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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1386 BEULAH ROAD, BUILDING 801
PITTSBURGH, PENNSYLVANIA 15235
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 412-243-3200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.02 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
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The aggregate market value of the voting stock held by non-affiliates of the
registrant was $5,435,951 as of April 5, 2002, computed on the basis of the
average of the bid and asked prices on such date.
As of April 5, 2002 there were 9,372,330 shares of the registrant's Common Stock
outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
(a) DEVELOPMENT OF THE BUSINESS
PDG Environmental, Inc., the registrant or corporation, is a holding company
which, through its wholly-owned operating subsidiaries, provides environmental
and specialty contracting services including asbestos and lead abatement,
insulation, microbial remediation, demolition and related services.
(b) DESCRIPTION OF THE BUSINESS
During the past fiscal year the Registrant derived the majority of its revenues
from the abatement of asbestos but has broadened its offering of services to
include a number of complementary services which utilize the Registrant's
existing infrastructure and personnel. The following is a discussion of each of
the major services provided by the Registrant.
ASBESTOS ABATEMENT
The asbestos abatement industry 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. During the last
ten years the industry has remained stable with revenues tracking the general
economic cycle.
The registrant has expertise in all types of asbestos abatement including
removal and disposal, enclosure and encapsulation. Asbestos abatement projects
have been performed in commercial buildings, government and institutional
buildings, schools, hospitals and industrial facilities for both the public and
private sector. Asbestos abatement work is completed in accordance with EPA,
OSHA, state and local regulations governing asbestos abatement operations,
disposal and air monitoring requirements.
LEAD
During the 1990's an increasing awareness of the dangers associated with lead
developed. While lead poisoning takes many forms, the most serious and troubling
in the United States is the danger posed to children and infants from the
ingestion of lead, primarily in the form of paint chips containing lead.
Ingestion of lead has been proven to reduce mental capacities and is especially
detrimental to children in the early stages of development.
The low income and public housing markets, due to the age of the structures,
contain a significant amount of lead paint that is
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flaking and peeling. In response to this problem many municipal and state
governments have developed programs to remediate the structures. The registrant
has experience in utilizing various methods to remove lead-based paint that is
adhered to surfaces and the removal of loose and flaking lead-based paint and
dust or lead-contaminated soil. Removal methods include chemical stripping, wet
scraping, needle gun, high-pressure water/vacuum and abrasive blasting. HEPA
vacuums are utilized for dust and debris clean up. Analysis of removed material,
as required, is performed to assure proper disposal of lead- contaminated waste
and debris generated from removal operations.
The registrant competitively bids the majority of the work it receives from
municipal and state governments.
INSULATION
The insulation industry is involved with providing thermal insulation for
piping, tanks, boilers and other systems in industrial, commercial and
institutional facilities for both new construction and retrofits. Many
applications require the removal of old asbestos containing insulation prior to
the retrofits. The registrant's capabilities include the installation of new
thermal insulation, fireproofing and firestopping. The registrant's experience
includes piping systems, HVAC, process distribution systems and tanks for
commercial, industrial, power generation and petrochemical facilities. The
registrant is also experienced with cryogenic systems insulation as well as
high-pressure boilers and steam pipe insulation for new installations or repair
and renovation to existing systems.
INDOOR AIR QUALITY / MICROBIAL REMEDIATION
Health professionals have been aware of the deleterious effects of certain types
of molds for decades but the issue has gained increased public awareness in
recent years. Studies indicate that 50% of all homes contain mold and that the
dramatic increase in asthma over the past 20 years can be attributed to mold.
The registrant's current focus is on toxic mold remediation in both commercial
and residential structures. The registrant's experience includes identification
and development of remediation plans, detailing methods and performing microbial
(mold, fungus, etc.) abatement in commercial, residential, educational, medical
and industrial facilities. The registrant's activities include decontamination,
application of biocides and sealant, removal of building systems (drywall,
carpet, etc.), duct cleaning, and disposal of building furnishings.
DEMOLITION
Similar to the insulation industry, the demolition industry has a wide range of
applications and services. The registrant has currently limited their services
to the performance of selective interior and structural demolition. The
registrant's experience includes interior and structural demolition in occupied
buildings utilizing specially equipped air filtration devices to minimize
airborne dust emissions in occupied areas.
This work has been a natural progression from asbestos abatement work, which
often requires significant interior demolition to access asbestos material for
removal.
OPERATIONS
The registrant's operating subsidiaries provide 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 is typically less than
one year; however, larger projects may require two or more 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 contracted work 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 operations are nationwide. The majority of the registrant's
national marketing efforts are performed by members of senior management located
in the headquarters facility in Pittsburgh, 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 and Tampa,
Florida; Houston and Pasadena, Texas; Los Angeles, California, Phoenix, Arizona;
St. Louis, Missouri; Portland, Oregon; Seattle, Washington and Rock Hill, South
Carolina. Since the registrant and its subsidiaries are able to perform work
throughout the year, the business is not considered seasonal in nature. However,
it is affected by the timing of large contracts.
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SUPPLIERS AND CUSTOMERS
The registrant purchases the equipment and supplies used in the business from a
number of suppliers. Two of these suppliers (Aramsco, Inc. and Inline, Inc.)
accounted for 27% and 17%, respectively, of the registrant's purchases in fiscal
2002. The items are purchased from the vendor's available stock and are not
covered by a formalized agreement.
In fiscal 2002, the registrant estimates that approximately 69% of its operating
subsidiaries' revenues were derived from private sector clients, 19% from
government contracts and 12% from public institutions. Due to the nature of the
registrant's business, which involves large contracts that are often completed
within one year, customers that account for a significant portion of revenue in
one year may represent an immaterial portion of revenue in subsequent years. For
the year ended January 31, 2002 no customer accounted for more than 10% of the
registrant's consolidated revenues for that year. For the year ended January 31,
2001, one customer, the US Army, accounted for 12% of the registrant's
consolidated revenue. For the year ended January 31, 2000, one customer, an
owner of a hotel in Texas, accounted for 14% of the registrant's consolidated
revenue.
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 and professional organizations.
INSURANCE AND BONDS
The registrant and its operating subsidiaries maintain liability insurance for
claims arising from its business. The policy, which provides a $2.0 million
limit per claim and in the aggregate, insures against both property damage and
bodily injury arising from the contracting activities of the registrant's
operating subsidiaries. The policy is written on an "occurrence" basis which
provides coverage for insured risks that occur during the policy period,
irrespective of when a claim is made. Higher policy limits of up to $10.0
million are available for individual projects. The registrant also provides
worker's compensation insurance, at statutory limits, which covers the employees
of the registrant's operating subsidiaries.
A 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 environmental and specialty contractor industries are highly competitive and
include both small firms and large diversified firms, which have the financial,
technical and marketing capabilities to compete on a national level. The
industries are not dominated by any one firm. The registrant principally
competes on the basis of competitive pricing, a reputation for quality and
safety, and the ability to obtain the appropriate level of insurance and
bonding.
REGULATORY MATTERS
Numerous regulations at the federal, state and local levels impact the
environmental 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 asbestos and lead
containing material during abatement projects and the transportation and
disposal of ACM and lead following removal.
Current EPA regulations establish procedures for controlling the emission of
asbestos fibers into the environment during removal, transportation or disposal
of ACM. The EPA also has notification requirements before removal operations can
begin. Many state authorities and local jurisdictions have implemented similar
programs governing removal, handling and disposal of ACM.
The health and safety of personnel involved in the removal of asbestos and lead
are protected by OSHA regulations which specify allowable airborne exposure
standards for asbestos workers and allowable blood levels for lead workers,
engineering controls, work area practices, 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 that affect its asbestos and lead abatement
business.
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The other segments of the environmental and specialty contractor industry that
the registrant operates in are not currently as regulated as the asbestos and
lead abatement industries.
