================================================================
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, 1996
_______________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File No. 1-11596
______________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification Number)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number)
(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 13, 1996
_____ _____________________________
Common Stock, $.001 Par Value 9,289,845 (excluding
_____________________________ 920,000 shares held
as treasury stock)
___________________
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31,
and December 31, 1995 . . . . . . . 4
Consolidated Statements of
Operations - Three Months and
Six Months Ended June 30, 1996
and 1995. . . . . . . . . . . . . . 6
Consolidated Statements of Cash
Flows - Six Months Ended June 30,
1996 and 1995 . . . . . . . . . . . 7
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . 20
Item 5. Other Events . . . . . . . . . . . . . . 20
Item 6. Exhibits . . . . . . . . . . . . . . . . 21
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
PART I, ITEM 1
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information
presented not misleading. Further, the consolidated financial
statements reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations as
of and for the periods indicated.
It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
The results of operations for the six months ended June 30,
1996 are not necessarily indicative of results to be expected for
the fiscal year ending December 31, 1996.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
(Amounts in Thousands, 1996 December 31,
Except for Share Amounts) (Unaudited) 1995
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 172 $ 201
Restricted cash 406 380
Accounts receivable, net of
allowance for doubtful accounts
of $392 5,489 5,031
Inventories 106 183
Prepaid expense 818 414
Other receivables 141 134
_________ ________
Total current assets 7,132 6,343
Property and equipment:
Building and land 5,037 6,055
Equipment 5,813 5,874
Vehicles 1,372 1,589
Leasehold improvements 143 143
Office furniture and equipment 1,217 1,252
Construction in progress 2,297 1,435
_________ ________
15,879 16,348
Less accumulated depreciation (3,909) (3,378)
_________ ________
Net property and equipment 11,970 12,970
Other assets:
Permits, net of accumulated amorti-
zation of $483 and $366,
respectively 3,993 4,036
Goodwill, net of accumulated amorti-
zation of $362 and $289, respectively 4,919 4,992
Covenant not to compete, net of accum-
ulated amortization of $343 and $304,
respectively 48 87
Other assets 417 445
________ ________
Total assets $ 28,479 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30,
(Amounts in Thousands, 1996 December 31,
Except for Share Amounts) (Unaudited) 1995
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,433 $ 5,402
Accrued expenses 3,352 2,951
Revolving loan and term note facility 500 5,259
Equipment financing agreement 608 1,778
Current portion of long-term debt 279 325
_________ _______
Total current liabilities 9,172 15,715
Long-term debt 5,746 1,116
Environmental accruals 3,327 3,063
Accrued closure costs 1,068 1,041
_________ _______
Total long-term liabilities 10,141 5,220
Commitments and contingencies (Note 3) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
708 and 0 shares issued and
outstanding, respectively - -
Common stock, $.001 par value;
20,000,000 shares authorized,
9,289,845 and 7,872,384 shares
issued and outstanding, respec-
tively 9 8
Redeemable warrants 269 269
Additional paid-in capital 23,183 21,546
Accumulated deficit (14,295) (13,885)
________ _______
Total stockholders' equity 9,166 7,938
________ _______
Total liabilities and
stockholders' equity $ 28,479 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
Net revenues $ 8,178 $ 9,381
Cost of goods sold 5,634 7,123
________ ________
Gross profit 2,544 2,258
Selling, general and administrative 1,682 2,400
Depreciation and amortization 558 587
Nonrecurring charges - 705
________ ________
Income (loss) from operations 304 (1,434)
Other income (expense):
Interest income 20 14
Interest expense (227) (241)
Other 85 (36)
________ ________
Net income (loss) $ 182 $ (1,697)
======== ========
Net income (loss) per share $ .02 $ (.25)
======== ========
Weighted average number of common
and common equivalent shares
outstanding 8,470 6,825
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
Net revenues $ 15,750 $ 18,004
Cost of goods sold 11,398 13,761
________ ________
Gross profit 4,352 4,243
Selling, general and administrative 3,424 4,099
Depreciation and amortization 1,177 1,143
Nonrecurring charges - 705
________ ________
Income (loss) from operations (249) (1,704)
Other income (expense):
Interest income 40 24
Interest expense (489) (439)
Other 288 45
________ ________
Net income (loss) $ (410) $ (2,074)
======== ========
Net income (loss) per share $ (.05) $ (.30)
======== ========
Weighted average number of common
common equivalent shares out-
standing 8,171 6,811
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1996 1995
___________________________________________________________________
Cash flows from operating activities:
Net loss $ (592) $ (2,074)
Adjustments to reconcile net loss
to cash used in operations:
Depreciation and amortization 619 1,143
Divestiture reserve - 450
Provision for bad debt and other
reserves 12 -
Gain on sale of plant, property
and equipment (126) 10
Changes in assets and liabilities:
Accounts receivable (127) (135)
Prepaid expenses, inventories and
other receivables (638) (815)
Accounts payable and accrued expenses 468 (55)
________ ________
Net cash used in operations (384) (816)
Cash flows from investing activities:
Purchases of property and equipment,
net (593) (951)
Proceeds from sale of property and
equipment 1,196 -
Change in restricted cash, net (33) (299)
Other investing (27) (289)
________ _________
Net cash provided by (used in)
investing activities 576 (1,240)
Cash flows from financing activities:
Borrowings (repayments) from revolving
loan and term note (877) 2,060
Borrowings on long-term debt 57 102
Principal repayments on long-term debt (793) (262)
Proceeds from issuance of stock 1,307 -
________ ________
Net cash provided by financing
activities (306) 1,900
Decrease in cash and cash equivalents (114) (156)
Cash and cash equivalents at beginning
of period (793) (262)
________ ________
Cash and cash equivalents at end
of period $ 87 $ 334
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 263 $ 183
======== ========
Income taxes paid $ - $ -
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
Reference is made herein to the notes to consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
1. Summary of Significant Accounting Policies
__________________________________________
The Company's accounting policies are as set forth in the
notes to consolidated financial statements referred to above.
Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to current period
financial statement presentations.
As discussed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, net loss per share has been
presented using the weighted average number of common and common
equivalent shares outstanding. Net loss per share has been
restated, in accordance with Accounting Principles Board Opinion
No. 15, for the period ended March 31, 1995, to reflect the
issuance of contingent shares to Quadrex in November of 1995.
Fully diluted net income per share has not been presented as
it is not materially different from the primary net income per
share or has been determined to be anti-dilutive for certain other
periods.
2. Long-Term Debt
______________
Long-term debt consists of the following at June 30, 1996 and
December 31, 1995 (in thousands):
June 30, December 31,
1996 1995
_________ _________
Long-term debt and notes payable:
Revolving loan and term note
facility $ 4,864 $ 5,259
Equipment financing agreement 1,553 1,778
Various mortgage, promissory
and notes payable 716 1,441
_________ _________
7,133 8,478
Less current portion:
Revolving loan and term note
facility 500 5,259
Equipment financing agreement 608 1,778
Various mortgage, promissory
and notes payable 279 325
_________ _________
$ 5,746 $ 1,116
========= =========
On January 27, 1995, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Heller Financial, Inc. ("Heller").
