<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
PDG ENVIRONMENTAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PDG ENVIRONMENTAL, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE> 2
PDG ENVIRONMENTAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of PDG Environmental, Inc. (the
"Corporation") will be held at the Harley Hotel, 699 Rodi Road, Pittsburgh,
Pennsylvania 15235, on Wednesday, July 15, 1998 at 9:00 o'clock a.m., Eastern
Daylight Time, for the following purposes:
(a) To elect five (5) directors for a term of one (1) year each;
(b) To ratify Ernst & Young LLP as the Corporation's independent
auditors.
(c) To approve an amendment to the PDG Environmental, Inc. Incentive
Stock Option Plan increasing the number of shares of the common
stock of PDG Environmental which may be granted thereunder by
250,000 to a total of 1,800,000.
(d) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed May 19, 1998, at the close of business, as the
record date for the purpose of determining the stockholders who are entitled to
receive notice of and to vote at the Annual Meeting.
Stockholders are requested to sign, date and return the enclosed proxy in the
accompanying stamped and addressed envelope.
Dulcia Maire
Secretary
Monroeville, Pennsylvania
May 29, 1998
1
<PAGE> 3
PROXY STATEMENT
PDG ENVIRONMENTAL, INC.
300 OXFORD DRIVE
MONROEVILLE, PENNSYLVANIA 15146
(412) 856-2200
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
JULY 15, 1998
This Proxy Statement is being furnished to all stockholders of PDG
Environmental, Inc. (the "Corporation") in connection with the solicitation of
proxies by its board of directors (the "Board of Directors") for use at the
annual meeting of the stockholders of the Corporation to be held on July 15,
1998, and any adjournment or postponement thereof (the "Annual Meeting"), which
is being held for the purpose of: (a) electing five (5) directors for a term of
one (1) year each; (b) ratifying the appointment of Ernst & Young LLP as the
Corporation's independent auditors; (c) approving an amendment to the PDG
Environmental, Inc. Incentive Stock Option Plan increasing the number of shares
of common stock of PDG Environmental, Inc. which may be granted by 250,000 to a
total of 1,800,000; and (d) transacting such other business as may properly come
before the meeting or any adjournment thereof. This Proxy Statement and the
accompanying Notice of Annual Meeting of Stockholders are being sent to the
stockholders of the Corporation on or about June 5, 1998. A copy of the Annual
Report for the fiscal year ended January 31, 1998 accompanies this Proxy
Statement or has been previously mailed to stockholders entitled to vote at the
Annual Meeting.
2
<PAGE> 4
THE ANNUAL MEETING
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of PDG Environmental, Inc. (the "Corporation")
for use at the Annual Meeting of Stockholders of the Corporation to be held on
July 15, 1998 at 9:00 a.m. local time at the Harley Hotel, 699 Rodi Road,
Pittsburgh, Pennsylvania 15235, and at any adjournment or postponement thereof
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. This Proxy Statement and accompanying Notice of Annual Meeting of
Stockholders are being sent to the stockholders of the Corporation on or about
June 5, 1998.
VOTING RIGHTS AND PROXY INFORMATION.
The Board of Directors of the Corporation has fixed the close of business on May
19, 1998, as the record date for the determination of stockholders of the
Corporation entitled to notice of and to vote at the Annual Meeting and any
adjournment or postponement thereof (the "Record Date"). All holders of record
of shares of either common stock, par value $0.02, of the Corporation ("Common
Stock") or Series A cumulative convertible preferred stock, par value $0.01, of
the Corporation ("Series A Preferred Stock") will be entitled to vote at the
Annual Meeting on all matters voted upon. On the Record Date, there were
6,747,572 shares of common stock outstanding and entitled to vote and 167,338
shares of Series A Preferred Stock which entitle the holders thereof to vote
732,300 shares when voting with the Common Stock as a single class. On the
Record Date, the Common Stock was held by 2,162 stockholders of record and the
Series A Preferred Stock was held by 3 stockholders of record.
On all matters to be voted upon at the Annual Meeting, the holders of shares of
Common Stock and Series A Preferred Stock will vote together as a single class
with each holder of Common Stock entitled to cast one (1) vote per share and
each holder of Series A Preferred Stock entitled to such number of votes as
equals the number of shares of Common Stock into which each share of Series A
Preferred Stock is then convertible. On the Record Date, each share of Series A
Preferred Stock was convertible into 4.38 shares of Common Stock. The presence,
in person or by properly executed proxy, of the holders of the majority of the
outstanding shares of Common Stock and Series A Preferred Stock entitled to vote
is necessary to constitute a quorum at the Annual Meeting.
As of May 19, 1998, the directors and officers of the Corporation as a group
controlled approximately 35.4% of the Common Stock and Series A Preferred Stock
voting as a single class. See "Security Ownership of Certain Beneficial Owners
and Management." Each director and officer of the Corporation has indicated that
he or she intends to vote in favor of each of the matters to be acted upon at
the Annual Meeting.
All shares of Common Stock and Series A Preferred Stock which are represented at
the Annual Meeting by properly executed proxies received by the Board of
Directors prior to or at the Annual Meeting and not revoked will be voted at the
Annual Meeting and will be voted in accordance with the instructions indicated
on such proxies including any instruction directing abstention from voting. If
no instructions are indicated with respect to any shares for which properly
executed proxies are received, such proxies will be voted FOR the election of
the five (5) nominees for the Board of Directors, FOR the ratification of the
independent auditors and FOR the approval of the amendment of the Corporation's
Incentive Stock Option Plan. Management and the Board of Directors do not know
of any other matters to be brought before the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before it is voted. Proxies may be revoked by filing a
written notice of such revocation with the Secretary, PDG Environmental, Inc.,
300 Oxford Drive, Monroeville, Pennsylvania 15146. In addition, a proxy will be
deemed to be revoked if the shareholder either (a) attends and votes at the
Annual Meeting, or (b) executes and delivers to the Secretary a proxy bearing a
later date.
Proxies are being solicited by and on behalf of the Board of Directors of the
Corporation. All expenses of this solicitation, including the cost of preparing
and mailing this Proxy Statement, will be borne by the Corporation. In addition
to solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of the Corporation in person or by telephone, telegram or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for any out-of-pocket expenses
incurred by them in connection with such solicitation. Proxies will be tabulated
by the Corporation's transfer agent, Continental Stock Transfer & Trust Company,
as they are received and updated at the Annual Meeting.
3
<PAGE> 5
OTHER BUSINESS
Other than the election of the Board of Directors, the ratification of the
independent auditors and the amendment of the Incentive Stock Option Plan, the
Board of Directors does not intend to bring any other matters before the Annual
Meeting. However, if any other matter shall properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed proxy to vote
in accordance with their judgment on such matters.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 19, 1998 with respect to
beneficial ownership of the Corporation's Common Stock and the Corporation's
Series A Preferred Stock voting as a single class by: (i) all persons known to
the Corporation to be considered to own beneficially more than five (5%) percent
of the Corporation's Common Stock and Series A Preferred Stock voting as a
single class; (ii) all directors of the Corporation; and (iii) all of the
Corporation's officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF CLASS
OF BENEFICIAL OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP OF STOCK SHARES OWNED(10)
------------------------ --------------------------- -------------------------
<S> <C> <C>
John C. Regan (1)(2)(3)(9) 2,039,056 23.5
Richard A. Bendis (1)(5)(9) 40,250 *
Edgar Berkey (1)(9) -0- *
James D. Chiafullo (9) -0- *
Edwin J. Kilpela (1)(6)(9) 10,000 *
Lawrence J. Horvat (2)(4)(7)
300 Oxford Drive
Monroeville, Pennsylvania 15146 542,164 6.2
All directors and officers of the Corporation
as a group including those named above
(11 persons) (4)(8) 3,084,343 35.4
</TABLE>
- ---------------
(1) Director
(2) Officer
(3) Includes 50,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Director Plan (as hereinafter
defined) and 110,000 shares of Common Stock that may be acquired
pursuant to options granted under the Employee Incentive Stock Option
Plan.
