consists~~New ofCredit ~~two~~is ~~facilities:~~a ~~(i)~~$50 amillion, ~~six-~~three year ~~senior~~asset ~~secured~~based ~~term~~borrowing ~~loan~~ facility, inconsisting anof ~~aggregate principal amount equal to $20.0 million (the “Term Loan Facility”); and (ii)~~ a ~~six-year~~ revolving credit facility in(“New anRevolver”) ~~aggregate~~of ~~principal~~up ~~amount not~~ to ~~exceed~~ $~~30.0~~50 million ~~(the~~with ~~“Revolving~~a ~~Credit Facility”). The Company drew~~ $~~20.0~~25 million ofsub-facility ~~loans~~for ~~under~~letters ~~the~~of ~~Term Loan~~credit. ~~Facility~~Availability ~~(“Term~~under ~~Loans”) on~~ the ~~closing~~revolver ~~date~~portion of ~~the~~The New Credit ~~Facility~~would ~~in connection~~be ~~with~~limited ~~the~~to ~~Recapitalization. The Term Loans began amortizing on~~ a ~~quarterly~~borrowing ~~basis~~base ~~commencing~~consisting inof ~~September~~(i) up ~~2000~~to ~~and~~85% ~~are~~of ~~payable in installments under a schedule set forth in~~ the ~~New~~net ~~Credit~~amount ~~Facility.~~of ~~Advances made under~~ the Company’s ~~Revolving~~eligible ~~Credit~~trade ~~Facility~~accounts ~~(“Revolving~~receivable, ~~Loans”~~(ii) ~~are due and payable in full on June~~ ~~15,~~up ~~2004. The Term Loans and the Revolving Loans are subject~~ to ~~mandatory prepayments and reductions in~~ the ~~event~~lesser of ~~certain~~(a) 100% ~~extraordinary transactions or issuances~~ of ~~debt and equity by~~ the net book ~~Company~~value ~~or any subsidiary~~ of the Company ~~that~~’s ~~guarantees~~eligible ~~amounts~~inventory ~~under~~and ~~the~~eligible ~~New~~equipment ~~Credit~~or ~~Facility. Such loans are also~~(b) ~~required to be prepaid with 75~~85% of the ~~Excess~~appraised ~~Cash~~net ~~Flow~~orderly ~~(as~~liquidation ~~such~~value ~~term is defined in the New Credit Facility)~~ of ~~the~~ Company ~~or, if the Company~~’s eligible ~~Leverage~~inventory ~~Ratio~~and ~~(as~~equipment, ~~such~~and ~~term is defined in the New Credit Facility~~(iii) up ~~is less than 4.75~~ to ~~1.0,~~ 50% of ~~such Excess Cash Flow. For fiscal 2002 and 2001, no~~the ~~prepayments resulted from Excess Cash Flow as defined above.~~

Summary Cash Flow Data (000’s) for
the periods ending June 30,		2000			2001			2002
Cash and cash equivalents		$	2,109		$	1,030		$	6,205
Net cash provided by (used in):
	Operating activities	$	20,282		$	15,732		$	17,609
	Investing activities	$	(17,228	)	$	(17,697	)	$	(12,482	)
	Financing activities	$	(4,030	)	$	886		$	48
Capital expenditures		$	18,093		$	18,469		$	9,495

appraised forced liquidation value of the Company’s owned real estate. In addition, borrowings under The New Credit are subject to certain financial covenants that include capital expenditure limits, utilization rate ratio, minimum interest coverage ratio, maximum leverage ratio and a minimum borrowing availability limit. The indebtedness of the Company under The New Credit is secured by a first priority perfected security interest in all of the inventory, accounts, equipment, fixtures, cash, and other assets of the Company. As of June 30, 2003, total borrowing unused and available under The New Credit was $20.1 million.

Cash provided by operating activities during fiscal 2000, 2001 and 2002 was $20.3 million, $15.7 million, and $17.6 million respectively. In fiscal 2002, the Company’s depreciation and amortization, a decrease in receivables and an increase in accounts payable and accrued liabilities was partially offset by it’s net loss, a decrease in billings in excess of costs and estimated earnings on uncompleted contracts and an increase in deferred taxes which resulted in net cash provided by operating activities of $17.6 million.


Summary Cash Flow Data (000’s) for the periods ending June 30,

		2001			2002			2003

Cash and cash equivalents		$	1,030		$	6,205		$	184
Net cash provided by (used in):
	Operating activities	$	15,732		$	17,609		$	12,649
	Investing activities	$	(17,697	)	$	(12,482	)	$	(2,958	)
	Financing activities	$	886		$	48		$	(15,712	)
Capital expenditures		$	18,469		$	9,495		$	4,222

In fiscal 2003, the Company’s net loss plus add backs of depreciation and amortization, amortization of debt issuance costs, provision for doubtful receivables and the gains on sales of assets, plus decreases in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts, accounts payable, and accrued liabilities and the increase in insurance reserves were partially offset by increases in inventories and deferred taxes which resulted in net cash provided by operating activities of $12.6 million.

In fiscal 2002, the Company’s net loss plus depreciation and amortization, a decrease in receivables and an increase in accounts payable and accrued liabilities was partially offset by a decrease in billings in excess of costs and estimated earnings on uncompleted contracts and an increase in deferred taxes which resulted in net cash provided by operating activities of $17.6 million.

In fiscal 2001, the Company’s net earnings plus depreciation, amortization and provision for deferred income tax and decreases in cost and estimated earnings in excess of billings on uncompleted contracts were partially offset by increases in receivables and inventories, prepaid expenses and other assets and decreases in accounts payable and billings in excess of costs and estimated earnings on uncompleted contracts which resulted in net cash provided by operating activities of $15.7 million.

InManagement ~~fiscal~~estimates ~~2000,~~that ~~the Company~~Penhall’s ~~net~~annual ~~earnings~~capital ~~plus~~expenditures ~~depreciation~~will ~~and~~be ~~amortization~~approximately ~~and~~$8.0 million ~~increases~~for infiscal ~~accounts~~2004, ~~payable~~including ~~and~~replacement ~~billings in excess of costs~~ and ~~estimated earnings on uncompleted contracts were partially offset by~~ ~~increases~~maintenance inof ~~receivables~~equipment, ~~and~~purchases ~~inventories~~of ~~and~~new ~~costs~~equipment, and ~~estimated~~purchases ~~earnings in excess~~ of ~~billings on uncompleted contracts, resulting in net cash provided by~~real ~~operating~~property ~~activities of $20~~improvements.~~3 million.~~

~~Management~~Net ~~estimates~~cash ~~that~~used ~~Penhall’s~~in ~~annual~~investing ~~capital~~activities ~~expenditures~~during ~~will~~fiscal be2001, 2002 and 2003 ~~approximately~~was $1017.7 million, $12.5 million and $3.0 million, respectively. Such cash was primarily used for capital expenditures of $18.5 million in fiscal ~~2003~~2001, ~~including~~$9.5 million ~~replacement~~in fiscal 2002, and ~~maintenance~~ of$4.2 million ~~equipment~~in fiscal 2003. In fiscal 2001, ~~purchases~~$0.5 million was used for the acquisition of ~~new~~Advance ~~equipment~~Concrete Sawing & Drilling, Inc. and ~~purchases~~H&P Sawing & Drilling. In fiscal 2002, $3.8 million was used for the acquisition of ~~real~~Bob Mack Company and Arizona Curb Cut. The Company had no ~~property~~acquisitions ~~improvements~~in fiscal 2003.

Net cash provided by (used in) ~~investing~~financing activities during fiscal ~~2000,~~ 2001 ~~and 2002~~, ~~was~~2002 ~~$17.2 million, $17.7 million~~ and ~~$12.5 million,~~2003 ~~respectively. Such cash~~ was ~~primarily~~ ~~used for capital expenditures of~~ $180.~~1 million in fiscal 2000, $18.5 million in fiscal 2001, and $~~9.5 million ~~in fiscal 2002. In fiscal 2001~~, $0.5 0 million ~~was used for the acquisition of Advance Concrete Sawing & Drilling, Inc.~~ and ~~H&P Sawing & Drilling. In fiscal 2002,~~ ($315.8 7) million ~~was used for the acquisition of Bob Mack Company and Arizona Curb Cut~~respectively.

~~Net~~Historically, ~~cash~~Penhall ~~provided~~has byfunded ~~(used~~its ~~in)~~working ~~financing~~capital ~~activities~~requirements, ~~during~~capital expenditures ~~fiscal~~and ~~2000~~other needs principally from operating cash flows. As a result of the Transactions, however, the Company has substantial indebtedness and debt ~~2001~~service obligations. As of June 30, 2003, the Company and ~~2002~~its ~~was~~subsidiaries (had $4117.04 million of total indebtedness outstanding (including the Notes) ~~million,~~and a stockholders’ deficit of $075.9 million. ~~and~~As of June 30, 2003 approximately $020.1 million ~~respectively~~of additional borrowing was available under The New Credit.

Historically, Penhall has funded its working capital requirements, capital expenditures and other needs principally from operating cash flows. As a result of the Transactions, however, the Company has substantial indebtedness and debt service obligations. As of June 30, 2002, the Company and its subsidiaries had approximately $129.0 million of total indebtedness outstanding (including the Notes) and a stockholders’ deficit of approximately $66.0 million. As of June 30, 2002 approximately $16.2 million of additional borrowing was available under the Company’s New Credit Facility.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement No. 141, “Business Combinations,” and Statement No. 142, “Goodwill and Other Intangible Assets.” Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

~~The~~From ~~Company~~August 1, ~~was~~2002 ~~required~~through October 25, to2002, ~~adopt~~ the ~~provisions~~Company ofrepurchased ~~Statement~~capital ~~141~~stock inof ~~June~~the ~~2001,~~Company ~~except~~from ~~with~~four ~~regard~~former toemployees ~~business~~for ~~combinations~~aggregate ~~initiated~~consideration ~~prior~~of $35,000. toThe ~~July~~Company’s Indenture dated as of August 1, 1998 (the ~~2001,~~“Indenture”) ~~which~~with ~~have~~United ~~been~~States ~~accounted~~Trust ~~for~~Company, ~~using~~as Trustee (the ~~pooling-~~“Trustee”), permits repurchases of~~-interests~~ ~~method,~~capital ~~and~~stock from isformer ~~required~~employees toin ~~adopt~~annual ~~Statement~~amounts ~~142~~up ~~effective~~to ~~July~~ $1,000,000 ~~2002.~~and ~~Furthermore~~up to $5,000,000 ~~any~~in aggregate over the life of the Indenture; provided ~~goodwill~~that, ~~and~~at the time of any ~~intangible~~such ~~asset~~repurchase, ~~determined~~the Company must be able to incur ~~have~~additional anindebtedness ~~indefinite~~under ~~useful~~the ~~life that~~Indenture’s ~~are~~fixed ~~acquired~~charge coverage inratio. aAt ~~purchase~~the ~~business~~time ~~combination~~of ~~completed~~the ~~after~~repurchases ~~June 30~~described above, the ~~2001~~Company ~~will~~was not beable ~~amortized,~~to ~~but~~incur ~~will~~additional ~~continue~~indebtedness tounder bethe Indenture’s ~~evaluated~~fixed ~~for~~charge ~~impairment~~coverage inratio, and accordingly such ~~accordance~~repurchases ~~with~~were not permitted by the ~~appropriate~~Indenture. ~~pre-Statement~~The ~~142~~Company ~~accounting~~has informed ~~literature~~the Trustee of such repurchases. ~~Under~~In the event that the Company receives, in accordance with the ~~provisions~~Indenture, ~~for~~written notice of such default from either the ~~statement~~Trustee weor ~~did~~Holders ~~not~~of ~~record~~at ~~amortization~~least ~~for~~25% of the ~~two~~outstanding principal amount of the Notes, the Company has thirty ~~current~~days ~~year~~to ~~acquisitions.~~remedy ~~Such~~the ~~amortization~~matter ~~would~~and ~~have~~will ~~amounted~~seek either to ~~$53,000.~~cure such default ~~Goodwill~~or ~~and~~to ~~intangible~~obtain ~~assets~~a ~~acquired~~waiver of such default in ~~business~~accordance ~~combinations~~with ~~completed~~the ~~before~~Indenture. ~~July 1,~~Neither ~~2001~~the ~~will~~Trustee ~~continue~~nor toany beof ~~amortized~~the ~~prior~~Note Holders have indicated their intent to notify the ~~adoption~~Company of default and the ~~Statement~~Company ~~142~~does not believe that written notice of such default will be forthcoming.

~~Statement~~NEW ~~141~~ACCOUNTING ~~will require upon adoption of Statement 142, that the~~PRONOUNCEMENTS ~~Company evaluate its existing intangible assets and goodwill that were acquired~~ in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

InOn ~~connection~~August 16, ~~with~~2001, the ~~transitional~~FASB ~~goodwill~~issued ~~impairment~~SFAS ~~evaluation~~No. 143, ~~Statement~~ ~~142~~“Accounting ~~will~~for ~~require the Company to perform an assessment of whether~~Asset ~~there~~Retirement isObligations”. anThe ~~indication~~statement ~~that~~requires ~~goodwill~~entities isto ~~impaired~~record ~~as of~~ the ~~date~~fair value of ~~adoption. To~~a ~~accomplish~~liability ~~this,~~for ~~the~~legal ~~Company~~obligations ~~must~~associated ~~identify~~with ~~its~~the ~~reporting units and determine~~retirement ~~the~~obligations ~~carrying value~~ of ~~each~~tangible ~~reporting~~long-lived ~~unit by assigning the~~ assets ~~and liabilities,~~in ~~including~~ the ~~existing~~period ~~goodwill~~in ~~and~~which ~~intangible~~it ~~assets, to those~~is ~~reporting units as of the date of adoption~~incurred. ~~The~~When ~~Company will then have up to six months from~~ the ~~date~~liability ofis ~~adoption~~initially torecorded, ~~determine~~ the ~~fair~~entity ~~value~~increases ~~of each reporting unit and compare it to~~ the ~~reporting unit’s~~ carrying amount. Toof the ~~extent~~ arelated ~~reporting~~long-lived ~~unit’s~~asset. ~~carrying~~Over ~~amount exceeds its fair value~~time, anaccretion ~~indication exists~~of ~~that~~ the liability ~~reporting~~is ~~unit’s~~recognized ~~goodwill~~each ~~may~~period, ~~be impaired~~ and the ~~Company~~capitalized ~~must~~cost is depreciated ~~perform~~over the ~~second~~useful ~~step~~life of the ~~transitional~~related ~~impairment test~~asset. InUpon ~~the~~settlement ~~second step, the Company must compare the implied fair value~~ of the ~~reporting~~liability ~~unit’s~~an ~~goodwill,~~entity ~~determined~~either bysettles ~~allocating~~ the ~~reporting~~obligation ~~unit’s~~for ~~fair~~its ~~value~~recorded toamount ~~all~~or ofincurs ita gain ~~assets~~or ~~(recognized~~loss ~~and~~upon ~~unrecognized)~~settlement. ~~and~~The ~~liabilities~~standard inis aeffective ~~manner~~for ~~similar~~fiscal toyears abeginning ~~purchase~~after ~~price allocation in accordance with Statement 141~~June 15, ~~to its carrying amount~~2002, ~~both~~with ofearlier ~~which~~application ~~would be measured as of the date of adoption~~encouraged. ~~This~~The ~~second~~Company adopted ~~step~~this isstatement ~~required to be completed as soon as possible~~July 1, ~~but~~2002. noThe ~~later~~adoption ~~than the end~~ of ~~the~~SFAS ~~year of adoption~~No. 143 ~~Any~~has ~~transitional~~not ~~impairment~~had ~~loss will be recognized as~~a ~~the~~material ~~cumulative~~impact ~~effect~~on ~~of a change in accounting principle in~~ the Company’s ~~statement~~ offinancial position or results from operations.

~~And~~In ~~finally~~August 2001, ~~any~~the ~~unamortized~~FASB ~~negative~~issued ~~goodwill~~SFAS ~~existing~~No. 144, at“Accounting for the Impairment ~~date~~or Disposal of Long Lived Assets,” which supercedes SFAS No. 121 and ~~Statement~~certain ~~142~~sections isof ~~adopted~~APB ~~must~~Opinion beNo. 30. ~~written~~SFAS ~~off~~No. 144 classifies long-lived assets as ~~the~~either ~~cumulative~~(1) to ~~effect~~be held and used, (2) to be disposed of by other than sale, or (3) to be disposed of by sale. This standard introduces a ~~change~~probability-weighted cash flow estimation approach to deal with situations in which ~~accounting~~alternative ~~principle~~courses of action to recover the carrying amount of a long-lived asset are under consideration or a range is estimated for the amount of possible future cash flows. The Company adopted this statement July 1, 2002. This standard has not had a material impact on the Company’s financial position or results of operations.

~~The~~In ~~Company~~April ~~will~~2002, ~~adopt~~the ~~Statement~~Financial ~~142~~Accounting ~~effective~~Standards ~~July 1~~Board, ~~2002.~~(“FASB”), ~~The adoption~~issued of Statement ~~142~~of ~~may~~Financial ~~have~~Accounting aStandards ~~significant effect on the Company’s results from operations~~No. ~~For the years ended June~~ 30145, ~~2000,~~“Recission ~~2001~~of ~~and 2002, the Company~~FASB ~~amortized~~Statements ~~$689~~No. 4,~~000,~~ ~~$687~~44,~~000~~ and ~~$609~~64,~~000~~ ~~related~~Amendment toof ~~goodwill.~~FASB ~~For~~Statement ~~the year ending June~~No. 3013, ~~2003~~and ~~the Company will not record $768~~Technical Corrections,~~000~~” ofwhich ~~amortization related~~among toother ~~goodwill.~~things ~~Because~~provides ofguidance ~~the~~in ~~extensive~~reporting ~~effort~~gains ~~needed to comply with~~and ~~adopting~~losses ~~Statement~~from ~~142,~~extinguishments itof isdebt ~~not~~and ~~practicable~~accounting tofor ~~reasonably~~leases. ~~estimate~~The ~~the impact~~Company ofadopted ~~adopting~~ this statement onJuly 1, ~~the~~2002 ~~Company’s~~. ~~consolidated~~This ~~financial~~standard ~~statements at~~has ~~the~~not ~~date~~had ofa ~~this report, including whether any transitional impairment~~material ~~losses~~impact ~~will~~on beits ~~required~~financial toposition beor ~~recognized~~its asresults ~~the cumulative effect~~ of ~~a change in accounting principle~~operations.

On ~~August~~July 1630, ~~2001~~2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. ~~143~~146, “Accounting for ~~Asset~~ ~~Retirement~~Costs ~~Obligations”.~~Associated ~~The~~with ~~statement~~Exit ~~requires~~or ~~entities~~Disposal toActivities.” ~~record~~SFAS ~~the~~146 ~~fair~~nullifies EITF ~~value~~Issue ofNo. 94-3, a“Liability ~~liability~~Recognition for ~~legal~~Certain ~~obligations~~Employee ~~associated~~Termination Benefits ~~with~~and ~~the~~Other ~~retirement obligations~~Costs ofto ~~tangible~~Exit ~~long-lived~~an ~~assets~~Activity in(including ~~the~~Certain ~~period~~Costs Incurred in ~~which~~a ~~it is incurred~~Restructuring).” ~~When~~It ~~the~~requires ~~liability~~that isa ~~initially~~liability ~~recorded,~~be ~~the~~recognized ~~entity~~for ~~increases the~~those ~~carrying~~costs ~~amount~~only ofwhen the ~~related~~liability ~~long-lived~~is ~~asset. Over time~~incurred, ~~accretion~~that ~~of the liability~~ is, ~~recognized~~when ~~each~~it ~~period,~~meets ~~and~~ the definition ~~capitalized~~of ~~cost~~a isliability ~~depreciated over~~in the ~~useful~~FASB’s ~~life~~conceptual offramework. ~~the~~SFAS ~~related asset~~No. 146 ~~Upon settlement of the liability an~~also ~~entity~~establishes ~~either~~fair ~~settles~~value as the ~~obligation~~objective for ~~its~~initial ~~recorded~~measurement ~~amount~~of orliabilities related ~~incurs~~to ~~a gain~~exit or ~~loss~~disposal ~~upon settlement~~activities. ~~The~~SFAS ~~standard~~146 is effective for ~~fiscal~~exit ~~years~~or ~~beginning~~disposal activities that are initiated after ~~June~~December 1531, 2002, with earlier adoption ~~application~~ encouraged. ~~The~~Adoption ~~Company does not expect that the adoption~~ of SFAS ~~No. 143~~146 ~~will~~has ~~have~~not had a material impact on the Company’s financial position or results from operations.

In ~~August~~November ~~2001~~2002, the FASB issued ~~SFAS~~Interpretation No. ~~144~~45 (FIN 45), Guarantor’s “Accounting and Disclosure Requirements for ~~the~~Guarantees, Including ~~Impairment~~Indirect orGuarantees ~~Disposal~~ of ~~Long~~Indebtedness ~~Lived~~of ~~Assets,”~~Others. ~~which~~FIN ~~supercedes~~45 ~~SFAS~~requires ~~No. 121~~a ~~and~~guarantor to ~~certain~~include ~~sections~~disclosure of ~~APB~~certain ~~Opinion~~obligations, ~~No. 30.~~and ~~SFAS~~if ~~No. 144~~applicable, ~~classifies~~at ~~long-lived~~the inception ~~assets~~of asthe ~~either~~guarantee, ~~(1) to~~recognize bea ~~held~~liability ~~and~~for ~~used,~~the ~~(2) to~~fair bevalue ~~disposed~~ of by other ~~than~~certain ~~sale,~~obligations orundertaken ~~(3) to~~in beissuing ~~disposed~~a ~~of by sale~~guarantee. ~~This~~The ~~standard~~recognition ~~introduces~~requirement ais ~~probability-weighted~~effective ~~cash~~for ~~flow~~guarantees ~~estimation~~issued ~~approach~~or tomodified ~~deal~~after ~~with~~December 31, ~~situations~~2002. inThe ~~which~~Company ~~alternative~~did ~~courses~~not ofhave ~~action~~any toguarantees ~~recover~~subject ~~the~~to ~~carrying~~FIN 45 ~~amount~~at ofJune 30, ~~a long-lived~~2003, ~~asset~~and ~~are~~has ~~under~~applied ~~consideration~~the provisions orof aFIN ~~range~~No. 45 isprospectively ~~estimated~~to ~~for~~guarantees ~~the~~subject ~~amount~~to ofFIN ~~possible~~45 ~~future~~made ~~cash~~after ~~flows~~December 31, 2002. ~~The Company will~~

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002. The Company has complied with the disclosure requirements under SFAS No. 148.

