=================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended: March 31, 1996
______________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-11596
_______
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
_____________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-1954497
_____________________________ __________________________
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
1940 N.W. 67th Place
Gainesville, FL 32653
________________________ ________
(Address of Principal (Zip Code)
Executive Offices)
(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 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.
Outstanding
Class at May 6, 1996
_____________________________ _______________
Common Stock, $.001 Par Value 8,352,762
_____________________________ ________________
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<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
________
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 . . . . . . . . . . 4
Consolidated Statements of Operations -
Three Months Ended March 31, 1996
and 1995. . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities. . . . . . . . 19
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
PART I, ITEM 1
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the consolidated financial
statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as
of and for the periods indicated.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
The results of operations for the three months ended March 31,
1996 are not necessarily indicative of results to be expected for
the fiscal year ending December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
(Amounts in Thousands, 1996 December 31,
Except for Share Amounts) (Unaudited) 1995
___________________________________________________________________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 87 $ 201
Restricted cash 403 380
Accounts receivable, net of
allowance for doubtful accounts
of $401 and $392, respectively 5,146 5,031
Inventories 114 183
Prepaid expense 1,102 414
Other receivables 139 134
_________ ________
Total current assets 6,991 6,343
Property and equipment:
Building and land 5,037 6,055
Equipment 5,711 5,874
Vehicles 1,377 1,589
Leasehold improvements 143 143
Office furniture and equipment 1,214 1,252
Construction in progress 1,985 1,435
_________ ________
15,467 16,348
Less accumulated depreciation (3,479) (3,378)
_________ ________
Net property and equipment 11,988 12,970
Other assets:
Permits, net of accumulated amorti-
zation of $425 and $366,
respectively 4,010 4,036
Goodwill, net of accumulated amorti-
zation of $326 and $289, respectively 4,955 4,992
Covenant not to compete, net of accum-
ulated amortization of $324 and $304,
respectively 67 87
Other assets 432 445
________ ________
Total assets $ 28,443 $ 28,873
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
March 31,
(Amounts in Thousands, 1996 December 31,
Except for Share Amounts) (Unaudited) 1995
___________________________________________________________________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,112 $ 5,402
Accrued expenses 3,692 2,951
Revolving loan and term note facility 4,382 5,259
Equipment financing agreement 1,695 1,778
Current portion of long-term debt 293 325
_________ _______
Total current liabilities 15,174 15,715
Long-term debt 495 1,116
Environmental accruals 3,058 3,063
Accrued closure costs 1,054 1,041
_________ _______
Total long-term liabilities 4,607 5,220
Commitments and contingencies (Note 3) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
1,430 and 0 shares issued and
outstanding, respectively - -
Common stock, $.001 par value;
20,000,000 shares authorized,
7,872,384 shares issued and
outstanding 8 8
Redeemable warrants 269 269
Additional paid-in capital 22,862 21,546
Accumulated deficit (14,477) (13,885)
________ _______
Total stockholders' equity 8,662 7,938
________ _______
Total liabilities and
stockholders' equity $ 28,443 $ 28,873
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
<S> <C> <C>
Net revenues $ 7,572 $ 8,623
Cost of goods sold 5,764 6,638
________ ________
Gross profit 1,808 1,985
Selling, general and administrative 1,742 1,699
Depreciation and amortization 619 556
________ ________
Loss from operations (553) (270)
Other income (expense):
Interest income 20 10
Interest expense (262) (198)
Other income 203 81
________ ________
Net loss $ (592) $ (377)
======== ========
Net loss per share $ (.08) $ (.05)
======== ========
Weighted average number of common and
common equivalent shares outstanding 7,872 7,872
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (592) $ (377)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation and amortization 619 556
Provision for bad debt and other
reserves 12 -
(Gain) Loss on sale of plant,
property and equipment (126) 10
Changes in assets and liabilities:
Accounts receivable (127) (135)
Prepaid expenses, inventories and
other receivables (638) (815)
Accounts payable and accrued expenses 468 (55)
________ ________
Net cash used in operations (384) (816)
Cash flows from investing activities:
Purchases of property and equipment,
net (593) (951)
Proceeds from disposition of property
and equipment 1,196 -
Other investing (27) (289)
________ _________
Net cash provided by (used in)
investing activities 576 (1,240)
Cash flows from financing activities:
Borrowings (repayments) from revolving
loan and term note (877) 2,060
Borrowings on long-term debt 57 102
Principal repayments on long-term debt (793) (262)
Proceeds from issuance of preferred
stock 1,307 -
________ ________
Net cash provided by (used for)
financing activities (306) 1,900
Decrease in cash and cash equivalents (114) (156)
Cash and cash equivalents at beginning
of period 201 490
________ ________
Cash and cash equivalents at end
of period $ 87 $ 334
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 263 $ 183
======== ========
Income taxes paid $ - $ -
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Reference is made herein to the notes to consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
1. Summary of Significant Accounting Policies
The Company's accounting policies are as set forth in the
notes to consolidated financial statements referred to above.
Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to current period
financial statement presentations.
As discussed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, net loss per share has been
presented using the weighted average number of common and common
equivalent shares outstanding. Net loss per share has been
restated, in accordance with Accounting Principles Board Opinion
No. 15, for the period ended March 31, 1995, to reflect the
issuance of contingent shares to Quadrex in November of 1995.
2. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following at March 31, 1996 and
December 31, 1995 (in thousands):
March 31, December 31,
1996 1995
_________ _________
<S> <C> <C>
Revolving loan and term note facility
(classified as current) $ 4,382 $ 5,259
========= =========
Equipment financing agreement
(classified as current) $ 1,695 $ 1,778
========= =========
Various mortgage, promissory and
notes payable $ 788 $ 1,441
Less current portion 293 325
_________ _________
Long-term debt $ 495 $ 1,116
========= =========
</TABLE>
On January 27, 1995, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Heller Financial, Inc. ("Heller").
The Agreement provides for a term loan in the amount of $2,500,000,
which requires principal repayments based on a five-year level
principal amortization over a term of 36 months, with monthly
principal payments of $42,000. Payments commenced on February 28,
1995, with a final balloon payment in the amount of $1,042,000 due
on January 31, 1998. The Agreement also provides for a revolving
loan facility in the amount of $7,000,000. At any point in time
the aggregate available borrowings under the facility are reduced
by any amounts outstanding under the term loan and are also subject
to the maximum credit availability as determined through a monthly
borrowing base calculation, equal to 80% of eligible accounts
receivable accounts of the Company as defined in the Agreement.
The termination date on the revolving loan facility is also the
third anniversary of the closing date.
The term loan bears interest at a floating rate equal to
either the base rate (prime) plus 1 3/4% per annum or LIBOR rate
plus 4% per annum, which is at the election of the Company, no more
frequently than monthly. LIBOR borrowings must be made in the
minimum amount of at least $1,000,000, in whole increments of
$100,000. The revolving loan bears interest at a floating rate
equal to the base rate (prime) plus 1 1/4% per annum. The loans
also contain certain closing, management and unused line fees
payable throughout the term. Effective August 21, 1995, the Heller
obligations bear interest at the above noted effective rate plus
2.0%, which reflects a default rate pursuant to the current
financial covenant default as discussed below. Both the revolving
loan and term loan were prime based loans at March 31, 1996,
bearing interest at a rate of 11.50% and 12.00%, respectively.
