<PAGE> 1
(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
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer
incorporation 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
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The aggregate market value of the voting stock held by non-affiliates of the
registrant was $3,317,366 as of March 31, 1997, computed on the basis of the
average of the bid and asked prices on such date.
As of March 31, 1997 there were 5,923,868 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 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
(a) DEVELOPMENT OF THE BUSINESS
PDG Environmental, Inc., the registrant, is a holding company which, through
its wholly-owned operating subsidiaries, is engaged primarily in providing
asbestos abatement 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.
On July 20, 1994, PDG Remediation, Inc., now known as ICHOR Corporation,
("PDGR") was incorporated under the laws of the Commonwealth of Pennsylvania as
a wholly-owned subsidiary of the registrant. 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 July 31, 1996, the registrant 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.
(b) 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.
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.
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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; Hazleton 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 19% of the registrant's asbestos abatement purchases in fiscal
1997.
The customers of the registrant's asbestos abatement business include both
private sector clients and government or publicly funded entities. In fiscal
1997, the registrant estimates that approximately 72% of its operating
subsidiaries' revenues were derived from private sector clients, 23% from
government contracts and 5% 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 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, 1997.
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.
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INSURANCE AND BONDS
The registrant and its operating subsidiaries maintain liability insurance for
claims arising from its asbestos abatement business. The policy, which
provided 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. Effective
February 1, 1997, coverage was raised to $2.0 million. 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.
BACKLOG
The registrant and its operating subsidiaries had asbestos abatement backlog
orders totaling approximately $14.4 million and $7.7 million at January 31,
1997 and 1996, respectively. The backlog at January 31, 1997 consisted of $9.2
million of uncompleted work on fixed fee contracts and an estimated $5.2
million of work to be completed on time and materials or unit price contracts.
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.
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EMPLOYEES
As of January 31, 1997, 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, Hazleton, Export, 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, 1997, the registrant leases certain office space for its
executive offices in Monroeville totaling 3,500 square feet. In addition, a
combination of warehouse or shop and office space is leased in Houston (3,990
square feet), Hazleton (1,800 square feet), Fort Lauderdale (4,725 square
feet), Rock Hill (4,943 square feet) and New York City (3,800 square feet).
The registrant also owns a 15,000 square foot office/warehouse situated on
approximately six (6) acres in Export, Pennsylvania which is subject to a
mortgage.
ITEM 3. LEGAL PROCEEDINGS
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 motion to dismiss was denied in September 1996. The parties have
negotiated a stipulation concerning class certification, and the court has
certified a class. The court has approved the form of notice to the potential
class members notifying them of the certification, but the registrant has not
yet received notice that the order was entered. It is anticipated that the
notice will be sent to potential class members in June 1997.
The action is still in the discovery stage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The registrant's common stock has traded on the OTC Bulletin Board since
September 1996. Prior to that, it was listed for trading on NASDAQ Small Cap
(Symbol: PDGE) and the information presented for the following periods reflects
the high and low bid information as reported by the OTC Bulletin Board and
NASDAQ.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
FISCAL 1997 FISCAL 1996
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 0.63 $ 0.31 $ 1.31 $ 0.78
Second Quarter 1.00 0.31 0.91 0.50
Third Quarter 0.83 0.31 0.69 0.31
Fourth Quarter 0.47 0.25 0.59 0.25
</TABLE>
At March 31, 1997, the registrant had 2,203 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, 1997.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1997 1996* 1995* 1994* 1993*
------------------- ------------- ------------- -------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Contract revenues $ 16,183 $ 16,215 $ 17,659 $ 16,310 $ 31,250
Gross margin 2,485 1,442 2,178 1,810 4,258
Income (loss) from operations (6) (1,567) (591) (1,363) 379
Other income (expense) (178) 920 (423) (302) 342
Income (loss) from continuing operations (184) (750) (1,038) (1,651) 625
Income (loss) from discontinued operations (302) (1,701) 896 206 57
Net income (loss) (486) (2,451) 473 (1,445) 682
COMMON SHARE DATA
Net income (loss) from continuing
operations per common share $ (0.04) $ (0.14) $ (0.15) $ (0.67) $ (0.23)
Net income (loss) per
common share (0.09) (0.44) 0.07 (0.61) (0.18)
Weighted average common shares outstanding 5,913 5,670 7,157 3,267 1,239
BALANCE SHEET DATA
Working capital $ 409 $ 3,110 $ 3,177 $ 3,427 $ 3,024
Total assets 6,165 7,564 9,690 7,904 10,323
Long-term obligations 372 2,766 510 1,735 213
Total stockholders' equity 762 1,218 3,609 3,049 4,198
</TABLE>
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*Restated to reflect the treatment of PDGR as a discontinued operation (see
Note 3 of Audited Consolidated Financial Statements).
The years ended January 31, 1997, 1996, 1995, 1994 and 1993 include gain (loss)
from discontinued operations of ($0.3 million), ($1.7 million), $0.9 million,
$0.2 million and $0.1 million respectively; ($0.05), ($0.30), $0.13, $0.06 and
$0.05 per common share respectively).
For the year ended January 31, 1996, other income includes a gain of $1.4
million on the sale of 40.5% of its investment in PDGR.
The year ended January 31, 1995 includes an extraordinary item related to the
early extinguishment of debt totaling $0.6 million ($0.09 per common share).
For the year ended January 31, 1993, other income includes a $0.7 million gain
on the settlement of certain litigation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The registrant, through its operating subsidiaries, provides asbestos abatement
services to the public and private sectors.
The following paragraphs are intended to highlight key operating 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, 1997.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1997 COMPARED TO YEAR ENDED JANUARY 31, 1996
During the year ended January 31, 1997, (fiscal 1997) the registrant's
consolidated revenues remain unchanged at $16.2 million when compared to the
previous fiscal year ended January 31, 1996 (fiscal 1996).
