<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 9, 1998
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in this charter)
Delaware 0-13667 22-2677298
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
300 Oxford Drive, Monroeville, PA 15146
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: (412) 856-2200
<PAGE> 2
ITEM 2 - ACQUISITION OR DISPOSITION OF ASSETS
Effective November 1, 1998, PDG Environmental, Inc. and subsidiaries (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 provides
environmental consulting.
As consideration for the purchase, the Corporation paid the Businesses $221,000
in cash and 177,500 shares of the Corporation and entered into a three-year
employment agreement 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.
ITEM 7 - FINANCIAL STATEMENTS & EXHIBITS
(a) Financial Statements of Businesses Acquired
(b) Pro Forma Financial Information:
(c) Exhibits
(1) Asset Purchase Agreement, dated 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. filed on previous Form 8-K dated
November 20, 1998.
2
<PAGE> 3
PRO FORMA CONSOLIDATED FINANCIAL DATA
OF PDG ENVIRONMENTAL, INC. ("PDG") AND
ENVIRONMENTAL CONTROL & ABATEMENT, INC. ("ECA")
AND ENVIRONMENTAL REMEDIATION SERVICES, INC. ("ERS")
The unaudited pro forma condensed combined financial data as of October 31, 1998
and for the nine months ended October 31, 1998 and the twelve months ended
January 31, 1998 give effect to the acquisition by PDG of certain assets of ECA
and ERS ("the Acquisition"), accounted for under the "purchase" accounting
method. The unaudited pro forma condensed combined financial data is based upon
the historical consolidated financial statements of PDG Environmental, Inc.
("PDG") and Environmental Control & Abatement, Inc. ("ECA") and Environmental
Remediation Services, Inc. ("ERS") under the assumptions and adjustments set
forth in the notes to such proforma financial data.
The unaudited pro forma condensed combined balance sheet data assumes that the
Acquisition was consummated on October 31, 1998; the unaudited pro forma
condensed combined statement of operations for the nine months ended October 31,
1998 assumes that the Acquisition was consummated on February 1, 1998; and the
unaudited pro forma condensed combined statement of operations for the fiscal
year ended January 31, 1998 assumes that the Merger was consummated on February
1, 1997. The fiscal year of PDG ends on January 31 and the fiscal year of ECA
and ERS ends on December 31. For purposes of presenting the unaudited pro forma
condensed combined statement of operations data, the historical unaudited
financial statements of ECA and ERS for the year ended December 31, 1997 were
combined with the historical financial statements of PDG for the year ended
January 31, 1998. The historical financial statements of PDG for the nine months
ended October 31, 1998 have been combined with the audited historical financial
statements of ECA and ERS for the nine months ended September 30, 1998.
For purposes of presenting the unaudited pro forma condensed combined balance
sheet data, ECA and ERS assets and liabilities have been recorded at their
estimated fair market values and the excess purchase price has been assigned to
goodwill, which is being amortized over a 15-year period. The fair value of ECA
and ERS assets and liabilities are based on preliminary estimates. Upon
completion of a detailed review of assets and liabilities, including
intangibles, certain adjustments may be required to finalize the purchase
accounting adjustments. The unaudited pro forma condensed combined statement of
operation data excludes any benefits that may result due to synergies that may
be derived and the elimination of duplicative efforts in connection with the
acquisition of ECA and ERS.
The unaudited pro forma condensed combined financial statement data may not be
indicative of the results that actually would have occurred if the acquisition
of ECA and ERS had been consummated on the dates indicated or which may be
obtained in the future. The unaudited pro forma condensed combined financial
statement data should be read in conjunction with the historical consolidated
financial statements of PDG, ECA and ERS.
