<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
PDG ENVIRONMENTAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, If Other Than The Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(Set forth the amount on which the fee is calculated and state
how it was determined).
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
PDG ENVIRONMENTAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of PDG Environmental, Inc. (the
"Corporation") will be held at the Ramada Inn, 699 Rodi Road, Pittsburgh,
Pennsylvania 15235, on Friday, July 7, 2000 at 9:00 o'clock a.m., Eastern
Daylight Time, for the following purposes:
(a) To elect five (5) directors for a term of one (1) year each;
(b) To ratify Stokes Kelly & Hinds, LLC as the Corporation's independent
auditors; and
(c) To approve an amendment to PDG Environmental, Inc. Incentive Stock
Option Plan increasing the number of shares of common stock of PDG
Environmental, Inc. which may be granted by 500,000 to a total of
2,300,000 and extending the Plan until December 14, 2010.
(d) To approve extension of 1990 Stock Option Plan for Non-Employee
Directors until December 14, 2010.
(e) To approve extension of 1990 Stock Option Plan for Employee Directors
until December 14, 2010.
(f) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed May 19, 2000, at the close of business, as the
record date for the purpose of determining the stockholders who are entitled to
receive notice of and to vote at the Annual Meeting.
Stockholders are requested to sign, date and return the enclosed proxy in the
accompanying stamped and addressed envelope.
Dulcia Maire
Secretary
Monroeville, Pennsylvania
May 26, 2000
1
<PAGE> 3
PROXY STATEMENT
PDG ENVIRONMENTAL, INC.
300 OXFORD DRIVE
MONROEVILLE, PENNSYLVANIA 15146
(412) 856-2200
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
JULY 7, 2000
This Proxy Statement is being furnished to all stockholders of PDG
Environmental, Inc. (the "Corporation") in connection with the solicitation of
proxies by its board of directors (the "Board of Directors") for use at the
annual meeting of the stockholders of the Corporation to be held on July 7,
2000, and any adjournment or postponement thereof (the "Annual Meeting"), which
is being held for the purpose of: (a) electing five (5) directors for a term of
one (1) year each; (b) ratifying the appointment of Stokes Kelly & Hinds, LLC as
the Corporation's independent auditors; (c) approving an amendment to PDG
Environmental, Inc. Incentive Stock Option Plan increasing the number of shares
of common stock of PDG Environmental, Inc. which may be granted by 500,000
shares to a total of 2,300,000 and extending the Plan until December 14, 2010;
(d) approving the extension of the 1990 Stock Option Plan for Non-Employee
Directors until December 14, 2010; (e) approving the extension of the 1990 Stock
Option Plan for Employee Directors until December 14, 2010; and (f) transacting
such other business as may properly come before the meeting or any adjournment
thereof. This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders are being sent to the stockholders of the Corporation on or about
June 2, 2000. A copy of the Annual Report for the fiscal year ended January 31,
2000 accompanies this Proxy Statement or has been previously mailed to
stockholders entitled to vote at the Annual Meeting.
2
<PAGE> 4
THE ANNUAL MEETING
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of PDG Environmental, Inc. (the "Corporation")
for use at the Annual Meeting of Stockholders of the Corporation to be held on
July 7, 2000 at 9:00 a.m. local time at the Ramada Inn, 699 Rodi Road,
Pittsburgh, Pennsylvania 15235, and at any adjournment or postponement thereof
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders. This Proxy Statement and accompanying Notice of Annual Meeting of
Stockholders are being sent to the stockholders of the Corporation on or about
June 2, 2000.
VOTING RIGHTS AND PROXY INFORMATION.
The Board of Directors of the Corporation has fixed the close of business on May
19, 2000 as the record date for the determination of stockholders of the
Corporation entitled to notice of and to vote at the Annual Meeting and any
adjournment or postponement thereof (the "Record Date"). All holders of record
of shares of either common stock, par value $0.02, of the Corporation ("Common
Stock") or Series A cumulative convertible preferred stock, par value $0.01, of
the Corporation ("Series A Preferred Stock") will be entitled to vote at the
Annual Meeting on all matters voted upon. On the Record Date, there were
8,782,644 shares of Common Stock outstanding and entitled to vote and 6,000
shares of Series A Preferred Stock which entitle the holders thereof to vote
27,214 shares when voting with the Common Stock as a single class. On the Record
Date, the Common Stock was held by 2,218 stockholders of record and the Series A
Preferred Stock was held by 1 stockholder of record.
On all matters to be voted upon at the Annual Meeting, the holders of shares of
Common Stock and Series A Preferred Stock will vote together as a single class
with each holder of Common Stock entitled to cast one (1) vote per share and
each holder of Series A Preferred Stock entitled to such number of votes as
equals the number of shares of Common Stock into which each share of Series A
Preferred Stock is then convertible. On the Record Date, each share of Series A
Preferred Stock was convertible into 4.54 shares of Common Stock. The presence,
in person or by properly executed proxy, of the holders of the majority of the
outstanding shares of Common Stock and Series A Preferred Stock entitled to vote
is necessary to constitute a quorum at the Annual Meeting.
As of May 15, 2000, the directors and officers of the Corporation as a group
controlled approximately 32.4% of the Common Stock and Series A Preferred Stock
voting as a single class. See "Security Ownership of Certain Beneficial Owners
and Management." Each director and officer of the Corporation has indicated that
he or she intends to vote in favor of each of the matters to be acted upon at
the Annual Meeting.
All shares of Common Stock and Series A Preferred Stock which are represented at
the Annual Meeting by properly executed proxies received by the Board of
Directors prior to or at the Annual Meeting and not revoked will be voted at the
Annual Meeting and will be voted in accordance with the instructions indicated
on such proxies including any instruction directing abstention from voting. If
no instructions are indicated with respect to any shares for which properly
executed proxies are received, such proxies will be voted FOR the election of
the five (5) nominees for the Board of Directors, FOR the ratification of the
independent auditors, FOR the approval of the amendment to the Corporation's
Incentive Stock Option Plan, FOR the approval of the extension of the 1990 Stock
Option Plan for Non-Employee Directors and FOR the approval of the extension of
the 1990 Stock Option Plan for Employee Directors. Management and the Board of
Directors do not know of any other matters to be brought before the Annual
Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before it is voted. Proxies may be revoked by filing a
written notice of such revocation with the Secretary, PDG Environmental, Inc.,
300 Oxford Drive, Monroeville, Pennsylvania 15146. In addition, a proxy will be
deemed to be revoked if the shareholder either (a) attends and votes at the
Annual Meeting, or (b) executes and delivers to the Secretary a proxy bearing a
later date.
