10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

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

Commission File Number. 333-64745

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

ARIZONA	86-0634394
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

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

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

     Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [X]   No  [   ]

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

CLASS AND TITLE OF	SHARES OUTSTANDING AS OF
CAPITAL STOCK	NOVEMBER 14, 2002
Common Stock, $.01 Par Value	986,549

TABLE OF CONTENTS

	ITEM 1. FINANCIAL INFORMATION
		CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
	Items 1-5 are not applicable
	Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.30

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.

INDEX

		Page No.
Part I  -  Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2002 and September 30, 2002	3
	Condensed Consolidated Statements of Operations for the three month periods ended September 30, 2001 and 2002	4
	Condensed Consolidated Statements of Cash Flows for the three month periods ended September 30, 2001 and 2002	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	19
Part II  -  Other Information
Items 1-5 are not applicable
Item 6.	Exhibits and Reports on Form 8-K	19
	(a)  Exhibits
	(b)  Reports on Form 8-K

Page 2

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

ITEM 1.  FINANCIAL INFORMATION

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	JUNE 30,			SEPTEMBER 30,
	2002			2002
ASSETS
Current assets:
Cash and cash equivalents	$	6,205,000		$	2,084,000
Receivables:
Contract and trade receivables		31,361,000			35,469,000
Contract retentions due upon completion and acceptance of work		4,756,000			4,891,000
Income taxes		1,990,000			368,000
		38,107,000			40,728,000
Less allowance for doubtful receivables		1,421,000			1,410,000
Net receivables		36,686,000			39,318,000
Costs and estimated earnings in excess of billings on uncompleted contracts		2,514,000			2,896,000
Deferred tax assets		3,133,000			3,133,000
Inventories		1,895,000			2,113,000
Prepaid expenses and other current assets		2,375,000			2,359,000
Total current assets		52,808,000			51,903,000
Property, plant and equipment, at cost:
Land		5,004,000			5,004,000
Buildings and leasehold improvements		8,822,000			8,683,000
Construction and other equipment		121,890,000			122,464,000
		135,716,000			136,151,000
Less accumulated depreciation and amortization		69,449,000			72,247,000
Net property, plant and equipment		66,267,000			63,904,000
Goodwill, net of accumulated amortization		9,053,000			9,053,000
Debt issuance costs, net of accumulated amortization		3,177,000			3,056,000
Other assets, net		1,610,000			1,530,000
	$	132,915,000		$	129,446,000
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current installments of long-term debt	$	9,217,000		$	9,036,000
Trade accounts payable		9,726,000			10,039,000
Accrued liabilities		17,783,000			14,176,000
Billings in excess of costs and estimated earnings on uncompleted contracts		680,000			1,198,000
Total current liabilities		37,406,000			34,449,000
Long-term debt, excluding current installments		19,753,000			19,203,000
Senior notes		100,000,000			100,000,000
Deferred tax liabilities		9,339,000			9,339,000
Senior Exchangeable Preferred Stock, redemption value $15,479,000 at September 30, 2002. Authorized, issued and outstanding 10,000 shares at June 30, 2002 and September 30, 2002		15,075,000			15,479,000
Series A Preferred Stock, redemption value $17,908,000 at September 30, 2002. Authorized 25,000 shares; issued and outstanding 10,428 shares at June 30, 2002 and September 30, 2002		17,332,000			17,908,000
Stockholders’ deficit:
Series B Preferred Stock, par value $.01 per share Authorized 50,000 shares; issued and outstanding 18,791 at June 30, 2002 and 18,782 at September 30, 2002		31,200,000			32,225,000
Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,021,127 at June 30, 2002 and September 30, 2002,		10,000			10,000
Additional paid-in capital		2,044,000			2,044,000
Treasury stock, at cost, 34,796 common shares at June 30, 2002 and 35,112 at September 30, 2002		(317,000	)		(328,000	)
Accumulated deficit		(98,927,000	)		(100,883,000	)
Total stockholders’ deficit		(65,990,000	)		(66,932,000	)
Commitments and contingencies
	$	132,915,000		$	129,446,000

See accompanying notes to condensed consolidated financial statements.

Page 3

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	THREE MONTH PERIODS ENDED SEPTEMBER 30,
	2001			2002
Revenues	$	49,157,000		$	46,576,000
Cost of revenues		34,553,000			36,095,000
Gross profit		14,604,000			10,481,000
General and administrative expenses		8,054,000			7,278,000
Other operating income		282,000			492,000
Earnings before interest expense and income taxes		6,832,000			3,695,000
Interest expense		3,728,000			3,598,000
Earnings before income taxes		3,104,000			97,000
Income tax expense		1,273,000			35,000
Net earnings		1,831,000			62,000
Accretion of preferred stock to redemption value		(872,000	)		(980,000	)
Accrual of cumulative dividends on preferred stock		(908,000	)		(1,038,000	)
Net income (loss) available to common stockholders	$	51,000		$	(1,956,000	)
Earnings (loss) per share:
Basic and diluted	$	.05		$	(1.98	)
Weighted average number of shares outstanding:
Basic and diluted		983,307			986,156

See accompanying notes to condensed consolidated financial statements.

Page 4

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	THREE MONTH PERIODS
	ENDED SEPTEMBER 30,
	2001			2002
Cash flows from operating activities:
Net earnings	$	1,831,000		$	62,000
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		4,190,000			4,343,000
Amortization of debt issuance costs		221,000			234,000
Provision for doubtful accounts		(76,000	)		126,000
Gain on sale of assets, net		(45,000	)		(60,000	)
Changes in operating assets and liabilities:
Receivables		(2,215,000	)		(2,758,000	)
Inventories, prepaid expenses and other assets		228,000			(202,000	)
Costs and estimated earnings in excess of billings on uncompleted contracts		880,000			(382,000	)
Trade accounts payable, accrued liabilities and income taxes payable		(2,468,000	)		(4,196,000	)
Billings in excess of costs and estimated earnings on uncompleted contracts		(723,000	)		518,000
Net cash provided by (used in) operating activities		1,823,000			(2,315,000	)
Cash flows from investing activities:
Proceeds from sale of assets		140,000			135,000
Capital expenditures		(2,905,000	)		(1,975,000	)
Net cash used in investing activities		(2,765,000	)		(1,840,000	)
Cash flows from financing activities:
Borrowings under long-term debt		24,776,000			18,830,000
Repayments of long-term debt		(23,150,000	)		(19,561,000	)
Debt issuance costs		—			(113,000	)
Book overdraft		399,000			902,000
Repurchase of common stock and Series B preferred Stock		—			(24,000	)
Net cash provided by financing activities		2,025,000			34,000
Net increase (decrease) in cash and cash equivalents		1,083,000			(4,121,000	)
Cash and cash equivalents at beginning of period		1,030,000			6,205,000
Cash and cash equivalents at end of period	$	2,113,000		$	2,084,000
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	19,000		$	7,000
Interest	$	6,420,000		$	6,280,000
Supplemental disclosure of noncash investing and financing activities:
Accretion of preferred stock to redemption value	$	872,000		$	980,000
Accrual of cumulative dividends on preferred stock	$	908,000		$	1,038,000

See accompanying notes to condensed consolidated financial statements.

