================================================================
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, 1997
_______________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File No. 1-11596
______________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification Number)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352) 373-4200
(Registrant's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
______ ______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the latest
practical date.
Class Outstanding at August 15, 1997
_____ ________________________________
Common Stock, $.001 Par Value 10,712,991
_____________________________ __________
(excluding 920,000 shares
held as treasury stock)
_________________________
=================================================================
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1997 and
December 31, 1996 . . . . . . . . . 2
Consolidated Statements of
Operations - Three Months and
Six Months Ended June 30,
1997 and 1996. . . . . . . . . . . . 4
Consolidated Statements of Cash
Flows - Six Months Ended June 30,
1997 and 1996. . . . . . . . . . . . 5
Consolidated Statements of Stockholder
Equity - June 30, 1997 and December 31,
1996. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 24
Item 2. Changes in Securities . . . . . . . . . . 24
Item 3. Default Upon Senior Securities. . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . 26
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the consolidated financial
statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as
of and for the periods indicated.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
The results of operations for the six months ended June 30,
1997 are not necessarily indicative of results to be expected for
the fiscal year ending December 31, 1997.
1
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
(Amounts in Thousands, 1997 December 31,
Except for Share Amounts) (Unaudited) 1996
___________________________________________________________________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 150 $ 45
Restricted cash equivalents
and investments 469 448
Accounts receivable, net of
allowance for doubtful accounts
of $324 and $383, respectively 4,926 5,549
Inventories 91 107
Prepaid expenses 1,090 549
Other receivables 288 545
_________ ________
Total current assets 7,014 7,243
Property and equipment:
Building and land 5,301 4,894
Equipment 6,509 6,429
Vehicles 1,232 1,421
Leasehold improvements 289 289
Office furniture and equipment 1,154 1,136
Construction in progress 3,155 3,028
_________ ________
17,640 17,197
Less accumulated depreciation (5,301) (4,593)
_________ ________
Net property and equipment 12,339 12,604
Intangibles and other assets:
Permits, net of accumulated amorti-
zation of $713 and $598,
respectively 3,855 3,949
Goodwill, net of accumulated amorti-
zation of $507 and $435,
respectively 4,774 4,846
Covenant not to compete, net of
accumulated amortization of $391
and $383, respectively - 9
Other assets 392 385
________ ________
Total assets $ 28,374 $ 29,036
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30,
(Amounts in Thousands, 1997 December 31,
Except for Share Amounts) (Unaudited) 1996
___________________________________________________________________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,097 $ 3,677
Accrued expenses 3,096 2,860
Revolving loan and term note
facility (see Note 2) 2,590 500
Equipment financing agreement 669 646
Current portion of long-term debt 368 333
_________ _______
Total current liabilities 9,820 8,016
Long-term debt, less current portion 917 4,881
Environmental accruals 2,322 2,460
Accrued closure costs 1,120 1,094
_________ _______
Total long-term liabilities 4,359 8,435
Commitments and contingencies
(see Note 3) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
7,600 and 5,500 shares issued
and outstanding, respectively - -
Common stock, $.001 par value;
50,000,000 shares authorized,
11,394,478 and 10,399,947 shares
issued, respectively, including
920,000 shares held as
treasury stock 11 10
Redeemable warrants 140 140
Additional paid-in capital 31,626 28,495
Accumulated deficit (15,812) (14,290)
________ _______
15,965 14,355
Less common stock in treasury at
cost; 920,000 shares issued
and outstanding (1,770) (1,770)
________
Total stockholders' equity 14,195 12,585
________ _______
Total liabilities and
stockholders' equity $ 28,374 $ 29,036
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1997 1996
___________________________________________________________________
<S> <C> <C>
Net revenues $ 7,134 $ 8,178
Cost of goods sold 5,180 5,634
________ ________
Gross profit 1,954 2,544
Selling, general and administrative
expenses 1,652 1,682
Depreciation and amortization 533
Income (loss) from operations (231) 558
Other income (expense):
Interest income 13 304
Interest expense (189) (227)
Other (36) 85
________ ________
Net income (loss) $ (443) $ 182
Preferred stock dividends 82 -
________ _________
Net loss applicable
to Common Stock $ (525) $ 182
======== =========
Net income (loss) per share $ (.05) $ .02
======== ========
Weighted average number of common
and common equivalent shares
outstanding 10,195 8,470
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1997 1996
___________________________________________________________________
<S> <C> <C>
Net revenues $ 13,636 $ 15,750
Cost of goods sold 10,344 11,398
________ ________
Gross profit 3,292 4,352
Selling, general and administrative
expenses 3,177 3,424
Depreciation and amortization 1,077 1,177
Income (loss) from operations (962) (249)
Other income (expense):
Interest income 24 40
Interest expense (372) (489)
Other (49) 288
________ ________
Net income (loss) $ (1,359) $ (410)
Preferred stock dividends 163 -
________ _________
Net loss applicable
to common stock $ (1,522) $ (410)
======== =========
Net income (loss) per share $ (.15) $ (.05)
======== =========
Weighted average number of common
and common equivalent shares
outstanding 9,958 8,171
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
__________________________
(Amounts in Thousands) 1997 1996
___________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,522) $ (410)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation and amortization 1,077 1,177
Provision for bad debt and other
reserves 26 12
Loss (Gain) on sale of plant,
property and equipment 1 (122)
Changes in assets and liabilities:
Accounts receivable 597 (470)
Prepaid expenses, inventories and
other assets 447 (434)
Accounts payable and accrued expenses (977) (173)
________ ________
Net cash used in operations (351) (420)
Cash flows from investing activities:
Purchases of property and equipment,
net (381) (968)
Proceeds from disposition of
property and equipment 46 1,196
Change in restricted cash, net (21) (33)
________ _________
Net cash provided by (used in)
investing activities (356) 195
Cash flows from financing activities:
Repayments of revolving loan and
term note facility (1,405) (395)
Principal repayments on long-term debt (699) (1,006)
Proceeds from issuance of stock 2,916 1,597
________ ________
Net cash provided by financing
activities 812 196
Increase (Decrease) in cash and cash
equivalents 105 (29)
Cash and cash equivalents at beginning
of period 45 201
________ ________
Cash and cash equivalents at end
of period $ 150 $ 172
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 386 $ 495
======== ========
Income taxes paid $ - $ -
======== ========
Non cash investing and financing
activities:
Insurance financing $ 746 $ 832
Issuance of stock for payment of
dividends 156 -
Long-term debt incurred for purchase
of property and equipment 289 57
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(For the six months ended June 30, 1997)
Preferred Stock Common Stock
Amounts in Thousands, _________________ _________________
Except for Share Amounts Shares Amount Shares Amount
____________________________________________________________________________
<S> <C> <C> <C> <C>
Balance at December 31,
1996 5,500 $ - 10,399,947 $ 10
====== ====== ========== ======
Net Loss - - - -
Preferred stock dividend - - 107,864 -
Issuance of stock for cash
and services - - 93,212 -
Exercise of warrants - - 487,814 1
Conversion of Series 3 pre-
ferred stock to common
stock (400) - 294,641 -
Option Exercise - - 11,000 -
Issuance of preferred
stock for cash 2,500 - - -
_______ _______ __________ _______
7,600 $ - 11,394,478 $ 11
======= ======= ========== =======
</TABLE>
<TABLE>
<CAPTION>
Common
Additional Stock
Redeemable Paid-In Accumulated Held in Deferred
Warrants Capital Deficit Treasury Comp.
___________________________________________________________________
<S> <C> <C> <C> <C>
$ 140 $ 28,495 $ (14,290) $ (1,770) $ -
======== ========= ========== ========= =========
- - (1,522) - -
- 155 - - -
- 60 - - -
- 720 - - -
- - - - -
- 11 - - -
- 2,185 - - -
________ ________ __________ _________ __________
$ 140 $ 31,626 $ (15,812) $ (1,770) $ -
======== ======== ========== ========= ==========
</TABLE>
6
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Reference is made herein to the notes to consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
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.
Net loss per share has been presented using the weighted
average number of common shares outstanding. Common stock
equivalents (stock options and warrants) have not been included in
the net loss per share calculations since their effects would be
antidilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
Earnings Per Share ( SFAS 128"). SFAS 128 establishes new
standards for computing and presenting earnings per share ( EPS ).
Specifically, SFAS 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, earlier application is
not permitted. EPS for the three and six months ended June 30,
1997 and 1996 computed under SFAS 128 would not be materially
different than previously computed.
2. Long-Term Debt
______________
Long-term debt consists of the following at June 30, 1997 and
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
_________ __________
<S> <C> <C>
Long-term debt and notes payable:
Revolving loan and term note
facility $ 2,590 $ 4,262
Equipment financing agreement 945 1,257
Various mortgage, promissory
and notes payable 1,009 841
_________ _________
4,544 6,360
Less current portion:
Revolving loan and term note
facility 2,590 500
Equipment financing agreement 669 646
Various mortgage, promissory
and notes payable 368 333
_________ _________
Long-term debt, less
current portion $ 917 $ 4,881
========= =========
</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,
7
<PAGE>
1995, with a final balloon payment in the amount of $826,000 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
January 31, 1998.
As noted above, the Agreement with Heller has a scheduled
termination date of January 31, 1998. The Company is currently
negotiating with Heller for the renewal of this Agreement and has
had discussions with other potential lenders in an effort to obtain
additional credit proposals to replace Heller, although no
assurance can be given that such a renewal or additional credit
proposals will be obtained. Since this scheduled termination date
is less than twelve months from June 30, 1997, the Company has
reclassified as a current liability $2,091,000 outstanding under
the Agreement, consistent with Generally Accepted Accounting
Principles, that would otherwise be classified as long-term debt.
As of June 30, 1997, the Company was in default of the Minimum
EBITDA and Fixed Charge Coverage financial covenants of the
Agreement. This default was principally a result of the facility
disruption and resulting net loss incurred by the Perma-Fix of
Memphis, Inc. ("PFM") facility due to an explosion and fire in
January 1997 (see Note 5). The Company is currently negotiating
with Heller for a waiver of this default.
Pursuant to the Sixth Amendment, the Company was obligated to
raise an additional $700,000 on or before August 15, 1997, of which
$150,000 was to be received by June 15, 1997. During the second
quarter of 1997 and July, 1997, the Company fully satisfied this
covenant obligation, having raised approximately $3,042,000
principally through insurance proceeds with regard to the vandalism
at the Perma-Fix of Ft. Lauderdale, Inc. ( PFL ) facility in 1996
and from the issuance of the 2,500 shares of newly-created Series
4 Class D Convertible Preferred Stock, as further discussed in Note
4, and 350 shares of newly-created Series 5 Class E Convertible
Preferred Stock, as further discussed in Note 6.
