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(Conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 31, 1996
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 412-856-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.02 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _______
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $2,954,434 as of March 29, 1996, computed on the basis of the
average of the bid and asked prices on such date.
As of March 29, 1996 there were 5,908,868 shares of the registrant's Common
Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(A) DEVELOPMENT OF THE BUSINESS
PDG Environmental, Inc., the registrant, is a holding company which, through
its wholly and majority-owned operating subsidiaries, is engaged primarily in
providing asbestos abatement and environmental remediation services to the
private and public sectors.
Prior to fiscal 1991, the registrant was solely engaged in providing asbestos
abatement services. The registrant expanded the scope of its business to
include environmental remediation services in fiscal 1991 through the formation
of an operating subsidiary in Florida specializing in remediating leaking
underground storage tanks ("USTs"). In fiscal 1992, the registrant expanded
its underground storage tank remediation business to Pennsylvania. In December
1992, the registrant entered the soil remediation business by purchasing a
thermal desorption plant in West Central Florida. The thermal desorption plant
was discontinued effective January 31, 1996, and the plant was sold April 25,
1996. The registrant is also directing its environmental remediation efforts
to include remediation and management of hazardous materials.
On July 20, 1994, PDG Remediation, Inc. ("PDGR") was incorporated under the
laws of the Commonwealth of Pennsylvania as a wholly-owned subsidiary. The
registrant's environmental remediation services business was merged into PDGR
effective October 20, 1994 in order to separate this business segment from the
registrant's other business segments and facilitate an initial public offering
of PDGR common stock. On February 9, 1995, PDGR sold 1,000,000 shares of its
common stock and 1,000,000 redeemable warrants to purchase an additional
1,000,000 shares of common stock to the public. Of the shares of common stock
sold, 600,000 were offered by PDGR and 400,000 were offered by the registrant,
thereby reducing the registrant's ownership in PDGR to approximately 60%.
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.
(B) INDUSTRY SEGMENTS
Information as to the revenues, operating income or loss and identifiable
assets attributable to each of the industry segments of the registrant and its
subsidiaries for the three years ended January 31, 1996 is incorporated herein
by reference to Note 18 of the registrant's consolidated financial statements
contained on page F-19 located elsewhere herein.
(C) DESCRIPTION OF THE BUSINESS
ASBESTOS ABATEMENT CONTRACTING BUSINESS
OVERVIEW
The registrant, through its wholly-owned subsidiaries, provides asbestos
abatement contracting services to the public and private sectors. The asbestos
abatement industry has developed due to increased public awareness in the early
1970's of the health risks associated with asbestos, which was extensively used
in building construction.
Asbestos, which is a fibrous mineral found in rock formations throughout the
world, was used extensively in a wide variety of construction-related products
as a fire retardant and insulating material in residential, commercial and
industrial properties. During the period from approximately 1910 to 1973,
asbestos was commonly used as a construction material in structural steel
fireproofing, as thermal insulation on pipes and mechanical equipment and as an
acoustical insulation material. Asbestos was also used as a component in a
variety of building materials (such as plaster, drywall, mortar and building
block) and in caulking, tile adhesives, paint, roofing felts, floor tile and
other surfacing materials.
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In the early 1970's, it became publicly recognized that inhalation or ingestion
of asbestos fibers was a direct cause of certain diseases, including asbestosis
(a debilitating pulmonary disease), lung cancer, mesothelioma (a cancer of the
abdominal and lung lining) and other diseases. In particular, friable
asbestos-containing materials ("ACM") were designated as a potential health
hazard because these materials can produce microscopic fibers and become
airborne when disturbed.
The Environmental Protection Agency (the "EPA") first banned the use of
asbestos as a construction material in 1973 and the federal government
subsequently banned the use of asbestos in other building materials as well.
Most structures built before 1973 contain ACM in some form and surveys
conducted by the federal government have estimated that 31,000 schools and
733,000 public and commercial buildings contain friable ACM. Also, many more
industrial facilities are known to contain asbestos.
The asbestos abatement industry grew rapidly in the 1980's due to increasing
public awareness and concern over health hazards associated with ACM,
legislative action mandating safety standards and requiring abatement in
certain circumstances, and economic pressures on building owners seeking to
satisfy the requirements of financial institutions, insurers and tenants. It
is estimated that the asbestos abatement market grew from approximately $200
million in revenues in 1983 to approximately $4.0 billion in 1990. However, due
to the effects of the collapse of the real estate industry and the overall
recession in 1991, the asbestos abatement market contracted to approximately
$3.5 billion and is expected to remain fairly constant in future years.
OPERATIONS
Through its operating subsidiaries, the registrant has expertise in all types
of asbestos abatement including removal and disposal, enclosure (constructing
structures around asbestos-containing area) and encapsulation (spraying
asbestos containing materials with an approved sealant). Asbestos abatement is
principally performed in commercial buildings, government and institutional
buildings, schools and industrial facilities.
The registrant's operating subsidiaries provide asbestos abatement services on
a project contract basis. Individual projects are competitively bid, although
most contracts with private owners are ultimately negotiated. The majority of
contracts undertaken are on a fixed price basis. The length of the contracts
are typically less than one year; however, larger projects may require two or
three years to complete.
The registrant closely monitors contracts by assigning responsibility for each
contract to a project manager who coordinates the project until its completion.
The asbestos abatement process is performed by a qualified labor force in
accordance with regulatory requirements, contract specifications and the
registrant's written operating procedures manual which describes worker safety
and protection procedures, air monitoring protocols and abatement methods.
The registrant's asbestos abatement operations have been generally concentrated
in the northeastern, mid-atlantic, southeastern and southwestern portions of
the United States. The majority of the registrant's national marketing efforts
are performed by members of senior management located in the headquarters
facility in Monroeville, Pennsylvania. Regional marketing and project
operations are also conducted through branch offices located in New York City,
New York; Wilkes-Barre, Philadelphia and Export, Pennsylvania; Fort Lauderdale,
Florida; Houston, Texas and Rock Hill, South Carolina.
Since the registrant and its subsidiaries are able to perform asbestos
abatement work throughout the year, the business is not considered seasonal in
nature. However, it is affected by the timing of large contracts.
SUPPLIERS AND CUSTOMERS
The registrant purchases the equipment and supplies used in the asbestos
abatement business from a number of manufacturers. One of these manufacturers
account for 42% of the registrant's asbestos abatement purchases in fiscal
1996.
The customers of the registrant's asbestos abatement business include both
private sector clients and government or publicly funded entities. In fiscal
1996, the registrant estimates that approximately 76% of its operating
subsidiaries' revenues were derived from private sector clients, 18% from
government contracts and 6% from schools. Due to the nature of the
registrant's business, which involves large contracts that are often completed
within one year, customers that account for a
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significant portion of revenue in one year may represent an immaterial portion
of revenue in subsequent years. No one customer comprised over 10% of the
registrant's revenues for the year ended January 31, 1996.
LICENSES
The registrant, through its operating subsidiaries, is licensed and/or
certified in all jurisdictions where required in order to conduct its
operations. In addition, certain management and staff members are licensed
and/or certified by various governmental agencies as asbestos abatement
supervisors and workers.
INSURANCE AND BONDS
The registrant and its operating subsidiaries maintain liability insurance for
claims arising from its asbestos abatement business. The policy, which
provides a $1.0 million limit per claim and in the aggregate, insures against
both property damage and bodily injury arising from the asbestos abatement
contracting activities of the registrant's operating subsidiaries. The policy
is written on an "occurrence" basis which provides coverage for insured risks
that occur during the policy period, irrespective of when a claim is made.
Higher policy limits of up to $10.0 million are available for individual
projects. The registrant also provides worker's compensation insurance, at
statutory limits, which covers the employees of the registrant's operating
subsidiaries engaged in asbestos removal or encapsulation activities.
A substantial number of the registrant's contracts require performance and
payment bonds and the registrant maintains a bonding program to satisfy these
requirements.
COMPETITIVE CONDITIONS
The asbestos abatement industry is highly competitive and includes both small
firms and large diversified firms, which have the financial, technical and
marketing capabilities to compete on a national level. The industry is not
dominated by any one firm. The registrant principally competes on the basis of
competitive pricing, a reputation for quality and safety, and the ability to
obtain the appropriate level of insurance and bonding.
