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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, 2003 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
--- ---
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---
As of September 9, 2003, 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, 2003 (unaudited) and
January 31, 2003 3
(b) Consolidated Statements of Operations for the Three Months Ended July 31, 2003 and 2002 (unaudited) 4
(c) Consolidated Statements of Operations for the Six Months Ended July 31, 2003 and 2002 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2003 and 2002 (unaudited) 6
(e) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
2
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, JANUARY 31,
2003 2003*
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 51,000 $ 38,000
Accounts receivable - net 10,006,000 9,271,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,429,000 3,412,000
Inventory 587,000 484,000
Other current assets 922,000 388,000
------------ ------------
TOTAL CURRENT ASSETS 14,995,000 13,593,000
PROPERTY, PLANT AND EQUIPMENT 7,624,000 7,497,000
Less: accumulated depreciation (6,571,000) (6,238,000)
------------ ------------
1,053,000 1,259,000
GOODWILL 433,000 433,000
OTHER ASSETS 332,000 325,000
------------ ------------
TOTAL ASSETS $ 16,813,000 $ 15,610,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,357,000 $ 3,519,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,347,000 1,070,000
Current portion of long-term debt 428,000 467,000
Accrued liabilities 1,927,000 1,400,000
------------ ------------
TOTAL CURRENT LIABILITIES 7,059,000 6,456,000
LONG-TERM DEBT 5,141,000 4,922,000
MINORITY INTEREST (14,000) (12,000)
STOCKHOLDERS' EQUITY
Cumulative convertible 2% preferred stock 14,000 14,000
Common stock 189,000 189,000
Additional paid-in capital 8,110,000 8,110,000
Deferred compensation (16,000) (26,000)
(Deficit) retained earnings (3,632,000) (4,005,000)
Less treasury stock (38,000) (38,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,627,000 4,244,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,813,000 $ 15,610,000
============ ============
*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,
---------------------------------
2003 2002
------------ ------------
CONTRACT REVENUE $ 9,473,000 $ 12,227,000
CONTRACT COSTS 7,827,000 10,669,000
------------ ------------
Gross margin 1,646,000 1,558,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,401,000 1,316,000
------------ ------------
Income from operations 245,000 242,000
OTHER INCOME (EXPENSE):
Interest expense (90,000) (105,000)
Gain on sale of St. Louis operation -- 273,000
Interest and other income 8,000 21,000
------------ ------------
(82,000) 189,000
------------ ------------
Income before minority interest and income taxes 163,000 431,000
INCOME TAX PROVISION (18,000) (16,000)
MINORITY INTEREST 1,000 2,000
------------ ------------
NET INCOME $ 146,000 $ 417,000
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.02 $ 0.04
============ ============
DILUTIVE $ 0.02 $ 0.04
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,372,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 124,000 143,000
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,496,000 9,515,000
============ ============
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,
---------------------------------
2003 2002
------------ ------------
CONTRACT REVENUE $ 17,838,000 $ 23,127,000
CONTRACT COSTS 14,524,000 20,650,000
------------ ------------
Gross margin 3,314,000 2,477,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,743,000 2,383,000
------------ ------------
Income from operations 571,000 94,000
OTHER INCOME (EXPENSE):
Interest expense (187,000) (201,000)
Gain on sale of St. Louis operation -- 273,000
Interest and other income 35,000 34,000
------------ ------------
(152,000) 106,000
------------ ------------
Income before minority interest and income taxes 419,000 200,000
INCOME TAX PROVISION (48,000) (16,000)
MINORITY INTEREST 2,000 6,000
------------ ------------
NET INCOME $ 373,000 $ 190,000
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.04 $ 0.02
============ ============
DILUTIVE $ 0.04 $ 0.02
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,371,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 87,000 232,000
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,459,000 9,603,000
============ ============
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,
-------------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 373,000 $ 190,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH:
Depreciation and amortization 466,000 508,000
Contingent acquisition consideration -- (219,000)
Stock based compensation 10,000 10,000
Gain on sale of St. Louis operation -- (273,000)
Minority interest (2,000) (6,000)
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable (735,000) 1,060,000
Costs and estimated earnings in excess of billings
on uncompleted contracts (17,000) (450,000)
Inventory (103,000) (28,000)
