<PAGE> 1
(Conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 412-856-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.02 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of the
registrant was $5,772,729 as of April 19, 1999, computed on the basis of the
average of the bid and asked prices on such date.
As of April 19, 1999 there were 8,396,696 shares of the registrant's Common
Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
(a) DEVELOPMENT OF THE BUSINESS
PDG Environmental, Inc., the registrant, is a holding company which, through its
wholly-owned operating subsidiaries and a joint venture, is engaged primarily in
providing asbestos abatement services to the private and public sectors.
Prior to fiscal 1991, the registrant was solely engaged in providing asbestos
abatement services. The registrant expanded the scope of its business to include
environmental remediation services in fiscal 1991 through the formation of an
operating subsidiary in Florida specializing in remediating leaking underground
storage tanks ("USTs"). In fiscal 1992, the registrant expanded its underground
storage tank remediation business to Pennsylvania. In December 1992, the
registrant entered the soil remediation business by purchasing a thermal
desorption plant in West Central Florida. The thermal desorption plant was
discontinued effective January 31, 1996, and the plant was sold April 25, 1996.
On July 20, 1994, PDG Remediation, Inc., now known as ICHOR Corporation,
("ICHOR") was incorporated under the laws of the Commonwealth of Pennsylvania as
a wholly-owned subsidiary of the registrant. The registrant's environmental
remediation services business was merged into ICHOR effective October 20, 1994
in order to separate this business segment from the registrant's other business
segments and facilitate an initial public offering of ICHOR common stock. On
February 9, 1995, ICHOR sold 1,000,000 shares of its common stock and 1,000,000
redeemable warrants to purchase an additional 1,000,000 shares of common stock
to the public. Of the shares of common stock sold, 600,000 were offered by ICHOR
and 400,000 were offered by the registrant, thereby reducing the registrant's
ownership in ICHOR to approximately 60%.
On July 31, 1996, the registrant entered into a Loan Modification Agreement
("Modification Agreement") with Drummond Financial Corporation ("Drummond")
formerly CVD Financial Corporation. Pursuant to the Modification Agreement,
Drummond purchased all 1,470,320 shares of ICHOR common stock held by the
Corporation for $0.82 per share and the aggregate purchase price of $1,205,662
was utilized to reduce the outstanding balance on the line of credit maintained
by the Corporation with Drummond. This resulted in a $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 was both a general and limited partner of the Venture and holds a
60% ownership share. The Venture performed a $12 million asbestos abatement
contract which was completed by the end of the second quarter of fiscal 1999.
The Venture will be dissolved in fiscal 2000 with the filing of the final income
tax return.
(b) DESCRIPTION OF THE BUSINESS
ASBESTOS ABATEMENT CONTRACTING BUSINESS
OVERVIEW
The registrant, through its wholly-owned subsidiaries and joint venture
interest, provides asbestos abatement contracting services to the public and
private sectors. The asbestos abatement industry has developed due to increased
public awareness in the early 1970's of the health risks associated with
asbestos, which was extensively used in building construction.
Asbestos, which is a fibrous mineral found in rock formations throughout the
world, was used extensively in a wide variety of construction-related products
as a fire retardant and insulating material in residential, commercial and
industrial properties. During the period from approximately 1910 to 1973,
asbestos was commonly used as a construction material in structural steel
fireproofing, as thermal insulation on pipes and mechanical equipment and as an
acoustical insulation material. Asbestos was also used as a component in a
variety of building materials (such as plaster, drywall, mortar and building
block) and in caulking, tile adhesives, paint, roofing felts, floor tile and
other surfacing materials.
In the early 1970's, it became publicly recognized that inhalation or ingestion
of asbestos fibers was a direct cause of certain diseases, including asbestosis
(a debilitating pulmonary disease), lung cancer, mesothelioma (a cancer of the
abdominal and lung lining) and other diseases. In particular, friable
asbestos-containing materials ("ACM") were designated as a potential health
hazard because these materials can produce microscopic fibers and become
airborne when disturbed.
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The Environmental Protection Agency (the "EPA") first banned the use of asbestos
as a construction material in 1973 and the federal government subsequently
banned the use of asbestos in other building materials as well.
Most structures built before 1973 contain ACM in some form and surveys conducted
by the federal government have estimated that 31,000 schools and 733,000 public
and commercial buildings contain friable ACM. Also, many more industrial
facilities are known to contain asbestos.
The asbestos abatement industry grew rapidly in the 1980's due to increasing
public awareness and concern over health hazards associated with ACM,
legislative action mandating safety standards and requiring abatement in certain
circumstances, and economic pressures on building owners seeking to satisfy the
requirements of financial institutions, insurers and tenants. It is estimated
that the asbestos abatement market grew from approximately $200 million in
revenues in 1983 to approximately $4.0 billion in 1990. However, due to the
effects of the collapse of the real estate industry and the overall recession in
1991, the asbestos abatement market contracted to approximately $3.5 billion and
is expected to remain fairly constant in future years.
OPERATIONS
Through its operating subsidiaries, the registrant has expertise in all types of
asbestos abatement including removal and disposal, enclosure (constructing
structures around asbestos-containing area) and encapsulation (spraying asbestos
containing materials with an approved sealant). Asbestos abatement is
principally performed in commercial buildings, government and institutional
buildings, schools and industrial facilities.
The registrant's operating subsidiaries provide asbestos abatement services on a
project contract basis. Individual projects are competitively bid, although most
contracts with private owners are ultimately negotiated. The majority of
contracts undertaken are on a fixed price basis. The length of the contracts are
typically less than one year; however, larger projects may require two or three
years to complete.
The registrant closely monitors contracts by assigning responsibility for each
contract to a project manager who coordinates the project until its completion.
The asbestos abatement process is performed by a qualified labor force in
accordance with regulatory requirements, contract specifications and the
registrant's written operating procedures manual which describes worker safety
and protection procedures, air monitoring protocols and abatement methods.
The registrant's asbestos abatement operations have been generally concentrated
in the northeastern, mid-atlantic, southeastern and southwestern portions of the
United States. The majority of the registrant's national marketing efforts are
performed by members of senior management located in the headquarters facility
in Monroeville, Pennsylvania. Regional marketing and project operations are also
conducted through branch offices located in New York City, New York; Hazleton
and Export, Pennsylvania; Fort Lauderdale, Florida; Houston, Texas; Phoenix,
Arizona; Chicago, Illinois; St. Louis, Missouri and Rock Hill, South Carolina.
Since the registrant and its subsidiaries are able to perform asbestos abatement
work throughout the year, the business is not considered seasonal in nature.
However, it is affected by the timing of large contracts.
SUPPLIERS AND CUSTOMERS
The registrant purchases the equipment and supplies used in the asbestos
abatement business from a number of manufacturers. One of these manufacturers
(Aramsco, Inc.) accounted for 34% of the registrant's asbestos abatement
purchases in fiscal 1999. The items purchased are made from the vendor's
available stock and are not covered by a formalized agreement.
The customers of the registrant's asbestos abatement business include both
private sector clients and government or publicly funded entities. In fiscal
1999, the registrant estimates that approximately 58% of its operating
subsidiaries' revenues were derived from private sector clients, 37% from
government contracts and 5% from schools. Due to the nature of the registrant's
business, which involves large contracts that are often completed within one
year, customers that account for a significant portion of revenue in one year
may represent an immaterial portion of revenue in subsequent years. For the year
ended January 31, 1999, one customer, an agency of the Commonwealth of
Pennsylvania, accounted for 27.3% of the registrant's consolidated revenues for
that year.
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LICENSES
The registrant, through its operating subsidiaries, is licensed and/or certified
in all jurisdictions where required in order to conduct its operations. In
addition, certain management and staff members are licensed and/or certified by
various governmental agencies as asbestos abatement supervisors and workers.
INSURANCE AND BONDS
The registrant and its operating subsidiaries maintain liability insurance for
claims arising from its asbestos abatement business. The policy, which provides
a $2.0 million limit per claim and in the aggregate, insures against both
property damage and bodily injury arising from the asbestos abatement
contracting activities of the registrant's operating subsidiaries. The policy is
written on an "occurrence" basis which provides coverage for insured risks that
occur during the policy period, irrespective of when a claim is made. Higher
policy limits of up to $10.0 million are available for individual projects. The
registrant also provides worker's compensation insurance, at statutory limits,
which covers the employees of the registrant's operating subsidiaries engaged in
asbestos removal or encapsulation activities.
A substantial number of the registrant's contracts require performance and
payment bonds and the registrant maintains a bonding program to satisfy these
requirements.
COMPETITIVE CONDITIONS
The asbestos abatement industry is highly competitive and includes both small
firms and large diversified firms, which have the financial, technical and
marketing capabilities to compete on a national level. The industry is not
dominated by any one firm. The registrant principally competes on the basis of
competitive pricing, a reputation for quality and safety, and the ability to
obtain the appropriate level of insurance and bonding.
REGULATORY MATTERS
Numerous regulations at the federal, state and local levels impact the asbestos
abatement industry, including the EPA's Clean Air Act and Occupational Safety
and Health Administration ("OSHA") requirements. As outlined below, these
agencies have mandated procedures for monitoring and handling ACM during
abatement projects and the transportation and disposal of ACM following removal.