Proxies are being solicited by and on behalf of the Board of Directors of the
Corporation. All expenses of this solicitation, including the cost of preparing
and mailing this Proxy Statement, will be borne by the Corporation. In addition
to solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of the Corporation in person or by telephone, telegram or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for any out-of-pocket expenses
incurred by them in connection with such solicitation. Proxies will be tabulated
by the Corporation's transfer agent, Continental Stock Transfer & Trust Company,
as they are received and updated at the Annual Meeting.
3
<PAGE> 5
OTHER BUSINESS
Other than the election of the Board of Directors, the ratification of the
independent auditors and the amendment of the Incentive Stock Option Plan, the
extension of the 1990 Stock Option Plan for the Non-Employee Directors and the
extension of the 1990 Stock Option Plan for Employee Directors, the Board of
Directors does not intend to bring any other matters before the Annual Meeting.
However, if any other matter shall properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed proxy to vote in
accordance with their judgment on such matters.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 15, 2000 with respect to
beneficial ownership of the Corporation's Common Stock and the Corporation's
Series A Preferred Stock voting as a single class by: (i) all persons known to
the Corporation to be considered to own beneficially more than five (5%) percent
of the Corporation's Common Stock and Series A Preferred Stock voting as a
single class; (ii) all directors of the Corporation; and (iii) all of the
Corporation's officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL CLASS OF COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP OF STOCK SHARES OWNED(10)
- ------------------------ ------------------- ----------------
<S> <C> <C>
John C. Regan (1)(2)(3)(9) 2,124,868 20.4
Richard A. Bendis (1)(4)(9) 60,250 *
Edgar Berkey (1)(7)(9) 30,000 *
James D. Chiafullo (1)(7)(9) 30,000 *
Edwin J. Kilpela (1)(5)(9) 50,000 *
Lawrence J. Horvat (2)(6) 554,048 5.3
300 Oxford Drive Monroeville
Pennsylvania 15146
All directors and officers of the Corporation as a
group including those named above (10 persons)
(8) 3,368,907 32.4
</TABLE>
- ---------------
(1) Director
(2) Officer
(3) Includes 50,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Director Plan (as hereinafter defined)
and 110,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Incentive Stock Option Plan.
(4) Includes 50,250 shares of Common Stock that may be acquired pursuant to
options granted under the Non-Employee Director Plan (as hereinafter
defined) and 10,000 shares of Common Stock that may be acquired pursuant
to non-qualified stock options.
(5) Includes 50,000 shares of Common Stock that may be acquired pursuant to
options granted under the Non-Employee Director Plan.
(6) Includes 90,000 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Incentive Stock Option Plan.
(7) Includes 30,000 shares of Common Stock that may be acquired pursuant to
options granted under the Non-Employee Director Incentive Stock Option
Plan.
(8) Includes 831,250 shares of Common Stock that may be acquired pursuant to
options granted under the Employee Incentive Stock Option Plan to officers
of the Corporation, the Employee Director Plan and the Non-Employee
Director Plan and the pursuant to non-qualified stock options.
(9) Nominee for director.
(10) Percentage is of all voting shares assuming conversion of the
Corporation's Series A Preferred Stock to Common Stock and the conversion
of stock options into Common Stock of the Corporation.
* Indicates less than 1%.
4
<PAGE> 6
ELECTION OF DIRECTORS
The Board of Directors currently consists of five (5) directors who hold office
for a term of one (1) year each. Five (5) directors are to be elected at this
Annual Meeting for a term of one (1) year each. All properly executed proxies
received in response to this solicitation will be voted as specified in the
proxy. Unless otherwise specified in the proxy, it is the intention of the
persons named in such proxies to vote FOR the nominees listed below. If events
not now known or anticipated make any of the nominees unable to serve, the
proxies will be voted in the discretion of the holders thereof for other
nominees not named herein in lieu of those unable to serve, or the size of the
Board of Directors may be reduced.
The following table sets forth information regarding the directors and nominees
of the Corporation. All of the nominees are currently serving as directors and
were elected at the 1999 Annual Meeting of the Corporation's stockholders to
serve until the next annual meeting of the Corporation's stockholders. Each of
the nominees has consented to serve as a director if elected.
<TABLE>
<CAPTION>
NAME, AGE AND YEAR FIRST
PRINCIPAL OCCUPATION ELECTED CERTAIN OTHER INFORMATION
- -------------------- ------- -------------------------
<S> <C> <C>
NOMINEES TO BE ELECTED BY
THE HOLDERS OF THE COMMON
STOCK AND SERIES A PREFERRED
STOCK VOTING AS A SINGLE CLASS
John C. Regan (56) 1989 Mr. Regan has served in his present position since
Chairman and December 1990 and has served as a director of the
Chief Executive Officer of Corporation since April 1989. He is the founder of
PDG Environmental, Inc. Project Development Group, Inc., now a wholly-owned
subsidiary of the Corporation which engages in
asbestos abatement services, and has served as that
corporation's Chairman and President since 1984.
Mr. Regan also served as Chairman of the Board of
Directors of PDG Remediation, Inc. (PDGR), a
company which provides remediation services to
assist customers in complying with environmental
laws and regulations, from July 1994 until August,
1996.
Richard A. Bendis (53) 1986 Mr. Bendis is President of Kansas Technology
President of KTEC and Enterprise Corporation (KTEC). Mr. Bendis also is
Investment Banking Consultant founder and Managing Director of Management
Resources of America, which provides consulting and
investment banking/venture capital services, and
founder and Managing Director of Commercialization
Centers of America, which provides consulting
services to governmental units concerning
commercialization networks and venture capital
funds. Mr. Bendis currently serves on the White
House U.S. Innovation Partnership Advisory Task
Force.
