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(Conformed)
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Delaware 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
300 Oxford Drive, Monroeville, Pennsylvania 15146
(Address of principal executive offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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
The aggregate market value of the voting stock held by non-affiliates of the registrant was $3,317,366 as of March 31, 1997,
computed on the basis of the average of the bid and asked prices on such date.
As of March 31, 1997 there were 5,923,868 shares of the registrant's Common Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
Documents Incorporated By Reference
Portions of the Annual Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference into Part
III.
ITEM 1. Business
(a) Development of the Business
PDG Environmental, Inc., the registrant, is a holding company which, through its wholly-owned operating subsidiaries, is
engaged primarily in providing asbestos abatement services to the private and public sectors.
Prior to fiscal 1991, the registrant was solely engaged in providing asbestos abatement services. The registrant expanded the
scope of its business to include environmental remediation services in fiscal 1991 through the formation of an operating
subsidiary in Florida specializing in remediating leaking underground storage tanks ("USTs"). In fiscal 1992, the registrant
expanded its underground storage tank remediation business to Pennsylvania. In December 1992, the registrant entered the soil
remediation business by purchasing a thermal desorption plant in West Central Florida. The thermal desorption plant was
discontinued effective January 31, 1996, and the plant was sold April 25, 1996.
On July 20, 1994, PDG Remediation, Inc., now known as ICHOR Corporation, ("PDGR") was incorporated under the laws of
the Commonwealth of Pennsylvania as a wholly-owned subsidiary of the registrant. The registrant's environmental remediation
services business was merged into PDGR effective October 20, 1994 in order to separate this business segment from the
registrant's other business segments and facilitate an initial public offering of PDGR common stock. On February 9, 1995, PDGR
sold 1,000,000 shares of its common stock and 1,000,000 redeemable warrants to purchase an additional 1,000,000 shares of
common stock to the public. Of the shares of common stock sold, 600,000 were offered by PDGR and 400,000 were offered
by the registrant, thereby reducing the registrant's ownership in PDGR to approximately 60%.
On July 31, 1996, the registrant entered into a Loan Modification Agreement ("Modification Agreement") with Drummond
Financial Corporation ("Drummond") formerly CVD Financial Corporation. Pursuant to the Modification Agreement,
Drummond purchased all 1,470,320 shares of PDGR common stock held by the Corporation for $0.82 per share and the aggregate
purchase price of $1,205,662 was utilized to reduce the outstanding balance on the line of credit maintained by the Corporation
with Drummond. This resulted in a $203,000 gain on the sale.
(b) Description of the Business
Overview
The registrant, through its wholly-owned subsidiaries, provides asbestos abatement contracting services to the public and private
sectors. The asbestos abatement industry has developed due to increased public awareness in the early 1970's of the health risks
associated with asbestos, which was extensively used in building construction.
Asbestos, which is a fibrous mineral found in rock formations throughout the world, was used extensively in a wide variety of
construction-related products as a fire retardant and insulating material in residential, commercial and industrial properties.
During the period from approximately 1910 to 1973, asbestos was commonly used as a construction material in structural steel
fireproofing, as thermal insulation on pipes and mechanical equipment and as an acoustical insulation material. Asbestos was
also used as a component in a variety of building materials (such as plaster, drywall, mortar and building block) and in caulking,
tile adhesives, paint, roofing felts, floor tile and other surfacing materials.
In the early 1970's, it became publicly recognized that inhalation or ingestion of asbestos fibers was a direct cause of certain
diseases, including asbestosis (a debilitating pulmonary disease), lung cancer, mesothelioma (a cancer of the abdominal and lung
lining) and other diseases. In particular, friable asbestos-containing materials ("ACM") were designated as a potential health
hazard because these materials can produce microscopic fibers and become airborne when disturbed.
The Environmental Protection Agency (the "EPA") first banned the use of asbestos as a construction material in 1973 and the
federal government subsequently banned the use of asbestos in other building materials as well.
Most structures built before 1973 contain ACM in some form and surveys conducted by the federal government have estimated
that 31,000 schools and 733,000 public and commercial buildings contain friable ACM. Also, many more industrial facilities
are known to contain asbestos.
The asbestos abatement industry grew rapidly in the 1980's due to increasing public awareness and concern over health hazards
associated with ACM, legislative action mandating safety standards and requiring abatement in certain circumstances, and
economic pressures on building owners seeking to satisfy the requirements of financial institutions, insurers and tenants. It is
estimated that the asbestos abatement market grew from approximately $200 million in revenues in 1983 to approximately $4.0
billion in 1990. However, due to the effects of the collapse of the real estate industry and the overall recession in 1991, the
asbestos abatement market contracted to approximately $3.5 billion and is expected to remain fairly constant in future years.
Operations
Through its operating subsidiaries, the registrant has expertise in all types of asbestos abatement including removal and disposal,
enclosure (constructing structures around asbestos-containing area) and encapsulation (spraying asbestos containing materials
with an approved sealant). Asbestos abatement is principally performed in commercial buildings, government and institutional
buildings, schools and industrial facilities.
The registrant's operating subsidiaries provide asbestos abatement services on a project contract basis. Individual projects are
competitively bid, although most contracts with private owners are ultimately negotiated. The majority of contracts undertaken
are on a fixed price basis. The length of the contracts are typically less than one year; however, larger projects may require two
or three years to complete.
The registrant closely monitors contracts by assigning responsibility for each contract to a project manager who coordinates the
project until its completion. The asbestos abatement process is performed by a qualified labor force in accordance with regulatory
requirements, contract specifications and the registrant's written operating procedures manual which describes worker safety and
protection procedures, air monitoring protocols and abatement methods.
The registrant's asbestos abatement operations have been generally concentrated in the northeastern, mid-atlantic, southeastern
and southwestern portions of the United States. The majority of the registrant's national marketing efforts are performed by
members of senior management located in the headquarters facility in Monroeville, Pennsylvania. Regional marketing and
project operations are also conducted through branch offices located in New York City, New York; Hazleton and Export,
Pennsylvania; Fort Lauderdale, Florida; Houston, Texas and Rock Hill, South Carolina.
Since the registrant and its subsidiaries are able to perform asbestos abatement work throughout the year, the business is not
considered seasonal in nature. However, it is affected by the timing of large contracts.
Suppliers and Customers
The registrant purchases the equipment and supplies used in the asbestos abatement business from a number of manufacturers.
One of these manufacturers account for 19% of the registrant's asbestos abatement purchases in fiscal 1997.
The customers of the registrant's asbestos abatement business include both private sector clients and government or publicly
funded entities. In fiscal 1997, the registrant estimates that approximately 72% of its operating subsidiaries' revenues were
derived from private sector clients, 23% from government contracts and 5% from schools. Due to the nature of the registrant's
business, which involves large contracts that are often completed within one year, customers that account for a significant portion
of revenue in one year may represent an immaterial portion of revenue in subsequent years. No one customer comprised over
10% of the registrant's revenues for the year ended January 31, 1997.
Licenses
The registrant, through its operating subsidiaries, is licensed and/or certified in all jurisdictions where required in order to conduct
its operations. In addition, certain management and staff members are licensed and/or certified by various governmental agencies
as asbestos abatement supervisors and workers.
Insurance and Bonds
The registrant and its operating subsidiaries maintain liability insurance for claims arising from its asbestos abatement business.
The policy, which provided a $1.0 million limit per claim and in the aggregate, insures against both property damage and bodily
injury arising from the asbestos abatement contracting activities of the registrant's operating subsidiaries. Effective February 1,
1997, coverage was raised to $2.0 million. The policy is written on an "occurrence" basis which provides coverage for insured
risks that occur during the policy period, irrespective of when a claim is made. Higher policy limits of up to $10.0 million are
available for individual projects. The registrant also provides worker's compensation insurance, at statutory limits, which covers
the employees of the registrant's operating subsidiaries engaged in asbestos removal or encapsulation activities.
A substantial number of the registrant's contracts require performance and payment bonds and the registrant maintains a bonding
program to satisfy these requirements.
Competitive Conditions
The asbestos abatement industry is highly competitive and includes both small firms and large diversified firms, which have the
financial, technical and marketing capabilities to compete on a national level. The industry is not dominated by any one firm.
The registrant principally competes on the basis of competitive pricing, a reputation for quality and safety, and the ability to
obtain the appropriate level of insurance and bonding.
Regulatory Matters
Numerous regulations at the federal, state and local levels impact the asbestos abatement industry, including the EPA's Clean
Air Act and Occupational Safety and Health Administration ("OSHA") requirements. As outlined below, these agencies have
mandated procedures for monitoring and handling ACM during abatement projects and the transportation and disposal of ACM
following removal.
Current EPA regulations ban the use of ACM in buildings and establish procedures for controlling the emission of asbestos fibers
into the environment during removal, transportation or disposal of ACM. The EPA also has notification requirements before
removal operations can begin. Many state authorities and local jurisdictions have implemented similar programs governing
removal, handling and disposal of ACM.
The EPA instituted the Asbestos Hazard Emergency Response Act of 1986 which requires that schools be inspected for asbestos
by accredited personnel. In the event that the inspection program shows evidence of ACM, a maintenance or abatement program
must be implemented and the school must conduct continuing operations and maintenance programs including reinspection every
three years, training custodial employees in asbestos hazards and furnishing asbestos notifications to parents and building
occupants.
The transportation of ACM, which has been designated a hazardous material, is governed by the Department of Transportation
under the Hazardous Materials Transportation Act of 1975 which has established guidelines for the transportation of ACM.
The health and safety of personnel involved in the removal of asbestos is protected by OSHA regulations which specify allowable
airborne exposure standards for asbestos workers, engineering and administrative control methods, work area practices, proper
supervision, training, medical surveillance and decontamination practices for worker protection.
The registrant believes it is in compliance with all of the federal, state and local statutes and regulations which affect its asbestos
abatement business.
