SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ___________________________________ 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 Identification Number) of incorporation or organization) 1940 N.W. 67th Place, Gainesville, FL 32653 (Address of principal executive offices) (Zip Code) 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 Outstanding at November 17, 2000 _____ ________________________________ Common Stock, $.001 Par Value 21,833,649 (excluding 988,000 shares held as treasury stock) PERMA-FIX ENVIRONMENTAL SERVICES, INC. INDEX PART I FINANCIAL INFORMATION Page No. _________ Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 . . . . . . . . . . . . . . . . . .2 Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 . . . . . .5 Consolidated Statements of Stockholder's Equity - Nine Months Ended September 30, 2000. . . . . . . . . . .6 Notes to Consolidated Financial Statements . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . .28 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . .29 Item 2. Changes in Securities and Use of Proceeds. . . . .29 Item 5. Other Information. . . . . . . . . . . . . . . . .29 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 32 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED FINANCIAL STATEMENTS PART I, ITEM 1 The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an 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, results of operations and cash flows 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, 1999. The results of operations for the nine months ended September 30, 2000, are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2000. 1
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS September 30, 2000 December 31, (Amounts in Thousands, Except for Share Amounts) (Unaudited) 1999 _________________________________________________________________________________ ASSETS Current assets: Cash and cash equivalents $ 524 $ 771 Restricted cash equivalents and investments 20 73 Accounts receivable, net of allowance for doubtful accounts of $886 and $952, respectively 15,990 13,027 Inventories 616 229 Prepaid expenses 1,379 486 Other receivables 739 62 Assets of discontinued operations 47 377 _______ _______ Total current assets 19,315 15,025 Property and equipment: Buildings and land 14,015 12,555 Equipment 18,310 13,682 Vehicles 2,406 2,274 Leasehold improvements 16 16 Office furniture and equipment 1,495 1,223 Construction in progress 3,555 1,210 _______ _______ 39,797 30,960 Less accumulated depreciation (9,321) (7,690) _______ _______ Net property and equipment 30,476 23,270 Intangibles and other assets: Permits, net of accumulated amortization of $1,923 and $1,504, respectively 13,552 8,544 Goodwill, net of accumulated amortization of $1,244 and $1,009, respectively 6,918 7,154 Other assets 605 651 _______ _______ Total assets $70,866 $54,644 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 2
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS, CONTINUED September 30, 2000 December 31, (Amounts in Thousands, Except for Share Amounts) (Unaudited) 1999 ___________________________________________________________________________________________________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,671 $ 7,587 Accrued expenses 8,288 5,885 Revolving loan and term note facility 938 938 Current portion of long term debt 7,864 1,427 Current liabilities of discontinued operations 220 588 ________ ________ Total current liabilities 23,981 16,425 Environmental accruals 3,653 3,847 Accrued closure costs 5,091 962 Long term debt, less current portion 16,190 12,937 Long term liabilities of discontinued operations 654 654 ________ ________ Total long term liabilities 25,588 18,400 ________ ________ Total liabilities 49,569 34,825 Commitments and Contingencies (see Note 7) - - Stockholders' equity: Preferred stock, $.001 par value; 2,000,000 shares authorized, 4,187 and 4,537 shares issued and outstanding, respectively - - Common Stock, $.001 par value; 50,000,000 shares authorized, 22,821,649 and 21,501,776 shares issued, including 988,000 shares held as treasury stock 23 21 Additional paid-in capital 43,466 42,367 Accumulated deficit (20,330) (20,707) __________ ________ 23,159 21,681 Less Common Stock in treasury at cost; 988,000 (1,862) (1,862) shares issued and outstanding __________ ________ Total stockholders' equity 21,297 19,819 __________ _________ Total liabilities and stockholders' equity $ 70,866 $ 54,644 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 3
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, (Amounts in Thousands, _______________ _________________ Except for Share Amounts) 2000 1999 2000 1999 ______________________________________________________________________________________ Net revenues $15,360 $13,858 $43,441 $32,243 Cost of goods sold 10,190 9,223 29,739 21,332 _______ _______ _______ _______ Gross profit 5,170 4,635 13,702 10,911 Selling, general and administrative expenses 3,138 3,014 9,318 7,147 Depreciation and amortization 903 771 2,617 1,887 ________ _______ _______ _______ Income from operations 1,129 850 1,767 1,877 Other income (expense): Interest income 10 16 31 34 Interest expense (556) (257) (1,407) (375) Other 74 (11) 141 (31) _______ _______ _______ _______ Net income 657 598 532 1,505 Preferred Stock dividends (51) (57) (155) (247) Gain on Preferred Stock redemption - 188 - 188 _______ _______ _______ _______ Net income applicable to Common Stock $ 606 $ 729 $ 377 $ 1,446 ======= ======= ======= ======= _______________________________________________________________________________________ Net income per share: Basic $ .03 $ .04 $ .02 $ .09 ======== ======= ======= ======= Diluted $ .03 $ .03 $ .02 $ .08 ======== ======= ======= ======== Number of shares and Common stock equivalents used in computing net income per share: Basic: 21,720 20,386 21,427 16,472 ======= ======= ======= ======= Diluted 26,208 24,183 25,717 20,104 ======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 4