<PAGE>
During the second quarter of 1995, the Company became, and
continues to be as of the date of this report, in violation of
substantially all of the restrictive financial ratio covenants
(including, but not limited to, tangible net worth, minimum EBITDA,
ratio of (a) the total indebtedness of the Company and its
subsidiaries to (b) tangible net worth, fixed charge coverage and
the percentage of accounts payable greater than ninety (90) days
past their respective invoice date) and is currently negotiating
waivers and amendments to the Agreement. Heller has advised the
Company in writing that Heller agrees to forebear from exercising
any rights and remedies under the Agreement as a result of these
defaults until May 31, 1996, subject to the Company paying interest
at the default rate (as defined in the Agreement and discussed
above) until the loans are paid in full or such defaults are cured
(or waived) and the Company is in compliance with all of the
covenants and other obligations set forth in the Agreement, other
than the above-described defaults in such financial covenants. The
lender is continuing to make normal advances under the revolving
loan facility. However, under the terms of the Agreement, the
lender has the ability to accelerate the maturities of the long-
term debt in the event that the Company is not in compliance with
the provisions of the Agreement. Although the Company currently
has a forbearance through May 31, 1996 and no acceleration has been
demanded by the lender, the Company, in compliance with Generally
Accepted Accounting Principles, has reclassified as a current
liability $3,882,000 outstanding under the Agreement that would
otherwise be classified as long-term debt. The Company is
currently negotiating appropriate financial covenant waivers or
amendments from its lender, although no assurance can be given that
such waivers or amendments will be obtained.
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. The Agreement contains
certain restrictive financial covenants including, but not limited
to, tangible net worth, minimum EBITDA (as defined in the Agreement
and summarized as net income before interest, taxes, depreciation
and amortization), ratio of indebtedness to tangible net worth,
fixed charge coverage, as well as capital expenditure limits.
As of March 31, 1996, the borrowings under the revolving loan
facility total $2,620,000, a reduction of $556,000 from the
December 31, 1995 balance of $3,176,000, with borrowing
availability of $364,000. The balance on the term loan totalled
$1,762,000, as compared to $2,083,000 at December 31, 1995. Both
the revolving loan and term note, as discussed above, are
classified in current liabilities, for the total balance of
$4,382,000.
During October 1994, the Company entered into a $1,000,000
equipment financing agreement with Ally Capital Corporation
("Ally"), which provides lease commitments for the financing of
certain equipment through June 1995. During 1995, the Company
negotiated an increase in the total lease commitment to $1,600,000.
The agreement provides for an initial term of 42 months, which may
be extended to 48, at a fixed interest rate of 11.3%. As of
December 31, 1995, the Company had utilized $1,496,000 of this
credit facility to purchase capital equipment and subsequently drew
down an additional $57,000 in January 1996, bring the total
financing under this agreement to $1,553,000. In conjunction with
a 1994 acquisition, the Company also assumed $679,000 of debt
obligations with Ally Capital Corporation, which had terms expiring
from September 1997 through August 1998, at a rate ranging from
10.2% to 13.05%. At March 31, 1996, the Company was not in
compliance with the minimum tangible net worth covenant of this
agreement and a waiver was obtained from Ally covering the periods
ending through September 30, 1996. In addition, Ally has advised
the Company that Ally agrees to forebear from exercising any rights
and remedies under this agreement as a result of this covenant
default. However, under the terms of the agreement, the lender has
the ability, upon expiration of the waiver or in the event of any
other default, to accelerate the maturities of the long-term debt
in the event that the Company is not in compliance with the
provisions of the agreement. The outstanding balance on these
equipment financing agreements at March 31, 1996 is $1,695,000, as
compared to $1,778,000 at December 31, 1995. Although Ally has
waived compliance with the minimum tangible net worth covenant
through September 30, 1996, and no acceleration has been demanded
by the lender, the Company, in compliance with generally accepted
accounting principles, has reclassified as a current liability
$1,103,000 outstanding under the agreement, which would otherwise
be classified as long-term debt. The Company is currently
negotiating amendments to the agreement, although no assurance can
be given that such amendments will be obtained.
<PAGE>
3. Commitments and Contingencies
Hazardous Waste
In connection with the Company's waste management services,
the Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
During 1995, certain subsidiaries of the Company were sued by
Chief Supply Corporation ("Chief Supply") in three (3) causes of
action pending in the United States District Court, Northern
District of Oklahoma, in cases styled Chief Supply Corporation v.
Perma-Fix of Dayton, Inc.; Chief Supply Corporation v. Perma-Fix of
Florida, Inc.; and Chief Supply Corporation v. Perma-Fix of
Memphis, Inc. Chief Supply is alleging that the subsidiaries owe
to Chief Supply an aggregate of approximately $292,000 (the
"Oklahoma Litigation"). Perma-Fix of Memphis, Inc. has asserted a
counterclaim for receivables due from Chief Supply for services
rendered by two subsidiaries of the Company of approximately
$134,000. In addition, these subsidiaries have asserted certain
defenses regarding the performance of services by Chief Supply.
Reservoir Capital Corporation ("Reservoir") has alleged that
substantially the same receivables for which Chief Supply has sued
the subsidiaries of the Company were factored and assigned by Chief
Supply to Reservoir, and in March 1996, Reservoir brought suit
against the same subsidiaries of the Company sued by Chief Supply
for collection of substantially the same receivables Chief Supply
sued the subsidiaries of the Company, plus exemplary damages. The
suit brought by Reservoir is styled Reservoir Capital Corporation
v. Perma-Fix of Dayton, Inc., et al., pending in the United States
District Court, Southern District of Ohio (the "Ohio Litigation").
During the first quarter of 1996, the parties tentatively agreed to
settle the Oklahoma Litigation and the Ohio Litigation, and, in
connection therewith, the subsidiaries of the Company have agreed
to pay Chief in the Oklahoma Litigation $200,000 over an extended
period of time and Reservoir has agreed to dismiss the Ohio
Litigation. This tentative settlement is subject to execution of
a definitive agreement, and there are no assurances that the
settlement will be consummated.
