================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
of incorporation or organization Identification Number)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352) 373-4200
(Registrant's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
______ ______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the latest
practical date.
Class Outstanding at November 17, 1997
_____ ________________________________
Common Stock, $.001 Par Value 11,612,787
_____________________________ __________
(excluding 920,000 shares
held as treasury stock)
_________________________
=================================================================
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and
December 31, 1996 . . . . . . . . . 3
Consolidated Statements of
Operations - Three Months and
Nine Months Ended September 30,
1997 and 1996. . . . . . . . . . . . 5
Consolidated Statements of Cash
Flows-Nine Months Ended September 30,
1997 and 1996. . . . . . . . . . . 6
Consolidated Statements of Stockholders'
Equity - Nine Months ended
September 30, 1997 and . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 24
Item 2. Changes in Securities . . . . . . . . . . 24
Item 3. Default Upon Senior Securities. . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . 28
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the consolidated financial
statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as
of and for the periods indicated.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as amended by Form
10-K/A filed on October 16, 1997.
The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of results to be expected
for the fiscal year ending December 31, 1997.
-2-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
(Amounts in Thousands, 1997 December 31,
Except for Share Amounts) (Unaudited) 1996
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 110 $ 45
Restricted cash equivalents
and investments 532 448
Accounts receivable, net of
allowance for doubtful accounts
of $342 and $383, respectively 5,063 5,549
Inventories 81 107
Prepaid expenses 837 549
Other receivables 388 545
_________ ________
Total current assets 7,011 7,243
Property and equipment:
Buildings and land 5,648 4,894
Equipment 7,953 6,429
Vehicles 1,240 1,421
Leasehold improvements 13 289
Office furniture and equipment 1,149 1,136
Construction in progress 2,117 3,028
_________ ________
18,120 17,197
Less accumulated depreciation (5,707) (4,593)
_________ ________
Net property and equipment 12,413 12,604
Intangibles and other assets:
Permits, net of accumulated amorti-
zation of $771 and $598,
respectively 3,811 3,949
Goodwill, net of accumulated amorti-
zation of $544 and $435,
respectively 4,737 4,846
Covenant not to compete, net of
accumulated amortization of $391
and $383, respectively - 9
Other assets 401 385
________ ________
Total assets $ 28,373 $ 29,036
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30,
(Amounts in Thousands, 1997 December 31,
Except for Share Amounts) (Unaudited) 1996
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,739 $ 3,677
Accrued expenses 2,839 2,860
Revolving loan and term note
facility (see Note 2) 3,166 500
Equipment financing agreement 631 646
Current portion of long-term debt 354 333
_________ _______
Total current liabilities 9,729 8,016
Long-term debt, less current portion
(see Note 2) 750 4,881
Environmental accruals 1,878 2,460
Accrued closure costs 1,133 1,094
_________ _______
Total long-term liabilities 3,761 8,435
Commitments and contingencies
(see Note 3) - -
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,
12,383,405 and 10,399,947 shares
issued, respectively, including
920,000 shares held as
treasury stock 12 10
Redeemable warrants 140 140
Additional paid-in capital 32,255 28,495
Accumulated deficit (15,754) (14,290)
________ _______
16,653 14,355
Less common stock in treasury at
cost; 920,000 shares issued
and outstanding (1,770) (1,770)
________
Total stockholders' equity 14,883 12,585
________ _______
Total liabilities and
stockholders' equity $ 28,373 $ 29,036
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1997 1996
___________________________________________________________________
Net revenues $ 7,246 $ 7,734
Cost of goods sold 5,066 5,195
________ ________
Gross profit 2,180 2,539
Selling, general and administrative
expenses 1,472 1,751
Depreciation and amortization 528 515
Income (loss) from operations 180 273
Other income (expense):
Interest income 14 13
Interest expense (145) (163)
Other 108 32
________ ________
Net income (loss) $ 157 $ 155
Preferred stock dividends 99 64
________ _________
Net income (loss) applicable
to Common Stock $ 58 $ 91
======== =========
Net income (loss) per share $ .01 $ .01
======== ========
Weighted average number of common
shares outstanding 11,090 9,306
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1997 1996
___________________________________________________________________
Net revenues $ 20,882 $ 23,484
Cost of goods sold 15,410 16,593
________ ________
Gross profit 5,472 6,891
Selling, general and administrative
expenses 4,649 5,175
Depreciation and amortization 1,605 1,692
Income (loss) from operations (782) 24
Other income (expense):
Interest income 38 53
Interest expense (517) (641)
Other 59 320
________ ________
Net income (loss) $ (1,202) $ (244)
Preferred stock dividends 262 74
________ ________
Net income (loss) applicable
to common stock $ (1,464) $ (318)
======== ========
Net income (loss) per share $ (.14) $ (.04)
======== ========
Weighted average number of common
shares outstanding 10,340 8,552
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
__________________________
(Amounts in Thousands) 1997 1996
___________________________________________________________________
Cash flows from operating activities:
Net loss applicable to common
stock $ (1,464) $ (318)
Adjustments to reconcile net loss
Applicable to common stock to
cash used in operations:
Depreciation and amortization 1,605 1,692
Provision for bad debt and other
reserves 52 14
Loss (Gain) on sale of plant,
property and equipment 4 (37)
Changes in assets and liabilities:
Accounts receivable 435 (356)
Prepaid expenses, inventories and
other assets 607 (299)
Accounts payable and accrued expenses (1,858) (1,763)
________ ________
Net cash used in operations (619) (1,067)
Cash flows from investing activities:
Purchases of property and equipment,
net (899) (1,417)
Proceeds from disposition of
property and equipment 52 1,211
Change in restricted cash, net (102) (72)
________ _________
Net cash used in investing
activities (949) (278)
Cash flows from financing activities:
Repayments of revolving loan and
term note facility (1,096) (2,315)
Principal repayments on long-term debt (651) (1,227)
Proceeds from issuance of stock 3,380 6,538
Purchase of treasury stock - (1,769)
________ ________
Net cash provided by financing
activities 1,633 1,227
Increase (Decrease) in cash and cash
equivalents 65 (118)
Cash and cash equivalents at beginning
of period 45 201
________ ________
Cash and cash equivalents at end
of period $ 110 $ 83
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 530 $ 684
======== ========
Income taxes paid $ - $ -
======== ========
Non cash investing and financing
activities:
Insurance financing $ 746 $ 832
Issuance of stock for payment of
dividends 314 -
Long-term debt incurred for purchase
of property and equipment 287 70
Issuance of stock for services 68 69
The accompanying notes are an integral part of these
consolidated financial statements.
-6-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(For the nine months ended September 30, 1997)
Preferred Stock Common Stock
Amounts in Thousands, _________________ _________________
Except for Share Amounts Shares Amount Shares Amount
____________________________________________________________________________
Balance at December 31,
1996 5,500 $ - 10,399,947 $ 10
====== ====== ========== ======
Net Loss - - - -
Issuance of common stock for
preferred stock dividend - - - -
Preferred stock dividend - - 178,781 -
Issuance of stock for cash
and services - - 122,889 -
Exercise of warrants - - 642,814 1
Conversion of Series 3 pre-
ferred stock to common
stock (1,500) - 1,027,974 1
Option Exercise - - 11,000 -
Issuance of preferred
stock for cash 2,850 - - -
_______ _______ __________ _______
6,850 $ - 12,383,405 $ 12
======= ======= ========== =======
Common
Additional Stock
Redeemable Paid-In Accumulated Held in
Warrants Capital Deficit Treasury
_________________________________________________________
$ 140 $ 28,495 $ (14,290) $ (1,770)
======== ========= ========== =========
- - (1,202) -
- (262) -
- - (262) -
- 314 - -
- 88 - -
- 832 - -
- (1) - -
- 11 - -
- 2,516 - -
________ ________ __________ __________
$ 140 $ 32,255 $ (15,754) $(1,770)
======== ======== ========== ==========
-7-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Reference is made herein to the notes to consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as amended by Form
10-K/A filed on October 16, 1997.
