=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
Form 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
__________________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 1-11596
_______
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352)373-4200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ _____________________
Common Stock, $.001 Par Value Boston Stock Exchange
Redeemable Warrants Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Warrants
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of April 6, 1998, based on the
closing sale price of such stock as reported by NASDAQ on such day,
was $18,728,567. The Company is listed on the NASDAQ SmallCap
Market and the Boston Stock Exchange.
As of April 6, 1998, there were 11,867,898 shares of the
registrant's common stock, $.001 par value, outstanding, excluding
920,000 shares held as treasury stock.
Documents Incorporated by reference: Portions of the definitive
Proxy Statement dated April 20, 1998, to be delivered to
Shareholders in connection with the Annual Meeting of Shareholders
to be held May 20, 1998, are incorporated by reference into Part
III.
=================================================================
PART II
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived
from the consolidated financial statements of the Company and its
subsidiaries. Financial statements for the year ended December 31,
1997, 1996, 1995, and 1994 have been audited by BDO Seidman, LLP,
and financial statements for the year ended December 31, 1993, have
been audited by Coopers & Lybrand L.L.P.
Statement of Operations Data:
(Amounts in Thousands,
Except for Share
Amounts) December 31,
__________________________________________________
1997 1996 1995 1994(2) 1993
_______ _______ _______ _______ _______
Revenues(4) $28,413 $27,041 $31,477 $23,522 $10,123
Net income (loss)
from continuing
operations 192 27 (3,494) (1,201) (1,895)
Net loss from discon-
tinued operations (4,101) (287) (5,558)(3) (315) -
Preferred Stock
dividends (1,260)(5) (2,145)(5) - - -
Net loss applicable
to Common Stock
from continuing
operations (1,068)(5) (2,118)(5) (3,494) (1,201) (1,895)
Net loss per common
share from contin-
uing operations(1) (.10)(5) (.24)(5) (.44) (.20) (.44)
Weighted average number
of common shares
outstanding(1) 10,650 8,761 7,872 5,988 4,287
Balance Sheet Data:
December 31,
____________________________________________________
1997 1996 1995 1994(2) 1993
_______ _______ _______ _______ _______
Working capital
(deficit) $ 754 $ (773) $(9,372) $ (705) $ 1,278
Total assets 28,570 29,036 28,873 35,067 17,711
Long-term debt 4,981 6,360 8,478 6,041 2,349
Total liabilities 16,376 16,451 20,935 18,105 6,997
Stockholders' equity 12,194 12,585 7,938 16,962 10,714
<FN>
(1) As adjusted to reflect the stock split approved by the Board
of Directors in July 1992, and to reflect all stock options
and warrants outstanding at December 31, 1993 as if such
options and warrants had been outstanding for all periods
presented prior to December 31, 1993. Net loss per share for
the fiscal year ended December 31, 1994, has been restated, in
accordance with Accounting Principles Board Opinion No. 15,
"Earnings Per Share," to reflect the issuance of contingent
shares to Quadrex during 1995. As of December 31, 1997, the
Company applied SFAS 128, the new standard of computing and
presenting earnings per share. The adoption of SFAS 128 did
not have a material effect on the Company's EPS presentation
since the effects of potential common shares are antidilutive.
(2) Includes financial data of Perma-Fix of Florida, Inc., Perma-
Fix of Dayton, Inc. and Perma-Fix of Ft. Lauderdale, Inc., as
acquired from Quadrex Corporation and accounted for using the
purchase method of accounting, from June 30, 1994.
(3) Includes write-down of impaired intangible permit related to
an acquisition completed in December of 1993 and certain
nonrecurring charges.
1
(4) Excludes revenues of Perma-Fix of Memphis, Inc., shown
elsewhere as a discontinued operation.
(5) In March 1997, the Securities and Exchange Commission,
("Commission") announced its position on the accounting for
Preferred Stock which is or may be convertible into Common
Stock at a discount from the market rate on the date of
issuance of such Preferred Stock. The Commission's position
pursuant to Emergency Issues Task Force ("EITF") D-60
regarding beneficial conversion features is that a Preferred
Stock dividend should be recorded for the difference between
the conversion price and the quoted market price of Common
Stock as determined on the date of issuance of such Preferred
Stock. To comply with this position, the Company previously
restated its 1996 financial statements to reflect a dividend
of approximately $2 million related to the fiscal 1996 sales
of Convertible Preferred Stock. As a result, the amount noted
in this table as the Company's net loss applicable to Common
Stock for 1996 reflects the restated amount from the
previously reported net loss applicable to Common Stock of
$405,000 and the amount noted in this table as the Company's
net loss per share of Common Stock for 1996 reflects the
restated amount from the previously reported net loss per
share of Common Stock of ($.05). Pursuant to the Commission's
position regarding EITF D-60 and EITF D-42, the Company
restated its 1997 financial statements to reflect a dividend
of approximately $908,000 ($195,000 attributable to warrants)
related to the fiscal 1997 sales and subsequent exchanges of
Convertible Preferred Stock, of which approximately $111,000
was attributable to the quarter ended June 30, 1997, and
approximately $797,000 was attributable to the quarter ended
September 30, 1997. The impact of the restatement on the
second and third quarters of 1997 and the year ended
December 31, 1997, is shown as follows (dollars in thousands):
</FN>
As Originally Reported As Amended
______________________ __________
Quarter Ended Year Ended Quarter Ended Year Ended
_______________ __________ _______________ _________
6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97
_______ ________ ________ _______ _______ _________
Preferred Stock
Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $1,260
Net Loss Applicable
to Common Stock (525) 58 (4,261) (636) (739) (5,169)
Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained within this "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" may be deemed "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, the "Private Securities Litigation Reform Act of
1995"). See "Special Note regarding Forward-Looking Statements"
contained in this report.
Management's discussion and analysis is based, among other
things, upon the audited consolidated financial statements of the
Company and its subsidiaries, and includes the accounts of the
Company and its wholly-owned subsidiaries, after elimination of all
significant inter-company balances and transactions.
Management has restated its 1997 consolidated financial
statements pursuant to the Commission's position regarding EITF D-
60, addressing the treatment of a beneficial conversion discount on
Preferred Stock. The Preferred Stock dividends have been restated
to include the beneficial conversion discount on the Preferred
Stock and associated warrants issued by the Company in fiscal 1997.
See "Results of Operations" and Note 3 to Notes to Consolidated
Financial Statements in this section for further discussion.
Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements of the
Company and its subsidiaries and the notes thereto included in Item
8 of this report.
2
The Company is an active participant in the pollution control
industry, which encompasses numerous segments ranging from
residential solid waste collection and disposal to integrated
remedial services for military and government installations, and
the treatment and disposal of hazardous, mixed waste and
wastewater. The industry was born out of the promulgation of
federal, state and local environmental regulations. Over the last
three to five years, waste minimization, in conjunction with
maturing market conditions, has lead to acquisitions,
consolidations and some firms exiting from certain segments in this
industry. Today's business environment in the waste management
industry is highly competitive, with customer cost containment,
pricing pressures and market share consolidation prevalent. As a
result of these industry conditions and under a new management
team, the Company restructured its core businesses during 1995. In
conjunction with these changes, the Company increased its emphasis
on the research and development of innovative technologies for the
treatment of nuclear, mixed waste, industrial waste and wastewater.
This restructuring program included the closure of several poorly-
performing service centers, the establishment of regional profit
centers and the reduced overall cost structure and overhead carried
by the Company. Charges related to this program are reflected in
the operating results for the year ended December 31, 1995.
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM 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. Due to the nature of the loss, the significant
disruption and limited operating activities at the facility, the
Company made a strategic decision in February 1998, to discontinue
its fuel blending operations at PFM. See "Business" and Note 4 to
Notes to Consolidated Financial Statements and to "Discontinued
Operations" in this section for further discussion on PFM.
Hereafter, the PFM will be referred to as a discontinued operation,
and excluded from the discussions on the operating results of the
continuing operations.
The reporting of financial results and pertinent discussions
are tailored to two segments of the pollution control industry:
Waste Management Services and Consulting Engineering Services.
Below are the results of operations for the Company for the
years ended December 31, 1997, 1996 and 1995 (in thousands):
(Consolidated) 1997 % 1996 % 1995 %
_____________ _______ _____ _______ _____ _______ _____
Net Revenue $28,413 100.0 $27,041 100.0 $31,477 100.0
Cost of goods sold 19,827 69.8 18,912 69.9 23,764 75.5
_______ _____ _______ _____ _______ _____
Gross Profit 8,586 30.2 8,129 30.1 7,713 24.5
Selling, general
and administra-
tive 5,682 20.0 5,942 22.0 7,168 22.8
Depreciation and
amortization 1,980 7.0 2,083 7.7 2,051 6.5
Nonrecurring
charges - - - - 987 3.1
Other income
(expense):
Interest income 41 .1 43 .2 58 .2
Interest expense (431) (1.5) (643) (2.4) (814) (2.6)
Other (342) (1.2) 523 1.9 (245) (.8)
________ ______ _______ ______ _______ ______
Net income (loss)
from continuing
operations 192 .7 27 - (3,494) 11.1
Loss from discon-
tinued opera-
tions (4,101) (14.4) (287) (1.1) (5,558) (17.7)
Preferred Stock
dividends (1,260)(1) (4.4) (2,145)(1) (7.9) - -
________ ______ ________ ______ _______ ______
Net loss
applicable
to Common
Stock $(5,169)(1) (18.2) $(2,405)(1) (8.9) $(9,052) (28.8)
======== ====== ======== ====== ======== ======
<FN>
(1) In March 1997, the Securities and Exchange Commission,
("Commission") announced its position on the accounting for
Preferred Stock which is or may be convertible into Common
Stock at a discount from the market rate on the date of
3
issuance of such Preferred Stock. The Commission's position
pursuant to EITF D-60 regarding beneficial conversion features
is that a Preferred Stock dividend should be recorded for the
difference between the conversion price and the quoted market
price of Common Stock as determined on the date of issuance of
such Preferred Stock. To comply with this position, the
Company previously restated its 1996 Financial Statements to
reflect a dividend of approximately $2 million related to the
fiscal 1996 sales of Convertible Preferred Stock. As a
result, the amount noted in this table as the Company's net
loss applicable to Common Stock for 1996 reflects the restated
amount from the previously reported net loss applicable to
Common Stock of $405,000 and the amount noted in this table as
the Company's net loss per share of Common Stock for 1996
reflects the restated amount from the previously reported net
loss per share of Common Stock of ($.05). Pursuant to the
Commission's position regarding EITF D-60 and EITF D-42, the
Company restated its 1997 consolidated financial statements to
reflect a dividend of approximately $908,000 ($195,000
attributable to warrants) related to the fiscal 1997 sales
and subsequent exchanges of Convertible Preferred Stock, of
which approximately $111,000 was attributable to the quarter
ended June 30, 1997, and approximately $797,000 was
attributable to the quarter ended September 30, 1997. The
impact of the restatement on the second and third quarters of
1997 and the year ended December 31, 1997, is shown as follows
(dollars in thousands):
</FN>
As Originally Reported As Amended
______________________ __________
Quarter Ended Year Ended Quarter Ended Year Ended
_______________ __________ ______________ _________
6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97
_______ ________ ________ _______ _______ _________
Preferred Stock
Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $1,260
Net Loss Applicable
to Common Stock (525) 58 (4,261) (636) (739) (5,169)
Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
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.
During December 1995, the Company recognized a permit
impairment charge of $4,712,000, related to the December 1993
acquisition of PFM. The evaluation of this impairment included the
review of prior operating results, the recent restructuring
activities, including the reduction of all possible operating and
overhead costs, margin and revenue enhancements, and the related
estimate of future undiscontinued operating income. Based upon
this review, the permit was deemed to be impaired and a charge
recorded for the full carrying amount of this intangible permit,
which is further discussed in Note 4 of the Notes to Consolidated
Financial Statements.
4
The net loss from the discontinued PFM operations for the
years ended December 31, 1997, 1996, and 1995 ($1,048,000,
$287,000, and $5,558,000, respectively) are shown separately in the
Consolidated Statements of Operations. The results of the
discontinued PFM operations do not reflect management fees charged
by the Company, but do include interest expense of $254,000,
$169,000 and $138,000 during 1997, 1996 and 1995, 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.
Earlier in 1997, PFM received approximately $522,000 (less its
deductible of $25,000) in connection with its claim for loss of
contents as a result of the fire and explosion which was utilized
to replace certain assets and reimburse the Company for certain
fire related expense.
Revenues of the discontinued PFM operations were $1,878,000 in
1997, $3,996,000 in 1996 and $3,414,000 in 1995. These revenues
are not included in revenues as reported in the Consolidated
Statements of Operation. See Note 4 to Notes to Consolidated
Financial Statements for further discussion on PFM.
Summary -- Years Ended December 31, 1997 and 1996
Consolidated net revenues increased $1,372,000, or 5.1% for
continuing operations for the year ended December 31, 1997,
compared to the year ended December 31, 1996. This increase is
attributable to the Waste Management segment, which experienced an
increase in revenues of approximately $2,259,000 during 1997, as
compared to 1996. The Company's four (4) TSD's all experienced
increased revenues during 1997, which in the aggregate totaled
approximately $3,042,000 and were principally attributable to
growth in the wastewater and mixed waste markets. The most
significant TSD increase occurred at the PFF facility, which
recognized a $2,184,000 increase resulting from new mixed waste
contracts. Partially offsetting these increases within the waste
management segment were two (2) sale transactions completed during
1996, whereby the Company sold its PermaCool Technology which had
generated $689,000 in revenue during 1996 and sold its plastic
recycling subsidiary (Re-Tech Systems, Inc.) which had generated
$129,000 in revenue during 1996. This increase in the waste
management segment was partially offset by a reduction in revenues
of $887,000 in the Consulting Engineering segment. This consulting
engineering reduction is partially a result of two one-time
projects for 1996, which totaled $396,000 and were not duplicated
in 1997, and a significant reduction in the Bartlesville, Oklahoma,
three year project that reduced 1997 consulting engineering revenue
by approximately $554,000 as compared to 1996.
Cost of goods sold for the Company increased $915,000 or 4.8%
to a total of $5,682,000 for the year ended December 31, 1997,
compared to the year ended December 31, 1996. This consolidated
increase in cost of goods sold reflects principally the increased
operating, disposal, and transportation costs, corresponding to the
increased revenues as discussed above. The resulting gross profit
for the year ended December 31, 1997, increased to $8,586,000,
which as a percentage of revenue is 30.2%, reflecting a slight
improvement over 1996.
Selling, general and administrative expenses decreased
$260,000 or 4.4% for the year ended December 31, 1997, as compared
to 1996. As a percentage of revenue, selling, general and
administrative expense also decreased to 20.0% for the year ended
December 31, 1997, compared to 22.0% for the same period in 1996.
This decrease of $260,000 reflects a reduction in costs of $168,000
in the Consulting Engineering segment and a $153,000 reduction in
costs in the Waste Management segment, which was partially offset
by an increase of approximately $61,000 in corporate overhead, for
certain outside services. The consolidated reduction in selling,
general and administrative expenses reflects the Company's
continued efforts towards reduced cost structure throughout the
organization.
Depreciation and amortization expense for the year ended
December 31, 1997, reflects a decrease of $103,000 or .7% of
revenue as compared to the year ended December 31, 1996. This
decrease is attributable to a depreciation expense reduction of
47,000 due to the sale of certain assets as a result of the
Company's previous restructuring programs and various other assets
becoming fully depreciated. Amortization expense reflects a total
5
decrease of $67,000 for the year ended December 31, 1997, as
compared to the year ended December 31, 1996, which is a direct
result of the "Covenant Not to Compete" having become fully
amortized during the first quarter of 1997.