~~adopt~~ In ~~this~~January ~~statement~~2003, ~~beginning~~the ~~July~~FASB issued FIN No. 146, ~~2002~~“Consolidation of Variable Interest Entities.” ~~The~~FIN ~~Company~~No. 46 ~~does~~clarifies when variable interest entities are consolidated by business enterprises where the equity investment at risk is not sufficient ~~expect~~to permit the entity to finance its activities without additional ~~adoption~~subordinated financial support from other parties, which is provided through other interests that will absorb some or all of ~~this~~the ~~standard~~expected tolosses ~~have~~of the entity, or, where equity investors lack certain characteristics of a controlling ~~material~~financial ~~impact~~interest. onFIN No. 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company’s ~~financial~~did not have any ~~position~~investments orin ~~results~~any variable interest entities at June 30, 2003 and has applied the provisions of ~~operations~~FIN No. 46 prospectively to investments in variable interest entities made after February 1, 2003.

In ~~April~~May ~~2002~~2003, the ~~Financial~~FASB ~~Accounting~~issued ~~Standards~~Statement ~~Board~~150, (“~~FASB”),~~Accounting ~~issued~~for Certain ~~Statement~~Financial Instruments with Characteristics of ~~Financial~~both ~~Accounting~~Liabilities ~~Standards~~and NoEquity. ~~145,~~” Statement ~~“Recission~~150 ofestablishes ~~FASB Statements~~standards ~~No. 4,~~for ~~44,~~classifying and ~~64,~~measuring ~~Amendment~~certain financial instruments with characteristics of ~~FASB~~both liabilities and equity. Statement No. ~~13,~~150 ~~and~~requires ~~Technical~~that an issuer classify a financial instrument that ~~Corrections,”~~is ~~which~~within ~~among~~its ~~other~~scope ~~things~~as ~~provides~~a ~~guidance~~liability (or an asset in ~~reporting~~some ~~gains~~circumstances) ~~and~~because ~~losses~~that ~~from~~financial ~~extinguishments~~instrument embodies an obligation of ~~debt~~the ~~and~~issuer. ~~accounting~~Statement No. 150 is effective for ~~leases.~~financial ~~The~~instruments ~~Company~~entered ~~will adopt~~into ~~this~~or ~~statement~~modified inafter May 31, 2003, and otherwise is ~~currently~~effective ~~reviewing~~for the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of a nonpublic entity for which this statement ~~to determine~~is ~~its~~effective ~~impact.~~for ~~However~~fiscal periods beginning December 15, 2003, the Company’s ~~does~~fiscal 2005. We do not expect the adoption of this ~~standard~~pronouncement to have a material impact on ~~its~~our financial position, ~~or its~~ results of its operations or liquidity.

On July 30, 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” It requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB’s conceptual framework. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. The Company does not expect that the adoption of SFAS 146 will have a material impact on its financial position or results from operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company is exposed to interest rate changes primarily as a result of its notes payable, including ~~Senior~~the ~~Notes,~~ Term Loan and Revolving Loan (which have been replaced by The New Revolver), and Senior Notes which are used to maintain liquidity and fund capital expenditures and expansion of the Company’s operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company ~~borrows~~ borrows primarily at fixed rates and has the ability to choose interest rates under the New ~~Term Loan and Revolving Loan~~Revolver. The Company does not enter into derivative or interest rate transactions for speculative purposes.

There are no derivative transactions during the years ended June 30, ~~2001~~2002 and ~~2002~~2003.

At June 30, 2003, the annual maturities of long-term debt and senior notes are as follows:


	YEARS ENDING JUNE 30,

											THERE
	2004		2005		2006		2007		2008		AFTER		TOTAL			FAIR VALUE

	(IN THOUSANDS)
Fixed rate debt	$	2,551	$	176	$	12	$	100,005	$	5	$	161	$	102,910		$	80,910
Average interest rate														11.75	%
Variable rate LIBOR debt (1)		0		0		14,485		0		0		0		14,485			14,485
Weighted average current interest rate (1)														4.84	%

At June 30, 2002, the annual maturities of long-term debt and senior notes are as follows:

	YEARS ENDING JUNE 30,
																FAIR
											THERE
	2003		2004		2005		2006		2007		~~THEREAFTER~~AFTER		TOTAL			FAIR VALUE
	(IN THOUSANDS)
Fixed rate debt	$	3,217	$	2,518	$	739	$	~~101~~1,035	$	5100,005	$	166	$	107,680		$	102,680
Average interest rate														11.30	%
Variable rate LIBOR debt (1)		6,000		15,290		0		0		0		0		21,290			21,290
Weighted average current interest rate (1)														4.11	%

At June 30, 2001, the annual maturities of long-term debt and senior notes are as follows:

	YEARS ENDING JUNE 30,
																FAIR
	2002		2003		2004		2005		2006		THEREAFTER		TOTAL			VALUE
	(IN THOUSANDS)
Fixed rate debt	$	1,436	$	571	$	17	$	4	$	100,004	$	171	$	102,203		$	100,203
Average interest rate														11.89	%
Variable rate LIBOR debt (1)		5,000		6,000		12,005		0		0		0		23,005			23,005
Weighted average current interest rate (1)														6.23	%

(1)

The Company has different interest rate options for its variable rate debt. See note 5 in the consolidated financial statements for additional information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Consolidated Financial Statements of the Company filed as part of this report on Form 10-K are listed in Item 14(a).

INDEPENDENT AUDITORS’ REPORT

The Board of Directors
Penhall International Corp. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Penhall International Corp. and subsidiaries (“the Company”) as of June 30, ~~2001~~2002 and ~~2002~~2003, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the three-year period ended June 30, ~~2002~~2003. These consolidated financial statements are the responsibility of the Company’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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Penhall International Corp. and subsidiaries as of June 30, ~~2001~~2002 and ~~2002~~2003, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, ~~2002~~2003, in conformity with accounting principles generally accepted in the United States of America.


	/s/ KPMG LLP

	KPMG LLP

September 612, ~~2002~~2003 Orange County, California

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,

				2001		2002
				2002		2003
ASSETS
ASSETS (note 5)
Current assets:
	Cash and cash equivalents			$	16,~~030~~205,000	$	6184,~~205,~~000
	Receivables:
		Contract and trade receivables			3531,~~257~~361,000		3129,~~361~~105,000
		Contract retentions, due upon completion and acceptance of work (note 2)			54,~~328~~756,000		4,~~756~~105,000
		Income taxes			1,~~084~~990,000		12,~~990~~648,000
					41,669,000		38,107,000
					38,107,000		35,858,000
		Less allowance for doubtful receivables (note 2)			1,~~763~~421,000		1,~~421~~592,000
			Net receivables		3936,~~906~~686,000		3634,~~686~~266,000
	Costs and estimated earnings in excess of billings on uncompleted contracts (note 11)				12,~~856~~514,000		21,~~514~~704,000
	Deferred tax assets (note 6)				23,~~329~~133,000		3,~~133~~363,000
	Inventories				21,~~273~~895,000		12,~~895~~362,000
	Prepaid expenses and other current assets				12,~~417~~375,000		23,~~375~~638,000
			Total current assets		4852,~~811~~808,000		5245,~~808~~517,000
Property, plant and equipment, at cost:
	Land				5,004,000		5,004,000
	Buildings and leasehold improvements				98,~~417~~822,000		8,~~822~~793,000
	Construction and other equipment				~~115~~121,~~670~~890,000		~~121~~117,~~890~~860,000
					130,091,000		135,716,000
					135,716,000		131,657,000
	Less accumulated depreciation and amortization				6369,~~888~~449,000		6978,~~449~~256,000
			Net property, plant and equipment		66,~~203~~267,000		6653,~~267~~401,000
Goodwill, net of accumulated amortization of $2,551,000 and $3,159,000, respectively					7,263,000		9,053,000
Goodwill					9,053,000		9,053,000
Debt issuance costs net of accumulated amortization of $2,580,000 and $3,465,000, respectively (note 5)					4,062,000		3,177,000
Debt issuance costs net of accumulated amortization of $3,465,000 and $4,778,000, respectively (note 5)					3,177,000		3,316,000
Other assets, net (note 3)					~~623~~1,610,000		1,~~610~~186,000
				$	~~126~~132,~~962~~915,000	$	~~132~~112,~~915~~473,000

See accompanying notes to consolidated financial statements.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF JUNE 30,

			2001			2002
			2002			2003
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Current installments of long-term debt (note 5)		$	69,~~436~~217,000		$	92,~~217~~551,000
	Trade accounts payable			9,~~976~~726,000			97,~~726~~953,000
	Accrued liabilities (note 4)			1513,~~061~~986,000			1712,~~783~~378,000
	Billings in excess of costs and estimated earnings on uncompleted contracts (note 11)			1680,~~688,~~000			~~680~~831,000
		Total current liabilities		33,~~161~~609,000			3723,~~406~~713,000
Long-term debt, excluding current installments (note 5)				1819,~~772~~753,000			1914,~~753~~844,000
Long-term portion of insurance reserve				3,797,000			5,158,000
Senior Notes (note 5)				100,000,000			100,000,000
Deferred tax liabilities (note 6)				79,~~312~~339,000			98,~~339~~221,000
Senior Exchangeable Preferred stock, redemption value $13,573,000 and $15,075,000 at June 30, 2001 and 2002, respectively. Authorized, issued and outstanding 10,000 shares (note 9)				13,573,000			15,075,000
Senior Exchangeable Preferred stock, redemption value $15,075,000 and $16,744,000 at June 30, 2002 and 2003, respectively. Authorized, issued and outstanding 10,000 shares (note 9)				15,075,000			16,744,000
Series A Preferred stock, redemption value $15,219,000 and $17,332,000 at June 30, 2001 and 2002, respectively. Authorized 25,000 shares; issued and outstanding 10,428 shares (note 9)				15,219,000			17,332,000
Series A Preferred stock, redemption value $17,332,000 and $19,737,000 at June 30, 2002 and 2003, respectively. Authorized 25,000 shares; issued and outstanding 10,428 shares (note 9)				17,332,000			19,737,000
Stockholders’ deficit:
Series B Preferred stock, par value $.01 per share. Authorized 50,000 shares; issued and outstanding 18,701 and 18,791 shares at June 30, 2001 and June 30, 2002, respectively (note 9)				27,273,000			31,200,000
Series B Preferred stock, par value $.01 per share. Authorized 50,000 shares; issued and outstanding 18,791 and 18,798 shares at June 30, 2002 and June 30, 2003, respectively (note 9)				31,200,000			35,546,000
Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,017,480 and 1,021,127 at June 30, 2001 and June 30, 2002, respectively				10,000			10,000
Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,021,127 and 1,021,870 at June 30, 2002 and June 30, 2003, respectively				10,000			10,000
Additional paid-in capital				12,~~831~~044,000			2,~~044~~082,000
Treasury stock, at cost, 34,173 and 34,796 common shares at June 30, 2001 and June 30, 2002, respectively				(288,000	)		(317,000	)
Treasury stock, at cost, 34,796 and 35,318 common shares at June 30, 2002 and June 30, 2003, respectively				(317,000	)		(336,000	)
Accumulated deficit				(8998,~~901~~927,000	)		(98113,~~927~~246,000	)
		Total stockholders’ deficit		(6165,~~075~~990,000	)		(6575,~~990~~944,000	)
Commitments and contingencies (notes 7, 8 and 10)
Subsequent event (note 16)
			$	132,915,000		$	112,473,000
			$	126,962,000		$	132,915,000

See accompanying notes to consolidated financial statements.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,

		2000			2001			2002
		2001			2002			2003
Revenues		$	~~173~~175,~~060~~769,000		$	~~175~~161,~~769~~242,000		$	~~161~~159,~~242~~617,000
Cost of revenues			~~119~~124,~~854~~408,000			~~124~~122,~~408~~418,000			~~122~~128,~~418~~048,000
	Gross profit		5351,~~206~~361,000			5138,~~361~~824,000			3831,~~824~~569,000
General and administrative expenses (note 8)			28,~~474~~347,000			28,~~347~~364,000			2827,~~364~~935,000
Reorganization expenses			43,000			—			—
Other operating income			1,408,000			1,360,000			1,360,000
Other operating income			1,228,000			1,408,000			1,360,000
	Earnings before interest expense and income taxes		24,422,000			11,820,000			4,994,000
	Earnings before interest expense and income taxes		25,917,000			24,422,000			11,820,000
Interest expense			15,263,000			14,293,000			14,355,000
Interest expense			15,591,000			15,263,000			14,293,000
	Earnings (loss) before income taxes		9,159,000			(2,473.000	)		(9,361,000	)
	Earnings (loss) before income taxes		10,326,000			9,159,000			(2,473,000	)
Income tax expense (benefit) (note 6)			3,900,000			(856,000	)		(3,441,000	)
Income tax expense (benefit) (note 6)			4,376,000			3,900,000			(856,000	)
Net earnings (loss)			5,259,000			(1,617,000	)		(5,920,000	)
Net earnings (loss)			5,950,000			5,259,000			(1,617,000	)
Accretion of preferred stock to redemption value			(3,207,000	)		(3,615,000	)		(4,074,000	)
Accretion of preferred stock to redemption value			(2,854,000	)		(3,207,000	)		(3,615,000	)
Accrual of cumulative dividends on preferred stock			(3,263,000	)		(3,794,000	)		(4,325,000	)
Accrual of cumulative dividends on preferred stock			(2,946,000	)		(3,263,000	)		(3,794,000	)
Net loss available to common stockholders		$	(1,211,000	)	$	(9,026,000	)	$	(14,319,000	)
Net earnings (loss) available to common stockholders		$	150,000		$	(1,211,000	)	$	(9,026,000	)
Loss per share basic and diluted		$	(1.22	)	$	(9.16	)	$	(14.52	)
Earnings (loss) per share basic and diluted		$	.15		$	(1.22	)	$	(9.16	)
Weighted average number of shares outstanding basic and diluted			995,747			985,345			986,406
Weighted average number of shares outstanding basic and diluted			1,000,953			995,747			985,345

See accompanying notes to consolidated financial statements.

PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED JUNE 30, 2001, 2002 AND 2003

FOR THE YEARS ENDED JUNE 30, 2000, 2001 AND 2002


	SERIES B PREFERRED STOCK						COMMON STOCK

											ADDITIONAL
	SHARES						SHARES				PAID-IN
	OUTSTANDING			AMOUNT			OUTSTANDING		AMOUNT		CAPITAL

Balance at June 30, 2000		19,052		$	24,385,000			1,012,513	$	10,000	$	1,522,000
Shares issued		146			186,000			4,967		—		309,000
Accretion of redeemable preferred stock		—			—			—		—		—
Accrual of cumulative dividends		—			3,263,000			—		—		—
Repurchase of shares		(497	)		(561,000	)		—		—		—
Net earnings		—						—		—		—

Balance at June 30, 2001		18,701		$	27,273,000			1,017,480	$	10,000	$	1,831,000
Shares issued		108			158,000			3,647		—		213,000
Accretion of redeemable preferred stock		—			—			—		—		—
Accrual of cumulative dividends		—			3,794,000			—		—		—
Repurchase of shares		(18	)		(25,000	)		—		—		—
Net loss		—			—			—		—		—

Balance at June 30, 2002		18,791		$	31,200,000			1,021,127	$	10,000	$	2,044,000
Shares issued		22			37,000			743		—		38,000
Accretion of redeemable preferred stock		—			—			—		—		—
Accrual of cumulative dividends		—			4,325,000			—		—		—
Repurchase of shares		(15	)		(16,000	)		—		—		—
Net loss		—			—			—		—		—

Balance at June 30, 2003		18,798		$	35,546,000			1,021,870	$	10,000	$	2,082,000

	SERIES B PREFERRED STOCK						COMMON STOCK
	SHARES						SHARES
	OUTSTANDING			AMOUNT			OUTSTANDING		AMOUNT
Balance at June 30, 1999		18,556		$	20,880,000			995,000	$	10,000
Shares issued		511			574,000			17,513		—
Accretion of redeemable preferred stock		—			—			—		—
Accrual of cumulative dividends		—			2,946,000			—		—
Repurchase of shares		(15	)		(15,000	)		—		—
Net earnings		—			—			—		—
Balance at June 30, 2000		19,052			24,385,000			1,012,513		10,000
Shares issued		146			186,000			4,967		—
Accretion of redeemable preferred stock		—			—			—		—
Accrual of cumulative dividends		—			3,263,000			—		—
Repurchase of shares		(497	)		(561,000	)		—		—
Net earnings		—			—			—		—
Balance at June 30, 2001		18,701			27,273,000			1,017,480		10,000
Shares issued		108			158,000			3,647		—
Accretion of redeemable preferred stock		—			—			—		—
Accrual of cumulative dividends		—			3,794,000			—		—
Repurchase of shares		(18	)		(25,000	)		—		—
Net loss		—			—			—		—
Balance at June 30, 2002		18,791		$	31,200,000			1,021,127	$	10,000

[Additional columns below]

[Continued from above table, first column(s) repeated]

	TREASURY STOCK			~~TREASURY STOCK~~
										TOTAL			~~TOTAL~~
	ADDITIONAL			SHARES						ACCUMULATED			STOCKHOLDERS'
	SHARES						ACCUMULATED			STOCKHOLDERS'
	PAID-IN CAPITAL			OUTSTANDING			AMOUNT			DEFICIT			DEFICIT
	OUTSTANDING			AMOUNT			DEFICIT			DEFICIT
Balance at June 30, 1999	$	985,000			(523	)	$	—		$	(88,840,000	)	$	(66,965,000	)
Balance at June 30, 2000		(6,014	)		(14,000	)	$	(88,690,000	)		(62,787,000	)
Shares issued		~~537,000~~—			—			—			—495,000			~~1,111,000~~
Accretion of redeemable preferred stock		—			—			—(3,207,000	)		(23,~~854~~207,000	)		~~(2,854,000~~	)
Accrual of cumulative dividends		—			—			—(3,263,000	)		~~(2,946,000~~—	)		—
Repurchase of shares		—(28,159	)		(5274,~~491~~000	)		~~(14,000~~—	)		—(835,000	)		~~(29,000~~	)
Net earnings		—			—			—5,259,000			5,~~950~~259,000			~~5,950,000~~
Balance at June 30, 2000		1,522,000			(6,014	)		(14,000	)		(88,690,000	)		(62,787,000	)
Balance at June 30, 2001		(34,173	)		(288,000	)	$	(89,901,000	)		(61,075,000	)
Shares issued		~~309,000~~—			—			—			—371,000			~~495,000~~
Accretion of redeemable preferred stock		—			—			—(3,615,000	)		(3,~~207~~615,000	)		~~(3,207,000~~	)
Accrual of cumulative dividends		—			—			—(3,794,000	)		~~(3,263,000~~—	)		—
Repurchase of shares		—(623	)		(2829,~~159~~000	)		~~(274,000~~—	)		—(54,000	)		~~(835,000~~	)
Net earnings		—			—			—			5,259,000			5,259,000
Net loss		—			—			(1,617,000	)		(1,617,000	)
Balance at June 30, 2001		1,831,000			(34,173	)		(288,000	)		(89,901,000	)		(61,075,000	)
Balance at June 30, 2002		(34,796	)		(317,000	)	$	(98,927,000	)		(65,990,000	)
Shares issued		~~213,000~~—			—			—			—75,000			~~371,000~~
Accretion of redeemable preferred stock		—			—			—(4,074,000	)		(34,~~615~~074,000	)		~~(3,615,000~~	)
Accrual of cumulative dividends		—			—			—(4,325,000	)		~~(3,794,000~~—	)		—
Repurchase of shares		—(522	)		(~~623~~19,000	)		~~(29,000~~—	)		—(35,000	)		~~(54,000~~	)
Net loss		—			—			—(5,920,000	)		(15,~~617~~920,000	)		~~(1,617,000~~	)
Balance at June 30, 2002	$	2,044,000			(34,796	)	$	(317,000	)	$	(98,927,000	)	$	(65,990,000	)
Balance at June 30, 2003		(35,318	)	$	(336,000	)	$	(113,246,000	)	$	(75,944,000	)

See accompanying notes to consolidated financial statements.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30,

				2000			2001			2002
				2001			2002			2003
Cash flows from operating activities:
Net earnings (loss)				$	5,~~950~~259,000		$	5(1,~~259~~617,000	)	$	(15,~~617~~920,000	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
	Depreciation and amortization				1416,~~521~~254,000			1617,~~254~~185,000			1716,~~185~~733,000
	Amortization of debt issuance costs				~~885~~884,000			~~884~~885,000			~~885~~1,313,000
	Provision for doubtful receivables				~~340~~146,000			~~146~~340,000			~~340~~767,000
	Provision for (benefit from) deferred income taxes				21,~~397~~256,000			1(736,~~256,~~000	)		(~~736~~1,348,000	)
	Gains on sale of assets, net				(~~305~~422,000	)		(~~422~~300,000	)		(~~300~~485,000	)
	Changes in operating assets and liabilities, net of effects of acquisitions:
		Receivables			(4,~~793~~111,000	)		(42,~~111~~880,000	)		21,~~880~~653,000
		Inventories, prepaid expenses and other assets			(780,000	)		(1,074,000	)		(372,000	)
		Inventories, prepaid expenses and current assets			(1,074,000	)		(372,000	)		(1,730,000	)
		Costs and estimated earnings in excess of billings on uncompleted contracts			~~(972~~2,270,000	)		2(658,~~270,~~000	)		~~(658~~810,000	)
		Trade accounts payable, accrued liabilities and income taxes payable			1,454,000			(3,783,000	)		1,010,000
		Trade accounts payable, accrued liabilities and insurance reserves			(3,783,000	)		1,010,000			705,000
		Billings in excess of costs and estimated earnings on uncompleted contracts			1(947,~~585,~~000	)		(~~947~~1,008,000	)		(1151,~~008,~~000	)
			Net cash provided by operating activities		2015,~~282~~732,000			1517,~~732~~609,000			1712,~~609~~649,000
Cash flows from investing activities:
	Proceeds from sale of assets				~~865~~1,292,000			1832,~~292,~~000			~~832~~1,264,000
	Capital expenditures				(18,~~093~~469,000	)		(189,~~469~~495,000	)		(94,~~495~~222,000	)
	Acquisition of companies, net of cash acquired				—(520,000	)		(~~520~~3,819,000	)		~~(3,819,000~~—	)
			Net cash used in investing activities		(17,~~228~~697,000	)		(1712,~~697~~482,000	)		(122,~~482~~958,000	)
Cash flows from financing activities:
	Borrowings under long-term debt				2871,~~726~~824,000			7185,~~824~~823,000			85105,~~823~~320,000
	Repayments of long-term debt				(3673,~~796~~803,000	)		(7386,~~803~~288,000	)		(86116,~~288~~895,000	)
	Book overdraft				2,~~965~~891,000			2196,~~891,~~000			~~196~~(2,725,000	)
	Debt issuance costs				~~(7,000~~—	)		—			—(1,452,000	)
	Proceeds from issuance of common stock				~~537~~309,000			~~309~~213,000			~~213~~38,000
	Repurchase of common stock and Series B preferred stock				(29521,000	)		(~~521~~54,000	)		(5435,000	)
	Issuance of Series B preferred stock				~~574~~186,000			~~186~~158,000			~~158~~37,000
			Net cash provided by (used in) financing activities		(4886,~~030,~~000	)		~~886~~48,000			48(15,712,000	)
			Net increase (decrease) in cash and cash equivalents		(976,000	)		(1,079,000	)		5,175,000
			Net change in cash and cash equivalents		(1,079,000	)		5,175,000			(6,021,000	)
Cash and cash equivalents at beginning of year					32,~~085~~109,000			21,~~109~~030,000			16,~~030~~205,000
Cash and cash equivalents at end of year				$	21,~~109~~030,000		$	16,~~030~~205,000		$	6184,~~205,~~000

See note 15 for supplementary cash flow information.