Pursuant to the initial agreement, the term loan bears
interest at a floating rate equal to the base rate (prime) plus 1
3/4% per annum The revolving loan bears interest at a floating
rate equal to the base rate (prime) plus 1 1/2% per annum. The
loans also contain certain closing, management and unused line fees
payable throughout the term. In conjunction with the Third and
Sixth Amendments, applicable interest rates were amended, whereby
the term loan was increased to the base rate plus 2 1/4% and the
revolving loan was increased to the base rate plus 2%. Both the
revolving loan and term loan were prime based loans at June 30,
1997, bearing interest at a rate of 10.50% and 10.75%,
respectively.
As of June 30, 1997, the borrowings under the revolving loan
facility total $1,473,000, a decrease of $1,406,000 from the
December 31, 1996 balance of $2,879,000, with additional borrowing
availability of $1,514,000. The balance on the term loan totaled
$1,117,000, as compared to $1,383,000 at December 31, 1996. Total
indebtedness under the Heller Agreement as of June 30, 1997 was
$2,590,000, a decrease of $1,672,000 from the December 31, 1996
balance of $4,262,000.
During October 1994, the Company entered into a $1,000,000
equipment financing agreement with Ally Capital Corporation
("Ally"). During 1995, the Company negotiated an increase in the
total lease line and subsequently utilized $1,553,000 of this
credit facility to purchase new capital equipment. The agreement
provides for an initial term of 42 months, which may be extended to
48, and bears interest at a fixed interest rate of 11.3%. In
conjunction with a 1994 acquisition, the Company also assumed
$679,000 of debt obligations with Ally Capital Corporation, which
had terms expiring from September 1997 through August 1998, at a
rate ranging from 10.2% to 13.05%. The outstanding balance on
these equipment financing agreements at June 30, 1997 is $945,000,
as compared to $1,257,000 at December 31, 1996. As of June 30,
1997, the Company was in default of the Minimum EBITDA and Fixed
Charge Coverage financial covenants of the Agreement. This
default was principally a result of the facility disruption and
8
<PAGE>
resulting net loss incurred by the Perma-Fix of Memphis, Inc.
("PFM") facility due to an explosion and fire in January 1997 (see
Note 5). The Company is currently negotiating with Ally for a
waiver of this default. Based upon the Company's discussions with
Ally, the nature and reason for said default and the significant
collateral position securing this equipment financing agreement,
the Company has chosen not to reclassify the long-term balance of
$276,000 at June 30, 1997 as a current liability.
3. Commitments and Contingencies
_____________________________
Hazardous Waste
In connection with the Company's waste management services,
the Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
During September 1994, Perma-Fix of Memphis, Inc. ("PFM"),
formerly American Resource Recovery Corporation ("ARR") and a
subsidiary of the Company, was sued by Community First Bank
("Community First") to collect a note in the principal sum of
$341,000 that was allegedly made by ARR to CTC Industrial Services,
Inc. ("CTC") in February 1987 (the "Note"), and which was allegedly
pledged by CTC to Community First in December 1988 to secure
certain loans to CTC. This lawsuit styled Community First Bank v.
American Resource Recovery Corporation, was instituted on
September 14, 1994, and is pending in the Circuit Court, Shelby County,
Tennessee. The Company was not aware of either the Note or its
pledge to Community First at the time of the Company s acquisition
of PFM in December 1993. The Company intends to vigorously defend
itself in connection therewith. PFM has filed a third party
complaint against Billie Kay Dowdy, who was the sole shareholder of
PFM immediately prior to the acquisition of PFM by the Company,
alleging that Ms. Dowdy is required to defend and indemnify the
Company and PFM from and against this action under the terms of the
agreement relating to the Company s acquisition of PFM. Ms. Dowdy
has stated in her answer to the third party complaint that if the
Note is determined to be an obligation enforceable against PFM, she
would be liable to PFM, assuming no legal or equitable defenses.
In May 1995, PFM, a subsidiary of the Company, became aware
that the U.S. District Attorney for the Western District of
Tennessee and the Department of Justice were investigating certain
prior activities of W.R. Drum Company, its successor, First
Southern Container Company, and any other facility owned or
operated in whole or in part by Johnnie Williams. PFM used W.R.
Drum Company to dispose of certain of its used drums. In May 1995,
PFM received a Grand Jury Subpoena which demanded the production of
any documents in the possession of PFM pertaining to W.R. Drum
Company, First Southern Container Company, or any other facility
owned or operated, and holder in part, by Johnnie Williams. PFM
complied with the Grand Jury Subpoena. Thereafter, in September of
1995, PFM received another Grand Jury Subpoena for documents from
the Grand Jury investigating W.R. Drum Company, First Southern
Container Company, and/or Johnnie Williams. PFM complied with the
Grand Jury Subpoena. In December 1995, representative of the
Department of Justice advised PFM that it was also currently a
subject of the investigation involving W.R. Drum Company, First
Southern Container Company, and/or Johnnie Williams. Since that
time, however, PFM has had no contact with representatives of
either the United States District Attorney s office for the Western
District of Tennessee or the Department of Justice, and is not
aware of why it is also a subject of such investigation. In
accordance with certain provisions of the Agreement and Plan of
Merger relating to the prior acquisition of PFM, on or about
January 2, 1996, PFM notified Ms. Billie K. Dowdy of the foregoing,
9
<PAGE>
and advised Ms. Dowdy that the Company and PFM would look to
Ms. Dowdy to indemnify, defend and hold the Company and PFM harmless
from any liability, loss, damage or expense incurred or suffered as
a result of or in connection with this matter.
On January 27, 1997, an explosion and resulting tank fire
occurred at PFM s facility in Memphis, Tennessee, a hazardous waste
storage, processing and blending facility. The fire and explosion
resulted in damage to certain hazardous storage tanks located on
the facility and caused certain limited contamination at the
facility. The fire and resulting explosion were caused by the
welding activity of employees of an independent contractor at or
near a hazardous waste tank farm located on the facility contrary
to instructions of PFM. The facility was non-operational from the
date of this event until May, 1997, at which time it began limited
operations. Since the fire and explosion, PFM has accepted, and
will continue to accept, waste for processing and disposal, but has
arranged for other facilities owned by the Company or subsidiaries
of the Company or others not affiliated with the Company to process
such waste. As a result of the fire and explosion, the Tennessee
Department of Environment and Conservation ("TDEC") issued an order
dated April 23, 1997 ("TDEC Order") which alleges that the facility
violated certain hazardous waste rules and regulations promulgated
by the TDEC and ordered that the facility, among other things,
cease blending operations, within 30 days from the date of the
order the facility s permit to construct a new hazardous waste tank
storage area, which has not yet been constructed, is to be revoked,
and implement certain actions and assessed a penalty of
approximately $144,000. PFM has responded to such order and
asserted that the TDEC issued the order against the wrong party,
that PFM did not violate any rules and regulations promulgated by
the TDEC, the actions taken by the TDEC were contrary to applicable
rules and regulations and the TDEC is not entitled to such
penalties. The Company intends for PFM to vigorously defend itself
in connection with this matter.
In addition to the above matters and in the normal course of
conducting its business, the Company is involved in various other
litigation. The Company is not a party to any litigation or
governmental proceeding which its management believes could result
in any judgments or fines against it that would have a material
adverse affect on the Company's financial position, liquidity or
results of operations.
Permits
The Company is subject to various regulatory requirements,
including the procurement of requisite licenses and permits at
certain of its facilities. These licenses and permits are subject
to periodic renewal without which the Company's operations would be
adversely affected. The Company anticipates that, once a license
or permit is issued with respect to a facility, the license or
permit will be renewed at the end of its term if the facility's
operations are in compliance with the applicable regulatory
requirements.
Accrued Closure Costs and Environmental Liabilities
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, the Company is
subject to corrective action proceedings to restore soil and/or
groundwater to its original state. These activities are governed
by federal, state and local regulations and the Company maintains
the appropriate accruals for restoration. The Company has recorded
accrued liabilities for estimated closure costs and identified
environmental remediation costs.
Insurance
The business of the Company exposes it to various risks,
including claims for causing damage to property or injuries to
persons or claims alleging negligence or professional errors or
omissions in the performance of its services, which claims could be
substantial. The Company carries general liability insurance which
provides coverage in the aggregate amount of $2 million and an
additional $6 million excess umbrella policy and carries $1 million
per occurrence and $2 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
pollution control coverage.
10
<PAGE>
The Company also carries specific pollution liability
insurance for operations involved in the Waste Management Services
segment. The Company believes that this coverage, combined with
its various other insurance policies, is adequate to insure the
Company against the various types of risks encountered.
4. Stock Issuance
______________
On or about June 11, 1997, the Company issued to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("RBB Bank"), 2,500
shares of newly-created Series 4 Class D Convertible Preferred
Stock, par value $.001 per share ("Series 4 Preferred"), at a price
of $1,000 per share, for an aggregate sales price of $2,500,000.
The sale to RBB Bank was made in a private placement under Rule 506
of Regulation D under the Securities Acts of 1933, as amended,
pursuant to the terms of a Subscription and Purchase Agreement,
dated June 9, 1997, between the Company and RBB Bank ("Subscription
Agreement"). The Series 4 Preferred has a liquidation preference
over the Company's common stock, par value $.001 per share ("Common
Stock"), equal to $1,000 consideration per outstanding share of
Series 4 Preferred (the "Liquidation Value"), plus an amount equal
to all unpaid dividends accrued thereon. The Series 4 Preferred
accrues dividends on a cumulative basis at a rate of four percent
(4%) per annum of the Liquidation Value ("Dividend Rate"), and is
payable semi-annually when and as declared by the Board of
Directors. No dividends or other distributions may be paid or
declared or set aside for payment on the Company's Common Stock
until all accrued and unpaid dividends on all outstanding shares of
Series 4 Preferred have been paid or set aside for payment.
Dividends may be paid, at the option of the Company, in the form of
cash or Common Stock of the Company. If the Company pays dividends
in Common Stock, such is payable in the number of shares of Common
Stock equal to the product of (a) the quotient of (i) the Dividend
Rate divided by (ii) the average of the closing bid quotation of
the Common Stock as reported on the NASDAQ for the five trading
days immediate prior to the date the dividend is declared, times
(b) a fraction, the numerator of which is the number of days
elapsed during the period for which the dividend is to be paid and
the denominator of which is 365.
The holder of the Series 4 Preferred may convert into Common
Stock up to 1,250 shares of the Series 4 Preferred on and after
October 5, 1997, and the remaining 1,250 shares of the Series 4
Preferred on and after November 5, 1997. The conversion price per
share is the lesser of (a) the product of the average closing bid
quotation for the five (5) trading days immediately preceding the
conversion date multiplied by eighty percent (80%) or (b) $1.6875.
The minimum conversion price is $.75, which minimum will be
eliminated from and after September 6, 1998. The Company will have
the option to redeem the shares of Series 4 Preferred (a) between
June 11, 1998, and June 11, 2001, at a redemption price of $1,300
per share if at any time the average closing bid price of the
Common Stock for ten consecutive trading days is in excess of
$4.00, and (b) after June 11, 2001, at a redemption price of $1,000
per share. The holder of the Series 4 Preferred will have the
option to convert the Series 4 Preferred prior to redemption by the
Company.
