<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, 2000
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
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(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 $8,782,644 as of April 19, 2000, computed on the basis of the
average of the bid and asked prices on such date.
As of April 12, 2000 there were 8,782,644 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 2000 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 or corporation, is a holding company
which, through its wholly-owned operating subsidiaries, is engaged primarily in
providing asbestos abatement and selective demolition 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 held 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 and the
Venture ceased operations by January 31, 1999.
(b) DESCRIPTION OF THE BUSINESS
Overview
The registrant, through its wholly-owned subsidiaries, provides asbestos
abatement and selective demolition 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.
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.
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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, through its operating subsidiaries, also performs selective
demolition projects which involve primarily interior demolition in advance of
renovation projects for commercial and institutional buildings. This work has
been a natural progression from asbestos abatement work, which often requires
significant interior demolition to access asbestos material for removal.
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 39% of the registrant's asbestos abatement
purchases in fiscal 2000. 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
2000, the registrant estimates that approximately 71% of its operating
subsidiaries' revenues were derived from private sector clients, 18% from
government contracts and 11% 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, 2000, one customer, an owner of a hotel in Texas, accounted
for 14% of the registrant's consolidated
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revenue. 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.
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 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 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.
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 and demolition industries are 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
industries are 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 $17.1 million and $16.7 million at January 31,
2000 and 1999, respectively. The backlog at January 31, 2000 totalled $17.1
million and consisted of $9.4 million of uncompleted work on fixed fee contracts
and an estimated $7.7 million of work on time and materials or unit price
contracts. The backlog at January 31, 1999 totaled $16.7 million and consisted
of $8.2 million of uncompleted work on fixed fee contracts and an estimated $8.5
million of work to be completed on time and materials or unit price contracts.
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, 2000
backlog and anticipates that approximately 95% of this backlog will be completed
and realized as revenue by January 31, 2001 in accordance with the terms of the
applicable contracts between the registrant and the owners of these properties.
The remaining 5% is expected to be completed and realized as revenue subsequent
to January 31, 2001. Approximately 91% of the backlog existing at January 31,
1999 was completed and recognized as revenue by January 31, 2000 with the
remaining 9% expected to be completed and realized as revenue during the year
ending January 31, 2001.
EMPLOYEES
As of January 31, 2000, 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, 2000, 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
(15,000 square feet), Phoenix (3,125 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 $261,000 at January 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
The registrant is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the registrant based upon information available
at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
FISCAL 2000 FISCAL 1999
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $1.09 $0.62 $2.28 $1.37
Second Quarter 0.86 0.40 1.68 1.03
Third Quarter 0.68 0.21 1.37 0.68
Fourth Quarter 1.46 0.62 1.12 0.75
</TABLE>
At March 17, 2000, the registrant had 2,200 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, 2000.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
2000 1999 1998 1997 1996
---------------------------------------------------------------------------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Contract revenues $28,480 $36,828 $24,610 $16,183 $16,215
Gross margin 4,526 5,306 4,319 2,485 1,442
Income (loss) from operations 395 2,317 667 (6) (1,567)
Other income (expense) (127) (147) (168) (178) 920
Income (loss) from continuing operations 246 1,310 377 (184) (750)
Income (loss) from discontinued operations -- (200) -- (302) (1,701)
Net income (loss) 246 1,110 377 (486) (2,451)
COMMON SHARE DATA
Net income (loss) from continuing
operations per common share:
Basic 0.03 0.18 0.06 (0.04) (0.14)
Diluted 0.03 0.16 0.06 (0.04) (0.14)
Net income (loss) per common share:
Basic 0.03 0.15 0.05 (0.09) (0.44)
Diluted 0.03 0.14 0.05 (0.09) (0.44)
Weighted average common shares outstanding 8,394 7,437 6,060 5,913 5,670
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $ 3,308 $3,507 $ 2,794 $ 409 $3,110
Total assets 10,353 9,564 10,377 6,165 7,564
Long-term obligations 542 1,120 1,768 372 2,766
Total stockholders' equity 5,061 4,801 2,265 762 1,218
</TABLE>
The year ended January 31, 2000 included a $0.38 million charge to settle a
benefits claim litigation.