See accompanying notes to consolidated financial statements.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY’S ACTIVITIES AND OPERATING CYCLE

Penhall International, Inc. (“PII”) was founded in 1957 and was incorporated in the state of California on April 19, 1988. On August 4, 1998, $100,000,000 of 12% Senior Notes (the Senior Notes) were sold by Penhall Acquisition Corp., an Arizona corporation formed by an unrelated third party (the Third Party) to effect the recapitalization of PII. As part of the recapitalization, a series of mergers (the Recapitalization Mergers) were consummated pursuant to which Phoenix Concrete Cutting, Inc., a wholly-owned subsidiary of PII, became the corporate parent of PII, the Third Party acquired a 62.5% interest in Phoenix Concrete Cutting, Inc. and Phoenix Concrete Cutting, Inc. became the successor obligor of the Senior Notes. Following the consummation of the Recapitalization Mergers, Phoenix Concrete Cutting, Inc. changed its name to Penhall International Corp., and PII changed its name to Penhall Rental Corp. Under accounting principles generally accepted in the United States of America, the recapitalization mergers were accounted for as a leveraged recapitalization transaction in a manner similar to a pooling-of-interests. Under this method, the transfer of controlling interest in PII to a new investor did not change the accounting basis of the assets and liabilities in PII’s separate stand-alone financial statements.

InPenhall ~~connection~~International ~~with~~Corp. ~~the~~and ~~recapitalization~~its ~~mergers~~wholly-owned subsidiaries, ~~PII~~Penhall Rental onCorp. ~~June 30~~and Penhall Company (collectively, ~~1998~~“the Company” or “Penhall”) ~~entered~~serves ~~into~~customers ain ~~certain~~the ~~Compensation~~industrial, ~~Tax~~construction, ~~Consistency~~governmental, and ~~Indemnification~~residential ~~Agreement~~markets, (primarily through the ~~Agreement)~~performance of new construction, rehabilitation, and demolition services in connection with ~~certain~~infrastructure ~~members~~projects. ofThe Company’s ~~management~~revenues are generated through equipment rentals, both short-term and longer term under fixed price agreements. ~~Under~~The length of the fixed price ~~Agreement~~agreements (contracts) varies, ~~PII~~but ~~was~~typically ~~obligated~~range from one to ~~make~~twelve ~~approximately~~months. In $3accordance with the operating cycle concept,~~000,000~~ ofthe ~~tax~~Company ~~gross-up~~classifies all ~~payments~~contract-related toassets ~~certain~~and ~~members~~liabilities ofas ~~management~~current items. ~~For~~The Company’s base of operations includes among others, the ~~years~~states ~~ended~~of ~~June 30~~California, ~~2000~~Arizona, Colorado, ~~2001~~Nevada, ~~and~~Texas, ~~2002~~Georgia, ~~$43~~North Carolina,~~000,~~ $0South Carolina and ~~$0,~~Utah. ~~respectively~~Additionally, through isits ~~included~~purchase in ~~reorganization~~April of 1998 of Highway Services, Inc., the Company’s ~~expenses~~operations ~~for~~were expanded to include the ~~costs~~mid-western ~~associated~~states ~~with~~of the ~~recapitalization~~United ~~mergers~~States and some provinces of Canada. The Company’s operations are primarily conducted through Penhall International Corp. and its wholly owned subsidiary, Penhall Company. Penhall Rental Corp. was dissolved and merged into Penhall International Corp. effective July 1, 2002.

Penhall International Corp. and its wholly-owned subsidiaries, Penhall Rental Corp. and Penhall Company (collectively, “the Company” or “Penhall”) serves customers in the industrial, construction, governmental, and residential markets, primarily through the performance of new construction, rehabilitation, and demolition services in connection with infrastructure projects. The Company’s revenues are generated through equipment rentals, both short-term and longer term under fixed price agreements. The length of the fixed price agreements (contracts) varies, but typically range from one to 12 months. In accordance with the operating cycle concept, the Company classifies all contract-related assets and liabilities as current items. The Company’s base of operations includes among others, the states of California, Arizona, Colorado, Nevada, Texas, Georgia, North Carolina, South Carolina and Utah. Additionally, through its purchase in April of 1998 of Highway Services, Inc., the Company’s operations were expanded to include the mid-western states of the United States and some provinces of Canada. The Company’s operations are primarily conducted through Penhall International Corp. and its wholly owned subsidiary, Penhall Company.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of Penhall International Corp. and its wholly owned subsidiaries: Penhall Rental Corp. and Penhall Company. Penhall Company has three wholly owned subsidiaries, Penhall Investments, a California Corporation, Penhall Leasing, a California single member limited liability company and Bob Mack Company, Inc. a California Corporation. All significant intercompany transactions have been eliminated in consolidation.

REVENUE RECOGNITION ON LONG-TERM CONSTRUCTION CONTRACTS

Income from construction operations is recorded using the percentage-of-completion method of accounting. The Company has two types of contracts. The first type of contract is fixed unit in which the percentage of completion is determined based on the units completed as a percentage of estimated total units. The second type of contract is lump sum in which the percentage of completion is determined based on costs to date as compared to total estimated costs at completion. If estimated total costs on any contract indicate a loss, the Company provides currently for the total loss anticipated on the contract. For long-term contracts, which extend beyond fiscal year ends, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which facts requiring the revision become known. All remaining revenue and costs are recognized as work is performed.

Contract costs include all direct material, equipment rentals, labor and subcontract costs and those indirect costs related to contract performance, such as indirect labor, tools, supplies, repairs and depreciation. General and administrative costs are charged to expense as incurred.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

~~REVENUE~~ Income ~~RECOGNITION~~from ONclaims ~~LONG-TERM~~for ~~CONSTRUCTION~~additional ~~CONTRACTS~~contract compensation is recorded upon settlement of the disputed amount. The asset “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.

Income from construction operations is recorded using the percentage-of-completion method of accounting. The Company has two types of contracts. The first type of contract is fixed unit in which the percentage of completion is determined based on the units completed as a percentage of estimated total units. The second type of contract is lump sum in which percentage of completion is determined based on costs to date as compared to total estimated costs at completion. If estimated total costs on any contract indicate a loss, the Company provides currently for the total loss anticipated on the contract. For long-term contracts, which extend beyond fiscal year ends, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which facts requiring the revision become known. All remaining revenue and costs are recognized as work is performed.

The asset “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.

Income from claims for additional contract compensation is recorded upon settlement of the disputed amount.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, ~~2001~~2002 and ~~2002~~2003, cash equivalents were $04.07 million and $40, respectively.7 Included in the cash balance at June ~~million~~30, ~~respectively~~2003 is $0.2 million that is restricted.

INVENTORIES

Inventories, which consist primarily of diamond cutting blades and fuel, are stated at cost. Cost is determined using the purchase price of the assets and is expensed based on usage.

PROPERTY, PLANT AND EQUIPMENT

The Company and its subsidiaries provide for depreciation of property, plant and equipment based on the following estimated useful lives of the assets, using the straight-line method and a residual value of approximately 10%:


	Buildings and leasehold improvements 15 to 39 years Construction and other equipment 3 to 8 years

Leasehold improvements are amortized over the lesser of the life of the lease or useful life of the asset.

The cost and accumulated depreciation applicable to assets sold or otherwise disposed of are eliminated from the asset and accumulated depreciation accounts. Gain or loss on disposition is reflected in other operating income.

GOODWILL

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

~~GOODWILL~~ The following is a reconciliation of net loss and loss per share between the amounts reported for the years ended June 30, 2001, 2002 and 2003 and the adjusted amounts reflecting these new accounting rules:

Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 15 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company’s average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. Amortization expense related to goodwill amounted to $689,000, $687,000 and $609,000 for the years ended June 30, 2000, 2001 and 2002, respectively.


	2001			2002			2003

Net loss:
Reported loss available to common stockholders	$	(1,211,000	)	$	(9,026,000	)	$	(14,319,000	)
Add back: Goodwill amortization (net of income taxes)		394,000			399,000			—

Adjusted net loss available to common stockholders		(817,000	)		(8,627,000	)		(14,319,000	)
Basic and diluted loss per share:
Reported basic and diluted loss per share		(1.22	)		(9.16	)		(14.52	)
Add back: Goodwill amortization (net of income taxes)		.40			.40			—

Adjusted basic and diluted loss per share		(0.82	)		(8.76	)		(14.52	)

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows (undiscounted and without interest) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ENVIRONMENTAL REMEDIATION COSTS

Losses associated with environmental remediation obligations are accrued for when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value.

SELF-INSURANCE

Effective May 2001, the Company increased its third-party insurance deductible to $250,000 per occurrence. Such self-insurance relates to losses and liabilities primarily associated with workers’ compensation claims and general and vehicle liability. Losses are accrued based upon the accumulation of estimates for reported losses and includes a provision, based on past experience and using actuarial assumptions, for losses incurred but not reported. The method of determining such estimates and establishing the resulting reserves is continually reviewed and updated. Any adjustments resulting therefrom are reflected in current operations. As of June 30, ~~2001~~2002 and June 30, ~~2002~~2003, the Company had recorded a discounted accrued liability for self-insurance of $5,071,000 and $6,726,000, of which $1,~~038~~274,000 and $51,~~071~~569,000 are current and included in accrued expenses at June 30, 2002 and 2003, respectively. The discount rate utilized aswas of5% and 4% for the years ended June 30, 2002 ~~was~~and 52003, respectively.~~0%.~~ The accrued liability on an undiscounted basis was $5,675,000 and $7,339,000 at June 30, 2002 ~~was~~and $52003,~~675,000.~~ respectively. Management believes that the accrual is adequate to cover the losses incurred to date; however, this accrual is based on estimates and the ultimate liability may be more or less than the amount provided.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

~~also allows entities to continue to apply the provisions of APB Opinion No. 25 and to provide disclosures for employee stock~~STOCK-~~based~~BASED ~~compensation grants as if~~COMPENSATION ~~the fair-value-based method defined in SFAS No. 123 had been applied. The~~ ~~Company has elected to continue to apply the provisions of APB Opinion No. 25~~ ~~and provide the pro forma disclosure provisions of SFAS No. 123.~~

~~EARNINGS~~ The Company observes the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” (~~LOSS~~“SFAS No. 123”) by continuing to apply the provisions of Accounting Principles Board (“APB”) Opinion No. ~~PER~~25, ~~SHARE~~“Accounting for Stock Issued to Employees” (“APB No. 25”). The Company applies the intrinsic value method as outlined in APB No. 25 and related interpretations in accounting for stock options and share units granted under these programs. Under the intrinsic value method, no compensation expense is recognized if the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost has been recognized on options granted to employees. SFAS No. 123 requires that the Company provide pro forma information regarding net loss and net loss per common share as if compensation cost for the Company’s stock option programs had been determined in accordance with the fair value method prescribed therein. The Company adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” requiring annual and quarterly SFAS No. 123 pro forma disclosure.

~~Basic~~Had ~~earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by~~ the ~~weighted~~Company ~~average~~determined ~~number~~compensation ~~of common~~cost ~~shares~~based ~~outstanding~~on ~~during~~ the ~~period.~~fair ~~Diluted~~value ~~earnings~~at ~~(loss) per share is calculated by dividing net earnings (loss) available to common stockholders by~~ the ~~weighted average number of common shares outstanding during the period~~ ~~plus~~grant ~~the~~date ~~impact~~for ofits ~~assumed~~stock ~~potential diluted securities. The dilutive effect of outstanding~~ options isunder ~~reflected~~SFAS ~~in diluted earnings per share by application of the treasury stock method~~No. ~~For the years ended June~~ 30123, ~~2000 and 2001 diluted earnings (loss) per share is~~ the ~~same~~Company’s as basic ~~earnings per share as~~and ~~there are no assumed potential dilutive securities. During the year ended June 30, 2002,~~ diluted ~~earnings~~net (loss~~) per~~ ~~share~~available ~~is the same as basic earnings (loss) per share as options~~ to ~~purchase 9,260 shares of~~ common ~~stock~~stockholders ~~were not included in the computation of diluted earnings (loss)~~ per share ~~for~~would ~~the~~have ~~year~~been ~~ended~~adjusted ~~June~~to ~~2002 as~~ the ~~effect~~pro ~~would~~forma ~~have~~amounts ~~been~~as ~~anti-dilutive.~~indicated below:


				Years ended June 30,
	2001			2002			2003

Net loss available to common stockholders as reported	$	(1,211,000	)	$	(9,026,000	)	$	(14,319,000	)
Add:
Stock-based compensation expense included in reported net income available to common stockholders, net of related tax effects	$	—		$	—		$	—
Deduct:
Total stock-based compensation expense determined under the fair value method for all awards, net of tax effects	$	—		$	(16,000	)	$	(20,000	)

Proforma net loss available to common stockholders	$	(1,211,000	)	$	(9,042,000	)	$	(14,339,000	)

Basic and diluted loss per share as reported	$	(1.22	)	$	(9.16	)	$	(14.52	)
Proforma basic and diluted loss per share	$	(1.22	)	$	(9.18	)	$	(14.54	)

At the grant date, the weighted average fair value of options granted was $58.51, this was determined using the Black-Scholes option pricing model with the following assumptions used for calculation: risk-free interest rate of 4.7%, volatility of 3.1%, dividend rate of 0% and an expected life of 10 years.

LOSS PER SHARE

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period plus the impact of assumed potential diluted securities. The dilutive effect of outstanding options is reflected in diluted per share by application of the treasury stock method. For the year ended June 30, 2001 diluted loss per share is the same as basic loss per share as there are no assumed potential dilutive securities. During the years ended June 30, 2002 and 2003, diluted loss per share is the same as basic loss per share as options to purchase 9,260 and 9,125 shares of common stock were not included in the computation of diluted loss per share for the years ended June 2002 and 2003, respectively, as the effect would have been anti-dilutive.

MANAGEMENT’S ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

COMPREHENSIVE INCOME

In 1999, the Company adopted SFAS No. 130, “Reporting Comprehensive Income”, which established new rules for the reporting and display of comprehensive income and its components. Comprehensive income equals net income for each of the years in the three-year period ended June 30, 2002.

SEGMENT INFORMATION

The Company’s only line of business is the rental of operator assisted equipment for use in infrastructure projects. This equipment is rented on an hourly basis (Services) and on a longer-term, fixed price basis (Contracts). In fiscal 2002, approximately 73% of revenues were generated from Services, and approximately 27% of revenues were generated from Contracts. The Company does not account for, or manage, the hourly or fixed-price rentals in a separate manner. Over the past 3 fiscal years, approximately 27% to 30% of Services revenues have been generated from Contracts.

The Company has a non-operated assisted rental business (Bare Rentals). Bare Rentals were insignificant to the consolidated operations for each of the fiscal years ended June 30, 2000, 2001 and 2002.

RECLASSIFICATIONS

Certain 2001 balances have been reclassified to conform to the presentation used in 2002.

NEW ACCOUNTING PRONOUNCEMENTS

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

~~goodwill,~~COMPREHENSIVE ~~noting~~INCOME ~~that any purchase price allocable to an assembled workforce~~(LOSS) ~~may not be accounted for separately. Statement 142 will require that goodwill~~ ~~and intangible assets with indefinite useful lives no longer be amortized, but~~ instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

~~The~~In ~~Company~~1999, ~~was required to adopt~~ the ~~provisions~~Company ofadopted ~~Statement~~SFAS ~~141 in June 2001~~No. 130, ~~except~~“Reporting ~~with regard to business combinations initiated prior to July 1,~~Comprehensive ~~2001~~Income”, which ~~have~~established ~~been~~new ~~accounted~~rules for ~~using~~ the ~~pooling-of-interests~~reporting ~~method,~~ and is ~~required~~display toof comprehensive ~~adopt~~income ~~Statement~~and ~~142~~its ~~effective July 1, 2002~~components. ~~Furthermore,~~Comprehensive ~~any goodwill~~income ~~and~~(loss) equals ~~any intangible asset determined to have an indefinite useful life~~net ~~that~~income ~~are acquired in a purchase business combination completed after June~~(loss) ~~30, 2001 will not be amortized, but will continue to be evaluated~~ for ~~impairment~~each ~~in accordance with the appropriate pre-Statement 142 accounting literature. Under the provisions~~ of ~~Statement 141 we did not record amortization for~~ the ~~two current~~years ~~year acquisitions. Such amortization would have amounted to $53,000. Goodwill and intangible assets acquired~~ in ~~business combinations completed before July 1, 2001 will continue to be amortized prior to~~ the ~~adoption of Statement 142. For the~~ three-year ~~ending~~period ended June 30, ~~2003 the Company will~~ ~~not record $768,000 of amortization related to goodwill~~2003.

SEGMENT INFORMATION

The Company’s only line of business is the rental of operator assisted equipment for use in infrastructure projects. This equipment is rented on an hourly basis (Services) and on a longer-term, fixed price basis (Contracts). In fiscal 2001, 2002, and 2003, approximately 72% to 73% of revenues were generated from Services, and approximately 28% to 27% of revenues were generated from Contracts. The Company does not account for, or manage, the hourly or fixed-price rentals in a separate manner. Over the past 3 fiscal years, approximately 28% to 27% of Services revenues have been generated from Contracts.

The Company has a non-operated assisted rental business (Bare Rentals). Bare Rentals were insignificant to the consolidated operations for each of the fiscal years ended June 30, 2001, 2002 and 2003.

RECLASSIFICATIONS

Certain 2002 balances have been reclassified to conform to the presentation used in 2003.

(2) RECEIVABLES

Contract receivables represent those amounts, which actually have been billed. Contract retentions are collectible upon completion or other milestones of contract performance. Based upon anticipated contract completion dates, these retainages are expected to be collected as follows:

		JUNE 30,			JUNE 30,
			YEARS ENDED JUNE 30,
		2001			2002
			2002			2003
Years ending June 30:
2002		$	4,209,000		$	—
	2003		$	3,805,000		$	—
2003			799,000			3,805,000
	2004			594,000			3,284,000
2004			320,000			594,000
	2005			357,000			513,000
2005			—			357,000
	2006			—			308,000
		$	~~5,328,000~~$	4,756,000	$	~~4,756,000~~$	4,105,000

Transactions in the allowance for doubtful receivables are summarized as follows:

	YEARS ENDED JUNE 30,
	2000			2001			2002
	2001			2002			2003
Balance, beginning of year	$	1,~~277~~617,000		$	1,~~617~~763,000		$	1,~~763~~421,000
Provision for doubtful accounts		184,~~818,~~000			84340,000			~~340~~767,000
Accounts (charged off) collected		(162,~~478,~~000	)		62(682,000	)		(~~682~~596,000	)
Balance, end of year	$	1,~~617~~763,000		$	1,~~763~~421,000		$	1,~~421~~592,000

(3) OTHER ASSETS:

Other assets consist of the following:

	JUNE 30,			JUNE 30,
	2001			2002
Covenants not to compete	$	1,473,000		$	2,947,000
Accumulated amortization		(1,096,000	)		(1,382,000	)
Other		246,000			45,000
	$	623,000		$	1,610,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

The covenants not to compete are amortized over the life of the agreements. Amortization expense related to the covenants not to compete amounted to $445,000, $418,000 and $286,000 for the years ended June(3) ~~30,~~OTHER ~~2000,~~ASSETS: ~~2001 and 2002, respectively.~~

Other assets consist of the following:


	JUNE 30,			JUNE 30,
	2002			2003

Covenants not to compete	$	2,947,000		$	1,887,000
Accumulated amortization		(1,382,000	)		(701,000	)
Other		45,000			—

	$	1,610,000		$	1,186,000

The covenants not to compete are amortized over the life of the agreements. Amortization expense related to the covenants not to compete amounted to $418,000, $286,000, and $376,000 for the years ended June 30, 2001, 2002 and 2003, respectively.

