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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, 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 December 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 PAGE
Item 1. Consolidated Financial Statements and Notes to Consolidated
Financial Statements
(a) Condensed Consolidated Balance Sheets as of October 31, 2003
(unaudited) and January 31, 2003 3
(b) Consolidated Statements of Operations for the Three Months Ended
October 31, 2003 and 2002 (unaudited) 4
(c) Consolidated Statements of Operations for the Nine Months Ended
October 31, 2003 and 2002 (unaudited) 5
(d) Consolidated Statements of Cash Flows for the Nine Months Ended
October 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 6. Exhibits and Reports on Form 8-K 14
Signature and Certification 15
2
PART I. FINANCIAL INFORMATION
PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JANUARY 31,
2003 2003*
--------------- -------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and short-term investments $ 10,000 $ 38,000
Accounts receivable - net 9,231,000 9,271,000
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,510,000 3,412,000
Inventory 545,000 484,000
Other current assets 600,000 388,000
--------------- -------------
TOTAL CURRENT ASSETS 13,896,000 13,593,000
PROPERTY, PLANT AND EQUIPMENT 7,739,000 7,497,000
Less: accumulated depreciation (6,718,000) (6,238,000)
--------------- -------------
1,021,000 1,259,000
GOODWILL 433,000 433,000
OTHER ASSETS 292,000 325,000
--------------- -------------
TOTAL ASSETS $ 15,642,000 $ 15,610,000
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,248,000 $ 3,519,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,227,000 1,070,000
Current portion of long-term debt 412,000 467,000
Accrued liabilities 992,000 1,400,000
--------------- -------------
TOTAL CURRENT LIABILITIES 5,879,000 6,456,000
LONG-TERM DEBT 5,050,000 4,922,000
MINORITY INTEREST (25,000) (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 (11,000) (26,000)
(Deficit) retained earnings (3,526,000) (4,005,000)
Less treasury stock (38,000) (38,000)
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 4,738,000 4,244,000
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,642,000 $ 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 OCTOBER 31,
-----------------------------
2003 2002
----------- -----------
CONTRACT REVENUE $ 9,414,000 $ 9,157,000
CONTRACT COSTS 7,639,000 7,575,000
----------- -----------
Gross margin 1,775,000 1,582,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,589,000 1,486,000
----------- -----------
Income from operations 186,000 96,000
OTHER INCOME (EXPENSE):
Interest expense (84,000) (93,000)
Gain on sale of fixed assets and inventory - 48,000
Interest and other income 8,000 12,000
----------- -----------
(76,000) (33,000)
----------- -----------
Income before minority interest and income taxes 110,000 63,000
INCOME TAX PROVISION (14,000) -
MINORITY INTEREST 10,000 43,000
----------- -----------
NET INCOME $ 106,000 $ 106,000
=========== ===========
PER SHARE OF COMMON STOCK:
BASIC $ 0.01 $ 0.01
=========== ===========
DILUTIVE $ 0.01 $ 0.01
=========== ===========
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,372,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS
OUTSTANDING 255,000 29,000
----------- -----------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,627,000 9,401,000
=========== ===========
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,
--------------------------------
2003 2002
------------ ------------
CONTRACT REVENUE $ 27,252,000 $ 32,285,000
CONTRACT COSTS 22,163,000 28,225,000
------------ ------------
Gross margin 5,089,000 4,060,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,332,000 3,870,000
------------ ------------
Income from operations 757,000 190,000
OTHER INCOME (EXPENSE):
Interest expense (271,000) (294,000)
Gain on sale of St. Louis operation and other fixed assets
and inventory -- 321,000
Interest and other income 43,000 46,000
------------ ------------
(228,000) 73,000
------------ ------------
Income before minority interest and income taxes 529,000 263,000
INCOME TAX PROVISION (62,000) (16,000)
MINORITY INTEREST 12,000 49,000
------------ ------------
NET INCOME $ 479,000 $ 296,000
============ ============
PER SHARE OF COMMON STOCK:
BASIC $ 0.05 $ 0.03
============ ============
DILUTIVE $ 0.05 $ 0.03
============ ============
AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 9,372,000 9,372,000
AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS OUTSTANDING 114,000 151,000
------------ ------------
AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS
OUTSTANDING FOR EARNINGS PER
SHARE CALCULATION 9,486,000 9,523,000
============ ============
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,
-----------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 479,000 $ 296,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH:
Depreciation and amortization 668,000 782,000
Contingent acquisition consideration - (219,000)
Stock based compensation 15,000 15,000
Gain on sale of St. Louis operation and other fixed assets
and inventory - (321,000)
Minority interest (12,000) (49,000)
CHANGES IN ASSETS AND LIABILITIES
OTHER THAN CASH:
Accounts receivable 40,000 2,934,000
Costs and estimated earnings in excess of billings
on uncompleted contracts (98,000) 130,000
Inventory (61,000) (125,000)
Other current assets 81,000 434,000
Accounts payable (564,000) (2,698,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts 157,000 (872,000)
Accrued liabilities (274,000) (375,000)
----------- -----------
(719,000) (572,000)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 431,000 (68,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (291,000) (254,000)
Acquisition of businesses (234,000) (24,000)
Other venture's capitalization of joint venture - 30,000
Proceeds from sale of St. Louis operation and other fixed assets
and inventory - 490,000
Decrease (Increase) in other assets (7,000) (2,000)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (532,000) 240,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 400,000 -
Exercise of stock options - 2,000
Principal payments on debt (327,000) (496,000)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 73,000 (494,000)
----------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments (28,000) (322,000)
Cash and Short-Term Investments, Beginning of Period 38,000 373,000
----------- -----------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 10,000 $ 51,000
=========== ===========
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, 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 nine month
periods ended October 31, 2003 were of a normal, recurring nature. The amounts
presented for the three month and nine month periods ended October 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
Reports on Form 10-Q of the Corporation for the quarter ended April 30, 2003
dated June 12, 2003 and for the quarter ended July 31, 2003 dated September 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 nine months ended
October 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 nine months ended October 31, 2003
and 2002 totaled approximately $27,000 and $65,000, 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.
