<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, 1998 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 4, 1998, there were 8,381,696 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, 1998 (unaudited) and
January 31, 1998 3
(b) Consolidated Statements of Operations for the Three Months Ended October 31, 1998
and 1997 (unaudited) 4
(c) Consolidated Statements of Operations for the Nine Months Ended October 31, 1998
and 1997 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 1998
and 1997 (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 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1998*
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 624,000 $ 892,000
Accounts receivable - net 5,570,000 6,751,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,066,000 725,000
Inventory 231,000 202,000
Other current assets 509,000 426,000
----------- -----------
TOTAL CURRENT ASSETS 8,000,000 8,996,000
PROPERTY, PLANT AND EQUIPMENT 4,949,000 4,527,000
Less: accumulated depreciation (3,829,000) (3,558,000)
----------- -----------
1,120,000 969,000
OTHER ASSETS 415,000 372,000
----------- -----------
TOTAL ASSETS $ 9,535,000 $10,337,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,956,000 $ 3,746,000
Accrued liabilities 1,164,000 1,416,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 796,000 842,000
Current portion of long-term debt 180,000 198,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,096,000 6,202,000
OTHER LONG-TERM LIABILITIES 140,000 140,000
LONG-TERM DEBT 577,000 1,628,000
MINORITY INTEREST 239,000 102,000
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock 14,000 400,000
Common stock 164,000 130,000
Additional paid-in capital 6,239,000 4,571,000
Deficit (1,934,000) (2,836,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,483,000 2,265,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,535,000 $10,377,000
=========== ===========
</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,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
CONTRACT REVENUES $7,148,000 $6,204,000
CONTRACT COSTS 6,317,000 5,108,000
---------- ----------
Gross margin 831,000 1,096,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 731,000 689,000
---------- ----------
Income from operations 100,000 407,000
OTHER INCOME (EXPENSE):
Interest expense (29,000) (54,000)
Interest income 2,000 4,000
Other income 4,000 7,000
---------- ----------
(23,000) (43,000)
---------- ----------
Income before income taxes and
discontinued operations 77,000 364,000
INCOME TAX PROVISION (20,000) (5,000)
MINORITY INTEREST (12,000) -
---------- ----------
NET INCOME $ 45,000 $ 359,000
========== ==========
PER SHARE OF COMMON STOCK - BASIC: $ 0.01 $ 0.06
========== ==========
PER SHARE OF COMMON SHARE - DILUTIVE $ 0.01 $ 0.05
========== ==========
AVERAGE COMMON SHARES OUTSTANDING 7,820,000 6,017,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS
OUTSTANDING 712,000 1,197,000
---------- ----------
AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARES CALCULATION 8,532,000 7,214,000
========== ==========
</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,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CONTRACT REVENUES $31,343,000 $16,003,000
CONTRACT COSTS 27,175,000 13,177,000
----------- -----------
Gross margin 4,168,000 2,826,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,157,000 1,907,000
----------- -----------
Income (loss) from operations 2,011,000 919,000
OTHER INCOME (EXPENSE):
Interest expense (121,000) (161,000)
Interest income 6,000 13,000
Other income 4,000 27,000
----------- -----------
(111,000) (121,000)
----------- -----------
Income (loss) before income taxes and discontinued
operations 1,900,000 798,000
INCOME TAX PROVISION (60,000) (15,000)
MINORITY INTEREST (576,000) -
----------- -----------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 1,264,000 783,000
DISCONTINUED OPERATIONS
Litigation settlement (200,000) -
----------- -----------
Net income (loss) $ 1,064,000 $ 783,000
=========== ===========
PER SHARE OF COMMON STOCK - BASIC:
INCOME BEFORE DISCONTINUED OPERATIONS $ 0.18 $ 0.13
DISCONTINUED OPERATIONS (0.03) -
----------- -----------
NET INCOME PER SHARE $ 0.15 $ 0.13
=========== ===========
PER SHARE OF COMMON STOCK - DILUTIVE:
INCOME BEFORE DISCONTINUED OPERATIONS $ 0.16 $ 0.11
DISCONTINUED OPERATIONS (0.02) -
----------- -----------
NET INCOME PER SHARE $ 0.14 $ 0.11
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING 7,181,000 5,961,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS
OUTSTANDING 856,000 1,065,000
----------- -----------
AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 8,037,000 7,026,000
=========== ===========
</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,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,064,000 $ 783,000
ADJUSTMENTS TO RECONCILE NET
INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 453,000 249,000
Minority Interest 137,000 -
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable 1,181,000 (1,436,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (341,000) (133,000)
Inventory (29,000) 31,000
Prepaid income taxes (8,000) 3,000
Other current assets 280,000 263,000
Accounts payable (2,145,000) (78,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts (46,000) 539,000
Accrued liabilities (252,000) 35,000
Other (27,000) (17,000)
----------- -----------
TOTAL ADJUSTMENTS IN ASSETS AND LIABILITIES (1,387,000) (793,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 267,000 239,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (450,000) (391,000)
Proceeds from the sale of property, plant and equipment - 1,000
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (450,000) (390,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 984,000 35,000
Proceeds from debt - 2,194,000
Principal payments on debt (1,069,000) (1,850,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (85,000) 379,000
----------- -----------
Net Increase in Cash and Short-Term Investments (268,000) 228,000
Cash and Short-Term Investments, Beginning of Period 892,000 429,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 624,000 $ 657,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1998
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation") and its wholly-owned subsidiaries. Additionally, the results of
PDG/Philip, L.P. (the "Venture") in which the Corporation holds a 60% interest,
are consolidated since the Corporation is the majority owner of the Venture and
exercises day-to-day operating control.
The accompanying financial statements of the Corporation are unaudited and
prepared in accordance with generally accepted accounting principles which
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. In the opinion of management, the financial
statements 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, 1998 were of a normal,
recurring nature. The amounts presented for the three and nine months ended
October 31, 1998 are not necessarily indicative of results of operations for a
full year. Additional information is contained in the Annual Report on Form
10-KSB of the Corporation for the year ended January 31, 1998 dated March 26,
1998 and Quarterly Reports on Form 10-QSB of the Corporation for the quarter
ended April 30, 1998 dated June 12, 1998 and for the quarter ended July 31, 1998
dated September 11, 1998, and should be read in conjunction with this quarterly
report.
The Corporation does not have any items which would require adjustments to
arrive at comprehensive income.
NOTE 2 - FEDERAL INCOME TAXES
No federal income taxes have been provided for the three and nine months ended
October 31, 1998 due to the existence of unused net operating loss
carryforwards. The Corporation has recorded a provision for state income taxes.
Income taxes paid by the Corporation for the nine months ended October 31, 1998
and 1997 totaled approximately $68,000 and $13,000, respectively.
NOTE 3 - DEBT
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%.
The proceeds of the financing fully satisfied the remaining outstanding balance
on the line of credit formerly maintained by the Corporation with Drummond
Corporation and provide working capital for the Corporation. As of October 31,
1998, the outstanding balance on the revolving line of credit was zero.
During fiscal 1996, the Corporation entered into two agreements guaranteeing a
former subsidiary, PDG Remediation, Inc. ("PDGR") now ICHOR Corporation
("ICHOR") accounts receivable financed by Sirrom Environmental Funding, LLC
("Sirrom"). At October 31, 1998, the balance guaranteed by the Corporation was
approximately $130,000. It is expected that the remaining outstanding
receivables covered by the guarantee will be paid by ICHOR's customer during the
remainder of Fiscal 1999, thus eliminating the Corporation's remaining
guarantee.
The Corporation paid interest costs totaling approximately $73,000 and $163,000
during the nine months ended October 31, 1998 and 1997, respectively.
