Perma-Fix(R)
Environmental Services, Inc.
1998
Annual
Report
and
Form 10-K
Mission Statement
The Perma-Fix mission
is to achieve
profitability and increase
shareholder value by:
-consistently improving and
expanding the range and
quality of waste treatment
technologies and services that
we can offer our customers;
-expanding our customer base
both through acquisitions and
the building of customer
loyalty through the consistent
demonstration of our
commitment to providing
safe, effective, low-cost
solutions to our customers'
complex nuclear mixed-waste
and industrial waste and
wastewater disposal needs;
and
-by the wise management of
our financial, technologies
and human resources.
Perma-Fix(R)
Environmental Services, Inc.
November 5, 1999
To My Fellow Shareholders:
The employees and management of Perma-Fix Environmental Services,
Inc. established the mission of achieving profitability and
increased shareholder value, while setting the standard for
development of unique treatment technologies. We are pleased to
report that 1998 was a highly successful year for our Company, as
evidenced by increased revenues, meaningful cost reductions and
improvements in gross margins, as well as having made great
strides toward achieving our mission. In addition, we continued
our long-term commitment to develop safe, proprietary methods of
treating waste and capitalized on new opportunities for growth
within both the industrial and nuclear waste markets. Many of
the steps that we initiated during 1998 to position our Company
for aggressive growth, both now and in the future, have already
begun to pay important dividends.
During 1998, total consolidated revenues increased $2.1 million
or approximately 7 1/2% to $30,551,000, as we continued to focus on
establishing a leading position in the nuclear mixed waste and
industrial waste sectors. During the year we achieved revenue
growth in each of our market sectors, the most significant of
which was in the expanding water treatment business. I am also
pleased to report that during the year we increased our gross
margin rate through reductions of fixed and other operating
costs. As a result of our successful efforts in generating
increased revenues, as well as controlling costs, net income from
continuing operations increased more than 140% to $462,000.
We continued throughout 1998 to develop new technologies and
invest resources in research and development. Our successes will
enable the Company to capitalize on new opportunities, a number
of which have come to the forefront during 1999. It is our
objective to stay ahead of the curve in terms of technology and
to lead the industry in the development of proprietary and safe
methods to treat waste. In addition, we continue to make
substantial investments in our future by expanding our existing
facilities, improving customer service and positioning our
Company for aggressive growth.
Central to our performance has been our zealous adherence to this
strategic focus, coupled with exceptional customer service,
integration of efforts and a proven management team. Our success
in implementing this focus is a credit to the loyal, talented and
dedicated employees who continue to raise our Company's
performance and who have enabled us to achieve our many
objectives, several of which are highlighted below:
-Throughout 1998 and 1999, we have continued to develop new
technologies, such as processes for Selenium, Beryllium, and
Radon. We have also licensed a water treatment technology
for our industrial group.
-In June 1999, we acquired "Chem-Con"; three successful and
profitable industrial waste treatment facilities located in
Florida, Georgia and Michigan. This helped establish Perma-
Fix as one of the dominant industrial waste treatment
companies in the Southeast.
-In early 1999, we received four contracts from the
Department of Defense (DOD) worth approximately $22 million
in estimated revenue to handle certain hazardous waste
streams over the fifty-four months of the contracts. These
contracts make us one of the largest handlers of such DOD
waste in the country.
The corporate initiatives we had previously implemented and our
many accomplishments during 1998 have set the stage for dramatic
growth during 1999. The Company recognized record growth in
revenues and earnings for the nine month period ended September
30, 1999. Consolidated revenues increased by approximately 45%
to $32,243,000 for the nine months ended September 30, 1999, as
compared to revenues of $22,291,000 for the comparative nine
month period of 1998. Net income for the nine months ended
September 30, 1999, increased to $1,446,000, from a loss of
$373,000 for the comparative nine month period of 1998.
We expect a strong economy and the insatiable demand of American
consumers, for not only material well being but also a clean and
healthy environment, to continue to drive the environmental
market. We believe that technology, regulations and expert
service will continue to be the drivers. In 1999, as
technologies such as ours become available, we believe
regulations and political pressures will continue to mandate that
industry, government and military accelerate the clean up of
their nuclear mixed waste.
We will continue to position the Company for aggressive growth
and to capitalize on new opportunities in our industry through a
combination of internal growth and strategic acquisitions. We
will strive to provide our customers with the best and most
environmentally friendly service available. Two common themes
will remain constant as we continue to implement this strategy:
-To focus on opportunities in growing and profitable markets
that require the development and deployment of proprietary
technologies, developed or licensed by the Company, that are
safe and nondestructive to the environment.
-To strive toward continued growth of the Company with the
constant goal of improving shareholder value.
Dr. Louis F. Centofanti
Chairman, President and Chief Executive Officer
See Special Note Regarding Forward Looking Statements contained
in this Form 10-K.
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
__________________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 1-11596
_______
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
1940 N.W. 67th Place
Gainesville, FL 32653
(Address of principal (Zip Code)
executive offices)
(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 March 12, 1999, based on
the closing sale price of such stock as reported by NASDAQ on such
day, was $12,648,341. The Company's Common Stock is listed on the
NASDAQ SmallCap Market and the Boston Stock Exchange.
As of March 12, 1999, there were 12,411,080 shares of the
registrant's Common Stock, $.001 par value, outstanding, excluding
943,000 shares held as treasury stock.
=================================================================
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
_____
Page No.
_________
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . 11
Item 4A. Executive Officers of the Company. . . . . . . 11
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . 15
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . 17
Special Note Regarding Forward-Looking
Statements. . . . . . . . . . . . . . . . . . 27
Item 8. Financial Statements and Supplementary
Data. . . . . . . . . . . . . . . . . . . . . 28
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . 61
PART III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . 62
Item 11. Executive Compensation . . . . . . . . . . . . 64
Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . 69
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . 74
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K. . . . . . . . . . . . 78
PART I
ITEM 1. BUSINESS
Company Overview and Principal Products and Services
Perma-Fix Environmental Services, Inc. (the Company, which may be
referred to as we, us, or our) is a Delaware corporation, engaged
through its subsidiaries, in:
* Waste Management Services, which includes:
* treatment, storage, processing, and disposal of hazardous
and non-hazardous waste and mixed waste which is
both low-level radioactive and hazardous;
* nuclear mixed and low-level radioactive waste treatment,
processing and disposal, which includes
research, development, on-and off-site waste remediation and
processing; and
* industrial waste and wastewater management services,
including the collection, treatment, processing and
disposal, and the design and construction of on-site waste-
water treatment systems.
* Consulting Engineering Services, which includes:
* broad-scope environmental issues, including environmental
management programs, regulatory permitting, compliance and
auditing, landfill design, field testing and character-
ization.
We service research institutions, commercial companies and
governmental agencies nationwide. The distribution channels for
services are through direct sales to customers or via
intermediaries.
We were incorporated in December of 1990. Our executive offices are
located at 1940 N.W. 67th Place, Gainesville, Florida 32653.
Our home page on the Internet is at www.perma-fix.com. You can
learn more about us by visiting that site.
Operating Segments
We have ten operating segments which represent each separate
facility or location that we operate. Eight of these segments
provide waste management services and two segments provide
consulting engineering services as described below:
*WASTE MANAGEMENT SERVICES, which includes, off-site waste storage,
treatment, processing and disposal services through our four
treatment, storage and disposal ("TSD") facilities and numerous
related operations provided by our four other facilities, as
discussed below.
Perma-Fix of Florida, Inc. ("PFF"), located in Gainesville,
Florida, is our most uniquely permitted and licensed TSD. PFF
specializes in the processing and treatment of certain types of
wastes containing both low-level mixed radioactive and hazardous
wastes, which are known in the industry as mixed waste. PFF is one
of only a few facilities nationally to operate under both a
hazardous waste permit and a nuclear materials license, from which
it has built its reputation based on its ability to treat difficult
waste streams using unique processing technologies and its ability
to provide related research and development services. Its primary
services include the treatment and processing of waste Liquid
Scintillation Vials (LSVs), the processing and handling of other
mixed and radioactive wastes, site remediation, storage of customer
wastes, research and development, as well as more typical services
of hazardous and non-hazardous waste management. The LSVs are
generated primarily by institutional research agencies and
biotechnical companies. These wastes contain mixed (low-level)
radioactive materials and hazardous waste (flammable) constituents.
Management believes that PFF currently processes approximately 80%
of the available LSV waste in the country. The business has
expanded into receiving and handling other types of mixed wastes
primarily from the nuclear utilities, the U.S. Department of Energy
("USDOE") and other government facilities as well as select mixed
1
waste field remediation projects. PFF manages the activities at
the facility under a license from the State of Florida Office of
Radiation Control and a Resource Conservation and Recovery Act
("RCRA") Part B permit.
Perma-Fix Treatment Services, Inc. ("PFTS") is a permitted TSD
facility located in Tulsa, Oklahoma. PFTS provides waste
transportation and treatment and provides disposal via its on-site
Class I Injection Well located at the facility. The injection well
is permitted for the disposal of non-hazardous liquids and
characteristic hazardous wastes that have been treated to remove
the hazardous characteristic. PFTS operates a non-hazardous
wastewater treatment system for oil and solids removal, a corrosive
treatment system for neutralization and metals precipitation, and
a container stabilization system. The injection well is controlled
by a state-of-the-art computer system to assist in achieving
compliance with all applicable state and federal regulations.
Perma-Fix of Dayton, Inc. ("PFD"), is a permitted TSD facility
located in Dayton, Ohio. PFD has four main disposal production
areas. The four production areas are a RCRA permitted TSD, a
centralized wastewater treatment area, used oil fuel recycling
area, and non-hazardous solids solidification area. Waste accepted
under the RCRA permit is typically drum waste for incineration or
stabilization. Wastewaters accepted at the facility include
hazardous and non-hazardous wastewaters, which are treated by ultra
filtration and metals precipitation to meet the requirements of
PFD's Clean Water Act pretreatment permit. Waste industrial oils
and used motor oils are processed through high-speed centrifuges to
produce a high quality fuel that is burned by industrial burners.
PFD also designs and constructs on-site wastewater pretreatment
systems.
Perma-Fix of Ft. Lauderdale, Inc. ("PFL") is a permitted Treatment
and Storage facility located in Ft. Lauderdale, Florida. PFL
collects and treats hazardous wastewaters, oily wastewaters, used
oil and other off-specification petroleum-based products, some of
which may potentially be recycled into usable products. Key
activities at PFL include process cleaning and material recovery,
production and sales of on-specification fuel oil, custom tailored
waste management programs and hazardous material disposal and
recycling materials from generators such as the cruise line and
marine industries.
Perma-Fix of New Mexico, Inc. ("PFNM"), located in Albuquerque, New
Mexico, provides on-site (at the generator's site) waste treatment
services to convert certain types of characteristic hazardous
wastes into non-hazardous waste by removing those characteristics
which categorize such waste as "hazardous" and treats non-hazardous
waste as an alternative to off-site waste treatment and disposal
methods. PFI does not treat on-site waste that is specifically
listed as hazardous waste by the U.S. Environmental Protection
Agency ("EPA") under RCRA, but treats only non-hazardous waste and
characteristic waste deemed hazardous under RCRA on the generator's
site.
Perma-Fix, Inc. ("PFI") provides on-site waste treatment services
for certain low level radioactive and mixed wastes, for industrial
firms, the USDOE and other governmental facilities under licenses
granted to the generator. PFI, in partnership with PFF, continues
to expand its processing capabilities in the nuclear waste field,
utilizing its technologies and project experience, including the
successful processing of legacy waste at the USDOE Fernald Ohio
facility. In addition, PFI has recently opened an Oak Ridge,
Tennessee office to facilitate future USDOE contracts.
Industrial Waste Management, Inc. ("IWM"), located in St. Louis,
Missouri is engaged in supplying and managing non-hazardous and
hazardous waste to be used by cement plants as a substitute fuel or
as a source of raw materials used in the production of cement.
Reclamation Services, Inc. ("RSI") located in Tulsa, Oklahoma, is
a reseller of by-product materials generated at cement plants for
environmental and engineering applications.
For 1998, the Company's waste management services business
accounted for approximately 85.7% of the Company's total revenue,
as compared to approximately 83.6% for 1997, which excludes
discontinued operations. Contained within this segment is the
nuclear and mixed waste product line, which accounted for
2
$4,693,000 or 15.36% of total revenue for 1998, as compared to
$5,407,000 or 19.03% of total revenue for 1997, excluding
discontinued operations.
*CONSULTING ENGINEERING SERVICES, which provides environmental
engineering and regulatory compliance consulting services through
two subsidiaries, as discussed below.
Schreiber, Yonley & Associates ("SYA") is located in St. Louis,
Missouri. SYA specializes in environmental management programs,
permitting, compliance and auditing, in addition to landfill
design, field investigation, testing and monitoring. SYA clients
are primarily industrial, including many within the cement
manufacturing industry.
Mintech, Inc. ("Mintech") is located in Tulsa, Oklahoma. Mintech
specializes in environmental and geotechnical consulting,
engineering, geology, hydrogeology and geophysics, including
evaluating, selecting and implementing the appropriate
environmental solutions to problems involving soil and water.
Mintech also provides remediation services. In addition, Mintech
personnel routinely provide training services involving various
environmental regulations to private industry, governmental
agencies and military installations.
The engineering firms also provide the necessary support,
compliance and training as required by our operating facilities.
During 1998 environmental engineering and regulatory compliance
consulting services accounted for approximately 14.3% of our total
revenue, as compared to 16.4% in 1997, which excludes discontinued
operations.
Segment Information and Foreign and Domestic Operations and Export
Sales
During 1998, we were engaged in ten operating segments. Pursuant
to FAS 131, we define an operating segment as:
* A business activity from which we may earn revenue and incur
expenses;
* Whose operating results are regularly reviewed by our chief
operating decision maker to make decisions about resources to
be allocated to the segment and assess its performance; and
* For which discrete financial information is available.
We therefore define our segments as each separate facility or
location that we operate. We clearly view each business as a
separate segment and make decisions based on the activity and
profitability of that particular location. These segments however,
exclude the Corporate headquarters which does not generate revenue
and Perma-Fix of Memphis, Inc. which is reported elsewhere as a
discontinued operation. See Note 4 regarding discontinued
operations.
Pursuant to FAS 131 we have aggregated our operating segments into
two reportable segments to ease in the presentation and
understanding of our business. We used the following criteria to
aggregate our segments:
* The nature of our products and services;
* The nature of the production processes;
* The type or class of customer for our products and services;
* The methods used to distribute our products or provide our
services; and
* The nature of the regulatory environment.
Most of our activities were conducted in the Southeast, Southwest
and Midwest portions of the United States. We had no foreign
operations or export sales during 1998.
3
Importance of Patents and Trademarks, or Concessions Held
We do not believe that we are dependent on any particular patent or
trademark in order to operate our business or any significant
segment thereof. We have received registration through the year
2000 for the service mark "Perma-Fix" by the U.S. Patent and
Trademark office.
We do not believe that on-site waste treatment processes for the
stabilization of certain hazardous wastes as utilized by PFI are
patentable except as described below. We do, however, believe that
our level of expertise in utilizing such processes is substantial,
and, therefore, we maintain such processes as a trade secret. We
maintain a policy whereby key employees of PFI who are involved
with the implementation of the treatment processes sign
confidentiality agreements with respect to non-disclosure of such
processes.
A new process ("New Process") designed to remove certain types of
organic hazardous constituents from soils or other solids and
sludges ("Solids") has been developed by us. This New Process is
designed to remove the organic hazardous constituents from the
solids through a water based system. We have filed a patent
application with the U.S. Patent and Trademark Office covering the
New Process. As of the date of this report, we have not received a
patent for the New Process, and there are no assurances that such
a patent will be issued. Until development of this New Process, we
were not aware of a relatively simple and inexpensive process that
would remove the organic hazardous constituents from solids without
elaborate and expensive equipment or expensive treating agents. Due
to the organic hazardous constituents involved, the disposal
options for such materials are limited, resulting in high disposal
cost when there is a disposal option available. By reducing the
organic hazardous waste constituents from the solids to a level
where the solids may be returned to the ground, the generator's
disposal options for such waste are substantially increased,
allowing the generator to dispose of such waste at substantially
less cost. As of the date of this report, we have only used the
New Process, on a limited basis, for commercial use. As a result,
there are no assurances that the New Process will perform as
presently expected. It is anticipated that we will begin more
extensive commercial use of the New Process in 1999. Patent
applications have also been filed for processes to treat radon,
selenium and other speciality materials. However, changes to
current environmental laws and regulations could limit the use of
the New Process or the disposal options available to the generator.
See -- "Permits and Licenses."
Permits and Licenses
Waste management companies are subject to extensive, evolving and
increasingly stringent federal, state and local environmental laws
and regulations. Such federal, state and local environmental laws
and regulations govern our activities regarding the treatment,
storage, processing, disposal and transportation of hazardous, non-
hazardous and radioactive wastes, and require us to obtain and
maintain permits, licenses and/or approvals in order to conduct
certain of our waste activities. Failure to obtain and maintain
our permits or approvals would have a material adverse effect on
us, our operations and financial condition. Moreover, as we expand
our operations we may be required to obtain additional approvals,
licenses or permits, and there can be no assurance that we will be
able to do so.
PFTS is a permitted solid and hazardous waste treatment, storage,
and disposal facility. The RCRA part B Permit was issued by the
Waste Management Section of the Oklahoma Department of
Environmental Quality ("ODEQ"). Additionally PFTS maintains an
active Injection Facility Operations Permit issued by the ODEQ
Underground Injection Control Section for our two waste disposal
injection wells, and a Pre-Treatment permit in order to discharge
industrial wastewaters to the City of Tulsa's Publically Owned
Treatment Works. PFTS is also registered with the ODEQ and the
Department of Transportation as a hazardous waste transporter.
PFF operates its hazardous and low-level radioactive waste
activities under a RCRA Part B permit and a radioactive materials
license issued by the state of Florida.
PFL operates under a general permit and used oil processors license
issued by the Florida Department of Environmental Protection
("FDEP"), a transporter license issued by the FDEP and a transfer
4
facility license issued by Broward County, Florida. Broward County
also issued PFL a discharge pretreatment permit that allows
discharge of treated water to the Broward County Publically Owned
Treatment Works.
PFD operates a hazardous and non-hazardous waste treatment and
storage facility under various permits, including a RCRA Part B
permit. PFD provides wastewater pretreatment under a discharge
permit with Montgomery County Publically Owned Treatment Works and
is a specification and off-specification used oil processor under
the guidelines of the Ohio EPA.
We believe that our TSD facilities presently have obtained all
approvals, licenses and permits necessary to enable them to conduct
their business as they are presently conducted. The failure of our
TSD facilities to renew any of their present approvals, licenses
and permits, or the termination of any such approvals, licenses or
permits, could have a material adverse effect on us, our operations
and financial condition.
We believe that our on-site waste treatment services do not require
federal environmental permits provided certain conditions are met,
and we have received written verification from each state in which
we are presently operating that no such permit is required provided
certain conditions are met. There can be no assurance that states
in which our waste facilities presently do business, other states
in which our waste facilities may do business in the future, or the
federal government will not change policies or regulations
requiring us to obtain permits to carry on our on-site activities.
Seasonality
We experience a seasonal slowdown in operations and revenues during
the winter months extending from late November through early March.
The seasonality factor is a combination of the inability to
generate consistent billable hours in the consulting engineering
segment, along with poor weather conditions in the central plains
and Midwestern geographical markets we serve for on-site and off-
site services, resulting in a decrease in revenues and earnings
during such period.
Dependence Upon a Single or Few Customers
The majority of our revenues for fiscal 1998 have been derived from
hazardous and non-hazardous waste management services provided to
a variety of industrial and commercial customers. Our customers
are principally engaged in research, biotechnical development,
transportation, chemicals, metal processing, electronic,
automotive, petrochemical, refining and other similar industries,
in addition to government agencies that include the U.S. Department
of Energy ("USDOE"), U.S. Department of Defense ("USDOD"), and
other federal, state and local agencies. We are not dependent upon
a single customer, or a few customers, the loss of any one or more
would have a material adverse effect on us, and during 1998 we did
not make sales to any single customer that in the aggregate amount
represented more than ten percent (10%) of our consolidated
revenues.
Competitive Conditions
Competition is intense in most of our businesses, we compete with
numerous companies both large and small, that are able to provide
one or more of the environmental services offered by us and many of
which may have greater financial, human and other resources than we
have. However, we believe that the range of waste management and
environmental consulting, treatment, processing and remediation
services we provide affords us a competitive advantage with respect
to certain of our more specialized competitors. We believe that the
treatment processes we utilize offer a cost savings alternative to
more traditional remediation and disposal methods offered by our
competitors.
The intense competition for performing the services performed by us
within the waste industry has resulted in reduced gross margin
levels for certain of those services. The exception is in the low-
level radioactive and hazardous mixed waste area, which has only a
few competitors. In addition, at present we believe there is only
one other facility in the United States that provides low-level
radioactive and hazardous waste processing of scintillation vials,
which requires both a radioactive materials license and a hazardous
5
waste permit. Competition in the waste management industry is
likely to increase as the industry continues to mature, as more
companies enter the market and expand the range of services which
they offer and as we move into new geographic markets. We believe
that there are no formidable barriers to entry into certain of the
on-site treatment businesses. However, the permitting requirements,
and the cost to obtain such permits, are barriers to the entry of
hazardous waste TSD facilities and radioactive activities as
presently operated by our subsidiaries. Certain of the non-
hazardous waste operations, however, do not require such permits
and, as a result, entry into these non-hazardous waste businesses
would be easier. If the permit requirements for both hazardous
waste storage, treatment and disposal activities and/or the
licensing requirements for the handling of low level radioactive
matters are eliminated or if such licenses or permits were made
easier to obtain, such would allow more companies to enter into
these markets and provide greater competition.
In the on-site waste treatment service area, we believe that the
major competition to our services is the continued utilization of
traditional off-site disposal methods such as landfilling. As the
viability of our on-site treatment process is demonstrated in the
market, we believe that the potential to reduce costs and the
ability to limit potential liability will persuade waste generators
to utilize our services. In the future, we believe that we will
face direct competition as processes such as those applied by us
are utilized by our competitors.
We believe that we are a significant participant in the delivery of
off-site waste treatment services in the Southeast, Midwest and
Southwest portions of the United States. We compete with TSD
facilities operated by national, regional and independent
environmental services firms located within a several hundred mile
radius of our facilities. Our subsidiary, PFF, with permitted
radiological activities solicits business on a nationwide basis,
including the U.S. Territories and Antarctica.
Our competitors for remediation services include national and
regional environmental services firms that may have larger
environmental remediation staffs and greater resources. We
recognize our lack of financial resources necessary to compete for
larger remediation contracts and therefore, presently concentrate
on remediation services projects within our existing customer base
or projects in our service area which are too small for companies
without a presence in the market to perform competitively.
Environmental engineering and consulting services provided by us
through Mintech and SYA involve competition with larger engineering
and consulting firms. We believe that we are able to compete with
these firms based on our established reputation in these market
areas and our expertise in several specific elements of
environmental engineering and consulting such as environmental
applications in the cement industry.
Capital Spending, Certain Environmental Expenditures and Potential
Environmental Liabilities
During 1998, we spent approximately $2,554,000 in capital
expenditures, which was principally for the expansion and
improvements to our continuing operations. This 1998 capital
spending total includes $564,000 of which was financed. For 1999,
we have budgeted approximately $2,500,000 for capital expenditures
to improve our operations, reduce the cost of waste processing and
handling, expand the range of wastes that can be accepted for
treatment and processing and to maintain permit compliance
requirements, and approximately $437,000 to comply with federal,
state and local regulations in connection with remediation
activities at two locations. See Note 4 and Note 9 to Notes to
Consolidated Financial Statements. However, there is no assurance
that we will have the funds available for such budgeted
expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources of the Company". We do not anticipate the
ongoing environmental expenditures to be significant, with the
exception of remedial activities at the two locations discussed
below.
In June 1994, we acquired from Quadrex Corporation and/or a
subsidiary of Quadrex Corporation (collectively, "Quadrex") three
TSD companies, including the Dayton, Ohio, PFD facility. The
former owners of PFD had merged Environmental Processing Services,
Inc. ("EPS") with PFD, which was subsequently sold to Quadrex.
Through our acquisition of PFD in 1994 from Quadrex, we were
indemnified by Quadrex for costs associated with remediating
certain property leased by EPS from an affiliate of EPS on which
6
EPS operated a RCRA storage and processing facility ("Leased
Property"). Such remediation involves 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. During 1995, in conjunction with the
bankruptcy filing by Quadrex, we were required to advance $250,000
into a trust fund to support remedial activities at the Leased
Property used by EPS, which was subsequently increased to $365,000.
