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 March 31, 1999
__________________________
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 May 11, 1999
_____ ________________________________
Common Stock, $.001 Par Value 12,566,080
_____________________________ __________
(excluding 988,000 shares
held as treasury stock)
_________________________
=================================================================
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and December 31,
1998 . . . . . . . . . . . . . . . . 2
Consolidated Statements of Opera-
tions - Three Months Ended
March 31, 1999 and 1998. . . . . . . 4
Consolidated Statements of Cash
Flows - Three Months Ended
March 31, 1999 and 1998. . . . . . . 5
Consolidated Statements of Stock-
holder Equity - March 31, 1999
and December 31, 1998. . . . . . . . 6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . 20
Item 2. Changes in Securities and Use
of Proceeds. . . . . . . . . . . . . 20
Item 5. Other Information . . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K. . . . 23
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have
been prepared by the Company (which may be referred to as we, us or
our), 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, 1998.
The results of operations for the three months ended March 31,
1999, are not necessarily indicative of results to be expected for
the fiscal year ending December 31, 1999.
1
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
1999 December 31,
(Amounts in Thousands, Except for Share Amounts) (Unaudited) 1998
_____________________________________________________________________________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 84 $ 776
Restricted cash equivalents and investment 112 111
Accounts receivable, net of allowance for
doubtful accounts of $316 and 313,
respectively 6,047 5,950
Inventories 163 145
Prepaid expenses 1,262 471
Other receivables 26 11
Assets of discontinued operations 456 489
_______ ______
Total current assets 8,150 7,953
Property and equipment:
Buildings and land 6,039 5,804
Equipment 8,590 8,606
Vehicles 890 941
Leasehold improvements 16 16
Office furniture and equipment 787 782
Construction in progress 1,816 1,592
_______ _______
18,138 17,741
Less accumulated depreciation (6,180) (5,836)
_______ _______
Net property and equipment 11,958 11,905
Intangibles and other assets:
Permits, net of accumulated amortization of
$1,155 and $1,088, respectively 3,611 3,661
Goodwill, net of accumulated amortization of
$795 and $751, respectively 4,653 4,698
Other assets 551 531
_______ _______
Total assets $28,923 $28,748
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
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<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
March 31,
1999 December 31,
(Amounts in Thousands, Except for Share Amounts) (Unaudited) 1998
_____________________________________________________________________________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,909 $ 2,422
Accrued expenses 3,521 3,369
Revolving loan and term note facility 625 625
Current portion of long-term debt 306 302
Current liabilities of discontinued operations 496 863
_______ _______
Total current liabilities 7,857 7,581
Environmental accruals 484 520
Accrued closure costs 722 715
Long-term debt, less current portion 1,839 2,087
Long term liabilities of discontinued operations 1,884 1,892
_______ _______
Total long-term liabilities 4,929 5,214
Commitments and contingencies (see Note 4) - -
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares
authorized, 9,850 shares issued and outstanding - -
Common Stock, $.001 par value; 50,000,000 shares
authorized, 13,554,080 and 13,215,093 shares
issued, including 943,000 shares held as
treasury stock 14 13
Redeemable warrants 140 140
Additional paid-in capital 39,938 39,769
Accumulated deficit (22,143) (22,157)
_______ _______
17,949 17,765
Less Common Stock in treasury at cost; 943,000
shares issued and outstanding (1,812) (1,812)
_______ _______
Total stockholders' equity 16,137 15,953
_______ _______
Total liabilities and stockholders' equity $28,923 $28,748
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
(Amounts in Thousands, ____________________
Except for Share Amounts) 1999 1998
____________________________________________________________________________
<S> <C> <C>
Net revenues $ 7,812 $ 6,548
Cost of goods sold 5,290 4,787
_______ _______
Gross profit 2,522 1,761
Selling, general and administrative expenses 1,838 1,555
Depreciation and amortization 519 508
_______ _______
Income (loss) from operations 165 (302)
Other income (expense):
Interest income 7 8
Interest expense (27) (127)
Other (14) 17
________ ________
Net income (loss) 131 (404)
Preferred Stock dividends (117) (87)
________ ________
Net income (loss) applicable to Common Stock $ 14 $ (491)
======== ========
_______________________________________________________________
Basic and diluted income (loss) per common share:
Net income (loss) per common share $ - $ (.04)
======== =======
Weighted average number of common
shares outstanding 12,372 11,707
======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(Amounts in Thousands, ___________________
Except for Share Amounts) 1999 1998
____________________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 131 $ (404)
Adjustments to reconcile net income (loss) to
cash provided by continuing operations:
Depreciation and amortization 519 508
Provision for bad debt and other reserves 4 5
Gain on sale of plant, property and
equipment (2) -
Changes in assets and liabilities:
Accounts receivable (101) 520
Prepaid expenses, inventories and other assets (82) 1,485
Accounts payable and accrued expenses (156) (644)
_______ _______
Net cash provided by continuing operations 313 1,470
_______ _______
Net cash used in discontinued operations (276) (194)
_______ _______
Cash flows from investing activities:
Purchases of property and equipment, net (374) (952)
Proceeds from sale of plant, property and equipment 5 -
Change in restricted cash, net (5) (4)
Net cash used by discontinued operations (40) -
______ _______
Net cash used in investing activities (414) (956)
_______ _______
Cash flows from financing activities:
Net Repayments of revolving loan & term note facility (263) (628)
Principal repayments on long-term debt (70) (50)
Proceeds from issuance of stock 43 56
Net cash used by discontinued operations (15) (9)
_______ _______
Net cash used in financing activities (305) (631)
_______ _______
Decrease in cash and cash equivalents (682) (311)
Cash and cash equivalents at beginning of period,
including discontinued operations of $10, and
$12, respectively 776 326
_______ _______
Cash and cash equivalents at end of period,
including discontinued operations of $10,
and $2, respectively $ 94 $ 15
======= =======
__________________________________________________________________________
Supplemental disclosure:
Interest paid $ 215 $ 129
Non-cash investing and financing activities:
Issuance of Common Stock for services 12 8
Issuance of stock for payment of dividends 115 184
Long-term debt incurred for purchase of
property and equipment 89 -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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<TABLE>
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, for the three months ended March 31, 1999)
Preferred Stock Common Stock
Amounts in Thousand, ____________________ ____________________
Except for Share Amounts) Shares Amount Shares Amount
________________________________________________________________________________
<S> <C> <C> <C> <C>
Balance at December 31, 1998 9,850 $ - 13,215,093 $ 13
Net loss - - - -
Issuance of Common Stock for
preferred stock dividend - - 85,802 -
Issuance of Common Stock in
exchange for warrants - - 200,000 1
Issuance of stock for cash
and services - - 28,185 -
Exercise of warrants - - 15,000 -
Option Exercise - - 10,000 -
______ ______ ____________ ________
Balance at March 31, 1999 9,850 $ - 13,554,080 $ 14
====== ====== ============ ========
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Common
Additional Stock
Redeemable Paid-In Accumulated Held in
Warrants Capital Deficit Treasury
____________________________________________
<S> <C> <C> <C> <C>
$ 140 $ 39,769 $ (22,157) $ (1,812)
- - 14 -
- 115 - -
- (1) - -
- 34 - -
- 11 - -
- 10 - -
________ ________ __________ ________
$ 140 $ 39,938 $ (22,143) $ (1,812)
======== ========= ========== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
Reference is made herein to the notes to consolidated
financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 1998.
1. Summary of Significant Accounting Policies
__________________________________________
Our accounting policies are as set forth in the notes to
consolidated financial statements referred to above.
Net income (loss) per share has been presented using the
weighted average number of common shares outstanding. Potential
common shares have not been included in the net income (loss) per
share calculations since their effects are not significant or would
be antidilutive. Potential common shares include 1,655,597 stock
options, 10,715,796 warrants and 12,645,833 shares underlying the
Convertible Preferred Stock at the minimum conversion price.