Backlog
The registrant and its operating subsidiaries had asbestos abatement backlog orders totaling approximately $14.4 million and $7.7
million at January 31, 1997 and 1996, respectively. The backlog at January 31, 1997 consisted of $9.2 million of uncompleted
work on fixed fee contracts and an estimated $5.2 million of work to be completed on time and materials or unit price contracts.
The backlog at January 31, 1996 consisted of $5.9 million of uncompleted work on fixed fee contracts and an estimated $1.8
million of work on time and materials or unit price contracts.
As of January 31, 1997, the registrant employs approximately 86 employees consisting of senior management and staff employees
between its headquarters in Monroeville and branch offices located in New York City, Hazleton, Export, Fort Lauderdale,
Houston and Rock Hill. The staff employees include accounting, administrative, sales and clerical personnel as well as project
managers and field supervisors. The registrant also employs laborers for field operations based upon specific projects, therefore,
the precise number varies based upon the outstanding backlog. Approximately 130 laborers and supervisors are employed on
a steady basis, with casual labor hired on an as-needed basis to supplement the work force.
A portion of the field laborers who provide services to the registrant are represented by unions. Management considers its
employee labor relations to be good.
ITEM 2. Properties
On January 31, 1997, the registrant leases certain office space for its executive offices in Monroeville totaling 3,500 square feet. In addition, a combination of warehouse or shop and office space is leased in Houston (3,990 square feet), Hazleton (1,800 square feet), Fort Lauderdale (4,725 square feet), Rock Hill (4,943 square feet) and New York City (3,800 square feet).
The registrant also owns a 15,000 square foot office/warehouse situated on approximately six (6) acres in Export, Pennsylvania
which is subject to a mortgage.
ITEM 3. Legal Proceedings
On June 30, 1995, an action, caption Klein v. PDG Remediation, Inc., et al., No. CIV-4954 (DAB), was filed in the United States
District Court for the Southern District of New York asserting federal securities law claims against the registrant, its directors
and certain of its officers, PDGR and the underwriters of the registrant's initial public offering. The Klein action is brought as
a purported class action on behalf of the named plaintiff and all persons and entities who purchased PDGR's common stock from
February 9, 1995, the effective date of the initial public offering, through May 23, 1995. The plaintiff alleges that the defendants
violated Sections 11 and/or 15 of the Securities Act of 1933, as amended, and Section 12(2) of the Securities Exchange Act of
1934, as amended, by issuing or participating in the issuance of the registration statement and prospectus which contained
material misstatements or omissions, and that the purported class members purchased shares of Common Stock in reliance on
the allegedly false and misleading registration statement and prospectus. Specifically, plaintiff alleges that the defendants knew
or should have known that the Florida reimbursement program in which PDGR participates was operating at a deficit and was
being revised to eliminate funding of remediation activities for lower priority sites. The plaintiff is seeking certification of the
action as a class action and recision of the purchase of shares of common stock by members of the purported class or statutory
damages, as well as interest, attorneys' fees and other costs and expenses. The registrant believes that the plaintiff's allegations
are without merit or that there are meritorious defenses to the allegation, and intends to defend the action vigorously. On
September 1, 1995, an answer was filed on behalf of the registrant, its officers and directors and PDGR which generally denied
the plaintiff's claims.
By letter dated December 5, 1995, the plaintiff requested a pre-motion conference on a motion for class certification. By letter
dated December 6, 1995, the underwriter's counsel requested a pre-motion conference on a motion to dismiss the complaint. In
December 1995, the underwriter defendants filed a notice of motion to dismiss and a memorandum of law in support of the
motion. The motion to dismiss was denied in September 1996. The parties have negotiated a stipulation concerning class
certification, and the court has certified a class. The court has approved the form of notice to the potential class members
notifying them of the certification, but the registrant has not yet received notice that the order was entered. It is anticipated that
the notice will be sent to potential class members in June 1997.
The action is still in the discovery stage.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The registrant's common stock has traded on the OTC Bulletin Board since September 1996. Prior to that, it was listed for trading
on NASDAQ Small Cap (Symbol: PDGE) and the information presented for the following periods reflects the high and low bid
information as reported by the OTC Bulletin Board and NASDAQ.
Market Price Range
Fiscal 1997 Fiscal 1996
High Low High Low
First Quarter $ 0.63 $ 0.31 $ 1.31 $ 0.78
Second Quarter 1.00 0.31 0.91 0.50
Third Quarter 0.83 0.31 0.69 0.31
Fourth Quarter 0.47 0.25 0.59 0.25
At March 31, 1997, the registrant had 2,203 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
restrictions contained in the registrant's loan agreements and limitations imposed by the registrant's Series A Preferred Stock
which require that dividends must be paid to preferred holders prior to the payment of common dividends.
ITEM 6. Selected Financial Data
The following table reflects selected consolidated financial data for the registrant for the five fiscal years ended January 31, 1997.
For the Years Ended January 31,
1997 1996* 1995* 1994* 1993*
(Thousands except per share data)
OPERATING DATA
Contract revenues $ 16,183 $ 16,215 $ 17,659 $ 16,310 $ 31,250
Gross margin 2,485 1,442 2,178 1,810 4,258
Income (loss) from operations (6) (1,567) (591) (1,363) 379
Other income (expense) (178) 920 (423) (302) 342
Income (loss) from continuing operations (184) (750) (1,038) (1,651) 625
Income (loss) from discontinued operations (302) (1,701) 896 206 57
Net income (loss) (486) (2,451) 473 (1,445) 682
COMMON SHARE DATA
Net income (loss) from continuing
operations per common share $ (0.04) $ (0.14) $ (0.15) $ (0.67) $ (0.23)
Net income (loss) per
common share (0.09) (0.44) 0.07 (0.61) (0.18)
Weighted average common shares outstanding 5,913 5,670 7,157 3,267 1,239
BALANCE SHEET DATA
Working capital $ 409 $ 3,110 $ 3,177 $ 3,427 $ 3,024
Total assets 6,165 7,564 9,690 7,904 10,323
Long-term obligations 372 2,766 510 1,735 213
Total stockholders' equity 762 1,218 3,609 3,049 4,198
*Restated to reflect the treatment of PDGR as a discontinued operation (see Note 3 of Audited Consolidated Financial
Statements).
The years ended January 31, 1997, 1996, 1995, 1994 and 1993 include gain (loss) from discontinued operations of ($0.3 million),
($1.7 million), $0.9 million, $0.2 million and $0.1 million respectively; ($0.05), ($0.30), $0.13, $0.06 and $0.05 per common
share respectively).
For the year ended January 31, 1996, other income includes a gain of $1.4 million on the sale of 40.5% of its investment in
PDGR.
The year ended January 31, 1995 includes an extraordinary item related to the early extinguishment of debt totaling $0.6 million
($0.09 per common share). For the year ended January 31, 1993, other income includes a $0.7 million gain on the settlement
of certain litigation.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
The registrant, through its operating subsidiaries, provides asbestos abatement services to the public and private sectors.
The following paragraphs are intended to highlight key operating trends and developments in the registrant's operations and to
identify other factors affecting the Company's consolidated results of operations for the three years ended January 31, 1997.
Results of Operations
Year Ended January 31, 1997 Compared to Year Ended January 31, 1996
During the year ended January 31, 1997, (fiscal 1997) the registrant's consolidated revenues remain unchanged at $16.2 million
when compared to the previous fiscal year ended January 31, 1996 (fiscal 1996).
The registrant's reported gross margin increased to $2.5 million in fiscal 1997 compared to $1.4 million in fiscal 1996. The
increased margin in fiscal 1997 was due to higher margins on work obtained and the effect in fiscal 1996 of a cost overrun on
a large contract, an additional provision on a completed contract and extreme competitive pressures which reduced margins.
Selling, general and administrative expenses decreased in fiscal 1997 to $2.5 million compared to $3.0 million in fiscal 1996 due
to significant cost-saving measures adopted early in fiscal 1997.
As a result of the factors discussed above, the registrant reported a loss from operations in fiscal 1997 of $0.01 million compared
to a loss from operations of $1.6 million in fiscal 1996.
Interest expense decreased to $0.3 million in fiscal 1997 compared to $0.5 million in fiscal 1996 as a result of a significant
reduction in both the outstanding balance on the indebtedness to Drummond and the related interest rate. Interest income
decreased to $8,000 in fiscal 1997 compared to $24,000 in fiscal 1996 due to the lower invested cash balances during the current
year.
Other income in fiscal 1997 totaled approximately $101,000 versus $9,000 in fiscal 1996. Significant components of other
income were the proceeds from a casualty loss, rental of excess equipment and the sale of fixed assets. During the year ended
January 31, 1996, the registrant reported a gain of $1.4 million from the initial public offering of common stock and warrants
by PDGR since the basis of the registrant's investment was lower than the proceeds realized from the initial public offering. As
a result of the sale, the registrant's ownership percentage in PDGR was reduced to 59.5%.
As a result of a net operating loss for book purposes, the registrant had no federal tax provision. During fiscal 1996, the registrant
recorded a deferred income tax provision of $103,000.
The registrant recorded its 59.5% interest in the losses of PDGR resulting in a $0.5 million and $1.2 million loss from
discontinued operations for fiscal 1997 and 1996, respectively. The sale of the remaining PDGR shares to Drummond on July
31, 1996 resulted in a $0.2 million gain. The $0.5 million loss on disposal in fiscal 1996 represented the registrant's 59.5% share
of the loss resulting from the sale of PDGR's thermal treatment facility in Florida.
Year Ended January 31, 1996 Compared to Year Ended January 31, 1995
Consolidated revenues reported by the registrant decreased to $16.2 million for the year ended January 31, 1996 (fiscal 1996)
compared to $17.7 million for the year ended January 31, 1995 (fiscal 1995). The fiscal 1996 decrease was primarily attributable
to weak market conditions.