BACKLOG
The registrant and its operating subsidiaries had a backlog of orders totaling
approximately $31.7 million and $28.2 million at January 31, 2002 and 2001,
respectively. The backlog at January 31, 2002 consisted of $24.0 million of
uncompleted work on fixed fee contracts and an estimated $7.7 million of work to
be completed on time and materials or unit price contracts. The backlog at
January 31, 2001 consisted of $21.9 million of uncompleted work on fixed fee
contracts and an estimated $6.3 million of work on time and materials or unit
price contracts. The Company, from time to time, enters into fixed-price
subcontracts which tends to reduce the risk to the Company on fixed-price
contracts.
The backlog represents the portion of contracts which remain to be completed at
a given point in time. As these contracts are completed, the backlog will be
reduced and a compensating amount of revenue will be recognized. The Company is
currently working on virtually all of the contracts in its January 31, 2002
backlog and anticipates that approximately 73% of this backlog will be completed
and realized as revenue by January 31, 2003 in accordance with the terms of the
applicable contracts between the registrant and the owners of these properties.
The remaining 27% are expected to be completed and realized as revenue
subsequent to January 31, 2003. Approximately 56% of the backlog existing at
January 31, 2001 was completed and recognized as revenue by January 31, 2002
with 14% expected to be completed and realized as revenue during the year ending
January 31, 2003 and 30% thereafter.
EMPLOYEES
As of January 31, 2002, the registrant employs approximately 110 employees
consisting of senior management and staff employees among its headquarters in
Monroeville and branch offices located in New York City, NY; Hazleton, PA;
Export, PA; St. Louis, MO; Fort Lauderdale, FL; Tampa, FL; Houston, TX; Los
Angeles, CA; Pasadena, TX; Phoenix, AZ; Portland, OR; Seattle, WA and Rock Hill,
SC. The staff employees include accounting, administrative, sales and clerical
personnel as well as project managers and field supervisors. The registrant also
employs laborers for field operations based upon specific projects; therefore,
the precise number varies based upon the outstanding backlog. Approximately
400-500 laborers and supervisors are employed on a steady basis, with casual
labor hired on an as-needed basis to supplement the work force.
A portion of the field laborers who provide services to the registrant are
represented by a number of different unions. In many cases, the Company is a
member of a multi-employer plan. Management considers its employee labor
relations to be good.
ITEM 2. PROPERTIES
As of January 31, 2002, the registrant leases certain office space for its
executive offices in Pittsburgh totaling 3,334 square feet. In addition, a
combination of warehouse and office space is leased in Houston (3,990 square
feet), St. Louis (7,272 square feet), Los Angeles (6,500 square feet), Hazleton
(1,800 square feet), Fort Lauderdale (6,000 square feet), Tampa (5,400 square
feet), Rock Hill (15,000 square feet), Pasadena (3,800 square feet), Phoenix
(3,125 square feet), Portland (6,000 square feet), Seattle (2,150 square
feet),and New York City (3,800 square feet).
The registrant also owns a 15,000 square foot office/warehouse situated on
approximately six (6) acres in Export, Pennsylvania which is subject to a
mortgage of $381,000 at January 31, 2002.
ITEM 3. LEGAL PROCEEDINGS
The registrant is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the registrant based upon information available
at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The registrant's common stock has traded on the OTC Bulletin Board since
September 1996. Prior to that, it was listed for trading on NASDAQ Small Cap
(Symbol: PDGE) and the information presented for the following periods reflects
the high and low bid information as reported by the OTC Bulletin Board.
MARKET PRICE RANGE
FISCAL 2002 FISCAL 2001
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 0.53 $ 0.28 $ 1.25 $ 0.71
Second Quarter 0.79 0.30 0.71 0.46
Third Quarter 0.79 0.41 0.71 0.43
Fourth Quarter 0.65 0.43 0.50 0.28
At March 26, 2002, the registrant had 2,110 stockholders of record.
The registrant has not historically declared or paid dividends with respect to
its common stock and has no intention to pay dividends in the foreseeable
future. The registrant's ability to pay preferred and common dividends is
prohibited due to limitations imposed by the registrant's Series A Preferred
Stock which require that dividends must be paid to holders of preferred stock
prior to the payment of dividends to holders of common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for the
registrant for the five fiscal years ended January 31, 2002.
FOR THE YEARS ENDED JANUARY 31,
2002 2001 2000 1999 1998
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(THOUSANDS EXCEPT PER SHARE
DATA)
OPERATING DATA
Contract revenues $ 42,587 $ 34,584 $ 28,480 $ 36,828 $ 24,610
Gross margin 4,258 4,983 4,526 5,306 4,319
Income (loss) from operations (1,191) 436 395 2,317 667
Other income (expense) (380) (222) (127) (147) (168)
Income (loss) from continuing operations (1,601) 173 246 1,310 377
Loss from discontinued operations -- -- -- (200) --
Net income (loss) (1,601) 173 246 1,110 377
COMMON SHARE DATA
Net income (loss) from continuing
operations per common share:
Basic (0.17) 0.02 0.03 0.18 0.06
Diluted (0.17) 0.02 0.03 0.16 0.06
Net income (loss) per common share:
Basic (0.17) 0.02 0.03 0.15 0.05
Diluted (0.17) 0.02 0.03 0.14 0.05
Weighted average common shares outstanding 9,211 8,731 8,394 7,437 6,060
BALANCE SHEET DATA
Working capital $ 6,491 $ 5,884 $ 3,308 $ 3,507 $ 2,794
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Total assets 19,788 13,409 10,353 9,564 10,377
Long-term obligations 5,582 3,152 542 1,1,20 1,768
Total stockholders' equity 3,944 5,334 5,061 4,801 2,265
The year ended January 31, 2001 included a $0.2 million charge to write off
deferred acquisition and financing costs.
The year ended January 31, 2000 included a $0.38 million charge to settle a
benefits claim litigation.
The year ended January 31, 1999 include loss from discontinued operations of
($0.2 million); ($0.02) per common share.
The year ended January 31, 1998 includes a $0.9 million non cash charge for
compensation expense associated with common stock issuable under options.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The registrant, through its operating subsidiaries, provides environmental and
specialty contracting services including asbestos and lead abatement,
insulation, microbial remediation, demolition and related services.
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, 2002.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 2002 COMPARED TO YEAR ENDED JANUARY 31, 2001
Consolidated revenues reported by the registrant increased to $42.6 million for
the year ended January 31, 2002 (fiscal 2002) compared to $34.6 million for the
year ended January 31, 2001 (fiscal 2001). The fiscal 2002 revenue included $7.7
million from the Los Angeles office acquired June 1, 2001. Excluding the effect
of this acquisition on revenue, revenues increased $0.3 million or 1% in fiscal
2002.
Contract costs increased to $38.3 million in fiscal 2002 compared to $29.6
million in fiscal 2001 and resulted in reported gross margins of $4.3 million
and $5.0 million, respectively, in each fiscal year. The decrease in gross
margin is due primarily to labor shortages and $1.3 million of negative contract
adjustments on four significant contracts in the fourth quarter of Fiscal 2002.
The registrant's selling, general and administrative expenses increased by 20%
between the two fiscal years to $5.5 million in fiscal 2002 compared to $4.6
million in fiscal 2001. This increase was due to the addition of five branch
offices (three from acquisition and two via the opening of new offices) during
Fiscal 2002 and 2001 and a provision of $0.2 million for uncollectable accounts
in fiscal 2002.
The factors discussed above resulted in the registrant reporting a loss from
operations of $1.2 million in fiscal 2002 compared to income from operations of
$0.4 million in fiscal 2001.
Interest expense increased to $0.4 million from $0.26 million due to a higher
level of borrowings to support increased revenues and borrowings required to
finance the acquisition of the Los Angeles office acquired in June 2001.
Interest income decreased to $3,000 for the year ended January 31, 2002 compared
to $16,000 for the previous fiscal year due to lower invested cash balances at
certain periods throughout the year.
