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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 OCTOBER 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 December 9, 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
October 31, 2002 (unaudited) and January 31, 2002 3
(b) Consolidated Statements of Operations for the
Three Months Ended October 31, 2002 and 2001
(unaudited) 4
(c) Consolidated Statements of Operations for the
Nine Months Ended October 31, 2002 and 2001
(unaudited) 5
(d) Consolidated Statements of Cash Flows for the
Nine Months Ended October 31, 2002 and 2001
(unaudited) 6
(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 6. Exhibits and Reports on Form 8-K 13
Item 14. Controls and Procedures 13
Approval of Non-Audit Services 13
Signature and Certification 14
2
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JANUARY 31,
2002 2002*
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 51,000 $ 373,000
Accounts receivable - net 9,789,000 12,723,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,687,000 2,817,000
Inventory 559,000 461,000
Other current assets 506,000 379,000
------------ ------------
TOTAL CURRENT ASSETS 13,592,000 16,753,000
PROPERTY, PLANT AND EQUIPMENT 7,425,000 7,922,000
Less: accumulated depreciation (6,048,000) (5,960,000)
------------ ------------
1,377,000 1,962,000
GOODWILL 582,000 582,000
OTHER ASSETS 379,000 491,000
------------ ------------
TOTAL ASSETS $ 15,930,000 $ 19,788,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,029,000 $ 6,166,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 789,000 1,164,000
Current portion of long-term debt 476,000 551,000
Accrued liabilities 1,236,000 2,381,000
------------ ------------
TOTAL CURRENT LIABILITIES 6,530,000 10,262,000
LONG-TERM DEBT 5,161,000 5,582,000
MINORITY INTEREST (18,000) --
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 (31,000) (46,000)
(Deficit) retained earnings (3,987,000) (4,283,000)
Less treasury stock (38,000) (38,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,257,000 3,944,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,930,000 $ 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 OCTOBER 31,
---------------------------------
2002 2001
------------ ------------
CONTRACT REVENUE $ 9,157,000 $ 12,184,000
CONTRACT COSTS 7,575,000 10,546,000
------------ ------------
Gross margin 1,582,000 1,638,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,486,000 1,442,000
------------ ------------
Income from operations 96,000 196,000
OTHER INCOME (EXPENSE):
Interest expense (93,000) (119,000)
Gain on sale of fixed assets and inventory 48,000 --
Interest and other income 12,000 13,000
------------ ------------
(33,000) (106,000)
------------ ------------
Income before minority interest and income taxes 63,000 90,000
INCOME TAX PROVISION -- --
MINORITY INTEREST 43,000 --
------------ ------------
NET INCOME $ 106,000 $ 90,000
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.01 $ 0.01
============ ============
DILUTIVE $ 0.01 $ 0.01
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,342,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 29,000 330,000
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,401,000 9,672,000
============ ============
See accompanying notes to consolidated financial statements.
4
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED OCTOBER 31,
---------------------------------
2002 2001
------------ ------------
CONTRACT REVENUE $ 32,285,000 $ 28,725,000
CONTRACT COSTS 28,225,000 25,755,000
------------ ------------
Gross margin 4,060,000 2,970,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,870,000 3,911,000
------------ ------------
Income (loss) from operations 190,000 (941,000)
OTHER INCOME (EXPENSE):
Interest expense (294,000) (305,000)
Gain on sale of St. Louis operation and other fixed assets
and inventory 321,000 --
Interest and other income 46,000 22,000
------------ ------------
73,000 (283,000)
------------ ------------
Income (loss) before minority interest and income taxes 263,000 (1,224,000)
INCOME TAX PROVISION (16,000) --
MINORITY INTEREST 49,000 --
------------ ------------
NET INCOME (LOSS) $ 296,000 $ (1,224,000)
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.03 $ (0.13)
============ ============
DILUTIVE $ 0.03 $ (0.13)
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,181,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 151,000 --
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,523,000 9,181,000
============ ============
See accompanying notes to consolidated financial statements.
5
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS
ENDED OCTOBER 31,
-------------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 296,000 $(1,224,000)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH:
Depreciation and amortization 782,000 921,000
Contingent acquisition consideration (219,000) 225,000
Stock based compensation 15,000 --
Gain on sale of St. Louis operation and other fixed assets
and inventory (321,000) --
Minority interest (49,000) --
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable 2,934,000 (3,531,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts 130,000 (169,000)
Inventory (125,000) (72,000)
Other current assets 434,000 119,000
Accounts payable (2,698,000) 1,957,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (872,000) 780,000
Accrued liabilities (375,000) (153,000)
----------- -----------
(572,000) (1,069,000)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (68,000) (1,147,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (254,000) (695,000)
Acquisition of businesses (24,000) (891,000)
Other venture's capitalization of joint venture 30,000 --
Proceeds from sale of St. Louis operation and other fixed assets
and inventory 490,000 --
Increase in other assets (2,000) (31,000)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 240,000 (1,617,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt -- 2,834,000
Exercise of stock options 2,000 --
Principal payments on debt (496,000) (275,000)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (494,000) 2,559,000
----------- -----------
Net Decrease in Cash and Short-Term Investments (322,000) (205,000)
Cash and Short-Term Investments, Beginning of Period 373,000 214,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 51,000 $ 9,000
=========== ===========
See accompanying notes to consolidated financial statements.