7
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.
On October 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 $277,000 and $292,000
during the nine months ended October 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 October 31, 2003. At October 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 dividends.
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 OCTOBER 31,
2003 2002
---------- ----------
NUMERATOR:
Net Income $ 106,000 $ 106,000
Preferred stock dividends - -
---------- ----------
Numerator for basic earnings per share--income available
to common stockholders 106,000 106,000
Effect of dilutive securities:
Preferred stock dividends - -
---------- ----------
Numerator for diluted earnings per share--income available to
common stock after assumed conversions $ 106,000 $ 106,000
========== ==========
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 28,000
Employee Stock Options 226,000 1,000
---------- ----------
255,000 29,000
---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,627,000 9,401,000
========== ==========
BASIC EARNINGS PER SHARE $ 0.01 $ 0.01
========== ==========
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.01
========== ==========
8
FOR THE NINE MONTHS
ENDED OCTOBER 31,
2003 2002
----------- -----------
NUMERATOR:
Net Income $ 479,000 $ 296,000
Preferred stock dividends (1,000) (1,000)
----------- -----------
Numerator for basic earnings per share--income available
to common stockholders 478,000 295,000
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 $ 479,000 $ 296,000
=========== ===========
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 28,000
Employee Stock Options 85,000 123,000
----------- -----------
114,000 151,000
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions 9,486,000 9,523,000
=========== ===========
BASIC EARNINGS PER SHARE $ 0.05 $ 0.03
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.05 $ 0.03
=========== ===========
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 OCTOBER 31,
2003 2002
------------------ ------------------
Net income, as reported $ 106,000 $ 106,000
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 $ 93,000 $ 78,000
================== ==================
Earnings per share:
Basic-as reported $ 0.01 $ 0.01
================== ==================
Basic-pro forma $ 0.01 $ 0.01
================== ==================
Diluted-as reported $ 0.01 $ 0.01
================== ==================
Diluted-pro forma $ 0.01 $ 0.01
================== ==================
FOR THE NINE MONTHS
ENDED OCTOBER 31,
2003 2002
------------------ ------------------
Net income, as reported $ 479,000 $ 296,000
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards net of
related tax effects (41,000) (84,000)
------------------ ------------------
Pro forma net income $ 438,000 $ 212,000
================== ==================
Earnings per share:
Basic-as reported $ 0.05 $ 0.03
================== ==================
Basic-pro forma $ 0.05 $ 0.02
================== ==================
Diluted-as reported $ 0.05 $ 0.03
================== ==================
Diluted-pro forma $ 0.05 $ 0.02
================== ==================
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.
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.
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 from those
stated herein. 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 OCTOBER 31, 2003 AND 2002
During the three months ended October 31, 2003 ("Fiscal 2004"), the
Corporation's contract revenues increased to $9.4 million compared to $9.2
million in the three months ended October 31, 2002 ("Fiscal 2003"). The increase
was due in part to increased revenues from mold remediation.
The Corporation's gross margin increased to $1.78 million in the third quarter
of fiscal 2004 compared to $1.58 million in the third quarter of fiscal 2003.
The increase in gross margin is due to the significantly higher gross margin
percentage in the current fiscal quarter achieved through improved project
performance offset in part by negative $149,000 contract/claim adjustments and
significantly higher insurance costs.
Selling, general and administrative expenses increased to $1.6 million in the
current fiscal quarter as compared to $1.5 million in the three months ended
October 31, 2002. This increase was due to the provision for contingent
acquisition consideration for an acquisition completed in fiscal 2002. No
provision was made in the prior year's quarter as the earnings target was not
achieved.