The registrant's reported gross margin increased to $2.5 million in fiscal 1997
compared to $1.4 million in fiscal 1996. The increased margin in fiscal 1997
was due to higher margins on work obtained and the effect in fiscal 1996 of a
cost overrun on a large contract, an additional provision on a completed
contract and extreme competitive pressures which reduced margins.
Selling, general and administrative expenses decreased in fiscal 1997 to $2.5
million compared to $3.0 million in fiscal 1996 due to significant cost-saving
measures adopted early in fiscal 1997.
As a result of the factors discussed above, the registrant reported a loss from
operations in fiscal 1997 of $0.01 million compared to a loss from operations
of $1.6 million in fiscal 1996.
Interest expense decreased to $0.3 million in fiscal 1997 compared to $0.5
million in fiscal 1996 as a result of a significant reduction in both the
outstanding balance on the indebtedness to Drummond and the related interest
rate. Interest income decreased to $8,000 in fiscal 1997 compared to $24,000
in fiscal 1996 due to the lower invested cash balances during the current year.
Other income in fiscal 1997 totaled approximately $101,000 versus $9,000 in
fiscal 1996. Significant components of other income were the proceeds from a
casualty loss, rental of excess equipment and the sale of fixed assets. During
the year ended January 31, 1996, the registrant reported a gain of $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 to 59.5%.
As a result of a net operating loss for book purposes, the registrant had no
federal tax provision. During fiscal 1996, the registrant recorded a deferred
income tax provision of $103,000.
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The registrant recorded its 59.5% interest in the losses of PDGR resulting in a
$0.5 million and $1.2 million loss from discontinued operations for fiscal 1997
and 1996, respectively. The sale of the remaining PDGR shares to Drummond on
July 31, 1996 resulted in a $0.2 million gain. The $0.5 million loss on
disposal in fiscal 1996 represented the registrant's 59.5% share of the loss
resulting from the sale of PDGR's thermal treatment facility in Florida.
YEAR ENDED JANUARY 31, 1996 COMPARED TO YEAR ENDED JANUARY 31, 1995
Consolidated revenues reported by the registrant decreased to $16.2 million for
the year ended January 31, 1996 (fiscal 1996) compared to $17.7 million for the
year ended January 31, 1995 (fiscal 1995). The fiscal 1996 decrease was
primarily attributable to weak market conditions.
Contract costs decreased to $14.8 million in fiscal 1996 compared to $15.5
million in fiscal 1995 and resulted in reported gross margins of $1.4 million
and $2.2 million, respectively in each fiscal year. The lower margins
experienced 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 selling, general and administrative expenses increased by 9%
between the two fiscal years to $3.0 million in fiscal 1996 compared to $2.8
million in fiscal 1995. 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 $1.6 million in fiscal 1996 compared to loss from operations of
$0.6 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 remained stable at $0.5 million. Interest income increased to
$24,000 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.
As a result of a net operating loss for book purposes there was no income tax
provision, except for the reversal of $103,000 of deferred federal income
taxes. The registrant had income tax provision of $24,000 for fiscal 1995.
The loss from discontinued operations in fiscal 1996 is due to the significant
decrease in revenues due to changes to the EDI Program ($0.64 million) and
losses associated with the operation of the Geologic thermal treatment facility
($0.56 million). This compared with income from discontinued operations of
$0.9 million in fiscal 1995. 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 on the disposition of the
thermal treatment facility of $0.5 million in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1997
During fiscal 1997, the registrant experienced an increase in liquidity of $0.1
million as cash and short-term investments increased from $0.3 million at
January 31, 1996 to $0.4 million at January 31, 1997. The increase in
liquidity in fiscal 1997 was attributable to cash inflows in the amount of $0.2
million from operating activities and $0.1 million from financing activities
partially offset by $0.1 million used to fund the purchase of property, plant
and equipment.
Specifically, cash inflows from operating activities were generated by a
decrease in other current assets of $0.6 million, a $0.1 million increase in
accrued liabilities, a decrease of $0.5 million in net assets of discontinued
operations and $0.4 million of depreciation. Cash outflows related to the
accounts receivable balance which increased $0.5 million as a result of the
higher revenues during the fourth quarter of fiscal 1997, accounts payable
which decreased $0.2 million, an adjustment of $0.2 million due to the gain on
the sale of PDGR and $0.5 million as a result of the net loss generated in the
period.
The $0.12 million from financing activities during fiscal 1997 included $0.29
million advanced under the line of credit offset by $0.17 million of principal
repayments made on the Drummond term debt. Additionally, the $1.2 million of
proceeds from the sale of PDGR stock to Drummond was a direct offset to reduce
borrowings under the line of credit.
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The registrant's investing activities of $0.1 million during fiscal 1997 were
attributable to the purchase of property, plant and equipment.
The registrant maintains a $1,500,000 line of credit and a $330,000 term loan
with Drummond Financial Corporation ("Drummond") formerly CVD Financial
Corporation. Both the line of credit and the term loan mature August 1, 1997.
On July 31, 1996, the Corporation entered into a Loan Modification Agreement
("Modification Agreement") with Drummond. 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 January 31, 1997, 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.
The registrant has received a $375,000 commitment from a financial institution
to refinance the $330,000 term loan payable to Drummond maturing on August 1,
1997. The new loan will have a seven-year term at a 9.5% interest rate fixed
for the first four years of the loan. The interest will then be readjusted to
the current five year treasury bill rate plus 3.25% for the remaining three
years of the loan. The new loan will require monthly debt service payments of
approximately $6,500 which is a reduction of approximately $10,000 from the
current Drummond debt service. Closing on the loan is expected by mid-May
1997.