As discussed in Note 9 to the Consolidated Financial Statements, we
have accrued approximately $460,000 for the estimated costs of
remediating the Leased Property used by EPS, which will extend for
a period of three (3) to five (5) years.
Due to the acquisition of PFM, we assumed and recorded certain
liabilities to remediate gasoline contaminated groundwater and
investigate, under the hazardous and solid waste amendments,
potential areas of soil contamination on PFM's property. Prior to
our ownership of PFM, the owners installed monitoring and treatment
equipment to restore the groundwater to acceptable standards in
accordance with federal, state and local authorities. We have
accrued approximately $910,000 for the estimated cost of
remediating the groundwater contamination. See "BUSINESS --
Certain Environmental Expenditures".
The PFM facility is situated in the vicinity of the Memphis
Military Defense Depot (the "Defense Facility"), which Defense
Facility is listed as a Superfund Site and is adjacent to the Allen
Well Field utilized by Memphis Light, Gas & Water, a public water
supply utilized in Memphis, Tennessee. Chlorinated compounds have
previously been detected in the groundwater beneath the Defense
Facility, as well as in very limited amounts in certain production
wells in the adjacent Allen Well Field. Very low concentrations of
certain chlorinated compounds have also been detected in the
groundwater beneath the PFM facility and the possible presence of
these compounds are currently being investigated. Based upon a
study performed by our environmental engineering group, we do not
believe the PFM facility is the source of the chlorinated compounds
in a limited number of production wells in the Allen Well Field
and, as a result, do not believe that the presence of the low
concentrations of chlorinated compounds at the PFM facility will
have a material adverse effect upon the Company. We were also
notified in January 1998 by the EPA that it is believed that PFM is
a potentially responsible party ("PRP") regarding the remediation
of a drum reconditioning facility located in Memphis. See "Legal
Proceedings" for further discussion of this environmental
liability.
The nature of our business exposes us to significant risk of
liability for damages. Such potential liability could involve, for
example, claims for clean-up costs, personal injury or damage to
the environment in cases where we are held responsible for the
release of hazardous materials; claims of employees, customers or
third parties for personal injury or property damage occurring in
the course of our operations; and claims alleging negligence or
professional errors or omissions in the planning or performance of
our services or in the providing of our products. In addition, we
could be deemed a responsible party for the costs of required
clean-up of any property which may be contaminated by hazardous
substances generated or transported by us to a site we selected,
including properties owned or leased by us. We could also be
subject to fines and civil penalties in connection with violations
of regulatory requirements.
Research and Development
Innovation by our operations is very important to the success of
our business. Our goal is to discover, develop and bring to market
innovative ways to process waste that address unmet environmental
needs. We are planning for future growth of our research
operations. We conduct research internally, and also through
collaborations with universities. We feel that our investments in
research have been rewarded by the discovery of the Perma-Fix
Process and the New Process. Our competitors also devote resources
to research and development and many such competitors have greater
resources at their disposal than we do.
Number of Employees
In our service-driven business, our employees are vital to our
success. We believe we have good relationships with our employees.
As of December 31, 1998, we employed approximately 226 persons, of
which approximately 52 were assigned to our engineering and
consulting industry segment and approximately 168 to the waste
management industry segment.
7
Governmental Regulation
Environmental companies and their customers are subject to
extensive and evolving environmental laws and regulations by a
number of national, state and local environmental, safety and
health agencies, the principal of which being the EPA. These laws
and regulations largely contribute to the demand for our services.
Although our customers remain responsible by law for their
environmental problems, we must also comply with the requirements
of those laws applicable to our services. Because the field of
environmental protection is both relatively new and rapidly
developing, we cannot predict the extent to which our operations
may be affected by future enforcement policies as applied to
existing laws or by the enactment of new environmental laws and
regulations. Moreover, any predictions regarding possible
liability are further complicated by the fact that under current
environmental laws we could be jointly and severally liable for
certain activities of third parties over whom we have little or no
control. Although we believe that we are currently in substantial
compliance with applicable laws and regulations, we could be
subject to fines, penalties or other liabilities or could be
adversely affected by existing or subsequently enacted laws or
regulations. The principal environmental laws affecting us and our
customers are briefly discussed below.
The Resource Conservation and Recovery Act of 1976, as amended
("RCRA"). RCRA and its associated regulations establish a strict
and comprehensive regulatory program applicable to hazardous waste.
The EPA has promulgated regulations under RCRA for new and existing
treatment, storage and disposal facilities including incinerators,
storage and treatment tanks, storage containers, storage and
treatment surface impoundments, waste piles and landfills. Every
facility that treats, stores or disposes of hazardous waste must
obtain a RCRA permit or must obtain interim status from the EPA, or
a state agency which has been authorized by the EPA to administer
its program, and must comply with certain operating, financial
responsibility and closure requirements. RCRA provides for the
granting of interim status to facilities that allows a facility to
continue to operate by complying with certain minimum standards
pending issuance or denial of a final RCRA permit.
Boiler and Industrial Furnace Regulations under RCRA ("BIF
Regulations"). BIF Regulations require boilers and industrial
furnaces, such as cement kilns, to obtain permits or to qualify for
interim status under RCRA before they may use hazardous waste as
fuel. If a boiler or industrial furnace does not qualify for
interim status under RCRA, it may not burn hazardous waste as fuel
or use such as raw materials without first having obtained a final
RCRA permit. In addition, the BIF Regulations require 99.99%
destruction of the hazardous organic compounds used as fuels in a
boiler or industrial furnace and impose stringent restrictions on
particulate, carbon monoxide, hydrocarbons, toxic metals and
hydrogen chloride emissions.
The Safe Drinking Water Act, as amended (the "SDW Act"), regulates,
among other items, the underground injection of liquid wastes in
order to protect usable groundwater from contamination. The SDW
Act established the Underground Injection Control Program ("UIC
Program") that provides for the classification of injection wells
into five classes. Class I wells are those which inject
industrial, municipal, nuclear and hazardous wastes below all
underground sources of drinking water in an area. Class I wells
are divided into non-hazardous and hazardous categories with more
stringent regulations imposed on Class I wells which inject
hazardous wastes. PFTS' permit to operate its underground
injection disposal wells is limited to non-hazardous wastewaters.
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA", also referred to as the "Superfund
Act"). CERCLA governs the clean-up of sites at which hazardous
substances are located or at which hazardous substances have been
released or are threatened to be released into the environment.
CERCLA authorizes the EPA to compel responsible parties to clean up
sites and provides for punitive damages for noncompliance. CERCLA
imposes joint and several liability for the costs of clean-up and
damages to natural resources.
Health and Safety Regulations. The operation of the Company's
environmental activities is subject to the requirements of the
Occupational Safety and Health Act ("OSHA") and comparable state
laws. Regulations promulgated under OSHA by the Department of
Labor require employers of persons in the transportation and
8
environmental industries, including independent contractors, to
implement hazard communications, work practices and personnel
protection programs in order to protect employees from equipment
safety hazards and exposure to hazardous chemicals.
Atomic Energy Act. The Atomic Energy Act of 1954 governs the safe
handling and use of Source, Special Nuclear and Byproduct materials
in the U.S. and its territories. This act authorized the Atomic
Energy Commission (now the Nuclear Regulatory Commission) to enter
into "Agreements with States to carry out those regulatory
functions in those respective states except for Nuclear Power
Plants and federal facilities like the VA hospitals and the USDOE
operations." On July 1, 1964, the state of Florida signed this
Agreement. Thus, the state of Florida (with the USNRC oversight),
Office of Radiation Control, regulates the radiological program of
the PFF facility.
Other Laws. Our activities are subject to other federal
environmental protection and similar laws, including, without
limitation, the Clean Water Act, the Clean Air Act, the Hazardous
Materials Transportation Act and the Toxic Substances Control Act.
Many states have also adopted laws for the protection of the
environment which may affect us, including laws governing the
generation, handling, transportation and disposition of hazardous
substances and laws governing the investigation and clean-up of,
and liability for, contaminated sites. Some of these state
provisions are broader and more stringent than existing federal law
and regulations. Our failure to conform our services to the
requirements of any of these other applicable federal or state laws
could subject us to substantial liabilities which could have a
material adverse affect on us, our operations and financial
condition. In addition to various federal, state and local
environmental regulations, our hazardous waste transportation
activities are regulated by the U.S. Department of Transportation,
the Interstate Commerce Commission and transportation regulatory
bodies in the states in which we operate. We cannot predict the
extent to which we may be affected by any law or rule that may be
enacted or enforced in the future, or any new or different
interpretations of existing laws or rules.
Insurance
We believe we maintain insurance coverage adequate for our needs
and which is similar to, or greater than, the coverage maintained
by other companies of our size in the industry. There can be no
assurances, however, that liabilities which may be incurred by us
will be covered by our insurance or that the dollar amount of such
liabilities which are covered will not exceed our policy limits.
Under our insurance contracts, we usually accept self-insured
retentions which we believe appropriate for our specific business
risks. We are required by EPA regulations to carry environmental
impairment liability insurance providing coverage for damages on a
claims-made basis in amounts of at least $1 million per occurrence
and $2 million per year in the aggregate. To meet the requirements
of customers, we have exceeded these coverage amounts.
Year 2000 Issues
The Year 2000 problem arises because many computer systems were
designed to identify a year using only two digits, instead of four
digits, in order to conserve memory and other resources. For
instance, "1997" would be held in the memory of a computer as "97."
When the year changes from 1999 to 2000, a two digit system would
read the year as changing from "99" to "00." For a variety of
reasons, many computer systems are not designed to make such a date
change or are not designed to "understand" or react appropriately
to such a date change. Therefore, as the date changes to the year
2000, many computer systems could completely stop working or could
perform in an improper and unpredictable manner.
We have conducted a review of our computer systems to identify the
systems which we anticipated could be effected by the Year 2000
issue and we believe that all such systems were already, or have
been converted to be, Year 2000 compliant. Such conversion costs,
where required, have not been material and have been expensed as
incurred. Pursuant to our Year 2000 planning, we have requested
information regarding the computer systems of our key suppliers,
customers, creditors, and financial service organizations and have
9
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. We believe that our expenditures in addressing our
Year 2000 issues will not have a material adverse effect on our
financial position or results of operations.
Oak Ridge System Contract Award
The Company and East Tennessee Materials and Energy Corp. ("M&EC")
entered into a teaming agreement ("M&EC Contract") pursuant to which
the Company and M&EC may obtain from customers of the U. S. Department
of Energy ("DOE") regarding treatment and disposal of certain types
of radioactive, hazardous or mixed waste (waste containing both
hazardous and low level radioactive waste) at DOE facilities.
The Company anticipates that, as a member of the team with M&EC in
connection with the contracts and finalization of the scope of work
documents with M&EC relating to the work to be performed by each of
the Company and M&EC under the contracts, it will (i) provide
certain of the Company's environmental remediation technologies,
(ii) install equipment necessary to apply the Company's technology,
and (iii) supervise certain aspects of the remediation process
operations. As of the date of this Report, however, the Company
has engaged in only minimal design work in connection with the M&EC
Contract. The revenues which will be received by the Company, if
any, as a result of the M&EC Contract are subject to a variety of
factors and the Company cannot currently estimate what such amount
of revenue may be. See "Special Note Regarding Forward Looking
Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Oak Ridge System Contract
Award."
Proposed Acquisition
During March, 1999, Chemical Conservation Corporation, Chemical
Conservation of Georgia, Inc., Chem-Met Services, Inc.
(collectively "Chem-Con") and the Company entered into a definitive
agreement whereby the Company agreed to acquire Chem-Con in
exchange for $7.4 million of Perma-Fix Common Stock. In addition,
we agreed to enter into an employment agreement with the president
of Chem-Con, who is also one of the principal stockholders of Chem-
Con, pursuant to which we would pay such person a total of $1.3
million over a four (4) year period.
Chem-Con's revenues are principally generated from collection,
treatment, and recycling of industrial and hazardous waste,
including waste oils, water and miscellaneous solid waste. Chemical
Conservation Corporation operates a permitted treatment and storage
facility and transfer station that also serves as the base for a
private trucking fleet; Chemical Conservation of Georgia, Inc.
treats hazardous waste and recycles solvents; and, Chem-Met
Services, Inc. treats and stabilizes inorganic wastes and maintains
a government services division that is focused principally on the
Defense Revitalization and Marketing Services (DRMS) market.
The transaction is expected to be closed during the summer of 1999.
However, the acquisition is subject to the ability of the parties
to, among other things, qualify the acquisition of Chem-Con as a
pooling of interests transaction, which means that the merged
companies will be treated as if they had always been combined for
accounting and financial reporting purposes, the effectiveness of
a registration statement covering the shares of Perma-Fix Common
Stock to be issued in connection with the acquisition and the
approval of the acquisition by the Company's stockholders entitled
to vote thereon. See "Management Discussion and Analysis of
Financial Condition and Results of Operations" and See Note 5 to
Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
Our principal executive offices are in Gainesville, Florida. Our
waste management operations are located in Gainesville and Ft.
Lauderdale, Florida; Dayton, Ohio; Tulsa, Oklahoma; Albuquerque,
New Mexico and Memphis, Tennessee. Our consulting engineering
services are located in Tulsa, Oklahoma and St. Louis, Missouri.
We also maintain sales offices in Laverne, California and Kansas
City, Missouri.
10
We own five facilities and have an option to purchase another
facility at a nominal amount at the end of the lease term, all of
which are in the United States. In addition, we lease four
properties for office space, one of which also contains a warehouse
and one additional property that is utilized strictly as warehouse
space, all of which are located in the United States as described
above.
We believe that the above facilities currently provide adequate
capacity for our operations and that additional facilities are
readily available in the regions in which we operate.
ITEM 3. LEGAL PROCEEDINGS
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. Since 1995, the Company has
received no new information about 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, Inc. in Memphis, Tennessee (the "Drum Site"). By
correspondence dated January 15, 1998 ("PRP Letter"), the EPA
informed PFM that it believed that PFM was 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
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. During the second
quarter of 1998, PFM and certain other PRP's began negotiating with
the EPA regarding a potential settlement of the EPA's claims
regarding the Drum Site and such negotiations have been completed.
During the third quarter of 1998, the government agreed to PFM's
offer to pay $225,000 ($150,000 payable at closing and the balance
payable over a twelve month period) to settle any potential
liability regarding the Drum Site. During January 1999, the
Company executed a "Partial Consent Decree" pursuant to this
settlement, which settlement is subject to approval of the court.
There are no assurances that the settlement will be approved by the
court.
In addition to the above matters and in the normal course of
conducting our business, we are involved in various other
litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any
judgments or fines against us that would have a material adverse
affect on our financial position, liquidity or results of
operations.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of the date hereof, information
concerning the Executive Officers of the Company:
11
NAME AGE POSITION
____ ___ _________
Dr. Louis F. Centofanti 55 Chairman of the Board, President
and Chief Executive Officer
Mr. Richard T. Kelecy 43 Chief Financial Officer, Vice
President and Secretary
Mr. Roger Randall 55 Vice President, Industrial Services
Mr. Bernhardt Warren 50 Vice President, Nuclear Services
Mr. Timothy Kimball 53 Vice President, Technical Services
DR. LOUIS F. CENTOFANTI
Dr. Centofanti has served as Chairman of the Board since he joined
the Company in February, 1991. Dr. Centofanti also served as
President and Chief Executive Officer of the Company from
February, 1991 until September, 1995 and again in March, 1996 was
elected to serve as President and Chief Executive Officer of the
Company and continues as Chairman of the Board. From 1985 until
joining the Company, Dr. Centofanti served as Senior Vice President
of USPCI, Inc., a large hazardous waste management company, where
he was responsible for managing the treatment, reclamation and
technical groups within USPCI. In 1981, he founded PPM, Inc., a
hazardous waste management company specializing in the treatment of
PCB contaminated oils which was subsequently sold to USPCI. From
1978 to 1981, Dr. Centofanti served as Regional Administrator of
the U.S. Department of Energy for the southeastern region of the
United States. Dr. Centofanti has a Ph.D. and a M.S. in Chemistry
from the University of Michigan, and a B.S. in Chemistry from
Youngstown State University.
MR. RICHARD T. KELECY
Mr. Kelecy was elected Chief Financial Officer in September 1995.
He previously served as Chief Accounting Officer and Treasurer of
the Company since July 1994. From 1992 until June 1994, Mr. Kelecy
was Corporate Controller and Treasurer for Quadrex Corporation.
From 1990 to 1992 Mr. Kelecy was Chief Financial Officer for
Superior Rent-a-Car, and from 1983 to 1990 held various positions
at Anchor Glass Container Corporation including Assistant
Treasurer. Mr. Kelecy holds a B.A. in Accounting and Business
Administration from Westminster College.
MR. ROGER RANDALL
Mr. Randall has served as Vice-President/General Manager of PFD
since its acquisition by the Company in June, 1994 and was elected
to the position of Vice President Industrial Services of the
Company in December 1997. From June, 1992 to June, 1994, Mr.
Randall served as General Manager of the Dayton facility under the
ownership of Quadrex Corporation. From 1982 to June, 1992, Mr.
Randall served a variety of management roles at the Dayton
facility, ranging from Operations Manager to Chairman of the Board
and Chief Executive Officer under the ownership of Clark
Processing, Inc. Previous to his involvement with the waste
management industry, Mr. Randall spent 17 years in public education
serving a variety of administrative roles. He has a B.S. from
Wittenberg University and an M.A. from Wright State University.
MR. BERNHARDT WARREN
Mr Warren has served as Vice President/General Manager of PFF since
1996 and was elected to the position of Vice President Nuclear
Services of the Company in December 1997. From 1992 to 1996, Mr.
Warren provided contractual consulting services for PFF and other
companies through Applied Environmental Consulting, Inc., of which
Mr. Warren is Owner and President. From 1982 to 1992, Mr. Warren
served a variety of management roles at the Florida facility under
the ownership of Quadrex Corporation. He was involved in
radioactive materials and radioactive waste management from 1973 to
1982, when he was Manager of Radioactive Materials Licensing
Program for the State of Florida. He has a B.S. degree in biology
from Florida Southern College, a Master of Public Administration
from Florida State University and graduated from the United States
Nuclear Regulatory Commission sponsored Oak Ridge Associated
University program. Mr. Warren has authored more than a dozen
technical papers and has achieved Master Level as a Certified
Hazardous Materials Manager.
12
MR. TIMOTHY KIMBALL
Mr. Kimball has served as Vice President of PFI and PFNM since
January, 1991 and was elected to the position of Vice President
Technical Services of the Company in December 1997. He previously
served as the Hazardous Waste Coordinator and Technical
Representative for Rinchem Company, Inc. from 1985 to 1991. He
also served a variety of management roles ranging from Planning
Director, Partner and President, as well as Technical and Research
Assistant for the University of New Mexico. He has a B.A. in
Political Science and Public Administration from the University of
Louisville, and an M.A. in Anthropology from the University of New
Mexico.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our Common Stock, with a par value of $.001 per share, is traded on
the NASDAQ SmallCap Market ("NASDAQ") and the Boston Stock Exchange
("BSE") under the symbol "PESI" on NASDAQ and "PES" on the BSE.
Effective December 1996, our Common Stock also began trading on the
Berlin Stock Exchange under the symbol "PES.BE." The following
table sets forth the high and low bid prices quoted for the Common
Stock during the periods shown. The source of such quotations and
information is the NASDAQ Stock market statistical summary reports:
1998 1997
__________________ _________________
Low High Low High
_____ _____ ____ _____
Common Stock: 1st Quarter 1 25/32 2 1/2 1 1/8 1 3/8
2nd Quarter 1 7/16 2 1/32 2 3/16 2 5/16
3rd Quarter 1 3/8 2 25/32 1 15/16 2
4th Quarter 1 1/32 2 7/32 2 1/16 2 1/4
Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-ups or commissions and may not
represent actual transactions.
As of December 31, 1998, there were approximately 191 shareholders
of record of our Common Stock, including brokerage firms and/or
clearing houses holding shares of our Common Stock for their
clientele (with each brokerage house and/or clearing house being
considered as one holder). However, the total number of beneficial
shareholders as of January 20, 1999, was approximately 1,645.
Since our inception, we have not paid any cash dividends on our
Common Stock and have no dividend policy. Our loan agreement
prohibits paying any cash dividends on our Common Stock without
prior approval.
In addition to the securities sold by us during 1998, as reported
in the Company's Forms 10-Q for the quarters ended June 30, 1998
and September 30, 1998, which were not registered under the
Securities Act of 1933, as amended ("Securities Act"), we sold or
issued during 1998 the following securities which were also not
registered under the Act:
1. During 1998, we issued RBB Bank Aktiengesellschaft,
located in Graz, Austria, 116,555 shares of the Company's
Common Stock in payment of accrued and unpaid dividends
in the Company's Series 3 Class C Convertible Preferred
Stock ("Series 3 Preferred"), in accordance with the
terms of the Series 3 Preferred. The following shares of
Common Stock were issued to RBB Bank during 1998 in
payment of the accrued and unpaid dividends in the Series
3 Preferred:
Number of
Amount Shares of Date of
of Dividend Common Stock Issuance
___________ ____________ _________
$ 121,000 54,528 1/22/98
119,000 62,027 7/24/98
The issuance of the above described shares of Common
Stock in payment of accrued and unpaid dividends in the
Series 3 Preferred, were issued pursuant to an exemption
from registration under Section 4(2) and/or Rule 506 of
Regulation D of the Securities Act. These have been
registered for resale in our Form S-3 Registration
Statement No. 333-14513.
2. During 1998, we issued RBB Bank Aktiengesellschaft,
located in Graz, Austria, 17,420 shares of the Company's
Common Stock in payment of accrued and unpaid dividends
14
in the Company's Series 8 Class H Convertible Preferred
Stock ("Series 8 Preferred"), in accordance with the
terms of the Series 8 Preferred. The shares of Common
Stock issued to RBB Bank during 1998 in payment of the
accrued and unpaid dividends in the Series 8 Preferred
are shown in the following table:
Number of
Amount Shares of Date of
of Dividend Common Stock Issuance
___________ ____________ _________
$ 33,000 17,420 7/24/98
The issuance of the above described shares of Common
Stock in payment of accrued and unpaid dividends in the
Series 8 Preferred, were issued pursuant to an exemption
from registration under Section 4(2) and/or Rule 506 of
Regulation D of the Securities Act.
3. During 1998, we issued The Infinity Fund L.P., located in
Atlanta, Georgia, 2,439 shares of the Company's Common
Stock in payment of accrued and unpaid dividends in the
Company's Series 9 Class I Convertible Preferred Stock
("Series 9 Preferred"), in accordance with the terms of
the Series 9 Preferred. The shares of Common Stock
issued to The Infinity Fund L.P. during 1998 in payment
of the accrued and unpaid dividends in the Series 9
Preferred are shown in the following table:
Number of
Amount Shares of Date of
of Dividend Common Stock Issuance
___________ ____________ _________
$ 5,000 2,439 7/24/98
The issuance of the above described shares of Common
Stock in payment of accrued and unpaid dividends in the
Series 9 Preferred, were issued pursuant to an exemption
from registration under Section 4(2) and/or Rule 506 of
Regulation D of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived
from our consolidated financial statements. Financial statements
for the year ended December 31, 1998, 1997, 1996, 1995, and 1994
have been audited by BDO Seidman, LLP.
Statement of Operations Data:
(Amounts in Thousands,
Except for Share
Amounts) December 31,
____________________________________________________
1998 1997 1996 1995 1994(2)
_______ _______ _______ _______ _______
Revenues(4) $ 30,551 $ 28,413 $ 27,041 $ 31,477 $ 23,522
Net income (loss)
from continuing
operations 462 192 27 (3,494) (1,201)
Net loss from discon-
tinued operations - (4,101) (287) (5,558)(3) (315)
Preferred Stock
dividends (1,160) (1,260)(5) (2,145)(5) - -
Net loss applicable
to Common Stock
from continuing
operations (698) (1,068)(5) (2,118)(5) (3,494) (1,201)
Net loss per common
share from contin-
uing operations(1) (.06) (.10)(5) (.24)(5) (.44) (.20)
Weighted average number
of common shares
outstanding(1) 12,028 10,650 8,761 7,872 5,988
15
Balance Sheet Data:
December 31,
______________________________________________________
1998 1997 1996 1995 1994(2)
_______ _______ _______ _______ _______
Working capital
(deficit) $ 372 $ 754 $ (773) $(9,372) $ (705)
Total assets 28,748 28,570 29,036 28,873 35,067
Long-term debt 3,042 4,981 6,360 8,478 6,041
Total liabilities 12,795 16,376 16,451 20,935 18,105
Stockholders' equity 15,953 12,194 12,585 7,938 16,962
<FN>
(1) 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.