In June, 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133 is effective for periods beginning
after June 15, 1999. Historically, we have not entered into
derivative contracts. Accordingly, FAS 133 is not expected to
affect our financial statements.
2. Discontinued Operations
_______________________
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM facility, a hazardous waste storage, processing
and blending facility, located in Memphis, Tennessee, which
resulted in damage to certain hazardous waste storage tanks located
on the facility and caused certain limited contamination at the
facility. Given the loss of both the existing line of business and
its related customer base, we reported the Memphis segment as a
discontinued operation, pursuant to Paragraph 13 of APB 30.
The fuel blending activities were discontinued on the date of the
incident, January 27,1997.
The accrued environmental and closure costs related to PFM
total $2,222,000 as of March 31, 1999, a decrease of $279,000 from
the December 31, 1998, accrual balance. This reduction was
principally a result of the specific costs related to general
closure and remedial activities, including groundwater remediation,
and agency and investigative activities, ($98,000), and the general
operating losses, including indirect labor, materials and supplies,
incurred in conjunction with the above actions ($181,000). The
general operating losses do not reflect management fees charged by
the corporation, but does include interest expense of $69,000 for
the quarter ended March 31, 1999, specifically identified to such
operations, including that debt specifically incurred under the
Company's revolving and term loan facility. The Company's revolving
and term loan debt is recorded on a consolidated basis and
therefore, the revolving and term loan debt specifically
attributable to PFM is not recorded as liabilities of discontinued
operations. The remaining environmental and closure liability
represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $956,000, the
costs to complete the facility closure activities over the next
five (5) to ten (10) year period (including agency and
investigative activities, and future operating losses during such
closure period) totaling approximately $1,041,000, and the
potential PRP liability of $225,000.
3. Proposed Acquisition.
____________________
During March 1999, the Company, Chemical Conservation
Corporation (Florida), Chemical Conservation of Georgia, Inc. and
Chem-Met Services, Inc. (Collectively "Chem-Con") entered into a
definitive agreement whereby PESI agreed to acquire all of the
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outstanding shares of Common Stock of Chem-Con in exchange for $7.4
million in the Company's Common Stock, with the number of shares of
the Company's Common Stock to be issued determined by dividing $7.4
million by the average closing price per share of the Company's
Common Stock as quoted on the NASDAQ for the five (5) trading days
immediately preceding the date of closing. The Company would, at
the closing of the acquisition, enter into a four year employment
agreement with an executive of Chem-Con in the approximate amount
of $1.3 million. The audited combined net revenues of Chem-Con for
the fiscal year ended September 30, 1998, were, in the aggregate,
approximately $21.8 million. It was anticipated that the merger
would have been accounted for as a pooling of interests, which
means that we would treat the Chem-Con companies as if they had
always been combined for accounting and financial reporting
purposes.
Pursuant to the terms of a letter of intent dated April 8,
1999, the Company and Chem-Con agreed to amend certain terms of the
agreement as stated above. Under the amended terms, the Chem-Con
acquisition will be consummated by the Company purchasing all of
the outstanding capital stock of Chem-Con and consequently, the
acquisition under the amended terms will be accounted for as a
purchase transaction. It is anticipated that the purchase price to
be paid in connection with the acquisition will be $8.7 million
consisting of (i) $1 million in cash to be paid at closing, (ii) a
promissory note in the amount of $4.7 million, to be paid in equal
monthly installments of principal and interest of approximately
$90,000 over five years, having an interest rate of 5.5% for the
first three years and 7% for the remaining two years and (iii) $3
million paid in the form of 1,500,000 shares of the Company's
Common Stock paid at closing. However, if the average closing price
of the Common Stock on the NASDAQ for the five days preceding the
date eighteen months after the closing date ("Valuation Date") is
less than $2.00 per share, the Company shall pay, in Common Stock
or cash or a combination thereof, at the Company's option, the
difference between $3 million and the value of the 1,500,000 shares
based upon the average closing price for the five days preceding
the Valuation Date. The parties have agreed, however, that under no
circumstances will the Chem-Con acquisition result in the issuance
by the Company of a number of shares of Common Stock equal to more
than 18% of the number of shares of Common Stock outstanding as of
the closing date. An additional modification to the terms of the
Chem-Con transaction is that the Company will not enter into an
employment agreement with the executive of Chem-Con as previously
anticipated.
Under the amended terms, it is anticipated that the Chem-Con acquisition
may occur without obtaining shareholder approval. The amendments are
subject to finalization and execution of new definitive agreements
reflecting the new acquisition terms by the parties thereto which will
replace the previous agreements in their entirety. The transaction is
expected to be closed during the second quarter of 1999.
4. Long-Term Debt
______________
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<CAPTION>
Long-term debt consists of the following at March 31, 1999,
and December 31, 1998 (in thousands):
March 31,
1999 December 31,
(Unaudited) 1998
____________ ____________
<S> <C> <C>
Revolving loan facility dated January 15,
1998, collateralized by eligible accounts
receivables, subject to monthly borrowing
base calculation, variable interest paid
monthly at prime rate plus 1 3/4. $ - $ 97
Term loan agreement dated January 15, 1998,
payable in monthly installments of $52,
balance due in January 2001, variable
interest paid monthly at prime rate
plus 1 3/4. 1,761 1,927
Various capital lease and promissory note
obligations, payable 1999 to 2003,
interest at rates ranging from 8.0% to
15.9%. 1,009 990
_______ ________
2,770 3,014
Less current portion of revolving loan and
term note facility 625 625
Less current portion of long-term debt 306 302
_______ ________
$ 1,839 $ 2,087
======= ========
</TABLE>
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On January 15, 1998, the Company, as parent and guarantor,
and all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $230,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan
both bear interest at a floating rate equal to the prime rate plus
1 3/4%. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and subsidiaries, as well as, the mortgage on
two (2) of the Company's facilities. The Agreement contains
affirmative covenants including, but not limited to, certain
financial statement disclosures and certifications, management
reports, maintenance of insurance and collateral. The Agreement
also contains an adjusted net worth financial covenant, as defined
in the Agreement, of $3,000,000.
As of March 31, 1999, there were no borrowings under the
Congress revolving loan facility and borrowing availability under
the revolver was approximately $4,220,000. The balance under the
Congress term loan at March 31, 1999, was $1,761,000.
As further discussed in Note 2, the long-term debt, other than
revolving and term loan debt, associated with the discontinued PFM
operation is excluded from the above and is recorded in the
Liabilities of Discontinued Operations total. The PFM debt
obligations total $12,000, of which $11,000 is current.
5. Commitments and Contingencies
_____________________________
Hazardous Waste
In connection with our waste management services, we handle
both hazardous and non-hazardous waste which we transport to our
own or other facilities for destruction or disposal. As a result
of disposing of hazardous substances, in the event any cleanup is
required, we could be a potentially responsible party for the costs
of the cleanup notwithstanding any absence of fault on our part.
Legal
In the normal course of conducting its business, we are
involved in various litigation. There has been no material changes
in legal proceedings from those disclosed previously in the
Company's Form 10-K for year ended December 31, 1998. We are not
a party to any litigation or governmental proceeding which our
management believes could result in any judgements or fines against
us that would have a material adverse affect on the Company's
financial position, liquidity or results of operations.
Permits
We are subject to various regulatory requirements, including
the procurement of requisite licenses and permits at our
facilities. These licenses and permits are subject to periodic
renewal without which our operations would be adversely affected.
We anticipate that, once a license or permit is issued with respect
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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
We maintain closure cost funds to insure the proper
decommissioning of our RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, we are 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 we maintain the appropriate
accruals for restoration. We have recorded accrued liabilities for
estimated closure costs and identified environmental remediation
costs.
