10-Q 1 j0806101e10vq.txt PDG ENVIRONMENTAL, INC. (conformed) 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 APRIL 30, 2004 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 June 9, 2004, there were 10,900,330 shares of the registrant's common stock outstanding. PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES INDEX

PAGE PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements (a) Condensed Consolidated Balance Sheets as of April 30, 2004 (unaudited) and January 31, 2004 3 (b) Consolidated Statements of Operations for the Three Months Ended April 30, 2004 and 2003 (unaudited) 4 (c) Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2004 and 2003 (unaudited) 5 (e) Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Item 4. Controls and Procedures 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Purchases of Equity Securities 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature and Certification 15

2 PART I. FINANCIAL INFORMATION PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

APRIL 30, JANUARY 31, 2004 2004 ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and short-term investments $ 14,000 $ 49,000 Accounts receivable - net 11,098,000 11,057,000 Costs and estimated earnings in excess of billings on uncompleted contracts 4,022,000 3,327,000 Inventory 612,000 514,000 Other current assets 1,110,000 250,000 ------------ ------------ TOTAL CURRENT ASSETS 16,856,000 15,197,000 PROPERTY, PLANT AND EQUIPMENT 7,785,000 7,806,000 Less: accumulated depreciation (6,869,000) (6,882,000) ------------ ------------ 916,000 924,000 GOODWILL 1,035,000 714,000 OTHER ASSETS 354,000 348,000 ------------ ------------ TOTAL ASSETS $ 19,161,000 $ 17,183,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,012,000 $ 3,810,000 Billings in excess of costs and estimated earnings on uncompleted contracts 1,372,000 1,449,000 Current portion of long-term debt 377,000 401,000 Accrued liabilities 2,039,000 1,328,000 ------------ ------------ TOTAL CURRENT LIABILITIES 7,800,000 6,988,000 LONG-TERM DEBT 5,698,000 5,306,000 ------------ ------------ TOTAL LIABILITIES 13,498,000 12,294,000 MINORITY INTEREST (22,000) (20,000) STOCKHOLDERS' EQUITY Cumulative convertible 2% preferred stock - 14,000 Common stock 216,000 189,000 Additional paid-in capital 8,693,000 8,111,000 Deferred compensation (1,000) (6,000) (Deficit) retained earnings (3,185,000) (3,361,000) Less treasury stock (38,000) (38,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 5,685,000 4,909,000 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,161,000 $ 17,183,000 ============ ============

See accompanying notes to consolidated financial statements. 3 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, ---------------------------- 2004 2003 ------------ ------------ CONTRACT REVENUE $ 10,902,000 $ 8,366,000 CONTRACT COSTS 9,170,000 6,697,000 ------------ ------------ Gross margin 1,732,000 1,669,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,552,000 1,343,000 ------------ ------------ Income from operations 180,000 326,000 OTHER INCOME (EXPENSE): Interest expense (89,000) (97,000) Gain on sale of fixed assets 110,000 - Interest and other income 3,000 27,000 ------------ ------------ 24,000 (70,000) ------------ ------------ Income before minority interest and income taxes 204,000 256,000 INCOME TAX PROVISION (17,000) (30,000) MINORITY INTEREST 2,000 1,000 ------------ ------------ NET INCOME $ 189,000 $ 227,000 ============ ============ PER SHARE OF COMMON STOCK: BASIC $ 0.02 $ 0.02 ============ ============ DILUTIVE $ 0.02 $ 0.02 ============ ============ AVERAGE COMMON SHARE EQUIVALENTS OUTSTANDING 10,297,000 9,372,000 AVERAGE DILUTIVE COMMON SHARE EQUIVALENTS OUTSTANDING 1,195,000 35,000 ------------ ------------ AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS OUTSTANDING FOR EARNINGS PER SHARE CALCULATION 11,492,000 9,407,000 ============ ============

