================================================================
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 June 30, 1998
_______________________
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 July 31, 1998
_____ ________________________________
Common Stock, $.001 Par Value 12,138,837
_____________________________ __________
(excluding 920,000 shares
held as treasury stock)
_________________________
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997. . . 2
Consolidated Statements of Operations -
Three Months and Six Months Ended
June 30, 1998 and 1997 . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998
and 1997 . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . 22
Item 2. Changes in Securities and Use of
Proceeds . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . 28
Item 5. Other Information. . . . . . . . . . . . . 29
Item 6. Exhibits and Reports on Form 8-K . . . . . 30
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the consolidated financial
statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as
of and for the periods indicated.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
The results of operations for the six months ended June 30,
1998, are not necessarily indicative of results to be expected for
the fiscal year ending December 31, 1998.
1
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
(Amounts in Thousands, 1998 December 31,
Except for Share Amounts) (Unaudited) 1997
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 508 $ 314
Restricted cash equivalents
and investments 329 321
Accounts receivable, net of
allowance for doubtful accounts
of $311 and $374, respectively 5,141 5,282
Preferred Stock receivable 2,768 -
Insurance claim receivable - 1,475
Inventories 140 119
Prepaid expenses 1,013 567
Other receivables 48 70
Assets of discontinued operations 459 587
_________ ________
Total current assets 10,406 8,735
Property and equipment:
Buildings and land 5,552 5,533
Equipment 8,205 7,689
Vehicles 1,242 1,202
Leasehold improvements 16 16
Office furniture and equipment 960 1,056
Construction in progress 1,610 1,052
_________ ________
17,585 16,548
Less accumulated depreciation (6,000) (5,564)
_________ ________
Net property and equipment 11,585 10,984
Intangibles and other assets:
Permits, net of accumulated amorti-
zation of $954 and $831,
respectively 3,725 3,725
Goodwill, net of accumulated amorti-
zation of $661 and $580,
respectively 4,788 4,701
Other assets 430 425
________ ________
Total assets $ 30,934 $ 28,570
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
2
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30,
(Amounts in Thousands, 1998 December 31,
Except for Share Amounts) (Unaudited) 1997
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,021 $ 2,263
Accrued expenses 3,141 3,380
Revolving loan and term note
facility 625 614
Current portion of long-term debt 310 254
Current liabilities of discontinued
operations 911 1,470
_________ _______
Total current liabilities 7,008 7,981
Environmental accruals 441 525
Accrued closure costs 847 831
Long-term debt, less current portion 4,455 3,997
Long-term liabilities of discontinued
operations 3,035 3,042
_________ _______
Total long-term liabilities 8,778 8,395
Commitments and contingencies
(see Note 4) - -
Stockholders' equity:
Preferred Stock, $.001 par value;
2,000,000 shares authorized,
9,850 and 6,850 shares issued
and outstanding, respectively - -
Common Stock, $.001 par value;
50,000,000 shares authorized,
12,921,746 and 12,540,487 shares
issued, including 920,000
shares held as treasury stock 13 12
Redeemable warrants 140 140
Additional paid-in capital 37,680 34,363
Accumulated deficit (20,915) (20,551)
________ _______
16,918 13,964
Less Common Stock in treasury at
cost; 920,000 shares issued
and outstanding (1,770) (1,770)
________ _______
Total stockholders' equity 15,148 12,194
________ _______
Total liabilities and
stockholders' equity $ 30,934 $ 28,570
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
3
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1998 1997*
___________________________________________________________________
Net revenues $ 7,678 $ 6,697
Cost of goods sold 5,238 4,554
________ ________
Gross profit 2,440 2,143
Selling, general and administrative
expenses 1,679 1,434
Depreciation and amortization 527 497
________ ________
Income (loss) from operations 234 212
Other income (expense):
Interest income 9 11
Interest expense (142) (129)
Other 115 (20)
________ ________
Net income (loss) from
continuing operations 216 74
Discontinued operations:
Loss from operations - (517)
________ _________
Net income (loss) 216 (443)
Preferred Stock dividends 89 82
________ _________
Net income (loss) applicable
to Common Stock $ 127 $ (525)
======== =========
_________________________________________
Basic and fully diluted income
(loss) per share:
Continuing operations $ 0.1 $ -
Discontinued operations - (.05)
________ ________
Net income (loss) per share $ .01 $ (.05)
======== ========
Weighted average number of common
shares outstanding 11,965 10,195
======== ========
Six Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1998 1997*
___________________________________________________________________
Net revenues $ 14,236 $12,447
Cost of goods sold 10,025 8,862
________ ________
Gross profit 4,201 3,585
Selling, general and administrative
expenses 3,234 2,725
Depreciation and amortization 1,035 997
________ ________
Income (loss) from operations (68) (137)
Other income (expense):
Interest income 17 20
Interest expense (269) (260)
Other 132 (29)
________ ________
Net income (loss) from
continuing operations (188) 406)
Discontinued operations:
Loss from operations - (953)
________ _________
Net income (loss) (188) (1,359)
Preferred Stock dividends 176 163
________ _________
Net income (loss) applicable
to Common Stock $ (364) $ (1,522)
======== =========
_________________________________________
Basic and fully diluted income
(loss) per share:
Continuing operations $ (0.3) $ (.05)
Discontinued operations - (.10)
________ ________
Net income (loss) per share $ (.03) $ (.15)
======== ========
Weighted average number of common
shares outstanding 11,836 9,958
======== ========
*Amounts have been restated from that previously reported to
reflect the discontinued operations at Perma-Fix of Memphis, Inc.
(See Note 2).
The accompanying notes are an integral part of
these consolidated financial statements.
4
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
(Amounts in Thousands, _______________________
Except for Share Amounts) 1998 1997*
___________________________________________________________________
Cash flows from operating activities:
Net loss from continuing
operations $ (188) $ (406)
Adjustments to reconcile net loss
to cash provided by (used in)
operations:
Depreciation and amortization 1,035 997
Provision for bad debt and other
reserves 19 26
Gain on sale of plant, property
and equipment - (4)
Changes in assets and liabilities,
net of effects from business
acquisitions:
Accounts receivable 136 165
Prepaid expenses, inventories and
other assets 930 629
Accounts payable and accrued expenses (461) (946)
________ ________
Net cash provided by continuing
operations 1,471 461
________ ________
Net cash used by discontinued operations (417) (812)
________ ________
Cash flows from investing activities:
Purchases of property and equipment,
net (1,027) (343)
Proceeds from sale of plant,
property and equipment - 40
Change in restricted cash, net (16) (20)
Net cash used by discontinued
operations - (33)
________ _________
Net cash used in investing
activities (1,043) (356)
Cash flows from financing activities:
Borrowings (repayments) of
revolving loan and term note
facility 262 (1,405)
Principal repayments on long-term debt (113) (695)
Proceeds from issuance of stock 55 2,916
Net cash used by discontinued
operations (30) (4)
________ ________
Net cash provided by
financing activities 174 812
Increase in cash and cash equivalents 185 105
Cash and cash equivalents at beginning
of period including discontinued
operations of $12, and $8,
respectively 326 45
________ ________
Cash and cash equivalents at end
of period, including discontinued
operations of $3, and $28,
respectively $ 511 $ 150
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 351 $ 386
Non cash investing and financing
activities:
Issuance of Common Stock for services 218 60
Long-term debt incurred for purchase
of property 330 287
Issuance of stock for payment of
dividends 183 156
*Amounts have been restated from that previously reported to
reflect the discontinued operations at Perma-Fix of Memphis, Inc.
(see Note 2).
The accompanying notes are an integral part of
these consolidated financial statements.
5
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(For the six months ended June 30, 1998)
Preferred Stock Common Stock
Amounts in Thousands, _________________ ____________________
Except for Share Amounts Shares Amount Shares Amount
___________________________________________________________________________
Balance at December 31, 1997 6,850 $ - 12,540,487 $ 12
Net Loss - - - -
Issuance of Common Stock for
Preferred Stock dividend - - 85,216 1
Issuance of Preferred Stock 3,000 - - -
Issuance of Common Stock
for acquisition - - 108,207 -
Issuance of stock for cash
and services - - 146,836 -
Exercise of warrants - - 40,000 -
Option Exercise - - 1,000 -
_______ ________ __________ ________
Balance at June 30, 1998 9,850 $ - 12,921,746 $ 13
======= ========= ========== ========
Common
Additional Stock
Redeemable Paid-In Accumulated Held in
Warrants Capital Deficit Treasury
______________________________________________________
$ 140 $ 34,363 $ (20,551) $ (1,770)
- - (364) -
- 183 - -
- 2,653 - -
- 207 - -
- 234 - -
- 39 - -
- 1 - -
________ ________ __________ __________
$ 140 $ 37,680 $ (20,915) $ (1,770)
======== ======== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
6
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(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, 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.
Basic income (loss) per share is computed by dividing net
income, after deducting Preferred Stock dividends, by the weighted
average number of common shares outstanding during each period.
Fully diluted income per share is computed by dividing net
income, before deduction of Preferred Stock dividends, by the
weighted average number of common shares and potentially common
shares outstanding during each period. The weighted average number
of common and potentially common shares outstanding for the quarter
ended June 30, 1998, was 18,021,614. The incremental shares that
would have been outstanding under certain warrants and options for
all other periods have not been included since their effects would
be antidilutive, and as a result, fully diluted and basic loss per
share are the same.
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 and requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures SFAS 128 also 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 was adopted effective December 31, 1997.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("FAS 130") and No. 131, "Disclosure about
Segments of an Enterprise and Related Information," ("FAS 131").
FAS 130 establishes standards for reporting and displaying
comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public.
Both FAS 130 and FAS 131 are effective for periods beginning after
December 15, 1997. FAS 130 has no effect on the Company's
financial statements. FAS 131 is effective for the Company's
financial statements and is discussed in Note 5.
2. Discontinued Operations
_______________________
On January 27, 1997, an explosion and resulting tank fire
occurred at the Company's subsidiary, Perma-Fix of Memphis, Inc.
