================================================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ Form 10-K/A Amendment No. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 __________________________ 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 of incorporation or organization) Number) 1940 N.W. 67th Place, Gainesville, FL 32653 (Address of principal executive offices) (Zip Code) (352)373-4200 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ___________________ _____________________ Common Stock, $.001 Par Value Boston Stock Exchange Redeemable Warrants Boston Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Class B Warrants 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of April 6, 1998, based on the closing sale price of such stock as reported by NASDAQ on such day, was $18,728,567. The Company is listed on the NASDAQ SmallCap Market and the Boston Stock Exchange. As of April 6, 1998, there were 11,867,898 shares of the registrant's common stock, $.001 par value, outstanding, excluding 920,000 shares held as treasury stock. Documents Incorporated by reference: Portions of the definitive Proxy Statement dated April 20, 1998, to be delivered to Shareholders in connection with the Annual Meeting of Shareholders to be held May 20, 1998, are incorporated by reference into Part III. ================================================================= PART II ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived from the consolidated financial statements of the Company and its subsidiaries. Financial statements for the year ended December 31, 1997, 1996, 1995, and 1994 have been audited by BDO Seidman, LLP, and financial statements for the year ended December 31, 1993, have been audited by Coopers & Lybrand L.L.P. Statement of Operations Data: (Amounts in Thousands, Except for Share Amounts) December 31, __________________________________________________ 1997 1996 1995 1994(2) 1993 _______ _______ _______ _______ _______ Revenues(4) $28,413 $27,041 $31,477 $23,522 $10,123 Net income (loss) from continuing operations 192 27 (3,494) (1,201) (1,895) Net loss from discon- tinued operations (4,101) (287) (5,558)(3) (315) - Preferred Stock dividends (1,260)(5) (2,145)(5) - - - Net loss applicable to Common Stock from continuing operations (1,068)(5) (2,118)(5) (3,494) (1,201) (1,895) Net loss per common share from contin- uing operations(1) (.10)(5) (.24)(5) (.44) (.20) (.44) Weighted average number of common shares outstanding(1) 10,650 8,761 7,872 5,988 4,287 Balance Sheet Data: December 31, ____________________________________________________ 1997 1996 1995 1994(2) 1993 _______ _______ _______ _______ _______ Working capital (deficit) $ 754 $ (773) $(9,372) $ (705) $ 1,278 Total assets 28,570 29,036 28,873 35,067 17,711 Long-term debt 4,981 6,360 8,478 6,041 2,349 Total liabilities 16,376 16,451 20,935 18,105 6,997 Stockholders' equity 12,194 12,585 7,938 16,962 10,714 (1) As adjusted to reflect the stock split approved by the Board of Directors in July 1992, and to reflect all stock options and warrants outstanding at December 31, 1993 as if such options and warrants had been outstanding for all periods presented prior to December 31, 1993. Net loss per share for the fiscal year ended December 31, 1994, has been restated, in accordance with Accounting Principles Board Opinion No. 15, "Earnings Per Share," to reflect the issuance of contingent shares to Quadrex during 1995. As of December 31, 1997, the Company applied SFAS 128, the new standard of computing and presenting earnings per share. The adoption of SFAS 128 did not have a material effect on the Company's EPS presentation since the effects of potential common shares are antidilutive. (2) Includes financial data of Perma-Fix of Florida, Inc., Perma- Fix of Dayton, Inc. and Perma-Fix of Ft. Lauderdale, Inc., as acquired from Quadrex Corporation and accounted for using the purchase method of accounting, from June 30, 1994. (3) Includes write-down of impaired intangible permit related to an acquisition completed in December of 1993 and certain nonrecurring charges. 1 (4) Excludes revenues of Perma-Fix of Memphis, Inc., shown elsewhere as a discontinued operation. (5) In March 1997, the Securities and Exchange Commission, ("Commission") announced its position on the accounting for Preferred Stock which is or may be convertible into Common Stock at a discount from the market rate on the date of issuance of such Preferred Stock. The Commission's position pursuant to Emergency Issues Task Force ("EITF") D-60 regarding beneficial conversion features is that a Preferred Stock dividend should be recorded for the difference between the conversion price and the quoted market price of Common Stock as determined on the date of issuance of such Preferred Stock. To comply with this position, the Company previously restated its 1996 financial statements to reflect a dividend of approximately $2 million related to the fiscal 1996 sales of Convertible Preferred Stock. As a result, the amount noted in this table as the Company's net loss applicable to Common Stock for 1996 reflects the restated amount from the previously reported net loss applicable to Common Stock of $405,000 and the amount noted in this table as the Company's net loss per share of Common Stock for 1996 reflects the restated amount from the previously reported net loss per share of Common Stock of ($.05). Pursuant to the Commission's position regarding EITF D-60 and EITF D-42, the Company restated its 1997 financial statements to reflect a dividend of approximately $908,000 ($195,000 attributable to warrants) related to the fiscal 1997 sales and subsequent exchanges of Convertible Preferred Stock, of which approximately $111,000 was attributable to the quarter ended June 30, 1997, and approximately $797,000 was attributable to the quarter ended September 30, 1997. The impact of the restatement on the second and third quarters of 1997 and the year ended December 31, 1997, is shown as follows (dollars in thousands):
As Originally Reported As Amended ______________________ __________ Quarter Ended Year Ended Quarter Ended Year Ended _______________ __________ _______________ _________ 6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97 _______ ________ ________ _______ _______ _________ Preferred Stock Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $1,260 Net Loss Applicable to Common Stock (525) 58 (4,261) (636) (739) (5,169) Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained within this "Management's Discussion and Analysis of Financial Condition and Results of Operations" 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"). See "Special Note regarding Forward-Looking Statements" contained in this report. Management's discussion and analysis is based, among other things, upon the audited consolidated financial statements of the Company and its subsidiaries, and includes the accounts of the Company and its wholly-owned subsidiaries, after elimination of all significant inter-company balances and transactions. Management has restated its 1997 consolidated financial statements pursuant to the Commission's position regarding EITF D- 60, addressing the treatment of a beneficial conversion discount on Preferred Stock. The Preferred Stock dividends have been restated to include the beneficial conversion discount on the Preferred Stock and associated warrants issued by the Company in fiscal 1997. See "Results of Operations" and Note 3 to Notes to Consolidated Financial Statements in this section for further discussion. Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries and the notes thereto included in Item 8 of this report. 2 The Company is an active participant in the pollution control industry, which encompasses numerous segments ranging from residential solid waste collection and disposal to integrated remedial services for military and government installations, and the treatment and disposal of hazardous, mixed waste and wastewater. The industry was born out of the promulgation of federal, state and local environmental regulations. Over the last three to five years, waste minimization, in conjunction with maturing market conditions, has lead to acquisitions, consolidations and some firms exiting from certain segments in this industry. Today's business environment in the waste management industry is highly competitive, with customer cost containment, pricing pressures and market share consolidation prevalent. As a result of these industry conditions and under a new management team, the Company restructured its core businesses during 1995. In conjunction with these changes, the Company increased its emphasis on the research and development of innovative technologies for the treatment of nuclear, mixed waste, industrial waste and wastewater. This restructuring program included the closure of several poorly- performing service centers, the establishment of regional profit centers and the reduced overall cost structure and overhead carried by the Company. Charges related to this program are reflected in the operating results for the year ended December 31, 1995. On January 27, 1997, an explosion and resulting tank fire occurred at the PFM facility located in Memphis, Tennessee, which resulted in damage to certain hazardous waste storage tanks located on the facility, and caused certain limited contamination at the facility. Due to the nature of the loss, the significant disruption and limited operating activities at the facility, the Company made a strategic decision in February 1998, to discontinue its fuel blending operations at PFM. See "Business" and Note 4 to Notes to Consolidated Financial Statements and to "Discontinued Operations" in this section for further discussion on PFM. Hereafter, the PFM will be referred to as a discontinued operation, and excluded from the discussions on the operating results of the continuing operations. The reporting of financial results and pertinent discussions are tailored to two segments of the pollution control industry: Waste Management Services and Consulting Engineering Services.
Below are the results of operations for the Company for the years ended December 31, 1997, 1996 and 1995 (in thousands): (Consolidated) 1997 % 1996 % 1995 % _____________ _______ _____ _______ _____ _______ _____ Net Revenue $28,413 100.0 $27,041 100.0 $31,477 100.0 Cost of goods sold 19,827 69.8 18,912 69.9 23,764 75.5 _______ _____ _______ _____ _______ _____ Gross Profit 8,586 30.2 8,129 30.1 7,713 24.5 Selling, general and administra- tive 5,682 20.0 5,942 22.0 7,168 22.8 Depreciation and amortization 1,980 7.0 2,083 7.7 2,051 6.5 Nonrecurring charges - - - - 987 3.1 Other income (expense): Interest income 41 .1 43 .2 58 .2 Interest expense (431) (1.5) (643) (2.4) (814) (2.6) Other (342) (1.2) 523 1.9 (245) (.8) ________ ______ _______ ______ _______ ______ Net income (loss) from continuing operations 192 .7 27 - (3,494) 11.1 Loss from discon- tinued opera- tions (4,101) (14.4) (287) (1.1) (5,558) (17.7) Preferred Stock dividends (1,260)(1) (4.4) (2,145)(1) (7.9) - - ________ ______ ________ ______ _______ ______ Net loss applicable to Common Stock $(5,169)(1) (18.2) $(2,405)(1) (8.9) $(9,052) (28.8) ======== ====== ======== ====== ======== ====== (1) In March 1997, the Securities and Exchange Commission, ("Commission") announced its position on the accounting for Preferred Stock which is or may be convertible into Common Stock at a discount from the market rate on the date of 3 issuance of such Preferred Stock. The Commission's position pursuant to EITF D-60 regarding beneficial conversion features is that a Preferred Stock dividend should be recorded for the difference between the conversion price and the quoted market price of Common Stock as determined on the date of issuance of such Preferred Stock. To comply with this position, the Company previously restated its 1996 Financial Statements to reflect a dividend of approximately $2 million related to the fiscal 1996 sales of Convertible Preferred Stock. As a result, the amount noted in this table as the Company's net loss applicable to Common Stock for 1996 reflects the restated amount from the previously reported net loss applicable to Common Stock of $405,000 and the amount noted in this table as the Company's net loss per share of Common Stock for 1996 reflects the restated amount from the previously reported net loss per share of Common Stock of ($.05). Pursuant to the Commission's position regarding EITF D-60 and EITF D-42, the Company restated its 1997 consolidated financial statements to reflect a dividend of approximately $908,000 ($195,000 attributable to warrants) related to the fiscal 1997 sales and subsequent exchanges of Convertible Preferred Stock, of which approximately $111,000 was attributable to the quarter ended June 30, 1997, and approximately $797,000 was attributable to the quarter ended September 30, 1997. The impact of the restatement on the second and third quarters of 1997 and the year ended December 31, 1997, is shown as follows (dollars in thousands):
As Originally Reported As Amended ______________________ __________ Quarter Ended Year Ended Quarter Ended Year Ended _______________ __________ ______________ _________ 6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97 _______ ________ ________ _______ _______ _________ Preferred Stock Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $1,260 Net Loss Applicable to Common Stock (525) 58 (4,261) (636) (739) (5,169) Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
Discontinued Operations On January 27, 1997, an explosion and resulting tank fire occurred at the 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. Such occurrence was caused by welding activity performed by employees of an independent contractor at or near the facility's hazardous waste tank farm contrary to instructions by PFM. The facility was non-operational from the date of this event until May 1997, at which time it began limited operations. During the remainder of 1997, PFM continued to accept waste for processing and disposal, but arranged for other facilities owned by the Company or subsidiaries of the Company or others not affiliated with the Company to process such waste. The utilization of other facilities to process such waste resulted in higher costs to PFM than if PFM were able to store and process such waste at its Memphis, Tennessee, TSD facility, along with the additional handling and transportation costs associated with these activities. 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. Accordingly, during the fourth quarter of 1997, the Company recorded a loss on disposal of discontinued operations of $3,053,000, which included $1,272,000 for impairment of certain assets and $1,781,000 for the establishment of certain closure liabilities. During December 1995, the Company recognized a permit impairment charge of $4,712,000, related to the December 1993 acquisition of PFM. The evaluation of this impairment included the review of prior operating results, the recent restructuring activities, including the reduction of all possible operating and overhead costs, margin and revenue enhancements, and the related estimate of future undiscontinued operating income. Based upon this review, the permit was deemed to be impaired and a charge recorded for the full carrying amount of this intangible permit, which is further discussed in Note 4 of the Notes to Consolidated Financial Statements. 4 The net loss from the discontinued PFM operations for the years ended December 31, 1997, 1996, and 1995 ($1,048,000, $287,000, and $5,558,000, respectively) are shown separately in the Consolidated Statements of Operations. The results of the discontinued PFM operations do not reflect management fees charged by the Company, but do include interest expense of $254,000, $169,000 and $138,000 during 1997, 1996 and 1995, respectively, specifically identified to such operations as a result of such operations actual incurred debt under the Corporation's revolving and term loan credit facility. During March of 1998, the Company received a settlement in the amount of $1,475,000 from its insurance carrier for the business interruption claim. This settlement was recognized as a gain in 1997 and thereby reducing the net loss recorded for the discontinued PFM operations in 1997. Earlier in 1997, PFM received approximately $522,000 (less its deductible of $25,000) in connection with its claim for loss of contents as a result of the fire and explosion which was utilized to replace certain assets and reimburse the Company for certain fire related expense. Revenues of the discontinued PFM operations were $1,878,000 in 1997, $3,996,000 in 1996 and $3,414,000 in 1995. These revenues are not included in revenues as reported in the Consolidated Statements of Operation. See Note 4 to Notes to Consolidated Financial Statements for further discussion on PFM. Summary -- Years Ended December 31, 1997 and 1996 Consolidated net revenues increased $1,372,000, or 5.1% for continuing operations for the year ended December 31, 1997, compared to the year ended December 31, 1996. This increase is attributable to the Waste Management segment, which experienced an increase in revenues of approximately $2,259,000 during 1997, as compared to 1996. The Company's four (4) TSD's all experienced increased revenues during 1997, which in the aggregate totaled approximately $3,042,000 and were principally attributable to growth in the wastewater and mixed waste markets. The most significant TSD increase occurred at the PFF facility, which recognized a $2,184,000 increase resulting from new mixed waste contracts. Partially offsetting these increases within the waste management segment were two (2) sale transactions completed during 1996, whereby the Company sold its PermaCool Technology which had generated $689,000 in revenue during 1996 and sold its plastic recycling subsidiary (Re-Tech Systems, Inc.) which had generated $129,000 in revenue during 1996. This increase in the waste management segment was partially offset by a reduction in revenues of $887,000 in the Consulting Engineering segment. This consulting engineering reduction is partially a result of two one-time projects for 1996, which totaled $396,000 and were not duplicated in 1997, and a significant reduction in the Bartlesville, Oklahoma, three year project that reduced 1997 consulting engineering revenue by approximately $554,000 as compared to 1996. Cost of goods sold for the Company increased $915,000 or 4.8% to a total of $5,682,000 for the year ended December 31, 1997, compared to the year ended December 31, 1996. This consolidated increase in cost of goods sold reflects principally the increased operating, disposal, and transportation costs, corresponding to the increased revenues as discussed above. The resulting gross profit for the year ended December 31, 1997, increased to $8,586,000, which as a percentage of revenue is 30.2%, reflecting a slight improvement over 1996. Selling, general and administrative expenses decreased $260,000 or 4.4% for the year ended December 31, 1997, as compared to 1996. As a percentage of