<PAGE> 1
(conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
(Address of principal executive offices) (Zip Code)
412-856-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of December 1, 1997, there were 6,294,412 shares of the registrant's common
stock outstanding.
<PAGE> 2
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of October 31, 1997 (unaudited) and
January 31, 1997 3
(b) Consolidated Statements of Operations for the Three Months Ended October 31, 1997
and 1996 (unaudited) 4
(c) Consolidated Statements of Operations for the Nine Months Ended October 31, 1997
and 1996 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 1997
and 1996 (unaudited) 6
(e) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1997*
------------ ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 657,000 $ 429,000
Accounts receivable - net 5,144,000 3,708,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 747,000 614,000
Inventory 151,000 182,000
Other current assets 504,000 507,000
-------------- ---------------
TOTAL CURRENT ASSETS 7,203,000 5,440,000
PROPERTY, PLANT AND EQUIPMENT 4,339,000 3,972,000
Less: accumulated depreciation 3,480,000 3,284,000
-------------- ---------------
859,000 688,000
OTHER ASSETS 120,000 37,000
-------------- ---------------
TOTAL ASSETS $ 8,182,000 $ 6,165,000
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,907,000 $ 1,699,000
Accrued liabilities 1,247,000 1,212,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,174,000 635,000
Current portion of long-term debt 202,000 1,485,000
-------------- ---------------
TOTAL CURRENT LIABILITIES 4,530,000 5,031,000
LONG-TERM DEBT 2,072,000 372,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock 400,000 444,000
Common stock 122,000 118,000
Additional paid-in capital 4,352,000 4,260,000
Deficit (3,294,000) (4,060,000)
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 1,580,000 762,000
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,182,000 $ 6,165,000
============== ===============
</TABLE>
*Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED OCTOBER 31,
------------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
CONTRACT REVENUES $ 6,204,000 $ 4,023,000
CONTRACT COSTS 5,108,000 3,305,000
------------- --------------
Gross margin 1,096,000 718,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 689,000 627,000
------------- --------------
Income from operations 407,000 91,000
OTHER INCOME (EXPENSE):
Interest expense (54,000) (62,000)
Interest income 4,000 1,000
Other income 7,000 21,000
------------- --------------
(43,000) (40,000)
------------- --------------
Income before income taxes and
discontinued operations 364,000 51,000
INCOME TAX PROVISION 5,000 -
------------- --------------
INCOME BEFORE DISCONTINUED OPERATIONS 359,000 51,000
DISCONTINUED OPERATIONS
Loss on disposal - (9,000)
------------- --------------
- (9,000)
------------- --------------
NET INCOME $ 359,000 $ 42,000
============= ==============
PER SHARE OF COMMON STOCK - PRIMARY:
INCOME BEFORE DISCONTINUED OPERATIONS $ 0.05 $ 0.01
DISCONTINUED OPERATIONS - -
------------- --------------
NET INCOME PER COMMON SHARE $ 0.05 $ 0.01
============= ==============
AVERAGE COMMON SHARES OUTSTANDING 6,017,000 5,911,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS
OUTSTANDING 1,712,000 -
------------- --------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARES CALCULATION 7,729,000 5,911,000
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED OCTOBER 31,
-------------------------------------
1997 1996
---------------- --------------
<S> <C> <C>
CONTRACT REVENUES $ 16,003,000 $ 11,548,000
CONTRACT COSTS 13,177,000 9,996,000
--------------- --------------
Gross margin 2,826,000 1,552,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,907,000 1,858,000
--------------- --------------
Income (loss) from operations 919,000 (306,000)
OTHER INCOME (EXPENSE):
Interest expense (161,000) (230,000)
Interest income 13,000 6,000
Other income 27,000 67,000
--------------- --------------
(121,000) (157,000)
--------------- --------------
Income (loss) before income taxes and discontinued
operations 798,000 (463,000)
INCOME TAX PROVISION 15,000 -
--------------- --------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 783,000 (463,000)
DISCONTINUED OPERATIONS
Loss from operations - (505,000)
Gain on disposal - 203,000
--------------- --------------
- (302,000)
--------------- --------------