Page 5

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002
(UNAUDITED)

(1) BASIS OF PRESENTATION

     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. Penhall Rental Corp. was dissolved and merged into Penhall International Corp. effective July 1, 2002.

     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 the Third-Party did not change the accounting basis of the assets and liabilities in PII’s separate stand-alone financial statements.

     The accompanying unaudited condensed consolidated financial statements of Penhall International Corp. (“Penhall” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

     Results of operations for the three month period ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending June 30, 2003. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Form 10-K for the year ended June 30, 2002.

EARNINGS (LOSS) PER SHARE

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The preparation of consolidated financial statements requires the Company to make estimates and judgments that effect 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 affects its more significant judgments and estimates used in the preparation of its consolidated financial statements:

Page 6

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002
(UNAUDITED)

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 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 Assts and Goodwill

     We assess the impairment of identifiable intangibles, long-lived assts and related goodwill 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

New Accounting Pronouncements

     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 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 is still analyzing any possible impairment of goodwill. The Company will complete step 1 under FASB No. 142 by December 31, 2002. There were no adjustments to identifiable intangible assets’ useful lives or recorded balances as a result of the adoption of SFAS No.142. The following is a reconciliation of net income and earnings per share between the amounts reported in the first quarter of 2001 and the adjusted amounts reflecting these new accounting rules:

	Three Months Ended September 30,
	2001		2002
Net income (loss):
Reported net income (loss) available to common stockholders	$	51,000	$	(1,956,000	)
Add back: Goodwill amortization (net of income taxes)		90,000		—
Adjusted net income (loss) available to common stockholders	$	141,000	$	(1,956,000	)
Basic and diluted earnings (loss) per share:
Reported basic earnings (loss) per share	$	0.05	$	(1.98	)
Add back: Goodwill amortization (net of income taxes)		0.09		—
Adjusted basic earnings (loss) per share	$	0.14	$	(1.98	)

Page 7

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002
(UNAUDITED)

On August 16, 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. The statement requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. Over time, accretion of the liability is recognized each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company has adopted this statement effective July 1, 2002. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial position or results from operations.

      In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” which supercedes SFAS No. 121 and certain sections of APB Opinion No. 30. SFAS No. 144 classifies long-lived assets as either (1) to 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 probability-weighted cash flow estimation approach to deal with situations in which alternative 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 beginning July 1, 2002. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

     In April 2002, the Financial Accounting Standards Board, (“FASB”), issued Statement of Financial Accounting Standards No. 145, “Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which among other things provides guidance in reporting gains and losses from extinguishments of debt and accounting for leases. The Company will adopt this statement in fiscal year 2004 and is currently reviewing this statement to determine its impact. However, the Company does not expect the adoption of this standard to have a material impact on its financial position or its results of operations.

      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.

(2) COMMITMENTS AND CONTINGENCIES

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 opinion, based in part upon the advise 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.

Page 8

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002
(UNAUDITED)

(3) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     The following consolidating financial information is presented for purposes of complying with the reporting requirements of the Guarantor Subsidiaries, (Penhall Rental Corp. and Penhall Company). Effective July 1, 2002, Penhall Rental was merged into Penhall International Corp. Accordingly, consolidating financial information as of and for the three months ended September 30, 2002 does not include Penhall Rental Corp. 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, 2002 and September 30, 2002 and for the three month periods ended September 30, 2001 and 2002 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.

Page 9

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SEPTEMBER 30, 2002
(UNAUDITED)

CONDENSED CONSOLIDATING BALANCE SHEET

	JUNE 30, 2002
		PENHALL INTERNATIONAL CORP.			PENHALL RENTAL CORP.			PENHALL COMPANY		ELIMINATIONS			CONSOLIDATED
Assets
Current assets:
Receivables, net	$	1,990,000		$	—		$	34,696,000	$	—		$	36,686,000
Inventories		—			—			1,895,000		—			1,895,000
Costs and estimated earnings in excess of billings on uncompleted contracts		—			—			2,514,000		—			2,514,000
Intercompany assets		28,303,000			—			—		(28,303,000	)		—
Other current assets		242,000			6,143,000			5,328,000		—			11,713,000
Total current assets		30,535,000			6,143,000			44,433,000		(28,303,000	)		52,808,000
Net property, plant and equipment		—			9,078,000			57,189,000		—			66,267,000
Other assets, net		3,177,000			—			10,663,000		—			13,840,000
Investment in parent		—			4,001,000			—		(4,001,000	)		—
Investment in subsidiaries		63,239,000			—			—		(63,239,000	)		—
	$	96,951,000		$	19,222,000		$	112,285,000	$	(95,543,000	)	$	132,915,000
Liabilities and Stockholders’
Equity (Deficit):
Current installments of long-term debt	$	6,061,000		$	3,000		$	3,153,000	$	—		$	9,217,000
Trade accounts payable		4,000			—			9,722,000		—			9,726,000
Accrued liabilities		5,178,000			2,000			12,603,000		—			17,783,000
Billings in excess of costs and estimated earnings on uncompleted contracts		—			—			680,000		—			680,000
Intercompany liabilities		—			26,245,000			2,058,000		(28,303,000	)		—
Total current liabilities		11,243,000			26,250,000			28,216,000		(28,303,000	)		37,406,000
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
Deferred tax liabilities		—			(157,000	)		9,496,000		—			9,339,000
Senior Exchangeable Preferred stock		15,075,000			—			—		—			15,075,000
Series A Preferred stock		17,332,000			—			—		—			17,332,000
Stockholders’ equity (deficit)		(61,989,000	)		(7,054,000	)		70,293,000		(67,240,000	)		(65,990,000	)
	$	96,951,000		$	19,222,000		$	112,285,000	$	(95,543,000	)	$	132,915,000

Page 10

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2002
(UNAUDITED)

CONDENSED CONSOLIDATING BALANCE SHEET

	SEPTEMBER 30, 2002
	PENHALL INTERNATIONAL CORP.			PENHALL COMPANY		ELIMINATIONS			CONSOLIDATED
Assets
Current assets:
Receivables, net	$	368,000		$	38,950,000	$	—		$	39,318,000
Inventories		—			2,113,000		—			2,113,000
Costs and estimated earnings in excess of billings on uncompleted contracts		—			2,896,000		—			2,896,000
Intercompany assets		3,405,000			—		(3,405,000	)		—
Other current assets		2,409,000			5,167,000		—			7,576,000
Total current assets		6,182,000			49,126,000		(3,405,000	)		51,903,000
Net property, plant and equipment		9,006,000			54,898,000		—			63,904,000
Other assets, net		3,047,000			10,592,000		—			13,639,000
Investment in subsidiaries		70,658,000			—		(70,658,000	)		—
	$	88,893,000		$	114,616,000	$	(74,063,000	)	$	129,446,000
Liabilities and Stockholders’
Equity (Deficit):
Current installments of long-term debt	$	6,018,000		$	3,018,000	$	—		$	9,036,000
Trade accounts payable		4,000			10,035,000		—			10,039,000
Accrued liabilities		2,230,000			11,946,000		—			14,176,000
Billings in excess of costs and estimated earnings on uncompleted contracts		—			1,198,000		—			1,198,000
Intercompany liabilities		—			3,405,000		(3,405,000	)		—
Total current liabilities		8,252,000			29,602,000		(3,405,000	)		34,449,000
Long-term debt, excluding current installments		14,343,000			4,860,000		—			19,203,000
Senior notes		100,000,000			—		—			100,000,000
Deferred tax liabilities		(157,000	)		9,496,000		—			9,339,000
Senior Exchangeable Preferred stock		15,479,000			—		—			15,479,000
Series A Preferred stock		17,908,000			—		—			17,908,000
Stockholders’ equity (deficit)		(66,932,000	)		70,658,000		(70,658,000	)		(66,932,000	)
	$	88,893,000		$	114,616,000	$	(74,063,000	)	$	129,446,000