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 and 1996 include loss from discontinued
operations of ($0.2 million), ($0.3 million) and ($1.7 million) respectively;
($0.02), ($0.05) and ($0.30) 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The registrant, through its operating subsidiaries, provides asbestos abatement
and selective demolition 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, 2000.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 2000 COMPARED TO YEAR ENDED JANUARY 31, 1999
Consolidated revenues reported by the registrant decreased to $28.5 million for
the year ended January 31, 2000 (fiscal 2000) compared to $36.8 million for the
year ended January 31, 1999 (fiscal 1999). The fiscal 1999 revenue included
$10.1 million from the aforementioned Keystone project. Excluding this
significant contract, revenues increased $1.8 million or 7% in the current
fiscal year.
Contract costs decreased to $24.0 million in fiscal 2000 compared to $31.5
million in fiscal 1999 and resulted in reported gross margins of $4.5 million
and $5.3 million, respectively in each fiscal year. The higher margin percentage
experienced in fiscal 2000 resulted from higher project margins on smaller sized
contracts.
The registrant's selling, general and administrative expenses increased by 26%
between the two fiscal years to $3.75 million in fiscal 2000 compared to $3.0
million in fiscal 1999. The increase between the two fiscal years principally
related to the operating costs associated with the two additional branch offices
acquired late in fiscal 1999.
In June 1999, the Corporation reached a settlement with the Mason Tenders New
York District Council Welfare Fund whereby the Corporation agreed to pay
$500,000 to resolve all claims concerning contributions owed for the period
January 1, 1995 through May 31, 1996 and related claims for interest, statutory
damages, costs and attorneys' fees. The initial payment of $200,000 was made in
June 1999 with the remainder of $100,000 due by December 28, 1999 and $200,000
by June 28, 2000. This resulted in a $379,000 charge in the second quarter of
Fiscal 2000 which was net of amounts previously accrued and recoveries from
third parties.
The factors discussed above resulted in the registrant reporting income from
operations of $0.4 million in fiscal 2000 compared to income from operations of
$2.3 million in fiscal 1999.
Interest expense decreased to $0.14 million from $0.16 million due to decreased
average borrowings during fiscal 2000. Interest income increased to $11,000 for
the year ended January 31, 2000 compared to $8,000 for the previous fiscal year
due to higher invested cash balances at certain periods throughout the year.
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As a result of net operating loss carryforwards for book purposes, no federal
income tax provision was required in fiscal 2000 and 1999. In fiscal 2000, a
$22,000 state income tax provision was made as compared to a $309,000 state
income tax provision in fiscal 1999.
The $200,000 loss from discontinued operations relates to the resolution reached
June 8, 1998 with the plaintiffs in a class action. The action was brought by
Plaintiffs who purchased ICHOR Corporation common stock in 1995. At the time,
ICHOR was a subsidiary of the registrant. The registrant's share of the
settlement was $173,000. The registrant also incurred $27,000 of legal expenses
related to the litigation.
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. The registrant's share of the settlement was $173,000. The
registrant also incurred $27,000 in legal expenses related to the litigation.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 2000
During fiscal 2000, the registrant experienced a decrease in liquidity of $0.03
million as cash and short-term investments decreased from $0.31 million at
January 31, 1999 to $0.28 million at January 31, 2000. The decrease in liquidity
in fiscal 2000 was attributable to cash utilized by investing activities of
$0.85 million and cash utilized by financing activities of $0.33 million
partially offset by cash inflows of $1.15 million from operating activities.
Cash inflows from operating activities were generated by net income of $0.25
million, depreciation and amortization of $0.72 million, a $0.06 million
increase in accounts payable, a $0.61 increase in other current assets and a
$0.34 million increase
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in billings in excess of costs and estimated earnings on uncompleted contracts.
Cash outflows related to operating activities included a $0.87 million increase
in accounts receivable.
Specifically, the $0.33 million of cash outflows from financing activities
during fiscal 2000 included $0.34 million of repayments on debt including
reducing the line of credit to $0.01 million at January 31, 2000 from $0.18
million at January 31, 1999. Additionally, $0.01 million was utilized to
repurchase 19,400 common shares into the treasury. These outflows were partially
offset by cash inflows of $0.03 million for the exercise of stock options and
warrants.