As part of the sale of the Series 4 Preferred, the Company
also issued to RBB Bank two common stock purchase warrants
(collectively, the "Warrants ") entitling RBB Bank to purchase,
after December 31, 1997 and until June 9, 2000, an aggregate of up
to 375,000 shares of Common Stock, subject to certain anti-dilution
provisions, with 187,500 shares exercisable at a price equal to
$2.10 per share and 187,500 shares exercisable at a price equal to
$2.50 per share. A certain number of shares of Common Stock
issuable on the conversion of the Series 4 Preferred and on the
exercise of the Warrants is subject to certain registration rights
pursuant to the Subscription Agreement.
The Company paid fees (excluding legal and accounting) of
$200,000 in connection with the placement of Series 4 Preferred to
RBB Bank and issued to the investment banking firm that handled the
placement two (2) common stock purchase warrants entitling the
investment banking firm to purchase an aggregate of up to 300,000
shares of Common Stock, subject to certain anti-dilution
provisions, with one warrant for a five year term to purchase up to
200,000 shares at an exercise price of $2.00 per share and the
11
<PAGE>
second warrant for a three year term to purchase up to 100,000
shares of Common Stock at an exercise price of $1.50 per share,
subject to certain anti-dilution provisions. Under the terms of
each warrant, the investment banking firm is entitled to certain
registration rights with respect to the shares of Common Stock
issuable on the exercise of each warrant.
5. Facility Disruption
___________________
On January 27, 1997, an explosion and resulting tank fire
occurred at the Perma-Fix of Memphis, Inc. ("PFM") facility, a
hazardous waste storage, processing and blending facility, located
in Memphis, Tennessee, which resulted in damage to certain
hazardous waste storage tanks located on the facility and caused
certain limited contamination at the facility. Such occurrence was
caused by welding activity performed by employees of an independent
contractor at or near the facility s hazardous waste tank farm
contrary to instructions by PFM. The facility was non-operational
from the date of this event until May, 1997, at which time it began
limited operations. However, PFM has accepted and will continue to
accept waste for processing and disposal, but has arranged for
other facilities owned by the Company or subsidiaries of the
Company or others not affiliated with the Company to process such
waste. The utilization of other facilities to process such waste
results in higher costs to PFM than if PFM were able to store and
process such waste at its Memphis, Tennessee, TSD facility, along
with the additional handling and transportation costs associated
with these activities. PFM is in the process of repairing and/or
removing the damaged storage tanks and any contamination resulting
from the occurrence. The extent of PFM's activities at the
facility is presently being evaluated by the Company. See Note 3
for a discussion of certain proceedings pending against PFM as a
result of such fire and explosion.
Net revenues for PFM total $1,189,000 for the six month period
ended June 30, 1997, reflecting a decrease of $557,000 from the six
month period ended June 30, 1996 total of $1,746,000. However,
during this same period, the net loss for PFM totaled $1,040,000
for 1997, as compared to $270,000 for 1996, an increased loss of
$770,000 for the six month period. Net revenues for the quarter
ended June 30, 1997 were $437,000, a reduction of $482,000 from the
quarter ended June 30, 1997 total of $919,000. Correspondingly,
the net loss for the second quarter of 1997 totaled $549,000, as
compared to $87,000 for the second quarter of 1996, resulting in an
increased loss of $462,000 for this three month period. The
Company and PFM have property and business interruption insurance
and have provided notice to its carriers of such loss. The Company
has agreed in principle with its property insurance carrier to
settle its property and contents claim for an approximate value of
$522,000, which the Company believes is adequate to cover any
property loss suffered by PFM at the facility as a result of such
occurrence. The Company is in the process of determining the
amount of business interruption insurance that may be recoverable
by PFM as a result thereof.
6. Subsequent Event
________________
On or about July 14, 1997, the Company issued to the Infinity
Fund. L.P. ("Infinity"), 350 shares of newly-created Series 5 Class
E Convertible Preferred Stock, par value $.001 per share ("Series
5 Preferred"), at a price of $1,000 per share, for an aggregate
sales price of $350,000. The sale to Infinity was made in a private
placement under Rule 506 of Regulation D under the Securities Acts
of 1933, as amended, pursuant to the terms of a Subscription and
Purchase Agreement, dated July 7, 1997, between the Company and
Infinity ("Infinity Subscription Agreement"). The Company intends
to utilize the proceeds received on the sale of Series 5 Preferred
for the payment of debt and general working capital.
The Series 5 Preferred has a liquidation preference over the
Company's common stock, par value $.001 per share ("Common Stock"),
equal to $1,000 consideration per outstanding share of Series 5
Preferred (the "Liquidation Value"), plus an amount equal to all
unpaid dividends accrued thereon. The Series 5 Preferred accrues
dividends on a cumulative basis at a rate of four percent (4%) per
annum of the Liquidation Value ("Dividend Rate"). Dividends are
payable semi-annually when and as declared by the Board of
Directors. No dividends or other distributions may be paid or
declared or set aside for payment on the Company's Common Stock
until all accrued and unpaid dividends on all outstanding shares of
12
<PAGE>
Series 5 Preferred have been paid or set aside for payment.
Dividends may be paid, at the option of the Company, in the form of
cash or Common Stock of the Company. If the Company pays dividends
in Common Stock, such is payable in the number of shares of Common
Stock equal to the product of (a) the quotient of (i) the Dividend
Rate divided by (ii) the average of the closing bid quotation of
the Common Stock as reported on the NASDAQ for the five trading
days immediately prior to the date the dividend is declared,
multiplied by (b) a fraction, the numerator of which is the number
of days elapsed during the period for which the dividend is to be
paid and the denominator of which is 365.
The holder of the Series 5 Preferred may convert into Common
Stock up to 175 shares of the Series 5 Preferred on and after
November 3, 1997, and the remaining 175 shares of the Series 5
Preferred on and after December 3, 1997. The conversion price per
share is the lesser of (a) the product of the average closing bid
quotation for the five trading days immediately preceding the
conversion date multiplied by 80% or (b) $1.6875. The minimum
conversion price is $.75, which minimum will be eliminated from and
after September 6, 1998. If the average closing bid quotation of
the Company s Common Stock for the five trading days immediately
preceding the conversion of the Series 5 Preferred equals or
exceeds $2.11, the holder will have the right to convert the Series
5 Preferred into approximately 207,400 shares of Common Stock. The
Company will have the option to redeem the shares of Series 5
Preferred (a) between July 14, 1998, and July 13, 2001, at a
redemption price of $1,300 per share if at any time the average
closing bid price of the Common Stock for ten consecutive trading
days is in excess of $4.00, and (b) after July 13, 2001, at a
redemption price of $1,000 per share. The holder of the Series 5
Preferred will have the option to convert the Series 5 Preferred
prior to redemption by the Company. A certain number of shares of
Common Stock issuable upon conversion of the Series 5 Preferred is
subject to certain registration rights pursuant to the Infinity
Subscription Agreement.
On June 30, 1997, the Company entered into a Stock Purchase
Agreement ("Centofanti Agreement") with Dr. Louis F. Centofanti,
the President, Chief Executive Officer, Chairman of the Board, and
Director of the Company, whereby the Company sold, and Dr.
Centofanti purchased, 24,381 shares of the Company's Common Stock.
The sale to Dr. Centofanti was made in a private placement under
Rule 506 of Regulation D under the Securities Act of 1933, as
amended. The purchase price was $1.6406 per share representing 75%
of the $2.1875 closing bid price of the Common Stock as quoted on
the NASDAQ on the date that Dr. Centofanti notified the Company of
his desire to purchase such shares. Pursuant to the terms of the
Centofanti Agreement, Dr. Centofanti is to pay the Company the
aggregate purchase price of $40,000 for the 24,381 shares of Common
Stock. Dr. Centofanti purchased $20,000, or 12,190 shares, during
July, and the remainder is to be purchased during August 1997. The
sale of the 24,381 shares and the terms of the Centofanti Agreement
were authorized by the Company s Board of Directors.
On July 30, 1997, the Company entered into a Stock Purchase
Agreement ( Gorlin Agreement ) with Mr. Steve Gorlin, a member of
the Board of Directors of the Company, whereby the Company sold,
and Mr. Gorlin agreed to purchase, 200,000 shares of the Company s
Common Stock. The sale to Mr. Gorlin was made in a private
placement under Rule 506 of Regulation D under the Securities Act
of 1933, as amended. The purchase price was $2.125 per share
representing the closing bid price of the Common Stock as quoted on
the NASDAQ on July 30, 1997. Pursuant to the terms of the Gorlin
Agreement, Mr. Gorlin agreed to pay the Company the aggregate
purchase price of $425,000 for the 200,000 shares of Common Stock.
Mr. Gorlin agreed to purchase $212,500, or 100,000 shares, on
August 15, 1997, and the remainder on or before August 31, 1997.
In order to induce Mr. Gorlin to enter into this Agreement, and to
purchase the Common Stock on the terms and subject to the
conditions thereof, PESI agreed to issue a Warrant for the purchase
of 100,000 shares of Common Stock at $2.40 per share. The sale of
200,000 shares, Warrant of 100,000 shares and the terms of the
Gorlin Agreement were authorized by the Company s Board of
Directors.
13
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
Forward-Looking Statements
Certain statements contained within this "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" may be deemed "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, the "Private Securities Litigation Reform Act of
1995").
All statements in this "Management Discussion and Analysis of
Financial Condition and Results of Operations" other than
statements of historical fact are forward-looking statements that
are subject to known and unknown risks, uncertainties and other
factors which could cause actual result and performance of the
Company to differ materially from such statements. The words
"believe", "expect", "anticipate", "intend", "will", and similar
expressions identify forward-looking statements. Forward-looking
statements contained herein relate to anticipated financial
performance, ability to comply with the Company's general working
capital requirements, ability to recover under certain insurance
policies, ability to reopen certain operations in Memphis,
Tennessee, the ability to retain or receive certain permits, the
successful resolution of certain actions instituted by the
Tennessee Department of Environment and Conservation against the
Memphis, Tennessee facility of the Company, the ability to be able
to continue to borrow under the Company's revolving line of credit,
the ability to become profitable, the ability to remediate certain
contaminated sites for projected amounts, and all other statements
which are not statements of historical fact. While the Company
believes the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance such
expectations will prove to have been correct. There are a variety
of factors which could cause future outcomes to differ materially
from those described in this Form 10-Q, including, but not limited
to, general economic conditions, material reduction in revenues,
inability to collect in a timely manner a material amount of
receivables, increased competitive pressures, overcapacity in the
environmental industry, ability to receive or retain certain
required permits to satisfactorily resolve certain pending orders
or issues or to reopen a certain facility or to move such facility
to another location, changes in federal, state and local laws and
regulations, especially environmental regulations, or in
interpretation of such, potential increases in equipment,
maintenance, operating or labor costs, management retention and
development, the requirement to use internally generated funds for
purposes not presently anticipated, the inability to obtain waivers
regarding existing defaults under certain financial covenants
contained in loan agreements that the Company is a party to, the
insurance carrier determines that coverage is not available or is
available in limited amounts or contest the amount of the claim, or
the Company is not able to become profitable or, if unable to
become profitable, is unable to secure additional liquidity in the
form of additional equity or debt. The Company undertakes no
obligation to update publicly any forward-looking statement,
whether as a result of new information, future events or otherwise.