REGULATORY MATTERS
Numerous regulations at the federal, state and local levels impact the asbestos
abatement industry, including the EPA's Clean Air Act and Occupational Safety
and Health Administration ("OSHA") requirements. As outlined below, these
agencies have mandated procedures for monitoring and handling ACM during
abatement projects and the transportation and disposal of ACM following
removal.
Current EPA regulations ban the use of ACM in buildings and establish
procedures for controlling the emission of asbestos fibers into the environment
during removal, transportation or disposal of ACM. The EPA also has
notification requirements before removal operations can begin. Many state
authorities and local jurisdictions have implemented similar programs governing
removal, handling and disposal of ACM.
The EPA instituted the Asbestos Hazard Emergency Response Act of 1986 which
requires that schools be inspected for asbestos by accredited personnel. In
the event that the inspection program shows evidence of ACM, a maintenance or
abatement program must be implemented and the school must conduct continuing
operations and maintenance programs including reinspection every three years,
training custodial employees in asbestos hazards and furnishing asbestos
notifications to parents and building occupants.
The transportation of ACM, which has been designated a hazardous material, is
governed by the Department of Transportation under the Hazardous Materials
Transportation Act of 1975 which has established guidelines for the
transportation of ACM.
The health and safety of personnel involved in the removal of asbestos is
protected by OSHA regulations which specify allowable airborne exposure
standards for asbestos workers, engineering and administrative control methods,
work area practices, proper supervision, training, medical surveillance and
decontamination practices for worker protection.
The registrant believes it is in compliance with all of the federal, state and
local statutes and regulations which affect its asbestos abatement business.
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BACKLOG
The registrant and its operating subsidiaries had asbestos abatement backlog
orders totaling approximately $7.7 million and $12.3 million at January 31,
1996 and 1995, respectively. The backlog at January 31, 1996 consisted of $5.9
million of uncompleted work on fixed fee contracts and an estimated $1.8
million of work on time and materials or unit price contracts. The backlog at
January 31, 1995 consisted of $9.8 million of uncompleted work on fixed fee
contracts and an estimated $2.5 million of work to be completed on time and
materials or unit price contracts.
ENVIRONMENTAL REMEDIATION BUSINESS
OVERVIEW
The registrant through its majority interest in PDGR, provides remediation
services to assist its customers in complying with environmental laws and
regulations, such as those concerning leaking USTs and contaminated industrial
facilities. PDGR's remediation services range from initial assessment of site
contamination through the design and implementation of remediation and
treatment systems to remove contamination. PDGR also operates thermal
treatment for removing petroleum contaminants from soil, which was discontinued
effective January 31, 1996 and sold on April 25, 1996. PDGR's services are
provided to commercial, industrial and government clients, through offices in
Monroeville, Pennsylvania and Melbourne, Florida.
PDGR's business strategy is to be a technically oriented "hands on" remediation
specialist able to determine, manage and implement all aspects of a clean-up
project. PDGR's business is focused primarily on remediation of contamination
caused by leakage from USTs and the remediation of facilities contaminated by
hazardous substances. PDGR also provides assessment, engineering and
industrial health and safety services when these are integral to the successful
completion of a project.
The UST remediation market is driven by federal and state regulations mandating
upgrade of storage tank systems and remediation of contamination caused by past
leaks. PDGR provides a turnkey service to its customers which includes
assessing the nature and extent of contamination and developing and
implementing remedial action plans for soil and groundwater. The majority of
PDGR's UST remediation business has been undertaken from PDGR's operations
offices in Melbourne, Florida for private clients through the EDI Program.
PDGR has built its UST remediation business in Florida starting in 1991
principally through internal growth.
The remediation and closure of contaminated facilities is overseen by PDGR's
operations and headquarters office in Monroeville, Pennsylvania. Services
provided include decontamination and decommissioning of industrial facilities
and remediation of soil and groundwater contaminated by hazardous substances.
PDGR also provides contamination assessment, remedial design and health and
safety services in support of its field remediation and decontamination
activities. PDGR intends to expand this business segment through its own
internal growth, selected acquisitions and strategic alliances with major firms
that are established in the federal marketplace. Regarding the latter, PDGR
formed an alliance with J.A. Jones Management Services ("Jones"), jointly bid
on a major remediation project for the U.S. Navy at which time PDGR executed an
exclusive subcontractor pre-selection agreement with Jones. As a result of
this alliance, PDGR will serve as a subcontractor to Jones with respect to a
recently awarded $15 million per year contract for remediation services by the
U.S. Navy under which PDGR's expected annual revenues will be approximately $2
million to $5 million per year for up to three years.
ENVIRONMENTAL REMEDIATION MARKET
According to reports cited by Richard K. Miller & Associates, Inc., in its
publication, ENVIRONMENTAL MARKETS 1994 - 1997, AN IN DEPTH ASSESSMENT OF
POLLUTION CONTROL AND ENVIRONMENTAL BUSINESS OPPORTUNITIES IN THE UNITED
STATES, the cost of remediation of contaminated sites will be hundreds of
billions of dollars over the next two or three decades. Government studies
cited by this publication contain estimates that the DOE and DOD will spend
$270 billion to $400 billion on clean-up of nuclear weapons production sites
and military facilities over the next 30 years; $40 billion to $234 billion
over the next approximately 30 years will be spent on RCRA corrective actions;
$100 billion to $151 billion over the next 30 to 40 years will be spent on
Superfund sites; and $30 billion to $67 billion over the next 16 to 30 years
will be spent for UST clean-ups. While published estimates vary according to
current market size and the amount spent internally by the various government
agencies, the registrant believes that the current remediation market available
to contractors such as the registrant was at least $3 billion in 1993 and is
expected to grow at a rate of 15% or more per year from 1994 to 1997.
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The number of sites requiring remediation is substantial. According to the
EPA, the number of sites/facilities in the United States awaiting clean-up are
as follows:
- UST 295,000
- States 19,000 (sites needing further investigation)
- DOD 7,300 (at 1,800 installations)
- DOE 4,000 (at 110 installations)
- RCRA 1,500 to 3,500 (corrective actions and closures)
- Superfund 1,500 to 2,100 (national priority list)
PDGR has developed expertise in remediation of sites contaminated by petroleum
products and in decontaminating and closing sites contaminated by hazardous
substances. These activities are necessary in most of the sites requiring
clean-up.
UST Remediation
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From its inception, PDGR has concentrated its efforts on developing a prototype
business for remediating sites contaminated by USTs where state programs funded
by taxes on fuel and petroleum products, rather than expenditures of the major
oil companies, provide the impetus for clean-up. While major oil companies
continue to be a driving force in the UST market, the registrant believes that
their activity is not necessarily an accurate indicator of the market size or
pace of activity. In a recent report by Environmental Information, Ltd.,
entitled THE UNDERGROUND STORAGE TANK MARKET, ITS CURRENT STATUS AND FUTURE
CHALLENGES, it was reported that major oil companies have been spending roughly
$1 billion annually on UST-related activity. However, that report also states
that major oil companies own perhaps as little as 25% of USTs and that
relatively little activity has occurred to date with the remaining 75% of the
UST market, especially with the small businesses and individuals who own
roughly 46% of all retail motor fuel USTs. These owners are the main target of
the registrant's efforts in UST remediation.
At least 43 states now have financial assurance funds that reimburse tank
owners for UST clean-up work. These states collected approximately $900
million per year in 1992 from gasoline taxes and other funding sources with
which to make reimbursements. On the whole, the state programs are generally
regarded as just now emerging as a significant source of clean-up funding.
The Florida state-funded site rehabilitation program is one of the largest in
the country with Florida fuel taxes at present rates providing approximately
$164 million per year for clean-up efforts. In 1986, Florida declared an
amnesty program designed to get petroleum marketers to report known
contamination. In return for registering tanks and coming into compliance with
reporting standards, Florida assumed financial responsibility for cleaning up
the site. These programs were expanded in 1989 to provide liability insurance
for clean-up if the site is in compliance with UST regulations and in 1992 and
1994 to include former UST sites that are contaminated. Florida estimates that
approximately 20,000 sites will be eligible under these programs.
PDGR has developed a significant business in Florida UST remediation. The
registrant participates in the market as an assessment, design and remedial
action contractor and, through January 31, 1996, also as a subcontractor for
treatment of contaminated soil at PDGR's thermal treatment facility in central
Florida.