Insurance
We believe we maintain insurance coverage adequate for our
needs and which is similar to, or greater than, the coverage
maintained by other companies of our size in the industry. There
can be no assurances, however, that liabilities which may be
incurred by us will be covered by our insurance or that the dollar
amount of such liabilities which are covered will not exceed our
policy limits. Under our insurance contracts, we usually accept
self-insured retentions which we believe appropriate for our
specific business risks. We are required by EPA regulations to
carry environmental impairment liability insurance providing
coverage for damages on a claims-made basis in amounts of at least
$1 million per occurrence and $2 million per year in the aggregate.
To meet the requirements of customers, we have exceeded these
coverage amounts.
6. Business Segment Information
____________________________
Pursuant to FAS 131, we define an operating segment as:
* A business activity from which we may earn revenue
and incur expenses;
* Whose operating results are regularly reviewed by
our chief operating division maker to make
decisions about resources to be allocated to the
segment and assess its performance; and
* For which discrete financial information is
available.
We have ten operating segments which are defined as each
separate facility or location that we operate. We clearly view
each facility as a separate segment and make decisions based on the
activity and profitability of that particular location. These
segments however, exclude the Corporate headquarters which does not
generate revenue and Perma-Fix of Memphis, Inc. which is reported
elsewhere as a discontinued operation. See Note 2 regarding
discontinued operations.
Pursuant to FAS 131 we have aggregated two or more operating
segments into two reportable segments to ease in the presentation
and understanding of our business. We used the following criteria
to aggregate our segments:
* The nature of our products and services;
* The nature of the production processes;
* The type or class of customer for our products and
services;
* The methods used to distribute our products or
provide our services; and
* The nature of the regulatory environment.
Our reportable segments are defined as follows:
The Waste Management Services segment, which provides on-and-
off site treatment, storage, processing and disposal of hazardous
and non-hazardous industrial and commercial, mixed waste, and
wastewater through our four TSD facilities; Perma-Fix Treatment
Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft.
Lauderdale, Inc. and Perma-Fix of Florida, Inc. We provide through
Perma-Fix Inc. and Perma-Fix of New Mexico, Inc. on-site waste
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treatment services to convert certain types of characteristic
hazardous wastes into non-hazardous waste. We also provide through
Reclamation Systems, Inc. and Industrial Waste Management, Inc. the
supply and management of non-hazardous and hazardous waste to be
used by cement plants as a substitute fuel or raw material source
and the resell of by-product materials generated at cement plants
for environmental applications.
The Consulting Engineering Services segment provides
environmental engineering and regulatory compliance services
through Schreiber, Yonley & Associates, Inc. and Mintech, Inc.
These engineering groups provide oversight management of
environmental restoration projects, air and soil sampling and
compliance and training activities, as well as, engineering support
as needed by our other segment.
<TABLE>
<CAPTION>
The table below shows certain financial information by
business segment for quarter ended March 31, 1999 and quarter ended
March 31, 1998 and excludes the results of operations of the
discontinued operations.
Segment Reporting 03/31/99
Waste Segment
Services Engineering Total
________ ___________ _______
<S> <C> <C> <C>
Revenue from external customers $ 6,601 $1,211 $ 7,812
Intercompany revenues 93 93 186
Interest income 5 - 5
Interest expense 41 20 61
Depreciation and amortization 494 20 514
Segment profit (loss) 270 77 347
Segment assets(1) 24,725 2,432 27,157
Expenditures for segment assets 445 13 458
<PAGE>
Consolidated
Corp(2) Memphis(3) Total
_______ __________ ____________
<S> <C> <C> <C>
$ - $ - $ 7,812
- - 186
2 - 7
(34) - 27
5 - 519
(333) - 14
1,310 456 28,923
5 - 463
</TABLE>
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<TABLE>
<CAPTION>
Segment Reporting 03/31/98
Waste Segment
Services Engineering Total
________ ___________ ________
<S> <C> <C> <C>
Revenue from external customers $ 5,497 $1,051 $ 6,548
Intercompany revenues 73 125 198
Interest income 8 - 8
Interest expense 58 41 99
Depreciation and amortization 482 21 503
Segment profit (loss) (127) (20) (147)
Segment assets(1) 23,281 2,430 25,711
Expenditures for segment assets 951 1 952
<PAGE>
Consolidated
Corp(2) Memphis(3) Total
_______ __________ ___________
<S> <C> <C> <C>
$ - $ - $ 6,548
- - 198
- - 8
28 - 127
5 - 508
(344) - (491)
1,111 483 27,305
- - 952
<FN>
(1) Segment assets have been adjusted for intercompany accounts to
reflect actual assets for each segment.
(2) Amounts reflect the activity for corporate headquarters.
(3) Amounts reflect the activity for Perma-Fix of Memphis, Inc.,
which is a discontinued operation, not included in the segment
information (See Note 2).
</FN>
</TABLE>
7. Stock Issuances
_______________
On March 14, 1999, the Company entered into an Exchange
Agreement with Liviakis Financial Communications, Inc. and Robert
B. Prag whereby certain warrants issued in connection with the
Series 10 Class J Convertible Preferred Stock for the purchase of
2,500,000 shares of Common Stock (1,875,000 and 625,000
respectively) were canceled and exchanged for 200,000 shares of
Common Stock. The warrants were originally issued in connection
with the sale of preferred stock. The fair value of the common
stock is less than the fair value of the warrants originally
issued, and therefore, no expense was recognized as a result of the
exchange.
11
<PAGE>
8. Subsequent Events
_________________
The Company and RBB Bank Aktiengesellschaft ("RBB Bank")
entered into an agreement in principle to restructure the Company's
convertible preferred stock held by RBB Bank, which totals
approximately $9.5 million. Under the restructuring the Company and
RBB Bank would:
1. RBB Bank would proceed immediately to convert, pursuant
to existing terms of the convertible preferred stock,
$4.6 million of the convertible preferred stock into
approximately 6.1 million shares of the Company's Common
Stock.
2. The Company would be granted the right to purchase at a
stated value ($1,000 per share) up to $750,000 of the
convertible preferred stock.
3. The terms of the balance of the convertible preferred
stock (approximately $4.2 million) would be changed, as
follows:
a. Not subject to conversion for 12 months from the
date of the restructuring ("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up
Period, any conversion of the convertible preferred
stock would be subject to a minimum conversion
price of $1.50 per share of Common Stock; and
c. The Company will be granted the option to redeem
the shares of the convertible preferred stock at
110% of the stated value ($1,000 per share) for the
first twelve months from the date of restructuring
and RBB Bank may not convert such shares redeemed
during such twelve month period, and thereafter the
Company has the option to redeem the convertible
preferred stock at 120% of the stated value ($1,000
per share) of the convertible preferred stock and
upon such redemption RBB Bank will have the right
to exercise its conversion rights pursuant to the
then current terms of the convertible preferred
stock.
4. The remaining terms of the convertible preferred stock
will remain unchanged.
RBB Bank has given the Company notice to convert the $4.6
million of convertible preferred stock, which is convertible into
approximately 6.1 million shares of the Company's Common Stock.
Other than the conversion of the $4.6 million of convertible
preferred stock, which RBB Bank has exercised, the other terms of
the restructuring are subject to the execution of definitive
agreements and receipt of certain approvals.