14
<PAGE>
Results of Operations
The table below should be used when reviewing management's
discussion and analysis for the three and six months ended June 30,
1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
_________________________________
Consolidated 1997 % 1996 %
____________ _______ _____ _______ _____
<S> <C> <C> <C> <C>
Net Revenues $ 7,134 100.0 $ 8,178 100.0
Cost of Goods Sold 5,180 72.6 5,634 68.9
______ _____ ______ _____
Gross Profit 1,954 27.4 2,544 31.1
Selling, General and
Administrative 1,652 23.2 1,682 20.6
Depreciation/Amortization 533 7.5 558 6.8
______ _____ ______ _____
Income (Loss) from
Operations $ (231) (3.3) $ 304 3.7
====== ===== ====== =====
Interest Expense 189 2.7 227 2.8
Preferred Stock Dividends $ 82 1.1 $ - -
====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
_________________________________
Consolidated 1997 % 1996 %
____________ _______ _____ _______ _____
<S> <C> <C> <C> <C>
Net Revenues $13,636 100.0 $15,750 100.0
Cost of Goods Sold 10,344 75.9 11,398 72.4
______ _____ ______ _____
Gross Profit 3,292 24.1 4,352 27.6
Selling, General and
Administrative 3,177 23.3 3,424 21.7
Depreciation/Amortization 1,077 7.9 1,177 7.5
______ _____ ______ ______
Income (Loss) from
Operations $ (962) (7.1) $ (249) (1.6)
====== ====== ====== ======
Interest Expense 372 2.7 489 3.1
====== ====== ====== ======
Preferred Stock Dividends $ 163 1.2 $ - -
====== ====== ====== ======
</TABLE>
Summary -- Three and Six Months Ended June 30, 1997 and 1996
____________________________________________________________
The Company provides services through two business segments.
The Waste Management Services segment is engaged in on- and off-
site treatment, storage, disposal and blending of a wide variety of
by-products and industrial and hazardous wastes. The Company
developed and owns several priority on-site and off-site
technologies for the treatment of nuclear mixed waste. This
segment competes for materials and services with numerous regional
and national competitors to provide comprehensive and cost-
effective waste management services to a wide variety of customers
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 of the pollution control
industry provides a wide variety of environmental related
consulting and engineering services to industry and government.
Through the Company's wholly-owned subsidiaries in Tulsa, Oklahoma
and St. Louis, Missouri, this segment provides oversight management
of environmental restoration projects, air and soil sampling and
compliance reporting, surface and subsurface water treatment design
for removal of pollutants, and various compliance and training
activities.
Consolidated net revenues decreased to $7,134,000 from
$8,178,000 for the three months ended June 30, 1997 as compared to
the three months ended June 30, 1996. This decrease of $1,044,000,
or 12.8%, is attributable to both the Waste Management Services
segment which experienced a reduction in revenues of $745,000, and
a decrease of $299,000 in revenues from the Consulting Engineering
segment. As reflected, the most significant decrease was within the
Waste Management segment and is partially a result of the
disruption at the Memphis, Tennessee, facility, which resulted in
reduced sales of $437,000, as compared to $919,000 during the three
months ended June 30, 1996, a reduction of revenue of $482,000 for
the three months ended June 30, 1997 as compared to the same period
of 1996. Also impacting this reduced revenue for the second
quarter of 1997 was the delayed start-up on the Company s third
contract for the waste treatment project at the U.S. Department of
Energy's ("DOE") Fernald, Ohio, facility, along with the reductions
resulting from the sale of the PermaCOOL Process during 1996, which
resulted in a reduction of approximately $50,000 and $598,000,
respectively. Consolidated revenues for the six months ended
June 30, 1997 and 1996 were $13,636,000 and $15,750,000,
respectively, reflecting a decrease of $2,114,000. This decrease
is primarily the result of the above-discussed facility disruption,
15
<PAGE>
which contributed $557,000 to this reduction, and to the
restructuring in the Perma-Fix, Inc. group as it transitions away
from lower margin field service projects and continues to pursue
new technologies and additional DOE contracts. As discussed above,
the Company experienced a delay in the start-up of its third
contract with the DOE s Fernald, Ohio, facility. Revenues related
to such DOE contracts totaled $160,000 during the first six months
of 1997, as compared to $813,000 during the six month period ended
June 30, 1996, resulting in a reduction of $653,000 for the first
six months of 1997, compared to the same period in 1996. The
Company began work during July, 1997, on this third DOE contract,
which has a maximum award total of $1,140,000. During 1996, the
Company had also completed the sale of its PermaCOOL technology,
which had generated revenues of $628,000 for the six months of
1996, which were not duplicated during 1997.
The cost of goods sold was $5,180,000 for the quarter ended
June 30, 1997, as compared to $5,634,000 for the quarter ended
June 30, 1996. The $454,000, or 8.1%, decrease in cost of goods
sold is primarily attributable to the reduced revenue during the
first quarter of 1997, which, as discussed above, decreased by
12.8%. However, as a percent of revenue, cost of goods sold
increased to 72.6% in the second quarter of 1997, compared to 68.9%
in the corresponding second quarter of 1996. This consolidated
increase in cost of goods sold as a percent of revenue reflects
principally the impact of reduced revenues, combined with the
additional operating costs incurred at the PFM facility resulting
from the above-discussed disruption and associated increased
operating, disposal, and transportation costs as a result of such
disruption. Cost of goods sold for PFM was approximately 71.3% for
the second quarter of 1996, as compared to 143.0% for the second
quarter of 1997, which resulted in a loss for PFM at the gross
margin of $189,000. Consolidated cost of goods sold for the six
months ended June 30, 1997 was $10,344,000, a reduction of
$1,054,000 from the 1996 total of $11,398,000. However, cost of
goods sold as a percent of revenue increased for the six month
period of 1997 to 75.9%, as compared to 72.4% for the same period
of 1996. This increase in cost of goods sold as a percent of
revenue is principally due to the reduced revenue and facility
disruption, as discussed above, at the PFM facility. Cost of goods
sold for PFM was approximately 76.3% for the six months ended June
30, 1996, as compared to 124.7% for the corresponding six months of
1997, which resulted in a loss for PFM at the gross margin level of
$293,000. The consolidated gross margin for the first six months
of 1997 was also negatively impacted by the delayed start-up of the
third contract at the DOE s Fernald, Ohio, facility, during which
time the Company maintained many of the fixed costs in preparation
for the project start-up, and also by reduced margins within the
Company s Consulting Engineering segment as numerous large
contracts were completed and the lead work was performed on new
business. See Facility Disruption of this Management s
Discussion and Analysis of Financial Conditions and Results of
Operations and Note 5 to Notes to Consolidated Financial
Statements.
Selling, general and administrative expenses decreased to
$1,652,000 for the three months ended June 30, 1997, from
$1,682,000 for the three months ended June 30, 1996. However, as
a percent of revenue, selling, general and administrative expenses
increased to 23.2% for the quarter ended June 30, 1997, compared to
20.6% for the same period in 1996. The selling, general and
administrative expense decrease of $30,000, or 1.8%, reflects a
reduction in costs of $65,000 in the Consulting Engineering
segment, a reduction of $34,000 in corporate overhead, and an
increase of $69,000 in the Waste Management Services segment.
Consolidated selling, general and administrative expenses decreased
to $3,177,000 for the six months ended June 30, 1997, from
$3,424,000 for the six months ended June 30, 1996. Again, as a
percent of revenue, selling, general and administrative expenses
increased to 23.3% for the six months ended June 30, 1997 compared
to 21.7% for the same period in 1996, which is a direct result of
the reduced revenue levels discussed above. During the six months
ended June 30, 1997, the Company reduced marketing expenses by
approximately $118,000 from the same period of 1996. During this
six month period of 1997, the Company also reduced administrative
expenses by approximately $291,000, which was partially offset by
additional expenses relative to the PFM incident; such as legal,
professional and regulatory expenses which total approximately
$74,000.
16
<PAGE>
Depreciation and amortization expense for the quarter ended
June 30, 1997 reflects a total of $533,000, a decrease of $25,000
from the second quarter 1996 total of $558,000. Amortization
expense reflects a total of $94,000 for the second quarter of 1997,
a reduction of $20,000 from the second quarter of 1996, which is a
direct result of the "Covenant Not to Compete" having become fully
amortized during the first quarter of 1997. Consolidated
depreciation and amortization expense for the six months ended June
30, 1997 reflects a total of $1,077,000, a decrease of $100,000
from the six months ended June 30, 1996 total of $1,177,000.
Amortization expense reflects a total of $197,000 for the six
months ended June 30, 1997, a reduction of $30,000 which is a
direct result of the fully amortized covenant described above.
Depreciation expense for this six month period of 1997 reflects a
reduction of $70,000 in conjunction with the sale of certain assets
as a result of the Company s previous restructuring programs and
various other assets becoming fully depreciated.
Interest expense was $189,000 for the quarter ended June 30,
1997, as compared to $227,000 for the same period of 1996. The
decrease in interest expense of $38,000 reflects the reduced
borrowing levels on the Heller Financial, Inc. revolving loan and
term note. Offsetting this reduced interest expense, during the
second quarter of 1997, was the preferred stock dividend totaling
$82,000 incurred in conjunction with the Series 3 Class C and
Series 4 Class D Convertible Preferred Stock as issued in July 1996
and June 1997, respectively. Interest expense for the six months
ended June 30, 1997 totaled $372,000, as compared to $489,000 for
the same period of 1996. This decrease of $117,000 also reflects
the reduced borrowing levels on the Heller Financial, Inc.
revolving loan and term note. Offsetting this reduced interest
expense for the six months ended June 30, 1997, was the preferred
stock dividend totaling $163,000 incurred in conjunction with the
Series 3 Class C Convertible Preferred Stock as issued in July
1996.