(4) Includes ownership of shares of Series A Preferred Stock which entitle
the holder thereof to vote together with the Common Stock as one class
in such number of shares with respect to which the Series A Preferred
Stock is convertible into Common Stock.
(5) Includes 30,250 shares of Common Stock that may be acquired pursuant to
options granted under the NonEmployee Director Plan (as hereinafter
defined) and 10,000 shares of Common Stock that may be acquired
pursuant to non-qualified stock options.
(6) Includes 10,000 shares of Common Stock that may be acquired pursuant to
options granted under the NonEmployee Director Plan (as hereinafter
defined).
(7) Includes 70,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Incentive Stock Option Plan.
(8) Includes 463,750 shares of Common Stock that may be acquired pursuant
to options granted under the Employee Incentive Stock Option Plan to
officers of the Corporation, the Employee Director Plan and the
Non-Employee Director Plan.
(9) Nominee for director.
4
<PAGE> 6
(10) Percentage is of all voting shares assuming conversion of the
Corporation's Series A Preferred Stock to Common Stock and the
conversion of stock options into Common Stock of the Corporation.
* Indicates less than 1%.
ELECTION OF DIRECTORS
The Board of Directors currently consists of five (5) directors who hold office
for a term of one (1) year each. Five (5) directors are to be elected at this
Annual Meeting for a term of one (1) year each. All properly executed proxies
received in response to this solicitation will be voted as specified in the
proxy. Unless otherwise specified in the proxy, it is the intention of the
persons named in such proxies to vote FOR the nominees listed below. If events
not now known or anticipated make any of the nominees unable to serve, the
proxies will be voted in the discretion of the holders thereof for other
nominees not named herein in lieu of those unable to serve, or the size of the
Board of Directors may be reduced.
The following table sets forth information regarding the directors and nominees
of the Corporation. All of the nominees are currently serving as directors,
except for Mr. Chiafullo. Messrs. Regan, Bendis and Kilpela were elected at the
1997 Annual Meeting of the Corporation's stockholders to serve until the next
annual meeting of the Corporation's stockholders. Dr. Berkey was appointed to
the Board of Directors in August 1997. Each of the nominees has consented to
serve as a director if elected.
<TABLE>
<CAPTION>
NAME, AGE YEAR FIRST
PRINCIPAL OCCUPATION ELECTED CERTAIN OTHER INFORMATION
-------------------- ------- -------------------------
<S> <C> <C>
NOMINEES TO BE ELECTED BY
THE HOLDERS OF THE COMMON
STOCK AND SERIES A
PREFERRED STOCK VOTING AS
A SINGLE CLASS
John C. Regan (54) 1989 Mr. Regan has served in his present position since
Chairman and Chief December 1990 and has served as a director of the
Executive Officer of PDG Corporation since April 1989. He is the founder of
Environmental, Inc. Project Development Group, Inc., now a
wholly-owned subsidiary of the Corporation which
engages in asbestos abatement services, and has
served as that corporation's Chairman and
President since 1984. Mr. Regan also served as
Chairman of the Board of Directors of PDG
Remediation, Inc. (PDGR), a company which provides
remediation services to assist customers in
complying with environmental laws and regulations,
from July 1994 until August, 1996.
Richard A. Bendis (51) 1986 Mr. Bendis is President of Kansas Technology
President of KTEC and Enterprise Corporation (KTEC). Mr. Bendis also is
Investment Banking founder and Managing Director of Management
Consultant Resources of America, which provides consulting
and investment banking/venture capital services,
and founder and Managing Director of
Commercialization Centers of America, which
provides consulting services to governmental units
concerning commercialization networks and venture
capital funds. Mr. Bendis currently serves on the
White House U.S. Innovation Partnership Advisory
Task Force.
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
NAME, AGE YEAR FIRST
PRINCIPAL OCCUPATION ELECTED CERTAIN OTHER INFORMATION
-------------------- ------- -------------------------
<S> <C> <C>
Edgar Berkey (57) 1998 Dr. Berkey is a nationally recognized expert on
Vice President and Chief environmental technologies and is currently the
Science Officer of Vice President and Chief Science Officer of
Concurrent Technologies Concurrent Technologies Corp. (CTC). He is a
Corp. member and Chairman of several environmental
advisory committees for the U.S. Department of
Energy and the U.S. Environmental Protection
Agency. He also chairs the Scientific Advisory
Board of the North America Environmental Fund, LP,
which invests in emerging environmental companies
that can benefit from NAFTA. Dr. Berkey is the
former President and co-founder of the Center for
Hazardous Materials Research. Dr. Berkey
previously served on the Corporation's Board of
Directors from 1991-1995. He resigned from the
Corporation's Board of Directors in 1995 to serve
as a Director of PDG Remediation, Inc., which at
that time was an affiliate of the Corporation. He
resigned from the Board of Directors of PDG
Remediation, Inc. in 1996.
James D. Chiafullo (40) 1998 Mr. Chiafullo is a partner in the law firm of
Partner, Thorp Reed & Thorp Reed & Armstrong headquartered in
Armstrong Pittsburgh. Prior to joining Thorp Reed &
Armstrong, Mr. Chiafullo was a lawyer with Gulf
Oil Corporation in Houston, Texas. Thorp Reed &
Armstrong, provides legal services to the
Corporation.
Edwin J. Kilpela (52) 1997 Mr. Kilpela is President, Chief Executive Officer
President and Chief and a member of the Board of Directors of Noxso
Executive Officer of Corporation which he joined in February 1997.
Noxso Corporation Noxso is a developmental environmental company.
Previously, he was President of Ansaldo Ross Hill,
a power electronics firm in Houston, Texas from
July 1996 until February 1997. Mr. Kilpela was
with Westinghouse Electric Corporation from 1969
to 1996 including serving as General Manager of
the Environmental Services Division from 1991 to
1996.
</TABLE>
During the fiscal year ended January 31, 1998, there were three regular meetings
of the Board of Directors, and each of the incumbent directors attended at least
75% of the total number of meetings of the Board of Directors. Each of the
incumbent directors attended at least 75% of the meetings of the committees of
the Board of Directors on which they served during such fiscal year.
The Board of Directors has several committees which perform various functions.
The Audit Committee reviews the work of the Corporation's independent auditors
and management to ensure that each is properly discharging its responsibilities
in the area of financial control and reporting. This committee presently
consists of Messrs. Bendis, Berkey and Kilpela. The Audit Committee held one
meeting in the fiscal year ended January 31, 1998.
The Nominating Committee recommends prospective nominees for election to the
Board of Directors. This committee currently consists of Mr. Regan. The
Nominating Committee held one meeting during the fiscal year ended January 31,
1998. The Nominating Committee will consider nominees recommended by
stockholders in accordance with the Corporation's By-Laws. Any such
recommendations are to be submitted to the Secretary of the Corporation in
accordance with the By-Laws.
6
<PAGE> 8
The Compensation Committee is responsible for administering the Corporation's
Employee Incentive Stock Option Plan, designating the employees eligible to
participate in such plan, the number of options to be granted and the terms and
conditions of each option. The Compensation Committee also reviews the
performance of the Corporation's management and makes recommendations with
respect to the compensation of management. The Compensation Committee consists
of Messrs. Bendis, Berkey and Kilpela and did not meet during the fiscal year
ended January 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Bendis, Berkey and Kilpela.
7
<PAGE> 9
EXECUTIVE OFFICERS; COMPENSATION
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
John C. Regan 54 Chairman, President and Chief Executive Officer
Dulcia Maire 46 Secretary
Ms. Maire has served in her present position since April 1989.
</TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the named executives
concerning their respective annual and longterm compensation for the last three
fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- --------------
(b) (e) (f) (g) (h) (i)
(a) (c) (d) Other Annual Restricted Options/ LTIP All Other
Name and Salary(A) Bonus Compensation Stock SARs(#) Payouts Compensation
Principal Position Year ($) ($)(B) ($) Award(s) (C)(D) ($) (E)$
------------------ ---- --------- ------ ---------------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Regan 1998 175,000 20,000 -- -- 60,000 -- 21,886
Chairman and CEO
1997 159,435 6,850 -- -- 50,000 15,707
1996 156,321 -- -- -- -- -- 17,428
</TABLE>
(A) Represents actual cash compensation.
(B) Mr. Regan received a bonus of $20,000 and $6,850 in fiscal 1999 and 1998,
respectively, for the attainment of budgeted operating results in the
previous fiscal year.
(C) Mr. Regan received options to purchase 50,000 shares of the Company's Common
Stock for $0.396 per share as part of awards for fiscal 1997 under the
Incentive Stock Option Plan. The options expire in 2006.
(D) Mr. Regan received options to purchase 60,000 shares of the Company's Common
Stock for $0.396 per share as part of awards for fiscal 1998 under the
Incentive Stock Option Plan. The options expire in 2008.
(E) Represents the value of insurance premiums with respect to term life
insurance paid by the Corporation for the benefit of Mr. Regan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1998
Number % of Total Exercise
of Securities Options/SARs or
Underlying Granted to Base
Options/SARs Employees In Price Expiration
Name Granted (#) Fiscal 1998 ($/Share) Date(1)
---- ------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
John C. Regan 60,000 6.8% $0.396 3/16/2008
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1998
Potential Realizable
Value At Assumed Grant
Annual Rates of Stock Date
Price Appreciated Present
Name for Option Term Value
---- ------------------------- -------
5% 10%
-- ---
<S> <C> <C> <C>
John C. Regan $11,424 $32,265 -0-
</TABLE>
(1)The Incentive Stock Options were granted for terms of 10 years, in each case
subject to earlier termination upon the termination of an optionee's
employment.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named executives
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year.
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<PAGE> 10
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (e)
(d) Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End($)(A)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable
---- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
John C. Regan 0 0 160,000/0 $221,000/0
</TABLE>
(A) Market value of Common Stock at year-end bid price per share minus the
exercise price.
COMPENSATION OF DIRECTORS
The outside directors of the Corporation receive $500 for each meeting they
attend plus reimbursement for their actual expenses incurred in attending such
meetings. In addition, the Corporation has established the 1990 Non-Employee
Director Stock Option Plan (the "Non-Employee Plan") which provides for the
grants of options to non-employee directors to purchase an aggregate of up to
350,000 shares of Common Stock subject to adjustment in the event of any change
in the Common Stock. Under the Non-Employee Plan, the exercise price of options
granted shall be 100% of the fair market value of such shares on the date such
options are granted subject to adjustment as provided in the plan. At the 1991
Annual Meeting, pursuant to the terms of the Non-Employee Plan, Mr. Bendis was
granted options to purchase 48,750 shares of Common Stock. During the fiscal
year ended January 31, 1994, Mr. Bendis exercised options to purchase 38,500
shares of the Corporation's Common Stock. At the 1996 Annual Meeting, approval
was received to amend the Plan to provide for the award of 10,000 options to
purchase Common Stock of the Corporation upon a Director's re-election to the
Board of Directors. Mr. Bendis was awarded 10,000 options to purchase Common
Stock of the Corporation upon his re-election as Director in 1997.
Mr. Kilpela was awarded 40,000 options to purchase Common Stock of the
Corporation under the Non-Employee Plan upon his election to the Board of
Directors at the 1997 Annual Meeting. The exercise price is 100% of the fair
value of such shares on the date such options are granted subject to adjustment
as provided by the plan. The options vest ratably over four years. Currently,
10,000 of the options granted Mr. Kilpela have vested with another 10,000
options vesting upon his re-election to the Board of Directors at the 1998
Annual Shareholder Meeting.
Dr. Berkey will be awarded 40,000 options to purchase Common Stock of the
Corporation under the Non-Employee Plan upon his election to the Board of
Directors as part of the 1998 Annual Shareholder Meeting. The exercise price is
100% of the fair value of such shares on the date Dr. Berkey was appointed to
the Board of Directors. The options vest ratably over four years. Currently,
none of the options awarded to Dr. Berkey have vested, but 10,000 options will
vest upon his election to the Board of Directors at the 1998 Annual Shareholders
Meeting.
Mr. Chiafullo will be awarded 40,000 options to purchase Common Stock of the
Corporation under the Non-Employee Plan upon his election to the Board of
Directors as part of the 1998 Annual Shareholder Meeting. The exercise price is
100% of the fair value of such shares on the date Mr. Chiafullo is elected to
the Board of Directors. The options vest ratably over four years. Currently,
none of the options awarded to Mr. Chiafullo have vested, but 10,000 options
will vest upon his election to the Board of Directors at the 1998 Annual
Shareholders Meeting.
Employee directors are not compensated in their role as directors with the
exception of grants under the 1990 Employee Director Stock Option Plan (the
"Employee Director Plan") pursuant to which options to purchase an aggregate of
up to 250,000 shares of Common Stock, subject to adjustment in the event of any
change in the Common Stock, may be granted to employee directors. Under the
Employee Director Plan, the exercise price of options granted shall be 100% of
the fair market value of such shares on the date such options are granted. At
the 1991 Annual Meeting, Mr. Regan was granted options to purchase 50,000 shares
pursuant to the terms of the Employee Director Plan. No options granted pursuant
to the Employee Director Plan have been exercised.
9
<PAGE> 11
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has provided the following Compensation Committee
Report to the PDG Environmental Board of Directors:
The Corporation has a multi-level approach to determining executive
compensation. Individual performance and responsibility of each executive
officer is evaluated in relation to 1) base salary, 2) comparative compensation
surveys, 3) benefits, and 4) stock option plan with incentive driven vesting.
With this philosophy, the Corporation feels confident that it can attract and
retain quality top management and reinforce the strategic plans of the
Corporation through the use of performance objectives.
The review of executive compensation is conducted by the Chief Executive Officer
who reports to the Compensation Committee. The Compensation Committee reviews
and ultimately approves the executive compensation.
Individual Performance
Performance management reviews are conducted periodically for all employees of
the Corporation and executive officers. Individual goals are established at that
time, incorporating the overall objectives of the Corporation. As part of the
review, consideration is given to an executive officer's specific area of
responsibility, accomplishments and contributions.
Base Compensation
The Corporation offers competitive salaries as compared to salaries offered by
companies in similar environmental and hazardous waste remediation companies.
Comparative Compensation Surveys
The Corporation reviews salary surveys from outside sources which evaluate
similar environmental and hazardous waste remediation companies and provide
comparisons on base salaries, appraisal systems, benefits and other specialty
surveys. The comparison group used for compensation is more similar to the
Corporation than the group used in the performance graph in that the performance
graph companies have more diverse areas of operations, such as landfills, and
hazardous waste treatment facilities while the compensation group is
environmental remediation service companies.
Benefits
The basic benefits offered to executive officers, which include group health
insurance, group term life insurance and disability insurance are the same as
those provided to other employees of the Corporation. Additionally, certain
executive officers are provided with automobile allowances or company
automobiles, individual term life insurance policies for their benefit and club
memberships which are used for both business and personal purposes.
Stock Option Plans
All executive officers are eligible to participate in the Corporation's
Incentive Stock Option Plan. Periodic grants of options are approved by the
Compensation Committee and are intended to provide executives with the
opportunity to buy and maintain an equity interest in the Corporation and share
in the appreciation of the value of the stock. In addition, Mr. Regan is
eligible to participate in the Corporation's Employee Director Plan.