12
<PAGE>
<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 report may be deemed
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (collectively, the
"Private Securities Litigation Reform Act of 1995"). All
statements in this report other than statements of historical fact
are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors which could cause
actual results and performance of the Company to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things, (i) ability to fund capital expenditures by a
combination of lease financing and/or internally generated funds,
(ii) completion of the agreement with RBB Bank to restructure
convertible preferred stock, (iii) ability to complete acquisition
of the Chem-Con Companies, (iv) anticipated financial performance,
(v) ability to comply with the Company's general working capital
requirements, (vi) ability to retain or receive certain permits or
patents, (vii) ability to be able to continue to borrow under the
Company's revolving line of credit, (viii) ability to generate
sufficient cash flow from operations to fund all costs of
operations and remediation of certain formerly leased property in
Dayton, Ohio, and the Company's facility in Memphis, Tennessee,
(ix) ability to remediate certain contaminated sites for projected
amounts, (x) the government's acceptance of the Company's offer
regarding settlement of claims involving the WR Drum Site, (xi)
ability to obtain a satisfactory line of credit for Chem-Con, and
(xii) all other statements which are not statements of historical
fact. While the Company believes the expectations reflected in
such forward-looking statements are reasonable, it can give no
assurance such expectations will prove to have been correct. There
are a variety of factors which could cause future outcomes to
differ materially from those described in this report, including,
but not limited to, (i) general economic conditions, (ii) material
reduction in revenues, (iii) inability to collect in a timely
manner a material amount of receivables, (iv) increased competitive
pressures, (v) the ability to maintain and obtain required permits
and approvals to conduct operations, (vi) the ability to develop
new and existing technologies in the conduct of operations, (vii)
overcapacity in the environmental industry, (viii) ability to
receive approvals to transfer certain permits of the Chem-Con
Companies, (ix) discovery of additional contamination or expanded
contamination at a certain Dayton, Ohio, property formerly leased
by the Company or the Company's facility at Memphis, Tennessee,
which would result in a material increase in remediation
expenditures, (x) determination that PFM is the source of
chlorinated compounds at the Allen Well Field, (xi) changes in
federal, state and local laws and regulations, especially
environmental regulations, or in interpretation of such, (xii)
potential increases in equipment, maintenance, operating or labor
costs, (xiii) management retention and development, (xiv) the
requirement to use internally generated funds for purposes not
presently anticipated, (xv) inability to become profitable, or if
unable to become profitable, the inability to secure additional
liquidity in the form of additional equity or debt, (xvi) discovery
of additional contamination or expanded contamination at property
owned or used by Chem-Con,(xvii) inability to finalize the
restructuring of the convertible preferred stock as a result of
NASDAQ requiring shareholder approval in order to continue to list
the shares of Common Stock issuable upon conversion of the
convertible preferred stock or (xviii) inability to complete the
acquisition of the Chem-Con Companies as a result of the (i)
Company's and/or its lender's due diligence not being satisfactory,
(ii) the Company's lender refusing to amend the Company's loan
agreements to allow the Chem-Con Companies to be borrowers
thereunder or to allow the Company to fund the cash portion of the
purchase price or to pay certain claims and debts of the Chem-Con
Companies at closing, all on terms satisfactory to the Company, or
(iii) any of the Chem-Con Companies not able to complete certain
transactions required to be completed or not providing the Company
certain documents required to be provided. The Company undertakes
no obligations to update publicly any forward-looking statement,
whether as a result of new information, future events or otherwise.
13
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
The table below should be used when reviewing management's
discussion and analysis for the three months ended March 31, 1999
and 1998:
Consolidated
(amounts in thousands) 1999 % 1998 %
________________________ ______ _____ ______ _____
<S> <C> <C> <C> <C>
Net Revenues $7,812 100.0 $6,548 100.0
Cost of Goods Sold 5,290 67.7 4,787 73.1
______ _____ ______ _____
Gross Profit 2,522 32.3 1,761 26.9
Selling, General &
Administrative 1,838 23.6 1,555 23.7
Depreciation/Amortization 519 6.6 508 7.8
______ _____ ______ _____
Loss from operations $ 165 2.1 $ (302) (4.6)
====== ===== ====== =====
Interest Expense $ (27) (.3) $ (127) (1.9)
Preferred Stock Dividend (117) (1.5) (87) (1.3)
</TABLE>
Summary Quarter Ended March 31, 1999 and 1998
_______________________________________________
We provide services through two reportable operating segments.
The Waste Management Services segment is engaged in on-and off-site
treatment, storage, disposal and processing of a wide variety of
by-products and industrial and hazardous wastes. This segment
competes for materials and services with numerous regional and
national competitors to provide comprehensive and cost-effective
Waste Management Services to a wide variety of customers in the
Midwest, Southeast and Southwest regions of the country. We
operate and maintain facilities and businesses in the waste by-
product brokerage, on-site treatment and stabilization, and off-
site blending, treatment and disposal industries. Our Consulting
Engineering segment provides a wide variety of environmental
related consulting and engineering services to industry and
government. Through our wholly-owned subsidiaries in Tulsa,
Oklahoma and St. Louis, Missouri, the Consulting Engineering
segment provides oversight management of environmental restoration
projects, air and soil sampling, compliance reporting, surface and
subsurface water treatment design for removal of pollutants, and
various compliance and training activities.
Consolidated net revenues increased to $7,812,000 from
$6,548,000 for the quarter ended March 31, 1999, as compared to the
same quarter in 1998. This increase of $1,264,000 or 19.3% is
principally attributable to the Waste Management Services segment
which experienced an increase in revenues of $1,104,000. The most
significant increases occurred at the Perma-Fix of Ft. Lauderdale,
Inc.'s ("PFFL") facility, which recognized a $494,000 increase
resulting principally from the growth in the oily wastewater and
field services market, the Perma-Fix of Dayton Inc.'s ("PFD")
facility, which recognized a $425,000 increase resulting
principally from the design, engineering and sale of wastewater
pre-treatment systems and the Perma-Fix of Florida, Inc.'s ("PFF")
facility, which recognized a $279,000 increase resulting
principally from growth in the field services market.
Cost of goods sold for the Company increased $503,000 or 10.5%
for the quarter ended March 31, 1999, as compared to the quarter
ended March 31, 1998. This consolidated increase in cost of goods
sold reflects principally the increased operating, disposal and
transportation costs, corresponding to the increased revenues as
discussed above. The resulting gross profit for the quarter ended
March 31, 1999, increased $761,000 to $2,522,000, which as a
percentage of revenue is 32.3%, reflecting an increase over the
corresponding quarter in 1998 percentage of revenue of 26.9%. This
increase is principally a result of increased revenue over fixed
cost in our Consulting Engineering segment and the increased
efficiencies and reduced disposal costs at several of our
facilities.
Selling, general and administrative expenses increased
$283,000 or 18.2% for the quarter ended March 31, 1999, as compared
to the quarter ended March 31, 1998. As a percentage of revenue,
selling, general and administrative expense decreased to 23.6% for
the quarter ended March 31, 1999, compared to 23.7% for the same
14
<PAGE>
period in 1998. The increase reflects the increased expenses
associated with the our additional sales and marketing efforts as
we continue to refocus the business segments into new environmental
markets, such as nuclear and mixed waste, and the additional
administrative overhead associated with our research and
development efforts. We have expensed in the current period all
research and development costs associated with the development of
various technologies which we aggressively pursued during the first
quarter of 1999.
Depreciation and amortization expense for the quarter ended
March 31, 1999, reflects an increase of $11,000 as compared to the
quarter ended March 31, 1998. This increase is attributable to a
depreciation expense decrease of $4,000 due to certain assets
becoming fully depreciated and an amortization expense increase of
$15,000 for the quarter ended March 31, 1999, as compared to the
quarter ended March 31, 1998 due to capitalization of certain
permitting costs and their subsequent amortization.
Interest expense decreased $100,000 from the quarter ended
March 31, 1999, as compared to the corresponding period of 1998,
excluding discontinued operations. Interest expense including
discontinued operations totaled $96,000 for the quarter ended
March 31, 1999 as compared to $156,000 for the quarter ended
March 31, 1998. Interest expense for discontinued operations was
$69,000 for the quarter ended March 31, 1999, specifically
identified to such operations, including that debt specifically
incurred under the Company's revolving note and term loan facility.
