10-Q 1 j8888701e10-q.txt PDG ENVIRONMENTAL, INC. FORM 10-Q 1 (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, 2001 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.) 300 OXFORD DRIVE, MONROEVILLE, PENNSYLVANIA 15146 (Address of principal executive offices) (Zip Code) 412-856-2200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ As of June 8, 2001, there were 9,042,340 shares of the registrant's common stock outstanding. 2 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 April 30, 2001 (unaudited) and 3 January 31, 2001 (b) Consolidated Statements of Operations for the Three Months Ended April 30, 2001 4 and 2000 (unaudited) (c) Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2001 5 and 2000 (unaudited) (d) Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 3. Defaults Upon Senior Securities 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11

2 3 PART I. FINANCIAL INFORMATION PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

APRIL 30, JANUARY 31, 2001 2001* ------------ ------------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and short-term investments $ 40,000 $ 214,000 Accounts receivable - net 6,524,000 7,278,000 Costs and estimated earnings in excess of billings on uncompleted contracts 2,459,000 2,546,000 Inventory 496,000 468,000 Other current assets 625,000 301,000 ------------ ------------ TOTAL CURRENT ASSETS 10,144,000 10,807,000 PROPERTY, PLANT AND EQUIPMENT 6,951,000 6,670,000 Less: accumulated depreciation (5,300,000) (5,140,000) ------------ ------------ 1,651,000 1,530,000 OTHER ASSETS 960,000 1,072,000 ------------ ------------ TOTAL ASSETS $ 12,755,000 $ 13,409,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 1,751,000 $ 1,923,000 Billings in excess of costs and estimated earnings on uncompleted contracts 795,000 910,000 Current portion of long-term debt 231,000 177,000 Accrued liabilities 1,726,000 1,913,000 ------------ ------------ TOTAL CURRENT LIABILITIES 4,503,000 4,923,000 OTHER LONG-TERM LIABILITIES 210,000 210,000 LONG-TERM DEBT 3,704,000 2,942,000 STOCKHOLDERS' EQUITY Cumulative convertible 2% preferred stock 14,000 14,000 Common stock 182,000 177,000 Additional paid-in capital 7,858,000 7,767,000 (Deficit) retained earnings (3,678,000) (2,586,000) Less treasury stock (38,000) (38,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 4,338,000 5,334,000 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,755,000 $ 13,409,000 ============ ============

*Derived from audited financial statements. See accompanying notes to consolidated financial statements. 3 4 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, --------------------------------- 2001 2000 ----------- ----------- CONTRACT REVENUE $ 5,823,000 $ 8,067,000 CONTRACT COSTS 5,498,000 7,045,000 ----------- ----------- Gross margin 325,000 1,022,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,243,000 935,000 ----------- ----------- Income (loss) from operations (918,000) 87,000 OTHER INCOME (EXPENSE): Interest expense (85,000) (37,000) Interest and other income 7,000 15,000 ----------- ----------- (78,000) (22,000) ----------- ----------- Income (loss) before income taxes (996,000) 65,000 INCOME TAX PROVISION -- (4,000) ----------- ----------- NET INCOME (LOSS) $ (996,000) $ 61,000 =========== =========== PER SHARE OF COMMON STOCK: BASIC $ (0.11) $ 0.01 =========== =========== DILUTIVE $ (0.11) $ 0.01 =========== =========== AVERAGE COMMON SHARES EQUIVALENTS OUTSTANDING 8,899,000 8,572,000 AVERAGE DILUTIVE COMMON SHARES EQUIVALENTS OUTSTANDING -- 539,000 ----------- ----------- AVERAGE COMMON SHARES AND DILUTIVE COMMON EQUIVALENTS OUTSTANDING FOR EARNINGS PER SHARE CALCULATION 8,899,000 9,111,000 =========== ===========