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, _________________ (Amounts in Thousands, Except for Share Amounts) 2000 1999 _____________________________________________________________________________________ Cash flows from operating activities: Net income from continuing operations $ 532 $ 1,505 Adjustments to reconcile net income to cash provided by (used in) operations: Depreciation and amortization 2,617 1,887 Provision for bad debt and other reserves 53 25 Gain on sale of plant, property and equipment (107) (19) Changes in assets and liabilities, net of effects from business acquisitions: Accounts receivable (753) (1,968) Prepaid expenses, inventories and other assets (1,214) (390) Accounts payable and accrued expenses (748) (1,101) ________ _______ Net cash provided by (used in) continuing operations 380 (61) Net cash used by discontinued operations (343) (789) Cash flows from investing activities: Purchases of property and equipment, net (2,280) (1,357) Proceeds from sale of plant, property and equipment 191 65 Change in restricted cash, net 36 1,060 Cash used for acquisition consideration (2,500) (1,000) Net cash used for acquisition settlements - (1,616) Net cash provided by (used in) discontinued operations 265 (42) ________ ________ Net cash used in investing activities (4,288) (2,890) Cash flows from financing activities: Borrowings of revolving loan and term note facility 445 4,668 Principal repayments of long term debt (1,062) (450) Proceeds from issuance of long term debt 3,750 250 Redemption of Preferred Stock - (750) Purchase of treasury stock - (49) Proceeds from issuance of stock 830 142 Net cash used by discontinued operations (4) (21) _________ ________ Net cash provided by financing activities 3,959 3,790 Increase (decrease) in cash and cash equivalents (292) 50 Cash and cash equivalents at beginning of period, including discontinued operations of $45, and $0, respectively 816 776 ________ ________ Cash and cash equivalents at end of period, including discontinued operations of $0, and $43, respectively $ 524 $ 826 ========= ======== ______________________________________________________________________________________ Supplemental disclosure: Interest and dividends paid $ 1,301 $ 755 Non cash investing and financing activities: Issuance of Common Stock for services - 15 Issuance of Common Stock for payment of dividends 214 221 Long term debt incurred for purchase of property and equipment 556 577 Long term debt incurred for acquisitions 6,000 4,700 Issuance of stock and warrants for acquisitions 57 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, 2000) Common Preferred Stock Common Stock Additional Stock (Amounts in Thousands ________________ ____________________ Paid-In Accumulated Held in Except for Share Amounts) Shares Amount Shares Amount Capital Deficit Treasury __________________________________________________________________________________________________________________ Balance at December 31, 1999 4,537 $ - 21,501,776 $ 21 $ 42,367 $ (20,707) $ (1,862) Net Income - - - - - 532 - Preferred Stock dividend - - - - - (155) - Issuance of Common Stock for Preferred Stock dividend - - 168,825 - 214 - - Conversion of Preferred Stock to Common Stock (350) - 322,351 1 (1) - - Issuance of stock under Employee Stock Purchase Plan - - 101,697 - 103 - - Issuance of warrants in conjunction with acquisition - - - - 57 - - Exercise of warrants - - 727,000 1 726 - - ________ ______ _________ _______ _______ _______ ________ Balance at September 30, 2000 4,187 $ - 22,821,649 $ 23 $ 43,466 $(20,330) $ (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, 2000 (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, 1999. 1. Summary of Significant Accounting Policies __________________________________________ Our accounting policies are as set forth in the notes to consolidated financial statements referred to above. 2. Earnings Per Share __________________ Basic EPS is based on the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS includes the dilutive effect of potential common shares.
The following is a reconciliation of basic net income per share to diluted net income per share for the three months and nine months ended September 30, 2000 and 1999: Three Months Ended Nine Months Ended September 30, September 30, (Amounts in Thousands, ___________________ _________________ Except for Share Amounts 2000 1999 2000 1999 _______________________________________________________________________________________ Net income applicable to Common Stock - basic $ 606 $ 729 $ 377 $ 1,446 Effect of dilutive securities - Preferred Stock dividends 51 57 155 247 Gain on Preferred Stock dividends - (188) - (188) _______ _______ ______ _______ Net income applicable to Common Stock - diluted $ 657 $ 598 $ 532 $ 1,505 ====== ======= ====== ======== Basic net income per sha re $ .03 $ .04 $ .02 $ .09 ====== ======= ====== ======= Diluted net income per share $ .03 $ .03 $ .02 $ .08 ====== ======= ====== ======= Weighted average shares outstanding-basic 21,720 20,386 21,427 16,472 Potential shares exercisable under stock option plans 1,132 712 1,015 519 Potential shares upon exercise of warrants 565 - 484 - Potential shares upon conversion of Preferred Stock 2,791 3,085 2,791 3,113 _______ _______ _______ ______ Weighted average shares outstanding-diluted 26,208 24,183 25,717 20,104 ======== ======= ======= =======