3
<PAGE> 4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA
OCTOBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
PDG ECA ERS COMBINED
10/31/98 9/30/98 9/30/98 ADJUSTMENTS 10/31/98
-------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash 624,000 7,000 196,000 (827,000)(A)(B)(F)(G) 0
Receivables 5,570,000 638,000 39,000 6,247,000
Underbillings 1,066,000 152,000 52,000 1,270,000
Inventory 231,000 25,000 0 256,000
Other current assets 509,000 0 0 509,000
--------- ------- ------- -------- ----------
8,000,000 822,000 287,000 (827,000) 8,282,000
Net fixed assets 1,120,000 133,000 71,000 0 1,324,000
Other assets 415,000 30,000 (30,000) 650,000 (C)(D) 1,065,000
--------- ------- ------- -------- ----------
9,535,000 985,000 328,000 (177,000) 10,671,000
========= ======= ======= ======== ==========
Payables 1,956,000 186,000 10,000 2,152,000
Line of credit 0 128,000 0 108,000 (G) 236,000
Accrued liabilities 1,164,000 8,000 30,000 1,202,000
Overbillings 796,000 0 9,000 805,000
Current portion of debt 180,000 43,000 26,000 (69,000)(A) 180,000
--------- ------- ------- -------- ----------
4,096,000 365,000 75,000 39,000 4,575,000
Term debt 577,000 40,000 26,000 (66,000)(A) 577,000
Other long-term liabilities 140,000 7,000 0 500,000 (D) 647,000
Minority interest 239,000 0 0 239,000
Preferred stock 14,000 0 0 14,000
Common stock 164,000 21,000 1,000 (19,000)(C)(E) 167,000
Paid in capital 6,239,000 0 0 147,000 (C)(E) 6,386,000
Treasury stock 0 (250,000) 0 250,000 (E) 0
Deficit (1,934,000) 802,000 226,000 (1,028,000)(E) (1,934,000)
--------- ------- ------- -------- ----------
4,483,000 573,000 227,000 (650,000) 4,633,000
--------- ------- ------- -------- ----------
9,535,000 985,000 328,000 (177,000) 10,671,000
========= ======= ======= ======== ==========
</TABLE>
(A) Payment of amounts due seller's financial institutions related to equipment
financing ($135,000).
(B) Represents cash payment to seller ($90,000).
(C) Represents issuance of 177,517 shares of PDG stock (value $150,000) with
offsetting goodwill.
(D) Estimated amount of 3-year earnout payable to Seller ($500,000) with offset
to covenant not to complete.
(E) Represents the elimination of ECA's and ERS's historic equity accounts.
(F) Represents cash required by PDG to fund build up of ECA & ERS working
capital ($710,000) exclusive of inventory purchased from Seller.
(G) Represents borrowing on PDG's line of credit to fund working capital
($108,000).
4
<PAGE> 5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA
YEAR ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
PDG ECA ERS COMBINED
1/31/98 12/31/97 12/31/97 ADJUSTMENTS 1/31/98
------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Contract revenues 24,610,000 2,478,000 764,000 -- 27,852,000
Contract costs 20,291,000 1,624,000 554,000 -- 22,469,000
--------- ------- ------ -------- ---------
Gross margin 4,319,000 854,000 210,000 0 5,383,000
Selling general and
administrative expenses 2,789,000 583,000 113,000 177,000 (A) 3,682,000
--------- ------- ------ -------- ---------
Income from operations 1,530,000 271,000 97,000 (177,000) 1,721,000
Other income (expenses)
Interest expense (220,000) (21,000) 0 7,000 (B) (234,000)
Interest income 16,000 3,000 0 19,000
Other income 36,000 0 0 -- 36,000
--------- ------- ------ -------- ---------
(168,000) (18,000) 0 7,000 (179,000)
--------- ------- ------ -------- ---------
Income before income taxes 1,362,000 253,000 97,000 (170,000) 1,542,000
Income tax provisions (20,000) (45,000) (9,000) 51,000 (C) (23,000)
Minority interest (102,000) 0 0 -- (102,000)
--------- ------- ------ -------- ---------
Net income 1,240,000 208,000 88,000 (119,000) 1,417,000
========= ======= ====== ======== =========
Basic earnings per share $0.20 $0.23
========= =========
Fully diluted earnings per
share $0.17 $0.19
========= =========
Weighted average shares
outstanding 7,220,000 178,000 (D) 7,398,000
========= ======== =========
</TABLE>
(A) Represents amortization of covenant not to complete over three years
($167,000/year) and goodwill over fifteen years ($10,000/year.)
(B) Represents elimination of initial expense as all ECA and ERS debt was paid
off at closing net of interest costs on $128,000 line of credit borrowing
($14,000).
(C) Represents adjustment to income taxes to reflect PDG's utilization of
Federal and State net operating loss carryforwards to offset income tax
liabilities.
(D) Reflects 177,517 shares of PDGE stock issued to owner of ECA and ERS.