Remediation and Closure of Contaminated Facilities
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Projects involving remediation and closure of contaminated facilities are
generated by clean-up programs funded by federal agencies (e.g., Superfund, DOE
and DOD), RCRA corrective actions and closures mandated by regulations
affecting both government and industry, and real estate transfers. Superfund
and equivalent state programs typically cover clean-up at inactive commercial
and government disposal facilities and manufacturing facilities. The RCRA
corrective action program makes permitting contingent upon acceptable programs
to manage inactive waste management units that are part of active facilities;
the RCRA closure market involves closure of RCRA permitted sites in accordance
with regulation. Transfer of real estate often involves an environmental
assessment of the land, groundwater and buildings being transferred. If
contamination is discovered, generally either clean-up occurs or the property
is not transferred. These programs result in three major market opportunities:
the Superfund market, the federal facilities market and the private sector
market.
The environmental remediation of federal facilities presents the largest growth
area of the domestic environmental market. During the past 50 years the DOE
and DOD operated a vast complex of chemical processing and manufacturing
plants, laboratories, reactors and test grounds. It is estimated that the
clean-up and upgrade of the DOE nuclear weapons plants and
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mitigation of the DOD remediation liability will cost between $270 to $400
billion. This market exists because all federal facilities are subject to both
CERCLA and RCRA regulations. The registrant believes that the closure of
nuclear weapons production and defense related programs and closing of military
bases is putting great pressure on both DOE and DOD to clean up properties and
turn them over to communities hurt by their economic loss.
The private sector remediation market is also very significant. Some major
industrial companies are carrying substantial liabilities on their balance
sheets, often associated with non-revenue generating assets. These liabilities
generally increase with time and also inhibit the disposal of non-productive
assets through sale. Revitalization of historically industrialized regions is
thwarted by the reluctance of developers to recondition existing facilities or
build new plants in areas which carry potentially significant environmental
legacies. Alternatives include building facilities in open lands ("greenfield
areas"), i.e., regions with historical land use which does not include
industrialization. Consequently, industrial areas are experiencing declining
usage and 'green' areas are becoming industrialized. Local economies and the
environment are both experiencing negative impacts. Federal and state
authorities recognize these impacts and have begun to draft and promulgate
rules encouraging redevelopment of historically industrialized regions. The
recent EPA "Debris Rule" provides a means for realizing potentially significant
cost reductions for decontamination and dismantlement of obsolete industrial
structures. States, notably Pennsylvania, in conjunction with their federal
counterparts are developing revised clean-up criteria for industrial sites
provided the continued use is industrial. The new segment of environmental
services market is commonly referred to as "brownfields."
PDGR took steps to capitalize on these markets beginning in 1993 by staffing
its Monroeville office with senior technical staff experienced in providing
remediation and decontamination services to both the public and private
sectors. Several key contracts have been obtained that facilitated staff
growth. These contracts include a contract for decontamination of equipment
and machinery at a Superfund site, serving as a remedial action contractor for
the U.S. Navy at multiple facilities and providing similar remediation services
for major industrial clients based in Pittsburgh.
PDGR has been working under a subcontract with Jones with respect to the
contract for remediation services for the U.S. Navy described previously.
Jones has qualifications and experience in managing major contracts for DOE and
DOD as well as private industry. The registrant hopes to pursue other similar
arrangements with Jones.
The Small Business Administration has established a size standard for SIC 8744
environmental remediation service firms. Under this standard, the registrant
qualifies as a small business for federal procurements. The registrant
believes this new access to federal markets will be beneficial to its future
plans for expansion.
PDGR's strategy for near term growth in this sector is to continue to develop
its industrial clients in the Mid-Atlantic and Southeastern States and to
pursue the large federal remediation market with Jones, other major contractors
and as a qualified small business.
OPERATIONS
PDGR experienced steady sales growth through fiscal 1995. However, during
fiscal 1996, as a result of substantial changes under a Florida state-funded
site remediation program (the "EDI Program"), combined with the decision to
discontinue the operations of the thermal treatment facility, PDGR's revenues
have been significantly reduced.
UST OPERATIONS
UST activities are carried out from both offices in Melbourne, Florida and
Monroeville, Pennsylvania. PDGR provides a turnkey service to its customers
which includes assessment of the nature and extent of contamination caused by
leaking USTs, developing remedial action plans and specifications and then
implementing the remediation. Remedial activities typically involve removal of
tanks and contaminated soil, thermal treatment of the contaminated soil and
installation and operation of systems to withdraw and treat contaminated
groundwater. Geologists and engineers perform the assessment and design and
the field remediation is carried out by project supervisors and hired labor.
Most contracts are obtained on a cost plus basis wherein PDGR is reimbursed at
standard rates for time expended and expenses incurred although some projects
are secured on a fixed price basis. Projects are managed by a project manager
who is responsible for technical performance as well as the cost and schedule
of the work.
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THERMAL TREATMENT FACILITY
PDGR made a decision to discontinue the operations of its thermal treatment
facility located in central Florida effective January 31, 1996 due to the
indirect impact of the EDI Program changes on the volume of material which the
facility received and processed. The facility decontaminates petroleum
contaminated soil by the thermal desorption process wherein the contaminated
soil is heated in a rotary drum to volatize the contaminants which are then
destroyed in a thermal oxidizer. The treated soil is tested to assure it meets
decontamination requirements and then it is recycled as clean fill. The
material processed at the facility has historically represented a combination
of material subcontracted from clean-up contractors, under contract with owners
of contaminated sites or under the registrant's clean-up projects.
The facility normally operates 24 hours per day during a 5-day week. Operating
systems are continuously monitored for compliance with permit conditions and
Company operating policy. The facility has a permitted capacity of
approximately 315,000 tons/year. During the fiscal year ended January 31,
1996, the facility treated approximately 46,000 tons.
REMEDIATION AND DECONTAMINATION OPERATIONS
PDGR's remediation and decontamination capabilities are located in the
Monroeville, Pennsylvania office, with the services offered throughout the
Northeast, Midwest, Mid-Atlantic and Southeast states. The capabilities and
experience encompass a broad range of services from assessments to determine
the nature and extent of contamination, feasibility studies to evaluate the
technologically and economically applicable remedial technologies, remedial
design, remedial actions and operations/maintenance of installed remedial
systems. The nature of the sites that are typically the subject of these
services include industrial plants, laboratories, disposal sites and government
facilities. The remedial actions most often include packaging and disposal of
drummed materials, decontamination of interior surfaces and machinery via
high-pressure wash with a variety of surfactants, dismantlement and treatment
of contaminated structures, excavation/disposal or on-site treatment of
contaminated soils and withdrawal/treatment/reinjection system installations
for contaminated groundwater.
As in the case of UST operations, most contracts are performed on a cost plus
basis at rates established in national or project-specific agreements. Based
on how well the scope of a project can be defined, some projects are performed
on a fixed price basis. The projects are managed by a project manager who is
responsible for technical performance as well as the cost and schedule.
GOVERNMENT REGULATION
PDGR may be subject to liability for investigation and clean-up costs under
CERCLA and RCRA and parallel state and local laws. See "ENVIRONMENTAL LAWS."
PDGR is subject to OSHA regulations in the conduct of its remediation
activities. In addition, PDGR may be subject to liability under UST
regulations if in removal of a UST the registrant causes the discharge of oil
or petroleum product or hazardous substances.
PDGR operated its thermal treatment facility under two permits which were
renewed annually by the FDEP. FDEP regulations required that the facility
operate in accordance with an air permit that controls the type and quantity of
material that can be processed, process parameters and discharge of emissions
into the atmosphere. FDEP regulations also required that the facility operate
under the conditions of a "general permit" that stipulates analytical
requirements for acceptance of materials for treatment at the facility, how
material is stored and handled prior to treatment, and analytical requirements
for determining that the material has been satisfactorily treated. The
facility did not accept hazardous wastes as defined by RCRA or CERCLA.
PDGR believes it is in substantial compliance with all of the federal, state
and local statutes and regulations which affect its environmental remediation
business.
SUPPLIERS AND CUSTOMERS
PDGR is not limited to any one supplier or subcontractor in performing its
environmental remediation services. The largest volume of subcontracted
services is in the area of analytical testing.