The Agreement provides for a term loan in the amount of $2,500,000,
which requires principal repayments based on a five-year level
principal amortization over a term of 36 months, with monthly
principal payments of $42,000. Payments commenced on February 28,
1995, with a final adjusted balloon payment in the amount of
$846,000 due on January 31, 1998. The Agreement also provides for
a revolving loan facility in the amount of $7,000,000. At any
point in time the aggregate available borrowings under the facility
are reduced by any amounts outstanding under the term loan and are
also subject to the maximum credit availability as determined
through a monthly borrowing base calculation, equal to 80% of
eligible accounts receivable accounts of the Company as defined in
the Agreement. The termination date on the revolving loan facility
is also the third anniversary of the closing date.
As previously disclosed, during the second quarter of 1995,
the Company became in violation of certain of the restrictive
financial ratio covenants of the Agreement. During the second
quarter of 1996, the Company negotiated and subsequently entered
into an amendment ("Third Amendment") to the Loan and Security
Agreement, whereby, among other things, Heller waived the existing
events of default, amended the financial covenants and amended
certain other provisions of the Loan Agreement as set forth
therein. Applicable interest rate provisions were also amended,
whereby the term loan shall bear interest at a rate of interest per
annum equal to the base rate plus 2 1/4%, and the revolving loan
shall bear interest equal to the base rate plus 2%. The Amendment
also contains a performance price adjustment which provides that
upon the occurrence of an "equity infusion" (see Note 5),
applicable interest rates on the loans shall be reduced, in each
instance by 1/2% per annum. Also, during the second quarter of
1996, Heller extended to the Company an overformula line in an
amount not to exceed $250,000, for a period ending the earliest of
90 days after the date of first advance or September 30, 1996.
Pursuant to the above discussed Amendment, said overformula line
terminated upon the Company's receipt of the equity infusion.
As disclosed at December 31, 1995, Heller had agreed to
forebear from exercising any rights and remedies under the
Agreement as a result of these previous defaults and continued to
make normal advances under the revolving loan facility. However,
in compliance with generally accepted accounting principles, the
Company, at December 31, 1995, reclassified as a current liability
$3,882,000 outstanding under the Agreement that would otherwise
have been classified as long-term debt. As a result of the above
discussed Amendment, $4,364,000 has been reclassified as long-term
debt at June 30, 1996.
Pursuant to the initial agreement, the term loan bears
interest at a floating rate equal to the base rate (prime) plus 1
3/4% per annum The revolving loan bears interest at a floating
rate equal to the base rate (prime) plus 1 1/4% per annum. The
loans also contain certain closing, management and unused line fees
payable throughout the term. As discussed above, in conjunction
with the loan amendment, applicable interest rates were amended.
However, a default rate was applied due to the financial covenant
default discussed above, effective August 21, 1995 through the date
of amendment, and therefore the Heller obligations bore interest at
the above noted effective rate plus 2.0%. Both the revolving loan
and term loan were prime based loans at June 30, 1996, bearing
interest at a rate of 11.50% and 12.00%, respectively.
As of June 30, 1996, the borrowings under the revolving loan
facility total $3,226,000, an increase of $50,000 from the December
31, 1995 balance of $3,176,000, with borrowing availability of
$227,000, excluding the $250,000 overformula line as discussed
above. The balance on the term loan totalled $1,638,000, as
compared to $2,083,000 at December 31, 1995. Total indebtedness
under the Heller Agreement as of June 30, 1996 was $4,864,000, a
reduction of $395,000 from the December 31, 1995 balance of
$5,259,000.
During October 1994, the Company entered into a $1,000,000
equipment financing agreement with Ally Capital Corporation
("Ally"), which provides lease commitments for the financing of
certain equipment through June 1995. During 1995, the Company
negotiated an increase in the total lease commitment to $1,600,000.
The agreement provides for an initial term of 42 months, which may
be extended to 48, and bears interest at a fixed interest rate of
11.3%. As of December 31, 1995, the Company had utilized
$1,496,000 of this credit facility to purchase capital equipment
and subsequently drew down an additional $57,000 in January 1996,
bringing the total financing under this agreement to $1,553,000.
In conjunction with a 1994 acquisition, the Company also assumed
$679,000 of debt obligations with Ally Capital Corporation, which
had terms expiring from September 1997 through August 1998, at a
rate ranging from 10.2% to 13.05%. As previously disclosed, at
December 31, 1995, the Company was not in compliance with the
minimum tangible net worth covenant of this agreement and Ally had
waived compliance with this covenant and no acceleration was
demanded by the lender. However, in compliance with generally
accepted accounting principles, the Company, at December 31, 1995,
reclassified as a current liability $1,103,000 outstanding under
the agreement, which would otherwise have been classified as long-
term debt. During the second quarter of 1996, the Company
negotiated and subsequently entered into an amendment to the
equipment financing agreement, whereby, among other things, Ally
waived the existing event of default and amended the required covenants.
The outstanding balance on this equipment financing agreement at June 30,
1996 is $1,553,000, as compared to $1,778,000 at December 31, 1995. As a
result of the above discussed amendment, $945,000 has been classified as
long-term debt at June 30, 1996.
3. Commitments and Contingencies
_____________________________
Hazardous Waste
In connection with the Company's waste management services,
the Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
During 1995, certain subsidiaries of the Company were sued by
Chief Supply Corporation ("Chief Supply") in three (3) causes of
action pending in the United States District Court, Northern
District of Oklahoma, in cases styled Chief Supply Corporation v.
Perma-Fix of Dayton, Inc.; Chief Supply Corporation v. Perma-Fix of
Florida, Inc.; and Chief Supply Corporation v. Perma-Fix of
Memphis, Inc. Chief Supply was alleging that the subsidiaries owe
to Chief Supply an aggregate of approximately $292,000 (the
"Oklahoma Litigation"). Perma-Fix of Memphis, Inc. asserted a
counterclaim for receivables due from Chief Supply for services
rendered by two subsidiaries of the Company of approximately
$134,000. In addition, these subsidiaries have asserted certain
defenses regarding the performance of services by Chief Supply.
Reservoir Capital Corporation ("Reservoir") alleged that
substantially the same receivables for which Chief Supply has sued
the subsidiaries of the Company were factored and assigned by Chief
Supply to Reservoir, and in March 1996, Reservoir brought suit
against the same subsidiaries of the Company sued by Chief Supply
for collection of substantially the same receivables Chief Supply
sued the subsidiaries of the Company, plus exemplary damages. The
suit brought by Reservoir is styled Reservoir Capital Corporation
v. Perma-Fix of Dayton, Inc., et al., pending in the United States
District Court, Southern District of Ohio (the "Ohio Litigation").
During the second quarter of 1996, the parties settled the Oklahoma
Litigation and the Ohio Litigation, and, in connection therewith,
the subsidiaries of the Company have agreed to pay Chief in the
Oklahoma Litigation $200,000 over an eighteen (18) month period and
Reservoir has dismissed the Ohio Litigation. All or any portion of
this monthly settlement payment may, at the sole discretion of the
Company, take the form of credits issued to the Company by Chief as
a result of waste that the Company delivers to Chief for treatment.
In December 1995, Essex Waste Management, Inc. ("Essex") sued
the Company and certain subsidiaries of the Company alleging an
aggregate of approximately $358,000 was due to it by the Company
and certain subsidiaries of the Company for services rendered by
Essex for these subsidiaries or which were used by a subsidiary of
the Company. During the second quarter of 1996, the parties agreed
to a settlement in this matter in which the Company has agreed to
pay to Essex $180,000 over a thirty-six (36) month period. In
addition to cash payments, the Company shall provide $120,000 of
credit to Essex for disposal services, subject to certain
conditions and restrictions.