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
NAME, AGE AND YEAR FIRST
PRINCIPAL OCCUPATION ELECTED CERTAIN OTHER INFORMATION
- -------------------- ------- -------------------------
<S> <C> <C>
Edgar Berkey (59) 1998 Dr. Berkey is a nationally recognized expert on
Vice President and environmental technologies and is currently the
Chief Science Officer of Vice President and Chief Science Officer of
Concurrent Technologies Corp. Concurrent Technologies Corp. (CTC). He is a member
and Chairman of several environmental advisory
committees for the U.S. Department of Energy and
the U.S. Environmental Protection Agency. He also
chairs the Scientific Advisory Board of the North
America Environmental Fund, LP, which invests in
emerging environmental companies that can benefit
from NAFTA. Dr. Berkey is the former President and
co-founder of the Center for Hazardous Materials
Research. Dr. Berkey previously served on the
Corporation's Board of Directors from 1991-1995. He
resigned from the Corporation's Board of Directors
in 1995 to serve as a Director of PDG Remediation,
Inc., which at that time was an affiliate of the
Corporation. He resigned from the Board of
Directors of PDG Remediation, Inc. in 1996.
James D. Chiafullo (42) 1998 Mr. Chiafullo is a Director in the law firm of
Partner, Cohen & Grigsby Cohen & Grigsby, P.C. headquartered in Pittsburgh.
Prior to joining Cohen & Grigsby, P.C., Mr.
Chiafullo was a General Partner with Thorp Reed &
Armstrong LLP for more than ten years. Prior to
joining Thorp Reed & Armstrong, LLP, Mr. Chiafullo
was a lawyer with Gulf Oil Corporation in Houston,
Texas. During the twelve-months ended January 21,
2000, the Corporation incurred legal fees of
$141,626 from the law firm of Cohen & Grigsby, P.C.
of which Mr. Chiafullo is a shareholder. All such
fees were for services performed and billed
pursuant to the attorney-client relationship that
exists between the Corporation and Cohen & Grigsby,
P.C. Mr. Chiafullo is a member of the Board of
Directors of the Western Pennsylvania Epilepsy
Foundation.
Edwin J. Kilpela (54) 1997 Mr. Kilpela is currently an independent business
Consultant consultant, previously he was President and Chief
Executive Officer from 1997 to 1998 of Noxso
Corporation. Noxso is a developmental environmental
company. Previously, he was President of Ansaldo
Ross Hill, a power electronics firm in Houston,
Texas from 1996 until 1997. Mr. Kilpela was with
Westinghouse Electric Corporation from 1969 to 1996
including serving as General Manager of the
Environmental Services Division from 1991 to 1996.
</TABLE>
During the fiscal year ended January 31, 2000, there was one regular meeting of
the Board of Directors, and each of the incumbent directors attended at least
75% of the total number of meetings of the Board of Directors. Each of the
incumbent directors attended at least 75% of the meetings of the committees of
the Board of Directors on which they served during such fiscal year.
The Board of Directors has several committees which perform various functions.
The Audit Committee reviews the work of the Corporation's independent auditors
and management to ensure that each is properly discharging its responsibilities
in the area of financial control and reporting. This committee presently
consists of Messrs. Bendis, Berkey, Chiafullo and Kilpela. The Audit Committee
held three meetings in the fiscal year ended January 31, 2000.
6
<PAGE> 8
The Nominating Committee recommends prospective nominees for election to the
Board of Directors. This committee currently consists of Mr. Regan. The
Nominating Committee did not meet during the fiscal year ended January 31, 2000.
The Nominating Committee will consider nominees recommended by stockholders in
accordance with the Corporation's By- Laws. Any such recommendations are to be
submitted to the Secretary of the Corporation in accordance with the By-Laws.
The Compensation Committee is responsible for administering the Corporation's
Employee Incentive Stock Option Plan, designating the employees eligible to
participate in such plan, the number of options to be granted and the terms and
conditions of each option. The Compensation Committee also reviews the
performance of the Corporation's executive and makes recommendations with
respect to executive compensation. The Compensation Committee consists of
Messrs. Bendis, Berkey, Chiafullo and Kilpela and held one meeting during the
fiscal year ended January 31, 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Bendis, Berkey, Chiafullo and
Kilpela.
7
<PAGE> 9
EXECUTIVE OFFICERS; COMPENSATION
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
John C. Regan 56 Chairman, President and Chief Executive Officer
Dulcia Maire 48 Secretary
</TABLE>
Ms. Maire has served in her present position since April 1989.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the named executives
concerning their respective annual and long-term compensation for the last
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted Options/ LTIP All Other
Name and Salary(A) Bonus Compensation Stock SARs(#) Payouts Compensation
Principal Position Year ($) ($)(B) ($) Award(s)($) (C) ($) (D)$
- ------------------ ---- --------- ------ ------------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John C. Regan 2000 190,000 -- -- -- -- -- 17,309
Chairman and CEO 1999 186,250 -- -- -- -- -- 20,395
1998 175,000 20,000 -- -- 60,000 -- 21,886
</TABLE>
(A) Represents actual cash compensation.
(B) Mr. Regan received a bonus of $20,000 in fiscal 1999 for the attainment of
budgeted operating results in the previous fiscal year.
(C) Mr. Regan received options to purchase 60,000 shares of the Corporation's
Common Stock for $0.396 per share as part of awards for fiscal 1998 under
the Incentive Stock Option Plan. The options expire in 2008.
(D) Represents the value of insurance premiums with respect to term life
insurance paid by the Corporation for the benefit of Mr. Regan.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named executives
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)(A)
Shares
Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized($) Unexercisable Unexercisable
---- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
John C. Regan 0 0 160,000/0 $54,400/0
</TABLE>
(A) Market value of Common Stock at year-end bid price per share minus the
exercise price.