One of Perma-Fix of Dayton, Inc.'s ("PFD"), a subsidiary of
the Company, principal businesses is the collection of certain
hazardous waste solvents which it blends and markets as a hazardous
waste fuel to cement kilns. In connection therewith, PFD stores
the hazardous waste solvents at its Dayton, Ohio facility under a
final RCRA Part B permit issued by the Ohio EPA. Any company
operating a solid or hazardous waste facility in Ohio must comply
with the Ohio Environmental Protection Agency's and Ohio Attorney
General's background investigation and disclosure statement
requirements before there is a change in control. Quadrex
Corporation ("Quadrex"), the former owner of PFD, did not
adequately file the forms required under this law and,
consequently, Quadrex and PFD were fined $35,000, of which $25,000
is to be paid in cash and $10,000 in the form of community service
projects. During 1995, Perma-Fix, on behalf of PFD and Quadrex,
agreed to pay this fine and has, as of March 31, 1996, paid
$11,000, with the remainder to be paid over a subsequent 18 month
period. Under the agreements with Quadrex, the Company reduced
during 1995 the number of shares it was required to issue to
Quadrex under the agreements with Quadrex, relating to the purchase
by the Company of PFD, Perma-Fix of Florida, Inc. and Perma-Fix of
Ft. Lauderdale, Inc. to offset this expense.
In addition to the above matters and in the normal course of
conducting its business, the Company is involved in various other
litigation. The Company is not a party to any litigation or
governmental proceeding which its management believes could result
in any judgments or fines against it that would have a material
adverse affect on the Company's financial position, liquidity or
results of operations.
Permits
The Company is subject to various regulatory requirements,
including the procurement of requisite licenses and permits at
certain of its treatment, storage and/or disposal facilities.
These licenses and permits are subject to periodic renewal without
which the Company's operations would be adversely affected. The
Company anticipates that, once a license or permit is issued with
respect to a facility, the license or permit will be renewed at the
<PAGE>
end of its term if the facility's operations are in compliance with
the applicable regulatory requirements.
Accrued Closure Costs and Environmental Liabilities
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, the Company is
subject to corrective action proceedings to restore soil and/or
groundwater to its original state. These activities are governed
by federal, state and local regulations and the Company maintains
the appropriate accruals for restoration. The Company has recorded
accrued liabilities for estimated closure costs and identified
environmental remediation costs.
Insurance
The business of the Company exposes it to various risks,
including claims for causing damage to property or injuries to
persons or claims alleging negligence or professional errors or
omissions in the performance of its services, which claims could be
substantial. The Company carries general liability insurance which
provides coverage in the aggregate amount of $2 million and an
additional $6 million excess umbrella policy and carries $1 million
per occurrence and $2 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
tank removal and pollution control coverage.
The Company also carries specific pollution legal liability
insurance for operations involved in the waste management services
segment for property damages or bodily injuries occurring off-site
of the Company's facilities due to release of contaminates from the
Company's facilities, with such insurance providing coverages
ranging from a $2 million annual aggregate to $8 million annual
aggregate, for certain facilities.
4. Stock Issuance
During February of 1996, the Company issued 1,100 shares of
newly created Series 1 Class A Preferred Stock at a price of $1,000
per share, for an aggregate sales price of $1,100,000, and paid a
placement fee of $176,000. The Company also issued 330 shares of
newly created Series 2 Class B Preferred Stock at a price of $1,000
per share, for an aggregate sales price of $330,000, and paid a
placement fee of $33,000. The preferred stock was sold to an
accredited offshore investor and accrues dividends at a rate per
share of five percent (5%) per annum, payable quarterly. The
dividends are payable at the option of the Company in cash or by
the issuance of shares of common stock, and such dividends shall be
cumulative. Payment of cash dividends is subject to the provisions
of the Company's lending agreement. The Preferred Stock is
convertible, at any time, commencing forty-five (45) days after
issuance into shares of the Company's common stock at a conversion
price equal to the aggregate value of the shares of the Preferred
Stock being converted, together with all accrued but unpaid
dividends thereon, divided by the "Average Stock Price" per share
(the "Conversion Price"). The Average Stock Price means the lesser
of (i) seventy percent (70%) of the average daily closing bid
prices of the common stock for the period of five (5) consecutive
trading days immediately preceding the date of subscription by the
holder or (ii) seventy percent (70%) of the average daily closing
bid prices of the common stock for a period of five (5) consecutive
trading days immediately preceding the date of conversion of the
Preferred Stock. Assuming that the conversion occurred on the date
of subscription by the holder, the 1,100 shares of the Series 1
Preferred Stock would be converted into an aggregate of 1,282,798
shares of common stock and the 330 shares of the Series 2 Preferred
Stock would be converted into an aggregate of 443,548 shares of
common stock. The common stock issuable on the conversion of the
preferred stock (if not otherwise tradeable without restriction) is
subject to certain registration rights pursuant to the subscription
agreement between the Company and the investor. During April 1996,
100 shares of the Series 1 Class A Preferred Stock were converted
into 146,538 shares of the Company's common stock and the
associated accrued interest was paid in the form of 1,507 shares of
the Company's common stock. In addition to the above, the Company
entered into a stock purchase agreement with Dr. Louis F.
Centofanti, Chairman of the Board and Chief Executive Officer of
the Company, whereby the Company agreed to sell 133,333 shares of
its common stock. During February 1996, Dr. Centofanti tendered to
the Company $100,000 for such 133,333 shares by delivering to the
Company $86,000 and forgiving $14,000 that was owed to Dr.
Centofanti by the Company for expenses incurred by Dr. Centofanti
on behalf of the Company. The referenced shares were issued to Dr.
Centofanti on April 30, 1996.
<PAGE>
5. Divestiture
Effective March 15, 1996, the Company completed the sale of
Re-Tech Systems, Inc., its plastics recycling subsidiary in
Houston, Texas. The sale transaction included all real and
personal property of the subsidiary, for a total consideration of
$970,000. Net cash proceeds to the Company were approximately
$320,000, after the repayment of a mortgage obligation of $582,000
and certain other closing and real estate costs. In conjunction
with this transaction, the Company also made a prepayment of
$50,000 to Heller Financial, Inc. for application to the term loan.
As previously disclosed, the Company recorded during 1995, a
nonrecurring charge (recorded as an asset reduction) of $450,000
for the estimated loss on the sale of this subsidiary, which, based
upon closing balances, the Company recognized a small gain on this
sale after the asset write-down. The Company sold total assets of
approximately $1,346,000, while retaining certain assets totalling
approximately $94,000 and certain liabilities totalling
approximately $48,000.
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
Results of Operations
<TABLE>
<CAPTION>
The table below should be used when reviewing management's
discussion and analysis for the three months ended March 31, 1996
and 1995:
Consolidated 1996 % 1995 %
____________ _______ _____ _______ _____
<S> <C> <C> <C> <C>
Net Revenues $ 7,572 100.0 $ 8,623 100.0
Cost of Goods Sold 5,764 76.1 6,638 77.0
______ _____ ______ _____
Gross Profit 1,808 23.9 1,985 23.0
Selling, General and
Administrative 1,742 23.0 1,699 19.9
Depreciation/Amortization 619 8.2 556 6.4
______ _____ ______ ______
Loss from operations $ (553) (7.3) $ (270) (3.1)
====== ===== ====== ======
Interest Expense (262) (3.5) (198) (2.3)
</TABLE>
Summary -- Quarter Ended March 31, 1996 and 1995
Consolidated net revenues decreased to $7,572,000 from $8,623,000
for the three month period ended March 31, 1996 as compared to
1995. This 12.2% decrease, or $1,051,000, reflects reduced
revenues within both the waste management and consulting
engineering segments of $644,000 and $407,000, respectively. Both
segments generally reflect lower revenues during the first quarter
of each year. However, as a result of industry and weather related
issues, the revenues for the first quarter of 1996 were negatively
impacted beyond normal seasonality. Also reflected in this
reduction is the impact of the various restructuring programs
initiated during 1995, which resulted in the consolidation and
closure of certain offices, as the Company focuses on select
markets.