3. 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 7 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. The accrued environmental and closure costs related to PFM total $841,000 as of September 30, 2000, a decrease of $334,000 from the December 31, 1999, accrual balance. This reduction was principally a result of the specific costs related to general closure and remedial activities, including groundwater remediation, agency and investigative activities ($192,000) and the general operating losses, including indirect labor, materials and supplies, incurred in conjunction with the above actions ($142,000). The general operating losses do not reflect management fees charged by the Company. The remaining environmental and closure liability represents the best estimate of the cost to complete the groundwater remediation at the site of approximately $580,000, the costs to complete the facility closure activities over the next five (5) year period (including agency and investigative activities, and future operating losses during such closure period) totaling approximately $261,000. 4. Acquisition ___________ On May 16, 2000, Perma-Fix Environmental Services, Inc. (the "Company"), and Waste Management Holdings, Inc., a Delaware corporation ("Waste Management Holdings") entered into a Stock Purchase Agreement which was subsequently amended on August 31, 2000 (together, the "Stock Purchase Agreement"), wherein the Company agreed to purchase all of the outstanding capital stock of Diversified Scientific Services, Inc. ("DSSI") from Waste Management Holdings, Inc. pursuant to the terms of the Stock Purchase Agreement. On August 31, 2000, the conditions precedent to closing of the Stock Purchase Agreement were completed and the Stock Purchase Agreement was consummated. Under the terms of the Stock Purchase Agreement, the purchase price paid by the Company in connection with the DSSI acquisition was $8,500,000, consisting of (i) $2,500,000 in cash at closing, (ii) a guaranteed promissory note (the "Guaranteed Note"), guaranteed by DSSI, with the DSSI guarantee secured by certain assets of DSSI (except for accounts, accounts receivable, general intangibles, contract rights, cash, real property and proceeds thereof), executed by the Company in favor of Waste Management Holdings in the aggregate principal amount of $2,500,000 and bearing interest at a rate equal to the prime rate charged on August 30, 2000, as published in the Wall Street Journal plus 1.75% per annum and having a term of the lesser of 120 days from August 31, 2000, or the business day that the Company acquires any entity or substantially all of the assets of an entity (the "Guaranteed Note Maturity Date"), with interest and principal due in a lump sum at the end of the Guaranteed Note Maturity Date, and (iii) an unsecured promissory note (the "Unsecured Promissory Note"), executed by the Company in favor of Waste Management Holdings in the aggregate principal amount of $3,500,000, and bearing interest at a rate of 7% per annum and having a five-year term with interest to be paid annually and principal due at the end of the term of the Unsecured Promissory Note. The cash portion of the purchase price for DSSI was obtained pursuant to the terms of a short term bridge loan agreement (the "$3,000,000 RBB Loan Agreement") with RBB Bank Aktiengesellschaft, a bank organized under the laws of Austria ("RBB Bank"), whereby RBB Bank loaned (the "$3,000,000 RBB Loan") the Company the aggregate principal amount of $3,000,000, as evidenced by a Promissory Note (the "$3,000,000 RBB Promissory Note") in the face amount of $3,000,000, having a maturity date of November 29, 2000, and bearing an annual interest rate of 12%. The principal business of DSSI, conducted at its facility in Kingston, Tennessee, is the permitted transportation, storage and treatment of hazardous waste and mixed waste (waste containing both low level radioactive and hazardous waste) and the disposal of or recycling of mixed waste in DSSI's treatment unit located at DSSI's facility. The Company intends to continue using the DSSI facility for substantially the same purposes as such was being used prior to the acquisition by the Company. 8 The acquisition was accounted for using the purchase method effective August 31, 2000, and accordingly, the assets and liabilities as of this date are included in the accompanying consolidated financial statements. As of September 1, 2000, 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 $9,165,000 and assumed liabilities of approximately $6,007,000, against total consideration of $8,500,000. This preliminary allocation has resulted in an excess purchase price over the fair value of the net assets acquired of $5,400,000 which was assigned to intangible permits. The 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 and liabilities, 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 business have been included in the consolidated financial statements since the date of acquisition. The audited financial statements of DSSI for the fiscal year ended December 31, 1999, reflected net revenues of $10,129,000, net income of $2,590,000 and an EBITDA of $2,754,000. We accrued for the estimated closure costs, determined pursuant to RCRA and BIF guidelines, for the regulated facility acquired. This accrual, recorded at $4,106,000, represents the potential future liability to close and remediate such facilities, should such a cessation of operations ever occur. 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. 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, 1999. DSSI had a December 31 fiscal year end and therefore, their results for the year ended December 31, 1999, have been consolidated with our results for the year ended December 31, 1999. DSSI's results for the nine months ended September 30, 2000 and 1999, have been consolidated with our results for the nine months ended September 30, 2000 (excluding the DSSI results for September 2000, included therein) and 1999. Nine Months Ended Year Ended September 30, (Amounts in thousands, December 31, ___________________ except per share amounts) 1999 2000 1999 ______________________________________________________________________________ Net revenues $ 56,593 $46,822 $39,016 Net income (loss) applicable to Common Share 2,899 (492) 1,767 Net Income (loss) per share: Basic .17 (.02) .11 Diluted .14 (.02) .09 Weighted average number of common shares outstanding Basic 17,488 21,427 16,472 Diluted 21,224 21,427 20,104 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 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. 