1. Summary of Significant Accounting Policies
___________________________________________
The Company's accounting policies are as set forth in the
notes to consolidated financial statements referred to above.
Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to current period
financial statement presentations.
Earnings (loss) per common share is computed by dividing net
income, after deducting the preferred stock dividends, by the
weighted average number of common shares outstanding during each
period. Primary and fully diluted earnings per share were not
presented since the effects of common stock equivalents and other
dilutive securities on earnings per share are either antidilutive
or are not material.
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, earlier application is
not permitted. EPS for the three and nine months ended September
30, 1997 and 1996 computed under SFAS 128 would not be materially
different than previously computed.
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. The Company has not determined the impact that
the adoption of these new accounting standards will have on its
future financial statements and disclosures.
-8-
2. Long-Term Debt
______________
Long-term debt consists of the following at September 30, 1997
and December 31, 1996 (in thousands):
September 30, December 31,
1997 1996
___________ ____________
Long-term debt and notes payable:
Revolving loan and term note
facility $ 3,166 $ 4,262
Equipment financing agreement 796 1,257
Various mortgage, promissory
and notes payable 939 841
_________ _________
4,901 6,360
Less current portion:
Revolving loan and term note
facility 3,166 500
Equipment financing agreement 631 646
Various mortgage, promissory
and notes payable 354 333
_________ _________
Long-term debt, less
current portion $ 750 $ 4,881
========= =========
On January 27, 1995, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Heller Agreement") with Heller Financial, Inc.
("Heller"). The Heller Agreement provides for a term loan in the
amount of $2,500,000, which requires principal repayments based on
a five-year level principal amortization over a term of 36 months,
with monthly principal payments of $42,000. Payments commenced on
February 28, 1995, with a final balloon payment in the amount of
$826,000 due on January 31, 1998. The Heller Agreement also
provides for a revolving loan facility in the amount of $7,000,000.
At any point in time the aggregate available borrowings under the
facility are reduced by any amounts outstanding under the term loan
and are also subject to the maximum credit availability as
determined through a monthly borrowing base calculation, equal to
80% of eligible accounts receivable accounts of the Company as
defined in the Heller Agreement. The termination date on the
revolving loan facility is also January 31, 1998.
As noted above, the Heller Agreement has a scheduled
termination date of January 31, 1998. The Company is currently
negotiating with Heller for the renewal of the Heller Agreement and
has received proposals from two other potential lenders to replace
Heller, one of which has provided a commitment, although no
assurance can be given that such a renewal or new credit facility
will be obtained. Since this scheduled termination date is less
than twelve months from September 30, 1997, the Company has
reclassified as a current liability $2,666,000 outstanding under
the Heller Agreement, consistent with Generally Accepted Accounting
Principles, that would otherwise be classified as long-term debt.
As of September 30, 1997, the Company was in default of, among
other things, the "Minimum EBITDA", "Capital Expenditure Limit" and
"Fixed Charge Coverage" financial covenants of the Heller
Agreement. The financial covenant defaults were principally a
result of the facility disruption and resulting net loss incurred
by the Perma-Fix of Memphis, Inc. ("PFM") facility due to an
explosion and fire in January 1997 (see Note 5) and additional
capital spending in conjunction with the equity raised during 1997.
The Company is currently negotiating with Heller for a waiver of
these defaults.
Pursuant to the Sixth Amendment to the Heller Agreement, the
Company was obligated to raise an additional $700,000 on or before
August 15, 1997, of which $150,000 was to be received by June 15,
1997. During the second quarter of 1997 and July, 1997, the Company
fully satisfied this covenant obligation, having raised
approximately $3,632,000 principally through insurance proceeds
with regard to the vandalism at the Perma-Fix of Ft. Lauderdale,
Inc. ("PFL") facility in 1996 and from the issuance of the 2,500
shares of newly-created Series 4 Class D Convertible Preferred
Stock, and 350 shares of newly-created Series 5 Class E Convertible
Preferred Stock, as further discussed in Note 4.
Pursuant to the initial Heller Agreement, the term loan bears
interest at a floating rate equal to the base rate (prime) plus 1
-9-
3/4% per annum. The revolving loan bears interest at a floating
rate equal to the base rate (prime) plus 1 1/2% per annum. The
loans also contain certain closing, management and unused line fees
payable throughout the term. In conjunction with the Third and
Sixth Amendments, applicable interest rates were amended, whereby
the term loan was increased to the base rate plus 2 1/4% and the
revolving loan was increased to the base rate plus 2%. Both the
revolving loan and term loan were prime based loans at
September 30, 1997, bearing interest at a rate of 10.50% and
10.75%, respectively.
As of September 30, 1997, the borrowings under the revolving
loan facility total $2,173,000, a decrease of $706,000 from the
December 31, 1996 balance of $2,879,000, with additional borrowing
availability of $1,271,000. The balance on the term loan totaled
$993,000, as compared to $1,383,000 at December 31, 1996. Total
indebtedness under the Heller Agreement as of September 30, 1997
was $3,166,000, a decrease of $1,096,000 from the December 31, 1996
balance of $4,262,000.
During October 1994, the Company entered into a $1,000,000
equipment financing agreement ("Ally Agreement") with Ally Capital
Corporation ("Ally"). During 1995, the Company negotiated an
increase in the total lease line and subsequently utilized
$1,553,000 of this credit facility to purchase new capital
equipment. The Ally Agreement provides for an initial term of 42
months, which may be extended to 48, and bears interest at a fixed
interest rate of 11.3%. In conjunction with a 1994 acquisition,
the Company also assumed $679,000 of debt obligations with Ally
Capital Corporation, which had terms expiring from September 1997
through August 1998, at a rate ranging from 10.2% to 13.05%. The
outstanding balance on the Ally Agreement at September 30, 1997 is
$796,000, as compared to $1,257,000 at December 31, 1996. As of
September 30, 1997, the Company was in default of the "Minimum
EBITDA", "Capital Expenditure Limit" and "Fixed Charge Coverage"
financial covenants of the Ally Agreement. This default was
principally a result of the facility disruption and resulting net
loss incurred by the Perma-Fix of Memphis, Inc. ("PFM") facility
due to an explosion and fire in January 1997 (see Note 5) and the
additional capital spending in conjunction with the equity raised
during 1997. The Company is currently negotiating with Ally for a
waiver of this default and has received proposals from two other
potential lenders to replace Ally. Based upon the Company's
discussions with Ally, the nature and reason for said default and
the significant collateral position securing the Ally Agreement,
the Company has chosen not to reclassify the long-term balance of
$165,000 at September 30, 1997 as a current liability.
3. Commitments and Contingencies
_____________________________
Hazardous Waste
In connection with the Company's waste management services,
the Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
During September 1994, Perma-Fix of Memphis, Inc. ("PFM"),
formerly American Resource Recovery Corporation ("ARR") and a
subsidiary of the Company, was sued by Community First Bank
("Community First") to collect a note in the principal sum of
$341,000 that was allegedly made by ARR to CTC Industrial Services,
Inc. ("CTC") in February 1987 (the "Note"), and which was allegedly
pledged by CTC to Community First in December 1988 to secure
certain loans to CTC. This lawsuit styled Community First Bank v.
