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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
Form 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
_____________________________
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 No. 1-11596
______________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352) 373-4200
(Registrant's telephone number)
N/A
___________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the close of the latest
practical date.
Class
_____
Common Stock, $.001 Par Value Outstanding at November 8, 1999
_____________________________ 20,486,219
(excluding 988,000 shares
held as treasury stock)
________________________________
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30,
1999 and December 31, 1998. . . . . . . . 2
Consolidated Statements of Operations -
Three and Nine Months Ended September 30,
1999 and 1998. . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999
and 1998 . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders
Equity - Nine Months Ended September 30,
1999 . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . .20
Item 3. Quantitative and Qualitative Disclosure
about Market Risk . . . . . . . . . . . . .28
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . .29
Item 2. Changes in Securities and Use of
Proceeds. . . . . . . . . . . . . . . . .29
Item 6. Exhibits and Reports on Form 8-K. . . . . .30
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the consolidated financial
statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as
of and for the periods indicated.
It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
The results of operations for the nine months ended September 30,
1999, are not necessarily indicative of results to be expected for
the fiscal year ending December 31, 1999.
1
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
Amounts in Thousands, 1999 December 31,
Except for Share Amounts (Unaudited) 1998
__________________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 783 $ 776
Restricted cash equivalents and
investments 73 111
Accounts receivable, net of allowance for
doubtful accounts of $1,321 and $313,
respectively 11,970 5,950
Inventories 188 145
Prepaid expenses 752 471
Other receivables 75 11
Assets of discontinued operations 511 489
__________ ___________
Total current assets 14,352 7,953
Property and equipment:
Buildings and land 12,581 5,804
Equipment 11,984 8,606
Vehicles 1,532 941
Leasehold improvements 16 16
Office furniture and equipment 992 782
Construction in progress 1,474 1,592
___________ __________
28,579 17,741
Less accumulated depreciation (7,016) (5,836)
___________ __________
Net property and equipment 21,563 11,905
Intangibles and other assets:
Permits, net of accumulated amortization
of $1,393 and $1,088, respectively 9,775 3,661
Goodwill, net of accumulated amortization
of $933 and $751, respectively 7,426 4,698
Other assets 593 531
___________ __________
Total assets $ 53,709 $ 28,748
=========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
2
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30,
Amounts in Thousands, 1999 December 31,
Except for Share Amounts (Unaudited) 1998
__________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,874 $ 2,422
Accrued expenses 6,900 3,369
Revolving loan and term note facility 938 625
Current portion of long-term debt 1,371 302
Current liabilities of discontinued
operations 908 863
_________ ___________
Total current liabilities 14,991 7,581
Environmental accruals 4,112 520
Accrued closure costs 956 715
Long-term debt, less current portion 12,886 2,087
Long term liabilities of discontinued
operations 974 1,892
__________ __________
Total long-term liabilities 18,928 5,214
Commitments and contingencies (see Note 5) - -
Stockholders' equity:
Preferred Stock, $.001 par value;
2,000,000 shares authorized, 4,537 and
9,850 shares issued and outstanding,
respectively - -
Common Stock, $.001 par value; 50,000,000
shares authorized, 21,474,219 and
13,215,093 shares issued, including
988,000 and 943,000 shares held as
treasury stock, respectively 21 13
Redeemable warrants - 140
Additional paid-in capital 42,342 39,769
Accumulated deficit (20,711) (22,157)
__________ __________
21,652 17,765
Less Common Stock in treasury at cost;
988,000 and 943,000 shares issued and
outstanding, respectively (1,862) (1,812)
__________ __________
Total stockholders' equity 19,790 15,953
__________ __________
Total liabilities and stockholders'
equity $ 53,709 $ 28,748
========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
3
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Amounts in Thousands, __________________ _________________
Except for Share Amounts) 1999 1998 1999 1998
___________________________________________________________________________________
Net revenues $13,858 $8,065 $32,243 $22,291
Cost of goods sold 9,223 5,292 21,332 15,317
_______ ______ _______ _______
Gross profit 4,635 2,773 10,911 6,974
Selling, general and administrative expenses 3,014 1,708 7,147 4,942
Depreciation and amortization 771 531 1,887 1,566
_______ ______ _______ _______
Income from operations 850 534 1,877 466
Other income (expense):
Interest income 16 10 34 27
Interest expense (257) (95) (375) (364)
Other (11) 40 (31) 172
______ ______ ______ ________
Net income 598 489 1,505 301
Preferred Stock dividends (57) (498) (247) (674)
Gain on Preferred Stock Redemption 188 - 188 -
______ ______ ______ ________
Net income (loss) applicable
to Common Stock $ 729 $ (9) $ 1,446 $ (373)
======= ======= ======= =========
_______________________________________________
Net income (loss) per share
Basic $ .04 $ - $ .09 $ (.03)
======= ====== ======= ========
Fully diluted $ .03 $ - $ .08 $ (.03)
======= ====== ======= ========
Number of shares and Common Stock
equivalents used in computing net
income (loss) per share:
Basic 20,386 12,164 16,472 11,947
======= ====== ======= ========
Fully diluted 24,183 12,164 20,104 11,947
======= ====== ======= ========
The accompanying notes are an integral part of
the consolidated financial statements.
4
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
(Amounts in Thousands _________________________
Except for Share Amounts) 1999 1998
_____________________________________________________________________________
Cash flows from operating activities:
Net income from continuing operations $ 1,505 $ 301
Adjustments to reconcile net income
to cash provided by (used in) operations:
Depreciation and amortization 1,887 1,566
Provision for bad debt and other reserves 25 30
Gain on sale of plant, property and equipment (19) (12)
Changes in assets and liabilities, net of effects
from business acquisitions:
Accounts receivable (1,968) (97)
Prepaid expenses, inventories and other assets (390) 1,112
Accounts payable and accrued expenses (1,101) (713)
_________ __________
Net cash provided by (used in) continuing
operations (61) 2,187
Net cash used by discontinued operations (789) (903)
Cash flows from investing activities:
Purchases of property and equipment, net (1,357) (1,640)
Proceeds from sale of plant, property and equipment 65 14
Change in restricted cash, net 1,060 196
Cash used for acquisition consideration (1,000) -
Net cash used for acquisition settlements (1,616) -
Net cash used by discontinued operations (42) (4)
_________ ___________
Net cash used in investing activities (2,890) (1,434)
Cash flows from financing activities:
Borrowings (repayments) of revolving loan and term
note facility 4,668 (2,028)
Principal repayments on long-term debt (450) (186)
Proceeds from issuance of long term debt 250 -
Redemption of Preferred Stock (750) -
Purchase of treasury stock (49) -
Proceeds from issuance of stock 142 2,915
Net cash used by discontinued operations (21) (52)
__________ ___________
Net cash provided by financing activities 3,790 649
Increase in cash and cash equivalents 50 499
Cash and cash equivalents at beginning of period
including discontinued operations of $0, and
$12, respectively 776 326
___________ ___________
Cash and cash equivalents at end of period,
including discontinued operations of $43, and
$(2) respectively $ 826 $ 825
=========== ===========
Supplemental disclosure:
Interest and dividends paid $ 755 $ 455
Non cash investing and financing activities:
Issuance of Common Stock for services 15 230
Issuance of Common Stock for payment of
dividends 221 359
Long-term debt incurred for purchase of
property and equipment 577 330
Long-term debt incurred for acquisition 4,700 -
Issuance of stock for acquisition 3,000 -
The accompanying notes are an integral part of
these consolidated financial statements.
5
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited for the nine months ended September 30, 1999)
Common
Additional Stock
Amounts in Thousands, Preferred Stock Common Stock Redeemable Paid-In Accumulated Held in
_________________________________________________________________________________________________________________________________
Except for Share Amounts Shares Amount Shares Amount Warrants Capital Deficit Treasury
Balance at December 31, 1998 9,850 $ - 13,215,093 $ 13 $ 140 $39,769 $(22,157) $(1,812)
Net income - - - - - - 1,505 -
Preferred Stock dividends - - - - - - (247) -
Gain on Preferred Stock redemption - - - - - (188) 188 -
Issuance of Common Stock for
Preferred Stock dividend - - 152,494 - - 221 - -
Issuance of Common Stock in exchange
for warrants - - 200,000 - - - - -
Issuance of Common Stock
for acquisition - - 1,594,967 2 - 2,998 - -
Issuance of stock for cash and
services - - 54,003 - - 65 - -
Conversion of Preferred Stock
to Common (4,563) - 6,119,135 6 - (6) - -
Redemption of Preferred Stock (750) - - - - (750) - -
Redemption of Common Stock
to Treasury Stock - - - - - - - (50)
Exercise of warrants - - 97,227 - - 48 - -
Option Exercise - - 41,300 - - 45 - -
Expiration of redeemable warrants - - - - (140) 140 - -
_______ ______ __________ ______ ________ ________ ________ ________
Balance at September 30, 1999 4,537 $ - 21,474,219 $ 21 $ - $ 42,342 $ (20,711) $ (1,862)
======= ====== ========== ====== ======== ======== ========= ========
The accompanying notes are an integral part of
these consolidated financial statements.
6
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
Reference is made herein to the notes to consolidated financial
statements included in our Annual Report on Form 10-K for the year
ended December 31, 1998.
1. Summary of Significant Accounting Policies
___________________________________________
Our accounting policies are as set forth in the notes to
consolidated financial statements referred to above.
The Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings per Share" ("SFAS No. 128") effective
December 31, 1997. SFAS No. 128 requires presentation of both
Basic Earnings per share ("Basic EPS") and Diluted Earnings per
share ("Diluted EPS"). Basic EPS is based on the weighted average
number of shares of Common Stock outstanding during the year.
Diluted EPS also includes the dilutive effect of common stock
equivalents or potential common shares. Diluted loss per share for
the three and nine months ended September 30, 1998, does not
include Common Stock equivalents as their effect would be anti-
dilutive.
The following is a reconciliation of basic net income (loss) per share
to diluted net income (loss) per share for the three and nine month periods
ended September 30:
Three Months Ended Nine Months Ended
September 30, September 30,
(Amounts in Thousands, __________________ __________________
Except for Share Amounts) 1999 1998 1999 1998
_____________________________________________________________________________________
Basic net income (loss) per share $.04 - $.09 $(.03)
Weighted average shares outstanding-basic 20,386 12,164 16,472 11,947
Potential shares exercisable under stock
option plans 712 - 519 -
Potential shares upon conversion of
Preferred Stock 3,085 - 3,113 -
Average shares outstanding-diluted 24,183 12,164 20,104 11,947
Diluted net income (loss) per share $.03 - $.08 $(.03)
In June 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133, as amended by FAS 137, is effective
for periods beginning after June 15, 2000. Historically, and as of
the date of this report, we have not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect our
financial statements.