In addition to the above matters and in the normal course of
conducting its business, the Company is involved in various other
litigation. The Company is not a party to any litigation or
governmental proceeding which its management believes could result
in any judgments or fines against it that would have a material
adverse affect on the Company's financial position, liquidity or
results of operations.
Permits
The Company is subject to various regulatory requirements,
including the procurement of requisite licenses and permits at
certain of its treatment, storage and/or disposal facilities.
These licenses and permits are subject to periodic renewal without
which the Company's operations would be adversely affected. The
Company anticipates that, once a license or permit is issued with
respect to a facility, the license or permit will be renewed at the
end of its term if the facility's operations are in compliance with
the applicable regulatory requirements.
Accrued Closure Costs and Environmental Liabilities
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of
operations. Additionally, in the course of owning and operating
on-site treatment, storage and disposal facilities, the Company is
subject to corrective action proceedings to restore soil and/or
groundwater to its original state. These activities are governed
by federal, state and local regulations and the Company maintains
the appropriate accruals for restoration. The Company has recorded
accrued liabilities for estimated closure costs and identified
environmental remediation costs.
Insurance
The business of the Company exposes it to various risks,
including claims for causing damage to property or injuries to
persons or claims alleging negligence or professional errors or
omissions in the performance of its services, which claims could be
substantial. The Company carries general liability insurance which
provides coverage in the aggregate amount of $2 million and an
additional $6 million excess umbrella policy and carries $1 million
per occurrence and $2 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
tank removal and pollution control coverage.
The Company also carries specific pollution legal liability
insurance for operations involved in the waste management services
segment for property damages or bodily injuries occurring off-site
of the Company's facilities due to release of contaminates from the
Company's facilities, with such insurance providing coverages
ranging from a $2 million annual aggregate to $8 million annual
aggregate, for certain facilities.
4. Stock Issuance
______________
As previously disclosed, the Company issued, during February
1996, 1,100 shares of newly created Series 1 Class A Preferred
Stock ("Series 1 Preferred") at a price of $1,000 per share, for an
aggregate sales price of $1,100,000, and paid a placement fee of
$176,000. During February 1996, the Company also issued 330 shares
of newly created Series 2 Class B Convertible Preferred Stock
("Series 2 Preferred") at a price of $1,000 per share, for an
aggregate sales price of $330,000, and paid a placement fee of
$33,000. The Series 1 Preferred and Series 2 Preferred accrued
dividends on a cumulative basis at a rate per share of five percent
(5%) per annum payable quarterly, at the option of the Company, in
either cash or by the issuance of shares of common stock. All
dividends on the Series 1 Preferred and Series 2 Preferred were
paid in common stock. The Series 1 Preferred and Series 2
Preferred were convertible, at any time, commencing forty-five (45)
days after issuance into shares of the Company's common stock at a
conversion price equal to the aggregate value of the shares of the
Preferred Stock being converted, together with all accrued but
unpaid dividends thereon, divided by the "Average Stock Price" per
share (the "Conversion Price"). The Average Stock Price means the
lesser of (i) seventy percent (70%) of the average daily closing
bid prices of the common stock for the period of five (5)
consecutive trading days immediately preceding the date of
subscription by the holder or (ii) seventy percent (70%) of the
average daily closing bid prices of the common stock for a period
of five (5) consecutive trading days immediately preceding the date
of conversion of the Preferred Stock. During the second quarter of
1996, a total of 722 shares of the Series 1 Preferred were
converted into approximately 1,035,000 shares of the Company's
common stock and the associated accrued dividends were paid in the
form of approximately 15,000 shares of the Company's common stock.
Pursuant to a subscription and purchase agreement for the issuance
of Series 3 Class C Convertible Preferred Stock, the remaining 378
shares of the Series 1 Preferred and the 330 shares of the Series
2 Preferred were converted during July 1996 into 920,000 shares of
the Company's common stock. By terms of the subscription
agreement, the 920,000 shares of common stock were purchased by the
Company at a purchase price of $1,770,000. See Note 5 for
additional information on this subscription agreement. As a result
of such conversions, the Series 1 Preferred and the Series 2
Preferred are no longer outstanding.
The Company issued, during the second quarter of 1996, 133,333
shares of common stock pursuant to a first quarter stock purchase
agreement between the Company and Dr. Louis F. Centofanti, Chairman
of the Board and Chief Executive Officer of the Company. The
Company also entered into a second stock purchase agreement with
Dr. Centofanti, whereby the Company agreed to sell 76,190 shares of
its common stock for the purchase price of $100,000.
5. Subsequent Event
________________
On July 17, 1996, the Company issued 5,500 shares of newly-
created Series 3 Class C Convertible Preferred Stock ("Series 3
Preferred") at a price of $1,000 per share, for an aggregate sales
price of $5,500,000, and paid placement and closing fees as a
result of such transaction of approximately $360,000. As part of
the sale of the Series 3 Preferred, the Company also issued two (2)
common stock purchase warrants entitling the Subscriber to
purchase, after December 31, 1996, until July 18, 2001, an
aggregate of up to 2,000,000 shares of common stock, with 1,000,000
shares exercisable at an exercise price equal to $2.00 per share
and 1,000,000 shares exercisable at an exercise price equal to
$3.50 per share. The Series 3 Preferred accrues dividends on a
cumulative basis at a rate of six percent (6%) per annum, and is
payable semi-annually when and as declared by the Board of
Directors. Dividends shall be paid, at the option of the Company,
in the form of cash or common stock of the Company. The holder of
the Series 3 Preferred may convert into common stock of the Company
up to (i) 1,833 shares on and after October 1, 1996, (ii) 1,833
shares on and after November 1, 1996, and (iii) the balance on and
after December 1, 1996. The conversion price shall be the product
of (i) the average closing bid quotation for the five (5) trading
days immediately preceding the conversion date multiplied by (ii)
seventy-five percent (75%). The conversion price shall be a
minimum of $.75 per share (which minimum price may be reduced upon
the occurrence of certain limited events) or a maximum of $1.50 per
share. The common stock issuable on the conversion of the Series
3 Preferred is subject to certain registration rights pursuant to
the subscription agreement. The subscription agreement also
provides that the Company utilize $1,770,000 of the net proceeds to
purchase from the Subscriber 920,000 shares of the Company's common
stock owned by the Subscriber. As discussed in Note 4 above, the
Subscriber had previously acquired from the Company 1,100 shares of
Series 1 Class A Preferred Stock, par value $.001 per share
("Series 1 Preferred"), and 330 shares of Series 2 Class B
Convertible Preferred Stock, par value $.001 per share ("Series 2
Preferred"). As of the date of the subscription agreement, the
Subscriber had converted 722 shares of such Series 1 Preferred into
common stock pursuant to the terms of such Series 1 Preferred and
had not converted into common stock any shares of Series 2
Preferred. The Subscriber was the owner of record and beneficially
owned all of the issued and outstanding shares of Series 1
Preferred and Series 2 Preferred, which totalled 378 shares of
