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UNITED STATES
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, 1999
____________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-11596
_______________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352) 373-4200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class 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: None
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 29, 2000, based on the
closing sale price of such stock as reported by NASDAQ on such day,
was $34,777,998. The Company's Common Stock is listed on the
NASDAQ SmallCap Market and the Boston Stock Exchange.
As of March 29, 2000, there were 21,401,415 shares of the
registrant's Common Stock, $.001 par value, outstanding, excluding
988,000 shares held as treasury stock.
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I
Item 1. Business. . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . .12
Item 3. Legal Proceedings . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . .13
Item 4A. Executive Officers of the Company . . . .13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . .16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . .17
Special Note Regarding Forward-Looking
Statements. . . . . . . . . . . . . . . .28
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . .28
Item 8. Financial Statements and Supplementary
Data. . . . . . . . . . . . . . . . . . .29
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . .62
PART III
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . .63
Item 11. Executive Compensation. . . . . . . . . .65
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . .70
Item 13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . .73
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . .81
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
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 profit-
ability and to continue the research and development of innovative
technologies for the treatment of nuclear, mixed waste and industrial
waste. Such research and development expenses, although important,
are not considered material.
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 eleven operating segments which represent each separate
facility or location that we operate. Ten of these segments provide
waste management services and one segment provides consulting
engineering services as described below:
*WASTE MANAGEMENT SERVICES, which includes, off-site waste storage,
treatment, processing and disposal services through our seven
treatment, storage and disposal ("TSD") facilities and numerous
related operations provided by our three other locations, 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
and non-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
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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
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 RCRA permitted TSD
facility located in Tulsa, Oklahoma. PFTS stores and treats hazardous
waste liquids, provides waste transportation and 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
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.
Chemical Conservation Corporation ("CCC") is a RCRA permitted TSD
facility located in Orlando, Florida, which was acquired effective
June 1, 1999. CCC collects, stores and treats hazardous and non-
hazardous wastes out of two processing buildings, under one of our
most inclusive permits. CCC is also a transporter of hazardous
waste and operates a transfer facility at the site.
Chemical Conservation of Georgia, Inc. ("CCG") is a RCRA permitted TSD
facility located in Valdosta, Georgia, which was acquired effective
June 1, 1999. CCG provides storage, treatment and disposal
services to hazardous and non-hazardous waste generators throughout
the United States, in conjunction with the utilization of the CCC
facility and transportation services. CCG operates a hazardous
waste storage facility that primarily blends and processes
hazardous and non-hazardous waste liquids, solids and sludges into
substitute fuel or as a raw material substitute in cement kilns
that have been specially permitted for the processing of hazardous
and non-hazardous waste.
Chem-Met Services, Inc. ("CM") is a permitted TSD facility located
in Detroit, Michigan, which was acquired effective June 1, 1999.
CM is a waste treatment and storage facility, situated on 60 acres,
that treats hazardous, non-hazardous and inorganic wastes with
solidification/chemical fixation and bulks, repackages and
remanifests wastes that are determined to be unsuitable for
treating. This large bulk processing facility utilizes a chemical
fixation and stabilization process to produce a solid non-hazardous
matrix that can safely be disposed of in a solid waste landfill.
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Chem-Met Government Services ("CMGS") specializes in the on-site
environmental and hazardous waste management, with emphasis on the
management of large long-term federal and industrial on-site field
service contracts. CMGS operates out of nine field service
offices, located throughout the United States and Hawaii. CMGS
currently manages nine (9) hazardous waste management service
contracts with the Defense Reutilization & Marketing Service
("DRMS"), working closely with the above noted permitted facilities
for certain transportation and waste management services.
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.
For 1999, the Company's waste management services business
accounted for approximately $41,753,000 or 89.9% of the Company's
total revenue, as compared to approximately $26,181,000 or 85.7%
for 1998, which excludes discontinued operations. Contained within
this segment is the nuclear and mixed waste product line, which
accounted for $4,313,000 or 9.28% of total revenue for 1999, as
compared to $4,693,000 or 15.36% of total revenue for 1998,
excluding discontinued operations. See under the caption
"Financial Statements and Supplementary Data" for further details.
*CONSULTING ENGINEERING SERVICES, which provides environmental
engineering and regulatory compliance consulting services through
one subsidiary, 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. During 1999, the business and operations
of Mintech, Inc., our second engineering company located in Tulsa,
Oklahoma, was merged into and consolidated with the SYA operations.
SYA also provides the necessary support, compliance and training as
required by our operating facilities.