2. Discontinued Operations
_______________________
On January 27, 1997, an explosion and resulting tank fire
occurred at the Company's subsidiary, Perma-Fix of Memphis, Inc.
("PFM") facility, a hazardous waste storage, processing and
blending facility, located in Memphis, Tennessee, which resulted in
damage to certain hazardous waste storage tanks located on the
facility and caused certain limited contamination at the facility.
Given the loss of both the existing line of business and its
related customer base, we reported the Memphis segment as a
7
discontinued operation, pursuant to Paragraph 13 of APB 30. The
fuel blending activities were discontinued on the date of the
incident, January 27, 1997.
The accrued environmental and closure costs related to PFM total
$1,678,000 as of September 30, 1999, a decrease of $822,000 from
the December 31, 1998, accrual balance. This reduction was
principally a result of the specific costs related to general
closure and remedial activities, including groundwater remediation,
and agency and investigative activities ($261,000), and the general
operating losses, including indirect labor, materials and supplies,
incurred in conjunction with the above actions ($561,000). The
general operating losses do not reflect management fees charged by
the Company, but do include interest expense of $221,000 for the
nine months ended September 30, 1999, specifically identified to
such operations, including that debt specifically incurred by such
operations under the Company's revolving and term loan facility.
The Company's revolving and term loan debt is recorded on a
consolidated basis and therefore, the revolving and term loan debt
specifically attributable to PFM is not recorded as liabilities of
discontinued operations. The remaining environmental and closure
liability represents the Company's estimate of the cost to complete
the groundwater remediation at the site of approximately $868,000,
the costs to complete the facility closure activities over the next
five (5) to ten (10) year period (including agency and investigative
activities, and future operating losses during such closure period)
totaling approximately $585,000, and the potential PRP liability of
$225,000.
3. Acquisition
___________
On May 27, 1999, (i) the Company, Chemical Conservation
Corporation; a Florida corporation ("Chemical Florida"); Chemical
Conservation of Georgia, Inc., a Georgia corporation ("Chemical
Georgia"); The Thomas P. Sullivan Living Trust, dated September 6,
1978 ("TPS Trust"); The Ann L. Sullivan Living Trust, dated
September 6, 1978 ("ALS Trust"); Thomas P. Sullivan, an individual
("TPS"); and Ann L. Sullivan, an individual ("ALS"), entered into
a Stock Purchase Agreement ("Chem-Con Stock Purchase Agreement"),
wherein the Company agreed to purchase all of the outstanding
capital stock of Chemical Florida and Chemical Georgia from the ALS
Trust pursuant to the terms of the Chem-Con Stock Purchase
Agreement, and (ii) the Company, Chem-Met Services, Inc., a
Michigan corporation ("Chem-Met"), the TPS Trust, the ALS Trust,
TPS and ALS entered into a Stock Purchase Agreement ("Chem-Met
Stock Purchase Agreement"), whereby the Company agreed to purchase
all of the outstanding capital stock of Chem-Met from the TPS Trust
pursuant to the terms of the Chem-Met Stock Purchase Agreement.
The Chem-Con Stock Purchase Agreement and the Chem-Met Stock
Purchase Agreement are collectively referred to as the "Stock
Purchase Agreements." Chemical Florida and Chemical Georgia are
collectively referred to as "Chem-Con." TPS and ALS are husband
and wife.
On May 27, 1999, the Stock Purchase Agreements and related
transaction documents ("Documents") were executed and placed into
escrow pending satisfaction of certain conditions precedent to
closing. On June 1, 1999, the conditions precedent to closing of
the Stock Purchase Agreements were completed, the Stock Purchase
Agreements were consummated and the Documents were released from
escrow.
Under the terms of the Stock Purchase Agreements, the purchase
price paid by the Company in connection with the Chem-Con/Chem-Met
acquisition was $8,700,000, consisting of (i) $1,000,000 in cash
paid at closing, (ii) three promissory notes ("Promissory Notes"),
in the aggregate amount of $4,700,000, to be paid in equal monthly
installments of principal and interest of approximately $90,000
over five years and having an interest rate of 5.5% for the first
three years and 7% for the remaining two years, with payment of
such Promissory Notes being guaranteed by Chem-Met under a
non-recourse guaranty, which non-recourse guaranty is secured by
certain real estate owned by Chem-Met, and (iii) $3,000,000 paid in
the form of 1,500,000 shares of Perma-Fix Common Stock, par value
$.001 per share ("Common Stock"), paid to the ALS Trust at closing;
however, if the ALS Trust owns any of such shares of Common Stock
at the end of eighteen (18) months from the June 1, 1999, closing
date (the "Guarantee Period") and the market value (as determined
below) per share of Common Stock at the end of the Guarantee Period
is less than $2.00 per share, the Company shall pay the ALS Trust,
within ten (10) business days after the end of the Guarantee
Period, an amount equal to the sum determined by multiplying the
8
number of shares of Common Stock issued to the ALS Trust under the
Stock Purchase Agreements that are still owned by the ALS Trust at
the end of the Guarantee Period by $2.00 less the market value (as
determined below) of such shares of Common Stock owned by the ALS
Trust at the end of the Guarantee Period, with such amount, if any,
payable by the Company to the ALS Trust, at the Company's option,
in cash or in Common Stock or a combination thereof. Notwithstanding
anything to the contrary, the aggregate number of shares of Common
Stock issued or issuable under the Stock Purchase Agreements for any
reason whatsoever shall not exceed eighteen percent (18%) of the
number of issued and outstanding shares of Common Stock on the date
immediately preceding the June 1, 1999, closing date. The market
value of each share of Common Stock at the end of the Guarantee
Period shall be determined based on the average of the closing sale
price per share of Common Stock as reported on the NASDAQ SmallCap
Market ("NASDAQ") for the five (5) consecutive trading days ending
with the trading day immediately prior to the end of the Guarantee
Period. Under the Company's loan agreement, the Company may only pay
any such amount due the ALS Trust at the end of the Guarantee Period
in Common Stock unless the lender agrees that the Company may satisfy
all or part of such in cash.
The cash portion of the purchase price for Chem-Con and
Chem-Met was obtained through borrowing from the Company's primary
lender, Congress Financial Corporation (Florida) ("Congress"), as
described below. The Company anticipates that the Promissory Notes
will be paid with working capital generated from operations and/or
borrowing under the Company's revolving credit facility with
Congress. In connection with the closing, using funds borrowed from
Congress, the Company paid an aggregate of approximately $3,843,000
to satisfy certain obligations of Chem-Met.
The acquisition was accounted for using the purchase method
effective June 1, 1999, and accordingly, the assets and liabilities
as of this date are included in the accompanying consolidated
financial statements. As of June 1, 1999, the Company has
performed a preliminary purchase price allocation based upon
information available as of this date. Accordingly, the purchase
price has been preliminarily allocated to the net assets acquired
and net liabilities assumed based on their estimated fair values.
Included in this preliminary allocation were acquired assets of
approximately $13,996,000 and assumed liabilities of approximately
$14,535,000, against total consideration of $8,700,000. This
preliminary allocation has resulted in goodwill and intangible
permits of $2,911,000 and $6,328,000, respectively. The goodwill
and intangible permits are being amortized on a straight line basis
over 20 years. The preliminary purchase price allocation is
subject to completing the valuation of certain assets, which have
not been finalized, and may or may not result in a change to the
estimated fair market values assigned. The results of the acquired
businesses have been included in the consolidated financial
statements since the date of acquisition. The audited combined net
revenues of Chem-Con/Chem-Met for the fiscal year ended September 30,
1998, were, in the aggregate, approximately $21.8 million.
We accrued for the estimated closure costs, determined pursuant
to RCRA guidelines, for the three regulated facilities acquired.
This accrual, recorded at $218,000, represents the potential future
liability to close and remediate such facilities, should such a
cessation of operations ever occur. We also recognized long-term
environmental accruals totaling $4,319,000. This amount represents
the Company's estimate of the long-term costs to remove
contaminated soil and to undergo groundwater remediation activities
at two of the Chem-Con/Chem-Met acquired facilities, Valdosta,
Georgia and Detroit, Michigan. Both facilities have pursued
remedial activities for the last five years with additional studies
forthcoming and potential groundwater restoration could extend for
a period of ten years. No insurance or third party recovery was
taken into account in determining our cost estimates or reserve,
nor do our cost estimates or reserve reflect any discount for
present value purposes.
At the date of acquisition, we also initiated the payoff of a
Small Business Administration ("SBA") loan, in the full amount of
$971,000. Prior to the acquisition, as required by a loan
agreement between the SBA and the previous owners ("SBA Loan
Agreement"), the previous owners had placed approximately $331,000
of restricted cash into an SBA trust account. Pursuant to the
acquisition and terms of the SBA Loan Agreement, we placed the
remaining payoff amount ($640,000) into the SBA trust account
9
(restricted cash), thereby fully funding the loan repayment.
The SBL loan repayment process requires various filings and
notifications which take approximately sixty days, at which time
funds are withdrawn from the trust account. Effective August 1,
1999, restricted cash was withdrawn from the SBA trust account
and the SBA loan was repaid in full.
The principal businesses of Chem-Con and Chem-Met are the
collection, treatment, and recycling of industrial and hazardous
waste, including waste oils, water and miscellaneous solid waste.
Chemical Florida operates a permitted treatment and storage
facility and transfer station that also serves as the base for a
private trucking fleet; Chemical Georgia treats hazardous waste and
recycles solvents and Chem-Met treats and stabilizes inorganic
wastes and maintains a government services division that is focused
principally on the Defense Revitalization and Marketing Services
market. The Company intends to continue using the Chem-Con and
Chem-Met facilities for substantially the same purposes as such
were being used prior to the acquisition by the Company.
The following unaudited pro forma information presents the
consolidated statement of operations of the Company as if the
acquisition had taken place on January 1, 1998. Chem-Con and Chem-
Met were on a September 30 fiscal year-end and therefore, their
results for the year ended September 30, 1998, have been
consolidated with our results for the year ended December 31, 1998.
Correspondingly, Chem-Con and Chem-Met's results for the nine
months ended June 30, 1999 and 1998, have been consolidated with
our results for the nine months ended September 30, 1999 and 1998.