(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 in Common Stock at
a discount from the market rate on the date of issuance of such
Preferred Stock. The Commission's position pursuant to Emerging
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 quoted market price
of Common Stock as determined on the date of issuance of such
Preferred Stock. To comply with this position, we restated our 1996
consolidated 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 our net loss applicable to Common Stock for 1996 reflects
the restated amount from the previously reported net loss applicable
to Common Stock of $405,000 and the amount noted in this table as
our net loss per share of Common Stock for 1996 reflects the
restated amount from the previously reported net loss per share of
Common Stock of ($.05). Pursuant to the Commission's position
regarding EITF D-60 and EITF D-42, we restated our 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 (amounts in thousands, except
for share amounts):
16
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)
</FN>
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 our audited consolidated financial statements and includes the
accounts of the Company and our wholly-owned subsidiaries, after
elimination of all significant inter-company balances and
transactions.
Results of Operations
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto
included in Item 8 of this report.
The reporting of financial results and pertinent discussions are
tailored to two reportable segments: Waste Management Services and
Consulting Engineering Services.
Below are the results of operations for our years ended
December 31, 1998, 1997 and 1996 (amounts in thousands, except for
share amounts):
(Consolidated) 1998 % 1997 % 1996 %
______________ _______ _____ _______ _____ _______ _____
Net Revenue $30,551 100.0 $28,413 100.0 $27,041 100.0
Cost of goods
sold 21,064 68.9 19,827 69.8 18,912 69.9
_______ _____ _______ _____ _______ _____
Gross Profit 9,487 31.1 8,586 30.2 8,129 30.1
Selling, general
and administra-
tive 6,847 22.4 5,682 20.0 5,942 22.0
Depreciation and
amortization 2,109 6.9 1,980 7.0 2,083 7.7
Other income
(expense):
Interest income 35 .1 41 .1 43 .2
Interest expense (294) (1.0) (431) (1.5) (643) (2.4)
Other 190 .6 (342) (1.2) 523 1.9
________ ______ ________ ______ ________ ______
Net income from
continuing
operations 462 1.5 192 .6 27 -
Loss from discon-
tinued opera-
tions(2) - - (4,101) (14.4) (287) (1.1)
Preferred Stock
dividends (1,160) (3.8) (1,260)(1) (4.4) (2,145)(1) (7.9)
________ ______ ________ ______ _________ ______
Net loss applic-
able to Common
Stock $ (698) (2.3) $(5,169)(1) (18.2) $(2,405)(1) (8.9)
======== ====== ======= ====== ======== ======
Net loss per
Common share $ (.06) - $ (.49) - $ (.27) -
======== ====== ======== ====== ======== ======
17
<FN>
(1) In March 1997, the Securities and Exchange Commission
("Commission") announced its position on the accounting for
Preferred Stock which is 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 EITF D-
60 regarding beneficial conversion features is that a
Preferred Stock dividend should be recorded for the difference
between the conversion price and quoted market price of Common
Stock as determined on the date of issuance of such Preferred
Stock. To comply with this position, we restated our 1996
consolidated 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 our net loss applicable to Common Stock for 1996
reflects the restated amount from the previously reported net
loss applicable to Common Stock of $405,000 and the amount
noted in this table as our net loss per share of Common Stock
for 1996 reflects the restated amount from the previously
reported net loss per share of Common Stock of ($.05).
Pursuant to the Commission's position regarding EITF D-60 and
EITF D-42, we restated our 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
(amounts in thousands, except for share amounts):
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)
(2) 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, we made a strategic decision in February 1998,
to discontinue our fuel blending operations at PFM, which
comprised virtually all of the revenue producing operations of
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, PFM will be
referred to as a discontinued operation, and excluded from the
discussions on the operating results of the continuing
operations.
</FN>
Summary -- Years Ended December 31, 1998 and 1997
Consolidated net revenues increased $2,138,000, or 7.5% for
continuing operations for the year ended December 31, 1998,
compared to the year ended December 31, 1997. This increase is
attributable to the growth in the wastewater treatment market at
PFTS, which totaled approximately $1,283,000 and the growth in the
oily wastewater and field services markets at PFFL, which totaled
approximately $1,168,000. Partially offsetting these increases was
a decrease in the consulting engineering segment of approximately
$287,000 and a decrease in on-site treatment of approximately
$357,000.
Cost of goods sold increased $1,237,000, or 6.2% for the year ended
December 31, 1998, compared to the year ended December 31, 1997.
This increase in cost of goods sold reflects principally the
increased operating, disposal, and transportation costs
corresponding to the increased revenues as discussed above.
Gross profit for the year ended December 31, 1998, increased to
$9,487,000, which as a percentage of revenue is 31.1%, reflecting
a slight improvement over 1997.
18
Selling, general and administrative expenses increased $1,165,000
or 20.5% for the year ended December 31, 1998, as compared to 1997.
As a percentage of revenue, selling, general and administrative
expenses also increased to 22.4% for the year ended December 31,
1998, compared to 20.0% for the same period of 1997. This increase
reflects an increase in costs of approximately $53,000 in the
consulting engineering segment, approximately $983,000 increase in
costs in the waste management segment, and an increase of
approximately $129,000 in corporate overhead. These increases
reflect our efforts to continue to research and develop new
markets, products and technologies that will allow us to become
more profitable.
Depreciation and amortization expense for the year ended December 31,
1998, reflects an increase of approximately $129,000 or 6.5% as
compared to the year ended December 31, 1997. This increase is
attributable to the capitalization and subsequent depreciation of
completed capital asset projects in 1998. Amortization expense
increased approximately $45,000 for the year ended December 31,
1998, as a result of new capitalized permitting costs and their
subsequent current year amortization and the additional
amortization of goodwill resulting from the 1998 acquisition of
Action Environmental.
Interest expense decreased approximately $137,000 from the year
ended December 31, 1998, as compared to the corresponding period of
1997. This decrease reflects reduced borrowing levels on the
Congress Financial revolver and term note.
The Preferred Stock dividends include the dividends recognized upon
the issuance of new series' of Preferred Stock due to the
beneficial conversion feature and dividends paid on a semi-annual
basis on outstanding Preferred Stock, which on a combined basis
decreased approximately $100,000, for the year ended December 31,
1998, as compared to the year ended December 31, 1997. Pursuant to
EITF D-60, we restated our 1997 consolidated financial statements
to record a dividend of approximately $908,000 related to the
fiscal 1997 sales of certain series of Convertible Preferred Stock.
Pursuant to EITF D-60 and D-42, we have recorded a dividend of
approximately $750,000 related to the fiscal 1998 sales of certain
series of Convertible Preferred Stock. However, Preferred Stock
dividends paid during 1998 were approximately $410,000 as compared
to approximately $352,000 during 1997. This increase of
approximately $58,000 is due to the issuance of the new Series 10
Preferred Stock issued in July 1998. 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 of our various issuances of Preferred Stock.
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 industry segment, which
experienced an increase in revenues of approximately $2,259,000
during 1997, as compared to 1996. Our 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 industry segment were two (2) sale transactions
completed during 1996, whereby we sold our PermaCool Technology
which had generated $689,000 in revenue during 1996 and sold our
plastic recycling subsidiary (Re-Tech Systems, Inc.) which had
generated $129,000 in revenue during 1996. This increase in the
waste management industry segment was partially offset by a
reduction in revenues of $887,000 in the consulting engineering
industry 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 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
19
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 industry segment and a $153,000 reduction in
costs in the waste management industry 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 our
continued efforts toward 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 our previous
restructuring programs and various other assets becoming fully
depreciated. Amortization expense reflects a total 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, we previously restated our 1996
consolidated 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 have restated our
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. However, dividends paid during 1997 were approximately
$352,000 as compared to approximately $145,000 during 1996. This
increase of approximately $207,000 is due to the full year of the
Series 8 and Series 9 Preferred Stock dividends during 1997. 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 of our various issuances of
Preferred Stock.
Liquidity and Capital Resources of the Company
At December 31, 1998, we had cash and cash equivalents of $776,000,
including discontinued operations. This cash and cash equivalents
total reflects a increase of $450,000 from December 31, 1997, as a
result of net cash provided by continuing operations of
$3,428,000, offset by cash used by discontinued operation of
$1,594,000, cash used in investing activities of $1,749,000
(principally purchases of equipment, net totaling $1,990,000,
partially offset by the proceeds from the sale of property and
equipment of $53,000) and cash provided by financing activities of
$365,000. Accounts receivable, net of allowances for continuing
operations, totaled $5,950,000, an increase of $668,000 over the
December 31, 1997, balance of $5,282,000, which reflects the impact
of increased revenues during the fourth quarter of 1998, over the
same period of 1997.
On January 15, 1998, we, as parent and guarantor, and all of our
direct and indirect subsidiaries, 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
20
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 our
eligible accounts receivable accounts as defined in the Agreement.
The termination date on the revolving loan facility is also the
third anniversary of the closing date. We incurred approximately
$230,000 in financing fees relative to the solicitation and closing
of this loan agreement (principally commitment, legal and closing
fees) which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1
3/4%. The loans also contain certain closing, management and unused
line fees payable throughout the term. The loans are subject to a
3.0% prepayment fee in the first year, 1.5% in the second and 1.0%
in the third year of the Agreement.
As security for the payment and performance of the Agreement, we
granted a first security interest in all of our and our
subsidiaries' accounts receivable, inventory, general intangibles,
equipment and other assets, as well as the mortgage on two (2)
facilities owned by our subsidiaries. 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, we are
limited to granting liens on our equipment, including capitalized
leases, (other than liens on the equipment to which Congress has a
security interest) in an amount not to exceed $2,500,000 in the
aggregate at any time outstanding.
The proceeds of the Agreement were utilized to repay in full on
January 15, 1998, the outstanding balance of 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. The balance of the revolving and term loans on January
15, 1998, as repaid pursuant to the Congress agreement, was
$2,289,000. The outstanding balance, which was principal on the
Ally Equipment Financing Agreement was $624,000, repaid pursuant to
the Congress Agreement. In conjunction with the above debt
repayments, we 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. We recorded the December 31, 1997, Heller and Ally
debt balances as though the Congress transaction had been closed as
of December 31, 1997. As a result of this transaction, and the
repayment of the Heller and Ally debt, the combined monthly debt
payments were reduced from approximately $104,000 per month to
$52,000 per month.
As of December 31, 1998, the borrowings under the Congress
revolving loan facility totaled $97,000 with borrowing availability
of approximately $4,009,000. The balance under the Congress term
loan at December 31, 1998, was $1,927,000.
During June 1998, we entered into a master security agreement and
secured promissory note in the amount of approximately $317,000 for
the purchase and financing of certain capital equipment at the
Perma-Fix of Florida, Inc. facility. The term of the promissory
note is for sixty (60) months, at a rate of 11.58% per annum and
monthly installments of approximately $7,000. We subsequently
entered into a second secured promissory note in the amount of
approximately $207,000 for the purchase and financing of certain
capital equipment. The term of the promissory note is for sixty
(60) months, at a rate of 10.54% per annum and monthly installments
of approximately $4,000.
At December 31, 1998, we had $3,014,000 in aggregate principal
amount of outstanding debt, related to continuing operations, as
compared to $4,865,000 at December 31, 1997. This decrease in
outstanding debt of $1,851,000 during 1998 reflects the reduced
borrowing levels on the revolving loan resulting from the proceeds
from issuance of Preferred Stock, positive cash flow of the
operations, and the scheduled principal repayments on other long-
term debt of $320,000, partially offset by the new debt and capital
21
lease obligations secured during the year of $564,000. As of
December 31, 1998, we had $28,000 in aggregate principal amounts of
outstanding debt related to PFM discontinued operations, of which
$24,000 is classified as current.
As of December 31, 1998, total consolidated accounts payable for
continuing operations was $2,422,000, an increase of $159,000 from
the December 31, 1997, balance of $2,263,000, which resulted from
the increased business activity at year end. This December 1998
balance does however also reflects a reduction of $205,000 in the
balance of payables in excess of sixty (60) days, to a total of
$403,000.
Our net purchases of new capital equipment for continuing
operations for the twelve month period ended December 31, 1998,
totaled approximately $2,554,000. These expenditures were for
expansion and improvements to the operations principally within
the waste management industry segment. These capital expenditures
were principally funded by the cash provided by continuing
operations, the proceeds from the issuance of Preferred Stock, as
discussed below, and $564,000 through various other lease financing
sources. We have budgeted capital expenditures of approximately
$2,500,000 for 1999, which includes completion of certain current
projects, as well as other identified capital and permit compliance
purchases. We anticipate funding these capital expenditures by a
combination of lease financing with lenders other than the
equipment financing arrangement discussed above, and/or internally
generated funds.
On or about June 30, 1998, the Company issued 3,000 shares of newly
created Series 10 Class J Convertible Preferred Stock ("Series 10
Preferred"), as further discussed in Note 6 to Consolidated Financial
Statements and Item 2 "Changes in Securities and Use of Proceeds." The
Company received net proceeds of $2,653,000 (after deduction of the
payment of $210,000 for broker's commission and certain other closing
costs, but prior to the Company's legal fees and other costs in
connection with the sale of the Series 10 Preferred and the registration
of the Common Stock issuable upon conversion of such Preferred Stock) for
the sale of the Series 10 Preferred. Each share of Series 10 Preferred
sold for $1,000 per share and has a liquidation value of $1,000 per
share. The Company utilized the proceeds received on the sale of
Series 10 Preferred for working capital and/or to reduce the
outstanding balance of its revolving credit facility, subject to
the Company reborrowing under such credit facility.
With the issuance of the Series 10 Preferred, the Company has
outstanding 9,850 shares of Preferred Stock, with each share having
a liquidation preference of $1,000 ("Liquidation Value"). Annual
dividends on the Preferred Stock ranges from 4% to 6% of the
Liquidation Value, depending upon the Series. Dividends on the
Preferred Stock are cumulative, and are payable, if and when
declared by the Company's Board of Directors, on a semi-annual
basis. Dividends on the outstanding Preferred Stock may be paid at
the option of the Company, if declared by the Board of Directors,
in cash or in the shares of the Company's Common Stock as described
under Note 6 of the Consolidated Financial Statements and Item 2 of
Part II hereof.
As of December 31, 1998, there are certain events, which may have
a material impact on the Company's liquidity on a short-term basis.
The Company's Board of Directors has authorized the repurchase of
up to 500,000 shares of the Company's Common Stock from time to
time in the open market or privately negotiated transactions, in
accordance with SEC Rule 10b-18, as promulgated under the Exchange
Act, of which we repurchased 23,000 shares during 1998 and if the
remaining authorized shares were purchased as of the date of the
report such would result in the expenditure of approximately
$600,000 in cash. The Company anticipates funding these activities
from cash provided by continuing operations and borrowings under
the Company's revolving credit facility.
The working capital position at December 31, 1998, was $372,000, as
compared to $754,000 at December 31, 1997, which reflects a
decrease in this position of $382,000 during 1998. This change in
current working capital principally reflects our continued
repayment of long term debt, including the revolving loan, from the
current cash flow from operations, resulting in our overall reduced
borrowing levels, which includes a revolving loan balance of only
$97,000 at December 31, 1998 as compared to $2,652,000 at December 31,
1997. Additionally, we continue to invest current cash
proceeds into the long term capital improvements of our operating
22
facilities, with the 1998 purchases of property and equipment
totaling $1,990,000, which exceeds the 1997 total by $486,000.
During 1998, accrued dividends for the period July 1, 1997, through
December 31, 1997, in the amount of approximately $183,000 were
paid in January 1998, in the form of 85,216 shares of Common Stock.
Dividends for the period January 1, 1998, through June 30, 1998, of
approximately $176,000 were paid in the form of 90,609 shares of
Common Stock. The accrued dividends for the period July 1, 1998,
through December 31, 1998, in the amount of approximately $235,000
were paid in January 1999, in the form of $121,000 in cash and
85,802 shares of Common Stock. It is the present intention of the
Company to pay any dividends declared by the Company's Board of
Directors on its outstanding shares of Preferred Stock in Common
Stock of the Company.
During January 1998, PFM was notified by the EPA that it believed
that PFM was a PRP regarding the remediation of a site owned and
operated by W.R. Drum, Inc. ("WR Drum") in Memphis, Tennessee (the
"Drum Site"), as further discussed in Item 3 "Legal Proceedings."
During the third quarter of 1998, the government agreed to PFM's
offer to pay $225,000 ($150,000 payable at closing and the balance
payable over a twelve month period) to settle any potential
liability regarding this Drum Site. During January 1999, the
Company executed a "Partial Consent Decree" pursuant to this
settlement, which settlement is subject to approval of the court.
It is anticipated that the settlement will be approved and the
initial payment of $150,000 will be made during the second quarter
of 1999. However, there are no assurances that the settlement will
be approved by the court.
In summary, we have continued to take steps to improve our
operations and liquidity as discussed above, including the equity
raised in 1998. If we are unable to continue to improve our
operations and to become profitable in the foreseeable future, such
would have a material adverse effect on our liquidity position.
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 us or our subsidiaries or others not affiliated
with us 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, we made a strategic decision, in February 1998, to
discontinue the fuel blending operations at PFM. The fuel blending
operations represented the principal line of business for PFM prior
to this event, which included a separate class of customers, and
its discontinuance has required PFM to attempt to develop new
markets and customers, through the utilization of the facility as
a storage facility under its RCRA permit and as a transfer
facility. Accordingly, during the fourth quarter of 1997, the
Company recorded a loss on disposal of discontinued operations of
$3,053,000, which included $1,272,000 for impairment of certain
assets and $1,781,000 for the establishment of certain closure
liabilities.
The net loss from the discontinued PFM operations for the years
ended December 31, 1997 and 1996 ($1,048,000, and $287,000,
respectively) are shown separately in the Consolidated Statements
of Operations. The results of the discontinued PFM operations do
not reflect management fees charged by us, but do include interest
expense of $254,000 and $169,000 during 1997 and 1996,
respectively, specifically identified to PFM as a result of PFM's
actual incurred debt under our revolving and term loan credit
facility. The operating expenses incurred during 1998, totaling
$653,000, relate to the closure and remedial activities performed,
23
and have been recorded to the accrued environmental reserve.
During March of 1998, we 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 us for certain
fire related expense.
The accrued environmental and closure costs related to PFM totals
$2,501,000 as of December 31, 1998, a decrease of $1,359,000 from
the December 31, 1997, accrual balance. This reduction was
principally a result of the specific costs related to the
decomissioning and closure of the fuel blending tank farm and
related processing equipment ($428,000), general closure and
remedial activities, including groundwater remediation and agency
and investigative activities, ($278,000), and the general operating
losses, including indirect labor, materials and supplies, incurred
in conjunction with the above actions ($653,000). The remaining
liability represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $980,000 (See
Note 9 to the Notes to Consolidated Financial Statements), the
costs to complete the facility closure activities (including agency
and investigative activities) totaling approximately $946,000,
future operating losses to be incurred by PFM as it completes such
closure and remedial activities over the next five (5) to ten (10)
year period ($350,000) and the potential PRP liability of $225,000
as further discussed in Note 12 to the Notes to Consolidated
Financial Statements
Revenues of the discontinued PFM operations were $1,878,000 in 1997
and $3,996,000 in 1996. 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.
Environmental Contingencies
We are 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, we are subject to rigorous federal, state and
local regulations. These regulations mandate strict compliance and
therefore are a cost and concern to us. Because of their integral
role in providing quality environmental services, we make every
reasonable attempt to maintain complete compliance with these
regulations; however, even with a diligent commitment, we, along
with many of our competitors, may be required to pay fines for
violations or investigate and potentially remediate our waste
management facilities.
We routinely use third party disposal companies, who ultimately
destroy or secure landfill residual materials generated at our
facilities or at a client's site. We, compared to certain of our
competitors, dispose of significantly less hazardous or industrial
by-products from our 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 our aggressive
compliance and auditing procedures for disposal of wastes, we
could, in the future, be notified that we are a PRP at a remedial
action site, which could have a material adverse effect.
In addition to budgeted capital expenditures of $2,500,000 for 1999
at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above under
"Business -- Capital Spending, Certain Environmental Expenditures"
and "Liquidity and Capital Resources of the Company" of this
Management's Discussion and Analysis, we have also budgeted for
1999 an additional $437,000 in environmental expenditures to comply
with federal, state and local regulations in connection with
remediation of certain contaminates at two locations. 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 Leased 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. We have estimated the expenditures
24
for 1999 to be approximately $222,000 at the EPS site and $215,000
at the PFM location. Additional funds will be required for the
next five to ten years to properly investigate and remediate these
sites. We expect to fund these expenses to remediate these two
sites from funds generated internally, however, no assurances can
be made that we will be able to do so.
Oak Ridge System Contract Award
The Company and M&EC entered into the M&EC Contract pursuant to which
the Company and M&EC agreed to act as a team in the performance of
certain contracts that either the Company or M&EC may obtain from
customers of the DOE regarding treatment and disposal of certain
types of radioactive, hazardous or mixed waste (waste containing
both hazardous and low level radioactive waste) at DOE facilities.
In connection with proposals relating to the treatment and disposal
of mixed waste at DOE's Oak Ridge, Tennessee system ("Oak Ridge"),
M&EC and the Company made a joint proposal to DOE, with M&EC to
act as the team leader. In August 1998 M&EC, as the team leader,
was awarded three contracts ("Oak Ridge Contracts") by Bechtel
Jacobs Company, LLC, the government-appointed manager of the
environmental program for Oak Ridge, to perform certain treatment
and disposal services relating to Oak Ridge. The Oak Ridge
Contracts were issued by DOE based on proposals by M&EC and the
Company.
The Oak Ridge Contracts are similar in nature to a blanket purchase
order whereby the DOE specifies the approved waste treatment process
and team to be used for certain disposal, but the DOE does not specify
a schedule as to dates for disposal or quantities of disposal material
to be processed. The initial term of the contract will represent a
demonstration period for the team's successful treatment of the waste
and the resulting ability of such processed waste to meet acceptance
criteria for its ultimate disposal location.
As with most such blanket processing agreements, the Oak Ridge Contracts
contain no minimum or maximum processing guarantees, and may be terminated
by either party pursuant to standard DOE procurement regulation terms.
Each specific waste stream processed under the Oak Ridge Contracts will
require a separate work order from DOE and will be priced separately with
an intent of recognizing an acceptable profit margin.
The Company anticipates that, as a member of the team with M&EC in
connection with the Oak Ridge Contracts and finalization of the scope
of work documents with M&EC relating to the work to be performed by
each of the Company and M&EC under the Oak Ridge Contracts, it will (i)
provide certain of the Company's environmental remediation technologies,
(ii) install equipment necessary to apply the Company's technology,
and (iii) supervise certain aspects of the remediation process operations.
In addition, the teaming agreement provides that M&EC will purchase all
of the equipment necessary to perform the Oak Ridge Contracts. The
Company anticipates that work, if any, under the Oak Ridge Contracts
will begin during the later part of 1999. There are no assurances that
the Company and M&EC will complete the scope of work documents. The
Company also anticipates that a substantial portion of any work performed
under the Oak Ridge Contracts will be performed at M&EC's facility at
Oak Ridge currently under development as of the date of this Report. The
DOE estimates that the Oak Ridge Contracts have the potential to generate
up to $100 million in gross revenues over an estimated time span of more
than five years. As of the date of this Report, however, the Company
cannot estimate (i) the amount of work or revenues, if any, which will
be received by M&EC under the Oak Ridge Contracts, (ii) the percentage
or amount of work received by M&EC under the Oak Ridge Contracts which
will be performed by the Company, or (iii) the ultimate profitability,
or lack of profitability, of the Oak Ridge Contracts for the Company.
See "Special Note Regarding Forward Looking Statements" and "Business--
Oak Ridge System Contract Award."
Proposed Acquisition
During March 1999, the Company, Chemical Conservation Corporation
(Florida), Chemical Conservation of Georgia, Inc. and Chem-Met
Services, Inc. (Collectively "Chem-Con") entered into a definitive
agreement whereby PESI agreed to acquire all of the outstanding
shares of Common Stock of Chem-Con in exchange for $7.4 million in
the Company's Common Stock, with the number of shares of the
Company's Common Stock to be issued determined by dividing $7.4
million by the average closing price per share of the Company's
25
Common Stock as quoted on the NASDAQ for the five (5) trading days
immediately preceding the date of closing. The Company would, at
the closing of the acquisition, enter into a four year employment
agreement with an executive of Chem-Con in the approximate amount
of $1.3 million. We expect that the merger will be accounted for
as a pooling of interests, which means that we will treat our
companies as if they had always been combined for accounting and
financial reporting purposes. The transaction is expected to be
closed during the second quarter of 1999, subject to the ability of
the parties to, among other things, qualify the Acquisition as a
pooling of interests transaction, which means that the merged
companies will be treated as if they had always been combined for
accounting and financial reporting purposes and to obtain approval
of the Acquisition by the Company's stockholders entitled to vote
thereon.
No assurances can be made that the Acquisition will occur, or if
such Acquisition occurs, that such Acquisition would be on the same
terms as described above.
Chem-Con reported audited combined net revenues of approximately
$21.8 million and audited combined net income of approximately
$480,000 for fiscal year ended September 30, 1998.
