<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant / X /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
PDG ENVIRONMENTAL, INC.
- ---------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PDG ENVIRONMENTAL, INC.
- ---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ X / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
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4) Proposed maximum aggregate value of transaction:
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* Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
PDG ENVIRONMENTAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of PDG Environmental, Inc. (the
"Corporation") will be held at the Harley Hotel, 699 Rodi Road, Pittsburgh,
Pennsylvania 15235, on Wednesday, October 16, 1996 at 9:00 o'clock a.m.,
Eastern Daylight Time, for the following purposes:
(a) To elect two (2) directors for a term of one (1) year each;
(b) To ratify Ernst & Young LLP as the Corporation's independent
auditors.
(c) To approve an amendment to the PDG Environmental, Inc.
Incentive Stock Option Plan increasing the number of shares of
the Common Stock of PDG Environmental, Inc. which may be
granted thereunder by 850,000 to a total of 1,550,000.
(d) To approve an amendment to the PDG Environmental, Inc. 1990
Stock Option Plan for Non-Employee Directors to provide for
the award of 10,000 options to purchase shares of the
Corporation's Common Stock to each Non-Employee Director upon
their re-election to the Board of Directors.
(e) To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed August 30, 1996, at the close of business, as
the record date for the purpose of determining the stockholders who are
entitled to receive notice of and to vote at the Annual Meeting.
Stockholders are requested to sign, date and return the enclosed proxy in the
accompanying stamped and addressed envelope.
Dulcia Maire
Secretary
Monroeville, Pennsylvania
September 12, 1996
1
<PAGE> 3
PROXY STATEMENT
PDG ENVIRONMENTAL, INC.
300 OXFORD DRIVE
MONROEVILLE, PENNSYLVANIA 15146
(412) 856-2200
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
OCTOBER 16, 1996
This Proxy Statement is being furnished to all stockholders of PDG
Environmental, Inc. (the "Corporation") in connection with the solicitation of
proxies by its board of directors (the "Board of Directors") for use at the
annual meeting of the stockholders of the Corporation to be held on October 16,
1996, and any adjournment or postponement thereof (the "Annual Meeting"), which
is being held for the purpose of: (a) electing two (2) directors for a term of
one (1) year each; (b) ratifying Ernst & Young LLP as the Corporation's
independent auditors; (c) approving an amendment to the PDG Environmental, Inc.
Incentive Stock Option Plan increasing the number of shares of the Common Stock
of PDG Environmental, Inc. which may be granted thereunder by 850,000 to a
total of 1,550,000; and (d) approving an amendment to the PDG Environmental,
Inc. 1990 Stock Option Plan for Non-Employee Directors to provide for the award
of 10,000 options to purchase shares of the Corporation's common Stock to each
Non-Employee Director upon their re-election to the Board of Directors. This
Proxy Statement and the accompanying Notice of Annual Meeting of Stockholders
are being sent to the stockholders of the Corporation on or about September 12,
1996. A copy of the Annual Report for the fiscal year ended January 31, 1996
accompanies this Proxy Statement or has been previously mailed to stockholders
entitled to vote at the Annual Meeting.
2
<PAGE> 4
THE ANNUAL MEETING
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of PDG Environmental, Inc. (the
"Corporation") for use at the Annual Meeting of Stockholders of the Corporation
to be held on October 16, 1996 at 9:00 a.m. local time at the Harley Hotel, 699
Rodi Road, Pittsburgh, Pennsylvania 15235, and at any adjournment or
postponement thereof for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. This Proxy Statement and accompanying Notice
of Annual Meeting of Stockholders are being sent to the stockholders of the
Corporation on or about September 12, 1996.
VOTING RIGHTS AND PROXY INFORMATION.
The Board of Directors of the Corporation has fixed the close of business on
August 30, 1996, as the record date for the determination of stockholders of
the Corporation entitled to notice of and to vote at the Annual Meeting and any
adjournment or postponement thereof (the "Record Date"). All holders of record
of shares of either common stock, par value $0.02, of the Corporation ("Common
Stock") or Series A cumulative convertible preferred stock, par value $0.01, of
the Corporation ("Series A Preferred Stock") will be entitled to vote at the
Annual Meeting on all matters voted upon. On the Record Date, there were
5,908,868 shares of common stock outstanding and entitled to vote and 186,052
shares of Series A Preferred Stock which entitles the holders thereof to vote
744,208 shares when voting with the Common Stock as a single class. On the
Record Date, the Common Stock was held by 2,201 stockholders of record and the
Series A Preferred Stock was held by 4 stockholders of record.
On all matters to be voted upon at the Annual Meeting, the holders of shares of
Common Stock and Series A Preferred Stock will vote together as a single class
with each holder of Common Stock entitled to cast one (1) vote per share and
each holder of Series A Preferred Stock entitled to such number of votes as
equals the number of shares of Common Stock into which each share of Series A
Preferred Stock is then convertible. On the Record Date, each share of Series
A Preferred Stock was convertible into 4.20 shares of Common Stock. The
presence, in person or by properly executed proxy, of the holders of the
majority of the outstanding shares of Common Stock and Series A Preferred Stock
entitled to vote is necessary to constitute a quorum at the Annual Meeting.
As of August 30, 1996, the directors and officers of the Corporation as a group
controlled approximately 44% of the Common Stock and Series A Preferred Stock
voting as a single class. See "Security Ownership of Certain Beneficial Owners
and Management." Each director and officer of the Corporation has indicated
that he or she intends to vote in favor of each of the matters to be acted upon
at the Annual Meeting.
All shares of Common Stock and Series A Preferred Stock which are represented
at the Annual Meeting by properly executed proxies received by the Board of
Directors prior to or at the Annual Meeting and not revoked will be voted at
the Annual Meeting and will be voted in accordance with the instructions
indicated on such proxies including any instruction directing abstention from
voting. If no instructions are indicated with respect to any shares for which
properly executed proxies are received, such proxies will be voted FOR the
election of the two (2) nominees for the Board of Directors, FOR the
ratification of the independent auditors, FOR approval of the amendment of the
Corporation's Incentive Stock Option Plan and FOR approval of the amendment to
the Corporation's 1990 Stock Option Plan for Non-Employee Directors.
Management and the Board of Directors do not know of any other matters to be
brought before the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before it is voted. Proxies may be revoked by filing a
written notice of such revocation with the Secretary, PDG Environmental, Inc.,
300 Oxford Drive, Monroeville, Pennsylvania 15146. In addition, a proxy will
be deemed to be revoked if the shareholder either (a) attends and votes at the
Annual Meeting, or (b) executes and delivers to the Secretary a proxy bearing a
later date.
Proxies are being solicited by and on behalf of the Board of Directors of the
Corporation. All expenses of this solicitation, including the cost of
preparing and mailing this Proxy Statement, will be borne by the Corporation.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of the Corporation in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for any
out-of-pocket expenses incurred by them in connection with such solicitation.
Proxies will be tabulated by the Corporation's transfer agent, Continental
Stock Transfer & Trust Company, as they are received and updated at the Annual
Meeting.
3
<PAGE> 5
OTHER BUSINESS
Other than the election of the Board of Directors, the ratification of the
independent auditors, the amendment to the Incentive Stock Option Plan and the
amendment to the 1990 Stock Option Plan for Non-Employee Directors, the Board
of Directors does not intend to bring any other matters before the Annual
Meeting. However, if any other matter shall properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed proxy to vote
in accordance with their judgment on such matters.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 30, 1996 with respect
to beneficial ownership of the Corporation's Common Stock and the Corporation's
Series A Preferred Stock voting as a single class by: (i) all persons known to
the Corporation to be considered to own beneficially more than five (5%)
percent of the Corporation's Common Stock and Series A Preferred Stock voting
as a single class; (ii) all directors of the Corporation; and (iii) all of the
Corporation's officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF CLASS
OF BENEFICIAL OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP OF STOCK SHARES OWNED(9)
- ------------------------ ------------------ ---------------
<S> <C> <C>
John C. Regan (1)(2)(3)(8) 2,226,014 33.3
Richard A. Bendis (1)(5)(8) 20,250 *
Lawrence J. Horvat (2)(4)(6)
4108 Hollowood Court
Murrysville, Pennsylvania 15668 485,137 7.3
All directors and officers of the Corporation
as a group including those named above
(7 persons) (3)(4)(5)(6)(7)(8) 2,941,708 44.0
- ---------------
</TABLE>
(1) Director
(2) Officer
(3) Includes 50,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Director Plan (as hereinafter
defined) and 146,822 shares held in trust for one of Mr. Regan's
children.
(4) Includes ownership of shares of Series A Preferred Stock which entitle
the holder thereof to vote together with the Common Stock as one class
in such number of shares with respect to which the Series A Preferred
Stock is convertible into Common Stock.
(5) Includes 10,250 shares of Common Stock that may be acquired pursuant to
options granted under the Non-Employee Director Plan (as hereinafter
defined) and 10,000 shares of Common Stock that may be acquired pursuant
to non-qualified stock options.
(6) Includes 20,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Incentive Stock Option Plan.
(7) Includes 104,166 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Incentive Stock Option Plan to
officers of the Corporation.
(8) Nominee for director.
(9) Percentage is of all voting shares assuming conversion of the
Corporation's Series A Preferred Stock to Common Stock.
* Indicates less than 1%.
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<PAGE> 6
ELECTION OF DIRECTORS
The Board of Directors currently consists of two (2) directors who hold office
for a term of one (1) year each. Two (2) directors are to be elected at this
Annual Meeting for a term of one (1) year each. Two directors, David
D'Appolonia and Bill W. Sorenson, elected at the Annual Meeting held on
September 25, 1995, resigned from the Board of Directors since that date. All
properly executed proxies received in response to this solicitation will be
voted as specified in the proxy. Unless otherwise specified in the proxy, it
is the intention of the persons named in such proxies to vote FOR the nominees
listed below. If events not now known or anticipated make any of the nominees
unable to serve, the proxies will be voted in the discretion of the holders
thereof for other nominees not named herein in lieu of those unable to serve,
or the size of the Board of Directors may be reduced.
The following table sets forth information regarding the directors and nominees
of the Corporation. All of the nominees are currently serving as directors and
Messrs. Regan and Bendis were elected at the 1995 Annual Meeting of the
Corporation's stockholders to serve until the next annual meeting of the
Corporation's stockholders. Each of the nominees has consented to serve as a
director if elected.
<TABLE>
<CAPTION>
YEAR
NAME, AGE FIRST
PRINCIPAL OCCUPATION ELECTED CERTAIN OTHER INFORMATION
-------------------- ------- -------------------------
<S> <C> <C>
Nominees to be Elected by
the Holders of the Common
Stock and Series A
Preferred Stock Voting as
a Single Class
John C. Regan (52) 1989 Mr. Regan has served in his present position since December 1990
Chairman and Chief and has served as a director of the Corporation since April 1989.
Executive Officer of PDG He is the founder of Project Development Group, Inc., now a wholly-
Environmental, Inc. owned subsidiary of the Corporation which engages in asbestos
abatement services, and has served as that corporation's Chairman
and President since 1984. Mr. Regan has also served as Chairman of
the Board of Directors of PDG Remediation, Inc. (PDGR), a company
which provides remediation services to assist customers in
complying with environmental laws and regulations, from July 1994
until August, 1996.
Richard A. Bendis (49) 1986 Mr. Bendis has been an investment banking consultant and Managing
President of KTec and Director of Management Resources of America, Inc. since January,
Investment Banking 1992. He is currently President of the Kansas Technology
Consultant Enterprise Corporation. Mr. Bendis previously was founder and
President of R.A.B. Ventures, Inc., a merchant banking firm, which
made investments in health care, technology and environmental
companies between December 1986 and December 1991. During this
period he also provided consulting and investment banking services
to several companies.
</TABLE>
During the fiscal year ended January 31, 1996, there were three regular
meetings of the Board of Directors, and each of the incumbent directors
attended at least 75% of the total number of meetings of the Board of
Directors. Each of the incumbent directors attended at least 75% of the
meetings of the committees of the Board of Directors on which they served
during such fiscal year.
5
<PAGE> 7
The Board of Directors has several committees which perform various functions.
The Audit Committee reviews the work of the Corporation's independent auditors
and management to ensure that each is properly discharging its responsibilities
in the area of financial control and reporting. This committee presently
consists of Mr. Bendis. The Audit Committee held one meeting in the fiscal
year ended January 31, 1996.
The Nominating Committee recommends prospective nominees for election to the
Board of Directors. This committee currently consists of Mr. Regan. The
Nominating Committee did not hold any meetings during the fiscal year ended
January 31, 1996. The Nominating Committee will consider nominees recommended
by stockholders in accordance with the Corporation's By-Laws. Any such
recommendations are to be submitted to the Secretary of the Corporation in
accordance with the By-Laws.
The Compensation Committee is responsible for administering the Corporation's
Employee Incentive Stock Option Plan, designating the employees eligible to
participate in such plan, the number of options to be granted and the terms and
conditions of each option. The Compensation Committee also reviews the
performance of the Corporation's management and makes recommendations with
respect to the compensation of management. The Compensation Committee consists
of Mr. Bendis and held one meeting during the fiscal year ended January 31,
1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Bendis.
6
<PAGE> 8
EXECUTIVE OFFICERS; COMPENSATION
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
John C. Regan 52 Chairman, President and Chief Executive Officer
Dulcia Maire 45 Secretary
</TABLE>
Ms. Maire has served in her present position since April 1989.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the named executives
concerning their respective annual and long-term compensation for the last
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------
Annual Compensation Awards Payouts
-------------------------- ----------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted All Other
Name and Salary(A) Bonus Compensation Stock Options/ LTIP Compensation
Principal Position Year ($) ($) ($) Award(s) ($) SARs (#) Payouts ($) (B) $
- ------------------ ---- -------- ----- ------------ ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Regan 1996 156,321 ----- ----- ----- ----- ----- 17,428
Chairman and CEO
1995 156,321 ----- ----- ----- ----- ----- 14,488
1994 165,661 ----- ----- ----- ----- ----- 12,548
David J. D'Appolonia 1996 151,974 ----- ----- ----- ----- ----- 3,850
Vice Chairman and
President 1995 151,974 ----- ----- ----- ----- ----- 3,470
1994 160,927 ----- ----- ----- ----- ----- 5,280
</TABLE>
(A) Represents actual cash compensation.