Year Ended Nine Months Ended
December 31, September 30,
(Amounts in thousands, ___________ ___________________
except per share amounts) 1998 1999 1998
_______________________________________________________________________________
Net revenues $ 52,352 $40,894 $38,677
Net income (loss) applicable to Common Stock (1,046) 724 188
Net income (loss) per share (.08) .04 .01
Weighted average number of common
shares outstanding 13,528 17,241 13,447
These unaudited pro forma results have been prepared for
comparative purposes only and include certain adjustments, such as
additional amortization expense as a result of goodwill and
intangible permits and increased interest expense on acquisition
related debt. They do not purport to be indicative of the results
of operations that actually would have resulted on the date
indicated, or which may result in the future.
10
4. Long-Term Debt
______________
Long-term debt consists of the following at September 30, 1999,
and December 31, 1998 (in thousands):
September 30,
1999 December 31,
(Unaudited) 1998
____________ ____________
Revolving loan facility dated January 15, 1998, as amended
May 27, 1999, collateralized by eligible accounts
receivable, subject to monthly borrowing base calcula-
tion, variable interest paid monthly at prime rate
plus 1 3/4. $ 5,265 $ 97
Term loan agreement dated January 15, 1998, as amended
May 27, 1999, payable in monthly principal installments
of $78, balance due in June 2002, variable interest
paid monthly at prime rate plus 1 3/4. 3,438 1,927
Three promissory notes dated May 27, 1999, payable in
equal monthly installments of principal and interest of
$90 over 60 months, due June 2004, interest at 5.5% for
first three years and 7% for remaining two years. 4,493 -
Various capital lease and promissory note obligations, payable
1999 to 2004, interest at rates ranging from 7.5% to 13.0%. 1,999 990
___________ ___________
15,195 3,014
Less current portion of revolving loan and term note facility 938 625
Less current portion of long-term debt 1,371 302
__________ ___________
$ 12,886 $ 2,087
========== ===========
On January 15, 1998, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress as lender. The Agreement
initially provided for a term loan in the amount of $2,500,000,
which required principal repayments based on a four-year level
principal amortization over a term of 36 months, with monthly
principal payments of $52,000. Payments commenced on February 1,
1998, with a final balloon payment in the amount of approximately
$573,000 due on January 14, 2001. The Agreement also provided for
a revolving loan facility in the amount of $4,500,000. At any
point in time the aggregate available borrowings under the facility
are subject to the maximum credit availability as determined
through a monthly borrowing base calculation, as updated for
certain information on a weekly basis, equal to 80% of eligible
accounts receivable accounts of the Company as defined in the
Agreement. The termination date on the revolving loan facility was
also the third anniversary of the closing date. The Company
incurred approximately $230,000 in financing fees relative to the
solicitation and closing of this original loan agreement
(principally commitment, legal and closing fees) which are being
amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1
3/4%. The loans also contain certain closing, management and unused
line fees payable throughout the term. The loans are subject to a
3.0% prepayment fee in the first year, 1.5% in the second and 1.0%
in the third year of the original Agreement dated January 15, 1998.
In connection with the acquisition of Chem-Con/Chem-Met on May 27,
1999, Congress, the Company, and the Company's subsidiaries,
including Chem-Con/Chem-Met entered into an Amendment and Joinder
to Loan and Security Agreement (the "Loan Amendment") dated May 27,
1999, pursuant to which the Loan and Security Agreement ("Original
Loan Agreement") among Congress, the Company and the Company's
subsidiaries was amended to provide, among other things, (i) the
credit line being increased from $7,000,000 to $11,000,000, with
11
the revolving line of credit portion being determined as the
maximum credit of $11,000,000, less the term loan balance, with the
exact amount that can be borrowed under the revolving line of
credit not to exceed eighty percent (80%) of the Net Amount of
Eligible Accounts (as defined in the Original Loan Agreement) less
certain reserves; (ii) the term loan portion of the Original Loan
Agreement being increased from its current balance of approximately
$1,600,000 to $3,750,000 and it shall be subject to a four-year
amortization schedule payable over three years at an interest rate
of 1.75% over prime; (iii) the term of the Original Loan Agreement,
as amended, will be extended for three years from the date of the
acquisition, subject to earlier termination pursuant to the terms
of the Original Loan Agreement, as amended; (iv) Chemical Florida,
Chemical Georgia and Chem-Met being added as co-borrowers under the
Original Loan Agreement, as amended; (v) the interest rate on the
revolving line of credit will continue at 1.75% over prime, with a
rate adjustment to 1.5% if 1999 net income applicable to Common
Stock of the Company is equal to or greater than $1,500,000 for
either fiscal year ended December 31, 1999 or 2000; (vi) the
monthly service fee shall increase from $1,700 to $2,000; (vii)
government receivables will be limited to 20% of eligible accounts
receivable; and (viii) certain obligations of Chem-Met shall be
paid at closing of the acquisition of Chem-Con and Chem-Met. The
Loan Amendment became effective on June 1, 1999, when the Stock
Purchase Agreements were consummated. Payments under the term loan
commenced on June 1, 1999, with monthly principal payments of
approximately $78,000 and a final balloon payment in the amount of
$938,000 on June 1, 2002. The Company incurred approximately
$40,000 in additional financing fees relating to the closing of
this amendment, which is being amortized over the remaining term of
the agreement.
Under the terms of the Original Loan Agreement, as amended,
the Company has agreed to maintain an Adjusted Net Worth (as
defined in the Original Loan Agreement) of not less than $3,000,000
throughout the term of the Original Loan Agreement, which was
amended, pursuant to the above noted acquisition. The adjusted net
worth covenant requirement ranges from a low of $1,200,000 at June 1,
1999, to a high of not less than $3,000,000 from July 1, 2000,
through the remaining term of the Loan Agreement. The covenant
requirement at September 30, 1999, was $1,500,000, which the
Company was in compliance with. The Company has agreed that it
will not pay any dividends on any shares of capital stock of the
Company, except that dividends may be paid on the Company's shares
of Preferred Stock outstanding as of the date of the Loan Amendment
(collectively, "Excepted Preferred Stock") under the terms of the
applicable Excepted Preferred Stock and if and when declared by the
Board of Directors of the Company pursuant to Delaware General
Corporation Law. As security for the payment and performance of
the Original Loan Agreement, as amended, the Company and its
subsidiaries (including Chem-Con and Chem-Met) have granted a first
security interest in all accounts receivable, inventory, general
intangibles, equipment and certain of their other assets, as well
as the mortgage on two facilities owned by subsidiaries of the
Company, and except for certain real property owned by Chem-Met,
for which a first security interest is held by the TPS Trust and
the ALS Trust as security for Chem-Met's non-recourse guaranty of
the payment of the Promissory Notes. All other terms and
conditions of the original loan remain unchanged.
As of September 30, 1999, borrowings under the revolving loan
agreement were approximately $5,265,000, an increase of $5,168,000
over the December 31, 1998, balance of $97,000. This increase
represents $2,799,000 funded pursuant to the Chem-Con/Chem-Met
acquisition on June 1, 1999, $766,000 funded for the redemption of
Preferred Stock, including dividends thereon, during July 1999 and
$1,603,000 for capital expenditure and general working capital
needs. The balance under the Congress term loan at September 30,
1999, was $3,438,000, an increase of $1,511,000 over the December
31, 1998, balance of $1,927,000. This increase represents
$2,083,000 funded pursuant to the Chem-Con/Chem-Met acquisition on
June 1, 1999, partially offset by scheduled repayments of $572,000.
We funded through the revolving and term loan a total of $4,882,000
pursuant to the Chem-Con/Chem-Met acquisition excluding legal,
professional and other closing fees, of which $2,651,000
represented the repayment of certain debt obligations, $1,192,000
represented payment of certain settlement obligations and
$1,000,000 of the cash consideration as paid to the former owners
of Chem-Con/Chem-Met. As of September 30, 1999, the Company's
borrowing availability under the Congress credit facility, based on
its then outstanding eligible accounts receivable, was approximately
$1,293,000.
12
Pursuant to the terms of the Stock Purchase Agreements in
connection with the acquisition of Chem-Con/Chem-Met, a portion of
the consideration was paid in the form of the Promissory Notes, in
the aggregate amount of $4,700,000 payable to the former owners of
Chem-Con/Chem-Met. The Promissory Notes are paid in equal monthly
installments of principal and interest of approximately $90,000
over five years with the first installment due on July 1, 1999, and
having an interest rate of 5.5% for the first three years and 7%
for the remaining two years. The aggregate outstanding balance of
the Promissory Notes total $4,493,000 at September 30, 1999, of
which $858,000 is in the current portion. Payment of such
Promissory Notes are guaranteed by Chem-Met under a non-recourse
guaranty, which non-recourse guaranty is secured by certain real
estate owned by Chem-Met. See Note 3 for further discussion of the
above referenced acquisition.
As further discussed in Note 2, the long-term debt, other than
revolving and term loan debt, associated with the discontinued PFM
operation is excluded from the above and is recorded in the
Liabilities of Discontinued Operations total. The PFM debt
obligations total $7,000, all of which is current.
5. Commitments and Contingencies
_____________________________
Hazardous Waste
In connection with our waste management services, we handle both
hazardous and non-hazardous waste which we transport to our own or
other facilities for destruction or disposal. As a result of
disposing of hazardous substances, in the event any cleanup is
required, we could be a potentially responsible party for the costs
of the cleanup notwithstanding any absence of fault on our part.
Legal
In the normal course of conducting its business, we are involved
in various litigation. There have been no material changes in
legal proceedings from those disclosed previously in the Company's
Form 10-K for year ended December 31, 1998. We are not a party to
any litigation or governmental proceeding which our management
believes could result in any judgements or fines against us that
would have a material adverse affect on the Company's financial
position, liquidity or results of operations.
Permits
We are subject to various regulatory requirements, including the
procurement of requisite licenses and permits at our facilities.
These licenses and permits are subject to periodic renewal without
which our operations would be adversely affected. We anticipate
that, once a license or permit is issued with respect to a
facility, the license or permit will be renewed at the end of its
term if the facility's operations are in compliance with the
applicable regulatory requirements.
Accrued Closure Costs and Environmental Liabilities
We maintain closure cost funds to insure the proper
decommissioning of our RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, we are subject
to corrective action proceedings to restore soil and/or groundwater
to its original state. These activities are governed by federal,
state and local regulations and we maintain the appropriate
accruals for restoration. We have recorded accrued liabilities for
estimated closure costs and identified environmental remediation
costs. See Notes 2 and 3 for discussion of the accrued closure costs
and long-term environmental accruals recorded in conjunction with the
discontinued operations and the Chem-Con/Chem-Met acquisition, respectively.