revenue, selling, general and administrative expense also decreased to 20.0% for the year ended December 31, 1997, compared to 22.0% for the same period in 1996. This decrease of $260,000 reflects a reduction in costs of $168,000 in the Consulting Engineering segment and a $153,000 reduction in costs in the Waste Management segment, which was partially offset by an increase of approximately $61,000 in corporate overhead, for certain outside services. The consolidated reduction in selling, general and administrative expenses reflects the Company's continued efforts towards reduced cost structure throughout the organization. Depreciation and amortization expense for the year ended December 31, 1997, reflects a decrease of $103,000 or .7% of revenue as compared to the year ended December 31, 1996. This decrease is attributable to a depreciation expense reduction of 47,000 due to the sale of certain assets as a result of the Company's previous restructuring programs and various other assets becoming fully depreciated. Amortization expense reflects a total 5 decrease of $67,000 for the year ended December 31, 1997, as compared to the year ended December 31, 1996, which is a direct result of the "Covenant Not to Compete" having become fully amortized during the first quarter of 1997. Interest expense decreased $212,000 from year ended December 31, 1997, as compared to the corresponding period of 1996. The decrease in interest expense reflects the reduced borrowing levels on the Heller Financial, Inc. revolving and term note and the Ally Capital Equipment Lease Agreements. The Preferred Stock dividends decreased $885,000 for the year ended December 31, 1997, as compared to the year ended December 31, 1996. Pursuant to EITF D-60, the Company previously restated its 1996 financial statements to record a dividend of approximately $2,000,000 related to the fiscal 1996 sales of certain series of Convertible Preferred Stock and has restated its 1997 consolidated financial statements to record a dividend of approximately $908,000 ($195,000 attributable to warrants) related to the fiscal 1997 sales of certain series of Convertible Preferred Stock. See Note 6 to Notes to Consolidated Financial Statements regarding the issuance of Preferred Stock. See Note 3 to Notes to Consolidated Financial Statements regarding the restatements due to the beneficial conversion features. Summary -- Years Ended December 31, 1996 and 1995 Consolidated net revenues decreased $4,436,000, or 14% for the year ended December 31, 1996, compared to the year ended December 31, 1995. This decrease reflects the impact of various restructuring programs initiated during 1995, which resulted in the consolidation and closure of certain offices, the divestiture of a subsidiary and the elimination of select low margin activities, as the Company continued to focus its efforts on certain business segments. During 1996, the Company experienced reduced revenues at PFL in Ft. Lauderdale, Florida, during the period that a capital expansion project at such facility was instituted. In addition, during such expansion, the PFL facility was vandalized in October 1996, resulting in a minimal reduction in revenues over a one month period. The combined reduction in revenues at PFL was approximately $718,000 during 1996, which was partially offset by increased revenues of $268,000 at certain other fixed-based facilities of the Company and receipt during 1996 of new contracts, such as the waste treatment project at the U.S. Department of Energy's Fernald, Ohio, facility. Cost of goods sold for the Company decreased $4,852,000, or 20% for the year ended December 31, 1996, compared to the year ended December 31, 1995. This decrease is partially attributable to the overall reduction in revenue, as discussed above, and to the cost benefit associated with the various restructuring programs and a reduced cost structure throughout the organization. This reduced cost structure can be further reflected by the cost of goods sold as a percentage of revenue, which was 69.9%, an improvement over the 1995 results of 75.5%. Selling, general and administrative expenses decreased 17% for the year ended December 31, 1996, as compared to 1995. As a percentage of revenue, selling, general and administrative expenses also decreased to 22.0% for the year ended December 31, 1996, compared to 22.8% for the same period in 1995. The decrease of $1,226,000 reflects the reduced administrative cost structure, resulting from the restructuring program, which reflected an overall reduction in administrative expenses of $1,441,000 during 1996. This reduced administrative cost was partially offset by an increase in marketing expenses of approximately $231,000 from 1995 to 1996, reflecting increased sales and marketing efforts as the Company focuses on new business areas of the waste industry. During 1995, the Company recorded several nonrecurring charges totaling $987,000, for certain unrelated events. Of this amount, $450,000 represents a divestiture reserve as related to the sale of a wholly-owned subsidiary and $537,000 are one-time charges resulting from restructuring programs. The Company decided in 1994 to divest its wholly-owned subsidiary, Re-Tech Systems, Inc., which is engaged in post-consumer plastics processing. A reserve in the amount of $450,000 was recorded during the second quarter of 1995 for the estimated loss to be recognized through a sale transaction. During the first quarter of 1996, the Company 6 completed the sale transaction for this business, resulting in total consideration of $970,000, which is further discussed in Note 15 of the Notes to Consolidated Financial Statements included in Item 8. The Company also executed restructuring programs during 1995 within the waste management services segment. A one-time charge of $237,000 was recorded 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 related closing of seven (7) of the nine (9) offices. A one-time charge of $75,000 was also recorded during the second quarter of 1995 to provide for consolidation costs, principally severance, associated with the restructuring of the Southeast Region, which is comprised of PFF and PFL. These restructuring costs were principally incurred and funded during 1995. In December of 1995, in conjunction with the above referenced restructuring program, the Company and Mr. Robert W. Foster, Jr. ("Foster") agreed to Foster's resignation as President, Chief Executive Officer and Director of the Company, thereby terminating his employment agreement with the Company effective March 15, 1996. The Company paid severance benefits of $30,000 in cash, continued certain employee benefits for a period of time, and issued $171,000 in the form of Common Stock of the Company (152,000 shares). Pursuant to the above, the Company recorded a nonrecurring charge at December 31, 1995, of $215,000. In addition, severance costs of approximately $10,000 were also incurred upon the termination of several corporate executives. These restructuring costs were principally incurred and funded during the first six (6) months of 1996. Depreciation and amortization expense for the year ended December 31, 1996, reflects an increase of $32,000 or .1% of revenue as compared to the year ended December 31, 1995. The amortization expense increased $13,000 for the year ended December 31, 1996, as compared to the same period of 1995, principally a result of the acquisition of the Industrial Compliance and Safety waste management firm during the second quarter of 1995. Additionally, depreciation expense increased $19,000 for the year ended December 31, 1996, as compared to the same period of 1995, reflecting new capital assets acquired during the year, partially offset by asset dispositions and the divestiture of a subsidiary of the Company. Interest income totaled $43,000, a reduction of $15,000 from the 1995 total of $58,000. This total reflects interest earned on the restricted cash balances maintained by the Company. These restricted cash balances and related interest income generally increase from year to year. However, the restricted cash balance was reduced in the fourth quarter of 1995 as the Company replaced existing letters of credit with an alternative financial assurance instrument, thereby eliminating the need for such restricted cash. This, in turn, resulted in reduced interest income in 1996. Interest expense also decreased during 1996 by $171,000 to a total of $643,000, as compared to $814,000 for 1995. The interest expense is primarily related to the senior debt facility with Heller Business Credit and the capital lease line with Ally Capital Corporation, both of which reflect reduced debt balances during 1996 due to repayments and correspondingly reduced interest expense. Interest expense was also impacted by a reduced revolving credit line balance during 1996 resulting from the proceeds generated from the private placements which were used to partially repay said balance. Offsetting this reduced interest expense, during 1996, was the Preferred Stock dividends totaling $145,000 incurred in conjunction with the Series 3 Class C Convertible Preferred Stock as issued in July 1996. The Preferred Stock dividend was paid in the form of 100,387 shares of Common Stock of the Company, which covered the period July 24 through December 31, 1996, and were issued in January 1997. Due to recent accounting pronouncements, a Preferred Stock Discount of $2,000,000 was expensed in 1996 in conjunction with the Series 1 Class A, Series 2 Class B, and Series 3 Class C issuance of Preferred Stock at a discount. See Note 2 of the Notes to Consolidated Financial Statements. Other income (expense) for 1996 reflected an income total of $523,000, as compared to an expense of $245,000 for 1995. In conjunction with the above discussed restructuring programs and office closures, the Company renegotiated and settled certain accounts payable liabilities on favorable terms and adjusted other liabilities, resulting in approximately $334,000 net other income during 1996. The Company also recognized a gain of approximately $166,000 on the sale of non-productive 7 assets, including the gain on the sale of Re-Tech. Effective December 31, 1996, the Company divested its arsenic removal technology for a net gain of approximately $122,000. Partially offsetting the above gains during 1996 were other expenses totaling $65,000, which principally represented costs associated with the October 1996 vandalism at PFL's facility as discussed above. The Company reported a net loss applicable to Common Stock of $2,405,000 in 1996 after restating its 1996 net loss applicable to Common Stock to record as a dividend (approximately $2,000,000), representing the difference between the conversion price and the quoted market price of Common Stock as determined at the date of issuance of certain series of Preferred Stock, as compared to a net loss of $9,052,000 in 1995. The per share loss was $.27 for 1996 versus $1.15 in 1995. Net loss for 1995 included permit write-down and nonrecurring charges totaling $5,699,000, which, when deducted from the total loss, results in a comparable loss of $3,353,000. This significant improvement from 1995 to 1996 reflects again the impact of the various restructuring programs, cost reduction across all segments of the Company and the revenue focus on select areas of the waste industry. Liquidity and Capital Resources of the Company At December 31, 1997, the Company had cash and cash equivalents of $326,000, including $12,000 from discontinued operations. This cash and cash equivalents total reflects a increase of $281,000 from December 31, 1996, as a result of net cash provided by continuing operations of $1,421,000, offset by cash used by discontinued operation of $1,398,000, cash used in investing activities of $1,521,000 (principally purchases of equipment, net totaling $1,504,000, partially offset by the proceeds from the sale of property and equipment of $54,000) and cash provided by financing activities of $1,779,000. Accounts receivable, net of allowances for continuing operations , totaled $5,282,000, an increase of $638,000 over the December 31, 1996, balance of $4,644,000, which reflects the impact of increased revenues during the fourth quarter of 1997, over the same period of 1996. On January 15, 1998, the Company, as parent and guarantor, and all direct and indirect subsidiaries of the Company, as co-borrowers and cross-guarantors, entered into a Loan and Security Agreement ("Agreement") with Congress Financial Corporation (Florida) as lender ("Congress"). The Agreement provides for a term loan in the amount of $2,500,000, which requires principal repayments based on a four-year level principal amortization over a term of 36 months, with monthly principal payments of $52,000. Payments commenced on February 1, 1998, with a final balloon payment in the amount of approximately $573,000 due on January 14, 2001. The Agreement also provides for a revolving loan facility in the amount of $4,500,000. At any point in time the aggregate available borrowings under the facility are subject to the maximum credit availability as determined through a monthly borrowing base calculation, as updated for certain information on a weekly basis, equal to 80% of eligible accounts receivable accounts of the Company as defined in the Agreement. The termination date on the revolving loan facility is also the third anniversary of the closing date. The Company incurred approximately $230,000 in financing fees relative to the solicitation and closing of this loan agreement (principally commitment, legal and closing fees) which are being amortized over the term of the Agreement. Pursuant to the Agreement, the term loan and revolving loan both bear interest at a floating rate equal to the prime rate plus 1 3/4%. The Agreement also provides for a one time rate adjustment of 1/4%, subject to the company meeting certain 1998 performance objectives. The loans also contain certain closing, management and unused line fees payable throughout the term. The loans are subject to a 3.0% prepayment fee in the first year, 1.5% in the second and 1.0% in the third year of the Agreement. As security for the payment and performance of the Agreement, the Company granted a first security interest in all accounts receivable, inventory, general intangibles, equipment and other assets of the Company and its subsidiaries, as well as the mortgage on two (2) facilities owned by subsidiaries of the Company. The Agreement contains affirmative covenants including, but not limited to, certain financial statement disclosures and certifications, management reports, maintenance of insurance and collateral. The Agreement also contains an Adjusted Net Worth financial covenant, as defined in the Agreement, of $3,000,000. Under the Agreement, the Company, and its subsidiaries are limited to granting liens on their equipment, including capitalized leases, 8 (other than liens on the equipment to which Congress has a security interest) in an amount not to exceed $2,500,000 in the aggregate at any time outstanding. The proceeds of the Agreement were utilized to repay in full on January 15, 1998, the outstanding balance of the Heller Financial, Inc. ("Heller") Loan and Security Agreement which was comprised of a revolving loan and term loan, and to repay and buyout all assets under the Ally Capital Corporation ("Ally") Equipment Financing Agreements. As of December 31, 1997, the borrowings under the Heller revolving loan facility totaled $2,652,000, a reduction of $227,000 from the December 31, 1996, balance of $2,879,000, with borrowing availability of approximately $762,000. The balance of the revolving loan on January 15, 1998, as repaid pursuant to the Congress agreement was $2,289,000. The balance under the Heller term loan at December 31, 1997, was $867,000, a reduction of $516,000 from the December 31, 1996, balance of $1,383,000. The Company subsequently made a term loan payment of $41,000 on January 2, 1998, resulting in a balance of $826,000, as repaid pursuant to the Congress Agreement. As of December 31, 1997, the outstanding balance on the Ally Equipment Financing Agreement was $624,000, a reduction of $633,000 from the December 31, 1996, balance of $1,257,000 and represents the principal balance repaid pursuant to the Congress Agreement. In conjunction with the above debt repayments, the Company also repaid a small mortgage, paid certain fees, taxes and expenses, resulting in an initial Congress term loan of $2,500,000 and revolving loan balance of $1,705,000 as of the date of closing. The Company had borrowing availability under the Congress Agreement of approximately $1,500,000 as of the date of closing, based on 80% of eligible accounts receivable accounts. The Company recorded the December 31, 1997, Heller and Ally debt balances as though the Congress transaction had been closed as of December 31, 1997. As a result of this transaction, and the repayment of the Heller and Ally debt, the combined monthly debt payments were reduced from approximately $104,000 per month to $52,000 per month. At December 31, 1997, the Company had $4,865,000 in aggregate principal amounts of outstanding debt, related to continuing operations, as compared to $6,281,000 at December 31, 1996. This decrease in outstanding debt of $1,416,000 during 1997 reflects the net repayment of the Heller Financial, Inc. revolving loan and term note facility of $742,000, the scheduled principal repayments on the Ally Capital Equipment Finance Agreements of $633,000 and the scheduled principal repayments on other long-term debt of $363,000, partially offset by the new debt and capital lease obligations secured during the year of $322,000. As of December 31, 1997, the Company had $116,000 in aggregate principal amounts of outstanding debt related to PFM discontinued operations, of which $99,000 is classified as current. As of December 31, 1997, total consolidated accounts payable for continuing operations of the Company was $2,263,000, a reduction of $951,000 from the December 31, 1996, balance of $3,214,000. This December 1997 balance also reflects a reduction of $673,000 in the balance of payables in excess of sixty (60) days, to a total of $608,000. The Company utilized a portion of the net proceeds received in connection with the sale of Preferred Stock during 1997, as discussed below, to reduce accounts payable, in conjunction with cash provided by operations. The Company's net purchases of new capital equipment for continuing operations for the twelve month period ended December 31, 1997, totaled approximately $1,767,000. These expenditures were for expansion and improvements to the operations principally within the waste management segment. These capital expenditures were principally funded by the proceeds from the issuance of Preferred Stock, as discussed below, and $263,000 through various other lease financing sources. The Company has budgeted capital expenditures of $1,950,000 for 1998, which includes completion of certain current projects, as well as other identified capital and permit compliance purchases. The Company anticipates funding these capital expenditures by a combination of lease financing with lenders other than the equipment financing arrangement discussed above, and/or internally generated funds. The Company will also utilize a portion of the $1,475,000 insurance settlement, as received in March of 1998 relative to the PFM business interruption claim to fund such expenditures. See Note 4 to the Notes to Consolidated Financial Statements. 