(B) Represents the value of insurance premiums with respect to term life
insurance paid by the Corporation for the benefit of Mr. Regan and Mr.
D'Appolonia.
(C) Mr. D'Appolonia resigned as Vice Chairman and President of the Corporation
in April, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
The following table sets forth information with respect to the named executives
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year.
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<PAGE> 9
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)(A)
Shares
Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized($) Unexercisable Unexercisable
- ---- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
John C. Regan 0 0 50,000/0 0/0
David J. D'Appolonia 0 0 53,000/0 0/0
</TABLE>
(A) Market value of Common Stock at year-end bid price per share minus the
exercise price.
COMPENSATION OF DIRECTORS
The outside directors of the Corporation receive $500 for each meeting they
attend plus reimbursement for their actual expenses incurred in attending such
meetings. In addition, the Corporation has established the 1990 Non-Employee
Director Stock Option Plan (the "Non-Employee Plan") which provides for the
grants of options to non-employee directors to purchase an aggregate of up to
350,000 shares of Common Stock subject to adjustment in the event of any change
in the Common Stock. Under the Non-Employee Plan, the exercise price of
options granted shall be 100% of the fair market value of such shares on the
date such options are granted subject to adjustment as provided in the plan.
At the 1991 Annual Meeting, pursuant to the terms of the Non-Employee Plan, Mr.
Bendis was granted options to purchase 48,750 shares of Common Stock. During
the fiscal year ended January 31, 1994, Mr. Bendis exercised options to
purchase 38,500 shares of the Corporation's Common Stock. Approval is being
sought at the 1996 Annual Meeting to amend the Plan to provide for the award of
10,000 options to purchase Common Stock of the Corporation upon a Director's
re-election to the Board of Directors.
Employee directors are not compensated in their role as directors with the
exception of the 1990 Employee Director Stock Option Plan (the "Employee
Director Plan") pursuant to which grants of options to purchase an aggregate of
up to 250,000 shares of Common Stock, subject to adjustment in the event of any
change in the Common Stock, may be made to employee directors. Under the
Employee Director Plan, the exercise price of options granted shall be 100% of
the fair market value of such shares on the date such options are granted. At
the 1991 Annual Meeting, Mr. Regan was granted options to purchase 50,000
shares, pursuant to the terms of the Employee Director Plan. No options granted
pursuant to the Employee Director Plan have been exercised.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has provided the following Compensation Committee
Report to the PDG Environmental Board of Directors:
The Corporation has a multi-level approach to determining executive
compensation. Individual performance and responsibility of each executive
officer is evaluated in relation to 1) base salary, 2) comparative compensation
surveys, 3) benefits, and 4) stock option plan with incentive driven vesting.
With this philosophy, the Corporation feels confident that it can attract and
retain quality top management and reinforce the strategic plans of the
Corporation through the use of performance objectives.
The review of executive compensation is conducted by the Chief Executive
Officer who reports to the Compensation Committee. The Compensation Committee
reviews and ultimately approves the executive compensation. Due to continuing
operating losses, all executive officers and senior management received a
temporary 10% reduction in base salary and certain benefits in July 1993 as
part of the overall cost containment measures. No other salary adjustments or
review for executive officers were conducted and salary reductions are in place
as of August 1996.
Individual Performance
8
<PAGE> 10
Performance management reviews are conducted periodically for all employees of
the Corporation and executive officers. Individual goals are established at
that time, incorporating the overall objectives of the Corporation. As part of
the review, consideration is given to an executive officer's specific area of
responsibility, accomplishments and contributions.
Base Compensation
The Corporation offers competitive salaries as compared to salaries offered by
companies in similar environmental and hazardous waste remediation companies.
Comparative Compensation Surveys
The Corporation reviews salary surveys from outside sources which evaluate
similar environmental and hazardous waste remediation companies and provide
comparisons on base salaries, appraisal systems, benefits and other specialty
surveys. The comparison group used for compensation is more similar to the
Corporation than the group used in the performance graph in that the
performance graph companies have more diverse areas of operations, such as
landfills, and hazardous waste treatment facilities while the compensation
group is environmental remediation service companies.
Benefits
The basic benefits offered to executive officers, which include participation
in the Corporation's 401k Plan, group health insurance, group term life
insurance and disability insurance are the same as those provided to other
employees of the Corporation. Additionally, certain executive officers are
provided with automobile allowances or company automobiles, individual term
life insurance policies for their benefit and club memberships which are used
for both business and personal purposes. Executive officers who receive
benefits in excess of basic benefits also received a 10% reduction of these
benefits in July 1993 as part of the cost containment measures.
Stock Option Plans
All executive officers are eligible to participate in the Corporation's
Incentive Stock Option Plan. Periodic grants of options are approved by the
Compensation Committee and are intended to provide executives with the
opportunity to buy and maintain an equity interest in the Corporation and share
in the appreciation of the value of the stock. In addition, Mr. Regan is
eligible to participate in the Corporation's Employee Director Plan.
At the request of the Compensation Committee, management proposed an option
vesting schedule which is incentive driven for executive officers. On May 23,
1995, the Compensation Committee recommended and the Board approved the
proposal and the related grant of 80,000 options for executive officers under
the Incentive Stock Option Plan. Options for executive officers are based on
stock appreciation. The options vest only if the stock price reaches $1.50
(100% appreciation) or more for a 30 day period beginning January 31, 1996. As
the price did not meet this criteria, the options did not vest and were
returned to the Plan for future grants.
On June 17, 1996, the Compensation Committee recommended and the Board approved
the proposal and related grant of 100,000 options for the achievement of
budgeted operating results for the second half of fiscal 1997 and 120,000
options for the achievement of budgeted operating results for fiscal 1998 for
executive officers including Mr. Regan.
Compensation of All Executive Officers
The base pay of executive officers for the fiscal year ended January 31, 1996
was determined on the basis of the Compensation Committee's overall assessment
of the executive officer's performance and competitive market data on salary
levels. No incentives were paid in fiscal year 1996. The base pay of the
executive officers is not directly related to the Corporation's performance.
Compensation of John C. Regan, Chairman and Chief Executive Officer
The Committee established the compensation of John C. Regan, Chairman and Chief
Executive Officer, using the same criteria that were used to determine
compensation levels for all executive officers. Mr. Regan's base pay was
determined based on the Committee's assessment of Mr. Regan's performance and
competitive market data on salary levels.
9
<PAGE> 11
In addition to his base pay, Mr. Regan is provided with a company automobile,
three individual term life insurance policies for his benefit in the amounts of
$2,000,000, $1,000,000 and $200,000, a supplemental disability income policy,
financial consulting services and club memberships.
The Corporation did not achieve its pre-determined goals for fiscal year ending
January 31, 1996 and therefore the 30,000 options previously granted to Mr.
Regan under the incentive driven program for executive officers and senior
management were returned to the Plan for future grants. Mr. Regan did not
receive any options under the incentive driven program in the current fiscal
year. On June 17, 1996, the Compensation Committee recommended and the Board
approved the proposal and related grant of 50,000 options for achievement of
budgeted results for the second half of fiscal 1997 and 60,000 options for the
achievement of budgeted operating results for fiscal 1998 to Mr. Regan.
This report has been approved by all members of the Compensation Committee.
Respectfully submitted,
Richard A. Bendis, Chairman
PERFORMANCE GRAPH
The graph on the next page compares the value of the Common Stock, to the
NASDAQ market index and an industry index representing SIC Code No.
4953-Refuse Systems. Each of the total cumulative total returns presented
assumes a $100 investment on January 31, 1991 and reinvestment of dividends.
The industry index is comprised of the following securities: Allied Waste
Industries, Inc.; Allwaste, Inc.; American Ecology Corporation; American
Medical Technologies; American Waste Services; Biomedical Waste Systems;
Browning-Ferris Industries; Clean Harbors, Inc.; Continental Waste Industries;
Eastern Environmental Services; ECO2, Inc.; Envirogen, Inc.; Environmental
Services of America, Inc.; GeoWaste, Inc.; Integrated Waste Services; Laidlaw,
Inc., Class B; Med/Waste, Inc.; Mid-American Waste Systems; Mobley
Environmental Services Class A; Molten Metal Technology; PDG Environmental,
Inc.; PDG Remediation, Inc.; Perma-Fix Environmental Services; Recycling
Industries, Inc.; Republic Environmental Systems, Inc.; Republic Industries,
Inc.; Rollins Environmental Services; Sanifill, Inc., Scherer Healthcare, Inc.;
Sevenson Environmental; Smith Environmental Technologies; Synagro Technologies,
Inc.; Thermo Remediation; Three CI Complete Compl; Transamerican Waste,
Industries; Transcor Waste Services; United Waste Systems, Inc.; USA Waste
Services, Inc.; Vectra Technologies, Inc.; Waste Management Int. PLC.; Western
Waste Industries; WMX Technologies, Inc.
10
<PAGE> 12
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMOUNG PDG ENVIRONMENTAL, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
PDG ENVIRONMENTAL 562.50 656.25 343.75 312.50 125.00
NASDAQ MARKET INDEX 123.52 123.10 155.07 146.55 205.20
SIC CODE INDEX 102.76 88.51 73.74 66.10 74.45
ASSUMES $100 INVESTED ON FEB. 1, 1991
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 1996
11
<PAGE> 13
PROPOSAL TO AMEND THE PDG ENVIRONMENTAL, INC.
INCENTIVE STOCK OPTION PLAN
On July 26, 1996, the Board of Directors voted to amend the PDG Environmental,
Inc. Incentive Stock Option Plan (the "Plan"), subject to approval by the
stockholders, to increase by 850,000 the maximum number of shares of the Common
Stock of the Corporation which may be granted under the Plan.
BACKGROUND
The Board of Directors adopted the Plan for the benefit of the Corporation's
officers and employees based upon the belief that the Plan promotes the best
interests of the Corporation and its stockholders by encouraging stock
ownership in the Corporation by present and future officers and employees thus
stimulating their efforts on behalf of the Corporation and strengthening their
desire to remain with the Corporation and to provide an additional component of
a total compensation package to employees while at the same time conserving the
Corporation's cash. The Plan, as currently in effect, was adopted by the
Corporation in January 1986. The Plan was amended in 1991 to allow for certain
definitional changes and to increase the number of shares of the Corporation's
Common Stock, subject to the Plan from 230,000 to 400,000 and amended in 1994
to increase the number of shares of the Corporation's Common Stock, subject to
the Plan from 400,000 to 700,000. These amendments were approved by the
stockholders of the Corporation at the 1991 and 1994 Annual Meetings,
respectively.
The Board of Directors determined that an aggressive incentive option program
was necessary to revitalize senior management in the refocused business plan.
Pending shareholder approval, a significant number of options were granted to
officers and senior management which would vest only if predetermined profit
goals were met and exceeded over the next 18 months. Fifty percent of the
options would vest if budgeted financial goals are met and 100% would vest if
those goals are exceeded by 25%. Budgeted goals are aggressive and for fiscal
1998 100% vesting would only occur at a profit level of approximately $0.20 per
share.
THE PLAN
The following is a summary of the principal features of the Plan.
Term: The Board of Directors of the Corporation may terminate the Plan at any
time.
Shares Subject to the Plan: The total number of shares of Common Stock of the
Corporation which may be granted under the Plan is 1,550,000 shares (including
the 850,000 shares for which authorization from stockholders is sought),
subject to adjustments provided for in the Plan in order to prevent dilution
or enlargement of rights under the Plan. If an option expires or is terminated
for any reason, the unpurchased or forfeited shares will be eligible for future
awards.
Eligibility: Every full-time employee is eligible to participate in the Plan.
Option Price: The option price shall be fixed by the Board of Directors but
shall in no event be less than 100% of the fair market value of the
Corporation's Common Stock on the date of grant (or 110% in the case of an
employee who owns more than 10% of the total combined voting power of all
classes of stock of the Corporation).
Terms and Conditions of Options: No option granted under the Plan will be
transferable other than by will or by the laws of descent and distribution and
each option will be exercisable during the lifetime of the optionee only by the
optionee. Options granted will expire no later than ten years from the date of
grant. In the event of death or permanent disability, an outstanding option
can be exercised for one year thereafter. If the employment of the optionee is
terminated for good cause, his/her option rights will terminate immediately.
If the employment of the optionee is terminated for any reason, the optionee
has thirty days to exercise the option with respect to the number of shares of
stock which the optionee was entitled to purchase immediately prior to such
termination.
Tax Consequences:
An optionee to whom an incentive stock option is granted will not recognize any
taxable income upon the grant of the option. Neither will the optionee
recognize any taxable income upon the exercise of such option, but the amount
by which the fair market value of the shares on the date of exercise exceeds
the option price paid will be a tax preference item for purposes of the
alternative minimum tax. The shares received pursuant to the exercise of the
option will have a tax basis equal to the option price paid. The Corporation
will not be entitled to a deduction in respect of the granting or exercise of
such option.
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<PAGE> 14
The prescribed holding period for stock received pursuant to such an option is
the greater of two years from the date the option is granted and one year from
the date the shares are transferred to the optionee. If the optionee does not
dispose of the stock before the expiration of this holding period, he shall
realize a long-term capital gain or loss upon a later disposition of the stock.
The amount of this gain or loss shall be equal to the difference between the
amount he realizes on the disposition and the option price paid.
If the optionee disposes of the stock prior to the expiration of the prescribed
holding period, he will have made a disqualifying disposition. In such a case,
the optionee will recognize ordinary income, in the year of disposition, in an
amount equal to the difference between the fair market value of the stock on
the date he exercised the option and the option price paid, provided, however,
that the amount of such ordinary income shall not exceed the difference between
the amount he realizes on the disposition and the option price paid. If the
difference between the amount realized on the disposition and the option price
paid exceeds the difference between the fair market value of the stock on the
date of exercise and the option price paid, the amount of the excess will be
taxed as a long-term capital gain. If the amount realized on the disposition
is less than the option price paid, the optionee will recognize a long-term or
short-term capital loss. The Corporation will be entitled to a deduction, in
the same year, and in the same amount, as the ordinary income the optionee is
required to recognize as a result of the disposition.