Contract costs decreased to $14.8 million in fiscal 1996 compared to $15.5 million in fiscal 1995 and resulted in reported gross
margins of $1.4 million and $2.2 million, respectively in each fiscal year. The lower margins experienced in fiscal 1996 resulted
from extreme competitive pressures, a cost overrun on a large contract, an additional provision on a completed contract and
reduced volume.
The registrant's selling, general and administrative expenses increased by 9% between the two fiscal years to $3.0 million in fiscal
1996 compared to $2.8 million in fiscal 1995. The increase between the two fiscal years principally related to higher legal fees
and other costs associated with two acquisitions which did not materialize.
The factors discussed above resulted in the registrant reporting a loss from operations of $1.6 million in fiscal 1996 compared
to loss from operations of $0.6 million in fiscal 1995.
The registrant had a net gain of approximately $1.4 million from the initial public offering of common stock and warrants by PDGR since the basis of the registrant's investment was lower than the proceeds realized from the initial public offering. As a result of the sale, the registrant's ownership percentage in PDGR was reduced from 100% to 59.5% on an ongoing basis.
Interest expense remained stable at $0.5 million. Interest income increased to $24,000 for the year ended January 31, 1996
compared to $16,000 for the previous fiscal year due to higher invested cash balances at certain periods throughout the year.
As a result of a net operating loss for book purposes there was no income tax provision, except for the reversal of $103,000 of
deferred federal income taxes. The registrant had income tax provision of $24,000 for fiscal 1995.
The loss from discontinued operations in fiscal 1996 is due to the significant decrease in revenues due to changes to the EDI
Program ($0.64 million) and losses associated with the operation of the Geologic thermal treatment facility ($0.56 million). This
compared with income from discontinued operations of $0.9 million in fiscal 1995. The overall change in the thermal treatment
market in the state of Florida prompted PDGR to sell the thermal treatment facility. The registrant also recorded a loss on the
disposition of the thermal treatment facility of $0.5 million in fiscal 1996.
Liquidity and Capital Resources
Fiscal 1997
During fiscal 1997, the registrant experienced an increase in liquidity of $0.1 million as cash and short-term investments increased
from $0.3 million at January 31, 1996 to $0.4 million at January 31, 1997. The increase in liquidity in fiscal 1997 was
attributable to cash inflows in the amount of $0.2 million from operating activities and $0.1 million from financing activities
partially offset by $0.1 million used to fund the purchase of property, plant and equipment.
Specifically, cash inflows from operating activities were generated by a decrease in other current assets of $0.6 million, a $0.1
million increase in accrued liabilities, a decrease of $0.5 million in net assets of discontinued operations and $0.4 million of
depreciation. Cash outflows related to the accounts receivable balance which increased $0.5 million as a result of the higher
revenues during the fourth quarter of fiscal 1997, accounts payable which decreased $0.2 million, an adjustment of $0.2 million
due to the gain on the sale of PDGR and $0.5 million as a result of the net loss generated in the period.
The $0.12 million from financing activities during fiscal 1997 included $0.29 million advanced under the line of credit offset
by $0.17 million of principal repayments made on the Drummond term debt. Additionally, the $1.2 million of proceeds from
the sale of PDGR stock to Drummond was a direct offset to reduce borrowings under the line of credit.
The registrant's investing activities of $0.1 million during fiscal 1997 were attributable to the purchase of property, plant and
equipment.
The registrant maintains a $1,500,000 line of credit and a $330,000 term loan with Drummond Financial Corporation ("Drummond") formerly CVD Financial Corporation. Both the line of credit and the term loan mature August 1, 1997.
On July 31, 1996, the Corporation entered into a Loan Modification Agreement ("Modification Agreement") with Drummond.
Pursuant to the Modification Agreement, Drummond purchased all 1,470,320 shares of PDGR common stock held by the
Corporation for $0.82 per share and the aggregate purchase price of $1,205,662 was utilized to reduce the outstanding balance
on the line of credit maintained by the Corporation with Drummond. This resulted in a $203,000 gain on the sale. After
application of the proceeds, the debt under the line of credit was reduced to $1,214,332 at July 31, 1996, and the maximum
allowable borrowings under the line of credit were capped at $1,500,000. The maturity date of the line of credit and term loan
agreements was extended until August 1, 1997. As of January 31, 1997, the Corporation was fully borrowed on the $1.5 million
line of credit.
The closing of the sale was subject to a number of conditions, including (a) the reincorporation of PDGR as a Delaware
corporation; (b) the reincorporation of PDGR resulting in no material liabilities to PDGR; and (c) not more than five percent (5%)
of the shareholders of PDGR exercising dissenters' rights in connection with the reincorporation. PDGR satisfied all requirements
for reincorporation and reincorporated in Delaware on November 13, 1996. No material liabilities to PDGR resulted from this
reincorporation. The period for the exercise of dissenters' rights expired on November 12, 1996, and no dissenters' rights were
exercised.
The registrant has received a $375,000 commitment from a financial institution to refinance the $330,000 term loan payable to
Drummond maturing on August 1, 1997. The new loan will have a seven-year term at a 9.5% interest rate fixed for the first four
years of the loan. The interest will then be readjusted to the current five year treasury bill rate plus 3.25% for the remaining three
years of the loan. The new loan will require monthly debt service payments of approximately $6,500 which is a reduction of
approximately $10,000 from the current Drummond debt service. Closing on the loan is expected by mid-May 1997.
Subject to the closing of the new loan, the registrant will have $1,455,000, as of January 31, 1997, outstanding on the line of
credit with Drummond maturing August 1, 1997. The registrant intends to attempt to negotiate a new line of credit in excess of
$1 million, enter into a sale/leaseback of certain equipment and/or execute a private placement of the registrant's securities prior
to August 1, 1997 to generate the funds necessary to repay the remaining outstanding balance on the line of credit payable to
Drummond. Absent receiving the cash from the previously discussed financing and equity raising and not having sufficient cash
resources to repay the entire remaining amount due Drummond, the registrant could enter into the sale of receivables and/or the
conversion of up to $800,000 of debt held by Drummond into shares of the registrant's common stock providing that the
subsequent immediate resale of such stock has been arranged or enter into negotiations with Drummond to facilitate a partial
paydown on the remaining amount due Drummond with an extension of the maturity date of the remaining amount due. There
can be no assurance that the refinancings or other sources of funds described in this and the preceding paragraph will be achieved.
If these refinancings or other sources of funds are not achieved, the registrant's liquidity would be materially adversely affected.
On January 27, 1995, PDG Environmental Services, Inc. ("PDGES"), a wholly-owned subsidiary of PDGR, entered into an
agreement with Sirrom Environmental Funding LLC ("Sirrom Agreement"), which provided $0.75 million of funding in
connection with clean-up activities under the Florida state-funded site rehabilitation program (the EDI Program) in which PDGES
has participated. The Sirrom Agreement expired on January 27, 1997 and enabled PDGES to fund the amounts which PDGES
billed under the EDI Program at the prime rate of interest, as defined, plus 2%. PDGES was advanced 100% of amounts billed,
but was required to deposit 10% into an escrow account to cover potential disallowances. The registrant and PDGR are
guarantors on the Sirrom Agreement. As of January 31, 1997, PDGES was advanced approximately $0.7 million under the
Sirrom Agreement.
On August 21, 1995, PDGES entered into an agreement with Sirrom Environmental Funding LLC ("Second Sirrom Agreement"),
which provides $4.0 million of funding relative to unbilled amounts under the EDI Program. The Second Sirrom Agreement,
which expires on August 21, 1997, enables PDGR to fund prospective amounts billed under the EDI Program at the prime rate
of interest, as defined, plus 3%. Although PDGES will be advanced 100% of amounts billed, it is required to deposit 34% into
an escrow account to cover potential disallowances, future interest costs, and a commitment fee of 2% of the total funding
provided. PDGR also issued a warrant to purchase 100,000 shares of PDGR's common stock at an exercise price of $1.37 per
share in conjunction with the execution of the Second Sirrom Agreement. The registrant and PDGR are guarantors under the
Second Sirrom Agreement. As of January 31, 1997, PDGES had been advanced $4.0 million under the Second Sirrom
Agreement.
On October 31, 1996, the registrant advised Sirrom that it would no longer guarantee future advances to PDGES under either
the Sirrom Agreement or the Second Sirrom Agreement. At that time, PDGES had been advanced approximately $0.7 million
and $2.3 million under the Sirrom Agreement and the Second Sirrom Agreement, respectively.
Prospective Information
The registrant's current business consists entirely of asbestos abatement contracting.
The registrant has been named in a purported class action suit involving the purchase by all persons and entities of the registrant's
common stock from February 9, 1995 through May 23, 1995. The action alleges that the defendants violated certain federal
securities laws.
The registrant believes that the allegations are without merit or that there are meritorious defenses to the allegations, and intends
to defend the action vigorously. If, however, the plaintiff is successful in its claims, a judgment rendered against the registrant
and the other defendants would likely have a material adverse effect on the business and operations of the registrant.
In order to repay the remaining amount due Drummond and to have sufficient capital to fund a higher level of operations, the
registrant will continue to explore the consummation of a new line of credit, sale/leaseback of certain equipment and/or the
private placement of the registrant's securities.
Should the registrant be unable to raise sufficient capital, it would endeavor to fund the shortfall relative to the repayment of the
remaining amount due Drummond from cash generated by operations. Absent receiving the cash from the previously discussed
financing and equity raising and not having sufficient cash resources to repay the entire remaining amount due Drummond, the
registrant could enter into the sale of receivables and/or the conversion of up to $800,000 of debt held by Drummond into shares
of the registrant's common stock providing that the subsequent immediate resale of such stock has been arranged or enter into
negotiations with Drummond to facilitate a partial paydown on the remaining amount due Drummond with an extension of the
maturity date of the remaining amount due. There can be no assurance that the refinancings or other sources of funds described
in this and the preceding paragraph will be achieved. If these refinancings or other sources of funds are not achieved, the
registrant's liquidity would be materially adversely affected.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements of the registrant and its subsidiaries and the report of Ernst & Young LLP are submitted
under Item 14 of this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
During the two most recent fiscal years of the registrant, there were no disagreements with the independent auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement would have caused them to make reference to the subject matter of the disagreement or disagreements in connection with their reports.