9 The working capital position at December 31, 1997, was $754,000, as compared to a deficit position of $773,000 at December 31, 1996, which reflects an improvement in this position of $1,527,000 during 1997. The improved working capital position principally reflects the impact of the equity raised in 1997 as discussed below, in addition to the improvement in cash provided by continuing operations and the increase revenues during the fourth quarter of 1997 which resulted in an increase in accounts receivable at year-end. Also impacting this working capital position was the recognition at December 31, 1997, of the $1,475,000 insurance settlement receivable, partially offset by accrued expenses associated with the PFM discontinued operations. See Note 4 to the Notes to Consolidated Financial Statements for further discussion of this discontinued operation. During 1997, accrued dividends for the period July 17, 1996, through June 30, 1997, and dividends on converted shares, in the combined total of approximately $314,000 were paid in the form of 178,781 shares of Common Stock of the Company. The accrued dividends for the period July 1, 1997, through December 31, 1997, in the amount of approximately $121,000 were paid in January 1998, in the form of 54,528 shares of Common Stock of the Company. Effective February 7, 1997, the Company amended five (5) warrants with an original issuance date of February 10, 1992, to purchase an aggregate of 487,814 shares of the Company's Common Stock ("Acquisition Warrants"). The Acquisition Warrants were amended to (i) reduce the exercise price from $2.1475 per share of Common Stock to $1.00 per share of Common Stock, and (ii) extend the expiration date of the warrants from February 10, 1997 to March 3, 1997. All Acquisition Warrants were subsequently exercised prior to this March 3, 1997 date, which resulted in $487,814 of additional capital/equity. During 1997, the Company issued to RBB Bank 2,500 shares of newly-created series of Preferred Stock at a price of $1,000 per share, for an aggregate sales price of $2,500,000. See "Market for Registrant's Common Equity and Related Stockholder Matters" and Note 6 to Notes to Consolidated Financial Statements. The Company paid fees (excluding legal and accounting) of $200,000 in connection with the placement of Preferred Stock to RBB Bank during 1997 and issued to the investment banking firm that handled the placement two (2) Common Stock purchase warrants entitling the investment banking firm to purchase an aggregate of up to 300,000 shares of Common Stock, subject to certain anti- dilution provisions, with one warrant for a five year term to purchase up to 200,000 shares at an exercise price of $2.00 per share and the second warrant for a three year term to purchase up to 100,000 shares of Common Stock at an exercise price of $1.50 per share, subject to certain anti-dilution provisions. Under the terms of each warrant, the investment banking firm is entitled to certain registration rights with respect to the shares of Common Stock issuable on the exercise of each warrant. During 1997, the Company issued to the Infinity Fund, L.P. ("Infinity"), 350 shares of a newly-created series of Preferred Stock at a price of $1,000 per share, for an aggregate sales price of $350,000. The Company utilized the proceeds received on the sale of Preferred Stock to Infinity for the payment of debt and general working capital. See "Market for Registrant's Common Equity and Related Stockholder Matters" and Note 6 to Notes to Consolidated Financial Statements. On June 30, 1997, the Company entered into a Stock Purchase Agreement ("Centofanti Agreement") with Dr. Louis F. Centofanti, whereby the Company agreed to sell, and Dr. Centofanti agreed to purchase 24,381 shares of the Company's Common Stock. The purchase price was $1.6406 per share representing 75% of the $2.1875 closing bid price of the Common Stock as quoted on the NASDAQ on the date that Dr. Centofanti notified the Company of his desire to purchase such shares. Pursuant to the terms of the Centofanti Agreement, Dr. Centofanti was to pay the Company the aggregate purchase price of $40,000 for the 24,381 shares of Common Stock. However Dr. Centofanti purchased 12,190 shares during July 1997, for $20,000, and during October, the Agreement was amended to reduce the number of shares of Common Stock that Dr. Centofanti is to acquire under the Centofanti Agreement to the 12,190 shares already acquired by 10 Dr. Centofanti under the Centofanti Agreement, upon consideration of the certain recent accounting pronouncements related to stock based compensation. The sale of the shares pursuant to the Centofanti Agreement and its subsequent amendment dated October 7, 1997, for the sale of 12,190 shares were authorized by the Company's Board of Directors. In consideration of certain investment banking services as performed for the Company, a warrant was issued to J.W. Charles Financial Services, Inc. ("Charles") during September 1996. This warrant was subsequently assigned by Charles to certain partners, officers or broker and, during July 1997, one of the assigned warrants was exercised which resulted in the issuance of 155,000 shares of the Company's Common Stock and raised $232,000 in equity or capital for the Company. In summary, the Company has taken a number of steps to improve its operations and liquidity as discussed above, including the equity raised in 1997. If the Company is unable to continue to improve its operations and to become profitable in the foreseeable future, such would have a material adverse effect on the Company's liquidity position and on the Company. Environmental Contingencies The Company is engaged in the waste management services segment of the pollution control industry. As a participant in the on-site treatment, storage and disposal market and the off-site treatment and services market, the Company is subject to rigorous federal, state and local regulations. These regulations mandate strict compliance and therefore are a cost and concern to the Company. Because of the integral part of providing quality environmental services, the Company makes every reasonable attempt to maintain complete compliance with these regulations; however, even with a diligent commitment, the Company, as with many of its competitors, may be required to pay fines for violations or investigate and potentially remediate its waste management facilities. The Company routinely uses third party disposal companies, who ultimately destroy or secure landfill residual materials generated at its facilities or at a client's site. The Company, compared to its competitors, disposes of significantly less hazardous or industrial by-products from its operations due to rendering material non-hazardous, discharging treated wastewaters to publicly-owned treatment works and/or processing wastes into saleable products. In the past, numerous third party disposal sites have improperly managed wastes and consequently require remedial action; consequently, any party utilizing these sites may be liable for some or all of the remedial costs. Despite the Company's aggressive compliance and auditing procedures for disposal of wastes, the Company could, in the future, be notified that it is a PRP at a remedial action site, which could have a material adverse effect on the Company. In addition to budgeted capital expenditures of $1,950,000 for 1998 at the TSD facilities, which are necessary to maintain permit compliance and improve operations, as discussed above under "Business -- Capital Spending, Certain Environmental Expenditures" and "Liquidity and Capital Resources of the Company" of this Management's Discussion and Analysis, the Company has also budgeted for 1998 an additional $1,045,000 in environmental expenditures to comply with federal, state and local regulations in connection with remediation of certain contaminates at two locations. As previously discussed under "Business -- Capital Spending, Certain Environmental Expenditures and Potential Environmental Liabilities," the two locations where these expenditures will be made are the Affiliated Property in Dayton, Ohio (EPS), a former RCRA storage facility as operated by the former owners of PFD, and PFM's facility in Memphis, Tennessee. The Company has estimated the expenditures for 1998 to be approximately $210,000 at the EPS site and $835,000 at the PFM location. Additional funds will be required for the next five to ten years to properly investigate and remediate these sites. The Company expects to fund these expenses to remediate these two sites from funds generated internally. This is a forward looking statement and is subject to numerous conditions, including, but not limited to, the Company's ability to generate sufficient cash flow from operations to fund all costs of operations and remediation of these two sites, the discovery of additional contamination or expanded contamination which would result in a material increase in such expenditures, or changes in governmental laws or regulations. 11 Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS 130") and No. 131, "Disclosure about Segments of an Enterprise and Related Information," ("FAS 131"). FAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. FAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. Both FAS 130 and FAS 131 are effective for periods beginning after December 15, 1997. FAS 130 is not expected to have a material impact on the Company's financial statement. The Company has not determined the impact FAS 131 will have on its future financial statements and disclosures. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Consolidated Financial Statements: Page No. _________________________________ ________ Report of Independent Certified Public Accountants BDO Seidman, LLP 14 Consolidated Balance Sheets as of December 31, 1997 and 1996 15 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 17 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 18 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 19 Notes to Consolidated Financial Statements 20 Schedules Omitted _________________ In accordance with the rules of Regulation S-X, other schedules are not submitted because (a) they are not applicable to or required by the Company, or (b) the information required to be set forth therein is included in the consolidated financial statements or notes thereto. 13 Report of Independent Certified Public Accountants Board of Directors Perma-Fix Environmental Services, Inc. We have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. We have also audited the schedule listed in the accompanying index. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Perma-Fix Environmental Services, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. As discussed in Note 3, the Company's financial statements have been restated to reflect additional dividends related to the sales and subsequent exchanges of Convertible Preferred Stock. /s/ BDO Seidman, LLP BDO Seidman, LLP Orlando, Florida February 13, 1998 14
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS As of December 31 (Amounts in Thousands, Except for Share Amounts) 1997 1996 ___________________________________________________________________ ASSETS Current assets: Cash and cash equivalents $ 314 $ 37 Restricted cash equivalents and investments 321 269 Accounts receivable, net of allowance for doubtful accounts of $374 and $340, respectively 5,282 4,644 Insurance claim receivable 1,475 - Inventories 119 107 Prepaid expenses 567 528 Other receivables 70 540 Assets of discontinued operations 587 1,118 _________ ________ Total current assets 8,735 7,243 Property and equipment: Buildings and land 5,533 3,905 Equipment 7,689 5,911 Vehicles 1,202 1,384 Leasehold improvements 16 289 Office furniture and equipment 1,056 1,019 Construction in progress 1,052 2,995 _________ ________ 16,548 15,503 Less accumulated depreciation (5,564) (4,242) _________ ________ Net property and equipment 10,984 11,261 Property and equipment of discon- tinued operations, net of accumu- lated depreciation of $0 and $351, respectively - 1,343 Intangibles and other assets: Permits, net of accumulated amortization of $831 and $598, respectively 3,725 3,916 Goodwill, net of accumulated amortization of $580 and $435, respectively 4,701 4,846 Other assets 425 394 Other assets of discontinued operations - 33 ________ ________ Total assets $ 28,570 $ 29,036 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 15
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS, CONTINUED As of December 31 (Amounts in Thousands, Except for Share Amounts) 1997 1996 ___________________________________________________________________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,263 $ 3,214 Accrued expenses 3,380 2,493 Revolving loan and term note facility 614 500 Current portion of long-term debt 254 919 Current liabilities of discontinued operations 1,470 890 _________ _______ Total current liabilities 7,981 8,016 Environmental accruals 525 1,246 Accrued closure costs 831 815 Long-term debt, less current portion 3,997 4,862 Long term liabilities of discontinued operations 3,042 1,512 _________ _______ Total long-term liabilities 8,395 8,435 Commitments and contingencies (see Notes 4, 7, 9 and 12) - - Stockholders' equity: Preferred stock, $.001 par value; 2,000,000 shares authorized, 6,850 and 5,500 shares issued and outstanding, respectively - - Common Stock, $.001 par value; 50,000,000 shares authorized, 12,540,487 and 10,399,947 shares issued, including 920,000 shares held as treasury stock, 12 10 Redeemable warrants 140 140 Additional paid-in capital 35,271 30,495 Accumulated deficit (21,459) (16,290) ________ _______ 13,964 14,355 Less Common Stock in treasury at cost; 920,000 shares issued and outstanding (1,770) (1,770) ________ _______ Total stockholders' equity 12,194 12,585 ________ _______ Total liabilities and stockholders' equity $ 28,570 $ 29,036 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 16
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31 (Amounts in Thousands, Except for Share Amounts) 1997 1996 1995 ___________________________________________________________________ Net revenues $ 28,413 $ 27,041 $ 31,477 Cost of goods sold 19,827 18,912 23,764 ________ ________ ________ Gross profit 8,586 8,129 7,713 Selling, general and administrative expenses 5,682 5,942 7,168 Depreciation and amortization 1,980 2,083 2,051 Nonrecurring charges (see Note 14) - - 987 ________ _______ ________ Income (loss) from operations 924 104 (2,493) Other income (expense): Interest income 41 43 58 Interest expense (431) (643) (814) Other (342) (523) (245) ________ ________ _______ Net income (loss) from continuing operations 192 27 (3,494) Discontinued Operations: Loss from operations (1,048) (287) (5,558) Loss on disposal (3,053) - - _______ ________ _______ Loss from discon- tinued operations (4,101) (287) (5,558) _______ Net Loss (3,909) (260) (9,052) _______ ________ _______ Preferred Stock dividends 1,260* 2,145* - _______ ________ _______ Net loss applicable to common stock $ (5,169)* $ (2,405)* $ (9,052) ======== ======== ======== ____________________________________________________ Basic loss per common share: Continuing operations $ (.10) $ (.24) $ (.44) Discontinued operations $ (.39) $ (.03) $ (.71) _________ _________ ________ Net loss per common share $ (.49)* $ (.27)* $ (1.15) ======== ======== ======== Weighted average number of common and common shares outstanding 10,650 8,761 7,872 ======== ======== ======== *Amounts have been restated from that previously reported to reflect a stock dividend on Preferred Stock which is convertible at a discount from market value at the date of issuance (see Note 3).
The accompanying notes are an integral part of these consolidated financial statements. 17
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31 (Amounts in Thousands) 1997 1996 1995 ___________________________________________________________________ Cash flows from operating activities: Net income (loss) from continuing operations $ 192 $ 27 $ (3,494) Adjustments to reconcile net loss to cash pro- vided by (used in) operations: Depreciation and amorti- zation 1,980 2,083 2,051 Loss on impairment of assets 371 450 Provision for bad debt and other reserves 133 17 517 (Gain) loss on sale of plant, property and equipment 21 (4) 8 Changes in assets and liabilities, net of effects from business acquisitions: Accounts receivable (770) (38) 939 Prepaid expenses, inven- tories and other assets 303 (513) (38) Accounts payable and accrued expenses (809) (1,798) 242 _______ ________ _______ Net cash provided by (used in) operations 1,421 (226) 675 _______ ________ _______ Net cash used by discontinued operations (1,398) (1,065) (613) _______ ________ _______ Cash flows from investing activities: Purchases of property and equipment, net (1,504) (1,957) (1,261) Proceeds from sale of plant, property and equipment 54 1,214 10 Effect of acquisitions 9 Change in restricted cash, net (30) (58) 175 Net cash used by discon- tinued operations (41) (162) (119) _______ ________ _______ Net cash used in investing activities (1,521) (963) (1,186) ________ ________ _______ Cash flows from financing activities: Borrowings (repayments) from revolving loan and term note facility (743) (997) 2,162 Principal repayments on long-term debt (938) (1,502) (995) Proceeds from issuance of stock 3,480 6,367 - Purchase of treasury stock - (1,770) - Net cash used by discon- tinued operations (20) - (332) ________ ________ ________ Net cash provided by financing activities 1,779 2,098 835 ________ ________ ________ (Decrease) increase in cash and cash equivalents 281 (156) (289) Cash and cash equivalents at beginning of period, including discontinued oper- ations of $8, $28, and $25 respectively 45 201 490 ________ ________ _______ Cash and cash equivalents at end of period, including discontinued operations of $12, $8, and $28, respectively $ 326 $ 45 $ 201 ======== ======= ======= ___________________________________________________________________ Supplemental disclosure: Interest paid $ 710 $ 844 $ 923 Non-cash investing and financing activities: Issuance of Common Stock for services 76 462 - Long-term debt incurred for purchase of property and equipment, including discontinued operations of $31 in 1997 294 424 1,573 Issuance of stock for pay- ment of dividends 314 - -
The accompanying notes are an integral part of these consolidated financial statements. 18
PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31 Preferred Stock Common Stock (Amounts in Thousands, ___________________ __________________ Except for Share Amounts) Shares Amount Shares Amount _________________________________________________________________________ Balance at December 31, 1994 - - 6,737,007 7 Net loss - - - - Issuance of stock for acquisitions - - 1,135,377 1 Amortization of deferred compensation - - - - ______ _______ _________ _______ Balance at December 31, 1995 7,872,384 8 Net loss - - - - Preferred Stock dividend - - - - Issuance of stock for cash and services - - 573,916 - Issuance of Preferred Stock for cash 6,930 - - - Conversion of Preferred Stock to common (1,430) - 1,953,647 2 Expiration of redeemable warrants - - - - Redemption of common shares to treasury stock - - - - _______ ______ __________ _______ Balance at December 31, 1996 5,500 $ - 10,399,947 $ 10 ======== ====== ========== ======= Net loss - - - - Preferred Stock dividend - - - - Issuance of Common Stock for preferred stock dividend - - 178,781 - Issuance of stock for cash and services - - 128,271 - Exercise of warrants - - 794,514 1 Conversion of Series 3 Preferred Stock to Common Stock (1,500) - 1,027,974 1 Option Exercise - - 11,000 - Issuance of Preferred Stock for cash 2,850 - - - _______ ______ __________ _______ Balance at December 31, 1997 6,850 $ - 12,540,487 $ 12 ======== ====== ========== ======= Common Additional Stock Redeemable Paid-In Accumulated Held in Deferred Warrants Capital Deficit Treasury Comp. _______________________________________________________________________ 269 21,549 (4,833) - (30) - - (9,052) - - - (3) - - - - - - - 30 _________ _______ ________ ________ ________ 269 21,546 (13,885) - - - - (260) - - - 2,000 (2,145) - - - 693 - - - - 6,129 - - - - (2) - - - (129) 129 - - - - - - (1,770) - _________ _______ ________ ________ ________ $ 140 $ 30,495 $(16,290) $ (1,770) $ - ========= ======= ========= ========= ======== - - (3,909) - - - 908 (1,260) - - - 314 - - - - 96 - - - - 932 - - - - (1) - - - - 11 - - - - 2,516 - - - _________ ________ ________ ________ _________ $ 140 $ 35,271 $ (21,459) $ (1,770) $ - ========= ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 19 PERMA-FIX ENVIRONMENTAL SERVICES, INC. Notes to Consolidated Financial Statements December 31, 1997, 1996 and 1995 ________________________________________________________ NOTE 1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Perma-Fix Environmental Services, Inc. (the "Company") is a Delaware corporation engaged in on-and-off-site treatment, storage, processing and disposal of hazardous and non-hazardous industrial and commercial wastes, mixed waste and wastewater, and provides consulting engineering services to industry and government for broad-scope environmental problems. The Company has grown through both acquisitions and internal development. The Company's present objective is to focus the operations, maximize the profitability of its existing businesses and to continue the research and development of innovative technologies for the treatment of nuclear, mixed waste and industrial waste. The Company is subject to certain risks: (1) It is involved in the transportation, treatment, handling and storage of hazardous and non-hazardous, mixed and industrial wastes and wastewater. Such activities contain risks against which the Company believes it is adequately insured, and (2) in general, the industries in which the Company operates are characterized by intense competition among a number of larger, more established companies with significantly greater resources than the Company. The consolidated financial statements of the Company for the years 1995 through 1997 include the accounts of Perma-Fix Environmental Services, Inc. ("PESI") and its wholly-owned subsidiaries, Perma-Fix, Inc. ("PFI") and subsidiaries, Industrial Waste Management, Inc. ("IWM") and subsidiaries, Perma-Fix Treatment Services, Inc. ("PFTS"), Perma-Fix of Florida, Inc. ("PFF"), Perma-Fix of Dayton, Inc. ("PFD"), Perma-Fix of Ft. Lauderdale, Inc. ("PFL"), and Perma-Fix Processing, Inc. ("Re- Tech"). The Perma-Fix Processing, Inc. (Re-Tech) plastic processing subsidiary was, however, sold effective March 15, 1996. Due to a fire and resulting explosion during 1997, the fuel blending operations of Perma-Fix of Memphis, Inc. ("PFM") are, effective as of December 31, 1997, being accounted for as a discontinued operation. See Note 4. ________________________________________________________ NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany accounts and transactions. Reclassifications Certain prior year amounts have been reclassified to conform with the 1997 presentation. Business Segments The Company provides services and products through two business segments -- Waste Management Services and Consulting Engineering Services. See Note 14 for a further description of these segments and certain business information. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 20 Cash Equivalents The Company considers short-term investments with an initial maturity date of three months or less at the date of purchase to be cash equivalents. Restricted Cash Equivalents and Investments Restricted cash equivalents and investments classified as current assets, increased $52,000 from the year ended December 31, 1996, as compared to the same period of 1997. However, these figures do not include PFM, which is discussed further below. The 1996 restricted cash consisted of a trust fund of $178,000, a certificate of deposit of $89,000, and a money market account of $2,000. In comparison, the 1997 restricted cash consists of a trust fund of $212,000, certificates of deposit totaling $107,000, and a money market account of $2,000. As of December 31, 1997, $84,000 of the restricted cash balance was pledged as collateral for the Company's secured letters of credit. In addition to these current assets, a trust fund of $365,000 is classified as a long term asset as of December 31, 1997. These restricted instruments reflect secured collateral relative to the various financial assurance instruments guaranteeing the standard RCRA closure bonding requirements for the PFTS, PFD and PFL TSD facilities, while the long-term portion reflects cash held for long-term commitments related to the RCRA closure action at a facility affiliated with PFD as further discussed in Note 9. The letters of credit secured by the restricted cash renew annually, and the Company plans to replace the letters of credit with other alternative financial assurance instruments. PFM has restricted cash equivalents of $214,000 as of December 31, 1997. This restricted cash amount is reported in current assets (assets of discontinued operations), and includes a trust fund for $68,000 and certificates of deposit for $146,000. These restricted instruments reflect secured collateral relative to the various financial assurance instruments guaranteeing the standard RCRA closure requirements for the PFM facility. The letters of credit secured by this restricted cash also renew annually. Inventories Inventories consist of fly ash, cement kiln dust and treatment chemicals. Inventories are valued at the lower of cost or market with cost determined by the first-in, first-out method. Property and Equipment Property and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes, while accelerated depreciation methods are principally used for tax purposes. Generally, annual depreciation rates range from ten to forty years for buildings (including improvements) and three to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment. Maintenance and repairs are charged directly to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss from sale or retirement is recognized in the accompanying consolidated statements of operations. Renewals and improvements which extend the useful lives of the assets are capitalized. Intangible Assets Intangible assets relating to acquired businesses consist primarily of the cost of purchased businesses in excess of the estimated fair value of net assets acquired ("goodwill") and the recognized permit value of the business. Goodwill is generally amortized over 40 years and permits are amortized over 20 years. Amortization expense approximated $388,000, $455,000 and $686,000 for the years ended 1997, 1996, and 1995, respectively. The Company continually reevaluates the propriety of the carrying amount of permits and goodwill as well as the amortization period to determine whether current events and circumstances warrant adjustments to the carrying value and estimates of useful lives. The Company uses an estimate of the related undiscontinued operating income over the remaining lives of goodwill and permit costs in measuring whether they are recoverable. At December 31, 1995, the Company recognized a permit impairment charge of approximately $4,712,000 related to the December 1993 acquisition of Perma-Fix of Memphis, Inc. See Note 4 for further discussion of this charge. At this time, the Company believes that no additional 21 impairment of goodwill or permits has occurred and that no reduction of the estimated useful lives of the remaining assets is warranted. This evaluation policy is in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Accrued Closure Costs Accrued closure costs represent the Company's estimated environmental liability to clean up their facilities in the event of closure. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires use of the liability method. SFAS No. 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets or liabilities at the end of each period are determined using the currently enacted tax rates to apply to taxable income in the periods in which the deferred tax assets or liabilities are expected to be settled or realized. Net Revenues Revenues for services and reimbursable costs are recognized at the time services are rendered or, in the case of fixed price contracts, under the percentage-of-completion method of accounting. No customer accounted for more than ten percent (10%) of consolidated net revenues. Self-Insurance The Company has a self-insurance program for certain health benefits. The Company has stop-loss coverage of $60,000 per individual per occurrence with an annual aggregate claim limitation of approximately $995,000 for 1998. However, as the employment of the Company increases or decreases, the aggregate limitation rises or falls proportionally. The cost of such benefits is recognized as expense in the period in which the claim occurred, including estimates of claims incurred but not reported. The claims expense for 1997 was approximately $663,000, as compared to $748,000 for 1996. This decrease principally reflects the full implementation of this program, to include all employees of the corporation, and the occurrence of several larger claims during 1996. Net Loss Per Share Net loss per share has been presented using the weighted average number of common shares outstanding. The net loss per share for discontinued operations consists of $.10 loss per share from operations and $.29 loss per share from disposal. Potential common shares have not been included in the net loss per share calculations since their effects would be antidilutive. Potential common shares include 1,398,848 stock options, 10,035,896 warrants and 9,133,333 shares underlying the convertible Preferred Stock at the minimum conversion price. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes new standards for computing and presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS, requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997. The adoption of SFAS 128 did not have a material effect on the Company's EPS presentation for 1997, 1996 and 1995, since the effects of potential common shares are antidilutive. Fair Value of Financial Instruments The book values of cash, trade accounts receivable, trade accounts payable, and financial instruments included in current assets and other assets approximate their fair values principally 22 because of the short-term maturities of these instruments. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company's fair value of long-term debt was not significantly different from the stated value at December 31, 1997 and 1996. Year 2000 Disclosure The Company has conducted a review of its computer systems to identify the systems which it anticipated could be effected by the Year 2000 issue and it believes that all such systems were already, or have been converted to be, Year 2000 compliant. Such conversion, where required, did not entail material expenditure by the Company. Pursuant to the Company's Year 2000 planning, the Company has requested information regarding the computer systems of its key suppliers, customers, creditors and financial service organizations and has been informed that they are substantially Year 2000 compliant. There can be no assurance, however, that such key organizations are actually Year 2000 compliant and that the Year 2000 issue will not adversely affect the Company's financial position or results of operations. The Company believes that its expenditures in addressing its Year 2000 issues along with any potential effect on the Company's earnings will not have a material adverse effect on the Company's financial position or results of operations. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("FAS 130") and No. 131, "Disclosure about Segments of an Enterprise and Related Information," ("FAS 131"). FAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances. FAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. Both FAS 130 and FAS 131 are effective for periods beginning after December 15, 1997. FAS 130 is not expected to have a material impact on the Company's financial statement. The Company has not determined the impact FAS 131 will have on its future financial statements and disclosures. ________________________________________________________ NOTE 3 RESTATEMENT OF 1996 STOCKHOLDER'S EQUITY In March 1997, the Securities and Exchange Commission Staff (the "Staff") announced its position on accounting for Preferred Stock which is or may be convertible into Common Stock at a discount from the market rate at the date of issuance. The Staff's position pursuant to EITF D-60 is that a Preferred Stock dividend should be recorded for the difference between the conversion price and the quoted market price of Common Stock as determined at the date of issuance. To comply with this position, the Company previously restated its 1996 consolidated financial statements to reflect a dividend of approximately $2,000,000 related to the fiscal 1996 sales of Convertible Preferred Stock discussed in Note 6 (Series 1 Class A, Series 2 Class B, and Series 3 Class C Preferred Stock). The Company also restated the reported net loss per share of Common Stock for the year ended December 31, 1996, to ($.27), from the previously reported amount of ($.05). Pursuant to EITF D-60 and EITF D-42 adopted by the Commission, the Company restated its 1997 consolidated financial statements to reflect a dividend of approximately $713,000 related to the fiscal 1997 sales and subsequent exchanges of Convertible Preferred Stock and a dividend of approximately $195,000 related to the fiscal 1997 issuance of warrants in connection therewith as discussed in Note 6 (Series 4 Class D, Series 5 Class E, Series 6 Class F, and Series 7 Class G Preferred Stock). The restatement reflects dividends totaling approximately $908,000 resulting from such Preferred Stock sales, of which approximately $111,000 was attributable to the quarter ended June 30, 1997, and approximately $797,000 was attributable to the quarter ended September 30, 1997.
The impact of the restatement on the second and third quarters of 1997 and the year ended December 31, 1997, is shown as follows (dollars in thousands): 23 As Originally Reported As Amended ______________________ __________ Quarter Ended Year Ended Quarter Ended Year Ended _______________ __________ _______ _______ _________ 6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97 _______ ________ ________ _______ _______ _________ Preferred Stock Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $ 1,260 Net Loss Applicable to Common Stock (525) 58 (4,261) (636) (739) (5,169) Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
________________________________________________________ NOTE 4 DISCONTINUED OPERATIONS On January 27, 1997, an explosion and resulting tank fire occurred at the PFM facility, a hazardous waste storage, processing and blending facility, located in Memphis, Tennessee, which resulted in damage to certain hazardous waste storage tanks located on the facility and caused certain limited contamination at the facility. Such occurrence was caused by welding activity performed by employees of an independent contractor at or near the facility's hazardous waste tank farm contrary to instructions by PFM. The facility was non-operational from the date of this event until May 1997, at which time it began limited operations. During the remainder of 1997, PFM continued to accept waste for processing and disposal, but arranged for other facilities owned by the Company or subsidiaries of the Company or others not affiliated with the Company to process such waste. The utilization of other facilities to process such waste resulted in higher costs to PFM than if PFM were able to store and process such waste at its Memphis, Tennessee, TSD facility, along with the additional handling and transportation costs associated with these activities. 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. PFM currently provides, on a limited basis, an off-site waste storage and transfer facility. Accordingly, during the fourth quarter of 1997, the Company recorded a loss on disposal of discontinued operations of $3,053,000, which included $1,272,000 for impairment of certain assets and $1,781,000 for the establishment of certain closure liabilities. The net loss from the discontinued PFM operations for the years ended December 31, 1997, 1996, and 1995 ($1,048,000, $287,000, and $5,558,000, respectively) are shown separately in the Consolidated Statements of Operations. The results of the discontinued PFM operations do not reflect management fees charged by the Corporation, but does include interest expense of $254,000, $169,000 and $138,000 during 1997, 1996 and 1995, respectively, specifically identified to such operations as a result of such operations incurring debt under the Company's revolving and term loan credit facility. During March of 1998, the Company received a settlement in the amount of $1,475,000 from its insurance carrier for the business interruption claim which is recorded as an insurance claim receivable at December 31, 1997. This settlement was recognized as a gain in 1997 and thereby reduced the net loss recorded for the discontinued PFM operations in 1997. Earlier in 1997, PFM received approximately $522,000 (less its deductible of $25,000) in connection with its claim for loss of contents as a result of the fire and explosion which was utilized to replace certain assets and reimburse the Company for certain fire related expense. Revenues of the discontinued PFM operations were $1,878,000 in 1997, $3,996,000 in 1996 and $3,414,000 in 1995. These revenues are not included in revenues as reported in the Consolidated Statements of Operation.
