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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
Form 10-Q/A
Amendment No. 1
to
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
_______________________
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 Outstanding at November 12, 1996
_____ ________________________________
Common Stock, $.001 Par Value 9,366,035
_____________________________ __________
(excluding 920,000 shares
held as treasury stock)
___________________
=================================================================
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and
December 31, 1995 . . . . . . . . . 4
Consolidated Statements of
Operations - Three Months and
Nine Months Ended September 30,
1996 and 1995. . . . . . . . . . . . 6
Consolidated Statements of Cash
Flows - Nine Months Ended
September 30, 1996 and 1995. . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . 12
PART II OTHER INFORMATION
Item 5. Other Events. . . . . . . . . . . . . . . 20
Item 6. Exhibits. . . . . . . . . . . . . . . . . 20
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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, 1995.
The results of operations for the nine months ended
September 30, 1996, are not necessarily indicative of results to be
expected for the fiscal year ending December 31, 1996.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
(Amounts in Thousands, 1996 December 31,
Except for Share Amounts) (Unaudited) 1995
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 83 $ 201
Restricted cash 441 380
Accounts receivable, net of
allowance for doubtful accounts
of $406 and $392, respectively 5,373 5,031
Inventories 98 183
Prepaid expense 658 414
Other receivables 155 134
_________ ________
Total current assets 6,808 6,343
Property and equipment:
Building and land 4,776 6,055
Equipment 5,860 5,874
Vehicles 1,373 1,589
Leasehold improvements 386 143
Office furniture and equipment 1,316 1,252
Construction in progress 2,637 1,435
_________ ________
16,348 16,348
Less accumulated depreciation (4,282) (3,378)
_________ ________
Net property and equipment 12,066 12,970
Other assets:
Permits, net of accumulated amorti-
zation of $540 and $366,
respectively 3,961 4,036
Goodwill, net of accumulated amorti-
zation of $398 and $289, respectively 4,883 4,992
Covenant not to compete, net of accum-
ulated amortization of $363 and $304,
respectively 28 87
Other assets 413 445
________ ________
Total assets $ 28,159 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30,
(Amounts in Thousands, 1996 December 31,
Except for Share Amounts) (Unaudited) 1995
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,422 $ 5,402
Accrued expenses 3,280 2,951
Revolving loan and term note facility 500 5,259
Equipment financing agreement 631 1,778
Current portion of long-term debt 263 325
_________ _______
Total current liabilities 8,096 15,715
Long-term debt 3,612 1,116
Environmental accruals 2,940 3,063
Accrued closure costs 1,081 1,041
_________ _______
Total long-term liabilities 7,633 5,220
Commitments and contingencies (Note 3) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
5,500 and 0 shares issued and
outstanding, respectively - -
Common stock, $.001 par value;
20,000,000 shares authorized,
9,366,035 and 7,872,384 shares
issued and outstanding, respec-
tively 9 8
Treasury stock, $.001 par value,
920,000 and 0 shares issued and
outstanding, respectively (1,769) -
Redeemable warrants 269 269
Additional paid-in capital 28,125 21,546
Accumulated deficit (14,204) (13,885)
________ _______
Total stockholders' equity 12,430 7,938
________ _______
Total liabilities and
stockholders' equity $ 28,159 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
Net revenues $ 7,734 $ 9,049
Cost of goods sold 5,195 6,953
________ ________
Gross profit 2,539 2,096
Selling, general and administrative 1,751 2,041
Depreciation and amortization 515 618
Nonrecurring charges - -
________ ________
Income (loss) from operations 273 (563)
Other income (expense):
Interest income 13 22
Interest expense (163) (248)
Other 32 (29)
________ ________
Net income (loss) $ 155 $ (818)
======== ========
Preferred stock dividends 64 -
________ _________
Net income (loss) applicable
to common stock $ 91 $ (818)
======== =========
Net income (loss) per share $ .01 $ (.10)
======== ========
Weighted average number of common
and common equivalent shares
outstanding 12,489 7,872
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
Net revenues $ 23,484 $ 27,053
Cost of goods sold 16,593 20,714
________ ________
Gross profit 6,891 6,339
Selling, general and administrative 5,175 6,140
Depreciation and amortization 1,692 1,761
Nonrecurring charges - 705
________ ________
Income (loss) from operations 24 (2,267)
Other income (expense):
Interest income 53 46
Interest expense (641) (687)
Other 320 16
________ ________
Net income (loss) $ (244) $ (2,892)
Preferred stock dividends 74 -
________ _________
Net income (loss) applicable
to common stock $ (318) $ (2,892)
======== =========
Net income (loss) per share $ (.04) $ (.37)
======== =========
Weighted average number of common
common equivalent shares out-
standing 8,552 7,872
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
__________________________
(Dollars in Thousands) 1996 1995
___________________________________________________________________
Cash flows from operating activities:
Net loss $ (318) $ (2,892)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation and amortization 1,691 1,762
Divestiture reserve - 450
Provision for bad debt and other
reserves 14 489
(Gain) loss on sale of plant,
property and equipment (37) -
Changes in assets and liabilities:
Accounts receivable (356) 68
Prepaid expenses, inventories and
other receivables (298) (633)
Accounts payable and accrued expenses (1,763) (149)
________ ________
Net cash used in operations (1,067) (905)
Cash flows from investing activities:
Purchases of property and equipment,
net (1,487) (2,047)
Proceeds from sale of property and
equipment 1,211 -
Change in restricted cash, net (72) 75
Other investing - 9
________ _________
Net cash used in investing
activities (348) (1,963)
Cash flows from financing activities:
Borrowings (repayments) from revolving
loan and term note (2,315) 2,400
Borrowings on long-term debt 70 1,045
Principal repayments on long-term debt (1,227) (1,010)
Proceeds from issuance of stock 6,538 -
Purchase of treasury stock (1,769) -
________ ________
Net cash provided by financing
activities 1,297 2,435
Decrease in cash and cash equivalents (118) (433)
Cash and cash equivalents at beginning
of period 201 490
________ ________
Cash and cash equivalents at end
of period $ 83 $ 57
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 684 $ 714
======== ========
Income taxes paid $ - $ -
======== ========
See accompanying notes to consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
Reference is made herein to the notes to consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
1. Summary of Significant Accounting Policies
__________________________________________
The Company's accounting policies are as set forth in the
notes to consolidated financial statements referred to above.
Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to current period
financial statement presentations.
As discussed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, net loss per share has been
presented using the weighted average number of common and common
equivalent shares outstanding. Net loss per share has been
restated, in accordance with Accounting Principles Board Opinion
No. 15, for the period ended March 31, 1995, to reflect the
issuance of contingent shares to Quadrex in November of 1995.