PDGR's customers primarily include private sector clients who most often own
multiple contaminated facilities. Alternatively, PDGR is a subcontractor to
two customers who have such clients. Approximately 86% of PDG's revenues for
the year ended January 31, 1996 were derived from such UST-related customers.
PDGR's customers for its other decontamination and
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remediation services include industrial and government sector clients, one of
which provide more than 10% of PDGR's revenues during fiscal 1996.
INSURANCE AND BONDING
PDGR, through the registrant, maintains commercial general liability and
contractor's pollution liability and professional liability insurance policies
which provide aggregate coverage limits of $2 million, $1 million and $1
million, respectively. PDGR's thermal treatment facility maintains a
commercial general liability and an umbrella liability policy which provide
aggregate coverage limits of $1 million and $4 million, respectively. PDGR
also maintains, through the registrant, worker's compensation insurance, at
statutory limits, which covers employees within the environmental remediation
business. PDGR is currently in the process of insurance policies independent
of the registrant.
Few of the contracts undertaken by PDGR have required performance and payment
bonds. However, PDGR, through the registrant, currently has limited bonding
capacity; however, it is sufficient to meet its needs.
COMPETITIVE CONDITIONS
The environmental remediation services business is highly competitive. Several
national firms with significant financial resources and personnel and numerous
small local firms provide remediation services. The ability of PDGR to compete
in this area depends on its ability to price its services competitively and to
maintain a reputation for safety and quality.
ENVIRONMENTAL LAWS
Most environmental laws and regulations are promulgated by the U.S. Congress
and federal departments and agencies, such as the U.S. Environmental
Protection Agency ("EPA") and the U.S. Occupational Safety and Health
Administration ("OSHA"), which are responsible for protecting and monitoring
certain natural resources (such as air, water and soil), and occupational
working conditions. Many of the federal regulations contemplate enforcement by
state agencies and adoption by the states of similar regulations which must
meet the minimum federal requirements. In areas of environmental law where
federal regulation is silent, the states may adopt their own environmental
laws. Local governments such as counties and municipalities may also enact and
enforce environmental laws that address local concerns.
PDGR's ability to assist commercial and industrial customers to comply with
these environmental laws and regulations forms the basis for the remediation
services business of PDGR.
PDGR's remediation services business primarily derives from the federal laws
and regulations described below.
OSHA and OSHA Reform Act. OSHA has promulgated various regulations setting
forth standards for disclosure of health hazards in the workplace and for
response thereto. The Hazard Communication Standard, for example, requires
manufacturers and importers of chemicals to assess the hazards of their
products and disclose the same through material data safety sheets and label
warnings. In 1990, in an effort in part to create a self-funding
administration, Congress increased the ceiling for certain OSHA imposed
penalties. The registrant's field staff receives safety and health training in
accordance with OSHA regulations.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 and the Superfund Amendments and Reauthorization Act of 1986 (collectively
"CERCLA"). CERCLA provides for the investigation and remediation of existing
contaminated hazardous waste sites and other releases of hazardous substances
into the environment. Superfund imposes strict joint and several liability on
owners and operators of facilities contaminated by hazardous substances,
hazardous substance generators, transporters and disposal facility owners and
operators for the costs of investigation and remedial action. CERCLA provides
the EPA with the authority to compel private parties to undertake a cleanup.
RCRA and Hazardous and Solid Waste Amendments of 1984. RCRA, as amended,
provides a comprehensive framework for the regulation of the generation,
handling, transportation, treatment and disposal of hazardous waste.
Facilities that treat, store or dispose of hazardous waste must obtain a RCRA
permit from the EPA or appropriate state agency, and must comply with certain
operating, financial responsibility and disclosure requirements. Most states
have obtained authority to administer this program. The applicable state
regulations must be at least as stringent as the federal standards and the
federal government retains enforcement authority. Regulations have been issued
pursuant to RCRA covering areas such as permitting assistance, remediation of
environmental contamination associated with USTs, municipal solid waste
disposal and land disposal of hazardous waste. RCRA also imposes land disposal
restrictions on certain listed hazardous waste which do not meet specified
-8-
<PAGE> 10
treatment standards, prescribes more stringent standards for hazardous waste
disposal, sets standards for underground storage tanks, and provides for
corrective action at or near sites of waste management units.
U.S. EPA Underground Storage Tank Regulations. The UST regulations were
promulgated under RCRA and apply to petroleum products and hazardous substances
as defined by CERCLA. USTs that are used to store gasoline, diesel fuel, fuel
oil, waste oil and hazardous materials must be registered with the appropriate
state regulatory agency, designed or upgraded to meet construction and
operational standards and monitored to insure against leaking. Owners and
operators are further required to report leaks and undertake appropriate
corrective action, including testing and monitoring to identify the extent of
the contamination, removal and disposal of contaminated soil, or on-site
treatment of contaminated soil and groundwater. To assist the remediation
process when leaking USTs are identified, many state legislatures have created
reimbursement programs funded by gasoline taxes or other related taxes and
fees.
LEGISLATIVE CHANGES
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 in
fiscal 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, the registrant 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's operations during the last three quarters of fiscal
1996 since the number of sites in PDGR's backlog immediately eligible for
continued reimbursement were significantly reduced. Further, PDGR's thermal
treatment facility experienced a significant decline in soil shipments during
fiscal 1996. PDGR believes this decline is indirectly related to EDI Program
changes, which have created a slowdown in the entire market for the thermal
treatment of petroleum contaminated soil and intense competitive price
pressures. These changes in the EDI Program have resulted in substantial
reductions in the registrant's contact revenues and created significant
operating losses in fiscal 1996.
PDGR has responded to the impact of these revenue reductions through reductions
in staff and other overhead costs, the reallocation of a portion of its
workforce to cover existing backlog at the registrant'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. Further, as a result of the indirect impact
of these EDI Program changes on PDGR's thermal treatment facility, PDGR made a
decision to sell this facility effective January 31, 1996.
The Florida legislature is currently in session and is considering a number of
measures to satisfy the State of Florida's existing obligations to fund the
backlog under the EDI Program. The legislation as currently proposed provides
for the State of Florida to fund the existing backlog through the issuance of
bonds, thereby enabling reimbursement applications submitted under the EDI
Program to be paid on an accelerated basis. However, in exchange for this
accelerated payment, it is currently proposed that reimbursement applications
will be paid at a discount effective January 1, 1997. The proposed annual
discount
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<PAGE> 11
rate to be used is 3.5%, and the present value of an application will be based
upon the accelerated date the FDEP anticipates settling a reimbursement
application, compared to the original date a reimbursement application was
scheduled to be settled.
Although the impact of the proposed legislation on PDGR's results of operations
cannot be ultimately determined until a final bill is signed into law, PDGR
believes it may be required to record an additional charge to reflect the
negative impact of the discounting on its results of operations and financial
condition. PDGR is currently unable to determine the materiality of this
change on its operations.
PDGR's results of operations and financial condition would also benefit, on a
prospective basis, as a result of the legislation as currently proposed. The
registrant would experience significant reductions in interest costs associated
with the funding of its reimbursement applications under the EDI Program as a
result of an accelerated payment schedule as the Sirrom Environmental, LCC
funding arrangement requires the registrant to recognize interest expense at
the prime rate plus 3%. Further, as a result of a bond issuance, approximately
$100 million per year would be allocated by the FDEP to support new remediation
work under the Pre-Approval Program which is currently funded at an annual rate
of $30 million.
BACKLOG
As of January 31, 1996, PDGR had contracts to provide services on approximately
40 projects involving remediation of underground storage tanks for private
customers through the Pre-Approval Program. The number of contracts upon which
PDGR was able to continue to perform services for private customers under the
EDI Program which existed at that time was significantly reduced during fiscal
1996 due to changes under the EDI Program as previously discussed. PDGR also
serves as a subcontractor to Jones to provide remediation services to the U.S.
Navy under a contract which is expected to continue for the next three years.
PDGR estimates that remediation services to be provided under existing
contracts will result in revenues of approximately $4 million to $6 million
during fiscal 1997.
EMPLOYEES
As of January 31, 1996, the registrant employs approximately 86 employees
consisting of senior management and staff employees between its headquarters in
Monroeville and branch offices located in New York City, Wilkes-Barre,
Philadelphia, Export, Melbourne, Fort Lauderdale, Houston and Rock Hill. The
staff employees include accounting, administrative, sales and clerical
personnel as well as project managers and field supervisors. The registrant
also employs laborers for field operations based upon specific projects,
therefore, the precise number varies based upon the outstanding backlog.
