<PAGE> 1
(conformed)
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 JULY 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
(Address of principal executive offices) (Zip Code)
412-856-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of September 1, 1995, there were 5,703,966 shares of the registrant's common
stock outstanding.
<PAGE> 2
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of July 31, 1995 (unaudited) and January 31, 1995 3
(b) Consolidated Statements of Operations for the Three Months Ended July 31, 1995 and 1994 (unaudited) 4
(c) Consolidated Statements of Operations for the Six Months Ended July 31, 1995 and 1994 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Six Months Ended July 31, 1995 and 1994 (unaudited) 6
(e) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 3. Defaults Upon Senior Securities 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1995 1995*
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $1,114,000 $ 754,000
Accounts receivable - net 8,414,000 9,962,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,813,000 5,216,000
Inventory 309,000 284,000
Prepaid income taxes 6,000 -
Other current assets 570,000 753,000
----------- -----------
TOTAL CURRENT ASSETS 15,226,000 16,969,000
PROPERTY, PLANT AND EQUIPMENT 7,266,000 6,918,000
Less: accumulated depreciation 3,878,000 3,484,000
----------- -----------
3,388,000 3,434,000
OTHER ASSETS 248,000 293,000
----------- -----------
TOTAL ASSETS $18,862,000 $20,696,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,292,000 $ 5,273,000
Short-term borrowings 4,746,000 3,520,000
Accrued liabilities 1,366,000 1,234,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 628,000 745,000
Deferred revenue 87,000 55,000
Accrued income taxes - 3,000
Current portion of long-term debt 850,000 863,000
----------- -----------
TOTAL CURRENT LIABILITIES 11,969,000 11,693,000
LONG-TERM DEBT 1,089,000 5,394,000
MINORITY INTEREST 1,821,000 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock 562,000 562,000
Common stock 114,000 109,000
Additional paid-in capital 4,096,000 3,866,000
Deficit (789,000) (928,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,983,000 3,609,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,862,000 $20,696,000
=========== ===========
</TABLE>
*Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JULY 31,
----------------------------------
1995 1994
------------- -------------
<S> <C> <C>
CONTRACT REVENUES $6,084,000 $8,097,000
CONTRACT COSTS 5,074,000 6,365,000
---------- ----------
Gross margin 1,010,000 1,732,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,361,000 1,422,000
---------- ----------
(Loss) income from operations (351,000) 310,000
OTHER INCOME (EXPENSE):
Interest expense (303,000) (298,000)
Interest income 9,000 2,000
Other income 2,000 4,000
---------- ----------
(292,000) (292,000)
---------- ----------
(Loss) income before income taxes, minority interest
in losses of consolidated subsidiary and extraordinary item (643,000) 18,000
INCOME TAX BENEFIT (76,000) (16,000)
---------- ----------
(LOSS) INCOME BEFORE MINORITY INTEREST IN LOSSES OF
CONSOLIDATED SUBSIDIARY AND EXTRAORDINARY ITEM (567,000) 34,000
MINORITY INTEREST IN LOSSES OF CONSOLIDATED SUBSIDIARY 268,000 -
EXTRAORDINARY ITEM, NET OF TAX - 611,000
---------- ----------
NET (LOSS) INCOME $ (299,000) $ 645,000
========== ==========
PREFERRED STOCK DIVIDEND REQUIREMENTS $ 12,000 $ -
========== ==========
PER SHARE OF COMMON STOCK - PRIMARY:
(Loss) income before extraordinary item $ (0.06) $ -
Extraordinary item - 0.09
---------- ----------
Net (loss) income per share $ (0.06) $ 0.09
========== ==========
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 5,439,000 7,201,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JULY 31,
-------------------------------
1995 1994
------------- --------------
<S> <C> <C>
CONTRACT REVENUES $11,546,000 $15,570,000
CONTRACT COSTS 9,463,000 12,506,000
----------- -----------
Gross margin 2,083,000 3,064,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,824,000 2,738,000
----------- -----------
(Loss) income from operations (741,000) 326,000
OTHER INCOME (EXPENSE):
Gain on sale of PDG Remediation, Inc. common stock 1,354,000 -
Interest expense (633,000) (547,000)
Interest income 25,000 6,000
Other income 7,000 19,000
----------- -----------
753,000 (522,000)
----------- -----------
Income (loss) before income taxes, minority interest
in losses of consolidated subsidiary and extraordinary item 12,000 (196,000)
INCOME TAX PROVISION (BENEFIT) - (16,000)
----------- -----------
LOSS BEFORE MINORITY INTEREST IN LOSSES
OF CONSOLIDATED SUBSIDIARY AND EXTRAORDINARY ITEM 12,000 (180,000)
MINORITY INTEREST IN LOSSES OF CONSOLIDATED
SUBSIDIARY 303,000 -
EXTRAORDINARY ITEM, NET OF TAX - 611,000
----------- -----------
NET INCOME $ 315,000 $ 431,000
=========== ===========
PER SHARE OF COMMON STOCK - PRIMARY:
Income (loss) before extraordinary item $ 0.05 $ (0.02)
Extraordinary item - 0.08
----------- -----------
Net income per common share $ 0.05 $ 0.06
=========== ===========
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 6,968,000 7,228,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JULY 31,
----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 315,000 $ 431,000
ADJUSTMENTS TO RECONCILE NET
INCOME TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Gain on sale of PDG Remediation, Inc. common stock (1,354,000) -
Depreciation and amortization 488,000 601,000
Minority interest (303,000) -
Other 116,000 123,000
Extraordinary item - (611,000)
----------- -----------
TOTAL CASH PROVIDED BY INCOME (LOSS) (738,000) 544,000
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable 1,459,000 (1,480,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts 403,000 (2,636,000)
Inventory (25,000) (14,000)
Prepaid income taxes (6,000) (23,000)
Other current assets 75,000 (19,000)
Accounts payable (1,025,000) 1,278,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (117,000) (149,000)
Deferred revenues 32,000 (134,000)
Accrued income taxes (3,000) -
Accrued liabilities 231,000 692,000
Other (6,000) (78,000)
----------- -----------
TOTAL ADJUSTMENTS IN ASSETS AND LIABILITIES 1,018,000 (2,563,000)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 280,000 (2,019,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (354,000) (314,000)
Proceeds from the sale of property, plant and equipment 1,000 72,000
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (353,000) (242,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on sale of PDG Remediation, Inc. common stock 3,586,000 -
Proceeds on sale of warrants 100,000 -
Proceeds from debt 3,696,000 2,925,000
Principal payments on debt (6,949,000) (987,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 433,000 1,938,000
----------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments 360,000 (323,000)
Cash and Short-Term Investments, Beginning of Period 754,000 516,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 1,114,000 $ 193,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 1995
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc.'s
wholly-owned subsidiaries and the accounts of PDG Remediation, Inc. ("PDGR"),
in which PDG Environmental, Inc. maintains a 59.5% ownership interest
subsequent to the initial public offering of PDGR's common stock and warrants
as described in Note 3.