As a result of the current year loss in fiscal 2002 and existing net operating
loss carryforwards for book purposes, no federal income tax provision was
required in fiscal 2002 and 2001. In fiscal 2002, a $30,000 state income tax
provision was made as compared to a $41,000 state income tax provision in fiscal
2001.
YEAR ENDED JANUARY 31, 2001 COMPARED TO YEAR ENDED JANUARY 31, 2000
During the year ended January 31, 2001, (fiscal 2001) the registrant's
consolidated revenues increased to $34.6 million as
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compared to $28.5 million the previous fiscal year ended January 31, 2000
(fiscal 2000). The increase was due to the acquisition of operating companies in
Portland, Oregon and Pasadena, Texas on April 1, 2000, the commencing of
operations in Tampa Florida on September 15, 2000 and increased contract awards
during fiscal 2001.
The registrant's reported gross margin increased to $5.0 million in fiscal 2001
compared to $4.5 million in fiscal 2000. The increased margin in fiscal 2001 was
due to the margin of the aforementioned acquisitions and increased revenues.
Gross margin as a percentage of revenues decreased in the current fiscal year
due to a large on-going contract which is at a relatively low margin.
Selling, general and administrative expenses increased in fiscal 2001 to $4.6
million compared to $3.8 million in fiscal 2000. The increase is primarily
attributable to the acquisition of the Portland and Pasadena offices, the
opening of the Tampa office and the personnel necessary to support a higher
level of contract activity.
In June 1999, the Corporation reached a settlement with the Mason Tenders New
York District Council Welfare Fund whereby the Corporation agreed to pay
$500,000 to resolve all claims concerning contributions owed for the period
January 1, 1995 through May 31, 1996 and related claims for interest, statutory
damages, costs and attorneys' fees. The initial payment of $200,000 was made in
June 1999 with the remainder of $100,000 due by December 28, 1999 and $200,000
by June 28, 2000. This resulted in a $379,000 charge in the second quarter of
Fiscal 2000 which was net of amounts previously accrued and recoveries from
third parties.
As a result of the factors discussed above, the registrant reported an income
from operations in fiscal 2001 of $0.44 million compared to an income from
operations of $0.4 million in fiscal 2000.
Interest expense increased to $0.26 million in fiscal 2001 compared to $0.14
million in fiscal 2000 as a result of a significant increase in the outstanding
balance as a result of the refinancing of all outstanding debt with Sky Bank in
August 2000 and increased cash requirements to fund a higher level of revenues.
Interest income increased to $16,000 in fiscal 2001 compared to $11,000 in
fiscal 2000 due to the higher invested cash balances during the current year.
Other income in fiscal 2001 totaled approximately $19,000 versus $2,000 in
fiscal 2000.
As a result of net operating loss carryforwards for book purposes, there was no
federal income tax provision in fiscal 2001 and 2000. State income tax provision
of $41,000 and $22,000 were made in fiscal 2001 and 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 2002
During fiscal 2002, the registrant experienced an increase in liquidity of $0.16
million as cash and short-term investments increased from $0.21 million at
January 31, 2001 to $0.37 million at January 31, 2002. The increase in liquidity
in fiscal 2002 was attributable to $2.7 million of cash provided by financing
activities this was partially offset by cash outflows of $0.86 million from
operating activities and $1.7 million from investing activities.
Specifically, cash outflows from operating activities were related to accounts
receivable which increased by $5.65 million, costs and estimated earnings in
excess of estimated earnings on uncompleted contracts which increased by $0.27
million and the net loss of $1.6 million. These cash outflows were partially
offset cash inflows from accounts payable which increased $3.87 million,
billings in excess of costs and estimated earnings on uncompleted contracts
which increased by $0.25 million, a decrease in other current assets of $0.29
million, a $0.56 million increase in accrued liabilities, $1.2 million of
depreciation and amortization a $0.2 million provision for uncollectable
accounts and a $0.26 million increase in contingent payment consideration.
The registrant's investing activities utilized cash of $1.7 million during
fiscal 2002 which was attributable to $0.76 million of purchases of property,
plant and equipment and $0.92 million for the acquisition of businesses.
The $2.72 million from financing activities during fiscal 2002 included proceeds
from debt of $3.13 million consisting of $0.6 million from new term equipment
loans from the Company's prime lender, $2.35 million of borrowings on the line
of credit and $0.18 million of equipment financing Additionally, $0.01 million
was received from the exercise of stock options. These inflows were partially
offset by $0.43 million of scheduled principal payments on term debt.
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The registrant believes that it has adequate liquidity to fund its current and
future operations.
FISCAL 2001
During fiscal 2001, the registrant experienced a decrease in liquidity of $0.07
million as cash and short-term investments decreased from $0.28 million at
January 31, 2000 to $0.21 million at January 31, 2001. The decrease in liquidity
in fiscal 2001 was attributable to cash outflows in the amount of $1.3 million
from operating activities and $1.3 million from investing activities partially
offset by $2.6 million of cash provided by financing activities.
Specifically, cash outflows from operating activities were related to accounts
receivable which increased by $1.2 million, costs and estimated earnings in
excess of estimated earnings on uncompleted contracts which increased by $1.5
million, inventories which increased by $0.14 million, accounts payable which
decreased $0.75 million and billings in excess of costs and estimated earnings
on uncompleted contracts which decreased by $0.1 million. Cash inflows from
operating activities were generated by a net income of $0.17 million, a decrease
in other current assets of $0.45 million, a $0.34 million increase in accrued
liabilities, $1.17 million of depreciation and amortization and the $0.2 million
write off of deferred acquisition and financing costs.
The registrant's investing activities utilized cash of $1.3 million during
fiscal 2001 which was attributable to $0.63 million of purchases of property,
plant and equipment and $0.58 million for the acquisition of three businesses
and a $0.14 million increase in other assets.
The $2.57 million from financing activities during fiscal 2001 included proceeds
from debt of $4.6 million consisting of $1.4 million from the new term loans
received in the third quarter, $1.75 million of borrowings on the new line of
credit and $1.5 million of borrowings on the line of credit that was refinanced
in August 2000. These inflows were partially offset by principal payments of
$2.05 million consisting of a $0.24 million payoff of the mortgage that was
refinanced, a $0.21 million payoff of the term loan that was refinanced, a $1.5
million payoff of the line of credit that was refinanced and $0.12 million of
scheduled principal payments on term debt.
FISCAL 2000
During fiscal 2000, the registrant experienced a decrease in liquidity of $0.03
million as cash and short-term investments decreased from $0.31 million at
January 31, 1999 to $0.28 million at January 31, 2000. The decrease in liquidity
in fiscal 2000 was attributable to cash utilized by investing activities of
$0.85 million and cash utilized by financing activities of $0.33 million
partially offset by cash inflows of $1.15 million from operating activities.
Cash inflows from operating activities were generated by net income of $0.25
million, depreciation and amortization of $0.72 million, a $0.06 million
increase in accounts payable, a $0.61 increase in other current assets and a
$0.34 million increase in billings in excess of costs and estimated earnings on
uncompleted contracts. Cash outflows related to operating activities included a
$0.87 million increase in accounts receivable.
Specifically, the $0.33 million of cash outflows from financing activities
during fiscal 2000 included $0.34 million of repayments on debt including
reducing the line of credit to $0.01 million at January 31, 2000 from $0.18
million at January 31, 1999. Additionally, $0.01 million was utilized to
repurchase 19,400 common shares into the treasury. These outflows were partially
offset by cash inflows of $0.03 million for the exercise of stock options and
warrants.
The registrant's investing activities of $0.85 million were due to $0.67 million
for the purchase of property, plant and equipment, $0.145 million increase in
other assets and $0.04 million contingent payment related to the fiscal 1999
acquisition of two asbestos abatement businesses in the Mid-west.
The registrant, from time to time, enters into fixed-price subcontracts which
tends to reduce the risk to the Company on fixed-price contracts.