Current EPA regulations establish procedures for controlling the emission of
asbestos fibers into the environment during removal, transportation or disposal
of ACM. The EPA also has notification requirements before removal operations can
begin. Many state authorities and local jurisdictions have implemented similar
programs governing removal, handling and disposal of ACM.
The EPA instituted the Asbestos Hazard Emergency Response Act of 1986 which
requires that schools be inspected for asbestos by accredited personnel. In the
event that the inspection program shows evidence of ACM, a maintenance or
abatement program must be implemented and the school must conduct continuing
operations and maintenance programs including reinspection every three years,
training custodial employees in asbestos hazards and furnishing asbestos
notifications to parents and building occupants.
The transportation of ACM, which has been designated a hazardous material, is
governed by the Department of Transportation under the Hazardous Materials
Transportation Act of 1975 which has established guidelines for the
transportation of ACM.
The health and safety of personnel involved in the removal of asbestos is
protected by OSHA regulations which specify allowable airborne exposure
standards for asbestos workers, engineering and administrative control methods,
work area practices, proper supervision, training, medical surveillance and
decontamination practices for worker protection.
The registrant believes it is in compliance with all of the federal, state and
local statutes and regulations which affect its asbestos abatement business.
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BACKLOG
The registrant and its operating subsidiaries had asbestos abatement backlog
orders totaling approximately $16.7 million and $27.6 million at January 31,
1999 and 1998, respectively. The backlog at January 31, 1999 consisted of $8.2
million of uncompleted work on fixed fee contracts and an estimated $8.5 million
of work on time and materials or unit price contracts. The backlog at January
31, 1998 totaled $27.6 million and consisted of $17.7 million of uncompleted
work on fixed fee contracts and an estimated $9.9 million of work to be
completed on time and materials or unit price contracts. The decrease in backlog
is primarily attributable to the $10.1 million remaining to be completed on the
Keystone project at January 31, 1998. The Keystone project was completed in the
second quarter of fiscal 1999. The Company, from time to time, enters into
fixed-price subcontracts which tends to reduce the risk to the Company on
fixed-price contracts.
The backlog represents the portion of contracts which remain to be completed at
a given point in time. As these contracts are completed, the backlog will be
reduced and a compensating amount of revenue will be recognized. The Company is
currently working on virtually all of the contracts in its January 31, 1999
backlog and anticipates that approximately 91% of this backlog will be completed
and realized as revenue by January 31, 2000 in accordance with the terms of the
applicable contracts between the registrant and the owners of these properties.
The remaining 9% is expected to be completed and realized as revenue subsequent
to January 31, 2000. Approximately 80% of the backlog existing at January 31,
1998 was completed and recognized as revenue by January 31, 1999 with the
remaining 20% expected to be completed and realized as revenue during the year
ending January 31, 2000.
EMPLOYEES
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As of January 31, 1999, the registrant employs approximately 95 employees
consisting of senior management and staff employees between its headquarters in
Monroeville and branch offices located in New York City, NY; Hazleton, PA;
Export, PA; St. Louis, MO; Chicago, IL; Fort Lauderdale, FL; Houston, TX;
Phoenix, AZ and Rock Hill, SC. The staff employees include accounting,
administrative, sales and clerical personnel as well as project managers and
field supervisors. The registrant also employs laborers for field operations
based upon specific projects; therefore, the precise number varies based upon
the outstanding backlog. Approximately 225 laborers and supervisors are employed
on a steady basis, with casual labor hired on an as-needed basis to supplement
the work force.
A portion of the field laborers who provide services to the registrant are
represented by a number of different unions. In every case, the Company is a
member of a multi-employer plan. Management considers its employee labor
relations to be good.
ITEM 2. PROPERTIES
As of January 31, 1999, the registrant leases certain office space for its
executive offices in Monroeville totaling 3,500 square feet. In addition, a
combination of warehouse or shop and office space is leased in Houston (3,990
square feet), St. Louis (7,000 square feet), Chicago (2,000 square feet),
Hazleton (1,800 square feet), Fort Lauderdale (3,800 square feet), Rock Hill
(4,943 square feet), Phoenix (2,400 square feet) and New York City (3,800 square
feet).
The registrant also owns a 15,000 square foot office/warehouse situated on
approximately six (6) acres in Export, Pennsylvania which is subject to a
mortgage of $307,000 at January 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
On June 30, 1995, an action, caption Klein v. PDG Remediation, Inc., et al., No.
CIV-4954 (DAB), was filed in the United States District Court for the Southern
District of New York asserting federal securities law claims against the
registrant, its directors and certain of its officers, PDGR and the underwriters
of the registrant's initial public offering. The Klein action was brought as a
purported class action on behalf of the named plaintiff and all persons and
entities who purchased PDGR's common stock from February 9, 1995, the effective
date of the initial public offering, through May 23, 1995. The plaintiff alleged
that the defendants violated Sections 11 and/or 15 of the Securities Act of
1933, as amended, and Section 12(2) of the Securities Exchange Act of 1934, as
amended, by issuing or participating in the issuance of the registration
statement and prospectus which contained material misstatements or omissions,
and that the purported class members purchased shares of Common Stock in
reliance on the allegedly false and misleading registration statement and
prospectus. Specifically, the
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plaintiff alleged that the defendants knew or should have known that the Florida
reimbursement program in which PDGR participates was operating at a deficit and
was being revised to eliminate funding of remediation activities for lower
priority sites. The plaintiffs were 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. On June 8, 1998, an agreement in principle to
settle the class action litigation was reached with the plaintiff's attorneys.
In October 1998, the Court preliminarily approved the settlement and ordered
that notice be sent to the class members. On January 26, 1999, the Court finally
approved the settlement and the monies presently held in the settlement fund are
to be distributed to the plaintiff class upon the filing of a proof of claim and
release in the lawsuit. The registrant and ICHOR (formerly PDG Remediation) paid
a total of $432,500 to settle the lawsuit. The registrant's share of the
settlement was $173,000 and was paid into the settlement fund in October 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The registrant's common stock has traded on the OTC Bulletin Board since
September 1996. Prior to that, it was listed for trading on NASDAQ Small Cap
(Symbol: PDGE) and the information presented for the following periods reflects
the high and low bid information as reported by the OTC Bulletin Board and
NASDAQ.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
FISCAL 1999 FISCAL 1998
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HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 2.28 $ 1.37 $ 0.81 $ 0.42
Second Quarter 1.68 1.03 0.87 0.56
Third Quarter 1.37 0.68 1.12 0.71
Fourth Quarter 1.12 0.75 2.18 1.06
</TABLE>
At April 19, 1999, the registrant had 2,167 stockholders of record.
The registrant has not historically declared or paid dividends with respect to
its common stock and has no intention to pay dividends in the foreseeable
future. The registrant's ability to pay preferred and common dividends is
prohibited due to limitations imposed by the registrant's Series A Preferred
Stock which require that dividends must be paid to holders of preferred stock
prior to the payment of dividends to holders of common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for the
registrant for the five fiscal years ended January 31, 1999.
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<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1999 1998* 1997 1996 1995
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(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Contract revenues $ 36,828 $ 24,610 $ 16,183 $ 16,215 $ 17,659
Gross margin 5,306 4,319 2,485 1,442 2,178
Income (loss) from operations 2,317 667 (6) (1,567) (591)
Other income (expense) (147) (168) (178) 920 (423)
Income (loss) from continuing operations 1,310 377 (184) (750) (1,038)
Income (loss) from discontinued operations (200) -- (302) (1,701) 896
Net income (loss) 1,110 377 (486) (2,451) 473
COMMON SHARE DATA
Net income (loss) from continuing
operations per common share:
Basic 0.18 0.06 (0.04) (0.14) (0.20)
Diluted 0.16 0.06 (0.04) (0.14) (0.20)
Net income (loss) per common share:
Basic 0.15 0.05 (0.09) (0.44) 0.08
Diluted 0.14 0.05 (0.09) (0.44) 0.08
Weighted average common shares outstanding 7,437 6,060 5,913 5,670 5,360
BALANCE SHEET DATA
Working capital $ 3,507 $ 2,794 $ 409 $ 3,110 $ 3,177
Total assets 9,564 10,337 6,165 7,564 9,690
Long-term obligations 1,120 1,768 372 2,766 510
Total stockholders' equity 4,801 2,265 762 1,218 3,609
</TABLE>
*Restated (See Footnote 1 to Financial Statements).
The year ended January 31, 1998 includes a $0.9 million non cash charge for
compensation expense associated with common stock issuable under options.
The years ended January 31, 1999, 1997, 1996 and 1995 include gain (loss) from
discontinued operations of ($0.2 million), ($0.3 million), ($1.7 million) and
$0.9 million respectively; ($0.02), ($0.05), ($0.30) and $0.13 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, 1999.
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RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1999 COMPARED TO YEAR ENDED JANUARY 31, 1998
During the year ended January 31, 1999, (fiscal 1999) the registrant's
consolidated revenues increased to $36.8 million as compared to $24.6 million
the previous fiscal year ended January 31, 1998 (fiscal 1998). The majority of
the increase was due to $10.1 million of revenue from the Keystone contract
recognized in fiscal 1999. Additionally, the St. Louis and Chicago operations,
acquired November 1, 1998, contributed $0.8 million of revenue in the fourth
quarter.