The registrant's investing activities of $0.85 million were due to $0.67 million
for the purchase of property, plant and equipment, $0.145 million increase in
other assets and $0.04 million contingent payment related to the fiscal 1999
acquisition of two asbestos abatement businesses in the Mid-west.
The registrant believes that it has adequate liquidity to fund its current and
future operations.
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.
The registrant, from time to time, enters into fixed-price subcontracts which
tends to reduce the risk to the Company on fixed-price contracts.
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 Stokes Kelly & Hinds LLC 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
-8-
<PAGE> 10
would have caused the auditors to make reference to the subject matter of the
disagreement or disagreements in connection with their reports.
-9-
<PAGE> 11
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 2000 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934.
-10-
<PAGE> 12
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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<S> <C>
Report of Independent Auditors ................................... F-1
Consolidated Balance Sheets as of January 31, 2000 and 1999 ...... F-2
Consolidated Statements of Operations for the Years Ended
January 31, 2000, 1999 and 1998 ................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended January 31, 2000, 1999 and 1998 .................... F-5
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2000, 1999 and 1998 ................................ F-6
Notes to Consolidated Financial Statements for the Three Years
Ended January 31, 2000, 1999 and 1998 .......................... F-7
Schedule II - Valuation and Qualifying Accounts .................. F-18
</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:
<TABLE>
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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.
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.
</TABLE>
-11-
<PAGE> 13
<TABLE>
<CAPTION>
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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 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.
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.
</TABLE>
-12-
<PAGE> 14
<TABLE>
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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 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.
10.10 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).
10.11 Professional Consulting Agreement dated April 24, 1998 between Len
Turano and PDG Environmental, Inc. filed as Exhibit 10.10 of the PDG
Environmental, Inc. Annual Report on Form 10-KSB for the year ended
January 31, 1999, is incorporated herein by reference.
10.12 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 .
10.13 Investment Banking Agreement dated January 11, 1999 by and among PDG
Environmental, Inc. and M. H. Meyerson & Co., Inc. filed as Exhibit
10.15 of the PDG Environmental, Inc. Annual Report on Form 10-KSB for
the year ended January 31, 1999, is hereby incorporated herein by
reference.
21 List of subsidiaries of the registrant.
23 Consent of independent auditors.
24 Power of attorney of directors.
27 Financial data schedule.
(b) REPORTS ON FORM 8-K
The registrant did not file any filed the following Current Reports on
Form 8-K during the three months ended January 31, 2000.
</TABLE>
-13-
<PAGE> 15
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 15, 2000
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 15, 2000
- ------------------------------------------
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 15, 2000
Edgar Berkey, Director By /s/ John C. Regan
-----------------------------
John C. Regan, Attorney-in-Fact
May 15, 2000
James D. Chiafullo, Director By /s/ John C. Regan
-----------------------------
John C. Regan, Attorney-in-Fact
May 15, 2000
Edwin J. Kilpela, Director By /s/ John C. Regan
-----------------------------
John C. Regan, Attorney-in-Fact
May 15, 2000
-14-
<PAGE> 16
PDG ENVIRONMENTAL, INC.
ANNUAL REPORT ON FORM 10-KSB
ITEMS 8, 14(c) AND (d)
FINANCIAL STATEMENTS, CERTAIN EXHIBITS & SCHEDULE
-15-
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PDG Environmental, Inc.