Net assets and liabilities of the discontinued PFM operations at the end of each year, in thousands of dollars, consisted of the following: 24 1997 1996 _______ _______ Assets of discontinued operations: Cash and cash equivalents $ 12 $ 8 Restricted cash equivalents and investments 214 179 Accounts receivable, net of allowance for doubtful accounts $105 and $43, respectively 333 905 Prepaid expenses and other assets 28 26 _______ _______ $ 587 $ 1,118 ======= ======= Property and equipment of discontinued operations: Net of accumulated depreciation of $0 and $351,respectively $ - $ 1,343 ======= ======= Current liabilities of discontinued operations: Accounts payable $ 277 $ 463 Accrued expenses 259 175 Accrued environmental costs 835 192 Current portion of long-term debt 99 60 _______ _______ $ 1,470 $ 890 ======= ======= Long-term liabilities of discontinued operations: Long-term debt, less current portion $ 17 $ 19 Accrued environmental and closure costs 3,025 1,493 _______ _______ $ 3,042 $ 1,512 ======= =======
The accrued environmental and closure costs, as related to PFM, total $3,860,000, which includes the Company's current closure cost estimate of approximately $700,000 for the complete cessation of operations and closure of the facility based upon RCRA guidelines ("RCRA Closure"). A majority of this liability relates to the discontinued fuel blending and tank farm operations and will be recognized over the next three years. Also included in this accrual is the Company's estimate of the cost to complete groundwater remediation at the site of approximately $970,000 (see Note 9), the future operating losses as the Company discontinues its fuel blending operations and certain other contingent liabilities, including the potential PRP liabilities as further discussed in Note 12. During December 1995, the Company recognized a permit impairment charge of $4,712,000, related to the December 1993 acquisition of PFM. The acquisition was accounted for under the purchase method of accounting and the related intangible permit represents the excess of the purchase price over the fair value of the net assets of the acquired company and the intrinsic value related to the RCRA permits maintained by the facility. Subsequent to the acquisition, PFM, as reported under the waste management services segment of the Company, has consistently reflected operating losses. As a result, during late 1994 and the first six (6) months of 1995, PFM had undergone a series of restructuring programs aimed at the reduction of operating and overhead costs, and increased gross margin and revenues. However, PFM continued to experience intense competition for its services, and a decline in market share and operating losses. Therefore, as a result of the continued decline in operating results, the detailed strategic and operational review, and the application of the Company's objective measurement tests, an evaluation of the permit for possible impairment was completed in December 1995. The evaluation of such impairment included the development of the Company's best estimate of the related undiscontinued operating income over the remaining life of the intangible permit. Consequently, the results of the Company's best estimate of forecasted future operations, given the consistent prior losses and uncertainty of the impact of the restructuring programs, was that they do not support the recoverability of this permit. As a result of these estimates and related uncertainties, the permit was deemed to be impaired and a charge was recorded to write-down the full value of the intangible permit of approximately $5,235,000, net of 25 the accumulated amortization totaling approximately $523,000. This net charge of $4,712,000 was recorded through the consolidated statement of operations in December 1995 as "Permit write-down", now shown as a component of "Discontinued Operations - Loss From Operations". ________________________________________________________ NOTE 5 ACQUISITIONS During the second quarter of 1995, the Company completed the acquisition of substantially all of the assets and certain liabilities of Industrial Compliance and Safety, Inc. ("ICS") of Kansas City, Missouri. ICS has provided environmental, remedial, emergency response and waste management services for clients across the U.S. since 1989, and has been consolidated with the Company's existing waste management operations in Kansas City. The assets of ICS were acquired through the forgiveness of indebtedness to the Company and assumption of certain liabilities. The acquisition was accounted for using the purchase method effective June 1, 1995 and, accordingly, the assets and liabilities as of this date and the statement of operations from the effective date were included in the accompanying consolidated financial statements. The Company performed a purchase price allocation as of June 30, 1995, which resulted in an unallocated excess purchase price over net assets acquired, or goodwill, of $177,000, to be amortized over 10 years. The forgiven debt by the Company totaled $376,000 and was recorded against the respective bad debt reserve, and not utilized in determination of the purchase price. ICS assets of $233,000 were acquired through the assumption of accounts payable, debt and other liabilities of $358,000, and transaction costs of $52,000. The acquisition of ICS had an insignificant impact on historical financial data and, thus, pro forma financial information giving effect to the acquisition has not been provided. ________________________________________________________ NOTE 6 PREFERRED STOCK ISSUANCE AND CONVERSION 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 placement and closing fees of $180,000. 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 placement and closing fees of $35,000. 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. The Series 1 Preferred and Series 2 Preferred were convertible, at any time, commencing forty-five (45) days after issuance into shares of the Company's Common Stock at a conversion price equal to the aggregate value of the shares of the Preferred Stock being converted, together with all accrued but unpaid dividends thereon, divided by the "Average Stock Price" per share (the "Conversion Price"). The Average Stock Price means the lesser of (i) seventy percent (70%) of the average daily closing bid prices of the Common Stock for the period of five (5) consecutive trading days immediately preceding the date of subscription by the holder or (ii) seventy percent (70%) of the average daily closing bid prices of the Common Stock for a period of five (5) consecutive trading days immediately preceding the date of conversion of the Preferred Stock. During the second quarter of 1996, a total of 722 shares of the Series 1 Preferred were converted into approximately 1,034,000 shares of the Company's Common Stock and the associated accrued dividends were paid in the form of approximately 16,000 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 26 Company at a purchase price of $1,770,000 and are included in Treasury Stock as of December 31, 1996. 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 $586,000. 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 sale to RBB Bank of the Series 3 Preferred was made in a private placement under Sections 4(2) and/or 3(b) and/or Rule 506 of Regulation D under the Securities Act of 1933, as amended. 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 $1,770,000 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 totaled 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. During 1997, the holder of the Series 3 Preferred converted 1,500 shares of the Series 3 Preferred into 1,027,974 shares of Common Stock of the Company. As of the date of this report, no further shares have been converted. During 1997, accrued dividends for the period July 17, 1996, through June 30, 1997, and dividends on converted shares, in the combined total of approximately $314,000 were paid in the form of 178,781 shares of Common Stock of the Company. The accrued dividends for the period July 1, 1997, through December 31, 1997, in the amount of approximately $121,000 were paid in January 1998, in the form of 54,528 shares of Common Stock of the Company. As further discussed in Note 3, the Securities and Exchange Commission Staff (the "Staff") announced its position on accounting for Preferred Stock which is convertible into Common Stock at a discount from the market rate at the date of issuance, in March of 1997. The Staffs position is that a Preferred Stock dividend should be recorded for the difference between the conversion price and the quoted market price of Common Stock as determined at the date of issuance. To comply with this position, the Company recognized a dividend in 1996 of approximately $2,000,000 as related to the above discussed Series 1 Class A, Series 2 Class B, and Series 3 Class C Preferred Stock. On or about June 11, 1997, the Company issued to RBB Bank 2,500 shares of newly-created Series 4 Class D Convertible Preferred Stock, par value $.001 per share ("Series 4 Preferred"), at a price of $1,000 per share, for an aggregate sales price of $2,500,000. The sale to RBB Bank was made in a private placement 27 under Sections 4(2) and/or 3(b) and/or Rule 506 of Regulation D under the Securities Acts of 1933, as amended, pursuant to the terms of a Subscription and Purchase Agreement, dated June 9, 1997, between the Company and RBB Bank ("Subscription Agreement"). The Series 4 Preferred has a liquidation preference over the Company's Common Stock, par value $.001 per share ("Common Stock"), equal to $1,000 consideration per outstanding share of Series 4 Preferred (the "Liquidation Value"), plus an amount equal to all unpaid dividends accrued thereon. The Series 4 Preferred accrues dividends on a cumulative basis at a rate of four percent (4%) per annum of the Liquidation Value ("Dividend Rate"), and is payable semi- annually when and as declared by the Board of Directors. No dividends or other distributions may be paid or declared or set aside for payment on the Company's Common Stock until all accrued and unpaid dividends on all outstanding shares of Series 4 Preferred have been paid or set aside for payment. Dividends shall be paid, at the option of the Company, in the form of cash or Common Stock of the Company. If the Company pays dividends in Common Stock, such is payable in the number of shares of Common Stock equal to the product of (a) the quotient of (i) four percent (4%) of $1,000 divided by (ii) the average of the closing bid quotation of the Common Stock as reported on the NASDAQ for the five trading days immediately prior to the applicable dividend declaration date, times (b) a fraction, the numerator of which is the number of days elapsed during the period for which the dividend is to be paid and the denominator of which is 365. The holder of the Series 4 Preferred may convert into Common Stock up to 1,250 shares of the Series 4 Preferred on and after October 5, 1997, and the remaining 1,250 shares of the Series 4 Preferred on and after November 5, 1997. The conversion price per share is the lesser of (a) the product of the average closing bid quotation for the five (5) trading days immediately preceding the conversion date multiplied by eighty percent (80%) or (b) $1.6875. The minimum conversion price is $.75, which minimum will be eliminated from and after September 6, 1998. The Company will have the option to redeem the shares of Series 4 Preferred (a) between June 11, 1998, and June 11, 2001, at a redemption price of $1,300 per share if at any time the average closing bid price of the Common Stock for ten consecutive trading days is in excess of $4.00, and (b) after June 11, 2001, at a redemption price of $1,000 per share. The holder of the Series 4 Preferred will have the option to convert the Series 4 Preferred prior to redemption by the Company. As part of the sale of the Series 4 Preferred, the Company also issued to RBB Bank two Common Stock purchase warrants (collectively, the "Warrants ") entitling RBB Bank to purchase, after December 31, 1997, and until June 9, 2000, an aggregate of up to 375,000 shares of Common Stock, subject to certain anti-dilution provisions, with 187,500 shares exercisable at a price equal to $2.10 per share and 187,500 shares exercisable at a price equal to $2.50 per share. A certain number of shares of Common Stock issuable on the conversion of the Series 4 Preferred and on the exercise of the Warrants is subject to certain registration rights pursuant to the Subscription Agreement. The Company paid fees (excluding legal and accounting) of $200,000 to an investment banker in connection with the placement of Series 4 Preferred to RBB Bank and issued to the investment banking firm that handled the placement two (2) Common Stock purchase warrants entitling the investment banking firm to purchase an aggregate of up to 300,000 shares of Common Stock, subject to certain anti-dilution provisions, with one warrant for a five year term to purchase up to 200,000 shares at an exercise price of $2.00 per share and the second warrant for a three year term to purchase up to 100,000 shares of Common Stock at an exercise price of $1.50 per share, subject to certain anti-dilution provisions. Under the terms of each warrant, the investment banking firm is entitled to certain registration rights with respect to the shares of Common Stock issuable on the exercise of each warrant. The Company negotiated an Exchange Agreement with RBB Bank ("RBB Exchange Agreement") which provided that the 2,500 shares of Series 4 Preferred and the RBB Series 4 Warrants were tendered to the Company in exchange for (i) 2,500 shares of a newly created Series 6 Class F Preferred Stock, par value $.001 per share ("Series 6 Preferred"), (ii) two warrants each to purchase 187,500 shares of Common Stock exercisable at $1.8125 per share, and (iii) one warrant to purchase 281,250 shares of Common Stock exercisable 28 at $2.125 per share (collectively, the "RBB Series 6 Warrants"). The RBB Series 6 Warrants will be for a term of three (3) years and may be exercised at any time after December 31, 1997, and until June 9, 2000. The conversion price of the Series 6 Preferred shall be $1.8125 per share, unless the closing bid quotation of the Common Stock is lower than $2.50 in twenty (20) out of any thirty (30) consecutive trading days after March 1, 1998, in which case, the conversion price per share shall be the lesser of (A) the product of the average closing bid quotation for the five (5) trading days immediately preceding the conversion date multiplied by eighty percent (80%) or (B) $1.8125 with the minimum conversion price being $.75, which minimum will be eliminated from and after September 6, 1998. The remaining terms of the Series 6 Preferred will be substantially the same as the terms of the Series 4 Preferred. As of December 31, 1997, no shares of the Series 6 Preferred have been converted. The accrued dividends as of this date, for the Series 4 and Series 6 Preferred, total approximately $55,000, which were paid in January 1998, in the form of 27,377 shares of Common Stock of the Company. As further discussed in Note 3, the Securities and Exchange Commission Staff (the "Staff") announced its position on accounting for preferred stock which is convertible into common stock at a discount from the market rate at the date of issuance, in March of 1997. The Staff's position pursuant to EITF D-60 relating to beneficial conversion features is that a preferred stock dividend should be recorded for the difference between the conversion price and the quoted market price of common stock as determined at the date of issuance. To comply with this position, the Company recognized a dividend in 1997 of approximately $798,000 as related to the issuance of the Series 4 Class C, Series 6 Class F Preferred Stock and the related warrants. On or about July 14, 1997, the Company issued to the Infinity Fund, L.P. ("Infinity"), 350 shares of newly-created Series 5 Class E Convertible Preferred Stock, par value $.001 per share ("Series 5 Preferred"), at a price of $1,000 per share, for an aggregate sales price of $350,000. The sale to Infinity was made in a private placement under Rule 506 of Regulation D under the Securities Acts of 1933, as amended, pursuant to the terms of a Subscription and Purchase Agreement, dated July 7, 1997, between the Company and Infinity ("Infinity Subscription Agreement"). The Company utilized the proceeds received on the sale of Series 5 Preferred for the payment of debt and general working capital. The Series 5 Preferred has a liquidation preference over the Company's Common Stock, par value $.001 per share ("Common Stock"), equal to $1,000 consideration per outstanding share of Series 5 Preferred (the "Liquidation Value"), plus an amount equal to all unpaid dividends accrued thereon. The Series 5 Preferred accrues dividends on a cumulative basis at a rate of four percent (4%) per annum of the Liquidation Value ("Dividend Rate"). Dividends are payable semi-annually when and as declared by the Board of Directors. No dividends or other distributions may be paid or declared or set aside for payment on the Company's Common Stock until all accrued and unpaid dividends on all outstanding shares of Series 5 Preferred have been paid or set aside for payment. Dividends may be paid, at the option of the Company, in the form of cash or Common Stock of the Company. If the Company pays dividends in Common Stock, such is payable in the number of shares of Common Stock equal to the product of (a) the quotient of (i) the Dividend Rate divided by (ii) the average of the closing bid quotation of the Common Stock as reported on the NASDAQ for the five trading days immediately prior to the date the dividend is declared, multiplied by (b) a fraction, the numerator of which is the number of days elapsed during the period for which the dividend is to be paid and the denominator of which is 365. The holder of the Series 5 Preferred may convert into Common Stock up to 175 shares of the Series 5 Preferred on and after November 3, 1997, and the remaining 175 shares of the Series 5 Preferred on and after December 3, 1997. The conversion price per share is the lesser of (a) the product of the average closing bid quotation for the five trading days immediately preceding the conversion date multiplied by 80% or (b) $1.6875. The minimum conversion price is $.75, which minimum will be eliminated from and after September 6, 1998. The Company will have the option to redeem the shares of Series 5 Preferred (a) between July 14, 1998, and July 13, 2001, at a redemption price of $1,300 per share if at any time the average closing bid price of the Common Stock for ten 29 consecutive trading days is in excess of $4.00, and (b) after July 13, 2001, at a redemption price of $1,000 per share. The holder of the Series 5 Preferred will have the option to convert the Series 5 Preferred prior to redemption by the Company. A certain number of shares of Common Stock issuable upon conversion of the Series 5 Preferred is subject to certain registration rights pursuant to the Infinity Subscription Agreement. The Company negotiated an Exchange Agreement with Infinity ("Infinity Fund Exchange Agreement") which provided that the 350 shares of Series 5 Preferred will be tendered to the Company in exchange for (i) 350 shares of a newly created Series 7 Class G Preferred Stock, par value $.001 per share ("Series 7 Preferred"), and (ii) one Warrant to purchase up to 35,000 shares of Common Stock exercisable at $1.8125 per share ("Series 7 Warrant"). The Series 7 Warrant will be for a term of three (3) years and may be exercised at any time after December 31, 1997, and until July 7, 2000. The conversion price of the Series 7 Preferred shall be $1.8125 per share, unless the closing bid quotation of the Common Stock is lower than $2.50 per share in twenty (20) out of any thirty (30) consecutive trading days after March 1, 1998, in which case, the conversion price per share shall be the lesser of (i) the product of the average closing bid quotation for the five (5) trading days immediately preceding the conversion date multiplied by eighty percent (80%) or (ii) $1.8125, with the minimum conversion price being $.75, which minimum will be eliminated from and after September 6, 1998. The remaining terms of the Series 7 Preferred will be substantially the same as the terms of the Series 5 Preferred. As of December 31, 1997, no shares of the Series 7 Preferred have been converted. The accrued dividends as of this date, for the Series 5 and Series 7 Preferred, total approximately $7,000, which were paid in January 1998, in the form of 3,311 shares of Common Stock of the Company. As further discussed in Note 3 in March of 1997, the Securities and Exchange Commission Staff (the "Staff") announced its position on accounting for Preferred Stock which is convertible into common stock at a discount from the market rate at the date of issuance. The Staff's position pursuant to EITF D-60 relating to beneficial conversion features is that a preferred stock dividend should be recorded for the difference between the conversion price and the quoted market price of common stock as determined at the date of issuance. To comply with this position, the Company recognized a dividend in 1997 of approximately $110,000 as related to the issuance of the Series 5 Class E, Series 7 Class G Preferred Stock and the related warrants. In connection with the Preferred Stock issuances, the Company recorded $1,260,000 of Preferred Stock dividends ($.10 per share) during the year ended December 31, 1997, of which $314,000 was paid during 1997 in the form of Common Stock, $38,000 was accrued for at December 31, 1997, and $908,000 represented a convertible discount feature as discussed in Note 3. During the year ended December 31, 1996, the Company recorded $2,145,000 of Preferred Stock dividends ($.24 per share) of which $2,000,000 represented a convertible discount feature as discussed in Note 3 and $145,000 was accrued at year-end and subsequently paid in the form of Common Stock in January 1997. ________________________________________________________ NOTE 7 LONG-TERM DEBT