Page 11

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2002
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	THREE MONTH PERIOD ENDED SEPTEMBER 30, 2001
		PENHALL INTERNATIONAL CORP.			PENHALL RENTAL CORP.		PENHALL COMPANY		ELIMINATIONS			CONSOLIDATED
Revenues	$	—		$	3,456,000	$	50,988,000	$	(5,287,000	)	$	49,157,000
Cost of revenues		—			—		34,553,000		—			34,553,000
Gross profit		—			3,456,000		16,435,000		(5,287,000	)		14,604,000
General and administrative expenses		100,000			93,000		10,072,000		(2,211,000	)		8,054,000
Royalties		—			—		3,076,000		(3,076,000	)		—
Other operating income, net		—			—		282,000		—			282,000
Equity earnings in subsidiaries		4,069,000			—		—		(4,069,000	)		—
Earnings before interest expense and income taxes		3,969,000			3,363,000		3,569,000		(4,069,000	)		6,832,000
Interest expense		3,693,000			5,000		30,000		—			3,728,000
Earnings before income taxes		276,000			3,358,000		3,539,000		(4,069,000	)		3,104,000
Income tax expense (benefit)		(1,555,000	)		1,377,000		1,451,000		—			1,273,000
Net earnings	$	1,831,000		$	1,981,000	$	2,088,000	$	(4,069,000	)	$	1,831,000

Page 12

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2002
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002
	PENHALL INTERNATIONAL CORP.			PENHALL COMPANY		ELIMINATIONS			CONSOLIDATED
Revenues	$	3,193,000		$	46,576,000	$	(3,193,000	)	$	46,576,000
Cost of revenues		—			36,095,000		—			36,095,000
Gross profit		3,193,000			10,481,000		(3,193,000	)		10,481,000
General and administrative expenses		191,000			7,480,000		(393,000	)		7,278,000
Royalties		—			2,800,000		(2,800,000	)		—
Other operating income, net		8,000			484,000		—			492,000
Equity earnings in subsidiaries		365,000			—		(365,000	)		—
Earnings before interest expense and income taxes		3,375,000			685,000		(365,000	)		3,695,000
Interest expense		3,521,000			77,000		—			3,598,000
Earnings (loss) before income taxes		(146,000	)		608,000		(365,000	)		97,000
Income tax expense (benefit)		(208,000	)		243,000		—			35,000
Net earnings	$	62,000		$	365,000	$	(365,000	)	$	62,000

Page 13

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2002
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	THREE MONTH PERIOD ENDED SEPTEMBER 30, 2001
		PENHALL INTERNATIONAL CORP.			PENHALL RENTAL CORP.			PENHALL COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities	$	330,000		$	2,067,000		$	3,495,000		$	(4,069,000	)	$	1,823,000
Cash flows from investing activities:
Proceeds from sale of assets		—			—			140,000			—			140,000
Capital expenditures		—			—			(2,905,000	)		—			(2,905,000	)
Net cash used in investing activities		—			—			(2,765,000	)		—			(2,765,000	)
Cash flows from financing activities:
Due to (from) affiliates		(2,331,000	)		(989,000	)		(749,000	)		4,069,000			—
Borrowings under long-term debt		24,750,000			—			26,000			—			24,776,000
Repayments of long-term debt		(22,748,000	)		—			(402,000	)		—			(23,150,000	)
Book overdraft		—			—			399,000			—			399,000
Net cash provided by (used in) financing activities		(329,000	)		(989,000	)		(726,000	)		4,069,000			2,025,000
Net increase in cash and cash equivalents		1,000			1,078,000			4,000			—			1,083,000
Cash and cash equivalents at beginning of period		—			921,000			109,000			—			1,030,000
Cash and cash equivalents at end of period	$	1,000		$	1,999,000		$	113,000		$	—		$	2,113,000

Page 14

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2002
(UNAUDITED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002
		PENHALL INTERNATIONAL CORP.			PENHALL RENTAL CORP.			PENHALL COMPANY			ELIMINATIONS		CONSOLIDATED
Net cash provided by (used in) operating activities	$	(1,475,000	)	$	—		$	(840,000	)		—	$	(2,315,000	)
Cash flows from investing activities:
Proceeds from sale of assets		—			—			135,000			—		135,000
Capital expenditures		—			—			(1,975,000	)		—		(1,975,000	)
Cash acquired from Penhall Rental		6,143,000			(6,143,000	)		—			—		—
Net cash used in investing activities		6,143,000			(6,143,000	)		(1,840,000	)		—		(1,840,000	)
Cash flows from financing activities:
Due to (from) affiliates		(1,347,000	)		—			1,347,000			—		—
Borrowings under long-term debt		17,820,000			—			1,010,000			—		18,830,000
Repayments of long-term debt		(18,996,000	)		—			(565,000	)		—		(19,561,000	)
Debt issuance costs		(104,000	)		—			(9,000	)		—		(113,000	)
Book overdraft		—			—			902,000			—		902,000
Repurchase of common stock and Series B preferred stock		(24,000	)		—			—			—		(24,000	)
Net cash provided by (used in) financing activities		(2,651,000	)		—			2,685,000			—		34,000
Net increase (decrease) in cash and cash equivalents		2,017,000			(6,143,000	)		5,000			—		(4,121,000	)
Cash and cash equivalents at beginning of period		—			6,143,000			62,000			—		6,205,000
Cash and cash equivalents at end of period	$	2,017,000		$	—		$	67,000		$	—	$	2,084,000

Page 15

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

ITEM 2. 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 International Corp. (Penhall) should be read in conjunction with the unaudited condensed consolidated financial statements and footnotes thereto included in this quarterly report on Form 10-Q and the Company’s audited consolidated financial statements and footnotes thereto included in the annual report on Form 10-K, filed with the Securities and Exchange Commission.

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.

     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, a 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 complemented by long-term fixed-price contracts. Penhall’s revenues are derived from highway-related projects, building-related projects, airport, residential and other projects. The following table shows the breakdown of the components of revenue for the periods indicated:

	THREE MONTH PERIODS ENDED SEPTEMBER 30,
	2001				2002
			% OF				% OF
	$		TOTAL		$		TOTAL
	(DOLLARS IN THOUSANDS)
Operated Equipment Rental Services	$	35,158	71.5	%	$	34,375	73.8	%
Contract services(1)		13,999	28.5	%		12,201	26.2	%
Total Revenues	$	49,157	100.0	%	$	46,576	100.0	%

(1) Contract services revenues exclude services performed by the operated equipment rental divisions on long-term contracts.

     Revenue growth is influenced by infrastructure change, including new construction, modification and 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.