5. Proposed Acquisition ____________________ During July 2000, the Company signed a letter of intent to acquire 80% of the voting stock of East Tennessee Materials and Energy Corporation ("M&EC"). Subsequently, the Company and M&EC orally modified their negotiations to address a proposed acquisition by the Company of 100% of the voting stock of M&EC. M&EC is licensed to operate a low level radioactive and hazardous ("Mixed Waste") 9 treatment facility at the U.S. Department of Energy's ("DOE") site in Oak Ridge, Tennessee. The two-acre M&EC facility, which is intended for the treatment of government and commercial mixed waste, is the only non-government operated mixed waste treatment facility that is located within the government's Oak Ridge, Tennessee, site. M&EC will process mixed waste under three Broad Spectrum contracts granted to M&EC. As of the date of this report, M&EC is in the process of constructing its treatment facility and has no material revenue generating activities. If this transaction is completed, the Company anticipates it will pay consideration of approximately $1,350,000 which shall be payable at closing, as follows: (i) $338,000 in cash, and (ii) $1,012,000 in the form of Perma-Fix Common Stock, with the number of shares determined at the date of closing, but not to exceed 675,000 shares. In addition, M&EC would issue, prior to the closing of this transaction, M&EC preferred stock to the current M&EC Owners. As of November 15, 2000, the Company has loaned M&EC $930,000. The Company has evidenced such loan by the execution by M&EC of a promissory note in favor of the Company, which is secured by the assets of M&EC. The acquisition of M&EC is subject to, among other things, negotiation and execution of a definitive agreement, completion of due diligence, regulatory approval, the Company obtaining appropriate financing for the acquisition, and the Company obtaining the settlement of certain of M&EC's tax liabilities and obligations relating to M&EC's 401(k), all of which must be to the satisfaction of the Company. 6. Long term Debt --------------
Long term debt consists of the following at September 30, 2000, and December 31, 1999 (in thousands): September 30, 2000 December 31, (Unaudited) 1999 _____________ ____________ Revolving loan facility dated January 15, 1998, as amended May 27, 1999 and August 31, 2000, borrowings based upon eligible accounts receivable, subject to monthly borrowings base calculation, variable interest paid monthly at prime rate plus 1 3/4 (11.25% at September 30, 2000). $ 7,040 $ 5,891 Term loan agreement dated January 15, 1998, as amended May 27, 1999, payable in monthly principal install- ments of $78, balance due in June 2002, variable interest paid monthly at prime rate plus 1 3/4 (11.25% at September 30, 2000). 2,500 3,203 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. 3,635 4,283 Promissory note dated July 14, 2000, payable in lump sum of principal and interest on the earlier of December 31, 2000, or ten business days after $3,000,000 in securities raised, interest paid at annual rate of 10%. 750 - Promissory note dated August 29, 2000, payable in lump sum of principal and interest on November 29, 2000, interest paid at annual rate of 12%. 3,000 - Promissory note dated August 31, 2000, payable in lump sum on December 31, 2000, interest paid annually at 11.25%. 2,500 - Promissory note dated August 31, 2000, payable in lump sum in August 2005, interest paid annually at 7%. 3,500 - Various capital lease and promissory note obligations, payable 2000 to 2005, interest at rates ranging from 7.5% to 13.0%. 2,067 1,925 ________ ________ 24,992 15,302 Less current portion of revolving loan and term note facility 938 938 Less current portion of long term debt 7,864 1,427 ________ _________ $ 16,190 $ 12,937 ======== =========
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 10 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 Chemical Conservation Corporation (CCC), Chemical Conservation of Georgia, Inc. (CCG) and Chem-Met Services, Inc. (CM) on May 27, 1999, Congress, the Company, and the Company's subsidiaries, including CCC, CCG and CM 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 were amended to provide, among other things, (i) the credit line being increased from $7,000,000 to $11,000,000, with 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, was 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) CCC, CCG and CM 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 net income applicable to Common Stock of the Company is equal to or greater than $1,500,000 for fiscal year ended December 31, 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 CM shall be paid at closing of the acquisition of CCC, CCG and CM. 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 due 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. In connection with the acquisition of DSSI on August 31, 2000, Congress, the Company and the Company's subsidiaries, including DSSI entered into a Second Amendment and Joinder to Loan and Security Agreement (the "Second Amendment") dated August 31, 2000, pursuant to which the Original Loan Agreement among Congress, the Company and the Company's subsidiaries were amended to provide, among other things, (i) the credit line being increased from $11,000,000 to $12,000,000, with the revolving line of credit portion being determined as the maximum credit of $12,000,000, 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, and (ii) DSSI being added as a co-borrower under the terms of the original loan 11 agreement, as amended. The Second Amendment became effective on August 31, 2000, when the acquisition of DSSI was consummated. The Company incurred approximately $35,000 in amendment fees associated with the Second Amendment, as required pursuant to the acquisition of DSSI. The interest rate on the revolving loan and term loan was 11.25% at September 30, 2000. Under the terms of the Original Loan Agreement, as amended, the Company had 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 CCC, CCG and CM acquisition. The adjusted net worth covenant requirement ranged from a low of $1,200,000 at June 1, 1999, to a high of $3,000,000 from July 1, 2000, through the remaining term of the Loan Agreement. However, pursuant to the DSSI acquisition and Second Amendment, the covenant requirements were amended as follows: (i) the Company agreed to maintain a net worth in accordance with GAAP on a consolidated basis of not less than $19,500,000 from the date of the acquisition until December 31, 2001, and (ii) effective December 31, 2001, through the remaining term of the Original Loan Agreement, the Company agreed to maintain an adjusted net worth of not less than $3,000,000. 