Subject to the closing of the new loan, the registrant will have $1,455,000, as
of January 31, 1997, outstanding on the line of credit with Drummond maturing
August 1, 1997. The registrant intends to attempt to negotiate a new line of
credit in excess of $1 million, enter into a sale/leaseback of certain
equipment and/or execute a private placement of the registrant's securities
prior to August 1, 1997 to generate the funds necessary to repay the remaining
outstanding balance on the line of credit payable to Drummond. Absent
receiving the cash from the previously discussed financing and equity raising
and not having sufficient cash resources to repay the entire remaining amount
due Drummond, the registrant could enter into the sale of receivables and/or
the conversion of up to $800,000 of debt held by Drummond into shares of the
registrant's common stock providing that the subsequent immediate resale of
such stock has been arranged or enter into negotiations with Drummond to
facilitate a partial paydown on the remaining amount due Drummond with an
extension of the maturity date of the remaining amount due. There can be no
assurance that the refinancings or other sources of funds described in this and
the preceding paragraph will be achieved. If these refinancings or other
sources of funds are not achieved, the registrant's liquidity would be
materially adversely affected.
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 provided $0.75 million of funding in connection
with clean-up activities under the Florida state-funded site rehabilitation
program (the EDI Program) in which PDGES has participated. The Sirrom
Agreement expired on January 27, 1997 and enabled PDGES to fund the amounts
which PDGES billed under the EDI Program at the prime rate of interest, as
defined, plus 2%. PDGES was advanced 100% of amounts billed, but was 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,
1997, 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 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 at an
exercise price of $1.37 per share in conjunction with the execution of the
Second Sirrom Agreement. The registrant and PDGR are guarantors under the
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<PAGE> 10
Second Sirrom Agreement. As of January 31, 1997, PDGES had been advanced $4.0
million under the Second Sirrom Agreement.
On October 31, 1996, the registrant advised Sirrom that it would no longer
guarantee future advances to PDGES under either the Sirrom Agreement or the
Second Sirrom Agreement. At that time, PDGES had been advanced approximately
$0.7 million and $2.3 million under the Sirrom Agreement and the Second Sirrom
Agreement, respectively.
PROSPECTIVE INFORMATION
The registrant's current business consists entirely of asbestos abatement
contracting.
The registrant has been named in a purported class action suit involving the
purchase by all persons and entities of the registrant's common stock from
February 9, 1995 through May 23, 1995. The action alleges that the defendants
violated certain federal securities laws.
The registrant believes that the allegations are without merit or that there
are meritorious defenses to the allegations, and intends to defend the action
vigorously. If, however, the plaintiff is successful in its claims, a judgment
rendered against the registrant and the other defendants would likely have a
material adverse effect on the business and operations of the registrant.
In order to repay the remaining amount due Drummond and to have sufficient
capital to fund a higher level of operations, the registrant will continue to
explore the consummation of a new line of credit, sale/leaseback of certain
equipment and/or the private placement of the registrant's securities.
Should the registrant be unable to raise sufficient capital, it would endeavor
to fund the shortfall relative to the repayment of the remaining amount due
Drummond from cash generated by operations. Absent receiving the cash from the
previously discussed financing and equity raising and not having sufficient
cash resources to repay the entire remaining amount due Drummond, the
registrant could enter into the sale of receivables and/or the conversion of up
to $800,000 of debt held by Drummond into shares of the registrant's common
stock providing that the subsequent immediate resale of such stock has been
arranged or enter into negotiations with Drummond to facilitate a partial
paydown on the remaining amount due Drummond with an extension of the maturity
date of the remaining amount due. There can be no assurance that the
refinancings or other sources of funds described in this and the preceding
paragraph will be achieved. If these refinancings or other sources of funds
are not achieved, the registrant's liquidity would be materially adversely
affected.
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.
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<PAGE> 11
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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<PAGE> 12
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, 1997 and 1996 . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Three Years Ended
January 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended January 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Three Years Ended
January 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements for the Three Years
Ended January 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . F-17
</TABLE>
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 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.
4.6 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.
4.7 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.
4.8 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.
4.9 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.
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4.10 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.
4.11 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.
4.12 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, is
incorporated herein by reference.
4.13 Loan Modification Agreement dated July 31, 1996 between CVD Financial
Corporation and PDG Environmental, Inc., PDG, Inc., Project Development
Group, Inc. and Enviro-Tech Abatement Services Co. and John Regan filed
as Exhibit 4(a) of the PDG Environmental, Inc. Quarterly Report on Form
10-Q, for the quarter ended July 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.
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10.7 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.
10.8 Letter agreement between the registrant and Messrs. Sorenson and
Bendis, filed as Exhibit 10.7 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 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.
10.10 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.
10.11 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 4.05).
10.12 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 4.06).
10.13 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 4.07).
10.14 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
4.08).
</TABLE>
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10.15 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 4.09).
10.16 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 4.10).
10.17 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
4.11).
10.18 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 4.12).
10.19 Professional Consulting Agreement dated June 14, 1996 between Len
Turano and PDG Environmental, Inc. filed as Exhibit 10(a) of the PDG
Environmental, Inc. Quarterly Report on Form 10-Q for the quarter ended
July 31, 1996, is incorporated herein by reference.
10.20 Loan Modification Agreement dated July 31, 1996 between CVD Financial
Corporation and PDG Environmental, Inc., PDG, Inc., Project Development
Group, Inc. and Enviro-Tech Abatement Services Co. and John Regan filed
as Exhibit 4(a) of the PDG Environmental, Inc. Quarterly Report on Form
10-Q for the quarter ended July 31, 1996, is incorporated herein by
reference (as it appears at 4.13)
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, 1997.