See accompanying notes to consolidated financial statements. 4 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, -------------------------- 2004 2003 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 189,000 $ 227,000 ADJUSTMENTS TO RECONCILE NET INCOME TO CASH: Depreciation and amortization 201,000 238,000 Gain on sale of fixed assets (110,000) - Stock based compensation 5,000 5,000 Minority interest (2,000) (1,000) CHANGES IN ASSETS AND LIABILITIES OTHER THAN CASH: Accounts receivable (41,000) (408,000) Costs and estimated earnings in excess of billings on uncompleted contracts (695,000) 675,000 Inventory (68,000) (33,000) Other current assets (145,000) 58,000 Accounts payable 202,000 (1,147,000) Billings in excess of costs and estimated earnings on uncompleted contracts (77,000) 427,000 Accrued liabilities (206,000) 510,000 ----------- ----------- (1,030,000) 82,000 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (747,000) 551,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (99,000) (40,000) Proceeds from sale of fixed assets 131,000 - Acquisition of businesses (130,000) (133,000) (Increase) Decrease in other assets (10,000) 8,000 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (108,000) (165,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from private placement of common stock 498,000 - Proceeds from debt 500,000 - Exercise of stock options 37,000 - Redemption of preferred stock (13,000) - Principal payments on debt (202,000) (370,000) ----------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 820,000 (370,000) ----------- ----------- Net Increase (Decrease) in Cash and Short-Term Investments (35,000) 16,000 Cash and Short-Term Investments, Beginning of Period 49,000 38,000 ----------- ----------- CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 14,000 $ 54,000 =========== ===========

See accompanying notes to consolidated financial statements. 5 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 30, 2004 (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 Condensed Consolidated Financial Statements as of and for the three month periods ended April 30, 2004 and 2003 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, those condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended January 31, 2004 dated April 23, 2004. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (which are of a recurring nature) necessary for the fair statement of the results for the interim periods. Due to variations in the construction industry, the results of operation for any interim period are not necessarily indicative of the results expected for the full fiscal year. NOTE 2 - FEDERAL INCOME TAXES No federal income tax has been provided for the three months ended April 30, 2004 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 year. Income taxes paid by the Corporation for the three months ended April 30, 2004 and 2003 totaled approximately $36,000 and $25,000, 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 new 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 February 28, 2003 Sky Bank increased the line of credit by $600,000 to $5.1 million for a four-month period. The availability on the line of credit was reduced to $4.5 million on July 1, 2003. In July 2003 Sky Bank approved a permanent $500,000 increase in the Company's line of credit to $5 million and in January 2004 Sky Bank approved a permanent $500,000 increase in the Company's line of credit to $5.5 million, 6 In April 2004 Sky Bank extended the maturity date on the line of credit until June 6, 2006. On April 30, 2004, the balance on the line of credit was $5,200,000 with an unused availability of $300,000. The Corporation paid interest costs totaling approximately $116,000 and $123,000 during the three months ended April 30, 2004 and 2003, respectively. NOTE 4 - PREFERRED STOCK In March 2004 in conjunction with the private placement of the Company's common stock, as discussed in Note 7, the remaining 6,000 shares of preferred stock were converted into 24,000 shares Common Stock with the accrued but unpaid dividends paid in cash. 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 APRIL 30, 2004 2003 ----------- ----------- NUMERATOR: Net Income $ 189,000 $ 227,000 Preferred stock dividends - (1,000) ----------- ----------- Numerator for basic earnings per share--income available to common stockholders 189,000 226,000 Effect of dilutive securities: Preferred stock dividends - 1,000 ----------- ----------- Numerator for diluted earnings per share--income available to common stock after assumed conversions $ 189,000 $ 227,000 =========== =========== DENOMINATOR: Denominator for basic earnings per share--weighted average shares 10,297,000 9,372,000 Effect of dilutive securities: Convertible Preferred Stock - 29,000 Warrants 122,000 - Employee Stock Options 1,073,000 6,000 ----------- ----------- 1,195,000 35,000 ----------- ----------- Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 11,492,000 9,407,000 =========== =========== BASIC EARNINGS PER SHARE $ 0.02 $ 0.02 =========== =========== DILUTED EARNINGS PER SHARE $ 0.02 $ 0.02 =========== ===========

NOTE 6 - STOCK OPTIONS The Company accounts for its stock-based compensation plans under the recognition and measurement principles 7 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.