Approximately 130 laborers and supervisors are employed on a steady basis, with
casual labor hired on an as-needed basis to supplement the work force.
A portion of the field laborers who provide services to the registrant are
represented by unions. Management considers its employee labor relations to be
good.
ITEM 2. PROPERTIES
On January 31, 1996, the registrant leases certain office space for its
executive offices in Monroeville totaling 10,390 square feet. In addition, a
combination of warehouse or shop and office space is leased in Houston (3,990
square feet), Wilkes-Barre (1,800 square feet), Melbourne (9,100 square feet),
Fort Lauderdale (4,725 square feet), Rock Hill (4,943 square feet). The
registrant also sublets, on a monthly basis, a combination of office and
warehouse space in New York City (1,400 square feet). The registrant also owns
a 15,000 square foot office/warehouse situated on approximately six (6) acres
in Murrysville, Pennsylvania which is subject to a mortgage.
The registrant also leased a 16,400 square foot office and repair shop for its
thermal treatment facility in Mulberry, Florida. The plant was located on four
acres owned by the registrant.
ITEM 3. LEGAL PROCEEDINGS
INTERNATIONAL SURPLUS LINES INSURANCE CO. V. PDG ENVIRONMENTAL SERVICES, INC.,
in the United States District Court for the Middle District of Florida, Case
No. 94-1191-CV-ORL-19. On or about November 10, 1994, the plaintiff,
International Surplus Lines Insurance Co. ("ISLIC"), filed a complaint against
PDG Environmental Services, Inc. ("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
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<PAGE> 12
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 the EDI 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 PDG 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.
On December 19, 1994, PDG filed an Answer and Counter-claims to the complaint
in which PDG 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 PDG 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 is
scheduled to be completed on May 3, 1996, and the trial is expected to commence
on August 5, 1996.
On June 30, 1995, an action, caption KLEIN V. PDG REMEDIATION, INC., ET AL.,
No. CIV-4954 (DAB), was filed in the United States District Court for the
Southern District of New York asserting federal securities law claims against
the registrant, its directors and certain of its officers, PDGR and the
underwriters of the registrant's initial public offering. The KLEIN action is
brought as a purported class action on behalf of the named plaintiff and all
persons and entities who purchased PDGR's common stock from February 9, 1995,
the effective date of the initial public offering, through May 23, 1995. The
plaintiff alleges that the defendants violated Sections 11 and/or 15 of the
Securities Act of 1933, as amended, and Section 12(2) of the Securities
Exchange Act of 1934, as amended, by issuing or participating in the issuance
of the registration statement and prospectus which contained material
misstatements or omissions, and that the purported class members purchased
shares of Common Stock in reliance on the allegedly false and misleading
registration statement and prospectus. Specifically, plaintiff alleges that
the defendants knew or should have known that the Florida reimbursement program
in which PDGR participates was operating at a deficit and was being revised to
eliminate funding of remediation activities for lower priority sites. The
plaintiff is seeking certification of the action as a class action and recision
of the purchase of shares of 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 and a memorandum of law in support of the motion.
The court has not yet acted on the motion.
The parties have begun initial discovery with respect to the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The registrant'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.
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<PAGE> 13
<TABLE>
<CAPTION>
MARKET PRICE RANGE
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 March 29, 1996, the registrant had 2,077 stockholders of record.
The registrant 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 registrant's ability to pay preferred and common dividends is
prohibited due to restrictions contained in the registrant's loan agreements
and limitations imposed by the registrant's Series A Preferred Stock which
require that dividends must be paid to preferred holders prior to the payment
of common dividends.
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
<FN>
*Restated to reflect the treatment of the Geologic business as a discontinued
operation (see Note 3). Geologic was purchased December, 1992.
</TABLE>
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 the
Geologic segment.
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<PAGE> 14
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 segment. 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.
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 discussed previously. 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 the registrant 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
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<PAGE> 15
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, 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
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<PAGE> 16
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.
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
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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.
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.
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
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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.
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.
Since the registrant is fully borrowed under its existing line of credit,
incurred a significant loss from operations and is limited in the amount of
funds which can be provided by PDGR, 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 and convert assets into
cash. The registrant is pursuing the sale of its remaining 59.5% ownership in
PDGR.
PDGR, in which the registrant maintains 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 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
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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. Those measures may include the sale of all or a portion of their
remaining 59.5% ownership in PDGR.
PROSPECTIVE INFORMATION
The registrant's current business consists principally of asbestos abatement
contracting and a 59.5% ownership interest in PDGR, which is engaged in
providing environmental remediation services.
During fiscal 1996, PDGR's operations were materially adversely affected by the
changes in the EDI Program because a substantial portion of PDGR's historical
revenues have been generated both directly and indirectly under the EDI
Program. PDGR has responded to the financial impact of these EDI Program
changes through implementation of cost reductions, the discontinuance of its
thermal treatment facility, increased marketing efforts to actively participate
under the Pre-Approval Program, and identification of potential acquisitions to
replace the revenues lost.
PDGR has increased its backlog of high priority sites eligible under the
Pre-Approval Program in recent months; however, delays associated with the
Pre-Approval Program has prevented PDGR from commencing work on these high
priority sites. Therefore, PDGR believes that its operations will continue to
be adversely affected in the first and second quarters of fiscal 1997 as a
result of these delays.
In a further effort to replace these lost revenues, PDGR has entered into a
letter of intent to acquire SPATCO, an environmental remediation service
company, which generated revenues of approximately $12.0 million in 1995 in
exchange for shares of PDGR's common stock. Although 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 during PDGR's second quarter of fiscal 1997.
The Florida legislature is currently in session and is considering a number of
measures to satisfy the State of Florida's existing obligations to fund the
backlog under the EDI Program. The legislation as currently proposed provides
for the State of Florida to fund the existing backlog through the issuance of
bonds, thereby enabling reimbursement applications submitted under the EDI
Program to be paid on an accelerated basis. However, in exchange for this
accelerated payment, it is currently proposed that reimbursement applications
will be paid at a discount effective January 1, 1997. The proposed annual
discount rate to be used is 3.5%, and the present value of an application will
be based upon the accelerated date the FDEP anticipates settling a
reimbursement application, compared to the original date a reimbursement
application was scheduled to be settled.
Although the impact of the proposed legislation on PDGR's results of operations
cannot be ultimately determined until a final bill is signed into law, PDGR
believes it may be required to record an additional charge to reflect the
negative impact of the discounting on its results of operations and financial
condition. PDGR is currently unable to determine the materiality of this
change on its operations.
PDGR's results of operations and financial condition would also benefit, on a
prospective basis, as a result of the legislation as currently proposed. The
registrant would experience significant reductions in interest costs associated
with the funding of its reimbursement applications under the EDI Program as a
result of an accelerated payment schedule as the Sirrom Environmental, LCC
funding arrangement requires the registrant to recognize interest expense at
the prime rate plus 3%. Further, as a result of a bond issuance, approximately
$100 million per year would be allocated by the FDEP to support new remediation
work under the Pre-Approval Program which is currently funded at an annual rate
of $30 million.
PDGES, a wholly-owned subsidiary of PDGR, is currently involved in litigation
with ISLIC as a result of insurance advances made to PDGES by ISLIC. A
judgment rendered against PDGES would have a detrimental impact on PDGR's
future cash flow.
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.
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In April 1996, David J. D'Appolonia, President of the registrant, resigned his
position to pursue personal business activities. He also resigned as 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. William 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.
In order to improve the registrant's liquidity, the registrant continues to
explore the sale of all or a portion of their remaining 59.5% ownership
interest in PDGR.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and its subsidiaries
and the report of Ernst & Young LLP are submitted under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years of the registrant, there were no
disagreements with the independent auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement would have caused them to make reference to the
subject matter of the disagreement or disagreements in connection with their
reports.
PART III
The information called for by Part III (Items #10, 11, 12 and 13) is
incorporated herein by references to the registrant's definitive Proxy
Statement for the Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) AND (2) The following consolidated financial statements and financial
statement schedule of the registrant and its subsidiaries are submitted
pursuant to the requirements of this section.