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<PAGE> 17
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: May 15, 1997
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 May 15, 1997
- ------------------------------------------
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
May 15, 1997
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<PAGE> 18
PDG ENVIRONMENTAL, INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(a)(1) AND (2)
FINANCIAL STATEMENTS, SCHEDULES AND SUPPLEMENTARY DATA
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<PAGE> 19
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, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1997.
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, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1997, 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 27, 1997
F-1
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
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JANUARY 31,
1997 1996*
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 429,000 $ 273,000
Accounts receivable, less allowance of $47,000 and
$44,000 in 1997 and 1996, respectively 3,708,000 3,221,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 614,000 670,000
Inventories 182,000 181,000
Notes receivable from officers 132,000 197,000
Prepaid income taxes 182,000 183,000
Other current assets 193,000 473,000
Net assets of discontinued operation - 1,492,000
------------- ------------
TOTAL CURRENT ASSETS 5,440,000 6,690,000
PROPERTY, PLANT AND EQUIPMENT
Land 42,000 42,000
Leasehold improvements 55,000 55,000
Furniture and fixtures 130,000 128,000
Vehicles 361,000 331,000
Equipment 3,015,000 2,961,000
Buildings 369,000 369,000
------------- ------------
3,972,000 3,886,000
Less: accumulated depreciation 3,284,000 3,067,000
------------- ------------
688,000 819,000
OTHER ASSETS 37,000 55,000
------------- ------------
TOTAL ASSETS $ 6,165,000 $ 7,564,000
============= ===========
</TABLE>
* Restated (See Note 3).
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
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JANUARY 31,
1997 1996*
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,699,000 $ 1,680,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 635,000 607,000
Accrued liabilities 1,212,000 1,117,000
Current portion of long-term debt 1,485,000 176,000
----------- -----------
TOTAL CURRENT LIABILITIES 5,031,000 3,580,000
LONG-TERM DEBT 372,000 2,766,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible Series A preferred stock, (2%) $0.01 par value,
5,000,000 shares authorized and 185,925 issued and
outstanding shares at January 31, 1997 and 1996,
(liquidation preference of $1,860,524) 444,000 444,000
Common stock, $0.02 par value, 30,000,000 shares authorized
and 5,923,868 shares and 5,908,868 shares issued and outstanding
at January 31, 1997 and 1996, respectively 118,000 118,000
Paid-in capital 4,260,000 4,230,000
----------- -----------
4,378,000 4,348,000
(Deficit) retained earnings (4,060,000) (3,574,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 762,000 1,218,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,165,000 $ 7,564,000
=========== ===========
</TABLE>
* Restated (See Note 3).
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
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FOR THE YEARS ENDED JANUARY 31,
1997 1996* 1995*
---------------------------------------------------
<S> <C> <C> <C>
CONTRACT REVENUES $16,183,000 $16,215,000 $17,659,000
CONTRACT COSTS 13,698,000 14,773,000 15,481,000
----------- ----------- -----------
GROSS MARGIN 2,485,000 1,442,000 2,178,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,491,000 3,009,000 2,769,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (6,000) (1,567,000) (591,000)
OTHER INCOME (EXPENSE):
Gain on sale of PDG Remediation, Inc. Common Stock - 1,354,000 -
Interest expense (287,000) (467,000) (471,000)
Interest income 8,000 24,000 16,000
Other income 101,000 9,000 32,000
----------- ----------- -----------
(178,000) 920,000 (423,000)
----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM (184,000) (647,000) (1,014,000)
INCOME TAX PROVISION - 103,000 24,000
----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATION AND EXTRAORDINARY ITEM (184,000) (750,000) (1,038,000)
DISCONTINUED OPERATION:
Income (loss) from operation, net of income tax
of $100,000 and $39,000 in 1995 and 1994, respectively (505,000) (1,201,000) 896,000
Gain (loss) on disposal 203,000 (500,000) -
EXTRAORDINARY ITEM, NET OF TAX - - 615,000
----------- ----------- -----------
NET INCOME (LOSS) $ (486,000) $(2,451,000) $ 473,000
=========== =========== ===========
UNDECLARED PREFERRED STOCK DIVIDEND REQUIREMENTS $ 37,000 $ 45,000 $ -
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
Loss before extraordinary item and discontinued
operation $ (0.04) $ (0.14) $ (0.15)
Discontinued operation (0.05) (0.30) 0.13
Extraordinary item - - 0.09
----------- ----------- -----------
Net income (loss) per share $ (0.09) $ (0.44) $ 0.07
=========== =========== ===========
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 5,913,000 5,670,000 7,157,000
=========== =========== ===========
</TABLE>
* Restated (See Note 3).