Costs of goods sold decreased to $5,764,000 from $6,638,000 for
the quarter ended March 31, 1996. The $874,000 decrease is
primarily attributable to the reduced revenue during the first
quarter of 1996, as discussed above. As a percent of revenue,
costs of goods sold decreased to 76.1% in the first quarter of
1996, compared to 77.0% in the corresponding first quarter of 1995.
This consolidated decrease in cost of goods sold as a percent of
revenue reflects the slight improvements in both the waste
management and consulting engineering segments, resulting from the
continued emphasis on cost containment.
Selling, general and administrative expenses increased to
$1,742,000 from $1,699,000 for the quarter ended March 31, 1996.
As a percent of revenue, selling, general and administrative
expenses increased to 23.0% for the period ended March 31, 1996
compared to 19.9% for the same period in 1995. This increase of
2.5%, or $43,000, reflects principally increased sales and
marketing costs incurred by the Company as it strengthens and
expands its efforts in this area, which is reflected primarily
within the waste management segment. Also, during the first
quarter of 1996, the corporate overhead reflected a reduction of
approximately $120,000 from the first quarter of 1995, resulting
from the restructuring program initiated during the last half of
1995, which was partially offset by select increases in both
segments.
Interest expense was $262,000 for the quarter ended March 31,
1996, as compared to $198,000 for the same period of 1995. The
increase in interest expense of $64,000 is principally a result of
the additional equipment financing entered into with Ally Capital
Corporation throughout 1995. The total Ally debt at March 31, 1996
is $1,695,000 as compared to $894,000 at March 31, 1995, resulting
in an increase in interest expense of approximately $34,000 over
the first quarter of 1995. Also contributing to this increase is
the additional interest expense resulting from the default interest
rate on the revolving loan and term note facility (see Note 2 of
the Notes to Consolidated Financial Statements) and from additional
equipment lease agreements entered into after the first quarter of
1995.
<PAGE>
Other income for the quarter ended March 31, 1996 was $203,000,
as compared to $81,000 for the quarter ended March 31, 1995. This
increase of $122,000 was principally a result of the gain on the
sale of certain nonproductive assets within the waste management
services segment.
<TABLE>
<CAPTION>
The table below reflects activity for the three months ended
March 31, 1996 and 1995, which should be used in conjunction with
the management's discussion and analysis by segment:
Waste Management Consulting
Services Engineering
_________________________ _________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $6,396 100.0 $7,040 100.0 $1,176 100.0 $1,583 100.0
Cost of Goods
Sold 4,862 76.0 5,325 75.6 902 76.7 1,313 82.9
______ _____ ______ _____ ______ _____ ______ _____
Gross Profit $1,534 24.0 $1,715 24.4 $ 274 23.3 $ 270 17.1
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Waste Management Services -- Quarter Ended March 31, 1996 and 1995
The waste management services segment is engaged in on- and off-
site treatment, storage, disposal and blending of a wide variety of
by-products and industrial and hazardous wastes. This segment
competes for materials and services with numerous regional and
national competitors to provide comprehensive and cost-effective
waste management services to a wide variety of customers in the
Midwest, Southeast and Southwest regions of the country. In 1996,
the Company operated and maintained facilities or businesses in the
waste by-product brokerage, on-site treatment and stabilization,
and off-site blending, treatment and disposal industries.
During 1995, the Company initiated a re-engineering of the waste
management services segment, which included the detail review of
all operations and modification of its approach to soliciting new
customers while maintaining its existing customer base and, at the
same time, expanding its marketing efforts. In re-engineering the
waste management services segment, the Company made two key
decisions during 1995. The first was the elimination of a majority
of its service center locations. In June of 1995, the Company
closed six of eight service centers, leaving its Albuquerque office
operating due to its continued profitability and the future
prospects thereof, and to operate its Tulsa, Oklahoma service
center as part of other waste management operations of the Company.
The second decision was to exit the toll grinding of post-consumer
and industrial plastics and resins, performed through its wholly-
owned subsidiary, Re-Tech Systems, Inc. in Houston, Texas. The
decision to sell this business entity was a continued effort to
focus the Company on consulting engineering and off-site
environmental services, both of which demonstrate higher gross
margins than toll grinding.
Effective March 15, 1996, the Company completed the sale of Re-
Tech Systems, Inc. The sale transaction included all real and
personal property of the subsidiary, for a total consideration of
$970,000. Net cash proceeds to the Company were approximately
$320,000, after the repayment of a mortgage obligation of $582,000
and certain other closing and real estate costs. In conjunction
with this transaction, the Company also made a prepayment of
$50,000 to Heller Financial, Inc. for application to the term loan.
As previously disclosed, the Company recorded during 1995, a
nonrecurring charge of $450,000 for the estimated loss on the sale
of this subsidiary, which was recorded as an asset reduction.
However, the Company recognized, during the first quarter of 1996,
a small gain on this sale after the asset write-down. The Company
sold total assets of approximately $1,346,000, while retaining
certain assets totalling approximately $94,000 and certain
liabilities totalling approximately $48,000.
Waste management services' revenue was $6,396,000 for the quarter
ended March 31, 1996. During the same period in 1995, waste
management services' revenue was $7,040,000. This decrease of
$644,000, or 9.1%, is principally a result of the above discussed
re-engineering program, in conjunction with the closing of the
service center locations, weather related issues, and sale of Re-
Tech. The closed service center locations reflected approximately
$802,000 of this decrease, which was partially offset by additional
revenue through the expansion of existing service centers and the
receipt of new contracts, such as the waste treatment project at
the U.S. Department of Energy's Fernald, Ohio facility. This
contract generated approximately $648,000 of additional revenue
<PAGE>
during the first quarter of 1996. The sale of Re-Tech resulted in
a reduction of approximately $51,000 during the quarter. Also,
during the first quarter of 1996, the waste management segment
continued to experience downward pressure on prices due to the
market imbalance of excess supply over industry demand, principally
within the off-site blending, treatment and disposal facilities.
These market conditions contributed to the reduced revenue as the
Company focuses its marketing efforts at higher margin services for
these facilities. Traditionally, the first quarter is also the
slowest for the waste management segment and the Company's
competitors.
Cost of goods sold decreased to $4,862,000 from $5,325,000 for
the quarter ended March 31, 1996 and 1995, respectively. This
decrease of $463,000, or 8.7%, in cost of goods sold reflects the
corresponding direct and indirect costs related to the above
discussed revenue reduction. The Company continued during the
quarter to closely monitor and reduce all possible operating costs.