COMPENSATION OF DIRECTORS
The outside directors of the Corporation receive a $1,500 per meeting fee plus
reimbursement for their actual expenses incurred in attending such meetings. In
addition, the Corporation has established the 1990 Non-Employee Director Stock
8
<PAGE> 10
Option Plan (the "Non-Employee Plan") which provides for the grants of options
to non-employee directors to purchase an aggregate of up to 350,000 shares of
Common Stock subject to adjustment in the event of any change in the Common
Stock. Under the Non-Employee Plan, the exercise price of options granted shall
be 100% of the fair market value of such shares on the date such options are
granted subject to adjustment as provided in the plan. At the 1991 Annual
Meeting, pursuant to the terms of the Non-Employee Plan, Mr. Bendis was granted
options to purchase 48,750 shares of Common Stock. During the fiscal year ended
January 31, 1994, Mr. Bendis exercised options to purchase 38,500 shares of the
Corporation's Common Stock. At the 1996 Annual Meeting, approval was received to
amend the Plan to provide for the award of 10,000 options to purchase Common
Stock of the Corporation upon a Director's re-election to the Board of
Directors. Mr. Bendis was awarded 10,000 options to purchase Common Stock of the
Corporation upon his re-election as Director in 1996, 1997, 1998 and 1999.
Mr. Kilpela was awarded 40,000 options to purchase Common Stock of the
Corporation under the Non-Employee Plan upon his election to the Board of
Directors at the 1997 Annual Meeting. The exercise price is 100% of the fair
value of such shares on the date such options are granted subject to adjustment
as provided by the plan. The options vest ratably over four years. Currently,
30,000 of the options granted Mr. Kilpela have vested with another 10,000
options vesting upon his re-election to the Board of Directors at the 2000
Annual Shareholder Meeting. Additionally, Mr. Kilpela received 10,000 options
upon his re-election to the Board of Directors in 1998 and 1999.
Dr. Berkey was awarded 40,000 options to purchase Common Stock of the
Corporation under the Non-Employee Plan upon his election to the Board of
Directors as part of the 1998 Annual Shareholder Meeting. The exercise price is
100% of the fair value of such shares on the date Dr. Berkey was appointed to
the Board of Directors. The options vest ratably over four years. Currently,
20,000 of the options awarded to Dr. Berkey have vested, with another 10,000
options vesting upon his election to the Board of Directors at the 2000 Annual
Shareholders Meeting. Additionally, Mr. Berkey received 10,000 options upon his
re-election to the Board of Directors in 1999.
Mr. Chiafullo was awarded 40,000 options to purchase Common Stock of the
Corporation under the Non-Employee Plan upon his election to the Board of
Directors as part of the 1998 Annual Shareholder Meeting. The exercise price is
100% of the fair value of such shares on the date Mr. Chiafullo is elected to
the Board of Directors. The options vest ratably over four years. Currently,
20,000 of the options awarded to Mr. Chiafullo have vested, with another 10,000
options vesting upon his election to the Board of Directors at the 2000 Annual
Shareholders Meeting. Additionally, Mr. Chiafullo received 10,000 options upon
his re-election to the Board of Directors in 1999.
Employee directors are not compensated in their role as directors with the
exception of grants under the 1990 Employee Director Stock Option Plan (the
"Employee Director Plan") pursuant to which options to purchase an aggregate of
up to 250,000 shares of Common Stock, subject to adjustment in the event of any
change in the Common Stock, may be granted to employee directors. Under the
Employee Director Plan, the exercise price of options granted shall be 100% of
the fair market value of such shares on the date such options are granted. At
the 1991 Annual Meeting, Mr. Regan was granted options to purchase 50,000 shares
pursuant to the terms of the Employee Director Plan. No options granted pursuant
to the Employee Director Plan have been exercised.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has provided the following Compensation Committee
Report to the PDG Environmental Board of Directors:
The Corporation has a multi-level approach to determining executive
compensation. Individual performance and responsibility of each executive
officer is evaluated in relation to 1) base salary, 2) comparative compensation
surveys, 3) benefits, and 4) stock option plan with incentive driven vesting.
With this philosophy, the Corporation feels confident that it can attract and
retain quality top management and reinforce the strategic plans of the
Corporation through the use of performance objectives.
The review of executive compensation is conducted by the Chief Executive Officer
who reports to the Compensation Committee. The Compensation Committee reviews
and ultimately approves the executive compensation.
9
<PAGE> 11
Individual Performance
Performance management reviews are conducted periodically for all employees of
the Corporation and executive officers. Individual goals are established at that
time, incorporating the overall objectives of the Corporation. As part of the
review, consideration is given to an executive officer's specific area of
responsibility, accomplishments and contributions.
Base Compensation
The Corporation offers competitive salaries as compared to salaries offered by
companies in similar environmental and hazardous waste remediation companies.
Comparative Compensation Surveys
The Corporation reviews salary surveys from outside sources which evaluate
similar environmental and hazardous waste remediation companies and provide
comparisons on base salaries, appraisal systems, benefits and other specialty
surveys. The comparison group used for compensation is more similar to the
Corporation than the group used in the performance graph in that the performance
graph companies have more diverse areas of operations, such as landfills, and
hazardous waste treatment facilities while the compensation group is
environmental remediation service companies.
Benefits
The basic benefits offered to executive officers, which include group health
insurance, group term life insurance and disability insurance are the same as
those provided to other employees of the Corporation. Additionally, certain
executive officers are provided with automobile allowances or company
automobiles, individual term life insurance policies for their benefit and club
memberships which are used for both business and personal purposes.
Stock Option Plans
All executive officers are eligible to participate in the Corporation's
Incentive Stock Option Plan. Periodic grants of options are approved by the
Compensation Committee and are intended to provide executives with the
opportunity to buy and maintain an equity interest in the Corporation and share
in the appreciation of the value of the stock. In addition, Mr. Regan is
eligible to participate in the Corporation's Employee Director Plan.
On June 17, 1996, the Compensation Committee recommended and the Board approved
the proposal and related grant of 120,000 options for the achievement of
budgeted operating results for fiscal 1998 for executive officers including Mr.