Earnings (loss) per common share is computed by dividing
income, after deducting the preferred stock dividends, by the
weighted average number of common shares outstanding during the
period, plus the weighted average common stock equivalents as
calculated using the treasury stock method. Primary and fully
diluted earnings per share are the same. Common stock equivalents
consist of shares subject to certain stock options, warrants, and
the Series 3 Preferred Stock (see Note 4). For the three-month
period ended September 30, 1995, and the nine-month periods ended
September 30, 1996, and 1995, the common stock equivalents have an
anti-dilutive effect on earnings per share and are therefore
excluded from the weighted average shares outstanding.
2. Long-Term Debt
______________
Long-term debt consists of the following at September 30,
1996, and December 31, 1995 (in thousands):
September 30, December 31,
1996 1995
_____________ ____________
Long-term debt and notes payable:
Revolving loan and term note
facility $ 2,945 $ 5,259
Equipment financing agreement 1,404 1,778
Various mortgage, promissory
and notes payable 657 1,441
_________ _________
5,006 8,478
Less current portion:
Revolving loan and term note
facility 500 5,259
Equipment financing agreement 631 1,778
Various mortgage, promissory
and notes payable 263 325
_________ _________
$ 3,612 $ 1,116
========= =========
On January 27, 1995, 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 Heller Financial, Inc. ("Heller").
The Agreement provides for a term loan in the amount of $2,500,000,
which requires principal repayments based on a five-year level
principal amortization over a term of 36 months, with monthly
principal payments of $42,000. Payments commenced on February 28,
1995, with a final adjusted balloon payment in the amount of
$846,000 due on January 31, 1998. The Agreement also provides for
a revolving loan facility in the amount of $7,000,000. At any
point in time the aggregate available borrowings under the facility
are reduced by any amounts outstanding under the term loan and are
also subject to the maximum credit availability as determined
through a monthly borrowing base calculation, equal to 80% of
eligible accounts receivable accounts of the Company as defined in
the Agreement. The termination date on the revolving loan facility
is also the third anniversary of the closing date.
As previously disclosed, during the second quarter of 1995,
the Company became in violation of certain of the restrictive
financial ratio covenants of the Agreement. During the second
quarter of 1996, the Company negotiated and subsequently entered
into an amendment ("Third Amendment") to the Loan and Security
Agreement, whereby, among other things, Heller waived the existing
events of default, amended the financial covenants and amended
certain other provisions of the Loan Agreement as set forth
therein. Applicable interest rate provisions were also amended,
whereby the term loan shall bear interest at a rate of interest per
annum equal to the base rate plus 2 1/4%, and the revolving loan
shall bear interest equal to the base rate plus 2%. The Amendment
also contains a performance price adjustment which provides that
upon the occurrence of an "equity infusion" (see Note 4),
applicable interest rates on the loans shall be reduced, in each
instance by 1/2% per annum. Due to the equity infusion as
discussed in Note 4, applicable interest rates on the loans were
reduced pursuant to the terms of the Third Amendment effective
August 16, 1996. Also, during the second quarter of 1996, Heller
extended to the Company an overformula line in an amount not to
exceed $250,000, for a period ending the earliest of 90 days after
the date of first advance or September 30, 1996. Pursuant to the
above discussed Amendment, said overformula line terminated upon
the Company's receipt of the equity infusion.
As disclosed at December 31, 1995, Heller had agreed to
forebear from exercising any rights and remedies under the
Agreement as a result of these previous defaults and continued to
make normal advances under the revolving loan facility. However,
in compliance with generally accepted accounting principles, and
since there was no waiver or reset, the Company, at December 31,
1995, reclassified as a current liability $3,882,000 outstanding
under the Agreement that would otherwise have been classified as
long-term debt. As a result of Heller waiving the defaults and
resetting the financial covenants under the Third Amendment and
resetting the "fixed charged ratio" covenant in the Agreement as of
November 12, 1996, $2,445,000 of such loans with Heller is
classified as long-term debt at September 30, 1996, in compliance
with generally accepted accounting principles.
Pursuant to the initial agreement, the term loan bears
interest at a floating rate equal to the base rate (prime) plus 1
3/4% per annum The revolving loan bears interest at a floating
rate equal to the base rate (prime) plus 1 1/4% per annum. The
loans also contain certain closing, management and unused line fees
payable throughout the term. As discussed above, in conjunction
with the Third Amendment, applicable interest rates were amended.
However, a default rate was applied due to the financial covenant
default discussed above, effective August 21, 1995 through the date
of the Third Amendment, and therefore the Heller obligations bore
interest at the above noted effective rate plus 2.0%. Both the
revolving loan and term loan were prime based loans at
September 30, 1996, bearing interest at a rate of 9.75% and 10.00%,
respectively.
As of September 30, 1996, the borrowings under the revolving
loan facility total $1,432,000, a decrease of $1,744,000 from the
December 31, 1995 balance of $3,176,000, with borrowing
availability of $2,213,000. The balance on the term loan totalled
$1,513,000, as compared to $2,083,000 at December 31, 1995. Total
indebtedness under the Heller Agreement as of September 30, 1996
was $2,945,000, a reduction of $2,314,000 from the December 31,
1995 balance of $5,259,000.
During October 1994, the Company entered into a $1,000,000
equipment financing agreement with Ally Capital Corporation
("Ally"), which provides lease commitments for the financing of
certain equipment through June 1995. During 1995, the Company
negotiated an increase in the total lease commitment to $1,600,000.
The agreement provides for an initial term of 42 months, which may
be extended to 48, and bears interest at a fixed interest rate of
11.3%. As of December 31, 1995, the Company had utilized
$1,496,000 of this credit facility to purchase capital equipment
and subsequently drew down an additional $57,000 in January 1996,
bringing the total financing under this agreement to $1,553,000.
In conjunction with a 1994 acquisition, the Company also assumed
$679,000 of debt obligations with Ally Capital Corporation, which
had terms expiring from September 1997 through August 1998, at a
rate ranging from 10.2% to 13.05%. As previously disclosed, at
December 31, 1995, the Company was not in compliance with the
minimum tangible net worth covenant of this agreement and Ally had
waived compliance with this covenant and no acceleration was
demanded by the lender. However, in compliance with generally
accepted accounting principles, the Company, at December 31, 1995,
reclassified as a current liability $1,103,000 outstanding under
the agreement, which would otherwise have been classified as long-
term debt. During the second quarter of 1996, the Company
negotiated and subsequently entered into an amendment to the
equipment financing agreement, whereby, among other things, Ally
waived the existing event of default and amended the required
covenants. The outstanding balance on this equipment financing
agreement at September 30, 1996 is $1,404,000, as compared to
$1,778,000 at December 31, 1995. As a result of the above
discussed amendment and the resetting of the "fixed charge
coverage" covenant for the remainder of 1996 as of November 14,
1996, $773,000 has been classified as long-term debt at
September 30, 1996, pursuant to generally accepted accounting
principles.