American Resource Recovery Corporation, was instituted on
September 14, 1994, and is pending in the Circuit Court, Shelby
County, Tennessee. The Company was not aware of either the Note or
its pledge to Community First at the time of the Company's
acquisition of PFM in December 1993. The Company vigorously
defended itself in connection therewith and filed a third party
complaint against Billie Kay Dowdy, who was the sole shareholder of
PFM immediately prior to the acquisition of PFM by the Company,
alleging that Ms. Dowdy was required to defend and indemnify the
Company and PFM from and against this action under the terms of the
agreement relating to the Company's acquisition of PFM. This
matter was settled on August 29, 1997. PFM and Dowdy each agreed
-10-
to pay the plaintiff $45,000 in exchange for a full and complete
release and a dismissal of the above matter.
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 Company, 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 Company 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
Company, 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 Company, First Southern
Container Company, and/or Johnnie Williams. PFM complied with the
Grand Jury Subpoena. In December 1995, representative of the
Department of Justice advised PFM that it was also currently a
subject of the investigation involving W.R. Drum Company, First
Southern Container Company, and/or Johnnie Williams. Since that
time, however, PFM has had no contact with representatives of
either the United States District Attorney's office for the Western
District of Tennessee or the Department of Justice, and is not
aware of why it is also a subject of such investigation. On
October 31, 1997, the United States Environmental Protection
Agency ("EPA") has requested information from PFM regarding
business conducted with W. R. Drum Company. PFM intends to comply
with the EPA's request for information, and is not aware of any
concerns that the EPA has with PFM in this matter. In accordance
with certain provisions of the Agreement and 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.
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 Note 5 "Facility
Disruption". As a result of the fire and explosion, the Tennessee
Department of Environment and Conservation ("TDEC") issued an order
dated April 23, 1997 ("TDEC Order") which alleges that the facility
violated certain hazardous waste rules and regulations promulgated
by the TDEC and ordered that the facility, among other things,
cease blending operations, the facility's permit to construct a
new hazardous waste tank storage area, which has not yet been
constructed, is to be revoked, and implement certain actions and
assessed a penalty of approximately $144,000. PFM has responded
to such order and asserted that the TDEC issued the order against
the wrong party, that PFM did not violate any rules and regulations
promulgated by the TDEC, the actions taken by the TDEC were contrary
to applicable rules and regulations and the TDEC is not entitled to such
penalties. The Company intends for PFM to vigorously defend itself
in connection with this matter.
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
certain of 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.
-11
Accrued Closure Costs and Environmental Liabilities
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, the Company is
subject to corrective action proceedings to restore soil and/or
groundwater to its original state. These activities are governed
by federal, state and local regulations and the Company maintains
the appropriate accruals for restoration. The Company has recorded
accrued liabilities for estimated closure costs and identified
environmental remediation costs.
Insurance
The business of the Company exposes it to various risks,
including claims for causing damage to property or injuries to
persons or claims alleging negligence or professional errors or
omissions in the performance of its services, which claims could be
substantial. The Company carries general liability insurance which
provides coverage in the aggregate amount of $2 million and an
additional $6 million excess umbrella policy and carries $1 million
per occurrence and $2 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
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.
4. Stock Issuance
______________
In June, 1997, the Company sold to RBB Bank Aktlengesellschaft
("RBB Bank") in a private placement under Rule 506 of Regulation D
under the Securities Act of 1933, as amended, 2,500 shares of a
new series of Preferred Stock ("Series 4 Preferred") pursuant to
the terms of a Subscription and Purchase Agreement, dated June 9,
1997, between the Company and RBB Bank ("Subscription Agreement"),
for a total of $2.5 million, less commissions of $200,000. 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 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
immediate prior to the date the dividend is declared, 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.
-12-
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 are subject to certain registration rights
pursuant to the Subscription Agreement.
Effective as of September 16, 1997, the Company entered into
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 Convertible
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 at $2.125 per share
(collectively, the "RBB Series 6 Warrants"). The RBB Series 6
Warrants are for a term of three (3) years and may be exercised at
any time after December 31, 1997, and until June 9, 2000. The
Company received no proceeds as a result of the RBB Exchange
Agreement.
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
are substantially the same as the terms of the Series 4 Preferred.
The exchange being completed as of the date of this report.
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
-13-
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
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 are subject to certain registration rights pursuant to
the Infinity Subscription Agreement.
Effective as of September 16, 1997, the Company entered into
an Exchange Agreement with Infinity ("Infinity Fund Exchange
Agreement") which provided that the 350 shares of Series 5
Preferred were 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 is
for a term of three (3) years and may be exercised at any time
after December 31, 1997, and until July 7, 2000. The Company
received no proceeds as a result of the Infinity Fund Exchange
Agreement.
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 are substantially the same as the terms of the Series 5
Preferred.
On June 30, 1997, the Company entered into a Stock Purchase
Agreement ("Centofanti Agreement") with Dr. Louis F. Centofanti,
under which 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. Dr. Centofanti purchased 12,190 shares during July for
$20,000. The Centofanti Agreement was amended during October,
1997, to reduce the number of shares of Common Stock that Dr.
Centofanti was to acquire under the Centofanti Agreement to the
12,190 shares already acquired by 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.
On July 30, 1997, the Company entered into a Stock Purchase
Agreement ("Gorlin Agreement") with Mr. Steve Gorlin, a Director of
the Company, whereby the Company agreed to sell and, and Mr. Gorlin
agreed to purchase, 200,000 shares of the Company's Common Stock.
The purchase price was $2.125 per share representing the closing
bid price of the Common Stock as quoted on the NASDAQ on July 30,
1997. Pursuant to the terms of the Gorlin Agreement, Mr. Gorlin
agreed to pay the Company the aggregate purchase price of $425,000
for the 200,000 shares of Common Stock. In order to induce Mr.
Gorlin to enter into the amendment to the Gorlin Agreement, and to
purchase the Common Stock on the terms and subject to the
conditions thereof, PESI agreed to issue a three (3) year Warrant
to Mr. Gorlin for the purchase of 100,000 shares of Common Stock
at $2.40 per share. Under the Gorlin Agreement, Mr. Gorlin agreed
to tender $425,000 during August, 1997, however, pursuant to an
amendment to the Gorlin Agreement, which was entered into on
October 7, 1997, the payment schedule was modified such that Mr.
Gorlin agreed to tender the $425,000 on or before November 30,
1997.
-14-
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.
During the nine months ended September 30, 1997, a total of
1,500 shares of the RBB Bank Series 3 Preferred were converted into
1,027,974 shares of the Company's Common Stock and the associated
accrued dividends on the Series 3 Preferred were paid in the form
of 12,058 shares of the Company's Common Stock.
On September 24, 1997, Dionysus Limited, an Isle of Man
corporation ("Dionysus"), exercised 75,000 warrants to purchase the
Company's Common Stock at a purchase price of $1.50 per share or an
aggregate of $112,500. One certificate representing an aggregate
of 75,000 shares of Common Stock was issued on October 20, 1997
pursuant to such warrants.
5. Facility Disruption
___________________
On January 27, 1997, an explosion and resulting tank fire occurred
at the Perma-Fix of Memphis, Inc. ("PFM") facility, a hazardous waste
storage, processing and blending facility, 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. However, PFM has accepted and will continue to
accept waste for processing and disposal, but has 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 results 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. PFM is in the
process of repairing and/or removing the damaged storage tanks and any
contamination resulting from the occurrence. The extent of PFM's
activities at the facility is presently being evaluated by the Company.
