EX-99.2 3 j1685701exv99w2.txt EX-99.2 Exhibit 99.2 PRO FORMA CONSOLIDATED FINANCIAL DATA OF PDG ENVIRONMENTAL, INC. AND FLAGSHIP SERVICES GROUP, INC. AND PARTNERSHIP AFFILIATES The unaudited pro forma condensed combined financial data as of July 31, 2005, and for the six-months ended July 31, 2005, and the twelve months ended January 31, 2005, give effect to PDG Environmental, Inc's (the "Company" or "PDG") acquisition of certain assets of Flagship Services Group, Inc. and Partnership Affiliates ("Flagship") (the asset acquisition shall be referred to as the "Acquisition"), accounted for under the "purchase" accounting method. The unaudited pro forma condensed combined financial data is based upon the historical consolidated financial statements of the Company and Flagship under the assumptions and adjustments set forth in the notes to such pro forma financial data. The unaudited pro forma also assumes that the July 2005 private placement of the Company's securities was completed at the beginning of the pro forma periods as the majority of the proceeds from the private placement was utilized to fund the cash portion of the purchase price paid at closing to Flagship. The unaudited pro forma condensed combined balance sheet at July 31, 2005 assumes that the Acquisition was consummated on July 31, 2005. The unaudited pro forma condensed combined statement of operations for the six-months ended July 31, 2005 assumes that the Acquisition was consummated on January 31, 2005. The unaudited pro forma condensed combined statement of operations for the year ended January 31, 2005 assumes that the Merger was consummated on February 1, 2004. The fiscal year of the Company ends on January 31 and the fiscal year of Flagship ends on December 31. For purposes of presenting the unaudited pro forma condensed combined statement of operations data, the historical audited financial statements of Flagship for the year ended December 31, 2004 were combined with the audited historical financial statements of the Company for the year ended January 31, 2005. The historical unaudited financial statements of the Company for the six-month period ended July 31, 2005 have been combined with the unaudited historical financial statements of Flagship for the six-month period June 30, 2005 For purposes of presenting the unaudited pro forma condensed combined balance sheet data, Flagship's assets and liabilities have been recorded at their estimated fair market values and the excess purchase price has been assigned to goodwill. The fair value of Flagship's assets and liabilities are based on preliminary estimates. Upon completion of a detailed review and valuation of assets and liabilities, including intangibles, certain adjustments may be required to finalize the purchase accounting adjustments. The unaudited pro forma condensed combined financial statement data may not be indicative of the results that actually would have occurred if the acquisition of Flagship had been consummated on the dates indicated or that may be obtained in the future. The unaudited pro forma condensed combined financial statement data should be read in conjunction with the historical consolidated financial statements of the Company and Flagship. PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA JULY 31, 2005

HISTORICAL PRO FORMA PDG FLAGSHIP COMBINED 7/31/05 6/30/05 ADJUSTMENTS 7/31/05 --------------- --------------- --------------- --------------- Cash $ 150,000 $ 862,000 $ (902,000)(A)(B)(C) $ 110,000 Receivables 18,663,000 6,227,000 (6,227,000)(A) 18,663,000 Receivable from Flagship -- -- 1,440,000(D) 1,440,000 Costs and estimated earnings In excess of billings 4,502,000 258,000 -- 4,760,000 Inventory 735,000 -- -- 735,000 Prepaid income taxes 186,000 -- -- 186,000 Other current assets 772,000 80,000 (80,000)(A) 772,000 --------------- --------------- --------------- --------------- Total Current Assets 25,008,000 7,427,000 (5,769,000) 26,666,000 Net fixed assets 1,616,000 87,000 (37,000)(A) 1,666,000 Intangible and other assets 224,000 9,000 5,591,000(A)(I) 5,824,000 Goodwill 1,571,000 -- 826,000(I) 2,397,000 --------------- --------------- --------------- --------------- Total Assets $ 28,419,000 $ 7,523,000 $ 611,000 $ 36,553,000 =============== =============== =============== =============== Accounts payable $ 4,812,000 $ 2,533,000 $ (2,533,000)(A) $ 4,812,000 Billings in excess of costs and estimated earnings 2,389,000 1,698,000 -- 4,087,000 Current portion of debt -- 1,700,000 (950,000)(A)(G) 842,000 Accrued liabilities 3,133,000 1,286,000 (1,286,000)(A) 3,133,000 --------------- --------------- --------------- --------------- Total Current Liabilities 10,426,000 7,217,000 (4,769,000) 12,874,000 Long-term debt 1,595,000 -- 5,250,000(C) 6,845,000 Series C Preferred Stock 2,164,000 -- -- 2,164,000 --------------- --------------- --------------- --------------- Total Liabilities 14,185,000 7,217,000 481,000 21,883,000 Common stock 296,000 1,000 4,000(E)(F) 301,000 Common stock warrants 1,750,000 -- 186,000(H) 1,936,000 Paid in capital 12,713,000 -- 245,000(F) 12,958,000 Treasury stock (38,000) -- -- (38,000) (Deficit) retained earnings (487,000) 305,000 (305,000)(E) (487,000) --------------- --------------- --------------- --------------- Total Stockholder's equity 14,234,000 306,000 130,000 14,670,000 --------------- --------------- --------------- --------------- Total Liabilities and Equity $ 28,419,000 $ 7,523,000 $ 611,000 $ 36,553,000 =============== =============== =============== ===============