3. Commitments and Contingencies
______________________________
Hazardous Waste
In connection with the Company's waste management services,
the Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
In the normal course of conducting its business, the Company
is involved in various litigation. The Company is not a party to
any litigation or governmental proceeding which its management
believes could result in any judgments or fines against it that
would have a material adverse affect on the Company's financial
position, liquidity or results of operations.
Permits
The Company is subject to various regulatory requirements,
including the procurement of requisite licenses and permits at
certain of its treatment, storage and/or disposal facilities.
These licenses and permits are subject to periodic renewal without
which the Company's operations would be adversely affected. The
Company anticipates 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
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, the Company is
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 the Company maintains
the appropriate accruals for restoration. The Company has recorded
accrued liabilities for estimated closure costs and identified
environmental remediation costs.
Insurance
The business of the Company exposes it to various risks,
including claims for causing damage to property or injuries to
persons or claims alleging negligence or professional errors or
omissions in the performance of its services, which claims could be
substantial. The Company carries general liability insurance which
provides coverage in the aggregate amount of $2 million and an
additional $6 million excess umbrella policy and carries $1 million
per occurrence and $2 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
tank removal and pollution control coverage.
The Company also carries specific pollution legal liability
insurance for operations involved in the waste management services
segment for property damages or bodily injuries occurring off-site
of the Company's facilities due to release of contaminates from the
Company's facilities, with such insurance providing coverages
ranging from a $2 million annual aggregate to $8 million annual
aggregate, for certain facilities.
4. Stock Issuance
______________
As previously disclosed, the Company issued, during February
1996, to RBB Bank Aktiengesellschaft, located in Graz, Austria
("RBB Bank"), 1,100 shares of newly created Series 1 Class A
Preferred Stock ("Series 1 Preferred") at a price of $1,000 per
share, for an aggregate sales price of $1,100,000, and paid a
placement fee of $176,000. During February 1996, the Company also
issued 330 shares of newly created Series 2 Class B Convertible
Preferred Stock ("Series 2 Preferred") to RBB Bank at a price of
$1,000 per share, for an aggregate sales price of $330,000, and
paid a placement fee of $33,000. The Series 1 Preferred and Series
2 Preferred accrued dividends on a cumulative basis at a rate per
share of five percent (5%) per annum, payable at the option of the
Company in cash or Company common stock. All dividends on the
Series 1 Preferred and Series 2 Preferred were paid in common
stock. During the second quarter of 1996, a total of 722 shares of
the Series 1 Preferred were converted into approximately 1,035,000
shares of the Company's common stock and the associated accrued
dividends were paid in the form of approximately 15,000 shares of
the Company's common stock. Pursuant to a subscription and
purchase agreement for the issuance of Series 3 Class C Convertible
Preferred Stock, as discussed below, the remaining 378 shares of
the Series 1 Preferred and the 330 shares of the Series 2 Preferred
were converted during July 1996 into 920,000 shares of the
Company's common stock. By terms of the subscription agreement,
the 920,000 shares of common stock were purchased by the Company at
a purchase price of $1,769,000. As a result of such conversions,
the Series 1 Preferred and the Series 2 Preferred are no longer
outstanding.
On July 17, 1996, the Company issued to RBB Bank 5,500 shares
of newly-created Series 3 Class C Convertible Preferred Stock
("Series 3 Preferred") at a price of $1,000 per share, for an
aggregate sales price of $5,500,000, and paid placement and closing
fees as a result of such transaction of approximately $360,000. As
part of the sale of the Series 3 Preferred, the Company also issued
to RBB Bank two (2) common stock purchase warrants entitling RBB
Bank to purchase, after December 31, 1996, until July 18, 2001, an
aggregate of up to 2,000,000 shares of common stock, with 1,000,000
shares exercisable at an exercise price equal to $2.00 per share
and 1,000,000 shares exercisable at an exercise price equal to
$3.50 per share. The Series 3 Preferred accrues dividends on a
cumulative basis at a rate of six percent (6%) per annum, and is
payable semi-annually when and as declared by the Board of
Directors. Dividends shall be paid, at the option of the Company,
in the form of cash or common stock of the Company. The holder of
the Series 3 Preferred may convert into common stock of the Company
up to (i) 1,833 shares of the Series 3 Preferred on and after
October 1, 1996, (ii) 1,833 shares of the Series 3 Preferred on and
after November 1, 1996, and (iii) the balance of the Series 3
Preferred on and after December 1, 1996. The conversion price
shall be the product of (i) the average closing bid quotation for
the five (5) trading days immediately preceding the conversion date
multiplied by (ii) seventy-five percent (75%). The conversion
price shall be a minimum of $.75 per share or a maximum of $1.50
per share, with the minimum conversion price to be reduced by $.25
per share each time, if any, after July 1, 1996, the Company
sustains a net loss, on a consolidated basis, in each of two (2)
consecutive quarters. At no time shall a quarter that has already
been considered in such determination be considered in any
subsequent determination. The common stock issuable on the
conversion of the Series 3 Preferred is subject to certain
registration rights pursuant to the subscription agreement. The
subscription agreement also provides that the Company utilize
$1,769,000 of the net proceeds to purchase from RBB Bank 920,000
shares of the Company's common stock owned by RBB Bank. As
discussed above, RBB Bank had previously acquired from the Company
1,100 shares of Series 1 Preferred and 330 shares of Series 2
Preferred and, as of the date of the subscription agreement, was
the owner of record and beneficially owned all of the issued and
outstanding shares of Series 1 Preferred and Series 2 Preferred,
which totalled 378 shares of Series 1 Preferred and 330 shares of
Series 2 Preferred. Pursuant to the terms of the subscription
agreement relating to the Series 3 Preferred, RBB Bank converted
all of the remaining outstanding shares of Series 1 Preferred and
Series 2 Preferred into common stock of the Company (920,000
shares) pursuant to the terms, provisions, restrictions and
conditions of the Series 1 Preferred and Series 2 Preferred, which
were in turn purchased by the Company pursuant to the terms of such
subscription agreement. As of this date, the holder of the Series
3 Preferred has not elected to convert any of the Series 3
Preferred into common stock of the Company.
