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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, 2000
_____________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File No. 1-11596
_____________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
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 18, 2000
______ ______________________________
Common Stock, $.001 Par Value 21,709,172
(excluding 988,000 shares
held as treasury stock)
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<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000
and December 31, 1999 . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999 . . 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 . . . . . . . 5
Consolidated Statements of Stockholder's Equity -
Six Months Ended June 30, 2000. . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . .15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . .25
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . .26
Item 2. Changes in Securities and Use of Proceeds. . . . . . . .26
Item 5. Other Information. . . . . . . . . . . . . . . . . . . .26
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . .29
</TABLE>
<PAGE>
<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(which may be referred to as we, us or our), without an audit, pur-
suant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial state-
ments 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, 1999.
The results of operations for the six months ended June 30, 2000, are
not necessarily indicative of results to be expected for the fiscal year
ending December 31, 2000.
1
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<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
2000 December 31,
(Amounts in Thousands, Except for Share Amounts) (Unaudited) 1999
__________________________________________________________________________________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 391 $ 771
Restricted cash equivalents and investments 20 73
Accounts receivable, net of allowance for doubtful
accounts of $875 and $952, respectively 13,443 13,027
Inventories 163 229
Prepaid expenses 1,470 486
Other receivables 118 62
Assets of discontinued operations 48 377
_________ _________
Total current assets 15,653 15,025
Property and equipment:
Buildings and land 12,557 12,555
Equipment 14,095 13,682
Vehicles 2,456 2,274
Leasehold improvements 16 16
Office furniture and equipment 1,309 1,223
Construction in progress 2,250 1,210
_________ _________
32,683 30,960
Less accumulated depreciation (8,978) (7,690)
_________ _________
Net property and equipment 23,705 23,270
Intangibles and other assets:
Permits, net of accumulated amortization of
$1,765 and $1,504, respectively 8,298 8,544
Goodwill, net of accumulated amortization of
$1,166 and $1,009, respectively 6,997 7,154
Other assets 624 651
___________ _________
Total assets $ 55,277 $ 54,644
=========== =========
</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,
2000 December 31,
(Amounts in Thousands, Except for Share Amounts) (Unaudited) 1999
____________________________________________________________________________________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,510 $ 7,587
Accrued expenses 6,407 5,885
Revolving loan and term note facility 938 938
Current portion of long-term debt 1,526 1,427
Current liabilities of discontinued operations 315 588
________ ________
Total current liabilities 16,696 16,425
Environmental accruals 3,764 3,847
Accrued closure costs 972 962
Long-term debt, less current portion 12,712 12,937
Long term liabilities of discontinued operations 654 654
________ ________
Total long-term liabilities 18,102 18,400
________ ________
Total Liabilities 34,798 34,825
Commitments and contingencies (see Note 6) - -
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000
shares authorized, 4,187 and 4,537 shares issued
and outstanding, respectively - -
Common Stock, $.001 par value; 50,000,000 shares
authorized, 22,697,172 and 21,501,776 shares
issued, including 988,000 shares held as
treasury stock 23 21
Additional paid-in capital 43,254 42,367
Accumulated deficit (20,936) (20,707)
________ ________
22,341 21,681
Less Common Stock in treasury at cost; 988,000
shares issued and outstanding (1,862) (1,862)
________ ________
Total stockholders' equity 20,479 19,819
________ ________
Total liabilities and stockholders' equity $ 55,277 $ 54,644
======== ========
</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 Six Months Ended
June 30, June 30,
Amounts in Thousands, ________________________________________________
Except for Share Amounts) 2000 1999 2000 1999
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Net revenues $ 14,492 $ 10,573 $ 28,081 $ 18,385
Cost of goods sold 10,007 6,819 19,549 12,109
________ ________ ________ _______
Gross profit 4,485 3,754 8,532 6,276
Selling, general and
administrative expenses 2,927 2,295 6,180 4,133
Depreciation and amortization 852 597 1,714 1,116
________ ________ ________ ________
Income from operations 706 862 638 1,027
Other income (expense):
Interest income 10 11 21 18
Interest expense (441) (91) (851) (118)
Other 37 (6) 67 (20)
_______ _________ _______ ________
Net income (loss) 312 776 (125) 907
Preferred Stock dividends (50) (73) (104) (190)
________ _________ ________ ________
Net income (loss) applicable
to Common Stock $ 262 $ 703 $ (229) $ 717
======== ========= ======== ========
____________________________________________________________________________
Net income (loss) per share:
Basic $ .01 $ .04 $ (.01) $ .05
======== ========= ======== ========
Diluted $ .01 $ .04 $ (.01) $ .05
======== ========= ======== =========
Number of shares and Common Stock
equivalents used in computing net
income (loss) per share:
Basic 21,709 16,570 21,279 14,483
======== ======== ======== =========
Diluted 26,089 20,254 21,279 18,175
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part
of the 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, __________________________
Except for Share Amounts) 2000 1999
___________________________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ (125) $ 907
Adjustments to reconcile net income (loss)
to cash provided by operations:
Depreciation and amortization 1,714 1,116
Provision for bad debt and other reserves 29 12
(Gain) on sale of plant, property and equipment (46) 3
Changes in assets and liabilities, net of effects
from business acquisitions:
Accounts receivable (445) (1,118)
Prepaid expenses, inventories and other assets (430) (432)
Accounts payable and accrued expenses (141) 84
___________ _________
Net cash provided by continuing operations 556 572
Net cash used by discontinued operations (249) (551)
Cash flows from investing activities:
Purchases of property and equipment, net (1,436) (895)
Proceeds from sale of plant, property and equipment 101 14
Change in restricted cash, net 43 82
Cash used for acquisition consideration - (1,000)
Net cash used for acquisition settlements - (1,616)
Net cash provided by (used by) discontinued
operations 264 (40)
__________ ________
Net cash used in investing activities (1,028) (3,455)
Cash flows from financing activities:
Borrowings of revolving loan and term note facility 223 3,279
Principal repayments on long-term debt (698) (134)
Purchase of treasury stock - (50)
Proceeds from issuance of stock 776 66
Net cash used by discontinued operations (4) (17)
__________ ________
Net cash provided by financing activities 297 3,144
Decrease in cash and cash equivalents (424) (290)
Cash and cash equivalents at beginning of period
including discontinued operations of $45, and
$0, respectively 816 776
__________ ________
Cash and cash equivalents at end of period, including
discontinued operations of $1, and $4 respectively $ 392 $ 486
========= ========
_____________________________________________________________________________________
Supplemental disclosure:
Interest and dividends paid $ 846 $ 422
Non cash investing and financing activities:
Issuance of Common Stock for services - 15
Issuance of stock for payment of dividends 112 114
Long-term debt incurred for purchase of property
and equipment 349 221
Long-term debt incurred for acquisition - 4,700
Issuance of stock for acquisition - 3,000
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, for the six months ended June 30, 2000)
Common
Preferred Stock Common Stock Additional Stock
(Amounts in Thousands ___________________ ________________________ Paid-In Accumulated Held in
Except for Share Amounts) Shares Amount Shares Amount Capital Deficit Treasury
___________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 4,537 $ - 21,501,776 $ 21 $ 42,367 $(20,707) $ (1,862)
Net loss - - - - - (125) -
Preferred Stock dividend - - - - - (104) -
Issuance of Common Stock for
Preferred Stock dividend - - 97,841 - 112 - -
Conversion of Preferred Stock
to Common (350) - 322,351 1 - - -
Issuance of stock under
Employee Stock Purchase Plan - - 48,204 - 49 - -
Exercise of warrants - - 727,000 1 726 - -
______ _______ __________ ________ _________ ________ _________
Balance at June 30, 2000 4,187 $ - 22,697,172 $ 23 $ 43,254 $(20,936) $ (1,862)
====== ======= ========== ========== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(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,
1999.
1. Summary of Significant Accounting Policies
__________________________________________
Our accounting policies are as set forth in the notes to consolidated
financial statements referred to above.
2. Earnings Per Share
__________________
Basic EPS is based on the weighted average number of shares of Common Stock
outstanding during the period. Diluted EPS includes the dilutive effect of
potential common shares. Diluted loss per share for the six months ended
June 30, 2000, does not include potential common shares as their effect would
be anti-dilutive.
<TABLE>
<CAPTION>
The following is a reconciliation of basic net income (loss) per share to
diluted net income (loss) per share for the three months and six months ended
June 30, 2000, and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
(Amounts in Thousands, ______________________ ________________________
Except for Share Amounts) 2000 1999 2000 1999
_____________________________________________________________________________________________
<S> <C> <C> <C> <C>
Net income (loss) applicable to
Common Stock - basic $ 262 $ 703 $ (229) $ 717
Effect of dilutive securities -
Preferred Stock dividends 50 73 - 190
________ ________ ________ ________
Net income (loss) applicable to
Common Stock - diluted $ 312 $ 776 $ (229) $ 907
======== ======== ======== =========
Basic net income (loss) per share $ .01 $ .04 $ (.01) $ .05
======== ======== ======== ========
Diluted net income (loss) per share $ .01 $ .04 $ (.01) $ .05
======== ======== ======== =========
Weighted average shares outstanding-basic 21,709 16,570 21,279 14,483
Potential shares exercisable under stock
option plans 1,148 544 - 542
Potential shares upon exercise of
warrants 441 11 - 22
Potential shares upon conversion of
Preferred Stock 2,791 3,129 - 3,128
________ ________ _______ _______
Weighted average shares outstanding-diluted 26,089 20,254 21,279 18,175
======== ======== ======= =======
</TABLE>
The above reconciliation for the six months ended June 30, 2000, excluded
the effect of potential common shares for 1,783,949 options, 4,904,963 warrants
and 2,791,333 potential shares upon conversion of Preferred Stock since their
effect would be anti-dilutive.