The registrant's reported gross margin increased to $5.3 million in fiscal 1999
compared to $4.3 million in fiscal 1998. The increased margin in fiscal 1999 was
due to the margin of the aforementioned Keystone project but was negatively
impacted by a $0.75 million cost overrun on a major contract in Philadelphia and
negative contract adjustments of $0.47 million in Atlanta where the Company has
closed its office. Also impacting fiscal 1999's gross margin was a positive
adjustment of $0.59 million in accrued insurance costs based upon an analysis of
the Company's open liabilities and an improved safety record.
Selling, general and administrative expenses increased in fiscal 1999 to $3.0
million compared to $2.8 million in fiscal 1998. The increase is primarily
attributable to the acquisition of the St. Louis and Chicago offices in November
1998 and the Phoenix office in December 1997 and the personnel necessary to
support a higher level of activity.
As a result of the factors discussed above, the registrant reported an income
from operations in fiscal 1999 of $2.3 million compared to an income from
operations of $1.5 million in fiscal 1998 before a non cash charge of $0.9
million for stock compensation expense.
Interest expense decreased to $0.16 million in fiscal 1999 compared to $0.22
million in fiscal 1998 as a result of a significant reduction in both the
outstanding balance on the indebtedness and the related interest rate. Interest
income decreased to $8,000 in fiscal 1999 compared to $16,000 in fiscal 1998 due
to the lower invested cash balances during the current year.
Other income in fiscal 1999 totaled approximately $3,000 versus $36,000 in
fiscal 1998.
As a result of net operating loss carryforwards for book purposes, there was no
federal income tax provision in fiscal 1999 and 1998. A $309,000 and $20,000
state income tax provision was made in fiscal 1999 and 1998, respectively.
The $200,000 loss from discontinued operations in fiscal 1999 relates to the
resolution reached June 8, 1998 with the plaintiffs in the class action
discussed previously in Item 3. The registrant's share of the settlement was
$173,000. The registrant also incurred $27,000 in legal expenses related to the
litigation.
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 before a non-cash charge of $0.9
million to reflect compensation expense associated with the qualified incentive
stock option plan compared to loss from operations of $0.01 million in fiscal
1997.
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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.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1999
During fiscal 1999, the registrant experienced a decrease in liquidity of $0.6
million as cash and short-term investments decreased from $0.9 million at
January 31, 1998 to $0.3 million at January 31, 1999. The decrease in liquidity
in fiscal 1999 was attributable to cash inflows in the amount of $0.2 million
from operating activities and $0.03 million from financing activities more than
offset by $0.8 million used to fund the purchase of property, plant and
equipment and the acquisition of two businesses.
Specifically, cash inflows from operating activities were generated by a net
income of $1.1 million, a decrease in accounts receivable of $1.5 million, a
decrease in other current assets of $0.4 million, decrease in prepaid income
taxes of $0.2 million and $0.7 million of depreciation and amortization. Cash
outflows related to the costs and estimated earnings in excess of estimated
earnings on uncompleted contracts which increased by $0.3 million, inventories
which increased by $0.1 million, accounts payable which decreased $2.6 million,
billings in excess of costs and estimated earnings on uncompleted contracts
which decreased by $0.2 million and accrued liabilities which decreased by $0.4
million. The decrease in accounts receivable and accounts payable was primarily
attributable to the completion in fiscal 1999 of the Keystone project which was
in process at January 31, 1998. This resulted in the liquidation of the balances
related to the Keystone job.
The $0.03 million from financing activities during fiscal 1999 included $1.0
million of proceeds from the exercise of stock options and warrants offset by
$0.9 million of principal payments and reduction of the outstanding balance of
the line of credit and $0.02 million expended to repurchase 27,100 shares of the
Company's common stock into the treasury.
The registrant's investing activities of $0.8 million during fiscal 1998 was
attributable to $0.5 million of purchases of property, plant and equipment and
$0.3 million for the acquisition of two asbestos abatement businesses located in
the Midwest.
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 $130,000 at January 31, 1999. 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 2000,
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 on fixed-price contracts.
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
-8-
<PAGE> 10
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 $0.4 million, a $0.9 million provision for common stock issuable under
stock options, 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.
IMPACT OF YEAR 2000
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 completed an assessment of the Year 2000 issue and has
determined which systems are vulnerable and need correction. All internal
systems have been corrected with the exception of the Company's accounting
system, which is under a maintenance contract with the outside vendor. The
outside vendor has the Year 2000 compliance version ready, and the Company is
scheduled to have implementation of the updated version complete during the
second quarter fiscal 00.
The costs of both internal and external resources incurred through January 31,
1999 and projected to be incurred in fiscal 2000 to make the necessary Year 2000
modifications have not and are not expected to be material.
Management of the Company believes that it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete the remaining phases, the Company will not be
able to process their accounting records in a timely fashion. This would cause
disruptions in invoicing customers, paying vendors, accounting for construction
activity and collecting payments. In addition, disruptions in the general
economy of the United States generally resulting from Year 2000 issues could
have an adverse affect upon the Company. The amount of potential liability and
lost revenues cannot be reasonably estimated at this time.
-9-
<PAGE> 11
The Company currently has no contingency plan in place in the event it does not
complete all phases of the Year 2000 program. The Company plans to evaluate the
status of completion in June 1999 and determine whether such a plan is
necessary.
The foregoing Year 2000 discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant systems, results of Year 2000 testing,
adequate resolution of Year 2000 Issues by businesses and other third parties
who are service providers, suppliers or customers of the Company, unanticipated
system costs, the adequacy of and ability to develop and implement contingency
plans and similar uncertainties. The "forward-looking statements" made in the
foregoing Year 2000 discussion speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
MARKET RISK
Due to current conditions in the credit markets and considering the terms of the
Company's borrowing facility, the Company believes interest rate exposure is
minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and its subsidiaries and
the report of Ernst & Young LLP are submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years of the registrant, there were no
disagreements with the independent auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement would have caused the auditors to make reference
to the subject matter of the disagreement or disagreements in connection with
their reports.
-10-
<PAGE> 12
PART III
The information called for by Part III (Items #10, 11, 12 and 13) is
incorporated herein by references to the registrant's definitive Proxy Statement
for the 1999 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934.
-11-
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) AND (2) The following consolidated financial statements and financial
statement schedule of the registrant and its subsidiaries are included in
Item 8.
<TABLE>
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Report of Independent Auditors.........................................................................................F-1
Consolidated Balance Sheets as of January 31, 1999 and 1998............................................................F-2
Consolidated Statements of Operations for the Years Ended January 31, 1999, 1998 and 1997..............................F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended January 31, 1999, 1998 and 1997.........F-5
Consolidated Statements of Cash Flows for the Years Ended January 31, 1999, 1998 and 1997..............................F-6
Notes to Consolidated Financial Statements for the Three Years Ended January 31, 1999, 1998 and 1997...................F-7
Schedule II - Valuation and Qualifying Accounts.......................................................................F-19
</TABLE>
All other schedules for PDG Environmental, Inc. and consolidated
subsidiaries for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, not applicable, or the required information is shown in
the consolidated financial statements or notes thereto.
(a)(3) EXHIBITS:
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3.1 Certificate of Incorporation of the registrant and all amendments
thereto, filed as Exhibit 3.1 to the registrant's Annual Report
on Form 10-K for the year ended September 30, 1990, is
incorporated herein by reference.
3.2 Certificate of Amendment to the Certificate of Incorporation of
the registrant, approved by stockholders on June 25, 1991, filed
as Exhibit 3(a) to the registrant's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1991, is incorporated herein by
reference.
3.3 Amended and Restated By-laws of the registrant, filed as Exhibit
4.2 to the registrant's registration statement on Form S-8 of
securities under the PDG Environmental, Inc. Amended and Restated
Incentive Stock Option Plan as of June 25, 1991, are incorporated
herein by reference.
3.4 Agreement of Limited Partnership of PDG/Philip, L.P. dated
December 1997 between PDG, Inc., PDG Environmental, Inc. and
Philip Environmental Services Corporation filed as Exhibit 3.4 to
the registrant's Annual Report on Form 10-KSB for the year ended
January 31, 1998, is incorporated herein by reference.
</TABLE>
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<PAGE> 14
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4.1 Certificate of the Powers, Designation, Preferences, and
Relative, Participating, Optional or Other Rights, and the
Qualifications, Limitations or Restrictions of the Series A,
9.00% Cumulative Convertible Preferred Stock, filed as Exhibit H
with the registrant's preliminary proxy materials on July 23,
1990 (File No. 0-13667), is incorporated herein by reference.
4.2 Certificate of Amendment of Certificate of the Powers,
Designation, Preferences and Relative, Participating, Optional or
Other Rights, and the Qualifications, Limitations, or
Restrictions of the Series A 9% Cumulative Convertible Preferred
Stock (par value $0.01 per share), filed as Exhibit 4(a) to the
registrant's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1993, is incorporated herein by reference.
4.3 Certificate of Powers, Designation, Preferences and Relative,
Participating, Optional or Other Rights, and the Qualifications,
Limitations or Restrictions of the Series B, 4.00% Cumulative,
Convertible Preferred Stock, filed as Exhibit 4.2 to the
registrant's registration on Form S-3 on March 17, 1993, is
incorporated herein by reference.
4.4 Share Purchase Agreement, dated as of December 23, 1992, between
the registrant and Conversion Industries, Inc., filed as Exhibit
(i) to the registrant's Current Report on Form 8-K dated December
23, 1992, is incorporated herein by reference.