These reductions, however, were partially offset by the temporary
increase in operating costs incurred at its Ft. Lauderdale, Florida
facility, as the Company finalizes a major capital expansion. As
a percent of revenue, the cost of goods sold for waste management
services increased from 75.6% of revenue for March 31, 1995 to
76.0% of revenue for the period ended March 31, 1996.
Consulting Engineering Services -- Quarter Ended March 31, 1996 and
1995
The Company's consulting engineering segment of the pollution
control industry provides a wide variety of environmental related
consulting and engineering services to industry and government.
Through the Company's wholly-owned subsidiaries in Tulsa, Oklahoma
and St. Louis, Missouri, this segment provides oversight management
of environmental restoration projects, air and soil sampling and
compliance reporting, surface and subsurface water treatment design
for removal of pollutants, and various compliance and training
activities. This segment, like many other engineering firms within
the pollution control industry, is maturing rapidly, experiencing
downward pricing pressure and competitive conditions.
Net revenues for the consulting engineering segment decreased to
$1,176,000 for the quarter ended March 31, 1996 as compared to
$1,583,000 for the quarter ended March 31, 1995. This decrease of
$407,000, or 25.7%, reflects, among other changes, the above
discussed competitive nature of the industry, weather related
issues that delayed the start-up of certain contracts, and the
corresponding loss of certain other contracts. Also, during 1995,
the Company closed its Canton, Ohio office of Schreiber, Grana and
Yonley, Inc., which contributed approximately $87,000 of this
revenue reduction. The Company has also, however, partially offset
this reduction by the receipt of several new contracts/
relationships and the expansion of its product base into
new services to be provided to current and prospective customers.
The Company continues to focus the consulting engineering segment
on those services for which it can provide the best value to its
customers and greatest margin to the Company.
Cost of goods sold decreased $411,000 to $902,000 from $1,313,000
for the quarter ended March 31, 1996 and 1995, respectively. In
conjunction with the sales decrease from the first quarter of 1995,
as compared to the first quarter of 1996, a corresponding reduction
in cost of goods sold occurred. However, with improved utilization
and an aggressive cost containment program, the consulting
engineering segment's cost of goods sold decreased from 82.9% of
net revenues to 76.7% of net revenues for the period ended
March 31, 1995 and 1996, respectively.
Liquidity and Capital Resources of the Company
At March 31, 1996, the Company had cash and cash equivalents
of $87,000. This cash and cash equivalents total reflects a
decrease of $114,000 from December 31, 1995, as a result of net
cash used in operations of $384,000, cash provided by investing
activities of $576,000 and cash used for financing activities of
$306,000. Accounts receivable, net of allowances, totalled
$5,146,000, an increase of $115,000 over the December 31, 1995
balance of $5,031,000, which reflects the increased revenue levels
as the Company emerges from its traditionally slowest quarter.
<PAGE>
As of March 31, 1996, the borrowings under the Company's
revolving loan facility totalled $2,620,000, a reduction of
$556,000 from the December 31, 1995 balance of $3,176,000, with a
related borrowing availability of $364,000. See Note 2 of the
Notes to Consolidated Financial Statements in Item 1. As
previously disclosed, during the second quarter of 1995 the Company
became, and continues to be as of the date of this report, in
violation of certain of the restrictive financial covenants
contained in the Agreement with Heller and is currently negotiating
waivers and amendments to the Agreement. The Company is, however,
in compliance with all non-financial covenants of the Agreement.
Heller has advised the Company in writing that Heller agrees to
forebear from exercising any rights and remedies under the
Agreement as a result of these defaults until May 31, 1996, subject
to the Company paying interest at the default rate. The default
rate is defined in the Agreement as the effective rate (prime plus
1 1/4% on the revolving loan and prime plus 1 3/4% on the term
loan) plus 2.0%. This default rate remains in effect until the
loans are paid in full or such defaults are cured (or waived) and
the Company is in compliance with all of the covenants and other
obligations set forth in the Agreement, other than the defaults in
such financial covenants as discussed in Note 2 of the Notes to
Consolidated Financial Statements. As of March 31, 1996, the
default rate of interest on the revolving loan facility was 11.5%
and on the term loan was 12.0%. The lender is continuing to make
normal advances under the revolving loan facility. The Company
believes that it will be able to negotiate appropriate waivers and
amendments to the Agreement. This is a forward looking statement,
and any waivers or amendments to the Agreement is subject to the
discretion and requirements of Heller, which involves certain risks
and uncertainties. However, for financial statement purposes, the
Company has classified the borrowings under the revolving loan
facility and the term loan as current liabilities, while
negotiating the formal waiver. As of March 31, 1996, the
borrowings under the revolving loan facility total $2,620,000,
reflecting repayments of $556,000. The balance on the term loan
totalled $1,762,000, as compared to $2,083,000 at December 31,
1995, also reflecting a reduction of $321,000. As discussed above,
both the revolving loan and term note, having a total balance of
$4,382,000, were classified as current liabilities, which includes
$3,882,000 outstanding under the agreement that would otherwise be
classified as long-term debt.
During the period of the above-described financial covenant
violations, Heller may, at its option subject to the above
discussed forbearance letter, declare the entire unpaid balance of
the term and revolving loans immediately due and payable or cease
to allow the Company to borrow any additional amounts under its
revolving loan facility, or both, either of which would have a
material adverse effect on the Company. If Heller would declare
the loans in default and accelerates the maturity of the loans
and/or refuses to allow the Company to continue to borrow under its
revolving credit facility, the Company will be required to replace
the loan arrangements with Heller with another lender. Since
Heller has orally advised the Company that it does not intend to
take any of the above-described actions at this time and the
Company believes that Heller will agree to amend the loan agreement
waiving the violations, the Company has not, at this time,
considered any alternative financing to replace the loans and lines
of credit provided by Heller. If the Company were required to
obtain alternative financing to replace the loans and lines of
credit provided by Heller, there are no assurances that the Company
could obtain such new financing, and, if not able to obtain such
new financing, be able to meet its liquidity requirements.
Also, as previously disclosed, during 1995, the Company became
in violation of the tangible net worth covenant under the equipment
financing agreement with Ally Capital Corporation ("Ally"). Ally
has advised the Company that Ally agrees to forebear from
exercising any rights and remedies under this agreement as a result
of this covenant default, and has provided the Company a written
waiver covering the periods ending through September 30, 1996. The
Company believes that it will be able to negotiate an amendment to
the equipment finance agreement. This is a forward looking
statement, and any waivers or amendments to the Agreement with Ally
is subject to the discretion and requirements of Ally, which
involves certain risks and uncertainties. However, for financial
statement purposes, the Company has classified the outstanding
balance under this agreement as current liabilities, while
negotiating the formal amendment, which includes $1,103,000
outstanding under the agreement that would otherwise be classified
as long-term debt. The outstanding balance of the equipment
finance agreement at March 31, 1996 is $1,695,000 as compared to
$1,778,000 at December 31, 1995. Reflected in this total are new
borrowings in 1996 of approximately $57,000 and scheduled
repayments of $140,000.