On June 17, 1996, the Compensation Committee recommended and the Board approved
the proposal and related grant of 100,000 options for the achievement of
budgeted operating results for the second half of fiscal 1997 and 120,000
options for the achievement of budgeted operating results for fiscal 1998 for
executive officers including Mr. Regan. All of the options for the second half
of fiscal 1997 vested as the Corporation exceeded budgeted financial goals by
25%. All of the options for fiscal 1998 vested as the Corporation exceeded
budgeted financial goals by $100,000.
On March 2, 1998, the Compensation Committee recommended and the Board approved
the proposal and related grant of 19,000 options for the achievement of budgeted
operating results for fiscal 1999 for executive officers including Mr. Regan.
Additionally, the executive officers, including Mr. Regan, participate in a
supplemental incentive pool with corporate office personnel and are eligible to
share in the award of up to 37,000 options for achievement of operating results
for fiscal 1999 in excess of budget.
10
<PAGE> 12
Compensation of All Executive Officers
The base pay of executive officers for the fiscal year ended January 31, 1998
was determined on the basis of the Compensation Committee's overall assessment
of the executive officer's performance and competitive market data on salary
levels. Incentives of $29,000 were paid in fiscal year 1998 based upon the
achievement of budgeted operating results for fiscal 1998. The base pay of the
executive officers is not directly related to the Corporation's performance.
Compensation of John C. Regan, Chairman and Chief Executive Officer
The Committee established the compensation of John C. Regan, Chairman and Chief
Executive Officer, using the same criteria that were used to determine
compensation levels for all executive officers. Mr. Regan's base pay was
determined based on the Committee's assessment of Mr. Regan's performance and
competitive market data on salary levels. Additionally, Mr. Regan received a
$20,000 bonus based upon the achievement of budgeted operating results for
fiscal 1998.
In addition to his base pay and bonus, Mr. Regan is provided with three
individual term life insurance policies for his benefit in the amounts of
$2,000,000, $1,000,000 and $200,000, a supplemental disability income policy and
club memberships.
On June 17, 1996, the Compensation Committee recommended and the Board approved
the proposal and related grant of 50,000 options for achievement of budgeted
results for the second half of fiscal 1997 and 60,000 options for the
achievement of budgeted operating results for fiscal 1998 to Mr. Regan. The
50,000 options for the second half of fiscal 1997 vested as the Corporation
exceeded budgeted financial goals by 25% and the 60,000 options for fiscal 1998
vested as the Corporation exceeded budgeted financial goals by $100,000.
On March 2, 1998, the Compensation Committee recommended and the Board approved
the proposal and related grant of 10,000 options for the achievement of budgeted
results for fiscal 1999 to Mr. Regan. Additionally, Mr. Regan participates in a
supplemental incentive pool with corporate office personnel and is eligible to
share in the award of up to 37,000 options for the achievement of operating
results for fiscal 1999 in excess of budget. Mr. Regan's base salary was
increased by 9% effective April 1, 1998, and he is eligible to receive a
supplemental cash bonus of $25,000, $50,000 and $75,000 if the January 31, 1999
stock price of the Corporation Common Stock exceeds $4.00 per share, $5.00 per
share and $6.00 per share, respectively.
This report has been approved by all members of the Compensation Committee.
Respectfully submitted,
Richard A. Bendis, Chairman
PERFORMANCE GRAPH
The graph on the next page compares the value of the Common Stock, to the NASDAQ
market index and an industry index representing SIC Code No. 4953-Refuse
Systems. Each of the total cumulative total returns presented assumes a $100
investment on January 31, 1993 and reinvestment of dividends. The industry index
is comprised of the following securities: Allied Waste Industries, Inc.;
American Disposal Services Corporation; American Ecology Corporation; American
Waste Services; Browning-Ferris Industries; Casella Waste Systems, Inc.; Clean
Harbors, Inc.; Commodore Applied Technology, Inc.; Eastern Environmental
Services; Envirogen, Inc.; GeoWaste, Inc.; ICHOR Corporation; KTL, Inc.;
Laidlaw, Inc.; Med/Waste, Inc.; Mercury Waste Solutions, Inc.; Perma-Fix
Environmental Services; Recycling Industries, Inc.; Republic Industries, Inc.;
Scherer Healthcare, Inc.; Sevenson Environmental; Stericycle, Inc.; Superior
Services, Inc.; Synagro Technologies, Inc.; Thermo Remediation, Inc.; Three CI
Complete Compl; Transamerican Waste, Industries; Transcor Waste Services; USA
Waste Services, Inc.; Waste Industries, Inc.; Waste Management Int.; Waste
Management International, PLC.
11
<PAGE> 13
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PDG ENVIRONMENTAL, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
<TABLE>
<CAPTION>
PDG NASDAQ
Measurement Period ENVIRONMENTAL, SIC CODE MARKET
(Fiscal Year Covered) INC. INDEX INDEX
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 51.85 83.31 125.97
1995 47.13 74.69 119.05
1996 18.85 84.12 166.69
1997 15.08 111.72 219.37
1998 69.38 86.66 258.39
</TABLE>
ASSUMES $100 INVESTED ON FEB. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 1998
12
<PAGE> 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At January 31, 1998, the Corporation and its subsidiaries maintained outstanding
personal loans to Mr. Regan in the amount of $95,000. This personal loan is
evidenced by a demand note and bears interest at the rate of 6% per annum. This
loan was made to provide Mr. Regan with funds to satisfy personal obligations.
The loan to Mr. Regan was made in a series of installments from April 1990 to
August 1990. The amount specified represents the highest outstanding balances of
the loans during the Corporation's fiscal year.
RATIFICATION OF INDEPENDENT AUDITORS
Ernst & Young LLP served as independent auditors for the Corporation for the
fiscal year ended January 31, 1998. The Board of Directors has selected Ernst &
Young LLP as its independent auditors for the fiscal year ending January 31,
1999 and is asking the stockholders to ratify that selection. Representatives of
Ernst & Young LLP will be present at the Annual Meeting. It is not expected that
such representatives will make a statement at the meeting, but they will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions from stockholders.
STOCKHOLDERS' PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal intended to be presented to stockholders at the 1999 Annual Meeting
of Stockholders must be received by the Corporation for inclusion in the proxy
statement for such annual meeting by May 2, 1999.
FINANCIAL INFORMATION
The following information comprises a part of the Annual Report of the
Corporation for the fiscal year ended January 31, 1998:
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock is listed for trading on the OTC Bulletin Board
(Symbol: PDGE) since September 1996. Prior to that, it was listed for trading on
NASDAQ Small Cap 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 1998 FISCAL 1997
----------- -----------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter $0.81 $0.42 $0.63 $0.31
Second Quarter 0.87 0.56 1.00 0.31
Third Quarter 1.12 0.71 0.83 0.31
Fourth Quarter 2.18 1.06 0.47 0.25
</TABLE>
At May 19, 1998, the Corporation had approximately 2,162 stockholders of record.
DIVIDENDS
The Corporation 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 Corporation's ability to pay dividends on its Common Stock is
constrained by limitations imposed by the Corporation's Series A Preferred Stock
which require that dividends must be paid to preferred holders prior to the
payment of dividends to the holders of Common Stock.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for the
registrant for the five fiscal years ended January 31, 1998.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1998 1997 1996 1995 1994
---------------------------------------------------------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Contract revenues $24,610 $16,183 $16,215 $17,659 $16,310
Gross margin 4,319 2,485 1,442 2,178 1,810
Income (loss) from operations 1,530 (6) (1,567) (591) (1,363)
Other income (expense) (168) (178) 920 (423) (302)
Income (loss) from continuing operations 1,240 (184) (750) (1,038) (1,651)
Income (loss) from discontinued operations -- (302) (1,701) 896 206
Net income (loss) 1,240 (486) (2,451) 473 (1,445)
COMMON SHARE DATA
Net income (loss) from continuing
operations per common share:
Basic $ 0.20 $ (0.04) $ (0.14) $ (0.20) $ (0.67)
Diluted 0.17 (0.04) (0.14) (0.20) (0.67)
Net income (loss) per common share:
Basic 0.20 (0.09) (0.44) 0.08 (0.61)
Diluted 0.17 (0.09) (0.44) 0.08 (0.61)
Weighted average common shares outstanding 6,060 5,913 5,670 7,157 3,267
BALANCE SHEET DATA
Working capital $ 2,794 $ 409 $ 3,110 $ 3,177 $ 3,427
Total assets 10,337 6,165 7,564 9,690 7,904
Long-term obligations 1,768 372 2,766 510 1,735
Total stockholders' equity 2,265 762 1,218 3,609 3,049
</TABLE>
The earnings per share amounts prior to fiscal 1998 have been restated as
required to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and the impact
of Statement No. 128, see Note 14 to the Consolidated Financial Statements.