Series 1 Preferred and 330 shares of Series 2 Preferred. At the
closing, the Subscriber converted all of the outstanding shares of
Series 1 Preferred and Series 2 Preferred into common stock of the
Company (920,000 shares) pursuant to the terms, provisions,
restrictions and conditions of the Series 1 Preferred and Series 2
Preferred, which were in turn purchased by the Company.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART I, ITEM 2
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,
1996 and 1995 (in thousands):
Three Months Ended
June 30,
_________________________________
Consolidated 1996 % 1995 %
____________ _______ _____ _______ _____
Net Revenues $ 8,178 100.0 $ 9,381 100.0
Cost of Goods Sold 5,634 68.9 7,123 75.9
______ _____ ______ _____
Gross Profit 2,544 31.1 2,258 24.1
Selling, General and
Administrative 1,682 20.6 2,400 25.6
Depreciation/Amortization 558 6.8 587 6.3
Nonrecurring Charges - - 705 7.5
______ _____ ______ ______
Income (loss) from
Operations $ 304 3.7 $(1,434) (15.3)
====== ===== ====== ======
Interest Expense 227 2.8 241 2.6
Six Months Ended
June 30,
_________________________________
Consolidated 1996 % 1995 %
____________ _______ _____ _______ _____
Net Revenues $15,750 100.0 $18,004 100.0
Cost of Goods Sold 11,398 72.4 13,761 76.4
______ _____ ______ _____
Gross Profit 4,352 27.6 4,243 23.6
Selling, General and
Administrative 3,424 21.7 4,099 22.8
Depreciation/Amortization 1,177 7.5 1,143 6.3
Nonrecurring Charges - - 705 3.9
______ _____ ______ ______
Income (loss) from
Operations $ (249) (1.6) $(1,704) (9.5)
====== ====== ====== ======
Interest Expense 489 3.1 439 2.4
Summary -- Quarter Ended June 30, 1996 and 1995
_______________________________________________
Consolidated net revenues decreased to $8,178,000 from
$9,381,000 for the three month period ended June 30, 1996, as
compared to 1995. This 12.8% decrease, or $1,203,000, reflects
reduced revenues within both the waste management and consulting
engineering segments of $1,166,000 and $37,000, respectively. As
reflected, the most significant decrease was within the waste
management segment and is a result of the impact of the various
restructuring programs initiated during 1995, which resulted in the
consolidation and closure of certain offices, the divestiture of a
subsidiary and the disruption resulting from a major capital
expansion at one facility, in conjunction with the Company's
continued focus on select markets. Consolidated revenues for the
six months ended June 30, 1996 and 1995 were $15,750,000 and
$18,004,000, respectively, reflecting a $2,254,000 decrease. This
decrease is a direct result of the above discussed restructuring
program, again focused on the closure or divestiture of
unprofitable operations during 1995 and early 1996. Also, as a
result of industry and weather related issues during the first
quarter, revenues were negatively impacted beyond normal
seasonality for this typically down period.
Costs of goods sold decreased to $5,634,000 from $7,123,000
for the quarter ended June 30, 1996. The $1,489,000 decrease is
primarily attributable to the reduced revenue during the second
quarter of 1996, as discussed above, and the cost benefit
associated with the various restructuring programs and the closure
or divestiture of non-performing entities. As a percent of
revenue, costs of goods sold decreased to 68.9% in the second
quarter of 1996, compared to 75.9% in the corresponding second
quarter of 1995. This consolidated decrease in cost of goods sold
as a percent of revenue reflects improvements in both the waste
management and consulting engineering segments, resulting from the
continued emphasis on cost containment across all Company segments.
Consolidated cost of goods sold for the six months ended June 30,
1996 was $11,398,000, a reduction of $2,363,000 from the 1995 total
of $13,761,000. Cost of goods sold as a percent of revenue also
decreased for the six month period of 1996 to 72.4% from a
percentage of 76.4% for 1995. The Company continued to see
improvements in the consolidated gross profit as a percentage of
net revenues, with the first quarter of 1996 improving by
approximately one (1) percentage point to 23.9% (a typically low
quarter) and the second quarter reflecting an improvement of seven
(7) percentage points, to 31.1%, which again reflects the impact of
the restructuring and cost savings programs.
Selling, general and administrative expenses decreased to
$1,682,000 from $2,400,000 for the quarter ended June 30, 1996. As
a percent of revenue, selling, general and administrative expenses
decreased to 20.6% for the quarter ended June 30, 1996 compared to
25.6% for the same period in 1995. This decrease of $718,000
reflects (i) the direct cost or overhead reduction resulting from
the closure or divestiture of certain operations, which reflects a
reduction of approximately $300,000 for the second quarter, (ii)
the reduced corporate overhead resulting from the restructuring
program and significant downsizing of the corporate costs,
finalized during the first quarter of 1996, which reflects a
reduction of approximately $348,000 for the second quarter, and
(iii) the overall corporate focus on cost reductions and
efficiencies at all levels. Selling, general and administrative
expenses also decreased for the six months ended June 30, 1996 to
$3,424,000 from $4,099,000 for the same period of 1995. This
decrease of $675,000 reflects again the above discussed second
quarter reductions and improvements partially offset by the first
quarter increase in sales and marketing costs incurred by the
Company as it strengthens and expands its efforts in this area. As
a percent of sales, selling, general and administrative costs
improved from 22.8% in 1995 to 21.7% in 1996, with significant
improvement demonstrated during the second quarter.
Interest expense was $227,000 for the quarter ended June 30,
1996, as compared to $241,000 for the same period of 1995. The
decrease in interest expense of $14,000 for the second quarter is
principally a result of the reduced interest expense associated
with the revolving loan and term note facility, reflecting lower
average loan balances partially offset by increased interest rates
resulting from the default interest rate (see Note 2 of the Notes
to Consolidated Financial Statements). This decrease was partially
offset by the additional interest expense resulting from new
equipment financing agreements entered into with Ally Capital
Corporation throughout 1995 and early 1996. Interest expense for
the six months ended June 30, 1996 totaled $489,000, as compared to
$439,000 for the same period of 1995. This increase of $50,000 is
principally a result of the additional equipment financing entered
into with Ally Capital Corporation and other lease financing groups
throughout 1995.
During the second quarter of 1995, the Company recorded
several one-time, nonrecurring charges totaling $705,000 for
certain unrelated events. Of this amount, $450,000 represented a
divestiture reserve as related to the sale of the Company's wholly-
owned subsidiary, Re-Tech Systems, Inc., a post-consumer plastics
recycling company. This sale transaction was closed effective
March 15, 1996. The Company also recorded during the second
quarter of 1995 one-time charges totaling $255,000 as related to
various restructuring programs, which included a one-time charge of
$180,000 to provide for costs, principally severance and lease
termination fees, associated with the restructuring of the Perma-
Fix, Inc. service center group. This program entailed primarily
the consolidation of offices in conjunction with the implementation
of a regional service center concept and the closure of seven (7)
of nine (9) offices. A one-time charge of $75,000 was also
recorded to provide for consolidation costs, principally severance,
associated with the restructuring of the Southeast Region, which is
comprised of Perma-Fix of Florida, Inc. and Perma-Fix of Ft.
Lauderdale, Inc.
Other income for the quarter ended June 30, 1996 was $85,000,
as compared to expense of $36,000 for the quarter ended June 30,
1995. Other income for the six months ended June 30, 1996 was
$288,000 as compared to $45,000 for the same period of 1995. This
increase of $243,000 was principally a result of the gain on the
sale of certain nonproductive assets within the waste management
services segment.