("PFM"), a hazardous waste storage, processing and blending
facility, located in Memphis, Tennessee, which resulted in damage
to certain hazardous waste storage tanks located on the facility
and caused certain limited contamination at the facility. Such
occurrence was caused by welding activity performed by employees of
an independent contractor at or near the facility's hazardous waste
tank farm contrary to instructions by PFM. The facility was non-
operational from the date of this event until May 1997, at which
time it began limited operations. During the remainder of 1997,
PFM continued to accept waste for processing and disposal, but
arranged for other facilities owned by the Company or subsidiaries
of the Company or others not affiliated with the Company to process
such waste. The utilization of other facilities to process such
waste resulted in higher costs to PFM than if PFM were able to
7
store and process such waste at PFM, its Memphis, Tennessee,
facility, along with the additional handling and transportation
costs associated with these activities. As a result of the
significant disruption and the cost to rebuild and operate this
segment, the Company made a strategic decision, in February 1998,
to discontinue its fuel blending operations at PFM. The fuel
blending operations represented the principal line of business for
PFM prior to this event, which included a separate class of
customers, and its discontinuance has required PFM to attempt to
develop new markets and customers. PFM currently provides, on a
limited basis, off-site waste storage and transfer services.
Accordingly, during the fourth quarter of 1997, the Company
recorded a loss on disposal of discontinued operations of
$3,053,000, which included $1,272,000 for impairment of certain
assets and $1,781,000 for the establishment of certain closure
liabilities.
The net loss from discontinued PFM operations for the six
months ended June 30, 1998, was $227,000 and was recorded against
the accrued closure cost estimate on the balance sheet. The net
loss for the six months ended June 30, 1997, was $953,000 and is
shown separately in the Consolidated Statements of Operations. The
Company has restated the 1997 operating results to reflect this
discontinued operations. The results of the discontinued PFM
operations do not reflect management fees charged by the Company,
but do include interest expense of $41,000 and $109,000 during the
six months ended June 30, 1998 and 1997, respectively, specifically
identified to such operations as a result of such operations
incurring debt under the Company's revolving and term loan credit
facility. During March of 1998, the Company received a settlement
in the amount of $1,475,000 from its insurance carrier for the
business interruption claim which was recorded as an insurance
claim receivable at December 31, 1997. This settlement was
recognized as a gain in 1997 and thereby reduced the net loss
recorded for the discontinued PFM operations in 1997.
Revenues of the discontinued PFM operations were $532,000 for
the six months ended June 30, 1998, and $1,189,000 for the six
months ended June 30, 1997. These revenues are not included in
revenues as reported in the Consolidated Statements of Operation.
Net assets and liabilities of the discontinued PFM operations at
the six months ended June 30, 1998, and December 31, 1997, in
thousands of dollars, consisted of the following:
June 30, December 31,
1998 1997
____________ ___________
Assets of discontinued operations:
Cash and cash equivalents $ 3 $ 12
Restricted cash equivalents and investments 214 214
Accounts receivable, net of allowance
for doubtful accounts $103 and $105,
respectively 211 333
Prepaid expenses and other assets 31 28
___________ ___________
$ 459 $ 587
=========== ===========
Current liabilities of discontinued operations:
Accounts payable $ 188 $ 277
Accrued expenses 151 259
Accrued environmental costs 496 835
Current portion of long-term debt 76 99
__________ __________
$ 911 $ 1,470
========== ==========
Long-term liabilities of discontinued operations:
Long-term debt, less current portion $ 10 $ 17
Accrued environmental and closure costs 3,025 3,025
_________ ________
$ 3,035 $ 3,042
========= ========
The accrued environmental and closure costs, as related to
PFM, total $3,025,000 at June 30, 1998, which includes the
Company's current closure cost estimate of approximately $700,000
for the complete cessation of operations and closure of the
facility ("RCRA Closure") based upon guidelines of the Resource
Conservation and Recording Act of 1976, as amended ("RCRA"). A
majority of this liability relates to the discontinued fuel
blending and tank farm operations and will be recognized over the
8
next three years. Also included in this accrual is the Company's
estimate of the cost to complete groundwater remediation at the
site of approximately $970,000, the future operating losses as the
Company discontinues its fuel blending operations and certain other
contingent liabilities.
3. Long-Term Debt
______________
Long-term debt consists of the following at June 30, 1998, and
December 31, 1997 (in thousands):
June 30, December 31,
1998 1997
_________ ___________
Revolving loan facility dated
January 15, 1998, collateral-
ized by eligible accounts
receivables, subject to monthly
borrowing base calculation,
variable interest paid monthly
at prime rate plus 1 3/4. $ 2,186 $ 1,664
Term loan agreement dated January 15,
1998, payable in monthly principal
installments of $52, balance due
in January 2001, variable interest
paid monthly at prime rate plus
1 3/4. 2,240 2,500
Mortgage note agreement payable in
quarterly installments of $15,
plus accrued interest at 10%.
Balance due October 1998 secured
by real property. 31 61
Various capital lease and promissory
note obligations, payable 1998 to
2002, interest at rates ranging
from 8.0% to 15.9%. 933 640
________ _______
5,390 4,865
Less current portion of revolving
loan and term note facility 625 614
Less current portion of long-term debt 310 254
________ ________
$ 4,455 $ 3,997
======== ========
On January 15, 1998, the Company, as parent and guarantor,
and all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $237,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan
both bear interest at a floating rate equal to the prime rate plus
1 3/4%. The Agreement also provides for a one time rate adjustment
of 1/4%, subject to the company meeting certain 1998 performance
objectives. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and subsidiaries, as well as the mortgage on
two (2) of the Company's facilities. The Agreement contains
affirmative covenants including, but not limited to, certain
9
financial statement disclosures and certifications, management
reports, maintenance of insurance and collateral. The Agreement
also contains an adjusted net worth financial covenant, as defined
in the Agreement, of $3,000,000.
The proceeds of the Agreement were utilized to repay in full
on January 15, 1998, the outstanding balance of the Heller
Financial, Inc. ("Heller") which was comprised of a revolving loan
and security agreement, loan and term loan, and to repay and buyout
all assets under the Ally Capital Corporation ("Ally") equipment
financing agreements. As of December 31, 1997, the borrowings
under the Heller revolving loan facility totaled $2,652,000 with
borrowing availability of approximately $762,000. The balance of
the revolving loan on January 15, 1998, as repaid pursuant to the
Congress agreement was $2,289,000. The balance under the Heller
term loan at December 31, 1997, was $867,000. The Company
subsequently made a term loan payment of $41,000 on January 2,
1998, resulting in a balance of $826,000, as repaid pursuant to the
Congress Agreement. As of December 31, 1997, the outstanding
balance on the Ally Equipment Financing Agreement was $624,000 and
represents the principal balance repaid pursuant to the Congress
Agreement. In conjunction with the above debt repayments, the
Company also repaid a small mortgage, paid certain fees, taxes and
expenses, resulting in an initial Congress term loan of $2,500,000
and revolving loan balance of $1,705,000 as of the date of closing,
the Company had borrowing availability under the Congress Agreement
of approximately $1,500,000. The Company recorded the December 31,
1997, Heller and Ally debt balances as though the Congress
transaction had been closed as of December 31, 1997. As of June
30, 1998, the borrowings under the Congress revolving loan facility
totaled $2,186,000 with borrowing availability of approximately
$1,069,000. The balance under the Congress term loan at June 30,
1998, was $2,240,000.
During June 1998, the Company entered into a master security
agreement and secured promissory note in the amount of
approximately $317,000 for the purchase and financing of certain
capital equipment at the Perma-Fix of Florida, Inc. facility. The
term of the promissory note is for sixty (60) months, at a rate of
11.58% per annum and monthly installments of approximately $7,000.
As further discussed in Note 2, the long-term debt associated
with the discontinued PFM operation is excluded from the above and
is recorded in the Liabilities of Discontinued Operations total.
The PFM debt obligations total $86,000, of which $76,000 is
current.
4. Commitments and Contingencies
_____________________________
Hazardous Waste
In connection with the Company's waste management services,
the Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
In the normal course of conducting its business, the Company
is involved in various litigation. There has been no material
changes in legal proceedings from those disclosed previously in the
Company's Form 10-K for year ended December 31, 1997. The Company
is not a party to any litigation or governmental proceeding which
its management believes could result in any judgements or fines
against it that would have a material adverse affect on the
Company's financial position, liquidity or results of operations.
Permits
The Company is subject to various regulatory requirements,
including the procurement of requisite licenses and permits at its
facilities. These licenses and permits are subject to periodic
renewal without which the Company's operations would be adversely
affected. The Company anticipates that, once a license or permit
is issued with respect to a facility, the license or permit will be
renewed at the end of its term if the facility's operations are in
compliance with the applicable regulatory requirements.
10
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.
Discontinued Operations
As previously discussed, the Company made the strategic
decision in February 1998 to discontinue its fuel blending
operations at the PFM facility. The Company has, based upon the
best estimates available, recognized accrued environmental and
closure costs in the aggregate amount of $3,521,000. This
liability includes principally, the RCRA closure liability, the
groundwater remediation liability, the potential additional site
investigation and remedial activity which may arise as PFM proceeds
with its closure activities and the Company's best estimate of the
future operating losses as the Company discontinues its fuel
blending operations and other contingent liabilities.
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 $2 million
per occurrence and $4 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.
5. Business Segment Information
____________________________
The Company provides services through two business segments.
The Waste Management Services segment, which provides on-and-off-
site treatment, storage, processing and disposal of hazardous and
non-hazardous industrial and commercial, mixed waste, and
wastewater through its five treatment, storage and disposal
facilities ("TSD facilities"); Perma-Fix Treatment Services, Inc.
("PFTS"), Perma-Fix of Dayton, Inc. ("PFD"), Perma-Fix of Ft.
Lauderdale, Inc. ("PFFL"), Perma-Fix of Florida, Inc. ("PFF") and
PFM. The Company has discontinued all fuel blending activities at
its PFM facility, the principal business segment for this
subsidiary prior to the January 1997 fire and explosion. PFM
currently provides, on a limited basis, an off-site waste storage
and transfer facility and continues to explore other new markets
for utilization of this facility. The Company also provides
through this segment: (i) on-site waste treatment services to
convert certain types of characteristic hazardous wastes into non-
hazardous waste, through its Perma-Fix, Inc. subsidiary; and (ii)
the supply and management of non-hazardous and hazardous waste to
be used by cement plants as a substitute fuel or raw material
source.
The Company also provides services through the Consulting
Engineering Services segment. The Company provides environmental
engineering and regulatory compliance consulting services through
Schreiber, Yonley & Associates in St. Louis, Missouri, and Mintech,
Inc. in Tulsa, Oklahoma. These engineering groups provide
oversight management of environmental restoration projects, air and
soil sampling and compliance reporting, surface and subsurface
water treatment design for removal of pollutants, and various
compliance and training activities.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based on profit or loss from
continuing operations.
11
The Company accounts for inter-company sales as a reduction of
"cost of goods sold" and therefore such inter-company sales are not
included in the consolidated revenue total.