We have audited the accompanying consolidated balance sheet of PDG
Environmental, Inc. (the "Corporation") as of January 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended January 31, 2000. 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 audit provides 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, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended January 31, 2000, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Stokes Kelly & Hinds, LLC
Pittsburgh, Pennsylvania
May 11, 2000
F-1
<PAGE> 18
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
-----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 282,000 $ 309,000
Accounts receivable 6,101,000 5,233,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,055,000 1,058,000
Inventories 291,000 298,000
Notes receivable from officers 132,000 132,000
Other current assets 197,000 120,000
----------- ----------
TOTAL CURRENT ASSETS 8,058,000 7,150,000
PROPERTY, PLANT AND EQUIPMENT
Land 42,000 42,000
Leasehold improvements 110,000 59,000
Furniture and fixtures 152,000 156,000
Vehicles 526,000 529,000
Equipment 4,645,000 4,052,000
Buildings 370,000 369,000
----------- ----------
5,845,000 5,207,000
Less: accumulated depreciation 4,462,000 3,948,000
----------- ----------
1,383,000 1,259,000
COVENANTS NOT TO COMPETE 358,000 591,000
OTHER ASSETS 554,000 564,000
----------- ----------
TOTAL ASSETS $10,353,000 $9,564,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
--------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,263,000 $ 1,506,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,015,000 673,000
Accrued liabilities 1,299,000 1,290,000
Current portion of long-term debt 173,000 174,000
------------ -----------
TOTAL CURRENT LIABILITIES 4,750,000 3,643,000
OTHER LONG-TERM LIABILITIES 166,000 404,000
LONG-TERM DEBT 376,000 716,000
------------ -----------
TOTAL LIABILITIES 5,292,000 4,763,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible Series A preferred stock, (2%) $0.01 par value,
5,000,000 shares authorized and 6,000 issued and outstanding
shares at January 31, 2000 and 1999
(liquidation preference of $60,000 at January 31, 2000) 14,000 14,000
Common stock, $0.02 par value, 30,000,000 shares authorized and
8,447,796 and 8,393,796 shares issued and outstanding at
January 31, 2000 and 1999, respectively 169,000 168,000
Paid-in capital 7,421,000 7,395,000
(Deficit) retained earnings (2,505,000) (2,751,000)
Less treasury stock, 46,500 and 27,100 shares at January 31, 2000
and 1999, respectively (38,000) (25,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 5,061,000 4,801,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,353,000 $ 9,564,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 20
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
2000 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C>
CONTRACT REVENUES $28,480,000 $36,828,000 $24,610,000
CONTRACT COSTS 23,954,000 31,522,000 20,291,000
----------- ----------- -----------
GROSS MARGIN 4,526,000 5,306,000 4,319,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,752,000 2,989,000 2,789,000
LITIGATION SETTLEMENT EXPENSE 379,000 -- --
OPTION PLAN COMPENSATION - (NON CASH) -- -- 863,000
----------- ----------- -----------
INCOME FROM OPERATIONS 395,000 2,317,000 667,000
OTHER INCOME (EXPENSE):
Interest expense (140,000) (158,000) (220,000)
Interest income 11,000 8,000 16,000
Other income 2,000 3,000 36,000
----------- ----------- -----------
(127,000) (147,000) (168,000)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
DISCONTINUED OPERATIONS 268,000 2,170,000 499,000
INCOME TAX PROVISION (22,000) (278,000) (20,000)
MINORITY INTEREST -- (582,000) (102,000)
----------- ----------- -----------
INCOME BEFORE DISCONTINUED OPERATION 246,000 1,310,000 377,000
DISCONTINUED OPERATION:
Litigation settlement -- (200,000) --
----------- ----------- -----------
NET INCOME $ 246,000 $ 1,110,000 $ 377,000
=========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC:
Income before discontinued operation $ 0.03 $ 0.18 $ 0.06
Discontinued operation -- (0.03) --
----------- ----------- -----------
Net income per share $ 0.03 $ 0.15 $ 0.06
=========== =========== ===========
EARNINGS PER COMMON SHARE - DILUTIVE
Income before discontinued operations $ 0.03 $ 0.16 $ 0.05
Discontinued Operations -- (0.02) --
----------- ----------- -----------
Net income per share $ 0.03 $ 0.14 $ 0.05
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 8,394,000 7,437,000 6,060,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING 442,000 790,000 1,025,000
----------- ----------- -----------
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING 8,836,000 8,227,000 7,085,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 21
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, 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
Exercise of stock warrants for 30,000
shares of common stock 1,000 14,000 15,000
Issuance of 24,000 shares under Employee
Incentive Stock Option Plan 12,000 12,000
Purchase of 19,400 shares for the treasury (13,000) (13,000)
Net income 246,000 246,000
-------- -------- ---------- --------- ----------- ----------
BALANCE AT JANUARY 31, 2000 $ 14,000 $169,000 $7,421,000 $ (38,000) $(2,505,000) $5,061,000