The years ended January 31, 1997, 1996, 1995 and 1994 include gain (loss) from
discontinued operations of ($0.3 million), ($1.7 million), $0.9 million and $0.2
million respectively; ($0.05), ($0.30), $0.13 and $0.06 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).
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, 1998.
14
<PAGE> 16
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1998 COMPARED TO YEAR ENDED JANUARY 31, 1997
Consolidated revenues reported by the registrant increased to $24.6 million for
the year ended January 31, 1998 (fiscal 1998) compared to $16.2 million for the
year ended January 31, 1997 (fiscal 1997). The fiscal 1998 increase was
primarily attributable to increased bidding opportunities and contract awards.
Contract costs increased to $20.3 million in fiscal 1998 compared to $13.7
million in fiscal 1997 and resulted in reported gross margins of $4.3 million
and $2.5 million, respectively in each fiscal year. The higher margins
experienced in fiscal 1998 resulted from increased contract revenue and higher
project margins.
The registrant's selling, general and administrative expenses increased by 12%
between the two fiscal years to $2.8 million in fiscal 1998 compared to $2.5
million in fiscal 1997. The increase between the two fiscal years principally
related to employee bonuses and the operating costs associated with the two
additional branch offices in operation in fiscal 1998.
The factors discussed above resulted in the registrant reporting income from
operations of $1.5 million in fiscal 1998 compared to loss from operations of
$0.01 million in fiscal 1997.
Interest expense decreased to $0.2 million from $0.3 million due to decreased
average borrowings during fiscal 1998. Interest income increased to $16,000 for
the year ended January 31, 1998 compared to $8,000 for the previous fiscal year
due to higher invested cash balances at certain periods throughout the year.
Other income decreased to $36,000 from $101,000 in 1997 due to a number of
non-recurring items included in the fiscal 1997 amounts including proceeds from
a casualty loss, rental of excess equipment and the sale of fixed assets.
As a result of net operating loss carryforwards for book purposes, there was no
federal income tax provision in fiscal 1998. A $20,000 state income tax
provision was made. No income tax provision was made in fiscal 1997 due to a net
operating loss in fiscal 1997.
The loss from discontinued operations in fiscal 1997 was due to the registrant
recording its 59.5% ownership share of ICHOR up to July 31, 1996 at which time,
the registrant sold its remaining interest in ICHOR to Drummond resulting in a
$0.2 million gain.
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. The cost-savings measures included the
closure of two branch offices, the resignation of the President of the
registrant, employee layoffs and general cost containment.
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 ICHOR 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 ICHOR was reduced to 59.5%.
15
<PAGE> 17
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.
The registrant recorded its 59.5% interest in the losses of ICHOR 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 ICHOR 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 ICHOR's thermal treatment facility in Florida.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1998
During fiscal 1998, the registrant experienced an increase in liquidity of $0.5
million as cash and short-term investments increased from $0.4 million at
January 31, 1997 to $0.9 million at January 31, 1998. The increase in liquidity
in fiscal 1998 was attributable to cash inflows of $1.0 million from operating
activities partially offset by $0.6 million of cash utilized by investing
activities.
Specifically, cash inflows from operating activities were generated by net
income of $1.2 million, depreciation and amortization of $0.4 million, a $1.8
million increase in accounts payable, a $0.3 increase in other current assets, a
$0.2 million increase in billings in excess of costs and estimated earnings on
uncompleted contracts and a $0.1 million increase in accrued liabilities. Cash
outflows related to operating activities included a $3.1 million increase in
accounts receivable and a $0.1 million increase in costs and estimated earnings
in excess of billings on uncompleted contracts. The increases in accounts
receivable and accounts payable are attributable to the significant (52%)
increase in revenues from fiscal 1997 to fiscal 1998.
The $0.04 million of cash flows from financing activities during fiscal 1998
included $1.8 million of proceeds generated from the issuance of new debt
including the refinancing of all Drummond debt ($1.8 million outstanding under a
line of credit and a term loan at January 31, 1997) with a $0.4 million mortgage
loan with a seven-year term, a $0.5 million five-year equipment loan and a $1.5
million maximum three-year line of credit facility. Additional funds of $0.2
million were generated from the exercise of 470,000 stock options and warrants.
These cash flows were wholly offset by the repayment of the aforementioned debt
due Drummond which was refinanced and monthly payments on the new debt
instruments.
The registrant's investing activities of $0.6 million were due to the purchase
of property, plant and equipment, including the acquisition of the fixed assets
of American Environmental Abatement Corporation located in Phoenix, Arizona.
The registrant maintains a $1.5 million revolving line of credit collateralized
by eligible accounts receivable with an August 2000 maturity and a $0.5 million
equipment note with an August 2002 maturity. At January 31, 1998, there was
$917,000 borrowed on the line of credit. Both the revolving line of credit and
the equipment note are at an interest rate of prime plus 3.5%. Additionally, the
registrant's Export real estate is collateral for a $375,000 seven-year mortgage
loan at an interest rate of 9.5% for the first four years of the loan with
interest reset at 3.25% above the five-year treasury bill rate for the remaining
three-year term of the mortgage loan.
The registrant believes that it has adequate liquidity to fund its current and
future operations.
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.
16
<PAGE> 18
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.
The registrant's investing activities of $0.1 million during fiscal 1997 were
attributable to the purchase of property, plant and equipment.
During fiscal 1996, the registrant entered into two agreements guaranteeing
ICHOR accounts receivable financed by Sirrom Environmental Funding, LLC
("Sirrom"). At January 31, 1997, the balance guaranteed by the registrant under
the two agreements was approximately $3 million. Subsequent to January 31, 1997,
ICHOR's customer has made significant payments reducing the amount of the
registrant's guarantee to approximately $300,000. It is expected that the
remaining outstanding receivables covered by the guarantee will be paid by
ICHOR's customer during the first half of Fiscal 1999, eliminating the
registrant remaining guarantee.
The registrant, from time to time, enters into fixed-price subcontracts which
tends to reduce the risk to the Company of fixedprice contracts.
PROSPECTIVE INFORMATION
The registrant has been named in a purported class action suit 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. (See "Item 3--Legal Proceedings" for a
description of this litigation.)
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.