Regan. All of the options for fiscal 1998 vested as the Corporation exceeded
budgeted financial goals by $100,000.
On March 2, 1998, the Compensation Committee recommended and the Board approved
the proposal and related grant of 19,000 options for the achievement of budgeted
operating results for fiscal 1999 for executive officers including Mr. Regan.
Additionally, the executive officers, including Mr. Regan, participate in a
supplemental incentive pool with corporate office personnel and are eligible to
share in the award of up to 37,000 options for achievement of operating results
for fiscal 1999 in excess of budget. None of the options for fiscal 1999 vested
as the Corporation did not meet its financial goals for fiscal 1999.
For fiscal 2000, the Compensation Committee recommended and the Board approved
the proposal and related grant of 19,000 options for the achievement of budgeted
operating results for fiscal 2000 for executive officers including Mr. Regan.
Any of the options not earned or awarded for the achievement of fiscal 2000
goals will vest to the respective employees in November 2008. Additionally, the
executive officers, including Mr. Regan, participated in a supplemental
incentive pool with corporate office personnel and are eligible to share in an
award of up to 37,000 options for achievement of operating results for fiscal
2000 in excess of budget. None of the options for fiscal 2000 vested as the
Corporation did not meet its financial goals in fiscal 2000.
For fiscal 2001, the Compensation Committee recommended and the Board approved
the proposal and related grant of 19,000 options for the achievement of budgeted
operating results for fiscal 2001 for executive officers including Mr. Regan.
Any of the options not earned or awarded for the achievement of fiscal 2000
goals will vest to the respective employees in November 2009. Additionally, the
executive officers, including Mr. Regan, participate in a supplemental
10
<PAGE> 12
incentive pool with corporate office personnel and are eligible to share in an
award of up to 37,000 options for achievement of operating results for fiscal
2001 in excess of budget.
Compensation of All Executive Officers
The base pay of executive officers for the fiscal year ended January 31, 2000
was determined on the basis of the Compensation Committee's overall assessment
of the executive officer's performance and competitive market data on salary
levels. No incentives were paid as the Corporation did not achieve budgeted
operating results for fiscal 2000. The base pay of the executive officers is not
directly related to the Corporation's performance.
Compensation of John C. Regan, Chairman and Chief Executive Officer
The Committee established the compensation of John C. Regan, Chairman and Chief
Executive Officer, using the same criteria that were used to determine
compensation levels for all executive officers. Mr. Regan's base pay was
determined based on the Committee's assessment of Mr. Regan's performance and
competitive market data on salary levels. Additionally, Mr. Regan received a
$20,000 bonus based upon the achievement of budgeted operating results for
fiscal 1998.
In addition to his base pay and bonus, Mr. Regan is provided with three
individual term life insurance policies for his benefit in the amounts of
$2,000,000, $1,000,000 and $200,000, a supplemental disability income policy and
club memberships.
On June 17, 1996, the Compensation Committee recommended and the Board approved
the proposal and related grant of 60,000 options for the achievement of budgeted
operating results for fiscal 1998 to Mr. Regan. The 60,000 options for fiscal
1998 vested as the Corporation exceeded budgeted financial goals by $100,000.
On March 2, 1998, the Compensation Committee recommended and the Board approved
the proposal and related grant of 10,000 options for the achievement of budgeted
results for fiscal 1999 to Mr. Regan. Additionally, Mr. Regan participated in a
supplemental incentive pool with corporate office personnel and was eligible to
share in the award of up to 37,000 options for the achievement of operating
results for fiscal 1999 in excess of budget. Mr. Regan's base salary was
increased by 9% effective April 1, 1998, and he was eligible to receive a
supplemental cash bonus of $25,000, $50,000 and $75,000 if the January 31, 1999
stock price of the Corporation Common Stock exceeds $4.00 per share, $5.00 per
share and $6.00 per share, respectively. As the Corporation did not meet its
financial goals and the Common Stock share price on January 31, 1999 did not
exceed $4.00 per share, no options or supplemental cash bonus awards were made
for fiscal 1999 to Mr. Regan.
On March 6, 2000, the Compensation Committee recommended, and the Board
approved, the proposal and related grant of 10,000 options for the achievement
of budgeted results for fiscal 2001 to Mr. Regan. Additionally, Mr. Regan
participated in a supplemental incentive pool with corporate office personnel
and is eligible to share in the award of up 37,000 options and cash bonuses of
$40,000 for the achievement of operating results for fiscal 2001 in excess of
budget.
This report has been approved by all members of the Compensation Committee.
Respectfully submitted,
Edwin J. Kilpela, Chairman
11
<PAGE> 13
PERFORMANCE GRAPH
The graph on the next page compares the value of the Common Stock, to the NASDAQ
market index and an industry index representing SIC Code No. 4953-Refuse
Systems. Each of the total cumulative total returns presented assumes a $100
investment on January 31, 1995 and reinvestment of dividends. The industry index
is comprised of the following securities: Allied Waste Industries, Inc.;
American Ecology Corporation; ATG, Inc.; Avalon Holdings Corporation; Capital
Environmental Resource, Corp.; Casella Waste Systems, Inc.; Clean Harbors, Inc.;
Commodore Applied Technology, Inc.; Earthcare Company; Envirogen, Inc.;
Environmental Safeguards, Inc.; Industrial Services of America, Inc.; Mercury
Waste Solutions, Inc.; MPM Technologies, Inc.; Perma-Fix Environmental Services;
Republic Services, Inc.; Safety-Kleen, Corporation; Scherer Healthcare, Inc.;
Sevenson Environmental; Stericycle, Inc.; Synagro Technologies, Inc.;
Thermoretec Corporation; Waste Connections, Inc.; Waste Industries, Inc.; Waste
Management Int.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PDG ENVIRONMENTAL, INC.,
NASDAQ MARKET INDEX AND REFUSE SYSTEMS
<TABLE>
<CAPTION>
PDG ENVIRONMENTAL, NASDAQ MARKET
INC. REFUSE SYSTEMS INDEX
------------------ -------------- -------------
<S> <C> <C> <C>
1995 100.00 100.00 100.00
1996 40.00 112.63 140.02
1997 32.00 149.59 184.26
1998 147.20 116.03 217.04
1999 64.80 115.07 338.74
2000 64.00 44.36 506.71
</TABLE>
ASSUMES $100 INVESTED ON FEB. 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JAN. 31, 2000
12
<PAGE> 14
PROPOSAL TO AMEND THE PDG ENVIRONMENTAL, INC.