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Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of January 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Three Years Ended
January 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended January 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Three Years Ended
January 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements for the Three Years
Ended January 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
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All other schedules for PDG Environmental, Inc. and consolidated
subsidiaries for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, not applicable, or the required information is shown
in the consolidated financial statements or notes thereto.
(A) (3) EXHIBITS:
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3.1 Certificate of Incorporation of the registrant and all amendments thereto, filed as Exhibit 3.1 to the
registrant's Annual Report on Form 10-K for the year ended September 30, 1990, is incorporated herein
by reference.
3.2 Certificate of Amendment to the Certificate of Incorporation of the registrant, approved by stockholders
on June 25, 1991, filed as Exhibit 3(a) to the registrant's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1991, is incorporated herein by reference.
3.3 Amended and Restated By-laws of the registrant, filed as Exhibit 4.2 to the registrant's registration
statement on Form S-8 of securities under the PDG Environmental, Inc. Amended and Restated Incentive Stock
Option Plan as of June 25, 1991, are incorporated herein by reference.
4.1 Certificate of the Powers, Designation, Preferences, and Relative, Participating, Optional or Other Rights,
and the Qualifications, Limitations or Restrictions of the Series A, 9.00% Cumulative Convertible Preferred
Stock, filed as Exhibit H with the registrant's preliminary proxy materials on July 23, 1990
(File No. 0-13667), is incorporated herein by reference.
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4.2 Certificate of Amendment of Certificate of the Powers, Designation, Preferences and Relative,
Participating, Optional or Other Rights, and the Qualifications, Limitations, or Restrictions of the
Series A 9% Cumulative Convertible Preferred Stock (par value $0.01 per share), filed as Exhibit 4(a)
to the registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1993, is incorporated
herein by reference.
4.3 Certificate of Powers, Designation, Preferences and Relative, Participating, Optional or Other Rights,
and the Qualifications, Limitations or Restrictions of the Series B, 4.00% Cumulative, Convertible
Preferred Stock, filed as Exhibit 4.2 to the registrant's registration on Form S-3 on March 17, 1993,
is incorporated herein by reference.
4.4 Share Purchase Agreement, dated as of December 23, 1992, between the registrant and Conversion
Industries, Inc., filed as Exhibit (i) to the registrant's Current Report on Form 8-K dated
December 23, 1992, is incorporated herein by reference.
4.5 Surrender and Release Agreement as of January 31, 1996 between Ventana Leasing, Inc. and
PDG Environmental, Inc., Geo Recovery Service, Ltd., Geo Holdings, Inc. and PDG of Delaware, Inc.
filed as Exhibit 4.22 of the PDG Remediation, Inc. Annual Report on Form 10-K for the year ended
January 31, 1996, is incorporated herein by reference.
4.6 Credit Agreement between PDG Remediation, Inc., Geo Holding Company, PDG of Delaware, Inc., Geo Recovery
Services, Ltd, and PDG Environmental Services, Inc. and Barnett Bank of Central Florida, N.A., dated as
of February 8, 1995, filed as Exhibit 10.18 to the registrant's Annual Report on Form 10-K for the year
ended January 31, 1995, is incorporated herein by reference.
4.7 First Amendment to Credit Agreement and Security Agreement between PDG Remediation, Inc., Geo Holding
Company, PDG of Delaware, Inc., Geo Recovery Services, Ltd. and PDG Environmental Services, Inc. and
Barnett Bank of Central Florida, N.A., effective as of February 8, 1995, filed as Exhibit 10.19 to the
registrant's Annual Report on Form 10-K for the year ended January 31, 1995, is incorporated herein
by reference.
4.8 Amended and Restated Forbearance Agreement dated August 8, 1995 between Borrower and Guarantor and
Barnett Bank of Central Florida, N.A. filed as Exhibit 4(a) of the PDG Remediation, Inc. Quarterly Report
on Form 10-Q for the quarter ended July 31, 1995, is incorporated herein by reference.
4.9 Amended and Restated Loan Agreement between CVD Financial Corporation and PDG Environmental Services, Inc.,
dated September 6, 1994 in the amount of $4,000,000, filed as Exhibit 4(a) to the registrant's quarterly
report on Form 10-Q for the quarter ended October 31, 1994, is incorporated herein by reference.
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4.10 Loan Agreement between CVD Financial Corporation and PDG Environmental, Inc. and its subsidiaries
and partnerships, filed as Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the year
ended January 31, 1994, is incorporated herein by reference.
4.11 Loan Modification Agreement, dated September 30, 1994, by and among CVD Financial Corporation,
PDG Environmental, Inc., PDG, Inc., PDG Environmental Services, Inc., Project Development Group, Inc.,
Enviro-Tech Abatement Services Co., PDG Environmental Remediation and Geo Recovery Services, Ltd.,
filed as Exhibit 4(b) to the registrant's quarterly report on Form 10-Q for the quarter ended
October 31, 1994, is incorporated herein by reference.
4.12 Loan Modification Agreement, dated December 9, 1994, by and among CVD Financial Corporation,
PDG Environmental, Inc., PDG, Inc., PDG Environmental Services, Inc., Project Development Group, Inc.,
Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo Recovery Services, Ltd. and
PDG Remediation, Inc., filed as Exhibit 4(c) to registrant's quarterly report on Form 10-Q for the
quarter ended October 31, 1994, is incorporated herein by reference.
4.13 Loan Modification Agreement dated February 7, 1995 by and among CVD Financial Corporation,
PDG Environmental, Inc., PDG, Inc., PDG Environmental Services, Inc., Project Development Group, Inc.,
Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo Recovery Services, Ltd and
PDG Remediation, Inc., filed as Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the year
ended January 31, 1995, is incorporated herein by reference.
4.14 Master Funding and Indemnification Agreement dated August 21, 1995 between PDG Environmental Services, Inc.
and Sirrom Environmental Funding, LLC, filed as Exhibit 4(b) of the PDG Remediation, Inc. Quarterly Report
on Form 10-Q for the quarter ended July 31, 1995, is incorporated herein by reference.
4.15 Amended and Restated Loan Agreement between CVD Financial Corporation and PDG Environmental, Inc., PDG, Inc.,
Project Development Group, Inc., and Enviro-Tech Abatement Services Co., dated October 31, 1995, filed as
Exhibit 4(a) to the registrant's quarterly report on Form 10-Q for the quarter ended October 31, 1995,
is incorporated herein by reference.
4.16 Master Funding and Indemnification Agreement between PDG Environmental Services, Inc. and Sirrom Environmental
Funding, LLC dated January 27, 1995 is incorporated by reference to Exhibit 4(c) of the PDG Remediation, Inc.
Quarterly Report on Form 10-Q for the quarter ended October 31, 1995, is incorporated herein by reference.
4.17 Loan Extension Agreement between CVD Financial Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc. and Enviro-Tech Abatement Services Co., dated April 24, 1996.
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4.18 Purchase Agreement dated as of January 31, 1996 between Specialty Environmental, Inc. and PDG
Remediation, Inc. filed as Exhibit 10.5 of the PDG Remediation, Inc. Annual Report on Form 10-K
for the year ended January 31, 1996 is incorporated herein by reference.
10.1 Indemnity Agreement dated as of the first day of July 1990 by and among Project Development Group, Inc.
and John C. and Eleanor Regan, filed as Exhibit 10.1 to the registrant's Annual Report on Form 10-K
for the year ended September 30, 1990, is incorporated herein by reference.
10.2 Assumption Agreement entered into as of the fourteenth day of December 1990 among Project Development
Group, Inc., and John C. and Eleanor Regan, filed as Exhibit 10.2 to the registrant's Annual Report
on Form 10-K for the year ended September 30, 1990, is incorporated herein by reference.
10.3 PDG Environmental, Inc. Amended and Restated Incentive Stock Option Plan as of June 25, 1991, filed
as Exhibit 10.3 to the registrant's Annual Report on Form 10-K for the year ended January 31, 1992,
is incorporated herein by reference.
10.4 PDG Environmental, Inc. 1990 Stock Option Plan for Employee Directors, filed as Exhibit 10.4 to
the registrant's Annual Report on Form 10-K for the year ended January 31, 1992, is incorporated herein
by reference.