The table below reflects activity for the three and six months
ended June 30, 1996 and 1995, which should be used in conjunction
with the management's discussion and analysis by segment (in
thousands):
Waste Management Consulting
Services Engineering
Three Months Ended ___________________________ ____________________________
June 30, 1996 % 1995 % 1996 % 1995 %
__________________ ______ _____ ______ _____ ______ _____ ______ _____
Net Revenues $6,675 100.0 $7,841 100.0 $1,503 100.0 $1,540 100.0
Cost of Goods Sold 4,555 68.2 5,960 76.0 1,079 71.8 1,163 75.5
______ _____ ______ _____ ______ _____ ______ _____
Gross Profit $2,120 31.8 $1,881 24.0 $ 424 28.2 $ 377 24.5
====== ===== ====== ===== ====== ===== ====== =====
Waste Management Consulting
Services Engineering
Six Months Ended ___________________________ ____________________________
June 30, 1996 % 1995 % 1996 % 1995 %
__________________ ______ _____ ______ _____ ______ _____ ______ _____
Net Revenues $13,071 100.0 $14,881 100.0 $2,679 100.0 $3,123 100.0
Cost of Goods Sold 9,417 72.0 11,285 75.8 1,981 73.9 2,476 79.3
______ _____ ______ _____ ______ _____ ______ _____
Gross Profit $3,654 28.0 $ 3,596 24.2 $ 698 26.1 647 20.7
====== ===== ====== ===== ====== ===== ====== =====
Waste Management Services -- Quarter Ended June 30, 1996 and 1995
_________________________________________________________________
The waste management services segment is engaged in on- and
off-site treatment, storage, disposal and blending of a wide
variety of by-products and industrial and hazardous wastes. This
segment competes for materials and services with numerous regional
and national competitors to provide comprehensive and cost-
effective waste management services to a wide variety of customers
in the Midwest, Southeast and Southwest regions of the country. In
1996, the Company operated and maintained facilities or businesses
in the waste by-product brokerage, on-site treatment and
stabilization, and off-site blending, treatment and disposal
industries.
During 1995, the Company initiated a re-engineering of the
waste management services segment, which included the detail review
of all operations and modification of its approach to soliciting
new customers while maintaining its existing customer base and, at
the same time, expanding its marketing efforts. In re-engineering
the waste management services segment, the Company made two key
decisions during 1995. The first was the elimination of a majority
of its service center locations. In June of 1995, the Company
closed seven (7) of nine (9) service centers, leaving its
Albuquerque office operating due to its continued profitability and
the future prospects thereof, and to operate its Tulsa, Oklahoma
service center as part of other waste management operations of the
Company. The second decision was to exit the toll grinding of
post-consumer and industrial plastics and resins, performed through
its wholly-owned subsidiary, Re-Tech Systems, Inc. in Houston,
Texas. The decision to sell this business entity was a continued
effort to focus the Company on consulting engineering and off-site
environmental services, both of which demonstrate higher gross
margins than toll grinding.
Effective March 15, 1996, the Company completed the sale of
Re-Tech Systems, Inc. The sale transaction included all real and
personal property of the subsidiary, for a total consideration of
$970,000. Net cash proceeds to the Company were approximately
$320,000, after the repayment of a mortgage obligation of $582,000
and certain other closing and real estate costs. In conjunction
with this transaction, the Company also made a prepayment of
$50,000 to Heller Financial, Inc. for application to the term loan.
As previously disclosed, the Company recorded during the second
quarter of 1995, a nonrecurring charge of $450,000 for the
estimated loss on the sale of this subsidiary, which was recorded
as an asset reduction. However, the Company recognized, during the
first quarter of 1996, a small gain on this sale after the asset
write-down. The Company sold total assets of approximately
$1,346,000, while retaining certain assets totalling approximately
$94,000 and certain liabilities totalling approximately $48,000.
Waste management services' revenue was $6,675,000 for the
quarter ended June 30, 1996. During the same period in 1995, waste
management services' revenue was $7,841,000. This decrease of
$1,166,000, or 14.9%, is principally a result of the above
discussed re-engineering program, in conjunction with the closing
of the service center locations, the disruption of one facility
currently undergoing major capital expansion, and the impact of the
sale of Re-Tech. The closed service center locations reflected
approximately $1,229,000 of this decrease, which was partially
offset by additional revenue through the expansion of existing
service centers and the receipt of new contracts, such as the waste
treatment project at the U.S. Department of Energy's Fernald, Ohio
facility. This contract generated approximately $167,000 of
additional revenue during the second quarter of 1996. Offsetting
this increase was the sale of Re-Tech, which resulted in a
reduction of approximately $152,000 during the quarter. The
Company also experienced reduced revenue levels at its Ft.
Lauderdale, Florida facility as the Company finalizes a major
capital expansion project. Revenues for the six months ended
June 30, 1996 were $13,071,000, as compared to $14,881,000 for the
same period of 1995. This decrease of $1,810,000 is again
attributable to the above discussed issues, with the closed service
centers reflecting approximately $2,031,000 of this decrease,
partially offset by the receipt of new contracts at favorable
pricing/margins. Also, during the first six months of 1996, the
waste management segment continued to experience downward pressure
on prices due to the market imbalance of excess supply over
industry demand, principally within the off-site blending,
treatment and disposal facilities. These market conditions
contributed to the reduced revenue within certain areas of this
segment and, as a result, the Company continues to focus its
marketing efforts at higher margin services for these facilities.
Cost of goods sold decreased to $4,555,000 from $5,960,000 for
the quarter ended June 30, 1996 and 1995, respectively. This
decrease of $1,405,000, or 23.6%, in cost of goods sold reflects
the corresponding direct and indirect costs related to the above
discussed revenue reduction, and the savings resulting from various
cost containment programs initiated during 1995. The Company
continued during the quarter to closely monitor and reduce all
possible operating costs. These reductions, however, were
partially offset by the temporary increase in operating costs
incurred at its Ft. Lauderdale, Florida facility, as the Company
finalizes this facility's expansion. As a percent of revenue, the
cost of goods sold for waste management services decreased from
76.0% of revenue for the quarter ended June 30, 1995 to 68.2% of
revenue for the quarter ended June 30, 1996, again reflecting the
impact of the restructuring and cost reduction programs. Cost of
goods sold also decreased $1,868,000 for the six month period ended
June 30, 1996 to $9,417,000, from a total of $11,285,000 for the
same period of 1995. As a percent of revenue, the cost of goods
sold decreased from 75.8% for the six months ended June 30, 1995 to
72.0% for the six months of 1996.
Consulting Engineering Services -- Quarter Ended June 30, 1996 and
1995
_________________________________________________________________
The Company's consulting engineering segment provides a wide
variety of environmental related consulting and engineering
services to industry and government. Through the Company's wholly-
owned subsidiaries in Tulsa, Oklahoma and St. Louis, Missouri, this
segment provides oversight management of environmental restoration
projects, air and soil sampling and compliance reporting, surface
and subsurface water treatment design for removal of pollutants,
and various compliance and training activities. This segment, like
many other engineering firms within the pollution control industry,
is maturing rapidly, experiencing downward pricing pressure and
competitive conditions.