5. Subsequent Event
________________
On November 15, 1996, Arthur Andersen, LLP, the outside
independent auditor of the Company, advised the Company that it was
resigning as the independent auditor of the Company, effective
immediately. Arthur Andersen orally advised the Company that the
resignation was not due to any disagreements with Arthur Andersen
on any matter of accounting principles or practices, financial
statement disclosures or auditing scope or procedure. As of the
date of this report, the Company has not engaged a new independent
auditor to replace Arthur Andersen. The Company will be filing a
Form 8-K in connection with such resignation.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
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, 1996, and 1995 (in thousands):
Three Months Ended
September 30,
_________________________________
Consolidated 1996 % 1995 %
____________ _______ _____ _______ _____
Net Revenues $ 7,734 100.0 $ 9,049 100.0
Cost of Goods Sold 5,195 67.2 6,953 76.8
______ _____ ______ _____
Gross Profit 2,539 32.8 2,096 23.2
Selling, General and
Administrative 1,751 22.6 2,041 22.6
Depreciation/Amortization 515 6.7 618 6.8
Nonrecurring Charges - - - -
______ _____ ______ ______
Income (loss) from
Operations $ 273 3.5 $ (563) (6.2)
====== ===== ====== ======
Interest Expense $ 163 2.1 $ 248 2.7
====== ===== ====== =====
Preferred Stock Dividend $ 64 0.8 $ - -
====== ===== ====== ======
Nine Months Ended
September 30,
_________________________________
Consolidated 1996 % 1995 %
____________ _______ _____ _______ _____
Net Revenues $23,484 100.0 $27,053 100.0
Cost of Goods Sold 16,593 70.7 20,714 76.6
______ _____ ______ _____
Gross Profit 6,891 29.3 6,339 23.4
Selling, General and
Administrative 5,175 22.0 6,140 22.7
Depreciation/Amortization 1,692 7.2 1,761 6.5
Nonrecurring Charges - - 705 2.6
______ _____ ______ ______
Income (loss) from
Operations $ 24 0.1 $(2,267) (8.4)
====== ====== ====== ======
Interest Expense $ 641 2.7 $ 687 2.5
====== ====== ====== ======
Preferred Stock Dividend $ 74 0.3 $ - -
====== ====== ====== ======
Summary -- Quarter and Nine Months Ended September 30, 1996 and
1995
________________________________________________________________
Consolidated net revenues decreased to $7,734,000 from
$9,049,000 for the three month period ended September 30, 1996, as
compared to the comparable period for 1995. This 14.5% decrease,
or $1,315,000, reflects reduced revenues within both the waste
management and consulting engineering segments of $1,310,000 and
$5,000, respectively. As reflected, the most significant decrease
was within the waste management segment and is a result of the
impact of the various restructuring programs initiated during 1995,
which resulted in the consolidation and closure of certain offices,
the divestiture of a subsidiary and the disruption resulting from
a major capital expansion at one facility, in conjunction with the
Company's continued focus on select markets. Consolidated revenues
for the nine months ended September 30, 1996 and 1995 were
$23,484,000 and $27,053,000, respectively, reflecting a $3,569,000
decrease. This decrease is a direct result of the above discussed
restructuring program, again focused on the closure or divestiture
of unprofitable operations during 1995 and early 1996. Also, as a
result of industry and weather related issues during the first
quarter, revenues were negatively impacted in all segments beyond
normal seasonality for this typically down period.
Costs of goods sold decreased to $5,195,000 for the quarter
ended September 30, 1996, from $6,953,000 for the quarter ended
September 30, 1995. The $1,758,000 decrease is primarily
attributable to the reduced revenue during the third quarter of
1996, as discussed above, and the cost benefit associated with the
various restructuring programs and the closure or divestiture of
non-performing entities. As a percent of revenue, costs of goods
sold decreased to 67.2% in the third quarter of 1996, compared to
76.8% in the corresponding third quarter of 1995. This
consolidated decrease in cost of goods sold as a percent of revenue
reflects improvements in both the waste management and consulting
engineering segments, resulting from the continued emphasis on cost
containment across all Company segments. Consolidated cost of
goods sold for the nine months ended September 30, 1996 was
$16,593,000, a reduction of $4,121,000 from the comparable period
of 1995 total of $20,714,000. Cost of goods sold as a percent of
revenue also decreased for the nine month period of 1996 to 70.7%
from a percentage of 76.6% for 1995. The Company continued to see
improvements in the consolidated gross profit as a percentage of
net revenues, with the first quarter of 1996 improving by
approximately one (1) percentage point to 23.9% (a typically low
quarter), the second quarter reflecting an improvement of seven (7)
percentage points, to 31.1%, and the third quarter reflecting an
improvement to 32.8%, which again reflects the impact of the
restructuring and cost savings programs.
Selling, general and administrative expenses decreased to
$1,751,000 for the quarter ended September 30, 1996, from
$2,041,000 for the quarter ended September 30, 1995. This decrease
of $290,000 reflects (i) the indirect cost or overhead reduction
resulting from the closure or divestiture of certain operations,
(ii) the reduced corporate overhead resulting from the
restructuring program and significant downsizing of the corporate
costs, finalized during the first quarter of 1996, which was
partially offset during the quarter by increased costs associated
with the equity and refinancing activities, and (iii) the overall
corporate focus on cost reductions and efficiencies at all levels.
However, as a percent of revenue, selling, general and
administrative expenses were consistent with the three month period
ending September 30, 1995, at 22.6%. Selling, general and
administrative expenses also decreased for the nine months ended
September 30, 1996 to $5,175,000 from $6,140,000 for the same
period of 1995. This decrease of $965,000 reflects again the above
discussed reductions and improvements partially offset by the first
quarter increase in sales and marketing costs incurred by the
Company as it strengthens and expands its efforts in this area. As
a percent of sales, selling, general and administrative costs
improved from 22.7% in 1995 to 22.0% in 1996, with significant
improvement demonstrated during the second quarter.
Interest expense was $163,000 for the quarter ended
September 30, 1996, as compared to $248,000 for the same period of
1995. The decrease in interest expense of $85,000 for the third
quarter is principally a result of the reduced interest expense
associated with the revolving loan and term note facility,
reflecting lower average loan balances, resulting from the private
equity placement completed during the quarter (see Note 4 of Notes
to Consolidated Financial Statements), and lower interest rates
resulting from the amended loan agreement with Heller Financial,
Inc. (see Note 2 of the Notes to Consolidated Financial
Statements). This decrease was partially offset by the additional
interest expense resulting from new equipment financing agreements
entered into with Ally Capital Corporation throughout 1995 and
early 1996. Interest expense for the nine months ended September
30, 1996 totaled $641,000, as compared to $687,000 for the same
period of 1995. This decrease of $46,000 is principally a result
of the reduced overall debt level of the Company combined with the
reduced Heller Financial, Inc. interest expense which was down
$25,000 for the nine months of 1996, as compared to 1995. However,
these reductions were partially offset by the above discussed
additional Ally Capital Corporation debt and related interest
expense, which reflected an increase of $48,000 for the nine months
of 1996, as compared to 1995.