See Note 3 for a discussion of certain proceedings pending against PFM
as a result of such fire and explosion.
Net revenues for PFM total $1,514,000 for the nine month period
ended September 30, 1997, reflecting a decrease of $1,386,000 from the
nine month period ended September 30, 1996 total of $2,900,000. During
this same period, the net loss for PFM totaled $1,417,000 for 1997, as
compared to $404,000 for 1996, an increased loss of $1,013,000 for the
nine month period. Net revenues for the quarter ended September 30, 1997
were $325,000, a reduction of $829,000 from the quarter ended September
30, 1996 total of $1,154,000. Correspondingly, the net loss for the
third quarter of 1997 totaled $376,000, as compared to $134,000 for the
third quarter of 1996, resulting in an increased loss of $242,000 for
this three month period. The Company and PFM have property and business
interruption insurance and have provided notice to its carriers of such
loss. The Company has settled its property and contents claim for
$522,000. The Company is in the process of negotiating with its
insurance carrier regarding the amount of business interruption insurance
that may be recoverable by PFM as a result thereof.
6. Subsequent Event
________________
Effective October 1, 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 in the form of (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.
-15-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
Forward-Looking Statements
Certain statements contained within this "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").
All statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" other than
statements of historical fact are forward-looking statements that
are subject to known and unknown risks, uncertainties and other
factors which could cause actual result and performance of the
Company to differ materially from such statements. The words
"believe", "expect", "anticipate", "intend", "will", and similar
expressions identify forward-looking statements. Forward-looking
statements contained herein relate to anticipated financial
performance, ability to comply with the Company's general working
capital requirements, ability to recover under certain insurance
policies, ability to reopen certain operations in Memphis,
Tennessee, the ability to retain or receive certain permits, the
successful resolution of certain actions instituted by the
Tennessee Department of Environment and Conservation against the
Memphis, Tennessee facility of the Company, the ability to be able
to continue to borrow under the Company's revolving line of credit,
the ability to become profitable, the ability to generate
sufficient cash flow from operations to fund all costs of
operations and remediation of the Company's leased property in
Dayton, Ohio and PFM's facility in Memphis, Tennessee, the ability
to remediate certain contaminated sites for projected amounts, and
all other statements which are not statements of historical fact.
While the Company believes the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
such expectations will prove to have been correct. There are a
variety of factors which could cause future outcomes to differ
materially from those described in this Form 10-Q, including, but
not limited to, general economic conditions, material reduction in
revenues, inability to collect in a timely manner a material amount
of receivables, increased competitive pressures, overcapacity in
the environmental industry, ability to receive or retain certain
required permits to satisfactorily resolve certain pending orders
or issues or to reopen a certain facility or to move such facility
to another location, discovery of additional contamination or
expanded contamination at the Dayton, Ohio property or the PFM
facility at Memphis, Tennessee which would result in a material
increase in remediation expenditures, changes in federal, state
and local laws and regulations, especially environmental
regulations, or in interpretation of such, potential increases in
equipment, maintenance, operating or labor costs, management
retention and development, the requirement to use internally
generated funds for purposes not presently anticipated, the
inability to obtain waivers regarding existing defaults under
certain financial covenants contained in loan agreements that the
Company is a party to, the insurance carrier determines that
coverage is not available or is available in limited amounts or
contest the amount of the claim, or the Company is not able to
continue profitability or, if unable to continue profitability, is
unable to secure additional liquidity in the form of additional
equity or debt. The Company undertakes no obligation to update
publicly any forward-looking statement, whether as a result of new
information, future events or otherwise.
-16-
Results of Operations
The table below should be used when reviewing management's
discussion and analysis for the three and nine months ended
September 30, 1997 and 1996:
Three Months Ended
September 30,
_________________________________
Consolidated 1997 % 1996 %
____________ _______ _____ _______ _____
Net Revenues $ 7,246 100.0 $ 7,734 100.0
Cost of Goods Sold 5,066 69.9 5,195 67.2
______ _____ ______ _____
Gross Profit 2,180 30.1 2,539 32.8
Selling, General and
Administrative 1,472 20.3 1,751 22.6
Depreciation/Amortization 528 7.3 515 6.7
______ _____ ______ _____
Income (Loss) from
Operations $ 180 2.5 $ 273 3.5
====== ===== ====== =====
Interest Expense 145 2.0 163 2.1
====== ===== ======= =====
Preferred Stock Dividends $ 99 1.4 $ 64 0.8
====== ===== ====== =====
Nine Months Ended
September 30,
_________________________________
Consolidated 1997 % 1996 %
____________ _______ _____ _______ _____
Net Revenues $20,882 100.0 $23,484 100.0
Cost of Goods Sold 15,410 73.8 16,593 70.7
______ _____ ______ _____
Gross Profit 5,472 26.2 6,891 29.3
Selling, General and
Administrative 4,649 22.3 5,175 22.0
Depreciation/Amortization 1,605 7.7 1,692 7.2
______ _____ ______ ______
Income (Loss) from
Operations $ (782) (3.8) $ 24 (0.1)
====== ====== ====== ======
Interest Expense 517 2.5 641 2.7
====== ====== ====== ======
Preferred Stock Dividends $ 262 1.3 $ 74 0.3
====== ====== ====== ======
Summary -- Three and Nine Months Ended September 30, 1997 and 1996
_________________________________________________________________
The Company provides services through two business segments.
The Waste Management Services segment is engaged in on- and off-
site treatment, storage, disposal and blending of a wide variety of
industrial, hazardous, and mixed wastes and wastewaters. The
Company developed and owns several priority on-site and off-site
technologies for the treatment of nuclear mixed waste. This
segment competes for materials and services with numerous regional
and national competitors to provide comprehensive and cost-
effective waste management services to a wide variety of customers
nationwide. The Company's Consulting Engineering segment of the
pollution control industry provides a wide variety of environmental
related consulting and engineering services to industry and
government. Through the Company's wholly-owned subsidiaries in
Tulsa, Oklahoma and St. Louis, Missouri, this segment provides
oversight management of environmental restoration projects, air and
soil sampling and compliance reporting, surface and subsurface
water treatment design for removal of pollutants, and various
compliance and training activities.
Consolidated net revenues decreased $488,000, or 6.3% for the
three months ended September 30, 1997 as compared to the three
months ended September 30, 1996. This decrease is attributable to
both the Consulting Engineering segment, which experienced a
reduction in revenues of $467,000, and a decrease of $21,000 in
revenues from the Waste Management segment. As reflected, the most
significant decrease was within the Consulting Engineering segment
and is partially a result of two one-time projects for 1996 which
totaled $396,000, not duplicated in 1997 and a significant
reduction in the Bartlesville, Oklahoma three year project that
reduced 1997 revenue by approximately $71,000 as compared to 1996.
Although the Waste Management segment experienced a decrease in
revenues of $21,000, the Memphis, Tennessee facility disruption
accounted for a decrease of $829,000 in the quarter ended September
30, 1997 as compared to the same period of 1996. Therefore,
despite the disruption, revenues within the wastewater and mix-
waste segments of the business increased approximately $808,000
during the third quarter of 1997, as compared with the same period
in 1996. Consolidated revenues for the nine months ended September
30, 1997 and 1996 decreased $2,602,000, an 11.1% change. This
decrease is primarily the result of the disruption at the Memphis,
Tennessee, facility, which resulted in a reduction in revenue of
$1,386,000 for the nine months ended September 30, 1997 as compared
to the same period ended September 30, 1996. As discussed above,
the Company also experienced a reduction in revenue due to the
Bartlesville, Oklahoma project nearing completion, reflecting a
decrease of $119,000, several engineering contracts not duplicated
in 1997, which resulted in a reduction of $580,000, and to the
-17-
restructuring in the Perma-Fix, Inc. group as it transitions away
from lower margin field service projects and continues to pursue
new technologies and additional DOE contracts. During 1996, the
Company also completed the sale of its PermaCool technology, which
generated revenues of $689,000 for the nine months ended September
30, 1996, which were not duplicated during 1997.