Interest expense decreased $212,000 from year ended
December 31, 1997, as compared to the corresponding period of 1996.
The decrease in interest expense reflects the reduced borrowing
levels on the Heller Financial, Inc. revolving and term note and
the Ally Capital Equipment Lease Agreements.
The Preferred Stock dividends decreased $885,000 for the year
ended December 31, 1997, as compared to the year ended December 31,
1996. Pursuant to EITF D-60, the Company previously restated its
1996 financial statements to record a dividend of approximately
$2,000,000 related to the fiscal 1996 sales of certain series of
Convertible Preferred Stock and has restated its 1997 consolidated
financial statements to record a dividend of approximately $908,000
($195,000 attributable to warrants) related to the fiscal 1997
sales of certain series of Convertible Preferred Stock. See Note 6
to Notes to Consolidated Financial Statements regarding the
issuance of Preferred Stock. See Note 3 to Notes to Consolidated
Financial Statements regarding the restatements due to the
beneficial conversion features.
Summary -- Years Ended December 31, 1996 and 1995
Consolidated net revenues decreased $4,436,000, or 14% for the year
ended December 31, 1996, compared to the year ended December 31, 1995.
This decrease reflects the impact of various restructuring programs
initiated during 1995, which resulted in the consolidation and closure
of certain offices, the divestiture of a subsidiary and the elimination
of select low margin activities, as the Company continued to focus its
efforts on certain business segments. During 1996, the Company
experienced reduced revenues at PFL in Ft. Lauderdale, Florida, during
the period that a capital expansion project at such facility was
instituted. In addition, during such expansion, the PFL facility was
vandalized in October 1996, resulting in a minimal reduction in revenues
over a one month period. The combined reduction in revenues at PFL was
approximately $718,000 during 1996, which was partially offset by
increased revenues of $268,000 at certain other fixed-based facilities
of the Company and receipt during 1996 of new contracts, such as the
waste treatment project at the U.S. Department of Energy's Fernald, Ohio,
facility.
Cost of goods sold for the Company decreased $4,852,000, or 20% for
the year ended December 31, 1996, compared to the year ended December 31,
1995. This decrease is partially attributable to the overall reduction
in revenue, as discussed above, and to the cost benefit associated with
the various restructuring programs and a reduced cost structure
throughout the organization. This reduced cost structure can be further
reflected by the cost of goods sold as a percentage of revenue, which was
69.9%, an improvement over the 1995 results of 75.5%.
Selling, general and administrative expenses decreased 17% for the
year ended December 31, 1996, as compared to 1995. As a percentage of
revenue, selling, general and administrative expenses also decreased to
22.0% for the year ended December 31, 1996, compared to 22.8% for the
same period in 1995. The decrease of $1,226,000 reflects the reduced
administrative cost structure, resulting from the restructuring program,
which reflected an overall reduction in administrative expenses of
$1,441,000 during 1996. This reduced administrative cost was partially
offset by an increase in marketing expenses of approximately $231,000
from 1995 to 1996, reflecting increased sales and marketing efforts as
the Company focuses on new business areas of the waste industry.
During 1995, the Company recorded several nonrecurring charges
totaling $987,000, for certain unrelated events. Of this amount,
$450,000 represents a divestiture reserve as related to the sale of a
wholly-owned subsidiary and $537,000 are one-time charges resulting from
restructuring programs.
The Company decided in 1994 to divest its wholly-owned subsidiary,
Re-Tech Systems, Inc., which is engaged in post-consumer plastics
processing. A reserve in the amount of $450,000 was recorded during the
second quarter of 1995 for the estimated loss to be recognized through
a sale transaction. During the first quarter of 1996, the Company
6
completed the sale transaction for this business, resulting in total
consideration of $970,000, which is further discussed in Note 15 of the
Notes to Consolidated Financial Statements included in Item 8. The
Company also executed restructuring programs during 1995 within the waste
management services segment. A one-time charge of $237,000 was recorded
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 related closing of seven (7) of the nine (9) offices. A one-time
charge of $75,000 was also recorded during the second quarter of 1995 to
provide for consolidation costs, principally severance, associated with
the restructuring of the Southeast Region, which is comprised of PFF and
PFL. These restructuring costs were principally incurred and funded
during 1995.
In December of 1995, in conjunction with the above referenced
restructuring program, the Company and Mr. Robert W. Foster, Jr.
("Foster") agreed to Foster's resignation as President, Chief Executive
Officer and Director of the Company, thereby terminating his employment
agreement with the Company effective March 15, 1996. The Company paid
severance benefits of $30,000 in cash, continued certain employee
benefits for a period of time, and issued $171,000 in the form of Common
Stock of the Company (152,000 shares). Pursuant to the above, the
Company recorded a nonrecurring charge at December 31, 1995, of $215,000.
In addition, severance costs of approximately $10,000 were also incurred
upon the termination of several corporate executives. These
restructuring costs were principally incurred and funded during the first
six (6) months of 1996.
Depreciation and amortization expense for the year ended
December 31, 1996, reflects an increase of $32,000 or .1% of revenue as
compared to the year ended December 31, 1995. The amortization expense
increased $13,000 for the year ended December 31, 1996, as compared to
the same period of 1995, principally a result of the acquisition of the
Industrial Compliance and Safety waste management firm during the second
quarter of 1995. Additionally, depreciation expense increased $19,000
for the year ended December 31, 1996, as compared to the same period of
1995, reflecting new capital assets acquired during the year, partially
offset by asset dispositions and the divestiture of a subsidiary of the
Company.
Interest income totaled $43,000, a reduction of $15,000 from the
1995 total of $58,000. This total reflects interest earned on the
restricted cash balances maintained by the Company. These restricted
cash balances and related interest income generally increase from year
to year. However, the restricted cash balance was reduced in the fourth
quarter of 1995 as the Company replaced existing letters of credit with
an alternative financial assurance instrument, thereby eliminating the
need for such restricted cash. This, in turn, resulted in reduced
interest income in 1996. Interest expense also decreased during 1996 by
$171,000 to a total of $643,000, as compared to $814,000 for 1995. The
interest expense is primarily related to the senior debt facility with
Heller Business Credit and the capital lease line with Ally Capital
Corporation, both of which reflect reduced debt balances during 1996 due
to repayments and correspondingly reduced interest expense. Interest
expense was also impacted by a reduced revolving credit line balance
during 1996 resulting from the proceeds generated from the private
placements which were used to partially repay said balance. Offsetting
this reduced interest expense, during 1996, was the Preferred Stock
dividends totaling $145,000 incurred in conjunction with the Series 3
Class C Convertible Preferred Stock as issued in July 1996. The
Preferred Stock dividend was paid in the form of 100,387 shares of Common
Stock of the Company, which covered the period July 24 through December
31, 1996, and were issued in January 1997. Due to recent accounting
pronouncements, a Preferred Stock Discount of $2,000,000 was expensed
in 1996 in conjunction with the Series 1 Class A, Series 2 Class B, and
Series 3 Class C issuance of Preferred Stock at a discount. See Note 2
of the Notes to Consolidated Financial Statements.
Other income (expense) for 1996 reflected an income total of
$523,000, as compared to an expense of $245,000 for 1995. In conjunction
with the above discussed restructuring programs and office closures, the
Company renegotiated and settled certain accounts payable liabilities on
favorable terms and adjusted other liabilities, resulting in
approximately $334,000 net other income during 1996. The Company also
recognized a gain of approximately $166,000 on the sale of non-productive
7
assets, including the gain on the sale of Re-Tech. Effective December
31, 1996, the Company divested its arsenic removal technology for a net
gain of approximately $122,000. Partially offsetting the above gains
during 1996 were other expenses totaling $65,000, which principally
represented costs associated with the October 1996 vandalism at PFL's
facility as discussed above.
The Company reported a net loss applicable to Common Stock of
$2,405,000 in 1996 after restating its 1996 net loss applicable to Common
Stock to record as a dividend (approximately $2,000,000), representing
the difference between the conversion price and the quoted market price
of Common Stock as determined at the date of issuance of certain series
of Preferred Stock, as compared to a net loss of $9,052,000 in 1995. The
per share loss was $.27 for 1996 versus $1.15 in 1995. Net loss for 1995
included permit write-down and nonrecurring charges totaling $5,699,000,
which, when deducted from the total loss, results in a comparable loss
of $3,353,000. This significant improvement from 1995 to 1996 reflects
again the impact of the various restructuring programs, cost reduction
across all segments of the Company and the revenue focus on select areas
of the waste industry.
Liquidity and Capital Resources of the Company
At December 31, 1997, the Company had cash and cash equivalents of
$326,000, including $12,000 from discontinued operations. This cash and
cash equivalents total reflects a increase of $281,000 from December 31,
1996, as a result of net cash provided by continuing operations of
$1,421,000, offset by cash used by discontinued operation of $1,398,000,
cash used in investing activities of $1,521,000 (principally purchases
of equipment, net totaling $1,504,000, partially offset by the proceeds
from the sale of property and equipment of $54,000) and cash provided by
financing activities of $1,779,000. Accounts receivable, net of
allowances for continuing operations , totaled $5,282,000, an increase
of $638,000 over the December 31, 1996, balance of $4,644,000, which
reflects the impact of increased revenues during the fourth quarter of
1997, over the same period of 1996.
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,
8
(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 the Heller
Financial, Inc. ("Heller") Loan and Security Agreement which was
comprised of a revolving 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, a reduction of $227,000 from the December 31, 1996,
balance of $2,879,000, 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, a reduction of $516,000 from the December 31, 1996,
balance of $1,383,000. 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, a reduction of $633,000 from the
December 31, 1996, balance of $1,257,000 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 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.
At December 31, 1997, the Company had $4,865,000 in aggregate
principal amounts of outstanding debt, related to continuing
operations, as compared to $6,281,000 at December 31, 1996. This
decrease in outstanding debt of $1,416,000 during 1997 reflects the
net repayment of the Heller Financial, Inc. revolving loan and
term note facility of $742,000, the scheduled principal repayments
on the Ally Capital Equipment Finance Agreements of $633,000 and
the scheduled principal repayments on other long-term debt of
$363,000, partially offset by the new debt and capital lease
obligations secured during the year of $322,000. As of December
31, 1997, the Company had $116,000 in aggregate principal amounts
of outstanding debt related to PFM discontinued operations, of
which $99,000 is classified as current.
As of December 31, 1997, total consolidated accounts payable
for continuing operations of the Company was $2,263,000, a
reduction of $951,000 from the December 31, 1996, balance of
$3,214,000. 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 net proceeds received in connection with the sale of Preferred
Stock during 1997, as discussed below, to reduce accounts payable,
in conjunction with cash provided by operations.
The Company's net purchases of new capital equipment for
continuing operations for the twelve month period ended
December 31, 1997, totaled approximately $1,767,000. These
expenditures were for expansion and improvements to the operations
principally within the waste management segment. These capital
expenditures were principally funded by the proceeds from the
issuance of Preferred Stock, as discussed below, and $263,000
through various other lease financing sources. 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 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 Company will also utilize a portion of the $1,475,000 insurance
settlement, as received in March of 1998 relative to the PFM
business interruption claim to fund such expenditures. See Note 4
to the Notes to Consolidated Financial Statements.
9
The working capital position at December 31, 1997, was
$754,000, as compared to a deficit position of $773,000 at December
31, 1996, which reflects an improvement in this position of
$1,527,000 during 1997. The improved working capital position
principally reflects the impact of the equity raised in 1997 as
discussed below, in addition to the improvement in cash provided by
continuing operations and the increase revenues during the fourth
quarter of 1997 which resulted in an increase in accounts
receivable at year-end. Also impacting this working capital
position was the recognition at December 31, 1997, of the
$1,475,000 insurance settlement receivable, partially offset by
accrued expenses associated with the PFM discontinued operations.
See Note 4 to the Notes to Consolidated Financial Statements for
further discussion of this discontinued operation.
During 1997, accrued dividends for the period July 17, 1996, through
June 30, 1997, and dividends on converted shares, in the combined total
of approximately $314,000 were paid in the form of 178,781 shares of
Common Stock of the Company. 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.
Effective February 7, 1997, the Company amended five (5)
warrants with an original issuance date of February 10, 1992, to
purchase an aggregate of 487,814 shares of the Company's Common
Stock ("Acquisition Warrants"). The Acquisition Warrants were
amended to (i) reduce the exercise price from $2.1475 per share of
Common Stock to $1.00 per share of Common Stock, and (ii) extend
the expiration date of the warrants from February 10, 1997 to March
3, 1997. All Acquisition Warrants were subsequently exercised
prior to this March 3, 1997 date, which resulted in $487,814 of
additional capital/equity.
During 1997, the Company issued to RBB Bank 2,500 shares of
newly-created series of Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $2,500,000. See "Market for
Registrant's Common Equity and Related Stockholder Matters" and
Note 6 to Notes to Consolidated Financial Statements.
The Company paid fees (excluding legal and accounting) of
$200,000 in connection with the placement of Preferred Stock to RBB
Bank during 1997 and issued to the investment banking firm that
handled the placement two (2) Common Stock purchase warrants
entitling the investment banking firm to purchase an aggregate of
up to 300,000 shares of Common Stock, subject to certain anti-
dilution provisions, with one warrant for a five year term to
purchase up to 200,000 shares at an exercise price of $2.00 per
share and the second warrant for a three year term to purchase up
to 100,000 shares of Common Stock at an exercise price of $1.50 per
share, subject to certain anti-dilution provisions. Under the terms
of each warrant, the investment banking firm is entitled to certain
registration rights with respect to the shares of Common Stock
issuable on the exercise of each warrant.
During 1997, the Company issued to the Infinity Fund, L.P.
("Infinity"), 350 shares of a newly-created series of Preferred
Stock at a price of $1,000 per share, for an aggregate sales price
of $350,000. The Company utilized the proceeds received on the
sale of Preferred Stock to Infinity for the payment of debt and
general working capital. See "Market for Registrant's Common
Equity and Related Stockholder Matters" and Note 6 to Notes to
Consolidated Financial Statements.
On June 30, 1997, the Company entered into a Stock Purchase
Agreement ("Centofanti Agreement") with Dr. Louis F. Centofanti,
whereby the Company agreed to sell, and Dr. Centofanti agreed to
purchase 24,381 shares of the Company's Common Stock. The purchase
price was $1.6406 per share representing 75% of the $2.1875 closing
bid price of the Common Stock as quoted on the NASDAQ on the date
that Dr. Centofanti notified the Company of his desire to purchase
such shares. Pursuant to the terms of the Centofanti Agreement,
Dr. Centofanti was to pay the Company the aggregate purchase price
of $40,000 for the 24,381 shares of Common Stock. However Dr.
Centofanti purchased 12,190 shares during July 1997, for $20,000,
and during October, the Agreement was amended to reduce the number
of shares of Common Stock that Dr. Centofanti is to acquire under
the Centofanti Agreement to the 12,190 shares already acquired by
10
Dr. Centofanti under the Centofanti Agreement, upon consideration
of the certain recent accounting pronouncements related to stock
based compensation. The sale of the shares pursuant to the
Centofanti Agreement and its subsequent amendment dated October 7,
1997, for the sale of 12,190 shares were authorized by the
Company's Board of Directors.
In consideration of certain investment banking services as
performed for the Company, a warrant was issued to J.W. Charles
Financial Services, Inc. ("Charles") during September 1996. This
warrant was subsequently assigned by Charles to certain partners,
officers or broker and, during July 1997, one of the assigned
warrants was exercised which resulted in the issuance of 155,000
shares of the Company's Common Stock and raised $232,000 in equity
or capital for the Company.
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, including the
equity raised in 1997. If the Company is unable to continue to
improve its operations and to become profitable in the foreseeable
future, such would have a material adverse effect on the Company's
liquidity position and on the Company.