Other current assets (45,000) 88,000
Accounts payable (651,000) (975,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts 277,000 246,000
Accrued liabilities 623,000 (525,000)
----------- -----------
(651,000) (584,000)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 196,000 (374,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (168,000) (133,000)
Acquisition of businesses (196,000) --
Other venture's capitalization of joint venture -- 28,000
Proceeds from sale of St. Louis operation -- 380,000
Decrease (Increase) in other assets 1,000 (13,000)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (363,000) 262,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 400,000 50,000
Exercise of stock options -- 2,000
Principal payments on debt (220,000) (230,000)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 180,000 (178,000)
----------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments 13,000 (290,000)
Cash and Short-Term Investments, Beginning of Period 38,000 373,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 51,000 $ 83,000
=========== ===========
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, 2003
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include PDG Environmental, Inc. (the
"Corporation") and its wholly-owned subsidiaries. In the quarter ending April
30, 2002, 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 month and six month
periods ended July 31, 2003 were of a normal, recurring nature. The amounts
presented for the three month and six month periods ended July 31, 2003 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, 2003 dated March 28, 2003 and in the Quarterly
Report on Form 10-Q of the Corporation for the quarter ended April 30, 2003
dated June 12, 2003, which should be read in conjunction with this quarterly
report.
NOTE 2 - FEDERAL INCOME TAXES
No federal income tax has been provided for the three and six months ended July
31, 2003 due to the existence of unused net operating loss carryforwards. A
state income tax provision was made in the current and prior year periods due to
income in the current and prior years.
Income taxes paid by the Corporation for the six months ended July 31, 2003 and
2002 totaled approximately $25,000 and $63,000, respectively.
NOTE 3 - 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.
In December 2002 Sky Bank extended the maturity date of the Company's line of
credit until June 1, 2004.
On February 28, 2003 Sky Bank increased the line of credit by $600,000 to $5.1
million for a four-month period ending on July 1, 2003 at which time the
availability would be reduced to $4.5 million.
In July 2003 Sky Bank approved a permanent $500,000 increase to the Company's
line of credit to $5 million and extended the maturity date until June 6, 2005.
7
On July 31, 2003, the balance on the line of credit was $4,350,000 with an
unused availability of $650,000.
The Corporation paid interest costs totaling approximately $203,000 and $198,000
during the six months ended July 31, 2003 and 2002, respectively.
NOTE 4 - PREFERRED STOCK
Cumulative dividends in arrears on the Corporation's 2% Series A Preferred Stock
were approximately $12,000 at July 31, 2003. At July 31, 2003, 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 5 - NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
FOR THE THREE MONTHS
ENDED JULY 31,
----------------------------
2003 2002
---------- ----------
NUMERATOR:
Net Income $ 146,000 $ 417,000
Preferred stock dividends -- --
---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 146,000 417,000
Effect of dilutive securities:
Preferred stock dividends -- --
---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 146,000 $ 417,000
========== ==========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 9,372,000 9,372,000
Effect of dilutive securities:
Convertible Preferred Stock 29,000 114,000
Employee Stock Options 95,000 29,000
---------- ----------
124,000 143,000
---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,496,000 9,515,000
========== ==========
BASIC EARNINGS PER SHARE $ 0.02 $ 0.04
========== ==========
DILUTED EARNINGS PER SHARE $ 0.02 $ 0.04
========== ==========
8
FOR THE SIX MONTHS
ENDED JULY 31,
-------------------------------
2003 2002
----------- -----------
NUMERATOR:
Net Income $ 373,000 $ 190,000
Preferred stock dividends (1,000) (1,000)
----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 372,000 189,000
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 $ 373,000 $ 190,000
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share--weighted average
shares 9,372,000 9,371,000
Effect of dilutive securities:
Convertible Preferred Stock 29,000 --
Employee Stock Options 58,000 232,000
----------- -----------
87,000 232,000
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,459,000 9,603,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.04 $ 0.02
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.04 $ 0.02
=========== ===========
NOTE 6 - STOCK OPTIONS
The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period.