The information called for by Part III (Items #10, 11, 12 and 13) is incorporated herein by references to the registrant's definitive
Proxy Statement for the Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) and (2) The following consolidated financial statements and financial statement schedule of the registrant and its subsidiaries are submitted pursuant to the requirements of this section.
Page
Report of Independent Auditors F-1
Consolidated Balance Sheets as of January 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the Three Years Ended
January 31, 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity for the Three
Years Ended January 31, 1997 F-5
Consolidated Statements of Cash Flows for the Three Years Ended
January 31, 1997 F-6
Notes to Consolidated Financial Statements for the Three Years
Ended January 31, 1997 F-7
Schedule II - Valuation and Qualifying Accounts F-17
All other schedules for PDG Environmental, Inc. and consolidated subsidiaries for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions,
not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(a) (3) Exhibits:
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3.1 Certificate of Incorporation of the registrant and all amendments thereto,
filed as Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the
year ended September 30, 1990, is incorporated herein by reference.
3.2 Certificate of Amendment to the Certificate of Incorporation of the
registrant, approved by stockholders on June 25, 1991, filed as Exhibit
3(a) to the registrant's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1991, is incorporated herein by reference.
3.3 Amended and Restated By-laws of the registrant, filed as Exhibit 4.2 to
the registrant's registration statement on Form S-8 of securities under the
PDG Environmental, Inc. Amended and Restated Incentive Stock Option
Plan as of June 25, 1991, are incorporated herein by reference.
4.1 Certificate of the Powers, Designation, Preferences, and Relative, Participating, Optional or Other Rights, and the Qualifications, Limitations or Restrictions of the Series A, 9.00% Cumulative Convertible Preferred Stock, filed as Exhibit H with the registrant's preliminary proxy materials on July 23, 1990 (File No. 0-13667), is incorporated herein by reference.
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4.2 Certificate of Amendment of Certificate of the Powers, Designation,
Preferences and Relative, Participating, Optional or Other Rights, and the
Qualifications, Limitations, or Restrictions of the Series A 9% Cumulative
Convertible Preferred Stock (par value $0.01 per share), filed as Exhibit
4(a) to the registrant's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1993, is incorporated herein by reference.
4.3 Certificate of Powers, Designation, Preferences and Relative,
Participating, Optional or Other Rights, and the Qualifications,
Limitations or Restrictions of the Series B, 4.00% Cumulative,
Convertible Preferred Stock, filed as Exhibit 4.2 to the registrant's
registration on Form S-3 on March 17, 1993, is incorporated herein by
reference.
4.4 Share Purchase Agreement, dated as of December 23, 1992, between the
registrant and Conversion Industries, Inc., filed as Exhibit (i) to the
registrant's Current Report on Form 8-K dated December 23, 1992, is
incorporated herein by reference.
4.5 Loan Agreement between CVD Financial Corporation and PDG
Environmental, Inc. and its subsidiaries and partnerships, filed as Exhibit
10.16 to the registrant's Annual Report on Form 10-K for the year ended
January 31, 1994, is incorporated herein by reference.
4.6 Loan Modification Agreement, dated September 30, 1994, by and among
CVD Financial Corporation, PDG Environmental, Inc., PDG, Inc., PDG
Environmental Services, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services Co., PDG Environmental Remediation and Geo
Recovery Services, Ltd., filed as Exhibit 4(b) to the registrant's quarterly
report on Form 10-Q for the quarter ended October 31, 1994, is
incorporated herein by reference.
4.7 Loan Modification Agreement, dated December 9, 1994, by and among
CVD Financial Corporation, PDG Environmental, Inc., PDG, Inc., PDG
Environmental Services, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo
Recovery Services, Ltd. and PDG Remediation, Inc., filed as Exhibit 4(c)
to registrant's quarterly report on Form 10-Q for the quarter ended
October 31, 1994, is incorporated herein by reference.
4.8 Loan Modification Agreement dated February 7, 1995 by and among
CVD Financial Corporation, PDG Environmental, Inc., PDG, Inc., PDG
Environmental Services, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo
Recovery Services, Ltd and PDG Remediation, Inc., filed as Exhibit 10.17
to the registrant's Annual Report on Form 10-K for the year ended
January 31, 1995, is incorporated herein by reference.
4.9 Master Funding and Indemnification Agreement dated August 21, 1995
between PDG Environmental Services, Inc. and Sirrom Environmental
Funding, LLC, filed as Exhibit 4(b) of the PDG Remediation, Inc.
Quarterly Report on Form 10-Q for the quarter ended July 31, 1995, is
incorporated herein by reference.
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4.10 Amended and Restated Loan Agreement between CVD Financial
Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc., and Enviro-Tech Abatement Services Co.,
dated October 31, 1995, filed as Exhibit 4(a) to the registrant's quarterly
report on Form 10-Q for the quarter ended October 31, 1995, is
incorporated herein by reference.
4.11 Master Funding and Indemnification Agreement between PDG
Environmental Services, Inc. and Sirrom Environmental Funding, LLC
dated January 27, 1995 is incorporated by reference to Exhibit 4(c) of the
PDG Remediation, Inc. Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995, is incorporated herein by reference.
4.12 Loan Extension Agreement between CVD Financial Corporation and
PDG Environmental, Inc., PDG, Inc., Project Development Group, Inc.
and Enviro-Tech Abatement Services Co., dated April 24, 1996, is
incorporated herein by reference.
4.13 Loan Modification Agreement dated July 31, 1996 between CVD
Financial Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc. and Enviro-Tech Abatement Services Co. and
John Regan filed as Exhibit 4(a) of the PDG Environmental, Inc.
Quarterly Report on Form 10-Q, for the quarter ended July 31, 1996, is
incorporated herein by reference.
10.1 Indemnity Agreement dated as of the first day of July 1990 by and
among Project Development Group, Inc. and John C. and Eleanor Regan,
filed as Exhibit 10.1 to the registrant's Annual Report on Form 10-K for
the year ended September 30, 1990, is incorporated herein by reference.
10.2 Assumption Agreement entered into as of the fourteenth day of December
1990 among Project Development Group, Inc., and John C. and Eleanor
Regan, filed as Exhibit 10.2 to the registrant's Annual Report on Form 10-K for the year ended September 30, 1990, is incorporated herein by
reference.
10.3 PDG Environmental, Inc. Amended and Restated Incentive Stock Option
Plan as of June 25, 1991, filed as Exhibit 10.3 to the registrant's Annual
Report on Form 10-K for the year ended January 31, 1992, is incorporated
herein by reference.
10.4 PDG Environmental, Inc. 1990 Stock Option Plan for Employee
Directors, filed as Exhibit 10.4 to the registrant's Annual Report on Form
10-K for the year ended January 31, 1992, is incorporated herein by
reference.
10.5 PDG Environmental, Inc. 1990 Stock Option Plan for Non-Employee
Directors, filed as Exhibit 10.5 to the registrant's Annual Report on Form
10-K for the year ended January 31, 1992, is incorporated herein by
reference.
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10.6 Demand note between the registrant and John C. Regan, filed as Exhibit
10.4 to the registrant's Annual Report on Form 10-K for the transition
period from October 1, 1990 to January 31, 1991, is incorporated herein
by reference.
10.7 Demand note between the registrant and Dulcia Maire, filed as Exhibit
10.6 to the registrant's Annual Report on Form 10-K for the transition
period from October 1, 1990 to January 31, 1991, is incorporated herein
by reference.
10.8 Letter agreement between the registrant and Messrs. Sorenson and Bendis,
filed as Exhibit 10.7 to the registrant's Annual Report on Form 10-K for
the transition period from October 1, 1990 to January 31, 1991, is
incorporated herein by reference.
10.9 Stock Purchase Agreement dated as of March 31, 1992 by and between
PDG Environmental, Inc. and Jones Group, Inc., filed as Exhibit 10.10 to
the registrant's Annual Report on Form 10-K for the year ended January
31, 1992, is incorporated herein by reference.
10.10 Asset Purchase Agreement dated as of October 13, 1992, among PDG
Environmental, Inc., Resource Recovery of America, Inc., and
International Recovery Corp., filed as Exhibit (i) to the registrant's
Current Report on Form 8-K dated December 31, 1992, is incorporated
herein by reference.
10.11 Loan Agreement between CVD Financial Corporation and PDG
Environmental, Inc. and its subsidiaries and partnerships, filed as Exhibit
10.16 to the registrant's Annual Report on Form 10-K for the year ended
January 31, 1994, is incorporated herein by reference (as it appears in
4.05).
10.12 Loan Modification Agreement, dated September 30, 1994, by and among
CVD Financial Corporation, PDG Environmental, Inc., PDG, Inc., PDG
Environmental Services, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services Co., PDG Environmental Remediation and Geo
Recovery Services, Ltd., filed as Exhibit 4(b) to the registrant's quarterly
report on Form 10-Q for the quarter ended October 31, 1994, is
incorporated herein by reference (as it appears in 4.06).
10.13 Loan Modification Agreement, dated December 9, 1994, by and among
CVD Financial Corporation, PDG Environmental, Inc., PDG, Inc., PDG
Environmental Services, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo
Recovery Services, Ltd. and PDG Remediation, Inc., filed as Exhibit 4(c)
to registrant's quarterly report on Form 10-Q for the quarter ended
October 31, 1994, is incorporated herein by reference (as it appears in
4.07).