FOR THE THREE MONTHS ENDED APRIL 30, 2004 2003 ---------- ----------- Net income, as reported $ 189,000 $ 227,000 Deduct: Total stock-based employee compensation expense determined under fair value method for all awards net of related tax effects - (13,000) ---------- ----------- Pro forma net income $ 189,000 $ 214,000 ========== =========== Earnings per share: Basic-as reported $ 0.02 $ 0.02 ========== =========== Basic-pro forma $ 0.02 $ 0.02 ========== =========== Diluted-as reported $ 0.02 $ 0.02 ========== =========== Diluted-pro forma $ 0.02 $ 0.02 ========== ===========

No stock options have been issued in the current year. NOTE 7 - PRIVATE PLACEMENT OF SECURITIES On March 4, 2004 the Corporation closed on a private placement transaction pursuant to which it sold 1,250,000 shares of Common Stock, (the "Shares"), to Barron Partners, LP (the "Investor") for an aggregate purchase price of $500,000. In addition, the Corporation issued two warrants to the Investor exercisable for shares of its Common Stock (the "Warrants"). The Shares and the Warrants were issued in a private placement transaction pursuant to Section 4(2) and Regulation D under the Securities Act of 1933, as amended. Offset against the proceeds is $2,000 of costs incurred in conjunction with the private placement transaction. The Company expects that this amount will increase in the second quarter as additional costs are processed and the cost of the registration, discussed in the fourth paragraph of this note, is incurred. The First Warrant provides the Investor the right to purchase up to 1,500,000 shares of the Corporation's Common Stock. The First Warrant has an exercise price of $0.80 per share resulting in proceeds of $1,200,000 to the Company upon its full exercise and expires five years from the date of issuance. The Corporation may require the Investor to exercise the First Warrant in full at any time until December 4, 2005, if the average price of the Corporation's Common Stock exceeds $1.20 for ten consecutive trading days and the Corporation has a Registration Statement effective during the same ten consecutive trading days. The warrant holder may exercise through a cashless net exercise procedure after March 4, 2005 if the shares underlying the warrant are either not subject to an effective registration statement or, if subject to a registration statement, during a suspension of the registration statement. The Second Warrant provides the Investor the right to purchase up to 2,000,000 shares of the Corporation's Common Stock. The Second Warrant has an exercise price of $1.60 per share resulting in proceeds of $3,200,000 to the Corporation upon its full exercise and expires five years from the date of issuance. The Corporation may require the Investor to exercise the Second Warrant in full at any time until December 4, 2005 if the average price of the Corporation's Common Stock exceeds $2.40 for ten consecutive trading days and the Corporation has a Registration Statement effective during the same ten consecutive trading days. The warrant holder may exercise through a cashless net exercise procedure after March 4, 2005 if the shares underlying the warrant are either not subject to an effective registration statement or, if subject to a registration statement, 8 during a suspension of the registration statement. In connection with these transactions, the Corporation and the Investor entered into a Registration Rights Agreement. Under this agreement, the Corporation is required to file within ninety (90) days of closing a registration statement with the U.S. Securities and Exchange Commission for the purpose of registering the resale of the Shares and the shares of Common Stock underlying the Warrants. The Company expects that the registration statement will be declared effective by the U.S. Securities and Exchange Commission in June 2004. The Corporation intends to utilize the proceeds from the sale of its Common Stock for general business purposes and to fund its acquisition strategy. 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 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 APRIL 30, 2004 AND 2003 During the three months ended April 30, 2004 ("Fiscal 2005"), the Corporation's contract revenues increased to $10.9 million compared to $8.4 million in the three months ended April 30, 2003 ("Fiscal 2004"). The increase was due a significant increase in contract activity at our Los Angeles, Pittsburgh and Ft. Lauderdale offices and in part to increased revenues from mold remediation. The Corporation's gross margin increased to $1.73 million in the first quarter of fiscal 2005 compared to $1.67 million in the first quarter of fiscal 2004. The increase in gross margin is due to a higher volume of work offset in part by negative