======== ======== ========== ========= =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 246,000 $ 1,110,000 $ 377,000
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Provision for common stock issuable under options -- -- 863,000
Depreciation 540,000 415,000 311,000
Amortization 180,000 254,000 78,000
Minority interest -- (102,000) 102,000
Other 1,000 5,000 64,000
CHANGES IN CURRENT ASSETS AND LIABILITIES OTHER THAN CASH:
Accounts receivable (868,000) 1,518,000 (3,091,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,000 (333,000) (111,000)
Inventories 7,000 (72,000) (20,000)
Prepaid income taxes -- 165,000 17,000
Other current assets 615,000 364,000 324,000
Accounts payable 65,000 (2,595,000) 1,764,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 342,000 (169,000) 207,000
Accrued liabilities 9,000 (362,000) 134,000
Other 7,000 (44,000) (7,000)
---------- ----------- -----------
TOTAL ADJUSTMENTS 180,000 (1,528,000) (783,000)
---------- ----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 1,147,000 154,000 1,012,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (670,000) (513,000) (543,000)
Acquisition of business (37,000) (252,000) (50,000)
Proceeds from sale of property, plant and equipment 5,000 -- 1,000
Increase in other assets (145,000) -- --
---------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (847,000) (765,000) (592,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt -- -- 1,758,000
Proceeds from exercise of stock options and warrants 27,000 989,000 192,000
Purchase of common stock for treasury (13,000) (25,000) --
Principal payments on debt (341,000) (936,000) (1,907,000)
---------- ----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (327,000) 28,000 43,000
---------- ----------- -----------
Net increase (decrease) in cash and short-term investments (27,000) (583,000) 463,000
Cash and short-term investments, beginning of year 309,000 892,000 429,000
---------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 282,000 $ 309,000 $ 892,000
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
FOR THE THREE YEARS ENDED JANUARY 31, 2000
NOTE 1 - BASIS OF PRESENTATION
BUSINESS ACTIVITIES
PDG Environmental, Inc. (the "Corporation") is engaged in providing asbestos
abatement and selective demolition services to the public and private sectors.
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.
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 held 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 and the
Venture ceased operations by January 31, 1999.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL PRESENTATION:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the Corporation and its
wholly-owned subsidiaries.
The results of the Venture, in which the Corporation held a 60% interest, was
also consolidated since the Corporation was the majority owner of the Venture
and exercised 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 services performed 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.
F-7
<PAGE> 24
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
applicable rates.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 2000 and 1999 include $333,000 and $290,000,
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.
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 4 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Details related to contract activity are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
---------------------------------
<S> <C> <C>
Revenues earned on uncompleted contracts $27,976,000 $20,221,000
Less: billings to date 27,936,000 19,836,000
----------- -----------
Net Under Billings $ 40,000 $ 385,000
=========== ===========
</TABLE>
F-8
<PAGE> 25
Included in the accompanying consolidated balance sheets under the following
captions:
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
---------------------------------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 1,055,000 $1,058,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,015,000) (673,000)
----------- ----------
Net Under Billings $ 40,000 $ 385,000
=========== ==========
</TABLE>
NOTE 5 - ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
--------------------------------
<S> <C> <C>
Worker's compensation $ 44,000 $ 180,000
Wages 379,000 315,000
Withheld and accrued taxes 148,000 181,000
Accrued fringe benefits 120,000 147,000
Covenants not to complete 236,000 270,000
Litigation settlement 200,000 --
Other 172,000 197,000
---------- ----------
Total Accrued Liabilities $1,299,000 $1,290,000
========== ==========
</TABLE>
NOTE 6 - LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
------------------------------
<S> <C> <C>
Term loan due in monthly installments of $6,129 including
interest at 9.5% due in May 2004 $261,000 $307,000
Equipment note due in monthly installments of $8,333 plus
interest at 3.5% above the prime rate, due in August 2002 267,000 367,000
Revolving line of credit expiring on August 24, 2000 and
bearing interest at 3.5% above the prime rate 12,000 179,000
Other 9,000 37,000
-------- --------
549,000 890,000
Less amount due within one year 173,000 174,000
-------- --------
$376,000 $716,000
======== ========
</TABLE>
F-9
<PAGE> 26
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, 2000, prime was 8.5%).