Environmental Contingencies
The Company is engaged in the waste management services
segment of the pollution control industry. As a participant in the
on-site treatment, storage and disposal market and the off-site
treatment and services market, the Company is subject to rigorous
federal, state and local regulations. These regulations mandate
strict compliance and therefore are a cost and concern to the
Company. Because of the integral part of providing quality
environmental services, the Company makes every reasonable attempt
to maintain complete compliance with these regulations; however,
even with a diligent commitment, the Company, as with many of its
competitors, may be required to pay fines for violations or
investigate and potentially remediate its waste management
facilities.
The Company routinely uses third party disposal companies, who
ultimately destroy or secure landfill residual materials generated
at its facilities or at a client's site. The Company, compared to
its competitors, disposes of significantly less hazardous or
industrial by-products from its operations due to rendering
material non-hazardous, discharging treated wastewaters to
publicly-owned treatment works and/or processing wastes into
saleable products. In the past, numerous third party disposal
sites have improperly managed wastes and consequently require
remedial action; consequently, any party utilizing these sites may
be liable for some or all of the remedial costs. Despite the
Company's aggressive compliance and auditing procedures for
disposal of wastes, the Company could, in the future, be notified
that it is a PRP at a remedial action site, which could have a
material adverse effect on the Company.
In addition to budgeted capital expenditures of $1,950,000 for
1998 at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above under
"Business -- Capital Spending, Certain Environmental Expenditures"
and "Liquidity and Capital Resources of the Company" of this
Management's Discussion and Analysis, 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 certain contaminates at two locations. As
previously discussed under "Business -- Capital Spending, Certain
Environmental Expenditures and Potential Environmental
Liabilities," the two locations where these expenditures will be
made are the Affiliated Property in Dayton, Ohio (EPS), a former
RCRA storage facility as operated by the former owners of PFD, and
PFM's facility in Memphis, Tennessee. The Company has estimated
the expenditures for 1998 to be approximately $210,000 at the EPS
site 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. This
is a forward looking statement and is subject to numerous
conditions, including, but not limited to, the Company's ability to
generate sufficient cash flow from operations to fund all costs of
operations and remediation of these two sites, the discovery of
additional contamination or expanded contamination which would
result in a material increase in such expenditures, or changes in
governmental laws or regulations.
11
Recent Accounting Pronouncements
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 is not expected to have a material
impact on the Company's financial statement. The Company has not
determined the impact FAS 131 will have on its future financial
statements and disclosures.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements: Page No.
_________________________________ ________
Report of Independent Certified Public
Accountants BDO Seidman, LLP 14
Consolidated Balance Sheets as of
December 31, 1997 and 1996 15
Consolidated Statements of Operations
for the years ended December 31,
1997, 1996 and 1995 17
Consolidated Statements of Cash Flows
for the years ended December 31,
1997, 1996 and 1995 18
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1997, 1996 and 1995 19
Notes to Consolidated Financial Statements 20
Schedules Omitted
_________________
In accordance with the rules of Regulation S-X, other
schedules are not submitted because (a) they are not applicable to
or required by the Company, or (b) the information required to be
set forth therein is included in the consolidated financial
statements or notes thereto.
13
Report of Independent Certified Public Accountants
Board of Directors
Perma-Fix Environmental Services, Inc.
We have audited the accompanying consolidated balance sheets of
Perma-Fix Environmental Services, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years
then ended. We have also audited the schedule listed in the
accompanying index. These consolidated financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and schedule are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
financial statements and schedule. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Perma-Fix Environmental Services, Inc. and subsidiaries
at December 31, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 3, the Company's financial statements have been
restated to reflect additional dividends related to the sales and
subsequent exchanges of Convertible Preferred Stock.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
February 13, 1998
14
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1997 1996
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 314 $ 37
Restricted cash equivalents
and investments 321 269
Accounts receivable, net of
allowance for doubtful accounts
of $374 and $340, respectively 5,282 4,644
Insurance claim receivable 1,475 -
Inventories 119 107
Prepaid expenses 567 528
Other receivables 70 540
Assets of discontinued operations 587 1,118
_________ ________
Total current assets 8,735 7,243
Property and equipment:
Buildings and land 5,533 3,905
Equipment 7,689 5,911
Vehicles 1,202 1,384
Leasehold improvements 16 289
Office furniture and equipment 1,056 1,019
Construction in progress 1,052 2,995
_________ ________
16,548 15,503
Less accumulated depreciation (5,564) (4,242)
_________ ________
Net property and equipment 10,984 11,261
Property and equipment of discon-
tinued operations, net of accumu-
lated depreciation of $0 and $351,
respectively - 1,343
Intangibles and other assets:
Permits, net of accumulated
amortization of $831 and
$598, respectively 3,725 3,916
Goodwill, net of accumulated
amortization of $580 and
$435, respectively 4,701 4,846
Other assets 425 394
Other assets of discontinued
operations - 33
________ ________
Total assets $ 28,570 $ 29,036
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
15
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1997 1996
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,263 $ 3,214
Accrued expenses 3,380 2,493
Revolving loan and term note
facility 614 500
Current portion of long-term debt 254 919
Current liabilities of discontinued
operations 1,470 890
_________ _______
Total current liabilities 7,981 8,016
Environmental accruals 525 1,246
Accrued closure costs 831 815
Long-term debt, less current portion 3,997 4,862
Long term liabilities of discontinued
operations 3,042 1,512
_________ _______
Total long-term liabilities 8,395 8,435
Commitments and contingencies
(see Notes 4, 7, 9 and 12) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
6,850 and 5,500 shares issued
and outstanding, respectively - -
Common Stock, $.001 par value;
50,000,000 shares authorized,
12,540,487 and 10,399,947
shares issued, including
920,000 shares held as
treasury stock, 12 10
Redeemable warrants 140 140
Additional paid-in capital 35,271 30,495
Accumulated deficit (21,459) (16,290)
________ _______
13,964 14,355
Less Common Stock in treasury at
cost; 920,000 shares issued
and outstanding (1,770) (1,770)
________ _______
Total stockholders' equity 12,194 12,585
________ _______
Total liabilities and
stockholders' equity $ 28,570 $ 29,036
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
16
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(Amounts in Thousands,
Except for Share Amounts) 1997 1996 1995
___________________________________________________________________
Net revenues $ 28,413 $ 27,041 $ 31,477
Cost of goods sold 19,827 18,912 23,764
________ ________ ________
Gross profit 8,586 8,129 7,713
Selling, general and
administrative
expenses 5,682 5,942 7,168
Depreciation and
amortization 1,980 2,083 2,051
Nonrecurring charges
(see Note 14) - - 987
________ _______ ________
Income (loss) from
operations 924 104 (2,493)
Other income (expense):
Interest income 41 43 58
Interest expense (431) (643) (814)
Other (342) (523) (245)
________ ________ _______
Net income (loss)
from continuing
operations 192 27 (3,494)
Discontinued Operations:
Loss from operations (1,048) (287) (5,558)
Loss on disposal (3,053) - -
_______ ________ _______
Loss from discon-
tinued operations (4,101) (287) (5,558)
_______
Net Loss (3,909) (260) (9,052)
_______ ________ _______
Preferred Stock dividends 1,260* 2,145* -
_______ ________ _______
Net loss applicable
to common stock $ (5,169)* $ (2,405)* $ (9,052)
======== ======== ========
____________________________________________________
Basic loss per common share:
Continuing operations $ (.10) $ (.24) $ (.44)
Discontinued operations $ (.39) $ (.03) $ (.71)
_________ _________ ________
Net loss per common
share $ (.49)* $ (.27)* $ (1.15)
======== ======== ========
Weighted average number of
common and common shares
outstanding 10,650 8,761 7,872
======== ======== ========
<FN>
*Amounts have been restated from that previously reported to reflect
a stock dividend on Preferred Stock which is convertible at a
discount from market value at the date of issuance (see Note 3).
</FN>
The accompanying notes are an integral part of
these consolidated financial statements.
17
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(Amounts in Thousands) 1997 1996 1995
___________________________________________________________________
Cash flows from operating
activities:
Net income (loss) from
continuing operations $ 192 $ 27 $ (3,494)
Adjustments to reconcile
net loss to cash pro-
vided by (used in)
operations:
Depreciation and amorti-
zation 1,980 2,083 2,051
Loss on impairment of
assets 371 450
Provision for bad debt
and other reserves 133 17 517
(Gain) loss on sale of
plant, property and
equipment 21 (4) 8
Changes in assets and
liabilities, net of
effects from business
acquisitions:
Accounts receivable (770) (38) 939
Prepaid expenses, inven-
tories and other assets 303 (513) (38)
Accounts payable and accrued
expenses (809) (1,798) 242
_______ ________ _______
Net cash provided by
(used in) operations 1,421 (226) 675
_______ ________ _______
Net cash used by discontinued
operations (1,398) (1,065) (613)
_______ ________ _______
Cash flows from investing
activities:
Purchases of property and
equipment, net (1,504) (1,957) (1,261)
Proceeds from sale of plant,
property and equipment 54 1,214 10
Effect of acquisitions 9
Change in restricted cash,
net (30) (58) 175
Net cash used by discon-
tinued operations (41) (162) (119)
_______ ________ _______
Net cash used in
investing activities (1,521) (963) (1,186)
________ ________ _______
Cash flows from financing
activities:
Borrowings (repayments)
from revolving loan
and term note facility (743) (997) 2,162
Principal repayments on
long-term debt (938) (1,502) (995)
Proceeds from issuance
of stock 3,480 6,367 -
Purchase of treasury stock - (1,770) -
Net cash used by discon-
tinued operations (20) - (332)
________ ________ ________
Net cash provided by
financing activities 1,779 2,098 835
________ ________ ________
(Decrease) increase in cash and
cash equivalents 281 (156) (289)
Cash and cash equivalents at
beginning of period,
including discontinued oper-
ations of $8, $28, and $25
respectively 45 201 490
________ ________ _______
Cash and cash equivalents at
end of period, including
discontinued operations
of $12, $8, and $28,
respectively $ 326 $ 45 $ 201
======== ======= =======
___________________________________________________________________
Supplemental disclosure:
Interest paid $ 710 $ 844 $ 923
Non-cash investing and
financing activities:
Issuance of Common Stock
for services 76 462 -
Long-term debt incurred
for purchase of property
and equipment, including
discontinued operations
of $31 in 1997 294 424 1,573
Issuance of stock for pay-
ment of dividends 314 - -
The accompanying notes are an integral part of
these consolidated financial statements.
18
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31
Preferred Stock Common Stock
(Amounts in Thousands, ___________________ __________________
Except for Share Amounts) Shares Amount Shares Amount
_________________________________________________________________________
Balance at December 31, 1994 - - 6,737,007 7
Net loss - - - -
Issuance of stock for
acquisitions - - 1,135,377 1
Amortization of deferred
compensation - - - -
______ _______ _________ _______
Balance at December 31, 1995 7,872,384 8
Net loss - - - -
Preferred Stock dividend - - - -
Issuance of stock for cash
and services - - 573,916 -
Issuance of Preferred Stock
for cash 6,930 - - -
Conversion of Preferred
Stock to common (1,430) - 1,953,647 2
Expiration of redeemable
warrants - - - -
Redemption of common shares
to treasury stock - - - -
_______ ______ __________ _______
Balance at December 31, 1996 5,500 $ - 10,399,947 $ 10
======== ====== ========== =======
Net loss - - - -
Preferred Stock dividend - - - -
Issuance of Common Stock
for preferred stock
dividend - - 178,781 -
Issuance of stock for cash
and services - - 128,271 -
Exercise of warrants - - 794,514 1
Conversion of Series 3
Preferred Stock to
Common Stock (1,500) - 1,027,974 1
Option Exercise - - 11,000 -
Issuance of Preferred
Stock for cash 2,850 - - -
_______ ______ __________ _______
Balance at December 31, 1997 6,850 $ - 12,540,487 $ 12
======== ====== ========== =======
Common
Additional Stock
Redeemable Paid-In Accumulated Held in Deferred
Warrants Capital Deficit Treasury Comp.
_______________________________________________________________________
269 21,549 (4,833) - (30)
- - (9,052) - -
- (3) - - -
- - - - 30
_________ _______ ________ ________ ________
269 21,546 (13,885) - -
- - (260) - -
- 2,000 (2,145) - -
- 693 - - -
- 6,129 - - -
- (2) - - -
(129) 129 - - -
- - - (1,770) -
_________ _______ ________ ________ ________
$ 140 $ 30,495 $(16,290) $ (1,770) $ -
========= ======= ========= ========= ========
- - (3,909) - -
- 908 (1,260) - -
- 314 - - -
- 96 - - -
- 932 - - -
- (1) - - -
- 11 - - -
- 2,516 - - -
_________ ________ ________ ________ _________
$ 140 $ 35,271 $ (21,459) $ (1,770) $ -
========= ======== ======== ======== =========
The accompanying notes are an integral part of
these consolidated financial statements.
19
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
________________________________________________________
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix Environmental Services, Inc. (the "Company") is a
Delaware corporation engaged in on-and-off-site treatment,
storage, processing and disposal of hazardous and non-hazardous
industrial and commercial wastes, mixed waste and wastewater, and
provides consulting engineering services to industry and government
for broad-scope environmental problems. The Company has grown
through both acquisitions and internal development. The Company's
present objective is to focus the operations, maximize the
profitability of its existing businesses and to continue the
research and development of innovative technologies for the
treatment of nuclear, mixed waste and industrial waste.
The Company is subject to certain risks: (1) It is involved
in the transportation, treatment, handling and storage of hazardous
and non-hazardous, mixed and industrial wastes and wastewater.
Such activities contain risks against which the Company believes it
is adequately insured, and (2) in general, the industries in which
the Company operates are characterized by intense competition among
a number of larger, more established companies with significantly
greater resources than the Company.
The consolidated financial statements of the Company for the
years 1995 through 1997 include the accounts of Perma-Fix
Environmental Services, Inc. ("PESI") and its wholly-owned
subsidiaries, Perma-Fix, Inc. ("PFI") and subsidiaries, Industrial
Waste Management, Inc. ("IWM") and subsidiaries, Perma-Fix
Treatment Services, Inc. ("PFTS"), Perma-Fix of Florida, Inc.
("PFF"), Perma-Fix of Dayton, Inc. ("PFD"), Perma-Fix of Ft.
Lauderdale, Inc. ("PFL"), and Perma-Fix Processing, Inc. ("Re-
Tech"). The Perma-Fix Processing, Inc. (Re-Tech) plastic
processing subsidiary was, however, sold effective March 15, 1996.
Due to a fire and resulting explosion during 1997, the fuel
blending operations of Perma-Fix of Memphis, Inc. ("PFM") are,
effective as of December 31, 1997, being accounted for as a
discontinued operation. See Note 4.
________________________________________________________
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of
all significant intercompany accounts and transactions.
Reclassifications
Certain prior year amounts have been reclassified to conform
with the 1997 presentation.
Business Segments
The Company provides services and products through two
business segments -- Waste Management Services and Consulting
Engineering Services. See Note 14 for a further description of
these segments and certain business information.
Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
20
Cash Equivalents
The Company considers short-term investments with an initial
maturity date of three months or less at the date of purchase to be
cash equivalents.