PROPOSAL TO AMEND THE PDG ENVIRONMENTAL, INC.
1990 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On July 26, 1996, the Board of Directors voted to amend the PDG Environmental,
Inc. 1990 Stock Option Plan for Non-Employee Directors (the "Plan"), subject to
approval by the stockholders, to provide for the award of 10,00 options to
purchase shares of the Corporation's Common Stock to each Non-Employee Director
upon their re-election to the Board of Directors.
BACKGROUND
The Board of Directors adopted the Plan for the benefit of the Corporation's
non-employee directors based upon the belief that the Plan promotes the best
interests of the Corporation and its stockholders by encouraging stock
ownership in the Corporation by non-employee directors thus stimulating their
efforts on behalf of the Corporation and strengthening their desire to remain
with the Corporation and to provide a compensation increase to directors while
at the same time conserving the Corporation's cash. The Plan, as currently in
effect, was adopted by the Corporation in December, 1990.
THE PLAN
The following is a summary of the principal features of the Plan.
Term: The Plan shall remain in effect until December 14, 2000 unless sooner
terminated by the Board of Directors of the Corporation.
Shares Subject to the Plan: The total number of shares of Common Stock of the
Corporation which may be granted under the Plan is 350,000 shares, subject to
adjustments provided for in the Plan in order to prevent dilution or
enlargement of rights under the Plan. If an option expires or is terminated
for any reason, the unpurchased or forfeited shares will be eligible for future
awards.
Eligibility: Every non-employee director of the Corporation is eligible to
participate in the Plan.
Option Price: The option price shall be fixed by the Board of Directors but
shall in no event be less than 100% of the fair market value of the
Corporation's Common Stock on the date of grant.
Terms and Conditions of Options: No option granted under the Plan will be
transferable other than by will or by the laws of descent and distribution and
each option will be exercisable during the lifetime of the optionee only by the
optionee. Options granted will expire no later than ten years from the date of
grant. In the event of death or permanent disability, an outstanding option
can be exercised for one year thereafter. The optionee shall forfeit all
rights under the option (except as to any shares already purchased) if the
optionee is removed from the Board of Directors of the Corporation by a vote of
the stockholders or by a vote of the Board. If the Board membership of the
optionee is terminated for any reason, the optionee's options terminate
immediately.
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<PAGE> 15
Tax Consequences:
An optionee to whom an incentive stock option is granted will not recognize any
taxable income upon the grant of the option. Neither will the optionee
recognize any taxable income upon the exercise of such option, but the amount
by which the fair market value of the shares on the date of exercise exceeds
the option price paid will be a tax preference item for purposes of the
alternative minimum tax. The shares received pursuant to the exercise of the
option will have a tax basis equal to the option price paid. The Corporation
will not be entitled to a deduction in respect of the granting or exercise of
such option.
The prescribed holding period for stock received pursuant to such an option is
the greater of two years from the date the option is granted and one year from
the date the shares are transferred to the optionee. If the optionee does not
dispose of the stock before the expiration of this holding period, he shall
realize a long-term capital gain or loss upon a later disposition of the stock.
The amount of this gain or loss shall be equal to the difference between the
amount he realizes on the disposition and the option price paid.
If the optionee disposes of the stock prior to the expiration of the prescribed
holding period, he will have made a disqualifying disposition. In such a case,
the optionee will recognize ordinary income, in the year of disposition, in an
amount equal to the difference between the fair market value of the stock on
the date he exercised the option and the option price paid, provided, however,
that the amount of such ordinary income shall not exceed the difference between
the amount he realizes on the disposition and the option price paid. If the
difference between the amount realized on the disposition and the option price
paid exceeds the difference between the fair market value of the stock on the
date of exercise and the option price paid, the amount of the excess will be
taxed as a long-term capital gain. If the amount realized on the disposition
is less than the option price paid, the optionee will recognize a long-term or
short-term capital loss. The Corporation will be entitled to a deduction, in
the same year, and in the same amount, as the ordinary income the optionee is
required to recognize as a result of the disposition.
PLAN BENEFITS ASSOCIATED WITH SHARES
TO BE GRANTED UNDER THE 1990 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
If the stockholders approve the amendment to the 1990 Stock Option Plan for
Non-Employee Directors at the annual meeting, the non-employee director Mr.
Bendis will be granted options to purchase 10,000 shares of the Corporation's
Common Stock pursuant to the Plan, subject to his re-election to the Board of
Directors of the Corporation. The exercise price will be 100% of the fair
market value of such shares. Fair market value as defined in the Plan is the
average of the daily bid and asked price during the previous four week period
to the date the option is granted.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At January 31, 1996, the Corporation and its subsidiaries maintained
outstanding personal loans to Messrs. Regan and D'Appolonia in the amount of
$95,000 and $65,000, respectively. These personal loans are evidenced by
demand notes and bear interest at the rate of 6% per annum. These loans were
made to provide Messrs. Regan and D'Appolonia with funds to satisfy personal
obligations. The loan to Mr. Regan was made in a series of installments from
April 1990 to August 1990. The loan to Mr. D'Appolonia was made in December
1990. The amounts specified represent the highest outstanding balances of the
loans during the Corporation's fiscal year. In July 1996, Mr. D'Appolonia
repaid $50,000 to the Corporation.
RATIFICATION OF INDEPENDENT AUDITORS
Ernst & Young LLP served as independent auditors for the Corporation for the
fiscal year ended January 31, 1996. The Board of Directors has selected Ernst
& Young LLP as its independent auditors for the fiscal year ending January 31,
1997 and is asking the stockholders to ratify that selection. Representatives
of Ernst & Young LLP will be present at the Annual Meeting. It is not expected
that such representatives will make a statement at the meeting, but they will
have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions from stockholders.
STOCKHOLDERS' PROPOSALS FOR 1996 ANNUAL MEETING
Any proposal intended to be presented to stockholders at the 1997 Annual
Meeting of Stockholders must be received by the Corporation for inclusion in
the proxy statement for such annual meeting by May 2, 1997.
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<PAGE> 16
FINANCIAL INFORMATION
The following information comprises a part of the Annual Report of the
Corporation for the fiscal year ended January 31, 1996:
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock is listed for trading on NASDAQ (Symbol: PDGE)
and the information presented for the following periods reflects the high and
low bid information as reported by NASDAQ.
MARKET PRICE RANGE
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 1.31 $ 0.78 $ 1.38 $ 0.75
Second Quarter 0.91 0.50 1.38 0.50
Third Quarter 0.69 0.31 1.38 0.63
Fourth Quarter 0.59 0.25 1.25 0.56
</TABLE>
At August 30, 1996, the Corporation had approximately 2,201 stockholders of
record.
DIVIDENDS
The Corporation has not historically declared or paid dividends with respect to
its Common Stock and has no intention to pay dividends in the foreseeable
future. The Corporation's ability to pay dividends on its Common Stock and
Series A Preferred Stock is prohibited due to restrictions contained in the
Corporation's loan agreements and limitations imposed by the Corporation's
Series A Preferred Stock which require that dividends must be paid to preferred
holders prior to the payment of dividends to the holders of Common Stock.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for the
registrant for the five fiscal years ended January 31, 1996.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1996 1995* 1994* 1993* 1992
---------------------------------------------------------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Contract revenues $20,994 $27,020 $21,656 $35,008 $20,281
Gross margin 2,828 4,746 3,601 5,383 2,829
Income (loss) from operations (2,425) 23 (1,360) 503 (617)
Other income (expense) 528 (922) (531) 259 (368)
Net income (loss) (2,451) 473 (1,445) 682 (754)
COMMON SHARE DATA
Net income (loss) per
common share $ (0.44) $ .07 $ (0.61) $ (0.18) $ (1.49)
Weighted average common shares outstanding 5,670 7,157 3,267 1,239 1,112
BALANCE SHEET DATA
Working capital $ 3,875 $ 6,478 $ 4,594 $ 2,849 $ 1,063
Total assets 11,450 17,519 11,710 14,698 9,300
Long-term obligations 2,786 4,089 3,323 215 733
Total stockholders' equity 1,218 3,609 3,049 4,198 2,108
</TABLE>
*Restated to reflect the treatment of the GeoLogic business of GeoLogic
Recovery Systems ("GeoLogic") a subsidiary of PDGR which operates a thermal
treatment facility, as a discontinued operation (see Note 3 to the
Corporation's Consolidated Financial Statements included herein). GeoLogic was
purchased December 1992.
The comparability of the information presented above is affected by the
acquisitions of Enviro-Tech and GeoLogic in fiscal 1993. Comparability has
also been affected by the adoption of SFAS No. 109, "Accounting for Income
Taxes", in fiscal 1993 by the registrant, whereby it changed its method of
accounting for income taxes from the deferred method to the liability method.
The year ended January 31, 1996 includes loss from discontinued operations of
$1.06 million ($0.19 per common share) related to the decision to dispose of
the GeoLogic operation.
The year ended January 31, 1995 includes an extraordinary item related to the
early extinguishment of debt totaling $0.7 million ($0.11 per common share) and
$0.14 million of non-cash interest costs related to the amortization of the
estimated fair market value of common stock warrants and $0.56 million ($0.08
per common share) of income from the discontinued GeoLogic operation. For the
year ended January 31, 1993, other income includes a $0.7 million gain on the
settlement of certain litigation and $0.43 million ($0.13 per common share) of
income from the discontinued GeoLogic segment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The registrant, through its operating subsidiaries, provides environmental
services to the public and private sectors. The registrant's operations for
the fiscal years presented are segregated into two business segments within the
environmental services area; asbestos abatement services and environmental
remediation services. On February 9, 1995, the registrant sold approximately
40% of its interest in PDGR, which operates an environmental remediation
services business.
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<PAGE> 18
The following paragraphs are intended to highlight key operation trends and
developments in the registrant's operations and to identify other factors
affecting the Company's consolidated results of operations for the three years
ended January 31, 1996.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1996 COMPARED TO YEAR ENDED JANUARY 31, 1995
Consolidated revenues reported by the registrant decreased significantly to
$21.0 million for the year ended January 31, 1996 (fiscal 1996) compared to
$27.0 million for the year ended January 31, 1995 (fiscal 1995). The fiscal
1996 decrease is primarily attributable to lower revenues associated with the
registrant's environmental remediation business which contributed $4.8 million
to contract revenues in fiscal 1996 compared to $9.4 million in contract
revenues in fiscal 1995. The environmental remediation businesses' decrease in
revenues is attributable to the EDI Program changes (a Florida state-funded
site rehabilitation program). The registrant's asbestos operation reported a
decrease in contract revenues to $16.2 million in fiscal 1996 compared to $17.6
million in fiscal 1995 principally due to weak market conditions.
Contract costs decreased to $18.2 million in fiscal 1996 compared to $22.3
million in fiscal 1995 and resulted in reported gross margins of $2.8 million
and $4.7 million, respectively in each fiscal year. The decrease in contract
costs is consistent with the decrease in contract revenues discussed
previously. Gross margins within the asbestos abatement segment of the
registrant's business decreased to $1.4 million compared to $2.1 million
between the two fiscal years while the environmental remediation services
operation gross margins decreased to $1.4 million in fiscal 1996 versus $2.6
million in fiscal 1995. The lower margins experienced in the asbestos
abatement operation in fiscal 1996 resulted from extreme competitive pressures,
a cost overrun on a large contract, an additional provision on a completed
contract and reduced volume. The registrant's asbestos abatement operations
for fiscal 1996 also included approximately $0.3 million of contract costs in
excess of billings related to a contract where the customer is disputing the
related scope. The registrant has filed a claim to recover the additional
monies owed under the contract. Management believes that the amount will
ultimately be recovered.
The significant decrease of PDGR's gross margin is entirely attributable to the
significantly lower contract revenues at the Florida remediation service
operation as a result of the EDI Program changes. Gross margins as a
percentage of contract revenues at PDGR's Florida remediation service operation
actually increased in fiscal 1996 compared to fiscal 1995 which provides
further evidence that the overall decrease in the registrant's gross margins is
related to lower contract revenues. PDGR's reported gross margin at its
Pennsylvania remediation service operation in fiscal 1996 decreased on higher
contract revenues principally due to lower margins on certain fixed-price
contracts.
The registrant's selling, general and administrative expenses increased by 11%
between the two fiscal years to $5.3 million in fiscal 1996 compared to $4.7
million in fiscal 1995. Selling, general and administrative expenses in the
asbestos abatement operation totaled $1.1 million and $1.0 million in fiscal
1996 and 1995, respectively, compared to $1.6 million and $1.1 million in the
environmental remediation services operation. The increase in selling, general
and administrative expenses associated with the environmental remediation
services operation occurred even though PDGR implemented cost reductions at its
Florida remediation service operation, which included closing the Tallahassee
office, staff reductions at its Melbourne office and the reallocation of a
portion of PDGR's workforce to its Pennsylvania remediation service operation,
these reductions were more than offset by the increased marketing and bidding
activity in an effort to replace the revenues lost as a result of the EDI
Program changes. The Pennsylvania remediation service operation also
experienced an increase in selling, general and administrative expenses in
fiscal 1996 compared to fiscal 1995 associated with increased bidding activity.
The selling, general and administrative expenses associated with the corporate
office totaled $2.7 million and $2.5 million in fiscal 1996 and 1995,
respectively. The increase between the two fiscal years principally related to
higher legal fees and other costs associated with two acquisitions which did
not materialize.
The factors discussed above resulted in the registrant reporting a loss from
operations of $2.4 million in fiscal 1996 compared to income from operations of
$0.02 million in fiscal 1995.
The registrant had 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
registrant's investment was lower than the proceeds realized from the initial
public offering. As a result of the sale, the registrant's ownership
percentage in PDGR was reduced from 100% to 59.5% on an ongoing basis.
Interest expense decreased to $0.9 million in fiscal 1996 compared to $1.0
million in fiscal 1995. Principal explanations for the lower interest expense
was that fiscal 1995 included $.14 million of amortization of the estimated
fair value of warrants,
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<PAGE> 19
and the interest rate on a significant portion of the debt was reduced to prime
plus 3% from prime plus 7%. Interest income increased to $37,000 for the year
ended January 31, 1996 compared to $16,000 for the previous fiscal year due to
higher invested cash balances at certain periods throughout the year primarily
related to the cash held in escrow as part of the funding for the EDI Program.