Upon closure of the proposed acquisition, the Company will be
required to pay approximately $900,000 for the settlement of
certain environmental contingencies and $360,000 in connection with
the settlement of another claim against Chem-Con. In addition, the
facilities of Chem-Con located in Michigan and Georgia are
contaminated in certain aspects and, as a result of such
contamination and based upon the Company's due diligence, the
Company believes such remediation costs, which will be incurred
over a ten year period, will not in the aggregate exceed $3.8
million. The Company will also be required to replace Chem-Con's
financing facility which totaled approximately $2 million at
December 31, 1998, through the utilization of the Company's current
loan and security agreement or a new credit facility as obtained by
the Company.
It is anticipated that this acquisition will result in economies of
scale on both the selling and processing activities, as well as
certain overhead related expenses, and will provide access to new
products, new customers, and the ability to offer new services. The
geographic locations, combined with expanded service capabilities,
of the merged companies will provide significant market presence
through the Midwest and Southeastern United States.
Recent Accounting Pronouncements
In June, 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133 is effective for periods beginning
after June 15, 1999. Historically, we have not entered into
derivative contracts. Accordingly, FAS 133 is not expected to
affect our financial statements.
26
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained with this report may be deemed
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (collectively, the
"Private Securities Litigation Reform Act of 1995"). All
statements in this report other than an statements of historical
fact are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors which could cause
actual results and performance of the Company to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things, (i) ability or inability to improve operations
and become profitable on an annualized basis and continue its
operations, (ii) the Company's ability to develop or adopt new and
existing technologies in the conduct of its operations, (iii)
anticipated financial performance, (iv) ability to comply with the
Company's general working capital requirements, (v) ability to
retain or receive certain permits or patents, (vi) ability to be
able to continue to borrow under the Company's revolving line of
credit, (vii) ability to generate sufficient cash flow from
operations to fund all costs of operations and remediation of
certain formerly leased property in Dayton, Ohio, and the Company's
facility in Memphis, Tennessee, (viii) ability to remediate certain
contaminated sites for projected amounts, (ix) the government's
acceptance of the Company's offer regarding settlement of claims
involving the Drum Site (as defined), (x) ability of the Company to
remediate certain properties of Chem-Con (as defined) for projected
amounts, (xi) ability to obtain a satisfactory line of credit for
Chem-Con, (xii) ability to obtain approval of the acquisition of
Chem-Con by the stockholders of the Company, (xiii) "Year 2000"
computer issues, (xiv) the Oak Ridge Contracts (as defined), (xv)
anticipated revenues resulting from the Oak Ridge Contracts and
completion of the scope of work with M&EC (as defined), (xvi)
acquisition of Chem-Con, and all other statements which are
not statements of historical fact. While the Company believes the
expectations reflected in such forward-looking statements are
reasonable, it can give no assurance such expectations will prove
to have been correct. There are a variety of factors which could
cause future outcomes to differ materially from those described in
this report, including, but not limited to, (i) general economic
conditions, (ii) material reduction in revenues, (iii) inability to
collect in a timely manner a material amount of receivables, (iv)
increased competitive pressures, (v) the ability to maintain and
obtain required permits and approvals to conduct operations, (vi)
the ability to develop new and existing technologies in the conduct
of operations, (vii) overcapacity in the environmental industry,
(viii) inability of the "New Process" (as defined) to perform as
anticipated or to develop such for commercial use, (ix) "Year 2000"
compliance of the computer system of the Company, its key suppliers,
customers, creditors, and financial service organizations, (x)
ability to receive or retain certain required permits, (xi) discovery
of additional contamination or expanded contamination at a certain
Dayton, Ohio, property formerly leased by the Company or the Company's
facility at Memphis, Tennessee, which would result in a material increase
in remediation expenditures, (xii) determination that PFM is the source of
chlorinated compounds at the Allen Well Field, (xiii) changes in federal,
state and local laws and regulations, especially environmental regulations,
or in interpretation of such, (xiv) potential increases in equipment,
maintenance, operating or labor costs, (xv) management retention and
development, (xvi) the requirement to use internally generated funds for
purposes not presently anticipated, (xvii) inability to become profitable,
or if unable to become profitable, the inability to secure additional
liquidity in the form of additional equity or debt, (xviii) the
commercial viability of our on-site treatment process, (xix) discovery
of additional contamination or expanded contamination at property owned
or used by Chem-Con, (xx) inability of the Company and M&EC to finalize
the scope of work documents relating to the Oak Ridge Contracts, (xxi)
the actual volume of waste to be received under the Oak Ridge Contracts,
(xxii) a determination that the amount of work to be performed by the
Company under the Oak Ridge Contracts is less than anticipated, (xxiii)
the inability of the Company to perform the work assigned to it under
Oak Ridge Contracts in a profitable manner, (xxiv) the inability of the
Company to obtain under certain circumstances shareholder approval of
the transaction in which the Series 10 Preferred and certain warrants
were issued, and (xxv) the inability of the Company to maintain the
listing of its Common Stock on the NASDAQ. The Company undertakes no
obligations to update publicly any forward-looking statement, whether
as a result of new information, future events or otherwise.
27
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 29
Consolidated Balance Sheets as of
December 31, 1998 and 1997 30
Consolidated Statements of Operations
for the years ended December 31,
1998, 1997 and 1996 32
Consolidated Statements of Cash Flows
for the years ended December 31,
1998, 1997 and 1996 33
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1998, 1997 and 1996 34
Notes to Consolidated Financial Statements 35
Financial Statement Schedules:
_____________________________
II Valuation and Qualifying Accounts for the
years ended December 31, 1998, 1997 and
1996 80
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.
28
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, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted
accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
March 5, 1999
29
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1998 1997
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 776 $ 314
Restricted cash equivalents
and investments 111 321
Accounts receivable, net of
allowance for doubtful accounts
of $313 and $374, respectively 5,950 5,282
Insurance claim receivable - 1,475
Inventories 145 119
Prepaid expenses 471 567
Other receivables 11 70
Assets of discontinued operations 489 587
_________ ________
Total current assets 7,953 8,735
Property and equipment:
Buildings and land 5,804 5,533
Equipment 8,606 7,689
Vehicles 941 1,202
Leasehold improvements 16 16
Office furniture and equipment 782 1,056
Construction in progress 1,592 1,052
_________ ________
17,741 16,548
Less accumulated depreciation (5,836) (5,564)
_________ ________
Net property and equipment 11,905 10,984
Intangibles and other assets:
Permits, net of accumulated
amortization of $1,088 and
$831, respectively 3,661 3,725
Goodwill, net of accumulated
amortization of $751 and
$580, respectively 4,698 4,701
Other assets 531 425
________ ________
Total assets $ 28,748 $ 28,570
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
30
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1998 1997
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,422 $ 2,263
Accrued expenses 3,369 3,380
Revolving loan and term note
facility 625 614
Current portion of long-term debt 302 254
Current liabilities of discontinued
operations 863 1,470
_________ _______
Total current liabilities 7,581 7,981
Environmental accruals 520 525
Accrued closure costs 715 831
Long-term debt, less current portion 2,087 3,997
Long term liabilities of discontinued
operations 1,892 3,042
_________ _______
Total long-term liabilities 5,214 8,395
Commitments and contingencies
(see Notes 4, 7, 9 and 12) - -
Stockholders' equity:
Preferred Stock, $.001 par value;
2,000,000 shares authorized,
9,850 and 6,850 shares issued
and outstanding, respectively - -
Common Stock, $.001 par value;
50,000,000 shares authorized,
13,215,093 and 12,540,487
shares issued, including
943,000 and 920,000 shares
held as treasury stock,
respectively 13 12
Redeemable warrants 140 140
Additional paid-in capital 39,769 35,271
Accumulated deficit (22,157) (21,459)
________ _______
17,765 13,964
Less Common Stock in treasury at
cost; 943,000 and 920,000 shares
issued and outstanding, respectively (1,812) (1,770)
________ _______
Total stockholders' equity 15,953 12,194
________ _______
Total liabilities and
stockholders' equity $ 28,748 $ 28,570
======== ========
31
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(Amounts in Thousands,
Except for Share Amounts) 1998 1997 1996
___________________________________________________________________
Net revenues $ 30,551 $ 28,413 $ 27,041
Cost of goods sold 21,064 19,827 18,912
________ ________ ________
Gross profit 9,487 8,586 8,129
Selling, general and
administrative
expenses 6,847 5,682 5,942
Depreciation and
amortization 2,109 1,980 2,083
_______ ______ ________
Income from operations 531 924 104
Other income (expense):
Interest income 35 41 43
Interest expense (294) (431) (643)
Other 190 (342) 523
________ ________ _______
Net income from
continuing operations 462 192 27
Discontinued Operations:
Loss from operations - (1,048) (287)
Loss on disposal - (3,053) -
_______ ________ _______
Loss from discon-
tinued operations - (4,101) (287)
_______
Net income (loss) 462 (3,909) (260)
_______ ________ _______
Preferred Stock dividends (1,160) (1,260)* (2,145)*
_______ ________ _______
Net loss applicable
to Common Stock $ (698) $ (5,169)* $ (2,405)*
======== ======== ========
____________________________________________________
Basic loss per common share:
Continuing operations $ (.06) $ (.10) $ (.24)
Discontinued operations - (.39) (.03)
_________ _________ ________
Net loss per common
share $ (.06) $ (.49)* $ (.27)*
======== ======== ========
Weighted average number of
common shares outstanding 12,028 10,650 8,761
======== ======== ========
<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.
32
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(Amounts in Thousands) 1998 1997 1996
___________________________________________________________________
Cash flows from operating
activities:
Net income from contin-
uing operations $ 462 $ 192 $ 27
Adjustments to reconcile
net loss to cash pro-
vided by (used in)
operations:
Depreciation and amorti-
zation 2,109 1,980 2,083
Loss on impairment of
assets - 371 -
Provision for bad debt
and other reserves 61 133 17
(Gain) loss on sale of
plant, property and
equipment (24) 21 (4)
Changes in assets and
liabilities, net of
effects from business
acquisitions:
Accounts receivable (715) (770) (38)
Prepaid expenses, inven-
tories and other assets 1,341 303 (513)
Accounts payable and accrued
expenses 194 (809) (1,798)
_______ ________ _______
Net cash provided by
(used in) continuing
operations 3,428 1,421 (226)
_______ ________ _______
Net cash used in discontinued
operations (1,594) (1,398) (1,065)
_______ ________ _______
Cash flows from investing
activities:
Purchases of property and
equipment, net (1,990) (1,504) (1,957)
Proceeds from sale of plant,
property and equipment 53 54 1,214
Change in restricted cash,
net 192 (30) (58)
Net cash used by discon-
tinued operations (4) (41) (162)
_______ ________ _______
Net cash used in
investing activities (1,749) (1,521) (963)
________ ________ _______
Cash flows from financing
activities:
Repayments on revolving
loan and term note
facility (2,140) (743) (997)
Principal repayments on
long-term debt (320) (938) (1,502)
Proceeds from issuance
of stock 2,941 3,480 6,367
Purchase of treasury stock (42) - (1,770)
Net cash used by discon-
tinued operations (74) (20) -
________ ________ ________
Net cash provided by
financing activities 365 1,779 2,098
________ ________ ________
(Decrease) increase in cash and
cash equivalents 450 281 (156)
Cash and cash equivalents at
beginning of period,
including discontinued oper-
ations of $12, $8, and $28,
respectively 326 45 201
________ ________ _______
Cash and cash equivalents at
end of period, including
discontinued operations
of $0, $12, and $8,
respectively $ 776 $ 326 $ 45
======== ======= =======
___________________________________________________________________
Supplemental disclosure:
Interest paid $ 555 $ 710 $ 844
Non-cash investing and
financing activities:
Issuance of Common Stock
for services 241 76 462
Long-term debt incurred
for purchase of property
and equipment, including
discontinued operations
of $31 in 1997 564 294 424
Issuance of stock for pay-
ment of dividends 358 314 -
Issuance of Common Stock for
acquisition 207 - -
The accompanying notes are an integral part of
these consolidated financial statements.
33
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, 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
======== ====== ========== =======
Net income - - - -
Preferred Stock dividends - - - -
Issuance of Common Stock
for Preferred Stock
dividend - - 175,825 -
Issuance of Preferred Stock 3,000 - - -
Issuance of Common Stock
for acquisition - - 108,207 -
Issuance of stock for cash
and services - - 174,474 -
Exercise of warrants - - 215,100 1
Option Exercise - - 1,000 -
Redemption of common shares
to treasury stock - - - -
_______ ______ __________ _______
Balance at December 31, 1998 9,850 $ - 13,215,093 $ 13
======== ====== ========== =======
Common
Additional Stock
Redeemable Paid-In Accumulated Held in
Warrants Capital Deficit Treasury
______________________________________________________
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)
======== ========== =========== ==========
- - 462 -
- 750 (1,160) -
- 358 - -
- 2,653 - -
- 207 - -
- 274 - -
- 255 - -
- 1 - -
- - - (42)
_______ _________ __________ __________
$ 140 $ 39,769 $ (22,157) $ (1,812)
======= ========= ========== ==========
The accompanying notes are an integral part of
these consolidated financial statements.
34
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, which may be
referred to as we, us, or our) is a Delaware corporation, engaged
through its subsidiaries, in:
* Waste Management Services, which includes:
* treatment, storage, processing, and disposal of
hazardous and non-hazardous waste and mixed waste which
is both low-level radioactive and hazardous;
* nuclear mixed and low-level radioactive waste
treatment, processing and disposal, which includes
research, development, on-and off-site waste remediation
and processing; and
* industrial waste and wastewater management services,
including the collection, treatment, processing and
disposal, and the design and construction of on-site
wastewater treatment systems.
* Consulting Engineering Services, which includes:
* broad-scope environmental issues, including
environmental management programs, regulatory
permitting, compliance and auditing, landfill design,
field testing and characterization.
We have grown through both acquisitions and internal development.
Our present objective is to focus on the operations, maximize the
profitability and to continue the research and development of
innovative technologies for the treatment of nuclear, mixed waste
and industrial waste.
We are subject to certain risks: (1) We are involved in the
treatment, handling, storage and transportation of hazardous and
non-hazardous, mixed and industrial wastes and wastewater. Such
activities contain risks against which we believe we are adequately
insured, and (2) in general, the industries in which we operate are
characterized by intense competition among a number of larger, more
established companies with significantly greater resources.
Our consolidated financial statements for the years 1996 through
1998 include the accounts of Perma-Fix Environmental Services, Inc.
("PESI") and our 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")
were discontinued. See Note 4.
________________________________________________________
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include our accounts and our
wholly-owned subsidiaries after elimination of all significant
intercompany accounts and transactions.
Reclassifications
Certain prior year amounts have been reclassified to conform with
the 1998 presentation.
35
Operating Segments
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information," ("FAS
131"). FAS 131 establishes standards for the way that public
companies report information about operating segments in annual
financial statements. It also requires the disclosure of certain
information regarding services provided, geographic areas of
operation and major customers. 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.
Cash Equivalents
We consider all highly liquid investments with initial maturities
of three months or less to be cash equivalents. Cash equivalents at
December 31, 1998, included overnight repurchase agreements in the
approximate amount of $249,000.
Restricted Cash Equivalents and Investments
Restricted cash equivalents and investments for continuing
operation, which are classified as current assets, decreased
$210,000 from the year ended December 31, 1998, as compared to the
same period of 1997, to a balance of $111,000. During 1998, we
replaced a restricted trust fund for the financial guarantee of the
PFTS TSD facility, with an insurance policy which resulted in the
release of $212,000 of restricted funds. In addition to these
current assets, a trust fund of $383,000 is classified as a long
term asset as of December 31, 1998, as compared to $365,000 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 $218,000 as of December 31,
1998. This restricted cash amount is reported in current assets
(assets of discontinued operations), and includes a trust fund for
$73,000 and certificates of deposit for $145,000. 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
36
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 $429,000, $388,000 and $455,000 for the years
ended 1998, 1997, and 1996, respectively. We continually
reevaluate 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. We use an estimate of
the related undiscontinued operating income over the remaining
lives of goodwill and permit costs in measuring whether they are
recoverable. At this time, we believe that no 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 our estimated environmental
liability to clean up our facilities in the event of closure.
Income Taxes
We account 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 basis 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
We have a self-insurance program for certain health benefits. 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 1998 was approximately
$807,000, as compared to $663,000 for 1997. This increase
principally reflects the occurrence of several larger claims during
1998.
Net Loss Per Share
Net loss per share has been presented using the weighted average
number of common shares outstanding. Potential common shares have
not been included in the net loss per share calculations since
their effects would be antidilutive. Potential common shares
include 1,687,132 stock options, 13,230,796 warrants and 10,116,667
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
37
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 our EPS presentation for 1998, 1997 and 1996,
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 because of
the short-term maturities of these instruments. The fair value of
our long-term debt is estimated based on the current rates offered
to us for debt of similar terms and maturities. Under this method,
our fair value of long-term debt was not significantly different
from the stated value at December 31, 1998 and 1997.
Recent Accounting Pronouncements
In June, 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133 is effective for periods beginning
after June 15, 1999. Historically, we have not entered into
derivative contracts. Accordingly, FAS 133 is not expected to
affect our financial statements.
________________________________________________________
NOTE 3
RESTATEMENT OF 1996 AND 1997 STOCKHOLDER'S EQUITY
In March 1997, the Securities and Exchange Commission Staff (the
"Staff") announced its position on the accounting for Preferred
Stock which is or may be convertible into Common Stock at a
discount from the market price 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,
we previously restated our 1996 consolidated financial statements
to reflect a dividend of approximately $2,000,000 related to the
fiscal 1996 sales of Convertible Preferred Stock discussed in Note
6 (Series 1 Class A, Series 2 Class B, Series 3 Class C Preferred
Stock). We also restated the reported net loss per share of Common
Stock for the year ended December 31, 1996, to ($.27), from the
previously reported amount of ($.05). Pursuant to EITF D-60 and
EITF D-42, we restated our 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 with the issuance of
the Preferred Stock 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 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 (amounts in thousands, except for
share amounts):
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)
38
________________________________________________________
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. Until the time of
the incident, PFM operated as a permitted "fuel blending" facility
and serviced a separate class of customers who generated specific
waste streams, each identified by its waste code and specific
characteristics. As our only such "fuel blending" facility, PFM was
permitted and capable of mixing certain hazardous liquid, semi-
solid and solid waste in a vat which suspended the solids in order
to pump the mixture into a tank. The tanks also contained mixing
units which kept the solids suspended until the mixture could be
off-loaded into tanker trucks. As a result of the damage to the
tanks and processing equipment and the related cost to rebuild this
operating unit, we decided to discontinue this line of business,
which resulted in PFM's inability to service and retain the
existing customer base. The existing customer base represented
principally manufacturing and service companies whose operations
generated certain semi-solid and solid permitted hazardous wastes,
which as a result of permit and processing limitations could not be
served by our other facilities. PFM continues to pursue other
markets or activities which may be performed at this facility given
the permit limitations, capital requirements and development of a
new line of business and related customer base. Upon evaluation of
the above business decision, and given the loss of both the
existing line of business and its related customer base, we
reported the Memphis segment as a discontinued operation, pursuant
to Paragraph 13 of APB 30.
The fuel blending activities were discontinued on the date of the
incident, January 27,1997. All assets involved in the fuel blending
activities that were not damaged beyond repair in the fire have
subsequently been damaged as a result of the decontamination
process. Accordingly, during the fourth quarter of 1997, we
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 and 1996 ($1,048,000, and $287,000,
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 and $169,000 during 1997 and
1996, respectively, specifically identified to such operations as
a result of such operations incurring debt under the Company's
revolving and term loan credit facility. The operating expenses
incurred during 1998, totaling $653,000, relate to the closure and
remedial activities performed, and have been recorded to the
accrued environmental reserve. 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
and $3,996,000 in 1996. 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:
39
1998 1997
_______ _______
Assets of discontinued operations:
Cash and cash equivalents $ - $ 12
Restricted cash equivalents and
investments 218 214
Accounts receivable, net of allowance
for doubtful accounts $101 and
$105, respectively 260 333
Prepaid expenses and other assets 11 28
_______ ______
$ 489 $ 587
======= =======
Current liabilities of discontinued
operations:
Accounts payable $ 100 $ 277
Accrued expenses 126 259
Accrued environmental costs 613 835
Current portion of long-term debt 24 99
_______ _______
$ 863 $ 1,470
======= =======
Long-term liabilities of discontinued
operations:
Long-term debt, less current portion $ 4 $ 17
Accrued environmental and closure costs 1,888 3,025
_______ _______
$ 1,892 $ 3,042
======= =======
The accrued environmental and closure costs related to PFM totals
$2,501,000 as of December 31, 1998, a decrease of $1,359,000 from
the December 31, 1997, accrual balance. This reduction was
principally a result of the specific costs related to the
decomissioning and closure of the fuel blending tank farm and
related processing equipment ($428,000), general closure and
remedial activities, including groundwater remediation,and agency
and investigative activities, ($278,000), and the general operating
losses, including indirect labor, materials and supplies, incurred
in conjunction with the above actions ($653,000). The remaining
liability represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $980,000 (see
Note 9), the costs to complete the facility closure activities
(including agency and investigative activities) totaling
approximately $946,000, future operating losses to be incurred by
PFM as it completes such closure and remedial activities over the
next five (5) to ten (10) year period ($350,000) and the potential
PRP liability of $225,000 as further discussed in Note 12.
________________________________________________________
NOTE 5
ACQUISITION AND PROPOSED ACQUISITION
Effective April 1, 1998, the Company entered into an asset purchase
agreement to acquire substantially all of the assets and certain
liabilities of Action Environmental Corp. ("Action") of Miami,
Florida. Action has provided oil filter collection and processing
services to approximately 700 customers in south Florida. The
assets of Action were acquired through a combination of stock
issuance and the assumption of certain liabilities. The
acquisition was accounted for using the purchase method effective
April 1, 1998. The acquisition of Action resulted in an issuance
of 108,207 shares of the Company's Common Stock reflecting a total
purchase price of $207,000.
During March 1999, the Company, Chemical Conservation Corporation
(Florida), Chemical Conservation of Georgia, Inc. and Chem-Met
Services, Inc. (Collectively "Chem-Con") entered into a definitive
agreement whereby PESI agreed to acquire all of the outstanding
shares of Common Stock of Chem-Con in exchange for $7.4 million in
the Company's Common Stock, with the number of shares of the
Company's Common Stock to be issued determined by dividing $7.4
million by the average closing price per share of the Company's
Common Stock as quoted on the NASDAQ for the five (5) trading days
immediately preceding the date of closing. The Company would, at
the closing of the acquisition, enter into a four year employment
agreement with an executive of Chem-Con in the approximate amount
of $1.3 million. The audited combined net revenues of Chem-Con for
40
the fiscal year ended September 30, 1998, were, in the aggregate,
approximately $21.8 million. We expect that the merger will be
accounted for as a pooling of interests, which means that we will
treat our companies as if they had always been combined for
accounting and financial reporting purposes. The transaction is
expected to be closed during the second quarter of 1999, subject to
the ability of the parties to, among other things, qualify the
Acquisition as a pooling of interests transaction, which means that
the merged companies will be treated as if they had always been
combined for accounting and financial reporting purposes and to
obtain approval of the Acquisition by the Company's stockholders
entitled to vote thereon.
________________________________________________________
NOTE 6
PREFERRED STOCK ISSUANCE AND CONVERSION
We 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, we 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 us 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, we 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, we 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 our option, in the form of cash or Common Stock. 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
41
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. The accrued
dividends for the period January 1, 1998, through June 30, 1998, in
the amount of approximately $119,000 were paid in July 1998, in the
form of 62,027 shares of Common Stock of the Company. The accrued
dividends for the period July 1, 1998, through December 31, 1998,
in the amount of approximately $121,000 were paid in January 1999,
in the form of cash.
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, we 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, we 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 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 us 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 our option, in
the form of cash or Common Stock. If we pay 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
42
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 was $.75, which minimum was eliminated as of
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, we 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.
We 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.
We 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 us 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 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 the date of this report no shares of the Series
6 Preferred have been converted.
43
Effective February 28, 1998, the Company entered into an Exchange
Agreement with RBB Bank (the "Second RBB Exchange Agreement"),
which provided that the 2,500 shares of Series 6 Preferred were
tendered to the Company in exchange for 2,500 of a newly-created
Series 8 Class H Preferred Stock, par value $.001 per share
("Series 8 Preferred"). The exchange was made in an exchange offer
exempt from registration pursuant to Section 3(a)(9) of the
Securities Act, and/or Section 4(2) of the Securities Act and/or
Regulation D as promulgated under the Securities Act. The Series
8 Preferred was issued to RBB Bank during July 1998.
The rights under the Series 8 Preferred are the same as the rights
under the Series 6 Preferred, except for the conversion price. The
Series 8 Preferred is convertible at $1.8125 per share, except
that, in the event the average closing bid price reported in the
over-the-counter market, or the closing sale price if listed on a
national securities exchange for the five (5) trading days prior to
a particular date of conversion, shall be less than $2.50, the
conversion price for only that particular conversion shall be the
average of the closing bid quotations of the Common Stock as
reported on the over-the-counter market, or the closing sale price
if listed on a national securities exchange, for the five (5)
trading days immediately proceeding the date of such particular
conversion notice provided by the holder to the Company multiplied
by 80%. Notwithstanding the foregoing, the conversion price shall
not be less than a minimum of $.75 per share, which minimum shall
be eliminated from and after September 6, 1998.