Page 16

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

RESULTS OF OPERATIONS

     Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

     Revenues. Revenues for the three months ended September 30, 2002 (“Interim 2003”) were $46.6 million, a decrease of $2.6 million or 5.3% from the three months ended September 30, 2001 (“Interim 2002”). The lower revenues in Interim 2003 were primarily a result of a weaker economy, a significant downturn in commercial construction, and increased competition.

     Penhall operated through 38 locations in 17 states at September 30, 2002, compared to 37 locations in 17 states at September 30, 2001. At September 2002, Penhall’s operated rental fleet consisted of 760 units compared to 756 in September 2001, an increase of 0.1%. The net increase in the operated rental fleet is a result of the additional units acquired during the later part of fiscal 2002 as part of the Bob Mack Company and Arizona Curb Cut acquisitions partially offset by the net disposal of units from the existing fleet.

     Gross Profit. Gross profit totaled $10.5 million in Interim 2003, a decrease of $4.1 million or 28.2% from Interim 2002. Gross profit as a percentage of revenues decreased from 29.7% in Interim 2002 to 22.5% in Interim 2003. The decrease in gross profit from Interim 2002 to Interim 2003 is attributable to decreased revenue, increased competition in most of the markets serviced by the Company, and a $0.8 million increase in the cost of insurance during Interim 2003.

     General and Administrative Expenses. General and administrative expenses were $7.3 million in Interim 2003 compared to $8.1 million in Interim 2002, a decrease of $0.8 million or 9.6%. As a percent of revenues, general and administrative expenses were 15.6% in Interim 2003 compared to 16.4% in Interim 2002. The decrease in general and administrative expenses in Interim 2003 compared to Interim 2002 is primarily attributable to the decrease in incentive compensation of $1.1 million partially offset by the additional operating expense of $0.4 million associated with the acquisitions made in the later part of fiscal 2002. Additionally, general and administrative costs do not generally change in proportion to the increases and decreases in revenues as the costs tend to be fixed.

     Interest Expense. Interest expense was comparable for Interim 2003 and Interin 2002 at $3.6 million and $3.7 million respectively.

     Income Tax Expense. The Company recorded an income tax provision of $35,000 or 36.1% of earnings before income taxes in Interim 2003, compared to an income tax provision of $1.3 million or 41.0% of earnings before income taxes in Interim 2002. The decrease as a percentage of earnings before taxes is primarily attributable to tax planning strategies.

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 (entered into in 1998). The New Credit Facility consists of two facilities: (i) a six-year senior secured term loan facility in an aggregate principal amount equal to $20.0 million (the “Term Loan Facility”); and (ii) a six-year revolving credit facility in an aggregate principal amount not to exceed $30.0 million (the “Revolving Credit Facility”). The Company drew $20.0 million of loans under the Term Loan Facility (“Term Loans”) on the closing date of the New Credit Facility in connection with the Recapitalization. The Term Loans amortize on a quarterly basis commencing in September 2000 and are payable in installments under a schedule set forth in the New Credit Facility. Advances made under the Revolving Credit Facility (“Revolving Loans”) are due and payable in full on June 15, 2004. The Term Loans and the Revolving Loans are subject to mandatory prepayments and reductions in the event of certain extraordinary transactions or issuances of debt and equity by the Company or any subsidiary of the Company that guarantees amounts under the New Credit Facility. Such loans are also required to be prepaid with 75% of the Excess Cash Flow (as such term is defined in the New Credit Facility) of the Company or, if the Company’s Leverage Ratio (as such term is defined in the New Credit Facility) is less than 5.25 to 1.0, 50% of such Excess Cash Flow.

SUMMARY CASH FLOW DATA FOR THE THREE MONTHS ENDED SEPTEMBER 30,	2001		2002
Cash and cash equivalents	2,113,000		2,084,000
Net cash provided by (used in):
Operating activities	1,823,000		(2,315,000	)
Investing activities	(2,765,000	)	(1,840,000	)
Financing activities	2,025,000		34,000
Capital expenditures	(2,905,000	)	(1,975,000	)

Page 17

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

     Cash provided by operating activities during Interim 2002 was $1.8 million and cash used by operating activities in Interim 2003 was $2.4 million. Cash provided by operating activities during Interim 2002 is primarily the result of the Company’s net earnings plus depreciation less an increase in receivables and decrease in accounts payable and accrued liabilities. The use of cash in operating activities during Interim 2003 is primarily the result of the Company’s net earnings plus depreciation less an increase in receivables and decrease in accounts payable and accrued liabilities.

     Cash used in investing activities was $2.8 million in Interim 2002 as compared to $1.8 million in Interim 2003. Such cash was primarily used for capital expenditures of $2.9 million in Interim 2002 and $2.0 million in Interim 2003.

     Management estimates that the Company’s annual capital expenditures will be approximately $7.0 million for fiscal 2003, including replacement and maintenance of equipment, purchases of new equipment, and purchases of real property.

     Net cash provided by financing activities in Interim 2002 was $2.0 million as compared to $34,000 in Interim 2003. In Interim 2002 and 2003, the Company’s financing activities are primarily a result of borrowings and repayments of long-term debt.

     Historically, the Company 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 September 30, 2002, the Company and its subsidiaries had approximately $128.2 million of total indebtedness outstanding (including the Notes) and a stockholders’ deficit of approximately $66.9 million. As of September 30, 2002, approximately $13.7 million of additional borrowing was available under the Company’s Credit Facility.

NEW ACCOUNTING PRONOUNCEMENTS

      In April 2002, the Financial Accounting Standards Board, (“FASB”), issued Statement of Financial Accounting Standards No. 145, “Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which among other things provides guidance in reporting gains and losses from extinguishments of debt and accounting for leases. The Company will adopt this statement in fiscal year 2004 and is currently reviewing this statement to determine its impact. However, the Company does not expect the adoption of this standard to have a material impact on its financial position or its results of operations.

      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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

     The Company is exposed to interest rate changes primarily as a result of its notes payable, including Senior Notes, Term Loan and Revolving Loan 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 it’s overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and has the ability to choose interest rates under the Term Loan and Revolving Loan. The Company does not enter into derivative or interest rate transactions for speculative purposes.

     The table below presents the principal amounts of debt, weighted average interest rates, fair values and other items required by the year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes as of September 30, 2002.

	YEARS ENDED JUNE 30,
																						FAIR
	2003			2004			2005			2006			2007			THEREAFTER			TOTAL			VALUE
	(IN THOUSANDS)
Fixed rate debt	$	2,236		$	1,986		$	168		$	100,012		$	5		$	166		$	104,573		$	59,573	(2)
Average interest rate		3.28	%		2.71	%		3.33	%		12.00	%		10.00	%		10.00	%		11.62	%		11.33	%
Variable rate LIBOR debt (1)	$	5,046		$	16,416		$	791		$	1,248		$	165		$	0		$	23,666		$	23,666
Weighted average current interest rate (1)																							4.24	%

(1)	The Company has different interest rate options for its variable rate debt.
(2)	The fair value of fixed rate debt was determined based on current rates offered for debt instruments with similar risks and maturities.

Page 18

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

ITEM 4. 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 November 2002, 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 November 2002 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.

PART II - OTHER INFORMATION

Items 1-5 are not applicable

Item 6. Exhibits and Reports on Form 8-K.