6
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED OCTOBER 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 ("IAQ venture") 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 nine months ended
October 31, 2002 were of a normal, recurring nature. The amounts presented for
the three and nine months ended October 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 Reports on Form 10-Q of the
Corporation for the quarter ended April 30, 2002 dated June 14, 2002 and for the
quarter ended July 31, 2002 dated September 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.
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 nine months ended October 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 nine months ended October 31, 2002
and 2001 totaled approximately $65,000 and $78,000, respectively.
NOTE 4 - SALE OF ST. LOUIS OPERATION AND SOUTHEAST TEXAS FIXED ASSETS
AND INVENTORY
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.
In the third fiscal quarter of 2003, the Company sold certain fixed assets and
inventory associated with the southeast Texas operation for $110,000 resulting
in a gain of $48,000. The Company intends to expand the mold remediation market
in southeastern Texas and curtail its work in the asbestos abatement market.
Revenues of the southeast Texas asbestos operation for fiscal 2002 were
approximately $4.4 million.
7
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.
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 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 for each of
the five successive 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.
In December 2002 Sky Bank extended the maturity date of the Company's line of
credit until June 2004. Based upon the aforementioned extension, the line of
credit was classified as a long-term liability at October 31, 2002.
On October 31, 2002, the balance on the line of credit was $4,100,000 with an
unused availability of $900,000.
The Corporation paid interest costs totaling approximately $292,000 and $293,000
during the nine months ended October 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 October 31, 2002. At October 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).
8
NOTE 7 - NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE NINE MONTHS
ENDED OCTOBER 31,
2002 2001
----------- -----------
NUMERATOR:
Net Income (loss) $ 296,000 $(1,224,000)
Preferred stock dividends (1,000) (1,000)
----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 295,000 (1,225,000)
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 $ 296,000 $(1,224,000)
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 9,372,000 9,181,000
Effect of dilutive securities:
Convertible Preferred Stock 28,000 --
Employee Stock Options 123,000 --
----------- -----------
151,000 --
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,523,000 9,181,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.03 $ (0.13)
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.03 $ (0.13)
=========== ===========
FOR THE THREE MONTHS
ENDED OCTOBER 31,
2002 2001
---------- ----------
NUMERATOR:
Net Income $ 106,000 $ 90,000
Preferred stock dividends -- --
---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 106,000 90,000
Effect of dilutive securities:
Preferred stock dividends -- --
---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 106,000 $ 90,000
========== ==========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 9,372,000 9,342,000
Effect of dilutive securities:
Convertible Preferred Stock 28,000 --
Employee Stock Options 1,000 302,000
Warrants -- 28,000
---------- ----------
29,000 330,000
---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,401,000 9,672,000
========== ==========
BASIC EARNINGS PER SHARE $ 0.01 $ 0.01
========== ==========
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.01
========== ==========
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The previous discussion and other sections of this Form 10-Q contain
forward-looking statements that have been made pursuant to the provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, estimates and projections about
our industry, management's beliefs, and certain assumptions made by management.
Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," "may", and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and actual actions or results may differ materially. These
statements are subject to certain risks, uncertainties and assumptions that
are difficult to predict. The Company undertakes no obligation to update
publicly any forward-looking statements as a result of new information, future
events or otherwise, unless required by law. Readers should, however, carefully
review the risk factors included in other reports or documents filed by the
Company from time to time with the Securities and Exchange Commission.
OVERVIEW
RESULTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31, 2002 AND 2001
During the nine months ended October 31, 2002 ("Fiscal 2003"), the Corporation's
contract revenues increased to $32.3 million compared to $28.7 million in the
nine months ended October 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. These positive revenue items in
fiscal 2003 were partially offset by revenue decreases from the sale of the St.
Louis operations and refocusing of the southeast Texas operations.
The Corporation's gross margin increased to $4.1 million in the first nine
months of fiscal 2003 compared to $2.9 million in the first nine 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 slightly to $3.87 million
in the current nine-month period as compared to $3.91 million in the nine months
ended October 31, 2002. This decrease was due to cost containment by the
Corporation during the current period and decreased costs from the St. Louis and
southeast Texas operations, partially offset by costs associated with the Los
Angeles office which was owned the entire nine-month period in the current
fiscal year.