The terms of the Series 8 Preferred has a liquidation preference
over the Company's Common Stock equal to $1,000 consideration per
outstanding share of Series 8 Preferred (the "Series 8 Liquidation
Value"), plus an amount equal to all accrued and unpaid dividends.
The Series 8 Preferred accrues dividends on a cumulative basis at
a rate of four percent (4%) per annum of the Series 8 Liquidation
Value ("Series 8 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 8 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 Series 8 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, 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.
Except for the exchange of the Series 6 Preferred for the Series 8
Preferred, the Second RBB Exchange Agreement does not terminate the
First RBB Exchange Agreement. In addition, the RBB Series 6
Warrants were not affected by the Second RBB Exchange Agreement.
The Company paid to RBB Bank the dividends on the Series 6
Preferred which accrued from the date of its issuance through
February 28, 1998, the effective date of the Second RBB Exchange
Agreement by issuing to RBB Bank 7,652 shares of Common Stock in
payment of such accrued dividends. By letter dated July 14, 1998,
RBB Bank agreed to waive certain penalties regarding the Series 4
Preferred and Series 6 Preferred. The accrued dividends for the
period July 1, 1997, through December 31, 1997, 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. The accrued dividends for the Series 6 and 8
Preferred for the period January 1, 1998, through June 30, 1998, in
the amount of approximately $49,000, were paid in July 1998, in the
form of 25, 072 shares of Common Stock of the Company. The accrued
dividends for the Series 8 Preferred for the period July 1, 1998,
through December 31, 1998, in the amount of approximately $50,000,
were paid in February 1999, the form of 38,046 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 pursuant to EITF D-60 relating to
beneficial conversion features is that a preferred stock dividend
44
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, we recognized a
dividend in 1997 of approximately $798,000 as related to the
issuance of the Series 4 Class D, and Series 6 Class F Preferred
Stock and the related warrants.
On or about July 14, 1997, we 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 us and Infinity
("Infinity Subscription Agreement"). We 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 our option, in the form of cash or Common
Stock. If we pay 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 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.
We negotiated an Exchange Agreement with Infinity ("Infinity Fund
Exchange Agreement") which provided that the 350 shares of Series
5 Preferred will be tendered to us 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 was eliminated as of September 6, 1998.
45
The remaining terms of the Series 7 Preferred will be substantially
the same as the terms of the Series 5 Preferred. As of the date of
this report no shares of the Series 7 Preferred have been
converted.
Effective February 28, 1998, the Company entered into an Exchange
Agreement with Infinity (the "Second Infinity Exchange Agreement"),
which provided that the 350 shares of Series 7 Preferred were
tendered to the Company in exchange for 350 shares of a newly-
created Series 9 Class I Preferred Stock, par value $.001 per share
("Series 9 Preferred"). The exchange was made as an exchange offer
pursuant to Section 3(a)(9) of the Securities Act, and/or Section
4(2) of the Securities Act and/or Registration D as promulgated
under the Securities Act.
The rights of the Series 9 Preferred are the same as the rights
under the Series 7 Preferred, except for the conversion price. The
conversion price for the Series 9 Preferred is $1.8125 per share,
except that, in the event the average closing bid price of the
Common Stock as reported in the over the counter market, or the
closing sale price if listed on a national securities exchange, for
the five (5) trading days prior to a particular date of conversion,
shall be less than $2.265, the conversion price for only such
particular conversion shall be the average of the closing bid
quotations of the Common Stock as reported on the over the counter
market, or the closing sale price if listed on a national
securities exchange for the five (5) trading days immediately
proceeding the date of such particular conversion notice provided
by the holder to the Company multiplied by 80%. Notwithstanding
the foregoing, the conversion price shall not be less than a
minimum of $.75 per share, which minimum shall be eliminated from
and after September 8, 1998.
The Series 9 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 9 Preferred (the "Series 9 Liquidation Value"), plus an
amount equal to all unpaid dividends accrued thereon. The Series 9
Preferred accrues dividends on a cumulative basis at a rate of four
percent (4%) per annum of the Series 9 Liquidation Value ("Series
9 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 9 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 are payable in the
number of shares of Common Stock equal to the product of (a) the
quotient of (i) the Series 9 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.
Except for the exchange of the Series 7 Preferred for the Series 9
Preferred, the Second Infinity Exchange Agreement does not
terminate the First Infinity Exchange Agreement. In addition, the
Infinity Series 7 Warrants were not affected by the Second Infinity
Exchange Agreement. The Company has paid Infinity the dividends on
the Series 7 Preferred which accrued from the date of its issuance
through February 28, 1998, the effective date of the Second
Infinity Exchange Agreement, by issuing to Infinity 1,071 shares of
Common Stock in payment of such accrued dividends. The accrued
dividends for the period July 1, 1997, through December 31, 1997,
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. The accrued dividends for
the Series 7 and 9 Preferred for the period January 1, 1998,
through June 30, 1998, in the amount of approximately $7,000, were
paid in July 1998, in the form of 3,510 shares of Common Stock of
the Company. The accrued dividends for the Series 9 Preferred for
the period July 1, 1998, through December 31, 1998, in the amount
of approximately $7,000, were paid in February 1999, in the form of
5,326 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
46
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, we recognized a
dividend in 1997 of approximately $110,000 as related to the
issuance of the Series 5 Class E, and Series 7 Class G Preferred
Stock and the related warrants.
On or about June 30, 1998, the Company issued to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("RBB Bank"), 3,000
shares of newly-created Series 10 Class J Convertible Preferred
Stock, par value $.001 per share ("Series 10 Preferred"), at a
price of $1,000 per share, for an aggregate sales price of
$3,000,000. The sale to RBB Bank was made in a private placement
under Section 4(2) of the Securities Act of 1933, as amended (the
"Act") and/or Rule 506 of Regulation D under the Act, pursuant to
the terms of a Subscription and Purchase Agreement, dated June 30,
1998 between the Company and RBB Bank ("Subscription Agreement").
The net proceeds of $2,653,000 from this private placement, after
the deduction for certain fees and expenses, was received by the
Company on July 14, 1998. The Series 10 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 10 Preferred (the "Liquidation Value"),
plus an amount equal to all unpaid and accrued dividends thereon.
The Series 10 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 within ten (10)
business days after each subsequent June 30 and December 31 (each
a "Dividend Declaration Date"), and shall be payable in cash or
shares of the Company's Common Stock at the Company's option. The
first Dividend Declaration Date was December 31, 1998. 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 10
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
immediate prior to the date the dividend is declared, 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 10 Preferred may convert into Common Stock
any or all of the Series 10 Preferred on and after 180 days after
June 30, 1998 (December 28, 1998). The conversion price per
outstanding share of Preferred Stock ("Conversion Price") is
$1.875; except that if the average of the closing bid price per
share of Common Stock quoted on the NASDAQ (or the closing bid
price of the Common Stock as quoted on the national securities
exchange if the Common Stock is not listed for trading on the
NASDAQ but is listed for trading on a national securities exchange)
for the five (5) trading days immediately prior to the particular
date on which the holder notified the Company of a conversion
("Conversion Date") is less than $2.34, then the Conversion Price
for that particular conversion shall be eighty percent (80 %) of
the average of the closing bid price of the Common Stock on the
NASDAQ (or if the Common Stock is not listed for trading on the
NASDAQ but is listed for trading on a national securities exchange
then eighty percent (80%) of the average of the closing bid price
of the Common Stock on the national securities exchange) for the
five (5) trading days immediately prior to the particular
Conversion Date. As of June 30, 1998, the closing price of Common
Stock on the NASDAQ was $1.875 per share. As of the date of this
report, no shares of the Series 10 Preferred have been converted.
As part of the sale of the Series 10 Preferred, the Company
also issued to RBB Bank (a) a warrant entitling the holder to
purchase up to an aggregate of 150,000 shares of Common Stock at an
exercise price of $2.50 per share of Common Stock expiring three
(3) years after June 30, 1998 and (b) a warrant entitling the
holder to purchase up to an aggregate of 200,000 shares of Common
Stock at an exercise price of $1.875 per share of Common Stock and
expiring three (3) years after June 30, 1998. Collectively, these
warrants are referred to herein as the "RBB Warrants." The Common
Stock issuable upon the conversion of the Series 10 Preferred and
upon the exercise of the RBB Warrants is subject to certain
registration rights pursuant to the Subscription Agreement.
47
The Company utilized the proceeds received on the sale of Series 10
Preferred for working capital and to reduce the outstanding balance
of its credit facilities, subject to the Company reborrowing under
such credit facilities.
In connection with the placement of Series 10 Preferred to RBB
Bank, the Company paid fees (excluding legal and accounting) of
$210,000 and issued to (a) Liviakis Financial Communications, Inc.
("Liviakis") for assistance with the placement of the Series 10
Preferred, warrants entitling the holder to purchase up to an
aggregate of 1,875,000 shares of Common Stock, subject to certain
anti-dilution provisions, at an exercise price of $1.875 per share
of Common Stock which warrants may be exercised after January 15,
1999, and which expire after four (4) years; (b) Robert B. Prag,
an executive officer of Liviakis for assistance with the placement
of the Series 10 Preferred, warrants entitling the holder to
purchase up to an aggregate of 625,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants may be
exercised after January 15, 1999, and which expire after four (4)
years; (c) JW Genesis Financial Corporation for assistance with the
placement of the Series 10 Preferred, warrants entitling the holder
to purchase up to an aggregate of 150,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants expire after
three (3) years; and (d) Fontenoy Investments for assistance with
the placement of the Series 10 Preferred, warrants entitling the
holder to purchase up to an aggregate of 350,000 shares of Common
Stock, subject to certain anti-dilution provisions, at an exercise
price of $1.875 per share of Common Stock, which warrants expire
after three (3) years. Under the terms of each warrant, the holder
is entitled to certain registration rights with respect to the
shares of Common Stock issuable on the exercise of each warrant.
In March, 1999, the Company entered into an Exchange Agreement
dated March 14, 1999, with Liviakis and Prag whereby the warrants
described in the preceding paragraph for the purchase of 2,500,000
shares of Common Stock (1,875,000 and 625,000 respectively) were
canceled and exchanged for 200,000 shares of Common Stock.
The accrued dividends for the Series 10 Preferred for the period
July 14, 1998, through December 31, 1998, in the amount of
approximately $56,000, were paid in February 1999, in the form of
42,430 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 the 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
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 the total amount of $750,000,
with approximately $383,000 recorded in the third quarter of 1998
and $367,000 recorded in the fourth quarter of 1998.
In summary, we recorded the following dividends related to
Preferred Stock issuances:
1998 1997 1996
__________ __________ _________
Paid Dividends $ 410,000 $ 352,000 $ 145,000
Beneficial Conversion
Feature 750,000(3) 908,000(2) 2,000,000(1)
__________ __________ __________
Total Dividends Reported $1,160,000 $1,260,000 $2,145,000
========== ========== ==========
<FN>
(1) Amounts for 1996 reflect beneficial conversion feature on Series
3 Class C Preferred Stock.
(2) Amounts for 1997 reflect beneficial conversion feature on Series
4 Class C, Series 6 Class F, Series 5 Class E and Series 7 Class
G Preferred Stock and related warrants.
(3) Amounts for 1998 reflect beneficial conversion feature on Series
10 Class J Preferred Stock. See Note 3 related to the beneficial
conversion feature.
</FN>
48
On October 14, 1998, the Board of Directors authorized the repurchase
of up to 500,000 shares of the Company's Common Stock from time to
time in open market or privately negotiated transactions, in
accordance with SEC Rule 10b-18. The repurchases will be at
prevailing market prices. The Company will utilize its current
working capital and available borrowings to acquire such shares. On
November 18, 1998, we purchased 7,000 shares of our stock at the
market price of $1.856 per share for an aggregate of approximately
$13,000. On November 19, 1998, we purchased 16,000 shares of our
stock at the market price of $1.8425 per share for an aggregate of
approximately $29,000.
________________________________________________________
NOTE 7
LONG-TERM DEBT
Long-term debt at December 31 includes the following (in
thousands):
1998 1997
_______ _______
Revolving loan facility dated January 15,
1998, collateralized by eligible
accounts receivables, subject to monthly
borrowing base calculation, variable
interest paid monthly at prime rate
plus 1 3/4. $ 97 $ 1,664
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. 1,927 2,500
Mortgage note agreement payable in quarterly
installments of $15, plus accrued interest
at 10%. Balance due October 1998 secured
by real property. - 61
Various capital lease and promissory note
obligations, payable 1999 to 2003,
interest at rates ranging from 8.0% to
15.9%. 990 640
_______ _______
3,014 4,865
Less current portion of revolving loan
and term note facility 625 614
Less current portion of long-term debt 302 254
_______ _______
$ 2,087 $ 3,997
======= =======
On January 15, 1998, the Company, as parent and guarantor, and all
direct and indirect subsidiaries of the Company, as co-borrowers and
cross-guarantors, entered into a Loan and Security Agreement
("Agreement") with Congress Financial Corporation (Florida) as lender
("Congress"). The Agreement provides for a term loan in the amount
of $2,500,000, which requires principal repayments based on a four-
year level principal amortization over a term of 36 months, with
monthly principal payments of $52,000. Payments commenced on
February 1, 1998, with a final balloon payment in the amount of
approximately $573,000 due on January 14, 2001. The Agreement also
provides for a revolving loan facility in the amount of $4,500,000.
At any point in time the aggregate available borrowings under the
facility are subject to the maximum credit availability as determined
through a monthly borrowing base calculation, as updated for certain
information on a weekly basis, equal to 80% of eligible accounts
receivable accounts of the Company as defined in the Agreement. The
termination date on the revolving loan facility is also the third
anniversary of the closing date. The Company incurred approximately
$230,000 in financing fees relative to the solicitation and closing
of this loan agreement (principally commitment, legal and closing
fees) which are being amortized over the term of the Agreement.
49
Pursuant to the Agreement, the term loan and revolving loan both bear
interest at a floating rate equal to the prime rate plus 1 3/4%. The
loans also contain certain closing, management and unused line fees
payable throughout the term. The loans are subject to a 3.0%
prepayment fee in the first year, 1.5% in the second and 1.0% in the
third year of the Agreement.
As security for the payment and performance of the Agreement, we
granted a first security interest in all accounts receivable,
inventory, general intangibles, equipment and other assets of the
Company and our subsidiaries, as well as the mortgage on two (2) of
our 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.
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. The balance of the
revolving loan on January 15, 1998, as repaid pursuant to the
Congress agreement was $2,289,000. The balance under the Heller term
loan at December 31, 1997, was $867,000. The Company subsequently
made a term loan payment of $41,000 on January 2, 1998, resulting in
a balance of $826,000, as repaid pursuant to the Congress Agreement.
As of December 31, 1997, the outstanding balance on the Ally
Equipment Financing Agreement was $624,000 which represented the
principal balance repaid pursuant to the Congress Agreement. In
conjunction with the above debt repayments, we 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. As of December 31, 1998, the
borrowings under the Congress revolving loan facility totaled $97,000
with borrowing availability of approximately $4,009,000. The balance
under the Congress term loan at December 31, 1998, was $1,927,000.
During June 1998, we entered into a master security agreement and
secured promissory note in the amount of approximately $317,000 for
the purchase and financing of certain capital equipment at the Perma-
Fix of Florida, Inc. facility. The term of the promissory note is
for sixty (60) months, at a rate of 11.58% per annum and monthly
installments of approximately $7,000. We subsequently entered into
a second secured promissory note in the amount of approximately
$207,000 for the purchase and financing of certain capital equipment.
The term of the promissory note is for sixty (60) months, at a rate
of 10.54% per annum and monthly installments of approximately $4,000.
We 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 $28,000, of which $24,000
is current.
The aggregate amount of the maturities of long-term debt maturing in
future years as of December 31, 1998, is $951,000 in 1999; $910,000
in 2000; $953,000 in 2001; $145,000 in 2002; and $83,000 in 2003.
________________________________________________________
NOTE 8
ACCRUED EXPENSES
Accrued expenses at December 31 include the following (in
thousands):
50
1998 1997
_______ _______
Salaries and employee benefits $ 783 $ 927
Accrued sales, property and other
tax 387 484
Waste disposal and other operating
related expenses 1,608 1,240
Accrued environmental 278 305
Other 313 424
_______ _______
Total accrued expenses $ 3,369 $ 3,380
======= =======
The above amounts exclude Perma-Fix of Memphis, Inc. accrued
expenses for the years ended December 31, 1998, and 1997 of $739
and $1,094, 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
We accrue for the estimated closure costs as determined pursuant to
RCRA guidelines for all fixed-based regulated facilities, which
represents the potential future liability to close and remediate such
a facility, should such a cessation of operations ever occur. During
1998, the accrued long-term closure cost for its continuing
operations decreased by $116,000 to a total of $715,000 as compared
to the 1997 total of $831,000. This decrease is principally a result
of the reduced calculated closure liability which occurred at one TSD
facility due to changes in operational activities. 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 we change our current operations at these regulated facilities.
Additionally, unlike solid waste facilities, we, consistent with EPA
regulations, do not have post-closure liabilities that extend
substantially beyond the effective life of the facility.
At December 31, 1998, we have accrued long-term environmental and
acquisition related liabilities totaling $520,000, which reflects a
decrease of $5,000 from the December 31, 1997, balance of $525,000.
This amount principally represents management's best estimate of the
long term 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 our wholly-owned subsidiary,
PFD, leases. In June 1994, we 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. Through our acquisition of PFD in 1994 from Quadrex, we
were 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 our recording of purchase accounting for the acquisition
of PFD, we 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. We have estimated the
potential liability related to the remaining remedial activity of
the above property to be approximately $460,000, representing the
remaining acquisition reserve balance, of which we anticipate
spending approximately $222,000 during 1999. No insurance or third
party recovery was taken into account in determining our cost
estimates or reserve, nor do our cost estimates or reserves reflect
any discount for present value purposes.
Pursuant to our acquisition, effective December 31, 1993, of Perma-
Fix of Memphis, Inc. (F/N/A American Resource Recovery, Inc.), we
assumed certain liabilities relative to the removal of contaminated
soil and to undergo groundwater remediation at the facility. Prior
to our ownership of PFM, the 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, we estimated, and
recorded through purchase accounting, the remaining cost of such
remedial action. To-date, we have spent approximately $260,000 and
have a reserve balance of approximately $980,000 as of December 31,
51
1998. Neither our cost estimates nor reserves reflect any discount
for present value purpose and such remediation is expected to extend
for a period of five to ten years. We have recorded approximately
$170,000 as a portion of the 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, 1998, we 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):
1998 1997 1996
_______ _______ _______
Net operating losses $ 3,684 $ 3,393 $ 3,376
Environmental reserves 990 1,498 980
Impairment of assets 560 560 -
Other 210 213 172
Valuation allowance (5,015) (5,139) (4,034)
_______ _______ _______
Deferred tax assets 429 525 494
_______ _______ _______
Depreciation and
amortization 429 525 466
Other - - 28
_______ _______ _______
Deferred tax liability 429 525 494
_______ _______ _______
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):
1998 1997 1996
_______ _______ _______
Tax benefit at statutory
rate $ 157 $(1,329) $ (88)
Goodwill amortization 76 77 43
Other (109) 147 (140)
Increase (decrease) in
valuation allowance (124) 1,105 185
_______ _______ _______
Provision for income taxes $ - $ - $ -
======= ======= =======
Our valuation allowance decreased by approximately $124,000 for the
year ended December 31, 1998, and increased $1,105,000 and $185,000
for the years ended December 31, 1997 and 1996, which represents the
effect of changes in the temporary differences and net operating
losses (NOLs), as amended. We have recorded a valuation allowance to
state our deferred tax assets at estimated net realizable value due
to the uncertainty related to realization of these assets through
future taxable income.
We have estimated net operating loss carry forwards for federal
income tax purposes of approximately $10,835,000 at December 31,
1998. These net operating losses can be carried forward and applied
against future taxable income, if any, and expire in the years 2006
through 2012. 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.
52
________________________________________________________
NOTE 11
CAPITAL STOCK, EMPLOYEE STOCK PLAN AND INCENTIVE COMPENSATION
In February 1996, we issued 1,100 shares of newly created Series 1
Preferred at a price of $1,000 per share, for net proceeds of
$924,000. We 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, we 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, we 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, we 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, we entered into a Stock Purchase Agreement with
Dr. Centofanti, the President, Chief Executive Officer, Chairman of
the Board of the Company, whereby we 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 us 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 us $86,000 and forgiving
$14,000 that was owing to Dr. Centofanti by us for expenses incurred
by Dr. Centofanti on our behalf. On the date that Dr. Centofanti
notified us 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.
In June 1996, we entered into a second Stock Purchase Agreement with
Dr. Centofanti, whereby we 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 us of his desire to purchase such stock (closing
bid of $1.75 on June 11, 1996), as previously authorized by our Board
of Directors. Dr. Centofanti tendered to us $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, we issued 347,912 shares of Common
Stock to our outside consultants and directors for past and future
services, valued at approximately $462,000, during 1997, we issued
116,081 shares of Common Stock to our outside consultants and
directors, valued at approximately $148,000 and during 1998, we
issued 60,769 shares of Common Stock to our outside consultants and
directors, valued at approximately $73,650.
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. The second purchase period
commenced January 1, 1998, and ended June 30, 1998. Proceeds totaled
$16,849 for this purchase period which resulted in the purchase of
10,732 shares of Common Stock in July 1998. The third purchase
period commenced July 1, 1998, and ended December 31, 1998. Proceeds
totaled $22,334 for this purchase period which resulted in the
purchase of 17,517 shares of Common Stock in January 1999.
53
During October 1997, Dr. Centofanti entered into a three (3) year
Employment Agreement with us which provided for, among other things,
an annual salary of $110,000, subject to annual inflationary
increases 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, we 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, we 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 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, we 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 our annual meeting held on December 12, 1994,
the stockholders approved the Second Amendment to our 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. 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, was approved at the May
1998 Annual Meeting and increased the number of authorized shares
from 250,000 to 500,000 reserved for issuance under the Plan.
54
We applied 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 us to provide pro
forma information regarding net income and earnings per share as if
compensation cost for our employee stock options had been determined
in accordance with the fair market value based method prescribed in
FAS 123. We estimate 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 1998, 1997
and 1996, respectively: no dividend yield for all years; an expected
life of ten years for all years; expected volatility of 45.0%, 42.0%
and 46.8%; and risk-free interest rates of 4.58%, 6.91% and 6.63%.