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
PREFERRED (DEFICIT) TOTAL
STOCK COMMON PAID-IN RETAINED STOCKHOLDERS'
SERIES A STOCK CAPITAL EARNINGS EQUITY
---------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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
Issuance of 150,000 warrants 24,000 24,000
Issuance of 15,000 shares 6,000 6,000
Net loss (486,000) (486,000)
--------- -------- ---------- ----------- -----------
BALANCE AT JANUARY 31, 1997 $ 444,000 $118,000 $4,260,000 $(4,060,000) $ 762,000
========= ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1997 1996* 1995*
--------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (486,000) $ (2,451,000) $ 473,000
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 367,000 525,000 616,000
Gain on sale of PDG Remediation, Inc. common stock (203,000) (1,354,000)
Deferred income taxes - - (174,000)
Other 3,000 (33,000) 125,000
Extraordinary item - - (512,000)
CHANGES IN CURRENT ASSETS AND LIABILITIES OTHER THAN CASH:
Accounts receivable (490,000) 147,000 (462,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts 56,000 163,000 (178,000)
Inventories (1,000) 35,000 (30,000)
Prepaid income taxes 1,000 110,000 46,000
Other current assets 612,000 142,000 (392,000)
Accounts payable (241,000) (413,000) 386,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 28,000 (4,000) 32,000
Net assets of discontinued operations 489,000 2,171,000 (1,654,000)
Accrued liabilities 95,000 158,000 335,000
Other (63,000) 25,000 100,000
------------ ------------ ----------
TOTAL ADJUSTMENTS 486,000 2,534,000 (1,817,000)
------------ ------------ ----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 167,000 (779,000) (1,289,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (135,000) (346,000) (170,000)
Proceeds from sale of property, plant and equipment 3,000 - 7,000
------------ ------------ ----------
NET CASH USED BY INVESTING ACTIVITIES (132,000) (346,000) (163,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 286,000 20,000 2,061,000
Proceeds on sale of PDG Remediation, Inc. common stock - 1,435,000 -
Principal payments on debt (165,000) (730,000) (339,000)
------------ ------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 121,000 725,000 1,722,000
------------ ------------ ----------
Net increase (decrease) in cash and short-term investments 156,000 (400,000) 270,000
Cash and short-term investments, beginning of year 273,000 673,000 403,000
------------ ------------ ----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 429,000 $ 273,000 $ 673,000
============ ============ ==========
</TABLE>
* Restated (See Note 3)
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
FOR THE THREE YEARS ENDED JANUARY 31, 1997
NOTE 1 - BASIS OF PRESENTATION
BUSINESS ACTIVITIES
PDG Environmental, Inc. (the "Corporation") is engaged in providing asbestos
abatement services to the public and private sectors.
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.
Effective July 20, 1994, the Corporation formed a new subsidiary, PDG
Remediation, Inc., now known as ICHOR Corporation, ("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 interest in 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.
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.
Operations
Subject to the closing of the new $375,000 loan as discussed further in Note 8,
the Corporation will have $1,455,000, as of January 31, 1997, outstanding on
the line of credit with Drummond maturing August 1, 1997. It is the intention
of the Corporation to negotiate a new line of credit in excess of $1 million,
enter into a sale/leaseback of certain equipment and/or execute a private
placement of the Corporation's securities prior to August 1, 1997 to generate
the funds necessary to repay the remaining outstanding balance on the line of
credit payable to Drummond.
Should the Corporation be unable to raise sufficient capital, it would endeavor
to fund the shortfall relative to the repayment of the remaining amount due
Drummond from cash generated by operations. Absent receiving the cash from the
previously discussed financing and equity raising and not having sufficient
cash resources to repay the entire remaining amount due Drummond, the
Corporation could enter into the sale of receivables and/or the conversion of
up to $800,000 of debt held by Drummond into shares of the Corporation's common
stock providing that the subsequent immediate resale of such stock has been
arranged or enter into negotiations with Drummond to facilitate a partial
paydown on the remaining amount due Drummond with an extension of the maturity
date of the remaining amount due. There can be no assurance that the
refinancings or other sources of funds described in this and the preceding
paragraph will be achieved. If these refinancings or other sources of funds
are not achieved, the Corporation's liquidity would be materially adversely
affected.
F-7
<PAGE> 26
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 maintained, until
July 31, 1996, a 59.5% ownership interest subsequent to the initial public
offering of PDGR's common stock and warrants as described above, are reflected
as a discontinued operation. All significant intercompany transactions are
eliminated in consolidation.
REVENUES AND COST RECOGNITION:
Revenues for asbestos abatement 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).
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, 1997 and 1996,
cash and short-term investments included two certificates of deposit totaling
$75,000, which secure underlying letters of credit and cash held in escrow
totaling $75,000.
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.
F-8
<PAGE> 27
RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation. Additionally, PDGR was treated
as a discontinued operation (see Note 3), and all prior year financial
statements were reclassified to conform with this presentation.
NOTE 3 - DISCONTINUED OPERATION
On May 1, 1996, the Corporation made the decision to divest its remaining 59.5%
interest in PDGR. The loss from discontinued operations in the Statement of
Consolidated Operations represents the Corporation's 59.5% portion of PDGR's
loss during fiscal 1997 and 1996 and 100% of PDGR's income during fiscal 1995.
During the six-month period ending July 31, 1996, PDGR had revenues of $2.5
million. Revenues of PDGR were $4.8 million and $9.4 million in fiscal years
1996 and 1995, respectively. See Note 6 for a discussion of the sale of PDGR.
The Corporation accounted for GeoLogic Recovery Systems ("Geologic"), a
subsidiary of PDGR, 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 recorded a loss on the disposition of GeoLogic of $0.5 million in
fiscal 1996 net of minority interest.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 1997 and 1996 include $220,000 and $84,000,
respectively, of retainage receivables. For the years ended January 31, 1997
and 1996, 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
creditworthiness of customers and, when necessary, requests collateral to
secure the performance of services.
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,
1997 1996
---------- ----------
<S> <C> <C>
Revenues earned on uncompleted contracts $8,968,000 $8,155,000
Less: billings to date 8,989,000 8,092,000
---------- ----------
Net (Over) Under Billings $ (21,000) $ 63,000
========== ==========
Included in the accompanying consolidated balance sheets under the following captions:
JANUARY 31,
1997 1996
---------- ----------
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 614,000 $ 670,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (635,000) (607,000)
---------- ----------
Net (Over) Under Billings $ (21,000) $ 63,000
========== ==========
</TABLE>
Costs and estimated earnings in excess of billings on uncompleted contracts at
January 31, 1997 and 1996 include approximately $470,000 and $400,000,
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 negotiating a contract claim on the other contract.
Management believes that the amounts will ultimately be recovered.
