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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ____________
COMMISSION FILE NUMBER 0-13667
PDG ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2677298
(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)
412-243-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
As of September 8, 2002, there were 9,372,330 shares of the registrant's common
stock outstanding.
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements
(a) Condensed Consolidated Balance Sheets as of July 31, 2002 (unaudited) and 3
January 31, 2002
(b) Consolidated Statements of Operations for the Three Months Ended July 31, 2002 4
and 2001 (unaudited)
(c) Consolidated Statements of Operations for the Six Months Ended July 31, 2002 5
and 2001 (unaudited)
(d) Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2002 6
and 2001 (unaudited)
(e) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, JANUARY 31,
2002 2002*
------------ ------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and short-term investments $ 83,000 $ 373,000
Accounts receivable - net 11,663,000 12,723,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,267,000 2,817,000
Inventory 474,000 461,000
Other current assets 685,000 379,000
------------ ------------
TOTAL CURRENT ASSETS 16,172,000 16,753,000
PROPERTY, PLANT AND EQUIPMENT 7,679,000 7,922,000
Less: accumulated depreciation (6,116,000) (5,960,000)
------------ ------------
1,563,000 1,962,000
GOODWILL 582,000 582,000
OTHER ASSETS 406,000 491,000
------------ ------------
TOTAL ASSETS $ 18,723,000 $ 19,788,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,585,000 $ 6,166,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,410,000 1,164,000
Current portion of long-term debt 541,000 551,000
Accrued liabilities 1,607,000 2,381,000
------------ ------------
TOTAL CURRENT LIABILITIES 9,143,000 10,262,000
LONG-TERM DEBT 5,412,000 5,582,000
MINORITY INTEREST 22,000 --
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock 14,000 14,000
Common stock 189,000 189,000
Additional paid-in capital 8,110,000 8,108,000
Deferred compensation (36,000) (46,000)
(Deficit) retained earnings (4,093,000) (4,283,000)
Less treasury stock (38,000) (38,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,146,000 3,944,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,723,000 $ 19,788,000
============ ============
*Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
3
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JULY 31,
----------------------------
2002 2001
------------ ------------
CONTRACT REVENUE $ 12,227,000 $ 10,718,000
CONTRACT COSTS 10,669,000 9,711,000
------------ ------------
Gross margin 1,558,000 1,007,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,316,000 1,226,000
------------ ------------
Income (loss) from operations 242,000 (219,000)
OTHER INCOME (EXPENSE):
Interest expense (105,000) (101,000)
Gain on sale of St. Louis operation 273,000 -
Interest and other income 21,000 2,000
------------ ------------
189,000 (99,000)
------------ ------------
Income (loss) before minority interest and income taxes 431,000 (318,000)
INCOME TAX PROVISION (16,000) -
MINORITY INTEREST 2,000 -
------------ ------------
NET INCOME (LOSS) $ 417,000 $ (318,000)
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.04 $ (0.03)
============ ============
DILUTIVE $ 0.04 $ (0.03)
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,241,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 143,000 -
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,515,000 9,241,000
============ ============
See accompanying notes to consolidated financial statements.
4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JULY 31,
----------------------------
2002 2001
------------ ------------
CONTRACT REVENUE $ 23,127,000 $ 16,541,000
CONTRACT COSTS 20,650,000 15,209,000
------------ ------------
Gross margin 2,477,000 1,332,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,383,000 2,469,000
------------ ------------
Income (loss) from operations 94,000 (1,137,000)
OTHER INCOME (EXPENSE):
Interest expense (201,000) (186,000)
Gain on sale of St. Louis operation 273,000 -
Interest and other income 34,000 9,000
------------ ------------
106,000 (177,000)
------------ ------------
Income (loss) before minority interest and income taxes 200,000 (1,314,000)
INCOME TAX PROVISION (16,000) -
MINORITY INTEREST 6,000 -
------------ ------------
NET INCOME (LOSS) $ 190,000 $ (1,314,000)
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.02 $ (0.14)
============ ============
DILUTIVE $ 0.02 $ (0.14)
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,371,000 9,073,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 232,000 -
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,603,000 9,073,000
============ ============
See accompanying notes to consolidated financial statements.