<PAGE>
The working capital deficit position, after the reclassification
to current liabilities of the above discussed debt obligations,
reflects the reduction or improvement of $1,189,000 at March 31,
1996. The deficit position was $8,183,000 as compared to
$9,372,000 at December 31, 1995. Prior to this reclassification,
the working capital deficit at March 31, 1996 was $3,198,000, which
reflects a decrease in the deficit of $201,000 from the
December 31, 1995 deficit of $3,399,000.
The Company's accounts payable continue to age beyond normal
terms. As of March 31, 1996, total consolidated accounts payable
for the Company was $5,112,000, a reduction of $290,000 from the
December 31, 1995 balance of $5,402,000. However, as of March 31,
1996, the Company's payables in excess of ninety (90) days were
approximately $2,780,000, as compared to approximately $2,481,000
at December 31, 1995. The Company anticipates that its payables in
excess of ninety (90) days will continue at this level or decrease
slightly during the summer months, until the Company is able to
raise additional capital or arrange additional financing for the
Company. The amount of payables in excess of ninety (90) days has
had a negative impact on the Company's ability to operate its
business and its resulting profitability, and will continue to have
a negative impact until the Company can reduce its payables that
are in excess of ninety (90) days old. In addition to the
placement of the Series A and B Convertible Preferred Stock
discussed below, the Company is currently reviewing alternatives to
raise additional capital to improve this liquidity position. If
the Company is able to obtain such additional capital or financing,
these funds would be utilized for working capital purposes and to
fund a portion of the capital expenditures discussed below. There
are, however, no assurances that the Company will be able to
arrange for the additional capital or financing. If the Company is
unable to arrange for the additional capital or financing, the
Company will be required to discontinue certain capital
expenditures necessary for the Company's growth and profitability,
and to reduce certain current operations.
For 1996, the Company has budgeted capital expenditures of
$1,250,000 for improving operations and maintaining Resource
Conservation Recovery Act ("RCRA") permit compliance. All of these
expenditures are materially necessary to maintain compliance with
federal, state or local permit standards. As of March 31, 1996,
the Company's net purchases of new capital equipment totalled
approximately $593,000, which was principally funded by the
proceeds from the issuance of Preferred Stock, as discussed below,
with the exception of $57,000, which was financed through the
equipment financing agreement with Ally, as discussed above. At
this time, the Company anticipates financing the remainder of these
expenditures by a combination of select subsidiary divestitures
and/or equity transactions. This is a forward looking statement
and it is unknown whether the Company will be successful in
arranging the divestiture or the selling of additional equity. If
the Company cannot raise sufficient funds to finance the capital
expenditures, it may be required to modify its operations at
specific locations and/or to minimize capital improvements, subject
to appropriate federal or state laws or regulations regulating the
industry. These modifications may impact maintaining existing
customers or impair acquiring new clients.
At March 31, 1996, the Company had $6,865,000 in aggregate
principal amounts of outstanding debt, as compared to $8,478,000 at
December 31, 1995. This decrease in outstanding debt of $1,613,000
during the first quarter of 1996 reflects the net repayment of the
revolving loan and term note facility of $877,000, the scheduled
principal repayments on long-term debt of $211,000, including the
equipment finance agreement payments to Ally, and the repayment of
$582,000 on the mortgage obligation in conjunction with the Re-Tech
sale discussed below.
During February of 1996, the Company issued 1,100 shares of newly
created Series 1 Class A Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $1,100,000, and paid a
placement fee of $176,000. The Company also issued 330 shares of
newly created Series 2 Class B Preferred Stock at a price of $1,000
per share, for an aggregate sales price of $330,000, and paid a
placement fee of $33,000. The preferred stock was sold to an
accredited offshore investor and accrues dividends at a rate per
share of five percent (5%) per annum, payable quarterly. The
dividends are payable at the option of the Company in cash or by
the issuance of shares of common stock, and such dividends shall be
cumulative. Payment of cash dividends is subject to the provisions
of the Company's lending agreement. The Preferred Stock is
convertible, at any time, commencing forty-five (45) days after
issuance into shares of the Company's common stock at a conversion
<PAGE>
price equal to the aggregate value of the shares of the Preferred
Stock being converted, together with all accrued but unpaid
dividends thereon, divided by the "Average Stock Price" per share
(the "Conversion Price"). The Average Stock Price means the lesser
of (i) seventy percent (70%) of the average daily closing bid
prices of the common stock for the period of five (5) consecutive
trading days immediately preceding the date of subscription by the
holder or (ii) seventy percent (70%) of the average daily closing
bid prices of the common stock for a period of five (5) consecutive
trading days immediately preceding the date of conversion of the
Preferred Stock. Assuming that the conversion occurred on the date
of subscription by the holder, the 1,100 shares of the Series 1
Preferred Stock would be converted into an aggregate of 1,282,798
shares of common stock and the 330 shares of the Series 2 Preferred
Stock would be converted into an aggregate of 443,548 shares of
common stock. The common stock issuable on the conversion of the
preferred stock (if not otherwise tradeable without restriction) is
subject to certain registration rights pursuant to the subscription
agreement between the Company and the investor. During April 1996,
100 shares of the Series 1 Class A Preferred Stock was converted
into 146,538 shares of the Company's common stock and the
associated accrued interest was paid in the form of 1,507 shares of
the Company's common stock. In addition to the above, the Company
entered into a stock purchase agreement with Dr. Louis F.
Centofanti, Chairman of the Board and Chief Executive Officer of
the Company, whereby the Company agreed to sell 133,333 shares of
its common stock. During February 1996, Dr. Centofanti tendered to
the Company $100,000 for such 133,333 shares by delivering to the
Company $86,000 and forgiving $14,000 that was owed to
Dr. Centofanti by the Company for expenses incurred by Dr. Centofanti
on behalf of the Company. The referenced shares were issued to
Dr. Centofanti on April 30, 1996.
Effective March 15, 1996, the Company completed the sale of Re-
Tech Systems, Inc., its plastics recycling subsidiary in Houston,
Texas. The sale transaction included all real and personal
property of the subsidiary, for a total consideration of $970,000.
Net cash proceeds to the Company were approximately $320,000, after
the repayment of a mortgage obligation of $582,000 and certain
other closing and real estate costs. In conjunction with this
transaction, the Company also made a prepayment of $50,000 to
Heller Financial, Inc. for application to the term loan. As
previously disclosed, the Company recorded during 1995, a
nonrecurring charge (recorded as an asset reduction) of $450,000
for the estimated loss on the sale of this subsidiary, which, based
upon closing balances, the Company recognized a small gain on this
sale after the asset write-down. The Company sold total assets of
approximately $1,346,000, while retaining certain assets totalling
approximately $94,000 and certain liabilities totalling
approximately $48,000. In addition to the above asset sale, the
Company also sold certain non-productive assets during the quarter,
principally at closed service center locations and at the Perma-Fix
of Dayton, Inc. facility. Proceeds from these asset sales total
approximately $320,000.