contract adjustments of $0.3 million primarily at our New York and Los Angeles offices. Selling, general and administrative expenses increased to $1.55 million in the current fiscal quarter as compared to $1.34 million in the three months April 30, 2003. This increase was due in part to the addition of the Kleen-All and PT&L operations acquired in the first quarter of the current fiscal quarter and higher insurance costs. The Corporation reported income from operations of $0.18 million for the three months ended April 30, 2004 compared to income from operations of $0.33 million for the three months ended April 30, 2003 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, more than offset the increase in borrowings on the line of credit. The current fiscal period other income included a $0.11 million gain from the sale of fixed assets as the Company sold equipment that was currently not being utilized. During the quarters ended April 30, 2004 and 2003, 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 and $0.03 million were made in the current and prior years fiscal quarter, respectively. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During the three months ended April 30, 2004, the Corporation's cash decreased by $0.03 million to $0.01 million. The decrease in cash and short-term investments during the first three months of fiscal 2005 is attributable to cash outflows from operations of $0.75 million and cash outflows of $0.11 million associated with investing activities. These cash outflows were partially offset by $0.82 million of cash inflows associated with financing activities. 10 Cash utilized by operating activities totaled $0.75 million in the three months ended April 30, 2004. Cash outflows included the $0.11 million gain on the sale of fixed assets, a $0.04 million increase in accounts receivable, a $0.7 million increase in costs and estimated earnings in excess of billings on uncompleted contracts, a $0.07 million increase in inventories, a $0.15 million increase in other current assets, a $0.08 million decrease in billings in excess of costs and estimated earnings on uncompleted contracts, and a $0.21 million decrease in accrued liabilities related to the timing of payments. These cash outflows were partially offset by cash inflows including $0.19 million of net income in the current fiscal period, a $0.20 million increase in accounts payable and $0.20 million of depreciation and amortization. Investing activities cash outflows included $0.1 million for the purchase of property, plant and equipment and $0.13 million of payments related to the acquisition of businesses. These cash outflows were partially offset by $0.13 million of proceeds from the sale of fixed assets. Financing activities cash inflows consisted of $0.5 million from the private placement of the Company's common stock, $0.5 million of proceeds from debt consisting of net borrowings on the line of credit and $0.04 million from the exercise of employee stock options. These cash inflows were partially offset by $0.01 million for the redemption of preferred stock and $0.2 million for the repayment of debt. At April 30, 2004, the Corporation's backlog totaled $39.3 million ($28.1 million on fixed fee contracts and $11.2 million on time and materials or unit price contracts). During the three months ended April 30, 2003, the Corporation's cash increased by $0.02 million to $0.05 million. Cash provided by operating activities totaled $0.55 million in the three months ended April 30, 2003. Cash inflows including $0.23 million of net income in the current fiscal period, a $0.68 million decrease in costs and estimated earnings in excess of billings on uncompleted contracts, a $0.43 million increase in billings in excess of costs and estimated earnings on uncompleted contracts, a $0.51 million increase in accrued liabilities related to the timing of payments and $0.24 million of depreciation and amortization. These cash inflows were partially offset by cash outflows including a $0.4 million increase in accounts receivables and a $1.15 million decrease in accounts payable. The increase in cash and short-term investments during the first quarter of fiscal 2004 is attributable to the aforementioned cash inflows from operations of $0.55 million which were partially offset by cash outflows of $0.17 million associated with investing activities and $0.37 million of cash outflows associated with finance activities. Investing activities cash outflows included $0.04 million for the purchase of property, plant and equipment and a $0.13 million of payments related primarily to an acquisition completed in a prior fiscal year. Financing activities cash outflows consisted of $0.37 million for the repayment of debt. 