================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
_______________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File No. 1-11596
______________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification Number)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352) 373-4200
(Registrant's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
______ ______
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the close of the latest
practical date.
Class Outstanding at May 11, 1998
_____ ________________________________
Common Stock, $.001 Par Value 12,001,746
_____________________________ __________
(excluding 920,000 shares
held as treasury stock)
_________________________
=================================================================
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and
December 31, 1997. . . . . . . . . . 2
Consolidated Statements of
Operations-Three Months Ended
March 31, 1998 and 1997. . . . . . . 4
Consolidated Statements of Cash
Flows-Three Months Ended
March 31, 1998 and 1997 . . . . . . . 5
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . 20
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PART I, ITEM 1
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures which are made
are adequate to make the information presented not misleading. Further,
the consolidated financial statements reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and
results of operations as of and for the periods indicated.
It is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
The results of operations for the three months ended March 31, 1998,
are not necessarily indicative of results to be expected for the fiscal
year ending December 31, 1998.
1
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
(Amounts in Thousands, 1998 December 31,
Except for Share Amounts) (Unaudited) 1997
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 13 $ 314
Restricted cash equivalents
and investments 325 321
Accounts receivable, net of
allowance for doubtful accounts
of $310 and $374, respectively 4,757 5,282
Insurance claim receivable - 1,475
Inventories 106 119
Prepaid expenses 1,194 567
Other receivables 56 70
Assets of discontinued operations 483 587
_________ ________
Total current assets 6,934 8,735
Property and equipment:
Buildings and land 5,550 5,533
Equipment 8,245 7,689
Vehicles 1,208 1,202
Leasehold improvements 16 16
Office furniture and equipment 1,069 1,056
Construction in progress 1,412 1,052
_________ ________
17,500 16,548
Less accumulated depreciation (5,975) (5,564)
_________ ________
Net property and equipment 11,525 10,984
Intangibles and other assets:
Permits, net of accumulated amorti-
zation of $891 and $831,
respectively 3,702 3,725
Goodwill, net of accumulated amorti-
zation of $616 and $580,
respectively 4,665 4,701
Other assets 479 425
________ ________
Total assets $ 27,305 $ 28,570
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
2
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
March 31,
(Amounts in Thousands, 1998 December 31,
Except for Share Amounts) (Unaudited) 1997
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,223 $ 2,263
Accrued expenses 3,408 3,380
Revolving loan and term note
facility 625 614
Current portion of long-term debt 238 254
Current liabilities of discontinued
operations 1,178 1,470
_________ _______
Total current liabilities 7,672 7,981
Environmental accruals 482 525
Accrued closure costs 839 831
Long-term debt, less current portion 3,324 3,997
Long-term liabilities of discontinued
operations 3,037 3,042
_________ _______
Total long-term liabilities 7,682 8,395
Commitments and contingencies
(see Note 4) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
6,850 and 6,850 shares issued
and outstanding, respectively - -
Common stock, $.001 par value;
50,000,000 shares authorized,
12,679,691 and 12,540,487 shares
issued, including 920,000
shares held as treasury stock 13 12
Redeemable warrants 140 140
Additional paid-in capital 34,610 34,363
Accumulated deficit (21,042) (20,551)
________ _______
13,721 13,964
Less Common Stock in treasury at
cost; 920,000 shares issued
and outstanding (1,770) (1,770)
________
Total stockholders' equity 11,951 12,194
________ _______
Total liabilities and
stockholders' equity $ 27,305 $ 28,570
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
3
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1998 1997*
___________________________________________________________________
Net revenues $ 6,548 $ 5,750
Cost of goods sold 4,787 4,308
________ ________
Gross profit 1,761 1,442
Selling, general and administrative
expenses 1,555 1,291
Depreciation and amortization 508 500
________ ________
Loss from operations (302) (349)
Other income (expense):
Interest income 8 9
Interest expense (127) (131)
Other 17 (9)
________ ________
Net loss from continuing
operations (404) (480)
Discontinued Operations:
Loss from operations - (436)
________ _________
Net Loss (404) (916)
Preferred Stock dividends 87 81
________ _________
Net loss applicable to
Common Stock $ (491) $ (997)
======== =========
_________________________________________
Basic loss per common share:
Continuing operations $ (0.4) $ (.05)
Discontinued operations - (.05)
________ ________
Net loss per common share $ (.04) $ (.10)
======== ========
Weighted average number of common
shares outstanding 11,707 9,719
======== ========
<FN>
*Amounts have been restated from that previously reported to
reflect the discontinued operations at Perma-Fix of Memphis, Inc.
(see Note 2).
The accompanying notes are an integral part of
these consolidated financial statements.