4.5 Security Agreement dated August 19, 1997 between Finova Capital
Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc. and Enviro-Tech Abatement Services Co.,
filed as Exhibit 4(a) of the PDG Environmental, Inc. Quarterly
Report on Form 10-QSB for the quarter ended July 31, 1997, is
incorporated herein by reference.
10.1 Indemnity Agreement dated as of the first day of July 1990 by and
among Project Development Group, Inc. and John C. and Eleanor
Regan, filed as Exhibit 10.1 to the registrant's Annual Report on
Form 10-K for the year ended September 30, 1990, is incorporated
herein by reference.
10.2 Assumption Agreement entered into as of the fourteenth day of
December 1990 among Project Development Group, Inc., and John C.
and Eleanor Regan, filed as Exhibit 10.2 to the registrant's
Annual Report on Form 10-K for the year ended September 30, 1990,
is incorporated herein by reference.
10.3 PDG Environmental, Inc. Amended and Restated Incentive Stock
Option Plan as of June 25, 1991, filed as Exhibit 10.3 to the
registrant's Annual Report on Form 10-K for the year ended
January 31, 1992, is incorporated herein by reference.
10.4 PDG Environmental, Inc. 1990 Stock Option Plan for Employee
Directors, filed as Exhibit 10.4 to the registrant's Annual
Report on Form 10-K for the year ended January 31, 1992, is
incorporated herein by reference.
</TABLE>
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<PAGE> 15
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10.5 PDG Environmental, Inc. 1990 Stock Option Plan for Non-Employee
Directors, filed as Exhibit 10.5 to the registrant's Annual
Report on Form 10-K for the year ended January 31, 1992, is
incorporated herein by reference.
10.6 Demand note between the registrant and John C. Regan, filed as
Exhibit 10.4 to the registrant's Annual Report on Form 10-K for
the transition period from October 1, 1990 to January 31, 1991,
is incorporated herein by reference.
10.7 Demand note between the registrant and Dulcia Maire, filed as
Exhibit 10.6 to the registrant's Annual Report on Form 10-K for
the transition period from October 1, 1990 to January 31, 1991,
is incorporated herein by reference.
10.8 Letter agreement between the registrant and Messrs. Sorenson and
Bendis, filed as Exhibit 10.7 to the registrant's Annual Report
on Form 10-K for the transition period from October 1, 1990 to
January 31, 1991, is incorporated herein by reference.
10.9 Stock Purchase Agreement dated as of March 31, 1992 by and
between PDG Environmental, Inc. and Jones Group, Inc., filed as
Exhibit 10.10 to the registrant's Annual Report on Form 10-K for
the year ended January 31, 1992, is incorporated herein by
reference.
10.10 Asset Purchase Agreement dated as of October 13, 1992, among PDG
Environmental, Inc., Resource Recovery of America, Inc., and
International Recovery Corp., filed as Exhibit (i) to the
registrant's Current Report on Form 8-K dated December 31, 1992,
is incorporated herein by reference.
10.11 Professional Consulting Agreement dated June 14, 1996 between Len
Turano and PDG Environmental, Inc. filed as Exhibit 10(a) of the
PDG Environmental, Inc. Quarterly Report on Form 10-Q for the
quarter ended July 31, 1996, is incorporated herein by reference.
10.12 Security Agreement dated August 19, 1997 between Finova Capital
Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc. and Enviro-Tech Abatement Services Co.
filed as Exhibit 4(a) of the PDG Environmental, Inc. Quarterly
Report on Form 10-QSB for the quarter ended July 31, 1997, is
incorporated herein by reference (as it appears at 4.5).
10.13 Professional Consulting Agreement dated April 24, 1998 between
Len Turano and PDG Environmental, Inc. filed as Exhibit 10(a) of
the PDG Environmental, Inc. Quarterly Report on Form 10-Q for the
quarter ended April 30, 1998, is incorporated herein by
reference.
10.14 Asset Purchase Agreement dated November 1, 1998 by and among
Environmental Control & Abatement, Inc., Environmental
Remediation Services, Inc. and William A. Lemire and Project
Development Group, Inc. and PDG Environmental, Inc. filed as
Exhibit 2 of PDG Environmental, Inc. Form 8-K dated November 20,
1998, is hereby incorporated herein by reference.
</TABLE>
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<PAGE> 16
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10.15 Investment Banking Agreement dated January 11, 1999 by and among
PDG Environmental, Inc. and M. H. Meyerson & Co., Inc.
21 List of subsidiaries of the registrant.
23 Consent of independent auditors.
24 Power of attorney of directors.
27 Financial data schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
The registrant filed the following Current Reports on Form 8-K
during the three months ended January 31, 1999.
Filing of Form 8-K on November 20, 1998 of Asset Purchase
Agreement as of November 1, 1998 by and among Environmental
Control & Abatement, Inc., Environmental Remediation Services,
Inc. and William A. Lemire and Project Development Group, Inc.
and PDG Environmental, Inc.
Filing of Form 8-KA on January 19, 1999 Financial Statements of
Businesses Acquired (Environmental Control & Abatement, Inc. and
Environmental Remediation Services, Inc.) and related pro forma
financial information.
-15-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
/s/ John C. Regan
---------------------------------------------------
John C. Regan, Chairman and Chief Executive Officer
Date: May 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John C. Regan May 13, 1999
- ---------------------------------------------------
John C. Regan
Chairman and Chief Executive Officer
(Principal Executive Officer and Director)
Richard A. Bendis, Director By /s/ John C. Regan
-------------------------------
John C. Regan, Attorney-in-Fact
May 13, 1999
Edgar Berkey, Director By /s/ John C. Regan
-------------------------------
John C. Regan, Attorney-in-Fact
May 13, 1999
James D. Chiafullo, Director By /s/ John C. Regan
-------------------------------
John C. Regan, Attorney-in-Fact
May 13, 1999
Edwin J. Kilpela, Director By /s/ John C. Regan
-------------------------------
John C. Regan, Attorney-in-Fact
May 13, 1998
-16-
<PAGE> 18
PDG ENVIRONMENTAL, INC.
ANNUAL REPORT ON FORM 10-KSB
ITEMS 8, 14(c) AND (d)
FINANCIAL STATEMENTS, CERTAIN EXHIBITS & SCHEDULE
-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, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended January 31, 1999. 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, 1999 and 1998, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1999, 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.
As discussed in Note 1 to the financial statements, the Company has restated its
previously-issued 1998 financial statements.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
April 1, 1999
F-1
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998*
-----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 309,000 $ 892,000
Accounts receivable, less allowance of
$48,000 in 1998 5,233,000 6,751,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,058,000 725,000
Inventories 298,000 202,000
Notes receivable from officers 132,000 132,000
Other current assets 120,000 294,000
----------- -----------
TOTAL CURRENT ASSETS 7,150,000 8,996,000
PROPERTY, PLANT AND EQUIPMENT
Land 42,000 42,000
Leasehold improvements 59,000 55,000
Furniture and fixtures 156,000 136,000
Vehicles 529,000 470,000
Equipment 4,052,000 3,455,000
Buildings 369,000 369,000
----------- -----------
5,207,000 4,527,000
Less: accumulated depreciation 3,948,000 3,558,000
----------- -----------
1,259,000 969,000
COVENANTS NOT TO COMPETE 591,000 199,000
OTHER ASSETS 564,000 173,000
----------- -----------
TOTAL ASSETS $ 9,564,000 $10,337,000
=========== ===========
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998*
---------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,506,000 $ 3,746,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 673,000 842,000
Accrued liabilities 1,290,000 1,416,000
Current portion of long-term debt 174,000 198,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,643,000 6,202,000
OTHER LONG-TERM LIABILITIES 404,000 140,000
LONG-TERM DEBT 716,000 1,628,000
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 6,000 and 167,338 issued and outstanding
shares at January 31, 1999 and 1998, respectively
(liquidation preference of $60,000 at January 31, 1999) 14,000 400,000
Common stock, $0.02 par value, 30,000,000 shares authorized and
8,393,796 and 6,474,412 shares issued and outstanding
at January 31, 1999 and 1998, respectively 168,000 130,000
Paid-in capital 7,395,000 5,434,000
(Deficit) retained earnings (2,751,000) (3,699,000)
Less treasury stock, 27,100 shares at January 31, 1999 (25,000) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,801,000 2,265,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,564,000 $ 10,337,000
============ ============
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 22
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1999 1998* 1997
-------------------------------------------------------
<S> <C> <C> <C>
CONTRACT REVENUES $ 36,828,000 $ 24,610,000 $ 16,183,000
CONTRACT COSTS 31,522,000 20,291,000 13,698,000
------------ ------------ ------------
GROSS MARGIN 5,306,000 4,319,000 2,485,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,989,000 2,789,000 2,491,000
OPTION PLAN COMPENSATION - (NON CASH) -- 863,000 --
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 2,317,000 667,000 (6,000)
OTHER INCOME (EXPENSE):
Interest expense (158,000) (220,000) (287,000)
Interest income 8,000 16,000 8,000
Other income 3,000 36,000 101,000
------------ ------------ ------------
(147,000) (168,000) (178,000)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND
DISCONTINUED OPERATIONS 2,170,000 499,000 (184,000)
INCOME TAX PROVISION (278,000) (20,000) --
MINORITY INTEREST (582,000) (102,000) --
------------ ------------ ------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATION 1,310,000 377,000 (184,000)
DISCONTINUED OPERATION:
Litigation settlement (200,000) -- --
Income (loss) from operation -- -- (505,000)
Gain on disposal -- -- 203,000
------------ ------------ ------------
(200,000) -- (302,000)
------------ ------------ ------------
NET INCOME (LOSS) $ 1,110,000 $ 377,000 $ (486,000)
============ ============ ============
UNDECLARED PREFERRED STOCK DIVIDEND REQUIREMENTS $ -- $ -- $ 37,000