Insurance
We believe we maintain insurance coverage adequate for our needs
and which is similar to, or greater than, the coverage maintained
by other companies of our size in the industry. There can be no
assurances, however, that liabilities which may be incurred by us
will be covered by our insurance or that the dollar amount of such
liabilities which are covered will not exceed our policy limits.
Under our insurance contracts, we usually accept self-insured
13
retentions which we believe appropriate for our specific business
risks. We are required by EPA regulations to carry environmental
impairment liability insurance providing coverage for damages on a
claims-made basis in amounts of at least $1 million per occurrence
and $2 million per year in the aggregate. To meet the requirements
of customers, we have exceeded these coverage amounts.
6. Business Segment Information
____________________________
Pursuant to FAS 131, we define an operating segment as:
* A business activity from which we may earn revenue and
incur expenses;
* Whose operating results are regularly reviewed by our chief
operating decision maker to make decisions about resources
to be allocated to the segment and assess its performance;
and
* For which discrete financial information is available.
We have twelve operating segments which are defined as each
separate facility or location that we operate. We view each
facility as a separate segment and make decisions based on the
activity and profitability of that particular facility. These
segments however, exclude the corporate headquarters which does not
generate revenue and PFM which is reported elsewhere as a
discontinued operation. See Note 2 regarding discontinued
operations.
Pursuant to FAS 131 we have aggregated two or more operating
segments into two reportable segments to ease in the presentation
and understanding of our business. We used the following criteria
to aggregate our segments:
* The nature of our products and services;
* The nature of the production processes;
* The type or class of customer for our products and services;
* The methods used to distribute our products or provide our
services; and
* The nature of the regulatory environment.
Our reportable segments are defined as follows:
The Waste Management Services segment, which provides on-and-off
site treatment, storage, processing and disposal of hazardous and
non-hazardous industrial and commercial, mixed waste, and
wastewater through our seven TSD facilities; Perma-Fix Treatment
Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft.
Lauderdale, Inc., Perma-Fix of Florida, Inc., Chem-Met Services,
Inc., Chemical Conservation Corporation, Chem-Con of Georgia, Inc.
and general waste management services through Chem-Met Government
Services. We provide through Perma-Fix Inc. and Perma-Fix of
New Mexico, Inc. on-site waste treatment services to convert certain
types of characteristic hazardous wastes into non-hazardous waste.
The Consulting Engineering Services segment provides
environmental engineering and regulatory compliance services
through Schreiber, Yonley & Associates, Inc. and Mintech, Inc.
These engineering groups provide oversight management of
environmental restoration projects, air and soil sampling and
compliance and training activities, as well as, engineering support
as needed by our other segment. We also provide consulting
services related to hazardous and non-hazardous waste used by
cement plants as a substitute fuel or raw material source and the
resell of by-product materials generated at cement plants for
environmental applications.
The table below shows certain financial information by business
segment for quarter ended September 30, 1999 and quarter ended
September 30, 1998 and excludes the results of operations of the
discontinued operations.
14
Segment Reporting Quarter Ended 09/30/99
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ _________ _______ __________ ___________
Revenue from external customers $12,457 $1,401 $13,858 $ - $ - $ 13,858
Intercompany revenues 606 105 711 - - 711
Interest income 16 - 16 - - 16
Interest expense 249 (10) 239 18 - 257
Depreciation and amortization 738 28 766 5 - 771
Segment profit (loss) 1,084 (45) 1,039 (310) - 729
Segment assets(1) 49,840 2,560 52,400 798 511 53,709
Expenditures for segment assets 771 1 772 45 - 817
Segment Reporting Quarter Ended 09/30/98
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ _______ __________ ____________
Revenue from external customers $7,055 $1,010 $8,065 $ - $ - $ 8,065
Intercompany revenues 111 160 271 - - 271
Interest income 9 - 9 1 - 10
Interest expense 83 12 95 - - 95
Depreciation and amortization 509 18 527 4 - 531
Segment profit (loss) 645 95 740 (749) - (9)
Segment assets(1) 23,502 2,982 26,484 1,450 472 28,406
Expenditures for segment assets 563 8 571 42 - 613
(1) Segment assets have been adjusted for intercompany accounts to reflect
actual assets for each segment.
(2) Amounts reflect the activity for corporate headquarters.
(3) Amounts reflect the activity for Perma-Fix of Memphis, Inc., which is a
discontinued operation, not included in the segment information (See Note 2).
The table below shows certain financial information by business segment
for the nine months ended September 30, 1999, and the nine months ended
September 30, 1998, and excludes the results of operations of the discon-
tinued operations.
Segment Reporting Nine Months Ended 09/30/99
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ _________ _______ __________ ____________
Revenue from external customers $28,698 $3,545 $32,243 $ - $ - $ 32,243
Intercompany revenues 1,889 296 2,185 - - 2,185
Interest income 32 - 32 2 - 34
Interest expense 382 33 415 (40) - 375
Depreciation and amortization 1,805 68 1,873 14 - 1,887
Segment profit (loss) 2,524 51 2,575 (1,129) - 1,446
Segment assets(1) 49,840 2,560 52,400 798 511 53,709
Expenditures for segment assets 1,780 16 1,796 138 - 1,934
Segment Reporting Nine Months Ended 09/30/98
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ _______ __________ ____________
Revenue from external customers $19,102 $3,189 $22,291 $ - $ - $22,291
Intercompany revenues 269 395 664 - - 664
Interest income 26 - 26 1 - 27
Interest expense 308 39 347 17 - 364
Depreciation and amortization 1,495 59 1,554 12 - 1,566
Segment profit (loss) 937 183 1,120 (1,493) - (373)
Segment assets(1) 23,502 2,982 26,484 1,450 472 28,406
Expenditures for segment assets 1,916 12 1,928 42 - 1,970
15
(1) Segment assets have been adjusted for intercompany accounts to reflect
actual assets for each segment.
(2) Amounts reflect the activity for corporate headquarters.
(3) Amounts reflect the activity for Perma-Fix of Memphis, Inc., which is
a discontinued operation, not included in the segment information (See Note 2).
7. Stock
_____
Restructuring of Convertible Preferred Stock Held by RBB Bank:
In April 1999 the Company and RBB Bank Aktiengesellschaft ("RBB
Bank") entered into an agreement to restructure the Company's
Convertible Preferred Stock held by RBB Bank, which totaled
approximately $9.5 million. Under the restructuring the Company and
RBB Bank agreed to the following:
1. RBB Bank converted, pursuant to existing terms of the
Convertible Preferred Stock, $4.6 million of the Convertible
Preferred Stock into approximately 6.1 million shares of the
Company's Common Stock, which was completed in May 1999.
2. The Company was granted the right to purchase at a stated
value ($1,000 per share) $750,000 of the Convertible
Preferred Stock, which was subsequently purchased on July 15,
1999, using borrowings under the Company's revolving credit
facility.
3. The terms of the balance of the Convertible Preferred Stock
(approximately $4.2 million) was changed, as follows:
a. Not subject to conversion for 12 months from the date of
the restructuring ("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up Period, any
conversion of the Convertible Preferred Stock would be
subject to a minimum conversion price of $1.50 per share
of Common Stock; and
c. The Company will be granted the option to redeem the
shares of the Convertible Preferred Stock at 110% of the
stated value ($1,000 per share) for the first twelve
months from the date of restructuring and RBB Bank may
not convert such shares redeemed during such twelve month
period, and thereafter the Company has the option to
redeem the Convertible Preferred Stock at 120% of the
stated value ($1,000 per share) of the Convertible
Preferred Stock and upon notice of such redemption RBB
Bank will have the right to exercise its conversion
rights pursuant to the then current terms of the
Convertible Preferred Stock.
4. The Company is required to register with the Commission the
Common Stock issuable upon conversion of the Convertible
Preferred Stock by January 31, 2000. The Company agreed that
if a registration statement covering such Common Stock is not
declared effective by the Commission by January 31, 2000, the
Company agrees to pay to RBB Bank a penalty in an amount
equal to two percent (2%) of the product of (a) the number
of shares of such Convertible Preferred Stock then
outstanding times (b) $1,000, payable in cash. The Company
agreed that for each month thereafter which terminates
without such registration statement being declared effective
by the Commission before the end of the last day thereof, the
Company shall pay to RBB Bank a penalty in an amount equal
to two percent (2%) of the product of (a) the number of
shares of Convertible Preferred Stock then outstanding times
(b) $1,000, payable in cash.
5. The remaining terms of the Convertible Preferred Stock will
remain unchanged.
The restructuring was accomplished through two exchange
agreements ("First Exchange Agreement" and "Second Exchange
Agreement") which are further described as follows:
First Exchange Agreement with RBB Bank:
On July 15, 1999, the Company and RBB Bank entered into (i) an
Exchange Agreement, dated July 15, 1999 ("Series 3 Exchange
Agreement"), pursuant to which the 1,769 outstanding shares of
16
Series 3 Preferred, all of which were held by RBB Bank, were
exchanged for an equal number of shares of newly created Series 11
Class K Convertible Preferred Stock par value $.001 per share
("Series 11 Preferred"); (ii) an Exchange Agreement, dated July 15,
1999 ("Series 8 Exchange Agreement"), pursuant to which the
outstanding shares of Series 8 Preferred, all of which were held by
RBB Bank, were exchanged for an equal number of shares of newly
created Series 12 Class L Convertible Preferred Stock, par value
$.001 per share ("Series 12 Preferred"); and (iii) an Exchange
Agreement, dated July 15, 1999 ("Series 10 Exchange Agreement"),
pursuant to which the outstanding shares of Series 10 Preferred
Stock, all of which were held by RBB Bank, were exchanged for an
equal number of shares of newly created Series 13 Class M
Convertible Preferred Stock, par value $.001 per share ("Series 13
Preferred").
The Series 8 Preferred was redeemable by the Company (a) within
four (4) years from June 9, 1997 at $1,300 per share when the
average of the closing bid price of the Common Stock for ten (10)
consecutive days was in excess of $4.00 per share as quoted on the
NASDAQ and (b) at $1,000 per share after four years from June 9,
1997. The Company had to provide thirty (30) days notice to the
Series 8 Preferred holder prior to any date stipulated by the
Company for redemption and at such time, the Series 8 Preferred
holder had the option of converting the shares which were to be
redeemed.
Under the terms of the Series 12 Preferred, the Company was
permitted to redeem up to 300 shares of Series 12 Preferred for
$1,000 per share, or an aggregate of $300,000, provided that any
such redemption had to occur within 120 days of issuance of the
Series 12 Preferred. On July 15, 1999, the Company redeemed 300
shares of Series 12 Preferred leaving 616 shares of Series 12
Preferred issued and outstanding.