Net income (loss) $ 783,000 $ (765,000)
=============== ==============
PREFERRED STOCK DIVIDEND REQUIREMENTS $ - $ 27,000
=============== ==============
PER SHARE OF COMMON STOCK - PRIMARY:
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ 0.10 $ (0.08)
DISCONTINUED OPERATIONS - (0.05)
--------------- --------------
NET INCOME (LOSS) PER COMMON SHARE $ 0.10 $ (0.13)
=============== ==============
AVERAGE COMMON SHARES EQUIVALENTS OUTSTANDING 5,961,000 5,910,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS
OUTSTANDING 1,713,000 -
--------------- --------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 7,674,000 5,911,000
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED OCTOBER 31,
------------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 783,000 $ (765,000)
ADJUSTMENTS TO RECONCILE NET
INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 249,000 282,000
Gain on sale of ICHOR Corporation common stock - (203,000)
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable (1,436,000) (602,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (133,000) (196,000)
Inventory 31,000 (18,000)
Net assets of discontinued operations - 489,000
Prepaid income taxes 3,000 (55,000)
Other current assets 263,000 501,000
Accounts payable (78,000) 15,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 539,000 331,000
Accrued liabilities 35,000 377,000
Other (17,000) (47,000)
------------- --------------
TOTAL ADJUSTMENTS IN ASSETS AND LIABILITIES (793,000) 795,000
------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 239,000 109,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (391,000) (75,000)
Proceeds from the sale of property, plant and equipment 1,000 2,000
------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (390,000) (73,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 35,000 -
Proceeds from debt 2,194,000 286,000
Principal payments on debt (1,850,000) (132,000)
------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 379,000 154,000
------------- --------------
Net Increase in Cash and Short-Term Investments 228,000 190,000
Cash and Short-Term Investments, Beginning of Period 429,000 273,000
------------- --------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 657,000 $ 463,000
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
Additional Information:
The proceeds on the sale of ICHOR Corporation, Inc. common stock of $1,205,000
for the nine months ended October 31, 1996 were not received in the form of
cash, but rather were a direct offset to the debt owed Drummond Financial
Corporation.
6
<PAGE> 7
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation") and its wholly-owned subsidiaries. The accounts of ICHOR
Corporation ("ICHOR"), in which PDG Environmental, Inc. maintained until July
31, 1996 a 59.5% ownership interest, are reflected as a discontinued operation.
The accompanying financial statements of the Corporation are unaudited.
However, in the opinion of management, they include all adjustments necessary
for a fair presentation of financial position, results of operations and cash
flows. All adjustments made during the three and nine months ended October 31,
1997 were of a normal, recurring nature. The amounts presented for the three
and nine months ended October 31, 1997 are not necessarily indicative of
results of operations for a full year. Additional information is contained in
the Annual Report on Form 10-K of the Corporation for the year ended January
31, 1997 dated May 15, 1997 and Quarterly Reports on Form 10-QSB of the
Corporation for the quarter ended April 30, 1997 dated June 9, 1997 and for the
quarter ended July 31, 1997 dated September 12, 1997, and should be read in
conjunction with this quarterly report.
The prior year financial statements have been reclassified to reflect the ICHOR
business as a discontinued operation.
NOTE 2 - FEDERAL INCOME TAXES
No federal income taxes have been provided for the three and nine months ended
October 31, 1997 due to the existence of unused net operating loss
carryforwards. The Company has recorded a provision for state income taxes.
Income taxes paid by the Corporation for the nine months ended October 31, 1997
and 1996 totaled approximately $13,000 and $8,000, respectively.
NOTE 3 - DEBT
On July 31, 1996, the Corporation entered into a Loan Modification Agreement
("Modification Agreement") with Drummond Financial Corporation (Drummond).