4
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(Amounts in Thousands, __________________________
Except for Share Amounts) 1998 1997*
_____________________________________________________________________
Cash flows from operating activities:
Net loss from continuing
operations $ (491) $ (561)
Adjustments to reconcile net loss
to cash provided by operations:
Depreciation and amortization 508 500
Provision for bad debt and other
reserves 5 3
Gain on sale of plant, property
and equipment - (15)
Changes in assets and liabilities,
net of effects from business
acquisitions:
Accounts receivable 520 (166)
Prepaid expenses, inventories and
other assets 1,485 299
Accounts payable and accrued expenses (557) (221)
________ ________
Net cash provided by continuing
operations 1,470 171
________ ________
Net cash used by discontinued operations (194) (428)
________ ________
Cash flows from investing activities:
Purchases of property and equipment,
net (952) (239)
Proceeds from sale of plant,
property and equipment - 39
Change in restricted cash, net (4) (23)
________ _________
Net cash used in investing
activities (956) 241
Cash flows from financing activities:
Borrowings (repayments) from
revolving loan & term note
facility (628) 241
Principal repayments on long-term debt (50) (213)
Proceeds from issuance of stock 56 488
Net cash used by discontinued
operations (9) (2)
________ ________
Net cash provided by (used in)
financing activities (631) 514
(Decrease) increase in cash and cash
equivalents (311) 34
Cash and cash equivalents at beginning
of period, including discontinued
operations of $12, and $8,
respectively 326 45
________ ________
Cash and cash equivalents at end
of period, including discontinued
operations of $2, and $12,
respectively $ 15 $ 79
======== ========
________________________________________________________________
Supplemental disclosure:
Interest paid $ 129 $ 186
Non-cash investing and financing
activities:
Issuance of Common Stock for services 8 -
Long-term debt incurred for purchase
of property and equipment - 48
Issuance of stock for payment of
dividends 184 145
<FN>
*Amounts have been restated from that previously reported to
reflect the discontinued operations at Perma-Fix of Memphis, Inc.
(see Note 2).
The accompanying notes are an integral part of
these consolidated financial statements.
5
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(For the three months ended March 31, 1998)
Preferred Stock Common Stock
Amounts in Thousands, _________________ ____________________
Except for Share Amounts Shares Amount Shares Amount
______________________________________________________________________________
Balance at December 31, 1997 6,850 $ - 12,540,487 $ 12
Net Loss - - - -
Issuance of Common Stock for
preferred stock dividend - - 85,216 1
Issuance of stock for cash
and services - - 12,988 -
Exercise of warrants - - 40,000 -
Option Exercise - - 1,000 -
_______ _______ __________ _______
Balance at March 31, 1998 6,850 $ - 12,679,691 $ 13
======= ======= ========== =======
Common
Additional Stock
Redeemable Paid-In Accumulated Held in
Warrants Capital Deficit Treasury
_____________________________________________________
$ 140 $ 34,363 $ (20,551) $ (1,770)
- - (491) -
- 183 - -
- 24 - -
- 39 - -
- 1 - -
________ ________ __________ __________
$ 140 $ 34,610 $ (21,042) $ (1,770)
======== ======== ========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
6
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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, 1997.
1. Summary of Significant Accounting Policies
__________________________________________
The Company's accounting policies are as set forth in the
notes to consolidated financial statements referred to above.
Certain amounts in prior years' consolidated financial
statements have been reclassified to conform to current period
financial statement presentations.
Net loss per share has been presented using the weighted
average number of common shares outstanding. Potential common
shares have not been included in the net loss per share
calculations since their effects would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
("SFAS 128"). SFAS 128 establishes new standards for computing and
presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces
the presentation of primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 was adopted effective December 31, 1997, and did
not have a material effect on the Company's EPS presentation for the
three months ended March 31, 1998 and 1997.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("FAS 130") and No. 131, "Disclosure about
Segments of an Enterprise and Related Information," ("FAS 131"). FAS
130 establishes standards for reporting and displaying comprehensive
income, its components and accumulated balances. FAS 131 establishes
standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. Both FAS 130 and FAS 131 are effective
for periods beginning after December 15, 1997. FAS 130 has no effect on
the Company's financial statements. FAS 131 is effective for the
Company's financial statements and is discussed in Note 5.
2. Discontinued Operations
_______________________
On January 27, 1997, an explosion and resulting tank fire occurred
at the Company's subsidiary, Perma-Fix of Memphis, Inc. ("PFM")
facility, a hazardous waste storage, processing and blending facility,
located in Memphis, Tennessee, which resulted in damage to certain
hazardous waste storage tanks located on the facility and caused certain
limited contamination at the facility. Such occurrence was caused by
welding activity performed by employees of an independent contractor at
or near the facility's hazardous waste tank farm contrary to instructions
by PFM. The facility was non-operational from the date of this event
until May 1997, at which time it began limited operations. During the
remainder of 1997, PFM continued to accept waste for processing and
disposal, but arranged for other facilities owned by the Company or
subsidiaries of the Company or others not affiliated with the Company to
process such waste. The utilization of other facilities to process such
waste resulted in higher costs to PFM than if PFM were able to store and
process such waste at its Memphis, Tennessee, TSD facility, along with
the additional handling and transportation costs associated with these
activities. As 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
7
customers, and its discontinuance has required PFM to attempt to develop
new markets and customers. PFM currently provides, on a limited basis,
an off-site waste storage and transfer facility. Accordingly, during the
fourth quarter of 1997, the Company recorded a loss on disposal of
discontinued operations of $3,053,000, which included $1,272,000 for
impairment of certain assets and $1,781,000 for the establishment of
certain closure liabilities.
The net loss from discontinued PFM operations for the quarter ended
March 31, 1998, was $112,000 and was recorded against the accrued closure
cost estimate on the balance sheet. The net loss for the quarter ended
March 31, 1997, was $436,000 and is shown separately in the Consolidated
Statements of Operations. The Company has restated the 1997 operating
results to reflect this discontinued operations. The results of the
discontinued PFM operations do not reflect management fees charged by the
Company, but do include interest expense of $29,000 and $52,000 during
the quarter ended March 31, 1998 and 1997, respectively, specifically
identified to such operations as a result of such operations incurring
debt under the Company's revolving and term loan credit facility. During
March of 1998, the Company received a settlement in the amount of
$1,475,000 from its insurance carrier for the business interruption claim
which was recorded as an insurance claim receivable at December 31, 1997.
This settlement was recognized as a gain in 1997 and thereby reduced the
net loss recorded for the discontinued PFM operations in 1997.