The line of credit is collateralized by accounts receivable. Under the terms of
the revolving credit agreement, the Company is required to reduce borrowings as
the accounts receivable are collected. Since those accounts receivable are
replaced with new accounts receivable and it is the Company's intent to maintain
at least the same level of borrowings, the outstanding balance is reflected as
long term. Additionally, the Chief Executive Officer of the Corporation provided
a limited personal guarantee for the credit facility.
As of January 31, 2000, the balance on the line of credit was $12,000 with an
unused availability of $1,488,000.
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.
Maturity requirements on long-term debt aggregate $173,000 in fiscal 2001,
$156,000 in fiscal 2002, $129,000 in fiscal 2003, $68,000 in fiscal 2004 and
$23,000 in fiscal 2005.
The Corporation paid approximately $142,000, $163,000 and $223,000 for interest
costs during the years ended January 31, 2000, 1999 and 1998, respectively.
NOTE 7 - INCOME TAXES
At January 31, 2000, the Corporation has net operating loss carryforwards of
approximately $4,883,000 for income tax purposes which expire in years 2001
through 2011. For financial reporting purposes, a valuation allowance of
approximately $1,788,000 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 $123,000 during the year ended January 31, 2000. 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, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
2000 1999
------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 51,000 $ 47,000
Deferred tax assets:
Workers compensation reserve 37,000 83,000
Other 108,000 75,000
Net operating loss carryforwards 1,694,000 1,800,000
---------- ----------
Total deferred tax assets 1,839,000 1,958,000
Valuation allowance for deferred tax assets 1,788,000 1,911,000
---------- ----------
Net deferred tax assets 51,000 47,000
---------- ----------
Net deferred tax liabilities $ -- $ --
========== ==========
</TABLE>
F-10
<PAGE> 27
Significant components of the provision for income taxes (all current) are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
2000 1999 1998
-------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $(31,000) $ --
State 22,000 309,000 20,000
------- -------- -------
Total income tax provision $22,000 $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,
2000 1999 1998
-------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ 91,000 $ 539,000 $ 98,000
State income taxes, net of federal tax benefit 14,000 200,000 13,000
Non-deductible stock compensation expense -- -- 293,000
Limitation on utilization of net operating loss (83,000) (461,000) (384,000)
-------- --------- ---------
$ 22,000 $ 278,000 $ 20,000
======== ========= =========
</TABLE>
The Corporation paid approximately $89,000, $76,000 and $12,000 for federal and
state income and franchise taxes during the years ended January 31, 2000, 1999
and 1998, respectively.
NOTE 8 - NOTES RECEIVABLE - OFFICERS
At January 31, 2000 and 1999, 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, 2000 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 9 - 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.
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 362,000 shares of the Corporation's common
stock were granted under the Plan issuable related to fiscal 2001.
Options to purchase 364,000 shares of the Corporation's common stock at an
exercise price of $0.87 per share were granted under the Plan issuable related
to fiscal 2000. Vesting of a portion of the stock options were contingent upon
the individual offices, and in the case of the executive office, the Corporation
meeting pre-established financial goals for the year. Those individual awards
that did not vest due to failure to achieve goals vest in November 2008. Vesting
of the discretionary portion is based upon a number of intangible items. All
unvested discretionary options are returned to the Plan for future grants. A
total of 196,500 options to purchase shares of common stock vested at January
31, 2000 relative to fiscal 2000.