Pursuant to the Modification Agreement, Drummond purchased all 1,470,320 shares
of ICHOR 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 $212,000 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.
On May 27, 1997, the Corporation closed on a $375,000 loan from a financial
institution to refinance a $289,000 term loan payable to Drummond maturing on
August 1, 1997. The loan is for 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 loan requires monthly debt service payments of
approximately $6,100 which is a reduction of approximately $10,000 from the
debt service on the Drummond term loan. The remaining proceeds from the loan
were utilized to reduce the outstanding balance on the line of credit with
Drummond.
On August 25, 1997, the Corporation closed on a new $2 million credit facility
consisting of a 5-year $0.5 million equipment note and a 3-year revolving line
of credit with a maximum advance of $1.5 million. Both the equipment note and
the line of credit have an interest rate of prime plus 3.5%.
7
<PAGE> 8
The proceeds of the new financing fully satisfied the remaining outstanding
balance on the Drummond line of credit and provided working capital for the
Corporation. As of October 31, 1997, the balance on the new revolving line of
credit was $1,313,000.
The Corporation paid interest costs totaling approximately $163,000 and
$176,000 during the nine months ended October 31, 1997 and 1996, respectively.
NOTE 4 - PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred
Stock were approximately $141,000 at October 31, 1997. At October 31, 1997,
there were 167,338 shares of Series A Preferred Stock outstanding. The Series A
Preferred Stock is convertible into four shares of the Corporation's common
stock at the option of the preferred stockholder. During the quarter ending
October 31, 1997, 18,587 shares of preferred stock were converted into 80,544
shares of common stock.
The conversion rate on the Series A Preferred Stock is also subject to
adjustment as a result of certain changes in the Corporation's capital
structure or distributions to common stockholders (except for cash dividends
permissible under law).
NOTE 5 - NET EARNINGS PER SHARE
Primary earnings per share for the nine months and three months ended October
31, 1997 were calculated by dividing the net income by the average common
shares outstanding and dilutive common stock equivalents. Stock options and
warrants have been reflected as exercised for purposes of computing the primary
earnings per share for the three months and the nine months ended October 31,
1997 since the exercise of such options and warrants would be dilutive.
The primary earnings (loss) per common share for the three months and the nine
months ended October 31, 1996 was computed by adjusting the net loss for the
preferred dividend requirement of $9,000 and $27,000, respectively, and
dividing this amount by the weighted average number of shares of common stock
outstanding for the respective period. The effects of assuming the conversion
of preferred stock or the exercise of stock options, stock warrants and common
stock rights would be antidilutive for the three months and the nine months
ended October 31, 1996.
The Corporation will adopt the Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128") in the fourth quarter of fiscal 1998, as
required. The Company will continue to apply APB Opinion No. 15, "Earnings Per
Share" until the adoption of FAS 128. The standard specifies the computation,
presentation and disclosure requirements for earnings per share. The adoption
of FAS 128 will not have a material effect on previously reported earnings per
share.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Corporation and ICHOR are guarantors under the Sirrom Environmental Funding
LLC Agreements ("Sirrom Agreements"). On October 31, 1996, the Corporation
advised Sirrom that it would no longer guarantee future advances to ICHOR under
the Sirrom Agreements. At that time, ICHOR was advanced approximately $3.0
million under the Sirrom Agreements. At September 30, 1997, Sirrom had
approximately $4.0 million of receivables from the State of Florida
collateralizing the Sirrom Agreements and held ICHOR funds of approximately
$0.56 million in escrow.
As of October 31, 1997, the PDGE guarantee portion of the Sirrom funding had
been reduced to $2.5 million. Determination letters have been received on $2.1
million of invoices and, based on the reported bond issue schedule, these
invoices will be paid in February 1998. The remaining $0.4 million is expected
to be paid during 1998.