The Company's segments are not dependent upon a single
customer, or a few customers, and the loss of any one or more of
which would not have a material adverse effect on the Company's
segment. During the six months ended June 30, 1998 and 1997, the
Company did not make sales to any single customer that in the
aggregate amount represented more than ten percent (10%) of the
Company's segment revenues.
The table below shows certain financial information by the
Company's segments for six months ended June 30, 1998 and 1997 and
excludes the results of operations of the discontinued operations.
Income (loss) from operations includes revenues less operating
costs and expenses. Marketing, general and administrative expenses
of the corporate headquarters have not been allocated to the
segments. Identifiable assets are those used in the operations of
each business segment, including intangible assets and discontinued
operations. Corporate assets are principally cash, cash
equivalents and certain other assets.
Waste Consulting Corporate
Management Engineering and
(Dollars in thousands) Services Services Other Consolidated
_______________________________________________________________________________
1998
Net revenues from
external customers $12,047 $ 2,179 $ - $ 14,226
Inter-company revenues 158 235 - 393
Interest income 17 - - 17
Interest expense 225 27 17 269
Depreciation and
amortization 986 41 8 1,035
Income (Loss) from con-
tinuing operations 468 88 (744) (188)
Identifiable assets 11,302 1,882 17,750 30,934
Capital expenditures, net 1,353 4 - 1,357
1997
Net revenues from
external customers $10,000 $ 2,447 $ - $ 12,447
Inter-company revenues 684 205 - 889
Interest income 19 - 1 20
Interest expense 214 20 26 260
Depreciation and
amortization 927 59 11 997
Income (Loss) from con-
tinuing operations 260 17 (683) (406)
Identifiable assets 14,114 2,410 12,046 28,570
Capital expenditures, net 609 21 - 630
6. Stock Issuance
______________
Effective April 1, 1998, the Company entered into an asset
purchase agreement to acquire substantially all of the assets and
certain liabilities of Action Environmental Corp. ("Action") of
Miami, Florida. Action has provided oil filter collection and
processing services to approximately 700 customers in South
Florida. The assets of Action were acquired through a combination
of stock issuance and the assumption of certain liabilities. The
acquisition was accounted for using the purchase method effective
April 1, 1998, and, accordingly, the assets and liabilities as of
this date and the statement of operations from the effective date
have been included in the accompanying consolidated financial
statements. The acquisition of Action resulted in the issuance of
108,000 shares of the Company's Common Stock reflecting a total
purchase price of $207,000.
Effective April 21, 1998, the Company issued Bernhardt C.
Warren, the Company's Vice President of Nuclear Services and
executive officer, 94,697 shares of the Company's Common Stock in
payment of accrued bonus and commission pursuant to an employment
agreement dated April 7, 1998. Under the employment agreement, the
Company also agreed to pay Mr. Warren an annual salary of $87,000
12
and $167,500 in cash paid over twenty four monthly installments, in
payment of an additional amount due for accrued bonus. The
employment agreement is for a term of two years.
On or about June 30, 1998, the Company issued to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("RBB Bank"), 3,000
shares of newly-created Series 10 Class J Convertible Preferred
Stock, par value $.001 per share ("Series 10 Preferred"), at a
price of $1,000 per share, for an aggregate sales price of
$3,000,000. The sale to RBB Bank was made in a private placement
under Section 4(2) of the Securities Act of 1933, as amended (the
"Act") and/or Rule 506 of Regulation D under the Act, pursuant to
the terms of a Subscription and Purchase Agreement, dated June 30,
1998 between the Company and RBB Bank ("Subscription Agreement").
The net proceeds of $2,768,000 from this private placement, after
the deduction for certain fees and expenses, was received by the
Company on July 14, 1998, and has been recorded as a Preferred
Stock Receivable at June 30, 1998. The Company also accrued at
June 30, 1998, approximately $115,000 for certain additional
closing, legal and related expenses. The Series 10 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 10 Preferred (the "Liquidation Value"),
plus an amount equal to all unpaid and accrued dividends thereon.
The Series 10 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 within ten (10)
business days after each subsequent June 30 and December 31 (each
a "Dividend Declaration Date"), and shall be payable in cash or
shares of the Company's Common Stock at the Company's option. The
first Dividend Declaration Date shall be December 31, 1998. 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 10
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 10 Preferred may convert into Common
Stock any or all of the Series 10 Preferred on and after 180 days
after June 30, 1998. The conversion price per outstanding share of
Preferred Stock ("Conversion Price") is $1.875; except that if the
average of the closing bid price per share of Common Stock quoted
on the NASDAQ (or the closing bid price of the Common Stock as
quoted on the national securities exchange if the Common Stock is
not listed for trading on the NASDAQ but is listed for trading on
a national securities exchange) for the five (5) trading days
immediately prior to the particular date on which the holder
notified the Company of a conversion ("Conversion Date") is less
than $2.34, then the Conversion Price for that particular
conversion shall be eighty percent (80 %) of the average of the
closing bid price of the Common Stock on the NASDAQ (or if the
Common Stock is not listed for trading on the NASDAQ but is listed
for trading on a national securities exchange then eighty percent
(80%) of the average of the closing bid price of the Common Stock
on the national securities exchange) for the five (5) trading days
immediately prior to the particular Conversion Date. As of
June 30, 1998, the closing price of Common Stock on the NASDAQ was
$1.875 per share.
As part of the of the sale of the Series 10 Preferred, the
Company also issued to RBB Bank (a) a warrant entitling the holder
to purchase up to an aggregate of 150,000 shares of Common Stock at
an exercise price of $2.50 per share of Common Stock expiring three
(3) years after June 30, 1998 and (b) a warrant entitling the
holder to purchase up to an aggregate of 200,000 shares of Common
Stock at an exercise price of $1.875 per share of Common Stock and
expiring three (3) years after June 30, 1998. Collectively, these
warrants are referred to herein as the "RBB Warrants." The Common
Stock issuable upon the conversion of the Series 10 Preferred and
upon the exercise of the RBB Warrants is subject to certain
registration rights pursuant to the Subscription Agreement.
13
The Company intends to utilize the proceeds received on the
sale of Series 10 Preferred for working capital and/or to reduce
the outstanding balance of its credit facilities, subject to the
Company reborrowing under such credit facilities.
In addition to the 2,200,000 shares of Common Stock which have
been reserved for issuance upon conversion of the Series 10
Preferred and in payment of dividends accrued thereon, and the
350,000 shares of Common Stock issuable upon exercise of the RBB
Warrants, RBB Bank may also be considered to be the beneficial
owner of approximately 7,958,687 shares of the Company's Common
Stock consisting of (a) 931,786 shares of Common Stock held
directly by RBB Bank; (b) 4,051,335 shares of Common Stock issuable
upon conversion of 6,500 shares of other series of convertible
Preferred Stock previously issued by the Company to RBB Bank,
subject to variation depending upon, among other things, the market
price per share of Common Stock at the time of conversion and
various terms and conditions of the Preferred; (c) 319,316 shares
of Common Stock which may be issued in payment of dividends accrued
on such 6,500 shares of Convertible Preferred Stock; and, (d)
2,656,250 shares of Common Stock that RBB Bank has the right to
acquire upon exercise of various warrants previously issued by the
Company to RBB Bank, consisting of (i) warrants entitling the
holder to purchase up to an aggregate of 1,000,000 shares of Common
Stock at an exercise price of $2.00 per share of Common Stock; (ii)
warrants entitling the holder to purchase up to an aggregate of
1,000,000 shares of Common Stock at an exercise price of $3.50 per
share of Common Stock; (iii) warrants entitling the holder to
purchase up to an aggregate of 375,000 shares of Common Stock at an
exercise price of $1.875 per share of Common Stock; and, (iv)
warrants entitling the holder to purchase up to an aggregate of
281,250 shares of Common Stock at an exercise price of $2.125 per
share of Common Stock. If RBB Bank were to obtain 10,158,687 shares
of Common Stock through exercise of all of its warrants and
conversion of all of its Preferred Stock into Common Stock it would
hold approximately 47.9% of the outstanding Common Stock of the
Company based upon 12,001,746 shares of Common Stock issued and
outstanding as of May 11, 1998 (excluding 920,000 shares held as
Treasury Stock). The foregoing estimate assumes that no other
shares of Common Stock are issued by the Company, no other warrants
or options granted by the Company and currently outstanding are
exercised, the Company does not acquire additional shares of Common
Stock as Treasury Stock and RBB Bank does not dispose of any shares
of Common Stock.
In connection with the placement of Series 10 Preferred to RBB
Bank, the Company paid fees (excluding legal and accounting) of
$210,000 and issued to (a) Liviakis Financial Communications, Inc.
("Liviakis") for assistance with the placement of the Series 10
Preferred, warrants entitling the holder to purchase up to an
aggregate of 1,875,000 shares of Common Stock, subject to certain
anti-dilution provisions, at an exercise price of $1.875 per share
of Common Stock which warrants may be exercised after January 15,
1999, and which expire after four (4) years; (b) Robert B. Prag,
an executive officer of Liviakis for assistance with the placement
of the Series 10 Preferred, warrants entitling the holder to
purchase up to an aggregate of 625,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants may be
exercised after January 15, 1999, and which expire after four (4)
years; (c) JW Genesis Financial Corporation for assistance with the
placement of the Series 10 Preferred, warrants entitling the holder
to purchase up to an aggregate of 150,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants expire after
three (3) years; and (d) Fontenoy Investments for assistance with
the placement of the Series 10 Preferred, warrants entitling the
holder to purchase up to an aggregate of 350,000 shares of Common
Stock, subject to certain anti-dilution provisions, at an exercise
price of $1.875 per share of Common Stock, which warrants expire
after three (3) years. Under the terms of each warrant, the holder
is entitled to certain registration rights with respect to the
shares of Common Stock issuable on the exercise of each warrant.