17
<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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended January 31, 1998. 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, 1998 and 1997, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1998, 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 26, 1998
18
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 892,000 $ 429,000
Accounts receivable, less allowance of $48,000 and $47,000
in 1998 and 1997, respectively 6,751,000 3,708,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 725,000 614,000
Inventories 202,000 182,000
Notes receivable from officers 132,000 132,000
Prepaid income taxes 165,000 182,000
Other current assets 129,000 193,000
----------- ----------
TOTAL CURRENT ASSETS 8,996,000 5,440,000
PROPERTY, PLANT AND EQUIPMENT
Land 42,000 42,000
Leasehold improvements 55,000 55,000
Furniture and fixtures 136,000 130,000
Vehicles 470,000 361,000
Equipment 3,455,000 3,015,000
Buildings 369,000 369,000
----------- ----------
4,527,000 3,972,000
Less: accumulated depreciation 3,558,000 3,284,000
----------- ----------
969,000 688,000
OTHER ASSETS 372,000 37,000
----------- ----------
TOTAL ASSETS $10,337,000 $6,165,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,746,000 $1,699,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 842,000 635,000
Accrued liabilities 1,416,000 1,212,000
Current portion of long-term debt 198,000 1,485,000
----------- ----------
TOTAL CURRENT LIABILITIES 6,202,000 5,031,000
OTHER LONG-TERM LIABILITIES 140,000 --
LONG-TERM DEBT 1,628,000 372,000
MINORITY INTEREST 102,000 --
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Cumulative convertible Series A preferred stock, (2%)
$0.01 par value, 5,000,000 shares authorized and
167,338 and 185,925 issued and outstanding shares at
January 31, 1998 and 1997, respectively (liquidation
preference of $1,673,380 and $1,859,250 respectively) 400,000 444,000
Common stock, $0.02 par value, 30,000,000 shares authorized
and 6,474,412 shares and 5,923,868 shares issued and
outstanding at January 31, 1998 and 1997, respectively 130,000 118,000
Paid-in capital 4,571,000 4,260,000
----------- ----------
5,101,000 4,378,000
(Deficit) retained earnings (2,836,000) (4,060,000)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,265,000 762,000
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,337,000 $6,165,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-----------------------------------------------
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
CONTRACT REVENUES $24,610,000 $16,183,000 $16,215,000
CONTRACT COSTS 20,291,000 13,698,000 14,773,000
----------- ----------- -----------
GROSS MARGIN 4,319,000 2,485,000 1,442,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,789,000 2,491,000 3,009,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 1,530,000 (6,000) (1,567,000)
OTHER INCOME (EXPENSE):
Gain on sale of PDG Remediation, Inc. Common Stock -- -- 1,354,000
Interest expense (220,000) (287,000) (467,000)
Interest income 16,000 8,000 24,000
Other income 36,000 101,000 9,000
----------- ----------- -----------
(168,000) (178,000) 920,000
INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS 1,362,000 (184,000) (647,000)
INCOME TAX PROVISION (20,000) -- (103,000)
MINORITY INTEREST (102,000) -- --
----------- ----------- -----------
INCOME LOSS BEFORE DISCONTINUED OPERATION 1,240,000 (184,000) (750,000)
DISCONTINUED OPERATION:
Income (loss) from operation -- (505,000) (1,201,000)
Gain (loss) on disposal -- 203,000 (500,000)
----------- ----------- -----------
-- (302,000) (1,701,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 1,240,000 $ (486,000) $(2,451,000)
=========== =========== ===========
UNDECLARED PREFERRED STOCK DIVIDEND REQUIREMENTS $ -- $ 37,000 $ 45,000
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE--BASIC:
Income (loss) before extraordinary item and
discontinued operation $ 0.20 $ (0.04) $ (0.14)
Discontinued operation -- (0.05) (0.30)
----------- ----------- -----------
Net income (loss) per share $ 0.20 $ (0.09) $ (0.44)
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE--DILUTIVE:
Income (loss) before discontinued operations $ 0.17 $ (0.04) $ (0.14)
Discontinued Operations -- (0.05) (0.30)
----------- ----------- -----------
Net income (loss) per share $ 0.17 $ (0.09) $ (0.44)
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 6,060,000 5,913,000 5,670,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 1,160,000 59,000 36,000
----------- ----------- -----------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING 7,220,000 5,972,000 5,706,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<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, 1995 562,000 109,000 3,866,000 (928,000) 3,609,000
Conversion of 49,047 shares of cumulative
convertible 2% 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
Conversion of 18,587 shares of cumulative
convertible 2% preferred stock into 80,544
shares of common stock (44,000) 2,000 58,000 (16,000) --
Issuance of 150,000 warrants 71,000 71,000
Issuance of 170,000 shares under Employee
Incentive Stock Option Plan 4,000 57,000 61,000
Exercise of stock warrants for 300,000 shares
of common stock 6,000 125,000 131,000
Net Income 1,240,000 1,240,000
--------- -------- ---------- ----------- -----------
BALANCE AT JANUARY 31, 1998 $ 400,000 $130,000 $4,571,000 $(2,836,000) $ 2,265,000
========= ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,240,000 $ (486,000) $(2,451,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 389,000 367,000 525,000
Minority interest 102,000 -- --
Gain on sale of PDG Remediation, Inc. common stock -- (203,000) (1,354,000)
Other 64,000 3,000 (33,000)
CHANGES IN CURRENT ASSETS AND LIABILITIES OTHER THAN CASH:
Accounts receivable (3,091,000) (490,000) 147,000
Costs and estimated earnings in excess of billings on
uncompleted contracts (111,000) 56,000 163,000
Inventories (20,000) (1,000) 35,000
Prepaid income taxes 17,000 1,000 110,000
Other current assets 324,000 612,000 142,000
Accounts payable 1,764,000 (241,000) (413,000)
Billings in excess of costs and estimated earnings on
uncompleted contracts 207,000 28,000 (4,000)
Net assets of discontinued operations -- 489,000 2,171,000
Accrued liabilities 134,000 95,000 158,000
Other (7,000) (63,000) 25,000
----------- ----------- -----------
TOTAL ADJUSTMENTS (783,000) 486,000 2,534,000
----------- ----------- -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,012,000 167,000 (779,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (593,000) (135,000) (346,000)
Proceeds from sale of property, plant and equipment 1,000 3,000 --
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (592,000) (132,000) (346,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,758,000 286,000 20,000
Proceeds from exercise of stock options and warrants 192,000 -- --
Proceeds on sale of PDG Remediation, Inc. common stock -- 1,206,000 1,435,000
Principal payments on debt (1,907,000) (1,371,000) (730,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 43,000 121,000 725,000
----------- ----------- -----------
Net increase (decrease) in cash and short-term investments 463,000 156,000 (400,000)
Cash and short-term investments, beginning of year 429,000 273,000 673,000
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 892,000 $ 429,000 $ 273,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
FOR THE THREE YEARS ENDED JANUARY 31, 1998
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 entitle
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.
In December 1997, the Corporation and Philip Environmental Services Corporation
("Philip") formed a limited partnership, PDG/Philip, L.P. ("Venture"). The
Corporation is both a general and limited partner of the Venture and holds a 60%
ownership share. The Venture is performing a $12 million asbestos abatement
contract which is expected to be completed by the end of the second quarter of
fiscal 1999.
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 results of the Venture, in which the Corporation holds a 60% interest, are
also consolidated since the Corporation is the majority owner of the Venture and
exercises day-to-day operating control. Philip's portion of the Venture is
reflected as minority interest.
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.
24
<PAGE> 26
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 in which 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, 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. The certificates of deposit were released during fiscal 1998.
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 straightline 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.
EARNINGS PER SHARE:
In 1997, the Financial Accounting Standards Board issued Statement ("SFAS") No.
128, Earnings per Share. SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
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. No corporate interest expense has been
allocated for the discontinued operations of PDGE.
During the six-month period ending July 31, 1996, PDGR had revenues of $2.5
million. Revenues of PDGR were $4.8 million in fiscal year 1996. See Note 7 for
a discussion of the sale of PDGR.
