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(conformed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____________________ TO _________________
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146
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(Address of principal executive offices) (Zip Code)
412-856-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of June 8, 2000, there were 8,782,644 shares of the registrant's common stock
outstanding.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of April 30, 2000 (unaudited)
and January 31, 2000 3
(b) Consolidated Statements of Operations for the Three Months Ended April
30, 2000 and 1999 (unaudited) 4
(c) Consolidated Statements of Cash Flows for the Three Months Ended April
30, 2000 and 1999 (unaudited) 5
(d) Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 3. Defaults Upon Senior Securities 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000*
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 75,000 $ 282,000
Accounts receivable - net 6,879,000 6,101,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,146,000 1,055,000
Inventory 327,000 291,000
Other current assets 597,000 329,000
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TOTAL CURRENT ASSETS 9,024,000 8,058,000
PROPERTY, PLANT AND EQUIPMENT 6,113,000 5,845,000
Less: accumulated depreciation (4,620,000) (4,462,000)
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1,493,000 1,383,000
OTHER ASSETS 1,358,000 912,000
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TOTAL ASSETS $ 11,875,000 $ 10,353,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,580,000 $ 2,263,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 900,000 1,015,000
Current portion of long-term debt 1,078,000 173,000
Accrued liabilities 1,573,000 1,299,000
------------ ------------
TOTAL CURRENT LIABILITIES 6,131,000 4,750,000
OTHER LONG-TERM LIABILITIES 184,000 166,000
LONG-TERM DEBT 338,000 376,000
Stockholders' Equity
Cumulative convertible 2% preferred stock 14,000 14,000
Common stock 177,000 169,000
Additional paid-in capital 7,767,000 7,421,000
(Deficit) retained earnings (2,698,000) (2,505,000)
Less treasury stock (38,000) (38,000)
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TOTAL STOCKHOLDERS' EQUITY 5,222,000 5,061,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,875,000 $ 10,353,000
============ ============
</TABLE>
*Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
-------------------------------
2000 1999
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<S> <C> <C>
CONTRACT REVENUES $ 8,067,000 $ 5,153,000
CONTRACT COSTS 7,045,000 4,385,000
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Gross margin 1,022,000 768,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 935,000 959,000
----------- -----------
Income (loss) from operations 87,000 (191,000)
OTHER INCOME (EXPENSE):
Interest expense (37,000) (29,000)
Interest income 15,000 2,000
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(22,000) (27,000)
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Income (loss) before income taxes 65,000 (218,000)
INCOME TAX PROVISION (4,000) --
----------- -----------
NET INCOME (LOSS) $ 61,000 $ (218,000)
=========== ===========
PER SHARE OF COMMON STOCK:
BASIC $ 0.01 $ (0.03)
=========== ===========
DILUTIVE $ 0.01 $ (0.03)
=========== ===========
AVERAGE COMMON SHARES EQUIVALENTS OUTSTANDING 8,572,000 8,391,000
AVERAGE DILUTIVE COMMON SHARES EQUIVALENTS
OUTSTANDING 539,000 --
----------- -----------
AVERAGE COMMON SHARES AND DILUTIVE COMMON
EQUIVALENTS OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,111,000 8,391,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
---------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 61,000 $(218,000)
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO CASH:
Depreciation and amortization 219,000 223,000
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable (761,000) (141,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (91,000) (187,000)
Inventory (13,000) 56,000
Other current assets 71,000 51,000
Accounts payable (5,000) (138,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts (115,000) 163,000
Accrued liabilities 152,000 (394,000)
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(762,000) (590,000)
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NET CASH USED BY OPERATING ACTIVITIES (482,000) (585,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (132,000) (112,000)
Acquisition of Businesses (460,000) --
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NET CASH USED BY INVESTING ACTIVITIES (592,000) (112,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 905,000 475,000
Principal payments on debt (38,000) (47,000)
Proceeds from Exercise of Stock Options & Warrants -- 15,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 867,000 443,000
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Net Decrease in Cash and Short-Term Investments (207,000) (254,000)
Cash and Short-Term Investments, Beginning of Period 282,000 309,000
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CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 75,000 $ 55,000
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc.'s (the
"Corporation") and its wholly-owned subsidiaries.