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE - BASIC:
Income (loss) before discontinued operation $ 0.18 $ 0.06 $ (0.04)
Discontinued operation (0.03) -- (0.05)
------------ ------------ ------------
Net income (loss) per share $ 0.15 $ 0.06 $ (0.09)
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE - DILUTIVE
Income (loss) before discontinued operations $ 0.16 $ 0.05 $ (0.04)
Discontinued Operations (0.02) -- (0.05)
------------ ------------ ------------
Net income (loss) per share $ 0.14 $ 0.05 $ (0.09)
============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING 7,437,000 6,060,000 5,913,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 790,000 1,025,000 59,000
------------ ------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 8,227,000 7,085,000 5,972,000
============ ============ ============
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
PREFERRED (DEFICIT) TOTAL
STOCK COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
SERIES A STOCK CAPITAL STOCK EARNINGS EQUITY
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Stock option compensation* 863,000 863,000
Net Income* -- 377,000 377,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JANUARY 31, 1998* 400,000 130,000 5,434,000 -- (3,699,000) 2,265,000
Conversion of 161,338 shares of
cumulative convertible 2%
preferred stock into 710,209
shares of common stock (386,000) 14,000 534,000 (162,000) --
Issuance of 400,000 warrants 312,000 312,000
Issuance of 123,000 shares under
Employee Incentive Stock Option Plan 2,000 52,000 54,000
Exercise of stock warrants for 908,660
shares of common stock net of costs
of $12,000 18,000 917,000 935,000
Issuance of 177,515 shares in
connection with an acquisition 4,000 146,000 150,000
Purchase of 27,100 shares for the treasury (25,000) (25,000)
Net Income 1,110,000 1,110,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JANUARY 31, 1999 $ 14,000 $ 168,000 $ 7,395,000 $ (25,000) $(2,751,000) $ 4,801,000
=========== =========== =========== =========== =========== ===========
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1999 1998* 1997
----------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,110,000 $ 377,000 $ (486,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Provision for common stock issuable under options -- 863,000 --
Depreciation 415,000 311,000 367,000
Amortization 254,000 78,000 --
Minority interest (102,000) 102,000 --
Gain on sale of PDG Remediation, Inc. common stock -- -- (203,000)
Other 5,000 64,000 3,000
CHANGES IN CURRENT ASSETS AND LIABILITIES OTHER THAN CASH:
Accounts receivable 1,518,000 (3,091,000) (490,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts (333,000) (111,000) 56,000
Inventories (72,000) (20,000) (1,000)
Prepaid income taxes 165,000 17,000 1,000
Other current assets 364,000 324,000 612,000
Accounts payable (2,595,000) 1,764,000 (241,000)
Billings in excess of costs and estimated earnings on
uncompleted contracts (169,000) 207,000 28,000
Net assets of discontinued operations -- -- 489,000
Accrued liabilities (362,000) 134,000 95,000
Other (44,000) (7,000) (63,000)
----------- ----------- -----------
TOTAL ADJUSTMENTS (1,528,000) (783,000) 486,000
----------- ----------- -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 154,000 1,012,000 167,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (513,000) (543,000) (135,000)
Acquisition of business (252,000) (50,000) --
Proceeds from sale of property, plant and equipment -- 1,000 3,000
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (765,000) (592,000) (132,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt -- 1,758,000 286,000
Proceeds from exercise of stock options and warrants 989,000 192,000 --
Proceeds on sale of PDG Remediation, Inc. common stock -- -- 1,206,000
Purchase of common stock for treasury (25,000) -- --
Principal payments on debt (936,000) (1,907,000) (1,371,000)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,000 43,000 121,000
----------- ----------- -----------
Net increase (decrease) in cash and short-term investments (583,000) 463,000 156,000
Cash and short-term investments, beginning of year 892,000 429,000 273,000
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 309,000 $ 892,000 $ 429,000
=========== =========== ===========
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
FOR THE THREE YEARS ENDED JANUARY 31, 1999
NOTE 1 - BASIS OF PRESENTATION
RESTATEMENT
During the 1999 audit, the Company and its independent auditors determined that
certain option awards that previously had been accounted for in fiscal years
1998 and 1997 as fixed awards should be treated as variable awards. Under
variable award accounting, the difference between the market value of the
Company's stock as of the vesting date and the exercise price of the stock
options should be recognized as non-cash compensation expense of $863,000 for
the fiscal year ending January 31, 1998. Compensation expense under the plan in
1997 was not significant. The financial statements were restated accordingly.
Because the compensation is non cash and is based solely upon the difference
between the exercise price of the option and the share price of the Company's
Common stock on the date of vesting, the Company's cash flows and
shareholders' equity were not affected. Net income for fiscal 1998 previously
reported as $1,240,000 or $0.20 per share basic and $0.17 per share fully
diluted has been restated to $377,000 or $0.06 per share basic and $0.05 per
share fully diluted.
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 performed a $12 million asbestos abatement contract
which was completed by the end of the second quarter of fiscal 1999.
F-7
<PAGE> 26
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL PRESENTATION:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the Corporation's wholly-owned
subsidiaries.
The 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.
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.
INVENTORIES:
Inventories consisting of materials and supplies used in the completion of
contracts is stated at the lower of cost (on a first-in, first-out basis) or
market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets using the straight-line method.
INCOME TAXES:
The Corporation provides for income taxes under the liability method as required
by SFAS No. 109.
Earnings on construction contracts, for income tax purposes, are determined
using the percentage-of-completion method of accounting.
Deferred income taxes are recognized for the future tax effects of temporary
differences between financial and income tax reporting based on enacted laws and
rates.
F-8
<PAGE> 27
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 and Note 15 for settlement of shareholder
litigation.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 1999 and 1998 include $290,000 and $397,000,
respectively, of retainage receivables. For the year ended January 31, 1999, one
customer, an agency of the Commonwealth of Pennsylvania, accounted for 27.3% of
the Corporation's consolidated revenues for that year. 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.
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,
1999 1998
------------------------------------
<S> <C> <C>
Revenues earned on uncompleted contracts $ 20,221,000 $ 18,428,000
Less: billings to date 19,836,000 18,545,000
------------ ------------
Net (Under) Billings $ 385,000 $ (117,000)
============ ============
</TABLE>
Included in the accompanying consolidated balance sheets under the following
captions:
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
------------------------------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 1,058,000 $ 725,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (673,000) (842,000)
------------ ------------
Net (Under) Billings $ 385,000 $ (117,000)
============ ============
</TABLE>
F-9
<PAGE> 28
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
-----------------------------------
<S> <C> <C>
Worker's compensation $ 180,000 $ 430,000
Wages 315,000 260,000
Withheld and accrued taxes 181,000 235,000
Accrued fringe benefits 147,000 273,000
Covenants not to complete 270,000 70,000
Other 197,000 148,000
------------ ------------
Total Accrued Liabilities $ 1,290,000 $ 1,416,000
============ ============
</TABLE>
NOTE 7 - LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
-----------------------------------
<S> <C> <C>
Term loan due in monthly installments of $6,129 including
interest at 9.5% due in May 2004 $ 307,000 $ 350,000
Equipment note due in monthly installments of $8,333 plus
interest at 3.5% above the prime rate, due in August 2002 367,000 467,000
Revolving line of credit expiring on August 24, 2000 and
bearing interest at 3.5% above the prime rate 179,000 917,000
Other 37,000 92,000
------------ ------------
890,000 1,826,000
Less amount due within one year 174,000 198,000
------------ ------------
$ 716,000 $ 1,628,000
============ ============
</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, 1999, prime was 7.75%).
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, 1999, the balance on the line of credit was
$179,000 with an unused availability of $1,321,000.
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
F-10
<PAGE> 29
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.
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 $130,000. 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 2000, eliminating the
Corporation's remaining guarantee.
Maturity requirements on long-term debt aggregate $174,000 in fiscal 2000,
$340,000 in fiscal 2001, $156,000 in fiscal 2002, $129,000 in fiscal 2003,
$68,000 in fiscal 2004 and $23,000 thereafter.
The Corporation paid approximately $163,000, $223,000 and $328,000 for interest
costs during the years ended January 31, 1999, 1998 and 1997, respectively.
NOTE 8 - INCOME TAXES
At January 31, 1999, the Corporation has net operating loss carryforwards of
approximately $5,269,000 for income tax purposes which expire in years 1999
through 2011. For financial reporting purposes, a valuation allowance of
approximately $1,911,000 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 $1,056,000 during the year ended January 31, 1999.
The decrease was primarily due to the current year usage of net operating loss
deductions and adjustments to correct cumulative temporary differences for the
accounts receivable allowances and workers compensation reserve.