25
<PAGE> 27
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, 1998 and 1997 include $397,000 and $220,000,
respectively, of retainage receivables. For the year ended January 31, 1998, one
customer, the U.S. Army, accounted for 11.4% of the Corporation's consolidated
revenues for that year. For the year ended January 31, 1997, 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,
1998 1997
------------------------------
<S> <C> <C>
Revenues earned on uncompleted contracts $18,428,000 $8,968,000
Less: billings to date 18,545,000 8,989,000
----------- ----------
Net Over Billings $ (117,000) $ (21,000)
=========== ==========
</TABLE>
Included in the accompanying consolidated balance sheets under the following
captions:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------------------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 725,000 $ 614,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (842,000) (635,000)
----------- ----------
Net Over Billings $ (117,000) $ (21,000)
=========== ==========
</TABLE>
Costs and estimated earnings in excess of billings on uncompleted contracts at
January 31, 1997 include approximately $470,000 related to contracts where the
customers are disputing the related scope. The majority of this amount was
received by the Company during the fiscal year ending January 31, 1998.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------------------------
<S> <C> <C>
Worker's compensation $ 430,000 $ 524,000
Wages 260,000 --
Withheld and accrued taxes 235,000 226,000
Accrued fringe benefits 273,000 181,000
Accrued insurance 4,000 113,000
Other 214,000 168,000
----------- ----------
Total Accrued Liabilities $ 1,416,000 $1,212,000
=========== ==========
</TABLE>
26
<PAGE> 28
NOTE 7 -- LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
-----------------------------
<S> <C> <C>
Term loan due in monthly installments of $6,129 including
interest at 9.5% due in May 2005 $ 350,000 $ --
Term loan due in monthly installments of $14,000, plus
interest at 3% above the prime rate, due in August 1997 -- 330,000
Equipment note due in monthly installments of $8,333 plus
interest at 3.5% above the prime rate, due in August 2002 467,000 --
Revolving line of credit expiring on August 24, 2000 and
bearing interest at 3.5% above the prime rate 917,000 --
Revolving line of credit maturing on August 1, 1997 and
bearing interest at 3% above the prime rate -- 1,500,000
Other 92,000 27,000
---------- ----------
1,826,000 1,857,000
Less amount due within one year 198,000 1,485,000
---------- ----------
$1,628,000 $ 372,000
========== ==========
</TABLE>
On August 25, 1997, the Corporation closed on a new $2.0 million credit facility
consisting of a $1.5 million three-year revolving line of credit and a $0.5
million five-year equipment note. The line of credit and the equipment note are
at an interest rate of prime plus 3.5%. (At January 31, 1998, prime was 8.5%).
The line of credit is collateralized by accounts receivable. Under the terms of
the revolving credit agreement, the Company is required to reduce borrowings as
the accounts receivable are collected. Since those accounts receivable are
replaced with new accounts receivable and it is the Company's intent to maintain
at least the same level of borrowings, the outstanding balance is reflected as
long term. Additionally, the Chief Executive Officer of the Corporation provided
a limited personal guarantee for the credit facility.
The proceeds of the aforementioned financing fully satisfied the remaining
outstanding balance on the Drummond Financial Corporation ("Drummond") line of
credit (described in the following paragraph) and provided working capital for
the Corporation. As of January 31, 1998, the balance on the line of credit was
$917,000.
Prior to obtaining the credit facility, the Corporation had a $1,500,000 line of
credit facility which expired on August 1, 1997 and a $330,000 term loan which
expired on August 1, 1997 with Drummond. All borrowings under the Drummond
Agreement bore interest at a bank rate (as defined) plus 3%. Borrowings under
the Drummond Agreement were limited to 85% of the receivables borrowing base.
The principal balance of the term loan amortized over a five-year period and was
secured by the fixed assets and a mortgage on certain property of the
Corporation.
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.
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 May 27, 1997, the Corporation closed on a $375,000 loan from a financial
institution to refinance the $330,000 term loan payable to Drummond maturing on
August 1, 1997. The new loan has 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.
27
<PAGE> 29
The majority of the Corporation's property and equipment are pledged as security
for the above obligations.
During fiscal 1996, the Corporation entered into two agreements guaranteeing
ICHOR accounts receivable financed by Sirrom Environmental Funding, LLC
("Sirrom"). At January 31, 1997, the balance guaranteed by the Corporation under
the two agreements was approximately $3 million. Subsequent to January 31, 1997,
ICHOR's customer has made significant payments reducing the amount of the
Corporation's guarantee to approximately $300,000. It is expected that the
remaining outstanding receivables covered by the guarantee will be paid by
ICHOR's customer during the first half of fiscal 1999, eliminating the
Corporation's remaining guarantee.
Maturity requirements on long-term debt aggregate $198,000 in fiscal 1999,
$172,000 in fiscal 2000, $1,078,000 in fiscal 2001, $156,000 in fiscal 2002,
$129,000 in fiscal 2003 and $93,000 thereafter.
The Corporation paid approximately $223,000, $328,000 and $528,000 for interest
costs during the years ended January 31, 1998, 1997 and 1996, respectively.
NOTE 8 -- INCOME TAXES
The Corporation provides for income taxes under the liability method as required
by SFAS No. 109.
At January 31, 1998, the Corporation has net operating loss carryforwards of
approximately $7,726,000 for income tax purposes which expire in years 1999
through 2011. For financial reporting purposes, a valuation allowance of
approximately $2,967,000 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
decreased by approximately $418,000 during the year ended January 31, 1998. The
decrease was primarily due to the current year increase in taxable temporary
differences and an adjustment to correct the amount of available net operating
loss carryforwards.
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, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 83,000 $ 103,000
Deferred tax assets:
Accounts receivable allowance 164,000 147,000
Workers compensation reserve 183,000 215,000
Other 76,000 29,000
Net operating loss carryforwards 2,627,000 3,097,000
----------- ----------
Total deferred tax assets 3,050,000 3,488,000
Valuation allowance for deferred tax assets 2,967,000 3,385,000
----------- ----------
Net deferred tax assets 83,000 103,000
----------- ----------
Net deferred tax liabilities $ -- $ --
=========== ==========
</TABLE>
28
<PAGE> 30
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State 20,000 -- --
-------- -------- --------
Total current 20,000 -- --
Deferred:
Federal -- -- 103,000
State -- -- --
-------- -------- --------
Total deferred -- -- 103,000
-------- -------- --------
Total income tax provision $ 20,000 $ -- $103,000
======== ======== ========
</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,
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $425,000 $(63,000) $(220,000)
State income taxes, net of federal tax benefit 13,000 -- --
Limitation on utilization of net operating loss (418,000) 63,000 220,000
Goodwill -- -- --
Other -- -- 103,000
-------- -------- --------
$ 20,000 $ -- $103,000
======== ======== ========
</TABLE>
The Corporation paid approximately $12,000, $8,000 and $64,000 for federal and
state income taxes during the years ended January 31, 1998, 1997 and 1996,
respectively.
NOTE 9 -- NOTES RECEIVABLE--OFFICERS
At January 31, 1998 and 1997, the Corporation had approximately $132,000 in
notes receivable from its officers in the form of personal loans. A breakdown of
the notes receivable balance at January 31, 1998 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 10 -- 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 SFAS
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 350,000 shares of the Corporation's common
stock at an exercise price of $0.79 per share were granted under the Plan
effective August 19, 1997 issuable related to fiscal 1999. Vesting of one-half
of the stock options is contingent upon the individual offices, and in the case
of the executive office, the Corporation, meeting pre-established financial
goals for the fiscal year.
29
<PAGE> 31
Vesting of the remaining one-half of the stock options will be based upon a
number of discretionary items. If the financial goals are not achieved, the
options do not vest. All unvested options are returned to the plan for future
grants.
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 office, 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, 1998.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
------------------------------------
<S> <C> <C>
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
Granted 492,666 $ 0.66--$0.83
Cancelled--Reusable (120,000) $ 0.36--$0.66
Exercised (170,000) $ 0.36
---------
OUTSTANDING AT JANUARY 31, 1998 1,462,333 $ 0.36--$1.91
=========
EXERCISABLE AT JANUARY 31, 1998 1,070,666 $ 0.36--$1.91
=========
</TABLE>
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. 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
1998 and 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 0.85 and
1.43 in fiscal 1998 and 1997, respectively; 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 FISCAL
98 97
-------------------------
<S> <C> <C>
Pro forma net income (loss) $70,000 $(557,000)
Pro forma earnings per share (basic and dilutive) $ 0.01 $ (0.10)
</TABLE>
30
<PAGE> 32
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 ICHOR stock.