3. 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
7
<PAGE>
<PAGE>
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.
The accrued environmental and closure costs related to PFM total $948,000 as
of June 30, 2000, a decrease of $227,000 from the December 31, 1999, 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, ($114,000), and the general operating
losses, including indirect labor, materials and supplies, incurred in conjunc-
tion with the above actions ($113,000). The general operating losses do not
reflect management fees charged by the Company. The remaining environmental
and closure liability represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $621,000, the costs to
complete the facility closure activities over the next five (5) year period
(including agency and investigative activities, and future operating losses
during such closure period) totaling approximately $290,000, and the
potential PRP liability of $37,000.
4. Proposed Acquisition
____________________
The Company has entered into a stock purchase agreement dated May 16, 2000
("DSSI Agreement"), to purchase Diversified Scientific Systems, Inc. ("DSSI")
from Waste Management, Inc. ("Seller"), subject to certain conditions being
met. Under the terms of the DSSI Agreement, upon completion of the purchase
of DSSI, the Company is to pay the Seller $8.5 million, subject to the purchase
price being increased or decreased under certain conditions, with $5 million
payable in cash at closing and the balance evidenced by a promissory note
(the "First Note"). The First Note is to be for a term of five years, will
bear an annual rate of interest of 7%, with accrued interest payable
annually and the principal amount payable in one lump sum at the end of the
five-year term. DSSI's facility, located in Kingston, Tennessee, is
permitted to transport, store and treat hazardous waste and mixed waste
(waste containing both low level radioactive and hazardous waste) and to
dispose of or recycle mixed waste in DSSI's boiler located at DSSI's facility.
During August 2000, the Company and Seller entered into an oral amendment
("DSSI Amendment") to the DSSI Agreement which provides that the $8.5 million
is not subject to adjustment and will be paid in the form of $2.5 million in
cash, the First Note, and $2.5 million evidenced by a promissory note (the
"Second Promissory Note"), bearing an annual interest rate of prime plus 1 3/4
percent (11.25% at August 18, 2000), with accrued interest and all principal
payable upon the earlier of four months or upon the acquisition by Perma-Fix
of any entity or substantially all the assets of another Company.
The Second Promissory Note will be secured by all property, plant and
equipment of DSSI. Finalization of the DSSI Amendment is subject
to negotiation and execution of a definitive Amendment Agreement.
In order to assist the Company in raising the funds to fund the cash
portion of the purchase price and to assist the Company in providing
additional liquidity, the Company has retained Ryan, Beck & Co. and
Larkspur Capital Corporation (collectively, the "Financial Advisors") as
financial advisors to the Company, and has granted the Financial Advisors or
their permitted designees a five-year warrant to purchase up to 150,000 shares
of the Company's Common Stock ("Retainer Warrants") at an exercise price of
$1.44 per share which represented the closing price of the Company's Common
Stock as quoted on the National Association of Securities Dealers Automated
Quotation System SmallCap Market ("NASDAQ") as of the date of grant. The
Company has the right to cancel 50% of the Retainer Warrants if a private
placement of the Company's securities is not completed by January 25, 2001.
If the Company is successful in finalizing a private placement as discussed in
the "Management's Discussion and Analysis of Financial Condition and Results
of Operation Liquidity" prior to termination of the agreement with the
Financial Advisors or within twelve months following termination of the agree-
ment with the Financial Advisors and the placement involves a party initially
8
<PAGE>
contacted by the Financial Advisors prior to the termination, the Company has
agreed to pay the Financial Advisors certain cash fees and certain additional
warrants.
5. Long-term Debt
______________
<TABLE>
<CAPTION>
Long-term debt consists of the following at June 30, 2000, and December 31,
1999 (in thousands):
June 30,
2000 December 31,
(Unaudited) 1999
___________ ____________
<S> <C> <C>
Revolving loan facility dated January 15, 1998, as amended
May 27, 1999, borrowings based upon eligible accounts
receivable, subject to monthly borrowing base calculation,
variable interest paid monthly at prime rate plus 1 3/4
(11.25% at June 30, 2000). $ 6,583 $ 5,891
Term loan agreement dated January 15, 1998, as amended
May 27, 1999, payable in monthly principal installments
of $78, balance due in June 2002, variable interest
paid monthly at prime rate plus 1 3/4 (11.25% at
June 30, 2000). 2,734 3,203
Three promissory notes dated May 27, 1999, payable in
equal monthly installments of principal and interest of $90
over 60 months, due June 2004, interest at 5.5% for first
three years and 7% for remaining two years. 3,854 4,283
Various capital lease and promissory note obligations, payable
2000 to 2005, interest at rates ranging from 7.5% to 13.0%. 2,005 1,925
________ ________
15,176 15,302
Less current portion of revolving loan and term note facility 938 938
Less current portion of long-term debt 1,526 1,427
________ ________
$ 12,712 $ 12,937
======== ========
</TABLE>
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 as
lender. The Agreement initially provided for a term loan in the amount of
$2,500,000, which required 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 provided 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 avail-
ability 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 was 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 original
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 original
Agreement dated January 15, 1998.
9
<PAGE>
In connection with the acquisition of Chemical Conservation Corporation
(CCC), Chemical Conservation of Georgia, Inc. (CCG) and Chem-Met Services,
Inc. (CM) on May 27, 1999, Congress, the Company, and the Company's
subsidiaries, including CCC, CCG and CM entered into an Amendment and Joinder
to Loan and Security Agreement (the "Loan Amendment") dated May 27, 1999,
pursuant to which the Loan and Security Agreement ("Original Loan Agreement")
among Congress, the Company and the Company's subsidiaries were amended to
provide, among other things, (i) the credit line being increased from
$7,000,000 to $11,000,000, with the revolving line of credit portion being
determined as the maximum credit of $11,000,000, less the term loan balance,
with the exact amount that can be borrowed under the revolving line of credit
not to exceed eighty percent (80%) of the Net Amount of Eligible Accounts
(as defined in the Original Loan Agreement) less certain reserves; (ii) the
term loan portion of the Original Loan Agreement being increased from its
current balance of approximately $1,600,000 to $3,750,000 and it shall be
subject to a four-year amortization schedule payable over three years at an
interest rate of 1.75% over prime; (iii) the term of the Original Loan
Agreement, as amended, was extended for three years from the date of the
acquisition, subject to earlier termination pursuant to the terms of the
Original Loan Agreement, as amended; (iv) CCC, CCG and CM being added
as co-borrowers under the Original Loan Agreement, as amended; (v) the
interest rate on the revolving line of credit will continue at 1.75% over
prime, with a rate adjustment to 1.5% if net income applicable to Common Stock
of the Company is equal to or greater than $1,500,000 for fiscal year ended
December 31, 2000; (vi) the monthly service fee shall increase from $1,700 to
$2,000; (vii) government receivables will be limited to 20% of eligible
accounts receivable; and (viii) certain obligations of CM shall be paid at
closing of the acquisition of CCC, CCG and CM. The Loan Amendment became
effective on June 1, 1999, when the Stock Purchase Agreements were consummated.
Payments under the term loan commenced on June 1, 1999, with monthly principal
payments of approximately $78,000 and a final balloon payment in the amount of
$938,000 on June 1, 2002. The Company incurred approximately $40,000 in
additional financing fees relating to the closing of this amendment, which is
being amortized over the remaining term of the agreement. The interest rate
on the revolving loan and term loan was 11.25% at June 30, 2000.
Under the terms of the Original Loan Agreement, as amended, the
Company has agreed to maintain an Adjusted Net Worth (as defined in the
Original Loan Agreement) of not less than $3,000,000 throughout the
term of the Original Loan Agreement, which was amended, pursuant to the
above noted acquisition. The adjusted net worth covenant requirement
ranges from a low of $1,200,000 at June 1, 1999, to a high of
$3,000,000 from July 1, 2000, through the remaining term of the Loan
Agreement. The covenant requirement at June 30, 2000, was $2,500,000,
which the Company was in compliance with, having an adjusted net worth
of $4,283,000. The Company has agreed that it will not pay any
dividends on any shares of capital stock of the Company, except that
dividends may be paid on the Company's shares of Preferred Stock
outstanding as of the date of the Loan Amendment (collectively,
"Excepted Preferred Stock") under the terms of the applicable Excepted
Preferred Stock and if and when declared by the Board of Directors of
the Company pursuant to Delaware General Corporation Law. As security
for the payment and performance of the Original Loan Agreement, as
amended, the Company and its subsidiaries (including CCC, CCG and
CM) have granted a first security interest in all accounts receivable,
inventory, general intangibles, equipment and certain of their other
assets, as well as the mortgage on two facilities owned by subsidiaries
of the Company, except for certain real property owned by CM, for which
a first security interest is held by the TPS Trust and the ALS Trust as
security for CM's non-recourse guaranty of the payment of the
Promissory Notes. All other terms and conditions of the original loan
remain unchanged.