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 CCC, CCG, CM and DSSI) 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, except for certain real property owned by CM, for which a first security interest is held by the TPS Trust and the ALS Trust as security for CM'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, 2000, borrowings under the revolving loan agreement were approximately $7,040,000, an increase of $1,149,000 over the December 31, 1999, balance of $5,891,000. The balance under the term loan at September 30, 2000, was $2,500,000, a decrease of $703,000 from the December 31, 1999, balance of $3,203,000. As of September 30, 2000, the Company's borrowing availability under the Congress credit facility, based on its then outstanding eligible accounts receivable, was approximately $2,237,000, including $1.0 million of additional borrowing availability extended to the Company by Congress. The additional borrowing availability was provided to the Company to assist with the acquisition of DSSI and M&EC (see Note 4 and Note 5) and to fund certain facility expansions and capital improvements, in anticipation of the Company raising additional funds. During the first quarter of 2000, the Company engaged Ryan, Beck & Co. and Larkspur Capital Corporation (collectively, the "Financial Advisors") as financial advisors to the Company in the private placement of new debt and possible equity. Pursuant to the terms of the Stock Purchase Agreements in connection with the acquisition of CCC, CCG and CM, 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 CCC, CCG and CM. 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 $3,635,000 at September 30, 2000, of which $906,000 is in the current portion. Payments of such Promissory Notes are guaranteed by CM under a non-recourse guaranty, which non-recourse guaranty is secured by certain real estate owned by CM. On July 14, 2000, the Company entered into a letter agreement ("$750,000 RBB Loan Agreement") with RBB Bank Aktiengesellschaft ("RBB Bank"), pursuant to which RBB Bank, acting as agent for certain investors who provided the funds, loaned (the "$750,000 RBB Loan") the Company the aggregate principal amount of $750,000, as evidenced by an unsecured promissory note (the "$750,000 RBB 12 Promissory Note") in the face amount of $750,000, bearing an annual interest rate of 10.0% per annum. The purpose of the $750,000 RBB Loan is to provide interim financing to facilitate the acquisition of DSSI and M&EC (see Note 4 and Note 5) and to fund certain capital expansions at the Company's existing facilities. The principal amount of this Note and accrued interest thereon is payable in full upon the earlier of (i) December 31, 2000, or (ii) ten business days after the Company raises $3,000,000 or more through a private placement of capital securities. As previously discussed in Note 6, during the first quarter, the Company engaged Ryan, Beck & Co. and Larkspur Capital Corporation as financial advisors to the Company in the private placement of new debt and possible equity. On August 29, 2000, the Company entered into a short term bridge loan agreement with RBB Bank in connection with the Company's acquisition of DSSI. This loan agreement (the "$3,000,000 RBB Loan Agreement") was between the Company and RBB Bank, pursuant to which RBB Bank, acting as agent for certain investors who provided the funds, loaned (the "$3,000,000 RBB Loan") the Company the aggregate principal amount of $3,000,000, as evidenced by a Promissory Note (the "$3,000,000 RBB Promissory Note") in the face amount of $3,000,000, having a maturity date of November 29, 2000 and bearing an annual interest rate of 12%. In connection with the $3,000,000 RBB Loan, the Company paid RBB Bank a fee of $15,000 and issued RBB Bank, as agent for the investors who loaned the money to the Company, certain warrants (the "Initial RBB Loan Warrants"), having a term of three (3) years, allowing the purchase of up to 150,000 shares of the Company's Common Stock, par value $.001 per share (the "Common Stock"), at an exercise price of $1.50 per share, with these warrants containing a cashless exercise provision. The Black Scholes valuation of these warrants was $57,000 and such amount was recorded as acquisition costs. Pursuant to the terms of the $3,000,000 RBB Loan Agreement, if all principal and accrued and unpaid interest under the $3,000,000 RBB Promissory Note is not paid in full by 5:00 p.m. New York time, (i) on October 30, 2000, then the Company shall issue to RBB Bank, as agent for the investors who loaned the money to the Company, certain additional warrants, having a term of three (3) years, allowing the purchase of up to an additional 5,000 shares of Common Stock for each $100,000 of unpaid principal remaining under the Promissory Note on such date, at an exercise price equal to the closing market price of the Common Stock on the NASDAQ on October 30, 2000, with such warrants containing a cashless exercise provision, (ii) on November 29, 2000, then the Company shall issue to RBB Bank, as agent for the investors who loaned the money to the Company, a certain number of shares of Common Stock, with the number of shares determined by dividing $300,000 by the closing market price of the Common Stock on the NASDAQ on such date, if shares of Common Stock have been traded on the NASDAQ on such date, or on the most recent trading date, if shares of Common Stock have not been traded on the NASDAQ on such date, and (iii) on the 29th day of each month after