The following table summarizes information with respect to non-qualified stock
options for the three years ended January 31, 1998.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
------------------------------------
<S> <C> <C>
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
======
No Activity -- --
OUTSTANDING AT JANUARY 31, 1998 20,000 $0.60
======
EXERCISABLE AT JANUARY 31, 1998 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, 1998, 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
202,212 shares of the Corporation's common stock at prices ranging from $0.36
per share to $0.79 per share have been granted under the Non-Employee Directors
Plan. At January 31, 1998, options to purchase 132,212 shares of the
Corporation's common stock granted under the Non-Employee Directors Plan were
exercisable.
No pro forma information is presented relative to the non-qualified stock option
plan, the Employee Director Plan or the NonEmployee 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; the match is 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, 1998 and 1997.
NOTE 11 -- STOCK WARRANTS
At January 31, 1998 and 1997, the Corporation had approximately 894,660 and
1,105,000, respectively, of fully vested warrants outstanding. The exercise
price of the warrants range from $0.50 per share to $2.50 per share and the
expiration dates range from fiscal 1999 through fiscal 2001. The majority of
these warrants were issued in conjunction with debt financings obtained by the
Corporation.
During fiscal 1998, 150,000 warrants with an exercise price of $0.375 per share
and 150,000 warrants with an exercise price of $0.50 per share were exercised
for 300,000 shares of the Corporation's common stock.
31
<PAGE> 33
NOTE 12 -- 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, 1998
and 1997, 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 October 20, 1997 and November 1, 1995, 18,587 and 49,047 shares,
respectively, of the Corporation's Series A Preferred Stock and cumulative
dividends in arrears were converted into 80,544 and 204,902 shares,
respectively, of Common Stock. At January 31, 1998, there were 167,338 shares of
the Corporation's Series A Preferred Stock outstanding. Cumulative dividends in
arrears on the Series A Preferred Stock were approximately $149,000 at January
31, 1998.
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 13 -- NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Income (loss) before discontinued operations $1,240,000 (184,000) (750,000)
Preferred stock dividends (33,000) (37,000) (37,000)
---------- ---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 1,207,000 (221,000) (787,000)
Effect of dilutive securities:
Preferred stock dividends 33,000 -- --
---------- ---------- ----------
Numerator for diluted earnings per share--income
available to common stock after assumed conversions 1,240,000 (221,000) (787,000)
---------- ---------- ----------
DENOMINATOR:
Denominator for basic earnings per share--weighted
average shares 6,060,000 5,913,000 5,670,000
Effect of dilutive securities:
Employee stock options 397,000 26,000 36,000
Warrants 34,000 33,000 --
Convertible preferred stock 729,000 -- --
---------- ---------- ----------
Dilutive potential common shares 1,160,000 59,000 36,000
---------- ---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 7,220,000 5,972,000 5,706,000
========== ========== ==========
BASIC EARNINGS PER SHARE $ 0.20 $ (0.04) $ (0.14)
========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.17 $ (0.04) $ (0.14)
========== ========== ==========
</TABLE>
32
<PAGE> 34
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases aggregated $221,000,
$217,000 and $279,000 for the years ended January 31, 1998, 1997 and 1996,
respectively. Minimum rental payments under these leases with initial or
remaining terms of one year or more at January 31, 1998 aggregated $451,000 and
payments due during the next five fiscal years are as follows: 1999--$200,000;
2000--$152,000; 2001--$86,000; and 2002--$11,000 and 2003--$2,000.
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 notice of certification was sent to potential class members in August
1997.
The action is still in the discovery stage. Discovery is scheduled to close on
July 31, 1998.
NOTE 15 -- 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, 1998
Revenues $4,489,000 $5,310,000 $6,204,000 $8,607,000 $24,610,000
Gross margin 829,000 901,000 1,096,000 1,493,000 4,319,000
Net income 158,000 266,000 359,000 457,000 1,240,000
Earnings per share
Basic $ 0.03 $ 0.04 $ 0.06 $ 0.07 $ 0.20
Diluted $ 0.02 $ 0.04 $ 0.05 $ 0.06 $ 0.17
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
Basic (0.07) (0.02) 0.01 0.05 (0.04)
Diluted (0.07) (0.02) 0.01 0.04 (0.04)
Earnings per share
Basic $ (0.12) $ (0.02) $ 0.01 $ 0.05 $ (0.09)
Diluted $ (0.12) $ (0.02) $ 0.01 $ 0.04 $ (0.09)
</TABLE>
The fiscal 1997 and first three quarters of fiscal 1998 earnings per share
amounts have been restated to comply with SFAS No. 128, Earnings per Share.
33
<PAGE> 35
NOTE 16 -- IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company has not completed a formal assessment of the Year 2000 issue;
however, the Company does not have any significant system interfaces with
outside vendors or customers which, in the opinion of management, are vulnerable
to those third parties' failure to remediate their own Year 2000 issues. There
are no internal computer systems which present a Year 2000 issue. While
management cannot reasonably estimate the cost that may be necessary to address
Year 2000 issues related to its outside vendors or customers, in the opinion of
management, such cost will not have an adverse material effect on the results of
operations.
34
<PAGE> 36
PDG ENVIRONMENTAL, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS(1) OF YEAR
---------------- -------------- ------------- --------
<S> <C> <C> <C> <C>
1998
Allowance for doubtful accounts $ 47,000 $48,000 $ 47,000 $48,000
======== ======= ======== =======
1997
Allowance for doubtful accounts $ 44,000 $ 3,000 $ -- $47,000
======== ======= ======== =======
1996
Allowance for doubtful accounts $317,000 $15,000 $288,000 $44,000
======== ======= ======== =======
</TABLE>
(1)Uncollectible accounts written off, net of recoveries.
35
<PAGE> 37
PDG ENVIRONMENTAL, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, JULY 15, 1997
The undersigned hereby constitutes and appoints Dulcia Maire, with
powers of substitution, as proxies, to vote all of the shares of the
Common Stock of the Corporation registered in the name of the
undersigned at the close of business on May 19, 1998, at the Annual
Meeting of Stockholders of the Corporation to be held on July 15, 1998
at 9:00 A.M., E.D.T. at the Harley Hotel, 699 Rodi Road, Pittsburgh,
Pennsylvania 15235, and at any adjournment thereof, upon the matters
described in the Notice of such Annual Meeting and Proxy Statement
dated May 29, 1998, receipt of which is hereby acknowledged, and upon
any other business that may properly come before the Meeting.
The shares represented by this Proxy will be voted and the shares
represented by this Proxy will be voted as specified hereon, but if no
specification is made, the proxies intend to vote FOR the election of
the nominees listed in the Proxy Statement and FOR approval of the
other proposals described in the Proxy Statement.
<TABLE>
<S> <C> <C>
a. Election of Directors FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY [ ]
(EXCEPT AS MARKED TO THE CONTRARY BELOW) TO VOTE FOR ALL NOMINEES LISTED BELOW
</TABLE>
John C. Regan and Richard A. Bendis, Edgar Berkey, James D. Chiafullo and
Edwin J. Kilpela for a term of one year.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
----------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(Continued and to be signed and voted on the reverse side.)
b. Ratification of the Independent Auditors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
c. Amendment to Corporation Incentive Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Signature(s) must correspond with
the name or names as they appear
printed on this Proxy. When signing
as attorney, administrator,
executor, guardian or trustee,
please add your full title as such.
If shares are registered in the
names of joint tenants or trustees,
each joint tenant or trustee should
sign.
DATED: , 1998
----------------------
-----------------------------------
-----------------------------------
Signature(s) of Stockholder(s)
PLEASE DATE, SIGN AND MAIL THIS
PROXY IN THE ENVELOPE PROVIDED,
POSTAGE NOT NECESSARY IF MAILED
IN THE UNITED STATES.