As of June 30, 2000, borrowings under the revolving loan agreement
were approximately $6,583,000, an increase of $692,000 over the
December 31, 1999, balance of $5,891,000. The balance under the term
loan at June 30, 2000, was $2,734,000, a decrease of $469,000 from the
December 31, 1999, balance of $3,203,000. As of June 30, 2000, the
Company's borrowing availability under the Congress credit facility,
based on its then outstanding eligible accounts receivable, was
approximately $1,204,000, including $1.0 million of additional
borrowing availability extended to the Company by Congress. The
10
<PAGE>
additional borrowing availability was provided to the Company to assist
with the acquisition of DSSI and M&EC (see Note 4 and Note 8) and to
fund certain facility expansions and capital improvements, in
anticipation of the Company raising additional funds. During the first
quarter, the Company engaged Ryan, Beck & Co. and Larkspur Capital
Corporation (collectively, the "Agents") as financial advisors to the
Company in the private placement of new debt and possible equity.
Pursuant to the terms of the Stock Purchase Agreements in connection
with the acquisition of CCC, CCG and CM, a portion of the consideration
was paid in the form of the Promissory Notes, in the aggregate amount
of $4,700,000 payable to the former owners of CCC, CCG and CM. The
Promissory Notes are paid in equal monthly installments of principal
and interest of approximately $90,000 over five years with the first
installment due on July 1, 1999, and having an interest rate of 5.5%
for the first three years and 7% for the remaining two years. The
aggregate outstanding balance of the Promissory Notes total $3,854,000
at June 30, 2000, of which $894,000 is in the current portion.
Payments of such Promissory Notes are guaranteed by CM under a
non-recourse guaranty, which non-recourse guaranty is secured by
certain real estate owned
by CM.
6. 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 our business, we are involved in
various litigation. There has been no material change in legal
proceedings from those disclosed previously in the Company's Form 10-K
for year ended December 31, 1999. 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 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
11
<PAGE>
aggregate. To meet the requirements of customers, we have exceeded
these coverage amounts.
7. 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 decision 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 eleven 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 3 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, radioactive
waste, and wastewater through our seven TSD facilities; Perma-Fix
Treatment Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft.
Lauderdale, Inc., Perma-Fix of Florida, Inc., Chemical Conservation
Corporation, Chemical Conservation of Georgia, Inc., and Chem-Met
Services, Inc. We provide through Perma-Fix Inc. and Perma-Fix of New
Mexico, Inc. on-site waste treatment services to convert certain types
of characteristic hazardous and mixed wastes into non-hazardous waste
and various waste management services to certain governmental agencies
through Chem-Met Government Services.
The Consulting Engineering Services segment provides environmental
engineering and regulatory compliance services through Schreiber,
Yonley & Associates, Inc. ("SYA") which includes 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. During 1999, the business and operations
of Mintech, Inc., our second engineering company, located in Tulsa,
Oklahoma, was merged into and consolidated with the SYA operations.
<TABLE>
<CAPTION>
The table below shows certain financial information by business
segment for the quarter ended June 30, 2000, and quarter ended June 30,
1999, and excludes the results of operations of the discontinued
operations.
Segment Reporting for the Quarter ended June 30, 2000
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ _______ _________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $13,636 $ 856 $14,492 $ - $ - $14,492
Intercompany revenues 1,201 27 1,228 - - 1,228
Interest income 7 - 7 3 - 10
Interest expense 351 15 366 75 - 441
12
<PAGE>
Depreciation and amortization 815 20 835 17 - 852
Segment profit (loss) 749 95 844 (582) - 262
Segment assets(1) 50,908 2,688 53,596 1,633 48 55,277
Expenditures for segment assets 952 37 989 11 - 1,000
</TABLE>
<TABLE>
<CAPTION>
Segment Reporting for the Quarter ended June 30, 1999
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ ________ _________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 9,640 $ 933 $10,573 $ - $ - $10,573
Intercompany revenues 1,190 98 1,288 - - 1,288
Interest income 11 - 11 - - 11
Interest expense 92 23 115 (24) - 91
Depreciation and amortization 573 20 593 4 - 597
Segment profit (loss) 1,170 19 1,189 (486) - 703
Segment assets(1) 49,735 2,119 51,854 1,211 498 53,563
Expenditures for segment assets 564 2 566 88 - 654
<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 3).
</FN>
</TABLE>
<TABLE>
<CAPTION>
The table below shows certain financial information by business
segment for the six months ended June 30, 2000, and six months ended
June 30, 1999, and excludes the results of operations of the
discontinued operations.
Segment Reporting for the Six Months ended June 30, 2000
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ ________ _________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 26,258 $ 1,823 $ 28,081 $ - $ - $ 28,081
Intercompany revenues 2,328 78 2,406 - - 2,406
Interest income 14 - 14 7 - 21
Interest expense 677 28 705 146 - 851
Depreciation and amortization 1,640 40 1,680 34 - 1,714
Segment profit (loss) 713 219 932 (1,161) - (229)
Segment assets(1) 50,908 2,688 53,596 1,633 48 55,277
Expenditures for segment assets 1,693 49 1,742 44 - 1,786
</TABLE>
<TABLE>
<CAPTION>
Segment Reporting for the Six Months ended June 30, 1999
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ ________ _________ ___________
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 16,241 $ 2,144 $ 18,385 $ - $ - $ 18,385
Intercompany revenues 1,283 191 1,474 - - 1,474
Interest income 16 - 16 2 - 18
Interest expense 133 43 176 (58) - 118
Depreciation and amortization 1,067 40 1,107 9 - 1,116
Segment profit (loss) 1,440 96 1,536 (819) - 717
Segment assets(1) 49,735 2,119 51,854 1,211 498 53,563
Expenditures for segment assets 1,009 15 1,024 93 - 1,117
13
<PAGE>
<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 3).
</FN>
</TABLE>
8. Subsequent Events
_________________
During July 2000, the Company signed a letter of intent ("M&EC Letter
of Intent") to acquire an 80% equity interest in East Tennessee
Materials and Energy Corporation ("M&EC"). The remaining 20% equity
interest shall be held by the current stockholders ("M&EC Owners") of
M&EC. M&EC is licensed to operate a low level radioactive and
hazardous ("Mixed Waste") treatment facility at the U.S. Department of
Energy's ("DOE") site in Oak Ridge, Tennessee. The two-acre M&EC
facility, which is intended for the treatment of government and
commercial mixed waste, is the only non-government operated mixed waste
treatment facility that is located within the government's Oak Ridge,
Tennessee, site. M&EC will process mixed waste under three Broad
Spectrum contracts granted to M&EC. These contracts were awarded by
Bechtel-Jacobs Company, LLC, who manages the DOE Oak Ridge site and are
valued at a minimum of $100 million. According to the terms of these
contracts, M&EC will treat mixed waste located at the Oak Ridge
facility, over a remaining three-year period, with options to continue
thereafter. As of the date of this report, M&EC is in the process of
constructing its treatment facility and has no material revenue
generating activities. The transaction to acquire an 80% equity
interest in M&EC is subject to the execution of a definitive agreement
and completion of due diligence, regulatory approval and other
conditions, including the appropriate financing. The consideration for
the 80% equity interest is $1,080,000 which shall be payable at
closing, as follows: (i) $270,000 in cash, (ii) $810,000 in the form of
Perma-Fix Common Stock, with the number of shares determined at the
date of closing, but not to exceed 540,000 shares, (iii) M&EC will
issue M&EC preferred stock to the M&EC Owners to settle any outstanding
debts of M&EC to the M&EC Owners, (iv) M&EC will settle certain
outstanding tax liabilities, and (v) M&EC will settle certain
liabilities regarding its 401(k) accounts. As of August 10, 2000, the
Company has loaned M&EC $329,000 pursuant to the terms of the Letter of
Intent. The Company intends to evidence such loan by the execution by
M&EC of a security agreement and a promissory note in favor of the
Company, which will be secured by the assets of M&EC. The acquisition
of M&EC is subject to, among other things, regulatory approval, the
Company's ability to obtain financing for the acquisition, the
negotiation and execution of a definitive agreement and the completion
of due diligence, all of which must be to the satisfaction of the
Company.