The cost of goods sold decreased 2.5% or $129,000 for the
quarter ended September 30, 1997, as compared to the quarter ended
September 30, 1996. The decrease is primarily attributable to the
reduced revenue during the third quarter of 1997, which, as
discussed above, decreased 6.3%. However, as a percentage of
revenue, cost of goods sold increased to 69.9% in the third quarter
of 1997, compared to 67.2% in the corresponding third quarter of
1996. This consolidated increase in cost of goods sold as a
percentage of revenue reflects principally the impact of reduced
revenues, combined with the additional operating costs incurred at
the PFM facility resulting from the above-discussed disruption and
associated increased operating, disposal, and transportation costs
as a result of such disruption. Cost of goods sold for PFM was
approximately 77.3% for the third quarter of 1996, as compared to
134.5% for the third quarter of 1997. Consolidated cost of goods
sold for the nine months ended September 30, 1997, as compared to
the nine months ended September 30, 1996 decreased $1,183,000 or
7.1%. However, cost of goods sold as a percentageage of revenue
increased for the nine month period of 1997, as compared to the
same period of 1996 by 3.1% to 73.8%. This increase in cost of
goods sold as a percentage of revenue is principally due to the
reduced revenue and facility disruption, as discussed above, at the
PFM facility. Cost of goods sold for PFM was approximately 76.7%
for the nine months ended September 30, 1996, as compared to 126.8%
for the corresponding nine months of 1997.
Selling, general and administrative expenses decreased 15.9%
for the three months ended September 30, 1997 as compared to the
corresponding three months ended 1996. As a percentage of revenue,
selling, general and administrative expense also decreased to 20.3%
for the quarter ended September 30, 1997, compared to 22.6% for the
same period in 1996. The decrease of $279,000 reflects a reduction
in costs of $50,000 in the Consulting Engineering segment and a
$194,000 reduction in the Waste Management segment with the balance
being a reduction in corporate overhead. Consolidated selling,
general and administrative expenses decreased $526,000 or 10.2% for
the nine months ended September 30, 1997 as compared to the same
period in 1996. As a percentage of revenue, selling, general and
administrative expenses increased .3% for the nine months ended
September 30, 1997 as compared to the same period in 1996. The
Company's Waste Management segment decreased marketing expenses by
$334,000, while the Consulting Engineering segment decreased
administrative expense by $161,000 for the nine months ended
September 30, 1997, as compared to the corresponding period in
1996.
Depreciation and amortization expense for the quarter ended
September 30, 1997 reflects an increase of $13,000 or .6% of
revenue as compared to the quarter ended September 30, 1996 as a
result of the purchase of new assets, capitalized during the third
quarter of 1997. Amortization expense reflects a total decrease of
$20,000 from the quarter ended September 30, 1997 as compared to
1996, which is a direct result of the "Covenant Not to Compete"
having become fully amortized during the first quarter of 1997.
Consolidated depreciation and amortization expense for the nine
months ended September 30, 1997 reflects a total decrease of
$87,000 from the nine months ended September 30, 1996.
Amortization expense reflects a total decrease of $50,000 for the
nine months ended September 30, 1997 as compared to the same
period of 1996, which is a direct result of the fully amortized
covenant described above. Depreciation expense for this nine month
period of 1997 reflects a reduction of $37,000 in conjunction with
the sale of certain assets as a result of the Company's previous
restructuring programs and various other assets becoming fully
depreciated.
Interest expense decreased $18,000 from the quarter ended
September 30, 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 loan and term note.
Offsetting this reduced interest expense, during the third quarter
of 1997, was the Preferred Stock dividend totaling $99,000 incurred
in conjunction with the Series 3 Class C, Series 4 Class D and
Series 5 Class E Convertible Preferred Stock as issued in July
1996, June 1997, and July 1997, respectively. As a result of the
-18-
issuance of the Series 4 Class D and Series 5 Class E Preferred
Stock during 1997, dividends increased by $35,000 for the third
quarter of 1997 as compared to the same quarter of 1996. Interest
expense for the nine months ended September 30, 1997 decreased
$124,000, as compared to the same period of 1996. This decrease
also reflects the reduced borrowing levels on the Heller Financial,
Inc. revolving loan and term note. Offsetting this reduced
interest expense for the nine months ended September 30, 1997, was
the Preferred Stock dividend totaling $262,000 incurred in
conjunction with the Series 3 Class C, Series 4 Class D and Series
5 Class E Convertible Preferred Stock as issued in July 1996, June
1997, and July 1997, respectively. The dividend expense for the
nine months ended September 30, 1997 reflects an increase of
$188,000 as compared to the same period of 1996.
Facility Disruption
___________________
As previously discussed, on January 27, 1997, an explosion and
resulting tank fire occurred at PFM's facility, a hazardous waste
storage, processing and blending facility. See Note 5 "Facility
Disruption" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources" for further information and discussion of certain
forward-looking statements contained herein and certain cautionary
statements relating thereto.
As a result of the explosion and resulting tank fire at the
PFM facility, TDEC issued the TDEC Order, which alleges that the
facility violated certain hazardous waste rules and regulations
promulgated by the TDEC. The TDEC Order assessed a penalty against
PFM of approximately $144,000 and ordered, among other things, that
(a) the facility cease blending operations, (b) the facility's
permit to construct a new hazardous waste tank storage area, which
has not yet been constructed, be revoked, and (c) PFM implement
certain other actions. PFM has responded to the TDEC Order and
asserted that the TDEC Order was issued against the wrong party,
that PFM did not violate any rules and regulations and that the
TDEC is not entitled to such penalties. The Company intends for
PFM to vigorously defend itself in connection with this matter.
This paragraph contains forward-looking statements which are
subject to certain factors that could cause the actual results to
differ materially from anticipated results, including, but not
limited to, certain factors set forth in "Forward-Looking
Statements" of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Liquidity and Capital Resources of the Company
______________________________________________
At September 30, 1997, the Company had cash and cash
equivalents of $110,000. This cash and cash equivalents total
reflects an increase of $65,000 from December 31, 1996, as a result
of net cash used in operations of $619,000, cash used in investing
activities of $949,000 (principally purchases of equipment, net
totaling $899,000, partially offset by the proceeds from the sale
of property and equipment of $52,000) and cash provided by
financing activities of $1,633,000 (principally from the proceeds
from issuance of stock totaling $3,380,000, partially offset by
repayments of long-term debt and the revolving loan and term note
facility). Accounts receivable, net of allowances, totaled
$5,063,000, a decrease of $486,000 from the December 31, 1996
balance of $5,549,000, which reflects the reduced revenue levels
during the third quarter, and improved collection activities.