The accompanying financial statements of PDG Environmental, Inc. and
subsidiaries (the "Corporation") are unaudited. However, in the opinion of
management, they include all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows. All adjustments made
during the three and six months ended July 31, 1995 were of a normal, recurring
nature. The amounts presented for the three and six months ended July 31, 1995
are not necessarily indicative of results of operations for a full year.
Additional information is contained in the Annual Report on Form 10-K of the
Corporation for the year ended January 31, 1995, as amended by Form 10-K/A No.
1 dated May 30, 1995, and should be read in conjunction with this quarterly
report.
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.
NOTE 2 - FEDERAL INCOME TAXES
No income taxes have been provided for the six months ended July 31, 1995 due
to the existence of unused net operating loss carryforwards.
Income taxes paid by the Corporation for the six months ended July 31, 1995 and
1994 totaled approximately $20,000 and $7,000, respectively.
NOTE 3 - PDG REMEDIATION, INC.
INITIAL PUBLIC OFFERING
On February 9, 1995, PDGR sold in an initial public offering 1,000,000 shares
of common stock and 1,000,000 redeemable warrants at a price of $5.00 per share
of common stock and $0.10 per redeemable warrant. The Corporation sold 400,000
shares of its PDGR common stock as part of the initial public offering and
received net proceeds of approximately $1.4 million, which resulted in a gain
of approximately $1.4 million during the six months ended July 31, 1995. The
Corporation recorded the sale effective as of February 1, 1995. PDGR sold
600,000 newly issued common shares plus 1,000,000 redeemable warrants and
received net proceeds of approximately $2.3 million.
The Corporation currently owns approximately 59.5% of PDGR common stock and
will continue to consolidate the accounts of PDGR as long as more than 50% of
the common stock is owned.
BUSINESS ACTIVITIES
PDGR has historically performed a substantial amount of work under a Florida
state funded site rehabilitation program (the "EDI Program") which provides for
the remediation of contaminated sites related to the storage of petroleum and
petroleum products. The EDI Program has undergone modification during the six
months ended July 31, 1995 due to a current imbalance in the Inland Protection
Trust Fund between reimbursement application expenditures for work performed
under the EDI Program and revenues generated for the EDI Program, as well as a
concern that the majority of the site rehabilitation work is currently being
conducted at sites that are not considered to be high priority in terms of the
impact on drinking water supplies.
7
<PAGE> 8
On March 8, 1995, Florida's Governor Lawton Chiles issued Executive Order 95-82
suspending processing of payment applications under the EDI Program and on
March 16 the Senate passed a bill establishing a protocol for continued work on
sites based on their priority ranking. On March 27, 1995, the Senate bill was
signed into law and on March 29, 1995 Governor Chiles issued Executive Order
95-111 rescinding his March 8 Executive Order.
It was anticipated that the Florida legislature would pass final legislation to
amend the EDI Program prior to adjournment in May 1995; however, on May 11,
1995, the legislature adjourned for the year without acting on proposed changes
to the EDI Program or the Inland Protection Trust Fund. As a result of the
legislative inaction, PDGR will continue to work under the legislation passed
on March 27, 1995 until the next regular legislative session reconvenes in
March 1996.
The short-term impact of the current legislation has had a material adverse
effect on PDGR's operations since the number of sites in PDGR's backlog
immediately eligible for continued reimbursement under the EDI Program has been
significantly reduced and PDGR's thermal treatment facility has experienced a
significant decline in soil shipments which PDGR believes is indirectly related
to EDI Program uncertainties as the entire market for the thermal treatment of
contaminated soil has experienced a slowdown. As a result of the uncertainties
in the market for the thermal treatment of contaminated soil, PDGR's facility
was shut down for the majority of the three months ended July 31, 1995. PDGR
expects that its operations will continue to be materially adversely effected
by the changes in the EDI Program. PDGR further estimates that its cash flow
will be positively impacted in future quarters as those sites considered
ineligible for continued remediation are able to be invoiced under the existing
legislation.
These factors have resulted in immediate reductions in PDGR's revenues which
have created, and will continue to create, operating losses. PDGR has promptly
taken steps to respond to these revenue reductions through prudent reductions
in staff and other overhead costs, and the reallocation of a portion of its
Florida workforce to cover existing backlog at PDGR's Pennsylvania remediation
service operation. PDGR is also actively pursuing environmental engineering
and remediation contracts outside the EDI Program in Florida as well as high
priority sites within the EDI Program. PDGR will implement further cost
containment measures as may be required under the circumstances and will
continue to diversify its efforts away from the EDI Program. In spite of these
efforts, PDGR believes it will continue to report losses for the remainder of
the fiscal year.
The Corporation will also suffer a material adverse effect on its reported
financial results to the extent of its 59.5% ownership interest in PDGR due to
the changes described above.