F-9
<PAGE> 28
NOTE 6 - LINES OF CREDIT
The Corporation has a $1,500,000 line of credit facility which expires on
August 1, 1997 and an $330,000 term loan which expires on August 1, 1997 with
Drummond Financial Corporation ("Drummond") formerly CVD Financial Corporation.
All borrowings under the Drummond Agreement bear interest at a bank rate (as
defined) plus 3%. Borrowings under the Drummond 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 Drummond
Agreement. Additionally, a material adverse change in the Corporation's
financial condition may trigger an event of default. The Corporation was also
prohibited under the Drummond Agreement from declaring any dividends.
The Corporation issued 277,500 warrants at an exercise price of $1.125 in
fiscal 1995 per share in fiscal 1995 in conjunction with the execution of the
Drummond Agreement which have been recorded as an additional cost, ($48,000),
of the financing.
Effective June 30, 1994, Integra Bank sold its interest in the Amended and
Restated Credit Agreement to Drummond for a purchase price of 70% of the
aggregate outstanding principal balance. Additionally, Integra Bank sold its
interest in an outstanding mortgage to Drummond at 70% of the aggregate
outstanding principal balance.
In fiscal 1995, Drummond 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 Drummond at an exercise price of $0.75 per share in
connection with the transaction.
On October 31, 1995, the Corporation entered into an Amended and Restated Loan
Agreement with Drummond 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 required monthly principal
payments of $13,533 plus interest and matured December 31, 1996. Prior to the
October 31, 1995 refinancing, Drummond 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, Drummond continues to hold the
warrants.
As part of the aforementioned Loan Agreement, Drummond 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.
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.
On July 31, 1996, the Corporation entered into a Loan Modification Agreement
("Modification Agreement") with Drummond. 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 ($0.03 per share). 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 January 31, 1997, 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.
F-10
<PAGE> 29
The proceeds on the sale of PDG Remediation, Inc. common stock of $1,206,000
for the year ended January 31, 1997 were not received in the form of cash, but
rather were a direct offset to the debt owed Drummond Financial Corporation.
On January 27, 1995, PDG Environmental Services, Inc. ("PDGES"), a wholly-owned
subsidiary of 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 expired on January 27, 1997 and enabled
PDGES to fund the amounts which PDGR 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, 1997, PDGES 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 the Corporation 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. 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 31,1997, PDGES was advanced approximately $4.0
million under the Second Sirrom Agreement.
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. At that time, PDGR was advanced approximately $0.7
million and $2.3 million under the Sirrom Agreement and the Second Sirrom
Agreement, respectively.
It is expected that the amounts under the aforementioned guarantees will
decrease in the first half of calendar 1997 as the balances due PDGES from the
EDI Program are remitted thereby allowing PDGR to reduce the amounts owed
Sirrom.
The carrying value of the Corporation's credit facility and term loan
approximate their fair value.
NOTE 7 - ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------------------------
<S> <C> <C>
Worker's compensation $ 524,000 $ 272,000
Wages - 120,000
Withheld and accrued taxes 226,000 275,000
Accrued royalties - 30,000
Accrued fringe benefits 181,000 183,000
Accrued insurance 113,000 108,000
Accrued rent 4,000 21,000
Other 164,000 108,000
---------- ----------
Total Accrued Liabilities $1,212,000 $1,117,000
========== ==========
</TABLE>
NOTE 8 - LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
------------------------------
<S> <C> <C>
Term loan due in monthly installments of $14,000, plus
interest at 3% above the prime rate, due in August 1997 $ 330,000 $ 492,000
Revolving line of credit maturing on August 1, 1997 and
bearing interest at 3% above the prime rate 1,500,000 2,420,000
Other 27,000 30,000
------------ -----------
1,857,000 2,942,000
Less amount due within one year 1,485,000 176,000
------------ -----------
$ 372,000 $2,766,000
============ ===========
</TABLE>
F-11
<PAGE> 30
The Corporation has a $375,000 commitment from a financial institution to
refinance the $330,000 term loan payable to Drummond maturing on August 1,
1997. The new loan will have a seven-year term at a 9.5% interest rate fixed
for the first four years of the loan. The interest rate will then be
readjusted to the current five year treasury bill rate plus 3.25% for the
remaining three-year term of the loan. The new loan will require monthly debt
service payments of approximately $6,500 which is a reduction of approximately
$10,000 from the current Drummond debt service. Closing on the loan is
expected by mid-May 1997. As the Corporation has the ability and the intent to
refinance the remaining term debt due Drummond ($330,000) and repay $45,000 of
the line of credit, those amounts have been reflected as debt due after one
year on the balance sheet.
The majority of the Corporation's property and equipment are pledged as
security for the above obligations.
Maturity requirements on long-term debt aggregate $13,000 in fiscal 1998,
$56,000 in fiscal 1999, $55,000 in fiscal 2000, $56,000 in fiscal 2001, $62,000
in fiscal 2002 and $115,000 thereafter.
The Corporation paid approximately $328,000, $528,000 and $367,000 for interest
costs during the years ended January 31, 1997, 1996 and 1995, respectively.