The Corporation reported income from operations of $0.19 million for the nine
months ended October 31, 2002 compared to a loss from operations of $0.94
million for the nine months ended October 31, 2001 as a direct result of the
factors discussed above.
Interest expense decreased to $0.29 million in the current quarter as compared
to $0.31 million in the same period a year ago due to lower interest rates in
fiscal 2003 which offset 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 $0.32 million gain from the sale of
the St. Louis operation and the sale of certain fixed assets and inventory of
the southeast Texas operations.
The $49,000 add back to income for minority interest reflects the other
venutree's 50% share of the IAQ ventures loss which is reflected throughout the
Statement of Operations as the results of the IAQ venture are consolidated.
During the nine months ended October 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 nine months
ended October 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 OCTOBER 31, 2002 AND 2001
During the three months ended October 31, 2002 ("Fiscal 2003"), the
Corporation's contract revenues decreased to $9.2 million compared to $12.2
million in the three months ended October 31, 2001 ("Fiscal 2002") due partially
to the sale of the St. Louis operation and a general business slowdown.
10
The Corporation's gross margin remained relatively constant at $1.6 million for
both fiscal third quarters. The fiscal 2003 gross margins were comparable with
the prior fiscal quarter due to higher gross margin percentage realized on
contracts in the current fiscal quarter.
Selling, general and administrative expenses increased to $1.49 million in the
current fiscal quarter as compared to $1.44 million in the three months ended
October 31, 2001.
The Corporation reported income from operations of $0.1 million for the three
months ended October 31, 2002 compared to income from operations of $0.20
million for the three months ended October 31, 2001 as a direct result of the
factors discussed above.
Interest expense decreased to $0.09 million in the current fiscal quarter as
compared to $0.12 million in the prior fiscal quarter due to lower interest
rates in fiscal 2003.
The current period other income includes a $0.05 million gain from the sale of
certain southeast Texas fixed assets and inventory.
The $43,000 add back to income for minority interest reflects the other
venutree's 50% share of the IAQ ventures loss which is reflected throughout the
Statement of Operations as the results of the IAQ venture are consolidated.
During the quarter ended October 31, 2002, the Corporation made no provision for
federal income taxes due to the utilization of net operating loss carryforwards
for financial reporting purposes. No state income tax provision was made in the
current year income, as the amount provided previously in the year was adequate.
During the quarter ended October 31, 2001, the Corporation made no provision for
federal income taxes due to the year to date loss 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 year to date loss.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended October 31, 2002, the Corporation's cash decreased
by $0.32 million to $0.05 million.
Cash used by operating activities totaled $0.07 million in the nine months ended
October 31, 2002. Cash outflows included the $0.22 million decrease in
contingent acquisition consideration, the $0.32 million gain on the sale of the
St. Louis operations and certain southeast Texas fixed assets and inventory,
$0.05 million of minority interest in the IAQ joint venture, a $0.13 million
increase in inventory, a $2.7 million decrease in accounts payable, a $0.87
million decrease in billings in excess of costs and estimated earnings on
uncompleted contracts and a $0.38 million decrease in accrued liabilities
related to the timing of payments. These cash outflows were partially offset by
cash inflows including $0.3 million of net income in the current fiscal period,
a $2.9 million decrease in accounts receivables, a $0.13 million decrease in
costs and estimated earnings in excess of billings on uncompleted contracts, a
$0.43 decrease in other current assets and $0.78 million of depreciation and
amortization.
The decrease in cash and short-term investments during the first nine months of
fiscal 2003 is attributable to the aforementioned cash outflows from operations
of $0.07 million and $0.49 million of cash outflows associated with finance
activities. Financing activities cash outflows included $0.5 million for the
repayment of debt. These cash outflows were partially offset by cash inflows
from investing activities of $0.24 million, which included $0.49 million
proceeds from the sale of the St. Louis operation and the sale of certain
southeast Texas fixed assets and inventory and $0.03 million of capital
contributions from the other venturee in the IAQ Training Institute. These
inflows were partially offset by $0.25 million for the purchase of property,
plant and equipment and a $0.02 million payment related to an acquisition
completed in a prior fiscal year.
At October 31, 2002, the Corporation's backlog totaled $30.1 million ($19.1
million on fixed fee contracts and $11.0 million on time and materials or unit
price contracts).
During the nine months ended October 31, 2001, the Corporation's cash decreased
by $0.21 million to $0.01 million.