See Note 2 to Notes to Consolidated Financial Statements regarding
discontinued operations. The decrease in interest expense reflects
the reduced borrowing levels on the Congress Financial Corporation
revolving loan and term note.
Preferred Stock dividends increased $30,000 during the quarter
ended March 31, 1999 as compared to the corresponding period of
1998. This increase is due to the issuance and subsequent dividends
of the Series 10 Class J Convertible Preferred Stock being issued
in June of 1998.
Discontinued Operations
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, which
resulted in damage to certain hazardous waste storage tanks located
on the facility and caused certain limited contamination at the
facility. As a result of the significant disruption and the cost to
rebuild and operate this segment, the Company made a strategic
decision, in February 1998, to discontinue its fuel blending
operations at PFM. The fuel blending operations represented the
principal line of business for PFM prior to this event, which
included a separate class of customers, and its discontinuance has
required PFM to attempt to develop new markets and customers,
through the utilization of the facility as a storage facility under
its RCRA permit and as a transfer facility.
Liquidity and Capital Resources of the Company
At March 31, 1999, the Company had cash and cash equivalents
of $94,000, including $10,000 from discontinued operations. This
cash and cash equivalents total reflects a decrease of $682,000
from December 31, 1998, as a result of net cash provided by
continuing operations of $313,000, offset by cash used by
discontinued operation of $276,000, cash used in investing
activities of $414,000 (principally purchases of equipment, net
totaling $374,000) and cash used in financing activities of
$305,000 (principally repayment of the revolving loan and term note
facility). Accounts receivable, net of allowances for continuing
operations, totaled $6,047,000, an increase of $97,000 over the
December 31, 1998, balance of $5,950,000, which principally
reflects the impact of increased revenues during the first quarter
of 1999.
On January 15, 1998, the Company, as parent and guarantor,
and all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
15
<PAGE>
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $230,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan
both bear interest at a floating rate equal to the prime rate plus
1 3/4%. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and its subsidiaries, as well as the
mortgage on two (2) facilities owned by subsidiaries of the
Company. The Agreement contains affirmative covenants including,
but not limited to, certain financial statement disclosures and
certifications, management reports, maintenance of insurance and
collateral. The Agreement also contains an Adjusted Net Worth
financial covenant, as defined in the Agreement, of $3,000,000.
Under the Agreement, the Company, and its subsidiaries are limited
to granting liens on their equipment, including capitalized leases,
(other than liens on the equipment to which Congress has a security
interest) in an amount not to exceed $2,500,000 in the aggregate at
any time outstanding.
As of March 31, 1999, there were no borrowings under the Congress
revolving loan facility and borrowing availability under the revolver was
approximately $4,220,000. The balance under the Congress term loan at
March 31, 1999, was $1,761,000.
At March 31, 1999, we had $2,770,000 in aggregate principal
amounts of outstanding debt, related to continuing operations, as
compared to $3,014,000 at December 31, 1998. This decrease in
outstanding debt of $244,000 reflects the net repayment of the
Congress Financial Corporation revolving loan and term note
facility of $263,000 and the scheduled principal repayments on
other long-term debt of $70,000 (excluding $15,000 relative to
discontinued operations), combined with an addition of $88,000 of
debt related to new capital equipment at the PFTS facility. As of
March 31, 1999, we had $12,000 in aggregate principal amounts of
outstanding debt related to PFM discontinued operations, of which
$11,000 is classified as current.
Our net purchases of new capital equipment for continuing
operations for the three month period ended March 31, 1999, totaled
approximately $463,000. We have budgeted capital expenditures of
$2,500,000 for 1999, which includes completion of certain current
projects, as well as other identified capital and permit compliance
purchases. We anticipate funding the remainder of these capital
expenditures by a combination of lease financing with lenders other
than the equipment financing arrangement discussed above, and/or
internally generated funds.
Our working capital position at March 31, 1999, was $293,000,
as compared to $372,000 at December 31, 1998, which reflects a
decrease in this position of $79,000 during this first quarter of
1999. This reduced working capital position is principally a
result of the first quarter repayments of long term debt, the
internal funding of long-term capital assets with current working
capital funds and reduction in liabilities of discontinued
operations for costs related to the decommissioning and closure of
the fuel blending tank farm and related processing equipment.
16
<PAGE>
The accrued dividends for the period July 1, 1998, through
December 31, 1998, in the amount of approximately $235,000 were
paid in February 1999, in the form of 85,802 shares of Common Stock
of the Company and $121,000 in cash.
The Company and RBB Bank Aktiengesellschaft ("RBB Bank")
entered into an agreement in principle to restructure the Company's
convertible preferred stock held by RBB Bank, which totals
approximately $9.5 million. Under the restructuring the Company and
RBB Bank would:
1. RBB Bank would proceed immediately to convert, pursuant
to existing terms of the convertible preferred stock,
$4.6 million of the convertible preferred stock into
approximately 6.1 million shares of the Company's Common
Stock.
2. The Company would be granted the right to purchase at a
stated value ($1,000 per share) up to $750,000 of the
convertible preferred stock.
3. The terms of the balance of the convertible preferred
stock (approximately $4.2 million) would be changed, as
follows:
a. Not subject to conversion for 12 months from the
date of the restructuring("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up
Period, any conversion of the convertible
preferred stock would be subject to a minimum
conversion price of $1.50 per share of Common
Stock; and
c. The Company will be granted the option to redeem
the shares of the convertible preferred stock at
110% of the stated value ($1,000 per share) for the
first twelve months from the date of restructuring
and RBB Bank may not convert such shares redeemed
during such twelve month period, and thereafter
the Company has the option to redeem the
convertible preferred stock at 120% of the stated
value ($1,000 per share) of the convertible
preferred stock and upon such redemption RBB Bank
will have the right to exercise its conversion
rights pursuant to the then current terms of the
convertible preferred stock.
4. The remaining terms of the convertible preferred stock
will remain unchanged.
RBB Bank has given the Company notice to convert the $4.6
million of convertible preferred stock, which is convertible into
approximately 6.1 million shares of the Company's Common Stock.
Other than the conversion of the $4.6 million of convertible
preferred stock, which RBB Bank has exercised, the other terms of
the restructuring are subject to the execution of definitive
agreements and receipt of certain approvals.
The Company intends to finance the redemption of $750,000 of
convertible preferred stock through borrowings under its revolving
credit facility. See "Part II-Item 5. Other Events".
In addition, during March 1999, the Company entered into
definitive agreements to acquire Chemical Conservation Corporation,
located in Orlando, Florida; Chemical Conservation of Georgia, Inc.
located in Valdosta, Georgia; and Chem-Met Services, Inc., located
in Detroit, Michigan (collectively, "Chem-Con Companies"), whereby
the Company was to acquire the Chem-Con Companies in exchange for
$7.4 million in the Company's Common Stock based on the average
closing price per share of the Company's Common Stock as quoted on
the NASDAQ for the five (5) trading days immediately preceding the
date of closing. Further, the Company agreed to enter into a four
(4) year employment agreement with the principal executive officer
of the Chem-Con Companies totaling $1.3 million over the four (4)
year term. It was anticipated that this transaction was to be
accounted for as a "pooling of interests". During April, 1999, the
Company, the two shareholders of the Chem-Con Companies and the
Chem-Con Companies entered into a letter of intent to amend the
agreement relating to the acquisition of the Chem-Con Companies.