F-11
<PAGE> 28
Options to purchase 350,000 shares of the Corporation's common stock at an
exercise price of $0.79 per share were granted for fiscal 1999 under the Plan
effective August 19, 1997 with 118,000 options issued. 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 765,000 shares of the Corporation's common stock at an
exercise price of $0.36 per share were granted under the Plan issuable related
to fiscal 1998. Vesting of 50% of the respective year's options was 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 were 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 year 1998
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. 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, 2000.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
---------------------------------
<S> <C> <C>
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
Granted 364,100 $0.53 - $0.87
Cancelled - Reusable (79,350) $0.36 - $0.87
Exercised (24,000) $0.36 - $0.66
---------
OUTSTANDING AT JANUARY 31, 2000 1,692,083 $0.36 - $1.91
=========
EXERCISABLE AT JANUARY 31, 2000 1,263,833 $0.36 - $1.91
=========
</TABLE>
The weighted average life of the options outstanding at January 31, 2000 and
weighted average exercise price of the options outstanding at January 31, 2000
was 6.7 years and $0.58, respectively.
F-12
<PAGE> 29
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
2000 and 1999: risk-free interest rate of 7% and 5% in fiscal 2000 and 1999
respectively; dividend yield of 0%; volatility factors of the expected market
price of the Company's common stock of 1.42 and 1.04 in fiscal 2000 and 1999,
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
00 99
-- --
<S> <C> <C>
Pro forma net income from continuing operations $12,000 $1,222,000
Pro forma earnings per share from continuing operations (basic) $ 0.00 $ 0.16
Pro forma earnings per share from continuing operations (dilutive) $ 0.00 $ 0.15
</TABLE>
The following table summarizes information with respect to non-qualified stock
options for the three years ended January 31, 2000.
<TABLE>
<CAPTION>
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
-----------------------------
<S> <C> <C>
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
No Activity -- --
------
EXERCISABLE AT JANUARY 31, 2000 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, 2000, 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
302,212 shares of the Corporation's common stock at prices ranging from $0.36
per share to $1.39 per share have been granted under the Non-Employee Directors
Plan. At January 31, 2000, options to purchase 252,212 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.
F-13
<PAGE> 30
NOTE 10 - STOCK WARRANTS
At January 31, 2000 and 1999, the Corporation had approximately 330,000 and
431,000, respectively, of fully vested warrants outstanding. The exercise price
of the warrants range from $0.50 per share to $2.50 per share and the expiration
dates range from fiscal 2001 through fiscal 2004. The majority of these warrants
were issued in conjunction with shareholder relations and investment banking
agreements. During fiscal 2000, 30,000 warrants with an exercise price of $0.50
per share were exercised for 30,000 shares of the Corporation's common stock.
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 11 - 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, 2000
and 1999, 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, 2000, 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 $8,000 at January 31,
2000.
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 12 - 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.
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
F-14
<PAGE> 31
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.
During fiscal 2000, the Corporation paid $38,000 to compensate the Businesses
for a decline in value of the Corporation's stock from November 9, 1998 until
November 9, 1999.
The goodwill of $188,000 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, 1998.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999
----
<S> <C>
Revenues $39,706,000
===========
Income before discontinued operations $ 1,282,000
===========
Earnings per share before discontinued operations:
Basic $ 0.17
===========
Fully diluted $ 0.15
===========
</TABLE>
At January 31, 2000, the Company had $127,000 of costs included in other assets
relating to the review and due diligence of Metalclad Insulation Corporation and
Metalclad Environmental Contractors covered by a Letter of Intent.
NOTE 13 - NET INCOME 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,
2000 1999 1998
-----------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Income before discontinued operations $ 246,000 $1,310,000 $ 377,000
Preferred stock dividends (1,000) (1,000) (33,000)
---------- ---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 245,000 1,309,000 344,000
Effect of dilutive securities:
Preferred stock dividends 1,000 1,000 33,000
---------- ---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 246,000 $1,310,000 $ 377,000
---------- ---------- ----------
DENOMINATOR:
Denominator for basic earnings per share--weighted average 8,394,000 7,437,000 6,060,000
shares
Effect of dilutive securities:
Employee stock options 409,000 728,000 262,000
Warrants 6,000 35,000 34,000
Convertible preferred stock 27,000 27,000 729,000
---------- ---------- ----------
Dilutive potential common shares 442,000 790,000 1,025,000
---------- ---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 8,836,000 8,277,000 7,085,000
========== ========== ==========
</TABLE>
F-15
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE $ 0.03 $ 0.18 $ 0.06
========== ========== ==========
DILUTED EARNINGS PER SHARE $ 0.03 $ 0.16 $ 0.05
========== ========== ==========
</TABLE>
At January 31, 2000, 1999 and 1998; 465,333, 64,000 and 44,000 options, and
131,000, 306,000 and 738,500 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 14 - COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases aggregated $343,000,
$271,000 and $221,000 for the years ended January 31, 2000, 1999 and 1998,
respectively. Minimum rental payments under these leases with initial or
remaining terms of one year or more at January 31, 2000 aggregated $316,000 and
payments due during the next five fiscal years are as follows: 2001 - $187,000;
and 2002 - $99,000, 2003 - $29,000, 2004 - $1,000 and 2005 - $-0-.