Under the Heller Agreement, as entered into in January 1995,
the Company was provided a term loan of $2,500,000 and a revolving
loan facility in the amount of $7,000,000. The term loan is for a
term of 36 months, payable in monthly installments of $42,000 and
a balloon payment for the balance on January 31, 1998. The
revolving loan facility is reduced by the outstanding unpaid
principal amount due on the term loan and is subject to the maximum
credit availability, determined through a monthly borrowing base
equal to 80% of the eligible accounts receivable (as defined in the
loan agreement) of the Company and its subsidiaries. The
termination date of the revolving loan facility is also January 31,
1998. See Note 2 to Notes to Consolidated Financial Statements.
As noted above, the Heller Agreement has a scheduled
termination date of January 31, 1998. The Company is currently
negotiating with Heller for the renewal of this Agreement and has
received proposals from two other potential lenders, one of which
-19-
has provided a commitment, to replace the term and revolving loans
provided to the Company by Heller. There are no assurances that
such a renewal or new credit facility will be obtained. As a
result of this scheduled termination date, and in compliance with
Generally Accepted Accounting Principles, the Company has
reclassified as a current liability $2,666,000 outstanding under
the Heller Agreement that would otherwise be classified as long-
term debt. As of September 30, 1997, the Company was in default of,
among other things, the "Minimum EBITDA", "Capital Expenditure
Limit" and "Fixed Charge Coverage" financial covenants of the
Agreement. The financial covenant defaults are principally a
result of the facility disruption and resulting net loss incurred
by the Perma-Fix of Memphis, Inc. ("PFM") facility due to an
explosion and fire in January 1997 (see Note 5) and the additional
capital spending in conjunction with the equity raised during 1997.
The Company is currently negotiating with Heller for a waiver of
this default. Heller has tentatively agreed to forebear from
exercising any rights and remedies under the Heller Agreement as a
result of these defaults and continues to make normal advances
under the revolving loan facility.
As of September 30, 1997, the borrowings under the Company's
revolving loan facility with Heller totaled $2,173,000, a decrease
of $706,000 from the December 31, 1996 balance of $2,879,000, with
a related additional borrowing availability of $1,271,000, based
on 80% of the amount of eligible receivables of the Company as of
September 30, 1997. The balance on the term loan totaled $993,000,
as compared to $1,383,000 at December 31, 1996. Total indebtedness
under the Heller Agreement, as amended, as of September 30, 1997
was $3,166,000, a decrease of $1,096,000 from the December 31,
1996, balance of $4,262,000. See Note 2 to Notes to Consolidated
Financial Statements.
Pursuant to the Sixth Amendment, the Company was obligated to
raise an additional $700,000 on or before August 15, 1997, of which
$150,000 was to be received by June 15, 1997. During the second
quarter of 1997 and July, 1997, the Company fully satisfied this
covenant obligation, having raised approximately $3,632,000
principally through insurance proceeds with regard to the vandalism
at the Perma-Fix of Ft. Lauderdale, Inc. ("PFL") facility in 1996
and from the issuance of the 2,500 shares of newly-created Series
4 Class D Convertible Preferred Stock ("Series 4 Preferred"), and
the issuance of 350 shares of newly created Series 5 Class E
Convertible Preferred Stock ("Series 5 Preferred"), as further
discussed in Note 4 to Notes to Consolidated Financial Statements.
The Company received net proceeds of $2,650,000 (after
deduction of the payment of $200,000 for broker's commissions, but
prior to any legal fees and other costs in connection with the sale
of the Series 4 Preferred and the Series 5 Preferred, the exchange
of the Series 4 Preferred and Series 5 Preferred for the Series 6
Preferred and Series 7 Preferred, respectively, and for
registration of the Common Stock issuable upon conversion of Series
6 Preferred and Series 7 Preferred. Each share of Series 4
Preferred and Series 5 Preferred sold for $1,000 per share and has
a liquidation value of $1,000. The Company used the net proceeds to
reduce its revolving line of credit. The Company reborrowed a
significant portion of such funds for capital improvements at the
Company's various facilities, working capital and payment of trade
payables.
Ally Capital Corporation ("Ally") had previously provided the
Company with an equipment financing arrangement to finance the
purchase of capital equipment. As of September 30, 1997, the
Company's outstanding principal balance owing under this equipment
financing arrangement was $796,000. The Company has fully utilized
this equipment financing arrangement with Ally. As of September
30, 1997, the Company was in default of the "Minimum EBITDA",
"Capital Expenditure Limit" and "Fixed Charge Coverage" financial
covenants of the Agreement. The defaults are principally a result
of the facility disruption and resulting net loss incurred by the
Perma-Fix of Memphis, Inc. ("PFM") facility due to an explosion and
fire in January 1997 (see Note 5) and the additional capital
spending in conjunction with the equity raised during 1997. The
Company is currently negotiating with Ally for a waiver of these
defaults and has received proposals from two other potential
lenders to replace Ally. Based upon the Company's discussions with
Ally, the nature and reason for said default and the significant
collateral position securing this equipment financing agreement,
the Company has chosen not to reclassify the long-term balance of
$165,000 at September 30, 1997 as a current liability. See Note 2
to Notes to Consolidated Financial Statements.
-20-
At September 30, 1997, the Company had $4,901,000 in aggregate
principal amounts of outstanding debt, as compared to $6,360,000 at
December 31, 1996. This decrease in outstanding debt of $1,459,000
during the nine month period ended September 30, 1997 is
principally a result of the repayment of the Heller revolving loan
facility as a result of the issuance of the Series 4 Preferred and
Series 5 Preferred. The total indebtedness under the Heller
Agreement decreased during the nine month period ended September
30, 1997 by $1,096,000.
As of September 30, 1997, total consolidated accounts payable
for the Company was $2,739,000, a decrease of $938,000 from the
December 31, 1996 balance of $3,677,000. This decrease is
principally a result of the proceeds from the Series 4 and Series
5 Preferred issued during June and July 1997.
The Company's net purchases of new capital equipment for the
nine month period ended September 30, 1997 totaled approximately
$899,000, excluding financed capital expenditures of $287,000.
These expenditures were for improvements to the operations,
including two (2) capital expansion projects and the construction
of certain mixed waste equipment within the Waste Management
Services segment, and other capital expenditures necessary to
maintain compliance with federal, state or local permit standards.
These capital expenditures were principally funded through the
operating cash flow of the Company, proceeds from the Series 4 and
Series 5 Preferred issued during June, and July 1997 and
utilization of the Heller revolving loan facility. The Company has
budgeted capital expenditures of $1,250,000 for 1997 (excluding any
expenditures at PFM due to the explosion and fire), which includes
completion of the two (2) above noted capital expansion projects
estimated to be approximately $200,000, as well as other identified
capital and permit compliance expenditures. The Company
anticipates funding these capital expenditures by a combination of
lease financing with lenders other than the equipment financing
arrangement discussed above, proceeds from the Series 4 Preferred
and Series 5 Preferred, and/or internally generated funds. As of
September 30, 1997, the Company's purchases of new capital
equipment totaled $1,185,000, of which approximately $287,000 was
financed. The Company's statements regarding its anticipated
ability to fund such capital expenditures are forward-looking
statements and are subject to certain factors that could cause
actual results to differ materially from such statements,
including, but not limited to, the factors discussed under
"Forward-Looking Statements" of this "Management's Discussion and
Analysis of Financial Conditions and Results of Operations."
The working capital deficit position at September 30, 1997 was
$2,718,000, as compared to a deficit position of $773,000 at
December 31, 1996. The September 30, 1997, deficit position
includes the reclassification of the Heller long-term debt to
current, as a result of the Heller Agreement's scheduled
termination date of January 31, 1998. In compliance with Generally
Accepted Accounting Principles, the Company has reclassified as a
current liability $2,666,000 outstanding under the Agreement that
would otherwise be classified as long-term debt. If the Company
would not have had to reclassify $2,666,000 of the debt due to
Heller under the Agreement, the September 1997 working capital
deficit position would have been $53,000, which would reflect an
improvement of $720,000 from the December deficit position. The
Company is currently negotiating with Heller for the renewal of
this Agreement and has received proposals from two other potential
lenders to replace Heller, although no assurance can be given that
such a renewal or new credit facility will be obtained.