Long-term debt at December 31 includes the following (in thousands): 1997 1996 ________ _______ Revolving loan facility dated January 15, 1998, collateralized by eligible accounts receivables, subject to monthly borrowing base calculation, variable interest paid monthly at prime rate plus 1 3/4. $ 1,664 $ - 30 Term loan agreement dated January 15, 1998, payable in monthly principal install- ments of $52, balance due in January 2001, variable interest paid monthly at prime rate plus 1 3/4. 2,500 - Revolving loan facility dated January 27, 1995, repaid in January 1998, in conjunction with Congress Financing. - 2,879 Term loan agreement dated January 27, 1995, repaid in January 1998 in conjunction with Congress Financing. - 1,383 Equipment financing agreements with Ally Capital, repaid in January 1998 in conjunction with Congress Financing. - 1,257 Mortgage note agreement payable in quarterly installments of $15, plus accrued interest at 10%. Balance due October 1998 secured by real property. 61 123 Various capital lease and promissory note obligations, payable 1998 to 2002, interest at rates ranging from 8.0% to 15.9%. 640 639 _______ _______ 4,865 6,281 Less current portion of revolving loan and term note facility 614 500 Less current portion of long-term debt 254 919 _______ _______ $ 3,997 $ 4,862 ======= =======
On January 15, 1998, the Company, as parent and guarantor, and all direct and indirect subsidiaries of the Company, as co- borrowers and cross-guarantors, entered into a Loan and Security Agreement ("Agreement") with Congress Financial Corporation (Florida) as lender ("Congress"). The Agreement provides for a term loan in the amount of $2,500,000, which requires principal repayments based on a four-year level principal amortization over a term of 36 months, with monthly principal payments of $52,000. Payments commenced on February 1, 1998, with a final balloon payment in the amount of approximately $573,000 due on January 14, 2001. The Agreement also provides for a revolving loan facility in the amount of $4,500,000. At any point in time the aggregate available borrowings under the facility are subject to the maximum credit availability as determined through a monthly borrowing base calculation, as updated for certain information on a weekly basis, equal to 80% of eligible accounts receivable accounts of the Company as defined in the Agreement. The termination date on the revolving loan facility is also the third anniversary of the closing date. The Company incurred approximately $230,000 in financing fees relative to the solicitation and closing of this loan agreement (principally commitment, legal and closing fees) which are being amortized over the term of the Agreement. Pursuant to the Agreement, the term loan and revolving loan both bear interest at a floating rate equal to the prime rate plus 1 3/4%. The Agreement also provides for a one time rate adjustment of 1/4%, subject to the company meeting certain 1998 performance objectives. The loans also contain certain closing, management and unused line fees payable throughout the term. The loans are subject to a 3.0% prepayment fee in the first year, 1.5% in the second and 1.0% in the third year of the Agreement. As security for the payment and performance of the Agreement, the Company granted a first security interest in all accounts receivable, inventory, general intangibles, equipment and other assets of the Company and subsidiaries, as well as the mortgage on two (2) of the Company's facilities. The Agreement contains affirmative covenants including, but not limited to, certain financial statement disclosures and certifications, management reports, maintenance of insurance and collateral. The Agreement also contains an adjusted net worth financial covenant, as defined in the Agreement, of $3,000,000. 31 The proceeds of the Agreement were utilized to repay in full on January 15, 1998, the outstanding balance of the Heller Financial, Inc. ("Heller") which was comprised of a revolving loan and security agreement, loan and term loan, and to repay and buyout all assets under the Ally Capital Corporation ("Ally") equipment financing agreements. As of December 31, 1997, the borrowings under the Heller revolving loan facility totaled $2,652,000, a reduction of $227,000 from the December 31, 1996, balance of $2,879,000, with borrowing availability of approximately $762,000. The balance of the revolving loan on January 15, 1998, as repaid pursuant to the Congress agreement was $2,289,000. The balance under the Heller term loan at December 31, 1997, was $867,000, a reduction of $516,000 from the December 31, 1996, balance of $1,383,000. The Company subsequently made a term loan payment of $41,000 on January 2, 1998, resulting in a balance of $826,000, as repaid pursuant to the Congress Agreement. As of December 31, 1997, the outstanding balance on the Ally Equipment Financing Agreement was $624,000, a reduction of $633,000 from the December 31, 1996, balance of $1,257,000 and represents the principal balance repaid pursuant to the Congress Agreement. In conjunction with the above debt repayments, the Company also repaid a small mortgage, paid certain fees, taxes and expenses, resulting in an initial Congress term loan of $2,500,000 and revolving loan balance of $1,705,000 as of the date of closing, the Company had borrowing availability under the Congress Agreement of approximately $1,500,000. The Company recorded the December 31, 1997, Heller and Ally debt balances as though the Congress transaction had been closed as of December 31, 1997. As further discussed in Note 4, the long-term debt associated with the discontinued Memphis operation is excluded from the above and is recorded in the "Long-Term Liabilities of Discontinued Operations" total. The Memphis debt obligations total $116,000, of which $99,000 is current. The aggregate amount of the maturities of long-term debt maturing in future years as of December 31, 1997, is $868,000 in 1998; $820,000 in 1999; $798,000 in 2000; $2,361,000 in 2001; and $18,000 in 2002. ________________________________________________________ NOTE 8 ACCRUED EXPENSES
Accrued expenses at December 31 include the following (in thousands): 1997 1996 _______ _______ Salaries and employee benefits $ 927 $ 768 Accrued sales, property and other tax 484 365 Waste disposal and other operating related expenses 1,240 712 Accrued environmental 305 334 Other 424 314 _______ _______ Total accrued expenses $ 3,380 $ 2,493 ======= =======
Excludes Perma-Fix of Memphis, Inc. accrued expenses for the years ended December 31, 1997, and 1996 of $1,094 and $367, respectively, which are reported as current liabilities of discontinued operations. See Note 4 for further discussion of this discontinued operation. ________________________________________________________ NOTE 9 ACCRUED CLOSURE COSTS AND ENVIRONMENTAL LIABILITIES The Company accrues for the estimated closure costs of its fixed-based RCRA regulated facilities upon cessation of operations. During 1997, the accrued long-term closure cost for its continuing operations increased by $16,000 to a total of $831,000 over the 1996 total of $815,000, principally as a result of inflationary 32 factors. The closure costs are based upon RCRA guidelines and will increase in the future, as indexed to an inflationary factor, and may also increase or decrease as the Company changes its current operations at these regulated facilities. Additionally, unlike solid waste facilities, the Company, consistent with EPA regulations, does not have post-closure liabilities that extend substantially beyond the effective life of the facility. At December 31, 1997, the Company had accrued long-term environmental and acquisition related liabilities totaling $525,000, which reflects a decrease of $721,000 from the December 31, 1996, balance of $1,246,000. This amount principally represents management's best estimate of the costs to remove contaminated soil and to undergo groundwater remediation activities at one former RCRA facility that is under a closure action from 1989 that its wholly-owned subsidiary, PFD, leases. In June 1994, the Company acquired from Quadrex Corporation and/or a subsidiary of Quadrex Corporation (collectively, (Quadrex") three TSD companies, including the PFD facility. The former owners of PFD had merged EPS with PFD, which was subsequently sold to Quadrex. The Company, through its acquisition of PFD in 1994 from Quadrex, was indemnified by Quadrex for costs associated with remediating the Leased Property, which entails remediation of soil and/or groundwater restoration. The Leased Property used by EPS to operate its facility is separate and apart from the property on which PFD's facility is located. In conjunction with the subsequent bankruptcy filing by Quadrex, and the Company's recording of purchase accounting for the acquisition of PFD, the Company recognized an environmental liability of approximately $1,200,000 for the remediation of this leased facility. This facility has pursued remedial activities for the last five years with additional studies forthcoming, and potential groundwater restoration which could extend three (3) to five (5) years. The Company has estimated the potential liability related to the remaining remedial activity of the above property to be approximately $420,000, representing the remaining acquisition reserve balance, of which the Company anticipates spending approximately $210,000 during 1998 which is included in accrued expenses. No insurance or third party recovery was taken into account in determining the Company's cost estimates or reserve, nor do the Company's cost estimates or reserves reflect any discount for present value purposes. Pursuant to the acquisition by the Company, effective December 31, 1993, of Perma-Fix of Memphis, Inc. (F/N/A American Resource Recovery, Inc.), the Company assumed certain liabilities relative to the removal of contaminated soil and to undergo groundwater remediation at the facility. Prior to the Company's ownership of PFM, the previous owners installed monitoring and treatment equipment to restore the groundwater to acceptable standards in accordance with federal, state and local authorities. Based upon technical information available to it, the Company estimated, and recorded through purchase accounting, the remaining cost of such remedial action. To-date, the Company has spent approximately $200,000 and has a reserve balance of approximately $970,000 as of December 31, 1997. Neither the Company's cost estimates or reserve reflect any discount for present value purpose and such remediation is expected to extend for a period of five to ten years. The Company has recorded approximately $200,000 as a current liability under "Current Liabilities of Discontinued Operations" and the remainder under "Long-term Liabilities of Discontinued Operations." See Note 4 for additional discussion of discontinued operations. ________________________________________________________ NOTE 10 INCOME TAXES
The components of the provision for income taxes are as follows (in thousands): At December 31, 1997, the Company had temporary differences and net operating loss carry forwards which gave rise to deferred tax assets and liabilities at December 31, as follows (in thousands): 1997 1996 1995 _______ _______ _______ Net operating losses $ 3,393 $ 3,376 $ 2,770 Environmental reserves 1,498 980 1,131 Impairment of assets 560 - - Other 213 172 453 Valuation allowance (5,139) (4,034) (3,849) _______ _______ _______ Deferred tax assets 525 494 505 _______ _______ _______ Depreciation and amortization 525 466 493 Other - 28 12 _______ _______ _______ 33 Deferred tax liability 525 494 505 _______ _______ _______ Net deferred tax asset (liability) $ - $ - $ - ======= ======= =======
A reconciliation between the expected tax benefit using the federal statutory rate of 34% and the provision for income taxes as reported in the accompanying consolidated statements of operations is as follows (in thousands): 1997 1996 1995 _______ _______ _______ Tax benefit at statutory rate $(1,329) $ (88) $(3,077) Permit impairment charge and goodwill amortization 77 43 1,811 Other 147 (140) 97 Increase in valuation allowance 1,105 185 1,169 _______ _______ _______ Provision for income taxes $ - $ - $ - ======= ======= =======
The Company's valuation allowance increased by approximately $1,105,000 and $185,000 for the years ended December 31, 1997, and 1996, respectively, which represents the effect of changes in the temporary differences and net operating losses (NOLs), as amended. The Company has recorded a valuation allowance to state its deferred tax assets at estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income. The Company had estimated net operating loss carry forwards for federal income tax purposes of approximately $9,980,000 at December 31, 1997. These net operating losses can be carried forward and applied against future taxable income, if any, and expire in the years 2006 through 2011. However, as a result of various stock offerings and certain acquisitions, the use of these NOLs will be limited under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended. Additionally, NOLs may be further limited under the provisions of Treasury Regulation 1.1502-21 regarding Separate Return Limitation Years. ________________________________________________________ NOTE 11 CAPITAL STOCK, EMPLOYEE STOCK PLAN AND INCENTIVE COMPENSATION In February 1996, the Company issued 1,100 shares of newly created Series 1 Preferred at a price of $1,000 per share, for net proceeds of $924,000. The Company also issued 330 shares of newly created Series 2 Preferred at a price of $1,000 per share, for net proceeds of $297,000. During 1996, of the Series 1 and Series 2 Preferred were fully converted into 1,953,467 shares of the Company's Common Stock. During July 1996, the Company issued 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. During June 1997, the Company issued 2,500 shares of newly created Series 4 Preferred at a price of $1,000 per share for an aggregate sales price of $2,500,000. During July 1997, the Company issued 350 shares of newly created Series 5 Preferred at a price of $1,000 per share for an aggregate sales price of $350,000. During 1997, 1,500 shares of the Series 3 Preferred were converted into 1,027,974 shares of the Company's Common Stock. See Note 6 for further discussion. In March 1996, the Company entered into a Stock Purchase Agreement with Dr. Centofanti, the President, Chief Executive Officer, Chairman of the Board of the Company, whereby the Company sold, and Dr. Centofanti purchased, 133,333 shares of the Company's Common Stock for 75% of the closing bid price of such Common Stock as quoted on the NASDAQ on the date that Dr. Centofanti notified the Company of his desire to purchase such stock, as authorized by the Board of Directors of the Company. During February 1996, Dr. Centofanti tendered to the Company $100,000 for such 133,333 shares by delivering to the Company $86,000 and forgiving $14,000 that was owing to Dr. Centofanti by the Company for expenses incurred by Dr. Centofanti on behalf of the Company. On the date that Dr. Centofanti notified the Company of his desire to purchase such shares, the closing bid price as quoted on the NASDAQ for the Company's Common Stock was $1.00 per share. 34 In June 1996, the Company entered into a second Stock Purchase Agreement with Dr. Centofanti, whereby the Company sold, and Dr. Centofanti purchased, 76,190 shares of the Company's Common Stock for 75% of the closing bid price of such Common Stock as quoted on the NASDAQ on the date that Dr. Centofanti notified the Company of his desire to purchase such stock (closing bid of $1.75 on June 11, 1996), as previously authorized by the Board of Directors of the Company. Dr. Centofanti tendered to the Company $100,000 for such 76,190 shares of Common Stock. During 1997, Dr. Centofanti also purchased 12,190 shares of Common Stock for $20,000, representing 75% of the closing bid price. During 1996, the Company issued 347,912 shares of Common Stock to outside consultants and directors of the Company for past and future services, valued at approximately $462,000, and during 1997, the Company issued 116,081 shares of Common Stock to outside consultants and directors of the Company, valued at approximately $148,000. At the Company's Annual Meeting of Stockholders ("Annual Meeting") as held on December 12, 1996, the stockholders approved the adoption of the Perma-Fix Environmental Services, Inc. 1996 Employee Stock Purchase Plan. This plan provides eligible employees of the Company and its subsidiaries, who wish to become stockholders, an opportunity to purchase Common Stock of the Company through payroll deductions. The maximum number of shares of Common Stock of the Company that may be issued under the plan will be 500,000 shares. The plan provides that shares will be purchased two (2) times per year and that the exercise price per share shall be eighty-five percent (85%) of the market value of each such share of Common Stock on the offering date on which such offer commences or on the exercise date on which the offer period expires, whichever is lowest. The first purchase period commenced July 1, 1997, and ended December 31, 1997. Proceeds totaled $16,000 for this purchase period which resulted in the purchase of 8,276 shares of Common Stock in January 1998, pursuant to the 1996 Employee Stock Purchase Plan. Also approved at the Annual Meeting was the amendment to the Company's Restated Certificate of Incorporation, as amended, to increase from 20,000,000 to 50,000,000 shares the Company's authorized Common Stock, par value $.001 per share. During October 1997, Dr. Centofanti entered into a three (3) year Employment Agreement with the Company which provided for, among other things, an annual salary of $110,000 and the issuance of Non-qualified Stock Options ("Non-qualified Stock Options"). The Non-qualified Stock Options provide Dr. Centofanti with the right to purchase an aggregate of 300,000 shares of Common Stock as follows: (i) after one year 100,000 shares of Common Stock at a price of $2.25 per share, (ii) after two years 100,000 shares of Common stock at a price of $2.50 per share, and (iii) after three years 100,000 shares of Common Stock at a price of $3.00 per share. The Non-qualified Stock Options expire ten years after the date of the Employment Agreement. Stock Options On December 16, 1991, the Company adopted a Performance Equity Plan (the "Plan"), under which 500,000 shares of the Company's Common Stock are reserved for issuance, pursuant to which officers, directors and key employees are eligible to receive incentive or Non-qualified stock options. Incentive awards consist of stock options, restricted stock awards, deferred stock awards, stock appreciation rights and other stock-based awards. Incentive stock options granted under the Plan are exercisable for a period of up to ten years from the date of grant at an exercise price which is not less than the market price of the Common Stock on the date of grant, except that the term of an incentive stock option granted under the Plan to a stockholder owning more than 10% of the then- outstanding shares of Common Stock may not exceed five years and the exercise price may not be less than 110% of the market price of the Common Stock on the date of grant. To date, all grants of options under the Performance Equity Plan have been made at an exercise price not less than the market price of the Common Stock at the date of grant. Effective September 13, 1993, the Company adopted a Non- qualified Stock Option Plan pursuant to which officers and key employees can receive long-term performance-based equity interests in the Company. The maximum number of shares of Common Stock as to which stock options may be granted in any year shall not exceed twelve percent (12%) of the number of common shares outstanding on December 31 of the preceding year, less the number of shares covered by the outstanding stock options issued under the Company's 1991 Performance Equity Plan as of December 31 of such preceding 35 year. The option grants under the plan are exercisable for a period of up to ten years from the date of grant at an exercise price which is not less than the market price of the Common Stock at date of grant. Effective December 12, 1993, the Company adopted the 1992 Outside Directors Stock Option Plan, pursuant to which options to purchase an aggregate of 100,000 shares of Common Stock had been authorized. This Plan provides for the grant of options on an annual basis to each outside director of the Company to purchase up to 5,000 shares of Common Stock. The options have an exercise price equal to the closing trading price, or, if not available, the fair market value of the Common Stock on the date of grant. The Plan also provides for the grant of additional options to purchase up to 10,000 shares of Common Stock on the foregoing terms to each outside director upon election to the Board. During the Company's annual meeting held on December 12, 1994, the stockholders approved the Second Amendment to the Company's 1992 Outside Directors Stock Option Plan which, among other things, (i) increased from 100,000 to 250,000 the number of shares reserved for issuance under the Plan, and (ii) provides for automatic issuance to each director of the Company, who is not an employee of the Company, a certain number of shares of Common Stock in lieu of sixty-five percent (65%) of the cash payment of the fee payable to each director for his services as director of the Company. The Third Amendment to the Outside Directors Plan, as approved at the December 1996 Annual Meeting, provided that each eligible director shall receive, at such eligible director's option, either sixty-five percent (65%) or one hundred percent (100%) of the fee payable to such director for services rendered to the Company as a member of the Board in Common Stock. In either case, the number of shares of Common Stock of the Company issuable to the eligible director shall be determined by valuing the Common Stock of the Company at seventy-five percent (75%) of its fair market value as defined by the Outside Directors Plan. The Fourth Amendment to the Outside Directors Plan, to be approved at the May 1998 Annual Meeting, proposes to increase the number of authorized shares from 250,000 to 500,000 reserved for issuance under the Plan. The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for options issued to employees. Accordingly, no compensation cost has been recognized for options granted to employees at exercise prices which equal or exceed the market price of the Company's Common Stock at the date of grant. Options granted at exercise prices below market prices are recognized as compensation cost measured as the difference between market price and exercise price at the date of grant. Statement of Financial Accounting Standards No. 123 ("FAS 123") "Accounting for Stock-Based Compensation," requires the Company to provide pro forma information regarding net income and earnings per share as if compensation cost for the Company's employee stock options had been determined in accordance with the fair market value based method prescribed in FAS 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: no dividend yield for all years; an expected life of ten years for all years; expected volatility of 42.0%, 46.8% and 47.0%; and risk-free interest rates of 6.91%, 6.63% and 7.69%.