NOTE 4 - LINES OF CREDIT
The Corporation maintained certain lines of credit with CVD Financial
Corporation ("CVD Financial") which provided $3.6 million of combined
availability at January 31, 1995. On February 27, 1995, the Corporation repaid
$1.1 million to CVD Financial with proceeds generated from the sale of 40.5% of
its interest in PDGR and the existing line of credit was reduced to $2.5
million. On March 31, 1995, the expiration date associated with the CVD
Financial line of credit was extended to July 1, 1995. Under the existing loan
documents, the Corporation is currently in default on this line of credit. The
default under the CVD Financial line of credit also places the Corporation in
default under a term loan with CVD Financial. However, prior management and
controlling ownership of CVD Financial made a commitment to extend the line of
credit through mid-1996. Management and controlling ownership of CVD Financial
has recently been changed. The Corporation and CVD Financial are currently
negotiating a term sheet for a loan extension and the Corporation is hopeful
that acceptable extension terms can be finalized. In the event the Corporation
is unable to successfully negotiate a further extension on its line of credit
totaling $2.5 million, its liquidity requirements will be seriously affected
due to its inability to repay this indebtedness. There can be no assurance
that an extension can be successfully negotiated. The Corporation is also
pursuing alternative financing arrangements to replace its existing line of
credit with CVD Financial.
At July 31, 1995, the Corporation has $2.42 million borrowed under the CVD
Financial line of credit and $0.4 million is outstanding under the term loan.
The Corporation has reclassified the outstanding balance under the
8
<PAGE> 9
term loan of $0.4 million from long-term debt to short-term borrowings due to
the default existing under the terms of the CVD Financial line of credit.
PDGR, a 59.5% owned subsidiary of the Corporation, maintained a $3.7 million
line of credit with CVD Financial which was repaid on February 27 and 28, 1995
with a combination of proceeds generated by PDGR from the initial public
offering of its common stock and borrowings under a line of credit as discussed
below which replaced the $3.7 million CVD Financial line of credit.
PDGR entered into a $5.0 million Credit Agreement with Barnett Bank of Central
Florida, N.A. (the "Barnett Bank Agreement") on February 8, 1995. The Barnett
Bank Agreement was not funded until February 28, 1995 at which time PDGR used
the borrowings generated thereby to repay the $3.7 million line of credit with
CVD Financial. The Corporation provides a guarantee under the Barnett Bank
Agreement.
As of June 2, 1995, PDGR was in default of certain covenants under the Barnett
Bank Agreement. On June 14, 1995, PDGR entered into a forbearance agreement
with Barnett Bank pursuant to which the revolving line of credit was terminated
and the remaining principal balance currently outstanding under the Barnett
Bank Agreement was to be paid down through a combination of funds provided
under the agreement discussed below, collections on certain outstanding
accounts receivable balances and stipulated principal payments. The
forbearance agreement provided that the maturity date relative to the remaining
outstanding principal balance was February 1, 1996.
PDGR also entered into a subcontract agreement to provide funding up to $5.0
million related to unbilled and future contract amounts for work performed
under the EDI Program. The contractor also agreed, as part of the subcontract
agreement, to the assumption of approximately $1.2 million of outstanding
receivables under the EDI Program, previously held as collateral under the
Barnett Bank Agreement. The Corporation provides a guarantee under the Barnett
Bank Agreement.
On June 26, 1995, the $5.0 million subcontract agreement was terminated as a
result of the contractor's inability to secure financing to fund the
subcontract work. Accordingly, PDGR was unable to make the stipulated
principal payments totaling $1.3 million under the forbearance agreement as of
June 30, 1995. Additionally, PDGR was also in default of certain financial
covenants under the Barnett Bank Agreement.
On August 8, 1995, PDGR entered into an amendment to the June 14, 1995 Barnett
Bank forbearance agreement which provides that PDGR will convert the
outstanding loan balance to a term loan which matures on February 1, 1996.
Monthly payments will consist of a combination of collections on certain
outstanding accounts receivable balances and stipulated principal payments. At
July 31, 1995, the principal balance outstanding under the Barnett Bank
Agreement, as amended, was approximately $1.9 million. Under the amendment to
the forbearance agreement, PDGR was also granted a waiver of the financial
covenants in the Barnett Bank Agreement.
On August 21, 1995, PDG Environmental Services, Inc., a wholly-owned subsidiary
of PDGR, entered into a Master Funding and Indemnification Agreement with
Sirrom Environmental Funding, LLC (the "Sirrom Agreement"), to provide $4.0
million of funding relative to unbilled amounts under the EDI Program. The
Sirrom Agreement, which expires on August 21, 1997, enables PDGR to fund
prospective amounts billed under the EDI Program at the prime rate of interest,
as defined, plus 3%. Although PDGR will be advanced 100% of amounts billed, it
is required to deposit 34% into an escrow account to cover potential
disallowances, future interest costs and a commitment fee of 2% of the total
funding provided. PDGR also issued 100,000 warrants at an exercise price of
$1.37 per share in conjunction with the execution of the Sirrom Agreement. The
Corporation and PDGR are guarantors under the Sirrom Agreement.
The Corporation paid interest costs totaling approximately $683,000 and
$547,000 during the six months ended July 31, 1995 and 1994, respectively.
9
<PAGE> 10
NOTE 5 - COMPENSATION PLANS
The Corporation maintains a qualified incentive stock option plan (the "Plan")
which provides for the grant of incentive options to purchase an aggregate of
up to 400,000 shares of the common stock of the Corporation to certain officers
and employees of the Corporation and its subsidiaries. Options to purchase
11,000 shares of the Corporation's common stock at an exercise price of $0.75
per share were granted under the Plan on May 23, 1995. The options vest
one-third each year following the date of grant.
NOTE 6 - PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred
Stock were approximately $91,000 at July 31, 1995. At July 31, 1995, there
were 235,099 shares of Series A Preferred Stock outstanding. The Series A
Preferred Stock is convertible into four shares of the Corporation's common
stock at the option of the preferred stockholder.
The conversion rate on the Series A Preferred Stock is also subject to
adjustment as a result of certain changes in the Corporation's capital
structure or distributions to common stockholders (except for cash dividends
permissible under law).