November 2000, then the Company shall issue to RBB Bank, as agent for the investors who loaned the money to the Company, a certain additional number of shares of Common Stock, with the number of shares determined by dividing $300,000 by the closing market price of the Common Stock on the NASDAQ on such date, if shares of Common Stock have been traded on the NASDAQ on such date, or on the most recent trading date, if shares of Common Stock have not been traded on the NASDAQ on such date. As of October 30, 2000, RBB Bank is the beneficial owner of approximately 12,830,363 shares of Common Stock or approximately 45.9% of the issued and outstanding Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations RBB Loan," and "Part II Other Information, Item 5." On August 31, 2000, the Company issued to Waste Management a certain short term note as part of the consideration for the purchase of DSSI. This note was a guaranteed promissory note (the "Guaranteed Note"), guaranteed by DSSI, with the DSSI guarantee secured by certain assets of DSSI (except for accounts, accounts receivable, general intangibles, contract rights, cash, real property, and proceeds thereof), executed by the Company in favor of Waste Management Holdings in the aggregate principal amount of $2,500,000, and bearing interest at a rate equal to the prime rate charged on August 30, 2000, as published in the Wall Street Journal plus 1.75% per annum and having a term of the lesser of 120 days from August 31, 2000, or the business day that the Company acquires any entity or substantially all of the assets of an entity (the 13 "Guaranteed Note Maturity Date"), with interest and principal due in a lump sum at the end of the Guaranteed Note Maturity Date. In addition, as part of the consideration for the purchase of DSSI, the Company issued to Waste Management Holdings a long term unsecured promissory note (the "Unsecured Promissory Note") in the aggregate principal amount of $3,500,000, bearing interest at a rate of 7% per annum and having a five-year term with interest to be paid annually and principal due at the end of the term of the Unsecured Promissory Note. 7. 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 our business, we are involved in various litigation. There has been no material change in legal proceedings from those disclosed previously in the Company's Form 10-K for year ended December 31, 1999. 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. 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 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. 8. Business Segment Information ____________________________ Pursuant to FAS 131, we define an operating segment as: 14 * 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 clearly view each facility as a separate segment and make decisions based on the activity and profitability of that particular location. These segments however, exclude the Corporate headquarters which does not generate revenue and Perma-Fix of Memphis, Inc. which is reported elsewhere as a discontinued operation. See Note 3 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, radioactive waste, and wastewater through our eight TSD facilities; Perma-Fix Treatment Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of Florida, Inc., Chemical Conservation Corporation, Chemical Conservation of Georgia, Inc., Chem-Met Services, Inc., and Diversified Scientific Services, Inc. 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 and mixed wastes into non-hazardous waste and various waste management services to certain governmental agencies through Chem-Met Government Services. The Consulting Engineering Services segment provides environmental engineering and regulatory compliance services through Schreiber, Yonley & Associates, Inc. ("SYA") which includes 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. During 1999, the business and operations of Mintech, Inc., our second engineering company, located in Tulsa, Oklahoma, was merged into and consolidated with the SYA operations. The following table shows certain financial information by business segment for the quarter ended September 30, 2000, and quarter ended September 30, 1999, and excludes the results of operations of the discontinued operations. 15
Segment Reporting for the Quarter Ended September 30, 2000 Waste Segments Consolidated Services Engineering Total Corp.(2) Memphis(3) Total ________ ___________ _______ ________ __________ ___________ Revenue from external customers $14,640 $ 720 $15,360 $ - $ - $15,360 Intercompany revenues 1,879 35 1,914 - - 1,914 Interest income 6 - 6 4 - 10 Interest expense 428 15 443 113 - 556 Depreciation and amortization 863 22 885 18 - 903 Segment profit (loss) 1,215 54 1,269 (663) - 606 Segment assets(1) 66,464 2,312 68,776 2,043 47 70,866 Expenditures for segment assets 1,046 2 1,048 2 - 1,050
Segment Reporting for the Quarter Ended September 30, 1999 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 (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 3).
The table below shows certain financial information by business segment for the nine months ended September 30, 2000, and nine months ended September 30, 1999, and excludes the results of operations of the discontinued operations. Segment Reporting for the Nine Months Ended September 30, 2000 Waste Segments Consolidated Services Engineering Total Corp(2) Memphis(3) Total ________ ___________ ________ ________ __________ ____________ Revenue from external customers $40,898 $ 2,543 $43,441 $ - $ - $ 43,441 Intercompany revenues 4,207 113 4,320 - - 4,320 Interest income 20 - 20 11 - 31 Interest expense 1,105 43 1,148 259 - 1,407 Depreciation and amortization 2,503 62 2,565 52 - 2,617 Segment profit (loss) 1,928 273 2,201 (1,824) - 377 Segment assets(1) 66,464 2,312 68,776 2,043 47 70,866 Expenditures for segment assets 2,739 51 2,790 46 - 2,836
Segment Reporting for the Nine Months Ended September 30, 1999 Waste Segment 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 (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 3).