(a)	Exhibits
	10.30	Note and Security Agreement between Banc of America Leasing & Capital and Penhall Company for Agreement Number 02973-00702*
	*       Filed Herewith
(b)	REPORTS ON FORM 8K
	None

SIGNATURES

          Pursuant to the requirements 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.
Date: November 14, 2002		/s/ John T. Sawyer
		John T. Sawyer
		Chairman of the Board,
		President and Chief Executive Officer
		/s/ Jeffrey E. Platt
		Jeffrey E. Platt
		Vice President-Finance and Chief Financial Officer

Page 19

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

CERTIFICATIONS

I, John T. Sawyer, certify that:

	(1)	I have reviewed this quarterly report on Form 10-Q of Penhall International Corp. (the “Company”)
	(2)	Based on my knowledge, this quarterly 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 quarterly report;
	(3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
	(4)	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
		(a)	designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
		(b)	evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
		(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
	(5)	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent function):
		(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
		(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
	(6)	The Company’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
November 14, 2002
/s/    JOHN T. SAWYER
John T. Sawyer
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

Page 20

PENHALL INTERNATIONAL CORP – 10-Q – Quarterly Report

I, Jeffrey E. Platt, certify that:

	(1)	I have reviewed this quarterly report on Form 10-Q of Penhall International Corp. (the “Company”)
	(2)	Based on my knowledge, this quarterly 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 quarterly report;
	(3)	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;
	(4)	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
		(a)	designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
		(b)	evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
		(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
	(5)	The Company’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Company’s auditors and the audit committee of Company’s board of directors (or persons performing the equivalent function):
		(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal controls; and
		(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and
	(6)	The Company’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
November 14, 2002
/s/    JEFFREY E. PLATT
Jeffrey E. Platt
Vice President-Finance and Chief Financial Officer (Principal Financial Officer)

Page 21

EX-10.30

                                                                   Exhibit 10.30

BANC OF AMERICA LEASING & CAPITAL, LLC

                                            Note and Security Agreement
                                            (Variable Rate, LIBOR)
- --------------------------------------------------------------------------------

This Note and Security Agreement ("Agreement") made as of the date set forth
below sets forth the terms and conditions governing the repayment of a loan made
by Banc of America Leasing & Capital, LLC ("Secured Party") to the party
identified below as "Debtor" for the purpose of financing the personal property
identified below as the "Equipment", and the granting by Debtor to Secured Party
of a security interest in the Equipment and certain related property to secure
the repayment of all Debtor's obligations to Secured Party.

Date: July 22, 2002                          Agreement Number:   02973-00702

Secured Party:           Banc of America Leasing & Capital, LLC
                         2059 Northlake Parkway, 4 South
                         Tucker, Georgia  30084-4007

Debtor:                  Penhall Company

Equipment and            See EXHIBIT A attached hereto and made a part hereof
Equipment Location:

Principal Amount of Loan: Nine hundred seventy two ninety five and 37/100
dollars ($972,095.37)

Number of Principal Repayment Installments (including Final Repayment
Installment): Forty-seven (47)

Amount of Each Principal Repayment Installment Prior to Final Repayment
Installment: See ANNEX I attached hereto and made a part hereof.

Amount of Final Principal Repayment Installment: See ANNEX I attached hereto and
made a part hereof.

Due Date of First Principal Repayment Installment: the thirtieth (30th) day
following the date Secured Party funds this loan.

Due Date of Final Principal Repayment Installment: the fourty-eighth (48th)
month following, and on the same day of the month as, the Due Date of the First
Principal Repayment Installment

VARIABLE INTEREST RATE. For any year or portion thereof, a per annum rate of
interest equal to (i) Two and 60/100 percent (2.60%) plus the rate of interest
equal to the "average of interbank offered rates for dollar deposits in the
London Market based on quotations of sixteen (16) major banks" for a term of 30
days as published in the Wall Street Journal under a heading entitled "Money
Rates, London Interbank Offered Rates (LIBOR)" or any future or substitute
heading, on the first day of the month preceding the month in which a monthly
anniversary of the date Secured Party funds this Loan occurs, or (ii) if less,
the highest rate of interest permitted by applicable law.

Loan; Terms of Repayment. In consideration of the making of a loan by Secured
Party to Debtor for the purpose of financing the Equipment specified above (the
"Loan"), Debtor promises and agrees to pay to the order of Secured Party, at
Secured Party's address stated above or at such other places as Secured Party
may from time to time designate in writing, the principal amount of the Loan,
together with interest calculated as hereinafter provided. Subject to Debtor's
right to prepay such principal amount in whole or in part as hereinafter
provided, Debtor shall pay such principal amount in consecutive monthly
installments of principal, each in the amount set forth above under the heading
"Amount of Each Principal Repayment Installment Prior to Final Repayment
Installment," due and payable on the "Due Date of First Principal Repayment
Installment" set forth above and on a like date of each calendar month
thereafter until the Loan is fully repaid; provided, however, that the last such
installment shall be in the amount set forth above under the heading "Amount of
Final Principal Repayment Installment" or (if greater) the amount of the then
outstanding principal balance of the Loan.

Interest. Interest shall be calculated on the basis of a year of three hundred
sixty (360) days and shall, during each calendar month or portion thereof from
and after the date on which funds are disburse by Secured Party, accrue on
unmatured principal balances outstanding during such period at the "Variable
Interest Rate" specified above for the week in which the first day of the month
prior to such calendar month occurs. All interest accrued through the due date
of a principal installment shall be due and payable simultaneously with such
installment.

Prepayments. After one (1) month from the date Secured Party funds this Loan,
the outstanding principal balance of the Loan may be prepaid in whole or in part
at any time, together with all interest and late charges accrued through the
date of prepayment and a prepayment charge calculated as follows: two percent
(2%) of the amount prepaid during months 2-12 of the applicable Base Term, one
and one-half percent (1.5%) of the amount prepaid during months 13-24 of the
applicable Base Term, one percent (1%) of the amount prepaid during months 25-36
of the applicable Base Term, and no prepayment charge thereafter.

Late Charges. To the extent permitted by applicable law, Debtor shall pay on
demand, as a late charge, an amount equal to five percent (5%) of each
installment or part thereof that is not paid within ten (10) days of the date
when due, but nothing in this paragraph alters the definitions of events of
default hereunder. Debtor shall pay the late charge, to the extent permitted by
applicable law, regardless of whether or not Debtor's failure to pay such
installment when due is or becomes a default hereunder and regardless of whether
or not Secured Party proceeds under the "Remedies" provisions hereof or takes
any other action, and demand for and collection of the late charge shall not be
deemed a waiver of default or of any other remedies or rights.



Security Interest. Debtor hereby grants to Secured Party a security interest in
and security title to the personal property described above as the "Equipment",
together with all parts, additions, accessions, accessories, replacements and
substitutions thereto or therefor, and all proceeds therefrom (including any
proceeds of insurance against fire or other casualty whether or not the
insurance policy contains an endorsement in favor of Secured Party), all of
which is hereinafter called the "Collateral". This security interest is given to
secure payment to Secured Party of all present and future obligations of Debtor
to Secured Party, including without limitation the obligation of Debtor to repay
the Loan and all other liabilities arising under or in connection with this
Agreement; all future advances, if any, made by Secured Party to Debtor, whether
or not made pursuant to any commitment of Secured Party (and nothing in this
Agreement shall be construed to create or imply the existence of any such
commitment); and all other liabilities of Debtor to Secured Party now existing
or hereafter incurred, matured or unmatured, direct or contingent, whether or
not evidenced by a promissory note, and whether owing originally to Secured
Party or acquired by Secured Party from any other party, and any renewals and
extension thereof and substitutions therefor. (All of the above obligations,
including but not limited to obligations in respect of the Loan, are hereinafter
called the "Indebtedness.")