Under the letter of intent, the Company will purchase all of the
outstanding stock of the Chem-Con Companies and will pay $8.7
million, payable as follows: (i) $1 million in cash at closing,
(ii) five (5) year promissory notes totaling the original principal
17
amount of $4.7 million, bearing an annual rate of interest of 5.5%
for the first three years and 7% for the last two years, with
principal and accrued interest payable in monthly installments of
approximately $90,000 each, and (iii) $3 million payable in the
form of 1.5 million shares of the Company's Common Stock based on
each share having an agreed value of $2.00. Under the letter of
intent, (a) the employment agreement as provided above would be
eliminated and (b) if the average of the closing price of the
Company's Common Stock as quoted on the NASDAQ for the five (5)
trading days immediately preceding the date eighteen (18) months
after the closing date ("Valuation Date") is less than $2.00 per
share, the Company is to pay in cash or Common Stock or a
combination thereof, at the Company's option, the difference
between $3 million and the value of the 1.5 million shares of
Common Stock based on the five (5) trading day average as quoted on
the NASDAQ immediately preceding the Valuation Date. However, under
the letter of intent, the Company is not to issue in connection
with the acquisition of the Chem-Con Companies more than 18% of the
outstanding shares of Common Stock at the closing of the
acquisition of the Chem-Con Companies. The letter of intent is
subject to finalization of definitive agreements and satisfaction
of other conditions.
The Company anticipates funding of the cash portion of the
purchase price for the Chem-Con Companies through borrowings under
its revolving credit facility and to fund the payment of the
promissary notes issued as a part of the purchase price by
borrowings under its revolving credit facility and/or working
capital generated from operations.
In addition, the Company anticipates arranging with its
lenders to include within its revolving credit facility the Chem-
Con Companies and, as a result, increasing its credit facility from
approximately $7 million to approximately $11 million, and using
the expanded credit facility (a) to pay certain claims against the
Chem-Con Companies totaling approximately $1.2 million and (b) to
replace approximately $2.5 million of Chem-Con Companies existing
credit facilities.
Environmental Contingencies
The Company is engaged in the Waste Management Services
segment of the pollution control industry. As a participant in the
on-site treatment, storage and disposal market and the off-site
treatment and services market, the Company is subject to rigorous
federal, state and local regulations. These regulations mandate
strict compliance and therefore are a cost and concern to the
Company. The Company makes every reasonable attempt to maintain
complete compliance with these regulations; however, even with a
diligent commitment, the Company, as with many of its competitors,
may be required to pay fines for violations or investigate and
potentially remediate its waste management facilities.
The Company routinely uses third party disposal companies, who
ultimately destroy or secure landfill residual materials generated
at its facilities or at a client's site. The Company, compared to
its competitors, disposes of significantly less hazardous or
industrial by-products from its operations due to rendering
material non-hazardous, discharging treated wastewaters to
publicly-owned treatment works and/or processing wastes into
saleable products. In the past, numerous third party disposal
sites have improperly managed wastes and consequently require
remedial action; consequently, any party utilizing these sites may
be liable for some or all of the remedial costs. Despite the
Company's aggressive compliance and auditing procedures for
disposal of wastes, the Company could, in the future, be notified
that it is a PRP at a remedial action site, which could have a
material adverse effect on the Company.
During January 1998, PFM was notified by the EPA that it
believed that PFM was a PRP regarding the remediation of a site
owned and operated by W.R. Drum, Inc. ("WR Drum") in Memphis,
Tennessee (the "Drum Site"), as further discussed in Item 3 "Legal
Proceedings" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. During the third quarter of 1998, the
government agreed to PFM's offer to pay $225,000 ($150,000 payable
at closing and the balance payable over a twelve month period) to
settle any potential liability regarding this Drum Site. During
January 1999, the Company executed a "Partial Consent Decree"
pursuant to this settlement, which settlement is subject to
approval of the court. It is anticipated that the settlement will
18
be approved and the initial payment of $150,000 will be made during
the second quarter of 1999. However, there are no assurances that
the settlement will be approved by the court.
In addition to budgeted capital expenditures of $2,500,000 for
1999 at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above in this
Management's Discussion and Analysis, we have also budgeted for
1999 an additional $437,000 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 a parcel of
property leased by a predecessor to PFD in Dayton, Ohio (EPS), a
former RCRA storage facility as operated by the former owners of
PFD, and PFM's facility in Memphis, Tennessee. We have estimated
the expenditures for 1999 to be approximately $222,000 at the EPS
site and $215,000 at the PFM location of which $8,000 and $98,000
were spent during the first quarter of 1999, respectively.
Additional funds will be required for the next five to ten years to
properly investigate and remediate these sites. We expect to fund
these expenses to remediate these two sites from funds generated
internally, however, no assurances can be made that we will be able
to do so.
Recent Accounting Pronouncements
In June, 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133 is effective for periods beginning
after June 15, 1999. Historically, we have not entered into
derivative contracts. Accordingly, FAS 133 is not expected to
affect our financial statements.
19
<PAGE>
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
_________________
There are no additional material legal proceedings pending
against the Company and/or its subsidiaries not previously reported
by the Company in Item 3 of its Form 10-K for the year ended
December 31, 1998, which Item 3 is incorporated herein by
reference.
Item 2. Changes in Securities and Use of Proceeds
_________________________________________
During the first quarter of 1999, the Company sold or issued
the following equity securities which were not registered under the
Securities Act of 1933, as amended (the "Act"):
(i) During February 1999, the Company issued to RBB Bank
Aktiengesellschaft ("RBB Bank"), located in Graz, Austria, a
cash payment of $121,000 and 80,476 shares of the Company's
Common Stock in payment of $228,000 in accrued and unpaid
dividends from July 1, 1998, to December 31, 1998, relating to
certain outstanding series of the Company's Preferred Stock in
accordance with the terms of such Preferred Stock. The
issuance of the above described shares of Common Stock in
payment of accrued and unpaid dividends in connection with the
Company's Preferred Stock were issued pursuant to an exemption
from registration under Section 4(2) of the Act and/or Rule
506 of Regulation D as promulgated under the Act.
(ii) During February 1999, the Company issued to the Infinity Fund,
L.P. ("Infinity") 5,326 shares of the Company's Common Stock
in payment of $7,000 in accrued and unpaid dividends from July
1, 1998, to December 31, 1998, relating to certain outstanding
series of the Company's Preferred Stock held by Infinity in
accordance with the terms of such Preferred Stock. The
issuance of the above described shares of Common Stock in
payment of accrued and unpaid dividends in connection with the
Company's Preferred Stock were issued pursuant to an exemption
from registration under Section 4(2) of the Act and/or Rule
506 of Regulation D promulgated under the Act.
(iii)On or about February 2, 1999, pursuant to the terms of a
certain Consulting Agreement ("Consulting Agreement") entered
into effective as of January 1, 1998, the Company issued 2,667
shares of Common Stock in payment of accrued earnings of
$3,000 to Alfred C. Warrington IV, an outside, independent
consultant to the Company, as consideration for certain
consulting services rendered to the Company by Warrington from
October through December 1998. The issuance of Common Stock
pursuant to the Consulting Agreement was a private placement
under Section 4(2) of the Act and/or Rule 506 of Regulation D
as promulgated under the Act. The Consulting Agreement
provides that Warrington will be paid $1,000 per month of
service to the Company, payable, at the option of Warrington
(i) all in cash, (ii) sixty-five percent in shares of Common
Stock and thirty-five percent in cash, or (iii) all in Common
Stock. If Warrington elects to receive part or all of his
compensation in Common Stock, such will be valued at seventy-
five percent of its "Fair Market Value" (as defined in the
Consulting Agreement). Warrington elected to receive all of
his accrued compensation through the end of 1997 in Common
Stock.