MARKET RISK
The only market risk, as defined, that the Company is exposed to is interest
rate sensitivity. The interest rate on the equipment note and revolving line of
credit fluctuate based upon changes in the prime rate. Each 1% change in the
prime rate will result in a $54,000 change in borrowing costs based upon the
balance outstanding at January 31, 2002. The interest rate on the term debt is
readjusted in August 2003 and if the current interest rate environment exists in
August 2003, the interest rate on the term debt
8
would decrease.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and its subsidiaries and
the report of Stokes & Hinds LLC are submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years of the registrant, there were no
disagreements with the independent auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement would have caused the auditors to make reference
to the subject matter of the disagreement or disagreements in connection with
their reports.
9
PART III
The information called for by Part III (Items #10, 11, 12 and 13) is
incorporated herein by references to the registrant's definitive Proxy Statement
for the 2002 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934.
10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) AND (2) The following consolidated financial statements and financial
statement schedule of the registrant and its subsidiaries are included in Item
8.
PAGE
Report of Independent Auditors..............................................F-1
Consolidated Balance Sheets as of January 31, 2002 and 2001.................F-2
Consolidated Statements of Operations for the Years Ended
January 31, 2002, 2001 and 2000..........................................F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended January 31, 2002, 2001 and 2000..............................F-5
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2002, 2001 and 2000..........................................F-6
Notes to Consolidated Financial Statements for the Three Years
Ended January 31, 2002, 2001 and 2000....................................F-7
Schedule II - Valuation and Qualifying Accounts............................F-18
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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EXHIBIT INDEX NUMBERING SYSTEM
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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.
11
PAGES
OF SEQUENTIAL
EXHIBIT INDEX NUMBERING SYSTEM
------------- ----------------
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 Loan Agreement dated August 3, 2000 between Sky Bank and PDG
Environmental, Inc., PDG, Inc., Project Development Group, Inc. and
Enviro-Tech Abatement Services Co., filed as Exhibit 4.4 to the
registrant's Annual Report on Form 10-K for the year ended January 31,
2001, is incorporated herein by reference.
10.1 Indemnity Agreement dated as of the first day of July 1990 by and among
Project Development Group, Inc. and John C. and Eleanor Regan, filed as
Exhibit 10.1 to the registrant's Annual Report on Form 10-K for the
year ended September 30, 1990, is incorporated herein by reference.
10.2 Assumption Agreement entered into as of the fourteenth day of December
1990 among Project Development Group, Inc., and John C. and Eleanor
Regan, filed as Exhibit 10.2 to the registrant's Annual Report on Form
10-K for the year ended September 30, 1990, is incorporated herein by
reference.
10.3 PDG Environmental, Inc. Amended and Restated Incentive Stock Option
Plan as of June 25, 1991, filed as Exhibit 10.3 to the registrant's
Annual Report on Form 10-K for the year ended January 31, 1992, is
incorporated herein by reference.
10.4 PDG Environmental, Inc. 1990 Stock Option Plan for Employee Directors,
filed as Exhibit 10.4 to the registrant's Annual Report on Form 10-K
for the year ended January 31, 1992, is incorporated herein by
reference.
10.5 PDG Environmental, Inc. 1990 Stock Option Plan for Non-Employee
Directors, filed as Exhibit 10.5 to the registrant's Annual Report on
Form 10-K for the year ended January 31, 1992, is incorporated herein
by reference.
10.6 Demand note between the registrant and John C. Regan, filed as Exhibit
10.4 to the registrant's Annual Report on Form 10-K for the transition
period from October 1, 1990 to January 31, 1991, is incorporated herein
by reference.
12
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EXHIBIT INDEX NUMBERING SYSTEM
------------- ----------------
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 Loan Agreement dated August 3, 2000 between Sky Bank and PDG
Environmental, Inc., PDG, Inc., Project Development Group, Inc. and
Enviro-Tech Abatement Services Co. (as it appears at 4.4).
10.9 Asset Purchase Agreement dated November 1, 1998 by and among
Environmental Control & Abatement, Inc., Environmental Remediation
Services, Inc. and William A. Lemire and Project Development Group,
Inc. and PDG Environmental, Inc. filed as Exhibit 2 of PDG
Environmental, Inc. Form 8-K dated November 20, 1998, is hereby
incorporated herein by reference .
10.10 Employee Agreement dated June 20, 2000 for John C. Regan. filed as
Exhibit 10 of the PDG Environmental, Inc. Quarterly Report on Form 10-Q
for the quarter ended July 31, 2000, is hereby incorporated herein by
reference.
10.11 Asset Purchase Agreement dated June 15, 2001 by and among Tri-State
Restoration, Inc. Project Development Group, Inc. and PDG
Environmental, Inc., filed as Exhibit 2 of the registrant's Interim
Report on Form 8-K dated July 6, 2001, is hereby incorporated herein by
reference.
21 List of subsidiaries of the registrant.
23 Consent of independent auditors.
24 Power of attorney of directors.
(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, 2002.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
/s/ John C. Regan
--------------------------------------------------
John C. Regan, Chairman and Chief Executive Officer
Date: April 29, 2002
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 April 29, 2002
- -------------------------------------
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
April 29, 2002
Edgar Berkey, Director By /s/ John C. Regan
---------------------------------------------
John C. Regan, Attorney-in-Fact
April 29, 2002
James D. Chiafullo, Director By /s/ John C. Regan
---------------------------------------------
John C. Regan, Attorney-in-Fact
April 29, 2002
Edwin J. Kilpela, Director BY /s/ John C. Regan
---------------------------------------------
John C. Regan, Attorney-in-Fact
April 29, 2002
14
PDG ENVIRONMENTAL, INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(c) AND (d)
FINANCIAL STATEMENTS, CERTAIN EXHIBITS & SCHEDULE
15
REPORT OF INDEPENDENT AUDITORS
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, 2002 and 2001, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended January 31, 2002.
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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended January 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Stokes & Hinds, LLC
Pittsburgh, Pennsylvania
March 28, 2002
F-1
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
JANUARY 31,
2002 2001
----------- -----------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 373,000 $ 214,000
Accounts receivable, net of a $130,000 allowance in fiscal 2002 12,723,000 7,278,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,817,000 2,546,000
Inventories 461,000 468,000
Notes receivable from officers 132,000 132,000
Other current assets 247,000 169,000
----------- -----------
TOTAL CURRENT ASSETS 16,753,000 10,807,000
PROPERTY, PLANT AND EQUIPMENT
Land 42,000 42,000
Leasehold improvements 196,000 176,000
Furniture and fixtures 178,000 166,000
Vehicles 912,000 628,000
Equipment 6,224,000 5,288,000
Buildings 370,000 370,000
----------- -----------
7,922,000 6,670,000
Less: accumulated depreciation 5,960,000 5,140,000
----------- -----------
1,962,000 1,530,000
COVENANTS NOT TO COMPETE 146,000 577,000
GOODWILL, net of accumulated amortization of $67,000 and $31,000 in 2002
and 2001, respectively 582,000 256,000
OTHER ASSETS 345,000 239,000
----------- -----------
TOTAL ASSETS $19,788,000 $13,409,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
CONSOLIDATED BALANCE SHEETS
PDG ENVIRONMENTAL, INC.
JANUARY 31,
2002 2001
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,166,000 $ 1,923,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,164,000 910,000
Accrued liabilities 2,381,000 1,913,000
Current portion of long-term debt 551,000 177,000
------------ ------------
TOTAL CURRENT LIABILITIES 10,262,000 4,923,000
OTHER LONG-TERM LIABILITIES -- 210,000
LONG-TERM DEBT 5,582,000 2,942,000
------------ ------------
TOTAL LIABILITIES 15,844,000 8,075,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative convertible Series A preferred stock, $0.01 par value, 5,000,000
shares authorized and 6,000 issued and outstanding shares at January 31,
2002 and 2001
(liquidation preference of $60,000 at January 31, 2002) 14,000 14,000
Common stock, $0.02 par value, 30,000,000 shares authorized and
9,413,840 and 8,829,144 shares issued and outstanding at
January 31, 2002 and 2001, respectively 189,000 177,000
Paid-in capital 8,108,000 7,767,000
Deferred compensation (46,000) --
(Deficit) retained earnings (4,283,000) (2,586,000)
Less treasury stock, 46,510 and 46,500 shares at January 31, 2002 and 2001,
respectively (38,000) (38,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,944,000 5,334,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,788,000 $ 13,409,000
============ ============
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
PDG ENVIRONMENTAL, INC.