9
FOR THE THREE MONTHS
ENDED JULY 31,
--------------------------
2003 2002
--------- ---------
Net income, as reported $ 146,000 $ 417,000
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards net of
related tax effects (13,000) (28,000)
--------- ---------
Pro forma net income $ 133,000 $ 389,000
========= =========
Earnings per share:
Basic-as reported $ 0.02 $ 0.04
========= =========
Basic-pro forma $ 0.01 $ 0.04
========= =========
Diluted-as reported $ 0.02 $ 0.04
========= =========
Diluted-pro forma $ 0.01 $ 0.04
========= =========
FOR THE SIX MONTHS
ENDED JULY 31,
--------------------------
2003 2002
--------- ---------
Net income, as reported $ 373,000 $ 190,000
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards net of
related tax effects (27,000) (56,000)
--------- ---------
Pro forma net income $ 346,000 $ 134,000
========= =========
Earnings per share:
Basic-as reported $ 0.04 $ 0.02
========= =========
Basic-pro forma $ 0.04 $ 0.01
========= =========
Diluted-as reported $ 0.04 $ 0.02
========= =========
Diluted-pro forma $ 0.04 $ 0.01
========= =========
NOTE 7 - 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.
10
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2003 AND 2002
During the three months ended July 31, 2003 ("Fiscal 2004"), the Corporation's
contract revenues decreased to $9.5 million compared to $12.2 million in the
three months ended July 31, 2002 ("Fiscal 2003"). The decrease in revenue was
attributable in part to a large project in New York City that had Phase I
completed in the second quarter of the prior fiscal year, the exclusion of
the St. Louis operation which was sold in the prior fiscal year and the
reduction of revenue from the southeast Texas operations which were refocused
in Fiscal 2003.
The Corporation's gross margin increased to $1.65 million in the second quarter
of fiscal 2004 compared to $1.56 million in the second quarter of fiscal 2003.
The increase in gross margin is due to the significantly higher gross margin
percentage in the current fiscal quarter.
Selling, general and administrative expenses increased to $1.4 million in the
current fiscal quarter as compared to $1.3 million in the three months ended
July 31, 2002. This increase was due to general cost increases in operating
the Company's offices including a significant increase in insurance costs.
The Corporation reported income from operations of $0.25 million for the three
months ended July 31, 2003 compared to income from operations of $0.24 million
for the three months ended July 31, 2002 as a direct result of the factors
discussed above.
Interest expense decreased to $0.09 million in the current quarter as compared
the $0.10 million in the same quarter of a year ago as the effect of decreases
in the prime rate of interest to which a majority of the Corporations borrowings
are tied which more than offset the increase in borrowings on the line of
credit.
During the quarters ended July 31, 2003 and 2002, the Corporation made no
provision for federal income taxes due to the utilization of net operating loss
carryforwards for financial reporting purposes. State income tax provisions of
$0.02 million were made in the current quarter and prior fiscal quarter.
SIX MONTHS ENDED JULY 31, 2003 AND 2002
During the six months ended July 31, 2003, the Corporation's contract revenues
decreased to $17.8 million compared to $23.1 million in the six months ended
July 31, 2002. The decrease in revenue was attributable in part to a large
project in New York City that had Phase I completed in the second quarter of the
prior fiscal period, the exclusion of the St. Louis operation which was sold
in the prior fiscal year and the reduction of revenues from southeast Texas
operations which were refocused in Fiscal 2003.
11
The Corporation's gross margin increased to $3.3 million in the first six
months of fiscal 2004 compared to $2.5 million in the first six months of fiscal
2003. The increase in gross margin is due to the significantly higher gross
margin percentage in the current fiscal year and $0.6 million of negative
contract adjustments in the first quarter of fiscal 2003.