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10.14 Loan Modification Agreement dated February 7, 1995 by and among
CVD Financial Corporation, PDG Environmental, Inc., PDG, Inc., PDG
Environmental Services, Inc., Project Development Group, Inc., Enviro-Tech Abatement Services, Co., PDG Environmental Remediation, Geo
Recovery Services, Ltd and PDG Remediation, Inc., filed as Exhibit 10.17
to the registrant's Annual Report on Form 10-K for the year ended
January 31, 1995, is incorporated herein by reference (as it appears in
4.08).
10.15 Master Funding and Indemnification Agreement dated August 21, 1995
between PDG Environmental Services, Inc. and Sirrom Environmental
Funding, LLC, filed as Exhibit 4(b) of the PDG Remediation, Inc.
Quarterly Report on Form 10-Q for the quarter ended July 31, 1995, is
incorporated herein by reference (as it appears at 4.09).
10.16 Amended and Restated Loan Agreement between CVD Financial
Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc., and Enviro-Tech Abatement Services Co.,
dated October 31, 1995, filed as Exhibit 4(a) to the registrant's quarterly
report on Form 10-Q for the quarter ended October 31, 1995, is
incorporated herein by reference (as it appears at 4.10).
10.17 Master Funding and Indemnification Agreement between PDG
Environmental Services, Inc. and Sirrom Environmental Funding, LLC
dated January 27, 1995 is incorporated by reference to Exhibit 4(c) of the
PDG Remediation, Inc. Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995, is incorporated herein by reference (as it appears
at 4.11).
10.18 Loan Extension Agreement between CVD Financial Corporation and
PDG Environmental, Inc., PDG, Inc., Project Development Group, Inc.
and Enviro-Tech Abatement Services Co., dated April 24, 1996 (as it
appears at 4.12).
10.19 Professional Consulting Agreement dated June 14, 1996 between Len
Turano and PDG Environmental, Inc. filed as Exhibit 10(a) of the PDG
Environmental, Inc. Quarterly Report on Form 10-Q for the quarter ended
July 31, 1996, is incorporated herein by reference.
10.20 Loan Modification Agreement dated July 31, 1996 between CVD
Financial Corporation and PDG Environmental, Inc., PDG, Inc., Project
Development Group, Inc. and Enviro-Tech Abatement Services Co. and
John Regan filed as Exhibit 4(a) of the PDG Environmental, Inc.
Quarterly Report on Form 10-Q for the quarter ended July 31, 1996, is
incorporated herein by reference (as it appears at 4.13)
11 Statement regarding computation of per share earnings.
21 List of subsidiaries of the registrant.
23 Consent of independent auditors.
24 Power of attorney of directors.
27 Financial data schedule.
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K during the
three months ended January 31, 1997.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
/s/ John C. Regan
John C. Regan, Chairman and Chief Executive Officer
Date: May 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John C. Regan May 15, 1997
John C. Regan
Chairman and Chief Executive Officer
(Principal Executive Officer and Director)
Richard A. Bendis, Director By /s/ John C. Regan
John C. Regan, Attorney-in-Fact
May 15, 1997
The Board of Directors and Stockholders
PDG Environmental, Inc.
We have audited the accompanying consolidated balance sheets of PDG Environmental, Inc. (the "Corporation") as of January
31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended January 31, 1997. Our audits also included the financial statement schedule listed in the index
at Item 14(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of PDG Environmental, Inc. at January 31, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended January 31, 1997, 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/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 27, 1997
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
January 31,
1997 1996*
ASSETS
Current Assets
Cash and short-term investments $ 429,000 $ 273,000
Accounts receivable, less allowance of $47,000 and
$44,000 in 1997 and 1996, respectively 3,708,000 3,221,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 614,000 670,000
Inventories 182,000 181,000
Notes receivable from officers 132,000 197,000
Prepaid income taxes 182,000 183,000
Other current assets 193,000 473,000
Net assets of discontinued operation - 1,492,000
Total Current Assets 5,440,000 6,690,000
Property, Plant and Equipment
Land 42,000 42,000
Leasehold improvements 55,000 55,000
Furniture and fixtures 130,000 128,000
Vehicles 361,000 331,000
Equipment 3,015,000 2,961,000
Buildings 369,000 369,000
3,972,000 3,886,000
Less: accumulated depreciation 3,284,000 3,067,000
688,000 819,000
Other Assets 37,000 55,000
Total Assets $ 6,165,000 $ 7,564,000
*Restated (See Note 3).
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
January 31,
1997 1996*
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,699,000 $ 1,680,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 635,000 607,000
Accrued liabilities 1,212,000 1,117,000
Current portion of long-term debt 1,485,000 176,000
Total Current Liabilities 5,031,000 3,580,000
Long-Term Debt 372,000 2,766,000
Commitments and Contingencies
Stockholders' Equity
Cumulative convertible Series A preferred stock, (2%) $0.01 par value,
5,000,000 shares authorized and 185,925 issued and
outstanding shares at January 31, 1997 and 1996, (liquidation
preference of $1,860,524) 444,000 444,000
Common stock, $0.02 par value, 30,000,000 shares authorized
and 5,923,868 shares and 5,908,868 shares issued and outstanding
at January 31, 1997 and 1996, respectively 118,000 118,000
Paid-in capital 4,260,000 4,230,000
4,378,000 4,348,000
(Deficit) retained earnings (4,060,000) (3,574,000)
Total Stockholders' Equity 762,000 1,218,000
Total Liabilities and Stockholders' Equity $ 6,165,000 $ 7,564,000
*Restated (See Note 3).
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
For the Years Ended January 31,
1997 1996* 1995*
Contract Revenues $ 16,183,000 $ 16,215,000 $ 17,659,000
Contract Costs 13,698,000 14,773,000 15,481,000
Gross Margin 2,485,000 1,442,000 2,178,000
Selling, General and Administrative Expenses 2,491,000 3,009,000 2,769,000
Income (Loss) From Operations (6,000) (1,567,000) (591,000)
Other Income (Expense):
Gain on sale of PDG Remediation, Inc. Common Stock - 1,354,000 -
Interest expense (287,000) (467,000) (471,000)
Interest income 8,000 24,000 16,000
Other income 101,000 9,000 32,000
(178,000) 920,000 (423,000)
(Loss) Income Before Income Taxes, Discontinued
Operations and Extraordinary Item (184,000) (647,000) (1,014,000)
Income Tax Provision - 103,000 24,000
Loss Before Discontinued Operation and Extraordinary Item (184,000) (750,000) (1,038,000)
Discontinued Operation:
Income (loss) from operation, net of income tax
of $100,000 and $39,000 in 1995 and 1994, respectively (505,000) (1,201,000) 896,000
Gain (loss) on disposal 203,000 (500,000) -
Extraordinary Item, Net of Tax - - 615,000
Net Income (Loss) $ (486,000) $ (2,451,000) $ 473,000
Undeclared Preferred Stock Dividend Requirements $ 37,000 $ 45,000 $ -
Earnings (Loss) Per Common Share
Loss before extraordinary item and discontinued
operation $ (0.04) $ (0.14) $ (0.15)
Discontinued operation (0.05) (0.30) 0.13
Extraordinary item - - 0.09
Net income (loss) per share $ (0.09) $ (0.44) $ 0.07
Average Common Shares and Dilutive Common
Equivalents Outstanding 5,913,000 5,670,000 7,157,000
*Restated (See Note 3).
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PDG ENVIRONMENTAL, INC.
Preferred (Deficit) Total
Stock Common Paid-in Retained Stockholders'
Series A Stock Capital Earnings Equity
Balance at January 31, 1994 $ 633,000 $ 106,000 $ 3,704,000 $ (1,394,000) $ 3,049,000
Conversion of 29,740 shares of
cumulative convertible 9%
preferred stock into 121,392
shares of common stock (71,000) 3,000 75,000 (7,000) -
Issuance of 277,500 warrants 89,000 89,000
Issuance of 150,000 warrants 52,000 52,000
Adjustment to exercise price
and revaluation of 375,000 warrants (57,000) (57,000)
Issuance of 5,500 shares under
Employee Incentive Stock Option Plan 3,000 3,000
Net income 473,000 473,000
Balance at January 31, 1995 562,000 109,000 3,866,000 (928,000) 3,609,000
Conversion of 49,047 shares of
cumulative convertible 9%
preferred stock into 204,902
shares of common stock (118,000) 4,000 134,000 (20,000) -
Issuance of 1,000,000 warrants by PDGR 60,000 60,000
Issuance of 280,071 shares of
common stock to reflect declaration
of 1/3 of the common stock rights 5,000 170,000 (175,000) -
Net loss (2,451,000) (2,451,000)
Balance at January 31, 1996 444,000 118,000 4,230,000 (3,574,000) 1,218,000
Issuance of 150,000 warrants 24,000 24,000
Issuance of 15,000 shares 6,000 6,000
Net loss (486,000) (486,000)
Balance at January 31, 1997 $ 444,000 $ 118,000 $ 4,260,000 $ (4,060,000) $ 762,000
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
For the Years Ended January 31,
1997 1996* 1995*
Cash Flows From Operating Activities:
Net income (loss) $ (486,000) $ (2,451,000) $ 473,000
Adjustments to Reconcile Net Income (Loss)
to Cash Provided (Used) by Operating Activities:
Depreciation and amortization 367,000 525,000 616,000
Gain on sale of PDG Remediation, Inc. common stock (203,000) (1,354,000)
Deferred income taxes - - (174,000)
Other 3,000 (33,000) 125,000
Extraordinary item - - (512,000)
Changes in Current Assets and Liabilities Other Than Cash:
Accounts receivable (490,000) 147,000 (462,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts 56,000 163,000 (178,000)
Inventories (1,000) 35,000 (30,000)
Prepaid income taxes 1,000 110,000 46,000
Other current assets 612,000 142,000 (392,000)
Accounts payable (241,000) (413,000) 386,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 28,000 (4,000) 32,000
Net assets of discontinued operations 489,000 2,171,000 (1,654,000)
Accrued liabilities 95,000 158,000 335,000
Other (63,000) 25,000 100,000
Total Adjustments 486,000 2,534,000 (1,817,000)
Cash Provided (Used) by Operating Activities 167,000 (779,000) (1,289,000)
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (135,000) (346,000) (170,000)
Proceeds from sale of property, plant and equipment 3,000 - 7,000
Net Cash Used by Investing Activities (132,000) (346,000) (163,000)
Cash Flows From Financing Activities:
Proceeds from debt 286,000 20,000 2,061,000
Proceeds on sale of PDG Remediation, Inc. common stock - 1,435,000 -
Principal payments on debt (165,000) (730,000) (339,000)
Net Cash Provided by Financing Activities 121,000 725,000 1,722,000
Net increase (decrease) in cash and short-term investments 156,000 (400,000) 270,000
Cash and short-term investments, beginning of year 273,000 673,000 403,000
Cash and Short-Term Investments, End of Year $ 429,000 $ 273,000 $ 673,000
*Restated (See Note 3)
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
For the Three Years Ended January 31, 1997
NOTE 1 - BASIS OF PRESENTATION
Business Activities
PDG Environmental, Inc. (the "Corporation") is engaged in providing asbestos abatement services to the public and private
sectors.
