<PAGE> 1
(conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996 OR
[ ] TANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
(Address of principal executive offices) (Zip Code)
412-856-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
As of December 6, 1996, there were 5,923,868 shares of the registrant's common
stock outstanding.
<PAGE> 2
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of October 31, 1996 (unaudited) and January 31, 1996 3
(b) Consolidated Statements of Operations for the Three Months Ended October 31, 1996 and 1995 (unaudited) 4
(c) Consolidated Statements of Operations for the Nine Months Ended October 31, 1996 and 1995 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 1996 and 1995 (unaudited) 6
(e) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1996 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 463,000 $ 273,000
Accounts receivable - net 3,823,000 3,221,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 866,000 670,000
Inventory 199,000 181,000
Net assets of discontinued operations - 1,492,000
Other current assets 550,000 734,000
----------- -----------
TOTAL CURRENT ASSETS 5,901,000 6,571,000
PROPERTY, PLANT AND EQUIPMENT 3,935,000 3,886,000
Less: accumulated depreciation 3,242,000 3,067,000
----------- -----------
693,000 819,000
OTHER ASSETS 40,000 55,000
----------- -----------
TOTAL ASSETS $ 6,634,000 $ 7,445,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,948,000 $ 1,680,000
Short-term borrowings 1,500,000 -
Accrued liabilities 1,375,000 998,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 938,000 607,000
Current portion of long-term debt 174,000 176,000
----------- -----------
TOTAL CURRENT LIABILITIES 5,935,000 3,461,000
LONG-TERM DEBT 216,000 2,766,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock 444,000 444,000
Common stock 118,000 118,000
Additional paid-in capital 4,260,000 4,230,000
Deficit (4,339,000) (3,574,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 483,000 1,218,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,634,000 $ 7,445,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED OCTOBER 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
CONTRACT REVENUES $4,023,000 $5,269,000
CONTRACT COSTS 3,305,000 4,689,000
---------- ----------
Gross margin 718,000 580,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 627,000 763,000
---------- ----------
Income (loss) from operations 91,000 (183,000)
OTHER INCOME (EXPENSE):
Interest expense (62,000) (113,000)
Interest income 1,000 4,000
Other income 21,000 -
---------- ----------
(40,000) (109,000)
---------- ----------
Income (loss) before income taxes and
discontinued operations 51,000 (292,000)
INCOME TAX PROVISION - -
---------- ----------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 51,000 (292,000)
DISCONTINUED OPERATIONS
Loss from operations - (292,000)
Loss on disposal (9,000) -
---------- ----------
(9,000) (292,000)
---------- ----------
NET INCOME (LOSS) $ 42,000 $ (584,000)
========== ==========
PREFERRED STOCK DIVIDEND REQUIREMENTS $ - $ 12,000
========== ==========
PER SHARE OF COMMON STOCK - PRIMARY:
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ 0.01 $ (0.05)
DISCONTINUED OPERATIONS - (0.05)
---------- ----------
NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.10)
========== ==========
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 5,911,000 5,704,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED OCTOBER 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CONTRACT REVENUES $11,548,000 $13,255,000
CONTRACT COSTS 9,996,000 11,532,000
----------- -----------
Gross margin 1,552,000 1,723,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,858,000 2,255,000
----------- -----------
Loss from operations (306,000) (532,000)
OTHER INCOME (EXPENSE):
Gain on sale of PDG Remediation, Inc. common stock - 1,354,000
Interest expense (230,000) (376,000)
Interest income 6,000 18,000
Other income 67,000 4,000
----------- -----------
(157,000) 1,000,000
----------- -----------
Income (loss) before income taxes and discontinued
operations (463,000) 468,000
INCOME TAX PROVISION - -
----------- -----------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (463,000) 468,000
DISCONTINUED OPERATIONS
Loss from operations (505,000) (737,000)
Gain on disposal 203,000 -
----------- -----------
(302,000) (737,000)
----------- -----------
NET LOSS $ (765,000) $ (269,000)
=========== ===========
PREFERRED STOCK DIVIDEND REQUIREMENTS $ 27,000 $ 36,000
=========== ===========
PER SHARE OF COMMON STOCK - PRIMARY:
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ (0.08) $ 0.07