5
<PAGE> 6
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA
NINE MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
PDG ECA ERS COMBINED
10/31/98 9/30/98 9/30/98 ADJUSTMENTS 1/31/98
-------- ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Contract revenues 31,343,000 2,327,000 551,000 -- 34,221,000
Contract costs 27,175,000 1,819,000 332,000 -- 29,326,000
---------- --------- ------- ------- ----------
Gross margin 4,168,000 508,000 219,000 0 4,895,000
Selling general and
administrative expenses 2,157,000 475,000 92,000 133,000 (A) 2,857,000
---------- --------- ------- ------- ----------
Income from operations 2,011,000 33,000 127,000 (133,000) 2,038,000
Other income (expenses)
Interest expense (121,000) (12,000) 0 -- (B) (133,000)
Interest income 6,000 1,000 0 -- 7,000
Other income 4,000 0 0 -- 4,000
---------- --------- ------- ------- ----------
(111,000) (11,000) 0 (122,000)
---------- --------- ------- ------- ----------
Income before income taxes 1,900,000 22,000 127,000 (133,000) 1,916,000
Income tax provisions (60,000) (5,000) (38,000) 43,000 (C) (60,000)
Minority interest (576,000) 0 0 (576,000)
---------- --------- ------- ------- ----------
Net income from continuing
operations 1,264,000 17,000 89,000 (90,000) 1,280,000
========== ========= ======= ======= =========
Basic earnings per share $0.18 $0.17
========== ==========
Fully diluted earnings per
share $0.16 $0.16
========== ==========
Weighted average shares
outstanding 8,037,000 178,000 (D) 8,215,000
========== ======= ==========
</TABLE>
(A) Represents amortization of covenant not to complete over three years
($167,000/year) and goodwill over fifteen years ($10,000/year.)
(B) Represents elimination of interest expense as all ECA and ERS debt was paid
off at closing net of interest cost on $128,000 line of credit borrowings
($11,000).
(C) Represents adjustment to income taxes to reflect PDG's utilization of
Federal and State net operating loss carryforwards to offset income tax
liabilities.
(D) Reflects 177,517 shares of PDGE stock issued to owner of ECA and ERS.
6
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/ JOHN C. REGAN
------------------------------------
John C. Regan
Chairman and Chief Executive Officer
Date: January 19, 1999
7
<PAGE> 8
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
<PAGE> 9
ALAN FRIEDLAND CPA, PA
9900 York Road
Cockeysville, MD 21030
Tel: (410) 667-8222
Fax: (410) 667-8224
To the Board of Directors and Stockholders of
Environmental Control & Abatement, Inc.
I have audited the accompanying balance sheet of Environmental Control &
Abatement, Inc. as of September 30, 1998 and the related statements of
operations, retained earnings, and cash flows for the nine months then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Environmental Control & Abatement,
Inc. as of September 30, 1998, and the results of its operations and its cash
flows for the nine months then ended in conformity with generally accepted
accounting principles.
/s/ Alan Friedland, CPA
- ------------------------------------
Firms's Signature
Baltimore, Maryland
January 5, 1999
<PAGE> 10
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Assets
<S> <C>
CURRENT ASSETS:
Cash $ 6,761
Receivable:
Current 638,381
Inventory 24,734
Costs and estimated earnings in excess of billings 152,200
Deposits 425
---------
TOTAL CURRENT ASSETS 822,501
Due from affiliate 29,807
PROPERTY AND EQUIPMENT, AT COST
Construction equipment and vehicles 307,453
Furniture and fixtures 41,882
Leasehold Improvements 4,188
---------
353,523
Less accumulated depreciation (220,573)
---------
PROPERTY AND EQUIPMENT, NET 132,950
---------
TOTAL ASSETS 985,258
=========
</TABLE>
See accompanying notes to financial statements
<PAGE> 11
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 186,390
Line of credit 127,464
Accrued expenses 7,306
Billings in excess of cost and estimated earnings -0-
Income Taxes 484
Short-term portion of Notes payable 43,302
---------
TOTAL CURRENT LIABILITIES 364,946
NON-CURRENT LIABILITIES
Long-term debt 40,295
Deferred income taxes 6,967
---------
47,262
---------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; authorized 30,000 shares;
issued and outstanding 21,000 shares 21,000
Retained earnings 802,050
Less treasury stock (250,000)
---------
TOTAL STOCKHOLDER'S EQUITY 573,050
---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 985,258
=========
</TABLE>
See accompanying notes to financial statements
<PAGE> 12
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
CONTRACT REVENUES $2,326,527
CONTRACT COST 1,818,605
----------
GROSS PROFIT ON CONTRACTS 507,922
GENERAL AND ADMINISTRATIVE EXPENSES 475,180
----------
NET INCOME FROM OPERATIONS 32,742
Other Income (expense)
Interest expense (11,961)
Interest income and discounts earned 1,303
----------
Total other income (expense) (10,658)
----------