4) ACCRUED LIABILITIES:

Accrued liabilities consist of the following:

	JUNE 30,		JUNE 30,
	2001		2002
	2002		2003
Union benefits	$	1675,~~013,~~000	$	~~675~~657,000
Accrued bonuses		31,~~204~~577,000		1423,~~577,~~000
Accrued interest		5,~~253~~179,000		54,~~179~~972,000
Accrued insurance		1,726,000		5,779,000
Accrued self insurance (current portion)		1,274,000		1,569,000
Accrued vacation		421,000		531,000
Accrued insurance		708,000		776,000
Accrued payroll		2,443,000		2,134,000
Accrued vacation		531,000		531,000
Non-compete agreements		180,000		1,284,000
Accrued payroll		2,134,000		2,026,000
Other		821,000		624,000
Non-compete agreements		1,284,000		909,000
	$	15,061,000	$	17,783,000
Other		624,000		515,000
	$	13,986,000	$	12,378,000

(5) SENIOR NOTES AND LONG-TERM DEBT

Senior Notes

On August 4, 1998, in connection with the Recapitalization Mergers, the Company issued $100,000,000 of Senior Notes guaranteed by the wholly-owned subsidiaries of Penhall International Corp. Interest at 12% is payable semiannually in arrears beginning February 1, 1999; all unpaid principal and interest is due August 1, 2006. In addition, the Senior Notes are redeemable at the Company’s option, in whole at any time or in part from time to time, on or after August 1, 2003, at certain redemption rates ranging from 106% to 102%. The Senior Notes contain certain financial and non-financial covenants. The Company was in compliance with all such covenants at June 30, 2002.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

(5) LONG-TERM DEBT AND SENIOR NOTES

Long-term Debt

Long-term debt consists of the following:

	JUNE 30,		JUNE 30,
	2001		2002
	2002		2003
Note payable to former officer and shareholder, bearing interest at 8.0% per annum; principal and interest payable monthly until October 2002	$	233,000	$	61,000
Note payable to former officer and shareholder, bearing interest at 8.0% per annum; principal and interest paid monthly until October 2002;	$	61,000	$	—
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 9.25% per annum which resulted in a discount of $200,000; payable $428,000 due and paid on June 1, 2002		400,000		—
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 10.0% per annum which resulted in a discount of $61,000; $300,000 due and paid September 30, 2002;		295,000		—
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 10.0% per annum which resulted in a discount of $61,000; $300,000 due September 30, 2002		365,000		295,000
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 9.0% per annum which resulted in a discount of $51,000; payable $193,000 due and paid March 31, 2003;		181,000		—
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 9.0% per annum which resulted in a discount of $51,000; payable $193,000 due March 31, 2003		346,000		181,000
Note payable secured by certain equipment, interest of 0%, imputed interest at 3.9% per annum which resulted in a discount of $24,000; payable $123,000 due December 31, 2003 and 2004;		346,000		237,000
Note payable secured by certain equipment, interest of 0%, imputed interest at 3.9% per annum which resulted in a discount of $24,000; payable $123,000 due December 31, 2002, 2003 and 2004		—		346,000
Note payable secured by certain equipment, interest of 2.7% per annum; principal and interest payable $200,000 due March 1, 2004;		388,000		196,000
Note payable secured by certain equipment, interest of 2.7% per annum; principal and interest payable $200,000 due March 1, 2003 and 2004		—		388,000
Note payable secured by certain equipment, interest of 2.7% per annum; principal and interest payable $1,500,000 due March 1, 2004;		2,908,000		1,473,000
Note payable secured by certain equipment, interest of 2.7% per annum; principal and interest payable $1,500,000 due March 1, 2003 and 2004		—		2,908,000
Revolving Loan in the maximum credit amount of $30,000,000 secured by certain assets of the Company. The Company was able to elect to maintain the Revolving Loan as a Base Rate Loan, which accrued interest quarterly at 1.25% to 2.00% (as defined) plus the higher of the Federal Funds Effective Rate (as defined) or the then current prime rate and was payable quarterly, and/or convert into a Eurodollar Loan, which accrued interest at 2.25% to 3.00% (as defined) plus the Eurodollar Rate (as defined) and was payable on the last day of each elected interest period, which ranged from one to six months, as elected by the Company. The effective interest rate at June 30, 2002 was 4.59%. All unpaid principal and interest was paid in May 2003.		9,290,000		—
Revolving Loan in the maximum credit amount of $30,000,000 secured by certain assets of the Company. The Company may elect to maintain the Revolving Loan as a Base Rate Loan, which accrues interest quarterly at 1.25% to 2.00% (as defined) plus the higher of the Federal Funds Effective Rate (as defined) or the then current prime rate and is payable quarterly, and/or convert into a Eurodollar Loan, which accrues interest at 2.25% to 3.00% (as defined) plus the Eurodollar Rate (as defined) and is payable on the last day of each elected interest period, which shall range from one to six months, as elected by the Company. All unpaid principal and interest is due June 15, 2004. The effective interest rate at June 30, 2001 and 2002 was 6.23% and 4.59%, respectively		6,005,000		9,290,000
$20,000,000 Term Loan secured by certain assets of the Company; principal payments of $750,000 per quarter commencing September 15, 2000 through June 15, 2001, $1,250,000 per quarter through June 15, 2002, and $1,500,000 per quarter through June 15, 2004. The Company was able to elect to maintain the Term Loan as a Base Rate Loan, which accrued interest quarterly at 1.25% to 2.00% (as defined) plus the higher of the Federal Funds Effective Rate (as defined) or the current prime rate and is payable quarterly, and/or convert into a Eurodollar Loan, which accrued interest at 2.25% to 3.00% (as defined) plus the Eurodollar Rate (as defined) and was payable on the last day of each elected interest period, which ranged from one to six months, as elected by the Company. The effective interest rate at June 30, 2002 was 3.67%. All unpaid principal and interest was paid in May 2003.		12,000,000		—
$20,000,000 Term Loan secured by certain assets of the Company; principal payments of $750,000 per quarter commencing September 15, 2000 through June 15, 2001, $1,250,000 per quarter through June 15, 2002, and $1,500,000 per quarter through June 15, 2004. The Company may elect to maintain the Term Loan as a Base Rate Loan, which accrues interest quarterly at 1.25% to 2.00% (as defined) plus the higher of the Federal Funds Effective Rate (as defined) or the current prime rate and is payable quarterly, and/or convert into a Eurodollar Loan, which accrues interest at 2.25% to 3.00% (as defined) plus the Eurodollar Rate (as defined) and is payable on the last day of each elected interest period, which shall range from one to six months, as elected by the Company. All unpaid principal and interest is due June 15, 2004. The effective interest rate at June 30, 2001 and 2002 was 5.69% and 3.67%, respectively		17,000,000		12,000,000
Revolving loan (“New Revolver”) in the maximum credit amount of $50,000,000 secured by certain assets of the company. The Company may elect to maintain the New Revolver as a Index Rate Loan, which accrues interest at 2.00% plus the higher of the Federal Funds Effective Rate (as defined) plus 50 basis points or the then current prime rate and is payable monthly, and/or convert into a Eurodollar Loan, which accrues interest at 3.50% plus the Eurodollar Rate (as defined) and is payable on the last day of each elected interest period, which shall range from one to six months, as elected by the Company. Unpaid principal and interest are due May 2006. The effective interest rate at June 30, 2003 was 4.84%.		—		14,485,000
Various capital leases and equipment financing agreements due through October 2005 with interest ranging from 0% to 10.0% per annum		662,000		3,315,000
Various capital leases and equipment financing agreements due through October 2005 with interest ranging from 0% to 9.6% per annum;		3,315,000		821,000
Other		~~197~~186,000		~~186~~183,000
		25,208,000		28,970,000
		28,970,000		17,395,000
Less current installments of long-term debt		69,~~436~~217,000		92,~~217~~551,000
Long-term debt, excluding current installments	$	1819,~~772~~753,000	$	1914,~~753~~844,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

The Term Loan, Revolving Loan, and Swingline Loan (the “Credit Facility”) contained certain financial and non-financial covenants, including working capital, net worth, and debt to equity ratios. The Company was also required to make defined prepayments in the event cash flows from operations exceed specified amounts, as defined. The Company was required to be in compliance with certain covenants and ratios or to request a waiver if not in compliance. The Company received a waiver for each of the following covenants and/or ratios as of June 30, 2002 and March 31, 2003: (1) Interest Coverage Ratio, (2) Leverage Ratio and (3) Minimum Consolidated EBITDA (all covenants/ratios as defined in the Credit Facility Agreement). No prepayments were required during the year 2002 or 2003. Additionally, under the terms of the Credit Facility, the Company had pledged all of the assets of its wholly owned subsidiaries as collateral. As part of the Revolving Loan, the Company ~~has~~had a Swingline Loan in ~~the~~ the maximum credit amount of $2,500,000 secured by certain assets of the Company; interest ~~accrues~~accrued quarterly at 1.25% and 2.00% plus the higher of the ~~Federal~~ Federal Funds Effective Rate (as defined) or then current prime rate and is was payable in quarterly installments~~, at June 30, 2001 and 2002 respectively~~. ~~All unpaid~~ ~~principal and interest is due June 10, 2004.~~

~~The~~As ~~Term~~of ~~Loan~~May 22, ~~Revolving Loan~~2003, ~~and~~the ~~Swingline~~Company ~~Loan~~replaced (the “Credit Facility with a new credit facility (“The New Credit”) ~~contain~~. ~~certain~~The ~~financial~~New ~~and~~Credit ~~non-financial~~is ~~covenants~~a $50 million, ~~including working~~three ~~capital,~~year ~~net~~asset ~~worth~~based borrowing facility, ~~and~~consisting ~~debt~~of toa ~~equity~~$50 million ~~ratios.~~revolving credit ~~The~~facility, ~~Company~~the is(“New ~~also~~Revolver”), ~~required~~with toa $25 million sub-facility for ~~make~~letters ~~defined~~of ~~prepayments~~credit. inAvailability under the ~~event~~revolver ~~cash~~portion ~~flows~~of ~~from~~The ~~operations~~New ~~exceed~~Credit ~~specified~~would ~~amounts,~~be aslimited ~~defined.~~to ~~The~~a ~~Company~~borrowing isbase ~~required~~consisting of (i) up to be85% inof ~~compliance~~the ~~with~~net ~~certain~~amount ~~covenants~~of ~~and~~the ~~ratios~~Company’s oreligible trade accounts receivable, (ii) up to ~~request~~the lesser of (a) 100% ~~waiver~~of ifthe ~~not~~net inbook ~~compliance.~~value ~~The~~ of the Company’s ~~received~~eligible ainventory and ~~waiver~~eligible ~~for~~equipment ~~each~~or (b) 85% of the ~~following~~appraised ~~covenants~~net ~~and/or~~orderly ~~ratios as~~liquidation value of ~~June 30,~~Company’s ~~2002:~~eligible ~~(1) Interest~~inventory ~~Coverage~~and ~~Ratio~~equipment, and (2iii) ~~Leverage~~up ~~Ratio~~to ~~and~~50% ~~(3)~~of the ~~Minimum~~appraised ~~Consolidated~~forced ~~EBITDA~~liquidation ~~(all~~value ~~covenants/ratios~~of asthe ~~defined~~Company’s inowned ~~the~~real ~~Credit~~estate. In ~~Facility~~addition, ~~Agreement).~~borrowings Nounder ~~prepayments~~The ~~were~~New ~~required~~Credit ~~during~~are ~~the~~subject ~~years~~to ~~ended~~certain ~~June~~covenants that 30include capital expenditure limits, ~~2001~~utilization rate ratio, minimum interest coverage ratio, maximum leverage ratio and ~~2002~~a minimum borrowing availability limit. ~~Additionally,~~The ~~under~~Company ~~the~~was ~~terms~~in compliance with these covenants as of June 30, 2003. The indebtedness of the Company under The New Credit ~~Facility,~~is ~~the~~secured by a first ~~Company~~priority ~~had~~perfected ~~pledged~~security interest in all of the ~~assets~~inventory, ofaccounts receivable, ~~its~~equipment, ~~wholly~~fixtures, ~~owned~~cash, ~~subsidiaries~~and ~~as collateral~~other assets of the Company.

~~The~~As of June 30, 2003, the Company had unused and available amounts under The ~~its~~New Credit ~~Facility~~ in the amount of $~~16,230,000 at June~~20.1 ~~30, 2002~~million.

On March 18, 2002, Penhall Company entered into a Note and Security Agreement with a bank in the amount of $2,806,000 secured by certain equipment. Fifty (50) monthly payments of principal (as scheduled) and interest of 2.60% plus the rate of interest equal to LIBOR (as defined) are required with a final payment in the fifty first (51st) month of $472,000. The Company is required to be in compliance with certain covenants and ratios or to request a waiver if not in compliance. The Company received a waiver for each of the following covenants/ratios as of June 30, 2002: (1) Interest Coverage Ratio and (2) Leverage Ratio (all covenants/ratios as defined in the Note and Security Agreement).

Annual maturities of long-term debt for the next five years are as follows:

	JUNE 30
2003	$	9,217,000
2004	$	2,551,000
2004		17,808,000
2005		176,000
2005		739,000
2006		14,497,000
2006		1,035,000
2007		5,000
Thereafter		166,000
2008		5,000
	$	28,970,000
Thereafter		161,000
	$	17,395,000

~~(6) INCOME~~ Senior ~~TAXES~~Notes

~~Income~~On ~~tax~~August 4, ~~expense~~1998, ~~(benefit)~~in connection with the Recapitalization Mergers, the Company issued $100,000,000 of Senior Notes guaranteed by the wholly-owned subsidiaries of Penhall International Corp. Interest at 12% is payable semiannually in arrears beginning February 1, 1999; all unpaid principal and interest is ~~comprised~~due ofAugust 1, 2006. In addition, the ~~following~~Senior ~~components~~Notes ~~for~~are redeemable at ~~each~~the ~~fiscal~~Company’s ~~year~~option, ~~ended~~in ~~June~~whole at any time or in part from time to time, on or after August ~~30:~~1, 2003, at certain redemption rates ranging from 106% to 102%. The Senior Notes contain certain financial and non-financial covenants. From August 1, 2002 through October 25, 2002, the Company repurchased capital stock of the Company from four former employees for aggregate consideration of $35,000.

		YEAR ENDED JUNE 30,
		2000			2001		2002
Current tax expense (benefit):
	Federal	$	1,506,000		$	2,345,000	$	(180,000	)
	State		473,000			299,000		60,000
			1,979,000			2,644,000		(120,000	)
Deferred tax expense (benefit):
	Federal		2,490,000			490,000		(589,000	)
	State		(93,000	)		766,000		(147,000	)
			2,397,000			1,256,000		(736,000	)
		$	4,376,000		$	3,900,000	$	(856,000	)

From August 1, 2002 through October 25, 2002, the Company repurchased capital stock of the Company from four former employees for aggregate consideration of $35,000. The Company’s Indenture dated as of August 1, 1998 (the “Indenture”) with United States Trust Company, as Trustee (the “Trustee”), permits repurchases of capital stock from former employees in annual amounts up to $1,000,000 and up to $5,000,000 in aggregate over the life of the Indenture; provided that, at the time of any such repurchase, the Company must be able to or incur additional indebtedness under the Indenture’s fixed charge coverage ratio. At the time of the repurchases described above, the Company was not able to incur additional indebtedness under the Indenture’s fixed charge coverage ratio, and accordingly such repurchases were not permitted by the Indenture. The Company has informed the Trustee of such repurchases. In the event that the Company receives, in accordance with the Indenture, written notice of such default from either the Trustee or Holders of at least 25% of the outstanding principal amount of the Notes, the Company has thirty days to remedy the matter and will seek either to cure such default or to obtain a waiver of such default in accordance with the Indenture. Neither the Trustee nor any of the Note Holders have indicated their intent to notify the Company of default and the Company does not believe that written notice of such default will be forthcoming.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

~~As of June~~(6) ~~30,~~INCOME ~~2001 and 2002, the Company has a current net deferred tax~~TAXES ~~asset of $2,329,000 and $3,133,000, respectively, and a net non-current~~ ~~deferred tax liability of $7,312,000 and $9,339,000, respectively.~~

Income tax expense (benefit) is comprised of the following components for each fiscal year ended June 30:


		YEAR ENDED JUNE 30,

		2001		2002			2003

Current tax expense (benefit):
	Federal	$	2,345,000	$	(180,000	)	$	(2,131,000	)
	State		299,000		60,000			38,000

			2,644,000		(120,000	)		(2,093,000	)

Deferred tax expense (benefit):
	Federal		490,000		(589,000	)		(910,000	)
	State		766,000		(147,000	)		(438,000	)

			1,256,000		(736,000	)		(1,348,000	)

		$	3,900,000	$	(856,000	)	$	(3,441,000	)

As of June 30, 2002 and 2003, the Company has a current net deferred tax asset of $3,133,000 and $3,363,000, respectively, and a net non-current deferred tax liability of $9,339,000 and $8,221,000, respectively.

Significant components of the Company’s deferred income tax assets and liabilities are as follows:

				JUNE 30,	~~JUNE 30,~~			JUNE 30,	~~JUNE 30,~~
					2001				2002
				2002				2003
Deferred tax assets:
	Allowance for doubtful receivables			$	$571,000	~~709,000~~		$	$640,000	~~571,000~~
	Accruals not currently deductible				2,536,000	~~1,620,000~~			2,723,000	~~2,536,000~~
	Net operating loss carryforwards				26,000	—			726,000	~~26,000~~
		Total deferred tax assets			$3,133,000	~~2,329,000~~			$4,089,000	~~3,133,000~~
Deferred tax liabilities — Depreciation and amortization					(9,339,000	~~(7,312,000~~)	)		(8,947,000	~~(9,339,000~~)	)
		Net deferred tax liability	~~Net deferred tax liability~~	$	$(6,206,000	~~(4,983,000~~)	)	$	$(4,858,000	~~(6,206,000~~)	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, therefore no valuation allowance has been recorded by the Company.

~~Deferred~~As ~~income~~of ~~tax~~June 30, ~~expense~~2003, we had net operating loss carryforwards (~~benefit~~after carrybacks) for federal and state income tax purposes of approximately $869,000 and $4,700,000, respectively. The federal carryfowards expire in 20 ~~consists~~years beginning 2023, while the state carryforwards have varying expiration dates beginning in 2013. As of June 30, 2003 the ~~following:~~Company had federal AMT credits totaling $176,000 that have no expiration date.

	YEARS ENDED JUNE 30
	2000			2001			2002
Allowance for doubtful receivables	$	(97,000	)	$	(103,000	)	$	138,000
Accruals not currently deductible and other		(958,000	)		166,000			(916,000	)
Depreciation and amortization		1,239,000			1,193,000			68,000
Net operating loss carryforwards		2,213,000			—			(26,000	)
	$	2,397,000		$	1,256,000		$	(736,000	)

Income tax expense (benefit) for each fiscal year ended June 30 differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to earnings (loss) before income taxes as follows:

	YEARS ENDED JUNE 30
	2000		2001		2002
Computed “expected” tax expense (benefit)	$	3,614,000	$	3,206,000	$	(865,000	)
Increase (decrease) in taxes resulting from:
State income tax expense (benefit), net of Federal income tax deduction		250,000		692,000		(57,000	)
Other, net		512,000		2,000		66,000
	$	4,376,000	$	3,900,000	$	(856,000	)

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

Deferred income tax expense (benefit) consists of the following:


	YEARS ENDED JUNE 30

	2001			2002			2003

Allowance for doubtful receivables	$	(103,000	)	$	138,000		$	(69,000	)
Accruals not currently deductible and other		(166,000	)		(916,000	)		(187,000	)
Depreciation and amortization		1,193,000			68,000			(392,000	)
Net operating loss carryforwards		—			(26,000	)		(700,000	)

	$	1,256,000		$	(736,000	)	$	(1,348,000	)


	YEARS ENDED JUNE 30

	2001		2002			2003

Computed “expected” tax expense (benefit)	$	3,206,000	$	(865,000	)	$	(3,276,000	)
Increase (decrease) in taxes resulting from:
State income tax expense (benefit), net of Federal income tax benefit		692,000		(57,000	)		(264,000	)
Other, net		2,000		66,000			99,000

	$	3,900,000	$	(856,000	)	$	(3,441,000	)

(7) EMPLOYEE RETIREMENT PLANS

The Company and its subsidiaries contribute to multi-employer pension plans, primarily defined benefit plans, as required by collective bargaining agreements. Contributions to such plans are determined in accordance with the provisions of negotiated labor contracts and are generally based on the number of hours worked. Amounts contributed to these plans in fiscal ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003 aggregated $23,~~475~~035,000, $32,~~035~~589,000 and $2,~~589~~726,000 respectively. In the event of the Company’s partial or total withdrawal from such plans, it may be liable for its share of any unfunded vested benefits thereunder. The Company may also be assessed for its share of any unfunded vested benefits resulting from partial or total withdrawal from such plans and any non-payment by other employer participants. Less than 10% of the Company’s employees are covered by a collective bargaining agreement that will expire within one year.

The Company sponsors a defined contribution 401(k) plan. Subject to certain terms and conditions of the plan, substantially all of the Company’s non-union employees are eligible to participate in the plan. The Company may, but is not required to, make matching contributions to the plan each year, which are allocated to each participant’s account in proportion to the amount that he or she has contributed to the plan during the applicable plan year. All Company and employee contributions to the plan plus the earnings thereon are 100% vested. Costs incurred under the plan were $~~349~~376,000, $~~376~~515,000 and $~~515~~335,000 related to the plan for the years ended June 30, ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003, respectively.