11
The decrease in cash and short term investments during the first nine months of
fiscal 2002 is attributable to cash outflows from operations of $1.15 million,
cash outflows for investing activities of $1.6 million which included $0.6
million relative to the purchase of selected assets of the former Tri-State
operation, $0.29 million of payments to the former owners of businesses acquired
in prior years and $0.7 million for the purchase of property, plant and
equipment. These cash outflows were partially offset by net cash inflows of
$2.56 million from funding activities which included proceeds from debt of $2.84
million, consisting of $2.05 million from the utilization of the Corporation's
line of credit and $0.84 million from borrowings to finance new equipment
purchases. These cash inflows were partially offset by $0.28 million of
principal payments on debt.
Cash used by operating activities totaled $1.15 million in the nine months ended
October 31, 2001. Cash outflows included $1.2 million from the current period
loss, a $3.53 million increase in accounts receivables, including a $2.0 million
increase to fund the accounts receivable of the former Tri-State operation, a
$0.17 million increase in costs and estimated earnings in excess of billings on
uncompleted contracts, a $0.07 increase in inventory and a $0.15 million
decrease in accrued liabilities. These cash outflows were partially offset by
cash inflows including a $0.12 million decrease in other assets, a $1.96 million
increase in accounts payable, a $0.78 million increase in billings in excess of
costs and estimated earnings on uncompleted contracts, $0.92 million of
depreciation and amortization and $0.23 million of contingent acquisition
consideration.
PROSPECTIVE INFORMATION
In December, the Company was notified by its surety company that due to the loss
of reinsurance, it was exiting the surety business for its entire portfolio of
environmental contractors and would be unable to provide any contract payment
and performance bonds after December 31, 2002. While the Company is confident it
will be able to find a replacement surety provider, the inability to secure
payment and performance bonds on an on-going basis would have a material adverse
impact on the Company's operations.
Due to the sale of the St. Louis operations and the refocusing of southeast
Texas operations, it is anticipated that revenue levels for the last quarter of
fiscal 2003 will be reduced from those achieved in the first three quarters of
fiscal 2003.
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 $50,000 change in borrowing costs based upon the
balance outstanding at October 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.
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PART II-- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is subject to dispute and litigation in the ordinary course of
business. None of these matters, in the opinion of management, is likely to
result in a material effect on the Registrant based upon information available
at this time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Registrant is currently in arrears with respect to the payment of dividends
on its Series A Preferred Stock. At October 31, 2002, the cumulative dividends
in arrears on the Series A Preferred Stock were approximately $11,000.
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 October 31, 2002.
ITEM 14. CONTROLS AND PROCEDURES
As of October 31, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the Chief Executive Officer, concluded that the
Company's disclosure controls and procedures were effective as of October 31,
2002. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to October 31, 2002.
APPROVAL OF NON-AUDIT SERVICES
The Company currently engages Stokes & Hinds as its independent auditors. In
addition to the audit services they provide with respect to the Company's annual
audited consolidated financial statements included in the Company's Annual
Report on Form 10-K and certain other filings with the Securities and Exchange
Commission, Stokes & Hinds has provided the Company in the past and may provide
in the future certain non-audit services, such as tax services (tax return
preparation and tax-related consultations) and audit type assistance, such as
review of SEC filings and US GAAP advice. Effective as of July 30, 2002, the
Sarbanes-Oxley Act of 2002 requires that all non-auditing services, other than
in certain circumstances as provided therein, provided to an issuer by the
auditor of the issuer be preapproved by the audit committee of the issuer.
Accordingly, the Company's audit committee has approved the tax services and
audit type assistance services currently being provided to the Company by Stokes
& Hinds. The Company's audit committee of the Company's Board of Directors
currently consists of Messrs. Bendis, Berkey, Chiafullo and Kilpela.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDG ENVIRONMENTAL, INC.
By /s/John C. Regan
----------------------------------------
John C. Regan
Chairman and Chief Executive Officer
Date: December 14, 2002
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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 annual 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.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for PDG
Environmental,, Inc. and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to PDG Environmental,, Inc. is made
known to me by others within the Company, particularly during the
period in which the periodic reports are being prepared;
(ii) Evaluated the effectiveness of PDG Environmental, Inc's.
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this report ("Evaluation Date"); and
(iii) Presented in the report their conclusions about the effectiveness
of the disclosure controls and procedures based on their
evaluation as of the Evaluation Date;
5. I have disclosed, based upon their most recent evaluation, to PDG
Environmental, Inc's. auditors and the audit committee of the Company's
Board of Directors:
(i) All significant deficiencies in the design or operation of
internal controls which could adversely affect PDG Environmental,
Inc's. ability to record, process, summarize and report financial
data and have identified for PDG Environmental, Inc's. auditors
any material weaknesses in internal control, and
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in PDG Environmental,
Inc's. internal controls, and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of their most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By /s/ John C. Regan
-------------------------------------------
John C. Regan
Chief Executive Officer and
Chief Financial Officer
Date: December 14, 2002
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