Income before taxes 22,084
Income taxes 5,284
----------
NET INCOME 16,800
Retained Earnings, December 31, 1997 785,250
----------
Retained Earnings, September 30, 1998 802,050
==========
</TABLE>
See the accompanying notes to financial statements
<PAGE> 13
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATION ACTIVITIES:
NET INCOME $ 16,800
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
USED IN OPERATION ACTIVITIES:
Depreciation 31,858
---------
48,658
CHANGE IN ASSETS AND LIABILITIES:
Increase in accounts receivable (92,358)
Decrease in inventory 43,003
Decrease in deposits 195
Decrease in deferred taxes (45,638)
Increase in accounts payable 34,537
Decrease in accrued expenses (16,801)
Decrease due from affiliates 61,835
Decrease in billings in excess of costs (7,406)
Increase in costs in excess of billings (103,373)
---------
NET CASH USED IN OPERATING ACTIVITIES (77,348)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (65,988)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principle payments of long-term debt (17,084)
Increase in line of credit 43,000
---------
NET CASH USED IN FINANCING ACTIVITIES 25,916
---------
DECREASE IN CASH (117,420)
CASH, December 31, 1997 124,181
---------
CASH, September 30, 1998 6,761
=========
</TABLE>
See the accompanying notes to financial statements
<PAGE> 14
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NOTE 1 - Organization
------------
NATURE OF BUSINESS
The Company is an environmental contractor and management firm. Its
activities include removal or containment of asbestos, lead and other
contaminated materials, including related demolition, dismantling and
construction. The work is performed under fixed-price contracts often
modified by incentive and penalty provisions, and time and material
contracts. These contracts are undertaken by the Company alone or in
partnership with other contractors through joint ventures. The Company
provides services to commercial, industrial, and institutional accounts
located throughout the United States. The Company does not normally
find it necessary to file liens on projects. The Company currently has
two office locations. One in St. Louis, Missouri and one in Chicago.
The record-keeping is centralized in the St.Louis office.
NOTE 2 - Summary of Significant Accounting Policies
------------------------------------------
REVENUE AND COST RECOGNITION
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of
construction costs incurred to date to estimated total construction
costs for each contract. Revenues from time and material contracts are
recognized on the basis of revenues billed and costs incurred during
the period.
Contracts costs include all direct materials, labor, subcontract and
other direct and indirect costs related to contract performance, such
as indirect labor, supplies, tools, repairs and depreciation costs.
Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are
made 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 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.
INVENTORY PRICING
Inventories are stated at the lower of cost of market. Cost is
determined using the FIFO (first-in, first-out) method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated over the
estimated useful life of each asset. Annual depreciation is primarily
computed using the straight-line method.
INCOME TAXES
The Company reports income for income tax purposes using the accrual
method of accounting and percentage completion in accounting for the
recognition of contract revenues. Under the percentage complete
recognition of revenues, revenues are measured by the percentage of
construction costs for each contract.
<PAGE> 15
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company follows the practice of writing off uncollectible accounts
as they are incurred. There is no allowance for uncollectible accounts
reflected in the balance sheet. Company management is of the opinion
that no allowance is necessary.
NOTE 3 - Uncompleted contracts
---------------------
Costs, estimated earnings, and billing on uncompleted contracts are
summarized as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $ 912,669
Estimated earnings 118,639
----------
1,031,308
Billing to date 879,108
----------
152,200
==========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts 152,200
Billings in excess of costs and estimated earnings
on uncompleted contracts -0-
----------
$ 152,200
==========
</TABLE>
NOTE 4 - Related Party Transactions
--------------------------
The Company has advanced $29,807 to an affiliated entity. The amount
advanced to the affiliated entity consists primarily of a monthly
charge for office expense, overhead, and rental charges on equipment.
An allocation of overhead expenses was charged to the affiliate at
period end. This amount is expected to be paid by the affiliate within
one year.