(8) STOCK COMPENSATION PLANS

Stock Incentive Plan

On October 7, 1999, the Company’s Board of Directors approved a stock incentive plan (the “Plan”) under which employees, officers, directors or consultants (“Eligible Participants”) may be granted stock options and restricted stock awards. The Board authorized the issuance of up to 50,000 shares of common stock and 2,500 shares of Series B Preferred Stock under the Plan. The Plan is administered by the Board of Directors or an appointed committee (Administrator). The exercise price for stock options or restricted stock awards shall not be less than the Fair Market Value (as defined) of the stock on the grant date subject to restrictions and conditions, including the Company’s option to repurchase, as determined by the Administrator at the time of the grant. The term of each stock option shall be fixed, and not exceeding 10 years from the grant date of the stock option. In addition, stock options may be subject to specific vesting and acceleration provisions as determined by the Administrator at or after the grant date. On November 12, 1999, the Company issued 17,513 shares of common stock for an aggregate purchase price of $537,000 and 511 shares of Series B Preferred Stock for an aggregate purchase price of $574,000 to Eligible Participants under the Plan. On October 20, 2000, the Company issued 4,967 shares of common stock for an aggregate purchase price of $309,000 and 146 shares of Series B Preferred Stock for an aggregate ~~purchase~~ ~~price of $186,000 to Eligible Participants under the Plan. On November 16, 2001, the Company issued 3,647 shares of common stock for an aggregate~~ purchase price of ~~$213,000 and 108 shares of Series B Preferred Stock~~ ~~for an aggregate purchase price of~~ $~~158~~186,000 to Eligible Participants under the ~~Plan. On November 16, 2001, 9,420 stock options were granted to Eligible~~ ~~Participants under the Plan at an exercise price of $58.51. These options vest ratably over 5 years and are exercisable up to ten years from date of grant.~~

Stock option activity during the periods indicated is as follows:

		Number of shares			Weighted-average
		underlying options			exercise price
Balance at June 30, 2001			—
	Granted		9,420		$	58.51
	Forfeited		(160	)	$	58.51
Balance at June 30, 2002			9,260		$	58.51

At June 30, 2002 there were no exercisable options. The weighted average price and the weighted average remaining life of outstanding options was $58.51 and 9.4 years, respectively.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

Inplan. ~~accounting~~On ~~for~~November 16, ~~its Plan~~2001, the Company ~~has~~issued ~~elected~~3,647 ~~the~~shares ~~pro~~of ~~forma~~common ~~disclosure~~stock ~~option~~for ~~under~~an ~~SFAS~~aggregate ~~No. 123.~~purchase ~~Accordingly~~price of $213,000 noand ~~compensation~~108 ~~cost~~shares ~~has~~of Series B ~~been~~Preferred ~~recognized~~Stock for ~~its~~an ~~stock~~aggregate ~~options~~purchase inprice ~~the~~of ~~consolidated~~$158,000 ~~financial~~to ~~statements.~~Eligible ~~Had~~Participants under the ~~Company~~Plan. ~~determined~~On ~~compensation~~November 16, ~~cost~~2001, ~~based~~9,420 onstock ~~the~~options ~~fair~~were granted ~~value~~to atEligible Participants under the ~~grant~~ ~~date~~Plan ~~for~~at ~~its~~an ~~stock~~exercise price of $58.51. These options ~~under~~vest ~~SFAS~~ratably Noover 5 years and are exercisable up to ten years from date of grant. On November ~~123~~1, 2002, the Company’s ~~basic~~issued ~~and~~743 ~~diluted~~shares ~~net~~of common ~~loss~~stock ~~available~~for toan ~~common~~aggregate ~~stockholders~~purchase ~~per~~price ~~share~~of ~~would~~$38,000 ~~have~~and ~~been~~22 ~~adjusted~~shares toof ~~the~~Series B ~~pro~~Preferred ~~forma~~Stock for an aggregate purchase price of $37,000 to Eligible ~~amounts~~Participants asunder ~~indicated~~the ~~below:~~Plan.

	Net LossAvailable to Common Stockholders			Loss Per Share
As reported		($9,026,000	)		($9.16	)
Pro forma		($9,118,000	)		($9.25	)

Stock option activity during the periods indicated is as follows:

At the grant date, the weighted average fair value of options granted was $14.71, this was determined using the Black-Scholes option pricing model with the following assumptions used for calculation: risk-free interest rate of 4.8%, volatility of 6.1%, dividend rate of 0% and an expected life of 10 years.


		Number of shares			Weighted-average
		underlying options			exercise price

Balance at June 30, 2001			—
	Granted		9,420		$	58.51
	Forfeited		(160	)		58.51

Balance at June 30, 2002			9,260			58.51

	Granted		—			—
	Forfeited		(135	)		58.51

Balance at June 30, 2003			9,125		$	58.51

~~Stockholders~~At ~~Agreement~~June 30, 2003 there were no exercisable options. The weighted average price and the weighted average remaining life of outstanding options was $58.51 and 8.4 years, respectively.

Upon consummation of the Recapitalization Mergers, an affiliate, the management stockholders and Penhall International Corp. entered into a Securities Holders Agreement (the “Stockholders Agreement”) containing certain agreements among such stockholders with respect to the capital stock and corporate governance of the Company and its subsidiaries.

The Stockholders Agreement contains certain provisions, which, with certain exceptions, restrict the ability of the management stockholders from transferring any common stock or Series B preferred stock except pursuant to the terms of the Stockholders Agreement. If the Board of Directors of Penhall International Corp. and holders of at least a majority of the common stock of Penhall International Corp. then outstanding shall approve the sale of Penhall International Corp. or any of its subsidiaries to an unaffiliated third person (an “Approved Sale”), each stockholder of the Company shall consent to, vote for and raise no objections against, and waive dissenters and appraisal rights (if any) with respect to, the Approved Sale and, if such sale shall include the sale of capital stock, each stockholder shall sell such stockholder’s capital stock on the terms and conditions approved by the Board of Directors of Penhall International Corp. and the holders of a majority of the common stock of Penhall International Corp. then outstanding. The Stockholders Agreement also provides for certain additional restrictions on transfer of Penhall International Corp.’s common stock and Series B preferred stock by the management stockholders, including the right of Penhall International Corp. to purchase certain common stock and Series B preferred stock of Penhall International Corp. held by a management stockholder upon termination of such management stockholder’s employment on or prior to the later of the fifth anniversary of the consummation of the Recapitalization Mergers and the 180th day following an Initial Public Offering (as defined below), at its original issuance price, and the grant of a right of first refusal in favor of Penhall International Corp. in the event a management stockholder elects to transfer such common stock or Series B preferred stock. Under the Stockholders Agreement, a management stockholder has the right, subject to the restrictions set forth in agreements relating to indebtedness of the Company, to require Penhall International Corp. to purchase certain common stock and Series B preferred stock of the Company held by such management stockholder upon termination of such management stockholder’s employment on or prior to the later of the fifth anniversary of the consummation of the Recapitalization Mergers and the 180th day following an Initial Public Offering, at its original issuance price. “Initial Public Offering” means the sale by the Company in an underwritten public offering made pursuant to an effective registration statement under the Securities Act of common stock for gross offering proceeds of at least $30 million. The Stockholders Agreement also contains certain provisions that provide the management stockholders with a termination benefit upon termination of employment without cause, death or disability. The amount of the termination benefit is based upon the book value of the common stock and Series B preferred stock, as defined in the Stockholders Agreement. However, if Penhall International Corp. does not meet certain EBITDA growth criteria, the amount that a management stockholder will receive for outstanding common stock or Series B preferred stock under any form of termination is the lower of the original issuance price or book value.

Shares outstanding that are subject to the buy-out provisions of the Stockholders Agreement are 358,389 and 359,840 shares of common stock and 8,552 and 8,729 shares of Series B preferred stock at June 30, 2001 and 2002, respectively.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

Stockholders Agreement

Shares outstanding that are subject to the buy-out provisions of the Stockholders Agreement are 359,840 and 336,228 shares of common stock and 8,729 and 8,038 shares of Series B preferred stock at June 30, 2002 and 2003, respectively.

(9) REDEEMABLE PREFERRED STOCK

Senior Exchangeable Preferred Stock

Penhall International Corp. is authorized to issue up to 250,000 shares of preferred stock, par value $.01 per share (“Preferred stock”), of which 10,000 shares have been designated as Senior Exchangeable Preferred stock. With respect to dividend rights and rights on liquidation, winding up and dissolution of Penhall International Corp., the Senior Exchangeable Preferred stock ranks senior to the Common stock, the Series A preferred stock and the Series B Preferred stock. Holders of Senior Exchangeable Preferred stock are entitled to receive, when, as and if declared by the Board of Directors of Penhall International Corp., out of funds legally available for payment thereof, cash dividends on each share of Senior Exchangeable Preferred stock at a rate per annum equal to 10.5% of the Senior Exchangeable Preferred Liquidation Preference (as defined below) of such share before any dividends are declared and paid, or set apart for payment, on any shares of capital stock junior to the Senior Exchangeable Preferred stock (“Senior ~~Exchangeable Junior~~ ~~Stock”) with respect to the same dividend period. All dividends shall be~~ cumulative without interest, whether or not earned or declared. “Senior Exchangeable Preferred Liquidation Preference” means, on any specific date, with respect to each share of Senior Exchangeable Preferred stock, the sum of (i) $1,000 per share plus (ii) the accumulated unpaid dividends with respect to such share.

Penhall International Corp. may, at its option, redeem at any time, from any source of funds legally available therefore, in whole or in part, any or all of the shares of Senior Exchangeable Preferred stock, at a redemption price per share equal to 100% of the then effective Senior Exchangeable Preferred Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date. On February 1, 2007, Penhall International Corp. shall redeem, from any source of funds legally available therefore, all of the then outstanding shares of Senior Exchangeable Preferred stock at a redemption price per share equal to 100% of the then effective Senior Exchangeable Preferred Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date.

The Senior Exchangeable Preferred stock is exchangeable by Penhall International Corp. at any time and from time to time for junior subordinated notes (the “Junior Subordinated Notes”) in an amount equal to the Senior Exchangeable Preferred Liquidation Preference plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the exchange date to the exchange date. The Junior Subordinated Notes will pay interest from the date of exchange at the rate of 10.5% per annum in cash; provided, however, that Penhall International Corp. shall be prohibited from paying interest on the Junior Subordinated Notes in cash for so long as the such notes shall remain outstanding. In such event, interest shall be deemed to be paid by such amount being added to the outstanding principal amount of the Junior Subordinated Notes and shall accrue interest as a portion of the principal amount of the Junior Subordinated Notes to the maximum extent permitted by law. If issued, the Junior Subordinated Notes will mature on February 1, 2007.

In the event of a voluntary or involuntary liquidation, dissolution or winding up of Penhall International Corp., holders of Senior Exchangeable preferred stock shall be entitled to be paid out of the assets of Penhall International Corp. available for distribution to its stockholders an amount in cash equal to the Senior Exchangeable Preferred Liquidation Preference per share, plus an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding up, before any distribution is made on any shares of Senior Exchangeable Junior Stock. If such available assets are insufficient to pay the holders of the outstanding shares of Senior Exchangeable preferred stock in full, such assets, or the proceeds thereof, shall be distributed ratably among such holders. Except as otherwise required by law, the holders of Senior Exchangeable preferred stock have no voting rights and are not entitled to any notice of meeting of stockholders.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

Exchangeable Junior Stock”) with respect to the same dividend period. All dividends shall be cumulative without interest, whether or not earned or declared. “Senior Exchangeable Preferred Liquidation Preference” means, on any specific date, with respect to each share of Senior Exchangeable Preferred stock, the sum of (i) $1,000 per share plus (ii) the accumulated unpaid dividends with respect to such share.

outstanding. In such event, interest shall be deemed to be paid by such amount being added to the outstanding principal amount of the Junior Subordinated Notes and shall accrue interest as a portion of the principal amount of the Junior Subordinated Notes to the maximum extent permitted by law. If issued, the Junior Subordinated Notes will mature on February 1, 2007.

Series A Preferred Stock

Penhall International Corp. has designated 25,000 shares of preferred stock as Series A preferred stock. With respect to dividend rights and rights on liquidation, winding up and dissolution of Penhall International Corp., the Series A preferred stock ranks senior to the common stock and on a parity with the Series B preferred stock. Holders of Series A preferred stock are entitled to receive, when, as and if declared by the Board of Directors of Penhall International Corp., out of funds legally available for payment thereof, cash dividends on each share of Series A preferred stock at a rate per annum equal to 13% of the Liquidation Preference (as defined below) of such share before any dividends are declared and paid, or set apart for payment, on any shares of capital stock junior to the Series A preferred stock (“Junior Stock”) with respect to the same dividend period. All dividends shall be cumulative without interest, whether or not earned or declared. “Liquidation Preference” means, on any specific date, with respect to each share of Series A preferred stock, the sum of (i) $1,000 per share plus (ii) the accumulated dividends with respect to such share.

Penhall International Corp. may, at its option, redeem at any time, from any source of funds legally available therefore, in whole or in part, any or all of the shares of Series A preferred stock, at a redemption price per share equal to 100% of the then effective Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date. On August 1, 2007, Penhall International Corp. shall redeem, from any source of funds legally available therefore, all of the then outstanding shares of Series A preferred stock at a redemption price per share equal to 100% of the then effective Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2003

In the event of a voluntary or involuntary liquidation, dissolution or winding up of Penhall International Corp., holders of Series A preferred stock shall be entitled to be paid out of the assets of Penhall International Corp. available for distribution to its stockholders an amount in cash equal to the Liquidation Preference per share, plus an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding up, before any distribution is made on any shares of junior stock. If such available assets are insufficient to pay the holders of the outstanding shares of Series A preferred stock in full, such assets, or the proceeds thereof, shall be distributed ratably among such holders. Except as otherwise required by law, the holders of Series A preferred stock have no voting rights and are not entitled to any notice of meeting of stockholders.

Series B Preferred Stock

The Company has designated 50,000 shares of preferred stock as Series B preferred stock. The preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions (including, without limitation, dividend rights and rights on liquidation, winding up and dissolution of the Company) of the Series B preferred stock are identical to those of the Series A preferred stock, except that the Series B preferred stock is not subject to any mandatory or optional redemption by the Company.

(10) COMMITMENTS AND CONTINGENCIES

Leases

(a) Capital Leases

The Company is obligated under various capital leases for certain construction equipment that expire at various dates through October 2005. At June 30, ~~2001~~2002 and ~~2002~~2003, the cost of construction equipment and the related depreciation recorded for equipment under capital leases were as follows:

	2001		2002
	2002		2003
Construction Equipment	$	—340,000	$	340,000
Less accumulated amortization		—		67,000
Less accumulated depreciation		67,000		192,000
	$	—273,000	$	~~273~~148,000

36 The present value of the minimum lease payments as of June 30, 2003 is 179,000 (note 5).

(b) Operating Leases

The Company and its subsidiaries lease various properties and equipment under long-term agreements, which expire at varying dates through October 2008. Certain of these leases provide for renegotiation of annual rentals at specified dates. Rent expense was $1,203,000, $1,513,000 and $1,573,000 for the years ended June 30, 2001, 2002 and 2003, respectively.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2003 are as follows:


YEARS ENDING JUNE 30:
	2004	$	1,689,000
	2005		1,390,000
	2006		890,000
	2007		600,000
	2008		475,000
	Thereafter		1,267,000

		$	6,311,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

The present value of the minimum lease payments as of June 30, 2002 is $292,000 (note 5).

(b) Operating Leases

The Company and its subsidiaries lease various properties and equipment under long-term agreements, which expire at varying dates through October 2008. Certain of these leases provide for renegotiation of annual rentals at specified dates. Rent expense was $1,098,000, $1,203,000 and $1,513,000 for the years ended June 30, 2000, 2001 and 2002, respectively.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2002 are as follows:

YEARS ENDING JUNE 30:
2003	$	1,526,000
2004		1,281,000
2005		918,000
2006		755,000
2007		556,000
Thereafter		1,532,000
	$	6,568,000

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalent accounts, and contract and trade receivables.

The California Department of Transportation accounted for approximately 6% of consolidated revenues of the Company for the ~~years~~year ended June 30, ~~2000 and~~ 2001 ~~and~~ , less than 1% for the year ended June 30, 2002 and approximately 3% for the year ended June 30, 2003. No other customer accounted for 5% or more of consolidated revenues for the years ended June 30, ~~2000~~2001, ~~2001~~2002 or ~~2002~~2003. No customers accounted for over 5% of outstanding accounts receivable as of June 30, ~~2001~~2002 or ~~2002~~2003.

Risks and Uncertainties

The Company is required to meet certain financial and operating criteria as established by respective Department of Transportation agencies to bid and work in certain states. There is no assurance that state regulatory agencies will not change the established criteria or that the Company will continue to comply with the established criteria. Should the Company lose its ability to bid and work in certain states, the operations and the financial position of the Company could be adversely effected.

Cash and Cash Equivalents

At June 30, ~~2001~~2002 and ~~2002~~2003, the Company had approximately $~~995~~1,472,000 and $1175,~~472,~~000, respectively, on deposit at one financial institution. At June 30, 2002, the Company also had approximately $4,700,000 on deposit at a second financial institution.

PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 AND 2002

Letters of Credit

As of June 30, ~~2002~~2003, the Company had an outstanding standby ~~letter~~letters of ~~credit~~ credit of $411,~~480~~837,000 with a financial institution for the benefit of anthe Company’s ~~insurance~~insurers ~~carrier~~and ofbankers ~~the~~(note ~~Company~~5). The standby ~~letter~~letters of credit, ~~which~~reduce ~~reduces~~ the amount of ~~borrowing~~borrowings available under the Company’s New Credit ~~Facility~~with ~~(note 5)~~$10,636,500 ~~expires~~expiring on ~~June~~July 156, ~~2003~~2004 and $1,200,000 expiring on July 1, 2004.

Litigation

There are various lawsuits and claims pending against and claims being pursued by the Company and its subsidiaries arising out of the normal course of business. It is management’s present opinion based in part upon the ~~advise~~advice of legal counsel that the outcome of these proceedings will not have a material effect on the Company’s consolidated financial statements taken as a whole.

Certain Fees Payable to BRS; BRS Management Agreement

Upon consummation of the Recapitalization Mergers (note 1), the Company entered into a management services agreement (the “Management Agreement”) with the Third Party pursuant to which the Third Party will be paid $300,000 per year for certain management, business and organizational strategy, and merchant and investment banking services rendered to the Company. The fees payable pursuant to the Management Agreement were negotiated on an arm’s-length basis by representatives of the Third Party and the Company. The amount of the annual management fee may be increased under certain circumstances based upon performance or other criteria to be established by the Board of Directors of the Company.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2003

(11) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Cost and estimated earnings on uncompleted contracts consists of the following:

			~~JUNE 30,~~	JUNE 30,			~~JUNE 30,~~	JUNE 30,
			2001				2002
				2002				2003
Costs incurred on uncompleted contracts			$	~~82,727,000~~$	87,013,000		$	~~87,013,000~~$	45,511,000
Estimated earnings to date				~~16,072,000~~	14,039,000			~~14,039,000~~	3,108,000
				98,799,000				101,052,000
					101,052,000				48,619,000
Less billings to date				~~98,631,000~~	99,218,000			~~99,218,000~~	47,746,000
			$	~~168,000~~$	1,834,000		$	~~1,834,000~~$	873,000
~~Included in accompanying consolidated balance sheets under the following captions:~~	Included in accompanying consolidated balance sheets under the following captions:
	~~Costs and estimated earnings in excess of billings on uncompleted contracts~~	Costs and estimated earnings in excess of billings on uncompleted contracts	$	~~1,856,000~~	2,514,000		$	~~2,514,000~~	1,704,000
	~~Billings in excess of costs and estimated earnings on uncompleted contracts~~	Billings in excess of costs and estimated earnings on uncompleted contracts		~~(1,688,000~~	)(680,000	)		~~(680,000~~	)(831,000	)
			$	~~168,000~~$	1,834,000		$	~~1,834,000~~$	873,000

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

38The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2002 and 2003.


		2002				2003

		CARRYING		FAIR		CARRYING		FAIR
		AMOUNT		VALUE		AMOUNT		VALUE

Financial assets:
	Cash and cash equivalents	$	6,205,000	$	6,205,000	$	184,000	$	184,000
	Net receivables		36,686,000		36,686,000		34,266,000		34,266,000
	Costs and estimated earnings in excess of billings on uncompleted contracts		2,514,000		2,514,000		1,704,000		1,704,000
Financial liabilities:
	Current installments of long-term debt		9,217,000		9,217,000		2,551,000		2,551,000
	Trade accounts payable		9,726,000		9,726,000		7,953,000		7,953,000
	Accrued liabilities		13,986,000		13,986,000		12,378,000		12,378,000
	Billings in excess of costs and estimated earnings on uncompleted contracts		680,000		680,000		831,000		831,000
	Long-term debt, excluding current installments		19,753,000		19,753,000		14,844,000		14,844,000
	Long-term portion of insurance reserves		3,797,000		3,797,000		5,158,000		5,158,000
	Senior Notes		100,000,000		95,000,000		100,000,000		78,000,000

PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 AND 2002

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2001 and 2002.

		2001				2002
		CARRYING		FAIR		CARRYING		FAIR
		AMOUNT		VALUE		AMOUNT		VALUE
Financial assets:
	Cash and cash equivalents	$	1,030,000	$	1,030,000	$	6,205,000	$	6,205,000
	Net receivables		39,906,000		39,906,000		36,686,000		36,686,000
Financial liabilities:
	Current installments of long-term debt		6,436,000		6,436,000		9,217,000		9,217,000
	Trade accounts payable		9,976,000		9,976,000		9,726,000		9,726,000
	Accrued liabilities and income taxes payable		15,061,000		15,061,000		17,783,000		17,783,000
	Long-term debt, excluding current installments		18,772,000		18,772,000		19,753,000		19,753,000
	Senior Notes		100,000,000		98,000,000		100,000,000		95,000,000

The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, net receivables, costs and estimated earnings in excess of billings on uncompleted contracts, current installments of long-term debt, trade accounts payables, ~~and~~ accrued liabilities, and ~~income~~billings in ~~taxes~~excess ~~payable~~of costs and estimated earnings on uncompleted contracts: The carrying amounts approximate fair value because of the short maturity of these instruments.

Long-term debt, excluding current installments, and Senior Notes: The fair value of the Company’s long-term debt and Senior Notes is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company as of the date of the consolidated balance sheets for similar debt instruments with similar terms by the Company’s bankers.

(13) ACQUISITIONS

The Company completed the following acquisitions during fiscal 2001 and 2002, which were accounted for as purchases:

In September 2000, the Company purchased certain assets of Advance Concrete Sawing & Drilling for $1,096,000. The purchase price included a cash payment of $317,000, $40,000 of covenants not to compete and $400,000 of additional consideration payable in equal installments in October 2000 and September 2001, and a seller unsecured carryback note of $339,000 at 10.0% imputed interest, payable in installments of $100,000 due in September 2001 and $300,000 due in September 2002. The excess of the purchase price over the fair value of the net identifiable assets acquired of $384,000 has been recorded as goodwill and is being amortized on a straight-line basis over 15 years.