At the Corporation's Annual Meeting of Stockholders held on July 23, 1993, in
exchange for the forfeiture of accrued but undeclared and unpaid dividends, the
holders of the Corporation's Series A Preferred Stock were granted a common
stock right which, if and when declared by the Board of Directors, will grant
to the holders of such common stock rights shares of the common stock of the
Corporation. There were 840,214 common stock rights granted.
On May 23, 1995, the Board of Directors of the Corporation approved the
issuance of one-third of the shares reserved for the holders of such common
stock rights. During the quarter ended July 31, 1995, 280,071 common shares
were issued to the holders of the common stock rights. At July 31, 1995, there
were 560,143 common stock rights outstanding.
NOTE 7 - NET LOSS PER SHARE
The primary loss per common share for the three months ended July 31, 1995 is
computed by adjusting the net loss for the preferred dividend requirement of
$12,000 and dividing this amount by the weighted average number of shares of
common stock outstanding for the three months. The effects of assuming the
conversion of preferred stock or the exercise of stock options, stock warrants
and common stock rights would be antidilutive for the three months ended July
31, 1995.
Primary earnings per share for the three months ended July 31, 1994 and the six
months ended July 31, 1995 and 1994 are calculated by dividing the net income
by the average common shares outstanding and dilutive common stock equivalents.
Stock options and warrants have not been reflected as exercised for purposes of
computing the primary loss per share for the three months ended July 31, 1994
and the six months ended July 31, 1995 and 1994 since the exercise of such
options and warrants would be antidilutive.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As discussed in further detail in Item 1. Legal Proceedings contained in Part
II located elsewhere herein, the Corporation has been named as a defendant in a
purported class action involving the purchase by all persons and entities of
PDGR common stock from February 9, 1995 through May 23, 1995. The action
alleges that defendants violated certain federal securities laws.
The Corporation believes that the allegations are without merit or that there
are meritorious defenses to the allegations, and intends to defend the action
vigorously. If, however, the plaintiff is successful in its claims, a judgment
rendered against the Corporation and the other defendants would likely have a
material adverse effect on the business and operations of the Corporation.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1995 AND 1994
On February 9, 1995, the Corporation sold approximately 40.5% of its common
stock interest in its wholly-owned environmental services subsidiary, PDGR, in
an initial public offering of PDGR's common stock. The Corporation recorded
the sale effective as of February 1, 1995 and continues to consolidate its
remaining 59.5% ownership interest.
The Corporation's contract revenues decreased by approximately 25% to $6.1
million during the three months ended July 31, 1995 compared to $8.1 million in
the three months ended July 31, 1994. The Corporation's asbestos abatement
segment experienced an increase in contract revenues in the current three
months to $5.1 million compared to $4.5 million in the three months ended July
31, 1994. The increase in the asbestos abatement segment's revenues was more
than offset by a significant reduction in the environmental remediation
services segment's revenues, which consists entirely of PDGR's operations.
PDGR reported $1.0 million of contract revenues in the current three month
period compared to $3.6 million of contract revenues in the same three month
period of the prior fiscal year due to substantial changes in the EDI Program
in late March 1995.
The EDI Program has historically represented a substantial portion of PDGR's
business. Revenues at PDGR's Florida remediation service operation in the
current three months have declined significantly from the three months ended
July 31, 1994. In addition, PDGR's thermal treatment services plant has also
been seriously affected by changes in the EDI Program as the resulting lack of
petroleum contaminated soil available for treatment forced the plant to shut
down for the majority of the current quarter, resulting in a substantial
reduction in revenues. Revenues associated with PDGR's business outside of the
EDI Program at its Pennsylvania remediation service operation also declined
slightly during the current quarter due to the timing of certain contract
activity.
The Corporation's gross margin decreased to $1.0 million in the second quarter
of fiscal 1996 compared to $1.7 million in the second quarter of fiscal 1995.
The Corporation's asbestos abatement segment experienced an increase in its
reported gross margin in the current quarter to $0.8 million compared to $0.5
million in the same quarter of the prior fiscal year principally associated
with the increased sales level and slightly higher margins on existing work.
The favorable increase in gross margins experienced in the Corporation's
asbestos abatement segment was more than offset by a substantial decrease in
the gross margins within the environmental remediation segment which represents
PDGR's operations, as reported gross margins decreased to $0.2 million in the
current three months compared to $1.2 million in the prior year's three month
period. The significant reduction in the PDGR gross margin results from the
changes in the EDI Program which caused PDGR's Florida remediation service
operation to experience a substantial reduction in gross margin as a result of
reduced sales volume. However, the shut down of PDGR's thermal treatment
services plant for the majority of the second quarter of fiscal 1996 was the
principal explanation for the decline in reported gross margin since, in the
Corporation's second quarter of fiscal 1995, it contributed a substantial
amount toward PDGR's reported gross margin. PDGR's Pennsylvania remediation
services operation also experienced a slight decline in reported gross margin
when comparing the second quarter of fiscal 1996 and 1995 due to lower sales
volume associated with the timing of contract activity and losses experienced
on certain jobs.
Selling, general and administrative expenses decreased slightly to $1.36
million in the three months ended July 31, 1995 compared to $1.4 million in the
three months ended July 31, 1994. Within the asbestos abatement segment,
selling, general and administrative expenses decreased slightly to $0.26
million in the current three month period compared to $0.29 million in the same
three month period of the prior fiscal year. Selling, general and
administrative expenses within the environmental remediation services segment,
which represents PDGR, increased slightly to $0.47 million in the current
quarter compared to $0.46 million in the same quarter of the prior fiscal year.
Although the thermal treatment services plant experienced a decline in selling,
general and administrative expenses due to the temporary shut down of the
facility and the related cost containment measures which were undertaken, the
Florida and Pennsylvania remediation services operations experienced
11
<PAGE> 12
slightly higher selling, general and administrative expenses due to higher
bidding activity in an effort to increase revenues.
The Corporation's selling, general and administrative expenses associated with
its corporate office remained constant at $0.46 million during the three months
ended July 31, 1995 and 1994. The Corporation also recognized approximately
$0.18 million and $0.21 million of selling, general and administrative expenses
associated with PDGR's corporate office in each of the respective three month
periods.