16 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 with 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 a statement 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 or inability to continue and improve operations and remain profitable on an annualized basis, (ii) the Company's ability to develop or adopt new and existing technologies in the conduct of its operations, (iii) anticipated financial performance, (iv) ability to comply with the Company's general working capital requirements, (v) ability to retain or receive certain permits or patents, (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, (ix) completion of the acquisition of M&EC, (x) ability to obtain new sources of financing, and (xi) 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) ability to receive or retain certain required permits or to obtain regulatory approvals to modify the permits held by M&EC to complete the acquisition of M&EC, (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 remain profitable, (xv) the inability to secure additional liquidity in the form of additional equity or debt, (xvi) the commercial viability of our on-site treatment process, (xvii) the inability of the Company to obtain under certain circumstances shareholder approval of the transaction in which the Series 10 Preferred and certain warrants were issued, (xviii) the inability of the Company to maintain the listing of its Common Stock on the NASDAQ, (xix) the determination that CM or CCC was responsible for a material amount of remediation at certain Superfund sites, (xx) inability to obtain additional financing, (xxi) inability to finalize the acquisition of M&EC, (xxii) inability of the Company to obtain a new term and revolving credit facility, (xxiii) inability of the Company to pay the balance due under the $750,000 RBB Promissory Note, the $3,000,000 RBB Promissory Note, and the Guaranteed Note. The Company undertakes no obligations to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. 17
Results of Operations The table below should be used when reviewing management's discussion and analysis for the three and nine months ended September 30, 2000, and 1999: Three Months Ended Nine Months Ended September 30, September 30, ______________________________ _______________________________ Consolidated 2000 % 1999 % 2000 % 1999 % ____________ _______ _____ _______ _____ ________ ______ _______ _____ (amounts in thousands) Net $15,360 100.0 $13,858 100.0 $43,441 100.0 $32,243 100.0 Cost of Goods Sold 10,190 66.3 9,223 66.6 29,739 68.5 21,332 66.2 _______ _____ ______ _____ _______ _____ _______ ______ Gross Profit 5,170 33.7 4,635 33.4 13,702 31.5 10,911 33.8 Selling, General & Administrative 3,138 20.4 3,014 21.7 9,318 21.4 7,147 22.2 Depreciation/Amortization 903 5.9 771 5.6 2,617 6.0 1,887 5.9 _______ _____ _______ ____ _______ _____ ________ _____ Income from Operations $ 1,129 7.4 $ 850 6.1 $ 1,767 4.1 $ 1,877 5.8 ======= ===== ====== ===== ======= ====== ======== ===== Interest Expense (556) (3.6) (257) (1.9) (1,407) (3.2) (375) (1.2) Preferred Stock Dividends (51) (0.3) (57) (0.4) (155) (0.4) (247) (0.8) Gain on Preferred Stock Redemption - - 188 1.4 - - 188 0.6
Summary -- Three and Nine Months Ended September 30, 2000, and 1999 ___________________________________________________________________ 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, hazardous and mixed wastes (waste containing both hazardous and low level radioactive material). 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. Our Consulting Engineering segment provides a wide variety of environmental related consulting and engineering services to industry and government. 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 $15,360,000 from $13,858,000 for the quarter ended September 30, 2000, as compared to the same quarter in 1999. This increase of $1,502,000 or 10.8% is principally attributable to the additional revenues resulting from the acquisition of Diversified Scientific Services, Inc. (DSSI), effective August 31, 2000, which contributed approximately $1,088,000 to this increase. Also contributing to this increase, were increases within the Waste Management Services segment totaling approximately $1,095,000, partially from an increase in mixed waste revenues due to the significant expansion of the North Florida mixed waste facility, in conjunction with the expanded permit as received during the second quarter of 2000. Offsetting these increases, were decreases within the Consulting Engineering segment totaling approximately $681,000 principally from the Mintech, Inc. engineering company whose operations were reduced and merged with Schreiber, Yonley and Associates, Inc. during the 2nd half of 1999. Consolidated net revenues increased to $43,441,000 from $32,243,000 for the nine-month period ended September 30, 2000. This increase of $11,198,000 or 34.7% is attributable to the Waste Management Services segment which experienced an increase in revenues of $12,200,000. The additional revenues resulting from the acquisition of CCC, CCG and CM in the aggregate contributed 18 approximately $10,868,000 to this increase along with additional revenues resulting from the acquisition of DSSI of approximately $1,088,000. Other Waste Management Services facilities contributed $244,000 to this increase. Partially offsetting this increase, were decreases within the consulting engineering segment totaling approximately $1,002,000, principally from the Mintech, Inc. engineering company whose operations were reduced and merged with Schreiber, Yonley and Associates, Inc. during the second half of 1999. Cost of goods sold for the Company increased $967,000 or 10.5% for the quarter ended September 30, 2000, as compared to the quarter ended September 30, 1999. This consolidated increase in cost of goods sold reflects principally the increased operating, disposal and transportation costs, corresponding to the increased revenues from the acquisition of DSSI, as discussed above, which totaled $392,000. Increased operating costs were also recognized across most of the Waste Management Services facilities, as we increased certain fixed costs and began preparation for the processing of new wastewater streams at several industrial facilities and the expanded mixed waste processing capabilities at the North Florida mixed waste facility. The resulting gross profit for the quarter ended September 30, 2000, increased $535,000 to $5,170,000 which as a percentage of revenue is 33.7%, reflecting an increase over the corresponding quarter in 1999 percentage of revenue of 33.4%. This increase in gross profit as a percentage of revenue was principally recognized through an increase in the Consulting Engineering segment from 19.7% in 1999 to 29.9% in 2000, reflecting the effect of Mintech, Inc. being reduced and merged into Schreiber, Yonley and Associates, Inc. in the second half of 1999. This was