As a result of a net operating loss for book purposes there was no income tax
provision. The registrant had income tax provision of $55,000 for fiscal 1995.
In connection with the sale of PDGR's thermal treatment facility, GeoLogic, the
registrant has reflected the operations of this entity as discontinued for
fiscal 1996 and prior two fiscal years. The loss associated with the operation
of this facility net of the 40% minority interest in PDGR totaled $0.56 million
in fiscal 1996 compared with income from discontinued operations of $0.66
million in fiscal 1995. The significant loss from operations related to the
thermal treatment facility in fiscal 1996 is the direct result of a substantial
reduction in volume processed at the facility combined with a significantly
lower price realized per ton processed which the registrant feels is indirectly
attributable to the EDI Program changes and the corresponding impact of these
changes on the thermal treatment market in the state of Florida. The overall
change in the thermal treatment market in the state of Florida prompted PDGR to
sell the thermal treatment facility. The registrant also recorded a loss net
of the 40% minority interest in PDGR on the disposition of the thermal
treatment facility of $0.5 million in fiscal 1996.
YEAR ENDED JANUARY 31, 1995 COMPARED TO YEAR ENDED JANUARY 31, 1994
During the year ended January 31, 1995, the registrant's consolidated revenues
increased by 24.8% to $27.0 million compared to $21.7 million reported for the
previous fiscal year ended January 31, 1994 (fiscal 1994). A comparison of the
registrant's contract revenues by business segment between the current and the
prior fiscal year shows that the asbestos abatement business contributed $17.6
million in fiscal 1995 compared to $16.2 million in fiscal 1994, while the
environmental remediation services business contributed $9.4 million in fiscal
1995 compared to $5.4 million in fiscal 1994. The $1.4 million improvement in
contract revenues within the asbestos abatement business in the current year
resulted from improvement in sales volume within selected geographical areas.
The registrant's environmental remediation services business contract revenues
increased by approximately 75% due to significant growth within the Florida
remediation services operation related to work performed under the EDI Program
and, to a lesser degree, an increase in contract revenues associated with the
Pennsylvania remediation services operation due to a combination of internal
growth and the full effect of an acquisition.
The registrant's reported gross margin increased to $4.7 million in fiscal 1995
compared to $3.6 million in fiscal 1994. The asbestos abatement operation
contributed $2.2 million to the registrant's gross margin in the current fiscal
year compared to $1.8 million in the previous fiscal year. The modest
improvement within this segment of the business, in spite of continued
competitive pressures within the industry, results from ongoing efforts to
improve job margins through increased efficiency and cost containment. The
registrant's asbestos abatement operations in both years included a favorable
worker's compensation adjustment of approximately $0.1 million related to the
settlement of certain outstanding claims.
The environmental remediation services operation contributed $2.6 million to
gross margin in fiscal 1995 compared to a $1.8 million contribution to gross
margin in fiscal 1994. The increased gross margins in fiscal 1995 were a
direct result of the significantly higher contract revenues at the Florida
remediation services operation. However, when comparing gross margins as a
percentage of contract revenues between the two fiscal years at the Florida
remediation services operation, they actually experienced a decline due to a
change in the mix of business in fiscal 1995 to include a higher subcontractor
component. Gross margin also declined in fiscal 1995 compared to fiscal 1994
at the Pennsylvania remediation service operation due to lower margins
experienced on certain jobs.
Selling, general and administrative expenses decreased slightly in fiscal 1995
to $4.7 million compared to $5.0 million in fiscal 1994. Within the asbestos
abatement operation, selling, general and administrative expenses decreased to
$1.0 million in the current year versus $1.4 million in the prior year due to
ongoing cost reduction efforts in order to remain competitive. Selling,
general and administrative expenses associated with the corporate office also
declined slightly to $2.5 million in fiscal 1995 compared to $2.7 million in
fiscal 1994 due to cost containment efforts. This overall reduction was
mitigated slightly by an increase in selling, general and administrative
expenses within the environmental remediation services operation to $1.1
million in fiscal 1995 versus $0.8 million in fiscal 1994 due to the higher
sales levels and an increased number of employees.
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<PAGE> 20
As a result of the factors discussed above, the registrant reported income from
operations in fiscal 1995 of $0.02 million compared to a loss from operations
of $1.4 million in fiscal 1994.
Interest expense increased to $1.0 million in fiscal 1995 (including $0.14
million related to the amortization of the estimated fair market value of
warrants) compared to $0.6 million in fiscal 1994 as a result of increased
borrowings by the registrant between the fiscal years principally to fund the
operations of its environmental remediation services operation, and an increase
in the interest rate associated with the registrant's refinancing of certain
lines of credit in March and June 1994 from prime plus 2% in fiscal 1994 to
prime plus 7% in fiscal 1995. Interest income decreased to $16,000 in fiscal
1995 compared to $28,000 in fiscal 1994 due to the lower invested cash balances
during the current year.
Other income in fiscal 1995 which totaled approximately $45,000 includes
approximately $75,000 related to the reversal of certain accruals which are no
longer required. The year ended January 31, 1994 also included an equity loss
of $15,000 related to the registrant's investment in a joint venture involved
in the packaging and disposal of small-quantity chemicals which is inactive.
As a result of a net operating loss for book purposes, the registrant had no
federal tax provision, but recorded an income tax provision in fiscal 1995 of
$55,000. During fiscal 1994, the registrant recorded an income tax provision
of $22,000.
The discontinued operations of PDGR's thermal treatment facility had income of
$0.66 million in fiscal 1995 and $0.47 million in fiscal 1994. During fiscal
1995, PDGR's thermal treatment plant benefitted from increased volume and a
slightly higher average price per ton processed as compared to the previous
fiscal year.
During the year ended January 31, 1995, the registrant's existing $2.5 million
line of credit and an outstanding mortgage were sold to another lender for a
purchase price of 70% of the aggregate outstanding principal balance. The new
lender has afforded the registrant forgiveness of indebtedness in the amount of
$0.8 million in connection with the purchase of the loans from the previous
lender. Accordingly, the registrant has recognized an extraordinary gain of
approximately $0.8 million associated with the extinguishment of debt, which
includes an income tax provision and a charge related to the estimated fair
market value of warrants issued to the new lender totaling $0.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The registrant's liquidity decreased slightly during fiscal 1996 as cash and
short-term investments decreased by $0.01 million to $0.6 million.
The decrease in cash during the current year is principally attributable to
cash outflows associated with investing activities of $0.4 million and
financing activities of $1.1 million. These cash outflows were offset by cash
flows provided by operating activities of $1.5 million.
Cash inflows provided by operating activities included a $3.4 million reduction
in accounts receivable, a $2.2 million decrease in costs and estimated earnings
in excess of billings on uncompleted contracts. Both of these reductions are
the result of changes in the EDI Program which enabled PDGR to bill certain
outstanding work combined with collections on outstanding EDI receivables, a
$0.4 million increase in accrued liabilities due to the timing of payments, and
$0.8 million of depreciation and amortization and a $0.8 million provision for
loss on disposal of discontinued operations. The aforementioned cash inflows
from operating activities were offset by a $0.8 million increase in cash held
in escrow related to the funding provisions of the agreements with Sirrom
Environmental Funding, LLC, $0.4 million decrease in accounts payable due to
payments, $0.3 million decrease in billings in excess of costs on uncompleted
contracts related to the timing of contracts, an adjustment of $1.4 million due
to the gain on the sale of PDGR common stock and $2.5 million as a result of
the net loss generated in the period.
Cash inflows associated with financing activities during fiscal 1996 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 also included $3.7 million of proceeds from refinanced indebtedness
related to PDGR, offset by $8.5 million of repayments on indebtedness primarily
related to PDGR.
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<PAGE> 21
The registrant's investing activities of $0.4 million during fiscal 1996 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 fiscal 1995, the registrant's liquidity increased by $0.2 million as
cash and short-term investments totaled $0.7 million at January 31, 1995
compared to $0.5 million at January 31, 1994.
The increase in cash flows during fiscal 1995 is principally attributable to
net cash flows provided by financing activities of $4.5 million, which includes
proceeds generated from borrowings under the registrant's existing lines of
credit of $5.7 million and principal repayments on existing indebtedness of
$1.2 million.
The net cash inflows generated by financing activities were used to fund
investing activities on the part of the registrant in the amount of $0.2
million and to fund the cash outflows associated with the registrant's
operating activities in the amount of $4.2 million.
Cash outflows used to fund the registrant's operating activities included a
$3.7 million increase in accounts receivable and a $2.2 million increase in
costs in excess of billing on uncompleted contracts, both of which are
attributable to the higher sales levels in the current fiscal year, and a $0.4
million increase in other current assets principally related to costs
associated with the initial public offering of a portion of the registrant's
environmental remediation services operation which was finalized in February
1995. These cash outflows were partially offset by the cash inflows associated
with a $0.9 million increase in accounts payable as a result of the higher
sales levels and extended payment terms, a $0.1 million decrease in prepaid
income taxes as a result of the collection of certain income tax refunds, a
$0.4 million increase in accrued liabilities principally due to worker's
compensation and union accruals, a $0.1 million increase in billings in excess
of costs and estimated earnings due to the timing of invoices, and $0.9 million
of cash inflows generated by net income and related adjustments.
Cash outflows used to fund investing activities by the registrant consisted of
$0.3 million of property, plant and equipment purchases, partially offset by
$0.1 million of cash inflows generated from the sale of property, plant and
equipment.
During fiscal 1994, the registrant experienced a decrease in liquidity of $0.6
million as cash and short-term investments were reduced from $1.1 million at
January 31, 1993 to $0.5 million at January 31, 1994. The decline in liquidity
in fiscal 1994 was attributable to cash outflows in the amount of $0.5 million
used to fund the purchase of property, plant and equipment and $0.5 million of
cash outflows related to net repayments associated with existing indebtedness.
The registrant funded $1.0 million of these cash outflows with cash generated
from operating activities. Specifically, cash inflows generated by a reduction
in accounts receivable of $3.0 million, the proceeds of a litigation settlement
of $0.8 million, $0.2 million of billings in excess of costs on uncompleted
contracts and an increase in accounts payable of $0.2 million more than offset
a $1.2 million reduction in accrued liabilities, a $0.2 million increase in
other current assets, and a $1.2 million increase in costs and estimated
earnings in excess of billings on uncompleted contracts. The accounts
receivable balance decreased as a result of the lower revenues during fiscal
1994 and the collection of receivables associated with a state reimbursement
program. The increase in costs and estimated earnings in excess of billings on
uncompleted contracts related to work performed under a state reimbursement
program and the timing of billings. The decrease in accrued liabilities
related to job costs.
As reported in the Form 10-Q for the quarter ended April 30, 1996, the
Corporation had revenues of $5.1 million resulting in a net loss of $679,000 of
which $426,000 was attributable to the asbestos abatement business and $253,000
related to PDGR. At April 30, 1996, the Corporation's backlog associated with
the asbestos abatement business totaled $6.2 million ($4.9 million on fixed fee
contracts and $1.3 million on time and materials or unit price contracts).
The registrant 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 registrant repaid
$1.1 million to CVD Financial with proceeds generated from the sale of its
40.5% 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.
On October 31, 1995, the registrant entered into an Amended and Restated Loan
Agreement with CVD Financial wherein the maximum borrowings under this line of
credit was set at $2,419,994. The interest rate under this line of credit was
reduced from prime plus 7% to prime plus 3% and all amounts borrowed under this
line of credit are due and payable on December 31, 1996. A term loan for
$559,991 was also provided as part of the Loan Agreement, with interest at the
prime rate of interest plus 3%. The Term Loan requires monthly principal
payments of $13,533 plus interest.
20
<PAGE> 22
As part of the aforementioned Loan Agreement, CVD Financial was granted the
right to convert any portion of the outstanding balances of the line of credit
and the term loan, any time after January 31, 1996, into common stock of the
registrant. The Conversion Price is the lesser of the market price, as
defined, of the registrant's common stock on January 31, 1996 or the market
price on the date of the Conversion Notice, except that the conversion price,
in neither case, shall not be less than $0.65 per share. Additionally, the
registrant pledged shares representing its 59.5% ownership share in PDGR as
additional collateral for the Loan Agreement.
On April 25, 1996, the Corporation entered into a Loan Extension Agreement
("Extension Agreement") whereby the maturity date for the line of credit and
term loan were extended to May 1, 1997. The Extension Agreement also provides
that if the Corporation sells its remaining 59.5% interest in PDGR, CVD would
re-advance the Corporation $325,000 under the existing line of credit for
working capital purposes. If the Corporation has not sold its remaining
interest in PDGR by July 24, 1996, CVD would have the option at that time and
thereafter to acquire the PDGR shares at $1 per share with the purchase price
credited against the aforementioned loans. Upon sale of the PDGR stock by CVD
prior to the maturity date of the loans, at amounts varying from $1 per share,
the variance from $1 per share will be credited/charged to the Corporation's
loan balance except that CVD may not sell the PDGR shares at a price below a
defined floor amount which is $0.99 per share. CVD will be obligated to sell
the PDGR shares to a third party identified by PDGR providing that the third
party is paying at least $1 per share and the maturity date of the loans has
not been reached.
On July 31, 1996, the Corporation entered into a Loan Modification Agreement
("Modification Agreement") with CVD. The Modification Agreement provides that
CVD will purchase all 1,470,320 shares of PDGR common stock held by the
Corporation for $0.82 per share and that the aggregate purchase price of
$1,205,662 will be utilized to reduce the outstanding balance on the line of
credit. After application of the proceeds, the line of credit will be reduced
to $1,214,332, and the maximum allowable borrowings under the line of credit
are capped at $1,500,000. The maturity date of the line of credit and term
loan agreements was extended until August 1, 1997.
If before November 1, 1996, the Corporation can arrange a sale of all PDGR
shares held by CVD at a price above $0.82 per share, the excess will be
credited against the balance on the line of credit. The Corporation has
granted an exclusive option to a third party for $1.20 per share. If the
option is exercised, the gain to the Corporation will be $559,000 and debt with
CVD will be reduced by a similar amount.