DISCONTINUED OPERATIONS (0.05) (0.13)
----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ (0.13) $ (0.06)
=========== ===========
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 5,910,000 5,522,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED OCTOBER 31,
----------------------------
1996 1995
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(765,000) $ (269,000)
ADJUSTMENTS TO RECONCILE NET
INCOME TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 282,000 369,000
Gain on sale of PDG Remediation, Inc. common stock (203,000) (1,354,000)
--------- -----------
TOTAL CASH PROVIDED BY INCOME (LOSS) (686,000) (1,254,000)
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable (602,000) (926,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (196,000) (171,000)
Inventory (18,000) 11,000
Net assets of discontinued operations 489,000 737,000
Prepaid income taxes (55,000) (61,000)
Other current assets 501,000 681,000
Accounts payable 15,000 (12,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts 331,000 (233,000)
Accrued liabilities 377,000 217,000
Other (47,000) (5,000)
--------- -----------
TOTAL ADJUSTMENTS IN ASSETS AND LIABILITIES 795,000 238,000
--------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 109,000 (1,016,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (75,000) (301,000)
Proceeds from the sale of property, plant and equipment 2,000 1,000
--------- -----------
NET CASH USED BY INVESTING ACTIVITIES (73,000) (300,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on sale of PDG Remediation, Inc. common stock - 1,435,000
Proceeds from debt 286,000 49,000
Principal payments on debt (132,000) (728,000)
--------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 154,000 756,000
--------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments 190,000 (560,000)
Cash and Short-Term Investments, Beginning of Period 273,000 673,000
--------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 463,000 $ 113,000
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Additional Information:
The proceeds on the sale of PDG Remediation, Inc. common stock of $1,206,000
for the nine months ended October 31, 1996 were not received in the form of
cash, but rather were a direct offset to the debt owed Drummond Financial
Corporation.
6
<PAGE> 7
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc. and its
wholly-owned subsidiaries. The accounts of ICHOR Corporation, formerly known
as PDG Remediation, Inc. ("PDGR"), in which PDG Environmental, Inc. maintained
until July 31, 1996 a 59.5% ownership interest subsequent to the initial public
offering of PDGR's common stock and warrants on February 9, 1995 are reflected
as a discontinued operation (see Note 3).
The accompanying financial statements of PDG Environmental, Inc. and
subsidiaries (the "Corporation") are unaudited. However, in the opinion of
management, they include all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows. All adjustments made
during the three and nine months ended October 31, 1996 were of a normal,
recurring nature. The amounts presented for the three and nine months ended
October 31, 1996 are not necessarily indicative of results of operations for a
full year. Additional information is contained in the Annual Report on Form
10-K of the Corporation for the year ended January 31, 1996, as amended by Form
10-K/A No. 1 dated May 31, 1996 and Quarterly Reports on Form 10-Q of the
Corporation for the quarters ended April 30, 1996 and July 31, 1996 dated June
14, 1996 and September 16, 1996, respectively, and should be read in
conjunction with this quarterly report.
The prior year financial statements have been reclassified to reflect the PDGR
business as a discontinued operation.
NOTE 2 -- FEDERAL INCOME TAXES
No income taxes have been provided for the three and nine months ended October
31, 1996 due to a loss for the nine month period ending October 31, 1996 for
financial reporting purposes.
Income taxes paid by the Corporation for the nine months ended October 31, 1996
and 1995 totaled approximately $8,000 and $57,000, respectively.
NOTE 3 -- ICHOR CORPORATION (FORMERLY KNOWN AS PDG REMEDIATION, INC.)
INITIAL PUBLIC OFFERING
On February 9, 1995, PDGR sold in an initial public offering 1,000,000 shares
of common stock and 1,000,000 redeemable warrants at a price of $5.00 per share
of common stock and $0.10 per redeemable warrant. The Corporation sold 400,000
shares of its PDGR common stock as part of the initial public offering and
received net proceeds of approximately $1.4 million, which resulted in a gain
of approximately $1.4 million during the nine months ended October 31, 1995.