5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JULY 31,
-------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 190,000 $(1,314,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH:
Depreciation and amortization 508,000 577,000
Contingent acquisition consideration (219,000) 90,000
Stock based compensation 10,000 -
Gain on sale of St. Louis operation (273,000) -
Minority interest (6,000) -
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable 1,060,000 (2,965,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (450,000) (18,000)
Inventory (28,000) (42,000)
Other current assets 88,000 (114,000)
Accounts payable (975,000) 1,751,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 246,000 586,000
Accrued liabilities (525,000) (168,000)
----------- -----------
(584,000) (970,000)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (374,000) (1,617,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (133,000) (610,000)
Acquisition of Businesses - (776,000)
Other venture's capitalization of joint venture 28,000 -
Proceeds from sale of St. Louis operation 380,000 -
Increase in other assets (13,000) (24,000)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 262,000 (1,410,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 50,000 2,940,000
Exercise of stock options 2,000 -
Principal payments on debt (230,000) (121,000)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (178,000) 2,819,000
----------- -----------
Net Decrease in Cash and Short-Term Investments (290,000) (208,000)
Cash and Short-Term Investments, Beginning of Period 373,000 214,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 83,000 $ 6,000
=========== ===========
See accompanying notes to consolidated financial statements.
6
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JULY 31, 2002
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation") and its wholly-owned subsidiaries. In the first quarter of fiscal
2003, the Corporation formed IAQ Training Institute a 50/50 joint venture to
provide training in mold awareness and remediation.
The accompanying consolidated financial statements of the Corporation are
unaudited. However, in the opinion of management, they include all adjustments
necessary for a fair presentation of financial position, results of operations
and cash flows. All adjustments made during the three and six months ended July
31, 2002 were of a normal, recurring nature. The amounts presented for the three
and six months ended July 31, 2002 are not necessarily indicative of results of
operations for a full year. Additional information is contained in the Annual
Report on Form 10-K of the Corporation for the year ended January 31, 2002 dated
March 28, 2002 and the Quarterly Report on Form 10-Q of the Corporation for the
quarter ended April 30, 2002 dated June 14, 2002, which should be read in
conjunction with this quarterly report.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENT
The Company adopted 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 3 - FEDERAL INCOME TAXES
No federal income tax has been provided for the six months ended July 31, 2002
due to the existence of unused net operating loss carryforwards. A state income
tax provision was made in the current period due to income in the current year.
No state income taxes were provided in the prior year period due to the loss in
the prior fiscal year.
Income taxes paid by the Corporation for the six months ended July 31, 2002 and
2001 totaled approximately $63,000 and $78,000, respectively.
NOTE 4 - SALE OF ST. LOUIS OPERATION
On July 12, 2002, the Corporation entered into an agreement for the sale of
selected assets and assignment of contracts of the St. Louis operation. As
consideration for the sale, the Corporation was paid $380,000 in cash. The
Corporation recognized a gain of $273,000 from the sale of the St. Louis
operation in the second fiscal quarter ending July 31, 2002. Revenues of the St.
Louis operation for fiscal 2002 were $2.2 million.
NOTE 5 - LINE OF CREDIT
On August 3, 2000, the Corporation closed on a $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 financing repaid all of the Company's existing debt.
7
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. 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.
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, Inc. ("Tri-State"), an asbestos abatement and demolition company
in California. 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 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. The acquisition of Tri-State closed on
June 1, 2001.
On May 6, 2002 Sky Bank increased the line of credit by $750,000 to $5.25
million for a ninety-day period. In July 2002, the Corporation and Sky Bank
reached an agreement whereby the Corporation's availability on the line of
credit would be reduced by $50,000 on August 6, 2002, by $100,000 each for the
successive five months and by $200,000 on February 6, 2003 thereby eliminating
the $750,000 increase. Additionally in August 2002, the Corporation agreed to
pay $100,000 of the proceeds from the sale of the St. Louis operation to reduce
the balance outstanding on the equipment notes with Sky Bank.
On July 31, 2002, the balance on the line of credit was $4,150,000 with an
unused availability of $1,100,000.
The Corporation paid interest costs totaling approximately $198,000 and $173,000
during the three months ended July 31, 2002 and 2001, respectively.
NOTE 6 - PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred Stock
were approximately $11,000 at July 31, 2002. At July 31, 2002, there were 6,000
shares of Series A Preferred Stock outstanding. Each share of Series A Preferred
Stock is convertible into four shares of the Corporation's common stock at the
option of the preferred stockholder in addition to common shares for accrued but
unpaid interest.
The conversion rate on the Series A Preferred Stock is also subject to
adjustment as a result of certain changes in the Corporation's capital structure
or distributions to common stockholders (except for cash dividends permissible
under law).