10.5 PDG Environmental, Inc. 1990 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.5 to
the registrant's Annual Report on Form 10-K for the year ended January 31, 1992, is incorporated herein
by reference.
10.6 Demand note between the registrant and John C. Regan, filed as Exhibit 10.4 to the registrant's
Annual Report on Form 10-K for the transition period from October 1, 1990 to January 31, 1991, is
incorporated herein by reference.
10.7 Demand note between the registrant and David J. D'Appolonia, filed as Exhibit 10.5 to the registrant's
Annual Report on Form 10-K for the transition period from October 1, 1990 to January 31, 1991, is
incorporated herein by reference.
10.8 Demand note between the registrant and Dulcia Maire, filed as Exhibit 10.6 to the registrant's
Annual Report on Form 10-K for the transition period from October 1, 1990 to January 31, 1991, is
incorporated herein by reference.
10.9 Letter agreement between the registrant and Messrs. Sorenson and Bendis, filed as Exhibit 10.7 to the
registrant's Annual Report Form 10-K for the transition period from October 1, 1990 to January 31, 1991,
is incorporated herein by reference.
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10.10 Stock Purchase Agreement dated as of March 31, 1992 by and between PDG Environmental, Inc. and
Jones Group, Inc., filed as Exhibit 10.10 to the registrant's Annual Report on Form 10-K for the
year ended January 31, 1992, is incorporated herein by reference.
10.11 Asset Purchase Agreement dated as of October 13, 1992, among PDG Environmental, Inc., Resource
Recovery of America, Inc., and International Recovery Corp., filed as Exhibit (i) to the registrant's
Current Report on Form 8-K dated December 31, 1992, is incorporated herein by reference.
10.12 Equipment Lease between Ventana Leasing, Inc., and PDG Environmental, Inc. dated October 25, 1992,
filed as Exhibit (ii) to the registrant's Current Report on Form 8-K dated December 31, 1992, is
incorporated herein by reference.
10.13 Amended and Restated Loan Agreement between CVD Financial Corporation and PDG Environmental
Services, Inc., dated September 6, 1994 in the amount of $4,000,000, filed as Exhibit 4(a) to the
registrant's quarterly report on Form 10-Q for the quarter ended October 31, 1994, is incorporated
herein by reference (as it appears in 4.9).
10.14 Loan Agreement between CVD Financial Corporation and PDG Environmental, Inc. and its subsidiaries
and partnerships, filed as Exhibit 10.16 to the registrant's Annual Report on Form 10-K for the year
ended January 31, 1994, is incorporated herein by reference (as it appears in 4.10).
10.15 Loan Modification Agreement, dated September 30, 1994, by and among CVD Financial Corporation,
PDG Environmental, Inc., PDG, Inc., PDG Environmental Services, Inc., Project Development Group, Inc.,
Enviro-Tech Abatement Services Co., PDG Environmental Remediation and Geo Recovery Services, Ltd.,
filed as Exhibit 4(b) to the registrant's quarterly report on Form 10-Q for the quarter ended October 31,
1994, is incorporated herein by reference (as it appears in 4.11).
10.16 Loan Modification Agreement, dated December 9, 1994, by and among CVD Financial Corporation,
PDG Environmental, Inc., PDG, Inc., PDG Environmental Services, Inc., Project Development Group, Inc.,
Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo Recovery Services, Ltd. and
PDG Remediation, Inc., filed as Exhibit 4(c) to registrant's quarterly report on Form 10-Q for the quarter
ended October 31, 1994, is incorporated herein by reference (as it appears in 4.12).
10.17 Loan Modification Agreement dated February 7, 1995 by and among CVD Financial Corporation,
PDG Environmental, Inc., PDG, Inc., PDG Environmental Services, Inc., Project Development Group, Inc.,
Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo Recovery Services, Ltd and
PDG Remediation, Inc., filed as Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the
year ended January 31, 1995, is incorporated herein by reference (as it appears in 4.13).
</TABLE>
-24-
<PAGE> 26
<TABLE>
<CAPTION>
PAGES
OF SEQUENTIAL
EXHIBIT INDEX NUMBERING SYSTEM
------------- ----------------
<S> <C> <C>
10.21 Letter Agreements, dated July 15, 1994 by and between J.A. Jones Construction Services Company and
PDG Remediation, Inc. and U.S. Navy Contract N62470-23-D-3033 (filed on July 29, 1994), filed as
Exhibit 10.1 to the PDG Remediation, Inc. registration statement on Form S-1, Amendment No. 4,
filed on February 9, 1995, is incorporated herein by reference.
10.22 Amended and Restated Forbearance Agreement dated August 8, 1995 between Borrower and Guarantor and
Barnett Bank of Central Florida, N.A. filed as Exhibit 4(a) of the PDG Remediation, Inc. Quarterly
Report on Form 10-Q for the quarter ended July 31, 1995, is incorporated herein by reference.
10.23 Master Funding and Indemnification Agreement dated August 21, 1995 between PDG Environmental
Services, Inc. and Sirrom Environmental Funding, LLC, filed as Exhibit 4(b) of the PDG Remediation,
Inc. Quarterly Report on Form 10-Q for the quarter ended July 31, 1995, is incorporated herein by
reference (as it appears at 4.14).
10.24 Amended and Restated Loan Agreement between CVD Financial Corporation and PDG Environmental, Inc.,
PDG, Inc., Project Development Group, Inc., and Enviro-Tech Abatement Services Co., dated
October 31, 1995, filed as Exhibit 4(a) to the registrant's quarterly report on Form 10-Q for the
quarter ended October 31, 1995, is incorporated herein by reference (as it appears at 4.15).
10.25 Master Funding and Indemnification Agreement between PDG Environmental Services, Inc. and Sirrom
Environmental Funding, LLC dated January 27, 1995 is incorporated by reference to Exhibit 4(c) of
the PDG Remediation, Inc. Quarterly Report on Form 10-Q for the quarter ended October 31, 1995,
is incorporated herein by reference (as it appears at 4.16).
10.26 Loan Extension Agreement between CVD Financial Corporation and PDG Environmental, Inc., PDG, Inc.,
Project Development Group, Inc. and Enviro-Tech Abatement Services Co., dated April 24, 1996
(as it appears at 4.17).
11 Statement regarding computation of per share earnings.
21 List of subsidiaries of the registrant.
23 Consent of independent auditors.
24 Power of attorney of directors.
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
The registrant did not file any Current Reports on Form 8-K during the
three months ended January 31, 1996.
-25-
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
/s/ John C. Regan
---------------------------------------------------
John C. Regan, Chairman and Chief Executive Officer
Date: April 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John C. Regan April 30, 1996
- ------------------------------------------
John C. Regan
Chairman and Chief Executive Officer
(Principal Executive Officer and Director)
Richard A. Bendis, Director By /s/ John C. Regan
-------------------------------
John C. Regan, Attorney-in-Fact
April 30, 1996
-26-
<PAGE> 28
PDG ENVIRONMENTAL, INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(a)(1) AND (2)
FINANCIAL STATEMENTS, SCHEDULES AND SUPPLEMENTARY DATA
-27-
<PAGE> 29
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
Pittsburgh, Pennsylvania
March 20, 1996,
except for Notes 3 and 7 as to which the date is April 25, 1996
F-1
<PAGE> 30
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.
F-2
<PAGE> 31
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.
F-3
<PAGE> 32
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.
F-4
<PAGE> 33
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> <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.
F-5
<PAGE> 34
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.
F-6
<PAGE> 35
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.
F-7
<PAGE> 36
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.
F-8
<PAGE> 37
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>
F-9
<PAGE> 38
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>
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.
F-10
<PAGE> 39
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>
F-11
<PAGE> 40
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:
F-12
<PAGE> 41
<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>
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>
F-13
<PAGE> 42
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.
F-14
<PAGE> 43
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, 1995 23,125 $0.60 - $6.00
========
EXERCISABLE AT JANUARY 31, 1996 23,125 $0.60 - $6.00
--------
</TABLE>
F-15
<PAGE> 44
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
F-16
<PAGE> 45
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.
F-17
<PAGE> 46
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:
F-18
<PAGE> 47
<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.
F-19
<PAGE> 48
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.
F-20
<PAGE> 49
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.