As a result of the factors described above, the Corporation reported a loss
from operations of $0.35 million in the current three month period compared to
income from operations of $0.3 million for the same three months of the prior
fiscal year.
The Corporation's reported interest expense remained constant at $0.3 million
when comparing the three months ended July 31, 1995 and 1994. The
Corporation's interest expense increased slightly to $0.12 million in the
current three month period compared to $0.1 million in the same three month
period of a year ago due to higher interest rates on outstanding indebtedness
while PDGR's interest expense decreased slightly to $0.18 million versus $0.2
million when comparing the three month periods as a result of lower interest
rates associated with its line of credit in the current three month period.
Interest income increased to $9,000 for the three months ended July 31, 1995
versus $2,000 for the three months ended July 31, 1994 due to higher invested
cash balances.
During the three months ended July 31, 1995, the Corporation recorded an income
tax benefit of approximately $76,000 to reverse its first quarter income tax
provision. It is expected that the Corporation will have no taxable income in
fiscal 1996. PDGR has not recorded any income tax provision for the three
months ended July 31, 1995.
The Corporation recorded a 40.5% minority interest in the losses of PDGR of
approximately $0.3 million for the quarter ended July 31, 1995. In the same
quarter of the previous fiscal year, PDGR was a wholly-owned subsidiary of the
Corporation.
SIX MONTHS ENDED JULY 31, 1995 AND 1994
The Corporation's contract revenues decreased to $11.5 million for the six
months ended July 31, 1995 compared to $15.6 million for the six months ended
July 31, 1994. The Corporation's asbestos abatement segment experienced a
decline in revenues during the current six month period to $7.9 million versus
$8.9 million in the same six month period of the prior fiscal year. The
reduction in asbestos abatement revenues is principally due to lower sales
volume during the first three months of the current six month period due to the
postponement of certain projects. The environmental remediation services
business segment's revenues, which represents PDGR, decreased to $3.6 million
in the current six month period versus $6.7 million in the prior year six month
period due to changes in the EDI Program which have resulted in a reduction in
revenues generated by PDGR within the state of Florida. Additionally, these
EDI program changes have indirectly affected PDGR's thermal treatment services
plant which experienced significantly lower volume and sales prices during the
first three months of fiscal 1996 and was shut down for the majority of the
second quarter of fiscal 1996. PDGR's Pennsylvania remediation services
operation also experienced a slight decline in revenues in the current six
month period compared to the prior six month period related to the timing of
certain contract activity.
The gross margin reported by the Corporation in the six months ended July 31,
1995 decreased to $2.1 million compared to $3.1 million for the six months
ended July 31, 1994. Gross margins within the Corporation's asbestos abatement
segment increased to $1.2 million in the current six months versus $1.0 million
in the same six month period of the prior fiscal year due to overall
improvement in margins realized on certain jobs. The Corporation's overall
decrease in gross margin is entirely attributable to the gross margins
experienced at PDGR which totaled $0.9 million and $2.1 million for the six
months ended July 31, 1995 and 1994, respectively. PDGR's gross margins in the
current six month period were principally affected by the reduced volume at the
thermal treatment services plant in the first three months of fiscal 1996 and
the shut down of the facility for the majority of the second quarter of fiscal
1996 which PDGR believes is indirectly attributable to uncertainty
12
<PAGE> 13
surrounding the EDI Program changes. PDGR's gross margins when comparing the
two six month periods were also affected by the impact of the EDI Program
changes on the Florida operations and slightly lower margins at PDGR's
Pennsylvania remediation services operation as a result of lower volume
associated with the timing of contract activity.
Selling, general and administrative expenses reported by the Corporation for
the six months ended July 31, 1995 increased to $2.8 million versus $2.7
million in the same six month period of the prior fiscal year. Within the
Corporation's asbestos abatement segment, selling, general and administrative
expenses remained constant at $0.5 million when comparing the two six month
periods of fiscal 1996 and fiscal 1995. The Corporation's environmental
remediation segment, which represents PDGR's operations, reported an increase
in selling, general and administrative expenses to $0.98 million in the current
six months compared to $0.87 million in the prior year's six month period.
The current period increase is attributable to increased bidding activity at
PDGR's Florida remediation service operation in an effort to replace revenues
lost as a result of the EDI Program changes and increased bidding activity at
PDGR's Pennsylvania remediation services operation. The Corporation's selling,
general and administrative expenses associated with its corporate office
totaled $1.3 million in each of the reported six month periods. Approximately
$0.9 million of the selling, general and administrative expenses in the six
month periods of fiscal 1996 and 1995 related to the corporate office of the
Corporation. The corporate office of PDGR represented $0.35 million of
selling, general and administrative expenses in the current six month period
compared to $0.42 million in the six months ended July 31, 1994 due to cost
reduction efforts.
The Corporation reported a loss from operations of $0.7 million in the six
months ended July 31, 1995 as a result of the factors discussed above compared
to income from operations of $0.3 million in the same six month period last
year.
During the six months ended July 31, 1995, the Corporation reported a net gain
of approximately $1.4 million from the initial public offering of common stock
and warrants by PDGR since the basis of the Corporation's investment was lower
than the proceeds realized from the initial public offering. As a result of
the sale, the Corporation's ownership percentage in PDGR was reduced from 100%
to 59.5% on an ongoing basis.
Interest expense increased to $0.63 million in the current six month period
compared to $0.55 million in the six months ended July 31, 1994. The
Corporation's interest expense for the six months ended July 31, 1995 increased
to $0.26 million versus $0.18 million for the six months of the prior fiscal
year as a result of higher interest rates on outstanding indebtedness, while
PDGR's interest expense remained constant at $0.37 million in each of the six
month periods.
Interest income totaled $25,000 for the current six month period versus $6,000
in the same six month period of the prior fiscal year due to higher invested
cash balances. Approximately $11,000 of the Corporation's interest income
related to PDGR's operations.