NOTE 7 - NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE SIX MONTHS
ENDED JULY 31,
2002 2001
----------- -----------
NUMERATOR:
Net Income (loss) $ 190,000 $(1,314,000)
Preferred stock dividends (1,000) (1,000)
----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 189,000 (1,315,000)
Effect of dilutive securities:
Preferred stock dividends 1,000 1,000
----------- -----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 190,000 $(1,314,000)
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 9,371,000 9,073,000
Effect of dilutive securities:
Employee Stock Options 232,000 -
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,603,000 9,073,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.02 $ (0.14)
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.02 $ (0.14)
=========== ===========
8
FOR THE THREE MONTHS
ENDED JULY 31,
2002 2001
----------- -----------
NUMERATOR:
Net Income (loss) $ 417,000 $ (318,000)
Preferred stock dividends - -
----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 417,000 (318,000)
Effect of dilutive securities:
Preferred stock dividends - -
----------- -----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 417,000 $ (318,000)
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 9,372,000 9,241,000
Effect of dilutive securities:
Employee Stock Options 114,000 -
Convertible Preferred Stock 29,000 -
----------- -----------
143,000 -
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,515,000 9,241,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.04 $ (0.03)
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.04 $ (0.03)
=========== ===========
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2002 AND 2001
During the six months ended July 31, 2002 ("Fiscal 2003"), the Corporation's
contract revenues increased to $23.1 million compared to $16.5 million in the
six months ended July 31, 2001 ("Fiscal 2002") due in part to $3.0 million of
revenues from a significant project in New York and the inclusion of $2.2
million of revenues for the period February 1, 2002 to May 31, 2002 from the Los
Angeles office where no revenues were generated in the prior year fiscal period
as the operation was acquired June 1, 2001. The fiscal 2002 revenues were
adversely impacted by delays in commencing contracts in response to the general
economic slowdown.
The Corporation's gross margin increased to $2.5 million in the first six months
of fiscal 2003 compared to $1.3 million in the first six months of fiscal 2002.
The increase in gross margin is due to the increased levels of revenues and
higher gross margin percentage realized on contracts in the current fiscal
period.
Selling, general and administrative expenses decreased to $2.4 million in the
current six-month period as compared to $2.5 million in the six months ended
July 31, 2002. This decrease was due to cost containment by the Corporation
during the current period, partially offset by costs associated with the Los
Angeles office.
The Corporation reported income from operations of $0.09 million for the six
months ended July 31, 2002 compared to a loss from operations of $1.14 million
for the six months ended July 31, 2001 as a direct result of the factors
discussed above.
Interest expense increased to $0.20 million in the current quarter as compared
to $0.19 million in the same period a year ago due to a higher level of
borrowings to support operations and the borrowings associated with the
acquisition of the Los Angeles office acquired June 1, 2001.
The current period other income includes a $0.27 million gain from the sale of
the St. Louis operations in July 2002.
During the six months ended July 31, 2002, the Corporation made no provision for
federal income taxes due to the utilization of net operating loss carryforwards
for financial reporting purposes. A state income tax provision of $0.02 million
was made due to the current period income. During the six months ended July 31,
2001, the Corporation made no provision for federal income taxes due to the loss
in the period and the utilization of net operating loss carryforwards for
financial reporting purposes. No state income tax provision was made in the
prior fiscal period due to the loss.
THREE MONTHS ENDED JULY 31, 2002 AND 2001
During the three months ended July 31, 2002 ("Fiscal 2003"), the Corporation's
contract revenues increased to $12.2 million compared to $10.7 million in the
three months ended July 31, 2001 ("Fiscal 2002") due in part to $0.8 million of
revenues from a significant project in New York. The fiscal 2002 revenues were
adversely impacted by delays in commencing contracts in response to the general
economic slowdown.
The Corporation's gross margin increased to $1.6 million in the second quarter
of fiscal 2003 compared to $1.0 million in the second quarter of fiscal 2002.
The increase in gross margin is due to the increased levels of revenues and
higher gross margin percentage realized on contracts in the current fiscal
quarter.
Selling, general and administrative expenses increased to $1.3 million in the
current fiscal quarter as compared to $1.2 million in the three months ended
July 31, 2001. The increase was partly due to the operation of the Los Angeles
office for the entire fiscal 2003 period as opposed to only two months of the
fiscal 2002 period as the operation was acquired June 1, 2001.
10
The Corporation reported income from operations of $0.24 million for the three
months ended July 31, 2002 compared to a loss from operations of $0.22 million
for the three months ended July 31, 2001 as a direct result of the factors
discussed above.
Interest expense remained constant at $0.1 million as compared to the same
quarter of a year ago.
The current period other income includes a $0.27 million gain from the sale of
the St. Louis operations in July 2002.
During the quarter ended July 31, 2002, the Corporation made no provision for
federal income taxes due to the utilization of net operating loss carryforwards
for financial reporting purposes. A state income tax provision of $0.02 million
was made due to the current year income. During the quarter ended July 31, 2001,
the Corporation made no provision for federal income taxes due to the loss in
the period and the utilization of net operating loss carryforwards for financial
reporting purposes. No state income tax provision was made in the prior fiscal
quarter due to the loss.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended July 31, 2002, the Corporation's cash decreased by
$0.29 million to $0.08 million.