Warrington represented and warranted in the Consulting
Agreement, inter alia, as follows: (i) the Common Stock is
being acquired for Warrington's own account, and not on behalf
of any other persons; (ii) Warrington is acquiring the Common
Stock to hold for investment, and not with a view to the
resale or distribution of all or any part of the Common Stock;
(iii) Warrington will not sell or otherwise transfer the
Common Stock in the absence of an effective registration
statement under the Act, or an opinion of counsel satisfactory
to the Company, that the transfer can be made without
violating the registration provisions of the Act and the rules
20
and regulations promulgated thereunder; (iv) Warrington is an
"accredited investor" as defined in Rule 501 of Regulation D
as promulgated under the Act; (v) Warrington has such
knowledge, sophistication and experience in financial and
business matters that he is capable of evaluating the merits
and risks of the acquisition of the Common Stock; (vi)
Warrington fully understands the nature, scope and duration of
the limitations on transfer of the Common Stock as contained
in the Consulting Agreement, (vii) Warrington understands that
a restrictive legend as to transferability will be placed upon
the certificates for any of the shares of Common Stock
received by Warrington under the Consulting Agreement and that
stop transfer instructions will be given to the Company's
transfer agent regarding such certificates.
(iv) On or about February 12, 1999, John Canouse ("Canouse")
purchased 15,000 shares each of Common Stock for $10,950.
These shares were purchased pursuant to the terms of a certain
warrant ("Carey Warrant") which had been originally issued to
J.P. Carey Enterprises, Inc., a provider of investment banking
services to the Company ("Carey"), allowing the purchase of
195,000 shares of Common Stock for $0.73 per share and which
was partially assigned on January 5, 1998, to Canouse, a
shareholder of Carey. The issuance to Carey was described in
a Form D which was filed with the Securities and Exchange
Commission ("SEC") under Rule 506 on August 3, 1996.
The shares of Common Stock were issued to Canouse in a private
placement under Section 4(2) of the Act as Canouse had access
to the same kind of information which would be included in a
registration statement and is a highly sophisticated investor.
The shares issued to Canouse are restricted shares which were
issued with a restrictive legend, however, such shares are
covered by an effective registration statement on Form S-3,
No. 333-14513 ("1996 Registration Statement"), filed with the
SEC, effective November 13, 1996, registering for reoffer or
resale from time to time certain shares of Common Stock
including the 195,000 shares of Common Stock, to be issued
from time to time upon exercise of the Carey Warrant.
On January 29, 1998, a Third Supplement ("Third Supplement")
to the Prospectus dated November 13, 1996, contained within
the 1996 Registration Statement ("Prospectus") was filed with
the SEC, which Third Supplement described, among other things,
the assignment of a portion of the Carey Warrant to Canouse.
The Third Supplement also served to supplement and amend the
Selling Security Holders table in the Prospectus by, among
other things, (i) adding Canouse as a Selling Shareholder; and
(ii) adjusting the offering information applicable to Carey,
to account for the assignment by Carey of the Carey Warrant.
(v) During March 1999, the Company issued to Liviakis Financial
Communications, Inc.("Liviakis") and Robert B. Prag ("Prag"),
150,000 shares and 50,000 shares, respectively, of the
Company's Common Stock pursuant to an Exchange Agreement
whereby certain warrants issued in connection with the Series
10 Class J Convertible Preferred Stock (1,875,000 and
625,000, respectively) were canceled and exchanged for the
200,000 shares of the Company's Common Stock.
The issuance to Liviakis and Prag was mad pursuant to Section
3(a)(9) and/or 4(2) under the Act. Liviakis and Prag each
acknowledge in the Exchange Agreement (i) that the shares of Common
Stock issued thereunder ("Shares") have not been registered under
the Act and accordingly are "restricted securities" within the
meaning of Rule 144 of the Act; (ii) that the Shares may not be
resold or transferred unless the Shares have been registered under
the Act or the Company has received an opinion of counsel
reasonably satisfactory to the Company that such resale or transfer
is exempt from the registration requirements of the Act; (iii) that
the exemption from registration afforded by Rule 144 under the Act
depends upon the satisfaction of various conditions and that, if
applicable, Rule 144 affords the basis for sale only in limited
amounts; (iv) that Liviakis and Prag have been afforded the
opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company
concerning an investment in the Shares, and regarding any
additional information which Liviakis and Prag have requested; (v)
that Liviakis and Prag have each had experience in investments in
restricted and publicly traded securities, and that Liviakis and
Prag have each had experience in investments in speculative
21
<PAGE>
securities and other investments which involve the risk of loss of
investment; (vi) that an investment in the Shares is speculative
and involves the risk of loss; (vii) that both Liviakis and Prag
have the requisite knowledge to assess the relative merits and
risks of this investment without the necessity of relying upon
other advisors, and Liviakis and Prag can afford the risk of loss
of their entire investment in the Shares; (viii) that each of
Liviakis and Prag is an "accredited investor," as that term is
defined in Rule 501 of Regulation D promulgated under the Act; and
(ix) that each of Liviakis and Prag is acquiring the Shares for its
or his own account for long-term investment and not with a view
toward resale or distribution thereof except in accordance with
applicable securities laws.
Item 5. Other Information
_________________
A. The Company and RBB Bank Aktiengesellschaft ("RBB Bank")
entered into an agreement in principle to restructure the
Company's convertible preferred stock held by RBB Bank, which
totals approximately $9.5 million. Under the restructuring the
Company and RBB Bank would:
1. RBB Bank would proceed immediately to convert, pursuant
to existing terms of the convertible preferred stock,
$4.6 million of the convertible preferred stock into
approximately 6.1 million shares of the Company's Common
Stock.
2. The Company would be granted the right to purchase at a
stated value ($1,000 per share) up to $750,000 of the
convertible preferred stock.
3. The terms of the balance of the convertible preferred
stock (approximately $4.2 million) would be changed, as
follows:
a. Not subject to conversion for 12 months from the
date of the restructuring ("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up
Period, any conversion of the convertible
preferred stock would be subject to a minimum
conversion price of $1.50 per share of Common
Stock; and
c. The Company will be granted the option to redeem
the shares of the convertible preferred stock at
110% of the stated value ($1,000 per share) for the
first twelve months from the date of restructuring
and RBB Bank may not convert such shares redeemed
during such twelve month period, and thereafter
the Company has the option to redeem the
convertible preferred stock at 120% of the stated
value ($1,000 per share) of the convertible
preferred stock and upon such redemption RBB Bank
will have the right to exercise its conversion
rights pursuant to the then current terms of the
convertible preferred stock.
4. The remaining terms of the convertible preferred stock
will remain unchanged.
RBB Bank has given the Company notice to convert the $4.6
million of convertible preferred stock, which is convertible into
approximately 6.1 million shares of the Company's Common Stock.
With the shares of Common Stock currently held by RBB Bank and upon
receipt of the shares of Common Stock in connection with the
conversion of $4.6 million of convertible preferred stock, RBB Bank
will hold 7,170,495 shares of the Company's Common Stock, or 38.3%
of the outstanding shares of Common Stock, prior to the issuance of
any shares of Common Stock in connection with the acquisition of
the Chem-Con Companies
Other than the conversion of the $4.6 million of convertible
preferred stock, which RBB Bank has exercised, the other terms of
the restructuring are subject to the execution of definitive
agreements and receipt of certain approvals.
B. On January 9, 1996, the Company granted J.P. Carey Enterprise,
Inc. ("JP Carey") one warrant to purchase up to an aggregate
of 195,000 shares of the Company's Common Stock. Under the
original warrant, the warrant exercise price was to be paid in
cash at a price of $.73 per share. The warrant was thereafter
assigned by JP Carey to certain of its officers. After such
assignment, the warrant was partially exercised and 85,000
shares of Common Stock were issued as a result of such
22
<PAGE>
exercise to certain of its officers. During April, 1999, the
Company agreed in principle with the assignees of that
warrant to allow such assignees the right to exercise such
warrant through a cashless exercise, whereby the holder
exercises such warrant by notifying the Company that the
Company is to retain as the exercise price that number of
shares of Common Stock issuable upon exercise of the warrant
which has an aggregate value equal to the aggregate price of
the warrant being exercised. The assignees of the warrant has
exercised this warrant utilizing the cashless exercise
procedure, and, as a result, 47,227 shares of Common Stock
will be issued in connection with such exercise. This
agreement is subject to execution of amendments to the
warrants.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
________
27 Financial Data Schedule
99.1 Letter dated April 28, 1999, between the Company and
RBB Bank.