Debtor Warrants and Represents that:

Good Standing. Debtor is organized and existing in good standing under the laws
of the jurisdiction of its formation, has the power to own its property and to
carry on its business as now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the property owned by it therein or the transaction of its business makes such
qualification necessary.

Authority. Debtor has full power and authority to enter into this Agreement, to
make the borrowing hereunder, and to incur the obligations provided for herein,
all of which have been duly authorized by all proper and necessary action. No
consent or approval of stockholders, partners, members or co-owners or of any
public authority is required as a condition to the validity of this Agreement.

Debtor represents and warrants to Secured Party that all Collateral financed and
to be financed under this Agreement or any agreement shall be equipment operated
exclusively by Debtor's or Debtor's affiliate's employees and shall remain under
Debtors's or such affiliate's ownership and control at all times,
notwithstanding any temporary location of the Collateral at Debtor's customer's
site.

Debtor represents and warrants to Secured Party that by entering into this
Agreement and upon the execution of each agreement, there will be no violation
of the terms and conditions of (i) the Credit Agreement among Penhall
International Corp., Penhall Acquisition Corp., Bankers Trust Company, Credit
Suisse First Boston, Fleet Capital Corporation and Union Bank of California
dated as of August 4, 1998, as amended from time to time, or (ii) the Senior
Note Indenture between Penhall Acquisition Corp. and United States Trust Company
as Trustee dated as of August 1, 1998.

Binding Agreement. This Agreement constitutes the valid and legally binding
obligation of Debtor enforceable in accordance with its terms.

Litigation. There are no proceedings pending or threatened before any court or
administrative agency that might materially adversely affect the financial
condition or operation of Debtor.

No Conflicting Agreements. There is no charter, by-law, preference stock or
partnership agreement provision of Debtor and no provision of any other
organizational documents or existing mortgage, indenture, contract or agreement
binding on Debtor or affecting its property which would conflict with or in any
way prevent the execution, delivery or performance of the terms of this
Agreement.

Ownership Free of Encumbrances. Except for the security interest granted hereby,
Debtor now owns, or will use the proceeds hereof to become the owner of, the
Collateral free from any prior lien, security interest or encumbrance. No
financing statement covering the Collateral or any proceeds thereof is on file
in any public office, except for financing statements showing Secured Party as
the sole secured party thereunder. Debtor has a good right to grant a security
interest in the Collateral to Secured Party.

Fixtures. None of the Collateral is now a part of or affixed to any real
property.

Collateral Location. Except for items of Collateral that constitute mobile goods
and that are in fact in use by Debtor in the ordinary course of its business at
other locations, all the Collateral comprising goods heretofore delivered to the
Debtor by the seller thereof is located either at (i) Debtor's address set forth
above or (ii) the "Equipment Location" set forth above. If at any time the
Collateral, or any part thereof, is removed to a new location, Debtor shall
notify the Secured Party in the manner outlined in the section below entitled
"Location of Collateral".

Merger/Name Change. Within the five (5) years preceding the date hereof, Debtor
has not changed its name or been party to any merger or other corporate
reorganization.

Debtor Covenants and Agrees that until all the Indebtedness is fully satisfied:

Insurance. Debtor shall maintain continuously, and pay when due all premiums
for, fire and casualty insurance with extended coverage on the Collateral,
insuring the same against loss by fire, explosion, theft and such other
casualties as are usually insured against by companies engaged in the same or
similar businesses with a responsible company or companies satisfactory to
Secured Party, in an amount not less than the unpaid balance of the Loan. Each
of such insurance policies shall have attached thereto a standard loss payable
endorsement, without contribution, in favor of Secured Party as its interest may
appear; shall provide that it may not be canceled without thirty (30) days'
prior written notice to Secured Party; shall provide that, in respect of Secured
Party's interest in such policy, the insurance shall not be invalidated by any
action or inaction of Debtor or any other person (other than Secured Party);
shall insure Secured Party's interest in the Collateral as it may appear,
regardless of any breach or violation of any warranty, declaration or condition
contained in such policy by Debtor or any other person (other than Secured
Party); and shall otherwise be in form and substance acceptable to Secured
Party. Debtor shall deliver forthwith to Secured Party each such policy
(together with the loss payable endorsement), or certificates of insurance or
other evidence satisfactory to Secured Party of the existence of all required
insurance, its terms and conditions, and the payment of all applicable premiums.
Similar evidence of renewal coverage, satisfactory to Secured Party,



shall be delivered to Secured Party at least fifteen (15) days before the
expiration of any initial insurance coverage. In addition, Debtor shall
maintain, and pay when due all premiums for, liability and other insurance in
such amounts and against such risks as is customarily carried by persons in
similar businesses owning similar property. Debtor irrevocably appoints Secured
Party as Debtor's attorney-in-fact, with full power of substitution, during the
existence of any default under this Agreement, to execute loss claims and other
applications for payment of benefits under any insurance policy in the name of
Debtor or Secured Party, to receive all monies and to endorse drafts, checks and
other instruments for the payment of any proceeds of any insurance. This
appointment shall be deemed a power coupled with an interest and shall not be
terminable by Debtor so long as Debtor remains indebted to Secured Party.

Maintenance and Clear Title. Debtor shall keep the Collateral in good condition
and free from liens and security interests, shall not sign or suffer to be filed
any financing statements relating to the Collateral except those showing Secured
Party as sole secured party shall not sell or lease or offer to sell or lease or
otherwise encumber or dispose of any of the Collateral, shall defend the
Collateral against all claims and demands of all persons at any time claiming
any interest or right therein, and shall not use the Collateral illegally.
Secured Party may examine and inspect the Collateral at any time, wherever
located.

Change of Name, Residence or Place of Business. Debtor shall not change its
name, residence or place of business or do business under any assumed or
fictitious name without giving Secured Party written notice no later than thirty
(30) days after the change has occurred.

Use of Collateral. Debtor shall use the Collateral exclusively for business
operations.

Inspection: Non-Interference. (a) Secured Party, its agents and employees shall
have the right to enter any property where any Collateral is located and inspect
any Collateral together with its related books and records, at any reasonable
time. Such right shall not impose any obligation on Secured Party.

Fixtures. Debtor shall not permit any of the Collateral to become a part of or
affixed to any real property.

Location of Collateral. Except for items of Collateral that constitute mobile
goods and that are in fact in use by Debtor in the ordinary course of business
at other locations, all the Collateral shall, from and after the moment that
Debtor acquires possession or control of it, be kept either at (i) Debtor's
address set forth above or (ii) the "Equipment Location" set forth above, and
all records relating to the Collateral shall likewise be kept only at such
location or locations. If at any time the Collateral, or any part thereof, is
removed to a new location, Debtor: (a) shall provide written notice thereof to
Secured Party within six (6) months after the funding of this Agreement and
every six (6) months thereafter until the end of the term; and (b) either (i)
the premises in which such Collateral will be installed will be owned by Debtor
free of any liens or encumbrances, or (ii) if not owned by Debtor free of liens
or encumbrances, the owner of such premises and/or the holder of any such liens
or encumbrances on such premises shall have consented and acknowledge the
superiority of Secured Party's interest in such Collateral.