Cash used by operating activities totaled $0.37 million in the six months ended
July 31, 2002. Cash outflows included the $0.22 million decrease in contingent
acquisition consideration, the $0.27 million gain on the sale of the St. Louis
operations, a $0.45 million increase in costs and estimated earnings in excess
of billings on uncompleted contracts, a $0.97 million decrease in accounts
payable and a $0.52 million decrease in accrued liabilities related to the
timing of payments. These cash outflows were partially offset by cash inflows
including $0.19 million of net income in the current fiscal period, a $1.06
million decrease in accounts receivables and a $0.25 million increase in
billings in excess of costs and estimated earnings on uncompleted contracts and
$0.51 million of depreciation and amortization.
The decrease in cash and short term investments during the first six months of
fiscal 2003 is attributable to the aforementioned cash outflows from operations
of $0.37 million and $0.18 million of cash outflows associated with finance
activities. Financing activities cash outflows included $0.23 million for the
repayment of debt,. These cash outflows were partially offset by cash inflows
from investing activities of $0.26 million, which included $0.38 million
proceeds from the sale of the St. Louis operation partially offset by $0.13
million for the purchase of property, plant and equipment.
At July 31, 2002, the Corporation's backlog totaled $28.5 million ($18.8 million
on fixed fee contracts and $9.7 million on time and materials or unit price
contracts).
During the six months ended July 31, 2001, the Corporation's cash decreased by
$0.21 million to $0.01 million.
The decrease in cash and short term investments during the first half of fiscal
2002 is attributable to cash outflows from operations of $1.62 million, cash
outflows for investing activities of $1.4 million which included $0.55 million
relative to the purchase of selected assets of the former Tri-State operation,
$0.23 million of payments to the former owners of businesses acquired in prior
years and $0.61 million for the purchase of property, plant and equipment. These
cash outflows were partially offset by net cash inflows of $2.82 million from
funding activities which included proceeds from debt of $2.94 million,
consisting of $2.2 million from the utilization of the Corporation's line of
credit and $0.74 million from borrowings to finance new equipment purchases.
These financing inflows were partially offset by $0.12 million of principal
payments on debt.
Cash used by operating activities totaled $1.6 million in the six months ended
July 31, 2001. Cash outflows included $1.3 million from the current period loss,
a $2.97 million increase in accounts receivables, including a $1.54 million
increase to fund the accounts receivable of the former Tri-State operation, a
$0.04 increase in inventory, a $0.11 million increase in other assets and a
$0.17 million decrease in accrued liabilities. These cash outflows were
partially offset by cash inflows including a $1.75 million increase in accounts
payable, a $0.59 million increase in billings in excess of costs and estimated
earnings on uncompleted contracts $0.58 million of depreciation and amortization
and $0.09 million of contingent acquisition consideration.
11
PROSPECTIVE INFORMATION
Due to the sale of the St. Louis operations and management changes in the
Houston operations, it is anticipated that revenue levels for the second half of
fiscal 2003 will be reduced from those achieved in the first six months.
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 July 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 would decrease.
12
PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the Registrant based upon information available
at this time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At July 31, 2002, the cumulative dividends in
arrears on the Series A Preferred Stock were approximately $11,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 23, 2002, the Annual Meeting of the Stockholders of PDG Environmental,
Inc was held in Pittsburgh. PA.
At the meeting all of the management's nominees were elected directors of the
Corporation with the following vote:
John C. Regan Votes For 8,382,755 Votes Against 146,970
Richard A. Bendis Votes For 8,383,340 Votes Against 146,385
Edgar Berkey Votes For 8,384,310 Votes Against 145,415
James D. Chiafullo Votes For 8,373,150 Votes Against 156,575
Edwin J. Kilpela Votes For 8,371,310 Votes Against 158,415
Stokes & Hinds, LLC was ratified as the Corporation's auditors as follows:
Votes For 8,179,209
Votes Against 343,754
Abstained 6,762
The amendment to the PDG Environmental, Inc. Incentive Stock Option Plan for
Employees increasing the number of shares of Common Stock which may be granted
by 1,000,000 to a total of 3,300,000 was approved as follows.
Votes For 3,750,705
Votes Against 870,205
Abstained 11,744
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX PAGES OF SEQUENTIAL
EXHIBIT NO. AND DESCRIPTION NUMBERING SYSTEM
Exhibit 99.1 Certification Pursuant To 18 U.S.C. Section 1350, As Amended
Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended July 31, 2002.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/John C. Regan
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John C. Regan
Chairman and Chief Executive Officer
Date: September 14, 2002
CERTIFICATION
I, John C. Regan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PDG
Environmental, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
By /s/John C. Regan
-----------------------------------------
John C. Regan
Chief Executive Officer and
Chief Financial Officer
Date: September 14, 2002
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