As discussed in further detail in Item 3. Legal Proceedings contained in the
Corporation's Annual Report on Form 10-K for the year ended January 31, 1997,
dated May 15, 1997, the Corporation, ICHOR and others have been
8
<PAGE> 9
named as defendants in a purported class action lawsuit involving the purchase
by all persons and entities of ICHOR's common stock from February 9, 1995,
through May 23, 1995. The action alleges that the defendants violated certain
federal securities laws.
The Corporation and ICHOR believe that the allegations are without merit or
that there are meritorious defenses to the allegations, and intends to defend
the action vigorously. If, however, the plaintiff is successful in its claims,
a judgment rendered against the Corporation and the other defendants would
likely have a material adverse effect on the business and operations of the
Corporation.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
The Corporation's contract revenues increased by approximately 54% to $6.2
million during the three months ended October 31, 1997 ("Fiscal 1998") compared
to $4.0 million in the three months ended October 31, 1996 ("Fiscal 1997"). The
increase in revenues was due to the Corporation entering the current fiscal
year with a greater backlog of contracts and securing a number of significant
new contracts during the current fiscal year.
The Corporation's gross margin increased to $1.1 million in the third quarter
of fiscal 1998 compared to $0.7 million in the second quarter of fiscal 1997.
The increase in gross margin was primarily attributable to the aforementioned
increase in contract revenue.
Selling, general and administrative expenses increased to $0.69 million in the
three months ended October 31, 1997 compared to $0.63 million in the three
months ended October 31, 1996. The increase is primarily attributable to the
accrual of fiscal 1998 employee bonuses.
As a result of the factors described above, the Corporation reported income
from operations of $0.41 million in the current three month period compared to
$0.09 million for the same three months of the prior fiscal year.
The Corporation's interest expense decreased to $54,000 for the three months
ended October 31, 1997 from $62,000 for the three months ended October 31,
1996. The Corporation's interest expense decreased due to the refinancing of
the line of credit facility and a lower average borrowed balance during the
current quarter.
Interest income increased to $4,000 for the three months ended October 31, 1997
versus $1,000 for the three months ended October 31, 1996 due to higher
invested cash balances. During the three months ended July 31, 1996, $21,000 of
other income was recognized primarily from rental income.
During the three months ended October 31, 1997, the Corporation made no
provision for federal income taxes due to the utilization of net operating loss
carryforwards for financial reporting purposes. The Corporation recorded a
state income tax provision of $5,000. During the three months ended October 31,
1996, the Corporation did not provide an income tax provision as the
Corporation reported a loss for financial reporting purposes during the nine
months ended October 31, 1996.
For the three months ended October 31, 1996, the Corporation recognized a
$9,000 loss related to the sale of ICHOR shares to Drummond.
NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
The Corporation's contract revenues increased by approximately 39% to $16.0
million for the nine months ended October 31, 1997 compared to $11.6 million
for the nine months ended October 31, 1996.
The increase in revenues was due to the Corporation entering the current fiscal
year with a greater backlog of contracts and securing a number of significant
new contracts during the current fiscal year.
The gross margin reported by the Corporation in the nine months ended October
31, 1997 increased to $2.8 million compared to $1.6 million for the nine months
ended October 31, 1996. The increase in gross margin primarily related to an
increase in gross margin as a percentage of revenue due to the fixed portion of
contract costs being spread over a larger revenue base and achieving higher
field margins. Additionally, during the first quarter of Fiscal 1997, two
significant projects (completed in that quarter) were not profitable.
Selling, general and administrative expenses reported by the Corporation for
the nine months ended October 31, 1997 increased slightly to $1.9 million as
compared to the same nine month period of the prior fiscal year. The
10
<PAGE> 11
increase is primarily attributable to cost-saving measures implemented during
the current fiscal year being offset by the addition of a new branch office in
Atlanta in the second quarter of Fiscal 1998, the personnel being necessary to
support a higher level of activity, and the accrual of fiscal 1998 employee
bonuses.