The significant components of the Corporation's deferred tax liabilities and
assets as of January 31, 1999 and 1998 are as follows:
[CAPTION]
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
-----------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 47,000 $ 83,000
Deferred tax assets:
Accounts receivable allowance -0- 164,000
</TABLE>
F-11
<PAGE> 30
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
-----------------------------------
<S> <C> <C>
Workers compensation reserve 83,000 183,000
Other 75,000 76,000
Net operating loss carryforwards 1,800,000 2,627,000
------------ ------------
Total deferred tax assets 1,958,000 3,050,000
Valuation allowance for deferred tax assets 1,911,000 2,967,000
------------ ------------
Net deferred tax assets 47,000 83,000
------------ ------------
Net deferred tax liabilities $ -- $ --
============ ============
</TABLE>
Significant components of the provision for income taxes (all current) are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (31,000) $ -- $ --
State 309,000 20,000 --
----------- ------------ -----------
Total income tax provision $ 278,000 $ 20,000 $ --
=========== ============ ===========
</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,
1999 1998* 1997
--------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ 539,000 $ 98,000 $ (63,000)
State income taxes, net of federal tax benefit 200,000 13,000 --
Non-deductible stock compensation expense -- 293,000 --
Limitation on utilization of net operating loss (461,000) (384,000) 63,000
----------- ----------- -----------
$ 278,000 $ 20,000 $ --
=========== =========== ===========
</TABLE>
* Restated
The Corporation paid approximately $76,000, $12,000 and $8,000 for federal and
state income taxes during the years ended January 31, 1999, 1998 and 1997,
respectively.
NOTE 9 - NOTES RECEIVABLE - OFFICERS
At January 31, 1999 and 1998, 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, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the measurement date,
no compensation expense is recognized.
F-12
<PAGE> 31
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 1,800,000 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 364,000 shares
of the Corporation's common stock were granted under the Plan issuable
related to fiscal 2000.
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 with 118,000 shares issuable related to fiscal 1999. Vesting of a
portion of the stock options was contingent upon the individual offices, and in
the case of the executive office, the Corporation, meeting pre-established
financial goals for the fiscal year. Vesting of the remaining stock options was
based upon a number of discretionary items. If the financial goals were 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.
During the 1999 audit, the Company and its independent auditors determined
that certain option awards that previously had been accounted for in fiscal
years 1998 and 1997 as fixed awards should be treated as variable awards.
Under variable award accounting, the difference between the market value of
the Company's stock as of the vesting date and the exercise price of the
stock options should be recognized as non-cash compensation expense of
$863,000 for the fiscal year ending January 31, 1998. Compensation expense
under the plan in 1997 was not significant. The financial statements were
restated accordingly. Because the compensation is non cash and is based
solely upon the difference between the exercise price of the option and the
share price of the Company's Common stock on the date of vesting, the
Company's cash flows and shareholders' equity were not affected. Net income
for fiscal 1998 previously reported as $1,240,000 or $0.20 per share basic
and $0.17 per share fully diluted has been restated to $377,000 or $0.06
per share basic and $0.05 per share fully diluted.
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, 1999.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
------------------------------------
<S> <C> <C> <C>
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
Granted 364,000 $0.87
Cancelled - Reusable (272,000) $0.36 - $0.79
Exercised (123,000) $0.36 - $0.66
-----------
OUTSTANDING AT JANUARY 31, 1999 1,431,333 $0.36 - $1.91
===========
EXERCISABLE AT JANUARY 31, 1999 1,067,333 $0.36 - $1.91
===========
</TABLE>
The weighted average life of the options outstanding at January 31, 1999 and
weighted average exercise price of the options outstanding at January 31, 1999
was 7.2 years and $0.52, respectively.
F-13
<PAGE> 32
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
1999 and 1998: risk-free interest rate of 5% and 7% in fiscal 1999 and 1998
respectively; dividend yield of 0%; volatility factors of the expected market
price of the Company's common stock of 1.04 and 0.85 in fiscal 1999 and 1998,
respectively; and a weighted-average expected life of the option of 10 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
99 98
-- --
<S> <C> <C>
Pro forma net income $ 1,222,000 $ 70,000
Pro forma earnings per share from continuing operations (basic) $ 0.16 $ 0.01
Pro forma earnings per share from continuing operations (dilutive) $ 0.15 $ 0.01
</TABLE>
The following table summarizes information with respect to non-qualified stock
options for the three years ended January 31, 1999.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
-------------------------------------
<S> <C> <C> <C>
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
No Activity -- --
------
OUTSTANDING AT JANUARY 31, 1999 20,000 $ 0.60
======
EXERCISABLE AT JANUARY 31, 1999 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, 1999, 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
252,212 shares of the Corporation's common stock at prices ranging from $0.36
per share to $1.39 per share have been granted under
F-14
<PAGE> 33
the Non-Employee Directors Plan. At January 31, 1999, options to purchase
172,212 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 Non-Employee Directors Plan as the
effect is either immaterial or non-existent.
NOTE 11 - STOCK WARRANTS
At January 31, 1999 and 1998, the Corporation had approximately 431,000 and
894,660, 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 2000 through fiscal 2004. The majority of these warrants
were issued in conjunction with shareholder relations and investment banking
agreements.
During fiscal 1999, 100,616 warrants with an exercise price of $0.50 per share,
150,000 warrants with an exercise price of $0.75 per share, 277,500 warrants
with an exercise price of $1.125 per share and 375,000 warrants at an exercise
price of $1.25 per share were exercised for 908,660 shares of the Corporation's
common stock.
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.
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, 1999
and 1998, 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 September 10, 1998 and October 20, 1997, 161,338 and 18,587 shares,
respectively, of the Corporation's Series A Preferred Stock and cumulative
dividends in arrears were converted into 710,209 and 80,544 shares,
respectively, of Common Stock. At January 31, 1999, there were 6,000 shares of
the Corporation's Series A Preferred Stock outstanding. Cumulative dividends in
arrears on the Series A Preferred Stock were approximately $7,000 at January 31,
1999.
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 - ACQUISITION
Effective November 1, 1998, the Corporation entered into an agreement (the
"Agreement") with Environmental Control & Abatement, Inc. ("EC&A"),
Environmental Remediation Services, Inc. ("ERS") collectively (the "Businesses")
and William A. Lemire ("Lemire") for the purchase of selected assets and
assumption of contracts of the Businesses. EC&A owned and operated a business
which conducted environmental remediation and asbestos abatement and ERS owned
and operated a business which conducted environmental remediation and asbestos
abatement and provides environmental consulting. The acquisitions have been
accounted for under the purchase method. The results of operations of the
acquired businesses are included in the Corporation's consolidated financial
statements from the date of acquisition.
F-15
<PAGE> 34
As consideration for the purchase, the Corporation paid the Businesses $221,000
in cash and 177,500 shares of the Corporation's Common Stock and entered into a
three-year employment agreement/covenant not-to-compete with Lemire that
provides for additional compensation in addition to an annual salary. Additional
compensation consists of 50% of the operating cash flows generated by the
Businesses for the period November 1, 1998 through October 31, 2001. The
additional compensation is payable annually to Lemire on January 31 of each
year.
Additionally, the Corporation has agreed to pay up to $50,000 to compensate the
Businesses for any decline in value of the Corporation's stock from November 9,
1998 until November 9, 1999.
The goodwill of $150,000 associated with the acquisition is being amortized on a
straight-line basis over 15 years, and the covenant not-to-compete (valued at
$500,000 at the closing) is being amortized on a straight-line basis over the
three-year life of the covenant.
The unaudited proforma condensed results of operation assume that the
acquisition of the Businesses was consummated on February 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998*
-----------------------------------
<S> <C> <C>
Revenues $ 39,706,000 $ 27,852,000
============ =============
Income before discontinued operations $ 1,282,000 $ 544,000
============ =============
Earnings per share before discontinued operations:
Basic $ 0.17 $ 0.08
============ =============
Fully diluted $ 0.15 $ 0.07
============ =============
</TABLE>
*Restated
NOTE 14 - 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,
1999 1998* 1997
--------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Income (loss) before discontinued operations $ 1,310,000 377,000 (184,000)
Preferred stock dividends (1,000) (33,000) (37,000)
----------- ----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 1,309,000 344,000 (221,000)
Effect of dilutive securities:
Preferred stock dividends 1,000 33,000 --
----------- ----------- -----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions 1,310,000 377,000 (221,000)
----------- ----------- -----------
DENOMINATOR:
Denominator for basic earnings per share--weighted average 7,437,000 6,060,000 5,913,000
shares
</TABLE>
F-16
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Effect of dilutive securities:
Employee stock options 728,000 262,000 26,000
Warrants 35,000 34,000
33,000
Convertible preferred stock 27,000 729,000 --
----------- ----------- -----------
Dilutive potential common shares 790,000 1,025,000 59,000
----------- ----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 8,227,000 7,085,000 5,972,000
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.18 $ 0.06 $ (0.04)
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.16 $ 0.05 $ (0.04)
=========== =========== ===========
</TABLE>
*RESTATED
At January 31, 1999, 1998 and 1997; 64,000, 44,000 and 310,212 options and
306,000, 738,500 and 954,660 warrants, respectively, were at prices in excess of
the average share price for the year utilized in the above earnings per share
calculation for the respective years.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases aggregated $271,000,
$221,000 and $217,000 for the years ended January 31, 1999, 1998 and 1997,
respectively. Minimum rental payments under these leases with initial or
remaining terms of one year or more at January 31, 1999 aggregated $363,000 and
payments due during the next five fiscal years are as follows: 2000 - $214,000;
2001 - $99,000; and 2002 - $44,000, 2003 - $6,000 and 2004 - $-0-.