Revenues of the discontinued PFM operations were $294,000 for the
quarter ended March 31, 1998 and $752,000 for the quarter ended March 31,
1997. These revenues are not included in revenues as reported in the
Consolidated Statements of Operation.
Net assets and liabilities of the discontinued PFM operations at the
quarter ended March 31, 1998, and December 31, 1997, in thousands of
dollars, consisted of the following:
March 31, December 31,
1998 1997
________ ___________
Assets of discontinued operations:
Cash and cash equivalents $ 2 $ 12
Restricted cash equivalents and investments 214 214
Accounts receivable, net of allowance
for doubtful accounts $103 and $105,
respectively 219 333
Prepaid expenses and other assets 48 28
_________ ________
$ 483 $ 587
========= ========
Current liabilities of discontinued operations:
Accounts payable $ 226 $ 277
Accrued expenses 222 259
Accrued environmental costs 635 835
Current portion of long-term debt 95 99
_________ ________
$ 1,178 $ 1,470
========= =========
Long-term liabilities of discontinued operations:
Long-term debt, less current portion $ 12 $ 17
Accrued environmental and closure costs 3,025 3,025
_________ ________
$ 3,037 $ 3,042
========= ========
The accrued environmental and closure costs, as related to PFM, total
$3,660,000 at March 31, 1998, which includes the Company's current closure
cost estimate of approximately $700,000 for the complete cessation of
operations and closure of the facility ("RCRA Closure") based upon
guidelines of the Resource Conservation and Recording Act of 1976, as
amended ("RCRA"). A majority of this liability relates to the discontinued
fuel blending and tank farm operations and will be recognized over the next
three years. Also included in this accrual is the Company's estimate of
the cost to complete groundwater remediation at the site of approximately
$970,000, the future operating losses as the Company discontinues its fuel
blending operations and certain other contingent liabilities.
8
3. Long-Term Debt
______________
Long-term debt consists of the following at March 31, 1998, and
December 31, 1997 (in thousands):
March 31, December 31,
1998 1997
___________ ___________
Revolving loan facility dated
January 15, 1998, collateral-
ized by eligible accounts
receivables, subject to monthly
borrowing base calculation,
variable interest paid monthly
at prime rate plus 1 3/4. $ 1, 140 $ 1,664
Term loan agreement dated January 15,
1998, payable in monthly principal
installments of $52, balance due
in January 2001, variable interest
paid monthly at prime rate plus
1 3/4. 2,396 2,500
Mortgage note agreement payable in
quarterly installments of $15,
plus accrued interest at 10%.
Balance due October 1998 secured
by real property. 46 61
Various capital lease and promissory
note obligations, payable 1998 to
2002, interest at rates ranging
from 8.0% to 15.9%. 605 640
________ _______
4,187 4,865
Less current portion of revolving
loan and term note facility 625 614
Less current portion of long-term debt 238 254
_________ ________
$ 3,324 $ 3,997
========= =========
On January 15, 1998, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-borrowers
and cross-guarantors, entered into a Loan and Security Agreement
("Agreement") with Congress Financial Corporation (Florida) as lender
("Congress"). The Agreement provides for a term loan in the amount
of $2,500,000, which requires principal repayments based on a four-
year level principal amortization over a term of 36 months, with
monthly principal payments of $52,000. Payments commenced on
February 1, 1998, with a final balloon payment in the amount of
approximately $573,000 due on January 14, 2001. The Agreement also
provides for a revolving loan facility in the amount of $4,500,000.
At any point in time the aggregate available borrowings under the
facility are subject to the maximum credit availability as determined
through a monthly borrowing base calculation, as updated for certain
information on a weekly basis, equal to 80% of eligible accounts
receivable accounts of the Company as defined in the Agreement. The
termination date on the revolving loan facility is also the third
anniversary of the closing date. The Company incurred approximately
$230,000 in financing fees relative to the solicitation and closing
of this loan agreement (principally commitment, legal and closing
fees) which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1 3/4%.
The Agreement also provides for a one time rate adjustment of 1/4%,
subject to the company meeting certain 1998 performance objectives.
The loans also contain certain closing, management and unused line
fees payable throughout the term. The loans are subject to a 3.0%
prepayment fee in the first year, 1.5% in the second and 1.0% in the
third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and subsidiaries, as well as the mortgage on
two (2) of the Company's facilities. The Agreement contains
affirmative covenants including, but not limited to, certain
financial statement disclosures and certifications, management
reports, maintenance of insurance and collateral. The Agreement also
contains an adjusted net worth financial covenant, as defined in the
Agreement, of $3,000,000.
9
The proceeds of the Agreement were utilized to repay in full on
January 15, 1998, the outstanding balance of the Heller Financial,
Inc. ("Heller") which was comprised of a revolving loan and security
agreement, loan and term loan, and to repay and buyout all assets
under the Ally Capital Corporation ("Ally") equipment financing
agreements. As of December 31, 1997, the borrowings under the Heller
revolving loan facility totaled $2,652,000 with borrowing
availability of approximately $762,000. The balance of the revolving
loan on January 15, 1998, as repaid pursuant to the Congress
agreement was $2,289,000. The balance under the Heller term loan at
December 31, 1997, was $867,000. The Company subsequently made a
term loan payment of $41,000 on January 2, 1998, resulting in a
balance of $826,000, as repaid pursuant to the Congress Agreement.