Restricted Cash Equivalents and Investments
Restricted cash equivalents and investments classified as
current assets, increased $52,000 from the year ended December 31,
1996, as compared to the same period of 1997. However, these
figures do not include PFM, which is discussed further below. The
1996 restricted cash consisted of a trust fund of $178,000, a
certificate of deposit of $89,000, and a money market account of
$2,000. In comparison, the 1997 restricted cash consists of a
trust fund of $212,000, certificates of deposit totaling $107,000,
and a money market account of $2,000. As of December 31, 1997,
$84,000 of the restricted cash balance was pledged as collateral
for the Company's secured letters of credit. In addition to these
current assets, a trust fund of $365,000 is classified as a long
term asset as of December 31, 1997. These restricted instruments
reflect secured collateral relative to the various financial
assurance instruments guaranteeing the standard RCRA closure
bonding requirements for the PFTS, PFD and PFL TSD facilities,
while the long-term portion reflects cash held for long-term
commitments related to the RCRA closure action at a facility
affiliated with PFD as further discussed in Note 9. The letters of
credit secured by the restricted cash renew annually, and the
Company plans to replace the letters of credit with other
alternative financial assurance instruments.
PFM has restricted cash equivalents of $214,000 as of
December 31, 1997. This restricted cash amount is reported in
current assets (assets of discontinued operations), and includes a
trust fund for $68,000 and certificates of deposit for $146,000.
These restricted instruments reflect secured collateral relative to
the various financial assurance instruments guaranteeing the
standard RCRA closure requirements for the PFM facility. The
letters of credit secured by this restricted cash also renew
annually.
Inventories
Inventories consist of fly ash, cement kiln dust and treatment
chemicals. Inventories are valued at the lower of cost or market
with cost determined by the first-in, first-out method.
Property and Equipment
Property and equipment expenditures are capitalized and
depreciated using the straight-line method over the estimated
useful lives of the assets for financial statement purposes, while
accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from ten to
forty years for buildings (including improvements) and three to
seven years for office furniture and equipment, vehicles, and
decontamination and processing equipment. Maintenance and repairs
are charged directly to expense as incurred. The cost and
accumulated depreciation of assets sold or retired are removed from
the respective accounts, and any gain or loss from sale or
retirement is recognized in the accompanying consolidated
statements of operations. Renewals and improvements which extend
the useful lives of the assets are capitalized.
Intangible Assets
Intangible assets relating to acquired businesses consist
primarily of the cost of purchased businesses in excess of the
estimated fair value of net assets acquired ("goodwill") and the
recognized permit value of the business. Goodwill is generally
amortized over 40 years and permits are amortized over 20 years.
Amortization expense approximated $388,000, $455,000 and $686,000
for the years ended 1997, 1996, and 1995, respectively. The
Company continually reevaluates the propriety of the carrying
amount of permits and goodwill as well as the amortization period
to determine whether current events and circumstances warrant
adjustments to the carrying value and estimates of useful lives.
The Company uses an estimate of the related undiscontinued
operating income over the remaining lives of goodwill and permit
costs in measuring whether they are recoverable. At December 31,
1995, the Company recognized a permit impairment charge of
approximately $4,712,000 related to the December 1993 acquisition
of Perma-Fix of Memphis, Inc. See Note 4 for further discussion of
this charge. At this time, the Company believes that no additional
21
impairment of goodwill or permits has occurred and that no
reduction of the estimated useful lives of the remaining assets is
warranted. This evaluation policy is in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
Accrued Closure Costs
Accrued closure costs represent the Company's estimated
environmental liability to clean up their facilities in the event
of closure.
Income Taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires use of the liability method. SFAS
No. 109 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets
and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax
assets or liabilities at the end of each period are determined
using the currently enacted tax rates to apply to taxable income in
the periods in which the deferred tax assets or liabilities are
expected to be settled or realized.
Net Revenues
Revenues for services and reimbursable costs are recognized at
the time services are rendered or, in the case of fixed price
contracts, under the percentage-of-completion method of accounting.
No customer accounted for more than ten percent (10%) of
consolidated net revenues.
Self-Insurance
The Company has a self-insurance program for certain health
benefits. The Company has stop-loss coverage of $60,000 per
individual per occurrence with an annual aggregate claim
limitation of approximately $995,000 for 1998. However, as the
employment of the Company increases or decreases, the aggregate
limitation rises or falls proportionally. The cost of such
benefits is recognized as expense in the period in which the claim
occurred, including estimates of claims incurred but not reported.
The claims expense for 1997 was approximately $663,000, as compared
to $748,000 for 1996. This decrease principally reflects the full
implementation of this program, to include all employees of the
corporation, and the occurrence of several larger claims during
1996.
Net Loss Per Share
Net loss per share has been presented using the weighted
average number of common shares outstanding. The net loss per
share for discontinued operations consists of $.10 loss per share
from operations and $.29 loss per share from disposal. Potential
common shares have not been included in the net loss per share
calculations since their effects would be antidilutive. Potential
common shares include 1,398,848 stock options, 10,035,896 warrants
and 9,133,333 shares underlying the convertible Preferred Stock at
the minimum conversion price.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 establishes new
standards for computing and presenting earnings per share ("EPS").
Specifically, SFAS 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997. The adoption of SFAS
128 did not have a material effect on the Company's EPS
presentation for 1997, 1996 and 1995, since the effects of
potential common shares are antidilutive.
Fair Value of Financial Instruments
The book values of cash, trade accounts receivable, trade
accounts payable, and financial instruments included in current
assets and other assets approximate their fair values principally
22
because of the short-term maturities of these instruments. The
fair value of the Company's long-term debt is estimated based on
the current rates offered to the Company for debt of similar terms
and maturities. Under this method, the Company's fair value of
long-term debt was not significantly different from the stated
value at December 31, 1997 and 1996.
Year 2000 Disclosure
The Company has conducted a review of its computer systems to
identify the systems which it anticipated could be effected by the
Year 2000 issue and it believes that all such systems were already,
or have been converted to be, Year 2000 compliant. Such
conversion, where required, did not entail material expenditure by
the Company. Pursuant to the Company's Year 2000 planning, the
Company has requested information regarding the computer systems of
its key suppliers, customers, creditors and financial service
organizations and has been informed that they are substantially
Year 2000 compliant. There can be no assurance, however, that such
key organizations are actually Year 2000 compliant and that the
Year 2000 issue will not adversely affect the Company's financial
position or results of operations. The Company believes that its
expenditures in addressing its Year 2000 issues along with any
potential effect on the Company's earnings will not have a material
adverse effect on the Company's financial position or results of
operations.
Recent Accounting Pronouncements
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 is not expected to have a material
impact on the Company's financial statement. The Company has not
determined the impact FAS 131 will have on its future financial
statements and disclosures.
________________________________________________________
NOTE 3
RESTATEMENT OF 1996 STOCKHOLDER'S EQUITY
In March 1997, the Securities and Exchange Commission Staff
(the "Staff") announced its position on accounting for Preferred
Stock which is or may be convertible into Common Stock at a
discount from the market rate at the date of issuance. The Staff's
position pursuant to EITF D-60 is that a Preferred Stock dividend
should be recorded for the difference between the conversion price
and the quoted market price of Common Stock as determined at the
date of issuance. To comply with this position, the Company
previously restated its 1996 consolidated financial statements to
reflect a dividend of approximately $2,000,000 related to the
fiscal 1996 sales of Convertible Preferred Stock discussed in Note
6 (Series 1 Class A, Series 2 Class B, and Series 3 Class C
Preferred Stock). The Company also restated the reported net loss
per share of Common Stock for the year ended December 31, 1996, to
($.27), from the previously reported amount of ($.05). Pursuant to
EITF D-60 and EITF D-42 adopted by the Commission, the Company
restated its 1997 consolidated financial statements to reflect a
dividend of approximately $713,000 related to the fiscal 1997 sales
and subsequent exchanges of Convertible Preferred Stock and a
dividend of approximately $195,000 related to the fiscal 1997
issuance of warrants in connection therewith as discussed in Note
6 (Series 4 Class D, Series 5 Class E, Series 6 Class F, and Series
7 Class G Preferred Stock). The restatement reflects dividends
totaling approximately $908,000 resulting from such Preferred Stock
sales, of which approximately $111,000 was attributable to the
quarter ended June 30, 1997, and approximately $797,000 was
attributable to the quarter ended September 30, 1997.
The impact of the restatement on the second and third quarters
of 1997 and the year ended December 31, 1997, is shown as follows
(dollars in thousands):
23
As Originally Reported As Amended
______________________ __________
Quarter Ended Year Ended Quarter Ended Year Ended
_______________ __________ _______ _______ _________
6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97
_______ ________ ________ _______ _______ _________
Preferred Stock
Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $ 1,260
Net Loss Applicable
to Common Stock (525) 58 (4,261) (636) (739) (5,169)
Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
________________________________________________________
NOTE 4
DISCONTINUED OPERATIONS
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM facility, a hazardous waste storage, processing
and blending facility, located in Memphis, Tennessee, which
resulted in damage to certain hazardous waste storage tanks located
on the facility and caused certain limited contamination at the
facility. 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. 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 the discontinued PFM operations for the
years ended December 31, 1997, 1996, and 1995 ($1,048,000,
$287,000, and $5,558,000, respectively) are shown separately in the
Consolidated Statements of Operations. The results of the
discontinued PFM operations do not reflect management fees charged
by the Corporation, but does include interest expense of $254,000,
$169,000 and $138,000 during 1997, 1996 and 1995, 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 is 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. Earlier in
1997, PFM received approximately $522,000 (less its deductible of
$25,000) in connection with its claim for loss of contents as a
result of the fire and explosion which was utilized to replace
certain assets and reimburse the Company for certain fire related
expense.
Revenues of the discontinued PFM operations were $1,878,000 in
1997, $3,996,000 in 1996 and $3,414,000 in 1995. 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 end of each year, in thousands of dollars, consisted of the
following:
24
1997 1996
_______ _______
Assets of discontinued operations:
Cash and cash equivalents $ 12 $ 8
Restricted cash equivalents and
investments 214 179
Accounts receivable, net of allowance
for doubtful accounts $105 and
$43, respectively 333 905
Prepaid expenses and other assets 28 26
_______ _______
$ 587 $ 1,118
======= =======
Property and equipment of discontinued
operations:
Net of accumulated depreciation of
$0 and $351,respectively $ - $ 1,343
======= =======
Current liabilities of discontinued
operations:
Accounts payable $ 277 $ 463
Accrued expenses 259 175
Accrued environmental costs 835 192
Current portion of long-term debt 99 60
_______ _______
$ 1,470 $ 890
======= =======
Long-term liabilities of discontinued
operations:
Long-term debt, less current portion $ 17 $ 19
Accrued environmental and closure costs 3,025 1,493
_______ _______
$ 3,042 $ 1,512
======= =======
The accrued environmental and closure costs, as related to
PFM, total $3,860,000, which includes the Company's current closure
cost estimate of approximately $700,000 for the complete cessation
of operations and closure of the facility based upon RCRA
guidelines ("RCRA Closure"). 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 (see
Note 9), the future operating losses as the Company discontinues
its fuel blending operations and certain other contingent
liabilities, including the potential PRP liabilities as further
discussed in Note 12.
During December 1995, the Company recognized a permit
impairment charge of $4,712,000, related to the December 1993
acquisition of PFM. The acquisition was accounted for under the
purchase method of accounting and the related intangible permit
represents the excess of the purchase price over the fair value of
the net assets of the acquired company and the intrinsic value
related to the RCRA permits maintained by the facility.
Subsequent to the acquisition, PFM, as reported under the waste
management services segment of the Company, has consistently
reflected operating losses. As a result, during late 1994 and the
first six (6) months of 1995, PFM had undergone a series of
restructuring programs aimed at the reduction of operating and
overhead costs, and increased gross margin and revenues. However,
PFM continued to experience intense competition for its services,
and a decline in market share and operating losses. Therefore, as
a result of the continued decline in operating results, the
detailed strategic and operational review, and the application of
the Company's objective measurement tests, an evaluation of the
permit for possible impairment was completed in December 1995.
The evaluation of such impairment included the development of
the Company's best estimate of the related undiscontinued operating
income over the remaining life of the intangible permit.
Consequently, the results of the Company's best estimate of
forecasted future operations, given the consistent prior losses and
uncertainty of the impact of the restructuring programs, was that
they do not support the recoverability of this permit. As a result
of these estimates and related uncertainties, the permit was deemed
to be impaired and a charge was recorded to write-down the full
value of the intangible permit of approximately $5,235,000, net of
25
the accumulated amortization totaling approximately $523,000. This
net charge of $4,712,000 was recorded through the consolidated
statement of operations in December 1995 as "Permit write-down",
now shown as a component of "Discontinued Operations - Loss From
Operations".
________________________________________________________
NOTE 5
ACQUISITIONS
During the second quarter of 1995, the Company completed the
acquisition of substantially all of the assets and certain
liabilities of Industrial Compliance and Safety, Inc. ("ICS") of
Kansas City, Missouri. ICS has provided environmental, remedial,
emergency response and waste management services for clients across
the U.S. since 1989, and has been consolidated with the Company's
existing waste management operations in Kansas City. The assets of
ICS were acquired through the forgiveness of indebtedness to the
Company and assumption of certain liabilities. The acquisition was
accounted for using the purchase method effective June 1, 1995 and,
accordingly, the assets and liabilities as of this date and the
statement of operations from the effective date were included in
the accompanying consolidated financial statements. The Company
performed a purchase price allocation as of June 30, 1995, which
resulted in an unallocated excess purchase price over net assets
acquired, or goodwill, of $177,000, to be amortized over 10 years.
The forgiven debt by the Company totaled $376,000 and was recorded
against the respective bad debt reserve, and not utilized in
determination of the purchase price. ICS assets of $233,000 were
acquired through the assumption of accounts payable, debt and other
liabilities of $358,000, and transaction costs of $52,000. The
acquisition of ICS had an insignificant impact on historical
financial data and, thus, pro forma financial information giving
effect to the acquisition has not been provided.
________________________________________________________
NOTE 6
PREFERRED STOCK ISSUANCE AND CONVERSION
The Company issued, during February 1996, to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("RBB Bank"), 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 placement and closing fees of
$180,000. During February 1996, the Company also issued 330 shares
of newly created Series 2 Class B Convertible Preferred Stock
("Series 2 Preferred") to RBB Bank at a price of $1,000 per share,
for an aggregate sales price of $330,000, and paid placement and
closing fees of $35,000. 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 at the option of the
Company in cash or Company 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
1,034,000 shares of the Company's Common Stock and the associated
accrued dividends were paid in the form of approximately 16,000
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. By terms of the subscription
agreement, the 920,000 shares of Common Stock were purchased by the
26
Company at a purchase price of $1,770,000 and are included in
Treasury Stock as of December 31, 1996. As a result of such
conversions, the Series 1 Preferred and the Series 2 Preferred are
no longer outstanding.
On July 17, 1996, the Company issued to RBB Bank 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 $586,000. As
part of the sale of the Series 3 Preferred, the Company also issued
to RBB Bank two (2) Common Stock purchase warrants entitling RBB
Bank 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 sale to RBB Bank of the Series 3 Preferred
was made in a private placement under Sections 4(2) and/or 3(b)
and/or Rule 506 of Regulation D under the Securities Act of 1933,
as amended. 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 of the Series 3 Preferred on and after
October 1, 1996, (ii) 1,833 shares of the Series 3 Preferred on and
after November 1, 1996, and (iii) the balance of the Series 3
Preferred 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 or a maximum of $1.50
per share, with the minimum conversion price to be reduced by $.25
per share each time, if any, after July 1, 1996, the Company
sustains a net loss, on a consolidated basis, in each of two (2)
consecutive quarters. At no time shall a quarter that has already
been considered in such determination be considered in any
subsequent determination. 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 RBB Bank 920,000
shares of the Company's Common Stock owned by RBB Bank. As
discussed above, RBB Bank had previously acquired from the Company
1,100 shares of Series 1 Preferred and 330 shares of Series 2
Preferred and, as of the date of the subscription agreement, was
the owner of record and beneficially owned all of the issued and
outstanding shares of Series 1 Preferred and Series 2 Preferred,
which totaled 378 shares of Series 1 Preferred and 330 shares of
Series 2 Preferred. Pursuant to the terms of the subscription
agreement relating to the Series 3 Preferred, RBB Bank converted
all of the remaining 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 pursuant to the terms of such
subscription agreement. During 1997, the holder of the Series 3
Preferred converted 1,500 shares of the Series 3 Preferred into
1,027,974 shares of Common Stock of the Company. As of the date of
this report, no further shares have been converted. During 1997,
accrued dividends for the period July 17, 1996, through June 30,
1997, and dividends on converted shares, in the combined total of
approximately $314,000 were paid in the form of 178,781 shares of
Common Stock of the Company. 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.