The Series 10 Preferred was not redeemable by the Company. Under
the terms of the Series 13 Preferred, the Company was permitted to
redeem up to 450 shares of Series 13 Preferred for $1,000 per
share, or an aggregate of $450,000, provided that any such
redemption had to occur within 120 days of issuance of the Series
13 Preferred. On July 15, 1999, the Company redeemed 450 shares of
Series 13 Preferred leaving 1,802 shares of Series 13 Preferred
issued and outstanding.
In addition to the different redemption terms for the Series 12
Preferred and the Series 13 Preferred described above, the Series
11 Preferred, Series 12 Preferred and Series 13 Preferred
(collectively, the "Exchange Preferred") each contain provisions,
described hereafter, which are different from those provisions in
the Series 3 Preferred, Series 8 Preferred and Series 10 Preferred,
as applicable.
* RBB Bank could make no conversions of the Exchange
Preferred for 12 months from July 15, 1999.
* Each of the Exchange Preferred had a minimum conversion
price of $1.50 per share for a 24-month period from July
15, 1999.
* For 12 months from July 15, 1999, the Company could
redeem at any time and from time to time any of the
Exchange Preferred held by RBB Bank at 110% of its
"stated value" of $1,000 per share. Thereafter, the
Company could redeem at any time and from time to time
any of such Exchange Preferred at 120% of its "stated
value" of $1,000 per share. After 12 months from July 15,
1999, upon any notice of redemption, RBB had 5 business
days to exercise its conversion rights regarding the
redeemed shares. For 12 months from July 15, 1999,
RBB Bank could not elect to convert shares of Exchange
Preferred even if the Company redeemed such shares of
Exchange Preferred.
Second Exchange Agreement with RBB Bank:
On August 3, 1999, the Company and RBB Bank entered into (i) an
Exchange Agreement, dated August 3, 1999 ("Series 11 Exchange
Agreement"), pursuant to which the 1,769 outstanding shares of
Series 11 Preferred, all of which were held by RBB Bank, were
17
exchanged for an equal number of shares of newly created Series 14
Class N Convertible Preferred Stock par value $.001 per share
("Series 14 Preferred"); (ii) an Exchange Agreement, dated August 3,
1999 ("Series 12 Exchange Agreement"), pursuant to which the 616
outstanding shares of Series 12 Preferred, all of which were held
by RBB Bank, were exchanged for an equal number of shares of newly
created Series 15 Class O Convertible Preferred Stock, par value
$.001 per share ("Series 15 Preferred"); and (iii) an Exchange
Agreement, dated August 3, 1999 ("Series 13 Exchange Agreement"),
pursuant to which the 1,802 outstanding shares of Series 13
Preferred Stock, all of which were held by RBB Bank, were exchanged
for an equal number of shares of newly created Series 16 Class P
Convertible Preferred Stock, par value $.001 per share ("Series 16
Preferred").
The exchanges of the Series 14 Preferred, Series 15 Preferred,
and Series 16 Preferred (collectively, the "Second Exchange
Preferred") to RBB Bank were made in private placements under
Section 4(2) and/or Section 3(a)(9) of the Securities Act. The
terms of each of the Second Exchange Preferred are substantially
identical to the particular Exchange Preferred for which each was
exchanged except that the July 15 dates as described above in
connection with the Exchange Preferred were changed to April 20.
Therefore, (i) RBB Bank may make no conversions of the Second
Exchange Preferred for 12 months from April 20, 1999; (ii) each of
the Second Exchange Preferred has a minimum conversion price of
$1.50 per share for a 24-month period from April 20, 1999; and
(iii) for 12 months from April 20, 1999, the Company may redeem at
any time and from time to time any of the Second Exchange Preferred
held by RBB Bank at 110% of its "stated value" of $1,000 per share.
Thereafter, the Company may redeem at any time and from time to
time any of such Second Exchange Preferred at 120% of its "stated
value" of $1,000 per share. After 12 months from April 20, 1999,
upon any notice of redemption, RBB shall have only 5 business days
to exercise its conversion rights regarding the redeemed shares.
During the 12 months after April 20, 1999, RBB Bank cannot elect to
convert shares of Second Exchange Preferred even if the Company
redeems such shares of Second Exchange Preferred.
During May 1999, the Company issued to RBB Bank 6,119,135 shares
in the aggregate of the Company's Common Stock relating to
conversion of certain series of the Company's Preferred Stock in
accordance with the terms of such Preferred Stock, summarized as
follows:
(i) During May 1999, the Company issued to RBB Bank 3,090,563
shares of Common Stock to reflect RBB Bank's conversion on April
20, 1999, of 2,231 shares of the Company's Series 3 Preferred
pursuant to the terms of the Series 3 Preferred. The issuance of
the Common Stock was made in a private placement pursuant to an
exemption from registration under Section 4(2) and/or Section 3(a)9
of the Securities Act. As of the conclusion of the described
conversion, there were 1,769 shares of Series 3 Preferred remaining
outstanding, all of which were held by RBB Bank.
(ii) During May 1999, the Company issued to RBB Bank 2,057,143
shares of Common Stock to reflect RBB Bank's conversion on April
20, 1999, of 1,584 shares of the Company's Series 8 Preferred
pursuant to the terms of the Series 8 Preferred. The issuance of
the Common Stock was made in a private placement pursuant to an
exemption from registration under Section 4(2) and/or Section 3(a)9
of the Securities Act. As of the conclusion of the described
conversion, there were 916 shares of Series 8 Preferred remaining
outstanding, all of which were held by RBB Bank.
(iii) During May 1999, the Company issued to RBB Bank 971,429
shares of Common Stock to reflect RBB Bank's conversion on April 20,
1999, of 748 shares of the Company's Series 10 Preferred
pursuant to the terms of the Series 10 Preferred. The issuance of
the Common Stock was made in a private placement pursuant to an
exemption from registration under Section 4(2) and/or Section 3(a)9
of the Securities Act. As of the conclusion of the described
conversion, there were 2,252 shares of Series 10 Preferred
remaining outstanding, all of which were held by RBB Bank.
During May 1999, the Company issued certain shareholders of Chem-
Con/Chem-Met, 1,500,000 shares of the Company's Common Stock
relating to the acquisition of Chem-Con/Chem-Met. See Note 3 for
further discussion of the above referenced acquisition.
18
Pursuant to the terms of an Asset Purchase Agreement (the
"Agreement"), effective as of April 1, 1998, by and among the
Company's wholly-owned subsidiary Perma-Fix of Ft. Lauderdale,
Inc., a Florida corporation ("PFFL") and Action Environmental
Corp., a Florida corporation ("Action"), Lewis R. Goodman
("Goodman") and Evelio Acosta ("Acosta"), the Company issued to
Action 108,207 share of Common Stock as consideration for the
purchase by PFFL of all or substantially all of the assets of
Action. The closing of the transaction occurred on April 15, 1998.
The Agreement specifies that the Common Stock delivered to Action
is to have a value of $207,000 as of April 1, 1999, based upon the
closing price of the Common Stock as quoted on the National
Association of Securities Dealers SmallCap Quotation market
("NASDAQ") for the three consecutive trading days ending with the
day before April 1, 1999. The Agreement specifies that in the
event the value of the Common Stock issued to Action as of April 1,
1998, is less than $207,000, PESI is to issue to Action that number
of shares of Common Stock necessary to make the value of the
aggregate shares of Common Stock issued to Action under the
Agreement equal to approximately $207,000 as of April 1, 1999. The
Company issued 94,967 shares of Common Stock to Action in July 1999
pursuant to the terms of the Agreement. Regarding the 94,967
shares of Common Stock, Action requested that 65,823 shares be
issued to Hesco Sales, Inc., a creditor of Action, 14,572 shares be
issued to Goodman and 14,572 shares be issued to Acosta. The
issuance of Common Stock pursuant to the Action Agreement was a
private placement under Section 4(2) of the Securities Act and/or
Rule 506 of Regulation D as promulgated under the Securities Act.
19
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
Forward-Looking Statements
Certain statements contained within this report may be deemed
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (collectively, the
"Private Securities Litigation Reform Act of 1995"). All
statements in this report other than statements of historical fact
are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors which could cause
actual results and performance of the Company to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things, (i) ability to fund capital expenditures by a
combination of lease financing and/or internally generated funds,
(ii) the ability to integrate the Chem-Con companies in a cost
effective and efficient manner, (iii) anticipated financial
performance, (iv) ability to comply with the Company's general
working capital requirements, (v) ability to retain or receive
certain permits, (vi) ability to be able to continue to borrow
under the Company's revolving line of credit, (vii) ability to
generate sufficient cash flow from operations to fund all costs of
operations and remediation of certain formerly leased property in
Dayton, Ohio, and the Company's facilities in Memphis, Tennessee,
Valdosta, Georgia, and Detroit, Michigan, (viii) ability to
remediate certain contaminated sites for projected amounts, and
(ix) all other statements which are not statements of historical
fact. While the Company believes the expectations reflected in
such forward-looking statements are reasonable, it can give no
assurance such expectations will prove to have been correct. There
are a variety of factors which could cause future outcomes to
differ materially from those described in this report, including,
but not limited to, (i) general economic conditions, (ii) material
reduction in revenues, (iii) inability to collect in a timely
manner a material amount of receivables, (iv) increased competitive
pressures, (v) the ability to maintain and obtain required permits
and approvals to conduct operations, (vi) the ability to develop
new and existing technologies in the conduct of operations, (vii)
overcapacity in the environmental industry, (viii) discovery of
additional contamination or expanded contamination at a certain
Dayton, Ohio, property formerly leased by the Company or the
Company's facilities at Memphis, Tennessee, Valdosta, Georgia and
Detroit, Michigan, which would result in a material increase in
remediation expenditures, (ix) determination that PFM is the source
of chlorinated compounds at the Allen Well Field, (x) changes in
federal, state and local laws and regulations, especially
environmental regulations, or in interpretation of such, (xi)
potential increases in equipment, maintenance, operating or labor
costs, (xii) management retention and development, (xiii) the
requirement to use internally generated funds for purposes not
presently anticipated, (xiv) inability to operate profitably, or if
unable to become profitable, the inability to secure additional
liquidity in the form of additional equity or debt. The Company
undertakes no obligations to update publicly any forward-looking
statement, whether as a result of new information, future events or
otherwise.