On July 14, 2000, the Company entered into a letter agreement ("RBB
Letter Agreement") which provided for an unsecured promissory note
("Note") with RBB Bank Aktiengesellschaft ("RBB Bank") in the principal
amount of $750,000, at an annual interest rate of 10.0% per annum. The
purpose of this Note is to provide interim financing to facilitate the
acquisition of DSSI and M&EC (see Note 4 and Note 8) and to fund
certain capital expansions at the Company's existing facilities. The
principal amount of this Note and accrued interest thereon shall be
payable in full upon the earlier of (i) December 31, 2000, or (ii) ten
business days after the Company raises $3,000,000 or more through a
private placement of capital securities. As previously discussed,
during the first quarter, the Company engaged Ryan, Beck & Co. and
Larkspur Capital Corporation as financial advisors to the Company in
the private placement of new debt and possible equity. The RBB Letter
Agreement provides that if the RBB Loan is not repaid in full by
September 1, 2000, the Company will issue additional warrants to RBB
Bank allowing the purchase of Common Stock. As of August 17, 2000, RBB
Bank is the beneficial owner of approximately 12,501,379 shares of
Common Stock or approximately 45.5% of the issued and outstanding
Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--RBB Loan," and "Part II--Other
Information, Item 5."
14
<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 with this report may be deemed
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (collectively, the "Private Securities
Litigation Reform Act of 1995"). All statements in this report other
than a statement 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 or inability to
continue and improve operations and remain profitable on an annualized
basis, (ii) the Company's ability to develop or adopt new and existing
technologies in the conduct of its operations, (iii) anticipated
financial performance, (iv) ability to comply with the Company's
general working capital requirements, (v) ability to retain or receive
certain permits or patents, (vi) ability to be able to continue to
borrow under the Company's revolving line of credit, (vii) 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 facilities in Memphis, Tennessee;
Valdosta, Georgia and Detroit Michigan, (viii) ability to remediate
certain contaminated sites for projected amounts, (ix) completion of
the acquisitions of DSSI and M&EC, (x) ability to obtain new sources of
financing, and (xi) 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) ability to receive or
retain certain required permits or to obtain regulatory approvals to
modify the permits held by DSSI or M&EC to complete the acquisitions of
DSSI and M&EC, (viii) discovery of additional contamination or expanded
Contamination at a certain Dayton, Ohio, property formerly leased by
the Company or the Company's facilities at Memphis, Tennessee;
Valdosta, Georgia and Detroit Michigan, which would result in a
material increase in remediation expenditures, (ix) determination that
PFM is the source of chlorinated compounds at the Allen Well Field, (x)
changes in federal, state and local laws and regulations, especially
environmental regulations, or in interpretation of such, (xi) potential
increases in equipment, maintenance, operating or labor costs, (xii)
management retention and development, (xiii) the requirement to use
internally generated funds for purposes not presently anticipated,
(xiv) inability to remain profitable, (xv) the inability to secure
additional liquidity in the form of additional equity or debt, (xvi)
the commercial viability of our on-site treatment process, (xvii) the
inability of the Company to obtain under certain circumstances
shareholder approval of the transaction in which the Series 10
Preferred and certain warrants were issued, (xviii) the inability of
the Company to maintain the listing of its Common Stock on the NASDAQ,
(xix) the determination that CM or CCC was responsible for a material
amount of remediation at certain Superfund sites, (xx) inability to
obtain additional financing, and (xxi) inability to finalize the
acquisition of DSSI and M&EC. The Company undertakes no obligations to
update publicly any forward-looking statement, whether as a result of
new information, future events or otherwise.
15
<PAGE>
<TABLE>
<CAPTION>
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, 2000, and 1999:
Three Months Ended Six Months Ended
June 30, June 30,
_______________________________________ ________________________________________
2000 % 1999 $ 2000 % 1999 %
_______ _____ _______ _____ _______ ______ _______ ______
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $14,492 100.0 $10,573 100.0 $28,081 100.0 $18,385 100.0
Cost of Goods Sold 10,007 69.1 6,819 64.5 19,549 69.6 12,109 65.9
_______ _____ _______ _____ _______ ______ ______ _____
Gross Profit 4,485 30.9 3,754 35.5 8,532 30.4 6,276 34.1
Selling, General &
Administrative 2,927 20.2 2,295 21.7 6,180 22.0 4,133 22.5
Depreciation/Amortization 852 5.9 597 5.6 1,714 6.1 1,116 6.1
________ _____ _______ _____ ________ ______ ______ ______
Income/(Loss)
from Operations $ 706 4.8 $ 862 8.2 $ 638 2.3 $ 1,027 5.5
======= ===== ======= ===== ======== ======= ======= ======
Interest Expense (441) (3.0) (91) (0.9) (851) (3.0) (118) (0.6)
Preferred Stock Dividends (50) (0.3) (73) (0.7) (104) (0.4) (190) (1.0)
</TABLE>
Summary--Three and Six Months Ended June 30, 2000, and 1999
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, hazardous and mixed wastes (waste containing
both hazardous and low level radioactive material). 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. 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 $14,492,000 from $10,573,000
for the quarter ended June 30, 2000, as compared to the same quarter in
1999. This increase of $3,919,000 or 37.1% is principally attributable
to the additional revenues resulting from the acquisition of Chemical
Conservation Corporation (CCC), Chemical Conservation of Georgia, Inc.
(CCG) and Chem-Met Services, Inc. (CM), effective June 1, 1999, which
in the aggregate contributed approximately $4,421,000 to this increase.
Partially offsetting this increase, were decreases within the Waste
Management Services segment totaling approximately $425,000,
principally from a decrease in mixed waste revenues due to the
significant expansion of the Florida mixed waste facility, in
conjunction with the expanded permit as received during the second
quarter of 2000, and the disruption associated with the acquisition of
DSSI, and decreases within the Consulting Engineering segment totaling
approximately $77,000. Consolidated net revenues increased to
$28,081,000 from $18,385,000 for the six-month period ended June 30,
2000. This increase of $9,696,000 or 52.7% is attributable to the
waste management services segment which experienced an increase in
revenues of $10,017,000. The additional revenues resulting from the
acquisition of CCC, CCG and CM in the aggregate contributed
approximately $11,168,000 to this increase. Partially offsetting this
increase, were decreases within the waste management services segment
totaling approximately $1,151,000, and decreases within the
consulting engineering segment totaling approximately $321,000,
principally from the Mintech, Inc. engineering company whose operations
were reduced and merged with Schreiber, Yonley and Associates, Inc.
during the second half of 1999.
16
<PAGE>
Cost of goods sold for the Company increased $3,188,000 or 46.8% for
the quarter ended June 30, 2000, as compared to the quarter ended
June 30, 1999. This consolidated increase in cost of goods sold
reflect principally the increased operating, disposal and
transportation costs, corresponding to the increased revenues
from the acquisition of CCC, CCG and CM, as discussed above, which
totaled $4,641,000. Increased operating costs were also recognized
across most of the Waste Management Services facilities, as we
increased certain fixed costs and began preparation for the processing
of new wastewater streams at several industrial facilities and the
expanded mixed waste processing capabilities at the Florida mixed waste
facility. The resulting gross profit for the quarter ended June 30,
2000, increased $731,000 to $4,485,000 which as a percentage of revenue
is 30.9%, reflecting a decrease over the corresponding quarter in 1999
percentage of revenue of 35.5%. This decrease in gross profit as a
percentage of revenue was principally recognized throughout the Waste
Management Services segment which experienced a decrease from 36.0% in
1999 to 31.1% in 2000 reflecting the expansion and startup activities
discussed above and a decrease in the Consulting Engineering segment
from 30.7% in 1999 to 28.5% in 2000, reflecting the loss in sales from
Mintech, Inc. whose operations were reduced and merged with Schreiber,
Yonley and Associates, Inc. in the second half of 1999. Cost of goods
sold also increased $7,440,000 or 61.4% for the six-month period ended
June 30, 2000, as compared to the six-month period ended June 30, 1999.
As with the quarter, this increase is a direct result of the increased
operating, disposal and transportation costs, corresponding to the
increased revenues from the acquisition of CCC, CCG and CM. The
resulting gross profit for the six months of 2000 increased $2,256,000
to $8,532,000, which as a percentage of revenue is 30.4%, reflecting a
decrease over the corresponding six months in 1999 percentage of
revenue of 34.1%. As with the quarter, this decrease in gross profit
as a percentage of revenue was principally recognized throughout the
waste management services segment which experienced a decrease from
34.7% in 1999 to 30.2% in 2000 reflecting the expansion and startup
activities discussed above. Offsetting this decrease, however, was an
increase in the Consulting Engineering segment from 29.7% in 1999 to
32.0% in 2000, reflecting the benefits from the restructuring and
consolidation of our engineering businesses.
Selling, general and administrative expenses increased $632,000 or
27.5% for the quarter ended June 30, 2000, as compared to the quarter
ended June 30, 1999. However, as a percentage of revenue, selling,
general and administrative expense decreased to 20.2% for the quarter
ended June 30, 2000, compared to 21.7% for the same period in 1999.
Selling, general and administrative expenses also increased for the
six-month period of 2000, as compared to 1999, by $2,047,000 or 49.5%.