offset by the Waste Management Services segment which experienced a decrease from 34.5% in 1999 to 33.8% in 2000 reflecting the expansion and startup activities discussed above. Cost of goods sold also increased $8,407,000 or 39.4% for the nine- month period ended September 30, 2000, as compared to the nine- month period ended September 30, 1999. This increase is a direct result of the increased operating, disposal and transportation costs, corresponding to the increased revenues from the acquisition of CCC, CCG, CM and DSSI. The resulting gross profit for the nine months of 2000 increased $2,791,000 to $13,702,000, which as a percentage of revenue is 31.5%, reflecting a decrease over the corresponding nine months in 1999 percentage of revenue of 33.8%. This decrease in gross profit as a percentage of revenue was principally recognized throughout the waste management services segment which experienced a decrease from 34.8% in 1999 to 31.5% in 2000 reflecting the expansion and startup activities discussed above. Offsetting this decrease, however, was an increase in the Consulting Engineering segment from 26.3% in 1999 to 31.4% in 2000, reflecting the benefits from the restructuring and consolidation of our engineering businesses. Selling, general and administrative expenses increased $124,000 or 4.1% for the quarter ended September 30, 2000, as compared to the quarter ended September 30, 1999. This increase is principally attributable to the additional expenses resulting from the acquisition of DSSI which totaled approximately $80,000. However, as a percentage of revenue, selling, general and administrative expense decreased to 20.4% for the quarter ended September 30, 2000, compared to 21.7% for the same period in 1999. Selling, general and administrative expenses also increased for the nine- month period of 2000, as compared to 1999, by $2,171,000 or 30.4%. This increase reflects the expenses directly related to the acquisition of CCC, CCG, CM and DSSI which total's $2,359,000 and is offset by the efficiencies and benefits that came from the restructuring and consolidation of our engineering businesses. As a percentage of revenue, selling, general and administrative expense reflected a slight decrease to 21.4% for the nine-month period ended September 30, 2000, compared to 22.2% for the same period of 1999. Depreciation and amortization expense for the quarter ended September 30, 2000, reflects an increase of $132,000 as compared to the quarter ended September 30, 1999. This increase is attributable to a depreciation expense increase of $120,000 which is a result of the depreciation in 2000 from the DSSI facility acquired effective September 1, 2000, totaling $39,000 and the additional depreciation related to the expanded facilities totaling $81,000, and an amortization expense increase of $12,000 for the quarter ended September 30, 2000, as compared to the quarter ended September 30, 1999. This increase in amortization expense is a result of the permit amortization from the DSSI facility acquired in September 2000. Depreciation and amortization expense for the nine-month period ended September 30, 2000, reflects an increase of $730,000 as compared to the same period of 1999. This increase is 19 attributable to the acquisition of CCC, CCG and CM, effective June 1, 1999, which reflected depreciation totaling $608,000, an increase of $433,000 and amortization which increased by $143,000 and the acquisition of DSSI, effective August 31, 2000, totaling $61,000, for which depreciation increased by $39,000 and amortization increased by $22,000 for the nine-month period ended September 30, 2000. The additional depreciation of $93,000 is related to expanded facilities. Interest expense increased $299,000 for the quarter ended September 30, 2000, as compared to the corresponding period of 1999. This increase principally reflects the additional interest expense incurred in conjunction with the DSSI acquisition financing for the period August 31, 2000, through September 30, 2000 ($72,000) and the additional borrowing levels maintained throughout the quarter pursuant to the facility expansions and acquisition efforts. Interest expense also increased by $1,032,000 for the nine-month period ended September 30, 2000, as compared to the corresponding period of 1999. This increase principally reflects the impact of the above discussed DSSI acquisition financing and increased borrowing levels, as well as the full nine-month impact on 2000, verses the four-month impact on 1999, of the CCC, CCG and CM debt assumption and acquisition financing, which totals approximately $587,000. Preferred Stock dividends decreased $6,000 during the quarter ended September 30, 2000, as compared to the corresponding period of 1999. This decrease is due to the redemption of $750,000 (750 preferred shares) of the Preferred Stock on July 15, 1999, and the conversion of $350,000 (350 preferred shares) of the Preferred Stock into Common Stock throughout the first quarter of 2000. Additionally, Preferred Stock dividends decreased $92,000 for the nine-month period ended September 30, 2000, as compared to the corresponding period of 1999. This decrease is due to the conversion of Preferred Stock into Common Stock as stated above and the conversion of $4,563,000 (4,563 preferred shares) of the Preferred Stock into Common Stock on April 20, 1999. 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. Acquisitions As provided in Note 4 to Notes to Consolidated Financial Statements, the Company has entered into a Stock Purchase Agreement dated May 16, 2000, which was subsequently amended on August 31, 2000 (together, the "Stock Purchase Agreement"), pursuant to which the Company purchased all of the outstanding capital stock of Diversified Scientific Services, Inc. ("DSSI") from Waste Management Holdings, Inc. ("Waste Management Holdings") pursuant to the terms of the Stock Purchase Agreement. On August 31, 2000, the conditions precedent to closing of the Stock Purchase Agreement were completed and the Stock Purchase Agreement was consummated. Under the terms of the Stock Purchase Agreement, the purchase price paid by the Company in connection with the DSSI acquisition was $8,500,000, consisting of (i) $2,500,000 in cash paid at closing, (ii) a guaranteed promissory note (the "Guaranteed Note"), guaranteed by DSSI, with the DSSI guarantee secured by certain assets of DSSI (except for accounts, accounts receivables, general intangibles, contract rights, cash, real property, and proceeds thereof), executed by the Company in favor of Waste Management Holdings in the aggregate principal amount of $2,500,000, and bearing interest at a rate equal to the prime rate charged on August 30, 2000, as published in the Wall Street Journal plus 1.75% per annum and having a term of the lesser of 120 days from August 31, 2000, or the business day that the Company acquires any entity 20