(A) Remove assets and liabilities retained by Seller. (B) Represents cash payment to seller ($5,250,000). (C) Represents draw on line of credit to fund payment to seller ($5,250,000) and to pay estimated transaction expenses ($40,000) (D) Represents net receivable from Seller for net difference between Billings in excess of costs and estimated earnings and Costs and estimated earnings in billings which will be due from to Seller to reimburse Buyer. (E) Represents the elimination of Flagship's historic equity accounts. (F) Represents value of 236,027 shares of the Buyer's common stock issued to the Seller ($250,000). (G) Represents the one-year 6% note provided to the Seller at closing (H) Represents the value of the warrants for the Buyer's common stock provided the Seller at closing ($186,000) (I) Represents allocation of purchase price to covenant not to compete ($1,500,000), customer relationships ($3,500,000) and subcontractor relationships ($500,000), trademarks ($100,000) with the remainder ($826,000) allocated to goodwill. This allocation of purchase price is preliminary and will be finalized based upon the receipt of an independent valuation which is in process. PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED COMBINED STATEMENT OF OPERATIONS DATA SIX MONTHS ENDED JULY 31, 2005

HISTORICAL PRO FORMA --------------- --------------- PDG FLAGSHIP COMBINED 7/31/05 6/30/05 ADJUSTMENTS 7/31/05 --------------- --------------- --------------- --------------- Contract revenues $ 30,271,000 $ 16,266,000 $ -- $ 46,537,000 Contract costs 25,487,000 12,753,000 -- 38,240,000 --------------- --------------- --------------- --------------- Gross margin 4,784,000 3,513,000 -- 8,297,000 Selling, general & administrative 3,400,000 1,063,000 337,000(A) 4,800,000 --------------- --------------- --------------- --------------- Operating income 1,384,000 2,450,000 (337,000) 3,497,000 Other income (expenses): Interest expense, including preferred dividends and accretion of discount (277,000) (44,000) (432,000)(B) (753,000) Interest and other income 71,000 3,000 -- 74,000 --------------- --------------- --------------- --------------- (206,000) (41,000) (432,000) (679,000) --------------- --------------- --------------- --------------- Income before income taxes 1,178,000 2,409,000 (769,000) 2,818,000 Income tax provision (478,000) -- (649,000)(C) (1,127,000) --------------- --------------- --------------- --------------- Net income $ 700,000 $ 2,409,000 $ (1,418,000) $ 1,691,000 =============== =============== =============== =============== Net per common share, Basic $ 0.05 $ 0.11 =============== =============== Net per common share, Dilutive $ 0.05 $ 0.10 =============== =============== Weighted average shares Outstanding -basic 13,307,000 1,625,000(D) 14,932,000 =============== =============== =============== Weighted average shares Outstanding -dilutive 14,512,000 7,815,000(D)(F) 22,327,000 =============== =============== ===============

(A) Represents amortization covenant not to compete over four and one-half years ($333,000/year), amortization of customer relationships over fifteen years ($233,000/year), amortization of subcontractor relationships over five years ($100,000/year) and amortization of trademarks over fifteen years ($7,000/year). The allocation of the purchase price will be finalized upon receipt of an independent valuation, which is in progress. The final valuation may result in increases and/or decreases in the annual amortization expense of the respective intangible assets. (B) Represents five months additional preferred stock dividends and accretion of discount of preferred stock ($410,000) as the amounts for July 2005 have already been included in the PDG July 31, 2005 statement of operations and to accrue six months interest on the $750,000 6% note payable given as part of the Flagship acquisition ($22,000). (C) Represents provision of the income taxes on the proforma combined income before income taxes at a 40% rate. Income Taxes at 40% Rate on Flagship's Earnings $964,000 Income Tax Benefit on Pro Forma Adjustments 315,000 -------- Net Increase to Income Tax Provision $649,000 ======== (D) Represents PDG shares given Flagship as part of the acquisition consideration (236,000 shares) and to reflect the 1,666,667 shares issued as part of the July 2005 private placement of the Company's securities as outstanding for the period February 1, 2005 to June 30, 2005 (1,389,000 shares). (E) The aforementioned earnings of $2,409,000 for the year ended December 31, 2004 would have resulted in contingent payments as part of the Agreement of approximately $668, 000. The Agreement provides for contingent payments of 35% of the excess over $500,000. The contingent payments would have been accounted for as an increase in goodwill associated with the transaction as they represent additional purchase price consideration. (F) The dilutive earning per share calculation assumes the conversion of the $5,500,000 Series C Preferred Stock into 5,500,000 shares of common stock and therefore, the $488,000 of preferred stock dividends and accretion of discount of preferred stock are added back to net income. PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED COMBINED STATEMENT OF OPERATIONS DATA YEAR ENDED JANUARY 31, 2005