FOR THE YEARS ENDED JANUARY 31,
2002 2001 2000
----------------------------------------------------
CONTRACT REVENUES $ 42,587,000 $ 34,584,000 $ 28,480,000
CONTRACT COSTS 38,329,000 29,601,000 23,954,000
------------ ------------ ------------
GROSS MARGIN 4,258,000 4,983,000 4,526,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,449,000 4,547,000 3,752,000
LITIGATION SETTLEMENT EXPENSE -- -- 379,000
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,191,000) 436,000 395,000
OTHER INCOME (EXPENSE):
Interest expense (404,000) (257,000) (140,000)
Interest income 3,000 16,000 11,000
Other income 21,000 19,000 2,000
------------ ------------ ------------
(380,000) (222,000) (127,000)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,571,000) 214,000 268,000
INCOME TAX PROVISION (30,000) (41,000) (22,000)
------------ ------------ ------------
NET INCOME (LOSS) $ (1,601,000) $ 173,000 $ 246,000
============ ============ ============
EARNINGS PER COMMON SHARE - BASIC: $ (0.17) $ 0.02 $ 0.03
============ ============ ============
EARNINGS PER COMMON SHARE - DILUTIVE: $ (0.17) $ 0.02 $ 0.03
============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING 9,211,000 8,731,000 8,394,000
AVERAGE DILUTIVE COMMON STOCK EQUIVALENTS OUTSTANDING -- 316,000 442,000
------------ ------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON STOCK
EQUIVALENTS OUTSTANDING 9,211,000 9,047,000 8,836,000
============ ============ ============
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PDG ENVIRONMENTAL, INC.
PREFERRED (DEFICIT) TOTAL
STOCK COMMON PAID-IN DEFERRED TREASURY RETAINED STOCKHOLDERS'
SERIES A STOCK CAPITAL COMPENSATION STOCK EARNINGS EQUITY
--------- --------- ---------- -------- --------- ----------- ----------
BALANCE AT JANUARY 31, 1999 $ 14,000 $ 168,000 $7,395,000 $ -- $ (25,000) $(2,751,000) $4,801,000
Exercise of stock warrants for 30,000
shares of common stock 1,000 14,000 15,000
Issuance of 24,000 shares under Employee
Incentive Stock Option Plan 12,000 12,000
Purchase of 19,400 shares for the treasury (13,000) (13,000)
Net Income 246,000 246,000
--------- --------- ---------- -------- --------- ----------- ----------
BALANCE AT JANUARY 31, 2000 14,000 169,000 7,421,000 -- (38,000) (2,505,000) 5,061,000
Issuance of 121,652 shares in
connection with an acquisition 2,000 98,000 100,000
Issuance of 259,696 shares to reflect
declaration of 1/3 of the common
stock rights 6,000 248,000 (254,000) -
Net Income 173,000 173,000
--------- --------- ---------- -------- --------- ----------- ----------
BALANCE AT JANUARY 31, 2001 14,000 177,000 7,767,000 -- (38,000) (2,586,000) 5,334,000
Issuance of 300,000 shares in
connection with an acquisition 6,000 183,000 189,000
Issuance of 450,000 stock options 59,000 (59,000) --
Issuance of 25,000 shares under Employee
Incentive Stock Option Plan 1,000 8,000 9,000
Amortization of stock based compensation 13,000 13,000
Issuance of 259,696 shares to reflect
declaration of 1/3 of the common
stock rights 5,000 91,000 (96,000) --
Net Loss (1,601,000) (1,601,000)
--------- --------- ---------- -------- --------- ----------- ----------
BALANCE AT JANUARY 31, 2002 $ 14,000 $ 189,000 $8,108,000 $ (46,000) $(38,000) $(4,283,000) $ 3,944,000
========= ========= ========== ========= ========= =========== -----------
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
PDG ENVIRONMENTAL, INC.
FOR THE YEARS ENDED JANUARY 31,
2002 2001 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss) $(1,601,000) $ 173,000 $ 246,000
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation 857,000 688,000 540,000
Amortization 340,000 485,000 180,000
Contingent acquisition consideration 260,000 -- --
Stock based compensation 13,000 -- --
Write off of deferred acquisition and financing costs -- 205,000 --
Provision for uncollectable accounts 200,000 35,000 --
Other -- -- 1,000
CHANGES IN CURRENT ASSETS AND LIABILITIES OTHER THAN CASH:
Accounts receivable (5,645,000) (1,195,000) (868,000)
Costs and estimated earnings in excess of billings on
uncompleted contracts (271,000) (1,491,000) 3,000
Inventories 7,000 (139,000) 7,000
Other current assets 293,000 452,000 615,000
Accounts payable 3,872,000 (747,000) 65,000
Billings in excess of costs and estimated earnings on
uncompleted contracts 254,000 (105,000) 342,000
Accrued liabilities 563,000 336,000 9,000
Other -- -- 7,000
----------- ----------- -----------
TOTAL CHANGES (927,000) (2,889,000) 180,000
----------- ----------- -----------
CASH (USED) PROVIDED BY OPERATING ACTIVITIES (858,000) (1,303,000) 1,147,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (757,000) (630,000) (670,000)
Acquisition of business (921,000) (579,000) (37,000)
Proceeds from sale of property, plant and equipment 15,000 12,000 5,000
Increase in other assets (37,000) (138,000) (145,000)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,700,000) (1,335,000) (847,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 3,134,000 4,624,000 --
Proceeds from exercise of stock options and warrants 9,000 -- 27,000
Purchase of common stock for treasury -- -- (13,000)
Principal payments on debt (426,000) (2,054,000) (341,000)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,717,000 2,570,000 (327,000)
----------- ----------- -----------
Net increase (decrease) in cash and short-term investments 159,000 (68,000) (27,000)
Cash and short-term investments, beginning of year 214,000 282,000 309,000
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 373,000 $ 214,000 $ 282,000
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PDG ENVIRONMENTAL, INC.
FOR THE THREE YEARS ENDED JANUARY 31, 2002
NOTE 1 - BASIS OF PRESENTATION
BUSINESS ACTIVITIES
PDG Environmental, Inc. (the "Corporation") is a holding company which, through
its wholly-owned operating subsidiaries, provides environmental and specialty
contracting services including asbestos and lead abatement, insulation,
microbial remediation, demolition and related services.
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 more to complete.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL PRESENTATION:
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the Corporation and its
wholly-owned subsidiaries.
REVENUES AND COST RECOGNITION:
Revenues for services performed are recognized on the percentage-of-completion
method, measured by the relationship of total cost incurred to total estimated
contract costs (cost-to-cost method).
Contract costs include direct labor and material costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
depreciation, repairs and insurance. Selling, general and administrative costs
are charged to expense as incurred. Bidding and proposal costs are also
recognized as an expense in the period in which such amounts are incurred.
Provisions for estimated losses on uncompleted contracts are recognized in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract
penalty provisions and final contract settlements, may result in revisions to
estimated costs and income, and are recognized in the period in which the
revisions are determined. Profit incentives are included in revenues when their
realization is reasonably assured.
CASH AND SHORT-TERM INVESTMENTS:
Cash and short-term investments consist principally of currency on hand, demand
deposits at commercial banks, and liquid investment funds having a maturity of
three months or less at the time of purchase.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
The Company provides for estimated losses on uncollectible accounts receivable
based upon management's review of outstanding trade receivables.