Under the accounting provisions of FASB Statement 123, our net loss
and loss per share would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
____________ ______________ _____________
Net loss applicable to Common
Stock from continuing
operations
As reported $ (698,000) $ (1,068,000) $ (2,118,000)
Pro forma (962,000) (1,666,000) (2,471,000)
Net loss per share applicable
to Common Stock from con-
tinuing operations
As reported $ (.06) $ (.10) $ (.24)
Pro forma (.08) (.16) (.28)
_______________________________________________________________
Net loss applicable to Common
Stock
As reported $ (688,000) $ (5,169,000) $ (2,405,000)
Pro forma (962,000) (5,767,000) $ (2,758,000)
Net loss per share
As reported $ (.06) $ (.49) $ (.27)
Pro forma (.08) (.54) (.31)
A summary of the status of options under the plans as of December 31,
1998, 1997 and 1996 and changes during the years ending on those
dates are presented below:
1998 1997
___________________ ____________________
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
_________ _________ _________ ________
Performance Equity Plan:
_______________________
Balance at beginning
of year 288,138 $2.54 316,226 $2.43
Granted 70,000 1.25 - -
Exercised (1,000) 1.00 - -
Forfeited (15,306) 3.66 (28,088) 1.34
________ ________
Balance at end
of year 341,832 2.23 288,138 2.54
======== ========
55
Options exercisable
at year end 223,832 2.80 217,238 2.98
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 70,000 1.25 - -
Weighted average
fair value 70,000 .78 - -
Non-qualified Stock
Option Plan:
___________________
Balance at beginning
of year 650,710 $1.41 475,395 $1.68
Granted 255,000 1.25 290,000 1.375
Exercised - - (11,000) 1.00
Forfeited (20,410) 1.375 (103,685) 2.54
________ ________
Balance at end
of year 885,300 1.37 650,710 1.41
======== ========
Options exercisable
at year end 216,240 1.54 90,426 1.72
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 255,000 1.25 290,000 1.375
Weighted average
fair value 255,000 .78 290,000 .90
Outside Directors Stock
Option Plan:
_______________________
Balance at beginning
of year 160,000 $2.69 145,000 $2.76
Granted - - 15,000 2.13
Exercised - - - -
Forfeited - - - -
________ ________
Balance at end
of year 160,000 2.69 160,000 2.69
======== ========
Options exercisable
at year end 160,000 2.69 160,000 2.69
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
Weighted average
fair value - - 15,000 1.34
1996
____________________
Weighted
Average
Exercise
Shares Price
_________ __________
263,282 $ 3.22
110,000 1.00
- -
(57,056) 3.32
_________
316,226 2.43
=========
183,609 3.14
110,000 1.00
110,000 .68
263,995 $ 3.17
345,000 1.00
- -
(133,600) 2.88
_________
475,395 1.68
=========
34,158 3.77
345,000 1.00
345,000 .68
110,000 $ 3.08
35,000 1.75
- -
- -
________
145,000 2.76
========
110,000 3.08
35,000 1.75
35,000 1.25
The following table summarizes information about options under the
plan outstanding at December 31, 1998:
Options Outstanding
________________________________________
Weighted
Average Weighted
Description and Number Remaining Average
Range of Outstanding at Contractual Exercise
Exercise Price Dec. 31, 1998 Life Price
________________________ ______________ ___________ ________
Performance Equity Plan:
_______________________
1991/1992 Awards ($3.02) 185,332 3.1 years $3.02
1993 Awards ($5.25) 6,500 4.8 years 5.25
1996 Awards ($1.00) 80,000 7.4 years 1.00
1998 Awards ($1.25) 70,000 9.8 years 1.25
_________
341,832 5.5 years 2.23
=========
Non-Qualified Stock
Option Plan:
___________________
1994 Awards ($4.75) 300 5.2 years $4.75
1995 Awards ($2.88) 85,000 6.0 years 2.88
1996 Awards ($1.00) 280,000 7.4 years 1.00
1997 Awards ($1.375) 265,000 8.3 years 1.38
1998 Awards ($1.25) 255,000 9.8 years 1.25
_________
885,300 8.2 years 1.37
=========
Outside Directors Stock
Option Plan:
_______________________
1993 Awards ($3.02) 45,000 3.5 years $3.02
1994 Awards ($3.00-$3.22) 45,000 5.5 years 3.07
1995 Awards ($3.25) 20,000 6.0 years 3.25
1996 Awards ($1.75) 35,000 7.9 years 1.75
1997 Awards ($2.125) 15,000 8.9 years 2.13
_________
160,000 5.9 years 2.69
=========
Options Exercisable
_______________________________
Weighted
Number Average
Exercisable at Exercise
Dec. 31, 1998 Price
_______________ ________
185,332 $3.02
6,500 5.25
32,000 1.00
-
__________
223,832 2.80
==========
240 $4.75
51,000 2.88
112,000 1.00
53,000 1.38
-
__________
216,240 1.54
==========
45,000 $3.02
45,000 3.07
20,000 3.25
35,000 1.75
15,000 2.13
________
160,000 2.69
56
Warrants
We have 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
1998, pursuant to the issuance of the Series 10 Class J Convertible
Preferred Stock, as further discussed in Note 6, we issued to
Liviakis one (1) Common Stock purchase warrant entitling Liviakis
to purchase, after January 15, 1999, until June 29, 2002, an
aggregate of up to 1,875,000 shares of Common Stock exercisable at
a price equal to $1.875 per share and we issued to Prag one (1)
Common Stock purchase warrant entitling Prag to purchase, after
January 15, 1999, until June 29, 2002, an aggregate of up to
625,000 shares of Common Stock exercisable at a price equal to
$1.875 per share. In connection with the Preferred Stock issuances
as discussed fully in Note 6, we issued additional warrants during
1998 for the purchase of 850,000 shares which are included in the
Series 10 Class J warrants. During 1996, pursuant to the issuance
of the Series 3 Class C Convertible Preferred Stock, as further
discussed in Note 6, we 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, we issued additional warrants during
1997 and 1996 for the purchase of 1,591,250 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 us since the issuance of
such warrants. 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 1998, a total of 215,100
warrants were exercised for proceeds in the amount of $255,000 and
no warrants expired.
The following details the warrants currently outstanding as of
December 31, 1998, 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 2,950,300 $.73-$3.50 9/99-7/01
Class H Preferred Stock Warrants 1,504,450 $1.50-$3.00 6/00-7/02
Class I Preferred Stock Warrants 35,000 $1.8125 6/00
Class J Preferred Stock Warrants 3,350,000 $1.875-$2.50 6/01-6/02
Other Financing Warrants 1,117,901 $1.936-$3.625 6/99-9/00
__________
13,230,796
===========
In March, 1999, the Company entered into an Exchange Agreement with
Liviakis and Prag whereby the warrants described in the preceding
paragraph issued to Liviakis and Prag for the purchase of an
aggregate of 2,500,000 shares of Common Stock (1,875,000 and
625,000 respectively) were exchanged for 200,000 shares of Common
Stock. This will reduce the number of shares of Common Stock
underlying Warrants outstanding relating to the Class J Preferred
Stock from 3,350,000 to 850,000 shares.
57
Shares Reserved
At December 31, 1998, we have reserved approximately 25 million
shares of Common Stock for future issuance under all of the above
arrangements and the convertible Series 3, Series 8, Series 9 and
Series 10 Preferred Stock. (See Note 6.)
________________________________________________________
NOTE 12
COMMITMENTS AND CONTINGENCIES
Hazardous Waste
In connection with our waste management services, we handle both
hazardous and non-hazardous waste which we transport to our own or
other facilities for destruction or disposal. As a result of
disposing of hazardous substances, in the event any cleanup is
required, we could be a potentially responsible party for the costs
of the cleanup notwithstanding any absence of fault on our part.
Legal
In May 1995, PFM, our subsidiary, 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. Since 1995, the Company has received no new
information about 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
informed PFM that it believed that PFM was 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
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. During the second
quarter of 1998, PFM and certain other PRP's began negotiating with
the EPA regarding a potential settlement of the EPA's claims
regarding the Drum Site and such negotiations have been completed.
During the third quarter of 1998, the government agreed to the
PFM's offer to pay $225,000 ($150,000 payable at closing and the
balance payable over a twelve month period) to settle any potential
liability regarding the Drum Site. During January 1999, the Company
executed a "Partial Consent Decree" pursuant to this settlement,
which settlement is subject to approval of the court. There are no
assurances that the settlement will be approved by the court.
In addition to the above matters and in the normal course of
conducting its business, we are involved in various other
litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any
judgments or fines against us that would have a material adverse
affect on our financial position, liquidity or results of
operations.
Permits
We are subject to various regulatory requirements, including the
procurement of requisite licenses and permits at our facilities.
These licenses and permits are subject to periodic renewal without
which our operations would be adversely affected. We anticipate
58
that, once a license or permit is issued with respect to a
facility, the license or permit will be renewed at the end of its
term if the facility's operations are in compliance with the
applicable regulatory requirements.
Accrued Closure Costs and Environmental Liabilities
We maintain closure cost funds to insure the proper decommissioning
of our RCRA facilities upon cessation of operations. Additionally,
in the course of owning and operating on-site treatment, storage
and disposal facilities, we are subject to corrective action
proceedings to restore soil and/or groundwater to its original
state. These activities are governed by federal, state and local
regulations and we maintain the appropriate accruals for
restoration. As discussed in Note 9, we have recorded accrued
liabilities for estimated closure costs and identified
environmental remediation costs.
Discontinued Operations
As previously discussed, we made the strategic decision in February
1998 to discontinue our fuel blending operations at the PFM
facility. We have, based upon the best estimates available,
recognized accrued environmental and closure costs in the aggregate
amount of $2,501,000 as of December 31, 1998. 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, our best estimate of the future
operating losses as we discontinue our fuel blending operations and
other contingent liabilities, including the above discussed PRP
liability. See Note 4 for further discussion of PFM.
Insurance
Our business exposes us 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. We
believe that our coverage is adequate to insure us against the
various types of risks encountered.
Operating Leases
We lease certain facilities and equipment under operating leases.
Future minimum rental payments as of December 31, 1998 required
under these leases are $777,000 in 1999, $534,000 in 2000, $275,000
in 2001, $151,000 in 2002 and $115,000 in 2003.
Net rent expense relating to our operating leases was $1,465,000,
$1,533,000 and $1,657,000 for 1998, 1997 and 1996, respectively.
________________________________________________________
NOTE 13
PROFIT SHARING PLAN
We 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 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. We, at our
discretion, may make matching contributions based on the employee's
elective contributions. Company contributions vest over a period
of six years. We elected not to provide any matching contributions
for the years ended December 31, 1998, 1997, and 1996. However,
beginning January 1, 1999 we have decided to match up to 25% of our
employees contributions, not to exceed 3% of a participants
compensation.
59
________________________________________________________
NOTE 14
OPERATING SEGMENTS
During 1998, we were engaged in ten operating segments. Pursuant
to FAS 131, we define an operating segment as:
* A business activity from which we may earn revenue and
incur expenses;
* Whose operating results are regularly reviewed by our
chief operating division maker to make decisions about
resources to be allocated to the segment and assess its
performance; and
* For which discrete financial information is available.
We therefore define our segments as each separate facility or
location that we operate. We clearly view each business as a
separate segment and make decisions based on the activity and
profitability of that particular location. These segments however,
exclude the Corporate headquarters which does not generate revenue
and Perma-Fix of Memphis, Inc. which is reported elsewhere as a
discontinued operation. See Note 4 regarding discontinued
operations.
Pursuant to FAS 131 we have aggregated two or more operating
segments into two reportable segments to ease in the presentation
and understanding of our business. We used the following criteria
to aggregate our segments:
* The nature of our products and services;
* The nature of the production processes;
* The type or class of customer for our products and
services;
* The methods used to distribute our products or provide
our services; and
* The nature of the regulatory environment.
Our reportable segments are defined as follows:
The Waste Management Services segment, which provides on-and-off
site treatment, storage, processing and disposal of hazardous and
non-hazardous industrial and commercial, mixed waste, and
wastewater through our four TSD facilities; Perma-Fix Treatment
Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft.
Lauderdale, Inc. and Perma-Fix of Florida, Inc. We provide through
Perma-Fix Inc. and Perma-Fix of New Mexico, Inc. on-site waste
treatment services to convert certain types of characteristic
hazardous wastes into non-hazardous waste. We also provide through
Reclamation Systems, Inc. and Industrial Waste Management, Inc. the
supply and management of non-hazardous and hazardous waste to be
used by cement plants as a substitute fuel or raw material source
and the resell of by-product materials generated at cement plants
for environmental applications.
The Consulting Engineering Services segment provides environmental
engineering and regulatory compliance services through Schreiber,
Yonley & Associates, Inc. and Mintech, Inc. These engineering
groups provide oversight management of environmental restoration
projects, air and soil sampling and compliance and training
activities, as well as, engineering support as needed by our other
segment.
60
The table below shows certain financial information by business
segment for 1998, 1997, and 1996 and excludes the results of
operations of the discontinued operations:
Segment Reporting 12/31/98
Waste Segment
Services Engineering Total
________ ___________ _______
Revenue from external customers $26,181 $4,370 $30,551
Intercompany revenues 329 510 839
Interest income 31 - 31
Interest expense 369 54 423
Depreciation and amortization 2,015 77 2,092
Segment profit (loss) 265 (213) 52
Segment assets(1) 24,882 2,326 27,208
Expenditures for segment assets 2,492 20 2,512
Segment Reporting 12/31/97
Waste Segment
Services Engineering Total
________ ___________ _______
Revenue from external customers $23,756 $4,657 $28,413
Intercompany revenues 932 522 1,454
Interest income 38 - 38
Interest expense 366 30 396
Depreciation and amortization 1,850 110 1,960
Segment profit (loss) 402 (421) (19)
Segment assets(1) 23,576 2,593 26,169
Expenditures for segment assets 1,744 21 1,765
Segment Reporting 12/31/96
Waste Segment
Services Engineering Total
________ ___________ _______
Revenue from external customers $21,497 $5,544 $27,041
Intercompany revenues 723 292 1,015
Interest income 41 - 41
Interest expense 532 55 587
Depreciation and amortization 1,876 156 2,032
Segment profit (loss) (11) 84 73
Segment assets(1) 23,546 2,565 26,111
Expenditures for segment assets 2,371 8 2,379
Consolidated
Corp.(2) Memphis(3) Total
________ ___________ ____________
$ - $ - $30,551
- - 839
4 - 35
(129)(5) - 294
17 - 2,109
(750)(4) - (698)
1,051 489 28,748
42 - 2,554
Consolidated
Corp.(2) Memphis(3) Total
________ ___________ _______
$ - $ - $28,413
- - 1,454
3 - 41
35 - 431
20 - 1,980
(1,049)(4) (141) (1,068)
171 2,230 28,570
8 45 1,812
Consolidated
Corp.(2) Memphis(3) Total
________ ___________ ____________
$ - $ - $27,041
- - 1,015
2 - 43
56 - 643
51 - 2,083
(2,191)(4) (191) (2,118)
68 2,855 29,034
- 125 2,506
<FN>
(1) Segment assets have been adjusted for intercompany accounts to
reflect actual assets for each segment.
(2) Amounts reflect the activity for corporate headquarters.
(3) Amounts reflect the activity for Perma-Fix of Memphis, Inc.,
which is a discontinued operation, not included in the segment
information (See Note 4).
(4) Amounts reflect beneficial conversion feature of the Preferred
Stock of the Company and Corporate overhead not allocated to
discontinued operations (See Note 3).
(5) Amount reflects interest expense adjustment to Perma-Fix of
Memphis, Inc. allocated to discontinued operations.
</FN>
________________________________________________________
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Since information relating to changes in accountants and engagement
of new accountants by the Company during the Company's two most
recent fiscal years or any subsequent interim period have been
previously reported (as that term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended) and there were no
disagreements or reportable events required to be reported under
paragraph (b) of Item 304 of Regulation S-K, we have no information
to be reported hereunder pursuant to Item 304 of Regulation S-K.
61
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of the date hereof, information
concerning the Directors and Executive Officers of the Company:
NAME AGE POSITION
____ ___ ________
Dr. Louis F. Centofanti 55 Chairman of the Board, President
and Chief Executive Officer
Mark A. Zwecker 48 Director
Steve Gorlin 61 Director
Jon Colin 43 Director
Mr. Richard T. Kelecy 43 Chief Financial Officer, Vice
President and Secretary
Mr. Roger Randall 55 Vice President, Industrial Services
Mr. Bernhardt Warren 50 Vice President, Nuclear Services
Mr. Timothy Kimball 53 Vice President, Technical Services
Each director is elected to serve until the next annual meeting of
stockholders.
DR. LOUIS F. CENTOFANTI
The information set forth under the caption "Executive Officers of
the Company" on page 11 is incorporated by reference.
MR. MARK A. ZWECKER
Mark Zwecker has served as a Director of the Company since its
inception in January 1991. Mr. Zwecker is currently President of
ACI Technology, LLC, a position he has held since 1997. Previously,
Mr. Zwecker was Vice President of Finance and Administration for
American Combustion, Inc., a position he held from 1986 until 1998.
In 1983, Mr. Zwecker participated as a founder with Dr. Centofanti
in the start up of PPM, Inc. He remained with PPM, Inc. until its
acquisition in 1985 by USPCI. Mr. Zwecker has a B.S. in Industrial
and Systems Engineering from the Georgia Institute of Technology
and an M.B.A. from Harvard University.
MR. STEVE GORLIN
Steve Gorlin has served as a Director of the Company since its
inception in January 1991. Over the past 25 years he has founded
several biotechnology and pharmaceutical companies, including Hycor
Biomedical, Inc., Theregenics Corporation, CytRx Corporation, and
Medicis Corporation, which are public companies, and SeaLite
Sciences, Inc., which is a private company. Mr. Gorlin founded and
served as Chairman of the Board of EntreMed, Inc., a public
company, from its inception in 1991 until December 1995. He is a
member of the Board of Directors of Advanced Aerodynamic &
Structures, Inc., a publicly traded manufacturing firm. Mr. Gorlin
also established the Touch Foundation, a non-profit organization
for the blind.
MR. JON COLIN
Jon Colin has served as a Director of the Company since December 1996.
He is a financial consultant for a variety of technology-based companies.
From 1990 to 1996, Mr. Colin served as President and Chief Executive
Officer for Environmental Services of America, Inc., a publicly traded
environmental services company. Mr. Colin has a B.S. degree in
Accounting from the University of Maryland.
MR. RICHARD T. KELECY
The information set forth under the caption "Executive Officers of the
Company" on page 11 is incorporated by reference.
62
MR. ROGER RANDALL
The information set forth under the caption "Executive Officers of the
Company" on page 11 is incorporated by reference.
MR. BERNHARDT WARREN
The information set forth under the caption "Executive Officers of the
Company" on page 11 is incorporated by reference.
MR. TIMOTHY KIMBALL
The information set forth under the caption "Executive Officers of the
Company" on page 11 is incorporated by reference.
Certain Relationships
There are no family relationships between any of our existing
Directors, executive officers, or persons nominated or chosen to
become a Director or executive officer. Dr. Centofanti is the only
Director who is our employee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the regulations promulgated thereunder
require the Company's executive officers and directors and
beneficial owners of more than ten percent (10%) of any equity
security of the Company registered pursuant to Section 12 of the
Exchange Act to file reports of ownership and changes of ownership
of the Company's equity securities with the Securities and Exchange
Commission, and to furnish the Company with copies of all such
reports. Based solely on a review of the copies of such reports
furnished to the Company and information provided to the Company,
the Company believes that during 1998 none of the executive
officers and directors of the Company failed to timely file reports
under Section 16(a).
RBB Bank Aktiengesellschaft ("RBB Bank"), which may have become a
beneficial owner (as that term is defined under Rule 13d-3 as
promulgated under the Exchange Act) of more than ten percent (10%)
of the Company's Common Stock on February 9, 1996, as a result of
its acquisition of 1,100 shares of Series 1 Preferred (as defined
in "Certain Relationships and Related Transactions") that were
convertible into a maximum of 1,282,798 shares of Common Stock of
the Company commencing 45 days after issuance of the Series 1
Preferred, failed to file a Form 3 to report such transaction, if
required. RBB Bank has advised us that it acquired such Preferred
Stock on behalf of numerous clients and no one client is the
beneficial owner of more than 250 shares of such Preferred Stock,
and thus, RBB Bank believes it is not required to file reports
under Section 16(a).
If RBB Bank became a beneficial owner of more than ten percent
(10%) of the Company's Common Stock on February 9, 1996, the date
of RBB's initial Preferred Stock Agreement, and thereby required
to file reports under Section 16(a) of the Exchange Act, then RBB
Bank also failed to file (i) a Form 4 for three transactions which
occurred in January 1998; (ii) a Form 4 for one transaction which
occurred in June 1998; (iii) a Form 4 for three transactions which
occurred in July 1998; and (iv) a Form 5 for 1998.
63
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate cash compensation paid
to our Chairman and Chief Executive Officer, the Vice President of
Nuclear Services, Chief Financial Officer and Vice President of
Industrial Services:
Annual Compensation
_____________________________
Other
Annual
Name and Principal Salary Bonus Compen-
Position Year ($) ($) sation($)
__________________________ ____ ________ ________ _________
Dr. Louis F. Centofanti(1) 1998 $112,250 $ - $ -
Chairman of the Board, 1997 75,431 - 6,667(2)
President and 1996 65,000 - 66,666(3)
Chief Executive Officer
Bernhardt C. Warren(4) 1998 87,341 223,800 56,950
Vice President of 1997 87,341 88,629 -
Nuclear Services 1996 36,476 20,330 -
Richard T. Kelecy(5) 1998 102,553 15,000 -
Chief Financial Officer 1997 91,250 - -
1996 82,750 8,000 -
Roger Randall(6) 1998 101,268 12,710 -
Vice President of 1997 80,000 - -
Industrial Services 1996 80,000 21,254 -
Long-Term
Compensation
_______________________________
Restricted Underlying All
Stock Options/ Other
Award(s) SARs Compen-
($) (#) sation($)
________ ________ _________
$ - $ - $ -
- 300,000 -
- - -
- 25,000 -
- 30,000 -
- - -
- 30,000 -
- 40,000 -
- 60,000 -
- 30,000 9,039(6)
- 40,000 9,042
- 60,000 9,042
<FN>
(1) Dr. Centofanti, the Company's Chairman of the Board, received
compensation pursuant to an employment agreement, which provided
for annual compensation to Dr. Centofanti of $75,000 beginning June
1992 and expiring in June 1995. Under the expired contract,
Dr. Centofanti received an annual salary of $75,000, which was
increased to $125,000 in October 1994 and continued until December
1995, when Dr. Centofanti's salary was voluntarily reduced to
$65,000. Dr. Centofanti currently receives compensation pursuant
to an employment agreement dated October 1, 1997, which provides,
among other things, for an annual salary of $110,000, subject to
annual inflation factor increases, and the issuance of Non-
Qualified Stock Options ("Non-Qualified Stock Options"). Pursuant
to the terms of the agreement Dr. Centofanti's annual salary was
increased to $112,250 effective October 1, 1998. 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. Dr. Centofanti also served as President and
Chief Executive Officer of the Company during 1994 and until
September 1995, when Robert W. Foster was elected as President and
Chief Executive Officer of the Company. At such time, Dr.
Centofanti continued to serve as Chairman of the Board of the
Company. Upon Mr. Foster's resignation, Dr. Centofanti resumed the
positions of President and Chief Executive Officer effective March 15,
1996, and continued as Chairman of the Board.
(2) The Company entered into one Stock Purchase Agreement ("1997
Centofanti Agreement") with Dr. Centofanti on or about June 30,
1997, pursuant to which the Company agreed to sell, and
Dr. Centofanti agreed to buy, 24,381 shares of the Company's Common
Stock for 75% of the closing bid price of such Common Stock as
quoted on he NASDAQ on the date Dr. Centofanti notified the Company
64
of his desire to purchase such stock, as authorized by the Board of
Directors. The closing bid price as quoted by the NASDAQ for the
Common Stock on the date Dr. Centofanti notified the Company of his
desire to purchase the shares was $2.1875, leading to a purchase
price of $1.6406 and an aggregate purchase price of $40,000 for the
24,381 shares of Common Stock. The 1997 Centofanti Agreement was
amended in October to reduce the number of shares purchased
thereunder to 12,190 for an aggregate purchase price of $20,000,
upon consideration of certain recent accounting pronouncements
related to stock based compensation. The difference between the
price paid by Dr. Centofanti for such stock and the fair market
value thereof was approximately $6,667. See "Certain Relationships
and Related Transactions."
(3) The Company entered into two Stock Purchase Agreements with
Dr. Centofanti during 1996 whereby the Company sold, and
Dr. Centofanti purchased, 133,333 shares and 76,190 shares, in
March 1996, and in June 1996, respectively, 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. The closing bid price as quoted
on the NASDAQ for the Company's Common Stock on the dates that Dr.
Centofanti notified the Company of his desire to purchase the
shares was $1.00 per share for the March sale and $1.75 per share
for the June sale. As a result, the difference between the price
paid by Dr. Centofanti for such stock and the fair market value
thereof was approximately $33,333 for each transaction. See
"Certain Relationships and Related Transactions."
(4) Mr. Warren was General Manager of Perma-Fix of Florida, Inc.
from July 16, 1996, until December 8, 1997. During this time,
Mr. Warren received compensation pursuant to an employment
agreement, which provided for annual compensation to Mr. Warren of
$87,000 beginning July 16, 1996, and expiring in July 1999.
Mr. Warren also received additional compensation pursuant to the
employment agreement paid on a variable rate in proportion to
certain revenue goals. Effective December 8, 1997, Mr. Warren also
became the Vice President of Nuclear Services for the Company.
Mr. Warren currently receives compensation pursuant to an
employment agreement dated April 7, 1998, which provides for
annual compensation of $87,000 plus additional compensation in the
form of Company Common Stock and cash payments for bonus. Upon
execution of the agreement, Mr. Warren received a bonus of
approximately $168,000 which was paid in the form of 94,697 shares
of Common Stock, as determined by dividing the bonus amount by the
average of the closing bid price of the Common Stock on the NASDAQ
Small Cap for the five trading days prior to the date of execution
of this agreement. Mr. Warren also received a bonus of
approximately $57,000 in December, 1998, which was intended to pay
for taxes on the stock bonus. Under the terms of his employment
agreement, Mr. Warren is also to be paid a bonus of $168,000 which
is to be paid in monthly installments over the two years of the
agreement, with approximately $112,000 of such bonus paid in 1998.