Net revenues for the consulting engineering segment decreased
to $1,503,000 for the quarter ended June 30, 1996 as compared to
$1,540,000 for the quarter ended June 30, 1995. This 1996 second
quarter revenue total reflects the anticipated improvement from the
first quarter of the year, with only a slight decrease ($37,000)
from the second quarter of 1995. Net revenues, however, for the
six months ended June 30, 1996 were $2,679,000 as compared to
$3,123,000 for the six months of 1995. This decrease of $444,000,
or 14.2% occurred principally during the first quarter and
reflects, among other changes, the above discussed competitive
nature of the industry, weather related issues that delayed the
start-up of certain contracts, and the corresponding loss of
certain other contracts. Also, during 1995, the Company closed its
Canton, Ohio office of Schreiber, Grana and Yonley, Inc., which
resulted in approximately $87,000 of this revenue reduction. The
Company has also, however, partially offset this reduction by the
receipt of several new contracts/relationships and the expansion of
its product base into new services to be provided to current and
prospective customers. The Company continues to focus the
consulting engineering segment on those services which it can
provide the best value to its customers and greatest margin to the
Company.
Cost of goods sold decreased $72,000 to $1,079,000 from
$1,163,000 for the quarter ended June 30, 1996 and 1995,
respectively. This decrease of 6.2% reflects not only the impact
of reduced revenues for the quarter, but also the overall reduction
of operating cost. Also, with this improved utilization and
aggressive cost containment program, the consulting engineering
segment's cost of goods sold decreased from 75.5% of net revenues
to 71.8% of net revenues for the quarter ended June 30, 1995 and
1996, respectively. Cost of goods sold for the six months ended
June 30, 1996 were $1,981,000 as compared to $2,476,000 for the
same period of 1995. This decrease of $495,000 or 20% reflects, as
discussed above, the impact of reduced revenue and cost containment
efforts. These results reflect a gross margin level of 26.1% for
the six months of 1996, an improvement over the 20.7% for 1995.
Liquidity and Capital Resources of the Company
______________________________________________
At June 30, 1996, the Company had cash and cash equivalents of
$172,000. This cash and cash equivalents total reflects a decrease
of $29,000 from December 31, 1995, as a result of net cash used in
operations of $420,000, cash provided by investing activities of
$138,000 and cash provided by financing activities of $253,000.
Accounts receivable, net of allowances, totalled $5,489,000, an
increase of $458,000 over the December 31, 1995 balance of
$5,031,000, which reflects the increased revenue levels as the
Company emerges from its traditionally slow first quarter into the
stronger summer months.
As of June 30, 1996, the borrowings under the Company's
revolving loan facility totalled $3,226,000, an increase of $50,000
from the December 31, 1995 balance of $3,176,000, with a related
borrowing availability of $227,000, excluding the $250,000
overformula line, as discussed below. The balance on the term loan
totalled $1,638,000, as compared to $2,083,000 at December 31,
1995. Total indebtedness under the Heller Agreement as of June 30,
1996 was $4,864,000, a reduction of $395,000 from the December 31,
1995 balance of $5,259,000.
As previously disclosed, during the second quarter of 1995,
the Company became in violation of certain of the restrictive
financial ratio covenants under the Agreement with Heller. During
the second quarter of 1996, the Company negotiated and subsequently
entered into an amendment ("Third Amendment") to the Loan and
Security Agreement with Heller, whereby, among other things, Heller
waived the existing events of default, amended the financial
covenants and amended certain other provisions of the Loan
Agreement as set forth therein. Under the Third Amendment,
applicable interest rate provisions were also amended, whereby the
term loan shall bear a floating rate of interest per annum equal to
the base rate plus 2 1/4%, and the revolving loan shall bear a
floating rate of interest per annum equal to the base rate plus 2%.
The Third Amendment also contains a performance price adjustment
which provides that upon the occurrence of the "equity infusion"
from the sale of the Series 3 Preferred, as discussed below,
applicable interest rates on the loans shall be reduced, in each
instance, by 1/2% per annum. Also, during the second quarter of
1996, Heller extended to the Company an overformula line in an
amount not to exceed $250,000, for a period ending the earliest of
90 days after the date of first advance or September 30, 1996.
Pursuant to the above discussed Third Amendment, said overformula
line terminated upon the Company's receipt of an equity infusion.
See Note 2 of the Notes to Consolidated Financial Statements in
Item 1.
As previously disclosed, Heller had agreed to forebear from
exercising any rights and remedies under the Agreement as a result
of these previous defaults and continued to make normal advances
under the revolving loan facility. However, in compliance with
generally accepted accounting principles, the Company, at
December 31, 1995, reclassified as a current liability $3,882,000
outstanding under the Agreement that would otherwise have been
classified as long-term debt. As a result of the above discussed
amendment, $4,364,000 has been classified as long-term debt at
June 30, 1996.
Pursuant to the initial agreement, the term loan bears
interest at a floating rate equal to the base rate (prime) plus 1
3/4% per annum The revolving loan bears interest at a floating
rate equal to the base rate (prime) plus 1 1/4% per annum. The
loans also contain certain closing, management and unused line fees
payable throughout the term. As discussed above, in conjunction
with the Third Amendment, applicable interest rates were amended.
However, during the period that the Agreement was in default, a
default rate of interest was applied effective August 21, 1995
through the date of the Third Amendment, and therefore the Heller
obligations bore interest at the above noted effective rate plus
2.0%. Both the revolving loan and term loan were prime based loans
at June 30, 1996, bearing interest at a rate of 11.50% and 12.00%,
respectively.
Also, as previously disclosed, during 1995, the Company became
in violation of the tangible net worth covenant under the equipment
financing agreement with Ally Capital Corporation ("Ally"). During
the second quarter of 1996, the Company negotiated and subsequently
entered into an amendment to the equipment financing agreement,
whereby, among other things, Ally waived the existing event of
default and amended the minimum tangible net worth covenant. As
previously disclosed, at December 31, 1995, Ally had waived
compliance with the minimum tangible net worth covenant and no
acceleration was demanded by the lender. However, in compliance
with generally accepted accounting principles, the Company, at
December 31, 1995, reclassified as a current liability $1,103,000
outstanding under the agreement, which would otherwise have been
classified as long-term debt. The outstanding balance on this
equipment financing agreement at June 30, 1996 is $1,553,000, as
compared to $1,778,000 at December 31, 1995. As a result of the
above discussed amendment, $945,000 has been classified as long-
term debt and $608,000 as current at June 30, 1996.
As of June 30, 1996, total consolidated accounts payable for
the Company was $4,433,000, a reduction of $969,000 from the
December 31, 1995 balance of $5,402,000. This June 1996 balance
also reflects a reduction of $310,000 in the balance of payables in
excess of ninety (90) days, to a total of $2,171,000.
For 1996, the Company has budgeted capital expenditures of
$1,250,000 for improving operations and maintaining Resource
Conservation Recovery Act ("RCRA") permit compliance. All of these
expenditures are materially necessary to maintain compliance with
federal, state or local permit standards. As of June 30, 1996, the
Company's net purchases of new capital equipment totalled
approximately $1,025,000, which was principally funded by the
proceeds from the issuance of Preferred Stock, as discussed below,
with the exception of $57,000, which was financed through the
equipment financing agreement with Ally. At this time, the Company
anticipates financing the remainder of these expenditures by a
combination of lease financing and/or utilization of the equity
raised in July 1996, as discussed below and in Note 5 of the Notes
to Consolidated Financial Statements in Item 1.
At June 30, 1996, the Company had $7,133,000 in aggregate
principal amounts of outstanding debt, as compared to $8,478,000 at
December 31, 1995. This decrease in outstanding debt of $1,345,000
during the first six months of 1996 reflects the net repayment of
the revolving loan and term note facility of $395,000, the
scheduled principal repayments on long-term debt of $424,000,
including the equipment finance agreement payments to Ally, and the
repayment of $582,000 on a mortgage obligation in conjunction with
the Re-Tech sale, as discussed below.