NOTE 9 - 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, 1997, the Corporation has net operating loss carryforwards of
approximately $10,393,000 for income tax purposes which expire in years 2002
through 2011. For financial reporting purposes, a valuation allowance of
approximately $3,385,000 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 $194,000 during the year ended January 31,
1997. 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. 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 filed 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, 1997
and 1996 are as follows:
F-12
<PAGE> 31
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 103,000 $ 117,000
Deferred tax assets:
Accounts receivable allowance 147,000 146,000
Workers compensation reserve 215,000 129,000
Other 29,000 29,000
Net operating loss carryforwards 3,097,000 3,004,000
----------- ------------
Total deferred tax assets 3,488,000 3,308,000
Valuation allowance for deferred tax assets 3,385,000 3,191,000
----------- ------------
Net deferred tax assets 103,000 117,000
----------- ------------
Net deferred tax liabilities $ - $ -
=========== ============
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ - -
State - - $ 24,000
------------ -------- ----------
Total current - - 24,000
Deferred:
Federal - 103,000 -
State - - $ -
------------ -------- ----------
Total deferred - 103,000 $ -
------------ -------- ----------
Total income tax provision $ - $103,000 $ 24,000
=========== ======== ==========
</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,
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ (63,000) $ (220,000) $ (345,000)
State income taxes, net of federal tax benefit - - 41,000
Limitation on utilization of net operating loss 63,000 220,000 276,000
Goodwill - - 18,000
Other - 103,000 34,000
---------- ----------- ----------
$ - $ 103,000 $ 24,000
========== =========== ==========
</TABLE>
The Corporation paid approximately $8,000, $64,000 and $42,000 for federal and
state income taxes during the years ended January 31, 1997, 1996 and 1995,
respectively.
F-13
<PAGE> 32
NOTE 10 - NOTES RECEIVABLE - OFFICERS
At January 31, 1997 and 1996, the Corporation had approximately $132,000 and
$197,000, respectively, in notes receivable from its officers in the form of
personal loans. A breakdown of the notes receivable balance at January 31,
1997 by officer is as follows: John C. Regan, Chairman -$95,000; 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 11 - COMPENSATION PLANS
The Corporation has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
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 1,550,000 shares of the common stock of the Corporation to certain
officers and employees of the Corporation and its subsidiaries. All options
granted have 10-year terms. Options to purchase 1,075,000 and 190,000 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 with 520,000 shares and 765,000 shares issuable related to fiscal
1997 and 1998, respectively. Vesting of 50% of the respective year's options
is contingent upon the individual offices, and in the case of the executive
offices, the Corporation, meeting pre-established financial goals for the
respective fiscal year. If the financial goals are exceeded by 25%, the
remaining 50% of the options for the respective fiscal year vest. If financial
goals are not achieved, the options do not vest and are returned to the plan
for future grants.
Options granted in fiscal 1996 and prior years had three-year vesting
conditioned upon continued employment with the Corporation.
The following table summarizes information with respect to the Plan for the
three years ended January 31, 1997.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
----------------------------------
<S> <C> <C>
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 AT JANUARY 31, 1996 228,002 $0.60 - $2.94
Granted 1,285,000 $0.36
Cancelled - Reusable (253,335) $0.36 - $2.94
------------
OUTSTANDING AT JANUARY 31, 1997 1,259,667 $0.36 - $1.91
============
EXERCISABLE AT JANUARY 31, 1997 557,999 $0.60 - $2.94
============
RESERVED FOR FUTURE GRANTS AT JANUARY 31, 1997 197,085
============
</TABLE>
Pro forma information regarding net income and earnings per share is required
by SFAS Number 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement.
F-14
<PAGE> 33
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 1997: risk-free interest rate of 7%; dividend yield of
0%; volatility factors of the expected market price of the Company's common
stock of 1.43; and a weighted-average expected life of the option of 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
FISCAL
97
--
<S> <C>
Pro forma net loss $ (557,000)
Pro forma earnings per share $ (0.09)
</TABLE>
No proforma presentation is presented for fiscal 1996 since the effect is
immaterial.
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, 1997.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
----------------------------------
<S> <C> <C>
OUTSTANDING AT JANUARY 31, 1994 143,250 $0.60 - $6.00
Expired (117,000) $3.00
------------
OUTSTANDING AT JANUARY 31, 1995 26,250 $0.60 - $6.00
Expired (3,125) $6.00
------------
OUTSTANDING AT JANUARY 31, 1996 23,125 $0.60 - $6.00
Expired (3,125) $6.00
------------
OUTSTANDING AT JANUARY 31, 1997 20,000 $0.60
============
EXERCISABLE AT JANUARY 31, 1997 20,000 $0.60
============
</TABLE>
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 50,000 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, 1997, 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
112,212 shares of the Corporation's common stock at prices ranging from $0.36
per share to $0.60 per share have been granted under the Non-
F-15
<PAGE> 34
Employee Directors Plan. At January 31, 1997, all of the options
granted under the Non-Employee Directors Plan were exercisable.
No pro forma information is presented relative to the non-quantified stock
option plan, the Employee Director Plan or the Non-Employee Directors Plan as
the effect is either immaterial or non-existent.
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, 1997 and 1996.
NOTE 12 - STOCK WARRANTS
At January 31, 1997 and 1996, the Corporation had approximately 1,105,000 and
1,007,000, respectively, of fully vested warrants outstanding. The exercise
price of the warrants range from $0.375 per share to $2.50 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
6.
NOTE 13 - 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 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 (280,071
common shares) covered by the aforementioned right was approved. At January
31, 1997 and 1996, there were 560,143 common stock rights outstanding. 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.
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, 1997, there were 185,925 shares
of the Corporation's Series A Preferred Stock outstanding. Cumulative
dividends in arrears on the Series A Preferred Stock were approximately
$128,000 at January 31, 1997.
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).
NOTE 14 - NET INCOME (LOSS) PER COMMON SHARE
The loss per common share for the years ended January 31, 1997 and 1996 are
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, 1997 and 1996 since the exercise of such options
and warrants would be antidilutive. Earnings per share for the year ended
January 31, 1995 is calculated by dividing the net income by the average common
shares outstanding and dilutive common stock equivalents.
F-16
<PAGE> 35
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases aggregated $217,000,
$279,000 and $325,000 for the years ended January 31, 1997, 1996 and 1995,
respectively. Minimum rental payments under these leases with initial or
remaining terms of one year or more at January 31, 1997 aggregated $379,000 and
payments due during the next five fiscal years are as follows: 1998 -
$165,000; 1999 - $128,000; 2000 - $71,000; 2001 - $11,000; and 2002 - $4,000.