The accompanying consolidated financial statements of the Corporation are
unaudited. However, in the opinion of management, they include all adjustments
necessary for a fair presentation of financial position, results of operations
and cash flows. All adjustments made during the three months ended April 30,
2000 were of a normal, recurring nature. The amounts presented for the three
months ended April 30, 2000 are not necessarily indicative of results of
operations for a full year. Additional information is contained in the Annual
Report on Form 10-KSB of the Corporation for the year ended January 31, 2000
dated May 15, 2000, which should be read in conjunction with this quarterly
report.
NOTE 2 - FEDERAL INCOME TAXES
No federal income tax has been provided for the three months ended April 30,
2000 due to the existence of unused net operating loss carryforwards. The
Corporation has recorded a provision for state income taxes.
Income taxes paid by the Corporation for the three months ended April 30, 2000
and 1999 totaled approximately $16,000 and $35,000, respectively.
NOTE 3 - LINE OF CREDIT
On August 25, 1997, the Corporation closed on a $2 million credit facility
consisting of a 5-year $0.5 million equipment note and a 3-year revolving line
of credit with a maximum advance of $1.5 million. Both the equipment note and
the line of credit have an interest rate of prime plus 3.5%. As of April 30,
2000, the outstanding balance on the revolving line of credit was $920,000.
The Corporation paid interest costs totaling approximately $31,000 and $29,000
during the three months ended April 30, 2000 and 1999, respectively.
NOTE 4 - PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred Stock
were approximately $8,000 at April 30, 2000. At April 30, 2000, there were 6,000
shares of Series A Preferred Stock outstanding. Each share of Series A Preferred
Stock is convertible into four shares of the Corporation's common stock at the
option of the preferred stockholder.
The conversion rate on the Series A Preferred Stock is also 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).
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, grant to the holders of such common stock rights shares
of the common stock of the Corporation. At the May 23, 1995
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and March 6, 2000 Board of Directors meeting, the issuance of one third of the
shares (280,071 and 259,696 common shares, respectively) covered by the
aforementioned right was approved. At April 30, 2000, there were 280,071 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.
NOTE 5 - NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
---------------------------
2000 1999
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<S> <C> <C>
NUMERATOR:
Net Income (loss) $ 61,000 $ (218,000)
Preferred stock dividends -- --
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Numerator for basic earnings per share--income available
to common stockholders 61,000 (218,000)
Effect of dilutive securities:
Preferred stock dividends -- --
---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 61,000 $ (218,000)
========== ==========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 8,572,000 8,391,000
Effect of dilutive securities:
Employee stock options 500,000 --
Warrants 12,000 --
Convertible preferred stock 27,000 --
---------- ----------
Dilutive potential common shares 539,000 --
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Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,111,000 8,391,000
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BASIC EARNINGS PER SHARE $ 0.01 $ (0.03)
========== ==========
DILUTED EARNINGS PER SHARE $ 0.01 $ (0.03)
========== ==========
</TABLE>
NOTE 6 - ACQUISITION
Effective April 3, 2000, the Corporation entered into an agreement ("the
Agreement") with Lincoln Cristi, Inc. ("Lincoln") and the majority owners of
Lincoln for the purchase of selected assets and assumption of the contracts of
Lincoln. Lincoln owned and operated a business that conducted asbestos abatement
in the Northwestern United States. As consideration for the purchase, the
Corporation paid Lincoln and the owners of Lincoln a combination of cash and the
Corporation's Common Stock and entered into an employment agreement with the
former majority owners of Lincoln that provides for a performance bonus in
addition to annual salary.
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The performance bonus is for a minimum of one year and a maximum of three years,
depending upon the continued employment of the two majority owners of Lincoln.
The goodwill associated with the acquisition is being amortized on a
straight-line basis over 15 years, the covenant not to compete and customer
lists is being amortized on a straight-line basis over 5 years, and the
performance bonus is being amortized over the 3-year life of the bonus.