In summary, while the Company is taking a number of steps to
improve its operations and liquidity position, it expects that
liquidity will continue to be tight in the foreseeable future until
such time as additional capital can be raised or significant
improvements in profitability are achieved. If the Company is
unable to achieve profitability in operations or generate
additional capital in the foreseeable future, lack of liquidity
will have a material adverse effect on the Company.
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
During 1995, certain subsidiaries of the Company were sued by
Chief Supply Corporation ("Chief Supply") in three (3) causes of
action pending in the United States District Court, Northern
District of Oklahoma, in cases styled Chief Supply Corporation v.
Perma-Fix of Dayton, Inc.; Chief Supply Corporation v. Perma-Fix of
Florida, Inc.; and Chief Supply Corporation v. Perma-Fix of
Memphis, Inc. Chief Supply is alleging that the subsidiaries owe
to Chief Supply an aggregate of approximately $292,000. Perma-Fix
of Memphis, Inc. has asserted a counterclaim for receivables due
from Chief Supply for services rendered by two subsidiaries of the
Company of approximately $134,000. In addition, these subsidiaries
have asserted certain defenses regarding the performance of
services by Chief Supply. Reservoir Capital Corporation
("Reservoir") has alleged that substantially the same receivables
for which Chief Supply has sued the subsidiaries of the Company
were factored and assigned by Chief Supply to Reservoir, and in
March 1996, Reservoir brought suit against the same subsidiaries of
the Company sued by Chief Supply for collection of substantially
the same receivables Chief Supply sued the subsidiaries of the
Company, plus exemplary damages. The suit brought by Reservoir is
styled Reservoir Capital Corporation v. Perma-Fix of Dayton, Inc.,
et al., pending in the United States District Court, Southern
District of Ohio (the "Ohio Litigation"). During the first quarter
of 1996, the parties tentatively agreed to settle the Oklahoma
Litigation and the Ohio Litigation, and, in connection therewith,
the subsidiaries of the Company have agreed to pay Chief in the
Oklahoma Litigation $200,000 over an extended period of time and
Reservoir has agreed to dismiss the Ohio Litigation. This
tentative settlement is subject to execution of a definitive
agreement, and there are no assurances that the settlement will be
consummated.
Item 3. Defaults Upon Senior Securities
During the second quarter of 1995, and as disclosed in the
Company's Form 10-K for the year ended December 31, 1995, the
Company became in violation under the following financial covenants
contained in its Loan and Security Agreement ("Agreement") with
Heller Financial, Inc. ("Heller"): tangible net worth, EBITDA,
ratio of (a) the total indebtedness of the Company and its
subsidiaries to (b) tangible net worth, fixed charge coverage and
the percentage of accounts payable greater than ninety (90) days
past their respective invoice date.
The Agreement provides for a term loan in the amount of $2.5
million and a revolving credit facility of up to $7 million, with
the outstanding amount of the revolver to be based on a certain
percentage of eligible accounts of the Company as reduced by any
amounts outstanding under the term loan. As of March 31, 1996, the
Company's borrowings under the Agreement totaled approximately
$4,382,000, with approximately $1,763,000 under the term loan and
approximately $2,619,000 under the revolver. See Note 2 of the
Notes to Consolidated Financial Statements and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources of the Company" of this
report for further discussion of the Agreement and the default
thereunder.
Heller had initially advised the Company in writing that it
agreed to forebear from exercising any rights and remedies under
the Agreement as a result of these defaults until May 31, 1996,
subject to the Company paying interest at the default rate (as
defined in the Agreement) until the loans are paid in full or such
defaults are cured (or waived) and the Company is in compliance
with all of the covenants and other obligations set forth in the
Agreement, other than the above-described defaults in such
financial covenants.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 Second Amendment to Loan and Security
Agreement with Heller Financial, Inc.
Exhibit 4.2 Forbearance letter dated May 10, 1996
from Heller Financial, Inc.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K (Item 5 - Other Event) was
filed on February 28, 1996 reporting that on February 9,
1996, the Company issued 1,100 shares of its newly
created Series 1 Class A Preferred Stock at a price of
$1,000 per share, for an aggregate sales price of
$1,100,000.
A current report on Form 8-K (Item 5 - Other Events) was
filed on March 11, 1996 reporting that on February 22,
1996, the Company issued 330 shares of its newly created
Series 2 Class B Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $330,000.
<PAGE>
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: May 15, 1996 By: /s/ Dr. Louis F. Centofanti
____________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
____________________________
Richard T. Kelecy
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Page No.
________
Exhibit 4.1 Second Amendment to Loan and Security
Agreement with Heller Financial, Inc. . . . 23
Exhibit 4.2 Forbearance Letter dated May 10, 1996
from Heller Financial, Inc. . . . . . . . . 31
Exhibit 27 Financial Data Schedule . . . . . . . . . . . 32
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement ("Amendment")
is dated February 22, 1996 and entered into by and among HELLER
FINANCIAL, INC. ("Lender"), and PERMA-FIX ENVIRONMENTAL SERVICES,
INC. ("Parent") and all those direct and indirect subsidiaries of
Parent whose names are inscribed on the signature pages of the
Agreement as defined below ("Borrowers").
WHEREAS, Lender, Parent and Borrowers have entered into a Loan
and Security Agreement (the "Agreement") dated January 27, 1995;
and
WHEREAS, Parent has advised Lender of its intention to issue
up to 2,500 shares of Series 2, Class B Preferred Stock; and
WHEREAS, Parent has requested Lender amend the Agreement as it
relates to said Second Offering; and
WHEREAS, Parent has requested Lender amend the Agreement as it
relates to the issuance of common stock upon conversion of the
Shares and the Second Offering Shares; and
WHEREAS, Lender has agreed to said amendments to the
Agreement;
NOW THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01. Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have
the same meanings as in the Agreement, as amended hereby. The
definition of "Offering" contained in the First Amendment to the
Loan and Security Agreement dated February 9, 1986 shall be deleted
and a new definition inserted therefor. In addition, the following
definitions shall be added, in proper alphabetical order, to
Subsection 1.1 of the Agreement, entitled "Certain Defined Terms":
"Offering" shall mean that certain Offshore Securities
Subscription Agreement dated February 9, 1996, which when
executed by the parties thereto, will transfer all or a part of
the Shares.
<PAGE>
"Resolution" shall mean that certain Resolution of the Board of
Directors of Parent Fixing the Number and Designating the
Rights, Privileges, Restrictions and Conditions Attaching to the
Series I, Class A Preference Shares, adopted February 2, 1996,
authorizing the Shares.
"Second Offering" shall mean that certain Offshore Securities
Subscription Agreement dated February 22, 1996, which when
executed by the parties thereto, will transfer all or a part of
the Second Offering Shares.
"Second Offering Shares" shall mean up to 2,500 shares of Series
2, Class B Preferred Stock of Parent.
"Shares" shall mean 1,100 shares of Series I, Class A Preference
Shares of Parent authorized pursuant to the Resolution.