Ultimate consummation of the sale to CVD is dependent upon the reincorporation
of PDGR in the state of Delaware.
Since the registrant has borrowed a majority of the allowable balance under its
existing line of credit and incurred a significant loss from operations, the
registrant's ability to meet its immediate and future liquidity requirements is
dependent upon the registrant's ability to maintain profitability on an ongoing
basis, convert assets into cash and raise additional equity and/or enter into a
new credit facility.
PDGR, in which the registrant maintained a 59.5% ownership interest, maintained
a $5.0 million 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 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. The Barnett Bank
term loan was repaid in full on December 21, 1995.
On January 27, 1995, PDG Environmental Services, Inc. ("PDGES"), a wholly-owned
subsidiary of PDGR, entered into an agreement with Sirrom Environmental Funding
LLC ("Sirrom Agreement"), which provides $0.75 million of funding in connection
with clean-up activities under the EDI Program. The Sirrom Agreement expires
on January 27, 1997 and enables PDGES to fund the amounts which PDGES bills
under the EDI Program at the prime rate of interest, as defined, plus 2%. The
Corporation is advanced 100% of amounts billed, plus is required to deposit 10%
into an escrow account to cover potential disallowances. The registrant and
PDGR are guarantors on the Sirrom Agreement. As of January 31, 1996, PDGES was
advanced approximately $0.7 million under the Sirrom Agreement.
On August 21, 1995, PDGES entered into an agreement with Sirrom Environmental
Funding LLC ("Second Sirrom Agreement"), which provides $4.0 million of funding
relative to unbilled amounts under the EDI Program. The Second
21
<PAGE> 23
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 a warrant to purchase 100,000 shares of
PDGR's common stock at an exercise price of $1.37 per share in conjunction with
the execution of the Second Sirrom Agreement. The registrant and PDGR are
guarantors under the Second Sirrom Agreement. As of January 31, 1996, PDGR had
been advanced $1.9 million under the Second Sirrom Agreement.
The registrant 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 registrant's current business consists solely of asbestos abatement
contracting after the sale of its 59.5% ownership in PDGR to CVD. The
registrant has also been named in a purported class action suit involving the
purchase by all persons and entities of the registrant's common stock from
February 9, 1995 through May 23, 1995. The action alleges that the defendants
violated certain federal securities laws. The registrant 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
registrant and the other defendants would likely have a material adverse effect
on the business and operations of the registrant.
In April 1996, David J. D'Appolonia, President of the registrant, resigned his
position to pursue personal business activities. He also resigned as Vice
Chairman and a member of the registrant's Board of Directors. The resignation
of Mr. D'Appolonia along with other staff reductions, office closings and the
reduction in interest expense on the negotiated lines of credit will result in
significant overhead reductions.
The resignation of Mr. D'Appolonia along with the resignation of Mr. Bill W.
Sorenson as a member of the registrant's Board of Directors in December 1995
for personal reasons, reduces the registrant's Board of Directors to two
members consisting of one internal and one external director. The registrant
has not as yet arranged replacements for members of the Board of Directors but
will be seeking new directors to stand for election at this year's Annual
Meeting of Stockholders.
The registrant is exploring further options to increase its liquidity and
stockholders' equity including the aforementioned resale of the PDGR shares
held by CVD, a private placement of the registrant's equity securities and/or
the consummation of a new credit facility.
22
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PDG Environmental, Inc.
We have audited the accompanying consolidated balance sheets of PDG
Environmental, Inc. (the "Corporation") as of January 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1996.
Our audits also included the financial statement schedule listed in the index
at Item 14(a). These financial statements and schedule are the responsibility
of the Corporation's management. Our responsibility is to express an opinion
on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PDG
Environmental, Inc. at January 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
----------------------
Ernst & Young LLP
Pittsburgh, Pennsylvania
March 20, 1996,
except for Notes 3 and 7 as to which the date is April 25, 1996
23
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
-------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 636,000 $ 681,000
Cash held in escrow 968,000 151,000
Accounts receivable, less allowance of $768,000 and
$624,000 in 1996 and 1995, respectively 4,847,000 8,675,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,990,000 5,216,000
Inventories 181,000 216,000
Notes receivable from officers 197,000 197,000
Prepaid income taxes 64,000 174,000
Other current assets 492,000 552,000
Net assets of discontinued operation - 437,000
----------- -----------
TOTAL CURRENT ASSETS 10,375,000 16,299,000
PROPERTY, PLANT AND EQUIPMENT
Land 42,000 42,000
Leasehold improvements 66,000 60,000
Furniture and fixtures 168,000 148,000
Vehicles 457,000 395,000
Equipment 3,400,000 3,078,000
Buildings 369,000 369,000
----------- -----------
4,502,000 4,092,000
Less: accumulated depreciation 3,503,000 2,994,000
----------- -----------
999,000 1,098,000
OTHER ASSETS 76,000 122,000
----------- -----------
TOTAL ASSETS $11,450,000 $17,519,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
--------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,734,000 $ 3,058,000
Accrual for sale of discontinued operation 140,000 -
Insurance company accrual 1,284,000 1,284,000
Short-term borrowings - 3,520,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 615,000 745,000
Accrued liabilities 1,535,000 1,171,000
Current portion of long-term debt 192,000 43,000
----------- -----------
TOTAL CURRENT LIABILITIES 6,500,000 9,821,000
LONG-TERM DEBT 2,786,000 4,089,000
MINORITY INTEREST 946,000 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible Series A preferred stock, (2%) $0.01 par value,
5,000,000 shares authorized and 186,052 and 235,099 issued and
outstanding shares at January 31, 1996 and 1995, (liquidation
preference $1,860,524 and $2,350,990, respectively) 444,000 562,000
Common stock, $0.02 par value, 30,000,000 shares authorized
and 5,908,868 shares and 5,423,695 shares issued and outstanding
at January 31, 1996 and 1995 118,000 109,000
Paid-in capital 4,230,000 3,866,000
----------- ------------
4,348,000 3,975,000
(Deficit) retained earnings (3,574,000) (928,000)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,218,000 3,609,000
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,450,000 $17,519,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CONTRACT REVENUES $20,994,000 $27,020,000 $21,656,000
CONTRACT COSTS 18,166,000 22,274,000 18,055,000
----------- ----------- -----------
GROSS MARGIN 2,828,000 4,746,000 3,601,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,253,000 4,723,000 4,961,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (2,425,000) 23,000 (1,360,000)
OTHER INCOME (EXPENSE):
Gain on sale of PDG Remediation, Inc. Common Stock 1,354,000 - -
Equity (loss) income in joint ventures - - (15,000)
Equity income in Integrated Remediation, Inc. - - 5,000
Interest expense:
Interest on financial obligations (873,000) (841,000) (539,000)
Amortization of estimated fair market value of warrants - (142,000) (23,000)
Interest income 37,000 16,000 28,000
Other income 10,000 45,000 13,000
----------- ----------- -----------
528,000 (922,000) (531,000)
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS, MINORITY INTEREST IN LOSSES OF
CONSOLIDATED SUBSIDIARY AND EXTRAORDINARY ITEM (1,897,000) (899,000) (1,891,000)
INCOME TAX PROVISION - 55,000 22,000
MINORITY INTEREST 506,000 - -
----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATION AND EXTRAORDINARY
ITEM (1,391,000) (954,000) (1,913,000)
DISCONTINUED OPERATION:
Income (loss) from operation, net of income tax
of $100,000 and $39,000 in 1995 and 1994, respectively (560,000) 655,000 468,000
Loss on disposal (500,000) - -
EXTRAORDINARY ITEM, NET OF TAX - 772,000 -
----------- ----------- -----------
NET INCOME (LOSS) $(2,451,000) $ 473,000 $(1,445,000)
=========== =========== ===========
UNDECLARED PREFERRED STOCK DIVIDEND REQUIREMENTS $ 45,000 $ - $ 547,000
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
Loss before extraordinary item and discontinued
operation $ (0.25) $ (0.13) $ (0.75)
Discontinued operation (0.19) 0.09 0.14
Extraordinary item - 0.11 -
----------- ----------- -----------
Net income (loss) per share $ (0.44) $ 0.07 $ (0.61)
=========== =========== ===========
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 5,670,000 7,157,000 3,267,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
PREFERRED PREFERRED (DEFICIT) TOTAL
STOCK STOCK COMMON PAID-IN RETAINED STOCKHOLDERS'
SERIES A SERIES B STOCK CAPITAL EARNINGS EQUITY
---------- ---------- ------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1993 $ 2,389,000 $ 1,059,000 $ 26,000 $ 408,000 $ 316,000 $ 4,198,000
Conversion of 100 shares of
cumulative convertible 4%
preferred stock into 905,484
shares of common stock (1,059,000) 18,000 1,034,000 (19,000) (26,000)
Conversion of 735,160 shares
of cumulative convertible
9% preferred stock into
3,038,972 shares of common stock (1,756,000) 61,000 1,941,000 (246,000) --
Issuance of 22,375 shares under
Employee Incentive Stock Option Plan 18,000 18,000
Issuance of 38,500 shares under
Non-Employee Directors Stock
Option Plan 1,000 22,000 23,000
Issuance of 375,000 warrants 281,000 281,000
Net loss (1,445,000) (1,445,000)
----------- ----------- -------- ---------- ----------- -----------
BALANCE AT JANUARY 31, 1994 633,000 -- 106,000 3,704,000 (1,394,000) 3,049,000
Conversion of 29,740 shares of
cumulative convertible 9%
preferred stock into 121,392
shares of common stock (71,000) 3,000 75,000 (7,000) --
Issuance of 277,500 warrants 89,000 89,000
Issuance of 150,000 warrants 52,000 52,000
Adjustment to exercise price
and revaluation of 375,000 warrants (57,000) (57,000)
Issuance of 5,500 shares under
Employee Incentive Stock Option Plan 3,000 3,000
Net income 473,000 473,000
----------- ----------- -------- ---------- ----------- -----------
BALANCE AT JANUARY 31, 1995 562,000 -- 109,000 3,866,000 (928,000) 3,609,000
Conversion of 49,047 shares of
cumulative convertible 9%
preferred stock into 204,902
shares of common stock (118,000) 4,000 134,000 (20,000) --
Issuance of 1,000,000 warrants by PDGR 60,000 60,000
Issuance of 280,071 shares of
common stock to reflect declaration
of 1/3 of the common stock rights 5,000 170,000 (175,000) --
Net loss (2,451,000) (2,451,000)
----------- ----------- -------- ---------- ----------- -----------
BALANCE AT JANUARY 31, 1996 $ 444,000 $ -- $118,000 $4,230,000 $(3,574,000) $ 1,218,000
=========== =========== ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,451,000) $ 473,000 $(1,445,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 764,000 840,000 777,000
Minority Interest (1,228,000) - -
Gain on sale of PDG Remediation, Inc. common stock (1,354,000)
Equity losses (earnings), including distributions from
(advances to) joint venture - 14,000 (6,000)
Deferred income taxes - (174,000) (31,000)
Provision for loss on disposal of discontinued operation 840,000 - -
Provision for losses on accounts receivable 402,000 260,000 355,000
Other (56,000) 172,000 73,000
Extraordinary item - (678,000) -
CHANGES IN CURRENT ASSETS AND LIABILITIES OTHER THAN CASH:
Cash held in escrow (817,000) (151,000) -
Accounts receivable 3,426,000 (3,697,000) 2,989,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,226,000 (2,188,000) (1,189,000)
Inventories 35,000 (24,000) 79,000
Proceeds from litigation settlement - - 791,000
Prepaid income taxes 110,000 51,000 49,000
Other current assets - (432,000) (195,000)
Accounts payable (390,000) 861,000 188,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (130,000) 78,000 226,000
Net assets of discontinued operation (263,000) (36,000) (1,282,000)
Accrued liabilities 382,000 388,000 (1,228,000)
Other - 45,000 (72,000)
----------- ------------ -----------
TOTAL ADJUSTMENTS 4,579,000 (5,105,000) 356,000
----------- ------------ -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,496,000 (4,198,000) 79,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (404,000) (304,000) (470,000)
Proceeds from sale of property, plant and equipment - 123,000 5,000
----------- ------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (404,000) (181,000) (465,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 3,696,000 5,749,000 1,952,000
Proceeds on sale of PDG Remediation, Inc. common stock 3,586,000 - -
Proceeds on sale of warrants 100,000 - -
Principal payments on debt (8,519,000) (1,201,000) (2,110,000)
----------- ------------ -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,137,000) 4,548,000 (158,000)
----------- ------------ -----------
Net increase (decrease) in cash and short-term investments (45,000) 169,000 (544,000)
Cash and short-term investments, beginning of year 681,000 512,000 1,056,000
----------- ------------ -----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 636,000 $ 681,000 $ 512,000
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
FOR THE THREE YEARS ENDED JANUARY 31, 1996
NOTE 1 - BASIS OF PRESENTATION
BUSINESS ACTIVITIES
PDG Environmental, Inc. (the "Corporation") is primarily engaged in providing
environmental services to the public and private sectors. These environmental
services consist of asbestos abatement and environmental remediation services.
Asbestos abatement services are generally performed under the terms of fixed
price contracts or time and materials contracts with a duration of less than
one year, although larger projects may require two or three years to complete.
The Corporation's environmental remediation services segment provides
remediation services associated with leaking underground storage tanks and
hazardous materials. The underground storage tank remediation services are
generally performed under the terms of cost-plus and time and materials
contracts with a duration of one to three years and can be terminated by either
party upon 30 days notice. The remediation services segment also operated a
facility which remediated petroleum-contaminated soil utilizing a thermal
desorption process. On April 25, 1996, the interest in this facility was sold.
The effective date of the transaction for accounting purposes was January 31,
1996 and, accordingly, the Corporation has classified the operations of this
facility as a discontinued operation (see also Note 3).
Effective July 20, 1994, the Corporation formed a new subsidiary PDG
Remediation, Inc. ("PDGR"). The Corporation's environmental remediation
services business was merged into PDGR effective October 20, 1994. PDGR
operated as a wholly-owned subsidiary of the Corporation until February 9,
1995, at which time, the Corporation sold approximately 40.5% of its
wholly-owned environmental remediation services business, PDGR, to the public.