14
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
Forward-Looking Statements
Certain statements contained with this report may be deemed
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (collectively, the
"Private Securities Litigation Reform Act of 1995"). All
statements in this report other than statements of historical fact
are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors which could cause
actual results and performance of the Company to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things, (i) anticipated financial performance, (ii)
ability to comply with the Company's general working capital
requirements, (iii) ability to generate sufficient cash flow from
operations to fund all costs of operations and remediation of
certain formerly leased property in Dayton, Ohio, and the Company's
facility in Memphis, Tennessee, (iv) 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 report, including, but not limited to,
(i) general economic conditions, (ii) inability to maintain
profitability, (iii) material reduction in revenues, (iv) inability
to collect in a timely manner a material amount of receivables, (v)
increased competitive pressures, (vi) the inability to maintain and
obtain required permits and approvals to conduct operations, (vii)
the inability to develop new and existing technologies in the
conduct of operations, (viii) overcapacity in the environmental
industry, (ix) discovery of additional contamination or expanded
contamination at a certain Dayton, Ohio, property formerly leased
by the Company or the Company's facility at Memphis, Tennessee,
which would result in a material increase in remediation
expenditures, (x) changes in federal, state and local laws and
regulations, especially environmental regulations, or
interpretation of such, (xi) potential increases in equipment,
maintenance, operating or labor costs, (xii) management retention
and development, (xiii) the requirement to use internally generated
funds for purposes not presently anticipated, and (xiv) inability
to settle on reasonable terms certain claims made by the federal
government against a certain subsidiary of the Company that is a
potentially responsible party for clean up costs incurred by the
government in remediating certain sites owned and operated by
others. The Company undertakes no obligations to update publicly
any forward-looking statement, whether as a result of new
information, future events or otherwise.
15
Results of Operations
The table below should be used when reviewing management's
discussion and analysis for the six months ended June 30, 1998 and
1997:
Three Months Ended
June 30,
_________________________________
Consolidated 1998 % 1997 %
____________ _______ _____ _______ _____
Net Revenues $ 7,678 100.0 $ 6,697 100.0
Cost of Goods Sold 5,238 68.2 4,554 68.0
______ _____ ______ _____
Gross Profit 2,440 31.8 2,143 32.0
Selling, General &
Administrative 1,679 21.9 1,434 21.4
Depreciation/Amortization 527 6.9 497 7.4
______ _____ ______ _____
Income (Loss) from
from Operations $ 234 3.0 $ 212 3.2
====== ===== ====== =====
Loss from discontinued
Operations $ - - $ (517) (7.7)
Interest Expense (142) (1.8) (129) (1.9)
Preferred Stock Dividends (89) (1.1) (82) (1.1)
====== ====== ====== =====
Six Months Ended
June 30,
_________________________________
1998 % 1997 %
_______ _____ _______ _____
$14,226 100.0 $12,447 100.0
10,025 70.4 8,862 74.9
______ _____ ______ _____
4,201 29.6 3,585 25.1
3,234 22.7 2,725 22.5
1,035 7.3 997 8.7
______ _____ ______ _____
$ (68) ( .4) $ (137) (1.1)
====== ===== ====== =====
$ - - $ (953) (7.7)
(127) (1.9) (260) (2.1)
(87) (1.2) (163) (1.3)
====== ===== ====== =====
* Amounts have been restated from that previously reported
to reflect the discontinued operations at PFM (see Note
2).
Summary Three and Six Months Ended June 30, 1998 and 1997
___________________________________________________________
The Company provides services through two business segments.
The Waste Management Services segment is engaged in on-and off-site
treatment, storage, disposal and processing of a wide variety of
by-products and industrial, hazardous and mixed hazardous and low
level radioactive wastes. This segment competes for materials and
services with numerous regional and national competitors to provide
comprehensive and cost-effective Waste Management Services to a
wide variety of customers in the Midwest, Southeast and Southwest
regions of the country. The Company operates and maintains
facilities and businesses in the waste by-product brokerage, on-
site treatment and stabilization, and off-site blending, treatment
and disposal industries. The Company's Consulting Engineering
segment 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, the Consulting Engineering segment provides
oversight management of environmental restoration projects, air and
soil sampling, compliance reporting, surface and subsurface water
treatment design for removal of pollutants, and various compliance
and training activities.
Consolidated net revenues increased $981,000 for the quarter
ended June 30, 1998, as compared to the quarter ended June 30,
1997. This increase of 14.7% is attributable to the Waste
Management Services segment which experienced an increase in
revenues of $1,057,000, partially offset by a decrease in revenues
from the Consulting Engineering segment. The increase within the
Waste Management Services segment is attributable to the growth in
the wastewater and mixed waste markets. The most significant
increases occurred at the PFF facility, which recognized a $305,000
increase resulting principally from the completion of various mixed
waste contracts, the PFTS facility, which recognized a $298,000
increase due to the increased processing capacities at this
facility, and the PFFL facility, which recognized a $71,000
increase resulting principally from increased fuel oil sales and
the acquisition of Action Environmental. Consolidated net revenues
increased to $14,226,000 from $12,447,000 for the six months ended
June 30, 1998, as compared to the same six months ended in 1997.
This increase of $1,779,000, or 14.3%, is attributable to the Waste
16
Management Services segment which experienced an increase in
revenues of $2,047,000, partially offset by a decrease in revenues
from the Consulting Engineering segment. This increase within the
Waste Management Services segment is attributable to the increased
marketing efforts throughout the segments and the growth in the
wastewater and mixed waste markets. The most significant increases
occurred at PFF's facility, which recognized a $639,000 increase
resulting principally from the award and completion of various
mixed waste contracts, and PFTS's facility, which recognized a
$577,000 increase resulting principally from the increased
wastewater demand and processing capabilities at this facility.
This increase in the Waste Management Services segment was
partially offset by a reduction of $268,000 in the Consulting
Engineering segment. This Consulting Engineering reduction is
principally a result of a seasonal decrease in market demand, which
typically occurs during the first quarter of each year, and
appeared more dramatic in 1998, along with the completion of
several larger contracts in 1997, which were not duplicated in
1998.
Cost of goods sold for the Company increased $684,000, or
15%, for the quarter ended June 30, 1998, as compared to the
quarter ended June 30, 1997. This consolidated increase in cost of
goods sold reflects principally the increased operating, disposal
and transportation costs, corresponding to the increased revenues
as discussed above, as well as additional costs associated with
research and development which have not begun to generate revenue
at this time. The resulting gross profit for the quarter ended
June 30, 1998, increased $297,000 to $2,440,000, which as a
percentage of revenue is 31.8%, reflecting a decrease over the 1997
percentage of revenue of 32.0%. Cost of goods sold for the Company
increased $1,163,000 or 13.1% for the six months ended June 30,
1998, as compared to the six months ended June 30, 1997. This
consolidated increase in cost of goods sold reflects principally
the increased operating, disposal and transportation costs,
corresponding to the increased revenues as discussed above. The
resulting gross profit for the six months ended June 30, 1998,
increased $616,000 to $4,201,000, which as a percentage of revenue
is 29.6%, reflecting an increase over the 1997 percentage of
revenue of 28.8%.
Selling, general and administrative expenses increased
$245,000 or 17.1% for the quarter ended June 30, 1998, as compared
to the quarter ended June 30, 1997. As a percentage of revenue,
selling general and administrative expense also increased to 21.9%
for the quarter ended June 30, 1998, compared to 21.4% for the same
period in 1997. The increase reflects the increased expenses
associated with the Company's research and development efforts.
Selling, general and administrative expenses increased $509,000, or
18.7%, for the six months ended June 30, 1998, as compared to the
six months ended June 30, 1997. As a percentage of revenue,
selling, general and administrative expense also increased to 22.7%
for the six months ended June 30, 1998, compared to 21.9% for the
same period in 1997. The increase reflects the increased expenses
associated with the Company's additional sales and marketing
efforts as it continues to refocus its business segments into new
environmental markets, such as nuclear and mixed waste, and the
additional administrative overhead associated with the Company's
research and development efforts. The Company has expensed in the
current period all research and development costs associated with
the development of various technologies which the Company
aggressively pursued during the first six months of 1998.
Depreciation and amortization expense for the quarter ended
June 30, 1998, reflects an increase of $30,000 as compared to the
same quarter ended June 30, 1997. This increase is attributable to
a depreciation expense increase of $17,000 due to capital
improvements being introduced at the Company's transportation,
storage and disposal ("TSD") facilities to improve efficiencies.
Amortization expense reflects a total increase of $13,000 for the
quarter ended June 30, 1998, as compared to the same quarter 1997
due to the increased amortization, resulting from new capitalized
permitting costs. Depreciation and amortization expense for the
six months ended June 30, 1998, reflects an increase of $38,000 as
compared to the six months ended June 30, 1997. This increase is
attributable to a depreciation expense increase of $29,000 due to
the capital improvements being introduced at the Company's TSD
facilities to improve efficiencies. Amortization expense reflects
a total increase of $12,000 for the six months ended June 30, 1998,
as compared to the six months ended June 30, 1997, due to the
increased amortization, resulting from new capitalized permitting
costs.
17
Interest expense increased $13,000 for the quarter ended
June 30, 1998, as compared to the corresponding period of 1997.
The increase in interest expense reflects the increased borrowing
levels on the Congress Financial Corporation revolving and term
note due to the increase in capital improvements. Interest expense
increased $9,000 from the six months ended June 30, 1998, as
compared to the corresponding period of 1997. The increase in
interest expense reflects the increased borrowing levels on the
Congress Financial Corporation revolving and term note. During the
six months ended June 30, 1998, Preferred Stock dividends totaling
$176,000 incurred in conjunction with the Series 3 Class C, Series
8 Class H and Series 9 Class I Convertible Preferred Stock. As a
result of the issuance of the Series 6 Class F and Series 7 Class
G Convertible Preferred Stock during 1997, partially offset by
various conversions of the Series 3 Class C Convertible Preferred
Stock during the second quarter of 1997, dividends increased by
$13,000 for the six months ended June 30, 1998, as compared to the
six months ended June 30, 1997.
Discontinued Operations
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM facility, a hazardous waste storage, processing
and blending facility, which resulted in damage to certain
hazardous waste storage tanks located on the facility and caused
certain limited contamination at the facility. Such occurrence was
caused by welding activity performed by employees of an independent
contractor at or near the facility's hazardous waste tank farm
contrary to instructions by PFM. The facility was non-operational
from the date of this event until May 1997, at which time it began
limited operations. During the remainder of 1997, PFM continued to
accept waste for processing and disposal, but arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
utilization of other facilities to process such waste resulted in
higher costs to PFM than if PFM were able to store and process such
waste at its Memphis, Tennessee, TSD facility, along with the
additional handling and transportation costs associated with these
activities. As a result of the significant disruption and the cost
to rebuild and operate this segment, the Company made a strategic
decision, in February 1998, to discontinue its fuel blending
operations at PFM. The fuel blending operations represented the
principal line of business for PFM prior to this event, which
included a separate class of customers, and its discontinuance has
required PFM to attempt to develop new markets and customers,
through the utilization of the facility as a storage facility under
its RCRA permit and as a transfer facility. Accordingly, during
the fourth quarter of 1997, the Company recorded a loss on disposal
of discontinued operations of $3,053,000, which included $1,272,000
for impairment of certain assets and $1,781,000 for the
establishment of certain closure liabilities.