No income tax provision has been recorded for the six months ended July 31,
1995 due to the existence of unused net operating loss carryforwards compared
to an income tax benefit of $16,000 in the six months ended July 31, 1994.
During the six months ended July 31, 1994, the Corporation's existing $2.5
million line of credit and an outstanding mortgage was sold to another lender
for a purchase price of 70% of the aggregate outstanding principal balance.
The new lender has afforded the Corporation forgiveness of indebtedness in the
amount of $0.8 million in connection with the purchase of the loan from the
previous lender. Accordingly, the Corporation has recognized an extraordinary
gain of approximately $0.6 million associated with the extinguishment of debt,
which includes a $0.1 million charge related to the issuance of warrants and a
$0.1 million income tax provision.
The Corporation recorded a 40.5% minority interest in the losses of PDGR of
$0.3 million for the six months ended July 31, 1995. In the same six months of
the previous fiscal year, PDGR was a wholly-owned subsidiary of the
Corporation.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity increased during the six months ended July 31, 1995
as cash and short-term investments increased by $0.4 million to $1.1 million
compared to a decrease in cash and short-term investments of $0.3 million in
the six months ended July 31, 1994. As of July 31, 1995, the Corporation's
cash and short-term investment balance included $0.8 million related to PDGR,
in which the Corporation maintains a 59.5% ownership interest. Pursuant to the
conditions of the Barnett Bank Agreement, PDGR is restricted from providing any
funds to the Corporation other than under a management services agreement. The
Corporation's cash flows pertaining to PDGR's operations in the six months
ended July 31, 1994 were unrestricted.
The increase in cash flows during the current six month period is principally
attributable to cash flows provided by financing activities of $0.4 million and
cash provided by operating activities of $0.3 million. These cash inflows were
partially offset by cash outflows associated with investing activities of $0.3
million.
Cash inflows associated with financing activities during the current six months
included $3.6 million of proceeds from the initial public offering of PDGR
stock, $1.4 million of which was received directly by the Corporation and $2.2
million of which was received by PDGR. PDGR also received $0.1 million related
to the sale of warrants in connection with the initial public offering.
Financing activities in the current quarter also included $3.7 million of
proceeds from refinanced indebtedness related to PDGR, offset by $6.8 million
of repayments on indebtedness primarily related to PDGR.
Cash inflows provided by operating activities of $0.3 million in the six months
ended July 31, 1995 included $1.8 million of cash inflows related to PDGR,
partially offset by $1.5 million of cash outflows related to the Corporation.
These cash inflows included a $1.4 million reduction in accounts receivable, a
$0.4 million decrease in costs and estimated earnings in excess of billings on
uncompleted contracts related to the timing of certain contract activity, a
$0.2 million increase in accrued liabilities due to the timing of payments,
$0.3 million as a result of net income generated during the period and $0.5
million of depreciation and amortization. The aforementioned cash inflows from
operating activities were offset, in part, by a $1.0 million decrease in
accounts payable due to payments, $0.1 million decrease in billings in excess
of costs on uncompleted contracts related to the timing of contracts, and an
adjustment of $1.4 million due to the gain on the sale of PDGR common stock.
The Corporation's investing activities of $0.3 million in the six months ended
July 31, 1995 was attributable to the purchase of property, plant and
equipment. Approximately $0.1 million of the property, plant and equipment
purchased related to PDGR.
During the six months ended July 31, 1994, the $0.3 million decrease in the
Corporation's liquidity resulted from cash used by operating activities of $2.0
million and cash used by investing activities of $0.2 million. These cash
outflows were funded in part by cash provided by financing activities of $1.9
million.
The Corporation's cash outflows of $2.0 million to fund operating activities
principally included a $1.5 million increase in accounts receivable and a $2.6
million increase in costs and estimated earnings in excess of billings on
uncompleted contracts which related to the higher sales levels experienced in
the six months ended July 31, 1994, and a $0.1 million decrease in both
billings in excess of costs and estimated earnings on uncompleted contracts and
deferred revenues related to the timing of revenue recognition. These cash
outflows in operating activities were offset in part by an increase in accounts
payable of $1.3 million and an increase in accrued liabilities of $0.7 million,
both of these increases being related to the timing of certain payments.
During the six months ended July 31, 1994, cash outflows associated with
investing activities of $0.2 million included $0.3 million related to the
purchase of property, plant and equipment, offset in part by $0.1 million of
proceeds realized from the sale of property, plant and equipment.
The Corporation's cash inflows related to financing activities included $2.9
million related to the refinancing of the Corporation's existing line of credit
in March 1994 and the subsequent refinancing in June 1994. These cash inflows
were offset by principal payments on debt of $1.0 million related to the
Corporation's ongoing business activities and amounts which were required to be
repaid under two sale/leaseback transactions in connection with the refinancing
in March 1994.
14
<PAGE> 15
At July 31, 1995, the Corporation's backlog associated with its asbestos
abatement business totaled $5.6 million ($4.5 million on fixed fee contracts
and $1.0 on time and materials or unit price contracts). PDGR's backlog is
expected to result in revenues of approximately $2.5 million to $3.5 million
during the remainder of fiscal 1996. As discussed below, PDGR's backlog has
experienced a significant decline due to changes in the EDI Program which have
significantly impacted PDGR's backlog on which it is able to perform work.
The Corporation maintains a line of credit with CVD Financial totaling $2.5
million which expired on July 31, 1995. The line of credit provides the
Corporation with the ability to borrow up to 85% of eligible accounts
receivable as defined and bears interest at a bank prime rate of interest plus
7%. At July 31, 1995, the Corporation had borrowings under this line of credit
totaling $2.42 million. Since the Corporation is currently fully borrowed
under its existing line of credit and is limited in the amount of funds which
can be provided by PDGR, the Corporation's ability to meet its immediate and
future liquidity requirements is heavily dependent upon the Corporation's
ability to maintain profitability on an ongoing basis and to successfully
refinance its line of credit.
Under the existing loan documents, the Corporation is currently in default on
this line of credit which has also created a cross default under a term loan
with CVD Financial. However, prior management and controlling ownership of CVD
Financial made a commitment to extend the line of credit through mid-1996.