The sale consisted of 1,000,000 shares of PDGR common stock (at $5.00 per
share) and 1,000,000 redeemable warrants to purchase an additional 1,000,000
shares of PDGR common stock (at $0.10 per warrant). The Corporation sold
400,000 of its PDGR common shares as part of the offering and received net
proceeds of approximately $1,400,000. PDGR sold 600,000 newly issued common
shares plus 1,000,000 redeemable warrants and received net proceeds of
approximately $2,300,000. The Corporation recognized a pre-tax gain of
$1,354,000 on the transaction. The redeemable warrants entitles the holder to
purchase one share of common stock at an exercise price of $6.00 per share.
The redeemable warrants may be exercised at any time and expire on February 9,
2000. The Corporation will continue to consolidate its remaining interest
(currently 59.5%) as long as more than 50% of the common stock is owned.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL PRESENTATION:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the Corporation's wholly-owned
subsidiaries. The accounts of PDGR in which the Corporation maintains a 59.5%
ownership interest subsequent to the initial public offering of PDGR's common
stock and warrants as described in Note 1. All significant intercompany
transactions are eliminated in consolidation.
29
<PAGE> 31
REVENUES AND COST RECOGNITION:
Revenues for asbestos abatement and environmental remediation services are
recognized on the percentage-of-completion method, measured by the relationship
of total cost incurred to total estimated contract costs (cost-to-cost method).
Revenues from the treatment of contaminated soil were recognized when the soil
was processed by the Corporation.
Contract costs include direct labor and material costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
depreciation, repairs and insurance. Selling, general and administrative costs
are charged to expense as incurred. Bidding and proposal costs are also
recognized as an expense in the period that such amounts are incurred.
Provisions for estimated losses on uncompleted contracts are recognized in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions and final contract settlements, may result in revisions to
estimated costs and income, and are recognized in the period in which the
revisions are determined. Profit incentives are included in revenues when
their realization is reasonably assured.
CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments consist principally of currency on hand, demand
deposits at commercial banks, and liquid investment funds having a maturity of
three months or less at the time of purchase. At January 31, 1996 and 1995,
cash and short-term investments included two certificates of deposit totaling
$75,000 and $91,500, respectively, which secure underlying letters of credit
and cash held in escrow totaling $75,000 and $206,000, respectively.
CASH HELD IN ESCROW:
Cash held in escrow represents amounts which are subject to withdrawal
restrictions and principally relate to a funding arrangement with Sirrom
Environmental Funding, LLC (also see Note 7) and work performed as a
subcontractor to certain companies in the EDI Program.
INVENTORIES:
Inventories consisting of materials and supplies used in the completion of
contracts is stated at the lower of cost (on a first-in, first-out basis) or
market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets using the straight-line method.
INCOME TAXES:
Earnings on construction contracts, for income tax purposes, are determined
using the percentage-of-completion method of accounting.
Deferred income taxes are recognized for the future tax effects of temporary
differences between financial and income tax reporting based on enacted laws
and rates.
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation. Additionally, Geologic Recovery
Systems was treated as a discontinued operation (see Note 3), and all prior
year financial statements were reclassified to conform with this presentation.
30
<PAGE> 32
NOTE 3 - DISCONTINUED OPERATION
On April 25, 1996, the Corporation sold its interest in its thermal treatment
facility, GeoLogic Recovery Systems ("GeoLogic") to Specialized Environmental,
Inc. ("SEI") in exchange for the assumption by SEI of all of the obligations
and liabilities of GeoLogic. The sale was effective as of January 31, 1996 for
accounting purposes. Concurrently, the Corporation entered into a Surrender
and Release Agreement effective as of January 31, 1996 with respect to an
equipment lease associated with the facility in exchange for a $0.22 million
payment.
The Corporation has accounted for GeoLogic as a discontinued operation as of
January 31, 1996 and, accordingly, its operating results are reported in this
manner in all years presented in the accompanying consolidated financial
statements. The Corporation has recorded a loss on the disposition of GeoLogic
of $0.5 million in fiscal 1996 net of minority interest. Net sales of GeoLogic
were $1.5 million, $ 3.9 million and $ 4.0 million in fiscal years 1996, 1995
and 1994, respectively.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 1996 and 1995 include $166,000 and $263,000,
respectively, of retainage receivables. For the years ended January 31, 1996
and 1995, no single customer contributed to 10% or more of the Corporation's
consolidated revenues.
It is the Corporation's policy not to require collateral with respect to
outstanding receivables. The Corporation continuously reviews the credit
worthiness of customers and, when necessary, requests collateral to secure the
performance of services.
PDGR has contracts to provide services involving the remediation of underground
storage tank sites for private customers under the EDI Program. Receivables
under this program at January 31, 1996 and 1995 totaled $2,000,000 and
$4,942,000, respectively. During the three years ended January 31, 1996,
revenues equal to 14%, 28% and 16%, respectively, of consolidated revenues were
attributable to this program.
PDGR also performs services as a subcontractor to companies with respect to
work performed under a state reimbursement program. In certain circumstances,
PDGR has provided an indemnification for any amounts which are not reimbursed.
At January 31, 1996 and 1995, PDGR has provided such indemnifications for
$7,011,000 and $3,137,000, respectively, of work performed pursuant to such
subcontractor arrangements. PDGR has provided for any potential future losses
associated with these indemnifications as part of its allowance for doubtful
accounts.
All of the Corporation's outstanding accounts receivable are expected to be
collected within the normal operating cycle of one year.
NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Details related to contract activity are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues earned on uncompleted contracts $12,686,000 $16,619,000
Less: billings to date 10,311,000 12,148,000
----------- -----------
Net Under Billings $ 2,375,000 $ 4,471,000
=========== ===========
</TABLE>
Included in the accompanying consolidated balance sheets under the following
captions:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
---------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $2,990,000 $5,216,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (615,000) (745,000)
---------- ----------
Net Under Billings $2,375,000 $4,471,000
========== ==========
</TABLE>
31
<PAGE> 33
Costs and estimated earnings in excess of billings on uncompleted contracts at
January 31, 1996 and 1995 include approximately $400,000 and $300,000,
respectively, related to contracts where the customers are disputing the
related scope. The Corporation is litigating to recover the additional monies
owed under one contract and a contract claim on the other claim. Management
believes that the amounts will ultimately be recovered.
At January 31, 1996 and 1995, net under billings included $2,062,000 and
$4,135,000, respectively, of amounts which will be billed under a state
reimbursement program for the remediation of underground storage tanks.
NOTE 6 - INVESTMENTS IN AFFILIATES
PDG SERVICES
The Corporation and GP Industries, Inc. formed PDG Services in September 1992,
a general partnership joint venture to handle the packaging and disposal of
laboratory chemicals for public and private sector clients. The joint venture
was inactive during the years ended January 31, 1996 and 1995. The Corporation
invested $15,000 in the joint venture during the year ended January 31, 1994.
During the year ended January 31, 1994, the Corporation recognized an equity
loss of $15,000.
NOTE 7 - LINES OF CREDIT
During 1994, the Corporation entered into a loan agreement with CVD Financial
Corporation (the "CVD Agreement") in the amount of $1,812,000 and an Amended
and Restated Credit Agreement (the "Amended and Restated Credit Agreement")
with Integra Bank in the amount of $2,500,000. Under the Amended and Restated
Credit Agreement, borrowings by the Corporation are limited to 60% of the
underlying receivables borrowing base at an interest rate based upon the bank's
basic rate (as defined) plus 2%. The Amended and Restated Credit Agreement
also provides for the issuance of letters of credit and a commitment fee of 1/2
of 1% on the average daily unused portion of the facility. The Amended and
Restated Credit Agreement contains certain financial and non-financial
covenants.
The CVD Agreement contains a $1,000,000 line of credit facility which expired
on April 1, 1995 and an $812,000 term loan which expire on April 1, 1997. All
borrowing under the CVD Agreement bear interest at a bank rate (as defined)
plus 7%. Borrowings under the CVD Agreement are limited to 85% of the
receivables borrowing base. The principal balance of the term loan amortizes
over a five year period and is secured by the fixed assets and a mortgage on
certain property of the Corporation. The Corporation was required to supply
certain financial and non-financial information under the CVD Agreement.
Additionally, a material adverse change in the Corporation's financial
condition may trigger an event of default. The Corporation was also prohibited
from declaring any dividends under the CVD Agreement.
The Corporation issued 277,500 warrants at an exercise price of $1.125 per
share in conjunction with the execution of the CVD Agreement which have been
recorded as an additional cost of the financing.
Effective June 30, 1994, Integra Bank sold its interest in the Amended and
Restated Credit Agreement to CVD Financial Corporation for a purchase price of
70% of the aggregate outstanding principal balance. Additionally, Integra Bank
sold its interest in an outstanding mortgage to CVD Financial Corporation at
70% of the aggregate outstanding principal balance.
CVD Financial Corporation afforded the Corporation forgiveness of indebtedness
in the amount of $789,000 in connection with the purchase of the loans from
Integra Bank. Accordingly, the Corporation recognized an extraordinary gain of
approximately $772,000 which includes a $59,000 income tax provision and a
charge of $52,000 representing the estimated fair market value of 150,000
warrants issued to CVD Financial Corporation at an exercise price of $0.75 per
share in connection with the transaction.
Subsequent to the purchase of the loans from Integra Bank, CVD Financial
Corporation provided the Corporation with a $2,000,000 line of credit on terms
equivalent to those under the CVD Agreement.
The CVD Agreement was amended several times during fiscal 1995 to extend to the
Corporation an additional $300,000 revolving credit, to transfer $300,000 of
revolving credit available under a separate subsidiary line of credit discussed
below to the CVD Agreement, and to extend the repayment date associated with
these additional advances to the sale by the Corporation of 40% of its
environmental remediation services operation, PDGR, to the public.
On February 27, 1995, the Corporation repaid $1.1 million to CVD Financial with
proceeds generated from the sale of its 40.5% interest in PDGR and the existing
line of credit was reduced to $2.5 million.
32
<PAGE> 34
On October 31, 1995, the Corporation entered into an Amended and Restated Loan
Agreement with CVD Financial wherein the maximum borrowings under this line of
credit was set at $2,419,994. The interest rate under this line of credit was
reduced from prime plus 7% to prime plus 3% and all amounts borrowed under this
line of credit were due and payable on December 31, 1996. A term loan for
$559,991 was also provided as part of the Loan Agreement, with interest at the
prime rate of interest plus 3%. The Term Loan requires monthly principal
payments of $13,533 plus interest and matured December 31, 1996. Prior to the
October 31, 1995 refinancing, CVD Financial held warrants to purchase 752,500
shares of the Corporation's common stock at prices ranging from $0.75 to $1.25
per share. As part of the new Loan Agreement, CVD Financial continues to hold
the warrants.
As part of the aforementioned Loan Agreement, CVD Financial was granted the
right to convert any portion of the outstanding balances of the line of credit
and the term loan, any time after January 31, 1996, into common stock of the
Corporation. The conversion price is the lesser of the market price, as
defined, of the Corporation's common stock on January 31, 1996 or the market
price on the date of the conversion notice, except that the conversion price,
in neither case, shall not be less than $0.65 per share. Additionally, the
Corporation pledged PDGR shares representing its 59.5% interest as additional
collateral for the Loan Agreement. At January 31, 1996, the Corporation was
fully borrowed under the $2.42 million of combined availability existing under
the CVD Agreement.
On April 25, 1996, the Corporation entered into a Loan Extension Agreement
("Extension Agreement") whereby the maturity date for the line of credit and
term loan were extended to May 1, 1997. The Extension Agreement also provides
that if the Corporation sells its remaining 59.5% interest in PDGR, CVD would
re-advance the Corporation $325,000 under the existing line of credit for
working capital purposes. If the Corporation has not sold its remaining
interest in PDGR by July 24, 1996, CVD would have the option at that time and
thereafter to acquire the PDGR shares at $1 per share with the purchase price
credited against the aforementioned loans. Upon sale of the PDGR stock by CVD
prior to the maturity date of the loans, at amounts varying from $1 per share,
the variance from $1 per share will be credited/charged to the Corporation's
loan balance except that CVD may not sell the PDGR shares at a price below a
defined floor amount which is $0.99 per share. CVD will be obligated to sell
the PDGR shares to a third party identified by PDGR providing that the third
party is paying at least $1 per share and the maturity date of the loans has
not been reached.
Summary information concerning the Corporation's Credit Agreements during the
years ended January 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Borrowings outstanding at end of year $ -(a) $3,520,000 $2,895,000
Letters of credit outstanding at end of year - 80,000 80,000
Maximum borrowing permitted 2,420,000 3,600,000 3,000,000
Average amount outstanding 2,501,000 3,270,000 2,194,000
Maximum amount outstanding 3,520,000 3,520,000 2,895,000
Year end interest rates 11.50% 15.50% 8.00%
Average interest rates 14.49% 12.81% 8.00%
</TABLE>
(a)Reclassified to Long-Term Debt.
During fiscal 1995, PDG Environmental Services, Inc. ("PDGES"), a wholly-owned
subsidiary of the Corporation maintained a $2,500,000 revolving line of credit
through CVD Financial Corporation which was increased to $4,000,000 on
September 6, 1994 (the "PDGES Agreement"). Borrowings under the $4,000,000
line of credit were limited to 85% of eligible accounts receivable and interest
was assessed at the prime rate plus 7%. PDGES was also required to pay a
facility fee of 1% on the average daily unused commitment. At January 31,
1995, the Corporation had $3,526,000 outstanding under the PDGES Agreement.
On February 27 and 28, 1995, the PDGES Agreement was repaid in full with a
combination of borrowings under the Barnett Bank Agreement (see following
discussion) and the proceeds generated by PDGR from the initial public offering
of its common shares.