The net loss from discontinued PFM operations for the six
months ended June 30, 1998, was $227,000 and was recorded against
the accrued closure cost estimate on the balance sheet. The net
loss for the six months ended June 30, 1997, was $953,000 and is
shown separately in the Consolidated Statements of Operations. The
Company has restated the 1997 operating results to reflect this
discontinued operations. The results of the discontinued PFM operations
do not reflect management fees charged by the Company, but do include
interest expense of $41,000 and $109,000 during the six months ended June
30, 1998 and 1997, respectively, specifically identified to such
operations as a result of such operations actual incurred debt under the
Corporation's revolving and term loan credit facility. During March of
1998, the Company received a settlement in the amount of $1,475,000 from
its insurance carrier for the business interruption claim. This
settlement was recognized as a gain in 1997 and thereby reducing the net
loss recorded for the discontinued PFM operations in 1997. Revenues of
the discontinued PFM operations were $532,000 for the six months ended
June 30, 1998, and $1,189,000 for the six months ended June 30, 1997.
These revenues are not included in revenues as reported in the
Consolidated Statements of Operation.
Liquidity and Capital Resources of the Company
At June 30, 1998, the Company had cash and cash equivalents of
$511,000, including $3,000 from discontinued operations. This cash
and cash equivalents total reflects an increase of $361,000 from
June 30, 1997, as a result of net cash provided by continuing
operations of $1,471,000 (principally from the PFM insurance
settlement of $1,475,000), offset by cash used by discontinued
operation of $417,000, cash used in investing activities of
$1,043,000 (principally purchases of equipment, net totaling
18
$1,027,000) and cash provided by financing activities of $174,000
(principally borrowing on the revolving loan and term note
facility). Accounts receivable, net of allowances for continuing
operations, totaled $5,141,000, a decrease of $141,000 over the
December 31, 1997, balance of $5,282,000, which principally
reflects the impact of increased collections during the second
quarter of 1998.
On January 15, 1998, the Company, as parent and guarantor,
and all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $237,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan
both bear interest at a floating rate equal to the prime rate plus
1 3/4%. The Agreement also provides for a one time rate adjustment
of 1/4%, subject to the company meeting certain 1998 performance
objectives. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and its subsidiaries, as well as the
mortgage on two (2) facilities owned by subsidiaries of the
Company. The Agreement contains affirmative covenants including,
but not limited to, certain financial statement disclosures and
certifications, management reports, maintenance of insurance and
collateral. The Agreement also contains an Adjusted Net Worth
financial covenant, as defined in the Agreement, of $3,000,000.
Under the Agreement, the Company, and its subsidiaries are limited
to granting liens on their equipment, including capitalized leases,
(other than liens on the equipment to which Congress has a security
interest) in an amount not to exceed $2,500,000 in the aggregate at
any time outstanding.
The proceeds of the Agreement were utilized to repay in full
on January 15, 1998, the outstanding balance of $3,115,000 under
the Heller Financial, Inc. ("Heller") Loan and Security Agreement
which was comprised of a revolving loan and term loan, and to repay
the outstanding balance of $624,000 under the Ally Capital
Corporation ("Ally") Equipment Financing Agreements. The Company
had borrowing availability under the Congress Agreement of
approximately $1,500,000 as of the date of closing, based on 80% of
eligible accounts receivable accounts. The Company recorded the
December 31, 1997, Heller and Ally debt balances as though the
Congress transaction had been closed as of December 31, 1997. As
a result of this transaction, and the repayment of the Heller and
Ally debt, the combined monthly debt payments were reduced from
approximately $104,000 per month to $52,000 per month. As of
June 30, 1998, the borrowings under the Congress revolving loan
facility totaled $2,186,000, with borrowing availability of
approximately $1,069,000 based on the amount of outstanding
eligible accounts receivable as of June 30, 1998. The balance
under the Congress term loan at June 30, 1998, was $2,240,000.
At June 30, 1998, the Company had $5,390,000 in aggregate
principal amounts of outstanding debt, related to continuing
operations, as compared to $4,865,000 at December 31, 1997. This
increase in outstanding debt of $525,000 principally reflects the
increased borrowings under the Company's revolving credit facility
19
($522,000) and the new equipment financing at the Perma-Fix of
Florida, Inc. facility ($317,000), partially offset by the
scheduled principal repayments.
As of June 30, 1998, the Company had $86,000 in aggregate
principal amounts of outstanding debt related to PFM discontinued
operations, of which $76,000 is classified as current.
As of June 30, 1998, total consolidated accounts payable for
continuing operations of the Company was $2,021,000, a reduction
of $242,000 from the December 31, 1997, balance of $2,263,000.
The Company's net purchases of new capital equipment for
continuing operations for the six month period ended June 30, 1998,
totaled approximately $1,357,000, including $330,000 of financed
purchases. These expenditures were for expansion and improvements
to the operations principally within the Waste Management segment.
These capital expenditures were principally funded by the
$1,475,000 PFM insurance settlement and utilization of the
Company's revolving credit facility. The Company has budgeted
capital expenditures of $1,950,000 for 1998, which includes
completion of certain current projects, as well as other
identified capital and permit compliance purchases. The Company
anticipates funding the remainder of these capital expenditures by
a combination of lease financing with lenders other than the
equipment financing arrangement discussed above, proceeds from the
Series 10 Preferred Stock, and/or internally generated funds.
On or about June 30,1998, the Company issued 3,000 shares of
newly created Series 10 Class J Convertible Preferred Stock
("Series 10 Preferred"), as further discussed in Note 6 to
Consolidated Financial Statements and Item 2 "Changes in Securities
and Use of Proceeds." The Company received net proceeds of
$2,768,000 (after deduction of the payment of $210,000 for broker's
commission and certain other closing costs, but prior to the
Company's legal fees and other costs in connection with the sale of
the Series 10 Preferred and the registration of the Common Stock
issuable upon conversion of such Preferred Stock) for the sale of
the Series 10 Preferred. These net proceeds were received by the
Company on July 14, 1998, and have been recorded as a Preferred
Stock receivable at June 30,1998. Each share of Series 10
Preferred sold for $1,000 per share and has a liquidation value of
$1,000 per share. The Company utilized the proceeds received on
the sale of Series 10 Preferred for working capital and/or to
reduce the outstanding balance of its revolving credit facility,
subject to the Company reborrowing under such credit facility.
After taking into account the reduction of the outstanding balance
of the Company's revolving credit facility by the amount of the net
proceeds received by the Company as a result of the Series 10
Preferred transaction, the Company's borrowing availability under
its revolving credit facility as of July 31, 1998, based on its
then outstanding eligible accounts receivable and loan balance of
approximately $21,000, was approximately $3,514,000.
With the issuance of the Series 10 Preferred, the Company has
outstanding 9,830 shares of Preferred Stock, with each share having
a liquidation preference of $1,000 ("Liquidation Value"). Annual
dividends on each outstanding series of Preferred Stock ranges from
4% to 6% of the Liquidation Value. Dividends on the Preferred
Stock are cumulative, and are payable, if and when declared by the
Company's Board of Directors, on a semi-annual basis. Dividends on
the outstanding Preferred Stock may be paid at the option of the
Company, if declared by the Board of Directors, in cash or in the
shares of the Company's Common Stock as described under Note 6 of
the Consolidated Financial Statements and Item 2 of Part II hereof.
The accrued dividends for the period from January 1, 1998, through
June 30, 1998, on the then outstanding shares of the Company's
Preferred Stock in the amount of approximately $176,000 were paid
in July 1998, by the Company issuing 90,609 shares of the
Company's Common Stock. It is the present intention of the Company
to pay any dividends declared by the Company's Board of Directors
on its outstanding shares of Preferred Stock in Common Stock of the
Company.
The working capital position of the Company at June 30, 1998,
was $3,398,000, as compared to a position of $754,000 at
December 31, 1997, which reflects a increase in this position of
$2,644,000 during this first six months of 1998. This increased
20
working capital position is principally a result of the equity
raised as of June 30, 1998. In contrast to the above, the Company
reduced its current liabilities during the first six months of 1998
by approximately $973,000.
Environmental Contingencies
The Company is engaged in the Waste Management Services
segment of the pollution control industry. As a participant in the
on-site treatment, storage and disposal market and the off-site
treatment and services market, the Company is subject to rigorous
federal, state and local regulations. These regulations mandate
strict compliance and therefore are a cost and concern to the
Company. The Company makes every reasonable attempt to maintain
complete compliance with these regulations; however, even with a
diligent commitment, the Company, as with many of its competitors,
may be required to pay fines for violations or investigate and
potentially remediate its waste management facilities.
The Company routinely uses third party disposal companies, who
ultimately destroy landfill residual materials generated at its
facilities or at a client's site. The Company, compared to its
competitors, disposes of significantly less hazardous or industrial
by-products from its operations due to rendering material non-
hazardous, discharging treated wastewaters to publicly-owned
treatment works and/or processing wastes into saleable products.
In the past, numerous third party disposal sites have improperly
managed wastes and consequently require remedial action;
consequently, any party utilizing these sites may be liable for
some or all of the remedial costs. Despite the Company's
aggressive compliance and auditing procedures for disposal of
wastes, the Company could, in the future, be notified that it is a
potentially responsible party ("PRP") at a remedial action site,
which could have a material adverse effect on the Company.
In addition to budgeted capital expenditures of $1,950,000 for
1998 at the TSD facilities of the Company, which are necessary to
maintain permit compliance and improve operations, the Company has
also budgeted for 1998 an additional $1,045,000 in environmental
expenditures to comply with federal, state and local regulations in
connection with remediation of two locations. One location owned
by PFM and the other location leased by a predecessor of another
subsidiary of the Company. The Company has estimated the
expenditures for 1998 to be approximately $210,000 at the site
leased by a predecessor of the Company and $835,000 at the PFM
location. Additional funds will be required for the next five to
ten years to properly investigate and remediate these sites. The
Company expects to fund these expenses to remediate these two sites
from funds generated internally.