The Corporation reported income from operations of $0.9 million in the nine
months ended October 31, 1997 as a result of the factors discussed above
compared to a loss from operations of $0.3 million in the same nine month
period last year.
Interest expense decreased to $0.16 million in the current nine month period
compared to $0.23 million in the nine months ended October 31, 1996 due to a $1
million decrease in the balance of indebtedness as compared to the prior fiscal
year and to the previously discussed refinancing of the credit facility.
Interest income totaled $13,000 for the current nine month period versus $6,000
in the same nine month period of the prior fiscal year due to higher invested
cash balances. Other income in the prior nine month period was primarily
generated from the sale of fixed assets and rental income.
No provision for federal income taxes was made during the nine months ended
October 31, 1997 due to the utilization of net operating loss carryforwards for
financial reporting purposes. A state income tax provision of $15,000 was made
for the nine-month period.
No income tax provision was recorded for the nine months ended October 31, 1996
due to a loss for financial reporting purposes.
For the nine months ended October 31, 1996, the Corporation recognized its
59.5% interest in ICHOR resulting in a $505,000 loss from discontinued
operations and a $203,000 gain on the sale of ICHOR to Drummond.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended October 31, 1997, the Corporation's liquidity
increased by $0.23 million to $0.66 million. This increase in cash is due to
cash provided by operating activities of $0.2 million and cash provided by
financing activities of $0.4 million. These inflows were partially offset by
cash used by investing activities of $0.4 million.
The Corporation's cash inflows of $0.2 million from operating activities
principally included net income of $0.78 million generated during the period,
depreciation and amortization of $0.25 million, a $0.26 million decrease in
other current assets and a $0.54 million increase in billings in excess of costs
and estimated earnings on uncompleted contracts. These cash flows were partially
offset by a $1.44 million increase in accounts receivable reflecting the related
increase in revenues and the subsequentially mentioned settlement, a $0.13
million increase in costs and estimated earnings in excess of billings on
uncompleted contracts and a $0.08 million decrease in accounts payable.
During the third quarter of fiscal 1998, a disputed contract was resolved and
the approximately $0.3 million balance in costs and estimated earnings in
excess of billings on uncompleted contracts was converted into accounts
receivable. The customer is expected to pay the settlement in the fourth
quarter of fiscal 1998.
The Corporation's financing activities included proceeds of $0.375 million
received in May 1997 from the refinancing of the $0.29 million term loan.
Additionally, a $0.5 million five-year term loan and a $1.5 million three-year
revolving line of credit were finalized in August 1997 to repay the $1.41
million line of credit with Drummond that had matured. The balance on the
revolving line of credit was $1.3 million at October 31, 1997. Proceeds from
the exercise of stock options and warrants amounted to $0.04 million.
During the nine months ended October 31, 1997, cash outflows associated with
investing activities of $0.4 million related to the purchase of property, plant
and equipment.
The Corporation's liquidity increased during the nine months ended October 31,
1996 as cash and short-term investments increased by $0.2 million to $0.5
million.
11
<PAGE> 12
The increase in cash during the current nine month period is principally
attributable to cash inflows associated with operating activities of $0.1
million and financing activities of $0.2 million. These cash inflows were
partially offset by cash outflows for investing activities of $0.1 million.
Cash inflows provided by operating activities of $0.1 million in the nine
months ended October 31, 1996 included a $0.5 million reduction in other
current assets, a $0.3 million increase in billings in excess of costs and
estimated earnings on uncompleted contracts related to the timing of certain
contract activity, a $0.4 million increase in accrued liabilities due to the
timing of payments, and $0.3 million of depreciation and amortization. The
aforementioned cash inflows from operating activities were offset by a $0.6
million increase in accounts receivable, $0.2 million increase in costs and
estimated earnings in excess of billings on uncompleted contracts related to
the timing of contracts, an adjustment of $0.2 million due to the gain on the
sale of ICHOR common stock and $0.8 million as a result of the net loss
generated in the period.