The Company also recorded preferred stock dividends during the
nine months ended September 30, 1996 of $74,000, as related to the
"Series 1 Preferred," "Series 2 Preferred," and "Series 3
Preferred" stock issued during 1996 (see Note 4 of the Notes to
Consolidated Financial Statements). Dividends for the third
quarter of 1996 totalled $64,000, which included $62,000 for the
"Series 3 Preferred" as issued on July 17, 1996. Accrued dividends
on the Series 1 Preferred and Series 2 Preferred were payable at
the option of the Company in cash or Company common stock. The
Company paid accrued dividends on the Series 1 Preferred and Series
2 Preferred in common Stock. The Company has the option to pay
accrued dividends on the Series 3 Preferred in either cash or
common stock.
During the second quarter of 1995, the Company recorded
several one-time, nonrecurring charges totaling $705,000 for
certain unrelated events. Of this amount, $450,000 represented a
divestiture reserve as related to the sale of the Company's wholly-
owned subsidiary, Re-Tech Systems, Inc., a post-consumer plastics
recycling company. This sale transaction was closed effective
March 15, 1996. The Company also recorded during the second
quarter of 1995 one-time charges totaling $255,000 as related to
various restructuring programs, which included a one-time charge of
$180,000 to provide for costs, principally severance and lease
termination fees, associated with the restructuring of the Perma-
Fix, Inc. service center group. This program entailed primarily
the consolidation of offices in conjunction with the implementation
of a regional service center concept and the closure of seven (7)
of nine (9) offices. A one-time charge of $75,000 was also
recorded to provide for consolidation costs, principally severance,
associated with the restructuring of the Southeast Region, which is
comprised of Perma-Fix of Florida, Inc. and Perma-Fix of Ft.
Lauderdale, Inc.
Other income for the quarter ended September 30, 1996 was
$32,000, as compared to expense of $29,000 for the quarter ended
September 30, 1995. Other income for the nine months ended
September 30, 1996 was $320,000 as compared to $16,000 for the same
period of 1995. This increase of $304,000 was principally a result
of the gain on the sale of certain nonproductive assets within the
waste management services segment.
The table below reflects activity for the three and nine
months ended September 30, 1996 and 1995, which should be used in
conjunction with the management's discussion and analysis by
segment (in thousands):
Waste Management Consulting
Services Engineering
Three Months Ended ___________________________ ____________________________
September 30, 1996 % 1995 % 1996 % 1995 %
__________________ ______ _____ ______ _____ ______ _____ ______ _____
Net Revenues $6,122 100.0 $7,432 100.0 $1,612 100.0 $1,617 100.0
Cost of Goods Sold 4,048 66.1 5,638 75.9 1,147 71.2 1,315 81.3
______ _____ ______ _____ ______ _____ ______ _____
Gross Profit $2,074 33.9 $1,794 24.1 $ 465 28.8 $ 302 18.7
====== ===== ====== ===== ====== ===== ====== =====
Waste Management Consulting
Services Engineering
Nine Months Ended ___________________________ ____________________________
September 30, 1996 % 1995 % 1996 % 1995 %
__________________ ______ _____ ______ _____ ______ _____ ______ _____
Net Revenues $19,193 100.0 $22,313 100.0 $4,291 100.0 $4,740 100.0
Cost of Goods Sold 13,465 70.2 16,923 75.8 3,128 72.9 3,791 80.0
______ _____ ______ _____ ______ _____ ______ _____
Gross Profit $ 5,728 29.8 $ 5,390 24.2 $1,163 27.1 949 20.0
====== ===== ====== ===== ====== ===== ====== =====
Waste Management Services -- Quarter and Year Ended September 30,
1996 and 1995
___________________________________________________________________
The waste management services segment is engaged in on- and
off-site treatment, storage, disposal and blending 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. In
1996, the Company operated and maintained facilities or businesses
in the waste by-product brokerage, on-site treatment and
stabilization, and off-site blending, treatment and disposal
industries.
During 1995, the Company initiated a re-engineering of the
waste management services segment, which included the detail review
of all operations and modification of its approach to soliciting
new customers while maintaining its existing customer base and, at
the same time, expanding its marketing efforts. In re-engineering
the waste management services segment, the Company made two key
decisions during 1995. The first was the elimination of a majority
of its service center locations. In June, 1995, the Company closed
seven (7) of nine (9) service centers, leaving its Albuquerque
office operating due to its continued profitability and the future
prospects thereof, and to operate its Tulsa, Oklahoma service
center as part of other waste management operations of the Company.
The second decision was to exit the toll grinding of post-consumer
and industrial plastics and resins, performed through its wholly-
owned subsidiary, Re-Tech Systems, Inc. in Houston, Texas. The
decision to sell this business entity was a continued effort to
focus the Company on consulting engineering and certain on-site and
off-site environmental services, all of which demonstrate higher
gross margins than toll grinding.
Effective March 15, 1996, the Company completed the sale of
Re-Tech Systems, Inc. The sale transaction included all real and
personal property of the subsidiary, for a total consideration of
$970,000. Net cash proceeds to the Company were approximately
$320,000, after the repayment of a mortgage obligation of $582,000
and certain other closing and real estate costs. In conjunction
with this transaction, the Company also made a prepayment of
$50,000 to Heller Financial, Inc. for application to the term loan.
As previously disclosed, the Company recorded during the second
quarter of 1995, a nonrecurring charge of $450,000 for the
estimated loss on the sale of this subsidiary, which was recorded
as an asset reduction. However, the Company recognized, during the
first quarter of 1996, a small gain on this sale after the asset
write-down. The Company sold total assets of approximately
$1,346,000, while retaining certain assets totalling approximately
$94,000 and certain liabilities totalling approximately $48,000.