F-21
<PAGE> 1
Exhibit 4.17
APRIL 24, 1996
PDG ENVIRONMENTAL
PROPOSED TERM SHEET FOR LOAN EXTENSION AGREEMENT
NOTHING IN THIS PROPOSAL IS BINDING ON EITHER PARTY UNTIL A MUTUALLY ACCEPTABLE
AGREEMENT IS SIGNED BY BOTH PARTIES
With respect to the
1) Revolving Loans: O/S Principal of $500,000 and $1,919,993.71
Term Loan: O/S Principal $478,792.57
2) CVD will extend the maturity date of the loans from December 31, 1996 to
May 1, 1997.
3) Upon the sale of the PDGR shares by PDGE for proceeds of at least $1.4M,
all of which are paid directly to CVD to paydown the outstanding loan
balances, CVD will re-advance $325,000 to PDGE under the existing LC for
working capital purposes.
4) If PDGE, prior to July 24, 1996, has not sold the PDGR shares then CVD
would have the option to immediately or at any time thereafter to acquire
the PDGR shares for $1 per share (the "Purchase Price") with such
purchase price to be credited to the outstanding loan balance. Following
the exercise of such option:
a) If CVD subsequently sells the shares for more than $1 per share,
the Purchase Price would be increased (and the loan balance
decreased) by 100% of the difference between the proceeds from
CVD's sale and the original Purchase Price. This adjustment
mechanism survives only until the earlier of the maturity date of
the loan or an Event of Default.
b) If CVD subsequently sells the shares for less than $1 per share,
the Purchase Price would be decreased (and the loan balance
increased) by 100% of the difference between the proceeds from
CVD's sale and the original Purchase Price. This adjustment
mechanism survives until the loan is repaid in full.
c) CVD will not sell the shares for less than the "Floor Price" per
share. The Floor Price is equal to the lesser of A)$1 or B) PDGR's
Tangible Book Value as per the January 31, 1996 audited financial
statements, adjusted for i) sales or writedowns of fixed assets
currently anticipated and ii) any payments made or provisions
for payments with regards to the existing class action lawsuit.
d) Until the earlier of the maturity date of the loan or the sale
of the PDGR shares by CVD, CVD will be obligated, upon PDGE's
request, to sell the PDGR shares to third parties identified by
PDGR who will pay $1 or more per share.
5) No other rights, obligations, etc of the loan agreements will be
affected by this loan modification.
6) PDGE and PDGR will make best efforts to register PDGE's PDGR shares
as soon as possible.
- --------------------------------- --------------------------------------
PDG ENVIRONMENTAL CVD Financial
<PAGE> 1
Exhibit 11
Page 1 of 2
PDG ENVIRONMENTAL, INC.
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
PRIMARY NET INCOME (LOSS) PER COMMON SHARE 1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (2,451,000) $ 473,000 $ 1,445,000
Less: Series A preferred dividends 45,000 - 531,000
Less: Series B preferred dividends - - 16,000
------------ ------------- -------------
$ (2,496,000) $ 473,000 $ (1,992,000)
============ ============= =============
Weighted average common shares and dilutive
common equivalents outstanding - primary 5,670,000 7,157,000 3,267,000
============ ============= =============
Primary net income (loss) per common share $ (0.44) (a) $ 0.07 (a)(b) $ (0.61) (a)
============ ============= =============
</TABLE>
(a) In accordance with generally accepted accounting principles, stock
options and warrants have not been reflected as exercised for purposes
of computing the primary loss per common share on the registrant's
Consolidated Statement of Operations for the years ended January 31,
1996, 1995 and 1994 since the exercise of such options and warrants
would be antidilutive. In addition, the outstanding shares of Series
A Preferred Stock and the Series B Preferred Stock and common stock
rights in the years ended January 31, 1996 and January 31, 1994 have
not been reflected as converted since the conversion has an
antidilutive effect on the net loss per common share.
(b) Assumes 967,000 common shares for converted Series A preferred stock
and 840,000 shares for converted common stock rights.
<PAGE> 2
Exhibit 11
Page 2 of 2
PDG ENVIRONMENTAL, INC.
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
FULLY DILUTED NET INCOME (LOSS) PER COMMON SHARE 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (2,451,000) $ 473,000 $ (1,445,000)
Less: Series A preferred dividends 45,000 - 22,000
Less: Series B preferred dividends - - -
------------ ------------- -------------
$ (2,496,000) $ 473,000 $ (1,467,000)
============ ============= =============
Weighted average shares of common stock outstanding:
Average common shares outstanding 5,670,000 5,350,000 5,267,000 (a)
Assumed conversion of common stock rights 560,000 840,000 840,000
Assumed conversion of outstanding
Series A preferred stock - 967,000 -
------------ ------------- -------------
Weighted average common shares outstanding-
fully diluted 6,230,000 7,157,000 6,107,000
=========== ============= =============
Fully diluted net income (loss) per common share $ (0.40) (b) $ 0.07 (b) $ (0.24) (b)
============ ============= =============
</TABLE>
(a) Assumes 3,039,000 common shares for converted Series A preferred stock
and 905,000 shares for converted Series B preferred stock which
actually were converted during fiscal 1994 were converted at the
beginning of fiscal 1994.
(b) In accordance with generally accepted accounting principles, fully
diluted earnings per share have not been reported on the registrant's
Consolidated Statement of Operations for the years ended January 31,
1996, 1995 and 1994 since the exercise of stock options and warrants
and the conversion of the Series A and Series B preferred stock has an
antidilutive or no effect on earnings per share.
<PAGE> 1
Exhibit 21
<TABLE>
<CAPTION>
Name of Subsidiary State of Formation
- ------------------ ------------------
<S> <C>
Project Development Group, Inc. PA
PDG, Inc. PA
PDG Environmental Services, Inc. DE
Enviro-Tech Abatement Services Co. NC
GeoLogic Recovery Systems (Partnership) FL
PDG Remediation, Inc. PA
Geo Holding Company DE
PDG of Delaware, Inc. DE
DPI Energy, Inc.* PA
Asbestemps, Inc.* DE
Applied Environmental Technology, Inc.* DE
Applied Consulting & Technical Services, Inc.* DE
</TABLE>
* Inactive subsidiaries
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
pertaining to the PDG Environmental, Inc. Amended and Restated Incentive Stock
Option Plan as of June 25, 1991 (Form S-8 No. 33-40698); PDG Environmental,
Inc. 1990 Stock Option Plan for Employee Directors (Form S-8 No. 33-40699); and
PDG Environmental, Inc. 1990 Stock Option Plan for Non-Employee Directors (Form
S-8 No. 33-40700) and in the related Prospectuses of our report dated March 20,
1996 (except for Notes 3 and 7 as to which the date is April 25, 1996), with
respect to the consolidated financial statements of PDG Environmental, Inc.
included in the Annual Report (Form 10-K) for the year ended January 31, 1996.
/s/ Ernst & Young, LLP
Pittsburgh, Pennsylvania
April 25, 1996
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of
PDG ENVIRONMENTAL, INC., a Delaware Corporation, does make, constitute and
appoint JOHN C. REGAN, with full power and authority his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead in any
and all capacities, to sign the Annual Report of PDG Environmental, Inc. on
Form 10-K for the period ended January 31, 1996, and to file such Annual
Report, so signed, with all exhibits thereto, with the Securities and Exchange
Commission, hereby further granting unto said attorney-in-fact full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do in person; the undersigned hereby ratifies and confirms all
that said attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 19th day of April, 1996.
/s/ RICHARD A. BENDIS
- ----------------------------------------(SEAL)
Richard A. Bendis, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1996 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 1,532,000
<SECURITIES> 0
<RECEIVABLES> 5,687,000
<ALLOWANCES> 768,000
<INVENTORY> 181,000
<CURRENT-ASSETS> 10,375,000
<PP&E> 4,502,000
<DEPRECIATION> 3,503,000
<TOTAL-ASSETS> 11,450,000
<CURRENT-LIABILITIES> 6,500,000
<BONDS> 2,786,000
<COMMON> 118,000
0
444,000
<OTHER-SE> 656,000
<TOTAL-LIABILITY-AND-EQUITY> 11,450,000
<SALES> 20,994,000
<TOTAL-REVENUES> 20,994,000
<CGS> 18,166,000
<TOTAL-COSTS> 18,166,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 873,000
<INCOME-PRETAX> (1,897,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,391,000)
<DISCONTINUED> (1,060,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,451,000)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