20
Results of Operations
The table below should be used when reviewing management's discussion and
analysis for the nine months ended September 30, 1999 and 1998:
Three Months Ended Nine Months Ended
September 30, September 30,
_____________________________________ _______________________________________
Consolidated 1999 % 1998 % 1999 % 1998 %
____________ ______ _____ ______ ______ _______ _____ _______ _____
Net Revenues $13,858 100.0 $ 8,065 100.0 $32,243 100.0 $22,291 100.0
Cost of Goods Sold 9,223 66.6 5,292 65.6 21,332 66.2 15,317 68.7
_______ _____ _______ _____ _______ _____ _______ _____
Gross Profit 4,635 33.4 2,773 34.4 10,911 33.8 6,974 31.3
Selling, General &
Administrative 3,014 21.7 1,708 21.2 7,147 22.2 4,942 22.2
Depreciation/Amortization 771 5.6 531 6.6 1,887 5.9 1,566 7.0
_______ ____ _______ _____ _______ ____ _______ ____
Income from
Operations $ 850 6.1 $ 534 6.6 $ 1,877 5.8 $ 466 2.1
======= ==== ======= ===== ======= ==== ======= =====
Interest Expense (257) (1.9) (95) (1.2) (375) (1.2) (364) (1.6)
Preferred Stock
Dividends (57) (0.4) (498) (6.2) (247) (0.8) (674) (3.0)
Gain on Preferred
Stock Redemption 188 1.4 - - 188 0.6 - -
Summary Three and Nine Months Ended September 30, 1999 and 1998
________________________________________________________________
We provide services through two reportable operating segments.
The Waste Management Services segment is engaged in on-and off-site
treatment, storage, disposal and processing of a wide variety of
by-products and industrial and hazardous wastes. This segment
competes for materials and services with numerous regional and
national competitors to provide comprehensive and cost-effective
Waste Management Services to a wide variety of customers in the
Midwest, Southeast and Southwest regions of the country. We
operate and maintain facilities and businesses in the waste by-
product brokerage, on-site treatment and stabilization, and off-
site blending, treatment and disposal industries. Effective June 1,
1999, we acquired three additional facilities, with similar lines
of business as those currently operating within this waste
management services segment. The facilities acquired were Chemical
Conservation Corporation, Chemical Conservation of Georgia, Inc.
and Chem-Met Services, Inc. (collectively, "Chem-Con/Chem-Met")
which are further described in Note 3 to Notes to Consolidated
Financial Statements. Our Consulting Engineering segment provides
a wide variety of environmental related consulting and engineering
services to industry and government. Through our wholly-owned
subsidiaries in St. Louis, Missouri and Tulsa, Oklahoma, the
Consulting Engineering segment provides oversight management of
environmental restoration projects, air and soil sampling,
compliance reporting, surface and subsurface water treatment design
for removal of pollutants, and various compliance and training
activities.
Consolidated net revenues increased to $13,858,000 from
$8,065,000 for the quarter ended September 30, 1999, as compared to
the same quarter in 1998. This increase of $5,793,000 or 71.8% is
attributable to both the Waste Management Services segment which
experienced an increase in revenues of $5,402,000, including
approximately $6,544,000 of additional revenue resulting from the
Chem-Con/Chem-Met acquisition on June 1, 1999, and the Consulting
Engineering segment which experienced an increase in revenues of
$391,000. Consolidated net revenues increased to $32,243,000 from
$22,291,000 for the nine-month period ended September 30, 1999, as
compared to the corresponding nine month period in 1998. This
increase of $9,952,000 or 44.6% is principally attributable to the
Waste Management Services segment which experienced an increase in
revenues of $9,596,000, including approximately $8,889,000 of
additional revenue resulting from the above referenced Chem-
Con/Chem-Met acquisition. We recognized revenue growth across all
of the operating facilities, which was partially offset by
reductions in certain of the offsite/service related operations.
21
Cost of goods sold for the Company increased $3,931,000 or 74.3%
for the quarter ended September 30, 1999, as compared to the
quarter ended September 30, 1998. This consolidated increase in
cost of goods sold reflects principally the increased operating,
disposal and transportation costs, corresponding to the increased
revenue of 71.8% as discussed above. The resulting gross profit for
the quarter ended September 30, 1999, increased $1,862,000 to
$4,635,000, which as a percentage of revenue is 33.4%, reflecting
a decrease from the corresponding quarter in 1998 percentage of
revenue of 34.4%. Cost of goods sold also increased $6,015,000 or
39.3% for the nine-month period ended September 30, 1999, as
compared to the nine-month period ended September 30, 1998. As
with the quarter, this increase is a direct result of the increased
revenue of 44.6%, as discussed above. The resulting gross profit
for the nine months of 1999 increased $3,937,000 to $10,911,000
which as a percentage of revenue is 33.8%, also reflecting an
increase over the corresponding nine month period of 1998
percentage of revenue of 31.3%. We continue to focus on reduced
operating costs and improved gross margins, as reflected by our
nine-month 1999 gross margin, which showed improvement from 31.3%
in 1998 to 33.8% in 1999. Our greatest success has been within the
operating facilities of the Waste Management Services segment.
However, depending upon the nature of the revenue and product mix
we will at times experience increased costs and reduced gross
margins for a given period, as reflected in the third quarter 1999.
Selling, general and administrative expenses increased $1,306,000
or 76.5% for the quarter ended September 30, 1999, as compared to
the quarter ended September 30, 1998. As a percentage of revenue,
selling, general and administrative expense increased slightly to
21.7% for the quarter ended September 30, 1999, compared to 21.2%
for the same period in 1998. Selling, general and administrative
expenses also increased for the nine-month period of 1999, as
compared to 1998, by $2,205,000 or 44.6%. However, as a percentage
of revenue, selling, general and administrative expense has
remained consistent for the nine months of 1999 as compared to 1998
at 22.2% of revenue. The increase in selling, general and
administrative expenses is partially due to the addition of Chem-
Con/Chem-Met, which directly contributed $1,490,000 of this nine
month increase, as well as the increased expenses associated with
additional sales and marketing efforts as we continue to refocus
the business segments into new environmental markets, such as
nuclear and mixed waste, and the additional administrative overhead
associated with our research and development efforts. We have
continued to expense in the current period all research and
development costs associated with the development of various
technologies which we aggressively pursued during 1999.
Depreciation and amortization expense for the nine-month period
ended September 30, 1999, reflects an increase of $321,000 as
compared to the same period of 1998. This increase is principally
attributable to the acquisition of Chem-Con/Chem-Met, effective
June 1, 1999, for which depreciation of $175,000 and amortization
expense of $154,000 were recorded during the four months of 1999
since their acquisition. This acquisition also principally
accounted for the change in the quarter ended September 30, 1999.
Interest expense increased $162,000 for the quarter ended
September 30, 1999, as compared to the corresponding period of
1998, excluding discontinued operations. Interest expense also
increased by $11,000 for the nine month period ending September 30,
1999, as compared to the corresponding period of 1998, excluding
discontinued operations. The increase in interest expense for both
the three and six month periods ended September 30, 1999, are a
direct result of the increased borrowing levels on the Congress
Financial Corporation revolving and term loan and new debt incurred
during the acquisition of Chem-Con/Chem-Met. In conjunction with
the acquisition of Chem-Con/Chem-Met, certain debt was consolidated
into the Congress Financial Corporation revolving and term loan and
additional borrowings were made to fund certain settlements and
repayments in conjunction with the acquisition, which resulted in
increased borrowing levels in June and throughout the third quarter
of 1999. See Notes 3 and 4 to Notes to Consolidated Financial
Statements for additional disclosure on the Chem-Con/Chem-Met
acquisition and Congress Financial Corporation debt. Interest
expense for discontinued operations was $221,000 for the nine-month
period ended September 30, 1999, specifically identified to such
22
operations, including that debt specifically incurred under the
Company's revolving and term loan facility. See Note 2 to Notes to
Consolidated Financial Statements regarding discontinued
operations.
Preferred Stock dividends decreased $427,000 for the nine-month
period ended September 30, 1999, as compared to the corresponding
period of 1998. Preferred Stock dividends also decreased $441,000
for the quarter ended September 30, 1999, as compared to the same
quarter of 1998. The decreases in both the three and nine month
periods ended September 30, 1999, are principally a result of a
dividend of approximately $383,000 as recorded in the third quarter
of 1998 related to the fiscal 1998 sale of the Series 10 Preferred
Stock. Also contributing to this 1999 decrease is the conversion
of $4,563,000 of the Convertible Preferred Stock into Common Stock
on April 20, 1999, of the total of $9,850,000 outstanding prior to
such conversion.
Pursuant to the terms of the Series 12 Preferred Stock and Series
13 Preferred Stock, we redeemed 300 shares or $300,000 and 450
shares or $450,000 respectively, of the Preferred Stock on July 15,
1999. The redemption was done at the Preferred Stock's original
face value and resulted in a gain on Preferred Stock redemption of
$188,000. See Note 7 to Notes to Consolidated Financial Statements
regarding the Preferred Stock.
Discontinued Operations
On January 27, 1997, an explosion and resulting tank fire
occurred at the Perma-Fix of Memphis, Inc. ("PFM") facility, a
hazardous waste storage, processing and blending facility, which
resulted in damage to certain hazardous waste storage tanks located
on the facility and caused certain limited contamination at the
facility. As a result of the significant disruption and the cost to
rebuild and operate this segment, the Company made a strategic
decision, in February 1998, to discontinue its fuel blending
operations at PFM. The fuel blending operations represented the
principal line of business for PFM prior to this event, which
included a separate class of customers, and its discontinuance has
required PFM to attempt to develop new markets and customers,
through the utilization of the facility as a storage facility under
its RCRA permit and as a transfer facility.
Liquidity and Capital Resources of the Company
At September 30, 1999, the Company had cash and cash equivalents
of $826,000, including $43,000 from discontinued operations. This
cash and cash equivalents total reflects an increase of $50,000
from December 31, 1998, as a result of net cash used in continuing
operations of $61,000, cash used by discontinued operations of
$789,000, cash used in investing activities of $2,890,000
(principally purchases of equipment, net totaling $1,357,000, net
cash used to fund the acquisition totaling $2,616,000 and as a
partial offset, the change or reduction in restricted cash of
$1,060,000) and cash provided by financing activities of
$3,790,000 (principally additional borrowing under the revolving
loan and term note facility pursuant to the acquisition). Accounts
receivable, net of allowances for doubtful accounts, totaled
$11,970,000, an increase of $6,020,000 over the December 31, 1998,
balance of $5,950,000. This increase in accounts receivable
represents the addition of the Chem-Con/Chem-Met receivables as
acquired effective June 1, 1999, in the amount of $4,146,000 and
the increase of $1,874,000 resulting from the increased revenues
during the third quarter of 1999.