Indemnification. Debtor shall indemnify Secured Party against all claims arising
out of or connected with the ownership or use of the Collateral.

Motor Vehicles. If the Collateral consists of or includes motor vehicles or
other equipment for which there is a certificate of title evidencing ownership
thereof, Debtor shall forthwith cause each certificate to be endorsed over and
the lien of Secured Party to be noted so as to show Secured Party's interest,
and Debtor shall deliver forthwith each such certificate to Secured Party.

Taxes. Debtor shall pay promptly when due all taxes, charges and assessments
that are or may become a lien on the Collateral or any part thereof, except to
the extent that the same are contested in good faith and by appropriate
proceedings.

Financial Statements.

(a) During the term of this Agreement, Debtor shall (i) maintain books and
records in accordance with generally accepted accounting principles ("GAAP") and
prudent business practice, (ii) promptly and in no event later than 120 days
after each fiscal year end furnish Secured Party annual audited consolidated and
consolidating financial statements of Penhall International Corp. and
subsidiaries, prepared in accordance with GAAP consistently applied, together
with an unqualified opinion of an independent auditor, and (iii) at Secured
Party's request, furnish Secured Party all other financial quarterly or other
interim financial statements of Debtor and of any Guarantor. Debtor shall
furnish such other information as Secured Party may reasonably request at any
time concerning Debtor, Guarantor and their respective affairs, or any
Collateral. Debtor shall promptly notify Secured Party of any event of default
or event or circumstance which, with notice, lapse of time or both, would be an
event of default. (b) Debtor represents and warrants that all information
furnished and to be furnished by Debtor or any Guarantor to Secured Party is
accurate, and that all financial statements Debtor or any Guarantor has
furnished and hereafter may furnish to Secured Party reasonably reflect and will
reflect, as of their respective dates, results of the operations and the
financial condition of Debtor, such Guarantor or other entity they purport to
cover. (c) Credit and other information regarding Debtor, any Guarantor or their
affiliates may be shared by Secured Party with its affiliates and agents.

Reimbursement for Expenses. At its option, and with no obligation to do so,
Secured Party may (i) if an event of default exists, discharge taxes or other
encumbrances on the Collateral, or pay for the repair, maintenance and
preservation of the Collateral and (ii) ten (10) days after notifying Debtor of
Secured Party's intent to do so, arrange and pay for insurance on the
Collateral. Debtor agrees to reimburse Secured Party on demand for any payments
so made; Debtor also agrees to reimburse and pay to Secured Party on demand all
expenses incurred or paid by Secured Party in perfecting the security interest
granted hereunder and in collecting the Indebtedness and in protecting or
enforcing Secured Party's rights under this Agreement, including but not limited
to reasonable attorney's fees and legal expenses. Until Debtor makes such
reimbursement, the amount of all such payments and expenses, with interest at
the rate then applicable to principal installments of the Loan not paid when
due, from the date of payment until reimbursement, shall be added to the
Indebtedness and shall be secured by the security interest granted by Debtor
under this Agreement. Nothing in this paragraph relieves Debtor of the duty to
care for, insure and protect the Collateral and Secured Party's interests
therein and to pay tax on or related to the Collateral, or of any other duty.

Sale or Replacement of Collateral. Debtor shall not sell or replace any item or
part of the Collateral without the prior written consent of Secured Party,
except as noted in the section below entitled "Assignability"

Post Default Interest. Any principal balance not paid when due (whether by
acceleration or otherwise) shall accrue interest at the



"Default Rate" until such principal balance is paid. "Default Rate" shall be a
per annum rate of interest equal to (i) fifteen percent (15.0%) or (ii), if
less, the highest rate of interest permitted by applicable law. Upon the
occurrence of an Event of Default, Debtor shall also pay, in addition to and on
the same date each principal installment is due, additional interest ("Daily
Supplemental Interest") as reflected in Secured Party's invoice, which Secured
Party shall calculate as follows:

          Daily Supplemental Interest shall be the amount obtained by
          multiplying the principal installment, determined as of the due date
          next preceding the occurrence of the Event of Default, by Three
          percent (3.00%) and dividing the product by 360 days; provided that
          any corresponding increase in the interest rate hereof shall be
          reduced, if necessary, so as not to exceed the maximum interest rate
          permitted by applicable law.

Secured Party may, at its option, apply late payments (either in full or
partial) in the following manner: first to interest, then to principal, and
finally to late charges. To the extent permitted by applicable law, Debtor shall
pay interest on delinquent principal installments on demand regardless of
whether or not Secured Party proceeds under the "Remedies" provisions hereof or
takes any other action, and demand for and collection of interest on such
overdue installments at the Default Rate shall not be deemed a waiver of default
or of any other remedies or rights.

This paragraph shall not be construed to limit or waive any of Secured Party's
rights and remedies otherwise available to Secured Party after the occurrence of
any Event of Default

Events of Default. Debtor shall be in default under this Agreement upon the
happening of any of the following events or conditions, each of which is an
event of default:

(1) Debtor fails to pay within ten days of the day when due any installment of
the Loan, or in the payment of any other Indebtedness, when and as the same
becomes due and payable, whether at the stated maturity thereof or by
acceleration or otherwise; (2) Debtor fails to maintain insurance in respect of
any Collateral as required, or sells, leases, subleases, assigns, conveys,
encumbers or suffers to exist any lien or charge against, any Collateral without
Secured Party's prior consent, or any Collateral is subjected to levy, seizure
or attachment; (3) Debtor or any guarantor under any guaranty providing a
guaranty of Debtor's obligations hereunder ("Guarantor") fails to perform and
comply with any covenant or obligation (other than, with respect to Debtor only,
Debtor's breach of subsections (1) or (2) of this Section EVENTS OF DEFAULT)
under any Agreement, guaranty, or any progress payment, assignment, security or
other agreement related to any Agreement or Collateral (together, "Related
Agreements") and, if curable, such failure continues for 30 days after written
notice to Debtor or Guarantor, as applicable (4) any representation, warranty or
other written statement made to Secured Party in connection with this Loan, or
any guaranty, by Debtor or Guarantor, including financial statements, proves to
have been incorrect in any material respect when made; (5) Debtor (x) enters
into any merger or consolidation with, or sells or transfers all, substantially
all or any substantial portion of its assets to, or enters into any partnership
or joint venture other than in the ordinary course of business with, any entity,
(y) dissolves, liquidates or ceases or suspends the conduct of business, or
ceases to maintain its existence, or (z) enters into or suffers any transaction
or series of transactions as a result of which Debtor is directly or indirectly
controlled by persons or entities not affiliates of Debtor as of the date of
this Agreement; (6) Debtor undertakes any general assignment for the benefit of
creditors or commences any voluntary case or proceeding for relief under the
Bankruptcy Code, or any other law for the relief of debtors, or takes any action
to authorize or implement any of the foregoing; (7) the filing of any petition
or application against Debtor under any law for the relief of debtors, including
proceedings under the Bankruptcy Code, or for the subjection of property of
Debtor to the control of any court, receiver or agency for the benefit of
creditors if such petition or application is consented to by Debtor or not
dismissed within 60 days from the date of filing; (8) any payment default or
other event of default occurs under any other bilateral or multi-lateral loan,
lease, or credit, or other agreement or instrument to which Debtor and Secured
Party or any affiliate of Secured Party are now or hereafter party; (9) any
payment default or other event of default occurs under any other lease, or
credit, or other agreement or instrument or any combination thereof to which
Debtor is now or hereafter party and under which there is outstanding (on a
present value basis for all future rent, in the case of leases), owing or
committed an aggregate amount greater than $100,000.00; (10) the repudiation of
or breach or default under any guaranty relating to any Indebtedness; or (11)
the occurrence of any event described in clauses (5), (6), (7), (8) or (9) of
this Section with reference to "any Guarantor" in lieu of "Debtor", or any
Guarantor dies.