Management and controlling ownership of CVD Financial has recently been
changed. The Corporation and CVD Financial are currently negotiating a term
sheet for a loan extension and the Corporation is hopeful that acceptable
extension terms can be finalized. In the event the Corporation is unable to
successfully negotiate a further extension on its line of credit totaling $2.5
million, its liquidity requirements will be seriously affected due to its
inability to repay this indebtedness. There can be no assurance that an
extension can be successfully negotiated. The Corporation's liquidity
requirements will also be seriously affected during the remainder of fiscal
1996 if it is unable to achieve profitability and to meet cash flow
projections. The Corporation is also pursuing alternative financing
arrangements to replace its existing lines of credit with CVD Financial.
PDGR, in which the Corporation maintains a 59.5% ownership interest, maintained
a $5.0 million Barnett Bank Agreement. The Corporation is a guarantor under
this Barnett Bank Agreement. As of June 2, 1995, PDGR was in default of
certain covenants under the Barnett Bank Agreement. On June 14, 1995, PDGR
entered into a forbearance agreement with Barnett Bank pursuant to which the
revolving line of credit was terminated and the remaining principal balance
currently outstanding under the Barnett Bank Agreement was to be paid down
through a combination of funds provided under the agreement discussed below,
collections on certain outstanding accounts receivable balances and stipulated
principal payments. The forbearance agreement provided that the maturity date
relative to the remaining outstanding principal balance was February 1, 1996.
PDGR reclassified the outstanding balance under the Barnett Bank Agreement from
long-term to short-term indebtedness.
PDGR also entered into a subcontract agreement to provide funding up to $5.0
million related to unbilled and future contract amounts for work performed
under the EDI Program. Additionally, the contractor agreed, as part of the
subcontract agreement, to the assumption of approximately $1.2 million of
outstanding receivables under the EDI Program, previously held as collateral
under the Barnett Bank Agreement.
On June 26, 1995, the $5.0 million subcontract agreement was terminated as a
result of the contractor's inability to secure financing to fund the
subcontract work. Accordingly, PDGR was unable to make the stipulated
principal payments totaling $1.3 million under the forbearance agreement as of
June 30, 1995. Additionally, PDGR was also in default of certain financial
covenants under the Barnett Bank Agreement.
On August 8, 1995, PDGR entered into an amendment to the June 14, 1995 Barnett
Bank forbearance agreement which provides that PDGR will convert the
outstanding loan balance to a term loan which matures on February 1, 1996.
Monthly payments will consist of a combination of collections on certain
outstanding accounts receivable balances and stipulated principal payments.
Under the amendment to the forbearance agreement, PDGR was also granted a
waiver of the financial covenants in the Barnett Bank Agreement.
On August 21, 1995, PDG Environmental Services, Inc., a wholly-owned subsidiary
of PDGR, entered into the Sirrom Agreement which provides $4.0 million of
funding relative to unbilled amounts under the EDI Program. The Sirrom
Agreement, which expires on August 21, 1997, enables PDGR to fund prospective
amounts billed under the EDI Program at the prime rate of interest, as defined,
plus 3%. Although PDGR will be advanced
15
<PAGE> 16
100% of amounts billed, it is required to deposit 34% into an escrow account to
cover potential disallowances, future interest costs, and a commitment fee of
2% of the total funding provided. PDGR also issued 100,000 warrants at an
exercise price of $1.37 per share in conjunction with the execution of the
Sirrom Agreement. The Corporation and PDGR are guarantors under the Sirrom
Agreement.
The Corporation will continue to monitor closely its short-term and long-term
liquidity requirements on an ongoing basis and is prepared to implement any
measures required to conserve cash to meet its needs and to satisfy its
obligations.
PROSPECTIVE INFORMATION
The Corporation's current business consists principally of asbestos abatement
contracting and a 59.5% ownership interest in PDGR, which is engaged in
providing environmental remediation services. Given the limited growth
potential which currently exists within the asbestos abatement business, the
Corporation intends to actively pursue the further diversification of its
business into related environmental areas to the extent it is successful in
obtaining financing specifically to fund acquisitions.
The Corporation's reported financial results in future months are likely to be
adversely effected to the extent of its 59.5% ownership interest in PDGR which
it continues to consolidate for financial reporting purposes as a result of a
significant change in its business as discussed below.
PDGR has historically performed a substantial amount of work under the EDI
Program which provides for the remediation of contamination related to the
storage of petroleum and petroleum products. The EDI Program has undergone
modification during the six months ended July 31, 1995 as discussed in greater
detail in Note 3 to the July 31, 1995 consolidated financial statements.
PDGR estimates that the changes in the EDI Program have had and will continue
to have a material adverse effect on its operations since the number of sites
in PDGR's backlog immediately eligible for continued reimbursement under the
EDI Program has been significantly reduced. PDGR's thermal treatment facility
has also experienced a significant decline in soil shipments which PDGR
believes is indirectly related to EDI Program uncertainties as the entire
market for the thermal treatment of contaminated soil has experienced a
slowdown during the past three to four months. As a result of the
uncertainties within the market for the thermal treatment of contaminated soil,
PDGR's facility was shut down for the majority of the three months ended July
31, 1995. PDGR further estimates that its cash flow will be positively
impacted in future quarters as those sites considered ineligible for continued
remediation are able to be invoiced under the existing legislation.
These factors have resulted in immediate reductions in PDGR's revenues which
have created, and will continue to create, operating losses. PDGR has taken
steps to respond to these revenue reductions through prudent reductions in
staff and other overhead costs and the reallocation of a portion of its Florida
workforce to cover existing backlog at PDGR's Pennsylvania remediation services
operation. PDGR is also actively pursuing environmental engineering and
remediation contracts outside the EDI Program as well as high priority sites
within the EDI Program. PDGR plans to implement further cost containment
measures as may be required under the circumstances and to continue to
diversify its efforts away from the EDI Program. In spite of these efforts,
PDGR believes it will continue to report losses for the remainder of the fiscal
year. The Corporation will likewise report a loss related to its 59.5%
ownership interest in PDGR which is consolidated for financial reporting
purposes.