On January 15, 1998, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
23
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $230,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1
3/4%. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
In connection with the acquisition of Chem-Con/Chem-Met on May 27,
1999, Congress, the Company, and the Company's subsidiaries,
including Chem-Con/Chem-Met entered into the Loan Amendment, as
described in Note 4 to Notes to Consolidated Financial Statements.
The Loan Amendment became effective on June 1, 1999, when the Stock
Purchase Agreements were consummated. Payments under the term loan
commenced on June 1, 1999, with monthly principal payments of
approximately $78,000 and a final balloon payment in the amount of
$938,000 on June 1, 2002. The Company incurred approximately
$40,000 in additional financing fees relating to the closing of
this amendment, which is being amortized over the remaining term of
the agreement.
As of September 30, 1999, borrowings under the revolving loan
agreement were approximately $5,265,000, an increase of $5,168,000
over the December 31, 1998, balance of $97,000. This increase
represents $2,799,000 funded pursuant to the Chem-Con/Chem-Met
acquisition on June 1, 1999, $766,000 funded for the redemption of
Preferred Stock, including dividends thereon, during July 1999 and
$1,603,000 for capital expenditure and general working capital
needs. The balance under the Congress term loan at September 30,
1999, was $3,438,000, an increase of $1,511,000 over the December
31, 1998, balance of $1,927,000. This increase represents
$2,083,000 funded pursuant to the Chem-Con/Chem-Met acquisition on
June 1, 1999, partially offset by scheduled repayments of $572,000.
We funded through the revolving and term loan a total of $4,882,000
pursuant to the Chem-Con/Chem-Met acquisition excluding legal,
professional and other closing fees, of which $2,651,000
represented the repayment of certain debt obligations, $1,192,000
represented payment of certain settlement obligations and
$1,000,000 of the cash consideration as paid to the former owners
of Chem-Con/Chem-Met. As of September 30, 1999, the Company's
borrowing availability under the Congress credit facility, based on
its then outstanding eligible accounts receivable, was
approximately $1,293,000.
Pursuant to the terms of the Stock Purchase Agreements in
connection with the acquisition of Chem-Con/Chem-Met, a portion of
the consideration was paid in the form of three promissory notes,
in the aggregate amount of $4,700,000 payable to the former owners
of the Company. The promissory notes are paid in equal monthly
installments of principal and interest of approximately $90,000
over five years with the first installment due on July 1, 1999.
The three promissory notes have an interest rate of 5.5% for the
first three years and 7% for the remaining two years. The
aggregate outstanding balance of the three promissory notes total
$4,493,000 at September 30, 1999, of which $858,000 is due over the
next twelve months. Payment of such promissory notes are
guaranteed by Chem-Met under a non-recourse guaranty, which non-
recourse guaranty is secured by certain real estate owned by Chem-
Met. See Note 3 to Notes to Consolidated Financial Statements for
further discussion of the above referenced acquisition.
At September 30, 1999, we had $15,195,000 in aggregate principal
amounts of outstanding debt, related to continuing operations, as
compared to $3,014,000 at December 31, 1998. This increase in
outstanding debt of $12,181,000 reflects the net borrowings on the
Congress Financial Corporation revolving loan and term note
facility of $6,679,000 principally related to the Chem-Con/Chem-Met
acquisition as discussed above, $4,700,000 in the form of three new
promissory notes in payment of a portion of the consideration for
the Chem-Con/Chem-Met acquisition as discussed above, approximately
$425,000 in various capital lease obligations assumed in
conjunction with the acquisition of Chem-Con/Chem-Met and $826,000
of debt related to new capital equipment at several of our existing
facilities, less scheduled principal payments of $449,000,
excluding revolving loan and term note payments. As of September 30,
24
1999, we had $7,000 in aggregate principal amounts of
outstanding debt related to PFM discontinued operations, all of
which is classified as current.
Our net purchases of new capital equipment for continuing
operations for the three and nine month periods ended September 30,
1999, totaled approximately $817,000 and $1,934,000, respectively,
of which $355,000 and $577,000, respectively, was financed. We have
budgeted capital expenditures of $2,500,000 for 1999 related to the
original Perma-Fix locations, which includes completion of certain
current projects, as well as other identified capital and permit
compliance purchases. We have not completed as of yet a capital
asset budget for the Chem-Con/Chem-Met facilities for the reminder
of 1999. However, we do not foresee significant capital asset
requirements in the short term. We anticipate funding the
remainder of these capital expenditures by a combination of lease
financing with lenders other than the equipment financing
arrangement discussed above, and/or internally generated funds.
Our working capital position at September 30, 1999, was a deficit
of $639,000, as compared to capital of $372,000 at December 31,
1998, which reflects a decrease in this position of $1,011,000
during this first nine months of 1999. We did however improve our
deficit position by $396,000 from the June 1999 working capital
position. This reduced working capital position is principally a
result of the impact of the Chem-Con/Chem-Met acquisition. The
consideration was paid in the form of cash, notes and debt, with
the cash portion being $1,000,000, a portion of which came from
current cash and a portion funded through the Congress long term
revolving loan. The Congress term loan was also increased by
$2,083,000 pursuant to this acquisition, which resulted in an
increase of $313,000 in the current portion of the term loan debt.
Additionally, as of September 30, 1999, the acquired Chem-Con/Chem-
Met companies had a deficit working capital position of
approximately $19,000. See Note 3 to Notes to Consolidated
Financial Statements for further discussion on this acquisition.
On April 20, 1999, the Company and RBB Bank entered into an
agreement to restructure the Company's Convertible Preferred Stock
held by RBB Bank, which totaled approximately $9.5 million. The
restructuring was accomplished through two exchange agreements
("First Exchange Agreement" and "Second Exchange Agreement") which
are further described in Note 7 to Notes to Consolidated Financial
Statements. Under the restructuring the Company and RBB Bank:
1. RBB Bank converted, pursuant to existing terms of the
Convertible Preferred Stock, $4.6 million of the Convertible
Preferred Stock into approximately 6.1 million shares of the
Company's Common Stock, which was completed in May 1999.
2. The Company was granted the right to purchase at a stated
value ($1,000 per share) $750,000 of the Convertible
Preferred Stock, which was subsequently purchased on July 15,
1999.
3. The terms of the balance of the Convertible Preferred Stock
(approximately $4.2 million) was changed, as follows:
a. Not subject to conversion for 12 months from the date of
the restructuring ("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up Period, any
conversion of the Convertible Preferred Stock would be
subject to a minimum conversion price of $1.50 per share
of Common Stock; and
c. The Company will be granted the option to redeem the
shares of the Convertible preferred stock at 110% of the
stated value ($1,000 per share) for the first twelve
months from the date of restructuring and RBB Bank may
not convert such shares redeemed during such twelve
month period, and thereafter the Company has the option
to redeem the Convertible Preferred Stock at 120% of the
stated value ($1,000 per share) of the Convertible
preferred stock and upon notice of such redemption RBB
Bank will have the right to exercise its conversion
rights pursuant to the then current terms of the
Convertible Preferred Stock.
4. The Company is required to register with the Commission the
Common Stock issuable upon conversion of the Convertible
Preferred Stock by January 31, 2000. The Company agreed that
25
if a registration statement covering such Common Stock is not
declared effective by the Commission by January 31, 2000, the
Company agrees to pay to RBB Bank a penalty in an amount
equal to two percent (2%) of the product of (a) the number of
shares of such Convertible Preferred Stock then outstanding
times (b) $1,000, payable in cash. The Company agreed that
for each month thereafter which terminates without such
registration statement being declared effective by the
Commission before the end of the last day thereof, the
Company shall pay to RBB Bank a penalty in an amount equal to
two percent (2%) of the product of (a) the number of shares
of Convertible Preferred Stock then outstanding times (b)
$1,000, payable in cash.
5. The remaining terms of the Convertible Preferred Stock will
remain unchanged.
The Company financed the redemption of $750,000 of Convertible
Preferred Stock through borrowings under its revolving credit
facility. As of the date of this report, the Company does not
intend, in the foreseeable future, to redeem the outstanding
Convertible Preferred Stock currently held by RBB Bank as the
Company believes that its available liquidity should be used
primarily for working capital purposes.
As discussed above, on June 1, 1999, the Company purchased all
of the outstanding stock of Chem-Con/Chem-Met and paid $8.7
million, as follows: (i) $1 million in cash, (ii) five (5) year
promissory notes totaling the original principal amount of $4.7
million, bearing an annual rate of interest of 5.5% for the first
three years and 7% for the last two years, with principal and
accrued interest payable in monthly installments of approximately
$90,000 each, and (iii) $3 million payable in the form of 1.5
million shares of the Company's Common Stock based on each share
having an agreed value of $2.00. If the average of the closing
price of the Company's Common Stock as quoted on the NASDAQ for the
five (5) trading days immediately preceding the date eighteen (18)
months after June 1, 1999 ("Valuation Date") is less than $2.00 per
share, the Company is to pay in cash or Common Stock or a
combination thereof, at the Company's option, the difference
between $3 million and the value of the 1.5 million shares of
Common Stock based on the five (5) trading day average as quoted on
the NASDAQ immediately preceding the Valuation Date. Under the
Company's loan agreement, the Company may pay such amount, if any,
only in Common Stock unless the lender agrees that the Company may
satisfy such in whole or in part in cash. However, the Company is
not to issue in connection with the acquisition of Chem-Con/Chem-
Met more than 18% of the outstanding shares of Common Stock at the
closing of the acquisition of Chem-Con/Chem-Met.
The Company funded the cash portion of the purchase price for
Chem-Con/Chem-Met through borrowings under its revolving credit
facility as discussed above and will fund the payment of the
promissary notes issued as a part of the purchase price by
borrowings under its revolving credit facility and/or working
capital generated from operations.
In addition, the Company arranged with its lenders to include
within its revolving credit facility Chem-Con/Chem-Met and, as a
result, increased its credit facility from approximately $7 million
to approximately $11 million, and used the expanded credit facility
(a) to pay certain claims against Chem-Con/Chem-Met totaling
approximately $1,192,000 million and (b) to replace approximately
$2,651,000 million of Chem-Con/Chem-Met existing credit facilities.
Environmental Contingencies
The Company is engaged in the Waste Management Services segment
of the pollution control industry. As a participant in the on-site
treatment, storage and disposal market and the off-site treatment
and services market, the Company is subject to rigorous federal,
state and local regulations. These regulations mandate strict
compliance and therefore are a cost and concern to the Company.
The Company makes every reasonable attempt to maintain complete
compliance with these regulations; however, even with a diligent
commitment, the Company, as with many of its competitors, may be
required to pay fines for violations or investigate and potentially
remediate its waste management facilities.