As further discussed in Note 3, the Securities and Exchange
Commission Staff (the "Staff") announced its position on accounting
for Preferred Stock which is convertible into Common Stock at a
discount from the market rate at the date of issuance, in March of
1997. The Staffs position is that a Preferred Stock dividend
should be recorded for the difference between the conversion price
and the quoted market price of Common Stock as determined at the
date of issuance. To comply with this position, the Company
recognized a dividend in 1996 of approximately $2,000,000 as
related to the above discussed Series 1 Class A, Series 2 Class B,
and Series 3 Class C Preferred Stock.
On or about June 11, 1997, the Company issued to RBB Bank
2,500 shares of newly-created Series 4 Class D Convertible
Preferred Stock, par value $.001 per share ("Series 4 Preferred"),
at a price of $1,000 per share, for an aggregate sales price of
$2,500,000. The sale to RBB Bank was made in a private placement
27
under Sections 4(2) and/or 3(b) and/or Rule 506 of Regulation D
under the Securities Acts of 1933, as amended, pursuant to the
terms of a Subscription and Purchase Agreement, dated June 9, 1997,
between the Company and RBB Bank ("Subscription Agreement"). The
Series 4 Preferred has a liquidation preference over the Company's
Common Stock, par value $.001 per share ("Common Stock"), equal to
$1,000 consideration per outstanding share of Series 4 Preferred
(the "Liquidation Value"), plus an amount equal to all unpaid
dividends accrued thereon. The Series 4 Preferred accrues dividends
on a cumulative basis at a rate of four percent (4%) per annum of
the Liquidation Value ("Dividend Rate"), and is payable semi-
annually when and as declared by the Board of Directors. No
dividends or other distributions may be paid or declared or set
aside for payment on the Company's Common Stock until all accrued
and unpaid dividends on all outstanding shares of Series 4
Preferred have been paid or set aside for payment. Dividends shall
be paid, at the option of the Company, in the form of cash or
Common Stock of the Company. If the Company pays dividends in
Common Stock, such is payable in the number of shares of Common
Stock equal to the product of (a) the quotient of (i) four percent
(4%) of $1,000 divided by (ii) the average of the closing bid
quotation of the Common Stock as reported on the NASDAQ for the
five trading days immediately prior to the applicable dividend
declaration date, times (b) a fraction, the numerator of which is
the number of days elapsed during the period for which the dividend
is to be paid and the denominator of which is 365.
The holder of the Series 4 Preferred may convert into Common
Stock up to 1,250 shares of the Series 4 Preferred on and after
October 5, 1997, and the remaining 1,250 shares of the Series 4
Preferred on and after November 5, 1997. The conversion price per
share is the lesser of (a) the product of the average closing bid
quotation for the five (5) trading days immediately preceding the
conversion date multiplied by eighty percent (80%) or (b) $1.6875.
The minimum conversion price is $.75, which minimum will be
eliminated from and after September 6, 1998. The Company will have
the option to redeem the shares of Series 4 Preferred (a) between
June 11, 1998, and June 11, 2001, at a redemption price of $1,300
per share if at any time the average closing bid price of the
Common Stock for ten consecutive trading days is in excess of
$4.00, and (b) after June 11, 2001, at a redemption price of $1,000
per share. The holder of the Series 4 Preferred will have the
option to convert the Series 4 Preferred prior to redemption by the
Company.
As part of the sale of the Series 4 Preferred, the Company
also issued to RBB Bank two Common Stock purchase warrants
(collectively, the "Warrants ") entitling RBB Bank to purchase,
after December 31, 1997, and until June 9, 2000, an aggregate of up
to 375,000 shares of Common Stock, subject to certain anti-dilution
provisions, with 187,500 shares exercisable at a price equal to
$2.10 per share and 187,500 shares exercisable at a price equal to
$2.50 per share. A certain number of shares of Common Stock
issuable on the conversion of the Series 4 Preferred and on the
exercise of the Warrants is subject to certain registration rights
pursuant to the Subscription Agreement.
The Company paid fees (excluding legal and accounting) of
$200,000 to an investment banker in connection with the placement
of Series 4 Preferred to RBB Bank and issued to the investment
banking firm that handled the placement two (2) Common Stock
purchase warrants entitling the investment banking firm to purchase
an aggregate of up to 300,000 shares of Common Stock, subject to
certain anti-dilution provisions, with one warrant for a five year
term to purchase up to 200,000 shares at an exercise price of $2.00
per share and the second warrant for a three year term to purchase
up to 100,000 shares of Common Stock at an exercise price of $1.50
per share, subject to certain anti-dilution provisions. Under the
terms of each warrant, the investment banking firm is entitled to
certain registration rights with respect to the shares of Common
Stock issuable on the exercise of each warrant.
The Company negotiated an Exchange Agreement with RBB Bank
("RBB Exchange Agreement") which provided that the 2,500 shares of
Series 4 Preferred and the RBB Series 4 Warrants were tendered to
the Company in exchange for (i) 2,500 shares of a newly created
Series 6 Class F Preferred Stock, par value $.001 per share
("Series 6 Preferred"), (ii) two warrants each to purchase 187,500
shares of Common Stock exercisable at $1.8125 per share, and (iii)
one warrant to purchase 281,250 shares of Common Stock exercisable
28
at $2.125 per share (collectively, the "RBB Series 6 Warrants").
The RBB Series 6 Warrants will be for a term of three (3) years and
may be exercised at any time after December 31, 1997, and until
June 9, 2000.
The conversion price of the Series 6 Preferred shall be
$1.8125 per share, unless the closing bid quotation of the Common
Stock is lower than $2.50 in twenty (20) out of any thirty (30)
consecutive trading days after March 1, 1998, in which case, the
conversion price per share shall be the lesser of (A) the product
of the average closing bid quotation for the five (5) trading days
immediately preceding the conversion date multiplied by eighty
percent (80%) or (B) $1.8125 with the minimum conversion price
being $.75, which minimum will be eliminated from and after
September 6, 1998. The remaining terms of the Series 6 Preferred
will be substantially the same as the terms of the Series 4
Preferred. As of December 31, 1997, no shares of the Series 6
Preferred have been converted. The accrued dividends as of this
date, for the Series 4 and Series 6 Preferred, total approximately
$55,000, which were paid in January 1998, in the form of 27,377
shares of Common Stock of the Company.
As further discussed in Note 3, the Securities and Exchange
Commission Staff (the "Staff") announced its position on accounting
for preferred stock which is convertible into common stock at a
discount from the market rate at the date of issuance, in March of
1997. The Staff's position pursuant to EITF D-60 relating to
beneficial conversion features is that a preferred stock dividend
should be recorded for the difference between the conversion price
and the quoted market price of common stock as determined at the
date of issuance. To comply with this position, the Company
recognized a dividend in 1997 of approximately $798,000 as related
to the issuance of the Series 4 Class C, Series 6 Class F Preferred
Stock and the related warrants.
On or about July 14, 1997, the Company issued to the Infinity
Fund, L.P. ("Infinity"), 350 shares of newly-created Series 5 Class
E Convertible Preferred Stock, par value $.001 per share ("Series
5 Preferred"), at a price of $1,000 per share, for an aggregate
sales price of $350,000. The sale to Infinity was made in a private
placement under Rule 506 of Regulation D under the Securities Acts
of 1933, as amended, pursuant to the terms of a Subscription and
Purchase Agreement, dated July 7, 1997, between the Company and
Infinity ("Infinity Subscription Agreement"). The Company utilized
the proceeds received on the sale of Series 5 Preferred for the
payment of debt and general working capital.
The Series 5 Preferred has a liquidation preference over the
Company's Common Stock, par value $.001 per share ("Common Stock"),
equal to $1,000 consideration per outstanding share of Series 5
Preferred (the "Liquidation Value"), plus an amount equal to all
unpaid dividends accrued thereon. The Series 5 Preferred accrues
dividends on a cumulative basis at a rate of four percent (4%) per
annum of the Liquidation Value ("Dividend Rate"). Dividends are
payable semi-annually when and as declared by the Board of
Directors. No dividends or other distributions may be paid or
declared or set aside for payment on the Company's Common Stock
until all accrued and unpaid dividends on all outstanding shares of
Series 5 Preferred have been paid or set aside for payment.
Dividends may be paid, at the option of the Company, in the form of
cash or Common Stock of the Company. If the Company pays dividends
in Common Stock, such is payable in the number of shares of Common
Stock equal to the product of (a) the quotient of (i) the Dividend
Rate divided by (ii) the average of the closing bid quotation of
the Common Stock as reported on the NASDAQ for the five trading
days immediately prior to the date the dividend is declared,
multiplied by (b) a fraction, the numerator of which is the number
of days elapsed during the period for which the dividend is to be
paid and the denominator of which is 365.
The holder of the Series 5 Preferred may convert into Common
Stock up to 175 shares of the Series 5 Preferred on and after
November 3, 1997, and the remaining 175 shares of the Series 5
Preferred on and after December 3, 1997. The conversion price per
share is the lesser of (a) the product of the average closing bid
quotation for the five trading days immediately preceding the
conversion date multiplied by 80% or (b) $1.6875. The minimum
conversion price is $.75, which minimum will be eliminated from and
after September 6, 1998. The Company will have the option to
redeem the shares of Series 5 Preferred (a) between July 14, 1998,
and July 13, 2001, at a redemption price of $1,300 per share if at
any time the average closing bid price of the Common Stock for ten
29
consecutive trading days is in excess of $4.00, and (b) after July
13, 2001, at a redemption price of $1,000 per share. The holder of
the Series 5 Preferred will have the option to convert the Series
5 Preferred prior to redemption by the Company. A certain number
of shares of Common Stock issuable upon conversion of the Series 5
Preferred is subject to certain registration rights pursuant to the
Infinity Subscription Agreement.
The Company negotiated an Exchange Agreement with Infinity
("Infinity Fund Exchange Agreement") which provided that the 350
shares of Series 5 Preferred will be tendered to the Company in
exchange for (i) 350 shares of a newly created Series 7 Class G
Preferred Stock, par value $.001 per share ("Series 7 Preferred"),
and (ii) one Warrant to purchase up to 35,000 shares of Common
Stock exercisable at $1.8125 per share ("Series 7 Warrant"). The
Series 7 Warrant will be for a term of three (3) years and may be
exercised at any time after December 31, 1997, and until July 7,
2000.
The conversion price of the Series 7 Preferred shall be
$1.8125 per share, unless the closing bid quotation of the Common
Stock is lower than $2.50 per share in twenty (20) out of any
thirty (30) consecutive trading days after March 1, 1998, in which
case, the conversion price per share shall be the lesser of (i) the
product of the average closing bid quotation for the five (5)
trading days immediately preceding the conversion date multiplied
by eighty percent (80%) or (ii) $1.8125, with the minimum
conversion price being $.75, which minimum will be eliminated from
and after September 6, 1998. The remaining terms of the Series 7
Preferred will be substantially the same as the terms of the Series
5 Preferred. As of December 31, 1997, no shares of the Series 7
Preferred have been converted. The accrued dividends as of this
date, for the Series 5 and Series 7 Preferred, total approximately
$7,000, which were paid in January 1998, in the form of 3,311
shares of Common Stock of the Company.
As further discussed in Note 3 in March of 1997, the
Securities and Exchange Commission Staff (the "Staff") announced
its position on accounting for Preferred Stock which is convertible
into common stock at a discount from the market rate at the date of
issuance. The Staff's position pursuant to EITF D-60 relating to
beneficial conversion features is that a preferred stock dividend
should be recorded for the difference between the conversion price
and the quoted market price of common stock as determined at the
date of issuance. To comply with this position, the Company
recognized a dividend in 1997 of approximately $110,000 as related
to the issuance of the Series 5 Class E, Series 7 Class G Preferred
Stock and the related warrants.
In connection with the Preferred Stock issuances, the Company
recorded $1,260,000 of Preferred Stock dividends ($.10 per share)
during the year ended December 31, 1997, of which $314,000 was paid
during 1997 in the form of Common Stock, $38,000 was accrued for at
December 31, 1997, and $908,000 represented a convertible discount
feature as discussed in Note 3. During the year ended December 31,
1996, the Company recorded $2,145,000 of Preferred Stock dividends
($.24 per share) of which $2,000,000 represented a convertible
discount feature as discussed in Note 3 and $145,000 was accrued at
year-end and subsequently paid in the form of Common Stock in
January 1997.
________________________________________________________
NOTE 7
LONG-TERM DEBT
Long-term debt at December 31 includes the following (in
thousands):
1997 1996
________ _______
Revolving loan facility dated January 15,
1998, collateralized by eligible
accounts receivables, subject to monthly
borrowing base calculation, variable
interest paid monthly at prime rate
plus 1 3/4. $ 1,664 $ -
30
Term loan agreement dated January 15, 1998,
payable in monthly principal install-
ments of $52, balance due in January
2001, variable interest paid monthly
at prime rate plus 1 3/4. 2,500 -
Revolving loan facility dated January 27,
1995, repaid in January 1998, in
conjunction with Congress Financing. - 2,879
Term loan agreement dated January 27, 1995,
repaid in January 1998 in conjunction
with Congress Financing. - 1,383
Equipment financing agreements with Ally
Capital, repaid in January 1998 in
conjunction with Congress Financing. - 1,257
Mortgage note agreement payable in quarterly
installments of $15, plus accrued interest
at 10%. Balance due October 1998 secured
by real property. 61 123
Various capital lease and promissory note
obligations, payable 1998 to 2002,
interest at rates ranging from 8.0% to
15.9%. 640 639
_______ _______
4,865 6,281
Less current portion of revolving loan
and term note facility 614 500
Less current portion of long-term debt 254 919
_______ _______
$ 3,997 $ 4,862
======= =======
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.
31
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, a
reduction of $227,000 from the December 31, 1996, balance of
$2,879,000, 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, a
reduction of $516,000 from the December 31, 1996, balance of
$1,383,000. 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, a reduction of $633,000 from the
December 31, 1996, balance of $1,257,000 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 further discussed in Note 4, the long-term debt associated
with the discontinued Memphis operation is excluded from the above
and is recorded in the "Long-Term Liabilities of Discontinued
Operations" total. The Memphis debt obligations total $116,000, of
which $99,000 is current.
The aggregate amount of the maturities of long-term debt
maturing in future years as of December 31, 1997, is $868,000 in
1998; $820,000 in 1999; $798,000 in 2000; $2,361,000 in 2001; and
$18,000 in 2002.
________________________________________________________
NOTE 8
ACCRUED EXPENSES
Accrued expenses at December 31 include the following (in
thousands):
1997 1996
_______ _______
Salaries and employee benefits $ 927 $ 768
Accrued sales, property and other
tax 484 365
Waste disposal and other operating
related expenses 1,240 712
Accrued environmental 305 334
Other 424 314
_______ _______
Total accrued expenses $ 3,380 $ 2,493
======= =======
Excludes Perma-Fix of Memphis, Inc. accrued expenses for the
years ended December 31, 1997, and 1996 of $1,094 and $367,
respectively, which are reported as current liabilities of
discontinued operations. See Note 4 for further discussion of
this discontinued operation.