Facility Disruption
___________________
As previously discussed, on January 27, 1997, an explosion and
resulting tank fire occurred at PFM s facility, a hazardous waste
storage, processing and blending facility, located in Memphis,
Tennessee, which resulted in damage to certain hazardous waste
storage tanks located on the facility and causing certain limited
contamination at the facility. The facility was non-operational
from the date of this event until May, 1997, at which time it began
limited operations. However, PFM has accepted and will continue to
accept waste for processing and disposal, but has arranged for
other facilities owned by the Company or subsidiaries of the
Company or others not affiliated with the Company to process such
waste during this period. The utilization of other facilities to
process such waste results in higher costs to PFM than if PFM were
able to store and process such waste at its Memphis, Tennessee, TSD
facility, along with the additional handling and transportation
costs associated with these activities. As previously discussed,
the Company has experienced a reduction in revenues as a result of
this occurrence, as this facility attempts to selectively accept
and reroute waste. Net revenues for PFM total $1,189,000 for the
six month period ended June 30, 1997, reflecting a decrease of
$557,000 from the six month period ended June 30, 1996 total of
$1,746,000. However, during this same period, the net loss for PFM
totaled $1,040,000 for the first six months of 1997, as compared to
$270,000 for the same period in 1996, an increased loss of $770,000
for the six month period. Net revenues for the quarter ended
June 30, 1997 were $437,000, a reduction of $482,000 from the
quarter ended June 30, 1997 total of $919,000. Correspondingly,
the net loss for the second quarter of 1997 totaled $549,000, as
compared to a net loss of $87,000 for the second quarter of 1996,
resulting in an increased loss of $462,000 for this three month
period. PFM is in the process of repairing and/or removing the
damaged storage tanks and any contamination resulting from the
occurrence. The extent of PFM's activities at the facility, once
operations are renewed, are presently being evaluated by the
Company. See Managements Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital
Resources for further information and discussion of certain
forward-looking statements contained herein and certain cautionary
statements relating thereto.
As a result of the explosion and resulting tank fire at the
PFM facility, the Tennessee Department of Environment and
Conservation ("TDEC") issued an order dated April 23, 1997 (the
"TDEC Order"), which alleges that the facility violated certain
17
<PAGE>
hazardous waste rules and regulations promulgated by the TDEC. The
TDEC Order assessed a penalty against PFM of approximately $144,000
and ordered, among other things, that (a) the facility cease
blending operations, (b) the facility s permit to construct a new
hazardous waste tank storage area, which has not yet been
constructed, be revoked within 30 days from the date of the TDEC
Order, and (c) PFM implement certain other actions. PFM has
responded to the TDEC Order and asserted that the TDEC Order was
issued against the wrong party, that PFM did not violate any rules
and regulations and that the TDEC is not entitled to such
penalties. The Company intends for PFM to vigorously defend itself
in connection with this matter. This paragraph contains forward-
looking statements which are subject to certain factors that could
cause the actual results to differ materially from anticipated
results, including, but not limited to, certain factors set forth
in "Forward-Looking Statements" of this "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Liquidity and Capital Resources of the Company
______________________________________________
At June 30, 1997, the Company had cash and cash equivalents of
$150,000. This cash and cash equivalents total reflects an
increase of $105,000 from December 31, 1996, as a result of net
cash used in operations of $351,000, cash used in investing
activities of $356,000 (principally purchases of equipment, net
totaling $381,000, partially offset by the proceeds from the sale
of property and equipment of $46,000) and cash provided by
financing activities of $812,000 (principally from the proceeds
from issuance of stock totaling $2,916,000, partially offset by
repayments of long-term debt and the revolving loan and term note
facility). Accounts receivable, net of allowances, totaled
$4,926,000, a decrease of $623,000 from the December 31, 1996
balance of $5,549,000, which reflects the reduced revenue levels
during the second quarter, and improved collection activities.
In January 1995, the Company entered into a Loan and Security
Agreement with Heller Financial, Inc. ("Heller"). Under the loan
agreement with Heller, the Company was provided a term loan of
$2,500,000 and a revolving loan facility in the amount of
$7,000,000. The term loan is for a term of 36 months, payable in
monthly installments of $42,000 and a balloon payment for the
balance on January 31, 1998. The revolving loan facility is
reduced by the outstanding unpaid principal amount due on the term
loan and is subject to the maximum credit availability, determined
through a monthly borrowing base equal to 80% of the eligible
accounts receivable (as defined in the loan agreement) of the
Company and its subsidiaries. The termination date of the
revolving loan facility is also January 31, 1998. See Note 2 to
Notes to Consolidated Financial Statements.
As noted above, the Loan and Security Agreement with Heller
has a scheduled termination date of January 31, 1998. The Company
is currently negotiating with Heller for the renewal of this
Agreement and has had discussions with other potential lenders in
an effort to replace the term and revolving loans provided to the
Company by Heller. There are no assurances that such a renewal or
new credit facility will be obtained. As a result of this
scheduled termination date, and in compliance with Generally
Accepted Accounting Principles, the Company has reclassified as a
current liability $2,091,000 outstanding under the Agreement with
Heller that would otherwise be classified as long-term debt. As of
June 30, 1997, the Company was in default of the "Minimum EBITDA"
and "Fixed Charge Coverage" financial covenants of the Agreement.
This default was principally a result of the facility disruption and
resulting net loss incurred by the Perma-Fix of Memphis, Inc.
("PFM") facility due to an explosion and fire in January 1997 (see
Note 5). The Company is currently negotiating with Heller for a
waiver of this default.
As of June 30, 1997, the borrowings under the Company's
revolving loan facility with Heller totaled $1,473,000, a decrease
of $1,406,000 from the December 31, 1996 balance of $2,879,000,
with a related additional borrowing availability of $1,514,000,
based on 80% of the amount of eligible receivables of the Company
as of June 30, 1997. The balance on the term loan totaled
18
<PAGE>
$1,117,000, as compared to $1,383,000 at December 31, 1996. Total
indebtedness under the Agreement with Heller, as amended, as of
June 30, 1997 was $2,590,000, a decrease of $1,672,000 from the
December 31, 1996, balance of $4,262,000. See Note 2 to Notes to
Consolidated Financial Statements.
Pursuant to the Sixth Amendment, the Company was obligated to
raise an additional $700,000 on or before August 15, 1997, of which
$150,000 was to be received by June 15, 1997. During the second
quarter of 1997 and July, 1997, the Company fully satisfied this
covenant obligation, having raised approximately $3,042,000
principally through insurance proceeds with regard to the vandalism
at the Perma-Fix of Ft. Lauderdale, Inc. ("PFL") facility in 1996
and from the issuance of the 2,500 shares of newly-created Series
4 Class D Convertible Preferred Stock ("Series 4 Preferred"), as
further discussed in Note 4 to Notes to Consolidated Financial
Statements and Item 2 "Changes in Securities," and the issuance of
350 shares of newly created Series 5 Class E Convertible Preferred
Stock ("Series 5 Preferred"), as further discussed in Note 6 to
Notes to Consolidated Financial Statements.
The Company received net proceeds of $2,650,000 (after
deduction of the payment of $200,000 for broker's commissions, but
prior to any legal fees and other costs in connection with the sale
of the Series 4 Preferred and the Series 5 Preferred and the
registration of the Common Stock issuable upon conversion of such
preferred stock) for the sale of the Series 4 Preferred and the
Series 5 Preferred. Each share of Series 4 Preferred and Series 5
Preferred sold for $1,000 per share and has a liquidation value of
$1,000. The Company used the net proceeds to reduce its revolving
line of credit. The Company intends to reborrow such, as allowed
under its revolving line of credit for capital improvements at the
Company s various facilities, working capital and payment of trade
payables, which is a forward-looking statement and is subject to
certain factors that could cause actual results to differ
materially from such statement, including, but not limited to, the
factors discussed under "Forward-Looking Statements" of this
"Management's Discussion and Analysis of Financial Conditions and
Results of Operations." See Note 2 to Notes to Consolidated
Financial Statements and this "Managements Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion
as to the basis of borrowing under the Company's revolving line of
credit.
Ally Capital Corporation ("Ally") had previously provided the
Company with an equipment financing arrangement to finance the
purchase of capital equipment. As of June 30, 1997, the Company's
outstanding principal balance owing under this equipment financing
arrangement was $945,000. The Company has fully utilized this
equipment financing arrangement with Ally. As of June 30, 1997,
the Company was in default of the Minimum EBITDA and Fixed
Charge Coverage financial covenants of the Agreement. This
default was principally a result of the facility disruption and
resulting net loss incurred by the Perma-Fix of Memphis, Inc.
("PFM") facility due to an explosion and fire in January 1997 (see
Note 5). The Company is currently negotiating with Ally for a
waiver of this default. Based upon the Company's discussions with
Ally, the nature and reason for said default and the significant
collateral position securing this equipment financing agreement,
the Company has chosen not to reclassify the long-term balance of
$276,000 at June 30, 1997 as a current liability. See Note 2 to
Notes to Consolidated Financial Statements.
At June 30, 1997, the Company had $4,544,000 in aggregate
principal amounts of outstanding debt, as compared to $6,360,000 at
December 31, 1996. This decrease in outstanding debt of $1,816,000
during the six month period ended June 30, 1997 is principally a
result of the repayment of the Heller revolving loan facility as a
result of the issuance of the Series 4 Preferred and Series 5
Preferred. The total indebtedness under the Heller Agreement
decreased during the six month period ended June 30, 1997 by
$1,672,000.
19
<PAGE>
As of June 30, 1997, total consolidated accounts payable for
the Company was $3,097,000, a decrease of $580,000 from the
December 31, 1996 balance of $3,677,000. This decrease is
principally a result of the proceeds from the Series 4 Preferred
issued during June 1997.
The Company's net purchases of new capital equipment for the
six month period ended June 30, 1997 totaled approximately
$381,000, excluding financed capital expenditures of $289,000.
These expenditures were for improvements to the operations,
including two (2) capital expansion projects within the Waste
Management Services segment, and other capital expenditures
necessary to maintain compliance with federal, state or local
permit standards. These capital expenditures were principally
funded through the operating cash flow of the Company and
utilization of the Heller revolving loan facility. The Company has
budgeted capital expenditures of $1,250,000 for 1997 (excluding any
expenditures at PFM due to the explosion and fire), which includes
completion of the two (2) above noted expansion projects estimated
to be approximately $300,000, as well as other identified capital
and permit compliance purchases. The Company anticipates funding
these capital expenditures by a combination of lease financing with
lenders other than the equipment financing arrangement discussed
above, proceeds from the Series 4 Preferred and Series 5 Preferred,
and/or internally generated funds. The Company's statements regarding
its anticipated ability to fund such capital expenditures are forward-
looking statements and are subject to certain factors that could cause
actual results to differ materially from such statements, including,
but not limited to, the factors discussed under "Forward-Looking
Statements" of this "Management Discussion and Analysis of Financial
Conditions and Results of Operations."
The working capital deficit position at June 30, 1997 was
$2,806,000, as compared to a deficit position of $773,000 at
December 31, 1996. The June 1997, deficit position includes the
reclassification of the Heller long-term debt to current, as a
result of Heller s scheduled termination date of January 31, 1998.
In compliance with Generally Accepted Accounting Principles, the
Company has reclassified as a current liability $2,091,000
outstanding under the Agreement that would otherwise be classified
as long-term debt. If the Company would not have had to reclassify
$2,091,000 of the debt due to Heller under the Agreement, the June
1997, deficit position would have been $715,000, which reflects an
improvement of $58,000 from the December deficit position.