The registrant was 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 sought 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.
On June 8, 1998, an agreement in principle to settle the litigation was reached
with the plaintiffs' attorneys. In October 1998, the Court and members of the
class approved the settlement which required that the Defendants, the registrant
and ICHOR (formerly PDGR), pay a total of $432,500 to settle the lawsuit. The
registrant's share of the settlement was $173,000. Additionally, the registrant
incurred $27,000 of legal expenses in relation to the litigation. The $200,000
expense was reflected in the fiscal 1999 financial statements as a discontinued
operations item as it relates to ICHOR which was accounted for as a discontinued
operation. The registrant paid its portion to the settlement fund in October
1998. On January 26, 1999, the Court finally approved the settlement.
NOTE 16 - QUARTERLY RESULTS (UNAUDITED)
The Company had the following results by quarter:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDING JANUARY 31, 1999
Revenues $ 13,351,000 $ 10,844,000 $ 7,148,000 $ 5,485,000 $ 36,828,000
Gross margin 1,749,000 1,588,000 831,000 1,098,000 5,266,000
Net income before income tax
and discontinued operations 581,000 678,000 65,000 264,000 1,588,000
Net income before discontinued operations 561,000 658,000 45,000 46,000 1,310,000
Net income 561,000 458,000 45,000 46,000 1,110,000
</TABLE>
F-17
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Earnings per share before discontinued operations
Basic 0.09 0.09 0.01 0.01 0.18
Diluted 0.07 0.08 0.01 0.01 0.16
Earnings per share
Basic $ 0.09 $ 0.06 $ 0.01 $ 0.01 $ 0.15
Diluted $ 0.07 $ 0.06 $ 0.01 $ 0.01 $ 0.14
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 previously reported 158,000 266,000 359,000 457,000 1,240,000
Compensation adjustment* -- -- -- (863,000) (863,000)
------------ ------------ ------------ ------------ ------------
Net income as restated $ 158,000 $ 266,000 $ 359,000 $ (406,000)* $ 377,000*
Earnings per share
Basic $ 0.03 $ 0.04 $ 0.06 $ (0.06) $ 0.06
Diluted $ 0.02 $ 0.04 $ 0.05 $ (0.06) $ 0.05
</TABLE>
*Restated for stock option plan non cash compensation adjustment of $863,000
which results in a decrease in net income and a compensating increase in paid in
capital. This had no effect upon total stockholders' equity (See Note 1).
F-18
<PAGE> 37
PDG ENVIRONMENTAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS(1) OF YEAR
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
1999
Allowance for doubtful accounts $ 48,000 $ -- $ 48,000 $ --
============== ============== =============== ==============
1998
Allowance for doubtful accounts $ 47,000 $ 48,000 $ 47,000 $ 48,000
============== ============== =============== ==============
1997
Allowance for doubtful accounts $ 44,000 $ 3,000 $ -- $ 47,000
============== ============== =============== ==============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
F-19
<PAGE> 1
Exhibit 10.15
M.H. MEYERSON & CO., INC.
FOUNDED 1960
BROKERS & DEALERS IN SECURITIES
UNDERWRITERS
NEWPORT OFFICE TOWER
525 WASHINGTON BLVD. o P.O. BOX 260 o JERSEY CITY, NJ 07303-0260
201-459-9500 o 800-888-8118 o FAX 201-459-9521 o www.mhmeyerson.com
Mr. John C. Regan
Chairman
Chief Executive Officer
PDG ENVIRONMENTAL, INC.
300 Oxford Drive
Monroeville, PA 15146-2343
Dear Mr. Regan:
THIS AGREEMENT (the "AGREEMENT") is made as of January 11, 1999 between
PDG Environmental, Inc. ("PDG") Bulletin Board Symbol: "PDGE" and M.H. Meyerson
& Co., Inc. ("MEYERSON") Nasdaq NMS Symbol: "MHMY".
In consideration of the mutual covenants contained herein and intending to
be legally bound thereby, PDG and MEYERSON hereby agree as follows:
1. MEYERSON will perform investment banking services, on a non-exclusive
basis, for PDG on the terms set forth below for a period of five years
from the date hereof. Such services will be performed on a best
efforts basis and will include, without limitation, assistance to PDG
in mergers, acquisitions, and internal capital structuring and the
placement of new debt and equity issues of PDG, all with the objective
of accomplishing PDG's business and financial goals. In each instance,
MEYERSON shall endeavor, subject to market conditions, to assist PDG
in identifying corporate candidates for mergers and acquisitions and
sources of private and institutional funds; to provide planning,
structuring, strategic and other advisory services to PDG; and to
assist in negotiations on behalf of PDG. MEYERSON will have the option
to perform all financings to be done by PDG for as long as this
AGREEMENT is in effect. In each instance, MEYERSON will render such
services as to which PDG and MEYERSON mutually agree and MEYERSON will
exert its best efforts to accomplish the goals agreed to by MEYERSON
and PDG.
2. In connection with the performance of this AGREEMENT, MEYERSON and PDG
shall comply with all applicable laws and regulations, including,
without limitation, those of the National Association of Securities
Dealers, Inc. and the Securities and Exchange Commission.
3. In consideration of the services previously rendered and to be
rendered by MEYERSON hereunder, MEYERSON is hereby granted five-year
Warrants to purchase, a total of 250,000 shares of Common Stock of
PDG, with demand and piggy back registration rights as set forth in
paragraph 6 below. Such Warrants ("MEYERSON Warrants") may be
exercised at any time from January 11, 1999 to and including January
11, 2004. The MEYERSON Warrants shall vest and become irrevocable as
follows: 75,000 warrants at a price of $1.20 per share immediately
upon the signing of this AGREEMENT, 75,000 Warrants at a price of
$1.50 per share six months after the signing of this agreement; and
the remaining 100,000 Warrants at a price of $2.00 per share
<PAGE> 2
one year after the signing of this AGREEMENT. At any time after one
year from the date of this AGREEMENT, MEYERSON shall have a cashless
exercise option to exercise the Warrants, in MEYERSON's discretion, by
surrendering shares of common stock of PDG, including shares issuable
pursuant to the exercise of the Warrants, having a fair market value
equal to the exercise price of the Warrants being exercised. The fair
market value per share of common stock on any date shall be deemed to
be the average of the daily closing prices for the three consecutive
trading days immediately preceding the date in question. The
presentation of a copy of this AGREEMENT by MEYERSON, together with a
request that part or all of the Warrant be exercised and a direction
that the appropriate number of shares be withheld to pay the exercise
price, shall be deemed to be the surrender of such number of shares
for purposes of exercising the cashless exercise option.
4. In the event that PDG fails to honor the exercise by MEYERSON of any
vested warrants as set forth herein, by failing to deliver the
certificate(s) for the underlying shares of common stock to MEYERSON
within 10 days after such exercise, and provided that failure to
delivery is the direct result of PDG's actions or inactions, MEYERSON
may take legal action, without further notice to PDG to obtain such
underlying shares, and PDG agrees to pay all damages, costs and
expenses incurred by MEYERSON, including reasonable attorneys' fees.
5. If PDG should, at any time, or from time to time hereafter, effect a
stock split, a reverse stock split, a business combination, a
recapitalization or merger, the terms of the MEYERSON Warrants shall
be proportionally adjusted to prevent the dilution or enlargement of
the rights of the MEYERSON interest.
6. During the period from January 11, 2000 to January 11, 2004, the
holders of at least 51% of: (i) the MEYERSON Warrants not then
exercised; and (ii) the shares previously issued upon exercise of any
of the MEYERSON Warrants (hereinafter, collectively, the "MEYERSON
EQUITY",) may demand, on one occasion only, that PDG promptly file a
Registration Statement under the Securities Act of 1933, as amended
("ACT"), to permit a public offering of the shares of Common Stock
issued and issuable pursuant to exercise of the MEYERSON Warrants (the
"MEYERSON SHARES"). Additionally, if PDG, during the period from
January 11, 2000 to January 11, 2004, files a Registration Statement
covering the sale of any of PDG's common stock, then PDG, on each such
occasion, at the request of the holders of at least 51% of the shares
and warrants constituting the MEYERSON EQUITY, shall include in any
such Registration Statement, at PDG's expense, the MEYERSON SHARES,
provided that, if the sale of securities by PDG is being made through
an underwriter and the underwriter objects to inclusion of the
MEYERSON SHARES in the Registration Statement, the MEYERSON SHARES
shall not be so included in the Registration Statement or in any
registration statement filed within 90 days after the effective date
of the underwritten Registration Statement. MEYERSON will assume the
cost of the company's registration statement for the Warrants and
underlining shares with our corporate counsel. PDG will assume the
legal expenses of reviewing the same along with any expenses incurred
with preparation of the financials.
7. The obligation of PDG to register the MEYERSON SHARES, including the
shares issuable upon exercise of the MEYERSON Warrants,pursuant to the
demand or the piggy back registration rights set forth in paragraph 6
above, shall be without regard to whether the MEYERSON Warrants have
been or will be exercised.
8. PDG agrees that, for a period of three (3) years from the date of this
AGREEMENT, PDG will not utilize the registration exemption set forth
in Regulation S under the ACT, nor issue any security with a downward
ratchet dilution program without the consent of MEYERSON, which
2
<PAGE> 3
consent will not be unreasonably withheld.