The Corporation recorded the sale effective as of February 1, 1995. PDGR sold
600,000 newly issued common shares plus 1,000,000 redeemable warrants and
received net proceeds of approximately $2.3 million. The Corporation owned
approximately 59.5% of PDGR common stock until July 31, 1996.
DISCONTINUED OPERATIONS
On May 1, 1996, the Corporation made the decision to divest its remaining 59.5%
ownership interest in PDGR. The loss from discontinued operations in the
Statements of Consolidated Operations represents the Corporation's 59.5%
portion of PDGR's loss. During the six month period ending July 31, 1996, PDGR
had revenues of $2,479,000, and during the three and nine month periods ending
October 31, 1995, PDGR had revenue of $1,314,000 and $4,874,000, respectively.
See Note 4 for a discussion of the sale of PDGR.
7
<PAGE> 8
NOTE 4 -- LINES OF CREDIT
On July 31, 1996, the Corporation entered into a Loan Modification Agreement
("Modification Agreement") with Drummond Financial Corporation ("Drummond")
formerly CVD Financial Corporation. Pursuant to the Modification Agreement,
Drummond purchased all 1,470,320 shares of PDGR common stock held by the
Corporation for $0.82 per share and the aggregate purchase price of $1,205,662
was utilized to reduce the outstanding balance on the line of credit maintained
by the Corporation with Drummond. This resulted in a $203,000 gain on the
sale. After application of the proceeds, the debt under the line of credit was
reduced to $1,214,332 at July 31, 1996, and the maximum allowable borrowings
under the line of credit were capped at $1,500,000. The maturity date of the
line of credit and term loan agreements was extended until August 1, 1997. As
of October 31, 1996, the Corporation was fully borrowed on the $1.5 million
line of credit.
The closing of the sale was subject to a number of conditions, including (a)
the reincorporation of PDGR as a Delaware corporation; (b) the reincorporation
of PDGR resulting in no material liabilities to PDGR; and (c) not more than
five percent (5%) of the shareholders of PDGR exercising dissenters' rights in
connection with the reincorporation. PDGR satisfied all requirements for
reincorporation and reincorporated in Delaware on November 13, 1996. No
material liabilities to PDGR resulted from this reincorporation. The period
for the exercise of dissenters' rights expired on November 12, 1996, and no
dissenters' rights were exercised.
On January 27, 1995, PDGR 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
PDGR to fund the amounts which PDGR bills under the EDI Program at the prime
rate of interest, as defined, plus 2%. PDGR 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. The advances to PDGR are fully secured by the accounts receivable
and the escrow. As of October 31, 1996, PDGR was advanced approximately $0.7
million under the Sirrom Agreement.
On August 21, 1995, PDGR 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 PDGR to fund 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. The advances to PDGR are
fully secured by the accounts receivable and the escrow. PDGR and the
Corporation are guarantors on the Second Sirrom Agreement. As of October 31,
1996, PDGR was advanced approximately $2.3 million under the Second Sirrom
Agreement.
It is expected that the amounts under the aforementioned guarantees will
decrease in the first half of calendar 1997 as the balances due PDGR from the
EDI Program are remitted thereby allowing PDGR to reduce the amounts owed
Sirrom.
On October 31, 1996, the Corporation advised Sirrom that it would no longer
guarantee future advances to PDGR under either the Sirrom Agreement or the
Second Sirrom Agreement.
The Corporation paid interest costs totaling approximately $176,000 and
$375,000 during the nine months ended October 31, 1996 and 1995, respectively.
NOTE 5 -- COMPENSATION PLANS
The Corporation maintains a qualified incentive stock option plan (the "Plan")
which provides for the grant of incentive options to purchase shares of the
common stock of the Corporation to certain officers and employees of the
Corporation and its subsidiaries. Options to purchase 1,055,000 and 115,000
shares of the Corporation's common stock at an exercise price of $0.36 per
share were granted under the Plan effective June 17, 1996 and November 1, 1996,
respectively. Vesting of 50% of the options is contingent upon the individual
offices, and in the case of executive officers, the Corporation, meeting
pre-established financial goals for the remainder of fiscal
8
<PAGE> 9
1997. If financial goals are exceeded by 25%, the remaining 50% of options for
fiscal 1997 vest. If financial goals are not achieved, the options do not vest
and are returned to the Plan for future grants. Vesting for fiscal 1998
options are identical to that of the fiscal 1997 options.