As a percentage of revenue, selling, general and administrative expense
reflected a slight decrease to 22.0% for the six-month period ended
June 30, 2000, compared to 22.5% for the same period of 1999. The
increase reflects the expenses directly related to CCC, CCG and CM as
acquired effective June 1, 1999, which totals $2,103,000 and the
increased expenses associated with 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 and the increase administrative costs associated
with the expansion of the Perma-Fix of Florida, Inc. ("PFF") mixed
waste facility.
Depreciation and amortization expense for the quarter ended June 30,
2000, reflects an increase of $255,000 as compared to the quarter ended
June 30, 1999. This increase is attributable to a depreciation expense
increase of $196,000 which is a result of the depreciation in 2000 from
the CCC, CCG and CM facilities acquired effective June 1, 1999,
totaling $157,000 and the additional depreciation related to the
expanded facilities totaling $39,000, and an amortization expense
increase of $59,000 for the quarter ended June 30, 2000, as compared to
the quarter ended June 30, 1999. This increase in amortization expense
is a result of the goodwill and permit amortization from the CCC, CCG
and CM facilities acquired in 1999. Depreciation and amortization
expense for the six-month period ended June 30, 2000, reflects an
increase of $598,000 as compared to the same period of 1999. This
increase is attributable to the acquisition of CCC, CCG and CM,
17
<PAGE>
effective June 1, 1999, totaling $551,000, for which depreciation
increased by $352,000 and amortization increased by $159,000 for the
six-month period ended June 30, 2000. The additional depreciation of
$87,000 is related to expanded facilities.
Interest expense increased $350,000 for the quarter ended June 30,
2000, as compared to the corresponding period of 1999, excluding
discontinued operations. This increase principally reflects the
acquisition of CCC, CCG and CM effective June 1, 1999. The existing
debt assumed in conjunction with the acquisition, along with the three
promissory notes, which comprised $4,700,000 of the purchase price,
resulted in an increase of approximately $42,000 as compared to the
same quarter ended in 1999. The remaining increase in interest expense
is a result of the increased borrowing levels on the Congress Financial
Corporation revolving and term loan incurred in conjunction with the
above noted acquisition, which totaled approximately $294,000, and debt
associated with facility expansions which totaled $14,000. Interest
expense also increased by $733,000 for the six-month period ended June
30, 2000, as compared to the corresponding period of 1999. This
increase principally reflects the existing debt assumed in conjunction
with the acquisition of CCC, CCG and CM, as stated above, which
resulted in an increase of $116,000 as compared to the same period in
1999. The remaining increase in interest expense for the six-month
period ended June 30, 2000, is a result of the increased borrowing
levels of the Congress Financial Corporation revolving and term loan
incurred in conjunction with the above noted acquisition, which totaled
approximately $591,000 and debt associated with facility expansions
which totaled approximately $26,000.
Preferred Stock dividends decreased $23,000 during the quarter ended
June 30, 2000, as compared to the corresponding period of 1999. This
decrease is due to the conversion of $4,563,000 (4,563 preferred
shares) of the Preferred Stock into Common Stock on April 20, 1999, the
redemption of $750,000 (750 preferred shares) of the Preferred Stock on
July 15, 1999, and the conversion of $350,000 (350 preferred shares) of
the Preferred Stock into Common Stock throughout the first quarter of
2000. Additionally, Preferred Stock dividends decreased $86,000 for
the six-month period ended June 30, 2000, as compared to the
corresponding period of 1999. This decrease is due to the conversion
of Preferred Stock into Common Stock as stated above.
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.
Proposed Acquisitions
As provided in Note 4 to Notes to Consolidated Financial Statements,
the Company has entered into a stock purchase agreement dated May 16,
2000 ("DSSI Agreement"), to purchase Diversified Scientific Systems,
Inc. ("DSSI") from Waste Management, Inc. ("Seller"), subject to
certain conditions being met. Under the terms of the agreement, upon
completion of the purchase of DSSI, the Company is to pay the Seller
$8.5 million, subject to the purchase price being increased or
decreased under certain conditions, with $5 million payable in cash at
closing and the balance evidenced by a promissory note to the Seller
(the "First Note"). The First Note is to be for a term of five years,
will bear an annual rate of interest of 7%, with the accrued interest
payable annually and the principal amount payable in one lump sum
payment at the end of the five-year term. The DSSI Agreement also
provides that if the acquisition is not completed within 90 days
from May 16, 2000, or such longer period as is necessary to obtain
approvals of applicable governmental authorities relating to the
permits and licenses of DSSI necessary to consummate the transaction,
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the DSSI Agreement may be terminated by either party, except under
certain limited circumstances. During August, 2000, the Company and
Seller entered into an oral amendment ("DSSI Amendment") to the DSSI
Agreement which provides that the $8.5 million is not subject to
adjustment and will be paid in the form of $2.5 million in cash, the
First Note, and $2.5 million evidenced by a promissory note (the
"Second Promissory Note"), bearing an annual interest rate of prime
plus 1 3/4 percent (11.25% at August 18, 2000), with accrued interest
and all principal payable upon the earlier of four months or upon the
acquisition by Perma-Fix of any entity or substantially all the assets
of another Company. The Second Promissory Note will be secured by all
property, plant and equipment of DSSI. Finalization of the DSSI
Amendment is subject to negotiation and execution of a definitive
Amendment Agreement. See "Liquidity and Capital Resources of the
Company" for a discussion as to the Company's proposal to fund the cash
portion of the purchase price.
During July 2000, the Company signed a letter of intent to acquire an
80% equity interest in East Tennessee Materials and Energy Corporation
("M&EC"). M&EC is licensed to operate a low level radioactive and
hazardous ("Mixed Waste") treatment facility at the U.S. Department of
Energy's ("DOE") site in Oak Ridge, Tennessee. The two-acre M&EC
facility, which is intended for the treatment of government and
commercial mixed waste, is the only non-government operated mixed waste
treatment facility that is located within the government's Oak Ridge,
Tennessee, site. M&EC will process mixed waste under three Broad
Spectrum contracts granted to M&EC. These contracts were awarded by
Bechtel-Jacobs Company, LLC, who manages the DOE Oak Ridge site and are
valued at a minimum of $100 million. According to the terms of these
contracts, M&EC will treat mixed waste located at the Oak Ridge
facility,over a remaining three-year period, with options to continue
thereafter. The transaction to acquire an 80% equity interest in M&EC
is subject to the execution of a definitive agreement and completion of
due diligence, regulatory approval and other conditions, including the
appropriate financing. The consideration for the 80% equity interest
is $1,080,000 which shall be payable at closing, as follows: (i)
$270,000 in cash,(ii) $810,000 in the form of Perma-Fix Common Stock,
with the number of shares determined at the date of closing, but not to
exceed 540,000 shares, (iii) M&EC will issue M&EC preferred stock to
the M&EC Owners to settle any outstanding debts of M&EC to the M&EC
Owners, (iv) M&EC will settle certain outstanding tax liabilities, and
(v) M&EC will settle certain liabilities regarding its 401(k) accounts.
As of August 10, 2000, the Company has loaned M&EC $329,000 pursuant to
the terms of the Letter of Intent. The Company intends to evidence such
loan by the execution by M&EC of a security agreement and a promissory
note in favor of the Company, which will be secured by the assets of
M&EC. The acquisition of M&EC is subject to, among other things,
regulatory approval, the Company's ability to obtain financing for the
acquisition, the negotiation and execution of a definitive agreement
and the completion of due diligence, all of which must be to the
satisfaction of the Company.
Liquidity and Capital Resources of the Company
At June 30, 2000, the Company had cash and cash equivalents of
$392,000, including $1,000 from discontinued operations. This cash and
cash equivalents total reflects a decrease of $424,000 from December
31, 1999, as a result of net cash provided by continuing operations of
$556,000, offset by cash used by discontinued operations of $249,000,
cash used in investing activities of $1,028,000 (principally purchases
of equipment, net totaling $1,436,000) partially offset by proceeds
from the sale of equipment and cash provided by discontinued operations
resulting from the release of restricted cash, and by cash provided by
financing activities of $297,000 (net borrowings of the revolving loan
and term note facility, proceeds from the issuance of stock, partially
offset by principal repayments of long-term debt). Accounts
receivable, net of allowances for continuing operations, totaled
$13,443,000, an increase of $416,000 over the December 31, 1999,
balance of $13,027,000. The receivable balance increased during this
six-month period of 2000, due in large part to increased revenues in
the second quarter that are part of a seasonal upswing during the
summer months.
The Company, as parent and guarantor, and all direct and indirect
subsidiaries of the Company are co-borrowers and cross-guarantors under
a Loan and Security Agreement ("Agreement") with Congress as lender.
The Agreement initially provided for a term loan in the amount of
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$2,500,000, which required 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 provided 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 was 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 original 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 original Agreement dated January 15, 1998.