As of December 31, 1997, the outstanding balance on the Ally
Equipment Financing Agreement was $624,000 and represents the
principal balance repaid pursuant to the Congress Agreement. In
conjunction with the above debt repayments, the Company also repaid
a small mortgage, paid certain fees, taxes and expenses, resulting in
an initial Congress term loan of $2,500,000 and revolving loan
balance of $1,705,000 as of the date of closing, the Company had
borrowing availability under the Congress Agreement of approximately
$1,500,000. The Company recorded the December 31, 1997, Heller and
Ally debt balances as though the Congress transaction had been closed
as of December 31, 1997. As of March 31, 1998, the borrowings under
the Congress revolving loan facility totaled $1,140,000 with
borrowing availability of approximately $1,467,000. The balance
under the Congress term loan at March 31, 1998, was $2,396,000.
As further discussed in Note 2, the long-term debt associated
with the discontinued PFM operation is excluded from the above and is
recorded in the Liabilities of Discontinued Operations total. The
PFM debt obligations total $107,000, of which $95,000 is current.
4. 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
In the normal course of conducting its business, the Company is
involved in various litigation. There has been no material changes
in legal proceedings from those disclosed previously in the Company's
Form 10-K for year ended December 31, 1997. The Company is not a
party to any litigation or governmental proceeding which its
management believes could result in any judgements 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 its
facilities. These licenses and permits are subject to periodic
renewal without which the Company's operations would be adversely
affected. The Company anticipates that, once a license or permit is
issued with respect to a facility, the license or permit will be
renewed at the end of its term if the facility's operations are in
compliance with the applicable regulatory requirements.
Accrued Closure Costs and Environmental Liabilities
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of operations.
Additionally, in the course of owning and operating on-site
treatment, storage and disposal facilities, the Company is subject to
corrective action proceedings to restore soil and/or groundwater to
its original state. These activities are governed by federal, state
and local regulations and the Company maintains the appropriate
accruals for restoration. The Company has recorded accrued
liabilities for estimated closure costs and identified environmental
remediation costs.
10
Discontinued Operations
As previously discussed, the Company made the strategic decision
in February 1998 to discontinue its fuel blending operations at the
PFM facility. The Company has, based upon the best estimates
available, recognized accrued environmental and closure costs in the
aggregate amount of $3,660,000. This liability includes principally,
the RCRA closure liability, the groundwater remediation liability,
the potential additional site investigation and remedial activity
which may arise as PFM proceeds with its closure activities and the
Company's best estimate of the future operating losses as the Company
discontinues its fuel blending operations and other contingent
liabilities.
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 $2 million
per occurrence and $4 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
pollution control coverage.
The Company also carries specific pollution liability insurance
for operations involved in the Waste Management Services segment.
The Company believes that this coverage, combined with its various
other insurance policies, is adequate to insure the Company against
the various types of risks encountered.
5. Business Segment Information
____________________________
The Company provides services through two business segments.
The Waste Management Services segment, which provides on-and-off-site
treatment, storage, processing and disposal of hazardous and non-
hazardous industrial and commercial, mixed waste, and wastewater
through its five treatment, storage and disposal facilities ("TSD
facilities"); Perma-Fix Treatment Services, Inc., Perma-Fix of
Dayton, Inc., Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of
Florida, Inc. and PFM. The Company has discontinued all fuel
blending activities at its PFM facility, the principal business
segment for this subsidiary prior to the January 1997 fire and
explosion. PFM currently provides, on a limited basis, an off-site
waste storage and transfer facility and continues to explore other
new markets for utilization of this facility. The Company also
provides through this segment: (i) on-site waste treatment services
to convert certain types of characteristic hazardous wastes into non-
hazardous waste, through its Perma-Fix, Inc. subsidiary; and (ii) the
supply and management of non-hazardous and hazardous waste to be used
by cement plants as a substitute fuel or raw material source.
The Company also provides services through the Consulting
Engineering Services segment. The Company provides environmental
engineering and regulatory compliance consulting services through
Schreiber, Yonley & Associates in St. Louis, Missouri, and Mintech,
Inc. in Tulsa, Oklahoma. These engineering groups provide 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.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based on profit or loss from continuing
operations.
The Company accounts for inter-company sales as a reduction of
"cost of goods sold" and therefore such inter-company sales are not
included in the consolidated revenue total.
The Company's segments are not dependent upon a single customer,
or a few customers, and the loss of any one or more of which would
not have a material adverse effect on the Company's segment. During
the quarter ended March 31, 1998 and 1997, the Company did not make
sales to any single customer that in the aggregate amount represented
more than ten percent (10%) of the Company's segment revenues.
11
The table below shows certain financial information by the
Company's segments for quarters ended March 31, 1998 and 1997 and
excludes the results of operations of the discontinued operations.
Loss from operations includes revenues less operating costs and
expenses. Marketing, general and administrative expenses of the
corporate headquarters have not been allocated to the segments.
Identifiable assets are those used in the operations of each business
segment, including intangible assets and discontinued operations.
Corporate assets are principally cash, cash equivalents and certain
other assets.
Waste Consulting Corporate
Management Engineering and
(Dollars in thousand) Services Services Other Consolidated
_______________________________________________________________________________
1998
Net revenues from
external customers $ 5,497 $ 1,051 $ - $ 6,548
Inter-company revenues 73 125 - 198
Interest revenues 8 - - 8
Interest expense 58 41 28 127
Depreciation and
amortization 482 21 5 508
Loss from continuing
operations (127) (20) (344) (491)
Identifiable assets 11,372 1,936 13,997 27,305
Capital expenditures, net 951 1 - 952
1997
Net revenues from
external customers $ 4,508 $ 1,242 $ - $ 5,750
Inter-company revenues 394 115 - 509
Interest income 8 - 1 9
Interest expense 130 (12) 13 131
Depreciation and
amortization 471 29 - 500
Loss from continuing
operations (214) (11) (336) (561)
Identifiable assets 16,371 2,577 11,828 30,776
Capital expenditures, net 230 9 - 239
6. Stock Issuance
______________
Effective January 22, 1998, the Company paid accrued dividends
on the Series 3 Class C, Series 4 Class D, Series 5 Class E, Series
6 Class F and Series 7 Class G Convertible Preferred Stock for the
period July 1, 1997, through December 31, 1997, in the amount of
approximately $121,000 in the form of 54,528 shares of the
Company's Common Stock.