In consideration of certain investment banking services as
performed for the Company, a warrant was issued to JW Charles
Financial Services, Inc. ("Charles") during September 1996. This
warrant was subsequently assigned by Charles to certain partners,
officers or broker and, during July 1997, one of the assigned
warrants was exercised which resulted in the issuance of 155,000
shares of the Company's Common Stock and raised $232,000 in equity
or capital for the Company.
On June 30, 1997, the Company entered into a Stock Purchase
Agreement ("Centofanti Agreement") with Dr. Louis F. Centofanti,
the President, Chief Executive Officer, Chairman of the Board, and
Director of the Company, whereby the Company sold, and
Dr. Centofanti purchased, 24,381 shares of the Company's Common
Stock. The sale to Dr. Centofanti was made in a private placement
under Rule 506 of Regulation D under the Securities Act of 1933, as
amended. The purchase price was $1.6406 per share representing 75%
of the $2.1875 closing bid price of the Common Stock as quoted on
the NASDAQ on the date that Dr. Centofanti notified the Company of
his desire to purchase such shares. Pursuant to the terms of the
Centofanti Agreement, Dr. Centofanti is to pay the Company the
aggregate purchase price of $40,000 for the 24,381 shares of Common
Stock. Dr. Centofanti purchased $20,000, or 12,190 shares, during
July, and the remainder is to be purchased during August 1997. See
Note 6 to Notes to Consolidated Financial Statements and "Changes
in Securities," Part II.
On July 30, 1997, the Company entered into a Stock Purchase
Agreement ("Gorlin Agreement") with Mr. Steve Gorlin, a member of
the Board of Directors of the Company, whereby the Company sold,
and Mr. Gorlin agreed to purchase, 200,000 shares of the Company's
Common Stock. The sale to Mr. Gorlin was made in a private
placement under Rule 506 of Regulation D under the Securities Act
of 1933, as amended. The purchase price was $2.125 per share
20
<PAGE>
representing the closing bid price of the Common Stock as quoted on
the NASDAQ on July 30, 1997. Pursuant to the terms of the Gorlin
Agreement, Mr. Gorlin agreed to pay the Company the aggregate
purchase price of $425,000 for the 200,000 shares of Common Stock.
Mr. Gorlin agreed to purchase $212,500, or 100,000 shares, on
August 15, 1997, and the remainder on or before August 31, 1997.
In order to induce Mr. Gorlin to enter into this Agreement, and to
purchase the Common Stock on the terms and subject to the
conditions thereof, PESI agreed to issue a Warrant for the purchase
of 100,000 shares of Common Stock at $2.40 per share. The sale of
200,000 shares, Warrant of 100,000 shares and the terms of the
Gorlin Agreement were authorized by the Company s Board of
Directors.
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 Company has outstanding, as of the date of this report,
4,000 shares of Series 3 Class C Convertible Preferred Stock
("Series 3 Preferred"), 2,500 shares of Series 4 Preferred, and 350
shares of Series 5 Preferred. The Series 3 Preferred accrues
dividends on a cumulative basis at the rate of 6% per annum of the
Liquidation Value. Each outstanding share of Series 4 Preferred
and Series 5 Preferred accrues dividends on a cumulative basis at
a rate of 4% per annum of the Liquidation Value. The Liquidation
Value of the preferred stock is $1,000 per share. The dividends
are payable semi-annually when and as declared by the Board of
Directors. Dividends may be paid, at the option of the Company, in
cash or Common Stock of the Company. It is the present intention
of the Company and the requirements under the Heller loan agreement
that all dividends on the outstanding preferred stock are to be paid
in Common Stock. See Notes 4 and 6 to Notes to Consolidated Financial
Statements and "Part II - Changes in Securities."
As previously discussed, the Company's subsidiary, PFM,
sustained an explosion and fire at its TSD facility in Memphis,
Tennessee, on January 27, 1997, damaging certain hazardous waste
storage tanks and causing certain limited contamination at the
facility. The facility was non-operational until May 1997, at which
time it began limited operations. PFM is in the process of
repairing or removing the damaged tanks and removing or remediating
the contamination caused by the explosion and fire. During the
period that PFM's facility is not operational, PFM has accepted and
will continue to accept waste for processing and disposal, but has
arranged for other facilities owned by the Company or subsidiaries
of the Company or others not affiliated with the Company to process
such waste. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Facility Disruption." The
Company and PFM have property and business interruption insurance.
The Company has agreed in principle with its property insurance
carrier to settle its property and contents claim relating to the
fire and explosion at PFM for an approximate value of $522,000
which the Company believes is adequate to cover any property loss
suffered by PFM at the facility as a result of such occurrence.
The Company is presently in the process of determining the amount
of business interruption insurance that may be recoverable by PFM
as a result of such occurrence. Certain statements contained in
this paragraph are forward-looking statements and are subject to
certain factors that could cause actual results to differ
materially from those set forth above, including, but not limited
to, certain factors set forth under "Forward-Looking Statements" of
this "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, which during the
first six months of 1997 was negatively impacted by the disruption
from the PFM explosion and fire. If the Company is unable to
continue to improve its operations and to become profitable in the
foreseeable future, such would have a material adverse effect on
the Company's liquidity position and on the Company. This is a
forward-looking statement and is subject to certain factors that
could cause actual results to differ materially from those in the
forward-looking statement, including, but not limited to, certain
factors set forth in "Forward-Looking Statements" of this
Management's Disussion
21
<PAGE>
and Analysis of Financial Condition and Results of Operations," the
Company's ability to become profitable or, if the Company is not able
to become profitable, whether the Company is able to raise additional
liquidity in the form of additional equity or debt.
Environmental Contingencies
The Company is engaged in the waste management services
segment of the pollution control industry. As a participant in the
on-site treatment, storage and disposal market and the off-site
treatment and services market, the Company is subject to rigorous
federal, state and local regulations. These regulations mandate
strict compliance and therefore are a cost and concern to the
Company. Because of the integral part of providing quality
environmental services, the Company makes every reasonable attempt
to maintain complete compliance with these regulations; however,
even with a diligent commitment, the Company, as with many of its
competitors, may be required to pay fines for violations or
investigate and potentially remediate its waste management
facilities. See Note 3 to Notes to Consolidated Financial
Statements and "Facility Disruption."
The Company routinely uses third party disposal companies, who
ultimately destroy or secure landfill residual materials generated
at its facilities or at a client's site. The Company, compared to
its competitors, disposes of significantly less hazardous or
industrial by-products from its operations due to rendering
material non-hazardous, discharging treated waste waters to
publicly-owned treatment works and/or recycling wastes into
saleable products. In the past, numerous third party disposal
sites have improperly managed wastes and consequently require
remedial action; 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 at a remedial action
site, which could have a material adverse effect on the Company.
In addition to budgeted capital expenditures of $1,250,000 for
1997 at the Company s treatment, storage, and disposal facilities,
which are necessary to maintain permit compliance and improve
operations, as discussed above, excluding capital expenditures due
to the fire and explosion at the PFM facility, the Company has also
budgeted for 1997 an additional $350,000 in environmental
expenditures to comply with federal, state and local regulations in
connection with remediation of certain contaminates at two
locations. The two locations where these expenditures will be made
are at a certain leased property in Dayton, Ohio, a former RCRA
storage facility operated by the former owners of PFD and leased by
a predecessor of PFD, and PFM's facility in Memphis, Tennessee
(excluding any capital expenditures due to the previously discussed
fire and explosion at PFM). Additional funds will be required for
the next five to fifteen years to properly investigate and
remediate these sites. The Company has accrued $1,696,000 for
estimated costs of remediating these two sites (excluding any
expenditures due to the fire and explosion at PFM), which is
projected to be the maximum exposure and is expected to be
performed over a period in excess of ten (10) years. The Company
expects to fund these expenses to remediate these two sites from
funds generated internally. This is a forward looking statement
and is subject to numerous conditions, including, but not limited
to, the Company's ability to generate sufficient cash flow from
operations to fund all costs of operations and remediation of these
two sites, the discovery of additional contamination or expanded
contamination which would result in a material increase in such
expenditures, or changes in governmental laws or regulations.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 establishes new
standards for computing and presenting earnings per share ("EPS").
Specifically, SFAS 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
22
<PAGE>
computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, earlier application is
not permitted. EPS for the three and six months ended June 30,
1997 and 1996 computed under SFAS 128 would not be materially
different than previously computed.
23
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
_________________
There are no additional legal proceedings pending against
the Company and/or its subsidiaries not previously reported by the
Company in Item 3 of its Form 10-K for the fiscal year ended
December 31, 1996 or Item 1 of the Form 10-Q for the quarter ended
March 31, 1997.
Item 2. Changes in Securities
_____________________
(c) During the quarter ended June 30, 1997, the Company sold,
or entered into an agreement to sell, equity securities that were
not registered under the Securities Act of 1933, as amended
("Securities Act"), as follows:
(i) On or about June 11, 1997, the Company issued
to RBB Bank Aktiengesellschaft, located in Graz, Austria
("RBB Bank"), 2,500 shares of newly-created Series 4
Class D Convertible Preferred Stock, par value $.001 per
share ("Series 4 Preferred"), at a price of $1,000 per
share, for an aggregate sales price of $2,500,000. The
sale to RBB Bank was made in a private placement under
Rule 506 of Regulation D under the Securities Acts of
1933, as amended ("Securities Act ), pursuant to the
terms of a Subscription and Purchase Agreement, dated
June 9, 1997, between the Company and RBB Bank
("Subscription Agreement"). The Series 4 Preferred has a
liquidation preference over the Company's Common Stock
equal to $1,000 consideration per outstanding share of
Series 4 Preferred (the "Liquidation Value"), plus an
amount equal to all accrued and unpaid dividends. The
Series 4 Preferred accrues dividends on a cumulative
basis at a rate of four percent (4%) per annum of the
Liquidation Value ("Dividend Rate"), and is payable semi-
annually when and as declared by the Board of Directors.
No dividends or other distributions may be paid or
declared or set aside for payment on the Company's Common
Stock until all accrued and unpaid dividends on all
outstanding shares of Series 4 Preferred have been paid
or set aside for payment. Dividends may be paid, at the
option of the Company, in the form of cash or Common
Stock of the Company. If the Company pays dividends in
Common Stock, such is payable in the number of shares of
Common Stock equal to the product of (a) the quotient of
(i) the Dividend Rate divided by (ii) the average of the
closing bid quotation of the Common Stock as reported on
the NASDAQ for the five trading days immediate prior to
the date the dividend is declared, times (b) a fraction,
the numerator of which is the number of days elapsed
during the period for which the dividend is to be paid
and the denominator of which is 365.