99.2 Amendment to J.P. Carey Warrant.
(b) Reports on Form 8-K
___________________
No report on Form 8-K was filed by the Company during the
first quarter of 1999.
23
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Date: May 14, 1999 By: /s/ Louis F. Centofanti
___________________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
___________________________________
Richard T. Kelecy
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> $ 84,000
<SECURITIES> 0
<RECEIVABLES> 6,047,000
<ALLOWANCES> 316,000
<INVENTORY> 163,000
<CURRENT-ASSETS> 8,150,000
<PP&E> 18,138,000
<DEPRECIATION> 6,180,000
<TOTAL-ASSETS> 28,923,000
<CURRENT-LIABILITIES> 7,857,000
<BONDS> 1,839,000
0
0
<COMMON> 14,000
<OTHER-SE> 16,123,000
<TOTAL-LIABILITY-AND-EQUITY> 28,923,000
<SALES> 0
<TOTAL-REVENUES> 7,812,000
<CGS> 0
<TOTAL-COSTS> 5,290,000
<OTHER-EXPENSES> 519,000
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 27,000
<INCOME-PRETAX> 14,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,000
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
</TABLE>
RBB BANK AG
RBB Bank Aktiengesellschaft
Burgring 16, 8010 Graz, Austria
Tel. 011-43/316/8072-354
Fax 011-43/316/8072-392
E-Mail: [email protected]
From: Herbert StrauB
To: Perma Fix
Dr. Louis Centofanti 001-404-847-9977
Copies to: Conner & Winters
Irwin Steinhorn, Esq. 001-405-232-2695
JW Genesis
Paul Mannion 001-404-239-9967
Date: 28.04.99
Dear Lou!
Please find attached the final conversion notices for the
conversion that we agreed upon on the 20th. As you can see the
total conversion was lowered from the original 4.920 preferred
shares to 4.563.
As discussed you will also redeem 750 preferred shares.
On the remaining 4.187 preferred shares my clients will put a
1,5$ floor price for a two year period. They further grant you
the right to redeem any or all the preferred shares during the
next 12 month, during which the clients will not make any other
conversions, at 1.100$ + interest and thereafter at 1.200$ +
interest, at which time the clients shall have 5 businessdays to
exercise their conversionright after you inform them of your
redemptionintend.
As I told you I am flying to the US tomorrow and will be back in
the office on monday to complete any other paperwork that may be
necessary.
Very truly yours,
/s/ Herbert Strauss
Herbert Strauss
THE WARRANT ("WARRANT") REFERENCED HEREIN AND THE SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT (i) UNDER COVER
OF A REGISTRATION STATEMENT UNDER THE ACT WHICH IS EFFECTIVE AND
CURRENT WITH RESPECT TO THIS WARRANT OR SUCH SHARES OF COMMON
STOCK, AS THE CASE MAY BE, OR (ii) PURSUANT TO THE WRITTEN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER SUCH ACT IS NOT REQUIRED WITH RESPECT TO SUCH
SALE OR TRANSFER.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Amendment to Warrants for the Purchase of Shares of Common Stock
_______________________________________________________________
WHEREAS, in January 1996, PERMA-FIX ENVIRONMENTAL SERVICES,
INC. (the "Company"), a Delaware corporation, issued Warrant No. 1-
9-96 ("Carey Warrant") to J. P. CAREY ENTERPRISES, INC., or any
permitted assignee thereof (the "Carey"), for the purchase of up to
one hundred ninety-five thousand (195,000) fully paid and
nonassessable shares of common stock, $.001 par value, of the
Company (the "Common Stock"), at a purchase price of $0.73 per
share. Under the terms of the Carey Warrant, on or about January
5, 1998, Carey assigned various portions of the Carey Warrant to
enable John C. Canouse, James P. Canouse, Jeffrey M. Canouse and
Joseph C. Canouse, shareholders of Carey, to purchase 39,000,
39,000, 39,000 and 78,000 shares thereunder, respectively. To
reflect this assignment, Warrant No. 1-9-96a for 39,000 shares of
Common Stock was issued to John C. Canouse, Warrant No. 1-9-96b for
39,000 shares of Common Stock was issued to James P. Canouse,
Warrant No. 1-9-96c for 39,000 shares of Common Stock was issued to
Jeffrey M. Canouse, and Warrant No. 1-9-96d for 78,000 shares of
Common Stock was issued to Joseph C. Canouse;
WHEREAS, on March 6, 1998, Jeffrey M. Canouse purchased 10,000
shares of Common Stock through the partial exercise of Warrant No.
1-9-96c for 39,000 shares of Common Stock and on March 9, 1998,
Jeffrey M. Canouse was issued Warrant No. 1-9-96c/1 to reflect the
remaining 29,000 shares of Common Stock available for issuance
thereunder;
WHEREAS, on February 2, 1999, John C. Canouse purchased 15,000
shares of Common Stock through the partial exercise of Warrant No.
1-9-96a for 39,000 shares of Common Stock and on February 5, 1999,
John C. Canouse was issued Warrant No. 1-9-96a1 to reflect the
remaining 24,000 shares of Common Stock available for issuance
thereunder;
WHEREAS, this Amendment to Warrants for the Purchase of Shares
of Common Stock (the "Amendment") is being made to incorporate into
Warrant No. 1-9-96a1, Warrant No. 1-9-96b and Warrant No. 1-9-
96c/1 (collectively, the "Amended Warrants") a provision to allow
the holder thereof to exercise the Amended Warrants, in part or in
<PAGE>
whole, on a cashless basis, allowing the holder to deliver to the
Company "in the money" Amended Warrants held by such holder as
payment for the exercise of other Amended Warrants held by such
holder.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. Amendment. Each of the Amended Warrants is hereby
amended by inserting the following provision designated
as Section 1.1
1.1 Cashless Exercise of Warrant. As an alternative to
Section 1, herein, this Warrant may be exercised, as a
whole at any one time or in part from time to time during
the Exercise Period, by the Holder by the surrender of
this Warrant (with the subscription form at the end
hereof duly executed by the Holder) at the address set
forth in Section 9 hereof, together with payment in the
manner hereinafter set forth, of an amount equal to the
Warrant Price in effect at the date of such exercise
multiplied by the total number of Warrant Shares to be
purchased upon such exercise. Payment for Warrant Shares
shall be made by Holder's written direction to the
Company to retain as the aggregate Warrant Price (for the
Warrant Shares being purchased that number of the Warrant
Shares (rounded upward to next highest full Share) being
purchased which have an aggregate value equal to the
aggregate Warrant Price. Such Warrant Shares shall be
valued for such purposes at the highest closing price of
the Company's Common Stock in the principal market in
which the Company's Common Stock trade for a five day
period consisting of the trading day preceding the date
on which this Warrant and the Purchase Form are delivered
to the Company plus the four preceding trading days.
2. Applicable Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of
Delaware, without giving effect to the principles of
conflicts of law thereof.
THE NEXT PAGE IS THE SIGNATURE PAGE
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK<PAGE>
- 2 -
<PAGE>
IN WITNESS WHEREOF, this Amendment has been signed by the
parties hereto this ____ day of _________, 1999.
PERMA-FIX ENVIRONMENTAL
SERVICES, INC.
By______________________________
Dr. Louis F. Centofanti
Chief Executive Officer
___________________________ ______________________________
John C. Canouse James P. Canouse
___________________________
Jeffrey M. Canouse
- 3 -