HISTORICAL PRO FORMA ---------------- ---------------- PDG FLAGSHIP COMBINED 1/31/05 12/31/04 ADJUSTMENTS 1/31/05 ---------------- ---------------- ---------------- ---------------- Contract revenues $ 60,362,000 $ 19,286,000 $ -- $ 79,648,000 Contract costs 50,600,000 15,124,000 -- 65,724,000 ---------------- ---------------- ---------------- ---------------- Gross margin 9,762,000 4,162,000 -- 13,924,000 Selling, general & administrative 6,802,000 2,756,000 673,000 (A) 10,231,000 ---------------- ---------------- ---------------- ---------------- Operating income 2,960,000 1,406,000 (673,000) 3,693,000 Other income (expenses): Interest expense, including preferred dividends and accretion of discount (393,000) (78,000) (1,057,000)(B) (1,528,000) Miscellaneous 2,000 (10,000) - (8,000) ---------------- ---------------- ---------------- ---------------- (391,000) (88,000) (1,057,000) (1,536,000) ---------------- ---------------- ---------------- ---------------- Income before income taxes 2,569,000 1,318,000 (1,730,000) 2,157,000 Income tax provision (383,000) - 165,000 (C) (218,000) ---------------- ---------------- ---------------- ---------------- Net income $ 2,186,000 $ 1,318,000(E) $ (1,565,000) $ 1,939,000 ================ ================ ================ ================ Net per common share, Basic $ 0.20 $ 0.15 ================ ================ Net per common share, Dilutive $ 0.19 $ 0.14 ================ ================ Weighted average shares Outstanding - basic 10,911,000 1,903,000 (D) 12,814,000 ================ ================ ================ Weighted average shares Outstanding - dilutive 11,782,000 1,903,000 (D) 13,685,000 ================ ================ ================

(A) REPRESENTS AMORTIZATION COVENANT NOT TO COMPETE OVER FOUR AND ONE-HALF YEARS ($333,000/YEAR), AMORTIZATION OF CUSTOMER RELATIONSHIPS OVER FIFTEEN YEARS ($233,000/YEAR), AMORTIZATION OF SUBCONTRACTOR RELATIONSHIPS OVER FIVE YEARS ($100,000/YEAR) AND AMORTIZATION OF TRADEMARKS OVER FIFTEEN YEARS ($7,000/YEAR). THE ALLOCATION OF THE PURCHASE PRICE WILL BE FINALIZED UPON RECEIPT OF AN INDEPENDENT VALUATION, WHICH IS IN PROGRESS. THE FINAL VALUATION MAY RESULT IN INCREASES AND/OR DECREASES IN THE ANNUAL AMORTIZATION EXPENSE OF THE RESPECTIVE INTANGIBLE ASSETS. (B) REPRESENTS ONE YEAR'S PREFERRED STOCK DIVIDENDS AND ACCRETION OF DISCOUNT OF PREFERRED STOCK ($1,012,000) AND TO ACCRUE ONE YEAR'S INTEREST ON THE $750,000 6% NOTE PAYABLE GIVEN AS PART OF THE FLAGSHIP ACQUISITION ($45,000). (C) REPRESENTS REDUCTION OF PROVISION OF THE INCOME TAXES ON THE INCREMENTAL INCOME GENERATED BY FLAGSHIP, NET OF THE PRO FORMA ADJUSTMENTS AT A 40% RATE. THE MAJORITY OF PDG'S INCOME BEFORE INCOME TAXES FOR THE YEAR ENDED JANUARY 31, 2005 WAS OFFSET BY NET OPERATING LOSSES EXISTING ON PDG. INCOME TAXES AT 40% RATE ON FLAGSHIP'S EARNINGS $ 527,000 INCOME TAX BENEFIT ON PRO FORMA ADJUSTMENTS 692,000 --------- NET DECREASE TO INCOME TAX PROVISION $(165,000) ========= (D) REPRESENTS PDG SHARES GIVEN FLAGSHIP AS PART OF THE ACQUISITION CONSIDERATION (236,000 SHARES) AND TO REFLECT THE 1,667,000 SHARES ISSUED AS PART OF THE JULY 2005 PRIVATE PLACEMENT OF THE COMPANY'S SECURITIES AS OUTSTANDING FOR FEBRUARY 1, 2004. (E) THE AFOREMENTIONED EARNINGS OF $1,318,000 FOR THE YEAR ENDED DECEMBER 31, 2004 WOULD HAVE RESULTED IN CONTINGENT PAYMENTS AS PART OF THE AGREEMENT OF APPROXIMATELY $286,000. THE AGREEMENT PROVIDES FOR CONTINGENT PAYMENTS OF 35% OF THE EXCESS OVER $500,000. THE CONTINGENT PAYMENTS WOULD HAVE BEEN ACCOUNTED FOR AS AN INCREASE IN GOODWILL ASSOCIATED WITH THE TRANSACTION AS THEY REPRESENT ADDITIONAL PURCHASE PRICE CONSIDERATION.