7. Subsequent Events
_________________
Effective April 1, 1998, the Company entered into an asset
purchase agreement to acquire substantially all of the assets and
certain liabilities of Action Environmental Corp. ("Action") of
Miami, Florida. Action has provided oil filter collection and
processing services to approximately 700 customers in south
Florida. The assets of Action were acquired through a combination
of stock issuance and the assumption of certain liabilities. The
acquisition will be accounted for using the purchase method
effective April 1, 1998, and, accordingly, the assets and
liabilities as of this date and the statement of operations from
the effective date were not included in the accompanying
consolidated financial statements. The acquisition of Action will
result in an issuance of 108,000 shares of the Company's Common
Stock reflecting a total purchase price of $207,000.
Effective April 21, 1998, the Company issued Bernhardt C.
Warren, the Company's Vice President of Nuclear Services and
executive officer, 94,697 shares of the Company's Common Stock in
payment of accrued bonus and commission pursuant to an employment
agreement dated April 7, 1998. Under the employment agreement, the
Company also agreed to pay Mr. Warren an annual salary of $87,000
and $167,500 in cash in twenty four monthly installments in payment
of an additional amount due for accrued bonus. The employment
agreement is for a term of two years.
12
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 statements of historical fact
are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors which could cause
actual results and performance of the Company to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things, (i) anticipated financial performance, (ii)
ability to comply with the Company's general working capital
requirements, (iii) ability to generate sufficient cash flow from
operations to fund all costs of operations and remediation of
certain formerly leased property in Dayton, Ohio, and the Company's
facility in Memphis, Tennessee, (iv) ability to remediate certain
contaminated sites for projected amounts, and all other statements
which are not statements of historical fact. While the Company
believes the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance such
expectations will prove to have been correct. There are a variety
of factors which could cause future outcomes to differ materially
from those described in this 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 inability to maintain and obtain required permits and approvals
to conduct operations, (vi) the inability to develop new and
existing technologies in the conduct of operations, (vii)
overcapacity in the environmental industry,(viii) inability to
receive or retain certain required permits, (ix) discovery of
additional contamination or expanded contamination at a certain
Dayton, Ohio, property formerly leased by the Company or the
Company's facility at Memphis, Tennessee, which would result in a
material increase in remediation expenditures,(x) 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, and (xiv) inability to become profitable, or
if unable to become profitable, the inability to secure additional
liquidity in the form of additional equity or debt. The Company
undertakes no obligations to update publicly any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Results of Operations
The table below should be used when reviewing management's
discussion and analysis for the three months ended March 31, 1998
and 1997:
Consolidated
(amounts in thousands) 1998 % 1997* %
_______________________ _______ _____ _______ _____
Net Revenues $ 6,548 100.0 $ 5,750 100.0
Cost of Goods Sold 4,787 73.1 4,308 74.9
______ _____ ______ _____
Gross Profit 1,761 26.9 1,442 25.1
Selling, General &
Administrative 1,555 23.7 1,291 22.5
Depreciation/Amortization 508 7.8 500 8.7
______ _____ ______ _____
Loss from operations $ (302) (4.6) $ (349) (6.1)
====== ===== ====== =====
Loss from discontinued
operations $ - - $ (436) (7.6)
Interest Expense (127) (1.9) (131) (2.3)
Preferred Stock Dividend (87) (1.3) (81) (1.4)
====== ===== ====== =====
<FN>
*Amounts have been restated from that previously reported to
reflect discontinued operations at PFM (see Note 2).
13
Summary -- Quarter Ended March 31, 1998 and 1997
________________________________________________
The Company provides services through two business segments.
The Waste Management Services segment is engaged in on-and off-site
treatment, storage, disposal and processing of a wide variety of
by-products and industrial and hazardous wastes. This segment
competes for materials and services with numerous regional and
national competitors to provide comprehensive and cost-effective
Waste Management Services to a wide variety of customers in the
Midwest, Southeast and Southwest regions of the country. The
Company operates and maintains facilities and businesses in the
waste by-product brokerage, on-site treatment and stabilization,
and off-site blending, treatment and disposal industries. The
Company's Consulting Engineering segment of the pollution control
industry provides a wide variety of environmental related
consulting and engineering services to industry and government.
Through the Company's wholly-owned subsidiaries in Tulsa, Oklahoma
and St. Louis, Missouri, this segment provides oversight management
of environmental restoration projects, air and soil sampling,
compliance reporting, surface and subsurface water treatment design
for removal of pollutants, and various compliance and training
activities.
Consolidated net revenues increased to $6,548,000 from
$5,750,000 for the quarter ended March 31, 1998, as compared to the
same quarter in 1997. This increase of $798,000 or 13.9% is
attributable to the Waste Management Services segment which
experienced an increase in revenues of $990,000, partially offset
by a decrease in revenues from the Consulting Engineering segment.
This increase within the Waste Management Services segment is
attributable to the increased marketing efforts throughout the
segments and the growth in the wastewater and mixed waste markets.