Stock Options were granted to Mr. Warren on April 8, 1997 and
October 14, 1998, pursuant to the 1993 Non-Qualified Stock Option
Plan.
(5) Mr. Kelecy, the Chief Financial Officer, receives annual
compensation of $102,000. Mr. Kelecy may also receive at the
discretion of the Board additional compensation in the form of a
bonus. Stock Options were granted to Mr. Kelecy on January 11,
1995, May 24, 1996, April 8, 1997 and October 14, 1998, pursuant
to the 1993 Non-Qualified Stock Option Plan.
(6) Mr. Randall was General Manager of Perma-Fix of Dayton, Inc.
from its acquisition in 1994 until December 8, 1997. Mr. Randall
receives annual compensation of $94,000. Effective December
1998, Mr. Randall receives a monthly car allowance compensation in
the amount of $750, in lieu of a Company car, as previously
provided. Mr. Randall may also received additional compensation
paid on a variable rate in proportion to certain revenue goals.
Effective December 8, 1997, Mr. Randall became the Vice President
of Industrial Services for the Company. Stock Options were granted
to Mr. Randall on January 11, 1995, May 24, 1996, April 8, 1997 and
October 14, 1998, pursuant to the 1993 Non-Qualified Stock Option
Plan.
</FN>
65
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information relating to
individual grants of stock options made to each of the named
executive officers in the above Summary Compensation Table during
the last fiscal year and the potential realizable value of each
grant of options, assuming that the market price of the underlying
Common Stock appreciates in value during the ten-year option term
at annualized rates of 5% and 10%.
Individual Grants
_____________________________________________________
Number of % of
Shares of Total Options
Common Stock Granted to Exercise
Underlying Employees Price Expiration
Name Options Granted in 1998 ($/sh)(1) Date
_____________________ _______________ ____________ _________ __________
Bernhardt C. Warren(3) 25,000 7.7% $1.25 10/14/08
Richard T. Kelecy(4) 30,000 9.2 1.25 10/14/08
Roger Randall(5) 30,000 9.2 1.25 10/14/08
Potential Realizable
Value at Assumed
Annual
Rates of Stock Price
Appreciation
for Option Term(2)
_____________________
5%($) 10%($)
_____ ______
$ 19,656 $ 40,809
23,588 59,771
23,588 59,771
<FN>
(1) All options were granted at or above market price (the closing
price of the Common Stock on the NASDAQ SmallCap Market on the date
of grant.
(2) The potential realizable value of each grant of options assumes
that the market price of the Company's Common Stock appreciates in
value from the date of grant to the end of the option term at the
annualized rates shown above each column. The actual value that an
executive may realize, if any, will depend on the amount by which
the market price of the Company's Common Stock at the time of
exercise exceeds the exercise price of the option. As of
December 31, 1998, the closing price of a share of the Company's
Common Stock as quoted on NASDAQ was $1.50. There is no assurance
that any executive will receive the amounts estimated in this
table.
(3) The Company has adopted a 1993 Non-Qualified Stock Option Plan
(the "1993 Plan"). Mr. Warren was granted options to purchase
25,000 shares of the Company's Common Stock pursuant to the 1993
Plan. The 1993 Plan provides that the options granted vest at the
end of years one through five in 20% increments.
(4) The Company has adopted a 1993 Non-Qualified Stock Option Plan
(the "1993 Plan"). Mr. Kelecy was granted options to purchase
30,000 shares of the Company's Common Stock pursuant to the 1993
Plan. The 1993 Plan provides that the options granted vest at the
end of years one through five in 20% increments.
(5) The Company has adopted a 1993 Non-Qualified Stock Option Plan
(the "1993 Plan"). Mr. Randall was granted options to purchase
30,000 shares of the Company's Common Stock pursuant to the 1993
Plan. The 1993 Plan provides that the options granted vest at the
end of years one through five in 20% increments.
</FN>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth information concerning each exercise
of stock options during the last completed fiscal year by each of
the executive officers named in the Summary Compensation Table and
the fiscal year-end value of unexercised options:
66
Number of Unexercised
Shares Options at Fiscal Year-End
Acquired on Value (#)
Exercise Realized ___________________________
Name (#)(1) ($)(1) Exercisable Unexercisable
_______________________ _____________ _________ ___________ _____________
Dr. Louis F. Centofanti - $ - 145,763 204,000
Bernhardt C. Warren - - 6,000 49,000
Richard Kelecy - - 56,000 104,000
Roger Randall - - 40,000 100,000
Value of Unexercised
in-the-Money Options
at Fiscal Year End ($)(2)
__________________________
Exercisable Unexercisable
___________ _____________
$ - $ -
8,250 64,250
35,000 117,500
35,000 117,500
<FN>
(1) No options were exercised during 1998.
(2) Represents the difference between $1.50 (the closing bid price
of the Company's Common Stock reported on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") on December 31, 1998), and the option exercise price.
The actual value realized by a named executive officer on the
exercise of these options depends on the market value of the
Company's Common Stock on the date of exercise.
</FN>
401(k) Plan
We have adopted the Perma-Fix Environmental Services, Inc. 401(k)
Plan which is intended to comply under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the provisions
of the Employee Retirement Security Act of 1974 (the "401(k)
Plan"). All full-time employees who have attained the age of
twenty-one (21) are eligible to participate in the 401(k) Plan.
Participating employees may make annual pre-tax contributions to
their accounts up to fifteen percent (15%) of their compensation,
up to a maximum amount as limited by law. We, at our discretion,
may make matching contributions based on full-time employees'
elective contributions. Company contributions vest twenty percent
(20%) after two (2) years, forty percent (40%) after three (3)
years, sixty percent (60%) after four (4) years, eighty percent
(80%) after five (5) years, and are one hundred percent (100%)
vested thereafter. As of December 31, 1998, we have elected not to
provide any matching contributions. However, effective January 1,
1999, we have agreed to match 25% of the employees contributions,
not to exceed 3% of compensation. Distributions generally are
payable in lump sums upon termination, retirement, death or
disability.
Employee Stock Purchase Plan
We have adopted the Perma-Fix Environmental Services, Inc. 1996
Employee Stock Purchase Plan (the "1996 Plan") which is intended to
comply under Section 423 of the Code. All full-time employees who
have completed at least six (6) months of continuous service, other
than those that are deemed, for the purpose of Section 423(b)(3) of
the Code, to own stock possessing five percent (5%) or more the
total combined voting power or value of all classes of stock of the
Company, are eligible to participate in the 1996 Plan.
Participating employees ("Participants") may authorize for payroll
periods beginning on or after January 1, 1997, payroll deductions
from compensation for the purpose of funding the Participant's
stock purchase account ("Stock Purchase Account"). This deduction
shall be not less than one percent (1%) nor more than five percent
(5%) of the Participant's gross amount of compensation. The
purchase price per share of the Common Stock to be sold to
Participants pursuant to the 1996 Plan is the sum of (a) eighty-
five percent (85%) of the fair market value of each share on the
Offering Date on which such Offering commences or on the Exercise
Date (as defined in the 1996 Plan) on which such Offering expires,
whichever is the lower, and (b) any transfer, excise or similar tax
imposed on the transaction pursuant to which shares of Common Stock
are purchased. The "Offering Date" means the first day of each
January and July during which the 1996 Plan is in effect,
commencing with January 1, 1997. There is no holding period
regarding Common Stock purchased under the 1996 Plan, however, in
order for a participant to be entitled to the tax treatment
described in Section 423 of the Code with respect to the
Participant's sale of Common Stock purchased under the 1996 Plan,
such Stock must not be sold for at least one (1) year after
67
acquisition under the 1996 Plan, except in the case of death. Any
Participant may voluntarily withdraw from the 1996 Plan by filing
a notice of withdrawal with the Board of Directors prior to the
fifteenth (15th) day of the last month in a Purchase Period (as
defined in the 1996 Plan). Upon such withdrawal, there shall be
paid to the Participant the amount, if any, standing to the
Participant's credit in the Participant's Stock Purchase Account.
If a Participant ceases to be an eligible employee, the entire
amount standing to the Participant's credit in the Participant's
Stock Purchase Account on the effective date of such occurrence
shall be paid to the Participant. The total deductions made by
Participants pursuant to the offering period of January 1, 1998,
through July 31, 1998, was $16,849 which was used to purchase
10,732 shares of the Company's Common Stock in August 1998. The
total deductions made by Participants pursuant to the offering
period of July 1, 1998, through December 31, 1998, was $22,334
which was used to purchase 17,517 shares of the Company's Common
Stock in January 1999.
Compensation of Directors
In 1998, we paid our outside director's fees based on monthly
payments of $1,000 for each month of service, resulting in the
three outside directors earning annual director's fees in the
total amount of $36,000. Subject to the election of each director,
either sixty-five percent (65%) or one hundred percent (100%) of
each director's fee is payable, in shares of our Common Stock
based on seventy-five percent (75%) of the fair market value of
the Common Stock determined on the business day immediately
preceding the date that the fee is due. The balance of each
director fee, if any, is payable in cash. The aggregate amount of
accrued director's fees paid during 1998 to the three outside
directors (Messrs. Colin, Gorlin and Zwecker) were as follows:
$24,000 was paid by the issuance of 22,834 shares of Common Stock
and approximately $12,000 was paid in cash, which included all
balance forward amounts from 1997. Reimbursement of expenses for
attending meetings of the Board are paid in cash at the time of the
applicable Board meeting. The outside directors do not receive
additional compensation for committee participation or special
assignments except for reimbursement of expenses. We do not
compensate the directors that also serve as our officers or
employees of our subsidiaries for their service as directors.
In September 1996, we issued a warrant ("Gorlin Warrant") to Steve
Gorlin, a Director, for services rendered, other than those
rendered as a Director. The Gorlin Warrant allows the holder to
purchase 200,000 shares of Common Stock of the Company for $1.75
per share from January 1, 1997, until September 15, 1999. The
Gorlin Warrant is subject to certain antidilution provisions.
We believe that it is important for our directors to have a
personal interest in our success and growth and for their interests
to be aligned with those of our stockholders. Therefore, under the
Company's 1992 Outside Directors Stock Option and Incentive Plan
("Outside Directors Plan"), each outside director is granted an
option to purchase up to 15,000 shares of Common Stock on the date
such director is initially elected to the Board of Directors and
receives on an annual basis an option to purchase up to another
5,000 shares of Common Stock, with the exercise price being the
fair market value of the Common Stock on the date that the option
is granted. No option granted under the Outside Directors Plan is
exercisable until after the expiration of six months from the date
the option is granted and no option shall be exercisable after the
expiration of ten (10) years from the date the option is granted.
As of December 31, 1998, options to purchase 160,000 shares of
Common Stock had been granted under the Outside Directors Plan.
The Outside Directors Plan also provides 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 as a member of our
Board in Common Stock. In either case, the number of shares of our
Common Stock 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. As of the date of this proxy statement, we have issued
248,615 shares of the Company's Common Stock in payment of director
fees, covering the period January 1, 1995 through December 31,
1998. The number of shares of Common Stock which may be issued in
the aggregate under the Outside Directors Plan, either under
options or stock awards, is 500,000 shares subject to adjustment.
68
Although Dr. Centofanti is not compensated for his services
provided as a director, Dr. Centofanti is compensated for his
services rendered as an officer of the Company. See "Employment
Contracts, Termination of Employment and Change in Control
Arrangements" and "EXECUTIVE COMPENSATION -- Summary Compensation
Table."
Employment Contracts, Termination of Employment and Change in
Control Arrangements
During October 1997, Dr. Centofanti entered into a three (3) year
Employment Agreement 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.
During April 1998, Mr. Warren entered into a two (2) year
employment agreement which provided for, among other things, an
annual salary of $87,000 and certain bonus payments. Upon
execution of the agreement, Mr. Warren received a bonus of
approximately $168,000 which was paid in the form of 94,697 shares
of Common Stock, as determined by dividing the bonus amount by the
average of the closing bid prices of the Common Stock on the NASDAQ
Small Cap for the five trading days prior to the date of execution
of this agreement. Mr. Warren is also to receive a bonus of
approximately $168,000 which is to be paid in monthly installments
over the two years of the agreement, with approximately $112,000
paid in 1998.
The Company's 1991 Performance Equity Plan and the 1993 Non-
Qualified Stock Option Plan (collectively, the "Plans") provide
that in the event of a change in control (as defined in the Plans)
of the Company, each outstanding option and award granted under the
Plans shall immediately become exercisable in full notwithstanding
the vesting or exercise provisions contained in the stock option
agreement. As a result, all outstanding stock options and awards
granted under the Plans to our executive officers shall
immediately become exercisable upon such a change in control of the
Company.
Compensation Committee Interlocks and Insider Participation
During 1998, the Compensation and Stock Option Committee for the
Company's Board of Directors was composed of Mark Zwecker and
Steve Gorlin. Mr. Zwecker was neither an officer nor an employee
during the year 1998, however, Mr. Zwecker did serve as our
Secretary from June 1995 until June 30, 1996. Mr. Gorlin was
neither an officer nor an employee of the Company during 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to the shares of
voting securities beneficially owned as of March 15, 1999, by each
person known by us to be the beneficial owner of more than five
percent (5%) of any class of our voting securities. Beneficial
ownership by our stockholders has been determined in accordance
with the rules promulgated under Section 13(d) of the Securities
Exchange Act of 1934, as amended. A person is deemed to be a
beneficial owner of any securities of which that person has the
right to acquire beneficial ownership of such securities within 60
days from March 15, 1999.
69
Amount and Percent
Name of Title Nature of of
Beneficial Owner of Class Ownership Class(1)
_______________________ _________ ____________ ________
Dr. Louis F. Centofanti(2) Common 976,745(2) 7.74%
Steve Gorlin(3) Common 647,607(3) 5.12%
RBB Bank
Aktiengesellschaft(4) Common 15,367,911(4) 57.50%
<FN>
(1) In computing the number of shares and the percentage of
outstanding Common Stock "beneficially owned" by a person, the
calculations are based upon 12,411,080 shares of Common Stock
issued and outstanding on March 15, 1999 (excluding 943,000
Treasury Shares), plus the number of shares of Common Stock which
such person has the right to acquire beneficial ownership of within
(60) days.
(2) These shares include (i) 463,434 shares held of record by
Dr. Centofanti; (ii) 61,048 shares receivable upon exercise of
warrants to purchase Common Stock; (iii) options to purchase 45,763
shares granted pursuant to the 1991 Performance Equity Plan and the
1993 Non-qualified Stock Option Plan, which are immediately
exercisable; (iv) 100,000 shares granted pursuant to Dr.
Centofanti's Employment Agreement, which are immediately
exercisable; and (v) 304,000 shares held by the wife of Dr.
Centofanti and 2,500 shares held by the son of Dr. Centofanti's
wife. This amount does not include options to purchase 4,000
shares granted pursuant to the above referenced plans or the
options to purchase 200,000 shares granted pursuant to Dr.
Centofanti's Employment Agreement with the Company, which are not
exercisable within sixty (60) days. Dr. Centofanti has sole voting
and investment power of these shares, except for the shares held by
Dr. Centofanti's wife and his wife's son, for which Dr. Centofanti
shares voting and investment power. The business address of Dr.
Centofanti, for the purposes hereof, is c/o Perma-Fix Environmental
Services, Inc., 1940 N.W. 67th Place, Gainesville, Florida 32653.
(3) Mr. Gorlin has sole voting and investment power over these
shares which include: (i) 412,607 shares held of record by
Mr. Gorlin; (ii) 200,000 shares which Mr. Gorlin has the right to
acquire, until September 15, 1999, under the terms of a Warrant
granted by the Company to Mr. Gorlin in September 1996; (iii)
Options to purchase 35,000 shares granted pursuant to the 1992
Outside Directors Stock Option and Incentive Plan which are
immediately exercisable. The business address of Mr. Gorlin, for
the purposes hereof, is c/o Perma-Fix Environmental Services, Inc.,
1940 N.W. 67th Place, Gainesville, Florida 32653. See "Certain
Relationships and Related Transactions."
(4) These outstanding shares of Preferred Stock consist of the
Series 3 Preferred, Series 8 Preferred and Series 10 Preferred
(collectively, the "RBB Preferred") that RBB Bank acquired from the
Company pursuant to the Subscription Agreements and the RBB
Exchange Agreements. The RBB Preferred have no voting rights,
except as required by law. The shares of Common Stock included as
beneficially owned by RBB Bank in this table include: (i) 1,051,361
shares of Common Stock directly held by RBB Bank; (ii) 4,612,613
shares that RBB Bank is entitled to receive upon conversion of the
4,000 shares of Series 3 Preferred held by RBB Bank (assuming the
average of the closing bid quotations for the Common Stock for the
five trading days immediately preceding each conversion date equals
$1.15625 per share, which was the closing bid of the Common Stock
on March 15, 1999); (iii) 2,702,703 shares that RBB Bank is
entitled to receive upon conversion of the 2,500 shares of Series
8 Preferred (assuming the Conversion Price Adjustment (as defined
in "Certain Relationships and Related Party Transactions") is in
effect and the average of the closing bid quotations for the Common
Stock for the five trading days immediately preceding each
conversion date equals $1.15625 per share, which was the closing
bid of the Common Stock on March 15, 1999); (iv) 34,666 shares of
Common Stock that RBB Bank may receive in payment of the accrued
dividends on the Series 3 Preferred; (v) 159,505 shares that RBB
70
Bank may receive in payment of the accrued dividends on the Series
8 Preferred; (vi) 3,243,243 shares that RBB Bank is entitled to
receive upon conversion of the 3,000 shares of Series 10 Preferred
(assuming the Conversion Price Adjustment (as defined in "Certain
Relationships and Related Party Transactions") is in effect and
the average of the closing bid quotations for the Common Stock for
the five trading days immediately preceding each conversion date
equals $1.15625 per share, which was the closing bid of the Common
Stock on March 15, 1999); and (vii) 557,570 shares that RBB Bank
may receive in payment of the accrued dividends on the Series 10
Preferred. The above calculation also includes 3,006,250 shares of
Common Stock that RBB Bank has the right to acquire upon exercise
of various warrants, (i) to purchase up to 2,000,000 shares of
Common Stock after December 31, 1996, which were granted to RBB
Bank in connection with the sale to RBB Bank of the Series 3
Preferred at an exercise price of $2.00 per share for 1,000,000
shares, and $3.50 per share for 1,000,000 shares; (ii) to purchase
up to 656,250 shares of Common Stock after December 31, 1997,
which were granted to RBB Bank in connection with the sale to RBB
Bank of the Series 4 Preferred at an exercise price of $1.8125 per
share for 375,000 shares and $2.125 per share for 281,250 shares;
and (iii) to purchase up to 350,000 shares of Common Stock after
June 30, 1998, which were granted to RBB Bank in connection with
the sale to RBB Bank of the Series 10 Preferred at an exercise
price of $2.50 per share for 150,000 shares, and $1.875 per share
for 200,000 shares. RBB Bank has advised the Company that it is
holding the RBB Preferred on behalf of various clients of RBB Bank
and that no client is the beneficial owner of more than 250 shares
of such RBB Preferred. RBB Bank may be considered to be the
beneficial owner of these shares with its clients. See "Potential
Change in Control" and "Certain Relationships and Related
Transactions." RBB Bank's address is Burgring 16, 8010 Graz,
Austria.
</FN>
Security Ownership of Management
The following table sets forth information as to the shares of
voting securities beneficially owned as of March 15, 1999, by each
Director and Named Executive Officers of the Company listed in the
Summary Compensation table and all Directors and executive officers
of the Company as a group. Beneficial ownership by the Company's
stockholders has been determined in accordance with the rules
promulgated under Section 13(d) of the Exchange Act. A person is
deemed to be a beneficial owner of any voting securities for which
that person has the right to acquire beneficial ownership within
sixty (60) days. All voting securities are owned both of record
and beneficially unless otherwise indicated.
Number of Shares
Name of of Common Stock Percentage of
Beneficial Owner Beneficially Owned Common Stock(1)
_____________________________ __________________ _______________
Dr. Louis F. Centofanti(2)(3) 976,745(3) 7.74%
Steve Gorlin(2)(4) 647,607(4) 5.12%
Mark A. Zwecker(2)(5) 210,209(5) 1.69%
Jon Colin(2)(6) 33,582(6) *
Richard T. Kelecy(2)(7) 58,740(7) *
Timothy Kimball(2)(8) 42,067(8) *
Roger Randall(2)(9) 40,000(9) *
Bernhardt Warren(2)(10) 105,073(10) *
Directors and Executive Officers
as a Group (8 persons) 2,111,023 16.20%
<FN>
*Indicates beneficial ownership of less than one percent (1%).
(1) See footnote (1) of the table under "Security Ownership of
Certain Beneficial Owners."
71
(2) The business address of such person, for the purposes hereof,
is c/o Perma-Fix Environmental Services, Inc., 1940 N.W. 67th
Place, Gainesville, Florida 32653.
(3) See footnote (2) of the table under "Security Ownership of
Certain Beneficial Owners."
(4) See footnote (3) of the table under "Security Ownership of
Certain Beneficial Owners."
(5) Mr. Zwecker has sole voting and investment power over these
shares which include: (i) 171,327 shares of Common Stock held
of record by Mr. Zwecker; (ii) 14,882 options to purchase
Common Stock granted pursuant to the 1991 Performance Equity
Plan; (iii) 4,000 options to purchase Common Stock pursuant to
the 1993 Non-Qualified Stock Option Plan, which are
immediately exercisable; and (iv) options to purchase 20,000
shares granted pursuant to the 1992 Outside Directors Stock
Option and Incentive Plan which are immediately exercisable.
Does not include options to purchase 1,000 shares of Common
Stock granted pursuant to the 1993 Non-Qualified Stock Option
Plan which are not exercisable within sixty (60) days.
(6) Mr. Colin has sole voting and investment power over these
shares which include: (i) 13,582 shares held of record by
Mr. Colin, and (ii) options to purchase 20,000 shares granted
pursuant to the 1992 Outside Directors Stock Option and
Incentive Plan which are immediately exercisable.
(7) Mr. Kelecy has sole voting and investment power over 2,740
shares of Common Stock held of record by Mr. Kelecy and 56,000
options to purchase Common Stock granted pursuant to the 1993
Non-Qualified Stock Option Plan. Does not include options to
purchase 104,000 shares of Common Stock granted pursuant to
the 1993 Non-Qualified Stock Option Plan which are not
exercisable within sixty (60) days.
(8) Mr. Kimball has sole voting and investment power over these
shares which include: (i) 3,184 shares held of record by Mr.
Kimball, (ii) 14,883 options to purchase Common Stock granted
pursuant to the 1991 Performance Equity Plan, and (iii)
24,000 options to purchase Common Stock pursuant to the 1993
Non-Qualified Stock Option Plan, which are immediately
exercisable. Does not include options to purchase 61,000
shares of Common Stock granted pursuant to the 1993 Non-
Qualified Stock Option Plan which are not exercisable within
sixty (60) days.
(9) Mr. Randall has sole voting and investment power over these
shares which include: (i) 40,000 options to purchase Common
Stock pursuant to the 1993 Non-Qualified Stock Option Plan,
which are immediately exercisable. Does not include options
to purchase 100,000 shares of Common Stock granted pursuant to
the 1993 Non-Qualified Stock Option Plan which are not
exercisable within sixty (60) days.
(10) Mr. Warren has sole voting and investment power over these
shares which include 99,073 shares held by record by Mr.
Warren and 6,000 options to purchase Common Stock granted
pursuant to the 1993 Non-Qualified Stock Option Plan. Does
not include options to purchase 49,000 shares of Common Stock
granted pursuant to the 1993 Non-Qualified Stock Option Plan
which are not exercisable within sixty (60) days.
</FN>
Potential Change in Control
RBB Bank has the right to acquire an aggregate of approximately
14,616,170 shares of Common Stock, consisting of (i) 4,612,613
shares upon conversion of the issued and outstanding Series 3
Preferred assuming the average closing bid quotation for the Common
Stock for five trading days immediately preceding each of the
conversion date or dates equals $1.15625 per share, which was the
closing bid price of the Common Stock on March 15, 1999, and (ii)
2,702,703 shares upon conversion of the issued and outstanding
Series 8 Preferred assuming the Conversion Price Adjustment (as
defined in "Certain Relationships and Related Transactions") is in
effect and the average closing bid quotation for the Common Stock
for five trading days immediately preceding each of the conversion
date or dates equals as illustrated above, depending upon the
average closing bid price of Common Stock at the date of
conversion; (iii) 3,006,250 shares upon the exercise of the RBB
72
Series 3 Warrants, RBB Series 4 Warrants and RBB Series 10
Warrants and (iv) 3,243,243 shares upon conversion of the issued
and outstanding Series 10 Preferred assuming the Conversion Price
Adjustment (as defined in "Certain Relationships and Related
Transactions") is in effect and the average closing bid quotation
for the Common Stock for five trading days immediately preceding
each of the conversion date or dates equals $1.15625 per share,
which was the closing bid price of the Common Stock on March 15,
1999. Upon such conversion and exercise, RBB Bank will own
approximately 56.3% of the outstanding shares of Common Stock of
the Company, which includes the 1,051,361 shares of Common Stock
directly held by RBB Bank as of March 15, 1999, but does not
include the 751,741 shares of Common Stock which have previously
been or will be registered, to be issuable for payment of
dividends on the Series 3 Preferred, Series 4 Preferred (prior to
its exchange), Series 6 Preferred (prior to its exchange) and
Series 10 Preferred.