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.
F-7
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets using the straight-line method.
INCOME TAXES:
The Corporation provides for income taxes under the liability method as required
by SFAS No. 109.
Earnings on construction contracts, for income tax purposes, are determined
using the percentage-of-completion method of accounting.
Deferred income taxes are recognized for the future tax effects of temporary
differences between financial and income tax reporting based on enacted laws and
applicable rates.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations," which eliminated the pooling of interest method of
accounting for all business combinations initialed after June 30, 2001 and
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. The Company adopted this
accounting standard for business combinations initiated after June 30, 2001.
The Company will adopt SFAS 142, "Goodwill and Other Intangible Assets,"
effective February 1, 2002. SFAS 142 addresses the financial and accounting and
reporting standards for the acquisition of intangible assets outside of a
business combination and for goodwill and other intangible assets subsequent to
their acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the statement of financial position,
and no longer be amortized but tested for impairment on a periodic basis. The
provisions of this accounting standard also require the completion of a
transitional impairment test within six months of adoption, with any impairments
identified treated as a cumulative effect of a change in accounting principle.
The Company does not anticipate any impairment charges relative to goodwill. Non
amortization of goodwill in fiscal 2003 will eliminate a $37,000 annual charge.
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 2002 and 2001 include $1,247,000 and
$391,000, respectively, of retainage receivables. For the year ended January 31,
2002, no customer accounted for more than 10% of the Corporation's consolidated
revenues. For the year ended January 31, 2001, one customer, the US Army,
accounted for 12% of the Corporation's consolidated revenues for that year. For
the year ended January 31, 2000, one customer, an owner of a hotel in Texas,
accounted for 14% of the Corporation's consolidated revenues for that year.
It is the Corporation's policy not to require collateral with respect to
outstanding receivables. The Corporation continuously reviews the
creditworthiness of customers and, when necessary, requests collateral to secure
the performance of services.
All of the Corporation's outstanding accounts receivable are expected to be
collected within the normal operating cycle of one year.
NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Details related to contract activity are as follows:
JANUARY 31,
2002 2001
------------------------------------
Revenues earned on uncompleted contracts $ 35,173,000 $ 27,656,000
Less: billings to date 33,520,000 26,020,000
-------------- --------------
F-8
Net Under Billings $ 1,653,000 $ 1,636,000
============ ============
Included in the accompanying consolidated balance sheets under the following
captions:
JANUARY 31,
2002 2001
----------- -----------
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 2,817,000 $ 2,546,000
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,164,000) (910,000)
----------- -----------
Net Under Billings $ 1,653,000 $ 1,636,000
=========== ===========
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities are as follows:
JANUARY 31,
2002 2001
------------------------------
Wages and withholdings $1,150,000 $ 823,000
Workers compensation -- 235,000
Accrued fringe benefits 484,000 183,000
Covenants not to compete 420,000 515,000
Other 327,000 157,000
---------- ----------
Total Accrued Liabilities $2,381,000 $1,913,000
========== ==========
NOTE 7 - LONG-TERM DEBT
Long-term debt of the Corporation less amounts due within one year is as
follows:
JANUARY 31,
2002 2001
--------------------------
Term loan due in monthly installments of $4,095 including
interest at 9.15% due in August 2015 $ 381,000 $ 395,000
Equipment note due in monthly installments of $21,495 including
interest at 1% above the prime rate, due in August 2005 790,000 974,000
Equipment note due in monthly installments of $16,114 including
interest at 1% above the prime rate, due in August 2005 509,000 --
Revolving line of credit expiring on August 3, 2003 and
bearing interest at 1% above the prime rate 4,100,000 1,750,000
Equipment notes, most significant note due in monthly installments of $4,472
including interest at 7.25%, due until July, 2005 203,000 --
Term note payable to the former shareholders of Tri-State Restoration
due May 31, 2002 plus interest at 6.5% 150,000 --
---------- ----------
F-9
6,133,000 3,119,000
Less amount due within one year 551,000 177,000
---------- ----------
$5,582,000 $2,942,000
========== ==========
On August 3, 2000, the Corporation closed on a new $4.7 million credit facility
with Sky Bank, an Ohio banking association, consisting of a 3-year $3 million
revolving line of credit, a 5-year $1 million equipment note, a 15-year $0.4
million mortgage and a 5-year $0.3 million commitment for future equipment
financing. The new financing repaid all of the Company's existing debt.
The line of credit, equipment note and commitment for future equipment financing
are at an interest rate of prime plus 1% with financial covenant incentives
which may reduce the interest rate to either prime plus 1/2% or prime (at
January 31, 2002 prime was 4.75%). The mortgage is at an interest rate of 9.15%
fixed for three years and is then adjusted to 2.75% above the 3-year Treasury
Index every three years. The Chief Executive Officer of the Corporation provided
a limited personal guarantee for the credit facility. The credit facility
contains certain financial covenants which the Corporation required waiver at
January 31, 2002 and met at January 31, 2001.
In November 2000, Sky Bank approved a $1.5 million increase in the line of
credit to $4.5 million to fund the proposed acquisition of Tri-State
Restorations, an asbestos abatement and demolition company in California. (See
Note 13 for further discussion of the acquisition). Additionally, Sky Bank
increased the commitment for future equipment financing by $0.3 million to $0.6
million. In April 2001 and June 2001, the Company borrowed $273,000 and
$283,000, respectively, against the commitment for future equipment financing to
fund the fixed asset portion of the Tri-State Restoration acquisition and to
fund other equipment purchases. In August 2001 the remaining $44,000 was
borrowed against the commitment for future equipment financing to fund equipment
purchases.
On January 31, 2002, the balance on the line of credit was $4,100,000 with an
unused availability of $400,000.
The majority of the Corporation's property and equipment are pledged as security
for the above obligations.
Maturity requirements on long-term debt aggregate $551,000 in fiscal 2003,
$4,541,000 in fiscal 2004, $415,000 in fiscal 2005, $312,000 in fiscal 2006,
$21,000 in fiscal 2007 and $293,000 thereafter.
The Corporation paid approximately $367,000, $236,000 and $142,000 for interest
costs during the years ended January 31, 2002, 2001 and 2000, respectively.
NOTE 8 - INCOME TAXES
At January 31, 2002, the Corporation has net operating loss carryforwards of
approximately $6,495,000 for income tax purposes which expire in years 2002
through 2011. For financial reporting purposes, a valuation allowance of
approximately $2,315,000 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 $796,000 during the year ended January 31, 2002 primarily due to
the current year loss.
The significant components of the Corporation's deferred tax liabilities and
assets as of January 31, 2002 and 2001 are as follows:
F-10
JANUARY 31,
2002 2001
-------------------------
Deferred tax liabilities:
Tax over book depreciation $ -- $ --
Deferred tax assets:
Workers compensation reserve -- 65,000
Book over tax depreciation 75,000 56,000
Other 32,000 32,000
Net operating loss carryforwards 2,208,000 1,412,000
---------- ----------
Total deferred tax assets 2,315,000 1,565,000
Valuation allowance for deferred tax assets 2,315,000 1,565,000
---------- ----------
Net deferred tax assets -- --
---------- ----------
Net deferred tax liabilities $ -- $ --
========== ==========
Significant components of the provision for income taxes (all current) are as
follows:
FOR THE YEARS ENDED JANUARY 31,
2002 2001 2000
-------------------------------------
Current:
Federal $ -- $ -- $ --
State 30,000 41,000 22,000
------- ------- -------
Total income tax provision $30,000 $41,000 $22,000
======= ======= =======
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is as follows:
FOR THE YEARS ENDED JANUARY 31,
2002 2001 2000
-----------------------------------------
Tax at statutory rate $(534,000) $ 73,000 $ 91,000
State income taxes, net of federal tax benefit 20,000 27,000 14,000
Limitation on utilization of net operating loss 544,000 (59,000) (83,000)
--------- --------- ---------
$ 30,000 $ 41,000 $ 22,000
========= ========= =========
The Corporation paid approximately $104,000, $73,000 and $89,000 for federal and
state income and franchise taxes during the years ended January 31, 2002, 2001
and 2000, respectively.