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 $56,000 change in borrowing costs based upon the balance outstanding at April 30, 2004. ITEM 4. CONTROLS AND PROCEDURES Based on an evaluation under the supervision and with the participation of the Company's management, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined under the Securities Exchange Act of 1934, as amended (Exchange Act)) were effective as of April 30, 2004 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no significant changes in the Company's internal control over financial reporting identified in management's evaluation during the first quarter of fiscal 2005 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting. 11 12 PART II-- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant is subject to dispute and litigation in the ordinary course of business. None of these matters, in the opinion of management, is likely to result in a material effect on the Registrant based upon information available at this time. ITEM 2. CHANGES IN SECURITIES AND PURCHASES OF EQUITY SECURITIES On March 4, 2004 the Corporation closed on a private placement transaction pursuant to which it sold 1,250,000 shares of Common Stock, (the "Shares"), to Barron Partners, LP (the "Investor") for an aggregate purchase price of $500,000. In addition, the Corporation issued two warrants to the Investor exercisable for shares of its Common Stock (the "Warrants"). The Shares and the Warrants were issued in a private placement transaction pursuant to Section 4(2) and Regulation D under the Securities Act of 1933, as amended. The First Warrant provides the Investor the right to purchase up to 1,500,000 shares of the Corporation's Common Stock. The First Warrant has an exercise price of $0.80 per share resulting in proceeds of $1,200,000 to the Company upon its full exercise and expires five years from the date of issuance. The Corporation may require the Investor to exercise the First Warrant in full at any time until December 4, 2005, if the average price of the Corporation's Common Stock exceeds $1.20 for ten consecutive trading days and the Corporation has a Registration Statement effective during the same ten consecutive trading days. The warrant holder may exercise through a cashless net exercise procedure after March 4, 2005 if the shares underlying the warrant are either not subject to an effective registration statement or, if subject to a registration statement, during a suspension of the registration statement. The Second Warrant provides the Investor the right to purchase up to 2,000,000 shares of the Corporation's Common Stock. The Second Warrant has an exercise price of $1.60 per share resulting in proceeds of $3,200,000 to the Corporation upon its full exercise and expires five years from the date of issuance. The Corporation may require the Investor to exercise the Second Warrant in full at any time until December 4, 2005 if the average price of the Corporation's Common Stock exceeds $2.40 for ten consecutive trading days and the Corporation has a Registration Statement effective during the same ten consecutive trading days. The warrant holder may exercise through a cashless net exercise procedure after March 4, 2005 if the shares underlying the warrant are either not subject to an effective registration statement or, if subject to a registration statement, during a suspension of the registration statement. In connection with these transactions, the Corporation and the Investor entered into a Registration Rights Agreement. Under this agreement, the Corporation is required to file within ninety (90) days of closing a registration statement with the U.S. Securities and Exchange Commission for the purpose of registering the resale of the Shares and the shares of Common Stock underlying the Warrants. The Company expects that the registration statement will be declared effective by the U.S. Securities and Exchange Commission in June 2004. The Corporation intends to utilize the proceeds from the sale of its Common Stock for general business purposes and to fund its acquisition strategy. 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 13 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 April 30, 2004 except for the following: Form 8-K filed March 12, 2004 containing an Item 5 - Other Events to disclose the closing on a private placement transaction with Barron Partners, LP. Form 8-K filed April 26, 2004 containing an Item 12 - Results of Operation and Financial Condition discussing the Company's earnings for the quarter and year ending January 31, 2004. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PDG ENVIRONMENTAL, INC. By /s/John C. Regan ---------------------------------------- John C. Regan Chairman, Chief Executive Officer and Chief Financial Officer Date: June 14, 2004 15