INCENTIVE STOCK OPTION PLAN
On March 6, 2000, the Board of Directors voted to amend the PDG Environmental,
Inc. Incentive Stock Option Plan (the "Plan"), subject to approval by the
stockholders, to increase by 500,000 the maximum number of shares of the Common
Stock of the Corporation which may be granted under the Plan and extend the Plan
by ten years until December 14, 2010.
BACKGROUND
The Board of Directors adopted the Plan for the benefit of the Corporation's
officers and employees based upon the belief that the Plan promotes the best
interests of the Corporation and its stockholders by encouraging stock ownership
in the Corporation by present and future officers and employees thus stimulating
their efforts on behalf of the Corporation and strengthening their desire to
remain with the Corporation and to provide an additional component of a total
compensation package to employees while at the same time conserving the
Corporation's cash. The Plan, as currently in effect, was adopted by the
Corporation in January 1986. The Plan was amended in 1991 to allow for certain
definitional changes and to increase the number of shares of the Corporation's
Common Stock, subject to the Plan from 230,000 to 400,000 amended in 1994 to
increase the number of shares of the Corporation's Common Stock, subject to the
Plan from 400,000 to 700,000 amended in 1996 to increase the number of shares of
the Corporation's Common Stock, subject to the Plan from 700,000 to 1,550,000
and amended in 1998 to increase the number of shares of the Corporation's Common
Stock subject to the Plan from 1,550,000 to 1,800,000. These amendments were
approved by the stockholders of the Corporation at the 1991, 1994, 1996 and 1998
Annual Meetings, respectively.
THE PLAN
The following is a summary of the principal features of the Plan.
Term: The Board of Directors of the Corporation may terminate the Plan at any
time.
Shares Subject to the Plan: The total number of shares of Common Stock of the
Corporation which may be granted under the Plan is 2,300,000 shares (including
the 500,000 shares for which authorization from stockholders is sought), subject
to adjustments provided for in the Plan in order to prevent dilution or
enlargement of rights under the Plan. If an option expires or is terminated for
any reason, the unpurchased or forfeited shares will be eligible for future
awards.
Eligibility: Every full-time employee is eligible to participate in the Plan.
Option Price: The option price shall be fixed by the Board of Directors but
shall in no event be less than 100% of the fair market value of the
Corporation's Common Stock on the date of grant (or 110% in the case of an
employee who owns more than 10% of the total combined voting power of all
classes of stock of the Corporation).
Terms and Conditions of Options: No option granted under the Plan will be
transferable other than by will or by the laws of descent and distribution and
each option will be exercisable during the lifetime of the optionee only by the
optionee. Options granted will expire no later than ten years from the date of
grant. In the event of death or permanent disability, an outstanding option can
be exercised for one year thereafter. If the employment of the optionee is
terminated for good cause, his/her option rights will terminate immediately. If
the employment of the optionee is terminated for any reason, the optionee has
thirty days to exercise the option with respect to the number of shares of stock
which the optionee was entitled to purchase immediately prior to such
termination.
Tax Consequences:
An optionee to whom an incentive stock option is granted will not recognize any
taxable income upon the grant of the option. Neither will the optionee recognize
any taxable income upon the exercise of such option, but the amount by which the
fair market value of the shares on the date of exercise exceeds the option price
paid will be a tax preference item for purposes of the alternative minimum tax.
The shares received pursuant to the exercise of the option will have a tax basis
equal to the option price paid. The Corporation will not be entitled to a
deduction in respect of the granting or exercise of such option.
13
<PAGE> 15
The prescribed holding period for stock received pursuant to such an option is
the greater of two years from the date the option is granted and one year from
the date the shares are transferred to the optionee. If the optionee does not
dispose of the stock before the expiration of this holding period, he shall
realize a long-term capital gain or loss upon a later disposition of the stock.
The amount of this gain or loss shall be equal to the difference between the
amount he realizes on the disposition and the option price paid.
If the optionee disposes of the stock prior to the expiration of the prescribed
holding period, he will have made a disqualifying disposition. In such a case,
the optionee will recognize ordinary income, in the year of disposition, in an
amount equal to the difference between the fair market value of the stock on the
date he exercised the option and the option price paid, provided, however, that
the amount of such ordinary income shall not exceed the difference between the
amount he realizes on the disposition and the option price paid. If the
difference between the amount realized on the disposition and the option price
paid exceeds the difference between the fair market value of the stock on the
date of exercise and the option price paid, the amount of the excess will be
taxed as a long-term capital gain. If the amount realized on the disposition is
less than the option price paid, the optionee will recognize a long-term or
short-term capital loss. The Corporation will be entitled to a deduction, in the
same year, and in the same amount, as the ordinary income the optionee is
required to recognize as a result of the disposition.
PROPOSAL TO AMEND THE PDG ENVIRONMENTAL, INC.
1990 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On March 6, 2000, the Board of Directors voted to amend the PDG Environmental,
Inc. 1990 Stock Option Plan for Non-Employee Directors (the "Plan"), subject to
approval by the stockholders, to extend the Plan by ten years until December 14,
2010.
BACKGROUND
The Board of Directors adopted the Plan for the benefit of the Corporation's
non-employee directors based upon the belief that the Plan promotes the best
interests of the Corporation and its stockholders by encouraging stock ownership
in the Corporation by non-employee directors thus stimulating their efforts on
behalf of the Corporation and strengthening their desire to remain with the
Corporation and to provide a compensation increase to directors while at the
same time conserving the Corporation's cash. The Plan, as currently in effect,
was adopted by the Corporation in December, 1990.
THE PLAN
The following is a summary of the principal features of the Plan.