NOTE 9 - NOTES RECEIVABLE - OFFICERS
At January 31, 2002 and 2001, the Corporation had approximately $132,000 in
notes receivable from its officers in the form of personal loans. A breakdown of
the notes receivable balance at January 31, 2002 by officer is as follows: John
C. Regan, Chairman -$95,000; Dulcia Maire, Secretary -$30,000 and Lawrence
Horvat, Vice President -$7,000.
F-11
NOTE 10 - COMPENSATION PLANS
The Corporation has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the measurement date,
no compensation expense is recognized.
The Corporation maintains a qualified Incentive Stock Option plan (the "Plan")
which provides for the grant of incentive options to purchase an aggregate of up
to 2,300,000 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 660,000 shares of the Corporation's common
stock were granted under the Plan issuable related to fiscal 2003 at an exercise
price of $0.46 per share.
Options to purchase 536,500 shares of the Corporation's common stock at an
exercise price of $0.40 per share were granted under the Plan issuable related
to fiscal 2002. Vesting of the non-discretionary portion of the stock options
was contingent upon the individual offices, and in the case of the executive
office, the Corporation meeting pre-established financial goals for the year.
Those individual non-discretionary awards that did not vest due to failure to
achieve goals, vest in November 2010. Vesting of the discretionary portion is
based upon a number of discretionary items, including overall corporate
performance, absolute dollar amount of office contribution and the magnitude of
contracts awarded during the prior year and the office backlog as of the end of
the year to name the most significant criteria among others. All unvested
discretionary options are returned to the Plan for future grants. A total of
290,000 options to purchase shares of common stock vested at January 31, 2002
relative to fiscal 2002. Additionally, 450,000 options to purchase shares of
common stock of the Company were issued to the former majority owner of
Tri-State Restorations, Inc. See Note 13.
Options to purchase 362,000 shares of the Corporation's common stock at an
exercise price of $0.53 per share were granted under the Plan issuable related
to fiscal 2001. Vesting of the non-discretionary portion of the stock options
was contingent upon the individual offices, and in the case of the executive
office, the Corporation meeting pre-established financial goals for the year.
Those individual non-discretionary awards that did not vest due to failure to
achieve goals vest in November 2009. Vesting of the discretionary portion is
based upon a number of discretionary items, including overall corporate
performance, absolute dollar amount of office contribution and the magnitude of
contracts awarded during the prior year and the office backlog as of the end of
the year to name the most significant criteria among others. All unvested
discretionary options are returned to the Plan for future grants. A total of
239,000 options to purchase shares of common stock vested at January 31, 2001
relative to fiscal 2001.
Options to purchase 364,000 shares of the Corporation's common stock at an
exercise price of $0.87 per share were granted under the Plan issuable related
to fiscal 2000. Vesting of the non-discretionary portion of the stock options
was contingent upon the individual offices, and in the case of the executive
office, the Corporation meeting pre-established financial goals for the year.
Those individual non-discretionary awards that did not vest due to failure to
achieve goals vest in November 2008. Vesting of the discretionary portion is
based upon a number of discretionary items, including overall corporate
performance, absolute dollar amount of office contribution and the magnitude of
contracts awarded during the prior year and the office backlog as of the end of
the year to name the most significant criteria among others. All unvested
discretionary options are returned to the Plan for future grants. A total of
196,500 options to purchase shares of common stock vested at January 31, 2000
relative to fiscal 2000.
The following table summarizes information with respect to the Plan for the
three years ended January 31, 2002.
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
------------------------------------
OUTSTANDING AT JANUARY 31, 1999 1,431,333 $0.36 - $1.91
Granted 364,100 $0.53 - $0.87
Cancelled - Reusable (79,350) $0.36 - $0.87
Exercised (24,000) $0.36 - $0.66
-------------
OUTSTANDING AT JANUARY 31, 2000 1,692,083 $0.36 - $1.91
F-12
Granted 544,500 $0.40 - $0.53
Cancelled - Reusable (28,500) $0.53 - $0.87
-------------
OUTSTANDING AT JANUARY 31, 2001 2,208,083 $0.36 - $1.91
Granted 1,137,500 $0.40 - $0.46
Cancelled - Reusable (234,250) $0.40 - $1.63
Exercised (25,000) $ 0.36
-------------
OUTSTANDING AT JANUARY 31, 2002 3,086,333 $0.36 - $1.91
=============
EXERCISABLE AT JANUARY 31, 2002 1,610,833 $0.36 - $1.91
=============
The weighted average life of the options outstanding at January 31, 2002 and
2001 and the weighted average exercise price of vested options at January 31,
2002 and 2001 was 6.8 years and 6.8 years, respectively, and $0.54 and $0.56,
respectively.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for fiscal
2002 and 2001: risk-free interest rates of 5% and 7% in fiscal 2002 and 2001,
respectively; dividend yield of 0%; volatility factors of the expected market
price of the Company's common stock of 0.88 and 1.39 in fiscal 2002 and 2001,
respectively; and a weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
FISCAL FISCAL
02 01
-- --
Pro forma net income (loss) from continuing operations $(1,780,000) $(45,000)
Pro forma earnings (loss) per share from continuing operations (basic) $ (0.19) $ (0.01)
Pro forma earnings (loss) per share from continuing operations (dilutive) $ (0.19) $ (0.01)
The following table summarizes information with respect to non-qualified stock
options for the three years ended January 31, 2002.
OPTION
NUMBER OF PRICE RANGE
SHARES PER SHARE
OUTSTANDING AT JANUARY 31, 1999 20,000 $0.60-$0.65
No Activity -- --
------------
OUTSTANDING AT JANUARY 31, 2000 20,000 $0.60-$0.65
No Activity -- --
------------
OUTSTANDING AT JANUARY 31, 2001 20,000 $0.60-$0.65
Cancelled - Reusable (10,000) $ 0.60
------------
F-13
OUTSTANDING AND EXERCISABLE AT JANUARY 31, 2002 10,000 $ 0.65
============
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, 2002, 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 600,000 shares of the Corporation's common stock. Options to purchase
290,250 shares of the Corporation's common stock at prices ranging from $0.36
per share to $1.39 per share have been granted under the Non-Employee Directors
Plan. At January 31, 2002, all of the options granted under the Non-Employee
Directors Plan were exercisable.
No pro forma information is presented relative to the non-qualified stock option
plan, the Employee Director Plan or the Non-Employee Directors Plan as the
effect is either immaterial or non-existent.
NOTE 11 - STOCK WARRANTS
At January 31, 2002 and 2001, the Corporation had 250,000 fully vested warrants
outstanding. The exercise price of the warrants range from $1.20 per share to
$2.50 per share expiring in fiscal 2004. These warrants were issued in
conjunction with shareholder relations and investment banking agreements.
During fiscal 2000, 30,000 warrants with an exercise price of $0.50 per share
were exercised for 30,000 shares of the Corporation's common stock.
NOTE 12 - 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, March 6,
2000 and March 21, 2001 Board of Directors meetings, the issuance of one third
of the shares (280,071, 259,696 and 259,696 common shares, respectively) covered
by the aforementioned right was approved. At January 31, 2002 and 2001, there
were -0- and 280,071 common stock rights outstanding, respectively. The
Recapitalization was contingent upon the Corporation's listing on the American
Stock Exchange. The Corporation made a decision not to pursue such a listing;
therefore, the Recapitalization was indefinitely postponed.
At January 31, 2002, there were 6,000 shares of the Corporation's Series A
Preferred Stock outstanding. Cumulative dividends in arrears on the Series A
Preferred Stock were approximately $10,000 at January 31, 2002.