In March 2001, the Company purchased certain assets of H&P Sawing and Drilling for $582,000. The purchase price included a cash payment of $193,000, $50,000 of covenants not to compete and a seller unsecured carryback note of $339,000 at 9.0% imputed interest, due in two annual installments of $193,000 through March 2003.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

~~requires~~Long-term ~~Penhall~~portion toof ~~pay~~insurance ~~the~~reserves: ~~former~~The ~~shareholders~~fair ~~$1.4 million~~value inof 5the ~~equal~~Company’s ~~payments~~long-term ~~over~~portion aof ~~four~~insurance ~~year~~reserves ~~period.~~has ~~The~~been ~~Company~~calculated ~~recorded~~utilizing ~~approximately~~5% ~~$2.~~and 4% ~~million~~discount ofrates ~~goodwill~~for ~~related~~the toyears ~~this~~ended ~~transaction.~~June 30, ~~Based~~2002 inand ~~Visalia~~2003, ~~California,~~ ~~Bob~~respectively. ~~Mack~~These ~~primarily~~rates are ~~operates~~consistent inwith ~~central~~market ~~California~~discount ~~and~~rates isfor adetermining ~~provider~~the ofpresent ~~asphalt removal,~~value ~~grinding and milling services. The acquisition~~ of ~~Bob Mack expands~~ ~~the~~future ~~range of services offered by Penhall~~liabilities.

~~In April 2002, Penhall Company, purchased selected assets of Arizona Curb~~(13) ACQUISITIONS ~~Cut for $553,000. The purchase price included a $73,000 loan assumption, a~~ $69,000 lease assumption, $50,000 covenant not to compete, and a seller unsecured carryback note of $346,000 at 3.9% imputed interest, payable in installments of $123,000. The Company recorded approximately $56,000 of goodwill related to this transaction.

There were no acquisitions during fiscal 2003.

The Company completed the following acquisitions during fiscal 2002 which were accounted for as purchases:

In March 2002, the Company purchased 100% of the stock of Bob Mack Company, Inc (“Bob Mack”) and selected assets of Bobbie Mack Grinding, Inc (“Grinding”). Bob Mack and Grinding were related parties prior to the purchase. Total consideration for the purchase of Bob Mack stock was approximately $6.0 million, $3.0 million in cash and the remainder payable in equal installments in March 2003 and 2004. Total consideration for the purchase of selected assets from Grinding was $800,000, $400,000 in cash and the remainder payable in equal installments in March 2003 and 2004. In addition, the shareholders of Bob Mack signed 5 year non-compete agreements with Penhall which restrict the former shareholders of Bob Mack from competing with the acquired business and requires Penhall to pay the former shareholders $1.4 million in 5 equal payments over a four year period. The Company recorded approximately $2.4 million of goodwill related to this transaction. Based in Visalia, California, Bob Mack primarily operates in central California and is a provider of asphalt removal, grinding and milling services. The acquisition of Bob Mack expanded the range of services offered by Penhall. Results of operations from March 2002 and thereafter are included in the consolidated results of the Company.

In April 2002, Penhall Company, purchased selected assets of Arizona Curb Cut for $553,000. The purchase price included a $73,000 loan assumption, a $69,000 lease assumption, $50,000 covenant not to compete, and a seller unsecured carryback note of $346,000 at 3.9% imputed interest, payable in installments of $123,000. The Company recorded approximately $56,000 of goodwill related to this transaction. Arizona Curb Cut is based in Arizona and expanded the services provided by the Company. Results of operations from April 2002 and thereafter are included in the consolidated results of the Company.

Pro forma information has not been presented since the results of these operations did not have a significant effect on Penhall’s consolidated operations.

(14) GUARANTORS AND FINANCIAL INFORMATION

The following consolidating financial information is presented for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. Separate financial statements and other disclosures with respect to the Guarantor Subsidiaries are not presented because the Company believes that such financial statements and other information would not provide additional information that is material to investors.

The condensed consolidating financial information presents condensed financial statements as of June 30, ~~2001~~2002 and ~~2002~~2003 and for the years ended June 30, ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003 of:

a). Penhall International Corp. on a parent company only basis (“Parent”) (carrying its investments in the subsidiaries under the equity method), b). the Guarantor Subsidiaries (Penhall Rental Corp. (through dissolution effective July 1, 2002) and Penhall Company and subsidiaries), c). elimination entries necessary to consolidate the parent company and its subsidiaries, ~~and~~ d). the Company on a consolidated basis.

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING BALANCE SHEET

				JUNE 30, 2001
				JUNE 30, 2002
				PENHALL			PENHALL
				INTER-			PENHALL
				INTERNATIONAL			RENTAL			PENHALL
				NATIONAL			RENTAL			PENHALL
				CORP.			CORP.			COMPANY		ELIMINATIONS			CONSOLIDATED
Assets
	Current assets:
		Receivables, net		$	1,~~082~~990,000		$	—		$	3834,~~824~~696,000	$	—		$	3936,~~906~~686,000
		Inventories			—			—			21,~~273~~895,000		—			21,~~273~~895,000
		Costs and estimated earnings in excess of billings on uncompleted contracts			—			—			12,~~856~~514,000		—			12,~~856~~514,000
		Intercompany assets			2928,~~006~~303,000			—			—		(2928,~~006~~303,000	)		—
		Other current assets			~~112~~242,000			~~966~~6,143,000			35,~~698~~328,000		—			411,~~776~~713,000
			Total current assets		30,~~200~~535,000			~~966~~6,143,000			4644,~~651~~433,000		(2928,~~006~~303,000	)		4852,~~811~~808,000
	Net property, plant and equipment				—			9,~~424~~078,000			5657,~~779~~189,000		—			66,~~203~~267,000
	Other assets, net				43,~~062~~177,000			—			710,~~886~~663,000		—			1113,~~948~~840,000
	Intercompany assets				10,000,000			—			—		(10,000,000	)		—
	Investment in parent				—			4,001,000			—		(4,001,000	)		—
	Investment in subsidiaries				5563,~~992~~239,000			—			—		(5563,~~992~~239,000	)		—
				$	~~100~~96,~~254~~951,000		$	1419,~~391~~222,000		$	~~111~~112,~~316~~285,000	$	(9895,~~999~~543,000	)	$	~~126~~132,~~962~~915,000
Liabilities and Stockholders’ Equity (Deficit):
	Current installments of long-term debt			$	56,~~173~~061,000		$	103,000		$	13,~~253~~153,000	$	—		$	69,~~436~~217,000
	Trade accounts payable				34,000			—			9,~~973~~722,000		—			9,~~976~~726,000
	Accrued liabilities				5,~~295~~178,000			~~(20~~2,000	)		98,~~786~~806,000		—			1513,~~061~~986,000
	Income taxes payable				—			—			—		—			—
	Billings in excess of costs and estimated earnings on uncompleted contracts				—			—			680,000		—			680,000
	Billings in excess of costs and estimated earnings on uncompleted contracts				—			—			1,688,000		—			1,688,000
	Intercompany liabilities				—			26,245,000			2,058,000		(28,303,000	)		—
	Intercompany liabilities				—			28,346,000			660,000		(29,006,000	)		—
			Total current liabilities		11,243,000			26,250,000			24,419,000		(28,303,000	)		33,609,000
			Total current liabilities		10,471,000			28,336,000			23,360,000		(29,006,000	)		33,161,000
	Long-term debt, excluding current installments				15,290,000			183,000			4,280,000		—			19,753,000
	Intercompany liabilities				—			—			10,000,000		(10,000,000	)		—
	Long-term portion of insurance reserves				—			—			3,797,000		—			3,797,000
	Long-term debt, excluding current installments				18,066,000			186,000			520,000		—			18,772,000
	Senior notes				100,000,000			—			—		—			100,000,000
	Deferred tax liabilities				—			(~~143~~157,000	)		79,~~455~~496,000		—			79,~~312~~339,000
	Senior Exchangeable Preferred stock				1315,~~573~~075,000			—			—		—			1315,~~573~~075,000
	Series A Preferred stock				1517,~~219~~332,000			—			—		—			1517,~~219~~332,000
	Stockholders’ equity (deficit)				(5761,~~075~~989,000	)		(137,~~988~~054,000	)		6970,~~981~~293,000		(5967,~~993~~240,000	)		(6165,~~075~~990,000	)
				$	~~100~~96,~~254~~951,000		$	1419,~~391~~222,000		$	~~111~~112,~~316~~285,000	$	(9895,~~999~~543,000	)	$	~~126~~132,~~962~~915,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING BALANCE SHEET

				JUNE 30, 2002
				JUNE 30, 2003
				PENHALL
				INTER-			PENHALL
				INTERNATIONAL			PENHALL
				NATIONAL			RENTAL			PENHALL
				CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
				CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Assets
Assets
	Current assets:
	Current assets:
		Receivables, net		$	2,648,000		$	31,618,000		$	—		$	34,266,000
		Receivables, net		$	1,990,000		$	—		$	34,696,000		$	—		$	36,686,000
		Inventories			—			2,362,000			—			2,362,000
		Inventories			—			—			1,895,000			—			1,895,000
		Costs and estimated earnings in excess of billings on uncompleted contracts			—			1,704,000			—			1,704,000
		Costs and estimated earnings in excess of billings on uncompleted contracts			—			—			2,514,000			—			2,514,000
		Other current assets			271,000			7,066,000			(152,000	)		7,185,000
		Intercompany assets			28,303,000			—			—			(28,303,000	)		—
			Total current assets		2,919,000			42,750,000			(152,000	)		45,517,000
		Other current assets			242,000			6,143,000			5,328,000			—			11,713,000
	Net property, plant and equipment				8,798,000			44,603,000			—			53,401,000
			Total current assets		30,535,000			6,143,000			44,433,000			(28,303,000	)		52,808,000
	Intercompany assets				—			19,398,000			(19,398,000	)		—
	Net property, plant and equipment				—			9,078,000			57,189,000			—			66,267,000
	Other assets, net				2,051,000			11,504,000			—			13,555,000
	Other assets, net				3,177,000			—			10,663,000			—			13,840,000
	Investment in subsidiaries				70,399,000			—			(70,399,000	)		—
	Investment in parent				—			4,001,000			—			(4,001,000	)		—
				$	84,167,000		$	118,255,000		$	(89,949,000	)	$	112,473,000
	Investment in subsidiaries				63,239,000			—			—			(63,239,000	)		—
Liabilities and Stockholders’ Equity (Deficit):
				$	96,951,000		$	19,222,000		$	112,285,000		$	(95,543,000	)	$	132,915,000
	Current installments of long-term debt			$	3,000		$	2,548,000		$	—		$	2,551,000
Liabilities and Stockholders’ Equity (Deficit):
	Trade accounts payable				9,000			8,096,000			(152,000	)		7,953,000
	Current installments of long-term debt			$	6,061,000		$	3,000		$	3,153,000		$	—		$	9,217,000
	Accrued liabilities				4,931,000			7,447,000			—			12,378,000
	Trade accounts payable				4,000			—			9,722,000			—			9,726,000
	Billings in excess of costs and estimated earnings on uncompleted contracts				—			831,000			—			831,000
	Accrued liabilities				5,178,000			2,000			12,603,000			—			17,783,000
	Intercompany liabilities				19,398,000			—			(19,398,000	)		—
	Billings in excess of costs and estimated earnings on uncompleted contracts				—			—			680,000			—			680,000
			Total current liabilities		24,341,000			18,922,000			(19,550,000	)		23,713,000
	Intercompany liabilities				—			26,245,000			2,058,000			(28,303,000	)		—
	Long-term debt, excluding current installments				180,000			14,664,000			—			14,844,000
			Total current liabilities		11,243,000			26,250,000			28,216,000			(28,303,000	)		37,406,000
	Long-term portion of insurance reserves				—			5,158,000			—			5,158,000
	Long-term debt, excluding current installments				15,290,000			183,000			4,280,000			—			19,753,000
	Senior notes				100,000,000			—			—			100,000,000
	Senior notes				100,000,000			—			—			—			100,000,000
	Deferred tax liabilities				(891,000	)		9,112,000			—			8,221,000
	Deferred tax liabilities				—			(157,000	)		9,496,000			—			9,339,000
	Senior Exchangeable Preferred stock				16,744,000			—			—			16,744,000
	Senior Exchangeable Preferred stock				15,075,000			—			—			—			15,075,000
	Series A Preferred stock				19,737,000			—			—			19,737,000
	Series A Preferred stock				17,332,000			—			—			—			17,332,000
	Stockholders’ equity (deficit)				(75,944,000	)		70,399,000			(70,399,000	)		(75,944,000	)
	Stockholders’ equity (deficit)				(61,989,000	)		(7,054,000	)		70,293,000			(67,240,000	)		(65,990,000	)
				$	84,167,000		$	118,255,000		$	(89,949,000	)	$	112,473,000
				$	96,951,000		$	19,222,000		$	112,285,000		$	(95,543,000	)	$	132,915,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED JUNE 30, 2000

YEAR ENDED JUNE 30, 2001

PENHALL

INTER-

PENHALL

NATIONAL

RENTAL

PENHALL

CORP.

COMPANY

ELIMINATIONS

CONSOLIDATED

Revenues

—

112,~~318~~005,000

~~173~~176,~~060~~893,000

(113,~~318~~129,000

)

~~173~~175,~~060~~769,000

Cost of revenues

—

~~119~~124,~~854~~408,000

—

~~119~~124,~~854~~408,000

Gross profit

—

112,~~318~~005,000

5352,~~206~~485,000

(113,~~318~~129,000

)

5351,~~206~~361,000

General and administrative expenses

~~444~~397,000

~~410~~454,000

2830,~~938~~011,000

(12,~~318~~515,000

)

28,~~474~~347,000

Reorganization expenses

—

43,000

—

43,000

Royalties

—

10,614,000

(10,614,000

)

—

Other operating income

648,000

—53,000

1,~~164~~347,000

—

1,~~228~~408,000

Equity in earnings of subsidiaries

1514,~~233~~770,000

—

(1514,~~233~~770,000

)

—

Earnings before interest expense and income taxes

14,~~853~~381,000

~~865~~11,604,000

2513,~~432~~207,000

(1514,~~233~~770,000

)

2524,~~917~~422,000

Interest expense

15,~~115~~095,000

285,000

~~448~~163,000

—

15,~~591~~263,000

Earnings (loss) before income taxes

(~~262~~714,000

)

~~837~~11,599,000

2413,~~984~~044,000

(1514,~~233~~770,000

)

109,~~326~~159,000

Income tax expense (benefit)

(65,~~212~~974,000

)

~~311~~4,510,000

105,~~277~~364,000

—

43,~~376~~900,000

Net earnings

5,~~950~~260,000

~~526~~7,089,000

147,~~707~~680,000

(1514,~~233~~770,000

)

5,~~950~~259,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING
STATEMENT OF OPERATIONS

		YEAR ENDED JUNE 30, 2001
		YEAR ENDED JUNE 30, 2002
		PENHALL
		INTER-			PENHALL
		NATIONAL			RENTAL		PENHALL
		CORP.			CORP.		COMPANY		ELIMINATIONS			CONSOLIDATED
Revenues		$	—		$	1211,~~005~~664,000	$	~~176~~161,~~893~~242,000	$	(1311,~~129~~664,000	)	$	~~175~~161,~~769~~242,000
Cost of revenues			—			—		~~124~~122,~~408~~418,000		—			~~124~~122,~~408~~418,000
	Gross profit		—			1211,~~005~~664,000		5238,~~485~~824,000		(1311,~~129~~664,000	)		5138,~~361~~824,000
General and administrative expenses			~~397~~411,000			~~454~~352,000		3029,~~011~~119,000		(21,~~515~~518,000	)		28,~~347~~364,000
Royalties			—			—		10,~~614~~146,000		(10,~~614~~146,000	)		—
Other operating income			881,000			5345,000		1,~~347~~234,000		—			1,~~408~~360,000
Equity in earnings of subsidiaries			147,~~770~~247,000			—		—		(147,~~770~~247,000	)		—
	Earnings before interest expense and income taxes		146,~~381~~917,000			11,~~604~~357,000		13793,~~207,~~000		(147,~~770~~247,000	)		2411,~~422~~820,000
Interest expense			1514,~~095~~062,000			519,000		~~163~~212,000		—			1514,~~263~~293,000
	Earnings (loss) before income taxes		(~~714~~7,145,000	)		11,~~599~~338,000		13581,~~044,~~000		(147,~~770~~247,000	)		9(2,~~159~~473,000	)
Income tax expense (benefit)			(5,~~974~~528,000	)		4,~~510~~403,000		5269,~~364,~~000		—			3(856,~~900,~~000	)
Net earnings		$	5,260,000		$	7,089,000	$	7,680,000	$	(14,770,000	)	$	5,259,000
Net earnings (loss)		$	(1,617,000	)	$	6,935,000	$	312,000	$	(7,247,000	)	$	(1,617,000	)

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		YEAR ENDED JUNE 30, 2002
		YEAR ENDED JUNE 30, 2003
		PENHALL
		INTER-			PENHALL
		INTERNATIONAL			PENHALL
		NATIONAL			RENTAL		PENHALL
		CORP.			COMPANY		ELIMINATIONS			CONSOLIDATED
		CORP.			CORP.		COMPANY			ELIMINATIONS			CONSOLIDATED
Revenues		$	5,174,000		$	159,617,000	$	(5,174,000	)	$	159,617,000
Revenues		$	—		$	11,664,000	$	161,242,000		$	(11,664,000	)	$	161,242,000
Cost of revenues			—			128,048,000		—			128,048,000
Cost of revenues			—			—		122,418,000			—			122,418,000
	Gross profit		5,174,000			31,569,000		(5,174,000	)		31,569,000
	Gross profit		—			11,664,000		38,824,000			(11,664,000	)		38,824,000
General and administrative expenses			829,000			28,689,000		(1,583,000	)		27,935,000
General and administrative expenses			411,000			352,000		29,119,000			(1,518,000	)		28,364,000
Royalties			—			3,591,000		(3,591,000	)		—
Royalties			—			—		10,146,000			(10,146,000	)		—
Other operating income			11,000			1,349,000		—			1,360,000
Other operating income			81,000			45,000		1,234,000			—			1,360,000
Equity in earnings of subsidiaries			106,000			—		(106,000	)		—
Equity in earnings of subsidiaries			7,247,000			—		—			(7,247,000	)		—
	Earnings before interest expense and income taxes		4,462,000			638,000		(106,000	)		4,994,000
	Earnings before interest expense and income taxes		6,917,000			11,357,000		793,000			(7,247,000	)		11,820,000
Interest expense			13,918,000			437,000		—			14,355,000
Interest expense			14,062,000			19,000		212,000			—			14,293,000
	Earnings (loss) before income taxes		(9,456,000	)		201,000		(106,000	)		(9,361,000	)
	Earnings (loss) before income taxes		(7,145,000	)		11,338,000		581,000			(7,247,000	)		(2,473,000	)
Income tax expense (benefit)			(3,536,000	)		95,000		—			(3,441,000	)
Income tax expense (benefit)			(5,528,000	)		4,403,000		269,000			—			(856,000	)
Net earnings (loss)		$	(5,920,000	)	$	106,000	$	(106,000	)	$	(5,920,000	)
Net earnings (loss)		$	(1,617,000	)	$	6,935,000	$	312,000		$	(7,247,000	)	$	(1,617,000	)