Under the accounting provisions of FASB Statement 123, the Company's net loss and loss per share would have been reduced to the pro forma amounts indicated below: 1997 1996 1995 ____________ ______________ _____________ Net loss applicable to Common Stock from continuing operations As reported $ (1,068,000) $ (2,118,000) $ (3,494,000) Pro forma (1,346,000) (2,471,000) (3,995,000) Net loss per share applicable to Common Stock from con- tinuing operations As reported $ (.10) $ (.24) $ (.44) Pro forma (.13) (.28) (.51) 36 Net loss applicable to Common Stock As reported $ (5,169,000) $ (2,405,000) $ (9,052,000) Pro forma (5,767,000) (2,758,000) $ (9,553,000) Net loss per share As reported $ (.49) $ (.27) $ (1.15) Pro forma (.54) (.31) (1.21)
A summary of the status of options under the plans as of December 31, 1997, 1996 and 1995 changes during the years ending on those dates are presented below: 1997 1996 ___________________ ____________________ Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price _________ _________ _________ ________ Performance Equity Plan: _______________________ Balance at beginning of year 316,226 $2.43 263,282 $3.22 Granted - - 110,000 1.00 Exercised - - - - Forfeited (28,088) 1.34 (57,056) 3.32 ________ ________ Balance at end of year 288,138 2.54 316,226 2.43 ======== ======== Options exercisable at year end 217,238 2.98 183,609 3.14 Options granted during the year at exercise prices which equal market price of stock at date of grant: Weighted average exercise price - - 110,000 1.00 Weighted average fair value - - 110,000 .68 Non-qualified Stock Option Plan: ___________________ Balance at beginning of year 475,395 $1.68 263,995 $3.17 Granted 290,000 1.375 345,000 1.00 Exercised (11,000) 1.00 - - Forfeited (103,685) 2.54 (133,600) 2.88 ________ ________ Balance at end of year 650,710 1.41 475,395 1.68 ======== ======== Options exercisable at year end 90,426 1.72 34,158 3.77 Options granted during the year at exercise prices which equal market price of stock at date of grant: Weighted average exercise price 290,000 1.375 345,000 1.00 Weighted average fair value 290,000 .90 345,000 .68 Outside Directors Stock Option Plan: _______________________ Balance at beginning of year 145,000 $2.76 110,000 $3.08 Granted 15,000 2.13 35,000 1.75 Exercised - - - - Forfeited - - - - ________ ________ Balance at end of year 160,000 2.69 145,000 2.76 ======== ======== Options exercisable at year end 160,000 2.69 110,000 3.08 Options granted during the year at exercise prices which equal market price of stock at date of grant: Weighted average exercise price 15,000 2.13 35,000 1.75 Weighted average fair value 15,000 1.34 35,000 1.25 1995 ____________________ Weighted Average Exercise Shares Price _________ __________ 361,615 $ 3.31 15,000 2.47 - - (113,333) 3.41 _________ 263,282 3.22 ========= 158,874 3.17 15,000 2.47 15,000 1.69 119,295 $ 3.72 193,000 2.88 - - (48,300) 3.40 _________ 263,995 3.17 ========= 8,079 4.75 193,000 2.88 193,000 2.23 90,000 $ 3.05 20,000 3.25 - - - - ________ 110,000 3.08 ======== 110,000 3.08 20,000 3.25 20,000 2.27
37
The following table summarizes information about options under the plan outstanding at December 31, 1997: Options Outstanding ________________________________________ Weighted Average Weighted Description and Number Remaining Average Range of Outstanding at Contractual Exercise Exercise Price Dec. 31, 1997 Life Price ________________________ ______________ ___________ ________ Performance Equity Plan: _______________________ 1991/1992 Awards ($3.02) 188,638 4.1 years $3.02 1993 Awards ($5.25) 14,500 5.8 years 5.25 1996 Awards ($1.00) 85,000 8.4 years 1.00 _________ 288,138 5.5 years 2.54 ========= Non-qualified Stock Option Plan: ___________________ 1994 Awards ($4.75) 710 6.2 years $4.75 1995 Awards ($2.88) 85,000 7.0 years 2.88 1996 Awards ($1.00) 280,000 8.4 years 1.00 1997 Awards ($1.375) 285,000 9.3 years 1.38 _________ 650,710 8.6 years 1.41 ========= Outside Directors Stock Option Plan: _______________________ 1993 Awards ($3.02) 45,000 4.5 years $3.02 1994 Awards ($3.00-$3.22) 45,000 6.5 years 3.07 1995 Awards ($3.25) 20,000 7.0 years 3.25 1996 Awards ($1.75) 35,000 8.9 years 1.75 1997 Awards ($2.125) 15,000 9.9 years 2.13 _________ 160,000 6.9 years 2.69 ========= Options Exercisable _______________________________ Weighted Number Average Exercisable at Exercise Dec. 31, 1997 Price _______________ ________ 188,638 $3.02 11,600 5.25 17,000 1.00 __________ 217,238 2.98 ========== 426 $4.75 34,000 2.88 56,000 1.00 - - __________ 90,426 1.72 ========== 45,000 $3.02 45,000 3.07 20,000 3.25 35,000 1.75 15,000 2.13 ________ 160,000 2.69
Warrants The Company has issued various warrants pursuant to acquisitions, private placements, debt and debt conversion and to facilitate certain financing arrangements. The warrants principally are for a term of three to five years and entitle the holder to purchase one share of Common Stock for each warrant at the stated exercise price. During 1996, pursuant to the issuance of the Series 3 Class C Convertible Preferred Stock, as further discussed in Note 6, the Company 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 at $3.50 per share. In connection with the Preferred Stock issuances as discussed fully in Note 6, the Company issued additional warrants during 1997 and 1996 for the purchase of 1,531,250 and 1,420,000 shares, respectively, of Common Stock which are included in other financing warrants. Certain of the warrant agreements contain antidilution provisions which have been triggered by the various stock and warrant transactions as entered into by the Company since the issuance of such warrants by the Company. The impact of these antidilution provisions was the reduction of certain warrant exercise prices and in some cases the increase in the total number of underlying shares for certain warrants issued prior to 1996. During 1997, a total of 794,514 warrants were exercised for proceeds in the amount of $933,000 and 842,920 warrants expired. 38
The following details the warrants currently outstanding as of December 31, 1997, after giving effect to antidilution provisions: Number of Underlying Exercise Expiration Warrant Series Shares Price Date ______________ __________ ____________ __________ Class B Warrants 4,273,445 $3.28 6/99 Class C Preferred Stock Warrants 3,113,300 $.73-$3.50 9/99-7/01 Class F Preferred Stock Warrants 1,421,250 $1.50-$2.125 6/00-7/02 Class G Preferred Stock Warrants 35,000 $1.8125 6/00 Other Financing Warrants 1,192,901 $1.936-$3.625 6/99-9/00 ___________ 10,035,896 ===========
Shares Reserved At December 31, 1997, the Company has reserved approximately 21,168,631 shares of Common Stock for future issuance under all of the above arrangements and the convertible Series 3, Series 6, and Series 7 Preferred Stock using the minimum conversion price (see Note 6). ________________________________________________________ NOTE 12 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 May 1995, PFM, a subsidiary of the Company, became aware that the U.S. District Attorney for the Western District of Tennessee and the Department of Justice were investigating certain prior activities of W. & R. Drum, Inc. ("W.R. Drum") its successor, First Southern Container Company, and any other facility owned or operated, in whole or in part, by Johnnie Williams. PFM used W. R. Drum to dispose of certain of its used drums. In May 1995, PFM received a Grand Jury Subpoena which demanded the production of any documents in the possession of PFM pertaining to W. R. Drum, First Southern Container Company, or any other facility owned or operated, and holder in part, by Johnnie Williams. PFM complied with the Grand Jury Subpoena. Thereafter, in September of 1995, PFM received another Grand Jury Subpoena for documents from the Grand Jury investigating W. R. Drum, First Southern Container Company and/or Johnnie Williams. PFM complied with the Grand Jury Subpoena. In December 1995, representatives of the Department of Justice advised PFM that it was also currently a subject of the investigation involving W. R. Drum, First Southern Container Company, and/or Johnnie Williams. In accordance with certain provisions of the Agreement and the Plan of Merger relating to the prior acquisition of PFM, on or about January 2, 1996, PFM notified Ms. Billie K. Dowdy of the foregoing, and advised Ms. Dowdy that the Company and PFM would look to Ms. Dowdy to indemnify, defend and hold the Company and PFM harmless from any liability, loss, damage or expense incurred or suffered as a result of, or in connection with, this matter. During January 1998, PFM was notified by the EPA that the EPA had conducted remediation operations at a site owned and operated by W.R. Drum in Memphis, Tennessee (the "Drum site"). By correspondence dated January 15, 1998 ("PRP Letter"), the EPA has informed PFM that it believes that PFM is a PRP regarding the remediation of the Drum site, primarily as a result of acts by PFM prior to the time PFM was acquired by the Company. The PRP Letter states that the EPA is continuing to investigate other PRPs regarding the Drum site which may be liable for certain remediation costs of the Drum site. The PRP Letter estimated the remediation costs incurred by the EPA for the Drum site to be approximately $1,400,000 as of November 30, 1997, and the EPA has orally informed the Registrant that such remediation has been substantially complete as of such date. Because CERCLA provides that liability for PRPs for a particular site is joint and several, the PRP Letter includes a demand by the EPA from PFM for the full amount of the remediation of the Drum site, including interest on such 39 amount, as provided for in CERCLA. The EPA has advised PFM that PFM was a PRP at the Drum site; and that the EPA believes that PFM supplied a substantial amount of the drums at the Drum Site, during a portion of the years in which W.R. Drum was in operation. In addition, the EPA has advised PFM that it has sent PRP Letters to approximately 50 other PRP's making demand upon such other PRPs regarding the Drum site. The Company is currently investigating the allegations set forth in the PRP Letter and intends to vigorously defend against such allegations and the associated demand regarding remediation costs of the Drum site. The Company has notified certain of the previous owners of PFM that the Company will seek recovery from them as PRPs in the event PFM is determined to be a PRP regarding the Drum site. However, no assurance can be made that PFM will be able to recover remediation costs from such previous owners. If PFM is determined to be liable for all or a substantial portion of the remediation cost incurred by the EPA at the Drum site, such could have a material adverse effect on the Company. On January 27, 1997, an explosion and resulting tank fire occurred at PFM's facility in Memphis, Tennessee, a hazardous waste storage, processing and blending facility. See "Business Company Overview and Principal Products and Services" and Note 4 "Discontinued Operations" of the Notes to Consolidated Financial Statements. As a result of the fire and explosion, the Tennessee Department of Environmental and Conservation ("TDEC") issued an order in a matter styled In the Matter of Perma-Fix Incorporated, Division of Solid Waste Management, Case No. 97-0097, Tennessee Department of Environmental and Conservation (the "Order"), and in such Order alleged that PFM violated certain rules and regulations of the TDEC and assessed a penalty of $145,000 against PFM as a result of the above-referenced occurrence. The TDEC and the Company have settled the Order. Under the terms of the settlement between the TDEC and PFM, dated February 3, 1998, the TDEC and PFM agreed, among other things, (i) that as a result of the fire and explosion, which were caused by welding activities of employees of an independent contractor, certain hazardous waste was released into the soil at PFM's facility; (ii) that PFM submitted to the TDEC a soil removal plan ("plan"), which plan is designed to remediate the soil at PFM's facility that was impacted by such release, the plan has been approved by the TDEC, and that PFM is currently implementing the plan, and (iii) PFM agreed to pay the TDEC a civil penalty of approximately $108,000, payable as follows: $25,000 within 60 days and the balance payable in quarterly installments of approximately $10,400 each beginning June 1, 1998, and on the first day of each quarter thereafter until paid in full (with all or a portion of the quarter installments payable by the Company accepting CERCLA waste from the TDEC on a dollar for dollar basis under certain conditions). In addition, under the settlement, PFM has agreed to cease fuel blending at its Memphis, Tennessee facility and to implement an amended approved closure plan of its hazardous waste tank farm, at such facility, subject to certain exceptions. In addition to the above matters and in the normal course of conducting its business, the Company is involved in various other 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 its 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 decommis- sioning 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. As discussed in Note 9, the Company has recorded accrued liabilities for estimated closure costs and identified environmental remediation costs. 40 Discontinued Operations As previously discussed, the Company made the strategic decision in February 1998 to discontinue its fuel blending operations at the PFM facility. The Company has, based upon the best estimates available, recognized accrued environmental and closure costs in the aggregate amount of $3,860,000. This liability includes principally, the RCRA closure liability, the groundwater remediation liability (see Note 9), the potential additional site investigation and remedial activity which may arise as PFM proceeds with its closure activities, the Company's best estimate of the future operating losses as the Company discontinues its fuel blending operations and other contingent liabilities, including the above discussed PRP liability. See Note 4 for further discussion of PFM. 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 pollution control coverage. The Company also carries specific pollution liability insurance for operations involved in the Waste Management Services segment. The Company believes that this coverage, combined with its various other insurance policies, is adequate to insure the Company against the various types of risks encountered. Facility Expansion The Company is currently in the process of upgrading or expanding all of its TSD facilities, with the principal projects occurring at its PFD, PFTS and PFF subsidiaries. Certain of the projects were initiated during 1997 and all current activity is expected to be completed by the fourth quarter of 1998, at an estimated additional cost of approximately $1,850,000. The Company has estimated additional capital spending of approximately $100,000 to be incurred at the remainder of the Company's subsidiaries during 1998. Operating Leases The Company leases certain facilities and equipment under operating leases. Future minimum rental payments as of December 31, 1997 required under these leases are $1,035,000 in 1998, $692,000 in 1999, $501,000 in 2000, $247,000 in 2001 and $197,000 in 2002. Net rent expense relating to the Company's operating leases was $1,533,000, $1,657,000 and $1,982,000 for 1997, 1996 and 1995, respectively. ________________________________________________________ NOTE 13 PROFIT SHARING PLAN The Company adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the "401(k) Plan") in 1992, which is intended to comply under Section 401 of the Internal Revenue Code and the provisions of the Employee Retirement Income Security Act of 1974. All full-time employees of the Company and its subsidiaries who have attained the age of 21 are eligible to participate in the 401(k) Plan. Participating employees may make annual pre-tax contributions to their accounts up to 15% of their compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make matching contributions based on the employee's elective contributions. Company contributions vest over a period of six years. The Company elected not to provide any matching contributions for the years ended December 31, 1997, 1996, and 1995. 41 ________________________________________________________ NOTE 14 BUSINESS SEGMENT INFORMATION The Company provides services through two business segments. The Waste Management Services segment, which provides on-and-off-site treatment, storage, processing and disposal of hazardous and non-hazardous industrial and commercial, mixed waste, and wastewater through its five treatment, storage and disposal facilities (TSD facilities); Perma-Fix Treatment Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of Florida, Inc. and Perma-Fix of Memphis, Inc. The Company has discontinued all fuel blending activities at its PFM facility, the principal business segment for this subsidiary prior to the January 1997 fire and explosion. PFM currently provides, on a limited basis, an off-site waste storage and transfer facility and continues to explore other new markets for utilization of this facility. The Company also provides through this segment: (i) on-site waste treatment services to convert certain types of characteristic hazardous wastes into non-hazardous waste, through its Perma-Fix, Inc. subsidiary; and (ii) the supply and management of non-hazardous and hazardous waste to be used by cement plants as a substitute fuel or raw material source. The Company also provides services through the Consulting Engineering Services segment. The Company provides environmental engineering and regulatory compliance consulting services through Schreiber, Yonley & Associates in St. Louis, Missouri, and Mintech, Inc. in Tulsa, Oklahoma. These engineering groups provide 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. The table below shows certain financial information by business segment for 1997, 1996, and 1995 and excludes the results of operations of the discontinued operations. Income (loss) from operations includes revenues less operating costs and expenses. Marketing, general and administrative expenses of the corporate headquarters have not been allocated to the segments. Identifiable assets are those used in the operations of each business segment, including intangible assets and discontinued operations. Corporate assets are principally cash, cash equivalents and certain other assets.