In addition, the Company's subsidiary, PFM, has been notified
by the United States Environmental Protection Agency ("EPA") that
it believes that PFM is a PRP regarding the remediation of a drum
reconditioning facility in Memphis, Tennessee, owned by others
("Drum Site"), primarily as a result of activities by PFM prior to
the date that the Company acquired PFM in December 1993. The EPA
has advised PFM that it has spent approximately $1.4 million to
remediate the Drum Site, and that the EPA has sent PRP letters to
approximately 50 other PRPs regarding the Drum Site in addition to
PFM. The EPA has further advised that it believes that PFM
supplied a substantial amount of drums to the Drum Site. The
Company is currently negotiating with the EPA regarding the
possibility of settling the EPA's claims against PFM as to the Drum
Site. There are no assurances that PFM will be able to settle such
claims and, if PFM is unable to settle such claims by the EPA, and
PFM is determined to be liable for all or a substantial portion of
the remediation costs incurred by the EPA at the Drum Site, such
could have a material adverse effect on the Company.
21
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
_________________
There are no additional material legal proceedings pending
against the Company and/or its subsidiaries not previously reported
by the Company in Item 3 of its Form 10-K for the year ended
December 31, 1997. As previously disclosed in such Form 10-K, the
Company received correspondence dated January 15, 1998 ("PRP
Letter"), from the United States Environmental Protection Agency
("EPA") that it believes that PFM, a wholly owned subsidiary of the
Company is a potentially responsible party ("PRP"), as defined
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), regarding the remediation of the
W. & R. Drum, Inc. ("Drum") site in Memphis, Tennessee, ("Drum
Site"), primarily as a result of acts by a predecessor of PFM prior
to the time PFM was acquired by the Company. In addition, the EPA
has advised PFM that it has sent PRP letters to approximately 50
other PRPs as to the Drum Site. The PRP Letter estimated the
remediation costs incurred by the EPA for the Drum Site to be
approximately $1,400,000 as of November 30, 1997. The EPA has
orally informed the Company that such remediation has been
substantially completed as of such date, and that the EPA believes
that PFM supplied a substantial amount of the drums at the Drum
Site. During the second quarter of 1998, PFM and certain other
PRPs began negotiating with the EPA regarding a potential
settlement of the EPA's claims regarding the Drum Site and such
negotiations are currently continuing. If PFM cannot reach a
settlement which PFM believes is reasonable, it will continue to
vigorously defend against the EPA's demand regarding remediation
costs of the Drum Site. If PFM is determined to be liable for a
substantial portion of the remediation cost incurred by the EPA at
the Drum Site, such could have a material adverse effect on the
Company.
Item 2. Changes in Securities and Use of Proceeds
_________________________________________
(c) During the quarter ended June 30, 1998, 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) Pursuant to the terms of a Private Securities Subscription
Agreement, dated as of June 30, 1998 ("Subscription Agreement"),
the Company issued to RBB Bank Aktiengesellschaft, located in Graz,
Austria ("RBB Bank"), 3,000 shares of newly-created Series 10 Class
J Convertible Preferred Stock, par value $.001 per share ("Series
10 Preferred"), at a price of $1,000 per share, for an aggregate
sales price of $3,000,000. The Company received net proceeds of
approximately $2,768,000 from the sale of the Series 10 Preferred
after deducting certain commissions and expenses. Pursuant to the
terms of the Subscription Agreement, the Company granted to RBB
Bank the RBB Series 10 Warrants (as defined and discussed below).
The sale to RBB Bank of the Series 10 Preferred and the granting of
the RBB Series 10 Warrants as described below were made in a
private placement under Section 4(2) of the Securities Act and/or
Rule 506 of Regulation D as promulgated under the Securities Act.
In the Subscription Agreement, RBB Bank represents inter alia,
(i) it is an "accredited investor" as such term is defined in Rule
501 as promulgated under the Securities Act; (ii) the placement was
not made in connection with any general solicitation or
advertising; (iii) RBB Bank alone, or together with its purchaser
representative is a sophisticated investor; and (iv) RBB Bank's
acquisition under the Subscription Agreement is for its own account
and not with a view to resale or distribution of any part thereof.
The Series 10 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 10 Preferred (the "Series 10 Liquidation Value"), plus an
amount equal to all unpaid dividends accrued thereon. The Series
10 Preferred accrues dividends on a cumulative basis at a rate of
22
four percent (4%) per annum of the Series 10 Liquidation Value
("Dividend Rate"), and is payable semi-annually when and as
declared by the Board of Directors. Dividends, as declared by the
Board of Directors, may be paid at the option of the Company, in
cash or shares of Common Stock. No dividends or other
distributions may be paid or declared or set aside for payment on
the Common Stock until all accrued and unpaid dividends on all
outstanding shares of Series 10 Preferred have been paid or set
aside for payment. If the Company pays dividends in Common Stock,
such are 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, time (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 10 Preferred may convert into Common
Stock any or all of the Series 10 Preferred on and after 180 days
after June 30, 1998. The conversion price per outstanding share of
Preferred Stock ("Series 10 Conversion Price") is $1.875; except
that if the average of the closing bid price per share of Common
Stock quoted on the NASDAQ (or the closing bid price of the Common
Stock as quoted on the national securities exchange if the Common
Stock is not listed for trading on the NASDAQ but is listed for
trading on a national securities exchange) for the five (5) trading
days immediately prior to the particular date on which the holder
notified the Company of a conversion ("Series 10 Conversion Date")
is less than $2.34, then the Series 10 Conversion Price for that
particular conversion shall be eighty percent (80%) of the average
of the closing bid price of the Common Stock on the NASDAQ (or if
the Common Stock is not listed for trading on the NASDAQ but is
listed for trading on a national securities exchange then eighty
percent (80%) of the average of the closing bid price of the Common
Stock on the national securities exchange) for the five (5) trading
days immediately prior to the particular Series 10 Conversion Date.
As of June 30,1998, the closing price of Common Stock on the NASDAQ
was $1.875 per share.
As part of the sale of the Series 10 Preferred, the Company
also issued to RBB Bank two warrants: (a) one warrant entitling the
holder to purchase up to an aggregate of 150,000 shares of Common
Stock at an exercise price of $2.50 per share of Common Stock
expiring three (3) years after June 30, 1998 and (b) a second
warrant entitling the holder to purchase up to an aggregate of
200,000 shares of Common Stock at an exercise price of $1.875 per
share of Common Stock and expiring three (3) years after June 30,
1998. Collectively, these warrants are referred to herein as the
"RBB Series 10 Warrants." The shares of Common Stock issuable upon
the conversion of the Series 10 Preferred and upon the exercise of
the RBB Series 10 Warrants are subject to certain registration
rights pursuant to the Subscription Agreement.
The Company intends to utilize the net proceeds received on
the sale of Series 10 Preferred for working capital and/or to
reduce the outstanding balance of its credit facilities, subject to
the Company reborrowing under such credit facilities.
In connection with the placement of Series 10 Preferred with
RBB Bank, the Company paid commissions of $210,000 and issued to
(a) Liviakis Financial Communications, Inc. ("Liviakis") for
assistance with the placement of the Series 10 Preferred, warrants
entitling the holder to purchase up to an aggregate of 1,875,000
shares of Common Stock, subject to certain anti-dilution
provisions, at an exercise price of $1.875 per share of Common
Stock which warrants may be exercised after January 15, 1999, and
which expire after four (4) years; (b) Robert B. Prag, an executive
officer of Liviakis ("Prag"), for assistance with the placement of
the Series 10 Preferred, warrants entitling the holder to purchase
up to an aggregate of 625,000 shares of Common Stock, subject to
certain anti-dilution provisions, at an exercise price of $1.875
per share of Common Stock, which warrants may be exercised after
January 15, 1999, and which expire after four (4) years; (c) JW
Genesis Financial Corporation ("Genesis") for assistance with the
placement of the Series 10 Preferred, warrants entitling the holder
to purchase up to an aggregate of 150,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants expire after
three (3) years; and (d) Fontenoy Investments ("Fontenoy") for
assistance with the placement of the Series 10 Preferred, warrants
entitling the holder to purchase up to an aggregate of 350,000
shares of Common Stock, subject to certain anti-dilution
23
provisions, at an exercise price of $1.875 per share of Common
Stock, which warrants expire after three (3) years. Under the
terms of each warrant, the holder is entitled to certain
registration rights with respect to the shares of Common Stock
issuable on the exercise of each warrant. The issuance of the
warrants to Liviakis, Prag, Genesis and Fontenoy was made in a
private placement under Section 4(2) of the Securities Act and/or
Rule 506 of Regulation D as promulgated under the Securities Act.
Under certain circumstances, the Company may not issue shares
of Common Stock upon conversion of the Series 10 Preferred and the
exercise of warrants granted in connection with the issuance of the
Series 10 Preferred ("Series 10 Warrants") without obtaining
shareholder approval as to such transactions. Shareholder approval
is required if (i) the aggregate number of shares of Common Stock
issued by the Company pursuant to the terms of the Series 10
Preferred and the Series 10 Warrants exceeds 2,388,347 shares of
Common Stock (which equals 19.9% of the outstanding shares of
Common Stock of the Company as of June 30, 1998) and (ii) RBB Bank
has converted or elects to convert any of the then outstanding
shares of Series 10 Preferred pursuant to the terms of the Series
10 Preferred at a conversion price of less than $1.875 ($1.875
being the market value per share of Common Stock as quoted on the
NASDAQ as of the close of business on June 30, 1998), other than if
the Conversion Price is less than $1.875 solely as a result of the
anti-dilution provisions of the Series 10 Preferred, then the
Company must obtain shareholder approval before the Company can
issue any additional shares of Common Stock pursuant to the terms
of the Series 10 Preferred and Series 10 Warrants. The requirement
for shareholder approval is set forth in subparagraphs
(25)(H)(i)d, (iv) and (v) of Rule 4310 of the NASDAQ Marketplace
Rules.
(ii) As previously disclosed, the Company issued to RBB
Bank, 2,500 shares of newly-created Series 4 Class D Convertible
Preferred Stock, par value $.001 per share ("Series 4 Preferred"),
at a price of $1,000 per share, for an aggregate sales price of
$2,500,000. As part of the sale of the Series 4 Preferred, the
Company also issued to RBB Bank two common stock purchase warrants
(collectively, the "RBB Series 4 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. The Series 4 Preferred is
convertible into Common Stock at a conversion price per share of
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. Further description of the terms of the Series
4 Preferred and the RBB Series 4 Warrants is incorporated herein by
reference from pages 41 and 42 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
As previously disclosed in the Company's Form 10-K for the
year ended December 31, 1997, the Company entered into an Exchange
Agreement with RBB Bank, effective September 16, 1997, ("First 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 exchange was made in an exchange offer exempt from registration
pursuant to Section 4(2) of the Securities Act and/or Regulation D
as promulgated under the Securities Act. The terms of the Series
6 Preferred were the same as the terms of the Series 4 Preferred,
except for the conversion rights of the Series 6 Preferred. The
RBB Series 6 Warrants are for a term of three (3) years and may be
exercised at any time from December 31, 1997, until June 9, 2000.