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			YEAR ENDED JUNE 30, 2000
			YEAR ENDED JUNE 30, 2001
			PENHALL			PENHALL
			INTER-			PENHALL
			INTERNATIONAL			RENTAL			PENHALL
			NATIONAL			RENTAL			PENHALL
			CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities			$	(49,~~676~~922,000	)	$	512,~~723~~256,000		$	2517,~~678~~957,000		$	(64,~~443~~559,000	)	$	2015,~~282~~732,000
Cash flows from investing activities:
	Proceeds from sale of assets			—			—278,000			~~865~~1,014,000			—			~~865~~1,292,000
	Capital expenditures			—			(~~102~~1,175,000	)		(17,~~991~~294,000	)		—			(18,~~093~~469,000	)
		Net cash used in investing activities		—			(102,000	)		(17,126,000	)		—			(17,228,000	)
	Acquisition of companies, net of cash acquired			—			—			(520,000	)		—			(520,000	)
		Net cash used in investing activities		—			(897,000	)		(16,800,000	)		—			(17,697,000	)
Cash flows from financing activities:
	Due to (from) affiliates			79,~~350~~773,000			(611,~~094~~798,000	)		(72,~~699~~534,000	)		64,~~443~~559,000			—
	Borrowings under long-term debt			2871,~~726~~824,000			—			—			—			2871,~~726~~824,000
	Repayments of long-term debt			(3271,~~375~~749,000	)		(10,000	)		(42,~~411~~044,000	)		—			(3673,~~796~~803,000	)
	Book overdraft			—			—			2,~~965~~891,000			—			2,~~965~~891,000
	Debt issuance costs			(7,000	)		—			—			—			(7,000	)
	Proceeds from issuance of common stock			309,000			—			—			—			309,000
	Proceeds from issuance of common stock			537,000			—			—			—			537,000
	Repurchase of common stock and Series B preferred stock			(521,000	)		—			—			—			(521,000	)
	Repurchase of common stock and Series B preferred stock			(29,000	)		—			—			—			(29,000	)
	Issuance of Series B preferred stock			186,000			—			—			—			186,000
	Issuance of Series B preferred stock			574,000			—			—			—			574,000
		Net cash provided by (used in) financing activities		9,822,000			(11,808,000	)		(1,687,000	)		4,559,000			886,000
		Net cash provided by (used in) financing activities		4,776,000			(6,104,000	)		(9,145,000	)		6,443,000			(4,030,000	)
		Net change in cash and cash equivalents		(100,000	)		(449,000	)		(530,000	)		—			(1,079,000	)
		Net change in cash and cash equivalents		100,000			(483,000	)		(593,000	)		—			(976,000	)
Cash and cash equivalents at beginning of year				100,000			1,370,000			639,000			—			2,109,000
Cash and cash equivalents at beginning of year				—			1,853,000			1,232,000			—			3,085,000
Cash and cash equivalents at end of year			$	—		$	921,000		$	109,000			—		$	1,030,000
Cash and cash equivalents at end of year			$	100,000		$	1,370,000		$	639,000		$	—		$	2,109,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			YEAR ENDED JUNE 30, 2001
			YEAR ENDED JUNE 30, 2002
			PENHALL
			INTER-			PENHALL
			NATIONAL			RENTAL			PENHALL
			INTERNATIONAL			RENTAL			PENHALL
			CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities			$	(91,~~922~~886,000	)	$	127,~~256~~308,000		$	1719,~~957~~434,000		$	(47,~~559~~247,000	)	$	1517,~~732~~609,000
Cash flows from investing activities:
	Proceeds from sale of assets			—			~~278,000~~—			1832,~~014,~~000			—			1832,~~292,~~000
	Capital Expenditures			—			(1,175,000	)		(17,294,000	)		—			(18,469,000	)
	Capital expenditures			—			26,000			(9,521,000	)		—			(9,495,000	)
	Acquisition of companies, net of cash acquired			—			—			(~~520~~3,819,000	)		—			(~~520~~3,819,000	)
		Net cash used in investing activities		—			(897,000	)		(16,800,000	)		—			(17,697,000	)
		Net cash provided by (used) in investing activities		—			26,000			(12,508,000	)		—			(12,482,000	)
Cash flows from financing activities:
	Due to (from) affiliates			93,~~773~~456,000			(112,~~798~~101,000	)		(28,~~534~~602,000	)		47,~~559~~247,000			—
	Borrowings under long-term debt			7182,~~824~~900,000			—			—2,923,000			—			7185,~~824~~823,000
	Repayments of long-term debt			(7184,~~749~~787,000	)		(1011,000	)		(21,~~044~~490,000	)		—			(7386,~~803~~288,000	)
	Book overdraft			—			—			2196,~~891,~~000			—			2196,~~891,~~000
	Debt issuance costs			—			—			—			—			—
	Proceeds from issuance of common stock			213,000			—			—			—			213,000
	Proceeds from issuance of common stock			309,000			—			—			—			309,000
	Repurchase of common stock and Series B preferred stock			(54,000	)		—			—			—			(54,000	)
	Repurchase of common stock and Series B preferred stock			(521,000	)		—			—			—			(521,000	)
	Issuance of Series B preferred stock			158,000			—			—			—			158,000
	Issuance of Series B preferred stock			186,000			—			—			—			186,000
		Net cash provided by (used in) financing activities		1,886,000			(2,112,000	)		(6,973,000	)		7,247,000			48,000
		Net cash provided by (used in) financing activities		9,822,000			(11,808,000	)		(1,687,000	)		4,559,000			886,000
		Net change in cash and cash equivalents		—			5,222,000			(47,000	)		—			5,175,000
		Net change in cash and cash equivalents		(100,000	)		(449,000	)		(530,000	)		—			(1,079,000	)
Cash and cash equivalents at beginning of year				—			921,000			109,000			—			1,030,000
Cash and cash equivalents at beginning of year				100,000			1,370,000			639,000			—			2,109,000
Cash and cash equivalents at end of year			$	—		$	6,143,000		$	62,000			—		$	6,205,000
Cash and cash equivalents at end of year			$	—		$	921,000		$	109,000			—		$	1,030,000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			YEAR ENDED JUNE 30, 2002
			YEAR ENDED JUNE 30, 2003
			PENHALL			PENHALL
			INTER-			PENHALL
			INTERNATIONAL			RENTAL			PENHALL
			NATIONAL			RENTAL			PENHALL
			CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities			$	(16,~~886~~029,000	)	$	~~7,308,000~~—		$	1918,~~434~~678,000		$	~~(7,247,000~~—	)	$	1712,~~609~~649,000
Cash flows from investing activities:
	Proceeds from sale of assets			—			—			~~832~~1,264,000			—			~~832~~1,264,000
	Capital expenditures			—			~~26,000~~—			(94,~~521~~222,000	)		—			(94,~~495~~222,000	)
	Acquisition of companies, net of cash acquired			—			—			(3,819,000	)		—			(3,819,000	)
	Cash from Penhall Rental merger			6,143,000			(6,143,000	)		—			—			—
		Net cash provided by (used) in investing activities		—6,143,000			26(6,143,000	)		(122,~~508~~958,000	)		—			(122,~~482~~958,000	)
Cash flows from financing activities:
	Due to (from) affiliates			321,456,000			~~(2,101,000~~—	)		(821,~~602~~456,000	)		~~7,247,000~~—			—
	Borrowings under long-term debt			8261,~~900~~520,000			—			243,~~923~~800,000			—			85105,~~823~~320,000
	Repayments of long-term debt			(8482,~~787~~874,000	)		~~(11,000~~—	)		(134,~~490~~021,000	)		—			(86116,~~288~~895,000	)
	Book overdraft			—			—			~~196~~(2,573,000	)		—(152,000	)		~~196~~(2,725,000	)
	Debt issuance costs			—(104,000	)		—			—(1,348,000	)		—			—(1,452,000	)
	Proceeds from issuance of common stock			~~213~~38,000			—			—			—			~~213~~38,000
	Repurchase of common stock and Series B preferred stock			(5435,000	)		—			—			—			(5435,000	)
	Issuance of Series B preferred stock			~~158~~37,000			—			—			—			~~158~~37,000
		Net cash provided by (used in) financing activities		138,~~886,~~000			~~(2,112,000~~—	)		(615,~~973~~598,000	)		7(152,~~247,~~000	)		48(15,712,000	)
		Net change in cash and cash equivalents		—152,000			5(6,~~222~~143,000	)		~~(47~~122,000	)		—(152,000	)		5(6,~~175~~021,000	)
Cash and cash equivalents at beginning of year				—			~~921~~6,143,000			~~109~~62,000			—			16,~~030~~205,000
Cash and cash equivalents at end of year			$	—152,000		$	~~6,143,000~~—		$	62184,000			—(152,000	)	$	6184,~~205,~~000

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, ~~2001~~2002 AND ~~2002~~2003

(15) SUPPLEMENTARY CASH FLOW INFORMATION

The following supplemental cash flow information is provided with respect to interest and tax payments as well as certain non-cash investing and financing activities for the years ended June 30:

2000

2001

2002

2001

2002

2003

Cash paid (received) during the year for:

Cash paid during the year for:

Income taxes

14,~~822~~604,000

4787,~~604,~~000

~~787~~448,000

Interest

14,~~891~~105,000

1413,~~105~~427,000

13,~~427~~227,000

Noncash investing and financing activities -

Borrowings related to the acquisition of assets

1963,~~981,~~000

~~963~~547,000

~~547,000~~—

Borrowings related to the repurchase of common stock and Series B preferred

—314,000

~~314,000~~—

—

Accretion of preferred stock to redemption value

23,~~854~~207,000

3,~~207~~615,000

34,~~615~~074,000

Accrual of cumulative dividends on preferred stock

23,~~946~~263,000

3,~~263~~794,000

34,~~794~~325,000

The following table details the fiscal ~~2001 and~~ 2002 acquisitions:

	2001		2002
	2002
Inventory	$	~~125~~6,000	$	~~6,000~~
Property, plant and equipment		16,~~066~~859,000		~~6,859,000~~
Goodwill		~~384~~2,385,000		~~2,385,000~~
Other assets		~~100~~1,474,000		~~1,474,000~~
Accrued liabilities		~~480~~1,266,000		~~1,266,000~~
Income taxes payable		—227,000		~~227,000~~
Deferred tax liability		—1,959,000		~~1,959,000~~
Long-term debt		~~675~~3,680,000		~~3,680,000~~

(16) ~~SUBSEQUENT~~ SUPPLEMENTARY ~~EVENT~~FINANCIAL INFORMATION (UNAUDITED)

OnThe ~~August 16,~~following ~~2002,~~is ~~the~~unaudited ~~Company~~supplementary ~~established~~financial ainformation ~~$2,175,000 letter of credit~~ for ~~the benefit of the Company’s third party insurance carrier (note 1). This~~2002 ~~letter~~and ~~of credit, which reduces the amount of borrowings available under the Company’s Credit Facility, (note 5), expires on August 18,~~ 2003~~. The amount of the letter of credit is to automatically increase as follows~~:

November 1, 2002	$	3,262,500
	FOR THE QUARTERS ENDED 2002
February 1, 2003	$	4,350,000
	SEPTEMBER 30,		DECEMBER 31,			MARCH 31,			JUNE 30,
Revenue	$	49,157,000	$	37,674,000		$	30,010,000		$	44,401,000
Gross profit		14,604,000		9,906,000			6,045,000			8,269,000
Earnings (loss) before income taxes		3,104,000		(294,000	)		(3,578,000	)		(1,705,000	)
Net earnings (loss)		1,831,000		(171,000	)		(2,113,000	)		(1,164,000	)
Net earnings (loss) available to common stockholders		51,000		(2,010,000	)		(3,971,000	)		(3,096,000	)
Basic and diluted earnings (loss) per share		.05		(2.04	)		(4.02	)		(3.14	)


	FOR THE QUARTERS ENDED 2003
	SEPTEMBER 30,			DECEMBER 31,			MARCH 31,			JUNE 30,

Revenue	$	46,576,000		$	42,044,000		$	29,850,000		$	41,147,000
Gross profit		10,481,000			9,249,000			4,434,000			7,405,000
Earnings (loss) before income taxes		97,000			(633,000	)		(5,413,000	)		(3,412,000	)
Net earnings (loss)		62,000			(405,000	)		(3,464,000	)		(2,113,000	)
Net loss available to common stockholders		(1,957,000	)		(2,481,000	)		(5,571,000	)		(4,310,000	)
Basic and diluted loss per share		(1.98	)		(2.52	)		(5.65	)		(4.37	)

~~PENHALL~~PART ~~INTERNATIONAL CORP.~~III ~~AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 AND 2002

(17) SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

The following is unaudited supplementary financial information for 2001 and 2002:

	FOR THE QUARTERS ENDED 2001
	SEPTEMBER 30,		DECEMBER 31,			MARCH 31,			JUNE 30,
Revenue	$	53,346,000	$	41,565,000		$	33,619,000		$	47,239,000
Gross profit		16,551,000		12,446,000			8,715,000			13,649,000
Earnings (loss) before income taxes		5,524,000		1,708,000			(785,000	)		2,712,000
Net earnings (loss)		3,259,000		1,007,000			(463,000	)		1,456,000
Net earnings (loss) available to common shareholders		1,674,000		(634,000	)		(2,005,000	)		(246,000	)
Basic and diluted earnings (loss) per share		1.65		(0.62	)		(1.97	)		(0.28	)

	FOR THE QUARTERS ENDED 2002
	SEPTEMBER 30,		DECEMBER 31,			MARCH 31,			JUNE 30,
Revenue	$	49,157,000	$	37,674,000		$	30,010,000		$	44,401,000
Gross profit		14,604,000		9,906,000			6,045,000			8,269,000
Earnings (loss) before income taxes		3,104,000		(294,000	)		(3,578,000	)		(1,705,000	)
Net earnings (loss)		1,831,000		(171,000	)		(2,113,000	)		(1,164,000	)
Net earnings (loss) available to common shareholders		51,000		(2,010,000	)		(3,971,000	)		(3,096,000	)
Basic and diluted earnings (loss) per share		.05		(2.04	)		(4.02	)		(3.14	)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

~~PART~~ITEM ~~III~~9a. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure (1) that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and (2) that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In June 2003, under the supervision and review of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information regarding the Company that is required to be included in our periodic reports to the SEC. In addition, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls since our March 2003 evaluation. We cannot assure you, however, that our system of disclosure controls and procedures will always achieve its stated goals under all future conditions, no matter how remote.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the directors and executive officers of the Company. Directors of the Company hold their offices for a term of one year or until their successors are elected and qualified; executive officers of the Company serve at the discretion of the Board of Directors. For information concerning certain arrangements with respect to the election of directors.

NAME	AGE		TITLE
John T. Sawyer		5859	Chairman of the Board of Directors, President and Chief Executive Officer
			Chief Executive Officer
C. George Bush		48	Vice President and Regional Manager, Southern California Region
Clark George Bush		47	Vice President and Regional Manager, Southern
Bruce F. Varney		51	Vice President and Regional Manager, Southwest Region
			California Region
Jeffrey E. Platt		52	Vice President-Finance and Chief Financial Officer
Bruce F. Varney		50	Vice President and Regional Manager, Southwest Region
Gary Aamold		53	Vice President and Regional Manager, Highway Services Division
Jeffrey E. Platt		51	Vice President-Finance and Chief Financial Officer
Bruce C. Bruckmann		49	Director
Gary Aamold		52	Vice President and Regional Manager, Highway
Harold O. Rosser II		54	Director
			Services Division
Paul N. Arnold		57	Director
Bruce C. Bruckmann		48	Director
Harold O. Rosser II		53	Director
Paul N. Arnold		56	Director

JOHN T. SAWYER, Chairman of the Board of Directors, President and Chief Executive Officer, joined Penhall in 1978 as the Estimating Manager of the Anaheim Division. In 1980, Mr. Sawyer was appointed Manager of Penhall’s National Contracting Division, and in 1984, he assumed the position of Vice President and became responsible for managing all construction services divisions. Mr. Sawyer has been President of the Company since 1989.

~~CLARK~~C. GEORGE BUSH, Vice President and Regional Manager, Southern ~~California~~ California Region, joined Penhall in 1980 as an Estimator and Jobsite Manager and became a Division Manager in 1984. Mr. Bush was promoted to Regional Manager of Southern California in 1986. In 1990, Mr. Bush was appointed as President of Penhall Company, where he served until his recent appointment as Vice President of Penhall with responsibility for the Southern California region.

BRUCE F. VARNEY, Vice President and Regional Manager, Southwest Region, began his employment with Penhall in 1977, and in 1981 was named Manager of the San Diego Division. From 1991 to 1993, Mr. Varney served as Regional Manager for Southern California, and in 1993 he was appointed as Southwest Regional Manager. In April 1998, Mr. Varney was promoted to Vice President.

JEFFREY E. PLATT, Vice President-Finance and Chief Financial Officer, joined Penhall in July 2000 as Chief Financial Officer. From 1987 to 2000, Mr. Platt was Vice President-Finance and Chief Financial Officer for Nielsen Dillingham Builders Inc. He received his BA and MBA from the University of California at Los Angeles. Mr. Platt is a Certified Public Accountant.

GARY AAMOLD, Vice President and Regional Manager, Highway Services Division, joined Penhall in April 1998 as part of the Highway Services acquisition. Since 1989, Mr. Aamold has served in various managerial capacities for Highway Services.

BRUCE C. BRUCKMANN is a founder and Managing Director of BRS. Previously, he was an officer of CVC from 1983 through 1994. Prior to joining CVC, Mr. Bruckmann was an associate at the New York law firm of Patterson, Belknap, Webb & Tyler. He received his AB from Harvard College and his JD from Harvard Law School. Mr. Bruckmann is a director of Mohawk Industries, Inc., Town Sports International, Inc., Anvil Knitwear, Inc., MWI Veterinary Supply, ~~HealthPlus Corporation~~Inc., HealthEssentials, Inc., Penhall International, ~~Corp~~Inc., Copelands’ Enterprises, Inc., and H&E Equipment Services, L.L.C.

51 HAROLD O. ROSSER II is a founder and Managing Director of BRS. Previously, he was an officer of CVC from 1987 through 1994. Prior to joining CVC, he spent 12 years with Citicorp/Citibank in various management and corporate finance positions. Mr. Rosser earned his BS from Clarkson University and attended Management Development Programs at Carnegie-Mellon University and the Stanford University Business School. Mr. Rosser is a director of American Paper Holdings, Inc., Acapulco Restaurants, Inc., Au Bon Pain, Inc., Penhall International, Inc., H&E Equipment Services, L.L.C., O’Sullivan Industries, Il Fornaio (America) Corporation, McCormick & Schmick Restaurant Corporation, and Remington Arms Company, Inc.

HAROLD O. ROSSER is a founder and Managing Director of BRS. Previously, he was an officer of CVC from 1987 through 1994. Prior to joining CVC, he spent 12 years with Citicorp/Citibank in various management and corporate finance positions. Mr. Rosser earned his BS from Clarkson University and attended Management Development Programs at Carnegie-Mellon University and the Stanford University Business School. Mr. Rosser is a director of California Pizza Kitchen, Inc., American Paper Group, Inc., Acapulco Restaurants, Inc., Penhall International, Corp., H&E Equipment Services, L.L.C., O’Sullivan Industries, Il Fornaio (America) Corporation, and McCormick & Schmick Restaurant Corporation.

PAUL N. ARNOLD, Director, is Chairman and Chief Executive Officer of CORT Business Services Corporation. Mr. Arnold has been with CORT for over 30 years, holding Group Management positions and Regional Management positions within CORT since 1976. Mr. Arnold served as President and Chief Executive Officer from 1992 to 2000. Mr. Arnold is a director of Town Sports International, Inc.

ITEM 11. EXECUTIVE COMPENSATION.

The following table summarizes the compensation paid or accrued for fiscal 2002 to the Chief Executive Officer of Penhall and to each of the four other most highly compensated executive officers of Penhall.

SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION

OTHER ANNUAL

ALL OTHER

NAME AND PRINCIPAL POSITION

SALARY(1)

BONUS

COMPENSATION(2)

COMPENSATION(3)

John T. Sawyer

~~274~~275,~~520~~000

~~163~~50,~~237~~000

115,~~898~~952

8,~~912~~647

(4)

Chief Executive Officer and President-Penhall Company

C. George Bush

~~190~~191,~~885~~000

~~103~~21,~~090~~000

8,750

8,~~644~~897

(5)

Vice President-Penhall

Jeffrey E. Platt

~~207~~208,~~879~~000

6934,~~138~~000

8,750

43,~~632~~923

(6)

Vice President-Penhall

Bruce F. Varney

~~180~~181,~~884~~000

~~108~~70,~~138~~000

8,750

8,~~744~~946

(7)

Vice President-Penhall

Gary L. Aamold

170,~~417~~000

9266,000

8,750

128,~~807~~561

(8)

Vice President-Penhall

(1)		Includes amounts contributed as salary deferral contributions in fiscal ~~2002~~2003 under the Penhall International Corp. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (the “Plan”), as follows: $11,~~277~~480 for Mr. Sawyer; $10,~~500~~400 for Mr. Bush; $226,~~150~~290 for Mr. Platt; $1110,~~210~~229 for Mr. Varney and $118,~~277~~561 for Mr. Aamold.
(2)		Includes the amount attributable to the use of an automobile furnished by Penhall.
(3)		Includes Penhall matching contributions under the Plan, premiums for group term insurance, premiums for health care insurance and long-term disability insurance premiums.
(4)		Includes $~~1,400~~500 of Penhall matching contributions under the Plan, approximately $258 of premiums for group term life insurance, approximately $67,~~824~~435 of premiums for health care insurance and approximately $~~430~~454 for long-term disability insurance premiums.
(5)		Includes $~~1,400~~500 of Penhall matching contributions under the Plan, approximately $90 of premiums for group term life insurance, approximately $67,~~724~~854 of premiums for health care insurance and approximately $~~430~~454 for long-term disability insurance premiums.
(6)		Includes $~~1,400~~500 of Penhall matching contributions under the Plan, approximately $138 of premiums for group term life insurance, approximately $2,~~664~~831 of premiums for health care insurance and approximately $~~430~~454 for long-term disability insurance premiums.
(7)		Includes $~~1,400~~500 of Penhall matching contributions under the Plan, approximately $90138 of premiums for group term life insurance, approximately $610,~~824~~294 of premiums for health care insurance and approximately $~~430~~454 for long-term disability insurance premiums.
(8)		Includes $2,000 of Penhall matching contributions under the Plan, approximately $83 of premium for group term life insurance, approximately $10,294 of premium health care insurance and approximately $430 for disability insurance premiums.

(8) Includes $2,000 of Penhall matching contributions under the Plan, approximately $83 of premium for group term life insurance, approximately $10,294 of premium health care insurance and approximately $430 for disability insurance premiums.

EMPLOYMENT AGREEMENTS

Upon consummation of the Transactions, the Company entered into a five-year employment agreement with John T. Sawyer pursuant to which Mr. Sawyer is employed as President and Chief Executive Officer of the Company; the Company also entered into three-year employment agreements with Messrs. Bush and Varney pursuant to which each of such executives is employed as a Vice President of the Company. The agreements provide for a base salary (approximately $246,000 for Mr. Sawyer, $134,000 for C. George Bush and $119,000 for Bruce F. Varney), which will be subject to annual merit increases and an annual performance bonus. In addition, the agreements provide for the receipt by the executives of standard company benefits. The agreements are terminable by the Company with or without cause and are automatically renewed annually. In the event an agreement is terminated without cause, the executive will be entitled to continue to receive his base salary and, for certain executives, bonus, and certain other benefits, for specified periods. Following any termination of employment of an executive, it is expected that the executive will be subject to a non-competition covenant with a duration of two years pursuant to the terms of the Stockholders Agreement (as defined).

401(k) PLAN

Penhall sponsors the Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (the “Plan”), which is intended to satisfy the tax qualification requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain terms and conditions of the Plan, substantially all of Penhall’s non-union employees are eligible to participate in the Plan. Eligible employees may contribute between 1% and 15% of their compensation to the Plan on a pre-tax basis.

Penhall may, but is not required, to make matching contributions to the Plan each year. Any matching contributions will be allocated to each participant’s account under the Plan proportionate to the amount that he or she has contributed to the Plan during the applicable Plan year. All Penhall and employee contributions to the Plan are allocated to a participant’s individual account. Penhall charged $~~349~~376,000, $~~376~~515,000 and $~~515~~335,000 to general and administrative expense related to contributions to and expenses of the Plan for the years ended June 30, ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003, respectively.

All Penhall and employee contributions to the Plan plus the earnings thereon are 100% vested. Employees may direct the investment of their accounts to various investment funds. The Plan provides for hardship withdrawals and loans to participants.