Additionally, in April 2000, the Corporation acquired the fixed assets of an
asbestos abatement company operating in the metropolitan Chicago area.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
During the three months ended April 30, 2000 ("Fiscal 2001"), the Corporation's
contract revenues increased to $8.1 million compared to $5.2 million in the
three months ended April 30, 1999 ("Fiscal 2000").
The Corporation's gross margin increased to $1.0 million in the first quarter of
fiscal 2001 compared to $0.8 million in the first quarter of fiscal 2000. The
increase in gross margin is due to increased levels of revenues. The contract
margin as a percentage of revenue decreased due to a higher level of pass
through subcontracted costs that generated no gross margin.
Selling, general and administrative expenses remained relatively constant at
$0.94 million in the three months ended April 30, 2000 as compared to the same
quarter of the previous fiscal year.
The Corporation reported income from operations of $0.08 million for the three
months ended April 30, 2000 compared to a loss from operations of $0.19 million
for the three months ended April 30, 1999 as a direct result of the factors
discussed above.
Interest expense increased to $0.04 million in the current quarter as compared
to $0.03 million in the same quarter of a year ago due to a higher level of
borrowings on the revolving line of credit.
During the quarters ended April 30, 2000 and 1999, the Corporation made no
provision for federal income taxes due to the utilization of net operating loss
carryforwards for financial reporting purposes. A state income tax provision of
$4,000 was made in the current fiscal quarter while no state income tax
provision was made in the prior fiscal quarter due to the loss.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended April 30, 2000, the Corporation's cash decreased
by $0.21 million to $0.08 million.
Cash used by operating activities totaled $0.5 million in the three months ended
April 30, 2000. Cash outflows included a $0.76 million increase in accounts
receivables, a $0.09 million increase in costs and estimated earnings in excess
of billings on uncompleted contracts and a $0.12 million decrease in billings in
excess of costs and estimated earnings on uncompleted contracts. These cash
outflows were partially offset by cash inflows including $0.06 million related
to net income generated during the current three months, $0.07 million due to a
decrease in other current assets, a $0.15 million increase in accrued
liabilities related to the timing of payments and $0.22 million of depreciation
and amortization.
The decrease in cash and short term investments during the first quarter of
fiscal 2001 is attributable to cash outflows from operations of $0.5 million,
cash outflows for investing activities which included $0.46 million to purchase
the businesses acquired and $0.13 million for the purchase of property, plant
and equipment. These cash outflows were partially offset by net cash inflows of
$0.87 million primarily from the utilization of the Corporation's line of
credit.
At April 30, 2000, the Corporation's backlog totaled $16.2 million ($8.3 million
on fixed fee contracts and $7.9 million on time and materials or unit price
contracts).
During the three months ended April 30, 1999, the Corporation's cash decreased
by $0.25 million to $0.06 million.
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Cash flows used by operating activities totaled $0.6 million in the three months
ended April 30, 1999. Cash outflows included $0.2 million related to net loss
during the three months, a $0.1 million increase in accounts receivables, a $0.2
million increase in costs and estimated earnings in excess of billings on
uncompleted contracts and a $0.1 million decrease in accounts payable and a $0.4
million decrease in accrued liabilities related to the timing of payments. These
cash outflows were partially offset by cash inflows which principally included a
$0.2 million of depreciation and amortization and a $0.2 million increase in
billings in excess of costs and estimated earnings on uncompleted contracts.
The decrease in cash and short term investments during the first quarter of
fiscal 2000 is attributable to cash outflows from operations of $0.6 million.
The cash outflows relative to investing activities were for the purchase of
property, plant and equipment ($0.1 million), and the cash outflows relating to
financing activities were for the repayment of debt ($0.05 million). These
outflows were partially offset by $0.5 million of net borrowings of the line of
credit and $0.02 million from the exercise of stock options.
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PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the Registrant based upon information available
at this time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At April 30, 2000, the cumulative dividends in
arrears on the Series A Preferred Stock were approximately $8,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX
EXHIBIT NO. AND DESCRIPTION
PAGES OF SEQUENTIAL
NUMBERING SYSTEM
27. Financial data schedule
(b) Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended April 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/ John C. Regan
-----------------------------------------
John C. Regan
Chairman and Chief Executive Officer
Date: June 13, 2000
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