As previously discussed, the Company's subsidiary, PFM,
sustained an explosion and fire at its TSD facility in Memphis,
Tennessee, on January 27, 1997, damaging certain hazardous waste
storage tanks and causing certain limited contamination at the
facility. The facility was non-operational until May 1997, at which
time it began limited operations. PFM is in the process of
repairing or removing the damaged tanks and removing or remediating
the contamination caused by the explosion and fire. During the
period subsequent to this explosion and fire, PFM has accepted and
will continue to accept waste for processing and disposal, but has
arranged for other facilities owned by the Company or subsidiaries
of the Company or others not affiliated with the Company to process
such waste. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Facility Disruption." The
Company and PFM have property and business interruption insurance.
The Company has settled its property and contents claim for
$522,000. The Company is presently in the process of negotiating
with its insurance carrier regarding the amount of business
interruption insurance that may be recoverable by PFM as a result
-21-
of such occurrence. Certain statements contained in this paragraph
are forward-looking statements and are subject to certain factors
that could cause actual results to differ materially from those set
forth above, including, but not limited to, certain factors set
forth under "Forward-Looking Statements" of this "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, which during the
first nine months of 1997 was negatively impacted by the disruption
from the PFM explosion and fire. If the Company is unable to
continue to improve its operations and to continue profitability in
the foreseeable future, such would have a material adverse effect
on the Company's liquidity position and on the Company. This is a
forward-looking statement and is subject to certain factors that
could cause actual results to differ materially from those in the
forward-looking statement, including, but not limited to, certain
factors set forth in "Forward-Looking Statements" of this
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Company's ability to continue
profitability or, if the Company is not able to continue
profitability, whether the Company is able to raise additional
liquidity in the form of additional equity or debt.
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 role of these regulations in
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. See Note 3 to Notes to Consolidated
Financial Statements and "Facility Disruption."
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
certain of its competitors, disposes of significantly less
hazardous or industrial by-products from its operations due to
rendering material non-hazardous, discharging treated waste waters
to publicly-owned treatment works and/or recycling wastes into
saleable products. In the past, numerous third party disposal
sites have improperly managed wastes and consequently require
remedial action. As a result, any party utilizing these sites in
the past or present 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 potentially responsible party at
a remedial action site, which could have a material adverse effect
on the Company.
In addition to budgeted capital expenditures of $1,250,000 for
1997 at the Company's treatment, storage, and disposal facilities,
which are necessary to maintain permit compliance and improve
operations, as discussed above, excluding capital expenditures due
to the fire and explosion at the PFM facility, the Company has also
budgeted for 1997 an additional $350,000 in environmental
expenditures to comply with federal, state and local regulations in
connection with remediation of certain contaminates at two
locations of which approximately $165,000 has been spent during the
nine months ended September 30, 1997. The two locations where
these expenditures will be made are at a certain leased property in
Dayton, Ohio, a former RCRA storage facility operated by the former
owners of PFD and leased by a predecessor of PFD, and PFM's
facility in Memphis, Tennessee (excluding any capital expenditures
due to the previously discussed fire and explosion at PFM).
Additional funds will be required for the next five to fifteen
years to properly investigate and remediate these sites. The
Company has accrued $1,468,000 for estimated costs of remediating
these two sites (excluding any expenditures due to the fire and
explosion at PFM), which is projected to be the maximum exposure
and is expected to be performed over a period in excess of ten (10)
years. The Company expects to fund these expenses to remediate
these two sites from funds generated internally. This is a forward
-22-
looking statement and is subject to numerous conditions. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Forward Looking Statements".
Recent Accounting Pronouncement
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, earlier application is
not permitted. EPS for the three and nine months ended September
30, 1997 and 1996 computed under SFAS 128 would not be materially
different than previously computed.
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. The Company has not determined the impact that
the adoption of these new accounting standards will have on its
future financial statements and disclosures.
-23-
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
_________________
There are no additional legal proceedings pending against the
Company and/or its subsidiaries not previously reported by the
Company in Item 3 of its Form 10-K for the fiscal year ended
December 31, 1996 or Part II, Item 1 of the Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997.
During September 1994, Perma-Fix of Memphis, Inc. ("PFM"),
formerly American Resource Recovery Corporation ("ARR") and a
subsidiary of the Company, was sued by Community First Bank
("Community First") to collect a note in the principal sum of
$341,000 that was allegedly made by ARR to CTC Industrial Services,
Inc. ("CTC") in February 1987 (the "Note"), and which was allegedly
pledged by CTC to Community First in December 1988 to secure
certain loans to CTC. This lawsuit styled Community First Bank v.
American Resource Recovery Corporation, was instituted on
September 14, 1994, and is pending in the Circuit Court, Shelby
County, Tennessee. The Company was not aware of either the Note or
its pledge to Community First at the time of the Company's
acquisition of PFM in December 1993. The Company vigorously
defended itself in connection therewith and filed a third party
complaint against Billie Kay Dowdy, who was the sole shareholder of
PFM immediately prior to the acquisition of PFM by the Company,
alleging that Ms. Dowdy was required to defend and indemnify the
Company and PFM from and against this action under the terms of the
agreement relating to the Company's acquisition of PFM. This
matter was settled on August 29, 1997. PFM and Dowdy each agreed
to pay the plaintiff $45,000 in exchange for a full and complete
release and a dismissal of the above matter.
Item 2. Changes in Securities
_____________________
(c) During the quarter ended September 30, 1997, the Company sold,
or entered into an agreement to sell, equity securities that were not
registered under the Securities Act of 1933, as amended ("Securities
Act"), as follows:
(i) On or about June 11, 1997, the Company issued to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("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 under Rule 506
of Regulation D under the Securities Acts of 1933, as amended
("Securities Act"), 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 equal to
$1,000 consideration per outstanding share of Series 4 Preferred
(the "Liquidation Value"), plus an amount equal to all accrued and
unpaid dividends. 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 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 immediate prior to the date the
dividend is declared, 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.
-24-
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 of the Common Stock as reported on the NASDAQ 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. Subject to the closing bid price of the
Company's Common Stock at the time of the conversion and other
conditions which could increase the number of shares to be issued
upon conversion, the Series 4 Preferred, if all were converted,
could be converted into between 1,482,000 and 3,334,000 shares of
Common Stock, or more after the minimum conversion price is
eliminated or under certain other limited conditions. 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. 1,482,000 shares of Common Stock issuable on the
conversion of the Series 4 Preferred, 250,000 shares of Common Stock
issuable in payment of accrued dividends on the Series 4 Preferred
and the shares of Common Stock issuable on the exercise of the
Warrants are subject to certain registration rights pursuant to the
Subscription Agreement.
Effective September 16, 1997 the Company entered into 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 at $2.125 per share (collectively, the
"RBB Series 6 Warrants"). The RBB Series 6 Warrants are 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 closin 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
are substantially the same as the terms of the Series 4 Preferred.
(ii) 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
-25-
the Company and Infinity ("Infinity Subscription Agreement"). The
Company intends to utilize 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 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 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.