NOTE 6 -- PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred
Stock were approximately $119,000 at October 31, 1996. At October 31, 1996,
there were 186,052 shares of Series A Preferred Stock outstanding. The Series
A Preferred Stock is convertible into four shares of the Corporation's common
stock at the option of the preferred stockholder.
The conversion rate on the Series A Preferred Stock is also subject to
adjustment as a result of certain changes in the Corporation's capital
structure or distributions to common stockholders (except for cash dividends
permissible under law).
NOTE 7 -- NET LOSS PER SHARE
The primary loss per common share for the three and nine months ended October
31, 1995 and the nine months ended October 31, 1996 are computed by adjusting
the net loss for the preferred dividend requirement of $12,000, $36,000 and
$27,000, respectively, and dividing this amount by the weighted average number
of shares of common stock outstanding during the respective period. The
effects of assuming the conversion of preferred stock or the exercise of stock
options, stock warrants and common stock rights would be antidilutive for the
three and nine months ended October 31, 1995 and the nine months ended October
31, 1996.
Primary earnings per share for the three months ended October 31, 1996 are
calculated by adjusting the net income for the preferred dividend requirement
of $9,000 and dividing this amount by the weighted average number of shares of
common shares outstanding during the quarter. The effects of assuming the
conversion of preferred stock or the exercise of stock options, stock warrants
and common stock rights would be antidilutive for the three months ended
October 31, 1996.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
As discussed in further detail in Item 3. Legal Proceedings contained in the
Corporation's Annual Report on Form 10-K for the year ended January 31, 1996,
as amended by Form 10-K/A dated May 31, 1996, the Corporation and PDGR have
been named as a defendant in a purported class action involving the purchase by
all persons and entities of PDGR common stock from February 9, 1995 through May
23, 1995. The action alleges that defendants violated certain federal
securities laws.
The Corporation and PDGR believe that the allegations are without merit or that
there are meritorious defenses to the allegations, and intends to defend the
action vigorously. If, however, the plaintiff is successful in its claims, a
judgment rendered against the Corporation and the other defendants would likely
have a material adverse effect on the business and operations of the
Corporation.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
On February 9, 1995, the Corporation sold approximately 40.5% of its common
stock interest in its wholly-owned environmental services subsidiary, PDGR, in
an initial public offering of PDGR's common stock. The Corporation recorded
the sale effective as of February 1, 1995. On May 1, 1996, the Corporation
made a decision to divest its remaining 59.5% interest in PDGR. Therefore, the
Corporation accounted for its remaining 59.5% ownership interest as a
discontinued operation until July 31, 1996, at which time the Corporation's
remaining ownership was sold to Drummond Financial Corporation.
The Corporation's contract revenues decreased by approximately 24% to $4.0
million during the three months ended October 31, 1996 compared to $5.3 million
in the three months ended October 31, 1995.
The Corporation's gross margin increased to $0.7 million in the third quarter
of fiscal 1997 compared to $0.6 million in the third quarter of fiscal 1996 due
to increased profit margin on contracts which more than offset the decline in
revenue.
Selling, general and administrative expenses decreased to $0.6 million in the
three months ended October 31, 1996 compared to $0.8 million in the three
months ended October 31, 1995. The decrease is primarily attributable to
cost-saving measures implemented during the current year.
As a result of the factors described above, the Corporation reported income
from operations of $0.1 million in the current three month period compared to a
loss from operations of $0.2 million for the same three months of the prior
fiscal year.
The Corporation's reported interest expense decreased to $0.06 million for the
current fiscal quarter from $0.11 million for the prior year fiscal quarter.
The Corporation's interest expense decreased due to a significant reduction in
both the outstanding balance on the indebtedness to Drummond and the related
interest rate.
No income taxes have been provided during the three months ended October 31,
1996 as the Corporation reported a loss for financial reporting purposes during
the nine months ended October 31, 1996.