The working capital deficit position at June 30, 1996 was
$2,040,000, as compared to a deficit position of $9,372,000 at
December 31, 1995. The December deficit position includes the
reclassification of certain long-term debt to current. Prior to
this reclassification, the December deficit position was
$3,399,000, which reflects an improvement in this position of
$1,359,000 during the six months of 1996.
As previously disclosed, the Company issued, during February
1996, 1,100 shares of newly created Series 1 Preferred at a price
of $1,000 per share, for an aggregate sales price of $1,100,000,
and paid a placement fee of $176,000. The Company also issued 330
shares of newly created Series 2 Preferred at a price of $1,000 per
share, for an aggregate sales price of $330,000, and paid a
placement fee of $33,000. The Series 1 Preferred and Series 2
Preferred accrued dividends on a cumulative basis at a rate per
share of five percent (5%) per annum and were payable quarterly, at
the option of the Company in either cash or by the issuance of
shares of common stock. The Company paid all accrued dividends on
the Series 1 Preferred and the Series 2 Preferred in common stock.
The Preferred Stock was convertible, at any time, commencing forty-
five (45) days after issuance into shares of the Company's common
stock at a conversion price equal to the aggregate value of the
shares of the Preferred Stock being converted, together with all
accrued but unpaid dividends thereon, divided by the "Average Stock
Price" per share (the "Conversion Price"). The Average Stock Price
was defined as the lesser of (i) seventy percent (70%) of the
average daily closing bid prices of the common stock for the period
of five (5) consecutive trading days immediately preceding the date
of subscription by the holder or (ii) seventy percent (70%) of the
average daily closing bid prices of the common stock for a period
of five (5) consecutive trading days immediately preceding the date
of such conversion of the Preferred Stock. During the second
quarter of 1996, a total of 722 shares of the Series 1 Preferred
were converted into approximately 1,035,000 shares of the Company's
common stock and the associated accrued dividends were paid in the
form of approximately 15,000 shares of the Company's common stock.
Pursuant to a subscription and purchase agreement for the issuance
of Series 3 Class C Convertible Preferred Stock, as discussed
below, the remaining 378 shares of the Series 1 Preferred and the
330 shares of the Series 2 Preferred were converted during July
1996 into 920,000 shares of the Company's common stock, which
included the accrued and unpaid dividends thereon, and the Company
purchased the 920,000 shares for $1,770,000. See below in
"Liquidity and Capital Resources of the Company."
The Company issued, during the second quarter of 1996, 133,333
shares of common stock pursuant to a first quarter stock purchase
agreement between the Company and Dr. Louis F. Centofanti, Chairman
of the Board and Chief Executive Officer of the Company. The
Company also entered into a second stock purchase agreement with
Dr. Centofanti, whereby the Company agreed to sell 76,190 shares of
its common stock for the purchase price of $100,000.
On July 17, 1996, the Company issued 5,500 shares of newly-
created Series 3 Class C Convertible Preferred Stock ("Series 3
Preferred") at a price of $1,000 per share, for an aggregate sales
price of $5,500,000, and paid placement and closing fees of
approximately $360,000. As part of the consideration for the
issuance of the Series 3 Preferred, the Company also issued two (2)
common stock purchase warrants entitling the Subscriber to
purchase, after December 31, 1996, until July 18, 2001, an
aggregate of up to 2,000,000 shares of common stock, with 1,000,000
shares exercisable at an exercise price equal to $2.00 per share
and the other 1,000,000 shares of common stock exercisable at an
exercise price equal to $3.50 per share. Dividends on the Series
3 Preferred are paid when and as declared by the Board of Directors
at a rate of six percent (6%) per annum and are payable semi-
annually. Dividends are cumulative and shall be paid, at the
option of the Company, in the form of cash or common stock of the
Company. It is the present intent of the Company to pay such
dividends, if any, in common stock of the Company. The shares of
the Series 3 Preferred may be converted into shares of common
stock. See Note 5 of Notes to Consolidated Financial Statements
and Item 5 "Other Events" of Part II hereof. The Company received
from the sale of the Series 3 Preferred net proceeds of
approximately $5,100,000. Pursuant to the terms of the
Subscription Agreement with the Subscriber, the Company has
purchased from the Subscriber from the net proceeds 920,000 shares
of common stock of the Company that the Subscriber received upon
conversion of the balance of the outstanding shares of Series 1
Preferred and Series 2 Preferred for $1,770,000. It is the intent
of the Company to use approximately $1,650,000 of the net proceeds
for capital improvements at its various facilities and the balance
of the net proceeds to reduce outstanding trade payables and for
general working capital.
Effective March 15, 1996, the Company completed the sale of
Re-Tech Systems, Inc., its plastics recycling subsidiary in
Houston, Texas. The sale transaction included all real and
personal property of the subsidiary, for a total consideration of
$970,000. Net cash proceeds to the Company were approximately
$320,000, after the repayment of a mortgage obligation of $582,000
and certain other closing and real estate costs. In conjunction
with this transaction, the Company also made a prepayment of
$50,000 to Heller Financial, Inc. for application to the term loan.
As previously disclosed, the Company recorded during 1995, a
nonrecurring charge (recorded as an asset reduction) of $450,000
for the estimated loss on the sale of this subsidiary, which, based
upon closing balances, the Company recognized a small gain on this
sale after the asset write-down. The Company sold total assets of
approximately $1,346,000, while retaining certain assets totalling
approximately $94,000 and certain liabilities totalling
approximately $48,000. In addition to the above asset sale, the
Company also sold certain non-productive assets during the quarter,
principally at closed service center locations and at the Perma-Fix
of Dayton, Inc. facility. Proceeds from these asset sales total
approximately $320,000.
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, including the
equity subsequently raised in July 1996, and it expects the
resulting liquidity position to be adequate to continue to fund its
operating and capital needs. However, if the Company is unable to
continue to improve its operations and to sustain profitability in
the foreseeable future, such may have a material adverse effect on
the Company's liquidity position and on the Company. This is a
forward-looking statement and is subject to certain factors that
could cause actual results to differ materially from those in the
forward-looking statement, including, but not limited to, the
Company's ability to maintain profitability or, if the Company is
not able to maintain profitability, whether the Company is able to
raise additional liquidity in the form of additional equity or
debt.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART II - Other Information
Item 1. Legal Proceedings
_________________
During 1995, certain subsidiaries of the Company were sued by
Chief Supply Corporation ("Chief Supply") in three (3) causes of
action pending in the United States District Court, Northern
District of Oklahoma, in cases styled Chief Supply Corporation v.
Perma-Fix of Dayton, Inc.; Chief Supply Corporation v. Perma-Fix of
Florida, Inc.; and Chief Supply Corporation v. Perma-Fix of
Memphis, Inc. Chief Supply was alleging that the subsidiaries owe
to Chief Supply an aggregate of approximately $292,000 (the
"Oklahoma Litigation"). Perma-Fix of Memphis, Inc. has asserted a
counterclaim for receivables due from Chief Supply for services
rendered by two subsidiaries of the Company of approximately
$134,000. In addition, these subsidiaries have asserted certain
defenses regarding the performance of services by Chief Supply.