Effective September 16, 1997, the Company entered into an
Exchange Agreement with Infinity ("Infinity Fund Exchange
Agreement") which provided that the 350 shares of Series 5
Preferred were 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 Infinity Fund Series
7 Warrant is 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
are substantially the same as the terms of the Series 5 Preferred.
(iii) On June 30, 1997, the Company entered into a Stock
Purchase Agreement ("Centofanti Agreement") with Dr. Louis F.
Centofanti, under which the Company agreed to sell, and
-26-
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. Dr. Centofanti purchased 12,190
shares, during July 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 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.
(iv) On July 30, 1997, the Company entered into a Stock
Purchase Agreement ("Gorlin Agreement") with Mr. Steve Gorlin, a
Director of the Company, whereby the Company agreed to sell, and
Mr. Gorlin agreed to purchase, 200,000 shares of the Company's
Common Stock. The purchase price was $2.125 per share
representing the closing bid price of the Common Stock as quoted on
the NASDAQ on July 30, 1997. Pursuant to the terms of the Gorlin
Agreement, Mr. Gorlin agreed to pay the Company the aggregate
purchase price of $425,000 for the 200,000 shares of Common Stock.
In order to induce Mr. Gorlin to enter into the amendment to the
Gorlin Agreement, and to purchase the Common Stock on the terms and
subject to the conditions thereof, PESI agreed to issue a three (3)
year Warrant to Mr. Gorlin for the purchase of 100,000 shares of
Common Stock at $2.40 per share. Under the Gorlin Agreement, Mr.
Gorlin agreed to tender $425,000 during August, 1997, however,
pursuant to an amendment to the Gorlin Agreement, which was entered
into on October 7, 1997, the payment schedule was modified such
that Mr. Gorlin agreed to tender the $425,000 on or before November
30, 1997.
Item 3. Defaults Upon Senior Securities
_______________________________
Since the quarter ended September 30, 1997 and continuing through
the date of this report, the Company has not been in compliance with
certain financial covenants contained in the Company's loan agreement
with Heller Financial, Inc. ("Heller") relating to the Company's term
loan and revolving line of credit and the loan agreement with Ally
Capital Corporation ("Ally") relating to certain equipment financing.
Since September 30, 1997, the Company has been in default on the "Minimum
EBITDA", "Capital Expenditure Limit" and "Fixed Charge Coverage"
financial covenants contained in such loan agreements, principally a
result of the facility disruption and resulting net loss incurred by the
Perma-Fix of Memphis, Inc. ("PFM") facility due to an explosion and fire
in January 1997 and the additional capital spending in conjunction with
the equity raised during 1997. The Company is currently negotiating with
Heller and Ally for a waiver of such defaults, but there are no
assurances that the Company will receive such waivers. Neither Heller
nor Ally have accelerated payments of the loans as of the date of this
report as a result of such default, and Heller is continuing to make
advances to the Company under the revolving line of credit as of the date
of this report in accordance with the terms thereof. See Note 2 to Notes
to Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources of the Company."
-27-
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
________
3(i) Restated Certificate of Incorporation, as amended,
and all Certificates of Designations.
3(ii) Bylaws, as incorporated by reference to the
Company's Registration Statement, No. 33-51874.
4.1 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.
4.2 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.
4.3 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.
4.4 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.
4.5 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.
4.6 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.
4.7 Certificate of Designations of Series 6 Class F
Convertible Preferred Stock, dated November 6,
1997, incorporated by reference from Exhibit 3 (i)
above.
4.8 Specimen copy of Series 6 Class F Convertible
Preferred Stock Certificate.
4.9 Certificate of Designations of Series 7 Class G
Convertible Preferred Stock, dated October 30,
1997, incorporated by reference from Exhibit 3 (i)
above.
4.10 Specimen copy of Series 7 Class G Convertible
Preferred Stock Certificate.
4.11 Exchange Agreement dated November 6, 1997, to be
considered effective as of September 16, 1997,
between the Company and RBB Bank.
4.12 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.
10.1 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.
-28-
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 Amended Stock Purchase Agreement, dated October 7,
1997, between the Company and Dr. Louis F.
Centofanti.
10.7 Amended Stock Purchase Agreement, dated October 7,
1997, between the Company and Steve Gorlin.
10.8 Stock Purchase Agreement, dated July 31, 1997,
between the Company and Steve Gorlin.
10.9 Employment Agreement, dated October 1, 1997,
between the Company and Dr. Louis F. Centofanti.
27 Financial Data Schedule
(b) Reports on Form 8-K
___________________
A current report on Form 8-K (Item 5. Other Event) was
filed on July 25, 1997 reporting that on July 14, 1997,
the Company issued 350 shares of its newly created Series
5 Class E Preferred Stock at a price of $1,000 per share,
for an aggregate sales price of $350,000. It is also
reported that on June 30, 1997, the Company entered into
a Stock Purchase Agreement with Dr. Louis F. Centofanti
to purchase 24,381 shares of Common Stock at a purchase
price of $1.6406 per share, for an aggregate sales price
of $40,000.
-29-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERMA-FIX ENVIRONMENTAL
SERVICES, INC.
Date: November 18, 1997 By: /s/ Dr. Louis F. Centofanti
____________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
____________________________
Richard T. Kelecy
Chief Financial Officer
-30-
EXHIBIT INDEX
Page No.
________
Exhibit 3(i) Restated Certificate of Incorporation,
as amended, and all Certificates of
Designations......................... 33
Exhibit 3(ii) Bylaws, as incorporated by reference to
the Company's Registration Statement,
No. 33-51874........................... *
Exhibit 4.1 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.................... *
Exhibit 4.2 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.. *
Exhibit 4.3 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.................. *
Exhibit 4.4 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......................... *
Exhibit 4.5 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.... *
Exhibit 4.6 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.......................... *
Exhibit 4.7 Certificate of Designations of Series 6 Class F
Convertible Preferred Stock, dated November 6,
1997, incorporated by reference from Exhibit 3(i)
herein.........................................
Exhibit 4.8 Specimen copy of Series 6 Class F Convertible
Preferred Stock Certificate . . . . . . . . . 142
Exhibit 4.9 Certificate of Designations of Series 7 Class G
Convertible Preferred Stock, dated October 30,
1997, incorporated by reference from
Exhibit 3 (i) herein..........................
Exhibit 4.10 Specimen copy of Series 7 Class G Convertible
Preferred Stock Certificate..................
Exhibit 4.11 Exchange Agreement dated November 6, 1997, to be
considered effective as of September 16, 1997,
between the Company and RBB Bank............... 144
Exhibit 4.12 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.............................................. 172
-31-
Exhibit 10.1 Common Stock Purchase Warrant ($2.10) dated June 9,
1997, between the Company and RBB Bank Atktiengellschaft
is incorporated by reference from Exhibit 4.4 to the
Company's Form 8-K, dated June 11, 1997........... *
Exhibit 10.2 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............ *
Exhibit 10.3 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.............. *
Exhibit 10.4 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................ *
Exhibit 10.5 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 June 7, 1997..................................... *
Exhibit 10.6 Amended Stock Purchase Agreement, dated October 7, 1997,
between the Company and Dr. Louis F. Centofanti......... 203
Exhibit 10.7 Amended Stock Purchase Agreement, dated October 7, 1997,
between the Company and Steve Gorlin.................... 209
Exhibit 10.8 Stock Purchase Agreement, dated July 31, 1997, between
the Company and Steve Gorlin........................... 216
Exhibit 10.9 Employment Agreement, dated October 1, 1997, between the
Company and Dr. Louis F. Centofanti..................... 223
Exhibit 27 Financial Data Schedule.................................. 240
*incorporated by reference
-32-