<PAGE> 16
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NOTE 5 - Line of Credit
--------------
This company currently has a line of credit in the amount of $200,000
with Mercantile Bank. The amount borrowed was $127,464. The interest is
calculated monthly at the index rate plus 1 %, the current rate is
9.5%. The loan is secured by inventory, property and equipment,
accounts receivable and general tangibles. The agreement is guaranteed
by the sole stockholder of the company.
NOTE 6 - Notes Payable
-------------
Notes payable consists of the following:
<TABLE>
<S> <C>
Installment contracts due to banks bearing interest at rates
ranging from 7.99% to 9.15%, collateralized by automobiles
and trucks, with monthly payments ranging form
$562 to $635 through August 16, 2001 $21,698
Note payable to Mercantile Bank bearing interest at 9.5%,
collateralized by equipment, with monthly payments
through June 10, 2000. 61,899
-------
83,597
Less current portion 13,975
-------
Long-term debt, less current portion $69,622
=======
Principle payments on notes payable are due as follows:
Year ending December 31
1998 $11,533
1999 43,525
2000 24,799
2001 3,740
-------
$83,597
=======
</TABLE>
NOTE 7 - Income Taxes
------------
The liability for income taxes consists of the following:
<TABLE>
<S> <C>
Deferred:
future depreciation 6,967
Current year liability 484
-------
Net liability for income taxes $ 7,451
=======
</TABLE>
The liability for deferred income taxes arises from the temporary
differences between the tax basis of assets and liabilities, and their
reported amounts in the financial statements.
<PAGE> 17
ENVIRONMENTAL CONTROL & ABATEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NOTE 8 - Leases
------
The Company leases office space from the stockholder under a one-year
renewable lease agreement. The Company pays monthly rent on both the
Missouri and Chicago offices. The rents are $2,238 and $1,400,
respectively.
<PAGE> 18
ENVIRONMENTAL REMEDIATION SERVICES, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
<PAGE> 19
ALAN FRIEDLAND CPA, PA
9900 York Road
Cockeysville, MD 21030
Tel: (410) 667-8222
Fax: (410) 667-8224
To the Board of Directors and Stockholders of
Environmental Remediation Services, Inc.
I have audited the accompanying balance sheet of Environmental Remediation
Services, Inc. as of September 30, 1998 and the related statements of
operations, retained earnings, and cash flows for the nine months then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Environmental Remediation Services,
Inc. as of September 30, 1998, and the results of its operations and its cash
flows for the nine months then ended in conformity with generally accepted
accounting principles.
/s/ Alan Friedland, CPA
- ------------------------------------
Firms's Signature
Baltimore, Maryland
January 5, 1999
<PAGE> 20
ENVIRONMENTAL REMEDIATION SERVICES, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
Assets
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $195,465
Costs in excess of billings 52,332
Accounts receivable 38,873
--------
TOTAL CURRENT ASSETS 286,670
PROPERTY AND EQUIPMENT, AT COST
Equipment, furniture, and fixtures 88,968
Less accumulated depreciation (18,226)
--------
PROPERTY AND EQUIPMENT, NET 70,742
--------
TOTAL ASSETS 357,412
========
</TABLE>
See accompanying notes to financial statements
<PAGE> 21
ENVIRONMENTAL REMEDIATION SERVICES, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,675
Accrued expenses (2,558)
Due to affiliates 29,807
Taxes payable 33,049
Billings in excess of costs and estimated earnings 9,090
Short-term portion of Notes payable 26,040
--------
TOTAL CURRENT LIABILITIES 105,103
LONG-TERM DEBT 25,670
--------
TOTAL LIABILITIES 130,773
--------
STOCKHOLDER'S EQUITY:
Common stock 500
Retained earnings 226,139
--------
TOTAL STOCKHOLDER'S EQUITY 226,639
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 357,412
========
</TABLE>
See accompanying notes to financial statements
<PAGE> 22
ENVIRONMENTAL REMEDIATION SERVICES, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
CONTRACT REVENUES $551,392
CONTRACT COST 332,546
--------
GROSS PROFIT ON CONTRACTS 218,846
GENERAL AND ADMINISTRATIVE EXPENSES 91,506
--------
NET INCOME FROM OPERATIONS 127,340
Less: Income taxes 38,049
--------
NET INCOME 89,291
RETAINED EARNINGS DECEMBER 31, 1997 $136,848
--------
RETAINED EARNINGS SEPTEMBER 30, 1998 $226,139
========
</TABLE>
See accompanying notes to financial statements
<PAGE> 23
ENVIRONMENTAL REMEDIATION SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATION ACTIVITIES:
NET INCOME $ 89,291
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
USED IN OPERATION ACTIVITIES: 9,664
--------
Depreciation 98,955
CHANGE IN ASSETS AND LIABILITIES:
Decrease in accounts receivable 166,040
Decrease in inventory 1,617
Increase in costs in excess of billings (31,573)
Increase in taxes payable 15,505