The most significant increases occurred at the PFF facility, which
recognized a $334,000 increase resulting principally from the award
and completion of various mixed waste contracts, and the PFTS
facility, which recognized a $279,000 increase resulting
principally from the increased wastewater demand and processing
capabilities at this facility. This increase in the Waste
Management Services segment was partially offset by a reduction of
$192,000 in the Consulting Engineering segment. This Consulting
Engineering reduction is principally a result of a seasonal
decrease in market demand, which typically occurs during the first
quarter of each year, and appeared more dramatic in 1998, along
with the completion of several larger contracts in 1997, which were
not duplicated in 1998.
Cost of goods sold for the Company increased $479,000 or 11.2%
for the quarter ended March 31, 1998, as compared to the quarter
ended March 31, 1997. This consolidated increase in cost of goods
sold reflects principally the increased operating, disposal and
transportation costs, corresponding to the increased revenues as
discussed above, as well as additional costs associated with
research and development which have not begun to generate revenue
at this time. The resulting gross profit for the quarter ended
March 31, 1998, increased $319,000 to $1,761,000, which as a
percentage of revenue is 26.9%, reflecting an increase over the
1997 percentage of revenue of 25.1%.
Selling, general and administrative expenses increased
$264,000 or 20.4% for the quarter ended March 31, 1998, as compared
to the quarter ended March 31, 1997. As a percentage of revenue,
selling, general and administrative expense also increased to 23.7%
for the quarter ended March 31, 1998, compared to 22.5% for the
same period in 1997. The increase reflects the increased expenses
associated with the Company's additional sales and marketing
efforts as it continues to refocus its business segments into new
environmental markets, such as nuclear and mixed waste, and the
additional administrative overhead associated with the Company's
research and development efforts. The Company has expensed in the
current period all research and development costs associated with
the development of various technologies which the Company
aggressively pursued during the first quarter of 1998.
Depreciation and amortization expense for the quarter ended
March 31, 1998, reflects an increase of $8,000 as compared to the
quarter ended March 31, 1997. This increase is attributable to a
depreciation expense increase of $10,000 due to the capital
improvements being introduced at the Company's transportation,
storage and disposal ("TSD") facilities to improve efficiencies.
Amortization expense reflects a total decrease of $2,000 for the
quarter ended March 31, 1998, as compared to the quarter ended
March 31, 1997.
14
Interest expense decreased $4,000 from the quarter ended
March 31, 1998, as compared to the corresponding period of 1997.
The decrease in interest expense reflects the reduced borrowing
levels on the Congress Financial Corporation revolving and term
note and the payoff of the Ally Capital Equipment Lease Agreements
by Congress Financial Corporation, at a reduced interest rate.
Offsetting this reduced interest expense during the quarter ended
March 31, 1998, was the Preferred Stock dividends totaling $87,000
incurred in conjunction with the Series 3 Class C, Series 6 Class
F and Series 7 Class G Convertible Preferred Stock. As a result of
the issuance of the Series 6 Class F and Series 7 Class G
Convertible Preferred Stock during 1997, partially offset by
various conversions of the Series 3 Class C Convertible Preferred
Stock during the second quarter of 1997, dividends increased by
$6,000 for the quarter ended March 31, 1998, as compared to the
quarter ended March 31, 1997.
Discontinued Operations
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM facility, a hazardous waste storage, processing
and blending facility, which resulted in damage to certain
hazardous waste storage tanks located on the facility and caused
certain limited contamination at the facility. Such occurrence was
caused by welding activity performed by employees of an independent
contractor at or near the facility's hazardous waste tank farm
contrary to instructions by PFM. The facility was non-operational
from the date of this event until May 1997, at which time it began
limited operations. During the remainder of 1997, PFM continued to
accept waste for processing and disposal, but arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
utilization of other facilities to process such waste resulted in
higher costs to PFM than if PFM were able to store and process such
waste at its Memphis, Tennessee, TSD facility, along with the
additional handling and transportation costs associated with these
activities. As 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. Accordingly, during
the fourth quarter of 1997, the Company recorded a loss on disposal
of discontinued operations of $3,053,000, which included $1,272,000
for impairment of certain assets and $1,781,000 for the
establishment of certain closure liabilities.
The net loss from discontinued PFM operations for the quarter
ended March 31, 1998, was $112,000 and was recorded against the
accrued closure cost estimate on the balance sheet. The net loss
for the quarter ended March 31, 1997, was $436,000 and is shown
separately in the Consolidated Statements of Operations. The
Company has restated the 1997 operating results to reflect this
discontinued operations. The results of the discontinued PFM
operations do not reflect management fees charged by the Company,
but do include interest expense of $29,000 and $52,000 during the
quarter ended March 31, 1998 and 1997, respectively, specifically
identified to such operations as a result of such operations actual
incurred debt under the Corporation's revolving and term loan
credit facility. During March of 1998, the Company received a
settlement in the amount of $1,475,000 from its insurance carrier
for the business interruption claim. This settlement was
recognized as a gain in 1997 and thereby reducing the net loss
recorded for the discontinued PFM operations in 1997. Revenues of
the discontinued PFM operations were $294,000 for the quarter ended
March 31, 1998, and $752,000 for the quarter ended March 31, 1997.
These revenues are not included in revenues as reported in the
Consolidated Statements of Operation.
Liquidity and Capital Resources of the Company
At March 31, 1998, the Company had cash and cash equivalents
of $15,000, including $2,000 from discontinued operations. This
cash and cash equivalents total reflects a decrease of $311,000
from December 31, 1997, as a result of net cash provided by
continuing operations of $1,470,000 (principally from the PFM
insurance settlement of $1,475,000), offset by cash used by
discontinued operation of $194,000, cash used in investing
activities of $956,000 (principally purchases of equipment, net
totaling $952,000) and cash used in financing activities of
$631,000 (principally repayment of the revolving loan and term note
15
facility). Accounts receivable, net of allowances for continuing
operations, totaled $4,757,000, a decrease of $525,000 over the
December 31, 1997, balance of $5,282,000, which principally
reflects the impact of increased collections during the first
quarter of 1998.