The conversion price of the Series 6 Preferred is $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
24
September 6, 1998. The remaining terms of the Series 6 Preferred
are substantially the same as the terms of the Series 4 Preferred.
Further description of the terms of the Series 6 Preferred and the
RBB Series 6 Warrants is incorporated herein by reference from page
42 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Effective February 28, 1998, the Company entered into an
Exchange Agreement with RBB Bank (the "Second RBB Exchange
Agreement"), which provided that the 2,500 shares of Series 6
Preferred were tendered to the Company in exchange for 2,500 of a
newly-created Series 8 Class H Preferred Stock, par value $.001 per
share ("Series 8 Preferred"). The exchange was made in an exchange
offer exempt from registration pursuant to Section 3(a)(9) of the
Securities Act, and/or Section 4(2) of the Securities Act and/or
Regulation D as promulgated under the Securities Act. The Series
8 Preferred was issued to RBB Bank during July 1998.
The rights under the Series 8 Preferred are the same as the
rights under the Series 6 Preferred, except for the conversion
price. The Series 8 Preferred is convertible at $1.8125 per share,
except that, in the event the average closing bid price reported in
the over-the-counter market, or the closing sale price if listed on
a national securities exchange for the five (5) trading days prior
to a particular date of conversion, shall be less than $2.50, the
conversion price for only that particular conversion shall be the
average of the closing bid quotations of the Common Stock as
reported on the over-the-counter market, or the closing sale price
if listed on a national securities exchange, for the five (5)
trading days immediately proceeding the date of such particular
conversion notice provided by the holder to the Company multiplied
by 80%. Notwithstanding the foregoing, the conversion price shall
not be less than a minimum of $.75 per share, which minimum shall
be eliminated from and after September 6, 1998.
The terms of the Series 8 Preferred has a liquidation
preference over the Company's Common Stock equal to $1,000
consideration per outstanding share of Series 8 Preferred (the
"Series 8 Liquidation Value"), plus an amount equal to all accrued
and unpaid dividends. The Series 8 Preferred accrues dividends on
a cumulative basis at a rate of four percent (4%) per annum of the
Series 8 Liquidation Value ("Series 8 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 8 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 Series 8
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, 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.
Except for the exchange of the Series 6 Preferred for the
Series 8 Preferred, the Second RBB Exchange Agreement does not
terminate the First RBB Exchange Agreement. In addition, the RBB
Series 6 Warrants were not affected by the Second RBB Exchange
Agreement. The Company paid to RBB Bank the dividends on the
Series 6 Preferred which accrued from the date of its issuance
through February 28, 1998, the effective date of the Second RBB
Exchange Agreement by issuing to RBB Bank 7,652 shares of Common
Stock in payment of such accrued dividends. By letter dated
July 14, 1998, RBB Bank agreed to waive certain penalties regarding
the Series 4 Preferred and Series 6 Preferred.
(iii) 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 Series 5 Preferred is
convertible into Common Stock at a conversion price per share of
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. Further description of the issuance of the Series 5
25
Preferred is incorporated herein by reference from pages 42 and 43
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Effective September 16, 1997, the Company entered into an
Exchange Agreement with Infinity ("First Infinity 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 ("Infinity Series 7 Warrant"). The Infinity
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 is $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. Further description of the issuance of the
Series 7 Preferred and the Infinity Series 7 Warrant is
incorporated herein by reference from page 43 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Effective February 28, 1998, the Company entered into an
Exchange Agreement with Infinity (the "Second Infinity Exchange
Agreement"), which provided that the 350 shares of Series 7
Preferred were tendered to the Company in exchange for 350 shares
of a newly-created Series 9 Class I Preferred Stock, par value
$.001 per share ("Series 9 Preferred"). The exchange was made as
an exchange offer pursuant to Section 3(a)(9) of the Securities
Act, and/or Section 4(2) of the Securities Act and/or Registration
D as promulgated under the Securities Act.
The rights of the Series 9 Preferred are the same as the
rights under the Series 7 Preferred, except for the conversion
price. The conversion price for the Series 9 Preferred is $1.8125
per share, except that, in the event the average closing bid price
of the Common Stock as reported in the over the counter market, or
the closing sale price if listed on a national securities exchange,
for the five (5) trading days prior to a particular date of
conversion, shall be less than $2.50, the conversion price for only
such particular conversion shall be the average of the closing bid
quotations of the Common Stock as reported on the over the counter
market, or the closing sale price if listed on a national
securities exchange for the five (5) trading days immediately
proceeding the date of such particular conversion notice provided
by the holder to the Company multiplied by 80%. Notwithstanding
the foregoing, the conversion price shall not be less than a
minimum of $.75 per share, which minimum shall be eliminated from
and after September 8, 1998.
The Series 9 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 9 Preferred (the "Series 9 Liquidation Value"), plus an
amount equal to all unpaid dividends accrued thereon. The Series 9
Preferred accrues dividends on a cumulative basis at a rate of four
percent (4%) per annum of the Series 9 Liquidation Value ("Series
9 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 9 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 are payable in the
number of shares of Common Stock equal to the product of (a) the
quotient of (i) the Series 9 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.
26
Except for the exchange of the Series 7 Preferred for the
Series 9 Preferred, the Second Infinity Exchange Agreement does not
terminate the First Infinity Exchange Agreement. In addition, the
Infinity Series 7 Warrants were not affected by the Second Infinity
Exchange Agreement. The Company has paid Infinity the dividends on
the Series 7 Preferred which accrued from the date of its issuance
through February 28, 1998, the effective date of the Second
Infinity Exchange Agreement, by issuing to Infinity 1,071 shares of
Common Stock in payment of such accrued dividends.
(iv) Pursuant to the terms of an Asset Purchase Agreement
(the "Action Agreement"), effective as of April 1, 1998, by and
among the Company's wholly-owned subsidiary Perma-Fix of Ft.
Lauderdale, Inc., a Florida corporation ("PFFL") and Action
Environmental Corp., a Florida corporation ("Action"), Lewis R.
Goodman ("Goodman"), and Evelio Costa ("Costa"), the Company
issued to Action 108,207 shares of Common Stock as consideration
for the purchase by PFFL of all or substantially all of the assets
of Action. The closing of the transaction occurred on April 15,
1998. The issuance of Common Stock pursuant to the Action
Agreement was a private placement under Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D as promulgated under
the Securities Act. In connection with the transaction, Goodman
and Costa, the sole shareholders of Action ("Action Shareholders"),
provided documentation to the Company representing, inter alia, as
follows: (i) the Common Stock is being acquired for their own
account, and not on behalf of any other persons; (ii) the Action
Shareholders are acquiring the Common Stock to hold for investment,
and not with a view to the resale or distribution of all or any
part of the Common Stock, (iii) the Action Shareholders will not
sell or otherwise transfer the Common Stock unless, in the opinion
of counsel satisfactory to the Company, the transfer can be made
without violating the registration provisions of the Securities Act
and the rules and regulations promulgated thereunder; (iv) each
Action Shareholder is an "accredited investor" as defined in Rule
501 of Regulation D as promulgated under the Securities Act (v)
each Action Shareholder has such knowledge, sophistication and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the acquisition of the Common
Stock, (vi) the Action Shareholders fully understand the nature,
scope and duration of the limitations on transfer of the Common
Stock as contained in the Asset Purchase Agreement, (vii) the
Action Shareholders can bear the economic risk of an investment in
the Common Stock and can afford a complete loss of such investment,
(viii) the Action Shareholders had an adequate opportunity to ask
questions and receive answers regarding the Company, and (ix) the
Action Shareholders understand that stop transfer instructions will
be given to the Company's transfer agent and the certificates for
any of the shares of Common Stock received under the Action
Agreement will bear a restrictive legend as to transferability.
The Company did not receive cash proceeds in consideration for the
shares of Common Stock issued to Action. However, under the terms
of the Action Agreement, the value of the consideration was
considered to be $207,400.
(v) On or about April 15, 1988, pursuant to the terms of a
certain Consulting Agreement ("Consulting Agreement") entered into
effective as of January 1, 1998, the Company issued 33,303 shares
of Common Stock in payment of accrued earnings of $23,850 to Alfred
C. Warrington IV, an outside, independent consultant to the
Company, as consideration for certain consulting services rendered
to the Company by Warrington from 1995 through the end of 1997.
The issuance of Common Stock pursuant to the Consulting Agreement
was a private placement under Section 4(2) of the Securities Act
and/or Rule 506 of Regulation D as promulgated under the Securities
Act. The Consulting Agreement provides that Warrington will be paid
$1,000 per month of service to the Company, payable, at the option
of Warrington (i) all in cash, (ii) sixty-five percent in shares of
Common Stock and thirty-five percent in cash, or (iii) all in
Common Stock. If Warrington elects to receive part or all of his
compensation in Common Stock, such will be valued at seventy-five
percent of its "Fair Market Value" (as defined in the Consulting
Agreement). Warrington elected to receive all of his accrued
compensation through the end of 1997 in Common Stock.
Warrington represented and warranted in the Consulting
Agreement, inter alia, as follows: (i) the Common Stock is being
acquired for Warrington's own account, and not on behalf of any
other persons; (ii) Warrington is acquiring the Common Stock to
hold for investment, and not with a view to the resale or
distribution of all or any part of the Common Stock; (iii)
Warrington will not sell or otherwise transfer the Common Stock in
the absence of an effective registration statement under the
27
Securities Act, or an opinion of counsel satisfactory to the
Company, that the transfer can be made without violating the
registration provisions of the Securities Act and the rules and
regulations promulgated thereunder; (iv) Warrington is an
"accredited investor" as defined in Rule 501 of Regulation D as
promulgated under the Securities Act; (v) Warrington has such
knowledge, sophistication and experience in financial and business
matters that he is capable of evaluating the merits and risks of
the acquisition of the Common Stock; (vi) Warrington fully
understands the nature, scope and duration of the limitations on
transfer of the Common Stock as contained in the Consulting
Agreement, (vii) Warrington understands that a restrictive legend
as to transferability will be placed upon the certificates for any
of the shares of Common Stock received by Warrington under the
Consulting Agreement and that stop transfer instructions will be
given to the Company's transfer agent regarding such certificates.