Waste management services' revenue was $6,122,000 for the
quarter ended September 30, 1996. During the same period in 1995,
waste management services' revenue was $7,432,000. This decrease
of $1,310,000, or 17.6%, is principally a result of the above
discussed re-engineering program, in conjunction with the closing
of the service center locations, the disruption of one facility
currently undergoing major capital expansion, and the impact of the
sale of Re-Tech. The closed service center locations reflected
approximately $965,000 of this decrease during 1996, which was
partially offset by additional revenue through the expansion of the
remaining service centers and the receipt of new contracts, such as
the waste treatment project at the U.S. Department of Energy's
Fernald, Ohio facility. Also contributing to this decrease was the
sale of Re-Tech, which resulted in a reduction of approximately
$163,000 during the quarter. The Company also experienced reduced
revenue levels at its Ft. Lauderdale, Florida facility as the
Company finalizes a major capital expansion project and the refocus
of its business segments. Revenues for the nine months ended
September 30, 1996 were $19,193,000, as compared to $22,313,000 for
the same period of 1995. This decrease of $3,120,000 is again
attributable to the above discussed issues, with the closed service
centers reflecting approximately $2,194,000 of this decrease, the
sale of Re-Tech contributing $366,000 of this decrease and the
reduced revenue levels at Ft. Lauderdale reflecting approximately
$589,000 of this decrease, all of which was partially offset by the
receipt of new contracts at favorable pricing/margins. Also,
during the first nine months of 1996, the waste management segment
continued to experience downward pressure on prices due to the
market imbalance of excess supply over industry demand, principally
within the off-site blending, treatment and disposal facilities.
These market conditions contributed to the reduced revenue within
certain areas of this segment, and, as a result, the Company
continues to focus its efforts on its existing operations,
including new waste treatment technologies, its water treatment
facilities and its low level radioactive operations in north
Florida.
Cost of goods sold decreased to $4,048,000 from $5,638,000 for
the quarter ended September 30, 1996 and 1995, respectively. This
decrease of $1,590,000, or 28.2%, in cost of goods sold reflects
the corresponding direct and indirect costs related to the above
discussed revenue reduction of 17.6%, and the savings resulting
from various cost containment programs initiated during 1995 and
early 1996. The Company continued during the quarter to closely
monitor and reduce all possible operating costs. These reductions,
however, were partially offset by the temporary increase in
operating costs incurred at its Ft. Lauderdale, Florida facility,
as the Company finalizes this facility's expansion. As a percent
of revenue, the cost of goods sold for waste management services
decreased from 75.9% of revenue for the quarter ended September 30,
1995 to 66.1% of revenue for the quarter ended September 30, 1996,
again reflecting the impact of the restructuring and cost reduction
programs. Cost of goods sold also decreased $3,458,000 for the
nine month period ended September 30, 1996 to $13,465,000, from a
total of $16,923,000 for the same period of 1995. As a percent of
revenue, the cost of goods sold decreased from 75.8% for the nine
months ended September 30, 1995 to 70.2% for the nine months of
1996. This decrease in cost of goods sold again reflects the
savings resulting from the above discussed cost containment
programs and restructuring related changes.
Consulting Engineering Services -- Quarter and Nine Months Ended
September 30, 1996 and 1995
_________________________________________________________________
The Company's consulting engineering segment provides a wide
variety of environmental consulting and engineering services to
industry and government. Through the Company's wholly-owned
subsidiaries in Tulsa, Oklahoma and St. Louis, Missouri, this
segment provides oversight management of environmental restoration
projects, air and soil sampling and compliance reporting, surface
and subsurface water treatment design for removal of pollutants,
and various compliance and training activities. This segment, like
many other engineering firms within the pollution control industry,
is maturing rapidly, experiencing downward pricing pressure and
competitive conditions.
Net revenues for the consulting engineering segment were
$1,612,000 for the quarter ended September 30, 1996, as compared to
$1,617,000 for the quarter ended September 30, 1995, which reflects
the continued improvement from the first and second quarters of
1996. Net revenues, however, for the nine months ended
September 30, 1996 were $4,291,000 as compared to $4,740,000 for
the nine months of 1995. This decrease of $449,000, or 9.5%,
occurred principally during the first quarter and reflects, among
other changes, the above discussed competitive nature of the
industry, weather related issues that delayed the start-up of
certain contracts, and the corresponding loss of certain other
contracts. Also, during 1995, the Company closed its Canton, Ohio
office of Schreiber, Grana and Yonley, Inc., which resulted in
approximately $87,000 of this revenue reduction. The Company has
also, however, partially offset this reduction by the receipt of
several new contracts/relationships and the expansion of its
product base into new services to be provided to current and
prospective customers.
Cost of goods sold decreased $168,000 to $1,147,000 from
$1,315,000 for the quarter ended September 30, 1996 and 1995,
respectively. This decrease of 12.8% reflects the overall
reduction of operating costs on revenues, which were consistent for
the third quarter of 1996 as compared to 1995. Also, with this
improved utilization and aggressive cost containment program, the
consulting engineering segment's cost of goods sold decreased from
81.3% of net revenues to 71.2% of net revenues for the quarter
ended September 30, 1995 and 1996, respectively. Cost of goods
sold for the nine months ended September 30, 1996 were $3,128,000
as compared to $3,791,000 for the same period of 1995. This
decrease of $663,000 or 17.5% reflects, as discussed above, the
impact of reduced revenue and cost containment efforts. These
results reflect a gross margin level of 27.1% for the nine months
of 1996, an improvement over the 20.0% for 1995.
Liquidity and Capital Resources of the Company
______________________________________________
At September 30, 1996, the Company had cash and cash
equivalents of $83,000. This cash and cash equivalents total
reflects a decrease of $118,000 from December 31, 1995, as a result
of net cash used in operations of $1,067,000 (principally related
to the reduction of accounts payable and accrued expenses), cash
used in investing activities of $348,000 (principally purchases of
equipment, net totaling $1,487,000, partially offset by the
proceeds from the sale of property and equipment of $1,211,000) and
cash provided by financing activities of $1,297,000. Accounts
receivable, net of allowances, totalled $5,373,000, an increase of
$342,000 over the December 31, 1995 balance of $5,031,000, which
reflects the increased revenue levels as the Company emerges from
its traditionally busier summer months, in comparison to the late
fourth quarter, a period of reduced revenue due to holidays and
shut-downs.
As of September 30, 1996, the borrowings under the Company's
revolving loan facility totalled $1,432,000, a decrease of
$1,744,000 from the December 31, 1995 balance of $3,176,000, with
a related borrowing availability of $2,213,000, based on 80% of the
amount of eligible receivables of the Company as of September 30,
1996. The balance on the term loan totalled $1,513,000, as
compared to $2,083,000 at December 31, 1995. Total indebtedness
under the Agreement with Heller, as amended, as of September 30,
1996 was $2,945,000, a reduction of $2,314,000 from the December
31, 1995, balance of $5,259,000. See Note 2 to Notes to
Consolidated Financial Statements.