The Corporation reported income from operations of $0.19 million for the three
months ended October 31, 2003 compared to income from operations of $0.10
million for the three months ended October 31, 2002 as a direct result of the
factors discussed above.
Interest expense decreased to $0.08 million in the current quarter as compared
the $0.09 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.
The prior fiscal period other income included a $0.05 million gain from the sale
of certain fixed assets and inventory of the southeast Texas operations.
The $0.01 million and $0.043 million add back to income for minority interest in
fiscal years 2004 and 2003, respectively, reflects the other venturee's 50%
share of the IAQ venture's loss which is reflected throughout the Statement of
Operations as the results of the IAQ venture are consolidated.
During the quarters ended October 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
$0.01 million was made in the current quarter while no provision was made in the
prior fiscal quarter.
11
NINE MONTHS ENDED OCTOBER 31, 2003 AND 2002
During the nine months ended October 31, 2003, the Corporation's contract
revenues decreased to $27.3 million compared to $32.3 million in the nine months
ended October 31, 2002. The decrease in revenue was attributable 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. This revenue decrease was
partially offset by increased revenues from mold remediation.
The Corporation's gross margin increased to $5.1 million in the first nine
months of fiscal 2004 compared to $4.1 million in the first nine months of
fiscal 2003. The increase in gross margin is due to the significantly higher
gross margin percentage in the current fiscal year due to a change in the
revenue mix to more mold remediation projects and $0.6 million of negative
contract adjustments in the first quarter of fiscal 2003.
Selling, general and administrative expenses increased to $4.3 million in the
current fiscal period as compared to $3.9 million in the prior fiscal period.
The current fiscal period included a provision for contingent acquisition
consideration for an acquisition completed in fiscal 2002. The prior fiscal
period included overhead costs related to the St. Louis and southeast Texas
operations which were sold in the second and third quarters of fiscal 2003,
respectively, which were partially offset by the reversal of $0.2 million of
contingent purchase consideration related to the Tri-State acquisition.
The Corporation reported income from operations of $0.76 million for the nine
months ended October 31, 2003 compared to income from operations of $0.19
million for the nine months ended October 31, 2002 as a direct result of the
factors discussed above.
Interest expense decreased to $0.27 million in the current fiscal period as
compared the $0.29 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.
The prior fiscal period other income included 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 $0.012 million and $0.049 million add back to income for minority interest
for the nine months ended October 31, 2003 and 2002, respectively, reflects the
other venutree's 50% share of the IAQ venture's loss which is reflected
throughout the Statement of Operations as the results of the IAQ venture are
consolidated.
During the nine month periods ended October 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 $0.06 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 nine months ended October 31, 2003, the Corporation's cash decreased
by $0.03 million to $0.01 million.
The decrease in cash and short-term investments during the first nine months of
fiscal 2004 is attributable to cash outflows of $0.53 million associated with
investing activities. These cash outflows were partially offset by cash inflows
from operations of $0.43 million and $0.07 million of cash inflows associated
with finance activities.
Investing activities cash outflows included $0.29 million for the purchase of
property, plant and equipment and a $0.23 million of payments related primarily
to an acquisition completed in a prior fiscal year.
Cash provided by operating activities totaled $0.43 million in the nine months
ended October 31, 2003. Cash inflows including $0.48 million of net income in
the current fiscal period, a $0.04 million decrease in accounts receivables, a
$0.16 million increase in billings in excess of costs and estimated earnings on
uncompleted contracts, a $0.08 million decrease in other assets and $0.67
million of depreciation and amortization. These cash
12
inflows were partially offset by cash outflows including a $0.1 million increase
in costs and estimated earnings in excess of billings on uncompleted contracts,
a $0.06 million increase in inventories, a $0.56 million decrease in accounts
payable and a $0.27 million decrease in accrued liabilities related to the
timing of payments.
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
$0.33 million for the repayment of debt.
At October 31, 2003, the Corporation's backlog totaled $31.6 million ($21.2
million on fixed fee contracts and $10.4 million on time and materials or unit
price contracts).
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. Items which resulted in negative cash from operating
activities 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 negative cash items were partially offset by cash generating
items 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.
ITEM 3. QUANTATIVE 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 notes and revolving line of
credit fluctuate based upon changes in the prime rate. Each 1% change in the
prime rate will result in a $49,000 change in borrowing costs based upon the
balance outstanding at October 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
As of October 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 of October 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 October 31, 2003.
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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, 2003, the cumulative dividends
in arrears on the Series A Preferred Stock were approximately $12,000.
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 October 31, 2003 except for the Form 8-K filed September 16, 2003
containing an Item 12 - Results of Operation and Financial Condition discussing
the Company's earnings for the quarter ending July 31, 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: December 12, 2003
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