Reservoir Capital Corporation ("Reservoir") alleged that
substantially the same receivables for which Chief Supply had sued
the subsidiaries of the Company were factored and assigned by Chief
Supply to Reservoir, and in March 1996, Reservoir brought suit
against the same subsidiaries of the Company sued by Chief Supply
for collection of substantially the same receivables Chief Supply
sued the subsidiaries of the Company, plus exemplary damages. The
suit brought by Reservoir is styled Reservoir Capital Corporation
v. Perma-Fix of Dayton, Inc., et al., pending in the United States
District Court, Southern District of Ohio (the "Ohio Litigation").
During the second quarter of 1996, the parties settled the Oklahoma
Litigation and the Ohio Litigation, and, in connection therewith,
the subsidiaries of the Company have agreed to pay Chief in the
Oklahoma Litigation $200,000 over an eighteen (18) month period and
Reservoir has dismissed the Ohio Litigation. All or any portion of
this monthly settlement payment may, at the sole discretion of the
Company, take the form of credits issued to the Company by Chief as
a result of waste that the Company delivers to Chief for treatment.
In December 1995, Essex Waste Management, Inc. ("Essex") sued
the Company and certain subsidiaries of the Company alleging an
aggregate of approximately $357,512 was due to it by the Company
and certain subsidiaries of the Company for services rendered by
Essex for these subsidiaries or which were used by a subsidiary of
the Company. During the second quarter of 1996, the parties
settled this matter in which the Company has agreed to pay to Essex
$180,000 over a thirty-six (36) month period. In addition to cash
payments, the Company shall provide $120,000 of credit to Essex for
disposal services, subject to certain conditions and restrictions.
Item 5. Other Events
____________
During July 1996, the Company sold in a private placement
under Section 4(2) and/or Regulation D under the Securities Act of
1933, as amended, to a subscriber ("Subscriber") 5,500 shares of a
newly created Series 3 Class C Convertible Preferred Stock, par
value $.001 per share ("Series 3 Preferred"), for $1,000 per share,
and, in connection therewith, granted to the Subscriber warrants to
purchase up to 2,000,000 shares of the Company's common stock after
December 31, 1996, with 1,000,000 shares of common stock
exercisable at $2.00 per share and 1,000,000 shares of common stock
exercisable at $3.50 per share. The warrants are for a term of
five (5) years. The Series 3 Preferred is not entitled to any
voting rights, except as required by law. Dividends on the Series
3 Preferred accrue at a rate of six percent (6%) per annum, payable
semi-annually as and when declared by the Board of Directors, and
such dividends are cumulative. Dividends shall be paid, at the
option of the Company, in the form of cash or common stock of the
Company. The holder of the Series 3 Preferred may convert into
common stock of the Company up to (i) 1,833 shares on or after
October 1, 1996, (ii) 1,833 shares on or after November 1, 1996,
and (iii) the balance on or after December 1, 1996. The conversion
price shall be the product of (i) the average closing bid quotation
for the five (5) trading days immediately preceding the conversion
date multiplied by (ii) seventy-five percent (75%). The conversion
price shall be a minimum of $.75 per share (which minimum price may
be reduced upon the occurrence of certain limited events) or a
maximum of $1.50 per share. Subject to the closing bid price of
the Company's common stock at the time of conversion and certain
other conditions which could increase the number of shares to be
issued upon conversion, the Series 3 Preferred, if all were
converted, could be converted into between 3.7 million and 7.3
million shares of common stock. The common stock issuable on the
conversion of the Series 3 Preferred is subject to certain
registration rights pursuant to the Subscription Agreement. From
the net proceeds (approximately $5,100,000) received by the Company
from the sale of the Series 3 Preferred, the Company purchased from
the Subscriber 920,000 shares of common stock of the Company
acquired by the Subscriber upon conversion of the Company's Series
1 Class A Preferred Stock and Series 2 Class B Convertible
Preferred Stock for $1,770,000. See Note 5 of Notes to
Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity
and Capital Resources of the Company."
During July 1996, the Company entered into an amendment to its
Loan and Security Agreement ("Agreement") with Heller Financial,
Inc. ("Heller"), in which Heller, among other things, waived the
Company's defaults thereunder. In addition, during August 1996,
the Company entered into an amendment to the agreement with its
equipment lender, in which the equipment lender, among other
things, waived the Company's default thereunder. See Note 2 to
Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources of the Company."
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
________
Exhibit 3.(i) - Restated Certificate of Incorporation and
all Certificates of Designations.
Exhibit 4.1 - Third Amendment to Loan and Security
Agreement with Heller Financial, Inc.
Exhibit 4.2 - Letter agreement with Heller Financial,
Inc. dated June 19, 1996.
Exhibit 4.3 - Amendment to Ally Capital Corporation
Corporation Lease Agreement, dated
August 16, 1996.
Exhibit 4.4 - Subscription and Purchase Agreement,
dated July 17, 1996, between the Company
and RBB Bank Aktiengesellschaft.
Exhibit 4.5 - Certificate of Designations relating to
Series 3 Preferred, attached as part of
Exhibit 3.1 hereof and incorporated
herein by reference.
Exhibit 4.6 - Form of Certificate for Series 3
Preferred.
Exhibit 10.1 - Common Stock Purchase Warrant Certif-
icate, dated July 19, 1996, granted to
RBB Bank Aktiengesellschaft.
Exhibit 10.2 - Common Stock Purchase Warrant Certif-
icate, dated July 19, 1996, between the
Company and RBB Bank Aktiengesellschaft.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
___________________
A current report on Form 8-K (Item 5 - Other Event) was
filed on February 28, 1996 reporting that on February 9,
1996, the Company issued 1,100 shares of its newly
created Series 1 Class A Preferred Stock at a price of
$1,000 per share, for an aggregate sales price of
$1,100,000.
A current report on Form 8-K (Item 5 - Other Events) was
filed on March 11, 1996 reporting that on February 22,
1996, the Company issued 330 shares of its newly created
Series 2 Class B Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $330,000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERMA-FIX ENVIRONMENTAL
SERVICES, INC.
Date: August 19, 1996 By: /s/ Dr. Louis F. Centofanti
____________________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
____________________________
Richard T. Kelecy
Chief Financial Officer
EXHIBIT INDEX
Page No.
________
Exhibit 3.(i)Restated Certificate of Incorporation and
all Certificates of Designations. . . . . . 36
Exhibit 4.1 Third Amendment to Loan and Security Agree-
ment with Heller Financial, Inc. . . . . . 82
Exhibit 4.2 Letter agreement with Heller Financial, Inc.
dated June 19, 1996 . . . . . . . . . . . . 96
Exhibit 4.3 Amendment to Ally Capital Corporation Lease
Agreement dated August 16, 1996 . . . . . . 103
Exhibit 4.4 Subscription and Purchase Agreement, dated
July 17, 1996, between the Company and
RBB Bank Aktiengesellschaft . . . . . . . . 106
Exhibit 4.5 Certificate of Designations relating to Series
3 Preferred, attached as part of Exhibit 3.1
hereof and incorporated herein by reference. -
Exhibit 4.6 Form of Certificate for Series 3 Preferred . . 128
Exhibit 10.1 Common Stock Purchase Warrant Certificate,
dated July 19, 1996, granted to RBB Bank
Aktiengesellschaft . . . . . . . . . . . . . 130
Exhibit 10.2 Common Stock Purchase Warrant Certificate,
dated July 19, 1996, between the Company and
RBB Bank Aktiengesellschaft. . . . . . . . . 137
Exhibit 27 Financial Data Schedule. . . . . . . . . . . . 144