(vi) Pursuant to the terms of an Employment Agreement
("Employment Agreement") entered into as of the 7th day of April
1998, the Company issued 94,697 shares of Common Stock to Bernhardt
C. Warren, the Vice President of Nuclear Services of the Company
and the Vice President and General Manager of Perma-Fix of Florida,
Inc., a wholly-owned subsidiary of the Company, as a component of
Warren's compensation. The Employment Agreement provides that
within 30 days of the date of execution of the Employment
Agreement, the Company was to deliver to Warren that number of
shares of Common Stock having a fair market value of $167,500 based
upon the average of the closing bid prices of the Common Stock for
the five trading days prior to the date of execution of the
Employment Agreement.
The issuance to Warren pursuant to the terms of the Employment
Agreement of 94,697 shares of Common Stock was made under Section
4(2) of the Securities Act and/or Rule 506 of Regulation D under
the Securities Act. Warren, an executive officer of the Company,
represents and warrants in the Employment Agreement, inter alia, as
follows: (i) the Common Stock is being acquired for Warren's own
account, and not on behalf of any other persons; (ii) Warren is
acquiring the Common Stock to hold for investment, and not with a
view to the resale or distribution of all or any part of the Common
Stock, (iii) Warren will not sell or otherwise transfer the Common
Stock in the absence of an effective registration statement under
the Securities Act and any applicable state securities laws, or an
opinion of counsel satisfactory to the Company, that the transfer
can be made without violating the registration provisions of the
Securities Act and the rules and regulations promulgated
thereunder; (iv) Warren has such knowledge, sophistication and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the acquisition of the Common
Stock; (v) Warren fully understands the nature, scope and duration
of the limitations on transfer of the Common Stock as contained in
the Employment Agreement, (vi) Warren understands that a
restrictive legend as to transferability will be placed upon the
certificates for any of the shares of Common Stock received by
Warren under the Employment Agreement and that stop transfer
instructions will be given to the Company's transfer agent
regarding such certificates.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
(a) On May 20, 1998, the Company's Annual Meeting of
Stockholders was held.
28
(c) A summary of the matters which were submitted to a vote
of the Company's common stockholders, along with a tabulation of
the results of such voting is as follows:
NUMBER OF SHARES VOTED
___________________________
AGAINST
FOR OR WITHHELD
____________ ___________
PROPOSALS
1. Election of Directors.
Dr. Louis F. Centofanti 7,595,478 38,772
Mark A. Zwecker 7,595,478 38,772
Steve Gorlin 7,595,478 38,772
Jon Colin 7,595,878 38,372
FOR AGAINST ABSTAIN
__________ _________ _________
2. Ratification of Independent 7,577,838 17,450 38,962
Public Accountants
BDO Seidman, LLP.
3. Approval of Fourth 7,191,696 334,470 108,084
Amendment to Company's
1992 Outside Directors
Stock Option and
Incentive Plan.
Item 5. Other Information
_________________
As set forth in the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders, stockholder proposals submitted to the
Company pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), for inclusion in the
Company's proxy materials for its 1999 Annual Meeting of
Stockholders must be received by the Company no later than December
21, 1998. Any stockholder proposal submitted with respect to the
Company's 1999 Annual Meeting of Stockholders which proposal is
received by the Company after March 6, 1999 will be considered
untimely for purposes of Rule 14a-4 and 14a-5 under the Exchange
Act and the Company may vote against such proposal using its
discretionary voting authority as authorized by proxy.
29
Item 6. Exhibits and Reports on Form 8-K
_________________________________
(a) Exhibits
________
3(i) Restated Certificate of Incorporation, as amended, and
all Certificates of Designations.
4.1 Private Securities Subscription Agreement, dated June 30,
1998, between the Company and RBB Bank Aktiengesellschaft
as incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K dated June 30, 1998.
4.2 Certificate of Designations of Series 10 Class J
Convertible Preferred Stock, dated July 16, 1998, as
incorporated by reference from Exhibit 3(i) above.
4.3 Specimen copy of Certificate relating to the Series 10
Class J Convertible Preferred Stock as incorporated by
reference from Exhibit 4.3 to the Company's Form 8-K,
dated June 30, 1998.
4.4 Certificate of Designations of Series 8 Class H
Convertible Preferred Stock as incorporated by reference
from Exhibit 3(i) above.
4.5 Specimen copy of Certificate relating to the Series 8
Class H Convertible Preferred Stock.
4.6 Certificate of Designations of Series 9 Class I
Convertible Preferred Stock as incorporated by reference
from Exhibit 3(i) above.
4.7 Specimen copy of Certificate relating to the Series 9
Class I Convertible Preferred Stock.
10.1 Common Stock Purchase Warrant ($1.875) dated June 30,
1998, between the Company and RBB Bank Aktiengesellschaft
as incorporated by reference from Exhibit 4.4 to the
Company's Form 8-K, dated June 30, 1998.
10.2 Common Stock Purchase Warrant ($2.50) dated June 30,
1998, between the Company and RBB Bank Aktiengesellschaft
as incorporated by reference from Exhibit 4.5 to the
Company's Form 8-K, dated June 30, 1998.
10.3 Consulting Agreement dated effective June 30, 1998,
between the Company and Liviakis Financial
Communications, Inc. as incorporated by reference from
Exhibit 4.6 to the Company's Form 8-K, dated June 30,
1998.
10.4 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Liviakis Financial
Communications, Inc. as incorporated by reference from
Exhibit 4.7 to the Company's Form 8-K, dated June 30,
1998.
10.5 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Robert B. Prag as incorporated by
reference from Exhibit 4.8 to the Company's Form 8-K,
dated June 30, 1998.
30
10.6 Exchange Agreement dated as of April 30, 1998, to be
considered effective as of February 28, 1998, between the
Company and RBB Bank Aktiengesellschaft.
10.7 Exchange Agreement dated as of April 30, 1998, to be
considered effective as of February 28, 1998, between the
Company and The Infinity Fund, L.P.
10.8 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and JW Genesis Financial Corporation.
10.9 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Fontenoy Investments.
10.10 Employment Agreement, dated April 7, 1998, and
effective January 1, 1998, between the Company and
Bernhardt Warren incorporated by reference from
Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended March 31, 1998.
10.11 Consulting Agreement, dated April 8, 1998, and
effective January 1, 1998, between the Company and
Alfred C. Warrington, IV.
10.12 Letter from RBB Bank to the Company, dated July 14,
1998.
27 Financial Data Sheet
99.1 Pages 41 through 43 from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
3. Report on Form 8-K
__________________
A current report on Form 8-K (Item 5 - Other Events), dated
June 30, 1998, reporting the issuance of (i) the newly-created
Series 10 Preferred Stock and the RBB Series 10 Warrants to RBB
Bank, (ii) the Liviakis Warrant to Liviakis, (iii) the Prag Warrant
to Prag, (iv) the Genesis Warrant to Genesis, and (v) the Fontenoy
Warrant to Fontenoy.
31
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: August ___, 1998 By: /s/ Louis F. Centofanti
___________________________
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
__________________________
Richard T. Kelecy
Chief Financial Officer
32
EXHIBIT INDEX
Exhibit Page
No. Description No.
______ ___________ ________
3(i) Restated Certificate of Incorporation,
as amended, and all Certificates of
Designations. 35
4.1 Private Securities Subscription Agreement,
dated June 30, 1998, between the Company
and RBB Bank Aktiengesellschaft as incor-
porated by reference from Exhibit 4.1 to
the Company's Form 8-K dated June 30, 1998. *
4.2 Certificate of Designations of Series 10
Class J Convertible Preferred Stock, dated
July 16, 1998, as incorporated by reference
from Exhibit 3(i) above. *
4.3 Specimen copy of Certificate relating to the
Series 10 Class J Convertible Preferred Stock
as incorporated by reference from Exhibit 4.3
to the Company's Form 8-K, dated June 30, 1998. *
4.4 Certificate of Designations of Series 8
Class H Convertible Preferred Stock as
incorporated by reference from Exhibit 3(i)
above. *
4.5 Specimen copy of Certificate relating to the
Series 8 Class H Convertible Preferred Stock. 178
4.6 Certificate of Designations of Series 9
Class I Convertible Preferred Stock as
incorporated by reference from Exhibit 3(i)
above. *
4.7 Specimen copy of Certificate relating to the
Series 9 Class I Convertible Preferred Stock. 179
10.1 Common Stock Purchase Warrant ($1.875) dated
June 30, 1998, between the Company and RBB
Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.4 to the Company's
Form 8-K, dated June 30, 1998. *
10.2 Common Stock Purchase Warrant ($2.50) dated
June 30, 1998, between the Company and RBB
Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.5 to the Company's
Form 8-K, dated June 30, 1998. *
10.3 Consulting Agreement dated effective June 30,
1998, between the Company and Liviakis Financial
Communications, Inc. as incorporated by
reference from Exhibit 4.6 to the Company's
Form 8-K, dated June 30, 1998. *
10.4 Common Stock Purchase Warrant effective June 30,
1998, between the Company and Liviakis Financial
Communications, Inc. as incorporated by
reference from Exhibit 4.7 to the Company's
Form 8-K, dated June 30, 1998. *
10.5 Common Stock Purchase Warrant effective June 30,
1998, between the Company and Robert B.
Prag as incorporated by reference from Exhibit 4.8
to the Company's Form 8-K, dated June 30, 1998. *
33
10.6 Exchange Agreement dated as of April 30, 1998,
to be considered effective as of February 28,
1998, between the Company and RBB Bank
Aktiengesellschaft. 180
10.7 Exchange Agreement dated as of April 30, 1998,
to be considered effective as of February 28,
1998, between the Company and The Infinity Fund,
L.P. 200
10.8 Common Stock Purchase Warrant effective June 30,
1998, between the Company and JW Genesis
Financial Corporation. 221
10.9 Common Stock Purchase Warrant effective June 30,
1998, between the Company and Fontenoy Investments. 231
10.10 Employment Agreement, dated April 7, 1998, and
effective January 1, 1998, between the Company
and Bernhardt Warren incorporated by reference
from Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended March 31, 1998. *
10.11 Consulting Agreement, dated April 8, 1998, and
effective January 1, 1998, between the Company
and Alfred C. Warrington, IV. 241
10.12 Letter from RBB Bank to the Company, dated
July 14, 1998. 248
27 Financial Data Sheet 249
99.1 Pages 41 through 43 from the Company's Annual
Report on Form 10-K for the year ended December 31,
1997. 250
*incorporated by reference