In connection with the acquisition of CCC, CCG and CM on May 27,
1999, Congress, the Company, and the Company's subsidiaries, including
CCC, CCG and CM entered into an Amendment and Joinder to Loan
and Security Agreement (the "Loan Amendment") dated May 27, 1999,
pursuant to which the Loan and Security Agreement ("Original Loan
Agreement") among Congress, the Company and the Company's subsidiaries
was amended to provide, among other things, (i) the credit line being
increased from $7,000,000 to $11,000,000, with the revolving line of
credit portion being determined as the maximum credit of $11,000,000,
less the term loan balance, with the exact amount that can be borrowed
under the revolving line of credit not to exceed eighty percent (80%)
of the Net Amount of Eligible Accounts (as defined in the Original Loan
Agreement) less certain reserves; (ii) the term loan portion of the
Original Loan Agreement being increased from its current balance of
approximately $1,600,000 to $3,750,000 and it shall be subject to a
four-year amortization schedule payable over three years at an interest
rate of 1.75% over prime; (iii) the term of the Original Loan
Agreement, as amended, was extended for three years from the date of
the acquisition, subject to earlier termination pursuant to the terms
of the Original Loan Agreement, as amended;
(iv) CCC, CCG and CM being added as co-borrowers under the Original
Loan Agreement, as amended; (v) the interest rate on the revolving line
of credit will continue at 1.75% over prime, with a rate adjustment to
1.5% if net income applicable to Common Stock of the Company is equal
to or greater than $1,500,000 for fiscal year ended December 31, 2000;
(vi) the monthly service fee shall increase from $1,700 to $2,000;
(vii) government receivables will be limited to 20% of eligible
accounts receivable; and (viii) certain obligations of CM shall be paid
at closing of the acquisition of CCC, CCG and CM. The Loan Amendment
became effective on June 1, 1999, when the Stock Purchase Agreements
were consummated. Payments under the term loan commenced on June 1,
1999, with monthly principal payments of approximately $78,000 and a
final balloon payment in the amount of $938,000 on June 1, 2002. The
Company incurred approximately $40,000 in additional financing fees
relating to the closing of this amendment, which is being amortized
over the remaining term of the agreement.
Under the terms of the Original Loan Agreement, as amended, the
Company has agreed to maintain an Adjusted Net Worth (as defined in the
Original Loan Agreement) of not less than $3,000,000 throughout the
term of the Original Loan Agreement, which was amended, pursuant to the
above noted acquisition. The adjusted net worth covenant requirement
ranges from a low of $1,200,000 at June 1, 1999, to a high of
$3,000,000 from July 1, 2000, through the remaining term of the Loan
Agreement. The covenant requirement at June 30, 2000, was $2,500,000,
which the Company was in compliance with. The Company has agreed that
it will not pay any dividends on any shares of capital stock of the
Company, except that dividends may be paid on the Company's shares of
Preferred Stock outstanding as of the date of the Loan Amendment
(collectively, "Excepted Preferred Stock") under the terms of the
applicable Excepted Preferred Stock, if and when declared by the Board
of Directors of the Company pursuant to Delaware General Corporation
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Law. If dividends on the Excepted Preferred Stock are paid, the loan
agreement provides that the Company must pay the dividends in shares of
Common Stock and not in cash, unless prior consent is obtained. As
security for the payment and performance of the Original Loan
Agreement, as amended, the Company and its subsidiaries (including CCC,
CCG and CM) have granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and certain of
their other assets, as well as the mortgage on two facilities owned by
subsidiaries of the Company, except for certain real property owned by
CM, for which a first security interest is held by the TPS Trust and
the ALS Trust as security for CM's non-recourse guaranty of the payment
of the Promissory Notes. All other terms and conditions of the
original loan remain unchanged.
As of June 30, 2000, borrowings under the revolving loan agreement
were approximately $6,583,000, an increase of $692,000 over the
December 31, 1999, balance of $5,891,000. The balance under the term
loan at June 30, 2000, was $2,734,000, a decrease of $469,000 from the
December 31, 1999, balance of $3,203,000. As of June 30, 2000, the
Company's borrowing availability under the Congress credit facility,
based on its then outstanding eligible accounts receivable, was
approximately $1,204,000, including $1.0 million of additional
borrowing availability extended to the Company by Congress. The
additional borrowing availability was provided to the Company to assist
with the acquisition of DSSI and M&EC (see Note 4 and Note 8) and to
fund certain facility expansions and capital improvements, in
anticipation of the Company raising additional funds. During the first
quarter, the Company engaged Ryan, Beck & Co. and Larkspur Capital
Corporation (collectively, the "Agents") as financial advisors to the
Company in the private placement of new debt and possible equity.
Pursuant to the terms of the Stock Purchase Agreements in connection
with the acquisition of CCC, CCG and CM, a portion of the consideration
was paid in the form of the Promissory Notes, in the aggregate amount
of $4,700,000 payable to the former owners of CCC, CCG and CM. The
Promissory Notes are paid in equal monthly installments of principal
and interest of approximately $90,000 over five years with the first
installment due on July 1, 1999, and having an interest rate of 5.5%
for the first three years and 7% for the remaining two years. The
aggregate outstanding balance of the Promissory Notes total $3,854,000
at June 30, 2000, of which $894,000 is in the current portion.
Payments of such Promissory Notes are guaranteed by CM under a
non-recourse guaranty, which non-recourse guaranty is secured by
certain real estate owned by CM.
As of June 30, 2000, total consolidated accounts payable for
continuing operations was $7,510,000, a decrease of $77,000 from the
December 31, 1999, balance of $7,587,000. This decrease in accounts
payable is partially reflective of the increased borrowing level under
the revolving loan agreement, which funds were utilized to reduce
certain payables.
Our net purchases of new capital equipment for continuing operations
for the six-month period ended June 30, 2000, totaled approximately
$1,785,000. These expenditures were for expansion and improvements
to the operations principally within the waste management industry
segment. These capital expenditures were principally funded by the
cash provided by continuing operations and $349,000 through various
other lease financing sources. We have budgeted capital expenditures
of approximately $4,000,000 for 2000, which includes completion of
certain current projects, as well as other identified capital and
permit compliance purchases. We anticipate funding these capital
expenditures by a combination of lease financing with lenders
other than the equipment financing arrangement discussed above, and/or
internally generated funds.
The working capital deficit position at June 30, 2000, was
$1,043,000, as compared to a deficit position of $1,400,000 at
December 31, 1999, which reflects an improvement in this position of
$357,000 during the first six months of 2000. The working capital
deficit position is principally a result of the impact of the CCC,
CCG and CM acquisition, effective June 1, 1999. The consideration was
paid in the form of cash, debt and equity, with the cash portion being
$1,000,000, funded out of current working capital and the debt portion
being $4,700,000 in the form of three promissory notes, paid over five
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years. The Congress term loan was also increased by $2,083,000
pursuant to this acquisition, which resulted in an increase in the
current portion of the term loan debt. We also assumed certain other
liabilities pursuant to this acquisition, including the accrued
environmental liability related to the CM facility in Detroit,
Michigan, and the CCG Facility in Valdosta, Georgia, both of which are
long term remedial projects, with increased spending in the first year.
These two remedial projects contributed $785,000 to this working
capital deficit. Additionally, we continue to invest current cash
proceeds into the long term capital improvements of our operating
facilities as discussed above. However, we were able to improve on
this working capital position during the first six months of 2000,
principally from cash flow from operations, borrowings on the revolving
loan and proceeds from the issuance of stock.
The accrued dividends on the outstanding Preferred Stock for the
period July 1, 1999, through December 31, 1999, in the amount of
approximately $109,000 were paid in February 2000, in the form of
95,582 shares of Common Stock of the Company. The dividends for the
period January 1, 2000, through June 30, 2000, total $104,000, of which
$3,000 was paid in conjunction with the first quarter 2000 conversions
and $101,000 will be paid in August 2000, in the form of 70,789 shares
of Common Stock.
In order to fund the cash portion of the purchase price relating to
the proposed acquisition of DSSI and M&EC, as discussed above, and to
provide the Company additional liquidity to fund other capital
expenditures and the continuing growth of the Company, the Company has
retained Ryan, Beck & Co. and Larkspur Capital Corporation
(collectively, the "Financial Advisors") as its financial advisors in
the private placement of new debt and possible equity. Through the
efforts of the Financial Advisors, the Company is negotiating with
certain parties the possibility of providing debt financing or equity
to the Company. In addition, the Company is discussing with others,
including certain shareholders, the possibility of providing additional
financing to the Company. There are no assurances that the Company
will be successful in arranging lenders to participate in the private
placement, or if participants are available, that the private placement
can be completed on terms satisfactory to the Company.
In connection with the retention of the Financial Advisors as
financial advisors to the Company, the Company has granted the
Financial Advisors or their permitted designees a five-year warrant to
purchase up to 150,000 shares of the Company's Common Stock ("Retainer
Warrants"). If the Company is successful in finalizing the private
placement prior to termination of the agreement with the Financial
Advisors or within twelve months following termination of the agreement
with the Financial Advisors and the placement involves a party
contacted by the Financial Advisors prior to the termination, the
Company has agreed to pay the Financial Advisors certain cash fees and
additional warrants. The Company has the right to cancel 50%
of the retainer warrants if the private placement is not completed by
January 25, 2001.