Pursuant to the Agreement with Heller, as amended by the Third
Amendment, the term loan bears interest at a floating rate equal to
the base rate (prime) plus 1 3/4% per annum, and the revolving loan
bears interest at a floating rate equal to the base rate (prime)
plus 1 1/2% per annum. The loans also contain certain closing,
management and unused line fees payable throughout the term.
However, during the period that the Agreement was in default, a
default rate of interest was applied effective August 21, 1995
through the date of the Third Amendment, and therefore the Heller
obligations bore interest at the above noted effective rate plus
2.0%. Both the revolving loan and term loan were prime based loans
at September 30, 1996, bearing interest at a rate of 9.75% and
10.00%, respectively. See Note 2 to the Notes to Consolidated
Financial Statements.
As of September 30, 1996, total consolidated accounts payable
for the Company was $3,422,000, a reduction of $1,980,000 from the
December 31, 1995 balance of $5,402,000. This September 1996
balance also reflects a reduction of $1,563,000 in the balance of
payables in excess of sixty (60) days, to a total of $1,662,000.
The Company utilized a portion of the net proceeds received in
connection with the sale of preferred stock during 1996, as
discussed below, to reduce accounts payable.
As discussed in Note 2 to Notes to Consolidated Financial
Statements, Ally Capital Corporation ("Ally") has provided the
Company with an equipment financing arrangement to finance the
purchase of capital equipment. As of September 30, 1996, the
Company's outstanding principal balance owing under this equipment
financing arrangement was $1,404,000. The Company has fully
utilized this equipment financing arrangement with Ally.
For 1996, the Company had budgeted capital expenditures of
$1,250,000 for improving operations and maintaining Resource
Conservation Recovery Act ("RCRA") permit compliance. All of these
expenditures are materially necessary to maintain compliance with
federal, state or local permit standards. As of September 30,
1996, the Company's net purchases of new capital equipment totalled
approximately $1,487,000, which was principally funded by the
proceeds from the issuance of Preferred Stock, as discussed below,
with the exception of $57,000, which was financed by the Company's
equipment financing lender discussed above, and $44,000 through
various other lease financing sources. At this time, the Company
anticipates additional capital expenditures of approximately
$400,000 will be required during the fourth quarter of 1996 for the
completion of existing projects and initiation of others, to be
financed by a combination of lease financing with lenders other
than under the equipment financing arrangement discussed above
and/or utilization of the equity raised in July, 1996, as
discussed below and in Note 4 of the Notes to Consolidated
Financial Statements.
At September 30, 1996, the Company had $5,006,000 in aggregate
principal amounts of outstanding debt, as compared to $8,478,000 at
December 31, 1995. This decrease in outstanding debt of $3,472,000
during the first nine months of 1996 reflects the net repayment of
the revolving loan and term note facility of $2,314,000, the
scheduled principal repayments on long-term debt of $1,228,000,
including the equipment finance agreement payments to Ally, and the
repayment of $582,000 on a mortgage obligation in conjunction with
the Re-Tech sale, as discussed below.
The working capital deficit position at September 30, 1996 was
$1,288,000, as compared to a deficit position of $9,372,000 at
December 31, 1995. The December, 1995, deficit position includes
the reclassification of certain long-term debt to current as a
result of a default under certain financial ratios under certain
loan agreements at that time. Prior to this reclassification, the
December, 1995, deficit position would have been $3,399,000, which
reflects an improvement in this position of $2,111,000 during the
nine months of 1996.
As previously disclosed, the Company issued to RBB Bank,
during February 1996, 1,100 shares of newly created Series 1
Preferred at a price of $1,000 per share, for an aggregate sales
price of $1,100,000, and paid a placement fee of $176,000. The
Company also issued to RBB Bank 330 shares of newly created Series
2 Preferred at a price of $1,000 per share, for an aggregate sales
price of $330,000, and paid a placement fee of $33,000. The Series
1 Preferred and Series 2 Preferred accrued dividends on a
cumulative basis at a rate per share of five percent (5%) per
annum, payable, at the Company's option, in cash or in common stock
of the Company. All dividends on the Series 1 Preferred and Series
2 Preferred were paid by the issuance of shares of common stock.
During the second quarter of 1996, a total of 722 shares of the
Series 1 Preferred were converted into approximately 1,035,000
shares of the Company's common stock and the associated accrued
dividends were paid in the form of approximately 15,000 shares of
the Company's common stock. Pursuant to a subscription and
purchase agreement for the issuance of Series 3 Class C Convertible
Preferred Stock, as discussed below, the remaining 378 shares of
the Series 1 Preferred and the 330 shares of the Series 2 Preferred
were converted during July 1996 into 920,000 shares of the
Company's common stock, which included the accrued and unpaid
dividends thereon, and the Company purchased the 920,000 shares for
$1,769,000. As a result of such conversions, the Series 1
Preferred and Series 2 Preferred are no longer outstanding.
On July 17, 1996, the Company issued to RBB Bank 5,500 shares
of newly-created Series 3 Preferred at a price of $1,000 per share,
for an aggregate sales price of $5,500,000, and paid placement and
closing fees of approximately $360,000. As part of the
consideration for the issuance of the Series 3 Preferred, the
Company also issued to RBB Bank two (2) common stock purchase
warrants entitling RBB Bank to purchase, after December 31, 1996,
until July 18, 2001, an aggregate of up to 2,000,000 shares of
common stock, with 1,000,000 shares exercisable at an exercise
price equal to $2.00 per share and the other 1,000,000 shares of
common stock exercisable at an exercise price equal to $3.50 per
share. Dividends on the Series 3 Preferred are paid when and as
declared by the Board of Directors at a rate of six percent (6%)
per annum and are payable semi-annually. Dividends are cumulative
and shall be paid, at the option of the Company, in the form of
cash or common stock of the Company. It is the present intent of
the Company to pay such dividends, if any, in common stock of the
Company. The shares of the Series 3 Preferred may be converted
into shares of common stock. See Note 4 of Notes to Consolidated
Financial Statements. The Company received from the sale of the
Series 3 Preferred net proceeds of approximately $5,100,000.
Pursuant to the terms of the Subscription Agreement relating to the
sale of the Series 3 Preferred, the Company has purchased from RBB
Bank from the net proceeds 920,000 shares of common stock of the
Company that RBB Bank received upon conversion of the balance of
the outstanding shares of Series 1 Preferred and Series 2 Preferred
for $1,769,000. The Company has used, or intends to use,
approximately $1,650,000 of the net proceeds for capital
improvements at its various facilities and the balance of the net
proceeds to reduce outstanding trade payables and for general
working capital. As of this date, the holder of the Series 3
Preferred has not elected to convert any of the Series 3 Preferred
into common stock of the Company.