Asbestos abatement services are generally performed under the terms of fixed price contracts or time and materials contracts with
a duration of less than one year, although larger projects may require two or three years to complete.
Effective July 20, 1994, the Corporation formed a new subsidiary, PDG Remediation, Inc., now known as ICHOR Corporation,
("PDGR"). The Corporation's environmental remediation services business was merged into PDGR effective October 20, 1994.
PDGR operated as a wholly-owned subsidiary of the Corporation until February 9, 1995, at which time, the Corporation sold
approximately 40.5% of its interest in PDGR to the public. The sale consisted of 1,000,000 shares of PDGR common stock (at
$5.00 per share) and 1,000,000 redeemable warrants to purchase an additional 1,000,000 shares of PDGR common stock (at $0.10
per warrant). The Corporation sold 400,000 of its PDGR common shares as part of the offering and received net proceeds of
approximately $1,400,000. PDGR sold 600,000 newly issued common shares plus 1,000,000 redeemable warrants and received
net proceeds of approximately $2,300,000. The Corporation recognized a pre-tax gain of $1,354,000 on the transaction. The
redeemable warrants entitles the holder to purchase one share of common stock at an exercise price of $6.00 per share. The
redeemable warrants may be exercised at any time and expire on February 9, 2000.
On July 31, 1996, the Corporation entered into a Loan Modification Agreement ("Modification Agreement") with Drummond
Financial Corporation ("Drummond") formerly CVD Financial Corporation. Pursuant to the Modification Agreement,
Drummond purchased all 1,470,320 shares of PDGR common stock held by the Corporation for $0.82 per share and the aggregate
purchase price of $1,205,662 was utilized to reduce the outstanding balance on the line of credit maintained by the Corporation
with Drummond. This resulted in a $203,000 gain on the sale.
Operations
Subject to the closing of the new $375,000 loan as discussed further in Note 8, the Corporation will have $1,455,000, as of
January 31, 1997, outstanding on the line of credit with Drummond maturing August 1, 1997. It is the intention of the
Corporation to negotiate a new line of credit in excess of $1 million, enter into a sale/leaseback of certain equipment and/or
execute a private placement of the Corporation's securities prior to August 1, 1997 to generate the funds necessary to repay the
remaining outstanding balance on the line of credit payable to Drummond.
Should the Corporation be unable to raise sufficient capital, it would endeavor to fund the shortfall relative to the repayment of
the remaining amount due Drummond from cash generated by operations. Absent receiving the cash from the previously
discussed financing and equity raising and not having sufficient cash resources to repay the entire remaining amount due
Drummond, the Corporation could enter into the sale of receivables and/or the conversion of up to $800,000 of debt held by
Drummond into shares of the Corporation's common stock providing that the subsequent immediate resale of such stock has been
arranged or enter into negotiations with Drummond to facilitate a partial paydown on the remaining amount due Drummond with
an extension of the maturity date of the remaining amount due. There can be no assurance that the refinancings or other sources
of funds described in this and the preceding paragraph will be achieved. If these refinancings or other sources of funds are not
achieved, the Corporation's liquidity would be materially adversely affected.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Financial Presentation:
The preparation of financial statements in accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Principles of Consolidation:
The consolidated financial statements include the Corporation's wholly-owned subsidiaries. The accounts of PDGR in which
the Corporation maintained, until July 31, 1996, a 59.5% ownership interest subsequent to the initial public offering of PDGR's
common stock and warrants as described above, are reflected as a discontinued operation. All significant intercompany
transactions are eliminated in consolidation.
Revenues and Cost Recognition:
Revenues for asbestos abatement are recognized on the percentage-of-completion method, measured by the relationship of total
cost incurred to total estimated contract costs (cost-to-cost method).
Contract costs include direct labor and material costs and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, depreciation, repairs and insurance. Selling, general and administrative costs are charged to expense as
incurred. Bidding and proposal costs are also recognized as an expense in the period that 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. At January 31, 1997 and 1996, cash and
short-term investments included two certificates of deposit totaling $75,000, which secure underlying letters of credit and cash
held in escrow totaling $75,000.
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:
Earnings on construction contracts, for income tax purposes, are determined using the percentage-of-completion method of
accounting.
Deferred income taxes are recognized for the future tax effects of temporary differences between financial and income tax
reporting based on enacted laws and rates.
Reclassifications:
Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation.
Additionally, PDGR was treated as a discontinued operation (see Note 3), and all prior year financial statements were reclassified
to conform with this presentation.
NOTE 3 - DISCONTINUED OPERATION
On May 1, 1996, the Corporation made the decision to divest its remaining 59.5% interest in PDGR. The loss from discontinued
operations in the Statement of Consolidated Operations represents the Corporation's 59.5% portion of PDGR's loss during fiscal
1997 and 1996 and 100% of PDGR's income during fiscal 1995.
During the six-month period ending July 31, 1996, PDGR had revenues of $2.5 million. Revenues of PDGR were $4.8 million
and $9.4 million in fiscal years 1996 and 1995, respectively. See Note 6 for a discussion of the sale of PDGR.
The Corporation accounted for GeoLogic Recovery Systems ("Geologic"), a subsidiary of PDGR, as a discontinued operation
as of January 31, 1996 and, accordingly, its operating results are reported in this manner in all years presented in the
accompanying consolidated financial statements. The Corporation recorded a loss on the disposition of GeoLogic of $0.5 million
in fiscal 1996 net of minority interest.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 1997 and 1996 include $220,000 and $84,000, respectively, of retainage receivables. For
the years ended January 31, 1997 and 1996, no single customer contributed to 10% or more of the Corporation's consolidated
revenues.
It is the Corporation's policy not to require collateral with respect to outstanding receivables. The Corporation continuously
reviews the creditworthiness of customers and, when necessary, requests collateral to secure the performance of services.
All of the Corporation's outstanding accounts receivable are expected to be collected within the normal operating cycle of one
year.
NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Details related to contract activity are as follows:
January 31,
1997 1996
Revenues earned on uncompleted contracts $ 8,968,000 $ 8,155,000
Less: billings to date 8,989,000 8,092,000
Net (Over) Under Billings $ (21,000) $ 63,000
Included in the accompanying consolidated balance sheets under the following captions:
January 31,
1997 1996
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 614,000 $ 670,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (635,000) (607,000)
Net (Over) Under Billings $ (21,000) $ 63,000
Costs and estimated earnings in excess of billings on uncompleted contracts at January 31, 1997 and 1996 include approximately
$470,000 and $400,000, respectively, related to contracts where the customers are disputing the related scope. The Corporation
is litigating to recover the additional monies owed under one contract and negotiating a contract claim on the other contract.
Management believes that the amounts will ultimately be recovered.
NOTE 6 - LINES OF CREDIT
The Corporation has a $1,500,000 line of credit facility which expires on August 1, 1997 and an $330,000 term loan which
expires on August 1, 1997 with Drummond Financial Corporation ("Drummond") formerly CVD Financial Corporation. All
borrowings under the Drummond Agreement bear interest at a bank rate (as defined) plus 3%. Borrowings under the Drummond
Agreement are limited to 85% of the receivables borrowing base. The principal balance of the term loan amortizes over a five
year period and is secured by the fixed assets and a mortgage on certain property of the Corporation. The Corporation was
required to supply certain financial and non-financial information under the Drummond Agreement. Additionally, a material
adverse change in the Corporation's financial condition may trigger an event of default. The Corporation was also prohibited
under the Drummond Agreement from declaring any dividends.
The Corporation issued 277,500 warrants at an exercise price of $1.125 in fiscal 1995 per share in fiscal 1995 in conjunction with
the execution of the Drummond Agreement which have been recorded as an additional cost, ($48,000), of the financing.
Effective June 30, 1994, Integra Bank sold its interest in the Amended and Restated Credit Agreement to Drummond for a
purchase price of 70% of the aggregate outstanding principal balance. Additionally, Integra Bank sold its interest in an
outstanding mortgage to Drummond at 70% of the aggregate outstanding principal balance.
In fiscal 1995, Drummond afforded the Corporation forgiveness of indebtedness in the amount of $789,000 in connection with
the purchase of the loans from Integra Bank. Accordingly, the Corporation recognized an extraordinary gain of approximately
$772,000 which includes a $59,000 income tax provision and a charge of $52,000 representing the estimated fair market value
of 150,000 warrants issued to Drummond at an exercise price of $0.75 per share in connection with the transaction.