On July 14, 2000, the Company entered into a letter agreement ("RBB
Letter Agreement") which provided for an unsecured promissory note
("Note") with RBB Bank Aktiengesellschaft ("RBB Bank") in the principal
amount of $750,000, at an annual interest rate of 10.0% per annum. The
purpose of this Note is to provide interim financing to facilitate the
acquisition of DSSI and M&EC (see Note 4 and Note 8) and to fund
certain capital expansions at the Company's existing facilities. The
principal amount of this Note and accrued interest thereon shall be
payable in full upon the earlier of (i) December 31, 2000, or (ii) ten
business days after the Company raises $3,000,000 or more through a
private placement of capital securities. As previously discussed,
during the first quarter, the Company engaged Ryan, Beck & Co. and
Larkspur Capital Corporation as financial advisors to the Company in
the private placement of new debt and possible equity. The RBB Letter
Agreement provides that if the RBB Loan is not repaid in full by
September 1, 2000, the Company will issue additional warrants to RBB
Bank allowing the purchase of Common Stock. As of August 17, 2000, RBB
Bank is the beneficial owner of approximately 12,501,379 shares of
Common Stock or approximately 45.5% of the issued and outstanding
Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--RBB Loan," and "Part II--Other
Information, Item 5."
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In summary, we have continued to take steps to improve our operations
and liquidity as discussed above. However, with the acquisition in
1999, we incurred and assumed certain debt obligations and long-term
liabilities, which had a short term impact on liquidity. If we are
unable to continue to improve our operations and to continue
profitability in the foreseeable future, such would have a material
adverse effect on our liquidity position.
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.
In addition to budgeted capital expenditures of $4,000,000 for 2000
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 2000 an
additional $1,656,000 in environmental expenditures to comply with
federal, state and local regulations in connection with remediation of
certain contaminates at four locations. The four 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, PFM's facility in
Memphis, Tennessee, CCG's facility in Valdosta Georgia and CM's
facility in Detroit, Michigan. We have estimated the expenditures for
2000 to be approximately $254,000 at the EPS site, $265,000 at the PFM
location, $499,000 at the CCG site and $638,000 at the CM site, of
which $114,000, $76,000, $23,000 and $350,000 were spent during the
first six months of 2000, 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 four sites from funds generated internally, however, no
assurances can be made that we will be able to do so.
Year 2000 Issues
The Year 2000 problem arises because many computer systems were
designed to identify a year using only two digits, instead of four
digits, in order to conserve memory and other resources. For instance,
"1999" would be held in the memory of a computer as "99."
When the year changes from 1999 to 2000, a two-digit system would
read the year as changing from "99" to "00." For a variety of reasons,
many computer systems are not designed to make such a date change or
are not designed to "understand" or react appropriately to such a date
change. Therefore, after the date changes to the year 2000, many
computer systems could completely stop working or could perform in an
improper and unpredictable manner.
We have conducted a review of our computer systems to identify the
systems which we anticipated could be effected by the Year 2000 issue
and we believe that all such systems were already, or have been
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converted to be, Year 2000 compliant. Such conversion costs, where
required, have not been material and have been expensed as incurred.
Pursuant to our Year 2000 planning, we requested information regarding
the computer systems of our key suppliers, customers, creditors, and
financial service organizations and were informed that they are
substantially Year 2000 compliant. As of the date of this Report, the
Company has experienced no Year 2000 disruptions to its operations
since the year 2000 began. There can be no assurance, however,
that such key organizations are actually Year 2000 compliant and that
the Year 2000 issue will not adversely affect the Company's financial
position or results of operations. We believe that our expenditures in
addressing our Year 2000 issues will not have a material adverse effect
on our financial position or results of operations.
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 as amended by FAS 137 is effective for periods beginning
after June 15, 2000. Historically, we have not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect our financial
statements.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("Fin 44"), Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of APB Opinion No.
25. FIN 44 clarifies the application of Opinion No. 25 for (a) the
definition of employee for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory
plan, (c) the accounting consequences of various modifications to the
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. FIN
44 is effective July 2, 2000, but certain conclusions cover specific
events that occur after either December 15, 1998, or January 12, 2000.
The Company believes that the impact of FIN 44 will not have a material
effect on the Company's financial position or results of operations.
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART I, ITEM 3
The Company is exposed to certain market risks arising from adverse
changes in interest rates, primarily due to the potential effect of
such changes on the Company's variable rate loan arrangements with
Congress, as described under Note 5 to Notes to Consolidated Financial
Statements. The Company does not use interest rate derivative
instruments to manage exposure to interest rate changes.
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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,
1999, which Item 3 is incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds
_________________________________________
(c) During the quarter ended June 30, 2000, the Company sold or
entered into an agreement to sell, equity securities that were not
registered under the Securities Act of 1933, as amended (the
"Securities Act"), other than as previously reported, as such term is
defined under Rule 12b-2 of the Exchange Act of 1934, as amended (the
"Exchange Act"), as follows:
During May 2000, in connection with the retention of Ryan, Beck & Co.
and Larkspur Capital Corporation (collectively, the "Financial
Advisors") as financial advisors to the Company, the Company has
granted the Financial Advisors or their permitted designees, warrants
with a five-year term, allowing the holder to purchase up to 150,000
shares of Common Stock of the Company at an exercise price of $1.44 per
share ("Retainer Warrants"). If the Company is successful in
finalizing the private placement as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity" prior to termination of the agreement with the
Financial Advisors or within twelve months following termination of the
agreement with the Financial Advisors and the placement involves a
party contacted by the Financial Advisors prior to the termination, the
Company has agreed to pay the Financial Advisors certain cash fees and
certain additional warrants.
The issuance of the Retainer Warrants was a private placement under
Section 4(2) of the Act and/or Rule 506 of Regulation D as promulgated
under the Act. The Retainer Warrant Agreement (the "Warrant
Agreement") provides that the Agents represented and warranted, inter
alia, as follows: (i) the Retainer Warrants and the Common Stock
issuable upon exercise of the Retainer Warrants (collectively, the
"Retainer Securities") are being acquired for their own account, and
not on behalf of any other persons; (ii) the Agents are acquiring the
Retainer Securities to hold for investment, and not with a view to the
resale or distribution of all or any part of the Retainer Securities;
(iii) the Agents will not sell or otherwise transfer the Retainer
Securities 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 and regulations promulgated thereunder; (iv) each
Agent is an "accredited investor" as defined in Rule 501 of Regulation
D as promulgated under the Act; (v) each Agent has such knowledge,
sophistication and experience in financial and business matters that it
is capable of evaluating the merits and risks of the acquisition of the
Retainer Securities; (vi) each Agent fully understands the nature,
scope and duration of the limitations on transfer of the Retainer
Securities as contained in the Warrant Agreement, (vii) each Agent
understands that a restrictive legend as to transferability will be
placed upon the certificates for any of the shares of Retainer
Securities received by the Agents under the Warrant Agreement and that
stop transfer instructions will be given to the Company's transfer
agent regarding such certificates.
Item 5. Other Information
_________________
DSSI Acquisition
The Company has entered into a stock purchase agreement dated May 16,
2000, to purchase Diversified Scientific Systems, Inc. ("DSSI") from
Waste Management, Inc. ("Seller"), subject to certain conditions being
met. Under the terms of the agreement, upon completion of the purchase
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of DSSI, the Company is to pay the Seller $8.5 million, subject to the
purchase price being increased or decreased under certain conditions,
with $5 million payable in cash at closing and the balance evidenced by
a promissory note (the "Note"). The Note is to be for a term of five
years, will bear an annual rate of interest of 7%, with accrued
interest payable annually and the principal amount payable in one lump
sum at the end of the five-year term. DSSI's facility, located in Kingston,
Tennessee, is permitted to transport, store and treat hazardous waste and
mixed waste (waste containing both low level radioactive and hazardous waste)
and to dispose of or recycle mixed waste in DSSI's incinerator located at
DSSI's facility. The agreement provides that if the acquisition
by the Company of DSSI is not completed within 90 days from May 16,
2000, or such longer period as is necessary to obtain approvals of
applicable governmental authorities relating to the permits and
licenses of DSSI necessary to consummate the transaction, either party
may terminate the agreement, except under limited circumstances. See
Note 4 to Notes to Consolidated Financial Statements and the
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Proposed Acquisition" and "--Liquidity and
Capital Resources of the Company."
DSSI Amendment
During August 2000, the Company and Seller entered into the DSSI
Amendment which provides that the $8.5 million purchase price is not
subject to adjustment and will be paid in the form of $2.5 million in
cash, the First Note, and $2.5 million evidenced by a promissory note
(the "Second Promissory Note") with a four-month term, bearing an
annual interest rate of prime plus 1 3/4 percent (10.25% at August 17,
2000), with accrued interest and all principal payable upon the earlier
of four months or upon the acquisition by Perma-Fix of any entity or
substantially all the assets of another company. The Second Promissory
Note will be secured by all property, plant and equipment of DSSI.