Summary information concerning the PDGES line of credit agreements during the
years ended January 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Borrowings outstanding at end of year $ - $3,526,000 $ 665,000
Maximum borrowing permitted 5,000,000 3,700,000 2,500,000
Average amount outstanding 2,253,000 2,270,000 1,470,000
Maximum amount outstanding 3,676,000 3,526,000 1,781,000
Year end interest rates - 15.50% 13.00%
Average interest rates 11.53% 14.70% 8.69%
</TABLE>
33
<PAGE> 35
On February 8, 1995, PDGR entered into a $5,000,000 Credit Agreement with
Barnett of Central Florida, N.A. (the "Barnett Bank Agreement"). Borrowings
under the Barnett Bank Agreement were limited to 75% of eligible accounts
receivable, as defined, and bear interest at the prime rate plus 2%. As a
result of a default of certain covenants under the Barnett Agreement, on June
14, 1995 PDGR entered into a forbearance agreement with Barnett Bank which was
further amended on August 8, 1995. Under these forbearance agreements, the
revolving line of credit was terminated and the outstanding loan balance was
converted to a term loan maturing on February 1, 1996. The Barnett Bank term
loan was repaid in full by PDGR on December 21, 1995.
On January 27, 1995, PDGES entered into a Master Funding and Indemnification
Agreement with Sirrom Environmental Funding, LLC, (the "Sirrom Agreement")
which provides $750,000 of funding in connection with clean-up activities under
the EDI Program. The Sirrom Agreement expires on January 27, 1997 and enables
the Corporation to fund the amounts which PDGES bills under the EDI Program at
the prime rate of interest, as defined, plus 2%. PDGES is advanced 100% of
amounts billed, and is required to deposit 10% into an escrow account to cover
potential disallowances. PDGR and the Corporation are guarantors on the Sirrom
Agreement. As of January 31, 1996, PDGES was advanced approximately $747,000
under the Sirrom Agreement.
On August 21, 1995, PDGES entered into a second Master Funding and
Indemnification Agreement with Sirrom Environmental Funding, LLC (the "Second
Sirrom Agreement"), which provides $4,000,000 of funding relative to unbilled
amounts under the EDI Program. The Second Sirrom Agreement, which expires on
August 21, 1997, enables the Corporation to fund amounts billed under the EDI
Program at the prime rate of interest, as defined, plus 3%. Although PDGES
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 a warrant
to purchase 100,000 shares of PDGR's common stock to Sirrom Environmental
Funding, LLC at an exercise price of $1.37 per share in conjunction with the
execution of the Second Sirrom Agreement. The warrants expire on January 31,
1999. PDGR has recorded $50,000 as the estimated fair market value of the
warrant. PDGR and the Corporation are guarantors on the Second Sirrom
Agreement. As of January 31, 1996, PDGES was advanced approximately $1,868,000
under the Second Sirrom Agreement.
The carrying value of the Corporation's credit facility and term loan
approximate their fair value.
NOTE 8 - ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
----------------------------
<S> <C> <C>
Worker's compensation $ 324,000 $ 157,000
Wages 227,000 254,000
Withheld and accrued taxes 112,000 63,000
Accrued interest 80,000 104,000
Accrued royalties 32,000 60,000
Accrued commitment fees 47,000 -
Accrued fringe benefits 183,000 244,000
Accrued insurance 128,000 32,000
Accrued rent 21,000 5,000
Other 381,000 252,000
---------- ----------
Total Accrued Liabilities $1,535,000 $1,171,000
========== ==========
</TABLE>
NOTE 9 - LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
----------------------------
<S> <C> <C>
Term loan due in monthly installments of $14,000, plus
interest at 3% above the prime rate, due in December 1996. $ 492,000 $ 528,000
Revolving line of credit in the amount of $2,420,000 at
January 31, 1996 maturing on May 1, 1997 and bearing interest
at 3% above the prime rate. 2,420,000 -
Revolving line of credit in the amount of $3,700,000 bearing
interest at 7% above the prime rate, net of discount, paid
in February 1995. - 3,526,000
Other notes payable and capital lease obligations with interest
rates ranging from 6.75% to 11.90% with various maturities. 66,000 78,000
---------- ----------
2,978,000 4,132,000
Less amount due within one year 192,000 43,000
---------- ----------
$2,786,000 $4,089,000
========== ==========
</TABLE>
34
<PAGE> 36
The majority of the Corporation's property and equipment are pledged as
security for the above obligations.
Maturity requirements on long-term debt aggregate $192,000 in fiscal 1997,
$2,778,000 in fiscal 1998 and $8,000 in fiscal 1999.
The Company paid approximately $901,000, $1,134,000 and $824,000 for interest
costs during the years ended January 31, 1996, 1995 and 1994, respectively.
NOTE 10 - INCOME TAXES
The Corporation provides income taxes under the liability method as required by
Statement of Financial Accounting Standards (SFAS) No. 109.
At January 31, 1996, the Corporation has net operating loss carryforwards of
approximately $10,300,000 for income tax purposes which expire in years 2002
through 2011. For financial reporting purposes, a valuation allowance of
approximately $4,194,000 has been recognized to offset the deferred tax asset
related to those carryforwards and to other deferred tax assets. When
realized, the tax benefit of these net operating loss carryforwards will be
applied to reduce income tax expense. These loss carryforwards are subject to
various restrictions based on future operations of the group. The valuation
allowance increased by approximately $1,249,000 during the year ended January
31, 1996. The increase was primarily due to the current year increase in
deductible temporary differences.
The Corporation filed a consolidated federal return with its subsidiaries in
fiscal 1995 and 1994. Due to the public offering of PDGR stock on February 9,
1995, the Corporation's ownership in PDGR was reduced to 59.5%. Therefore, the
Corporation and PDGR will file separate federal returns for fiscal 1996. For
state purposes, each subsidiary generally files separate returns.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The significant components of
the Corporation's deferred tax liabilities and assets as of January 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1995
--------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 531,000 $ 433,000
Deferred tax assets:
Accounts receivable allowance 430,000 250,000
Workers compensation reserve 129,000 62,000
Other 116,000 58,000
Net operating loss carryforwards 4,050,000 3,008,000
----------- ------------
Total deferred tax assets 4,725,000 3,378,000
Valuation allowance for deferred tax assets 4,194,000 2,945,000
----------- ------------
Net deferred tax assets 531,000 433,000
----------- ------------
Net deferred tax liabilities $ - $ -
=========== ============
</TABLE>
35
<PAGE> 37
<PAGE> 38
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - 55,000 53,000
----------- ----------- ----------
Total current - 55,000 53,000
Deferred:
Federal - - -
State - - $ 31,000
----------- ----------- ----------
Total deferred - - $ (31,000)
----------- ----------- ----------
Total income tax provision $ - $ 55,000 $ 22,000
=========== =========== ==========
</TABLE>
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ (645,000) $ (306,000) $ (643,000)
State income taxes, net of federal tax benefit - 36,000 35,000
Limitation on utilization of net operating loss 645,000 276,000 616,000
Goodwill - 18,000 -
Other - 31,000 14,000
---------- ----------- ----------
$ - $ 55,000 $ 22,000
========== =========== ==========
</TABLE>
The Corporation paid approximately $86,000, $51,000 and $83,000 for federal and
state income taxes during the years ended January 31, 1996, 1995 and 1994,
respectively.
36
<PAGE> 39
NOTE 11 - NOTES RECEIVABLE - OFFICERS
At January 31, 1996 and 1995, the Corporation had approximately $197,000 in
notes receivable from its officers in the form of personal loans. A breakdown
of the notes receivable balance by officer is as follows: John C. Regan,
Chairman -$95,000; David J. D'Appolonia, President - $65,000; Dulcia Maire,
Secretary -$30,000 and Lawrence Horvat, Vice President - $7,000. These loans
are evidenced by demand notes and bear interest at the rate of 6% per annum.
NOTE 12 - 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 700,000 shares of the common stock of the Corporation to certain officers
and employees of the Corporation and its subsidiaries.
The following table summarizes information with respect to the Plan for the
three years ended January 31, 1996.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
----------------------------------
<S> <C> <C>
OUTSTANDING AT JANUARY 31, 1993 243,625 $0.60 - $6.00
Granted 84,000 $1.63
Exercised (22,375) $0.60 - $1.91
Cancelled - Reusable (17,750) $0.60 - $3.49
----------
OUTSTANDING AT JANUARY 31, 1994 287,500 $0.60 - $6.00
Exercised (5,500) $0.60
Cancelled-Reusable (18,000) $1.63 - $6.00
----------
OUTSTANDING AT JANUARY 31, 1995 264,000 $0.60 - $2.94
Granted 11,000 $0.75
Cancelled - Reusable (46,998) $1.63 - $2.94
----------
Outstanding January 31, 1996 228,002 $0.60 - $2.94
==========
EXERCISABLE AT JANUARY 31, 1996 199,996 $0.60 - $2.94
==========
RESERVED FOR FUTURE GRANTS AT JANUARY 31, 1996 348,750
==========
</TABLE>
Cancellations in fiscal 1996 include 33,497 options relinquished by employees
receiving options for PDGR stock.
The following table summarizes information with respect to non-qualified stock
options for the three years ended January 31, 1996.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
----------------------------------
<S> <C> <C>
OUTSTANDING AT JANUARY 31, 1993 158,250 $0.60 - $6.00
Expired (15,000) $6.00
------------
OUTSTANDING AT JANUARY 31, 1994 143,250 $0.60 - $6.00
Expired (117,000) $3.00
------------
OUTSTANDING AT JANUARY 31, 1995 26,250 $0.60 - $6.00
Expired (3,125) $6.00
------------
OUTSTANDING AT JANUARY 31, 1996 23,125 $0.60 - $6.00
============
EXERCISABLE AT JANUARY 31, 1996 23,125 $0.60 - $6.00
============
</TABLE>
37
<PAGE> 40
The Corporation also maintains the 1990 Stock Option Plan for Employee
Directors (the "Employee Directors Plan") which provides for the grant of
options to purchase an aggregate of up to 250,000 shares of the Corporation's
common stock. Options to purchase 103,000 shares of the Corporation's common
stock at an exercise price of $0.60 per share have been granted under the
Employee Director Plan. At January 31, 1996, all of the options granted under
the Employee Directors Plan were exercisable.
The 1990 Stock Option Plan for Non-Employee Directors (the "Non-Employee
Directors Plan") provides for the grant of options to purchase an aggregate of
up to 350,000 shares of the Corporation's common stock. Options to purchase
220,712 shares of the Corporation's common stock at prices ranging from $0.60
per share to $4.52 per share have been granted under the Non-Employee Directors
Plan. During the year ended January 31, 1994, options to purchase 38,500
shares of the Corporation's common stock were exercised at a price of $0.60 per
share. Additionally, on December 16, 1993, options to purchase 40,000 shares
of the Corporation's common stock were repriced from $4.52 per share to $1.63
per share. At January 31, 1996, 182,212 of the options granted under the
Non-Employee Directors Plan were exercisable.
Effective November 1, 1994, the Corporation established the PDG Environmental
Retirement Savings Plan (the "Retirement Savings Plan") under Section 401(k) of
the Internal Revenue Code. Substantially all full time employees with at least
one year of service, except for certain bargaining unit employees, are eligible
to participate in the Retirement Savings Plan. Employees may contribute to the
Retirement Savings Plan up to 15% of their eligible compensation. Under the
terms of the Retirement Savings Plan, the Corporation may match up to 6% of
compensation; to be determined annually by the Corporation's Board of
Directors. Corporation contributions are 100% vested after seven years of
service. There were no contributions made by the Corporation in the years
ended January 31, 1996 and 1995.
During the year ended January 31, 1995, PDGR approved the adoption of a stock
option plan for the issuance of up to 250,000 shares of PDGR common stock. The
plan was subject to change, pending PDGR being registered as a public company.
PDGR became a public company on February 9, 1995. Options to purchase 137,500
shares of PDGR's common stock were granted, of which options to purchase 93,500
shares were fully vested at an option price of $5.00. In February 1995, PDGR
employees who received vested options under the plan were required to
relinquish a like number of the Corporation's fully vested stock options which
were previously granted. These relinquished stock options of the Corporation
aggregated 33,497.
At January 31, 1996, there are options to purchase 140,000 shares of PDGR's
common stock outstanding with an exercise price of $1.91 per share for 15,000
shares and $5.00 per share for the remaining 125,000. Of the amount
outstanding at January 31, 1996, options to purchase 98,332 shares of common
stock at $5.00 per share are vested.
NOTE 13 - STOCK WARRANTS
At January 31, 1996 and 1995, the Corporation had approximately 1,007,000 fully
vested warrants outstanding. The exercise price of the warrants range from
$0.75 per share to $4.25 per share and the expiration dates range from fiscal
1997 through fiscal 2001. The majority of these warrants were issued in
conjunction with the financings discussed in Note 7.
NOTE 14 - COMMON STOCK
The Corporation has reserved approximately 744,000 shares of its common stock
for issuance in the event of conversion of its Series A Preferred Stock. The
Corporation has also reserved approximately 2,564,000 shares of its common
stock for issuance under its stock option plans, stock warrants and common
stock rights.
NOTE 15 - PREFERRED STOCK
At the Corporation's Annual Meeting of Stockholders held on July 23, 1993, the
following matters were approved by a majority of the Corporation's preferred
and common stockholders which affected the Corporation's Series A Preferred
stock
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<PAGE> 41
and common stock: a reduction in the Series A Preferred Stock dividend rate
from 9% to 2% and the cancellation of the accrued but unpaid dividends and the
special voting rights associated with such preferred stock in the event of a
certain accumulation of accrued but unpaid dividends thereon; and a
recapitalization of the Corporation in order to effect a one for two reverse
stock split (the "Recapitalization"). In exchange for the forfeiture of the
accrued but undeclared and unpaid dividends, the holders of the 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. At the May 23, 1995
Board of Directors meeting, the issuance of one third of the shares covered by
the aforementioned right was approved. At January 31, 1996 and 1995, there
were 560,143 and 840,214 common stock rights outstanding, respectively. The
Recapitalization was contingent upon the Corporation's listing on the American
Stock Exchange. The Corporation made a decision not to currently pursue such a
listing, therefore, the Recapitalization was indefinitely postponed.
The amendment to the Series A Preferred Stock became effective on September 1,
1993. Prior to the amendment to the Series A Preferred Stock, 110,885 shares
of Series A Preferred Stock were converted into 541,872 shares of common stock.
Additionally, effective September 1, 1993, two executive officers of the
Corporation, John Regan, Chairman and Chief Executive Officer and David
D'Appolonia, Vice Chairman and President, converted their Series A Preferred
Stock holdings totaling 624,275 shares into common stock totaling 2,497,100
shares. As a result of the amendment and the conversion, the Corporation's
annual Series A Preferred Stock dividend requirement has been reduced from
$900,000 to $53,000.