Cash inflows associated with financing activities during the current nine
months included $0.29 million advanced under the line of credit offset by $0.13
million of principal payments made on the Drummond term debt. Additionally,
$1.2 million of proceeds from the sale of ICHOR stock to Drummond Financial
Corporation was a direct offset to reduce borrowings under the line of credit.
The Corporation's investing activities of $0.07 million in the nine months
ended October 31, 1996 was for the purchase of property, plant and equipment.
At October 31, 1997, the Corporation's backlog associated with its asbestos
abatement business totaled $29.1 million ($18.8 million on fixed fee contracts
and $10.3 million on time and materials or unit price contracts). This is a
significant increase from the backlog of $10.9 million at July 31, 1997 and
reflects the large number of contracts awarded to the Corporation during the
third quarter.
The Corporation and ICHOR are guarantors on the Sirrom Environmental Funding,
LLC Agreements. On October 31, 1996, the Corporation advised Sirrom that it
would no longer guarantee future advances to ICHOR under the Sirrom Agreements.
At that time, ICHOR had been advanced approximately $3.0 million under the
Sirrom Agreements.
As of October 31, 1997, the PDGE guarantee portion of the Sirrom funding had
been reduced to $2.5 million. Determination letters have been received on $2.1
million of invoices and, based on the reported bond issue schedule, these
invoices will be paid in February 1998. The remaining $0.4 million is expected
to be paid during 1998.
PROSPECTIVE INFORMATION
The Corporation, ICHOR, certain of ICHOR's officers and directors and the
underwriters of ICHOR's initial public offering have been named as defendants
in a purported class action involving the purchase by all persons and entities
of ICHOR common stock from February 9, 1995 through May 23, 1995. The action
alleges that defendants violated certain federal securities laws.
The Corporation believes that the allegations are without merit or that there
are meritorious defenses to the allegations and intends to defend the action
vigorously. If, however, the plaintiff is successful in its claims, a judgment
rendered against the Corporation and other defendants would likely have a
material adverse effect on the business and operations of the Corporation.
12
<PAGE> 13
PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the action captioned Klein v. PDG Remediation, Inc., described
in the registrant's Form 10-K for the year ended January 31, 1997, notice of
the Court's certification of the class was sent to potential class members in
August 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At October 31, 1997, the cumulative dividends
in arrears on the Series A Preferred Stock were approximately $141,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ANNUAL MEETING OF STOCKHOLDERS
On July 9, 1997 the Annual Meeting of the Stockholders of PDG Environmental,
Inc. was held in Pittsburgh, PA. At the meeting all of management's nominees
were elected directors of the Corporation. Ernst & Young LLP was reelected as
the Corporation's auditors with the following vote:
Votes For 6,167,641
Votes Against 19,457
Abstained 4,335
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
27 Financial Data Schedule
(b) The registrant did not file any current reports on Form 8-K during the
three months ended October 31, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/JOHN C. REGAN
---------------------------------
John C. Regan
Chairman and Chief Executive Officer
Date: December 9, 1997
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 657,000
<SECURITIES> 0
<RECEIVABLES> 5,144,000
<ALLOWANCES> 0
<INVENTORY> 151,000
<CURRENT-ASSETS> 7,203,000
<PP&E> 4,339,000
<DEPRECIATION> 3,480,000
<TOTAL-ASSETS> 8,182,000
<CURRENT-LIABILITIES> 4,530,000
<BONDS> 2,072,000
0
400,000
<COMMON> 122,000
<OTHER-SE> 1,058,000
<TOTAL-LIABILITY-AND-EQUITY> 8,182,000
<SALES> 16,003,000
<TOTAL-REVENUES> 16,003,000
<CGS> 13,177,000
<TOTAL-COSTS> 13,177,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161,000
<INCOME-PRETAX> 798,000
<INCOME-TAX> 15,000
<INCOME-CONTINUING> 783,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 783,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