See accompanying notes to consolidated financial statements. 4 5 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED APRIL 30, --------------------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(996,000) $ 61,000 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH: Depreciation and amortization 322,000 219,000 CHANGES IN ASSETS AND LIABILITIES OTHER THAN CASH: Accounts receivable 754,000 (761,000) Costs and estimated earnings in excess of billings on uncompleted contracts 87,000 (91,000) Inventory (28,000) (13,000) Other current assets (265,000) 71,000 Accounts payable (231,000) (5,000) Billings in excess of costs and estimated earnings on uncompleted contracts (115,000) (115,000) Accrued liabilities (83,000) 152,000 --------- --------- 119,000 (762,000) --------- --------- NET CASH USED BY OPERATING ACTIVITIES (555,000) (482,000) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (297,000) (132,000) Acquisition of Businesses (129,000) (460,000) Increase in other assets (9,000) -- --------- --------- NET CASH USED BY INVESTING ACTIVITIES (435,000) (592,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt 936,000 905,000 Principal payments on debt (120,000) (38,000) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 816,000 867,000 --------- --------- Net Decrease in Cash and Short-Term Investments (174,000) (207,000) Cash and Short-Term Investments, Beginning of Period 214,000 282,000 --------- --------- CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 40,000 $ 75,000 ========= =========

See accompanying notes to consolidated financial statements. 5 6 PDG ENVIRONMENTAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 30, 2001 (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The consolidated financial statements include PDG Environmental, Inc.'s (the "Corporation") and its wholly-owned subsidiaries. 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 months ended April 30, 2001 were of a normal, recurring nature. The amounts presented for the three months ended April 30, 2001 are not necessarily indicative of results of operations for a full year. Additional information is contained in the Annual Report on Form 10-KSB of the Corporation for the year ended January 31, 2001 dated March 30, 2001, 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 months ended April 30, 2001 due to the loss in the current period and the existence of unused net operating loss carryforwards. No state income taxes were provided due to the loss in the current period. Income taxes paid by the Corporation for the three months ended April 30, 2001 and 2000 totaled approximately $47,000 and $16,000, respectively. NOTE 3 - LINE OF CREDIT On August 3, 2000, the Corporation closed on a new $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. In April 2001, the Company borrowed $273,000 against the commitment for future equipment financing to fund equipment purchases. 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 proposed acquisition of an asbestos abatement and demolition company in California. The increase in the line is subject to the closing of that transaction. Additionally, Sky Bank increased the commitment for future equipment financing by $0.3 million to $0.6 million. On April 30, 2001, the balance on the line of credit was $2,075,000 with an unused availability of $925,000. The Corporation paid interest costs totaling approximately $85,000 and $31,000 during the three months ended April 30, 2001 and 2000, respectively. NOTE 4 - PREFERRED STOCK Cumulative dividends in arrears on the Corporation's 2% Series A Preferred Stock were approximately $9,000 at April 30, 2001. At April 30, 2001, 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. 6 7 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). At the Corporation's Annual Meeting of Stockholders held on July 23, 1993, the following matters were approved by a majority of the Corporation's preferred and common stockholders which affected the Corporation's Series A Preferred stock and common stock: a reduction in the Series A Preferred Stock dividend rate from 9% to 2% and the cancellation of the accrued but unpaid dividends and the special voting rights associated with such preferred stock in the event of a certain accumulation of accrued but unpaid dividends thereon; and a recapitalization of the Corporation in order to effect a one for two reverse stock split (the "Recapitalization"). In exchange for the forfeiture of the accrued but undeclared and unpaid dividends, the holders of the Series A Preferred Stock were granted a common stock right which, if and when declared by the Board of Directors, grant to the holders of such common stock rights shares of the common stock of the Corporation. At the May 23, 1995, March 6, 2000 and March 21, 2001 Board of Directors meeting, the issuance of one third of the shares (280,071, 259,696 and 259,696 common shares, respectively) covered by the aforementioned right was approved. The Recapitalization was contingent upon the Corporation's listing on the American Stock Exchange. The Corporation made a decision not to pursue such a listing; therefore, the Recapitalization was indefinitely postponed. 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, 2001 2000 ---------- ---------- NUMERATOR: Net Income (loss) $ (996,000) $ 61,000 Preferred stock dividends -- -- ---------- ---------- Numerator for basic earnings per share--income available to common stockholders (996,000) 61,000 Effect of dilutive securities: Preferred stock dividends -- -- ---------- ---------- Numerator for diluted earnings per share--income available to common stock after assumed conversions $ (996,000) $ 61,000 ========== ========== DENOMINATOR: Denominator for basic earnings per share--weighted average shares 8,899,000 8,572,000 Effect of dilutive securities: Employee stock options -- 500,000 Warrants -- 12,000 Convertible preferred stock -- 27,000 ---------- ---------- Dilutive potential common shares -- 539,000 ---------- ---------- Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions 8,899,000 9,111,000 ========== ========== BASIC EARNINGS PER SHARE $ (0.11) $ 0.01 ========== ========== DILUTED EARNINGS PER SHARE $ (0.11) $ 0.01 ========== ==========