The Corporation recorded its 59.5% interest in the losses of PDGR resulting in
a $0.3 million loss for the quarter ended October 31, 1995. The gain on
disposal was decreased by $9,000 during the quarter ended October 31, 1996 as a
result of legal billings related to the Modification Agreement with Drummond.
NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
The Corporation's contract revenues decreased by approximately 13% to $11.5
million for the nine months ended October 31, 1996 compared to $13.3 million
for the nine months ended October 31, 1995.
The gross margin reported by the Corporation in the nine months ended October
31, 1996 decreased to $1.6 million compared to $1.7 million for the nine months
ended October 31, 1995. The gross margin percentage, as compared to revenue,
increased slightly, therefore, the decrease in gross margin was primarily
attributable to the decrease in revenues.
Selling, general and administrative expenses reported by the Corporation for
the nine months ended October 31, 1996 decreased to $1.9 million versus $2.3
million in the same nine month period of the prior fiscal year. The decrease
was due to cost-saving measures implemented during the current fiscal year.
10
<PAGE> 11
The Corporation reported a loss from operations of $0.3 million in the nine
months ended October 31, 1996 as a result of the factors discussed above
compared to a loss from operations of $0.5 million in the same nine month
period last year.
During the nine months ended October 31, 1995, the Corporation reported a net
gain of approximately $1.4 million from the initial public offering of common
stock and warrants by PDGR since the basis of the Corporation's investment was
lower than the proceeds realized from the initial public offering. As a result
of the sale, the Corporation's ownership percentage in PDGR was reduced from
100% to 59.5%.
Interest expense decreased to $0.23 million in the current nine month period
compared to $0.37 million in the nine months ended October 31, 1995. The
Corporation's interest expense decreased due to a significant reduction in both
the outstanding balance on the indebtedness to Drummond and the related
interest rate.
The Corporation reported a loss for financial reporting purposes during the
nine months ended October 31, 1996, therefore, no income taxes have been
provided.
The Corporation recorded its 59.5% interest in the losses of PDGR resulting in
a $505,000 and $737,000 loss from discontinued operations for the nine month
period ended October 31, 1996 and 1995, respectively. The sale of the PDGR
shares to Drummond on July 31, 1996 resulted in a $203,000 gain.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's liquidity increased during the nine months ended October 31,
1996 as cash and short-term investments increased by $0.2 million to $0.5
million compared to a $0.6 million decrease in cash and short-term investments
in the nine months ended October 31, 1995.
The increase in cash during the current nine month period is principally
attributable to cash inflows associated with operating activities of $0.1
million and financing activities of $0.2 million. These cash inflows were
partially offset by cash outflows for investing activities of $0.1 million.
Cash inflows provided by operating activities of $0.1 million in the nine
months ended October 31, 1996 included a $0.5 million reduction in other
current assets, a $0.3 million increase in billings in excess of costs and
estimated earnings on uncompleted contracts related to the timing of certain
contract activity, a $0.4 million increase in accrued liabilities due to the
timing of payments, and $0.3 million of depreciation and amortization. The
aforementioned cash inflows from operating activities were offset by a $0.6
million increase in accounts receivable, $0.2 million increase in costs and
estimated earnings in excess of billings on uncompleted contracts related to
the timing of contracts, an adjustment of $0.2 million due to the gain on the
sale of PDGR common stock and $0.8 million as a result of the net loss
generated in the period.
Cash inflows associated with financing activities during the current nine
months included $0.29 million advanced under the line of credit offset by $0.13
million of principal payments made on the Drummond term debt. Additionally,
$1.2 million of proceeds from the sale of PDGR stock to Drummond Financial
Corporation was a direct offset to reduce borrowings under the line of credit.
The Corporation's investing activities of $0.07 million in the nine months
ended October 31, 1996 was for the purchase of property, plant and equipment.
During the nine months ended October 31, 1995, the Corporation's liquidity
decreased by $0.56 million to $0.13 million. Cash used by operating activities
of $1.0 million and cash used by investing activities of $0.3 million were
offset by cash provided by financing activities of $0.76 million.