The holder of the Series 4 Preferred may convert into
Common Stock up to 1,250 shares of the Series 4 Preferred on
and after October 5, 1997, and the remaining 1,250 shares of
the Series 4 Preferred on and after November 5, 1997. The
conversion price per share is the lesser of (a) the product of
the average closing bid quotation of the Common Stock as
reported on the NASDAQ for the five (5) trading days
immediately preceding the conversion date multiplied by eighty
percent (80%) or (b) $1.6875. The minimum conversion price is
$.75, which minimum will be eliminated from and after
September 6, 1998. Subject to the closing bid price of the
Company's Common Stock at the time of the conversion and other
conditions which could increase the number of shares to be
issued upon conversion, the Series 4 Preferred, if all were
converted, could be converted into between 1,482,000 and
3,334,000 shares of Common Stock, or more after the minimum
conversion price is eliminated or under certain other limited
conditions. The Company will have the option to redeem the
shares of Series 4 Preferred (a) between June 11, 1998, and
24
<PAGE>
June 11, 2001, at a redemption price of $1,300 per share if at
any time the average closing bid price of the Common Stock for
ten consecutive trading days is in excess of $4.00, and (b)
after June 11, 2001, at a redemption price of $1,000 per
share. The holder of the Series 4 Preferred will have the
option to convert the Series 4 Preferred prior to redemption
by the Company.
As part of the sale of the Series 4 Preferred, the
Company also issued to RBB Bank two common stock purchase
warrants (collectively, the "Warrants") entitling RBB Bank to
purchase, after December 31, 1997 and until June 9, 2000, an
aggregate of up to 375,000 shares of Common Stock, subject to
certain anti-dilution provisions, with 187,500 shares
exercisable at a price equal to $2.10 per share and 187,500
shares exercisable at a price equal to $2.50 per share.
1,482,000 shares of Common Stock issuable on the conversion of
the Series 4 Preferred, 250,000 shares of Common Stock
issuable in payment of accrued dividends on the Series 4
Preferred and the shares of Common Stock issuable on the
exercise of the Warrants are subject to certain registration
rights pursuant to the Subscription Agreement.
The Company paid fees (excluding legal and accounting) of
$200,000 in connection with the placement of Series 4
Preferred to RBB Bank and issued to the investment banking
firm that handled the placement of the Series 4 Preferred two
(2) Common Stock Purchase Warrants entitling the investment
banking firm to purchase an aggregate of up to 300,000 shares
of Common Stock, subject to certain anti dilution provisions,
with one Warrant for a five year term to purchase up to
200,000 shares at an exercise price of $2.00 per share and the
second Warrant for a three year term to purchase up to 100,000
shares of Common Stock at an exercise price of $1.50 per
share,. subject to certain anti-dilution provisions. Under the
terms of each Warrant, the investment banking firm is entitled
to certain registration rights with respect to the shares of
Common Stock issuable on the exercise of each Warrant.
The Company received net proceeds, after paying placement
fees to brokers of $200,000 but prior to legal fees and other
expenses in connection with the sale of the Series 4 Preferred
or the registration of Common Stock issuable upon the
conversion of the Series 4 Preferred, of $2,300,000. See Note
2 to Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources of
the Company" for a discussion of the use of such proceeds.
(ii) On June 30, 1997, the Company entered into a Stock
Purchase Agreement ("Centofanti Agreement") with Dr. Louis F.
Centofanti, the President, Chief Executive Officer, Chairman
of the Board, and Director of the Company, whereby the Company
sold, and Dr. Centofanti purchased, 24,381 shares of the
Company s Common Stock. The sale to Dr. Centofanti was made in
a private placement under Rule 506 of Regulation D under the
Securities Act. The purchase price was $1.6406 per share
representing 75% of the $2.1875 closing bid price of the
Common Stock as quoted on the NASDAQ on the date that Dr.
Centofanti notified the Company of his desire to purchase such
shares. During July, 1997, Dr. Centofanti paid the Company
the aggregate purchase price of $40,000 for the 24,381 shares
of Common Stock, and the Company issued to Dr. Centofanti such
24,381 shares. The sale of the 24,381 shares and the terms of
the Centofanti Agreement were authorized by the Company's
Board of Directors. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity
and Capital Resources of the Company" and Note 6 to Notes to
Consolidated Financial Statements.
Item 3. Defaults Upon Senior Securities
_______________________________
Since the end of the quarter ended June 30, 1997 and
continuing through the date of this report, the Company has not
been in compliance with certain financial covenants contained in
the Company's loan agreement with Heller Financial, Inc. ( Heller )
25
<PAGE>
relating to the Company's term loan and revolving line of credit
and the loan agreement with Ally Capital Corporation ("Ally")
relating to certain equipment financing. Since June 30, 1997, the
Company has been in default on the "Minimum EBITDA" and "Fixed
Charge Coverage" financial covenants contained in such loan
agreements, principally as a result of the facility disruption and
resulting net loss incurred by the Perma-Fix of Memphis, Inc.
("PFM") facility due to an explosion and fire in January 1997. The
Company is currently negotiating with Heller and Ally for a waiver
of such defaults, but there are no assurances that the Company will
receive such waivers. Neither Heller nor Ally have accelerated
payments of the loans as of the date of this report as a result of
such default, and Heller is continuing to make advances to the
Company under the revolving line of credit as of the date of this
report in accordance with the terms thereof. See Note 2 to Notes
to Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources of the Company."
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Subscription and Purchase Agreement, dated June 9,
1997, between the Company and RBB Bank
Aktiengesellschaft is incorporated by reference
from Exhibit 4.1 to the Company's Form 8-K, dated
June 11, 1997.
4.2 Certificate of Designations of Series 4 Class D
Convertible Preferred Stock, dated June 9, 1997, is
incorporated by reference from Exhibit 4.2 to the
Company's Form 8-K, dated June 11, 1997.
4.3 Specimen copy of Certificate relating to the Series
4 Class D Convertible Preferred Stock is
incorporated by reference from Exhibit 4.3 to the
Company's Form 8-K, dated June 11, 1997.
4.4 Subscription and Purchase Agreement, dated July 7,
1997, between the Company and The Infinity Fund,
L.P. is incorporated by reference from Exhibit 4.1
to the Company's Form 8-K, dated July 7, 1997.
4.5 Certificate of Designations of Series 5 Class E
Convertible Preferred Stock, dated July 14, 1997,
is incorporated by reference from Exhibit 4.2 to
the Company's Form 8-K, dated July 7, 1997.
4.6 Specimen copy of Series 5 Class E Convertible
Preferred Stock certificate is incorporated by
reference from Exhibit 4.3 to the Company's Form 8-
K, dated July 7, 1997.
10.1 Common Stock Purchase Warrant ($2.10) dated June 9,
1997, between the Company and RBB Bank
Aktiengesellschaft is incorporated by reference
from Exhibit 4.4 to the Company's Form 8-K, dated
June 11, 1997.
10.2 Common Stock Purchase Warrant ($2.50) dated June 9,
1997, between the Company and RBB Bank
Aktiengesellschaft is incorporated by reference
from Exhibit 4.5 to the Company's Form 8-K, dated
June 11, 1997.
10.3 Common Stock Purchase Warrant ($1.50) dated June 9,
1997, between the Company and J W Charles
Securities, Inc. is incorporated by reference from
Exhibit 4.6 to the Company s Form 8-K, dated
June 11, 1997.
26
<PAGE>
10.4 Common Stock Purchase Warrant ($2.00) dated June 9,
1997, between the Company and J W Charles
Securities, Inc. is incorporated by reference from
Exhibit 4.7 to the company's Form 8-K, dated
June 11, 1997.
10.5 Stock Purchase Agreement, dated June 30, 1997,
between the Company and Dr. Louis F. Centofanti is
incorporated by reference from Exhibit 4.4 to the
Company's Form 8-K, dated July 7, 1997.
10.6 Stock Purchase Agreement, dated July 31, 1997,
between the Company and Steve Gorlin.
27 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K (Item 5. Other Event) was
filed on June 18, 1997 reporting that on June 11, 1997,
the Company issued 2,500 shares of its newly created
Series 4 Class D Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $2,500,000.
A current report on Form 8-K/A (Item 5. Other Event) was
filed on June 25, 1997 reporting that on June 11, 1997,
the Company issued 2,500 shares of its newly created
Series 4 Class D Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $2,500,000.
Corrected conversion price set forth in original Form 8-K
filed June 18, 1997.
27
<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: August 19, 1997 By: /s/ Dr. Louis F. Centofanti
____________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
____________________________
Richard T. Kelecy
Chief Financial Officer
28
<PAGE>
EXHIBIT INDEX
Page No.
________
Exhibit 4.1 Subscription and Purchase Agreement, dated
June 9, 1997, between the Company and RBB
Bank Aktiengesellschaft is incorporated
by reference from Exhibit 4.1 to the
Company's Form 8-K, dated June 11, 1997... *
Exhibit 4.2 Certificate of Designations of Series 4
Class D Convertible Preferred Stock,
dated June 9, 1997, is incorporated by
reference from Exhibit 4.2 to the
Company's Form 8-K, dated June 11,
1997...................................... *
Exhibit 4.3 Specimen copy of Certificate relating to
the Series 4 Class D Convertible Preferred
Stock is incorporated by reference from
Exhibit 4.3 to the Company's Form 8-K,
dated June 11, 1997....................... *
Exhibit 4.4 Subscription and Purchase Agreement, dated
July 7, 1997, between the Company and The
Infinity Fund, L.P. is incorporated by
reference from Exhibit 4.1 to the Company's
Form 8-K, dated July 7, 1997.............. *
Exhibit 4.5 Certificate of Designations of Series 5
Class E Convertible Preferred Stock is
incorporated by reference from Exhibit 4.2
to the Company's Form 8-K, dated July 7,
1997...................................... *
Exhibit 4.6 Specimen copy of Series 5 Class E Convertible
Preferred Stock certificate is incorporated
by reference from Exhibit 4.3 to the
Company's Form 8-K, dated July 7, 1997..... *
Exhibit 10.1 Common Stock Purchase Warrant ($2.10) dated
June 9, 1997, between the Company and RBB
Bank Aktiengesellschaft is incorporated by
reference from Exhibit 4.4 to the Company's
Form 8-K, dated June 11, 1997.............. *
Exhibit 10.2 Common Stock Purchase Warrant ($2.50) dated
June 9, 1997, between the Company and RBB
Bank Aktiengesellschaft is incorporated by
reference from Exhibit 4.5 to the Company's
Form 8-K, dated June 11, 1997.............. *
Exhibit 10.3 Common Stock Purchase Warrant ($1.50) dated
June 9, 1997, between the Company and J W
Charles Securities, Inc. is incorporated by
reference from Exhibit 4.6 to the Company's
Form 8-K, dated June 11, 1997.............. *
Exhibit 10.4 Common Stock Purchase Warrant ($2.00) dated
June 9, 1997, between the Company and J W
Charles Securities, Inc. is incorporated
by reference from Exhibit 4.7 to the
Company's Form 8-K, dated June 11, 1997.... *
Exhibit 10.5 Stock Purchase Agreement, dated June 30,
1997, between the Company and Dr. Louis F.