On November 1, 1995 and September 8, 1994, 49,047 shares and 29,740 shares,
respectively, of the Corporation's Series A Preferred Stock and cumulative
dividends in arrears were converted into 204,902 shares and 121,392 shares,
respectively, of Common Stock. At January 31, 1996, there were 186,052 shares
of the Corporation's Series A Preferred Stock outstanding. Cumulative
dividends in arrears on the Series A Preferred Stock were approximately $91,000
at January 31, 1996.
The Series A Preferred Stock is convertible into four shares of the
Corporation's common stock at the option of the preferred stockholder.
However, if at the time of conversion the Corporation is in arrears on the
payment of dividends on such preferred stock, the holder is entitled to receive
additional shares of the Corporation's common stock at the conversion price of
$2.50 per share, upon conversion, equivalent to the cumulative dividends in
arrears. The Series A Preferred Stock is callable at the Corporation's option
at a cash price per share of $11.00 plus any accrued and unpaid dividends until
the redemption date. The conversion rate on the Series A Preferred Stock is
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).
Pursuant to a Share Purchase Agreement with Conversion Industries, Inc. dated
as of December 23, 1992 (the "Conversion Agreement"), Conversion Industries,
Inc. ("Conversion") purchased $1,069,000 of newly issued Series B, cumulative
convertible preferred stock (the "Series B Preferred Stock") in the
Corporation. On June 12, 1993, 100 shares of the Corporation's Series B
Preferred Stock outstanding were converted into 905,484 shares of common stock
at the option of the holder of such shares. The conversion included 5,484
additional shares of common stock representing cumulative dividends in arrears
on the Series B Preferred Stock. On May 23, 1994, Conversion distributed all
of its 905,484 shares of the Corporation's common stock to its shareholders.
NOTE 16 - NET INCOME (LOSS) PER COMMON SHARE
The loss per common share for the years ended January 31, 1996 and 1994 is
computed by adjusting the net loss for annual preferred dividend requirements
and then dividing this amount by the weighted average number of shares of
common stock outstanding during the year. Stock options and warrants have not
been reflected as exercised for purposes of computing the loss per share for
the years ended January 31, 1996 and 1994 since the exercise of such options
and warrants would be antidilutive. In addition, the outstanding shares of
Series A and Series B Preferred Stock have not been reflected as converted in
the year ended January 31, 1994 since the conversion has an antidilutive effect
on the loss per share. Earnings per share for the year ended January 31, 1995
are calculated by dividing the net income by the average common shares
outstanding and dilutive common stock equivalents.
As discussed in Note 15, conversions of both the Series A and Series B
Preferred Stock occurred during fiscal 1994. The supplementary primary loss
per share is $(0.19) for the year ended January 31, 1994 based on 7,978,000 of
weighted average common shares outstanding. This supplementary earnings per
share calculation assumes that the Series A and Series B Preferred Stock
conversions and the related common stock rights occurred on February 1, 1993.
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<PAGE> 42
NOTE 17 - COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases aggregated $565,000,
$535,000 and $554,000 for the years ended January 31, 1996, 1995 and 1994,
respectively. Minimum rental payments under these leases with initial or
remaining terms of one year or more at January 31, 1996 aggregated $1,217,000
and payments due during the next five fiscal years are as follows: 1997 -
$372,000; 1998 - $291,000; 1999 - $234,000; 2000 - $202,000; and 2001 -
$15,000.
During fiscal 1995, International Surplus Lines Insurance Co. ("ISLIC"), filed
a complaint against PDGES, a subsidiary of PDGR, to recover certain refunds
claimed to be owed by PDGES to ISLIC as a result of insurance advances made to
PDGES on behalf of two of ISLIC's insured customers. ISLIC claims that PDGES
was paid for its work by both ISLIC and the Florida Department of Environmental
Resources under a state administered clean-up program. ISLIC contends that
PDGES must reimburse ISLIC for the specific items ISLIC paid which were also
paid for by the State of Florida. However, ISLIC has never specified the items
for which it has requested reimbursements. PDGES contests the amount and the
timing of such reimbursements. ISLIC claims that, pursuant to its agreement
with its two insured, ISLIC paid PDGES $1,744,993 for clean-up costs and that
PDGES reimbursed ISLIC $412,000 for a net advance of $1,334,993. According to
the records of PDGES, ISLIC actually paid only $1,346,220, which PDGES recorded
as a current liability when it was received. Without a breakdown of costs from
ISLIC identifying which clean-up costs were paid for by ISLIC, PDGES cannot
determine the specific amount of ISLIC's claim. At January 31, 1996, PDGES has
$1,284,000 recorded as an advance from ISLIC.
On December 19, 1994, PDGES filed an Answer and Counter-claims to the complaint
in which PDGES vigorously contests the allegations in the complaint. The
counterclaim is for an amount in excess of $2,517,215, and this amount
continues to increase. The basis of the counterclaim is that PDGES has
continued to clean up sites covered by the ISLIC insurance. The counterclaim
is based upon the legal theories of breach of contract, bad faith (insurance),
unjust enrichment, promissory estoppel and implied contract.
PDGES and ISLIC met in March 1996 to explore settlement options; however, to
date the parties have been unable to reach a settlement. Discovery with
respect to the matter will be completed on May 3, 1996, and the trial is
expected to commence on August 5, 1996.
The registrant has been named defendant in a purported class action involving
the purchase by 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 is seeking certification of the action as a class
action and recision of the purchase of shares of common stock by members of the
purported class or statutory damages, as well as interest, attorneys' fees and
other costs and expenses. The registrant believes that the plaintiff's
allegations are without merit or that there are meritorious defenses to the
allegation, and intends to defend the action vigorously.
On September 1, 1995, an answer was filed on behalf of the registrant, its
officers and directors and PDGR which generally denied the plaintiff's claims.
By letter dated December 5, 1995, the plaintiff requested a pre-motion
conference on a motion for class certification. By letter dated December 6,
1995, the underwriter's counsel requested a pre-motion conference on a motion
to dismiss the complaint. In December 1995, the underwriter defendants filed a
notice of motion to dismiss memorandum of law in support of the motion. The
court has not yet acted on this motion. The parties have begun initial
discovery with respect to the action.
NOTE 18 - BUSINESS SEGMENT DATA
The Corporation operates principally in the asbestos abatement and
environmental remediation segments. Operations in asbestos abatement involve
providing asbestos abatement services to public and private sectors, including
removal and disposal, enclosure and encapsulation. The environmental
remediation segment has principally focused on the underground storage tank
remediation business and the soil remediation business. Operating income
(loss) is total revenue less operating expenses excluding interest.
Identifiable assets by segment are those assets used in the Corporation's
operations in each segment.
The following is selected information about the Corporation's operations for
the three years ended January 31, 1996:
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<TABLE>
<CAPTION>
ASBESTOS ENVIRONMENTAL CORPORATE
ABATEMENT REMEDIATION AND GENERAL TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1996:
Contract revenues $16,215,000 $ 4,779,000 $ - $20,994,000
Operating income (loss) 530,000 (858,000) (2,097,000) (2,425,000)
Depreciation and amortization 388,000 239,000 137,000 764,000
Capital expenditures 322,000 58,000 24,000 404,000
Identifiable assets 5,659,000 5,614,000 177,000 11,450,000
FISCAL 1995:
Contract revenues $17,659,000 $ 9,361,000 $ - $27,020,000
Operating income (loss) 1,201,000 1,427,000 (2,605,000) 23,000
Depreciation and amortization 536,000 222,000 82,000 840,000
Capital expenditures 165,000 134,000 5,000 304,000
Identifiable assets 6,612,000 11,416,000 (509,000) 17,519,000
FISCAL 1994:
Contract revenues $16,221,000 $ 5,435,000 $ - $21,656,000
Operating income (loss) 394,000 903,000 (2,657,000) (1,360,000)
Depreciation and amortization 568,000 190,000 19,000 777,000
Capital expenditures 227,000 187,000 56,000 470,000
Identifiable assets 5,299,000 5,944,000 467,000 11,710,000
</TABLE>
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 substantial modification
during the fiscal year ended January 31, 1996 due to an 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 was being
conducted at sites that are not considered to be high priority in terms of the
potential impact on drinking water supplies.
On March 8, 1995, Florida's Governor Lawton Chiles issued Executive Order 95-2
suspending processing of payment applications under the EDI Program and on
March 16, 1995 the Senate passed a bill establishing a protocol for continued
work on sites based on their priority ranking and a pre-approval process for
both the scope and the cost of work for petroleum clean up program tasks.
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 has continued to work under the legislation passed
on March 27, 1995.
On July 26, 1995, the Florida Department of Environmental Protection ("FDEP")
issued guidance to contractors operating under the EDI Program for requesting
pre-approval from the FDEP prior to commencing work on eligible sites. A
supplement was issued to this guidance on October 11, 1995 which contains
maximum allowable charges for contractors to employ in the pre-approval
process.
The change in the legislation surrounding the EDI Program has had a material
adverse effect on PDGR operations during fiscal 1996, and this affected the
Corporation to the extent of its 60% ownership in PDGR since the number of
sites in the Corporation's backlog immediately eligible for continued
reimbursement were significantly reduced.
Additionally, the EDI Program changes has resulted in substantial reductions in
the Corporation's contract revenues resulting in significant operating losses
in fiscal 1996. The Corporation expects these contract revenue reductions and
operating losses to continue into the first and second quarters of fiscal 1997.
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<PAGE> 44
PDGR has responded to the impact of these revenue reductions through prudent
reductions in staff and other overhead costs, the reallocation of a portion of
its workforce to cover existing backlog at PDGR's Pennsylvania remediation
service operation and an intense marketing effort focused on obtaining
remediation service contracts for high priority sites eligible for
reimbursement under the revised Florida state-funded site rehabilitation
program (the "Pre-Approval Program") and for remediation service contracts
outside the Pre-Approval Program.
While PDGR has increased its backlog of high priority sites eligible for
participation in the EDI Program during the fourth quarter of Fiscal 1996, the
implementation time associated with the pre-approval process by the FDEP has
prevented the Corporation from working on these high priority sites during the
first quarter of Fiscal 1997.
PDGR anticipates that its operations during the first and second quarter of
fiscal 1997 may continue to be adversely affected by the delays associated with
the Pre-Approval Program.
In general, PDGR anticipates that it will experience lower margins on work
associated with the pre-approval process; however, it believes that profitable
operating margins are still possible provided PDGR maintains a sufficient
volume of work under the EDI Program.
NOTE 19 - SUBSEQUENT EVENT
On March 13, 1996, PDGR entered into a letter of intent to acquire SPATCO
Environmental, Inc. ("Spatco"); an environmental remediation service company
located in the southeastern United States, from its sole shareholder, Vigour
Holding & Finance b v, in exchange for shares of PDGR common stock. Spatco
generated revenues of approximately $12 million in 1995. The effect of this
acquisition will be to replace and expand some of PDGR's revenues which were
severely depressed by the changes in fiscal year 1996 under the EDI Program.
The consummation of the transaction is subject to a number of conditions
including the negotiation and execution of a definitive agreement. The parties
expect the transaction to close within 75 days of the execution of the letter
of intent.
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PDG ENVIRONMENTAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS(1) OF YEAR
----------- --------- ------------- --------
<S> <C> <C> <C> <C>
1996
Allowance for doubtful accounts $ 624,000 $ 402,000 $ 258,000 $ 768,000
============== ============== ============= ==============
1995
Allowance for doubtful accounts $ 480,000 $ 260,000 $ 116,000 $ 624,000
============== ============== ============= ==============
1994
Allowance for doubtful accounts $ 125,000 $ 355,000 $ - $ 480,000
============== ============== ============= ==============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
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PDG ENVIRONMENTAL, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 16, 1996
The undersigned hereby constitutes and appoints Dulcia Maire, with
powers of substitution, as proxies, to vote all of the shares of the
Common Stock of the Corporation registered in the name of the
undersigned at the close of business on August 30, 1996, at the Annual
Meeting of Stockholders of the Corporation to be held on October 16,
1996 at 9:00 A.M., E.D.T. at the Harley Hotel, 699 Rodi Road,
Pittsburgh, Pennsylvania 15235, and at any adjournment thereof, upon
the matters described in the Notice of such Annual Meeting and Proxy
Statement dated September 12, 1996, receipt of which is hereby
acknowledged, and upon any other business that may properly come
before the Meeting.
The shares represented by this Proxy will be voted and the shares
represented by this Proxy will be voted as specified hereon, but if no
specification is made, the proxies intend to vote FOR the election of
the nominees listed in the Proxy Statement and FOR approval of the
other proposals described in the Proxy Statement.
<TABLE>
<S> <C> <C>
a. Election of Directors FOR ALL NOMINEES LISTED BELOW / / WITHHOLD AUTHORITY / /
(EXCEPT AS MARKED TO THE CONTRARY BELOW) TO VOTE FOR ALL NOMINEES LISTED BELOW
</TABLE>
John C. Regan and Richard A. Bendis for a term of one year.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below.)
----------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(Continued and to be signed and voted on the reverse side.)
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- --------------------------------------------------------------------------------
b. Ratification of the Independent Auditors
/ / FOR / / AGAINST / / ABSTAIN
c. Amendment to Corporation Incentive Stock Option Plan
/ / FOR / / AGAINST / / ABSTAIN
d. Amendment to Corporation's 1990 Stock Option Plan for Non-Employee
Directors
/ / FOR / / AGAINST / / ABSTAIN
Signature(s) must correspond
with the name or names as they
appear printed on this Proxy.
When signing as attorney,
administrator, executor,
guardian or trustee, please add
your full title as such. If
shares are registered in the
names of joint tenants or
trustees, each joint tenant or
trustee should sign.
DATED: , 1996
-------------------
-------------------------------
-------------------------------
Signature(s) of Stockholder(s)
PLEASE DATE, SIGN AND MAIL THIS
PROXY IN THE ENVELOPE PROVIDED,
POSTAGE NOT NECESSARY IF MAILED
IN THE UNITED STATES.
- --------------------------------------------------------------------------------