Term: The Plan shall remain in effect until December 14, 2010 (including the
ten-year extension for which authorization from stockholders is sought) unless
sooner terminated by the Board of Directors of the Corporation.
Shares Subject to the Plan: The total number of shares of Common Stock of the
Corporation which may be granted under the Plan is 350,000 shares, subject to
adjustments provided for in the Plan in order to prevent dilution or enlargement
of rights under the Plan. If an option expires or is terminated for any reason,
the unpurchased or forfeited shares will be eligible for future awards.
Eligibility: Every non-employee director of the Corporation is eligible to
participate in the Plan.
Option Price: The option price shall be fixed by the Board of Directors but
shall in no event be less than 100% of the fair market value of the
Corporation's Common Stock on the date of grant.
Terms and Conditions of Options: No option granted under the Plan will be
transferable other than by will or by the laws of descent and distribution and
each option will be exercisable during the lifetime of the optionee only by the
optionee. Options granted will expire no later than ten years from the date of
grant. In the event of death or permanent disability, an outstanding option can
be exercised for one year thereafter. The optionee shall forfeit all rights
under the option (except as to any shares already purchased) if the optionee is
removed from the Board of Directors of the Corporation by a vote of the
stockholders or by a vote of the Board. If the Board membership of the optionee
is terminated for any reason, the optionee's options terminate immediately.
14
<PAGE> 16
Tax Consequences:
An optionee to whom an incentive stock option is granted will not recognize any
taxable income upon the grant of the option. Neither will the optionee recognize
any taxable income upon the exercise of such option, but the amount by which the
fair market value of the shares on the date of exercise exceeds the option price
paid will be a tax preference item for purposes of the alternative minimum tax.
The shares received pursuant to the exercise of the option will have a tax basis
equal to the option price paid. The Corporation will not be entitled to a
deduction in respect of the granting or exercise of such option.
The prescribed holding period for stock received pursuant to such an option is
the greater of two years from the date the option is granted and one year from
the date the shares are transferred to the optionee. If the optionee does not
dispose of the stock before the expiration of this holding period, he shall
realize a long-term capital gain or loss upon a later disposition of the stock.
The amount of this gain or loss shall be equal to the difference between the
amount he realizes on the disposition and the option price paid.
If the optionee disposes of the stock prior to the expiration of the prescribed
holding period, he will have made a disqualifying disposition. In such a case,
the optionee will recognize ordinary income, in the year of disposition, in an
amount equal to the difference between the fair market value of the stock on the
date he exercised the option and the option price paid, provided, however, that
the amount of such ordinary income shall not exceed the difference between the
amount he realizes on the disposition and the option price paid. If the
difference between the amount realized on the disposition and the option price
paid exceeds the difference between the fair market value of the stock on the
date of exercise and the option price paid, the amount of the excess will be
taxed as a long-term capital gain. If the amount realized on the disposition is
less than the option price paid, the optionee will recognize a long-term or
short-term capital loss. The Corporation will be entitled to a deduction, in the
same year, and in the same amount, as the ordinary income the optionee is
required to recognize as a result of the disposition.
PROPOSAL TO AMEND THE PDG ENVIRONMENTAL, INC.
1990 STOCK OPTION PLAN FOR EMPLOYEE DIRECTORS
On March 6, 2000, the Board of Directors voted to amend the PDG Environmental,
Inc. 1990 Stock Option Plan for Employee Directors (the "Plan"), subject to
approval by the stockholders, to extend the Plan by ten years until December 14,
2010.
BACKGROUND
The Board of Directors adopted the Plan for the benefit of the Corporation's
employee directors based upon the belief that the Plan promotes the best
interests of the Corporation and its stockholders by encouraging stock ownership
in the Corporation by employee directors thus stimulating their efforts on
behalf of the Corporation and strengthening their desire to remain with the
Corporation and to provide a compensation increase to directors while at the
same time conserving the Corporation's cash. The Plan, as currently in effect,
was adopted by the Corporation in December, 1990.
THE PLAN
The following is a summary of the principal features of the Plan.
Term: The Plan shall remain in effect until December 14, 2010 (including the
ten-year extension for which authorization from stockholders is sought) unless
sooner terminated by the Board of Directors of the Corporation.
Shares Subject to the Plan: The total number of shares of Common Stock of the
Corporation which may be granted under the Plan is 250,000 shares, subject to
adjustments provided for in the Plan in order to prevent dilution or enlargement
of rights under the Plan. If an option expires or is terminated for any reason,
the unpurchased or forfeited shares will be eligible for future awards.
Eligibility: Every employee director of the Corporation is eligible to
participate in the Plan.
Option Price: The option price shall be fixed by the Board of Directors but
shall in no event be less than 100% of the fair market value of the
Corporation's Common Stock on the date of grant.
15
<PAGE> 17
Terms and Conditions of Options: No option granted under the Plan will be
transferable other than by will or by the laws of descent and distribution and
each option will be exercisable during the lifetime of the optionee only by the
optionee. Options granted will expire no later than ten years from the date of
grant. In the event of death or permanent disability, an outstanding option can
be exercised for one year thereafter. The optionee shall forfeit all rights
under the option (except as to any shares already purchased) if the optionee is
removed from the Board of Directors of the Corporation by a vote of the
stockholders or by a vote of the Board. If the Board membership of the optionee
is terminated for any reason, the optionee's options terminate immediately.
Tax Consequences:
An optionee to whom an incentive stock option is granted will not recognize any
taxable income upon the grant of the option. Neither will the optionee recognize
any taxable income upon the exercise of such option, but the amount by which the
fair market value of the shares on the date of exercise exceeds the option price
paid will be a tax preference item for purposes of the alternative minimum tax.
The shares received pursuant to the exercise of the option will have a tax basis
equal to the option price paid. The Corporation will not be entitled to a
deduction in respect of the granting or exercise of such option.
The prescribed holding period for stock received pursuant to such an option is
the greater of two years from the date the option is granted and one year from
the date the shares are transferred to the optionee. If the optionee does not
dispose of the stock before the expiration of this holding period, he shall
realize a long-term capital gain or loss upon a later disposition of the stock.