NOTE 15 - DISCONTINUED OPERATIONS
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, 2000
Revenues $5,153,000 $7,869,000 $7,496,000 $7,962,000 $28,480,000
Gross margin 768,000 1,146,000 1,441,000 1,171,000 4,526,000
Net income (loss) $ (218,000) $ (130,000) $ 311,000 $ 283,000 $ 246,000
Earnings per share
Basic $ (0.03) $ (0.02) $ 0.04 $ 0.03 $ 0.03
Diluted $ (0.03) $ (0.02) $ 0.04 $ 0.03 $ 0.03
</TABLE>
F-16
<PAGE> 33
<TABLE>
<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, minority interest
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
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
</TABLE>
F-17
<PAGE> 34
PDG ENVIRONMENTAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS(1) OF YEAR
------- --------- ------------- -------
<S> <C> <C> <C> <C>
2000
Allowance for doubtful accounts $ -- $ 2,000 $ 2,000 $ --
======= ======= ======= =======
1999
Allowance for doubtful accounts $48,000 $ -- $48,000 $ --
======= ======= ======= =======
1998
Allowance for doubtful accounts $47,000 $48,000 $47,000 $48,000
======= ======= ======= =======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
F-18
<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 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) and PDG Environmental, Inc. Consultant Compensation Plan (Form S-8
No. 333-08673) and in the related Prospectuses of our report dated May 11,
2000, with respect to the consolidated financial statements of PDG
Environmental, Inc. included in the Annual Report (Form 10-KSB) for the year
ended January 31, 2000.
/s/ Stokes Kelly & Hinds, LLC
Pittsburgh, Pennsylvania
May 11, 2000
<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 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, 2000, 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
23rd day of March, 2000.
/s/ Edwin J. Kilpela (SEAL)
- --------------------------------------
Edwin J. Kilpela, 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 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, 2000, 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
23rd day of March, 2000.
/s/ James D. Chiafullo (SEAL)
- --------------------------------------
James D. Chiafullo, 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 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, 2000, 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
23rd day of March, 2000.
/s/ Richard A. Bendis (SEAL)
- --------------------------------------
Richard A. Bendis, 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 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, 2000, 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
23rd day of March, 2000.
/s/ Edgar Berkey (SEAL)
- --------------------------------------
Edgar Berkey, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 2000 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2000, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 282,000
<SECURITIES> 0
<RECEIVABLES> 6,101,000
<ALLOWANCES> 0
<INVENTORY> 291,000
<CURRENT-ASSETS> 8,058,000
<PP&E> 5,845,000
<DEPRECIATION> 4,462,000
<TOTAL-ASSETS> 10,353,000
<CURRENT-LIABILITIES> 4,750,000
<BONDS> 376,000
0
14,000
<COMMON> 169,000
<OTHER-SE> 4,878,000
<TOTAL-LIABILITY-AND-EQUITY> 10,353,000
<SALES> 28,480,000
<TOTAL-REVENUES> 28,480,000
<CGS> 23,954,000
<TOTAL-COSTS> 23,954,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,000
<INCOME-PRETAX> 268,000
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 246,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246,000
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
<FN>
<F1>
The year ended January 31, 2000 included a $379,000 charge related to the
settlement of a litigation.
</FN>
</TABLE>