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 13 - ACQUISITION
F-14
Effective May 31, 2001, PDG Environmental, Inc. and subsidiaries (the "Company")
entered into an agreement (the "Agreement") with Tri-State Restorations, Inc.
("Tri-State") and Timothy Vitta and Thomas Stevens (collectively "the
Principals") for the purchase of selected assets and assumption of contracts of
Tri-State. Tri-State owned and operated a business which conducted environmental
remediation, demolition and asbestos abatement. The acquisiton was accounted for
under the purchase method of accounting and the results of Tri-State subsequent
to June 1, 2001 were included in the Company's results.
As consideration for the purchase, the Company paid Tri-State $541,000 in cash,
$150,000 in the form of a subordinated note at 6 1/2% interest due May 31, 2002
and 300,000 shares of the Company's common stock (valued at $189,000) and
entered into a three-year employment agreement with the Principals that provides
for additional compensation in addition to an annual salary. Additional
compensation consists of 60% of the annual operating income generated by the
former Tri-State operation in excess of $150,000 for the years June 1, 2001
through May 31, 2002 and June 1, 2002 through May 31, 2003 and 60% of the annual
operating income generated by the former Tri-State operation in excess of
$200,000 for the period June 1, 2003 through May 31, 2004. The additional
compensation is payable annually to the Principals on August 31 of each year.
Additionally, the former majority owner of Tri-State received options for
450,000 shares of the Company's common stock at an exercise price of $0.50 per
share. The options vest at a rate of 150,000 per year beginning June 15, 2002
and each of the two successive years. No vesting will occur in a year that the
earnings quota is not reached for the former Tri-State operation, except that if
50% of the earnings quota is reached, 50% of the options will vest for that year
and pro rata from 50% to 100%. Any options not earned and awarded for the
achievement of the aforementioned earnings quota will vest on June 14, 2010. The
options expire on June 14, 2011.
The goodwill associated with the acquisition ($339,000) was being amortized on a
straight-line basis over 15 years and the customer list is being amortized on a
straight-line basis over 5 years. Beginning February 1, 2002, in accordance with
SFAS 142 amortization of goodwill will cease.
Tri-State's revenues for the years ended December 31, 2000 and 1999 were
$11,665,000 and $9,588,000, respectively.
The following unaudited pro forma condensed results of operations assume that
the acquisition of Tri-State was consummated on February 1, 2000.
Years ended January 31,
2002 2001
------------ ------------
Contract revenues $ 44,215,000 $ 46,249,000
Contract costs 39,660,000 38,012,000
------------ ------------
Gross margin 4,555,000 8,237,000
Selling, general & administrative 5,354,000 6,205,000
Depreciation & amortization 568,000 1,289,000
------------ ------------
Income (loss) from operations (1,367,000) 743,000
Other income (expense) (258,000) (257,000)
------------ ------------
Income (loss) before income taxes (1,625,000) 486,000
Income tax provision 30,000 82,000
------------ ------------
Net Income (Loss) $ (1,655,000) $ 404,000
============ ============
Net income (loss) per common shares $ (0.17) $ 0.04
============ ============
Weighted average shares outstanding 9,511,000 9,347,000
============ ============
Effective April 3, 2000, the Corporation entered into an agreement ("the
Agreement") with Lincoln Cristi, Inc. ("Lincoln") and the majority owners of
Lincoln for the purchase of selected assets and the assumption of the contracts
of Lincoln. Lincoln owned
F-15
and operated a business that conducted asbestos abatement in the Northwestern
United States. The acquisition was accounted for under the purchase method of
accounting and the results of Lincoln subsequent to April 1, 2000 were included
in the Company's results. As consideration for the purchase, the Corporation
paid Lincoln and the owners of Lincoln a combination of cash and the
Corporation's Common Stock and entered into an employment agreement with the
former majority owners of Lincoln that provides for a performance bonus in
addition to annual salary. The performance bonus expired March 31, 2001 with the
termination of the two majority owners of Lincoln.
The goodwill associated with the acquisition was being amortized on a
straight-line basis over 15 years and the covenant not to compete and customer
lists are being amortized on a straight-line basis over 5 years.
Additionally, in April 2000, the Corporation acquired the fixed assets of an
asbestos abatement company operating in the metropolitan Chicago area and an
insulation company operating in the Houston area.
NOTE 14 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE YEARS ENDED JANUARY 31,
2002 2001 2000
-----------------------------------------------
NUMERATOR:
Income (loss) before discontinued operations $(1,601,000) $ 173,000 $ 246,000
Preferred stock dividends (1,000) (1,000) (1,000)
----------- ----------- -----------
Numerator for basic earnings per share--income available
to common stockholders (1,602,000) 172,000 245,000
Effect of dilutive securities:
Preferred stock dividends 1,000 1,000 1,000
----------- ----------- -----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $(1,601,000) $ 173,000 $ 246,000
=========== =========== ===========
DENOMINATOR:
Denominator for basic earnings per share--weighted average 9,211,000 8,731,000 8,394,000
shares
Effect of dilutive securities:
Employee stock options -- 288,000 409,000
Warrants -- -- 6,000
Convertible preferred stock -- 28,000 27,000
----------- ----------- -----------
Dilutive potential common shares -- 316,000 442,000
----------- ----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,211,000 9,047,000 8,836,000
=========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ (0.17) $ 0.02 $ 0.03
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ (0.17) $ 0.02 $ 0.03
=========== =========== ===========
At January 31, 2002, 2001 and 2000; 1,961,083, 695,583 and 465,333 options, and
- -0-, 250,000 and 131,000 warrants, respectively, were not included in the
calculation of dilutive earnings per share as their inclusion would have been
antidilutive.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Corporation leases certain facilities and equipment under non-cancelable
operating leases. Rental expense under operating leases aggregated $554,000,
$448,000 and $343,000 for the years ended January 31, 2002, 2001 and 2000,
respectively. Minimum rental payments under these leases with initial or
remaining terms of one year or more at January 31, 2002 aggregated $1,224,000
and payments due during the next five fiscal years are as follows: 2003 -
$533,000, 2004 - $398,000, 2005 - $188,000, 2006 $78,000 and 2007 - $27,000,.
F-16
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, 2002
Revenues $ 5,823,000 $ 10,718,000 $ 12,184,000 $ 13,862,000 $ 42,587,000
Gross margin 325,000 1,007,000 1,638,000 1,288,000 4,258,000
Net income (loss) $ (996,000) $ (318,000) $ 90,000 $ (377,000) $ (1,601,000)
Earnings per share
Basic $ (0.11) $ (0.03) $ 0.01 $ (0.04) $ (0.17)
Diluted $ (0.11) $ (0.03) $ 0.01 $ (0.04) $ (0.17)
YEAR ENDING JANUARY 31, 2001
Revenues $ 8,067,000 $ 8,770,000 $ 9,230,000 $ 8,517,000 $ 34,584,000
Gross margin 1,022,000 1,319,000 1,068,000 1,574,000 4,983,000
Net income (loss) $ 61,000 $ 232,000 $ (410,000) $ 290,000 $ 173,000
Earnings per share
Basic $ 0.01 $ 0.03 $ (0.05) $ 0.03 $ 0.02
Diluted $ 0.01 $ 0.03 $ (0.05) $ 0.03 $ 0.02
F-17
PDG ENVIRONMENTAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 31, 2002, 2001 AND 2000
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED AT CLOSE
OF YEAR TO INCOME DEDUCTIONS(1) OF YEAR
============== ================ =============== ==============
2002
Allowance for doubtful accounts $ - $ 200,000 $ 70,000 $ 130,000
============== ================ =============== ==============
2001
Allowance for doubtful accounts $ - $ 35,000 $ 35,000 $ -
============== ============== =============== ==============
2000
Allowance for doubtful accounts $ - $ 2,000 $ 2,000 $ -
============== ============== =============== ==============
(1)Uncollectible accounts written off, net of recoveries.
F-18