Remedies. Upon any event of default and at any time thereafter, Secured Party
may declare all the Indebtedness immediately due and payable in full (unless
such event of default comprises one or more of the events described in
paragraphs 7 or 8 above, in which case all the Indebtedness shall become
immediately due and payable in full without declaration, notice or other action
on the part of Secured Party), and may proceed to enforce payment thereof and
exercise any and all of the rights and remedies provided by the Uniform
Commercial Code as well as all other rights and remedies of Secured Party
hereunder or under other applicable law. Upon the occurrence of an event of
default, Debtor shall, upon demand by Secured Party, assemble the Collateral and
make it available to Secured Party at a place designated by Secured Party
reasonably convenient to both parties. Secured Party may, at its election,
enforce its rights under this Agreement by a suit in equity for specific
performance. Debtor grants Secured Party the right to enter upon any premises of
Debtor for the purpose of recovering possession of the Collateral or any part
thereof after the occurrence of an event of default, or for the preservation or
enforcement of Secured Party's other rights hereunder, all without demand or
notice to Debtor and without judicial hearing or proceedings, which Debtor
hereby expressly waives. The requirements of reasonable notice shall be deemed
met if such notice is mailed to an address of Debtor shown at the beginning of
this Agreement at least ten (10) days before the time of the sale or
disposition, but nothing contained herein shall be construed to mean that other
notice or a shorter period of time does not constitute reasonable notice of the
sale or other disposition of the Collateral. Debtor shall reimburse Secured
Party for all Secured Party's expenses of retaking, holding, preparing for sale,
selling or otherwise dealing with or disposing of the Collateral, including
attorney's fees in the amount of fifteen percent (15%) of the outstanding
principal balance of and interest on the Indebtedness (but not to exceed the
amount of attorneys' fees actually incurred) if collection is by or through an
attorney at law. Subject to applicable law, Debtor shall pay any Indebtedness
remaining unpaid after sale or other disposition of any or all of the
Collateral. Any surplus proceeds from the sale or other disposition of the
Collateral remaining after full satisfaction of the Indebtedness shall be paid
to Debtor or to such other persons as may be entitled thereto under applicable
law.

Cumulative Rights and No Waiver. Each and every right granted to Secured Party
hereunder or in connection herewith, or allowed it by law or equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Secured Party to exercise, and no delay in exercising, any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Secured Party
of any right preclude any other or future exercise thereof or the exercise of
any other right.

Financing Statements. Debtor shall sign and deliver to Secured Party such
financing statements and other documents as Secured Party may deem necessary to
perfect, protect and continue its security interest in the Collateral, in form
satisfactory to Secured Party.



Debtor will reimburse Secured Party for all expenses incurred in the filing of
financing statements, continuation statements, termination statements and any
other documents relating to the perfection of Secured Party's security interest
in the Collateral. A carbon, photographic or other reproduction of this
Agreement or of a financing statement relating to the security interest herein
granted is sufficient as a financing statement. Debtor authorizes Secured Party
to file financing statements as to the Collateral signed only by Secured Party
and not by Debtor.

Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

Assignability. Debtor acknowledges that the rights of Secured Party may be
assigned to any person in whole or in part at the sole discretion of Secured
Party, and Debtor agrees that any defense it may have against Secured Party as
to events occurring prior to any assignment shall not be asserted, and shall be
void, against any assignee of the rights of Secured Party. Debtor shall not
assign, pledge, hypothecate or in any way dispose of all or any part of its
rights or obligations under any Agreement, or enter into any sublease of any
Collateral, without Secured Party's prior consent; provided that Debtor may
without Secured Party's prior written consent , but only after providing Secured
Party at least 30 days' prior written notice, sell or otherwise dispose of one
or more pieces of Collateral in an aggregate amount not to exceed $200,000
during the Base Term.

In the absence of such prior written consent, no such assignment of any right or
obligation of Debtor hereunder shall be binding on Secured Party. Subject to the
foregoing limitations, the terms and conditions of this Agreement shall be
binding on and shall inure to the benefit of the heirs, executors,
administrators, successors, and assigns of the parties.

MATERIAL ADVERSE CHANGE. THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN THE
OPERATIONS BUSINESS, PROPERTIES OR CONDITION (FINANCIAL OR OTHERWISE ("MATERIAL
ADVERSE CHANGE") OF DEBTOR OR ANY GUARANTOR SINCE JUNE 30, 2001. THERE IS NOT
PENDING AGAINST DEBTOR ANY LITIGATION, PROCEEDING, DISPUTE OR CLAIM THAT MAY
RESULT IN A MATERIAL ADVERSE CHANGE AS TO DEBTOR OR THAT MAY CALL INTO QUESTION
OR IMPAIR DEBTOR'S LEGAL OR OTHER ABILITY TO ENTER INTO AND PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT.

Warranty Disclaimer. Secured Party is not a manufacturer or seller of the
Collateral and makes no warranties whatsoever with respect to the Collateral,
including without limitation warranties of title, merchantability or fitness for
any particular purpose. Debtor shall not assert any breach of any such warranty
as a defense to any of its obligations to Secured Party under this Agreement;
however, nothing in this Agreement shall be construed to impair any of Debtor's
remedies for breach of warranty against any seller or manufacturer of the
Collateral.

Governing Law; Consent to Venue and Personal Jurisdiction. This agreement shall
be construed and enforced in accordance with and governed by the laws of the
State of California as of the date hereof. If the address of Debtor's residence
or principal place of business shown herein is not in the State of California,
Debtor consents to the exercise of personal jurisdiction over Debtor by any
court or record sitting in the State of California in connection with any action
arising out of this Agreement, and waives all objections to service of process
on Debtor at such address.

Waiver of Jury Trial. Secured Party and Debtor each waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other on any matter whatsoever arising out of or in any way connected with this
Agreement.

IN WITNESS WHEREOF, the parties have caused their names to be signed and their
seals affixed as of the date first above written. By execution hereof, each
party intends and agrees to be legally bound by all the provisions of this
Agreement.

Banc of America Leasing & Capital, LLC         Penhall Company
(Secured Party)                                (Debtor)

By: __________________________________         By: _____________________________

Printed Name: ________________________         Printed Name: ___________________

Title: _______________________________         Title: __________________________