On October 31, 1995, the Corporation entered into an Amended and Restated Loan Agreement with Drummond wherein the
maximum borrowings under this line of credit was set at $2,419,994. The interest rate under this line of credit was reduced from
prime plus 7% to prime plus 3% and all amounts borrowed under this line of credit were due and payable on December 31, 1996.
A term loan for $559,991 was also provided as part of the Loan Agreement, with interest at the prime rate of interest plus 3%.
The Term Loan required monthly principal payments of $13,533 plus interest and matured December 31, 1996. Prior to the
October 31, 1995 refinancing, Drummond held warrants to purchase 752,500 shares of the Corporation's common stock at prices
ranging from $0.75 to $1.25 per share. As part of the new Loan Agreement, Drummond continues to hold the warrants.
As part of the aforementioned Loan Agreement, Drummond was granted the right to convert any portion of the outstanding
balances of the line of credit and the term loan, any time after January 31, 1996, into common stock of the Corporation. The
conversion price is the lesser of the market price, as defined, of the Corporation's common stock on January 31, 1996 or the
market price on the date of the conversion notice, except that the conversion price, in neither case, shall not be less than $0.65
per share. Additionally, the Corporation pledged PDGR shares representing its 59.5% interest as additional collateral for the Loan
Agreement.
On April 25, 1996, the Corporation entered into a Loan Extension Agreement ("Extension Agreement") whereby the maturity
date for the line of credit and term loan were extended to May 1, 1997.
On July 31, 1996, the Corporation entered into a Loan Modification Agreement ("Modification Agreement") with Drummond.
Pursuant to the Modification Agreement, Drummond purchased all 1,470,320 shares of PDGR common stock held by the
Corporation for $0.82 per share and the aggregate purchase price of $1,205,662 was utilized to reduce the outstanding balance
on the line of credit maintained by the Corporation with Drummond. This resulted in a $203,000 gain on the sale ($0.03 per
share). After application of the proceeds, the debt under the line of credit was reduced to $1,214,332 at July 31, 1996, and the
maximum allowable borrowings under the line of credit were capped at $1,500,000. The maturity date of the line of credit and
term loan agreements was extended until August 1, 1997. As of January 31, 1997, the Corporation was fully borrowed on the
$1.5 million line of credit.
The closing of the sale was subject to a number of conditions, including (a) the reincorporation of PDGR as a Delaware
corporation; (b) the reincorporation of PDGR resulting in no material liabilities to PDGR; and (c) not more than five percent (5%)
of the shareholders of PDGR exercising dissenters' rights in connection with the reincorporation. PDGR satisfied all requirements
for reincorporation and reincorporated in Delaware on November 13, 1996. No material liabilities to PDGR resulted from this
reincorporation. The period for the exercise of dissenters' rights expired on November 12, 1996, and no dissenters' rights were
exercised.
The proceeds on the sale of PDG Remediation, Inc. common stock of $1,206,000 for the year ended January 31, 1997 were not
received in the form of cash, but rather were a direct offset to the debt owed Drummond Financial Corporation.
On January 27, 1995, PDG Environmental Services, Inc. ("PDGES"), a wholly-owned subsidiary of PDGR, entered into a Master
Funding and Indemnification Agreement with Sirrom Environmental Funding, LLC, (the "Sirrom Agreement") which provides
$750,000 of funding in connection with clean-up activities under the EDI Program. The Sirrom Agreement expired on January
27, 1997 and enabled PDGES to fund the amounts which PDGR bills under the EDI Program at the prime rate of interest, as
defined, plus 2%. PDGES is advanced 100% of amounts billed, and is required to deposit 10% into an escrow account to cover
potential disallowances. PDGR and the Corporation are guarantors on the Sirrom Agreement. As of January 31, 1997, PDGES
was advanced approximately $0.7 million under the Sirrom Agreement.
On August 21, 1995, PDGR entered into a second Master Funding and Indemnification Agreement with Sirrom Environmental Funding, LLC (the "Second Sirrom Agreement"), which provides $4,000,000 of funding relative to unbilled amounts under the EDI Program. The Second Sirrom Agreement, which expires on August 21, 1997, enables the Corporation to fund amounts billed under the EDI Program at the prime rate of interest, as defined, plus 3%. Although PDGR will be advanced 100% of amounts billed, it is required to deposit 34% into an escrow account to cover potential disallowances, future interest costs, and a commitment fee of 2% of the total funding provided. PDGR also issued a warrant to purchase 100,000 shares of PDGR's common stock to Sirrom Environmental Funding, LLC at an exercise price of $1.37 per share in conjunction with the execution of the Second Sirrom Agreement. The warrants expire on January 31, 1999. PDGR has recorded $50,000 as the estimated fair market value of the warrant. PDGR and the Corporation are guarantors on the Second Sirrom Agreement. As of January 31,1997, PDGES was advanced approximately $4.0 million under the Second Sirrom Agreement.
On October 31, 1996, the Corporation advised Sirrom that it would no longer guarantee future advances to PDGR under either
the Sirrom Agreement or the Second Sirrom Agreement. At that time, PDGR was advanced approximately $0.7 million and $2.3
million under the Sirrom Agreement and the Second Sirrom Agreement, respectively.
It is expected that the amounts under the aforementioned guarantees will decrease in the first half of calendar 1997 as the balances
due PDGES from the EDI Program are remitted thereby allowing PDGR to reduce the amounts owed Sirrom.
The carrying value of the Corporation's credit facility and term loan approximate their fair value.
NOTE 7 - ACCRUED LIABILITIES
Accrued liabilities are as follows:
January 31,
1997 1996
Worker's compensation $ 524,000 $ 272,000
Wages - 120,000
Withheld and accrued taxes 226,000 275,000
Accrued royalties - 30,000
Accrued fringe benefits 181,000 183,000
Accrued insurance 113,000 108,000
Accrued rent 4,000 21,000
Other 164,000 108,000
Total Accrued Liabilities $ 1,212,000 $ 1,117,000
NOTE 8 - LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as follows:
January 31,
1997 1996
Term loan due in monthly installments of $14,000, plus
interest at 3% above the prime rate, due in August 1997 $ 330,000 $ 492,000
Revolving line of credit maturing on August 1, 1997 and
bearing interest at 3% above the prime rate 1,500,000 2,420,000
Other 27,000 30,000
1,857,000 2,942,000
Less amount due within one year 1,485,000 176,000
$ 372,000 $ 2,766,000
The Corporation has a $375,000 commitment from a financial institution to refinance the $330,000 term loan payable to
Drummond maturing on August 1, 1997. The new loan will have 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 new loan will require monthly debt service payments of approximately $6,500 which is a
reduction of approximately $10,000 from the current Drummond debt service. Closing on the loan is expected by mid-May 1997.
As the Corporation has the ability and the intent to refinance the remaining term debt due Drummond ($330,000) and repay
$45,000 of the line of credit, those amounts have been reflected as debt due after one year on the balance sheet.
The majority of the Corporation's property and equipment are pledged as security for the above obligations.
Maturity requirements on long-term debt aggregate $13,000 in fiscal 1998, $56,000 in fiscal 1999, $55,000 in fiscal 2000,
$56,000 in fiscal 2001, $62,000 in fiscal 2002 and $115,000 thereafter.
The Corporation paid approximately $328,000, $528,000 and $367,000 for interest costs during the years ended January 31,
1997, 1996 and 1995, respectively.
NOTE 9 - INCOME TAXES
The Corporation provides income taxes under the liability method as required by Statement of Financial Accounting Standards
(SFAS) No. 109.
At January 31, 1997, the Corporation has net operating loss carryforwards of approximately $10,393,000 for income tax purposes
which expire in years 2002 through 2011. For financial reporting purposes, a valuation allowance of approximately $3,385,000
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 increased by approximately
$194,000 during the year ended January 31, 1997. The increase was primarily due to the current year increase in deductible
temporary differences.
The Corporation filed a consolidated federal return with its subsidiaries in fiscal 1995. Due to the public offering of PDGR stock
on February 9, 1995, the Corporation's ownership in PDGR was reduced to 59.5%. Therefore, the Corporation and PDGR filed
separate federal returns for fiscal 1996. For state purposes, each subsidiary generally files separate returns.
Deferred income taxes reflect the net tax effects of temporary differences between the amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant components of the Corporation's deferred tax
liabilities and assets as of January 31, 1997 and 1996 are as follows:
January 31,
1997 1996
Deferred tax liabilities:
Tax over book depreciation $ 103,000 $ 117,000
Deferred tax assets:
Accounts receivable allowance 147,000 146,000
Workers compensation reserve 215,000 129,000
Other 29,000 29,000
Net operating loss carryforwards 3,097,000 3,004,000
Total deferred tax assets 3,488,000 3,308,000
Valuation allowance for deferred tax assets 3,385,000 3,191,000
Net deferred tax assets 103,000 117,000
Net deferred tax liabilities $ - $ -
Significant components of the provision for income taxes are as follows:
For the Years Ended January 31,
1997 1996 1995
Current:
Federal $ - $ - $ -
State - - 24,000
Total current - - 24,000
Deferred:
Federal - 103,000 -
State - - $ -
Total deferred - 103,000 $ -
Total income tax provision $ - $ 103,000 $ 24,000
The reconciliation of income tax computed at the federal statutory rates to income tax expense is as follows:
For the Years Ended January 31,
1997 1996 1995
Tax at statutory rate $ (63,000) $ (220,000) $ (345,000)
State income taxes, net of federal tax benefit - - 41,000
Limitation on utilization of net operating loss 63,000 220,000 276,000
Goodwill - - 18,000
Other - 103,000 34,000
$ - $ 103,000 $ 24,000
The Corporation paid approximately $8,000, $64,000 and $42,000 for federal and state income taxes during the years ended
January 31, 1997, 1996 and 1995, respectively.