Waste Consulting Corporate Management Engineering and Dollars in Thousands Services Services Other Consolidated _______________________________________________________________________________ 1997 Net revenues $ 23,756 $ 4,657 $ - $ 28,413 Depreciation and amortization 1,850 110 20 1,980 Income (loss) from operations 2,212 70 (1,358) 924 Identifiable assets 25,806 2,593 171 28,570 Capital expenditures, net 1,777 21 - 1,798 1996 Net revenues $ 21,497 $ 5,54 4 $ - $ 27,041 Depreciation and amortization 1,906 156 21 2,083 Income (loss) from operations 897 505 (1,298) 104 Identifiable assets 26,403 2,565 68 29,036 Capital expenditures, net 2,373 8 - 2,381 1995 Net revenues $ 25,429 $ 6,048 $ - $ 31,477 Depreciation and amortization 1,862 169 20 2,051 Nonrecurring charges 762 - 225 987 Income (loss) from operations (818) 350 (2,025) (2,493) Identifiable assets 25,524 2,884 465 28,873 Capital expenditures, net 2,648 82 104 2,834 (exclusive of acquisitions)
42 ________________________________________________________ NOTE 15 NONRECURRING CHARGES During 1995, the Company recorded several nonrecurring charges totaling $987,000, for certain unrelated events. Of this amount, $450,000 represents a divestiture reserve as related to the sale of a wholly-owned subsidiary and $537,000 are one-time charges resulting from restructuring programs. As previously disclosed, the Company decided in 1994 to divest its wholly-owned subsidiary, Re-Tech Systems, Inc., which is engaged in post-consumer plastics recycling. Effective March 15, 1996, the Company completed the sale of Re-Tech Systems, Inc., its plastics processing 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 $595,000 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. The Company recorded during 1995 a nonrecurring charge of $450,000 (recorded as an asset reduction) for the estimated loss on the sale of this subsidiary, which, based upon the 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 totaling approximately $94,000 and certain liabilities totaling approximately $48,000. The Company also executed restructuring programs within the waste management services segment. A one-time charge of $237,000 was recorded 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 related closing of seven (7) of the nine (9) offices. A one-time charge of $75,000 was also recorded during the second quarter of 1995 to provide for consolidation costs, principally severance, associated with the restructuring of the Southeast Region, which is comprised of Perma- Fix of Florida and Perma-Fix of Ft. Lauderdale. These restructuring costs were principally incurred and funded during 1995. In December of 1995, in conjunction with the above referenced restructuring program, the Company and Mr. Robert W. Foster, Jr. ("Foster") agreed to Foster's resignation as President, Chief Executive Officer and Director of the Company, thereby terminating his employment agreement with the Company effective March 15, 1996. The Company agreed to severance benefits of $30,000 in cash, the continuation of certain employee benefits for a period of time and the issuance of $171,000 in the form of Common Stock, par value $.001, of the Company. Pursuant to the above, the Company recorded a nonrecurring charge at December 31, 1995, of $215,000. In addition, severance costs of approximately $10,000 were incurred upon the termination of several corporate executives. These restructuring costs were principally incurred and funded during the first six months of 1996. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: (a)(1) Consolidated Financial Statements See Item 8 for the Index to Consolidated Financial Statements. (a)(2) Financial Statement Schedules See Item 8 for the Index to Consolidated Financial Statements (which includes the Index to Financial Statement Schedules) (a)(3) Exhibits The Exhibits listed in the Exhibit Index are filed or incorporated by reference as a part of this report. (b) Reports on Form 8-K No report on Form 8-K was filed by the Company during the fourth quarter of 1997. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By /s/ Dr. Louis F. Centofanti Date January 12, 1999 _______________________________ ___________________ Dr. Louis F. Centofanti Chairman of the Board Chief Executive Officer By /s/ Richard T. Kelecy Date January 12, 1999 __________________________________ ___________________ Richard T. Kelecy Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated. /s/ Steve Gorlin Date January 12, 1999 ___________________________________ ____________________ /s/ Mark A. Zwecker Date January 12, 1999 ___________________________________ ____________________ /s/ Jon Colin Date January 12, 1999 ___________________________________ ____________________ /s/ Dr. Louis F. Centofanti Date January 12, 1999 ___________________________________ ____________________ 45
EXHIBIT INDEX Exhibit Page No. Description No. ______ ___________ ____ 3(i) Restated Certificate of Incorporation, as amended, and all Certificates of Designations are incorporated by reference from Exhibit 3(i) to the Company's Form 10-Q for the quarter ended September 30, 1997 3(ii) Bylaws are incorporated by reference from the Company's Registration Statement, No. 33-51874 4.1 Warrant Agreement, dated May 15, 1994, between the Company and Continental Stock Transfer & Trust Company, as Warrant Agent, is incorporated by reference from Exhibit 4.2 to the Company's Form 10-Q for the quarter ended June 30, 1994 4.2 Specimen Warrant Certificate relating to Class B Warrants, is incorporated by reference from Exhibit 4.9 to the Company's Registration Statement, No. 33-85118 4.3 Specimen Common Stock Certificate is incorporated by reference from Exhibit 4.3 to the Company's Registration Statement, No. 33-51874 4.4 Form of Subscription Agreement is incorporated by reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter ended June 30, 1994 4.5 Subscription and Purchase Agreement dated July 17, 1996, between the Company and RBB Bank Aktiengesellschaft is incorporated by reference from Exhibit 4.4 to the Company's Form 10-Q for the quarter ended June 30, 1996 4.6 Form of Certificate for Series 3 Preferred is incorporated by reference from Exhibit 4.6 to the Company's Form 10-Q for the quarter ended June 30, 1996 4.7 Subscription and Purchase Agreement, dated June 9, 1997, between the Company and RBB Bank Aktiengesellschaft is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K, dated June 11, 1997 4.8 Certificate of Designations of Series 4 Class D Convertible Preferred Stock, dated June 9, 1997, is incorporated by reference from Exhibit 4.2 to the Company's Form 8-K, dated June 11, 1997 4.9 Specimen copy of Certificate relating to the Series 4 Class D Convertible Preferred Stock is incorporated by reference from Exhibit 4.3 to the Company's Form 8-K, dated June 11, 1997 4.10 Subscription and Purchase Agreement, dated July 7, 1997, between the Company and The Infinity Fund, L.P. is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K, dated July 7, 1997 4.11 Certificate of Designations of Series 5 Class E Convertible Preferred Stock, dated July 14, 1997, is incorporated by reference from Exhibit 4.2 to the Company's Form 8-K, dated July 7, 1997 4.12 Specimen copy of Series 5 Class E Convertible Preferred Stock certificate is incorporated by reference from Exhibit 4.3 to the Company's Form 8-K, dated July 7, 1997 46 Exhibit Page No. Description No. ______ ____________ ____ 4.13 Certificate of Designations of Series 6 Class F Convertible Preferred Stock, dated November 6, 1997, is incorporated by reference from Exhibit 3(i) to the Company's Form 10-Q for the quarter ended September 30, 1997 4.14 Specimen copy of Series 6 Class F Convertible Preferred Stock Certificate is incorporated by reference from Exhibit 4.8 to the Company's Form 10-Q for the quarter ended September 30, 1997 4.15 Certificate of Designations of Series 7 Class G Convertible Preferred Stock, dated October 30, 1997, is incorporated by reference from Exhibit 3(i) to the Company's Form 10-Q for the quarter ended September 30, 1997 4.16 Specimen copy of Series 7 Class G Convertible Preferred Stock Certificate is incorporated by reference from Exhibit 4.10 to the Company's Form 10-Q for the quarter ended September 30, 1997 4.17 Exchange Agreement dated November 6, 1997, to be considered effective as of September 16, 1997, between the Company and RBB Bank is incorporated by reference from Exhibit 4.11 to the Company's Form 10-Q for the quarter ended September 30, 1997 4.18 Exchange Agreement dated as of October 31, 1997, to be considered effective as of September 16, 1997, between the Company and the Infinity Fund, L.P. is incorporated by reference from Exhibit 4.12 to the Company's Form 10-Q for the quarter ended September 30, 1997 4.19 Loan and Security Agreement, dated January 15, 1998, between the Company, subsidiaries of the Company and Congress Financial Corporation (Florida) is incorporated by reference from Exhibit 4.1 to the Company's Form 8-K dated January 15, 1998 10.1 Note and Warrant Purchase Agreement, dated February 10, 1992, between the Company and Al Warrington, Productivity Fund II, L.P. ("Productivity Fund"), Environmental Venture Fund, L.P. ("Environmental Venture Fund"), and Steve Gorlin is incorporated by reference from Exhibit 4.1 of the Company's Registration Statement, No. 33-85118 10.2 Amendments, dated February 7, 1997, to Common Stock Warrants for the Purchase of Shares of Common Stock, dated February 10, 1992, between the Company and each of Alfred C. Warrington, IV, Productivity Fund II, L.P., Environmental Venture Fund II, L.P., Steve Gorlin, and D.H. Blair Investment Banking Corporation is incorporated by reference from, respectively, Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to the Company's Form 8-K dated February 7, 1997 10.3 1991 Performance Equity Plan of the Company is incorporated herein by reference from Exhibit 10.3 to the Company's Registration Statement, No. 33-51874 10.4 Warrant, dated September 1, 1994, granted by the Company to Productivity Fund is incorporated herein by reference from Exhibit 4.12 to the Company's Registration Statement No. 33-85118 10.5 Warrant, dated September 1, 1994, for the Purchase of Common Stock granted by the Company to Environmental Venture Fund is incorporated by reference from Exhibit 4.14 to the Company's Registration Statement No. 33-85118 47 Exhibit Page No. Description No. _______ ___________ ____ 10.6 Warrant, dated September 1, 1994, for the Purchase of Common Stock granted by the Company to Warrington is incorporated by reference from Exhibit 4.16 to the Company's Registration Statement No. 33-85118 10.7 Warrant, dated September 1, 1994, for the Purchase of Common Stock granted by the Company to Joseph Stevens & Company, L.P. ("Stevens") is incorporated by reference from Exhibit 4.17 to the Company's Registration Statement No. 33-85118 10.8 Warrant, dated October 6, 1994, for the Purchase of Common Stock granted by the Company to Stevens is incorporated by reference from Exhibit 4.20 to the Company's Registration Statement No. 33-85118 10.9 Warrant, dated September 30, 1994, for the Purchase of Shares of Common Stock granted by the Company to Ally Capital Management, Inc. is incorporated by reference from Exhibit 4.27 to the Company's Registration Statement No. 33-85118 10.10 Warrant, dated June 17, 1994, for the purchase of Common Stock granted by the Company to Sun Bank, National Association is incorporated by reference from Exhibit 4.2 to the Company's Form 8-K dated June 17, 1994 10.11 Warrant, dated September 1, 1994, for the Purchase of Shares of Common Stock granted by the Company to D. H. Blair Investment Banking Corporation is incorporated by reference from Exhibit 10.24 to the Company's Form 10-K for the year ended December 31, 1994. Blair assigned a portion of its initial warrant to certain officers and directors of Blair. The warrants issued to such officers and directors are substantially similar to the warrant issued to Blair, except as to name of the warrant holder and the number of shares covered by each such warrant, as follows: J. Morton Davis 9,775 shares Martin A. Bell 8,000 shares Alan Stahler 39,100 shares Kalman Renov 39,100 shares Richard Molinsky 25,125 shares Jeff Berns 25,500 shares Nick DiFalco 21,000 shares Richard Molinsky 50,250 shares and the Company agrees to file copies of the omitted documents to the Commission upon the Commission's request 10.12 1992 Outside Directors' Stock Option Plan of the Company is incorporated by reference from Exhibit 10.4 to the Company's Registration Statement, No. 33-51874 10.13 First Amendment to 1992 Outside Directors' Stock Option Plan is incorporated by reference from Exhibit 10.29 to the Company's Form 10-K for the year ended December 31, 1994 10.14 Second Amendment to the Company's 1992 Outside Directors' Stock Option Plan, is incorporated by reference from the Company's Proxy Statement, dated November 4, 1994 48 Exhibit Page No. Description No. _______ ___________ ____ 10.15 Third Amendment to the Company's 1992 Outside Directors' Stock Option Plan is incorporated by reference from the Company's Proxy Statement, dated November 8, 1996 10.16 Fourth Amendment to the Company's 1992 Outside Directors' Stock Option Plan is incorporated by reference from the Company's Proxy Statement, dated April 20, 1998 10.17 1993 Non-qualified Stock Option Plan is incorporated by reference from the Company's Proxy Statement, dated October 12, 1993 10.18 401(K) Profit Sharing Plan and Trust of the Company is incorporated by reference from Exhibit 10.5 to the Company's Registration Statement, No. 33-51874 10.19 Stock Purchase Agreement between the Company and Dr. Louis F. Centofanti, dated March 1, 1996, is incorporated by reference from Exhibit 10.30 to the Company's Form 10-K for the year ended December 31, 1995 10.20 Stock Purchase Agreement between the Company and Dr. Louis F. Centofanti, dated June 11, 1996, is incorporated by reference from Exhibit 10.29 to the Company's Form 10-K for the year ended December 31, 1996 10.21 Common Stock Purchase Warrant Certificate, dated July 19, 1996, granted to RBB Bank Aktiengesellschaft is incorporated by reference from Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1996 10.22 Common Stock Purchase Warrant Certificate, dated July 19, 1996, granted to RBB Bank Aktiengesellschaft is incorporated by reference from Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1996 10.23 Common Stock Purchase Warrant Certificate No. 1-9-96, dated September 16, 1996, between the Company and J. P. Carey Enterprises, Inc. is incorporated by reference from Exhibit 4.8 to the Company's Registration Statement, No. 333-14513 10.24 Common Stock Purchase Warrant Certificate No. 2-9-96, dated September 16, 1996, between the Company and J. P. Carey Enterprises, Inc. is incorporated by reference from Exhibit 4.9 to the Company's Registration Statement, No. 333-14513 10.25 Common Stock Purchase Warrant Certificate No. 3-9-96, dated September 16, 1996, between the Company and J W Charles Financial Services, Inc. is incorporated by reference from Exhibit 4.10 to the Company's Registration Statement, No. 333-14513 10.26 Common Stock Purchase Warrant Certificate No. 4-9-96, dated September 16, 1996, between the Company and Search Group Capital, Inc. is incorporated by reference from Exhibit 4.11 to the Company's Registration Statement, No. 333-14513 10.27 Common Stock Purchase Warrant Certificate No. 5-9-96, dated September 16, 1996, between the Company and Search Group Capital, Inc. is incorporated by reference from Exhibit 4.12 to the Company's Registration Statement, No. 333-14513 49 Exhibit Page No. Description No. _______ ___________ ____ 10.28 Common Stock Purchase Warrant Certificate No. 6-9-96, dated September 16, 1996, between the Company and Search Group Capital, Inc. is incorporated by reference from Exhibit 4.13 to the Company's Registration Statement, No. 333-14513 10.29 Common Stock Purchase Warrant Certificate No. 7-9-96, dated September 16, 1996, between the Company and Marvin S. Rosen is incorporated by reference from Exhibit 4.14 to the Company's Registration Statement, No. 333-14513 10.30 Common Stock Purchase Warrant Certificate No. 8-9-96, dated September 16, 1996, between the Company and D. H. Blair Investment Banking Corporation is incorporated by reference from Exhibit 4.15 to the Company's Registration Statement, No. 333-14513 10.31 Common Stock Purchase Warrant Certificate No. 9-9-96, dated September 16, 1996, between the Company and Steve Gorlin is incorporated by reference from Exhibit 4.16 to the Company's Registration Statement, No. 333-14513 10.32 Consulting Agreement with C. Lee Daniel, Jr. is incorporated by reference from Exhibit 99.1 to the Company's Registration Statement No. 333-17899 10.33 Common Stock Purchase Warrant ($2.10) dated June 9, 1997, between the Company and RBB Bank Aktiengesellschaft is incorporated by reference from Exhibit 4.4 to the Company's Form 8-K, dated June 11, 1997 10.34 Common Stock Purchase Warrant ($2.50) dated June 9, 1997, between the Company and RBB Bank Aktiengesellschaft is incorporated by reference from Exhibit 4.5 to the Company's Form 8-K, dated June 11, 1997 10.35 Common Stock Purchase Warrant ($1.50) dated June 9, 1997, between the Company and J W Charles Securities, Inc. is incorporated by reference from Exhibit 4.6 to the Company's Form 8-K, dated June 11, 1997 10.36 Common Stock Purchase Warrant ($2.00) dated June 9, 1997, between the Company and J W Charles Securities, Inc. is incorporated by reference from Exhibit 4.7 to the Company's Form 8-K, dated June 11, 1997 10.37 Stock Purchase Agreement, dated June 30, 1997, between the Company and Dr. Louis F. Centofanti is incorporated by reference from Exhibit 4.4 to the Company's Form 8-K, dated July 7, 1997 10.38 Amended Stock Purchase Agreement, dated October 7, 1997, between the Company and Dr. Louis F. Centofanti is incorporated by reference from Exhibit 10.6 to the Company's Form 10-Q for the quarter ended September 30, 1997 10.39 Employment Agreement, dated October 1, 1997, between the Company and Dr. Louis F. Centofanti is incorporated by reference from Exhibit 10.9 to the Company's Form 10-Q for the quarter ended September 30, 1997 21.1 List of Subsidiaries* 23.1 Consent of BDO Seidman, LLP** 51 27.1 Financial Data Schedule 1997** 52 27.2 Financial Data Schedule 1996* * Originally filed with the Form 10-K for the year ended December 31, 1997 **Filed herein
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