7
<PAGE> 8
NOTE 4 - PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred Stock
were approximately $6,000 at October 31, 1998. At October 31, 1998, there were
6,000 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, 1998,
161,338 shares of preferred stock were converted into 710,209 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
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
1998 1997
----------------------------------
<S> <C> <C>
NUMERATOR:
Income from continuing operations $1,264,000 $ 783,000
Preferred stock dividends (1,000) (25,000)
---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 1,263,000 758,000
Effect of dilutive securities:
Preferred stock dividends 1,000 25,000
---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions 1,264,000 783,000
---------- ----------
DENOMINATOR:
Denominator for basic earnings per share--weighted average shares 7,181,000 5,961,000
Effect of dilutive securities:
Employee stock options 796,000 252,000
Warrants 34,000 87,000
Convertible preferred stock 26,000 726,000
---------- ----------
Dilutive potential common shares 856,000 1,065,000
---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 8,037,000 7,026,000
========== ==========
BASIC EARNINGS PER SHARE $ 0.18 $ 0.13
========== ==========
DILUTED EARNINGS PER SHARE $ 0.16 $ 0.11
========== ==========
</TABLE>
8
<PAGE> 9
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED OCTOBER 31,
1998 1997
----------------------------------
<S> <C> <C>
NUMERATOR:
Net Income $ 45,000 $ 359,000
Preferred stock dividends (8,000)
---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 45,000 351,000
Effect of dilutive securities:
Preferred stock dividends - 8,000
---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions 45,000 359,000
---------- ----------
DENOMINATOR:
Denominator for basic earnings per share--weighted average shares 7,820,000 6,017,000
Effect of dilutive securities:
Employee stock options 659,000 349,000
Warrants 27,000 122,000
Convertible preferred stock 26,000 726,000
---------- ----------
Dilutive potential common shares 712,000 1,197,000
---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 8,532,000 7,214,000
========== ==========
BASIC EARNINGS PER SHARE $ 0.01 $ 0.06
========== ==========
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.05
========== ==========
</TABLE>
NOTE 6 - LITIGATION SETTLEMENT
As discussed in further detail in Item 3. Legal Proceedings contained in the
Corporation's Annual Report on Form 10-KSB for the year ended January 31, 1998,
the Corporation, PDGR, certain of PDGR's officers and directors and the
underwriters of PDGR's initial public offering were named as defendants in a
purported class action lawsuit involving the purchase by all persons and
entities of PDGR's common stock from February 9, 1995, through May 23, 1995. The
action alleged that the defendants violated certain federal securities laws.
On June 8, 1998 an agreement in principle to settle the litigation was reached
with the plaintiffs' attorneys. In October 1998, the Court and members of the
class approved the settlement which required that the Defendants, the
Corporation and ICHOR (formerly PDGR), pay a total of $432,500 to settle the
lawsuit. The Corporation's share of the settlement was $173,000. Additionally,
the Corporation incurred $27,000 of legal expenses in relation to the
litigation. The $200,000 expense was reflected in the Fiscal 1999 second quarter
(July 31, 1998) financial statements as a discontinued operations item as it
relates to ICHOR which was accounted for as a discontinued operation. The
Corporation paid its portion to the settlement fund in October 1998. The Court
has set a final hearing date of January 26, 1999, at which time, the Court will
consider any objections to the settlement. If no objections are raised to the
settlement, it is likely that the Court will finally approve the settlement.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997
The Corporation's contract revenues increased by approximately 15% to $7.1
million during the three months ended October 31, 1998 ("Fiscal 1999") compared
to $6.2 million in the three months ended October 31, 1997 ("Fiscal 1998"). 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 decreased to $0.8 million in the third quarter of
fiscal 1999 compared to $1.1 million in the third quarter of fiscal 1998. The
decrease in gross margin was primarily attributable to significant additional
cost overruns of $0.5 million at a major project in Philadelphia and negative
contract adjustments totalling $0.4 million in Atlanta where the Company has
closed its branch office. These items were partially offset by positive results
at the Company's other offices and a positive adjustment of $0.55 million in
accrued insurance costs based upon an analysis of the Company's open liabilities
and an improved safety record.