The table below is provided in an attempt to approximate the
potential issuance of Common Stock which could result from
conversion of the Company's currently outstanding preferred stock
assuming various average closing bid prices for the five days prior
to conversion. As the price of the Common Stock moves downward,
the number of shares of Common Stock which may be issued upon
conversion of the Series 3 Preferred, Series 8 Preferred, Series 9
Preferred and Series 10 Preferred increases as follows:
Average Closing Bid Price $2.50 $2.00 $1.00 $0.25
of Common Stock for five
days prior to conversion
Series 3 Conversion Price $1.50(1) $1.50(1) $0.75(1) $0.50(1)
(minimum of $0.50, maximum
$1.50)
Number of Shares of Common 2,666,667 2,666,667 5,333,333 8,000,000
Stock Issuable upon Series
3 Conversion
Series 8 Conversion Price $1.8125(2) $1.60(2) $0.80(2) $0.20(2)
(maximum $1.8125)
Number of Shares of Common 1,379,311 1,562,500 3,125,000 12,500,000
Stock Issuable upon Series 8
Conversion
Series 9 Conversion Price $1.8125(2) $1.60(2) $0.80(2) $0.20(2)
(maximum $1.8125)
Number of Shares of Common 193,103(3) 218,750 437,500 1,750,000
Stock Issuable upon Series
9 Conversion
Series 10 Conversion Price $1.875(2) $1.60(2) $0.80(2) $0.20(2)
(maximum $1.875)
Number of Shares of Common 1,600,000 1,875,000 3,750,000 15,000,000
Stock Issuable upon Series
10 Conversion
Total shares of Common Stock 5,839,081 6,322,917 12,645,833
37,250,000(4)
Issuable Upon Conversion
<FN>
(1) 75% of the product of the average of the closing bid quotation
of the Common Stock for the five trading days immediately
preceding the conversion date.
(2) 80% of the product of the average of the closing bid quotation
of the Common Stock for the five trading days immediately
preceding the conversion date.
(3) Although conversion at the maximum conversion price would
result in the issuance of 193,103 shares of Common Stock, the
Company agreed to register 200,000 shares to be issuable upon
conversion of the Series 9 Preferred.
73
(4) The Company has 50,000,000 shares of Common Stock authorized
for issuance. There are 12,267,631 shares of Common Stock
issued and outstanding as of the date of this Prospectus, and
13,255,796 shares are issuable upon exercise of warrants
outstanding as of the date of this Prospectus. The Company
would probably not have sufficient shares of Common Stock
authorized but unissued if it were required to issue
37,250,000 shares upon conversion of the Series 3 Preferred,
Series 8 Preferred, Series 9 Preferred and Series 10 Preferred
and 13,255,796 shares upon exercise of all such outstanding
warrants.
</FN>
As illustrated above, depending upon the average closing bid price
of Common Stock at the date of conversion, RBB Bank could be the
largest single shareholder of the Company, and the Company may not
be able to avoid an actual change in control of the Company if RBB
Bank seeks such a change in control. Moreover, if such conversion
and exercise results in RBB Bank acquiring more than 50% of the
then outstanding Common Stock of the Company, the Company would not
be able to avoid a change in control. The foregoing estimates
assume that no other shares of Common Stock are issued by the
Company, no other warrants or options are exercised, the Company
does not acquire additional shares of Common Stock as Treasury
Stock, and RBB Bank does not dispose of any shares of Common Stock.
See "Certain Relationships and Related Transactions."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of January 1, 1998, Dr. Louis F. Centofanti, Chairman of the
Board and Chief Executive Officer of the Company , held 40,000
Class B Warrants to purchase Common Stock ("Class B Warrants") each
of which expires on June 17, 1999 and entitles the holder thereof to
purchase one (1) share of Common Stock for $5.00 per share. The Class B
Warrants are subject to certain antidilution provisions, which have
resulted in an adjustment of such purchase price from $5.00 to $3.28 per
share.
As of January 1, 1998 RBB Bank Aktiengesellschaft, located in Graz,
Austria ("RBB Bank") was the holder of 4,000 shares of Series 3 Class C
Convertible Preferred Stock, par value $.001 ("Series 3 Preferred"). The
Company issued 54,528 shares during January 1998 in payment of accrued
dividends for the period July through December 1997. The accrued
dividends for the period January 1, 1998, through June 3, 1998, in the
amount of approximately $119,000 were paid in July 1998, in the form of
62,027 shares of Common Stock of the Company. The accrued dividends for
the period July 1, 1998, through December 31, 1998, in the amount of
approximately $121,000 were paid in January 1999, in the form of cash.
Effective February 28, 1998, the Company entered into an Exchange
Agreement with RBB Bank (the "Second RBB Exchange Agreement"),
which provided that the 2,500 shares of Series 6 Preferred held by
RBB Bank were tendered to the Company in exchange for 2,500 of a
newly-created Series 8 Class H Preferred Stock, par value $.001 per
share ("Series 8 Preferred"). The exchange was made in an exchange
offer exempt from registration pursuant to Section 3(a)(9) of the
Securities Act, and/or Section 4(2) of the Securities Act and/or
Regulation D as promulgated under the Securities Act. The Series
8 Preferred was issued to RBB Bank during July 1998.
The rights under the Series 8 Preferred are the same as the rights
under the Series 6 Preferred, except for the conversion price. The
Series 8 Preferred is convertible at $1.8125 per share, except
that, in the event the average closing bid price reported in the
over-the-counter market, or the closing sale price if listed on a
national securities exchange for the five (5) trading days prior to
a particular date of conversion, shall be less than $2.50, the
conversion price for only that particular conversion shall be the
average of the closing bid quotations of the Common Stock as
reported on the over-the-counter market, or the closing sale price
if listed on a national securities exchange, for the five (5)
trading days immediately proceeding the date of such particular
conversion notice provided by the holder to the Company multiplied
by 80%. Notwithstanding the foregoing, the conversion price shall
not be less than a minimum of $.75 per share, which minimum shall
be eliminated from and after September 6, 1998.
74
The terms of the Series 8 Preferred has a liquidation preference
over the Company's Common Stock equal to $1,000 consideration per
outstanding share of Series 8 Preferred (the "Series 8 Liquidation
Value"), plus an amount equal to all accrued and unpaid dividends.
The Series 8 Preferred accrues dividends on a cumulative basis at
a rate of four percent (4%) per annum of the Series 8 Liquidation
Value ("Series 8 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 8 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 Series 8 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, 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 Company paid to RBB Bank the dividends on the Series 6
Preferred which accrued from the date of its issuance through
February 28, 1998, the effective date of the Second RBB Exchange
Agreement by issuing to RBB Bank 7,652 shares of Common Stock in
payment of such accrued dividends. By letter dated July 14, 1998,
RBB Bank agreed to waive certain penalties regarding the Series 4
Preferred and Series 6 Preferred. The accrued dividends for the
period July 1, 1997, through December 31, 1997, 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. The accrued dividends for the Series 6 and 8
Preferred for the period January 1, 1998, through June 30, 1998, in
the amount of approximately $49,000, were paid in July 1998, in the
form of 25, 072 shares of Common Stock of the Company. The accrued
dividends for the Series 8 Preferred for the period July 1, 1998,
through December 31, 1998, in the amount of approximately $50,000,
were paid in February 1999, the form of 38,046 shares of Common
Stock of the Company.
On or about June 30, 1998, the Company issued to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("RBB Bank"), 3,000
shares of newly-created Series 10 Class J Convertible Preferred
Stock, par value $.001 per share ("Series 10 Preferred"), at a
price of $1,000 per share, for an aggregate sales price of
$3,000,000. The sale to RBB Bank was made in a private placement
under Section 4(2) of the Securities Act of 1933, as amended (the
"Act") and/or Rule 506 of Regulation D under the Act, pursuant to
the terms of a Subscription and Purchase Agreement, dated June 30,
1998 between the Company and RBB Bank ("Subscription Agreement").
The net proceeds of $2,768,000 from this private placement, after
the deduction for certain fees and expenses, was received by the
Company on July 14, 1998. The Series 10 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 10 Preferred (the "Liquidation Value"),
plus an amount equal to all unpaid and accrued dividends thereon.
The Series 10 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 within ten (10)
business days after each subsequent June 30 and December 31 (each
a "Dividend Declaration Date"), and shall be payable in cash or
shares of the Company's Common Stock at the Company's option. The
first Dividend Declaration Date was December 31, 1998. 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 10
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
immediate prior to the date the dividend is declared, 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.
75
The holder of the Series 10 Preferred may convert into Common Stock
any or all of the Series 10 Preferred on and after 180 days after
June 30, 1998 (December 28, 1998). The conversion price per
outstanding share of Preferred Stock ("Conversion Price") is
$1.875; except that if the average of the closing bid price per
share of Common Stock quoted on the NASDAQ (or the closing bid
price of the Common Stock as quoted on the national securities
exchange if the Common Stock is not listed for trading on the
NASDAQ but is listed for trading on a national securities exchange)
for the five (5) trading days immediately prior to the particular
date on which the holder notified the Company of a conversion
("Conversion Date") is less than $2.34, then the Conversion Price
for that particular conversion shall be eighty percent (80 %) of
the average of the closing bid price of the Common Stock on the
NASDAQ (or if the Common Stock is not listed for trading on the
NASDAQ but is listed for trading on a national securities exchange
then eighty percent (80%) of the average of the closing bid price
of the Common Stock on the national securities exchange) for the
five (5) trading days immediately prior to the particular
Conversion Date. As of June 30, 1998, the closing price of Common
Stock on the NASDAQ was $1.875 per share. As of the date of this
report, no shares of the Series 10 Preferred have been converted.
As part of the of the sale of the Series 10 Preferred, the Company
also issued to RBB Bank (a) a warrant entitling the holder to
purchase up to an aggregate of 150,000 shares of Common Stock at an
exercise price of $2.50 per share of Common Stock expiring three
(3) years after June 30, 1998 and (b) a warrant entitling the
holder to purchase up to an aggregate of 200,000 shares of Common
Stock at an exercise price of $1.875 per share of Common Stock and
expiring three (3) years after June 30, 1998. Collectively, these
warrants are referred to herein as the "RBB Warrants." The Common
Stock issuable upon the conversion of the Series 10 Preferred and
upon the exercise of the RBB Warrants is subject to certain
registration rights pursuant to the Subscription Agreement.
The Company utilized the proceeds received on the sale of Series 10
Preferred for working capital and to reduce the outstanding balance
of its credit facilities, subject to the Company reborrowing under
such credit facilities.
In connection with the placement of Series 10 Preferred to RBB
Bank, the Company paid fees (excluding legal and accounting) of
$210,000 and issued to (a) Liviakis Financial Communications, Inc.
("Liviakis") for assistance with the placement of the Series 10
Preferred, warrants entitling the holder to purchase up to an
aggregate of 1,875,000 shares of Common Stock, subject to certain
anti-dilution provisions, at an exercise price of $1.875 per share
of Common Stock which warrants may be exercised after January 15,
1999, and which expire after four (4) years; (b) Robert B. Prag,
an executive officer of Liviakis for assistance with the placement
of the Series 10 Preferred, warrants entitling the holder to
purchase up to an aggregate of 625,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants may be
exercised after January 15, 1999, and which expire after four (4)
years; (c) JW Genesis Financial Corporation for assistance with the
placement of the Series 10 Preferred, warrants entitling the holder
to purchase up to an aggregate of 150,000 shares of Common Stock,
subject to certain anti-dilution provisions, at an exercise price
of $1.875 per share of Common Stock, which warrants expire after
three (3) years; and (d) Fontenoy Investments for assistance with
the placement of the Series 10 Preferred, warrants entitling the
holder to purchase up to an aggregate of 350,000 shares of Common
Stock, subject to certain anti-dilution provisions, at an exercise
price of $1.875 per share of Common Stock, which warrants expire
after three (3) years. Under the terms of each warrant, the holder
is entitled to certain registration rights with respect to the
shares of Common Stock issuable on the exercise of each warrant.
In March, 1999, the Company entered into an Exchange Agreement
dated March 14, 1999, with Liviakis and Prag whereby the warrants
described in the preceding paragraph for the purchase of 2,500,000
shares of Common Stock were canceled and exchanged for 200,000
shares of Common Stock.
76
The accrued dividends for the Series 10 Preferred for the period
July 14, 1998, through December 31, 1998, in the amount of
approximately $56,000, were paid in February 1999, in the form of
42,430 shares of Common Stock of the Company.
The Company believes that each of the transactions set forth above
involving affiliates, officers or Directors of the Company was or
is on terms at least as favorable to the Company as could have been
obtained from an unaffiliated third party. The Company has adopted
a policy that any transactions or loans between the Company and its
Directors, principal stockholders or affiliates must be approved by
a majority of the disinterested Directors of the Company and must
be on terms no less favorable to the Company than those obtainable
from unaffiliated third parties.
77
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 1998.
78
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 March 26, 1999
_______________________________ ___________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By /s/ Richard T. Kelecy Date March 26, 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 March 26, 1999
___________________________________ ____________________
Steve Gorlin, Director
/s/ Mark A. Zwecker Date March 26, 1999
___________________________________ ____________________
Mark A. Zwecker, Director
/s/ Jon Colin Date March 26, 1999
___________________________________ ____________________
Jon Colin, Director
/s/ Dr. Louis F. Centofanti Date March 26, 1999
___________________________________ ____________________
Dr. Louis F. Centofanti, Director
79
SCHEDULE II
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
Additions
Charged to
Balance at Costs, Balance
Beginning Expenses At End
Description of Year and Other Deductions of Year
______________________ __________ __________ __________ _______
Year ended December 31, 1998:
Allowance for doubtful accounts(1) $ 374 $ 61 $ 122 $ 313
Year ended December 31, 1997:
Allowance for doubtful accounts(1) $ 340 $ 133 $ 99 $ 374
Year ended December 31, 1996:
Allowance for doubtful accounts(1) $ 351 $ 17 $ 28 $ 340
Divestiture reserve 450 - 450 -
Restructuring reserve 257 - 257 -
<FN>
(1) Excludes Perma-Fix of Memphis, Inc. facility considered a
discontinued operation. See Note 4 of Notes to Consolidated
Financial Statements.
</FN>
80
EXHIBIT INDEX
Exhibit Sequential
No. Description Page 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 June 30, 1998
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 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
4.8 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
4.9 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
4.10 Private Securities Subscription Agreement, dated June 30,
1998, between the Company and RBB Bank Aktiengesellschaft
as incorporated by reference from Exhibit 4.1 to the
Company's Form 8-K dated June 30, 1998.
4.11 Certificate of Designations of Series 10 Class J
Convertible Preferred Stock, dated July 16, 1998, as
incorporated by reference from Exhibit 3(i) above.
4.12 Specimen copy of Certificate relating to the Series 10
Class J Convertible Preferred Stock as incorporated by
reference from Exhibit 4.3 to the Company's Form 8-K,
dated June 30, 1998.
81
4.13 Certificate of Designations of Series 8 Class H
Convertible Preferred Stock as incorporated by reference
from Exhibit 3(i) above.
4.14 Specimen copy of Certificate relating to the Series 8
Class H Convertible Preferred Stock as incorporated by
reference from Exhibit 4.5 to the Company's Form 10-Q for
the quarter ended June 30, 1998.
4.15 Certificate of Designations of Series 9 Class I
Convertible Preferred Stock as incorporated by reference
from Exhibit 3(i) above.
4.16 Specimen copy of Certificate relating to the Series 9
Class I Convertible Preferred Stock as incorporated by
reference from Exhibit 4.7 to the Company's Form 10-Q for
the quarter ended June 30, 1998.
4.17 Congress Financial, Inc. subordination and consent letter
dated June 25, 1998, as incorporated by reference from
Exhibit 4.1 to the Company's Form 10-Q for the quarter
ended September 30, 1998.
4.18 Congress Financial, Inc. subordination and consent letter
dated October 16, 1998, as incorporated by reference from
Exhibit 4.2 to the Company's Form 10-Q for the quarter
ended September 30, 1998.
4.19 Congress Financial, Inc. subordination and consent letter
dated October 16, 1998, as incorporated by reference from
Exhibit 4.3 to the Company's Form 10-Q for the quarter
ended September 30, 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
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
82
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.
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.
83
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 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
84
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
10.36 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.
10.37 Employment Agreement Dated April 7, 1998, between the
Company and Bernhardt Warren is incorporated by reference
from Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended March 31, 1998.
10.38 Common Stock Purchase Warrant ($1.875) dated June 30,
1998, between the Company and RBB Bank Aktiengesellschaft
as incorporated by reference from Exhibit 4.4 to the
Company's Form 8-K, dated June 30, 1998.
10.39 Common Stock Purchase Warrant ($2.50) dated June 30,
1998, between the Company and RBB Bank Aktiengesellschaft
as incorporated by reference from Exhibit 4.5 to the
Company's Form 8-K, dated June 30, 1998.
10.40 Consulting Agreement dated effective June 30, 1998,
between the Company and Liviakis Financial
Communications, Inc. as incorporated by reference from
Exhibit 4.6 to the Company's Form 8-K, dated June 30,
1998.
10.41 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Liviakis Financial
Communications, Inc. as incorporated by reference from
Exhibit 4.7 to the Company's Form 8-K, dated June 30,
1998.
10.42 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Robert B. Prag as incorporated by
reference from Exhibit 4.8 to the Company's Form 8-K,
dated June 30, 1998.
85
10.43 Exchange Agreement dated as of April 30, 1998, to be
considered effective as of February 28, 1998, between the
Company and RBB Bank Aktiengesellschaft as incorporated
by reference from Exhibit 10.6 to the Company' Form 10-Q
for the quarter ended June 30, 1998.
10.44 Exchange Agreement dated as of April 30, 1998, to be
considered effective as of February 28, 1998, between the
Company and The Infinity Fund, L.P. as incorporated by
reference from Exhibit 10.7 to the Company's Form 10-Q
for the quarter ended June 30, 1998.
10.45 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and JW Genesis Financial Corporation
as incorporated by reference from Exhibit 10.8 to the
Company's Form 10-Q for the quarter ended June 30, 1998.
10.46 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Fontenoy Investments as
incorporated by reference from Exhibit 10.9 to the
Company's Form 10-Q for the quarter ended June 30, 1998.
10.47 Consulting Agreement, dated April 8, 1998, and effective
January 1, 1998, between the Company and Alfred C.
Warrington, IV as incorporated by reference from Exhibit
10.11 to the Company's Form 10-Q for the quarter ended
June 30, 1998.
10.48 Letter from RBB Bank to the Company, dated July 14, 1998,
as incorporated by reference from Exhibit 10.12 to the
Company's Form 10-Q for the quarter ended June 30, 1998.
10.49 Basic Oak Ridge Agreement between East Tennessee
Materials and Energy Corporation (M&EC) and Bechtel
Jacobs Company, LLC No. 1GB-99446V dated June 23, 1998,
as incorporated by reference from Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended September 30,
1998.
10.50 Basic Oak Ridge Agreement between East Tennessee
Materials and Energy Corporation (M&EC) and Bechtel
Jacobs Company, LLC No. 1GB-99447V dated June 23, 1998,
as incorporated by reference from Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended September 30,
1998.
10.51 Basic Oak Ridge Agreement between East Tennessee
Materials and Energy Corporation (M&EC) and Bechtel
Jacobs Company, LLC No. 1GB-99448V dated June 23, 1998,
as incorporated by reference from Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended September 30,
1998.
10.52 General agreement between East Tennessee Materials and
Energy Corporation (M&EC) and Perma-Fix Environmental
Services, Inc. dated May 27, 1998, as incorporated by
reference from Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended September 30, 1998.
10.53 Appendix B to general agreement between East Tennessee
Materials and Energy Corporation (M&EC) and Perma-Fix
Environmental Services, Inc. dated November 6, 1998, as
incorporated by reference from Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended September 30,
1998.
86
10.54 Agreement and Plan of Merger dated March 4, 1999, among
Perma-Fix Environmental Services, Inc., Florida Perma-
Chem, Inc., Georgia Perma-Chem, Inc., Chemical
Conservation Corporation, Chemical Conservation of
Georgia, Inc. the Thomas P. Sullivan Living Trust and the
Ann L. Sullivan Living Trust. (Exhibits to this contract
as listed in the index are omitted, but will be provided
to the Commission upon request.) 88
10.55 Agreement and Plan of Merger dated March 4, 1999, among
Perma-Fix Environmental Services, Inc., Perma-Met, Inc.
Chem-Met Services, Inc., the Thomas P. Sullivan Living
Trust, the Ann L. Sullivan Living Trust, Thomas P.
Sullivan and Ann L. Sullivan. (Exhibits to this contract
as listed in the index are omitted, but will be provided
to the Commission upon request.) 159
10.56 Exchange Agreement dated March 14, 1999, among Liviakis
Financial Communications, Inc., Robert B. Prag and Perma-
Fix Environmental Services, Inc. 223
21.1 List of Subsidiaries 232
23.1 Consent of BDO Seidman, LLP 233
27.1 Financial Data Schedule 1998 234
27.2 Financial Data Schedule 1997 235
EXHIBIT 21.1 LIST OF SUBSIDIARIES
LIST OF SUBSIDIARIES OF PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(THE "COMPANY")
Perma-Fix of Florida, Inc. ("PFF"), a Florida corporation,. is a
100% owned subsidiary of the Company.
Perma-Fix of Fort Lauderdale, Inc. ("PFL"), a Florida corporation,
is a 100% owned subsidiary of the Company.
Perma-Fix of Dayton, Inc. ("PFD"), an Ohio corporation, is a 100%
owned subsidiary of the Company.
Perma-Fix Treatment Services, Inc. ("PFTS"), an Oklahoma
corporation, is a 100% owned subsidiary of the Company.
Perma-Fix of Memphis, Inc. ("PPM"), a Tennessee corporation, is a
100% owned subsidiary of the Company.
Perma-Fix, Inc. ("PFI"), an Oklahoma corporation, is a 100% owned
subsidiary of the Company.
Perma-Fix of New Mexico, Inc., a New Mexico corporation, is a 100%
owned subsidiary of PFI.
Reclamation Systems, Inc. ("RSI"), an Oklahoma corporation, is a
100% owned subsidiary of PFI.
Industrial Waste Management, Inc. ("IWM"), a Missouri corporation,
is a 100% owned subsidiary of the Company.
Schreiber, Yonley & Associates ("SYA"), a Missouri corporation, is
a 100% owned subsidiary of lWM.
Mintech, Inc., an Oklahoma corporation, is a 100% owned subsidiary
of PFI.
STOCKHOLDER INFORMATION
Executive Offices
1940 N.W. 67th Place
Gainesville, Florida 32653
Telephone: (352) 373-4200
Fax: (352) 373-0040
6075 Roswell Road, Suite 602
Atlanta, Georgia 30328
Telephone: (404) 847-9990
Fax: (404) 847-9977
Transfer Agents and Registrars
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Independent Certified Public Accountants
BDO Seidman, LLP
201 South Orange Avenue, Suite 950
Orlando, Florida 32801
Annual Meeting
The Company has scheduled its 1999 Annual Meeting for Wednesday,
December 15, 1999. The meeting will be held at the offices of
Perma-Fix Environmental Services, Inc., 1940 N.W. 67th Place,
Gainesville, Florida 32653, at 1:00 p.m. (EST).
Stock Listing
The common stock of Perma-Fix Environmental Services, Inc. is
listed on NASDAQ where it is traded under the ticker symbol PESI.
The common stock of Perma-Fix Environmental Services, Inc. is
listed on the Boston Stock Exchange where it is traded under the
ticker symbol PES.
The common stock of Perma-Fix Environmental Services, Inc. is
listed on the Berlin Stock Exchange where it is traded under the
ticker symbol PES.BE.
Stockholder Inquiries
Inquiries concerning stockholder records should be addressed to
the Transfer Agent listed above. Comments or questions
concerning the operations of the Company should be addressed to
the Secretary, Perma-Fix Environmental Services, Inc., 1940 N.W.
67th Place, Gainesville, Florida 32653
Perma-Fix aims to
set the standard
for the development
of safe, effective, low-cost
technologies for the
treatment of
nuclear mixed waste
and industrial waste
and wastewater.
Perma-Fix Environmental Services, Inc.
1940 N.W. 67th Place
Gainesville, Florida 32653