"Unanimous Consent" shall mean that certain Unanimous Written
Consent to the Actions of The Board of Directors of Parent,
adopted February 22, 1996, authorizing the Second Offering
Shares.
ARTICLE II. AMENDMENTS
Section 2.01. Amendment to Subsection 7.5 "Restricted Junior
Payments". Subsection 7.5 shall be, and the same is hereby amended
by deleting the word "and" immediately preceding clause (b) and
inserting at the end of clause (b) the following:
"and (c) Parent may pay a dividend to each holder of Second
Offering Shares in an amount not to exceed $12.50 per share per
quarter during the period said Second Offering Shares shall be
issued and outstanding."
Section 2.02. Amendment to Subsection 7.6 "Restriction on
Fundamental Changes". Subsection 7.6(e) shall be, and the same is
hereby amended by deleting the remainder of said subsection
following the words ", provided however," and substituting therefor
the following:
", provided however, Parent may issue (i) the Shares pursuant to
the Offering, (ii) the Second Offering Shares, (iii) shares of
common stock upon conversion of the Shares and (iv) shares of
common stock upon conversion of the Second Offering Shares.
<PAGE>
ARTICLE III. MISCELLANEOUS
Section 3.01. Conditions. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions
precedent (unless specifically waived in writing by Lender): (a)
there shall have occurred no material adverse change in the
business, operations, financial conditions, profits or prospects,
or in the Collateral or the Borrower; (b) Borrower shall have
executed and delivered such other documents and instruments as
Lender may require; (c) Borrower shall have paid Lender a fee in
the amount of $500.00 as and for the issuance of this Amendment;
and (d) all corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Lender and its legal counsel.
Section 3.02 Ratification. The terms and provisions set forth
in this Amendment shall modify and supersede all inconsistent terms
and provisions set forth in the Agreement and, except as expressly
modified and superseded by this Amendment, the terms and provisions
of the Agreement, are ratified and confirmed and shall continue in
full force and effect. Nothing contained herein shall be con-
strued as the consent of Lender to any other matters prohibited
under the Agreement, specifically including Lender's consent to
Parent's redemption of (a) Shares pursuant to Part 4 of the
Resolution and (b) Second Offering Shares pursuant to Part 4 of the
Unanimous Consent.
Section 3.03 Corporate Action The execution, delivery and
performance of this Amendment have been authorized by all requisite
corporate action on the part of Borrower and will not violate the
Articles of Incorporation or Bylaws of Borrower.
Section 3.04 Severability. Any provision of this Amendment held
by a court of competent jurisdiction to be invalid or unenforceable
shall not impair or invalidate the remainder of this Amendment and
the effect thereof shall be confined to the provision so held to be
invalid or unenforceable.
Section 3.05 Successors and Assigns. This Amendment is binding
upon and shall inure to the benefit of Lender and Borrower and
their respective successors and assigns;
Section 3.06 Counterparts. This Amendment may be executed in
one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together
shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment on
the date first above written.
Lender:
HELLER FINANCIAL, INC., a Delaware
corporation
By: /s/ Nancy Stafford
________________________________
Title: AVP
_____________________________
Parent:
PERMA-FIX ENVIRONMENTAL
SERVICES, INC., a Delaware corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
_________________________
Title: CEO
_________________________
Attest: /s/ Richard T. Kelecy
___________________________
Name: Richard T. Kelecy
______________________
Title: CFO
______________________
Borrowers:
INDUSTRIAL WASTE MANAGEMENT,
INC., a Missouri corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
<PAGE>
PERMA-FIX, INC., an Oklahoma
corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
PERMA-FIX OF DAYTON, INC.,
an Ohio corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
PERMA-FIX OF FLORIDA, INC.,
a Florida corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
<PAGE>
PERMA-FIX OF FORT LAUDERDALE,
INC., a Florida corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
PERMA-FIX OF MEMPHIS, INC.,
a Tennessee corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
PERMA-FIX OF NEW MEXICO, INC.,
a New Mexico corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
<PAGE>
PERMA-FIX TREATMENT SERVICES,
INC., an Oklahoma corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
<PAGE>
SCHREIBER, GRANA & YONLEY,
INC., a Missouri corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
MINTECH, INC., an Oklahoma
corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
<PAGE>
RECLAMATION SYSTEMS, INC., an
Oklahoma corporation
By: /s/ Louis F. Centofanti
______________________________
Name: Louis F. Centofanti
__________________________
Title: CEO
__________________________
Attest: /s/ Richard T. Kelecy
____________________________
Name: Richard T. Kelecy
________________________
Title: CFO
_______________________
VIA FEDERAL EXPRESS
May 10, 1996
Perma-Fix Environmental Services, Inc.
1940 N.W. 67th Place
Gainesville, FL 32653
Attention: Richard Kelecy
Gentlemen:
On or about the 27th day of January, 1995, Heller Financial, Inc.
("Lender") and Perma-Fix Environmental Services, Inc. ("Parent")
and each of those direct and indirect Subsidiaries of Parent whose
names are inscribed on the signature pages of the Agreement (as
hereinafter defined) (collectively with Parent, the "Borrowers" or,
individually, a "Borrower") entered into that certain Loan and
Security Agreement, as amended (the "Agreement"), Term Note, and
other ancillary documents (collectively with the Agreement, the
"Loan Documents"). Capitalized terms used herein and not defined
herein shall have those meanings ascribed to them in the Loan
Documents.
Reference is made to Lender's letters dated March 31, 1996,
February 28, 1996, December 15, 1995, October 27, 1995, and
August 14, 1995 to Borrowers ("Letter Agreements"). As outlined in
the Letter Agreements, certain Events of Default had occurred under
the Loan Documents. This letter is to advise Borrowers that Lender
has agreed to extend the forbearance period, as outlined in the
Letter Agreements, from May 15, 1996 until May 31, 1996. Each of
the other terms and conditions contained in the Letter Agreement
shall remain in full force and effect.
No oral representations or course of dealing on the part of Lender,
its officers, employees, or agents, nor any failure or delay by
Lender with respect to the exercise of any right, power, or
privilege under this agreement, the Agreement, and the Loan
Documents shall operate as a waiver thereof, and the single or
partial exercise of any such right, power, or privilege shall not
preclude any later exercise of any other right, power, or privilege
hereunder.
Cordially,
HELLER FINANCIAL, INC.
/s/ Nancy K. Stafford
Nancy K. Stafford
Assistant Vice President
cc: Gary A. Whitlock, Esq.
Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue
Suite 3000
Orlando, FL 32802
<TABLE> <S> <C>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> $ 490,000
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<RECEIVABLES> 5,547,000
<ALLOWANCES> 401,000
<INVENTORY> 114,000
<CURRENT-ASSETS> 6,991,000
<PP&E> 15,467,000
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<BONDS> 495,000
0
0
<COMMON> 8,000
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<TOTAL-LIABILITY-AND-EQUITY> 28,443,000
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