Selling, general and administrative expenses increased slightly to $0.73 million
in the three months ended October 31, 1998 compared to $0.69 million in the
three months ended October 31, 1997. The increase is primarily attributable to
the acquisition of the Phoenix office in December 1997 and to personnel
necessary to support a higher level of activity.
As a result of the factors described above, the Corporation reported income from
operations of $0.1 million in the current three month period compared to $0.41
million for the same three months of the prior fiscal year.
The Corporation's interest expense decreased to $29,000 for the three months
ended October 31, 1998 from $54,000 for the three months ended October 31, 1997.
The Corporation's interest expense decreased due to the refinancing of the line
of credit facility in August 1997 and a lower average borrowed balance during
the current quarter.
During the three months ended October 31, 1998 and 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 state
income tax provisions of $20,000 and $5,000 during the three months ended
October 31, 1998 and 1997, respectively.
NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
The Corporation's contract revenues increased by approximately 96% to $31.3
million for the nine months ended October 31, 1998 compared to $16.0 million for
the nine months ended October 31, 1997.
The increase in revenues was due to the Corporation entering the current fiscal
year with a greater backlog of contracts and the significant contribution to
revenue that the $12 million Keystone contract (completed in June 1998) made in
the current year.
The gross margin reported by the Corporation in the nine months ended October
31, 1998 increased to $4.2 million compared to $2.8 million for the nine months
ended October 31, 1997. The increase in gross margin primarily related to the
aforementioned increase in contract revenues but was negatively impacted by a
$0.75 million cost overrun on a major project in Philadelphia and negative
contract adjustments totalling $0.425 million in Atlanta where the Company has
closed its branch office. Also impacting the current period's gross margin was a
positive adjustment of $0.55 million in accrued insurance costs based upon an
analysis of the Company's open liabilities and an improved safety record.
Selling, general and administrative expenses reported by the Corporation for the
nine months ended October 31, 1998 increased to $2.2 million as compared to $1.9
million in the same nine month period of the prior fiscal year.
10
<PAGE> 11
The increase is primarily attributable to the acquisition of the Phoenix office
in December 1997 and the personnel necessary to support a higher level of
activity.
The Corporation reported income from operations of $2.0 million in the nine
months ended October 31, 1998 as a result of the factors discussed above
compared to income from operations of $0.9 million in the same nine month period
last year.
Interest expense decreased to $0.12 million in the current nine month period
compared to $0.16 million in the nine months ended October 31, 1997 due to a
significant 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 $6,000 for the current nine month period versus $13,000
in the same nine month period of the prior fiscal year due to lower invested
cash balances. Other income in the prior nine month period was primarily
generated from rental income.
No provision for federal income taxes was made during the nine months ended
October 31, 1998 and 1997 due to the utilization of net operating loss
carryforwards for financial reporting purposes. State income tax provisions of
$60,000 and $15,000 were made during the nine months ended October 31, 1998 and
1997, respectively.
The $200,000 loss from discontinued operations relates to the agreement in
principle reached on June 8, 1998 with the plaintiffs in the proported class
action. The Corporation's share of the settlement is $173,000. The Corporation
also incurred $27,000 of legal expenses in relation to the litigation. Refer to
Note 6 - Litigation Settlement on page 9 for additional details.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's cash liquidity decreased during the nine months ended October
31, 1998 as cash and short-term investments decreased by $0.3 million to $0.6
million.
The decrease in cash during the current nine month period is principally
attributable to cash outflows associated with investing activities of $0.45
million and financing activities of $0.09 million. These cash outflows were
partially offset by cash inflows from operating activities of $0.27 million.