26
The Company routinely uses third party disposal companies, who
ultimately destroy or secure landfill residual materials generated
at its facilities or at a client's site. The Company, compared to
its competitors, disposes of significantly less hazardous or
industrial by-products from its operations due to rendering
material non-hazardous, discharging treated wastewaters to
publicly-owned treatment works and/or processing wastes into
saleable products. In the past, numerous third party disposal
sites have improperly managed wastes and require remedial action;
consequently, any party utilizing these sites may be liable for
some or all of the remedial costs. Despite the Company's
aggressive compliance and auditing procedures for disposal of
wastes, the Company could, in the future, be notified that it is a
PRP at a remedial action site, which could have a material adverse
effect on the Company.
During January 1998, PFM was notified by the EPA that it believed
that PFM was a PRP regarding the remediation of a site owned and
operated by W.R. Drum, Inc. ("WR Drum") in Memphis, Tennessee (the
"Drum Site"), as further discussed in Item 3 "Legal Proceedings" in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. During the third quarter of 1998, the government
agreed to PFM's offer to pay $225,000 ($150,000 payable at closing
and the balance payable over a twelve-month period) to settle any
potential liability regarding this Drum Site. During January 1999,
the Company executed a "Partial Consent Decree" pursuant to this
settlement, which settlement was subject to approval of the court.
The settlement was approved in September 1999 and the initial
payment of $150,000 was paid in October 1999.
In addition to budgeted capital expenditures of $2,500,000 for
1999 at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above in this
Management's Discussion and Analysis, we have also budgeted for
1999 an additional $437,000 in environmental expenditures to comply
with federal, state and local regulations in connection with
remediation of certain contaminates at two locations. The two
locations where these expenditures will be made are a parcel of
property leased by a predecessor to PFD in Dayton, Ohio (EPS), a
former RCRA storage facility as operated by the former owners of
PFD, and PFM's facility in Memphis, Tennessee. We have estimated
the expenditures for 1999 to be approximately $222,000 at the EPS
site and $215,000 at the PFM location of which $104,000 and
$112,000 respectively, were spent during the first nine months of
1999. Additional funds will be required for the next five to ten
years to properly investigate and remediate these sites. We expect
to fund these expenses to remediate these two sites from funds
generated internally, however, no assurances can be made that we
will be able to do so.
We also recognized long-term environmental accruals totaling
$4,319,000 related to the Chem-Con/Chem-Met facilities acquired
effective June 1, 1999, of which we anticipate spending
approximately $1,090,000 over the next twelve months. This amount
represents management's estimate of the long-term costs to remove
contaminated soil and to undergo groundwater remediation activities
at two of the Chem-Con/Chem-Met acquired facilities, Valdosta,
Georgia and Detroit, Michigan. Both facilities have pursued
remedial activities for the last five years with additional studies
forthcoming and potential groundwater restoration could extend for
a period of ten years. No insurance or third party recovery was
taken into account in determining our cost estimates or reserve,
nor do our cost estimates or reserve reflect any discount for
present value purposes.
Recent Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133, as amended by FAS 137, is effective
for periods beginning after June 15, 2000. Historically and as of
the date of this report, we have not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect our
financial statements.
27
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART I, ITEM 3
The Company is exposed to certain market risks arising from
adverse changes in interest rates, primarily due to the potential
effect of such changes on the Company's variable rate loan
arrangements with Congress, as described under Note 4 to Notes to
Consolidated Financial Statements. The Company does not use
interest rate derivative instruments to manage exposure to interest
rate changes.
28
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
_________________
There are no additional material legal proceedings pending
against the Company and/or its subsidiaries not previously reported
by the Company in Item 3 of its Form 10-K for the year ended
December 31, 1998, which Item 3 is incorporated herein by
reference.
Item 2. Changes in Securities and Use of Proceeds
________________________________________
(c) During the quarter ended September 30, 1999, the
Company sold or entered into an agreement to sell, equity
securities that were not registered under the Securities Act of
1933, as amended (the "Securities Act"), other than as previously
reported, as such term is defined under Rule 12b-2 of the Exchange
Act of 1934, as amended (the "Exchange Act"), as follows:
(i) Pursuant to the terms of an Asset Purchase
Agreement (the "Agreement"), effective as of April 1, 1998, by and
among the Company's wholly-owned subsidiary Perma-Fix of Ft.
Lauderdale, Inc., a Florida corporation ("PFFL") and Action
Environmental Corp., a Florida corporation ("Action"), Lewis R.
Goodman ("Goodman") and Evelio Acosta ("Acosta"), the Company
issued to Action 108,207 share of Common Stock as consideration for
the purchase by PFFL of all or substantially all of the assets of
Action. The closing of the transaction occurred on April 15, 1998.
The Agreement specifies that the Common Stock delivered to Action
is to have a value of $207,000 as of April 1, 1999, based upon the
closing price of the Common Stock as quoted on the National
Association of Securities Dealers SmallCap Quotation market
("NASDAQ") for the three consecutive trading days ending with the
day before April 1, 1999. The Agreement specifies that in the
event the value of the Common Stock issued to Action as of April 1,
1998, is less than $207,000, PESI is to issue to Action that number
of shares of Common Stock necessary to make the value of the
aggregate shares of Common Stock issued to Action under the
Agreement equal to approximately $207,000 as of April 1, 1999. The
Company issued 94,967 shares of Common Stock to Action in July 1999
pursuant to the terms of the Agreement. Regarding the 94,967
shares of Common Stock, Action requested that 65,823 shares be
issued to Hesco Sales, Inc., a creditor of Action, 14,572 shares be
issued to Goodman and 14,572 shares be issued to Acosta. The
issuance of Common Stock pursuant to the Action Agreement was a
private placement under Section 4(2) of the Securities Act and/or
Rule 506 of Regulation D as promulgated under the Securities Act.
(ii) During August 1999, the Company issued to RBB Bank
62,386 shares of the Company's Common Stock in payment of $101,000
in accrued and unpaid dividends from January 1, 1999, to June 30,
1999, relating to certain outstanding series of the Company's
Preferred Stock in accordance with the terms of such Preferred
Stock. The issuance of the above described shares of Common Stock
in payment of accrued and unpaid dividends in connection the
Company's Preferred Stock were issued pursuant to an exemption from
registration under Section 4(2) of the Act and/or Rule 506 of
Regulation D as promulgated under the Act.
(iii) During August 1999, the Company issued to the
Infinity Fund, L.P. ("Infinity") 4,306 shares of the Company's
Common Stock in payment of $7,000 in accrued and unpaid dividends
from January 1, 1999, to June 30, 1999, relating to certain
outstanding series of the Company's Preferred Stock held by
Infinity in accordance with the terms of such Preferred Stock. The
issuance of the above described shares of Common Stock in payment
of accrued and unpaid dividends in connection with the Company's
Preferred Stock were issued pursuant to an exemption from
registration under Section 4(2) of the Act and/or Rule 506 of
Regulation D promulgated under the Act. The Company believes that
the general conditions contained in Rule 501 and 502 of Regulation D
were complied with in connection with this issuance.
29
The Preferred Stock was issued to Infinity pursuant to the
terms of a Subscription and Purchase Agreement in which Infinity
stated, among other things, that (i) it was an "accredited
investor," as such term is defined in Rule 501 of Regulation D
promulgated under the Act, and has total assets in excess of
$5,000,000; (ii) it had adequate means of providing for its
financial needs and possible contingencies and had no need for
liquidity of its investment in the Preferred Stock; (iii) it was
able to bear the economic risks inherent in an investment in the
Preferred Stock; (iv) it had the ability to bear the economic risk
of a complete loss of its investment in the Preferred Stock; (v) it
had such knowledge and experience in business, financial,
investment and banking matters (including, but not limited to,
investments in restricted, non-listed and non-registered
securities) that it was capable of evaluating the merits, risks and
advisability of an investment in the Preferred Stock; (vi) it had
been previously furnished with true and complete copies of the
Company's documents which had been filed with the Commission
pursuant to Sections 13(a), 14(a), 14(c) or 15(d) of the Exchange
Act since January 1, 1997, and that such were furnished to Infinity
a reasonable time prior to the date of its purchase of the
Preferred Stock; (vii) its decision to purchase the Preferred Stock
was not based on any promotional, marketing or sales materials;
(viii) it was afforded, prior to purchase of the Preferred Stock,
the opportunity to ask questions of, and to receive answers from,
the Company with respect to the purchase of the Preferred Stock;
and (ix) it had access to all documents and information which it
deemed material to an investment decision with respect to the
purchase of the Preferred Stock.
Infinity further stated that (i) the Preferred Stock was being
acquired solely for its own account, for investment purposes only
and not with a view toward the distribution or resale to others;
(ii) it understood that there was no public market for the
Preferred Stock and that while there was a public market for the
Common Stock issuable upon conversion of the Preferred Stock, such
Common Stock could not be transferred unless such were registered,
or unless an exemption were available under various securities
laws; (iii) the Company may, if it chooses, where an exemption from
registration is claimed by Infinity, condition any transfer of
Preferred Stock or Common Stock issued thereunder out of Infinity's
name upon receiving an opinion of the Company's counsel to the
effect that the proposed transfer is being effected in accordance
with, and does not violate, an applicable exemption from
registration, or an opinion of counsel to Infinity, which opinion
is satisfactory to the Company, to the effect that registration is
not required in connection with such sale or transfer and the
reasons therefor; (iv) it understood that Rule 144 ("Rule 144")
promulgated under the Act requires, among other conditions, a one-
year holding period following full payment of the consideration
therefor prior to the resale (in limited amounts) of securities
acquired in a nonpublic offering without having to satisfy the
registration requirements under the Act; (v) it understood that the
Company made no representation or warranty regarding its
satisfaction of any reporting requirements required by Rule 144 as
one of the conditions of its availability; and (vi) it understood
that the Preferred Stock and Common Stock issuable upon conversion
of the Preferred Stock would bear a restrictive legend.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
27 Financial Data Sheet
(b) Reports on Form 8-K
A current report on Form 8-K/A (Item 7 - Financial
Statements and Exhibits), dated June 1, 1999, was filed
on August 16, 1999, to provide certain financial
information regarding the acquisition of Chem-Con/Chem-
Met, which was previously reported in a current report on
Form 8-K (Item 2 - Acquisition or Disposition of Assets,
Item 5 - Other Events and Item 7 - Financial Statements
and Exhibits) dated June 1, 1999, filed on June 16, 1999.
30
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.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Date: January 18, 2000 By: /s/ Louis F. Centofanti
__________________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
__________________________________
Richard T. Kelecy
Chief Financial Officer
31