STOCK OPTION PLAN

On October 7, 1999, the Company’s Board of Directors approved a Stock Incentive Plan (the “Plan”) under which employees, officers, directors or consultants (“Eligible Participants”) may be granted stock options and restricted stock awards. The Board authorized the sale of up to 50,000 shares of common stock and 2,500 shares of Series B Preferred Stock under the Plan. The Plan is administered by the Board of Directors or an appointed committee (Administrator). The exercise price for stock options or restricted stock awards shall not be less than the Fair Market Value (as defined) of the stock on the grant date subject to restrictions and conditions, including the Company’s option to repurchase, as determined by the Administrator at the time of the grant. The term of each stock option shall be fixed, and not exceeding 10 years from the grant date of the stock option. In addition, stock options may be subject to specific vesting and acceleration provisions as determined by the Administrator at or after the grant date. On November 12, 1999, the Company issued 17,513 shares of common stock for an aggregate purchase price of $537,000 and 511 shares of Series B Preferred Stock for an aggregate purchase price of $574,000 to Eligible Participants under the Plan. On October 20, 2000, the Company issued 4,967 shares of common stock for an aggregate purchase price of $309,000 and 146 shares of Series B Preferred Stock for an aggregate purchase price of $186,000 to Eligible Participants under the Plan. On November 16, 2001, the Company issued 3,647 shares of common stock for an ~~aggregate~~ aggregate purchase price of $213,~~399~~000 and 108 shares of Series B Preferred Stock for an aggregate purchase price of $~~157~~158,~~597~~000 to Eligible Participants under the Plan. On November 16, 2001, 9,316 stock options were granted to Eligible Participants under the Plan. On November 1, 2002, the Company issued 743 shares of common stock for an aggregate purchase price of $38,000 and 22 shares of Series B Preferred Stock for an aggregate purchase price of $37,000 to Eligible Participants under the Plan. No options were granted during the year ended June 30, 2003 and no options have been exercised under the plan as of June 30, ~~2002~~ 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information with respect to (i) the beneficial ownership of the common stock of the Company by each person or entity who owns five percent or more thereof and (ii) the beneficial ownership of each class of equity securities of the Company by each director of the Company who is a shareholder, the Chief Executive Officer of the Company and the other executive officers named in the “Summary Compensation Table” above who are shareholders, and all directors and officers of the Company as a group. The table also sets forth certain information with respect to the ownership of the Senior Exchangeable Preferred stock, Series A Preferred stock and Series B Preferred stock of the Company by BRS, the Foundation and Penhall. Unless otherwise specified, all shares are directly held. Except as otherwise noted below, the address of the following beneficial owners is 1801 Penhall Way, Anaheim, CA 92803.

5352

Company as a group. The table also sets forth certain information with respect to the ownership of the Senior Exchangeable Preferred stock, Series A Preferred stock and Series B Preferred stock of the Company by BRS, the Foundation and Penhall. Unless otherwise specified, all shares are directly held. Except as otherwise noted below, the address of the following beneficial owners is 1801 Penhall Way, Anaheim, CA 92803

NUMBER AND PERCENT OF SHARES

SENIOR

SERIES A

SERIES B

COMMON

EXCHANGEABLE

PREFERRED

NAME OF BENEFICIAL OWNER

STOCK (1)

PREFERRED STOCK

STOCK

Bruckmann, Rosser, Sherrill & Co., L.P. (2)
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830

582,312/59.02

—

9,333/49.65

The National Christian Charitable Foundation Inc.

—

10,000/100.0

—

John T. Sawyer

110,309/11.18

—

C. George Bush

41,168/ 4.17

—

896/4.77

Bruce F. Varney

36,554/3.71

—

755/4.02

Bruce C. Bruckmann (3)

624,722/63.32

—

10,428 / 100.0

10,016/53.28

Harold O. Rosser II (3)

624,722/63.32

—

10,428 / 100.0

10,016/53.28

All directors and officers as a group (9 persons)

838,560.6/85.00

—

10,428 / 100.0

14,836/78.92

NUMBER AND PERCENT OF SHARES

COMMON

SENIOR EXCHANGEABLE

SERIES A

SERIES B

NAME OF BENEFICIAL OWNER

STOCK (1)

PREFERRED STOCK

Bruckmann, Rosser, Sherrill & Co., L.P (2)

582,312/59.04

—

9,717/93.18

9,333/40.95

Two Greenwich Plaza Suite 100 Greenwich, CT 06830

The National Christian Charitable Foundation Inc.

—

10,000/100.0

—

Penhall Rental Corp. (Penhall)

—

4,000/17.55

John T. Sawyer

110,113/11.16

—

2,465/10.82

C. George Bush

41,168/4.17

—

896.21/3.93

Bruce F. Varney

36,554/3.71

—

755/3.31

Bruce C. Bruckmann (3)

624,915/63.36

—

10,428/100.0

10,016/43.95

Harold O. Rosser II (3)

624,915/63.36

—

10,428/100.0

10,016/43.95

All directors and officers as a group (9 persons)

838,559/85.05

—

10,428/100.0

14,827/65.07

(1)		The Company has granted and expects to grant options to acquire Common stock to certain employees to be designated. The shares of Common stock issuable upon the exercise of such options would equal, in the aggregate, up to an additional 5.0% of the Common stock on a fully-diluted basis. The table does not include any such shares.

(2)		BRS is a limited partnership, the sole general partner of which is BRS Partners, Limited Partnership (“BRS Partners”) and the manager of which is the Sponsor. The sole general partner of BRS Partners is BRSE Associates, Inc. (“BRSE Associates”). Bruce C. Bruckmann, Harold O. Rosser II, Stephen C. Sherrill and Stephen F. Edwards are the only stockholders of the Sponsor and BRSE Associates and may be deemed to share beneficial ownership of the shares shown as beneficially owned by BRS. Such individuals disclaim beneficial ownership of any such shares.

(3)		Includes shares of Common stock, Series A Preferred stock and Series B Preferred stock, which are owned by BRS and certain other entities and individuals affiliated with BRS. Although Messrs. Bruckmann and Rosser may be deemed to share beneficial ownership of such shares, such individuals disclaim beneficial ownership thereof. See Note 2 above.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN FEES PAYABLE TO BRS; BRS MANAGEMENT AGREEMENT

Upon consummation of the Transactions, the Company paid the Sponsor a closing fee of $2.0 million (the “Closing Fee”). In addition, the Company entered into a management services agreement (the “Management Agreement”) with the Sponsor pursuant to which the Sponsor will be paid $300,000 per year for certain management, business and organizational strategy, and merchant and investment banking services rendered to the Company. The Closing Fee and the fees payable pursuant to the Management Agreement were negotiated on an arm’s-length basis by representatives of the Sponsor and the Company. The amount of the annual management fee may be increased under certain circumstances based upon performance or other criteria to be established by the Board of Directors of the Company.

54ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 does not apply to the Company until it files its Annual Report of Form 10-K for the year ended June 30, 2004.

PART IV

ITEM 1415. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) LIST OF FINANCIAL STATEMENTS.

The following Consolidated Financial Statements of the Company and the Report of Independent Auditors set forth on pages 17 18 through 4849 are incorporated by reference into this item 14 of Form 10-K by item 8 hereof:

• Independent Auditors’ Report • Consolidated Balance Sheets as of June 30, ~~2001~~2002 and ~~2002~~2003. • Consolidated Statements of Operations for the Years Ended June 30, ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003. • Consolidated Statements of Stockholders’ Deficit for the years ended June 30, ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003. • Consolidated Statements of Cash Flows for the Years Ended June 30, ~~2000~~2001, ~~2001~~2002 and ~~2002~~2003 • Notes to Consolidated Financial Statements.

(a)(2) FINANCIAL STATEMENT SCHEDULE.

No financial statement schedules have been filed herewith since they are either not required, are not applicable, or the required information is shown in the consolidated financial statements or related notes.

(a)(3) EXHIBITS.

EXHIBIT NO.		DESCRIPTION
2		Agreement and Plan of Merger, dated as of June 30, 1998 (as amended pursuant to letter agreements executed in connection therewith), by and among Penhall International, Inc., the stockholders of Penhall International, Inc., Phoenix Concrete Cutting, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. and Penhall Acquisition Corp. (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
3.1		Amended and Restated Articles of Incorporation of the Company (formerly known as Phoenix Concrete Cutting, Inc.) (incorporated herein by this reference to Exhibit 3.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.2		Bylaws of the Company (incorporated herein by this reference to Exhibit 3.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.3		Restated Articles of Incorporation of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.4		Bylaws of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.5		Articles of Incorporation of Penhall Company (incorporated herein by this reference to Exhibit 3.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.6		Bylaws of Penhall Company (incorporated herein by this reference to Exhibit 3.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.1		Indenture dated as of August 1, 1998, between Penhall Acquisition Corp. and United States Trust Company of New York, as Trustee (incorporated herein by this reference to Exhibit 4.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.2		First Supplemental Indenture dated as of August 4, 1998, by and among the Company, Penhall Rental Corp., Penhall Company and United States Trust Company of New York (incorporated herein by this reference to Exhibit 4.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.3		Assumption Agreement dated as of August 4, 1998 among the Company, Penhall Rental Corp. and Penhall Company (incorporated herein by this reference to Exhibit 4.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.4		Registration Rights Agreement dated as of August 4, 1998, by and among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation (incorporated herein by this reference to Exhibit 4.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.5		Form of the Company’s 12% Senior Notes due 2006 (included in Exhibit 4.1) (incorporated herein by this reference to Exhibit 4.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.7		Securities Holders Agreement dated August 4, 1998, by and among the Company, Bruckmann, Rosser, Sherrill & Co., L.P. and the Management Stockholders named therein (incorporated herein by this reference to Exhibit 4.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
5		Opinion of Dechert Price & Rhoads (incorporated herein by this reference to Exhibit 5 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
10.1		Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006 (incorporated herein by this reference to Exhibit 10.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.2		Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated herein by this reference to Exhibit 10.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.3		Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush (incorporated herein by this reference to Exhibit 10.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.4		Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney (incorporated herein by this reference to Exhibit 10.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.5		Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell (incorporated herein by this reference to Exhibit 10.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.6		Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs (incorporated herein by this reference to Exhibit 10.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.7		Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez (incorporated herein by this reference to Exhibit 10.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.8		Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee (incorporated herein by this reference to Exhibit 10.8 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.9		Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (incorporated herein by this reference to Exhibit 10.9 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.10		Form of Penhall International Corp. 1998 Stock Option Plan (incorporated herein by this reference to Exhibit 10.10 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)

EXHIBIT NO.		DESCRIPTION
4.2		First Supplemental Indenture dated as of August 4, 1998, by and among the Company, Penhall Rental Corp., Penhall Company and United States Trust Company of New York (incorporated herein by this reference to Exhibit 4.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.3		Assumption Agreement dated as of August 4, 1998 among the Company, Penhall Rental Corp. and Penhall Company (incorporated herein by this reference to Exhibit 4.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.4		Registration Rights Agreement dated as of August 4, 1998, by and among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation (incorporated herein by this reference to Exhibit 4.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.5		Form of the Company’s 12% Senior Notes due 2006 (included in Exhibit 4.1) (incorporated herein by this reference to Exhibit 4.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.7		Securities Holders Agreement dated August 4, 1998, by and among the Company, Bruckmann, Rosser, Sherrill & Co., L.P. and the Management Stockholders named therein (incorporated herein by this reference to Exhibit 4.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
5		Opinion of Dechert Price & Rhoads (incorporated herein by this reference to Exhibit 5 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
10.1		Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006 (incorporated herein by this reference to Exhibit 10.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.2		Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated herein by this reference to Exhibit 10.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.3		Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush (incorporated herein by this reference to Exhibit 10.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.4		Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney (incorporated herein by this reference to Exhibit 10.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.5		Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell (incorporated herein by this reference to Exhibit 10.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.6		Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs (incorporated herein by this reference to Exhibit 10.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.7		Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez (incorporated herein by this reference to Exhibit 10.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.8		Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee (incorporated herein by this reference to Exhibit 10.8 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.9		Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (incorporated herein by this reference to Exhibit 10.9 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.10		Form of Penhall International Corp. 1998 Stock Option Plan (incorporated herein by this reference to Exhibit 10.10 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.11		Credit Agreement dated August 4, 1998, by and among the Company, Penhall Acquisition Corp., Bankers Trust Company, as administrative agent, Credit Suisse First Boston, as syndication agent, and various lending institutions named therein (incorporated herein by this reference to Exhibit 4.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.12		Amendment #1 to Credit Agreement dated November 10, 1999* (filed as exhibit 10.12 to the FY2002 Form 10-K)
10.13		Amendment #2 to Credit Agreement dated May 8, 2000 (filed as exhibit 10.13 to the FY2002 Form 10-K)
10.14		Amendment #3 to Credit Agreement dated February 15, 2002 (filed as exhibit 10.14 to the FY2002 Form 10-K)
10.15		Amendment #4 to Credit Agreement dated July 19, 2002 (filed as exhibit 10.15 to the FY2002 Form 10-K)
10.20		Note and Security Agreement between Banc of America Leasing & Capital and Penhall Company for Agreement Number 02973-00701 (filed as exhibit 10.20 to the FY2002 Form 10-K)
10.21		Guarantee related to Banc of America Note and Security Agreement Number 02973-00701 (filed as exhibit 10.21 to the FY2002 Form 10-K)
10.22		Amendment #1 to Banc of America Note and Security Agreement (filed as exhibit 10.22 to the FY2002 Form 10-K)
10.40		Credit Agreement dates as of May 22, 2003 by and among Penhall International corp., Penhall Company, Penhall Leasing, L.L.C., Bob Mack Co., Inc., Penhall Investments., and General Electric Capital Corporation, as Agent (filed as exhibit 10.40 to the May 30, 2003 Form 8-K)
10.41		Security Agreement dates as of May 22, 2003 by and among Penhall International corp., Penhall Company, Penhall Leasing, L.L.C., Bob Mack Co., Inc., Penhall Investments., and General Electric Capital Corporation, as Agent (filed as exhibit 10.40 to the May 30, 2003 Form 8-K)
12		Statement of Ratio of Earnings to Fixed Charges *
21		Subsidiaries of the Company (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.1		Consent of Dechert Price & Rhoads (included in Exhibit 5) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.2		Consent of KPMG Peat Marwick LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.3		Consent of Moss Adams LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.4		Consent of John A. Knutson & Co. PLLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
24		Power of Attorney (included on signature page) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
25		Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)*
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)*
32		Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, 18 U.S.C. § 1350*
99.1		Form of Letter of Transmittal (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
99.2		Form of Notice of Guaranteed Delivery (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
*		Filed herewith.

(b) REPORTS ON FORM 8-K

A Form 8-K was filed on May 30, 2003 announcing the Company’s new credit agreement.

EXHIBIT NO.		DESCRIPTION
10.13		Amendment #2 to Credit Agreement dated May 8, 2000*
10.14		Amendment #3 to Credit Agreement dated February 15, 2002*
10.15		Amendment #4 to Credit Agreement dated July 19, 2002*
10.20		Note and Security Agreement between Banc of America Leasing & Capital and Penhall Company for Agreement Number 02973-00701*
10.21		Guarantee related to Banc of America Note and Security Agreement Number 02973-00701*
10.22		Amendment #1 to Banc of America Note and Security Agreement*
12		Statement of Ratio of Earnings to Fixed Charges *
21		Subsidiaries of the Company (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.1		Consent of Dechert Price & Rhoads (included in Exhibit 5) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.2		Consent of KPMG Peat Marwick LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.3		Consent of Moss Adams LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.4		Consent of John A. Knutson & Co. PLLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
24		Power of Attorney (included on signature page) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
25		Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
99.1		Form of Letter of Transmittal (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
99.2		Form of Notice of Guaranteed Delivery (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)

* Filed herewith.

(b) REPORTS ON FORM 8-K

None

SIGNATURES

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


		PENHALL INTERNATIONAL CORP.

		By:		/s/ JOHN T. SAWYER

				John T. Sawyer
				Chairman of the Board, President
				and Chief Executive Officer

September 2629, ~~2002~~2003

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 2629, ~~2002~~2003.

SIGNATURE TITLE /s/ JOHN T. SAWYER ~~John T. Sawyer~~ Chairman of the Board, President and Chief John T. Sawyer Executive Officer (Principal Executive Officer) /s/ JEFFREY E. PLATT ~~Jeffrey E. Platt~~ Vice President-Finance and Chief Financial Jeffrey E. Platt Officer (Principal Accounting Officer)

5857

CERTIFICATIONS

I, John T. Sawyer, certify that:

1. I have reviewed this annual report on Form 10-K of Penhall International Corp; 2. Based on my knowledge, the annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report.

/s/ JOHN T. SAWYER John T. Sawyer Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

I, Jeffrey E. Platt, certify that:

/s/ JEFFREY E. PLATT Jeffrey E. Platt Vice President-Finance and Chief Financial Jeffrey E. Platt Officer (Principal Accounting Officer)

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

The registrant has not sent the following to security holders: (i) any annual report to security holders covering the registrant’s last fiscal year; or (ii) any proxy statements, forms of proxy or other proxy soliciting material wither respect to any annual or other meeting of security holders.

EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION
2		Agreement and Plan of Merger, dated as of June 30, 1998 (as amended pursuant to letter agreements executed in connection therewith), by and among Penhall International, Inc., the stockholders of Penhall International, Inc., Phoenix Concrete Cutting, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. and Penhall Acquisition Corp. (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
3.1		Amended and Restated Articles of Incorporation of the Company (formerly known as Phoenix Concrete Cutting, Inc.) (incorporated herein by this reference to Exhibit 3.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.2		Bylaws of the Company (incorporated herein by this reference to Exhibit 3.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.3		Restated Articles of Incorporation of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.4		Bylaws of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.5		Articles of Incorporation of Penhall Company (incorporated herein by this reference to Exhibit 3.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.6		Bylaws of Penhall Company (incorporated herein by this reference to Exhibit 3.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.1		Indenture dated as of August 1, 1998, between Penhall Acquisition Corp. and United States Trust Company of New York, as Trustee (incorporated herein by this reference to Exhibit 4.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.2		First Supplemental Indenture dated as of August 4, 1998, by and among the Company, Penhall Rental Corp., Penhall Company and United States Trust Company of New York (incorporated herein by this reference to Exhibit 4.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.3		Assumption Agreement dated as of August 4, 1998 among the Company, Penhall Rental Corp. and Penhall Company (incorporated herein by this reference to Exhibit 4.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.4		Registration Rights Agreement dated as of August 4, 1998, by and among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation (incorporated herein by this reference to Exhibit 4.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.5		Form of the Company’s 12% Senior Notes due 2006 (included in Exhibit 4.1) (incorporated herein by this reference to Exhibit 4.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.7		Securities Holders Agreement dated August 4, 1998, by and among the Company, Bruckmann, Rosser, Sherrill & Co., L.P. and the Management Stockholders named therein (incorporated herein by this reference to Exhibit 4.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
5		Opinion of Dechert Price & Rhoads (incorporated herein by this reference to Exhibit 5 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
10.1		Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006 (incorporated herein by this reference to Exhibit 10.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.2		Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated herein by this reference to Exhibit 10.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.3		Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush (incorporated herein by this reference to Exhibit 10.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.4		Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney (incorporated herein by this reference to Exhibit 10.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.5		Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell (incorporated herein by this reference to Exhibit 10.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.6		Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs (incorporated herein by this reference to Exhibit 10.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.7		Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez (incorporated herein by this reference to Exhibit 10.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.8		Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee (incorporated herein by this reference to Exhibit 10.8 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.9		Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (incorporated herein by this reference to Exhibit 10.9 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)

6058

EXHIBIT NO.		DESCRIPTION
10.1		Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006 (incorporated herein by this reference to Exhibit 10.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.2		Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated herein by this reference to Exhibit 10.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.3		Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush (incorporated herein by this reference to Exhibit 10.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.4		Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney (incorporated herein by this reference to Exhibit 10.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.5		Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell (incorporated herein by this reference to Exhibit 10.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.6		Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs (incorporated herein by this reference to Exhibit 10.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.7		Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez (incorporated herein by this reference to Exhibit 10.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.8		Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee (incorporated herein by this reference to Exhibit 10.8 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.9		Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (incorporated herein by this reference to Exhibit 10.9 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.10		Form of Penhall International Corp. 1998 Stock Option Plan (incorporated herein by this reference to Exhibit 10.10 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.11		Credit Agreement dated August 4, 1998, by and among the Company, Penhall Acquisition Corp., Bankers Trust Company, as administrative agent, Credit Suisse First Boston, as syndication agent, and various lending institutions named therein (incorporated herein by this reference to Exhibit 4.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.12		Amendment #1 to Credit Agreement dated November 10, 1999* (filed as exhibit 10.12 to the FY2002 Form 10-K)
10.13		Amendment #2 to Credit Agreement dated May 8, 2000* (filed as exhibit 10.13 to the FY2002 Form 10-K)
10.14		Amendment #3 to Credit Agreement dated February 15, 2002* (filed as exhibit 10.14 to the FY2002 Form 10-K)
10.15		Amendment #4 to Credit Agreement dated July 19, 2002* (filed as exhibit 10.15 to the FY2002 Form 10-K)
10.20		Note and Security Agreement between Banc of America Leasing & Capital and Penhall Company for Agreement Number 02973-00701* (filed as exhibit 10.20 to the FY2002 Form 10-K)
10.21		Guarantee related to Banc of America Note and Security Agreement Number 02973-00701* (filed as exhibit 10.21 to the FY2002 Form 10-K)
10.22		Amendment #1 to Banc of America Note and Security Agreement* (filed as exhibit 10.22 to the FY2002 Form 10-K)
10.40		Credit Agreement dates as of May 22, 2003 by and among Penhall International corp., Penhall Company, Penhall Leasing, L.L.C., Bob Mack Co., Inc., Penhall Investments., and General Electric Capital Corporation, as Agent (filed as exhibit 10.40 to the May 30, 2003 Form 8-K)
10.41		Security Agreement dates as of May 22, 2003 by and among Penhall International corp., Penhall Company, Penhall Leasing, L.L.C., Bob Mack Co., Inc., Penhall Investments., and General Electric Capital Corporation, as Agent (filed as exhibit 10.40 to the May 30, 2003 Form 8-K)
12		Statement of Ratio of Earnings to Fixed Charges *
21		Subsidiaries of the Company (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.1		Consent of Dechert Price & Rhoads (included in Exhibit 5) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.2		Consent of KPMG Peat Marwick LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.3		Consent of Moss Adams LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.4		Consent of John A. Knutson & Co. PLLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
24		Power of Attorney (included on signature page) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
25		Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)*
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)*
32		Certification of Chief Executive Officer and Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, 18 U.S.C. § 1350 *
99.1		Form of Letter of Transmittal (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
99.2		Form of Notice of Guaranteed Delivery (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
*		Filed herewith.

6159

EXHIBIT NO.		DESCRIPTION
23.4		Consent of John A. Knutson & Co. PLLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
24		Power of Attorney (included on signature page) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
25		Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
99.1		Form of Letter of Transmittal (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
99.2		Form of Notice of Guaranteed Delivery (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)

* Filed herewith.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · PENHALL INTERNATIONAL CORP