NOTE 10 - NOTES RECEIVABLE - OFFICERS
At January 31, 1997 and 1996, the Corporation had approximately $132,000 and $197,000, respectively, in notes receivable from
its officers in the form of personal loans. A breakdown of the notes receivable balance at January 31, 1997 by officer is as
follows: John C. Regan, Chairman -$95,000; Dulcia Maire, Secretary -$30,000 and Lawrence Horvat, Vice President -$7,000.
These loans are evidenced by demand notes and bear interest at the rate of 6% per annum.
NOTE 11 - 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 Statement of Financial Accounting Standards 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, because the exercise price of the Company's employee stock options equals the market price of the underlying
stock on the date of grant, 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 1,550,000 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 1,075,000 and 190,000
shares of the Corporation's common stock at an exercise price of $0.36 per share were granted under the Plan effective June 17,
1996 and November 1, 1996, respectively with 520,000 shares and 765,000 shares issuable related to fiscal 1997 and 1998,
respectively. Vesting of 50% of the respective year's options is contingent upon the individual offices, and in the case of the
executive offices, the Corporation, meeting pre-established financial goals for the respective fiscal year. If the financial goals
are exceeded by 25%, the remaining 50% of the options for the respective fiscal year vest. If financial goals are not achieved,
the options do not vest and are returned to the plan for future grants.
Options granted in fiscal 1996 and prior years had three-year vesting conditioned upon continued employment with the
Corporation.
The following table summarizes information with respect to the Plan for the three years ended January 31, 1997.
Option
Number of Price Range
Shares Per Share
Outstanding at January 31, 1994 287,500 $0.60 - $6.00
Exercised (5,500) $0.60
Cancelled-Reusable (18,000) $1.63 - $6.00
Outstanding at January 31, 1995 264,000 $0.60 - $2.94
Granted 11,000 $0.75
Cancelled - Reusable (46,998) $1.63 - $2.94
Outstanding at January 31, 1996 228,002 $0.60 - $2.94
Granted 1,285,000 $0.36
Cancelled - Reusable (253,335) $0.36 - $2.94
Outstanding at January 31, 1997 1,259,667 $0.36 - $1.91
Exercisable at January 31, 1997 557,999 $0.60 - $2.94
Reserved for future grants at January 31, 1997 197,085
Pro forma information regarding net income and earnings per share is required by SFAS Number 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 1997: risk-free interest rate of 7%; dividend yield of 0%; volatility factors of the expected market
price of the Company's common stock of 1.43; and a weighted-average expected life of the option of 7 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:
Fiscal
97
Pro forma net loss $ (557,000)
Pro forma earnings per share $ (0.09)
No proforma presentation is presented for fiscal 1996 since the effect is immaterial.
Cancellations in fiscal 1996 include 33,497 options relinquished by employees receiving options for PDGR stock.
The following table summarizes information with respect to non-qualified stock options for the three years ended January 31,
1997.
Option
Number of Price Range
Shares Per Share
Outstanding at January 31, 1994 143,250 $0.60 - $6.00
Expired (117,000) $3.00
Outstanding at January 31, 1995 26,250 $0.60 - $6.00
Expired (3,125) $6.00
Outstanding at January 31, 1996 23,125 $0.60 - $6.00
Expired (3,125) $6.00
Outstanding at January 31, 1997 20,000 $0.60
Exercisable at January 31, 1997 20,000 $0.60
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, 1997, 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 112,212 shares of the
Corporation's common stock at prices ranging from $0.36 per share to $0.60 per share have been granted under the Non-Employee Directors Plan. At January 31, 1997, all of the options granted under the Non-Employee Directors Plan were
exercisable.
No pro forma information is presented relative to the non-quantified stock option plan, the Employee Director Plan or the Non-Employee Directors Plan as the effect is either immaterial or non-existent.
Effective November 1, 1994, the Corporation established the PDG Environmental Retirement Savings Plan (the "Retirement
Savings Plan") under Section 401(k) of the Internal Revenue Code. Substantially all full time employees with at least one year
of service, except for certain bargaining unit employees, are eligible to participate in the Retirement Savings Plan. Employees
may contribute to the Retirement Savings Plan up to 15% of their eligible compensation. Under the terms of the Retirement
Savings Plan, the Corporation may match up to 6% of compensation; to be determined annually by the Corporation's Board of
Directors. Corporation contributions are 100% vested after seven years of service. There were no contributions made by the
Corporation in the years ended January 31, 1997 and 1996.
NOTE 12 - STOCK WARRANTS
At January 31, 1997 and 1996, the Corporation had approximately 1,105,000 and 1,007,000, respectively, of fully vested warrants
outstanding. The exercise price of the warrants range from $0.375 per share to $2.50 per share and the expiration dates range
from fiscal 1997 through fiscal 2001. The majority of these warrants were issued in conjunction with the financings discussed
in Note 6.
NOTE 13 - PREFERRED STOCK
At the Corporation's Annual Meeting of Stockholders held on July 23, 1993, the following matters were approved by a majority
of the Corporation's preferred and common stockholders which affected the Corporation's Series A Preferred stock and common
stock: a reduction in the Series A Preferred Stock dividend rate from 9% to 2% and the cancellation of the accrued but unpaid
dividends and the special voting rights associated with such preferred stock in the event of a certain accumulation of accrued but
unpaid dividends thereon; and a recapitalization of the Corporation in order to effect a one for two reverse stock split (the
"Recapitalization"). In exchange for the forfeiture of the accrued but undeclared and unpaid dividends, the holders of the Series
A Preferred Stock were granted a common stock right which, if and when declared by the Board of Directors, will grant to the
holders of such common stock rights shares of the common stock of the Corporation. At the May 23, 1995 Board of Directors
meeting, the issuance of one third of the shares (280,071 common shares) covered by the aforementioned right was approved.
At January 31, 1997 and 1996, 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 November 1, 1995 and September 8, 1994, 49,047 shares and 29,740 shares, respectively, of the Corporation's Series A
Preferred Stock and cumulative dividends in arrears were converted into 204,902 shares and 121,392 shares, respectively, of
Common Stock. At January 31, 1997, there were 185,925 shares of the Corporation's Series A Preferred Stock outstanding.
Cumulative dividends in arrears on the Series A Preferred Stock were approximately $128,000 at January 31, 1997.
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 14 - NET INCOME (LOSS) PER COMMON SHARE
The loss per common share for the years ended January 31, 1997 and 1996 are computed by adjusting the net loss for annual
preferred dividend requirements and then dividing this amount by the weighted average number of shares of common stock
outstanding during the year. Stock options and warrants have not been reflected as exercised for purposes of computing the loss
per share for the years ended January 31, 1997 and 1996 since the exercise of such options and warrants would be antidilutive.
Earnings per share for the year ended January 31, 1995 is calculated by dividing the net income by the average common shares
outstanding and dilutive common stock equivalents.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable operating leases. Rental expense under operating
leases aggregated $217,000, $279,000 and $325,000 for the years ended January 31, 1997, 1996 and 1995, respectively.
Minimum rental payments under these leases with initial or remaining terms of one year or more at January 31, 1997 aggregated
$379,000 and payments due during the next five fiscal years are as follows: 1998 - $165,000; 1999 - $128,000; 2000 - $71,000;
2001 - $11,000; and 2002 - $4,000.
The registrant has been 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 is seeking certification of the action as a class action and recision of the purchase of shares of common stock by
members of the purported class or statutory damages, as well as interest, attorneys' fees and other costs and expenses. The
registrant believes that the plaintiff's allegations are without merit or that there are meritorious defenses to the allegation, and
intends to defend the action vigorously.
By letter dated December 5, 1995, the plaintiff requested a pre-motion conference on a motion for class certification. By letter
dated December 6, 1995, the underwriter's counsel requested a pre-motion conference on a motion to dismiss the complaint. In
December 1995, the underwriter defendants filed a notice of motion to dismiss and a memorandum of law in support of the
motion. The motion to dismiss was denied in September 1996. The parties have negotiated a stipulation concerning class
certification, and the court has certified a class. The court has approved the form of notice to the potential class members
notifying them of the certification, but the registrant has not yet received notice that the order was entered. It is anticipated that
the notice will be sent to potential class members in June 1997.
The action is still in the discovery stage.
NOTE 16 - QUARTERLY RESULTS (UNAUDITED)
The Company had the following results by quarter:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
Year Ending January 31, 1997
Revenues $ 3,810,000 $ 3,715,000 $ 4,023,000 $ 4,635,000 $ 16,183,000
Gross margin 321,000 513,000 718,000 933,000 2,485,000
Net income (loss) before discontinued operations (426,000) (88,000) 51,000 279,000 (184,000)
Net income (loss) (679,000) (128,000) 42,000 279,000 (486,000)
Earnings per share before discontinued operations (0.09) (0.01) 0.01 0.05 (0.04)
Earnings per share $ (0.12) $ (0.02) $ 0.01 $ 0.05 $ (0.09)
Year Ending January 31, 1996
Revenues $ 2,878,000 $ 5,108,000 $ 5,269,000 $ 2,960,000 $ 16,215,000
Gross margin 286,000 857,000 580,000 (281,000) 1,442,000
Net income (loss) before discontinued operations 666,000* 94,000 (292,000) (1,218,000) (750,000)
Net income (loss) 614,000* (299,000) (584,000) (2,182,000) (2,451,000)
Earnings per share before discontinued operations 0.11 0.01 (0.05) (0.21) (0.14)
Earnings per share $ 0.11 $ (0.06) $ (0.10) $ (0.38) $ (0.44)
*Includes a gain of $1,314,000 on sale of PDG Remediation stock.
Balance at Additions Balance
beginning charged at close
of year to income Deductions(1) of year
1997
Allowance for doubtful accounts $ 44,000 $ 3,000 $ - $ 47,000
1996
Allowance for doubtful accounts $ 317,000 $ 15,000 $ 288,000 $ 44,000
1995
Allowance for doubtful accounts $ 297,000 $ 35,000 $ 15,000 $ 317,000
(1)Uncollectible accounts written off, net of recoveries.