________________________________________________________
NOTE 9
ACCRUED CLOSURE COSTS AND ENVIRONMENTAL LIABILITIES
The Company accrues for the estimated closure costs of its
fixed-based RCRA regulated facilities upon cessation of operations.
During 1997, the accrued long-term closure cost for its continuing
operations increased by $16,000 to a total of $831,000 over the
1996 total of $815,000, principally as a result of inflationary
32
factors. The closure costs are based upon RCRA guidelines and will
increase in the future, as indexed to an inflationary factor, and
may also increase or decrease as the Company changes its current
operations at these regulated facilities. Additionally, unlike
solid waste facilities, the Company, consistent with EPA
regulations, does not have post-closure liabilities that extend
substantially beyond the effective life of the facility.
At December 31, 1997, the Company had accrued long-term
environmental and acquisition related liabilities totaling
$525,000, which reflects a decrease of $721,000 from the December
31, 1996, balance of $1,246,000. This amount principally
represents management's best estimate of the costs to remove
contaminated soil and to undergo groundwater remediation activities
at one former RCRA facility that is under a closure action from
1989 that its wholly-owned subsidiary, PFD, leases. In June 1994,
the Company acquired from Quadrex Corporation and/or a subsidiary
of Quadrex Corporation (collectively, (Quadrex") three TSD
companies, including the PFD facility. The former owners of PFD
had merged EPS with PFD, which was subsequently sold to Quadrex.
The Company, through its acquisition of PFD in 1994 from Quadrex,
was indemnified by Quadrex for costs associated with remediating
the Leased Property, which entails remediation of soil and/or
groundwater restoration. The Leased Property used by EPS to
operate its facility is separate and apart from the property on
which PFD's facility is located. In conjunction with the
subsequent bankruptcy filing by Quadrex, and the Company's
recording of purchase accounting for the acquisition of PFD, the
Company recognized an environmental liability of approximately
$1,200,000 for the remediation of this leased facility. This
facility has pursued remedial activities for the last five years
with additional studies forthcoming, and potential groundwater
restoration which could extend three (3) to five (5) years. The
Company has estimated the potential liability related to the
remaining remedial activity of the above property to be
approximately $420,000, representing the remaining acquisition
reserve balance, of which the Company anticipates spending
approximately $210,000 during 1998 which is included in accrued
expenses. No insurance or third party recovery was taken into
account in determining the Company's cost estimates or reserve, nor
do the Company's cost estimates or reserves reflect any discount
for present value purposes.
Pursuant to the acquisition by the Company, effective
December 31, 1993, of Perma-Fix of Memphis, Inc. (F/N/A American
Resource Recovery, Inc.), the Company assumed certain liabilities
relative to the removal of contaminated soil and to undergo
groundwater remediation at the facility. Prior to the Company's
ownership of PFM, the previous owners installed monitoring and
treatment equipment to restore the groundwater to acceptable
standards in accordance with federal, state and local authorities.
Based upon technical information available to it, the Company
estimated, and recorded through purchase accounting, the remaining
cost of such remedial action. To-date, the Company has spent
approximately $200,000 and has a reserve balance of approximately
$970,000 as of December 31, 1997. Neither the Company's cost
estimates or reserve reflect any discount for present value purpose
and such remediation is expected to extend for a period of five to
ten years. The Company has recorded approximately $200,000 as a
current liability under "Current Liabilities of Discontinued
Operations" and the remainder under "Long-term Liabilities of
Discontinued Operations." See Note 4 for additional discussion of
discontinued operations.
________________________________________________________
NOTE 10
INCOME TAXES
The components of the provision for income taxes are as
follows (in thousands):
At December 31, 1997, the Company had temporary differences
and net operating loss carry forwards which gave rise to deferred
tax assets and liabilities at December 31, as follows (in
thousands):
1997 1996 1995
_______ _______ _______
Net operating losses $ 3,393 $ 3,376 $ 2,770
Environmental reserves 1,498 980 1,131
Impairment of assets 560 - -
Other 213 172 453
Valuation allowance (5,139) (4,034) (3,849)
_______ _______ _______
Deferred tax assets 525 494 505
_______ _______ _______
Depreciation and amortization 525 466 493
Other - 28 12
_______ _______ _______
33
Deferred tax liability 525 494 505
_______ _______ _______
Net deferred tax asset
(liability) $ - $ - $ -
======= ======= =======
A reconciliation between the expected tax benefit using the
federal statutory rate of 34% and the provision for income taxes as
reported in the accompanying consolidated statements of operations
is as follows (in thousands):
1997 1996 1995
_______ _______ _______
Tax benefit at statutory rate $(1,329) $ (88) $(3,077)
Permit impairment charge and
goodwill amortization 77 43 1,811
Other 147 (140) 97
Increase in valuation allowance 1,105 185 1,169
_______ _______ _______
Provision for income taxes $ - $ - $ -
======= ======= =======
The Company's valuation allowance increased by approximately
$1,105,000 and $185,000 for the years ended December 31, 1997, and
1996, respectively, which represents the effect of changes in the
temporary differences and net operating losses (NOLs), as amended.
The Company has recorded a valuation allowance to state its
deferred tax assets at estimated net realizable value due to the
uncertainty related to realization of these assets through future
taxable income.
The Company had estimated net operating loss carry forwards
for federal income tax purposes of approximately $9,980,000 at
December 31, 1997. These net operating losses can be carried
forward and applied against future taxable income, if any, and
expire in the years 2006 through 2011. However, as a result of
various stock offerings and certain acquisitions, the use of these
NOLs will be limited under the provisions of Section 382 of the
Internal Revenue Code of 1986, as amended. Additionally, NOLs may
be further limited under the provisions of Treasury Regulation
1.1502-21 regarding Separate Return Limitation Years.
________________________________________________________
NOTE 11
CAPITAL STOCK, EMPLOYEE STOCK PLAN AND INCENTIVE COMPENSATION
In February 1996, the Company issued 1,100 shares of newly
created Series 1 Preferred at a price of $1,000 per share, for net
proceeds of $924,000. The Company also issued 330 shares of newly
created Series 2 Preferred at a price of $1,000 per share, for net
proceeds of $297,000. During 1996, of the Series 1 and Series 2
Preferred were fully converted into 1,953,467 shares of the
Company's Common Stock. During July 1996, the Company issued 5,500
shares of newly created Series 3 Preferred at a price of $1,000 per
share for an aggregate sales price of $5,500,000. During June
1997, the Company issued 2,500 shares of newly created Series 4
Preferred at a price of $1,000 per share for an aggregate sales
price of $2,500,000. During July 1997, the Company issued 350
shares of newly created Series 5 Preferred at a price of $1,000 per
share for an aggregate sales price of $350,000. During 1997, 1,500
shares of the Series 3 Preferred were converted into 1,027,974
shares of the Company's Common Stock. See Note 6 for further
discussion.
In March 1996, the Company entered into a Stock Purchase
Agreement with Dr. Centofanti, the President, Chief Executive
Officer, Chairman of the Board of the Company, whereby the Company
sold, and Dr. Centofanti purchased, 133,333 shares of the Company's
Common Stock for 75% of the closing bid price of such Common Stock
as quoted on the NASDAQ on the date that Dr. Centofanti notified
the Company of his desire to purchase such stock, as authorized by
the Board of Directors of the Company. During February 1996, Dr.
Centofanti tendered to the Company $100,000 for such 133,333 shares
by delivering to the Company $86,000 and forgiving $14,000 that was
owing to Dr. Centofanti by the Company for expenses incurred by Dr.
Centofanti on behalf of the Company. On the date that Dr.
Centofanti notified the Company of his desire to purchase such
shares, the closing bid price as quoted on the NASDAQ for the
Company's Common Stock was $1.00 per share.
34
In June 1996, the Company entered into a second Stock Purchase
Agreement with Dr. Centofanti, whereby the Company sold, and Dr.
Centofanti purchased, 76,190 shares of the Company's Common Stock
for 75% of the closing bid price of such Common Stock as quoted on
the NASDAQ on the date that Dr. Centofanti notified the Company of
his desire to purchase such stock (closing bid of $1.75 on June 11,
1996), as previously authorized by the Board of Directors of the
Company. Dr. Centofanti tendered to the Company $100,000 for such
76,190 shares of Common Stock. During 1997, Dr. Centofanti also
purchased 12,190 shares of Common Stock for $20,000, representing
75% of the closing bid price. During 1996, the Company issued
347,912 shares of Common Stock to outside consultants and directors
of the Company for past and future services, valued at
approximately $462,000, and during 1997, the Company issued 116,081
shares of Common Stock to outside consultants and directors of the
Company, valued at approximately $148,000.
At the Company's Annual Meeting of Stockholders ("Annual
Meeting") as held on December 12, 1996, the stockholders approved
the adoption of the Perma-Fix Environmental Services, Inc. 1996
Employee Stock Purchase Plan. This plan provides eligible
employees of the Company and its subsidiaries, who wish to become
stockholders, an opportunity to purchase Common Stock of the
Company through payroll deductions. The maximum number of shares
of Common Stock of the Company that may be issued under the plan
will be 500,000 shares. The plan provides that shares will be
purchased two (2) times per year and that the exercise price per
share shall be eighty-five percent (85%) of the market value of
each such share of Common Stock on the offering date on which such
offer commences or on the exercise date on which the offer period
expires, whichever is lowest. The first purchase period commenced
July 1, 1997, and ended December 31, 1997. Proceeds totaled
$16,000 for this purchase period which resulted in the purchase of
8,276 shares of Common Stock in January 1998, pursuant to the 1996
Employee Stock Purchase Plan. Also approved at the Annual Meeting
was the amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase from 20,000,000 to
50,000,000 shares the Company's authorized Common Stock, par value
$.001 per share.
During October 1997, Dr. Centofanti entered into a three (3)
year Employment Agreement with the Company which provided for,
among other things, an annual salary of $110,000 and the issuance
of Non-qualified Stock Options ("Non-qualified Stock Options").
The Non-qualified Stock Options provide Dr. Centofanti with the
right to purchase an aggregate of 300,000 shares of Common Stock as
follows: (i) after one year 100,000 shares of Common Stock at a
price of $2.25 per share, (ii) after two years 100,000 shares of
Common stock at a price of $2.50 per share, and (iii) after three
years 100,000 shares of Common Stock at a price of $3.00 per share.
The Non-qualified Stock Options expire ten years after the date of
the Employment Agreement.
Stock Options
On December 16, 1991, the Company adopted a Performance Equity
Plan (the "Plan"), under which 500,000 shares of the Company's
Common Stock are reserved for issuance, pursuant to which officers,
directors and key employees are eligible to receive incentive or
Non-qualified stock options. Incentive awards consist of stock
options, restricted stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards. Incentive stock
options granted under the Plan are exercisable for a period of up
to ten years from the date of grant at an exercise price which is
not less than the market price of the Common Stock on the date of
grant, except that the term of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the then-
outstanding shares of Common Stock may not exceed five years and
the exercise price may not be less than 110% of the market price of
the Common Stock on the date of grant. To date, all grants of
options under the Performance Equity Plan have been made at an
exercise price not less than the market price of the Common Stock
at the date of grant.
Effective September 13, 1993, the Company adopted a Non-
qualified Stock Option Plan pursuant to which officers and key
employees can receive long-term performance-based equity interests
in the Company. The maximum number of shares of Common Stock as to
which stock options may be granted in any year shall not exceed
twelve percent (12%) of the number of common shares outstanding on
December 31 of the preceding year, less the number of shares
covered by the outstanding stock options issued under the Company's
1991 Performance Equity Plan as of December 31 of such preceding
35
year. The option grants under the plan are exercisable for a
period of up to ten years from the date of grant at an exercise
price which is not less than the market price of the Common Stock
at date of grant.
Effective December 12, 1993, the Company adopted the 1992
Outside Directors Stock Option Plan, pursuant to which options to
purchase an aggregate of 100,000 shares of Common Stock had been
authorized. This Plan provides for the grant of options on an
annual basis to each outside director of the Company to purchase up
to 5,000 shares of Common Stock. The options have an exercise
price equal to the closing trading price, or, if not available, the
fair market value of the Common Stock on the date of grant. The
Plan also provides for the grant of additional options to purchase
up to 10,000 shares of Common Stock on the foregoing terms to each
outside director upon election to the Board. During the Company's
annual meeting held on December 12, 1994, the stockholders approved
the Second Amendment to the Company's 1992 Outside Directors Stock
Option Plan which, among other things, (i) increased from 100,000
to 250,000 the number of shares reserved for issuance under the
Plan, and (ii) provides for automatic issuance to each director of
the Company, who is not an employee of the Company, a certain
number of shares of Common Stock in lieu of sixty-five percent
(65%) of the cash payment of the fee payable to each director for
his services as director of the Company. The Third Amendment to
the Outside Directors Plan, as approved at the December 1996 Annual
Meeting, provided that each eligible director shall receive, at
such eligible director's option, either sixty-five percent (65%) or
one hundred percent (100%) of the fee payable to such director for
services rendered to the Company as a member of the Board in Common
Stock. In either case, the number of shares of Common Stock of the
Company issuable to the eligible director shall be determined by
valuing the Common Stock of the Company at seventy-five percent
(75%) of its fair market value as defined by the Outside Directors
Plan. The Fourth Amendment to the Outside Directors Plan, to be
approved at the May 1998 Annual Meeting, proposes to increase the
number of authorized shares from 250,000 to 500,000 reserved for
issuance under the Plan.
The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for
options issued to employees. Accordingly, no compensation cost has
been recognized for options granted to employees at exercise prices
which equal or exceed the market price of the Company's Common
Stock at the date of grant. Options granted at exercise prices
below market prices are recognized as compensation cost measured as
the difference between market price and exercise price at the date
of grant.
Statement of Financial Accounting Standards No. 123 ("FAS
123") "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and
earnings per share as if compensation cost for the Company's
employee stock options had been determined in accordance with the
fair market value based method prescribed in FAS 123. The Company
estimates the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and
1995, respectively: no dividend yield for all years; an expected
life of ten years for all years; expected volatility of 42.0%,
46.8% and 47.0%; and risk-free interest rates of 6.91%, 6.63% and
7.69%.