7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED APRIL 30, 2001 AND 2000 During the three months ended April 30, 2001 ("Fiscal 2002"), the Corporation's contract revenues decreased to $5.8 million compared to $8.1 million in the three months ended April 30, 2000 ("Fiscal 2001") due to delays in commencing contracts in response to the general economic slowdown. The Corporation's gross margin decreased to $0.3 million in the first quarter of fiscal 2002 compared to $1.0 million in the first quarter of fiscal 2001. The decrease in gross margin is due to decreased levels of revenues in the current fiscal quarter. Selling, general and administrative expenses increased to $1.2 million in the current fiscal quarter as compared to $0.9 million in the three months ended April 30, 2000. This increase was due to the addition of four branch offices in the current fiscal quarter. The Corporation reported a loss from operations of $0.92 million for the three months ended April 30, 2001 compared to income from operations of $0.09 million for the three months ended April 30, 2000 as a direct result of the factors discussed above. Interest expense increased to $0.08 million in the current quarter as compared to $0.04 million in the same quarter of a year ago due to a higher level of borrowings. During the quarters ended April 30, 2001 and 2000, the Corporation made no provision for federal income taxes due to the utilization of net operating loss carryforwards for financial reporting purposes. No state income tax provision was made in the current quarter due to the loss while a state income tax provision of $4,000 was made in the prior fiscal quarter. LIQUIDITY AND CAPITAL RESOURCES During the three months ended April 30, 2001, the Corporation's cash decreased by $0.17 million to $0.04 million. Cash used by operating activities totaled $0.56 million in the three months ended April 30, 2001. Cash outflows included $1.0 million from the current quarter loss, a $0.27 million increase in other assets, a $0.23 million decrease in accounts payable, a $0.12 million decrease in billings in excess of costs and estimated earnings on uncompleted contracts and a $0.08 million decrease in accrued liabilities. These cash outflows were partially offset by cash inflows including a $0.75 million decrease in accounts receivable, a $0.09 million decrease in costs and estimated earnings in excess of billings on uncompleted contracts and $0.32 million of depreciation and amortization. The decrease in cash and short term investments during the first quarter of fiscal 2001 is attributable to cash outflows from operations of $0.56 million, cash outflows for investing activities of $0.46 million which included $0.13 million of payments to the former owners of businesses acquired in prior years and $0.30 million for the purchase of property, plant and equipment. These cash outflows were partially offset by net cash inflows of $0.81 million from funding activities which included proceeds from debt of $0.94 million consisting of $0.67 million from the utilization of the Corporation's line of credit and $0.27 million from borrowings to finance new equipment purchases. These financing inflows were partially offset by $0.12 million of principal payments on debt. At April 30, 2001, the Corporation's backlog totaled $33.6 million ($23.9 million on fixed fee contracts and $9.7 million on time and materials or unit price contracts). During the three months ended April 30, 2000, the Corporation's cash decreased by $0.21 million to $0.08 million. 8 9 Cash used by operating activities totaled $0.5 million in the three months ended April 30, 2000. Cash outflows included a $0.76 million increase in accounts receivables, a $0.09 million increase in costs and estimated earnings in excess of billings on uncompleted contracts and a $0.12 million decrease in billings in excess of costs and estimated earnings on uncompleted contracts. These cash outflows were partially offset by cash inflows including $0.06 million related to net income generated during the current three months, $0.07 million due to a decrease in other current assets, a $0.15 million increase in accrued liabilities related to the timing of payments and $0.22 million of depreciation and amortization. The decrease in cash and short term investments during the first quarter of fiscal 2001 is attributable to cash outflows from operations of $0.5 million, cash outflows for investing activities which included $0.46 million to purchase the businesses acquired and $0.13 million for the purchase of property, plant and equipment. These cash outflows were partially offset by net cash inflows of $0.87 million primarily from the utilization of the Corporation's line of credit. 9 10 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 April 30, 2001, the cumulative dividends in arrears on the Series A Preferred Stock were approximately $9,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: EXHIBIT INDEX EXHIBIT NO. AND DESCRIPTION PAGES OF SEQUENTIAL NUMBERING SYSTEM (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, 2001. 10 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PDG ENVIRONMENTAL, INC. By /s/ John C. Regan --------------------------------- John C. Regan Chairman and Chief Executive Officer Date: June 14, 2001 11