RBB Loan
On or about July 14, 2000, the Company and CM entered into the RBB
Letter Agreement, pursuant to which RBB Bank agreed to loan $750,000 to
CM, as evidenced by the RBB Note, having a term until December 31,
2000, in the aggregate principal amount of $750,000, at an annual rate
of 10% interest thereon with accrued interest and principal due in full
upon the earlier of (i) December 31, 2000 and (ii) the Company entering
into a private placement of its securities yielding in excess of
$3,000,000 to the Company.
The RBB Letter Agreement provides that if all principal and accrued
and unpaid interest under the RBB Note is not paid in full by 5:00 p.m.
New York time on (i) September 1, 2000 then the Company shall issue to
RBB Bank a five (5) year warrant to purchase up to 100,000 shares of
Common Stock at an exercise price equal to the closing market price of
the Common Stock on the National Association of Securities Dealers
Automated Quotation System SmallCap Market ("NASDAQ") on September 1,
2000 and (ii) October 1, 2000 then the Company shall issue to RBB Bank
a five (5) year warrant to purchase up to 150,000 shares of Common
Stock at an exercise price equal to the closing market price of the
Common Stock on the NASDAQ on October 2, 2000 and (iii) November 1,
2000 then the Company shall issue to RBB Bank a five (5) year warrant
to purchase up to 200,000 shares of Common Stock at an exercise price
equal to the closing market price of the Common Stock on the NASDAQ on
November 1, 2000 (iv) December 1, 2000 then the Company shall issue to
RBB Bank a five (5) year warrant to purchase up to 250,000 shares of
Common Stock at an exercise price equal to the closing market price of
the Common Stock on the NASDAQ on December 1,
2000.
As of August 17, 2000, RBB Bank holds approximately 12,501,379
shares, including 6,703,796 shares that RBB Bank holds of record or
approximately 30.9% of the Company's Common Stock and 3,006,250
shares that RBB Bank has the right to acquire as of June 30, 2000,
under certain warrants and 2,791,333 shares that RBB Bank has the right
to acquire upon conversion of three (3) series of the Company's
outstanding preferred stock consisting of 1,769 shares of Series 14
Class N Convertible Preferred Stock ("Series 14 Preferred"), 616 shares
of Series 15 Class O Convertible Preferred Stock ("Series 15
Preferred") and 1,802 shares of Series 16 Class P Convertible Preferred
Stock ("Series 16 Preferred") (collectively, the "RBB Preferred"). If
the conversion of the currently outstanding RBB Preferred occurs
between April 20, 2000 and April 20, 2001, then the (i) Series 14
Preferred, which during this period has a set conversion price
27
<PAGE>
of $1.50 per share of Common Stock, is convertible into 1,179,333
shares of Common Stock, (ii) Series 15 Preferred, which during this
period has a minimum conversion price of $1.50 per share of Common
Stock, is convertible into 410,667 shares of Common Stock, assuming the
conversion is at $1.50 per share of Common Stock and (iii) Series 16
Preferred, which during this period has a minimum conversion price of
$1.50 per share of Common Stock, is convertible into 1,201,333 shares
of Common Stock, assuming the conversion is at $1.50 per share of
Common Stock. If RBB Bank were to acquire an aggregate of 2,791,333
shares of Common Stock upon conversion of the outstanding shares of the
RBB Preferred based on a conversion price of $1.50 per share of Common
Stock and were to exercise all of the outstanding warrants
to acquire Common Stock which are held by RBB Bank, RBB Bank would own
approximately 45.5% of the outstanding Common Stock, assuming that the
Company does not issue any other shares of Common Stock or acquire any
of the RBB Preferred or the Common Stock and RBB Bank does not sell or
otherwise dispose of any shares of Common Stock. This does not include
the shares of Common Stock which may be issuable for payment of
dividends on the RBB Preferred or which may be issued in the event
warrants are issued in connection with the RBB Loan. RBB Bank has
advised the Company that it is holding the shares of Common
Stock, the RBB Preferred, and the warrants exercisable into Common
Stock on behalf of numerous clients. As a result, RBB Bank may share
voting and investment power over such shares.
M&EC Letter of Intent
Effective June 27, 2000, the Company has signed a letter of intent
("Letter of Intent") to acquire an 80% equity interest in East
Tennessee Materials and Energy Corporation ("M&EC"). The remaining 20%
equity interest shall be held by the current stockholders ("M&EC
Owners")of M&EC. M&EC is licensed to operate a low-level radioactive
and hazardous waste ("Mixed Waste") treatment facility at the U.S.
Department of Energy's ("DOE") storage site in Oak Ridge, Tennessee.
M&EC has previously been awarded contracts, each with a three-year
term, subject to renewal, to process mixed waste under three Broad
Spectrum Contracts awarded by Bechtel-Jacobs Company, LLC, which
manages the DOE Oak Ridge site. As of the date of this report, M&EC is
in the process of constructing its treatment facility and it does not
have revenue generating activities.
The Letter of Intent anticipates that in connection with the
acquisition of M&EC, (i) the Company will deliver to the M&EC Owners
$270,000, (ii) the Company will deliver to the M&EC Owners $810,000 in
the form of Perma-Fix Common Stock, with the number of shares
determined at the date of closing, but not to exceed 540,000 shares,
(iii) M&EC will issue M&EC preferred stock to the M&EC Owners to settle
any outstanding debts of M&EC to the M&EC Owners, (iv) M&EC will settle
certain outstanding tax liabilities, and (v) M&EC will settle certain
liabilities regarding its 401(k) accounts. As of August 10, 2000, the
Company has loaned M&EC $329,000 pursuant to the terms of the Letter of
Intent. The Company intends to evidence such loan by the execution by
M&EC of a security agreement and a promissory note in favor of the
Company, which will be secured by the assets of M&EC. The acquisition
of M&EC is subject to, among other things, regulatory approval, the
Company's ability to obtain financing for the acquisition, the
negotiation and execution of a definitive agreement and the completion
of due diligence, all of which must be to the satisfaction of the
Company. See Note 8 to Notes to Consolidated Financial Statements and
the "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Proposed Acquisition" and "--Liquidity and
Capital Resources of the Company."
28
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
________
2.1 Stock Purchase Agreement dated May 16, 2000, between
the Company and Waste Management, Inc. as
incorporated by reference from Exhibit 2.1 to the
Company's quarterly report on Form 10-Q for the
quarter ended March 31, 2000.
2.2 Letter of Intent dated June 27, 2000, between the
Company and East Tennessee Materials and Energy
Corporation, Hillis Enterprises, and Performance
Development Corporation.
4.1 Congress Letter of Consent dated July 25, 2000,
relative to the RBB loan.
4.2 Congress Letter of Consent dated July 25, 2000,
relative to the acquisition of 80% equity interest
in M&EC.
10.1 Letter Agreement with RBB Bank Aktiengesellschaft.
10.2 Form of Warrant Agreement between the Company,
Ryan, Beck & Co., Inc. ("Ryan Beck") and Larkspur
Capital Corporation ("Larkspur") as incorporated by
reference from Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended March 31,
2000. The Company entered into substantially similar
warrant agreements with certain officers and directors
of Ryan Beck and Larkspur, except for the parties and
the number of shares addressed thereunder, and the
Company agrees to file copies of such omitted documents
with the Commission upon the Commission's request.
10.3 Unsecured Promissory Note with RBB Bank Aktiengesellschaft.
27 Financial Data Schedule
(b) Reports on Form 8-K
___________________
No report on Form 8-K was filed by the Company during the
second quarter of 2000.
29
<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, hereunto duly authorized.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Date: August 18, 2000 By: /s/ Louis F. Centofanti
___________________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
____________________________________
Richard T. Kelecy
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
_____________
Exhibit Sequential
No. Description Page No.
________ ___________ _________
2.1 Stock Purchase Agreement dated May 16, 2000,
between the Company and Waste Management, Inc.
as incorporated by reference from Exhibit 2.1
to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 2000.
2.2 Letter of Intent dated June 27, 2000, between
the Company and East Tennessee Materials and
Energy Corporation, Hillis Enterprises, and
Performance Development Corporation. 32
4.1 Congress Letter of Consent dated July 25, 2000,
relative to the RBB loan. 36
4.2 Congress Letter of Consent dated July 25, 2000,
relative to the acquisition of 80% equity
interest in M&EC. 37
10.1 Letter Agreement with RBB Bank Aktiengesellschaft. 39
10.2 Form of Warrant Agreement between the Company,
Ryan, Beck & Co., Inc. ("Ryan Beck") and Larkspur
Capital Corporation ("Larkspur") as incorporated by
reference from Exhibit 10.1 to the Company's
quarterly report on Form 10-Q for the quarter ended
March 31, 2000. The Company entered into sub-
stantially similar warrant agreements with certain
officers and directors of Ryan Beck and Larkspur,
except for the parties and the number of shares
addressed thereunder, and the Company agrees to
file copies of such omitted documents with the
Commission upon the Commission's request.
10.3 Unsecured Promissory Note with RBB Bank
Aktiengesellschaft. 42
27 Financial Data Schedule 46