Decrease in accounts payable (30,192)
Decrease in accrued expenses (35,766)
Decrease due from affiliates (61,835)
Decrease in billings in excess of costs (15,957)
--------
NET CASH USED IN OPERATING ACTIVITIES 106,794
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (70,327)
Cash flows used in financing activities:
Net principal borrowed for asset purchases 51,710
--------
Increase in Cash 88,177
CASH, December 31, 1997 107,288
--------
CASH, September 30, 1998 195,465
========
</TABLE>
See the accompanying notes to financial statements
<PAGE> 24
ENVIRONMENTAL REMEDIATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NOTE 1 - Organization
------------
NATURE OF BUSINESS
The Company is an environmental contractor and management firm. Its
activities include removal or containment of asbestos, lead and other
contaminated materials, including related demolition, dismantling and
construction. The work is performed under fixed-price contracts often
modified by incentive and penalty provisions, and time and material
contracts. These contracts are undertaken by the Company alone or in
partnership with other contractors through joint ventures. The Company
provides services to commercial, industrial, and institutional accounts
located throughout the United States. The Company does not normally
find it necessary to file liens on projects.
NOTE 2 - Summary of Significant Accounting Policies
------------------------------------------
REVENUE AND COST RECOGNITION
Revenues from fixed-price construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of
construction costs incurred to date to estimated total construction
costs for each contract. Revenues from time and material contracts are
recognized on the basis of revenues billed and costs incurred during
the period.
Contracts costs include all direct materials, labor, subcontract and
other direct and indirect costs related to contract performance, such
as indirect labor, supplies, tools, repairs and depreciation costs.
Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are
made 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 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.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated over the
estimated useful life of each asset. Annual depreciation is primarily
computed using the straight-line method.
INCOME TAXES
The Company reports income for income tax purposes using the accrual
method of accounting and percentage completion in accounting for the
recognition of contract revenues. Under the percentage complete
recognition of revenues, revenues are measured by the percentage of
construction costs for each contract.
<PAGE> 25
ENVIRONMENTAL REMEDIATION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company follows the practice of writing off uncollectible accounts
as they are incurred. There is no allowance for uncollectible accounts
reflected in the balance sheet. Company management is of the opinion
that no allowance is necessary.
NOTE 3 - Uncompleted contracts
---------------------
Costs, estimated earnings, and billing on uncompleted contracts are
summarized as follows:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $125,493
Estimated earnings 52,964
--------
178,457
Billing to date 135,215
--------
43,242
========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings
on uncompleted contracts 52,332
Billings in excess of costs and estimated earnings
on uncompleted contracts 9,090
--------
$ 43,242
========
</TABLE>
NOTE 4 - Related Party Transactions
--------------------------
The Company has been advanced $29,807 from an affiliated entity. The
amount advanced by the affiliated entity consists primarily of a
monthly charge for office expense, overhead, and rental charges on
equipment. An annual allocation of overhead expenses was charged by the
affiliate at period end. This amount is expected to be paid to the
affiliate within one year.
<PAGE> 26
ENVIRONMENTAL REMEDIATIONS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD NINE MONTHS ENDED SEPTEMBER 30, 1998
NOTE 5 - Notes Payable
-------------
Notes payable consists of the following:
<TABLE>
<S> <C>
Note Payable to Mercantile Bank
interest at 8.00%, collateralized by equipment,
receivables and all chattal paper
with monthly payments through June 10, 2000 $51,710
Less current portion 26,040
-------
Long-term debt, less current portion $25,670
=======
Principal payments on note payable are due as follows:
Year ending December 31
1998 $ 6,604
1999 27,790
2000 17,316
-------
$51,710
=======
</TABLE>
NOTE 6 - Income taxes
------------
The liability for income taxes consists of the following:
<TABLE>
<S> <C>
Current year liability 33,049
-------
Net liability for income taxes $33,049
=======
</TABLE>
NOTE 7 - Leases
------
The Company leases office space from the stockholder under a year lease
agreement. The Company pays the stockholder a monthly rent of $226.