9. This AGREEMENT constitutes the entire Warrant Agreement between the
parties and when a copy hereof is presented to PDG's transfer agent,
together with a request that all or part of the MEYERSON Warrant be
exercised and a certified check in the proper amount of a direction,
pursuant to the cashless exercise option, that shares be withheld to
pay for the exercise, the certificates for the appropriate number of
shares of Common Stock shall be promptly issued.
10. Upon the execution of this AGREEMENT, PDG shall include in its next
annual report and filings the highlights and terms of this investment
banking AGREEMENT.
11. Upon the signing of this AGREEMENT, PDG shall pay MEYERSON $25,000 as
a non-accountable and non-refundable expense allowance for due
diligence and general compliance review. MEYERSON shall be entitled to
additional compensation, to be negotiated between MEYERSON and PDG,
arising out of any transactions that are proposed or executed by
MEYERSON and consummated by PDG, or are executed by MEYERSON at PDG's
request, during the term of this AGREEMENT to the extent that such
compensation is normal and ordinary for such transactions. In
addition, MEYERSON shall be reimbursed by PDG for any reasonable
out-of-pocket expenses that MEYERSON may incur in connection with
rendering any service to or on behalf of PDG that is approved, in
writing, in advance by PDG's Chief Executive Officer.
12. PDG agrees to indemnify and hold MEYERSON and its directors, officers
and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses arising out of any action or
cause of action brought against MEYERSON by any third party in
connection with MEYERSON's rendering services under this AGREEMENT
except for any losses, claims, liabilities, costs or expenses
resulting from any violation by MEYERSON of applicable laws and
regulations including, without limitations, those of the National
Association of Securities Dealers, Inc. and the Securities and
Exchange Commission or any state's Securities and Exchange Commission
or from any act of MEYERSON involving willful misconduct and except
that PDG shall not be liable for any amount paid in settlement of any
claim that is settled without its prior written consent.
13. MEYERSON agrees to indemnify and hold PDG and its directors, officers
and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses arising out of any action or
cause of action brought against PDG in connection with MEYERSON's acts
or omissions while rendering services under this AGREEMENT, including
any losses, claims, damages, liabilities, costs or expenses resulting
from any violation by MEYERSON of applicable laws and regulations
including, without limitation, those of National Association of
Securities Dealers, Inc. and the Securities and Exchange Commission or
any state's Securities and Exchange Commission or from any act from
MEYERSON involving willful misconduct and except that MEYERSON shall
not be liable for any paid in settlement of any claim that is settled
without its prior written consent.
14. Within 90 days of this AGREEMENT, a representative of MEYERSON will
visit the corporate headquarters of PDG. PDG will submit to MEYERSON a
current business plan setting forth how PDG plans to proceed over the
next two (2) years.
15. Nothing contained in this AGREEMENT shall be construed to constitute
MEYERSON as a partner, employee, or agent of PDG; nor shall either
party have any authority to bind the other in any respect, it being
intended that MEYERSON is, and shall remain an independent contractor.
3
<PAGE> 4
16. This AGREEMENT may not be assigned by either party hereto, except that
MEYERSON may assign any or all of its Warrants to its employees, and
shall be interpreted in accordance with the laws of the State of
Delaware, and shall be binding upon the successors of the parties.
Either party may terminate this AGREEMENT at any time, however,
legally vested Warrants will remain with MEYERSON.
17. If any paragraph, sentence, clause or phrase of this AGREEMENT is for
any reason declared to be illegal, invalid, unconstitutional, void or
unenforceable, all other paragraphs, sentences, clauses or phrases
hereof not so held shall be and remain in full force and effect.
18. None of the terms of this AGREEMENT shall be deemed to be waived or
modified except by an express agreement in writing signed by the party
against whom enforcement of such waiver or modification is sought. The
failure of either party at any time to require performance by the
other party of any provision hereof shall, in no way, affect the full
right to require such performance at any time thereafter. Nor shall
the waiver by either party of a breach of any provision hereof be
taken or held to be a waiver of any succeeding breach of such
provision or as a waiver of the provision itself.
19. Any dispute, claim or controversy arising out of or relating to this
AGREEMENT, or the breach thereof, shall be settled by arbitration in
Jersey City, New Jersey, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The parties hereto
agree that they will abide by and perform any award rendered by the
arbitrator(s) and that judgment upon any such award may be entered in
any Court, state or federal, having jurisdiction over the party
against whom the judgment is being entered. Any arbitration demand,
summons, complaint, other process, notice of motion, or other
application to an arbitration panel, Court or Judge, and any
arbitration award or judgment may be served upon any party hereto by
registered or certified mail, or by personal service, provided a
reasonable time for appearance or answer is allowed.
20. For purposes of compliance with laws pertaining to potential inside
information being distributed unauthorized to anyone, all
communications regarding PDG's confidential information should only be
directed to Martin H. Meyerson, Chairman, Michael Silvestri,
President, or Joseph Messina, Vice President, Compliance. If
information is being faxed, our confidential compliance fax number is
(201)459-9534 for communication use.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of
the day and year set forth above.
M.H. MEYERSON & CO., INC. PDG ENVIRONMENTAL, INC.
By: /s/ MICHAEL SILVESTRI By: /s/ JOHN C. REGAN
---------------------- -------------------
Michael Silvestri John C. Regan
President Chairman
4
<PAGE> 1
Exhibit 21
<TABLE>
<CAPTION>
Name of Subsidiary State of Formation
- ------------------ ------------------
<S> <C>
Project Development Group, Inc. PA
PDG, Inc. PA
Enviro-Tech Abatement Services Co. NC
PDG/Philip, L.P. PA
PDG of Delaware, Inc.* DE
DPI Energy, Inc.* PA
Asbestemps, Inc.* DE
Applied Environmental Technology, Inc.* DE
Applied Consulting & Technical Services, Inc.* DE
</TABLE>
*Inactive subsidiaries
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
pertaining to the PDG Environmental, Inc. Amended and Restated Incentive Stock
Option Plan as of June 25, 1991 (Form S-8 No. 33-40698); PDG Environmental, Inc.
1990 Stock Option Plan for Employee Directors (Form S-8 No. 33-40699); PDG
Environmental, Inc. 1990 Stock Option Plan for Non-Employee Directors (Form S-8
No. 33-40700), PDG Environmental, Inc. Consultant Compensation Plan (Form S-8
No. 333-08673), PDG Environmental, Inc. Consultant Compensation Plan (Form S-8
No. 333-56341) and in the related Prospectuses of our report dated April 1,
1999, with respect to the consolidated financial statements and schedule of PDG
Environmental, Inc. included in the Annual Report (Form 10-KSB) for the year
ended January 31, 1999.
/s/ Ernst & Young, LLP
Pittsburgh, Pennsylvania
May 12, 1999
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG
ENVIRONMENTAL, INC., a Delaware Corporation, does make, constitute and appoint
JOHN C. REGAN, with full power and authority his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead in any and
all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form
10-KSB for the period ended January 31, 1999, and to file such Annual Report, so
signed, with all exhibits thereto, with the Securities and Exchange Commission,
hereby further granting unto said attorney-in-fact full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do in person; the undersigned hereby ratifies and confirms all that said
attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 16th day of April, 1999.
/s/ Richard A. Bendis (SEAL)
- --------------------------------------------
Richard A. Bendis, Director
<PAGE> 2
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG
ENVIRONMENTAL, INC., a Delaware Corporation, does make, constitute and appoint
JOHN C. REGAN, with full power and authority his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead in any and
all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form
10-KSB for the period ended January 31, 1999, and to file such Annual Report, so
signed, with all exhibits thereto, with the Securities and Exchange Commission,
hereby further granting unto said attorney-in-fact full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do in person; the undersigned hereby ratifies and confirms all that said
attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 16th day of April, 1999.
/s/ Edgar Berkey (SEAL)
- --------------------------------------------
Edgar Berkey, Director
<PAGE> 3
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG
ENVIRONMENTAL, INC., a Delaware Corporation, does make, constitute and appoint
JOHN C. REGAN, with full power and authority his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead in any and
all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form
10-KSB for the period ended January 31, 1999, and to file such Annual Report, so
signed, with all exhibits thereto, with the Securities and Exchange Commission,
hereby further granting unto said attorney-in-fact full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do in person; the undersigned hereby ratifies and confirms all that said
attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 16th day of April, 1999.
/s/ Edwin J. Kilpela (SEAL)
- --------------------------------------------
Edwin J. Kilpela, Director
<PAGE> 4
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENTS, that the undersigned director of PDG
ENVIRONMENTAL, INC., a Delaware Corporation, does make, constitute and appoint
JOHN C. REGAN, with full power and authority his true and lawful
attorney-in-fact and agent, for him and in his name, place and stead in any and
all capacities, to sign the Annual Report of PDG Environmental, Inc. on Form
10-KSB for the period ended January 31, 1999, and to file such Annual Report, so
signed, with all exhibits thereto, with the Securities and Exchange Commission,
hereby further granting unto said attorney-in-fact full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do in person; the undersigned hereby ratifies and confirms all that said
attorney and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
this 16th day of April, 1999.
/s/ James D. Chiafullo (SEAL)
- --------------------------------------------
James D. Chiafullo, Director
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1999 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1999.
</LEGEND>
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0
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1998 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1998.
</LEGEND>
<RESTATED>
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<S> <C>
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0
400,000
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