Under the accounting provisions of FASB Statement 123, the
Company's net loss and loss per share would have been reduced to
the pro forma amounts indicated below:
1997 1996 1995
____________ ______________ _____________
Net loss applicable to Common
Stock from continuing
operations
As reported $ (1,068,000) $ (2,118,000) $ (3,494,000)
Pro forma (1,346,000) (2,471,000) (3,995,000)
Net loss per share applicable
to Common Stock from con-
tinuing operations
As reported $ (.10) $ (.24) $ (.44)
Pro forma (.13) (.28) (.51)
36
Net loss applicable to Common
Stock
As reported $ (5,169,000) $ (2,405,000) $ (9,052,000)
Pro forma (5,767,000) (2,758,000) $ (9,553,000)
Net loss per share
As reported $ (.49) $ (.27) $ (1.15)
Pro forma (.54) (.31) (1.21)
A summary of the status of options under the plans as of December 31,
1997, 1996 and 1995 changes during the years ending on those dates are
presented below:
1997 1996
___________________ ____________________
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
_________ _________ _________ ________
Performance Equity Plan:
_______________________
Balance at beginning
of year 316,226 $2.43 263,282 $3.22
Granted - - 110,000 1.00
Exercised - - - -
Forfeited (28,088) 1.34 (57,056) 3.32
________ ________
Balance at end
of year 288,138 2.54 316,226 2.43
======== ========
Options exercisable
at year end 217,238 2.98 183,609 3.14
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price - - 110,000 1.00
Weighted average
fair value - - 110,000 .68
Non-qualified Stock
Option Plan:
___________________
Balance at beginning
of year 475,395 $1.68 263,995 $3.17
Granted 290,000 1.375 345,000 1.00
Exercised (11,000) 1.00 - -
Forfeited (103,685) 2.54 (133,600) 2.88
________ ________
Balance at end
of year 650,710 1.41 475,395 1.68
======== ========
Options exercisable
at year end 90,426 1.72 34,158 3.77
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 290,000 1.375 345,000 1.00
Weighted average
fair value 290,000 .90 345,000 .68
Outside Directors Stock
Option Plan:
_______________________
Balance at beginning
of year 145,000 $2.76 110,000 $3.08
Granted 15,000 2.13 35,000 1.75
Exercised - - - -
Forfeited - - - -
________ ________
Balance at end
of year 160,000 2.69 145,000 2.76
======== ========
Options exercisable
at year end 160,000 2.69 110,000 3.08
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 15,000 2.13 35,000 1.75
Weighted average
fair value 15,000 1.34 35,000 1.25
1995
____________________
Weighted
Average
Exercise
Shares Price
_________ __________
361,615 $ 3.31
15,000 2.47
- -
(113,333) 3.41
_________
263,282 3.22
=========
158,874 3.17
15,000 2.47
15,000 1.69
119,295 $ 3.72
193,000 2.88
- -
(48,300) 3.40
_________
263,995 3.17
=========
8,079 4.75
193,000 2.88
193,000 2.23
90,000 $ 3.05
20,000 3.25
- -
- -
________
110,000 3.08
========
110,000 3.08
20,000 3.25
20,000 2.27
37
The following table summarizes information about options under the plan
outstanding at December 31, 1997:
Options Outstanding
________________________________________
Weighted
Average Weighted
Description and Number Remaining Average
Range of Outstanding at Contractual Exercise
Exercise Price Dec. 31, 1997 Life Price
________________________ ______________ ___________ ________
Performance Equity Plan:
_______________________
1991/1992 Awards ($3.02) 188,638 4.1 years $3.02
1993 Awards ($5.25) 14,500 5.8 years 5.25
1996 Awards ($1.00) 85,000 8.4 years 1.00
_________
288,138 5.5 years 2.54
=========
Non-qualified Stock
Option Plan:
___________________
1994 Awards ($4.75) 710 6.2 years $4.75
1995 Awards ($2.88) 85,000 7.0 years 2.88
1996 Awards ($1.00) 280,000 8.4 years 1.00
1997 Awards ($1.375) 285,000 9.3 years 1.38
_________
650,710 8.6 years 1.41
=========
Outside Directors Stock
Option Plan:
_______________________
1993 Awards ($3.02) 45,000 4.5 years $3.02
1994 Awards ($3.00-$3.22) 45,000 6.5 years 3.07
1995 Awards ($3.25) 20,000 7.0 years 3.25
1996 Awards ($1.75) 35,000 8.9 years 1.75
1997 Awards ($2.125) 15,000 9.9 years 2.13
_________
160,000 6.9 years 2.69
=========
Options Exercisable
_______________________________
Weighted
Number Average
Exercisable at Exercise
Dec. 31, 1997 Price
_______________ ________
188,638 $3.02
11,600 5.25
17,000 1.00
__________
217,238 2.98
==========
426 $4.75
34,000 2.88
56,000 1.00
- -
__________
90,426 1.72
==========
45,000 $3.02
45,000 3.07
20,000 3.25
35,000 1.75
15,000 2.13
________
160,000 2.69
Warrants
The Company has issued various warrants pursuant to acquisitions, private
placements, debt and debt conversion and to facilitate certain financing
arrangements. The warrants principally are for a term of three to five years
and entitle the holder to purchase one share of Common Stock for each warrant at
the stated exercise price. During 1996, pursuant to the issuance of the Series
3 Class C Convertible Preferred Stock, as further discussed in Note 6, the
Company issued to RBB Bank two (2) Common Stock purchase warrants entitling
RBB Bank 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 at $3.50 per share.
In connection with the Preferred Stock issuances as discussed fully in Note 6,
the Company issued additional warrants during 1997 and 1996 for the purchase of
1,531,250 and 1,420,000 shares, respectively, of Common Stock which are included
in other financing warrants. Certain of the warrant agreements contain
antidilution provisions which have been triggered by the various stock and
warrant transactions as entered into by the Company since the issuance of such
warrants by the Company. The impact of these antidilution provisions was the
reduction of certain warrant exercise prices and in some cases the increase in
the total number of underlying shares for certain warrants issued prior to
1996. During 1997, a total of 794,514 warrants were exercised for proceeds in
the amount of $933,000 and 842,920 warrants expired.
38
The following details the warrants currently outstanding as of
December 31, 1997, after giving effect to antidilution provisions:
Number of
Underlying Exercise Expiration
Warrant Series Shares Price Date
______________ __________ ____________ __________
Class B Warrants 4,273,445 $3.28 6/99
Class C Preferred
Stock Warrants 3,113,300 $.73-$3.50 9/99-7/01
Class F Preferred
Stock Warrants 1,421,250 $1.50-$2.125 6/00-7/02
Class G Preferred
Stock Warrants 35,000 $1.8125 6/00
Other Financing
Warrants 1,192,901 $1.936-$3.625 6/99-9/00
___________
10,035,896
===========
Shares Reserved
At December 31, 1997, the Company has reserved approximately 21,168,631
shares of Common Stock for future issuance under all of the above arrangements
and the convertible Series 3, Series 6, and Series 7 Preferred Stock using the
minimum conversion price (see Note 6).
________________________________________________________
NOTE 12
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 May 1995, PFM, a subsidiary of the Company, became aware that the U.S.
District Attorney for the Western District of Tennessee and the Department of
Justice were investigating certain prior activities of W. & R. Drum, Inc. ("W.R.
Drum") its successor, First Southern Container Company, and any other facility
owned or operated, in whole or in part, by Johnnie Williams. PFM used W. R.
Drum to dispose of certain of its used drums. In May 1995, PFM received a
Grand Jury Subpoena which demanded the production of any documents in the
possession of PFM pertaining to W. R. Drum, First Southern Container Company,
or any other facility owned or operated, and holder in part, by Johnnie
Williams. PFM complied with the Grand Jury Subpoena. Thereafter, in September
of 1995, PFM received another Grand Jury Subpoena for documents from the
Grand Jury investigating W. R. Drum, First Southern Container Company and/or
Johnnie Williams. PFM complied with the Grand Jury Subpoena. In December
1995, representatives of the Department of Justice advised PFM that it was also
currently a subject of the investigation involving W. R. Drum, First Southern
Container Company, and/or Johnnie Williams. In accordance with certain
provisions of the Agreement and the Plan of Merger relating to the prior
acquisition of PFM, on or about January 2, 1996, PFM notified Ms. Billie K.
Dowdy of the foregoing, and advised Ms. Dowdy that the Company and PFM would
look to Ms. Dowdy to indemnify, defend and hold the Company and PFM harmless
from any liability, loss, damage or expense incurred or suffered as a result of,
or in connection with, this matter.
During January 1998, PFM was notified by the EPA that the EPA had conducted
remediation operations at a site owned and operated by W.R. Drum in Memphis,
Tennessee (the "Drum site"). By correspondence dated January 15, 1998 ("PRP
Letter"), the EPA has informed PFM that it believes that PFM is a PRP regarding
the remediation of the Drum site, primarily as a result of acts by PFM prior to
the time PFM was acquired by the Company. The PRP Letter states that the EPA is
continuing to investigate other PRPs regarding the Drum site which may be liable
for certain remediation costs of the Drum site. The PRP Letter estimated the
remediation costs incurred by the EPA for the Drum site to be approximately
$1,400,000 as of November 30, 1997, and the EPA has orally informed the
Registrant that such remediation has been substantially complete as of such
date. Because CERCLA provides that liability for PRPs for a particular site is
joint and several, the PRP Letter includes a demand by the EPA from PFM for the
full amount of the remediation of the Drum site, including interest on such
39
amount, as provided for in CERCLA. The EPA has advised PFM that PFM was a PRP
at the Drum site; and that the EPA believes that PFM supplied a substantial
amount of the drums at the Drum Site, during a portion of the years in which
W.R. Drum was in operation. In addition, the EPA has advised PFM that it has
sent PRP Letters to approximately 50 other PRP's making demand upon such other
PRPs regarding the Drum site. The Company is currently investigating the
allegations set forth in the PRP Letter and intends to vigorously defend against
such allegations and the associated demand regarding remediation costs of the
Drum site. The Company has notified certain of the previous owners of PFM that
the Company will seek recovery from them as PRPs in the event PFM is determined
to be a PRP regarding the Drum site. However, no assurance can be made that
PFM will be able to recover remediation costs from such previous owners. If
PFM is determined to be liable for all or a substantial portion of the
remediation cost incurred by the EPA at the Drum site, such could have a
material adverse effect on the Company.
On January 27, 1997, an explosion and resulting tank fire occurred at PFM's
facility in Memphis, Tennessee, a hazardous waste storage, processing and
blending facility. See "Business Company Overview and Principal Products and
Services" and Note 4 "Discontinued Operations" of the Notes to Consolidated
Financial Statements. As a result of the fire and explosion, the Tennessee
Department of Environmental and Conservation ("TDEC") issued an order in a
matter styled In the Matter of Perma-Fix Incorporated, Division of Solid Waste
Management, Case No. 97-0097, Tennessee Department of Environmental and
Conservation (the "Order"), and in such Order alleged that PFM violated certain
rules and regulations of the TDEC and assessed a penalty of $145,000 against
PFM as a result of the above-referenced occurrence. The TDEC and the Company
have settled the Order. Under the terms of the settlement between the TDEC and
PFM, dated February 3, 1998, the TDEC and PFM agreed, among other things, (i)
that as a result of the fire and explosion, which were caused by welding
activities of employees of an independent contractor, certain hazardous waste
was released into the soil at PFM's facility; (ii) that PFM submitted to the
TDEC a soil removal plan ("plan"), which plan is designed to remediate the soil
at PFM's facility that was impacted by such release, the plan has been approved
by the TDEC, and that PFM is currently implementing the plan, and (iii) PFM
agreed to pay the TDEC a civil penalty of approximately $108,000, payable as
follows: $25,000 within 60 days and the balance payable in quarterly
installments of approximately $10,400 each beginning June 1, 1998, and on the
first day of each quarter thereafter until paid in full (with all or a portion
of the quarter installments payable by the Company accepting CERCLA waste
from the TDEC on a dollar for dollar basis under certain conditions). In
addition, under the settlement, PFM has agreed to cease fuel blending at its
Memphis, Tennessee facility and to implement an amended approved closure plan
of its hazardous waste tank farm, at such facility, subject to certain
exceptions.
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 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 decommis-
sioning 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. As discussed in Note 9, the Company has
recorded accrued liabilities for estimated closure costs and identified
environmental remediation costs.
40
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 $3,860,000. This
liability includes principally, the RCRA closure liability, the groundwater
remediation liability (see Note 9), the potential additional site investigation
and remedial activity which may arise as PFM proceeds with its closure
activities, the Company's best estimate of the future operating losses as the
Company discontinues its fuel blending operations and other contingent
liabilities, including the above discussed PRP liability. See Note 4 for
further discussion of PFM.
Insurance
The business of the Company exposes it to various risks, including claims
for causing damage to property or injuries to persons or claims alleging
negligence or professional errors or omissions in the performance of its
services, which claims could be substantial. The Company carries general
liability insurance which provides coverage in the aggregate amount of $2
million and an additional $6 million excess umbrella policy and carries $1
million per occurrence and $2 million annual aggregate of errors and omissions/
professional liability insurance coverage, which includes pollution control
coverage.
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.
Facility Expansion
The Company is currently in the process of upgrading or expanding all of
its TSD facilities, with the principal projects occurring at its PFD, PFTS and
PFF subsidiaries. Certain of the projects were initiated during 1997 and all
current activity is expected to be completed by the fourth quarter of 1998, at
an estimated additional cost of approximately $1,850,000. The Company has
estimated additional capital spending of approximately $100,000 to be incurred
at the remainder of the Company's subsidiaries during 1998.
Operating Leases
The Company leases certain facilities and equipment under operating
leases. Future minimum rental payments as of December 31, 1997 required under
these leases are $1,035,000 in 1998, $692,000 in 1999, $501,000 in 2000,
$247,000 in 2001 and $197,000 in 2002.
Net rent expense relating to the Company's operating leases was $1,533,000,
$1,657,000 and $1,982,000 for 1997, 1996 and 1995, respectively.
________________________________________________________
NOTE 13
PROFIT SHARING PLAN
The Company adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan
(the "401(k) Plan") in 1992, which is intended to comply under Section 401 of
the Internal Revenue Code and the provisions of the Employee Retirement Income
Security Act of 1974. All full-time employees of the Company and its
subsidiaries who have attained the age of 21 are eligible to participate in the
401(k) Plan. Participating employees may make annual pre-tax contributions to
their accounts up to 15% of their compensation, up to a maximum amount as
limited by law. The Company, at its discretion, may make matching contributions
based on the employee's elective contributions. Company contributions vest
over a period of six years. The Company elected not to provide any matching
contributions for the years ended December 31, 1997, 1996, and 1995.
41
________________________________________________________
NOTE 14
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 Perma-Fix of Memphis, Inc. 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 table below shows certain financial information by business segment for
1997, 1996, and 1995 and excludes the results of operations of the discontinued
operations. Income (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 Thousands Services Services Other Consolidated
_______________________________________________________________________________
1997
Net revenues $ 23,756 $ 4,657 $ - $ 28,413
Depreciation and amortization 1,850 110 20 1,980
Income (loss) from operations 2,212 70 (1,358) 924
Identifiable assets 25,806 2,593 171 28,570
Capital expenditures, net 1,777 21 - 1,798
1996
Net revenues $ 21,497 $ 5,54 4 $ - $ 27,041
Depreciation and amortization 1,906 156 21 2,083
Income (loss) from operations 897 505 (1,298) 104
Identifiable assets 26,403 2,565 68 29,036
Capital expenditures, net 2,373 8 - 2,381
1995
Net revenues $ 25,429 $ 6,048 $ - $ 31,477
Depreciation and amortization 1,862 169 20 2,051
Nonrecurring charges 762 - 225 987
Income (loss) from operations (818) 350 (2,025) (2,493)
Identifiable assets 25,524 2,884 465 28,873
Capital expenditures, net 2,648 82 104 2,834
(exclusive of acquisitions)
42
________________________________________________________
NOTE 15
NONRECURRING CHARGES
During 1995, the Company recorded several nonrecurring charges
totaling $987,000, for certain unrelated events. Of this amount,
$450,000 represents a divestiture reserve as related to the sale of
a wholly-owned subsidiary and $537,000 are one-time charges
resulting from restructuring programs.
As previously disclosed, the Company decided in 1994 to divest
its wholly-owned subsidiary, Re-Tech Systems, Inc., which is
engaged in post-consumer plastics recycling. Effective March 15,
1996, the Company completed the sale of Re-Tech Systems, Inc., its
plastics processing 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 $595,000 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. The
Company recorded during 1995 a nonrecurring charge of $450,000
(recorded as an asset reduction) for the estimated loss on the sale
of this subsidiary, which, based upon the 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 totaling approximately $94,000 and
certain liabilities totaling approximately $48,000.
The Company also executed restructuring programs within the waste
management services segment. A one-time charge of $237,000 was
recorded 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 related closing of
seven (7) of the nine (9) offices. A one-time charge of $75,000
was also recorded during the second quarter of 1995 to provide for
consolidation costs, principally severance, associated with the
restructuring of the Southeast Region, which is comprised of Perma-
Fix of Florida and Perma-Fix of Ft. Lauderdale. These
restructuring costs were principally incurred and funded during
1995.