Selling, general and administrative expenses increased to $2.7 million in the
current fiscal period as compared to $2.4 million in the prior fiscal period.
This increase was due to reversal of $0.2 million of contingent purchase
consideration related to the Los Angeles office in the prior fiscal period and
to cost increases at existing offices including a significant increase in
insurance costs.
The Corporation reported income from operations of $0.57 million for the six
months ended July 31, 2003 compared to income from operations of $0.09 million
for the six months ended July 31, 2002 as a direct result of the factors
discussed above.
Interest expense decreased to $0.19 million in the current fiscal period as
compared the $0.20 million in the prior fiscal period as the effect of decreases
in the prime rate of interest to which a majority of the Corporations borrowings
are tied which more than offset the increase in borrowings on the line of
credit.
During the six month periods ended July 31, 2003 and 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 $0.04 million was made in the current fiscal period and a $0.02
million provision was made in the prior fiscal period.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended July 31, 2003, the Corporation's cash increased by
$0.01 million to $0.05 million.
Cash provided by operating activities totaled $0.20 million in the six months
ended July 31, 2003. Cash inflows including $0.37 million of net income in the
current fiscal period, a $0.28 million increase in billings in excess of costs
and estimated earnings on uncompleted contracts, a $0.62 million increase in
accrued liabilities related to the timing of payments and $0.47 million of
depreciation and amortization. These cash inflows were partially offset by cash
outflows including a $0.73 million increase in accounts receivables, a $0.02
million increase in costs and estimated earnings in excess of billings on
uncompleted contracts, a $0.10 million increase in inventories, a $0.05 million
increase in other assets and a $0.65 million decrease in accounts payable.
The increase in cash and short-term investments during the first six months of
fiscal 2004 is attributable to the aforementioned cash inflows from operations
of $0.20 million and $0.18 million of cash inflows associated with finance
activities which were partially offset by cash outflows of $0.36 million
associated with investing activities.
Financing activities net cash inflows consisted of $0.4 million of proceeds
from debt consisting of net borrowings on the line of credit partially offset by
$0.22 million for the repayment of debt.
Investing activities cash outflows included $0.17 million for the purchase of
property, plant and equipment and a $0.20 million of payments related primarily
to an acquisition completed in a prior fiscal year.
At July 31, 2003, the Corporation's backlog totaled $30.4 million ($20.1 million
on fixed fee contracts and $10.3 million on time and materials or unit price
contracts).
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 prior 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.
12
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 July 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
As of July 31, 2003, 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 July 31, 2003. There have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to July 31,
2003.
13
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, 2003, the cumulative dividends in
arrears on the Series A Preferred Stock were approximately $12,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 22, 2003, 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 votes:
John C. Regan Votes For 8,343,870 Votes Against 88,073
Richard A. Bendis Votes For 8,344,950 Votes Against 86,993
Edgar Berkey Votes For 8,355,050 Votes Against 76,893
James D. Chiafullo Votes For 8,344,950 Votes Against 86,993
Edwin J. Kilpela Votes For 8,349,820 Votes Against 82,123
Parente Randolph, LLC ("Parente") (previously Stokes & Hinds, LLC prior to its
merger with Parente) was ratified as the Corporation's auditors as follows:
Votes For 8,419,188
Votes Against 5,480
Abstained 7,275
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT INDEX PAGES OF SEQUENTIAL
EXHIBIT NO. AND DESCRIPTION NUMBERING SYSTEM
Exhibit 31 Certification Pursuant to Rule 13a-14(a) of
the Securities Act of 1934, as amended, and
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 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, 2003 except for the Form 8-K filed June 13, 2003
containing an Item 12 - Results of Operation and Financial Condition discussing
the Company's earnings for the quarter ending April 30, 2003.
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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, Chief Executive Officer
and Chief Financial Officer
Date: September 12, 2003
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