Both the Corporation, with respect to its 59.5% ownership interest in PDGR,
and PDGR are currently investigating all options in order to offset the
adverse impact on revenues and earnings as a result of the EDI Program changes.
As discussed in further detail in Item 1. Legal Proceedings contained in Part
II located elsewhere herein, the Corporation has been named as a defendant in a
purported class action involving the purchase by all persons and entities of
PDGR common stock from February 9, 1995 through May 23, 1995. The action
alleges that defendants violated certain federal securities laws.
The Corporation believes that the allegations are without merit or that there
are meritorious defenses to the allegations, and intends to defend the action
vigorously. If, however, the plaintiff is successful in its claims, a judgment
rendered against the Corporation and the other defendants would likely have a
material adverse effect on the business and operations of the Corporation.
16
<PAGE> 17
PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 30, 1995, an action, captioned Klein v. PDG Remediation, Inc., et al.,
No. CIV-4954 (DAB), was filed in the United States District Court for the
Southern District of New York asserting federal securities law claims against
PDGR, its directors and certain of its officers, the registrant and the
underwriters of PDGR's initial public offering. The Klein action is brought as
a purported class action on behalf of the named plaintiff and all persons and
entities who purchased PDGR's common stock from February 9, 1995, the effective
date of the initial public offering, through May 23, 1995. The plaintiff
alleges that the defendants violated Sections 11 and/or 15 of the Securities
Act of 1933, as amended, and Section 12(2) of the Securities Exchange Act of
1934, as amended, by issuing or participating in the issuance of the
registration statement and prospectus which contained material misstatements or
omissions, and that the purported class members purchased shares of PDGR's
common stock in reliance on the allegedly false and misleading registration
statement and prospectus. Specifically, plaintiff alleges that defendants knew
or should have known that the Florida reimbursement program in which the
registrant participates was operating at a deficit and was being revised to
eliminate funding of remediation activities for lower priority sites. The
plaintiff is seeking certification of the action as a class action and recision
of the purchase of shares of PDGR's common stock by members of the purported
class or statutory damages, as well as interest, attorneys' fees and other
costs and expenses. The registrant and PDGR believe that the plaintiff's
allegations are without merit or that there are meritorious defenses to the
allegations, and intend to defend the action vigorously.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
PDGR, in which the registrant maintains a 59.5% ownership interest, was in
default of certain covenants under a $5.0 million credit agreement with Barnett
Bank of Central Florida, N.A. On August 8, 1995, PDGR entered into an amended
and restated forbearance agreement with Barnett Bank as discussed in Note 4 to
the consolidated financial statements contained in Part I located elsewhere
herein.
The Corporation is currently in default under a line of credit and a term loan
to CVD Financial as discussed in further detail in Note 4 to the consolidated
financial statements contained in Part I located elsewhere herein.
The registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At July 31, 1995, the cumulative dividends in
arrears on the Series A Preferred Stock were approximately $91,000.
ITEM 5. OTHER INFORMATION
On February 9, 1995, PDGR sold in an initial public offering 1,000,000 shares
of common stock and 1,000,000 redeemable warrants at a price of $5.00 per share
of common stock and $0.10 per redeemable warrant. The registrant sold 400,000
shares of common stock as part of the initial public offering and received net
proceeds of approximately $1.4 million, which resulted in a net gain of
approximately $1.4 million during the three months ended April 30, 1995. PDGR
sold 600,000 newly issued common shares plus 1,000,000 redeemable warrants and
received net proceeds of approximately $2.3 million.
The registrant currently owns approximately 59.5% of PDGR common stock and will
continue to consolidate the accounts of PDGR as long as more than 50% of the
common stock is owned.
The registrant's reported operations in future months are likely to be
materially adversely effected to the extent of its 59.5% ownership interest in
PDGR, which it continues to consolidate for financial purposes, as a result of
a significant change in its business as discussed in Note 3 to the consolidated
financial statements contained in Part I located elsewhere herein.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
<TABLE>
<CAPTION>
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
<S> <C>
4(a) Amended and Restated Forbearance Agreement dated August 8, 1995 between
Borrower and Guarantor and Barnett Bank of Central Florida, N.A. is
incorporated by reference to Exhibit 4(a) of the PDG Remediation, Inc.
Quarterly Report on Form 10-Q for the quarter ended July 31, 1995.
4(b) Master Funding and Indemnification Agreement dated August 21, 1995
between PDG Environmental Services, Inc. and Sirrom Environmental Funding,
LLC, is incorporated by reference to Exhibit 4(b) of the PDG Remediation, Inc.
Quarterly Report on Form 10-Q for the quarter ended July 31,1995.
(b) The registrant did not file any current reports on Form 8-K during the
three months ended July 31, 1995.
</TABLE>
18
<PAGE> 19
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.
PDG ENVIRONMENTAL, INC.
By /s/ JOHN C. REGAN
-------------------------
John C. Regan
Chairman and Chief
Executive Officer
By /s/ ROSE M. CERCONE
-------------------------
Rose M. Cercone
Chief Financial Officer
and Controller
Date: September 13, 1995
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JULY 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 1,114,000
<SECURITIES> 0
<RECEIVABLES> 8,414,000
<ALLOWANCES> 0
<INVENTORY> 309,000
<CURRENT-ASSETS> 15,226,000
<PP&E> 7,266,000
<DEPRECIATION> 3,878,000
<TOTAL-ASSETS> 18,862,000
<CURRENT-LIABILITIES> 11,969,000
<BONDS> 1,089,000
<COMMON> 114,000
0
562,000
<OTHER-SE> 3,307,000
<TOTAL-LIABILITY-AND-EQUITY> 18,862,000
<SALES> 11,546,000
<TOTAL-REVENUES> 11,546,000
<CGS> 9,463,000
<TOTAL-COSTS> 9,463,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 633,000
<INCOME-PRETAX> 12,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 315,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