In December of 1995, in conjunction with the above referenced
restructuring program, the Company and Mr. Robert W. Foster, Jr.
("Foster") agreed to Foster's resignation as President, Chief
Executive Officer and Director of the Company, thereby terminating
his employment agreement with the Company effective March 15, 1996.
The Company agreed to severance benefits of $30,000 in cash, the
continuation of certain employee benefits for a period of time and
the issuance of $171,000 in the form of Common Stock, par value
$.001, of the Company. Pursuant to the above, the Company recorded
a nonrecurring charge at December 31, 1995, of $215,000. In
addition, severance costs of approximately $10,000 were incurred
upon the termination of several corporate executives. These
restructuring costs were principally incurred and funded during the
first six months of 1996.
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following documents are filed as a part of this report:
(a)(1) Consolidated Financial Statements
See Item 8 for the Index to Consolidated Financial
Statements.
(a)(2) Financial Statement Schedules
See Item 8 for the Index to Consolidated Financial
Statements (which includes the Index to Financial
Statement Schedules)
(a)(3) Exhibits
The Exhibits listed in the Exhibit Index are filed or
incorporated by reference as a part of this report.
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
fourth quarter of 1997.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Dr. Louis F. Centofanti Date January 12, 1999
_______________________________ ___________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By /s/ Richard T. Kelecy Date January 12, 1999
__________________________________ ___________________
Richard T. Kelecy
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in capacities and on the dates
indicated.
/s/ Steve Gorlin Date January 12, 1999
___________________________________ ____________________
/s/ Mark A. Zwecker Date January 12, 1999
___________________________________ ____________________
/s/ Jon Colin Date January 12, 1999
___________________________________ ____________________
/s/ Dr. Louis F. Centofanti Date January 12, 1999
___________________________________ ____________________
45
EXHIBIT INDEX
Exhibit Page
No. Description No.
______ ___________ ____
3(i) Restated Certificate of Incorporation, as amended, and
all Certificates of Designations are incorporated by
reference from Exhibit 3(i) to the Company's Form 10-Q
for the quarter ended September 30, 1997
3(ii) Bylaws are incorporated by reference from the Company's
Registration Statement, No. 33-51874
4.1 Warrant Agreement, dated May 15, 1994, between the
Company and Continental Stock Transfer & Trust Company,
as Warrant Agent, is incorporated by reference from
Exhibit 4.2 to the Company's Form 10-Q for the quarter
ended June 30, 1994
4.2 Specimen Warrant Certificate relating to Class B
Warrants, is incorporated by reference from Exhibit 4.9
to the Company's Registration Statement, No. 33-85118
4.3 Specimen Common Stock Certificate is incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement, No. 33-51874
4.4 Form of Subscription Agreement is incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for
the quarter ended June 30, 1994
4.5 Subscription and Purchase Agreement dated July 17, 1996,
between the Company and RBB Bank Aktiengesellschaft is
incorporated by reference from Exhibit 4.4 to the
Company's Form 10-Q for the quarter ended June 30, 1996
4.6 Form of Certificate for Series 3 Preferred is
incorporated by reference from Exhibit 4.6 to the
Company's Form 10-Q for the quarter ended June 30, 1996
4.7 Subscription and Purchase Agreement, dated June 9, 1997,
between the Company and RBB Bank Aktiengesellschaft is
incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K, dated June 11, 1997
4.8 Certificate of Designations of Series 4 Class D
Convertible Preferred Stock, dated June 9, 1997, is
incorporated by reference from Exhibit 4.2 to the
Company's Form 8-K, dated June 11, 1997
4.9 Specimen copy of Certificate relating to the Series 4
Class D Convertible Preferred Stock is incorporated by
reference from Exhibit 4.3 to the Company's Form 8-K,
dated June 11, 1997
4.10 Subscription and Purchase Agreement, dated July 7, 1997,
between the Company and The Infinity Fund, L.P. is
incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K, dated July 7, 1997
4.11 Certificate of Designations of Series 5 Class E
Convertible Preferred Stock, dated July 14, 1997, is
incorporated by reference from Exhibit 4.2 to the
Company's Form 8-K, dated July 7, 1997
4.12 Specimen copy of Series 5 Class E Convertible Preferred
Stock certificate is incorporated by reference from
Exhibit 4.3 to the Company's Form 8-K, dated July 7, 1997
46
Exhibit Page
No. Description No.
______ ____________ ____
4.13 Certificate of Designations of Series 6 Class F
Convertible Preferred Stock, dated November 6, 1997, is
incorporated by reference from Exhibit 3(i) to the
Company's Form 10-Q for the quarter ended September 30,
1997
4.14 Specimen copy of Series 6 Class F Convertible Preferred
Stock Certificate is incorporated by reference from
Exhibit 4.8 to the Company's Form 10-Q for the quarter
ended September 30, 1997
4.15 Certificate of Designations of Series 7 Class G
Convertible Preferred Stock, dated October 30, 1997, is
incorporated by reference from Exhibit 3(i) to the
Company's Form 10-Q for the quarter ended September 30,
1997
4.16 Specimen copy of Series 7 Class G Convertible Preferred
Stock Certificate is incorporated by reference from
Exhibit 4.10 to the Company's Form 10-Q for the quarter
ended September 30, 1997
4.17 Exchange Agreement dated November 6, 1997, to be
considered effective as of September 16, 1997, between
the Company and RBB Bank is incorporated by reference
from Exhibit 4.11 to the Company's Form 10-Q for the
quarter ended September 30, 1997
4.18 Exchange Agreement dated as of October 31, 1997, to be
considered effective as of September 16, 1997, between
the Company and the Infinity Fund, L.P. is incorporated
by reference from Exhibit 4.12 to the Company's Form 10-Q
for the quarter ended September 30, 1997
4.19 Loan and Security Agreement, dated January 15, 1998,
between the Company, subsidiaries of the Company and
Congress Financial Corporation (Florida) is incorporated
by reference from Exhibit 4.1 to the Company's Form 8-K
dated January 15, 1998
10.1 Note and Warrant Purchase Agreement, dated February 10,
1992, between the Company and Al Warrington, Productivity
Fund II, L.P. ("Productivity Fund"), Environmental
Venture Fund, L.P. ("Environmental Venture Fund"), and
Steve Gorlin is incorporated by reference from Exhibit
4.1 of the Company's Registration Statement, No. 33-85118
10.2 Amendments, dated February 7, 1997, to Common Stock
Warrants for the Purchase of Shares of Common Stock,
dated February 10, 1992, between the Company and each of
Alfred C. Warrington, IV, Productivity Fund II, L.P.,
Environmental Venture Fund II, L.P., Steve Gorlin, and
D.H. Blair Investment Banking Corporation is incorporated
by reference from, respectively, Exhibits 4.2, 4.3, 4.4,
4.5 and 4.6 to the Company's Form 8-K dated February 7,
1997
10.3 1991 Performance Equity Plan of the Company is
incorporated herein by reference from Exhibit 10.3 to the
Company's Registration Statement, No. 33-51874
10.4 Warrant, dated September 1, 1994, granted by the Company
to Productivity Fund is incorporated herein by reference
from Exhibit 4.12 to the Company's Registration Statement
No. 33-85118
10.5 Warrant, dated September 1, 1994, for the Purchase of
Common Stock granted by the Company to Environmental
Venture Fund is incorporated by reference from Exhibit
4.14 to the Company's Registration Statement No. 33-85118
47
Exhibit Page
No. Description No.
_______ ___________ ____
10.6 Warrant, dated September 1, 1994, for the Purchase of
Common Stock granted by the Company to Warrington is
incorporated by reference from Exhibit 4.16 to the
Company's Registration Statement No. 33-85118
10.7 Warrant, dated September 1, 1994, for the Purchase of
Common Stock granted by the Company to Joseph Stevens &
Company, L.P. ("Stevens") is incorporated by reference
from Exhibit 4.17 to the Company's Registration Statement
No. 33-85118
10.8 Warrant, dated October 6, 1994, for the Purchase of
Common Stock granted by the Company to Stevens is
incorporated by reference from Exhibit 4.20 to the
Company's Registration Statement No. 33-85118
10.9 Warrant, dated September 30, 1994, for the Purchase of
Shares of Common Stock granted by the Company to Ally
Capital Management, Inc. is incorporated by reference
from Exhibit 4.27 to the Company's Registration Statement
No. 33-85118
10.10 Warrant, dated June 17, 1994, for the purchase of Common
Stock granted by the Company to Sun Bank, National
Association is incorporated by reference from Exhibit 4.2
to the Company's Form 8-K dated June 17, 1994
10.11 Warrant, dated September 1, 1994, for the Purchase of
Shares of Common Stock granted by the Company to D. H.
Blair Investment Banking Corporation is incorporated by
reference from Exhibit 10.24 to the Company's Form 10-K
for the year ended December 31, 1994. Blair assigned a
portion of its initial warrant to certain officers and
directors of Blair. The warrants issued to such officers
and directors are substantially similar to the warrant
issued to Blair, except as to name of the warrant holder
and the number of shares covered by each such warrant, as
follows:
J. Morton Davis 9,775 shares
Martin A. Bell 8,000 shares
Alan Stahler 39,100 shares
Kalman Renov 39,100 shares
Richard Molinsky 25,125 shares
Jeff Berns 25,500 shares
Nick DiFalco 21,000 shares
Richard Molinsky 50,250 shares
and the Company agrees to file copies of the omitted
documents to the Commission upon the Commission's request
10.12 1992 Outside Directors' Stock Option Plan of the Company
is incorporated by reference from Exhibit 10.4 to the
Company's Registration Statement, No. 33-51874
10.13 First Amendment to 1992 Outside Directors' Stock Option
Plan is incorporated by reference from Exhibit 10.29 to
the Company's Form 10-K for the year ended December 31,
1994
10.14 Second Amendment to the Company's 1992 Outside Directors'
Stock Option Plan, is incorporated by reference from the
Company's Proxy Statement, dated November 4, 1994
48
Exhibit Page
No. Description No.
_______ ___________ ____
10.15 Third Amendment to the Company's 1992 Outside Directors'
Stock Option Plan is incorporated by reference from the
Company's Proxy Statement, dated November 8, 1996
10.16 Fourth Amendment to the Company's 1992 Outside Directors'
Stock Option Plan is incorporated by reference from the
Company's Proxy Statement, dated April 20, 1998
10.17 1993 Non-qualified Stock Option Plan is incorporated by
reference from the Company's Proxy Statement, dated
October 12, 1993
10.18 401(K) Profit Sharing Plan and Trust of the Company is
incorporated by reference from Exhibit 10.5 to the
Company's Registration Statement, No. 33-51874
10.19 Stock Purchase Agreement between the Company and
Dr. Louis F. Centofanti, dated March 1, 1996, is
incorporated by reference from Exhibit 10.30 to the
Company's Form 10-K for the year ended December 31, 1995
10.20 Stock Purchase Agreement between the Company and Dr.
Louis F. Centofanti, dated June 11, 1996, is incorporated
by reference from Exhibit 10.29 to the Company's Form
10-K for the year ended December 31, 1996
10.21 Common Stock Purchase Warrant Certificate, dated July 19,
1996, granted to RBB Bank Aktiengesellschaft is
incorporated by reference from Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1996
10.22 Common Stock Purchase Warrant Certificate, dated July 19,
1996, granted to RBB Bank Aktiengesellschaft is
incorporated by reference from Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended June 30, 1996
10.23 Common Stock Purchase Warrant Certificate No. 1-9-96,
dated September 16, 1996, between the Company and J. P.
Carey Enterprises, Inc. is incorporated by reference
from Exhibit 4.8 to the Company's Registration Statement,
No. 333-14513
10.24 Common Stock Purchase Warrant Certificate No. 2-9-96,
dated September 16, 1996, between the Company and J. P.
Carey Enterprises, Inc. is incorporated by reference from
Exhibit 4.9 to the Company's Registration Statement, No.
333-14513
10.25 Common Stock Purchase Warrant Certificate No. 3-9-96,
dated September 16, 1996, between the Company and J W
Charles Financial Services, Inc. is incorporated by
reference from Exhibit 4.10 to the Company's Registration
Statement, No. 333-14513
10.26 Common Stock Purchase Warrant Certificate No. 4-9-96,
dated September 16, 1996, between the Company and Search
Group Capital, Inc. is incorporated by reference from
Exhibit 4.11 to the Company's Registration Statement, No.
333-14513
10.27 Common Stock Purchase Warrant Certificate No. 5-9-96,
dated September 16, 1996, between the Company and Search
Group Capital, Inc. is incorporated by reference from
Exhibit 4.12 to the Company's Registration Statement, No.
333-14513
49
Exhibit Page
No. Description No.
_______ ___________ ____
10.28 Common Stock Purchase Warrant Certificate No. 6-9-96,
dated September 16, 1996, between the Company and Search
Group Capital, Inc. is incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement, No.
333-14513
10.29 Common Stock Purchase Warrant Certificate No. 7-9-96,
dated September 16, 1996, between the Company and Marvin
S. Rosen is incorporated by reference from Exhibit 4.14
to the Company's Registration Statement, No. 333-14513
10.30 Common Stock Purchase Warrant Certificate No. 8-9-96,
dated September 16, 1996, between the Company and D. H.
Blair Investment Banking Corporation is incorporated by
reference from Exhibit 4.15 to the Company's Registration
Statement, No. 333-14513
10.31 Common Stock Purchase Warrant Certificate No. 9-9-96,
dated September 16, 1996, between the Company and Steve
Gorlin is incorporated by reference from Exhibit 4.16 to
the Company's Registration Statement, No. 333-14513
10.32 Consulting Agreement with C. Lee Daniel, Jr. is
incorporated by reference from Exhibit 99.1 to the
Company's Registration Statement No. 333-17899
10.33 Common Stock Purchase Warrant ($2.10) dated June 9, 1997,
between the Company and RBB Bank Aktiengesellschaft is
incorporated by reference from Exhibit 4.4 to the
Company's Form 8-K, dated June 11, 1997
10.34 Common Stock Purchase Warrant ($2.50) dated June 9, 1997,
between the Company and RBB Bank Aktiengesellschaft is
incorporated by reference from Exhibit 4.5 to the
Company's Form 8-K, dated June 11, 1997
10.35 Common Stock Purchase Warrant ($1.50) dated June 9, 1997,
between the Company and J W Charles Securities, Inc. is
incorporated by reference from Exhibit 4.6 to the
Company's Form 8-K, dated June 11, 1997
10.36 Common Stock Purchase Warrant ($2.00) dated June 9, 1997,
between the Company and J W Charles Securities, Inc. is
incorporated by reference from Exhibit 4.7 to the
Company's Form 8-K, dated June 11, 1997
10.37 Stock Purchase Agreement, dated June 30, 1997, between
the Company and Dr. Louis F. Centofanti is incorporated
by reference from Exhibit 4.4 to the Company's Form 8-K,
dated July 7, 1997
10.38 Amended Stock Purchase Agreement, dated October 7, 1997,
between the Company and Dr. Louis F. Centofanti is
incorporated by reference from Exhibit 10.6 to the
Company's Form 10-Q for the quarter ended September 30,
1997
10.39 Employment Agreement, dated October 1, 1997, between the
Company and Dr. Louis F. Centofanti is incorporated by
reference from Exhibit 10.9 to the Company's Form 10-Q
for the quarter ended September 30, 1997
21.1 List of Subsidiaries*
23.1 Consent of BDO Seidman, LLP** 51
27.1 Financial Data Schedule 1997** 52
27.2 Financial Data Schedule 1996*
<FN>
* Originally filed with the Form 10-K for the year ended
December 31, 1997
**Filed herein
</FN>
50