On January 15, 1998, the Company, as parent and guarantor,
and all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $230,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan
both bear interest at a floating rate equal to the prime rate plus
1 3/4%. The Agreement also provides for a one time rate adjustment
of 1/4%, subject to the company meeting certain 1998 performance
objectives. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and its subsidiaries, as well as the
mortgage on two (2) facilities owned by subsidiaries of the
Company. The Agreement contains affirmative covenants including,
but not limited to, certain financial statement disclosures and
certifications, management reports, maintenance of insurance and
collateral. The Agreement also contains an Adjusted Net Worth
financial covenant, as defined in the Agreement, of $3,000,000.
Under the Agreement, the Company, and its subsidiaries are limited
to granting liens on their equipment, including capitalized leases,
(other than liens on the equipment to which Congress has a security
interest) in an amount not to exceed $2,500,000 in the aggregate at
any time outstanding.
The proceeds of the Agreement were utilized to repay in full
on January 15, 1998, the outstanding balance of $3,115,000 under
the Heller Financial, Inc. ("Heller") Loan and Security Agreement
which was comprised of a revolving loan and term loan, and to repay
the outstanding balance of $624,000 under the Ally Capital
Corporation ("Ally") Equipment Financing Agreements. The Company
had borrowing availability under the Congress Agreement of
approximately $1,500,000 as of the date of closing, based on 80% of
eligible accounts receivable accounts. The Company recorded the
December 31, 1997, Heller and Ally debt balances as though the
Congress transaction had been closed as of December 31, 1997. As
a result of this transaction, and the repayment of the Heller and
Ally debt, the combined monthly debt payments were reduced from
approximately $104,000 per month to $52,000 per month. As of
March 31, 1998, the borrowings under the Congress revolving loan
facility totaled $1,140,000 with borrowing availability of
approximately $1,467,000. The balance under the Congress term loan
at March 31, 1998, was $2,396,000.
At March 31, 1998, the Company had $4,187,000 in aggregate
principal amounts of outstanding debt, related to continuing
operations, as compared to $4,865,000 at December 31, 1997. This
decrease in outstanding debt of $678,000 reflects the net repayment
of the Congress Financial Corporation revolving loan and term note
facility (including $42,000 repayment of the Heller term loan) of
$628,000 and the scheduled principal repayments on other long-term
debt of $50,000 (excluding $9,000 relative to discontinued
operations). As of March 31, 1998, the Company had $107,000 in
16
aggregate principal amounts of outstanding debt related to PFM
discontinued operations, of which $95,000 is classified as current.
As of March 31, 1998, total consolidated accounts payable for
continuing operations of the Company was $2,223,000, a reduction
of $40,000 from the December 31, 1997, balance of $2,263,000. This
December 1997 balance also reflects a reduction of $673,000 in the
balance of payables in excess of sixty (60) days, to a total of
$608,000. The Company utilized a portion of the $1,475,000 PFM
insurance settlement to reduce accounts payable, accrued expenses
and outstanding debt in conjunction with cash provided by
operations.
The Company's net purchases of new capital equipment for
continuing operations for the three month period ended March 31,
1998, totaled approximately $952,000. These expenditures were for
expansion and improvements to the operations principally within the
Waste Management segment. These capital expenditures were
principally funded by the $1,475,000 PFM insurance settlement. The
Company has budgeted capital expenditures of $1,950,000 for 1998,
which includes completion of certain current projects, as well as
other identified capital and permit compliance purchases. The
Company anticipates funding the remainder of these capital
expenditures by a combination of lease financing with lenders other
than the equipment financing arrangement discussed above, and/or
internally generated funds.
The working capital deficit position of the Company at
March 31, 1998, was $738,000, as compared to a positive position of
$754,000 at December 31, 1997, which reflects a decrease in this
position of $1,492,000 during this first quarter of 1998. This
reduced working capital position is principally a result of the
first quarter seasonal slowdown which reflects lower revenues and
corresponding accounts receivable balances. Also impacting the
first quarter of 1998 was the collection of the $1,475,000 PFM
insurance settlement, a portion of which was utilized to fund
capital expenditures. In contrast to the above, the Company was
still able to reduce its current liabilities during the first
quarter of 1998 by approximately $309,000.
The accrued dividends for the period July 1, 1997, through
December 31, 1997, in the amount of approximately $121,000 were
paid in January 1998, in the form of 54,528 shares of Common Stock
of the Company.
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.
The Company's subsidiary, PFM, has been notified by the United
States Environmental Protection Agency ("EPA") that it believes
that PFM is a potentially responsible party ("PRP") regarding the
17
remediation of a drum reconditioning facility in Memphis,
Tennessee, owned by others ("Drum Site"), primarily as a result of
activities by PFM, prior to the date that the Company acquired PFM
in December 1993. The EPA has advised PFM that it has spent
approximately $1.4 million to remediate the Drum Site, and that the
EPA has sent PRP letters to approximately 50 other PRPs regarding
the Drum Site in addition to PFM. The EPA has further advised that
it believes that PFM supplied a substantial amount of drums to the
Drum Site. The Company is currently investigating the allegations
made by the EPA regarding the Drum Site and intends to vigorously
defend against such allegations. If PFM is determined to be liable
for all or a substantial portion of the remediation costs incurred
by the EPA at the Drum Site, such could have a material adverse
effect on the Company.