Effective March 15, 1996, the Company completed the sale of
Re-Tech Systems, Inc., its plastics recycling subsidiary in
Houston, Texas. The sale transaction included all real and
personal property of the subsidiary, for a total consideration of
$970,000. Net cash proceeds to the Company were approximately
$320,000, after the repayment of a mortgage obligation of $582,000
and certain other closing and real estate costs. In conjunction
with this transaction, the Company also made a prepayment of
$50,000 to Heller Financial, Inc. for application to the term loan.
As previously disclosed, the Company recorded during 1995, a
nonrecurring charge (recorded as an asset reduction) of $450,000
for the estimated loss on the sale of this subsidiary, which, based
upon closing balances, the Company recognized a small gain on this
sale after the asset write-down. The Company sold total assets of
approximately $1,346,000, while retaining certain assets totalling
approximately $94,000 and certain liabilities totalling
approximately $48,000. In addition to the above asset sale, the
Company also sold certain non-productive assets during the quarter,
principally at closed service center locations and at the Perma-Fix
of Dayton, Inc. facility. Proceeds from these asset sales total
approximately $320,000.
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, including the
equity raised in 1996. If the Company is unable to continue to
improve its operations and to sustain profitability in the
foreseeable future, such would have a material adverse effect on
the Company's liquidity position and on the Company. This is a
forward-looking statement and is subject to certain factors that
could cause actual results to differ materially from those in the
forward-looking statement, including, but not limited to, the
Company's ability to maintain profitability or, if the Company is
not able to maintain profitability, whether the Company is able to
raise additional liquidity in the form of additional equity or
debt.
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
in the Company's Form 10-K for the year ended December 31, 1995,
except as discussed below:
The Ohio Attorney General has advised the Company's
subsidiary, Perma-Fix of Dayton, Inc. ("PFD") that it is
considering filing a complaint (the "Complaint") against PFD
alleging that PFD had violated certain of Ohio's hazardous waste
laws regarding ordered compliance with an EPA approved "Closure
Plan" for certain property leased by a company merged into PFD
prior to the acquisition of PFD by the Company. The Ohio Attorney
General alleges that PFD has not met either timetables or financial
assurance requirements which were part of the Closure Plan. The
Company is currently negotiating a consent order with the Attorney
General of Ohio under which the Company believes it will agree to
undertake closure of the Leased Property in an EPA approved manner.
The Company believes that the consent order will also require PFD
to pay a civil penalty to the State of Ohio in an amount which has
not yet been determined ("Civil Penalty"), and to supply financial
assurance, in the form of a bond or similar trust agreement, of
approximately $340,000 to ensure adequate funding for completing
the Closure Plan. The Company has maintained such a trust fund,
which trust fund had approximately $325,000 in funds therein. The
Company increased the amount in the trust fund to $340,000 to
comply with the request of the Ohio Attorney General. The Company
believes that the amount of the Civil Penalty which may be assessed
pursuant to the consent order will not be of sufficient size that
payment thereof by the Company will have a material adverse effect
upon the Company. This is a forward looking statement and is
subject to certain factors that could cause variation from what is
described in such forward looking statement, including, but not
limited to, the Company's inability to come to a suitable agreement
with the Attorney General of Ohio or the Ohio EPA.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
________
Exhibit 4.1 - Third Amendment to Loan and Security
Agreement with Heller Financial, Inc.
previously filed as Exhibit 4.1 to the
Company's Form 10-Q for the quarter ended
June 30, 1996, and is incorporated herein
by reference.
Exhibit 4.2 - Amendment to Ally Capital Corporation
Lease Agreement dated August 16, 1996,
previously filed as Exhibit 4.3 to the
Company's Form 10-Q for the quarter ended
June 30, 1996, and is incorporated herein
by reference.
Exhibit 4.3 - Subscription and Purchase Agreement,
dated July 17, 1996, between the Company
and RBB Bank Aktiengesellschaft ("RBB
Bank"), previously filed as Exhibit 4.4
to the Company's Form 10-Q for the
quarter ended June 30, 1996, and is
incorporated herein by reference.
Exhibit 4.4 - Fourth Amendment to Loan and Security
Agreement with Heller.
Exhibit 4.5 - Amendment to Ally Capital Lease Agreement
dated November 14, 1996.
Exhibit 10.1 - Common Stock Purchase Warrant Certificate
dated July 19, 1996, granted to RBB Bank,
previously filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended
June 30, 1996, and is incorporated herein
by reference.
Exhibit 10.2 - Common Stock Purchase Warrant Certificate
dated July 19, 1996, granted to RBB Bank,
previously filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended
June 30, 1996, and is incorporated herein
by reference.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
___________________
No reports on Form 8-K were filed during the third
quarter of 1996.
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: November 20, 1996 By: /s/ Dr. 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
EXHIBIT INDEX
Page No.
________
Exhibit 4.1 Third Amendment to Loan and Security
Agreement with Heller Financial, Inc.
(previously filed as Exhibit 4.1 to
the Company's Form 10-Q for the
quarter ended June 30, 1996, and
is incorporated herein by reference . . . . . -
Exhibit 4.2 Amendment to Ally Capital Corporation
Lease Agreement dated August 16, 1996,
previously filed as Exhibit 4.3 to the
Company's Form 10-Q for the quarter
ended June 30, 1996, and is incorporated
herein by reference . . . . . . . . . . . . . -
Exhibit 4.3 Subscription and Purchase Agreement, dated
July 17, 1996, between the Company and
RBB Bank Aktiengesellschaft ("RBB Bank"),
previously filed as Exhibit 4.4 to the
Company's Form 10-Q for the quarter
ended June 30, 1996, and is incorporated
herein by reference . . . . . . . . . . . . . -
Exhibit 4.4 Fourth Amendment to Loan and Security
Agreement with Heller . . . . . . . . . . . . 33
Exhibit 4.5 Amendment to Ally Capital Lease Agreement
dated November 14, 1996 . . . . . . . . . . . 43
Exhibit 10.1 Common Stock Purchase Warrant Certificate
dated July 19, 1996, granted to RBB Bank,
previously filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended
June 30, 1996, and is incorporated herein
by reference. . . . . . . . . . . . . . . . . -
Exhibit 10.2 Common Stock Purchase Warrant Certificate
dated July 19, 1996, granted to RBB Bank,
previously filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended
June 30, 1996, and is incorporated herein
by reference. . . . . . . . . . . . . . . . . -
Exhibit 27 Financial Data Schedule . . . . . . . . . . . . 47
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