Cash inflows provided by operating activities of $0.27 million in the nine
months ended October 31, 1998 included $1.06 million of net income generated in
the current period, a $1.2 million reduction in accounts receivable primarily
due to the completion of the Keystone project, a $0.3 million reduction in other
current assets and $0.45 million of depreciation and amortization. The
aforementioned cash inflows from operating activities were partially offset by a
$2.15 million decrease in accounts payable primarily due to the completion of
the Keystone project, $0.34 million increase in costs and estimated earnings in
excess of billings on uncompleted contracts related to the timing of contract
billings and a $0.25 million decrease in accrued liabilities.
Cash outflows associated with financing activities during the current nine
months included $1.0 million of proceeds from the exercise of stock options and
warrants offset by $1.07 million of principal payments and reduction of the
outstanding balance of the line of credit.
The Corporation's investing activities of $0.45 million in the nine months ended
October 31, 1998 were for the purchase of property, plant and equipment.
During the nine months ended October 31, 1997, the Corporation's cash increased
by $0.23 million to $0.66 million. This increase in cash was 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 for
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
11
<PAGE> 12
uncompleted contracts. These cash flows were partially offset by a $1.44 million
increase in accounts receivable reflecting the related increase in revenues, 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.
The Corporation's financing activities included proceeds of $0.375 million
received in May 1997 from the refinancing of the $0.29 million mortgage.
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 Corporation that had matured. 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.
At October 31, 1998, the Corporation's backlog associated with its asbestos
abatement business totaled $15.4 million ($8.8 million on fixed fee contracts
and $6.6 million of expected revenues on time and materials or unit price
contracts).
PROSPECTIVE INFORMATION
Effective November 1, 1998, the Corporation entered into an agreement (the
"Agreement") with Environmental Control & Abatement, Inc. ("EC&A"),
Environmental Remediation Services, Inc. ("ERS") (collectively the "Businesses")
and William A. Lemire ("Lemire") for the purchase of selected assets and
assumption of contracts of the Businesses. The Businesses are based in St. Louis
and Chicago and provide environmental remediation services.
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 Corporation's Form 10-K for the fiscal year ended January 31, 1998, on
June 8, 1998, an agreement in principle to settle the class action litigation
was reached with the plaintiff's attorneys. In October 1998, the Court
preliminarily approved the settlement and ordered that notice be sent to the
class members. The Court has set as a final hearing date of January 26, 1999, at
which time the Court will consider any objections to the settlement. If no
objections are raised to the settlement, it is likely that the Court will
finally approve the settlement and the monies presently held in the settlement
fund will be distributed to the plaintiff class upon the filing of a proof of
claim and release in the lawsuit. The Corporation and ICHOR (formerly PDG
Remediation) paid a total of $432,500 to settle the lawsuit. The Corporation's
share of the settlement was $173,000 and was paid into the settlement fund in
October 1998.
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, 1998, the cumulative dividends
in arrears on the Series A Preferred Stock were approximately $6,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(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, 1998.
A Form 8-K was filed on November 20, 1998 to disclose the
acquisition of selected assets and the assumption of contracts of
Environmental Control and Abatement, Inc. and Environmental
Remediation Services, Inc. as further discussed in the previous
"Prospective Information" section of this report.
</TABLE>
13
<PAGE> 14
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 14, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1998 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 624,000
<SECURITIES> 0
<RECEIVABLES> 5,570,000
<ALLOWANCES> 0
<INVENTORY> 231,000
<CURRENT-ASSETS> 8,000,000
<PP&E> 4,949,000
<DEPRECIATION> 3,829,000
<TOTAL-ASSETS> 9,535,000
<CURRENT-LIABILITIES> 4,096,000
<BONDS> 577,000
0
14,000
<COMMON> 164,000
<OTHER-SE> 4,305,000
<TOTAL-LIABILITY-AND-EQUITY> 9,535,000
<SALES> 31,343,000
<TOTAL-REVENUES> 31,343,000
<CGS> 27,175,000
<TOTAL-COSTS> 27,175,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,000
<INCOME-PRETAX> 1,324,000
<INCOME-TAX> 60,000
<INCOME-CONTINUING> 1,264,000
<DISCONTINUED> (200,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,064,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.16
</TABLE>