Centofanti is incorporated by reference
from Exhibit 4.4 to the Company's Form 8-K,
dated July 7, 1997.......................... *
Exhibit 10.6 Stock Purchase Agreement, dated July 31,
1997, between the Company and Steve
Gorlin.................................... 30
Exhibit 27 Financial Data Schedule.................... 36
*incorporated by reference
29
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into
this 31st day of July, 1997, by and between PERMA-FIX ENVIRONMENTAL
SERVICES, INC., a Delaware corporation ("PESI"), and STEVE GORLIN,
an individual ("Gorlin").
WITNESSETH:
WHEREAS, Gorlin is a member of the Board of Directors of PESI;
and
WHEREAS, Gorlin and PESI have negotiated this Agreement in
which Gorlin would acquire a total of 200,000 shares of PESI Common
Stock for $425,000.00, which is the closing bid price of each share
of PESI Common Stock as quoted on the NASDAQ on July 30, 1997, the
date as approved by the Perma-Fix Environmental Services, Inc. Board
of Directors, to be equally divided into two (2) transactions of
$212,500.00 (100,000 shares) each; and
WHEREAS, the closing bid price of the PESI Common Stock was
$2.125, as reported on the NASDAQ as of July 30, 1997; and
WHEREAS, Gorlin desires to purchase Two Hundred Thousand
(200,000) shares of PESI Common Stock, par value $.001 per share,
and PESI desires to sell to Gorlin such shares of Common Stock, upon
the terms and conditions set forth herein;
WHEREAS, in order to induce Gorlin to enter into this
Agreement and to purchase the Common Stock on the terms and
subject to the conditions hereof, PESI will issue a Warrant for
the purchase of 100,000 shares of Common Stock at $2.40 per
share, as further defined herein.
NOW, THEREFORE, in consideration of the mutual promises and the
respective covenants and agreements contained herein, the parties
hereto agree as follows:
1. Purchase and Sale.
1.1 Purchase of Shares. Subject to the terms and conditions
of this Agreement, Gorlin hereby agrees to purchase Two
Hundred Thousand (200,000) shares of PESI Common Stock
(the "Shares"), and as Gorlin pays for the Common Stock
to be purchased by him hereunder, PESI will promptly
instruct its transfer agent to issue to Gorlin that
number of shares of PESI Common Stock for which Gorlin
has paid for pursuant to the terms of this Agreement.
1.2 Purchase Price; Payment of Purchase Price. The per share
purchase price of the Shares shall be $2.125, the closing
bid price of the Common Stock on July 30, 1997, as
<PAGE>
reported on the National Association of Securities
Dealers Automated Quotation System ( NASDAQ")). In
consideration for the Shares, Gorlin will tender to the
Company Four Hundred Twenty-Five Thousand Dollars
($425,000.00) in the manner described in Section 1.3
below.
1.3 Purchase Period. The shares will be purchased in two (2)
equal transactions of 100,000 shares each, with the first
to occur on or before August 15, 1997, and the second
transaction taking place on or before August 31, 1997.
In consideration for the purchase of said shares, Gorlin
will tender to the Company $212,500.00 for each such
transaction.
1.4 Common Stock Purchase Warrant. Subject to the terms and
conditions of the Common Stock Purchase Warrant attached
hereto as Exhibit A ( Warrant ), PESI agrees to issue
to Gorlin such Warrant for the purchase of 100,000 shares
of Common Stock at an exercise price of $2.40 per common
share. PESI will issue to Gorlin the Warrant within five
(5) business days after Gorlin has paid PESI the full
$425,000.00.
2. Representations and Warranties of Gorlin. Gorlin represents
and warrants as follows:
2.1 Purchase for Investment. Gorlin is acquiring, or will
acquire, the Shares and the Warrant for investment, with
no present intention of dividing Gorlin's participation
with others or reselling or otherwise participating,
directly or indirectly, in a distribution thereof, and
not with a view to or for sale in connection with any
distribution thereof, except pursuant to a registration
statement under the Securities Act of 1933, as amended
(the "Securities Act"), and any applicable state
securities laws, or a transaction exempt from registra-
tion thereunder, and shall not make any sale, transfer or
other disposition of the Shares or the Warrant in
violation of any applicable state securities laws,
including in each instance any applicable rules and
regulations promulgated thereunder, or in violation of
the Securities Act or the rules and regulations
promulgated thereunder by the Securities and Exchange
Commission (the "SEC").
2.2 No Registration. Gorlin acknowledges that the Shares and
the Warrant are not being registered under any state
securities laws, and are not being registered under the
Securities Act on the ground that this transaction is
exempt from registration under Section 3(b) and/or 4(2)
of the Securities Act, and that reliance by PESI on such
exemptions is predicated in part on Gorlin's
representations set forth herein.
2.3 Restricted Transfer. Gorlin agrees that PESI may refuse
to permit the sale, transfer or disposition of any of the
Shares or the Warrant received by Gorlin unless there is
in effect a registration statement under the Securities
Act and any applicable state securities law covering such
transfer or Gorlin furnishes an opinion of counsel or
other evidence, reasonably satisfactory to counsel for
PESI, to the effect that such registration is not
required.
2
<PAGE>
2.4 Legend. Gorlin understands and agrees that stop transfer
instructions will be given to PESI's transfer agent and
that there will be placed on the certificate or
certificates for any of the Shares received by Gorlin,
any substitutions therefor and any certificates for any
additional shares which might be distributed with respect
to such Shares, a legend stating in substance:
"The shares of stock evidenced by this
certificate have been acquired for investment
and have not been registered under the
Securities Act of 1933, as amended (the
Securities Act"). These shares may not be sold
or transferred except pursuant to an effective
registration statement under the Securities Act
and any applicable state securities laws unless
there is furnished to the issuer an opinion of
counsel or other evidence, reasonably
satisfactory to the issuer's counsel, to the
effect that such registration is not required."
2.5 Indefinite Holding Period. Gorlin understands that under
the Securities Act, the Shares received by Gorlin must be
held indefinitely unless they are subsequently registered
under the Securities Act or unless an exemption from such
registration is available with respect to any proposed
transfer or disposition of such shares.
2.6 Rule 144 Compliance. Gorlin understands that PESI is
required to file periodic reports with the SEC and that
certain sales of the Shares received by Gorlin may be
exempt from registration under the Securities Act by
virtue of Rule 144 promulgated by the SEC under the
Securities Act, provided that such sales are made in
accordance with all of the terms and conditions of that
Rule including compliance with the required one-year
holding period. Gorlin further understands that if Rule
144 is not available for sales of the Shares received by
Gorlin, such Shares may not be sold without registration
under the Securities Act or compliance with some other
exemption from such registration, and that PESI has no
obligation to register the Shares or the Warrant received
or to be received by Gorlin hereunder or take any other
action necessary in order to make compliance with an
exemption from registration available.
2.7 Sophisticated Investor. Gorlin, as a member of the Board
of Directors of PESI, possesses extensive knowledge as to
the business and operation of PESI and has such knowledge
and experience in financial and business matters that he
is capable of evaluating the merits and risks of the
acquisition of the Shares.
2.8 Recission Period Under Florida Act. The shares of Common
Stock to be issued hereunder are also being sold in
reliance upon an exemption contained in Section
517.061(11) of the Florida Securities and Investors
Protection Act ( Florida Act ). The shares of Common
Stock issuable under this Agreement may not be reoffered
for sale or resold in the State of Florida unless such
are registered or the transaction is exempt under the
3
<PAGE>
Florida Act. Any sale of Common Stock made under this
Agreement and Section 517.061(11) of the Florida Act is
voidable at the option of Gorlin within three (3) days
after the first tender of consideration is made by Gorlin
to PESI or its agent hereunder.
3. Representations and Warranties of PESI. PESI represents and
warrants as follows:
3.1 Organization and Standing. PESI is a corporation duly
organized, validly existing and in good standing under
the laws of the State of Delaware.
3.2 Power, Authority, and Validity. PESI has full right,
power and corporate authority to enter into this
Agreement and to perform the transactions contemplated
hereby, and this Agreement is valid and binding upon and
enforceable against PESI in accordance with its terms.
The execution, delivery and the performance of this
Agreement by PESI has been duly and validly authorized
and approved by all requisite action on the part of PESI
and Buyer.
3.3 Status of PESI Common Stock. The PESI Common Stock to be
issued pursuant to this Agreement, when so issued, will
be duly and validly authorized and issued, fully paid and
nonassessable.
4. Miscellaneous.
4.1 Notices. All notices, requests, demands, and other
communications under this Agreement shall be in writing
and shall be deemed to have been duly given if delivered
or mailed, first-class postage prepaid, to the following
at the addresses indicated:
To PESI: Perma-Fix Environmental Services, Inc.
c/o Chief Financial Officer
1940 Northwest 67th Place
Gainesville, Florida 32653
To Gorlin: Steve Gorlin
5115 New Peachtree Road, Suite 200
Chamblee, Georgia 30341
or to any other address that PESI or Gorlin shall
designate in writing.
4.2 Brokers. Each party represents and warrants that all
negotiations related to this Agreement have been carried
on by the parties without the intervention of any broker.
Each party agrees to indemnify, and hold the other party
harmless against any claims for fees or commissions
employed or alleged to have been employed by such party.
4
4.3 Amendment. This Agreement shall not be amended, altered
or terminated except by a writing executed by each party.
4.4 Governing Law. This Agreement shall be governed in all
respects by the law of the State of Delaware.
4.5 Headings. The paragraph headings used in this Agreement
are included solely for convenience, and shall not in any
way affect the meaning or interpretation of this
Agreement.
4.6 Entire Agreement. This Agreement sets forth the entire
understanding of the parties; further, this Agreement
shall supersede and/or replace any oral or written
Agreements relating to this subject matter entered into
by the parties before the date of this Agreement.
4.7 Binding Effect. This Agreement shall be binding on and
inure to the benefit of, and be enforceable by, the
respective heirs, legal representatives, successors, and
assigns of the parties pursuant to its terms.
PESI and Gorlin have executed this Agreement as of the 31st
day of July, 1997.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
By: /s/ Richard T. Kelecy
________________________________________
RICHARD T. KELECY
Chief Financial Officer
/s/ Steve Gorlin
__________________________________________
STEVE GORLIN, Individually
5
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 619,000
<SECURITIES> 0
<RECEIVABLES> 5,250,000
<ALLOWANCES> 324,000
<INVENTORY> 91,000
<CURRENT-ASSETS> 7,014,000
<PP&E> 17,640,000
<DEPRECIATION> 5,301,000
<TOTAL-ASSETS> 28,374,000
<CURRENT-LIABILITIES> 9,820,000
<BONDS> 917,000
0
0
<COMMON> 11,000
<OTHER-SE> 14,184
<TOTAL-LIABILITY-AND-EQUITY> 28,374,000
<SALES> 0
<TOTAL-REVENUES> 13,636,000
<CGS> 0
<TOTAL-COSTS> 10,344,000
<OTHER-EXPENSES> 1,077,000
<LOSS-PROVISION> 26,000
<INTEREST-EXPENSE> 372,000
<INCOME-PRETAX> (1,522,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,522,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,522,000)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