In addition to budgeted capital expenditures of $1,950,000 for
1998 at the TSD facilities of the Company, which are necessary to
maintain permit compliance and improve operations, the Company has
also budgeted for 1998 an additional $1,045,000 in environmental
expenditures to comply with federal, state and local regulations in
connection with remediation of two locations. One location owned
by PFM and the other location leased by a predecessor of another
subsidiary of the Company. The Company has estimated the
expenditures for 1998 to be approximately $210,000 at the site
leased by a predecessor of the Company and $835,000 at the PFM
location. Additional funds will be required for the next five to
ten years to properly investigate and remediate these sites. The
Company expects to fund these expenses to remediate these two sites
from funds generated internally.
18
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, 1997, which Item 3
is incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds
_________________________________________
(a) & (b) On January 15, 1998, the Company entered into
a definitive loan agreement with Congress Financial
Corporation (Florida) ("Congress") in which Congress
provided to the Company and certain subsidiaries of the
Company a $7,000,000 credit facility ("Congress
Facility"). Pursuant to the loan agreement with Congress
(the "Congress Agreement"), the Congress Facility
consists of (i) a revolving line of credit of up to
$4,500,000, with the exact amount that can be borrowed
under the revolving line of credit at any one time not to
exceed eighty percent (80%) of the Net Amount of Eligible
Accounts (as defined in the Congress Agreement) less
certain reserves, and (ii) a term loan of $2,500,000,
with the term loan payable in monthly installments of
approximately $52,000 plus interest. The Congress
Agreement is for a term of three years, subject to
earlier termination pursuant to the terms of the Congress
Agreement. Using proceeds from the initial loan under
Congress Facility, the Company repaid the outstanding and
unpaid amounts due to Heller Financial, Inc. ("Heller")
and Ally Capital Corporation ("Ally") under their loan
agreements with the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources of the
Company" and Note 3 to Notes to Consolidated Financial
Statements.
Under the terms of the Congress Agreement, the Company
has agreed to maintain an Adjusted Net Worth (as defined
in the Congress Agreement) of not less than $3,000,000
throughout the term of the Congress Agreement. The
Company has also agreed that it will not pay any
dividends on any shares of capital stock of the Company
(including the Company's Common Stock), except that
dividends may be paid on the Company's shares of
Preferred Stock outstanding as of the date of the
Congress Agreement (collectively, "Excepted Preferred
Stock") pursuant to the terms of the applicable Excepted
Preferred Stock.
(c) During the first quarter of 1998, the Company sold
or issued the following equity securities which were not
registered under the Securities Act of 1933, as amended
(the "Act"):
(i) During January 1998, the Company issued to RBB Bank
Aktiengesellschaft ("RBB Bank"), located in Graz,
Austria, 27,377 shares of the Company's Common Stock in
payment of $55,000 in accrued and unpaid dividends
relating to certain outstanding series of the Company's
Preferred Stock in accordance with the terms of such
Preferred Stock, with 14,165 shares being issued in
payment of accrued dividends from June 13, 1997, to
September 15, 1997, and 13,212 shares issued in payment
of accrued dividends from September 16, 1997, to
December 31, 1997. The issuance of the above described
shares of Common Stock in payment of accrued and unpaid
dividends in connection with the Company's Preferred
Stock were issued pursuant to an exemption from
registration under Section 4(2) and/or Regulation D of
the Act.
(ii) During January 1998, the Company issued to the
Infinity Fund, L.P. ("Infinity"), 3,311 shares of the
Company's Common Stock in payment of the $7,000 in
accrued and unpaid dividends relating to the Company's
outstanding series of Preferred Stock held by Infinity
pursuant to the terms of such Preferred Stock, with 1,461
shares being issued for accrued dividends from July 8,
1997, to September 15, 1997, and 1,850 shares being
issued for accrued dividends from September 16, 1997, to
December 31, 1997. The issuance of the above shares of
19
Common Stock in payment of accrued and unpaid dividends
relating to the Company's Preferred Stock held by
Infinity were issued pursuant to an exemption from
registration under Section 4(2) and/or Regulation D of
the Act.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
________
Exhibit 4.1 Loan and Security Agreement with Congress
Financial Corporation (Florida), dated
January 15, 1998, a copy of which is
attached as an exhibit to the Company's
Form 8-K, dated January 15, 1998, and is
incorporated by reference.
Exhibit 10.1 Employment Agreement, dated April 7,
1998, and effective as of January 1,
1998, with Bernhardt Warren
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
___________________
A current report on Form 8-K (Item 5 Other Events),
dated January 15, 1998, reporting a new term and
revolving credit facility with Congress Financial
Corporation (Florida). It further discussed the update
on the legal proceedings relative to the W&R Drum Company
and the United States Environmental Protection Agencies
notification of potential liability of Perma-Fix of
Memphis, Inc.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PERMA-FIX ENVIRONMENTAL
SERVICES, INC.
Date: May 14, 1998 By: /s/ Louis F. Centofanti
___________________________
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy
__________________________
Richard T. Kelecy
Chief Financial Officer
21
EXHIBIT INDEX
Page No.
________
Exhibit 4.1 Loan and Security Agreement with Congress
Financial Corporation (Florida), dated
January 15, 1998, a copy of which is
attached as an exhibit to the Company's
Form 8-K, dated January 15, 1998,
and is incorporated by reference. *
Exhibit 10.1 Employment Agreement, dated April 7,
1998, and effective as of January 1,
1998, with Bernhardt Warren 23
Exhibit 27 Financial Data Schedule 34
*incorporated by reference