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.
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 motion to dismiss was denied in September 1996. The parties have
negotiated a stipulation concerning class certification, and the court has
certified a class. The court has approved the form of notice to the potential
class members notifying them of the certification, but the registrant has not
yet received notice that the order was entered. It is anticipated that the
notice will be sent to potential class members in June 1997.
The action is still in the discovery stage.
NOTE 16 - QUARTERLY RESULTS (UNAUDITED)
The Company had the following results by quarter:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
YEAR ENDING JANUARY 31, 1997
Revenues $3,810,000 $3,715,000 $4,023,000 $ 4,635,000 $16,183,000
Gross margin 321,000 513,000 718,000 933,000 2,485,000
Net income (loss) before
discontinued operations (426,000) (88,000) 51,000 279,000 (184,000)
Net income (loss) (679,000) (128,000) 42,000 279,000 (486,000)
Earnings per share before
discontinued operations (0.09) (0.01) 0.01 0.05 (0.04)
Earnings per share $ (0.12) $ (0.02) $ 0.01 $ 0.05 $ (0.09)
YEAR ENDING JANUARY 31, 1996
Revenues $2,878,000 $5,108,000 $5,269,000 $ 2,960,000 $16,215,000
Gross margin 286,000 857,000 580,000 (281,000) 1,442,000
Net income (loss) before
discontinued operations 666,000* 94,000 (292,000) (1,218,000) (750,000)
Net income (loss) 614,000* (299,000) (584,000) (2,182,000) (2,451,000)
Earnings per share before
discontinued operations 0.11 0.01 (0.05) (0.21) (0.14)
Earnings per share $ 0.11 $ (0.06) $ (0.10) $ (0.38) $ (0.44)
</TABLE>
* Includes a gain of $1,314,000 on sale of PDG Remediation stock.
F-17
<PAGE> 36
PDG ENVIRONMENTAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS(1) OF YEAR
----------- ---------- ------------- --------
<S> <C> <C> <C> <C>
1997
Allowance for doubtful accounts $ 44,000 $ 3,000 $ - $ 47,000
=========== ========= ========== ==========
1996
Allowance for doubtful accounts $ 317,000 $ 15,000 $ 288,000 $ 44,000
=========== ========= ========== ==========
1995
Allowance for doubtful accounts $ 297,000 $ 35,000 $ 15,000 $ 317,000
=========== ========= ========== ==========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
F-18
<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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PRIMARY NET INCOME (LOSS) PER COMMON SHARE 1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (486,000) $(2,451,000) $ 473,000
Less: Series A preferred dividends 37,000 45,000 -
---------- ----------- ----------
$ (523,000) $(2,496,000) $ 473,000
========== =========== ==========
Weighted average common shares and dilutive
common equivalents outstanding - primary 5,913,000 5,670,000 7,157,000
========== =========== ==========
Primary net income (loss) per common share $ (0.09)(a) $ (0.44)(a) $ 0.07(a)(b)
========== =========== ==========
</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,
1997, 1996 and 1995 since the exercise of such options and warrants
would be antidilutive. In addition, the outstanding shares of Series
A Preferred Stock and common stock rights in the years ended January
31, 1997 and January 31, 1996 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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
FULLY DILUTED NET INCOME (LOSS) PER COMMON SHARE 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (486,000) $ (2,451,000) $ 473,000
Less: Series A preferred dividends 37,000 45,000 -
----------- ------------- -------------
$ (523,000) $ (2,496,000) $ 473,000
=========== ============= =============
Weighted average shares of common stock outstanding:
Average common shares outstanding 5,913,000 5,670,000 5,350,000
Assumed conversion of common stock rights 560,000 560,000 840,000
Assumed conversion of outstanding
Series A preferred stock - - 967,000
----------- ------------- -------------
Weighted average common shares outstanding-
fully diluted 6,473,000 6,230,000 7,157,000
=========== ============= =============
Fully diluted net income (loss) per common share $ (0.08)(a) $ (0.40)(a) $ 0.07(a)
=========== ============= =============
</TABLE>
(a) 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,
1997, 1996 and 1995 since the exercise of stock options and warrants
and the conversion of the Series A 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
Enviro-Tech Abatement Services Co. NC
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); PDG
Environmental, Inc. 1990 Stock Option Plan for Non-Employee Directors (Form S-8
No. 33-40700) and PDG Environmental, Inc. Consultant Compensation Plan (Form
S-8 No. 333-08673) and in the related Prospectuses of our report dated March
27, 1997, 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, 1997.
/s/ Ernst & Young, LLP
Pittsburgh, Pennsylvania
May 9, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOWN 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, 1997, 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
2nd day of April, 1997.
/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, 1997 and the Consolidated Statement
of Operations for the Year Ended January 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1996
<EXCHANGE-RATE> 1
<CASH> 429,000
<SECURITIES> 0
<RECEIVABLES> 3,708,000
<ALLOWANCES> 47,000
<INVENTORY> 182,000
<CURRENT-ASSETS> 5,440,000
<PP&E> 3,972,000
<DEPRECIATION> 3,284,000
<TOTAL-ASSETS> 6,165,000
<CURRENT-LIABILITIES> 5,031,000
<BONDS> 372,000
0
444,000
<COMMON> 118,000
<OTHER-SE> 200,000
<TOTAL-LIABILITY-AND-EQUITY> 6,165,000
<SALES> 16,183,000
<TOTAL-REVENUES> 16,183,000
<CGS> 13,698,000
<TOTAL-COSTS> 13,698,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287,000
<INCOME-PRETAX> (184,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (184,000)
<DISCONTINUED> (302,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486,000)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