The Corporation's cash outflows of $1.0 million to fund operating activities
principally included a $0.9 million increase in accounts receivable and a $0.2
million increase in costs and estimated earnings in excess of billings on
uncompleted contracts which related to the higher sales levels experienced in
the nine months ended October 31, 1995, and a $0.2 million decrease in billings
in excess of costs and estimated earnings on uncompleted contracts, an
adjustment of $1.4 million due to the gain on the sale of PDGR common stock and
$0.3 million as
11
<PAGE> 12
a result of the net loss generated in the period. These cash outflows in
operating activities were partially offset by an increase in other current
assets of $0.7 million and an increase in accrued liabilities of $0.2 million
and $0.4 million of depreciation and amortization.
During the nine months ended October 31, 1995, cash outflows associated with
investing activities of $0.3 million related to the purchase of property, plant
and equipment.
The Corporation's cash inflows related to financing activities included $1.4
million from the sale of PDGR common stock. This cash inflow was offset by
principal payments on debt of $0.7 million.
At October 31, 1996, the Corporation's backlog associated with its asbestos
abatement business totaled $15.5 million ($9.8 million on fixed fee contracts
and $5.7 million on time and materials or unit price contracts). This is a
significant increase from the backlog of $11 million and $6.2 million at July
31, 1996 and April 30, 1996, respectively and reflects the large number of
contracts awarded to the Corporation during the second and third quarters.
The Corporation will continue to monitor closely its short-term and long-term
liquidity requirements on an ongoing basis and is prepared to implement any
measures required to conserve cash to meet its needs and to satisfy its
obligations.
PROSPECTIVE INFORMATION
The Corporation's current business consists principally of asbestos abatement
contracting after the sale of its 59.5% ownership interest in PDGR to Drummond
on July 31, 1996.
The Corporation is exploring further options to increase liquidity and
stockholders' equity, including a private placement of the Corporation's equity
securities and/or the consummation of a new credit facility.
As discussed in further detail in Item 1. Legal Proceedings contained in Part
II located elsewhere herein, the Corporation has been named as a defendant in a
purported class action involving the purchase by all persons and entities of
PDGR common stock from February 9, 1995 through May 23, 1995. The action
alleges that defendants violated certain federal securities laws. The
Corporation believes that the allegations are without merit or that there are
meritorious defenses to the allegations, and intends to defend the action
vigorously. If, however, the plaintiff is successful in its claims, a judgment
rendered against the Corporation and the other defendants would likely have a
material adverse effect on the business and operations of the Corporation.
12
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the action captioned Klein v. PDG Remediation, Inc., described
in the registrant's Form 10-Q for the quarter ended July 31, 1996, on September
1, 1995, an answer was filed on behalf of the registrant, its officers and
directors and PDGE 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 defendants requested a pre-motion conference on a motion
to dismiss the complaint. In September 1996, the motion to dismiss was denied,
but the motion for class certification is still pending. The action is still
in the discovery stage.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At October 31, 1996, the cumulative dividends
in arrears on the Series A Preferred Stock were approximately $119,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ANNUAL MEETING OF STOCKHOLDERS
On October 16, 1996 the Annual Meeting of the Stockholders of PDG
Environmental, Inc. was held in Pittsburgh, PA. At the meeting all of
management's nominees were elected directors of the Corporation. Ernst & Young
LLP was reelected as the Corporation's auditors with the following vote:
Votes For 6,262,670
Votes Against 7,272
Abstained 7,360
The Amendment to the Corporation's Incentive Stock Option Plan was approved as
follows:
Votes For 3,643,262
Votes Against 652,599
Abstained 10,477
Not Voting 1,970,964
The Amendment to the Corporation's Stock Option Plan for Non-Employee Directors
was approved as follows:
Votes For 6,170,531
Votes Against 79,526
Abstained 11,207
Not Voting 16,038
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
<TABLE>
<CAPTION>
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
<S> <C>
27 Financial Data Schedule
(b) The registrant did not file any current reports on Form 8-K during the
three months ended October 31, 1996.
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/ JOHN C. REGAN
-------------------------------------
John C. Regan
Chairman and Chief Executive Officer
Date: December 11, 1996
15
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<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
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444,000
<COMMON> 118,000
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