The amount of this gain or loss shall be equal to the difference between the
amount he realizes on the disposition and the option price paid.
If the optionee disposes of the stock prior to the expiration of the prescribed
holding period, he will have made a disqualifying disposition. In such a case,
the optionee will recognize ordinary income, in the year of disposition, in an
amount equal to the difference between the fair market value of the stock on the
date he exercised the option and the option price paid, provided, however, that
the amount of such ordinary income shall not exceed the difference between the
amount he realizes on the disposition and the option price paid. If the
difference between the amount realized on the disposition and the option price
paid exceeds the difference between the fair market value of the stock on the
date of exercise and the option price paid, the amount of the excess will be
taxed as a long-term capital gain. If the amount realized on the disposition is
less than the option price paid, the optionee will recognize a long-term or
short-term capital loss. The Corporation will be entitled to a deduction, in the
same year, and in the same amount, as the ordinary income the optionee is
required to recognize as a result of the disposition.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At January 31, 2000, the Corporation and its subsidiaries maintained outstanding
personal loans to Mr. Regan in the amount of $95,000. This personal loan is
evidenced by a demand note and bears interest at the rate of 6% per annum. This
loan was made to provide Mr. Regan with funds to satisfy personal obligations.
The loan to Mr. Regan was made in a series of installments from April 1990 to
August 1990. The amount specified represents the highest outstanding balances of
the loans during the Corporation's fiscal year.
RATIFICATION OF INDEPENDENT AUDITORS
Stokes Kelly & Hinds, LLC served as independent auditors for the Corporation for
the fiscal year ended January 31, 2000. The Board of Directors has selected
Stokes Kelly & Hinds, LLC as its independent auditors for the fiscal year
January 31, 2001 and is asking the stockholders to ratify that selection.
Representatives of Stokes Kelly & Hinds, LLC will be present at the annual
meeting and are expected by management to respond to appropriate questions.
STOCKHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended
(the Exchange Act"), stockholders may present proper proposals for inclusion in
the Corporation's proxy statement and for consideration at the next Annual
Meeting of Stockholders by submitting such proposals to the Corporation in a
timely manner. In order to be so included
16
<PAGE> 18
for the 2001 Annual Meeting, stockholder proposals must be received by the
Corporation no later than May 2, 2001 and must otherwise comply with the
requirements of Rule 14a-8. Stockholder proposals submitted outside the
processes of Rule 14a-8 must be received by the Corporation no later than June
16, 2001 and must otherwise comply with the requirements of Rule 14a-4(c) under
the Exchange Act; in accordance with Rule 14a-4(c), proxy holders will have
discretionaly authority to vote in accordance with their judgment upon any such
proposal which is not timely received by the Corporation or which does not
otherwise comply with Rule 14a4(c).
FINANCIAL INFORMATION
The following information comprises a part of the Annual Report of the
Corporation for the fiscal year ended January 31, 2000:
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.
17
<PAGE> 19
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
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
18
<PAGE> 20
$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.
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
19
<PAGE> 21
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 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.
20
<PAGE> 22
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.
21
<PAGE> 23
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
22
<PAGE> 24
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.
23
<PAGE> 25
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.
24
<PAGE> 26
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.
25
<PAGE> 27
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.
26
<PAGE> 28
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.
27
<PAGE> 29
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.
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.
28
<PAGE> 30
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>
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>
29
<PAGE> 31
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>
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.
30
<PAGE> 32
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>
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
31
<PAGE> 33
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.
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.
32
<PAGE> 34
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.
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>
33
<PAGE> 35
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.
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
34
<PAGE> 36
(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 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.
35
<PAGE> 37
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 shares 8,394,000 7,437,000 6,060,000
---------- ---------- ----------
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
========== ========== ==========
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
36
<PAGE> 38
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
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>
37
<PAGE> 39
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.
38
<PAGE> 40
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PDG ENVIRONMENTAL, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, JULY 7, 2000
The undersigned hereby constitutes and appoints Dulcia Maire, with
powers of substitution, as proxies, to vote all of the shares of the
Common Stock of the Corporation registered in the name of the
undersigned at the close of business on May 19, 2000, at the Annual
Meeting of Stockholders of the Corporation to be held on July 7, 2000
at 9:00 A.M., E.D.T. at the Ramada Inn, 699 Rodi Road, Pittsburgh,
Pennsylvania 15235, and at any adjournment thereof, upon the matters
described in the Notice of such Annual Meeting and Proxy Statement
dated May 26, 2000, receipt of which is hereby acknowledged, and upon
any other business that may properly come before the Meeting.
The shares represented by this Proxy will be voted and the shares
represented by this Proxy will be voted as specified hereon, but if no
specification is made, the proxies intend to vote FOR the election of
the nominees listed in the Proxy Statement and FOR approval of the
other proposals described in the Proxy Statement.
<TABLE>
<S> <C> <C>
a. Election of Directors FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY [ ]
(EXCEPT AS MARKED TO THE CONTRARY BELOW) TO VOTE FOR ALL NOMINEES LISTED BELOW
</TABLE>
John C. Regan, Richard A. Bendis, Edgar Berkey, James D. Chiafullo and
Edwin J. Kilpela for a term of one year.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
----------------------------------------------------------------------
b. Ratification of the Independent Auditors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(Continued and to be signed and voted on the reverse side.)
c. Amendment to Corporation Incentive Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
d. Amendment to Corporation 1990 Stock Option Plan for Non-Employee
Directors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
e. Amendment to Corporation 1990 Stock Option Plan for Employee
Directors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Signature(s) must correspond with the name or names as they appear printed
on this Proxy. When signing as
attorney, administrator,
executor, guardian or trustee,
please add your full title as
such. If shares are registered
in the names of joint tenants
or trustees, each joint tenant
or trustee should sign.
DATED: , 2000
-------------------------------
-------------------------------
Signature(s) of Stockholder(s)
PLEASE DATE, SIGN AND MAIL THIS
PROXY IN THE ENVELOPE PROVIDED,
POSTAGE NOT NECESSARY IF MAILED
IN THE UNITED STATES.