During 1999 environmental engineering and regulatory compliance
consulting services accounted for approximately $4,711,000 or 10.1%
of our total revenue, as compared to approximately $4,370,000 or
14.3% in 1998, which excludes discontinued operations. See under
the caption "Financial Statements and Supplementary Data" for
further details.
Acquisition of CCC, CCG, and CM
On June 1, 1999, the Company acquired Chemical Conservation Corporation,
a Florida corporation ("CCC"), Chemical Conservation of Georgia, Inc., a
Georgia corporation ("CCG"), and Chem-Met Services, Inc., a Michigan
corporation ("CM") for an aggregate purchase price of $8,700,000, as
further described in "Item 13 Certain Relationships and Related
Transactions."
3
Segment Information and Foreign and Domestic Operations and Export
Sales
During 1999, we were engaged in eleven 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 To Notes to Consolidated
Financial Statements 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 1999.
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 2000. Patent
applications have also been filed for processes to treat radon,
4
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
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.
CM operates under an operating license issued in 1982 as an
existing facility for the treatment and storage of certain
hazardous wastes. The operating license continues in effect in
conjunction with the terms of a consent judgement as agreed to in
1991.
CCC operates a hazardous and non-hazardous treatment and storage
facility under various permits, including a RCRA Part B permit,
issued by the State of Florida.
CCG operates a hazardous treatment and storage facility under a
RCRA Part B permit, issued by the State of Georgia.
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
5
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 1999 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 not have a material adverse effect on us. However, CMGS
currently manages nine (9) hazardous waste management service
contracts with the DRMS. The DRMS is a subagency of the Defense
Logistics Agency and the Department of Defense, which is
considered to be a single customer. The consolidated revenues for
the DRMS contracts for 1999 total $5,277,000 or 11.4% of total
revenue. Delays in the government's payment of amounts owing to
the Company have resulted, from time to time, in a material decrease
in the Company's liquidity.
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 certain
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 connec-
tion 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
6
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
third quarter of 2000. 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. 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 profit-
ability, of the Oak Ridge Contracts for the Company. See "Special Note
Regarding Forward Looking Statements" and Business--Oak Ridge System
Contract Award."
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
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 land filling. 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
7
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 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 1999, we spent approximately $2,660,000 in capital
expenditures, which was principally for the expansion and
improvements to our continuing operations. This 1999 capital
spending total includes $826,000 of which was financed. For 2000,
we have budgeted approximately $4,000,000 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 $1,656,000 to comply with federal,
state and local regulations in connection with remediation
activities at four 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 four 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
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 $401,000.
As discussed in Note 9 to the Consolidated Financial Statements, we
have accrued approximately $347,000 for the estimated costs of
remediating the Leased Property used by EPS, which will extend for
a period of three (3) to four (4) 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 $696,000 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
8
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.
In conjunction with the acquisition of CM and CCG during 1999, we
recognized long-term environmental accruals of $4,319,000. This
amount represented the Company's estimate of the long-term costs to
remove contaminated soil and to undergo groundwater remediation
activities at the CM acquired facility in Detroit, Michigan, and at
the CCG acquired facility in Valdosta, Georgia. Both facilities
have pursued remedial activities over the past five years with
additional studies forthcoming and potential groundwater
restoration activities could extend for a period of ten years. The
accrued balance at December 31, 1999, for the CM remediation is
$2,103,000, of which we anticipate spending $638,000 during 2000,
with the remaining $1,465,000 reflected in a long-term
environmental accrual. The accrued balance at December 31, 1999,
for the CCG remediation is $2,133,000, of which we anticipate
spending $499,000 during 2000, with the remaining $1,634,000
reflected in a long-term environmental accrual. No insurance or
third party recovery was taken into account in determining our cost
estimates or reserves, nor do our cost estimates or reserves
reflect any discount for present value purposes. We also
recognized certain other long-term potential liabilities related to
the 1999 acquisition of CM, CCC and CCG, the largest of which is
the reserve of possible PRP liabilities, related to disposal
activities prior to the acquisition, for which we have reserved
approximately $403,000. See Note 5 and Note 9 to Notes to
Consolidated Financial Statements.
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, 1999, we employed approximately 396 persons, of
which approximately 24 were assigned to our engineering and
consulting industry segment and approximately 362 to the waste
management industry segment, including approximately 192 employees
at the CCC, CCG and CM facilities acquired in June 1999.
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
9
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
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
10
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, "1999" would be held in the memory of a computer as "99."
When the year changes from 1999 to 2000, a two digit system would
read the year as changing from "99" to "00." For a variety of
reasons, many computer systems are not designed to make such a date
change or are not designed to "understand" or react appropriately
to such a date change. Therefore, after the date changes to the
year 2000, many computer systems could completely stop working or
could perform in an improper and unpredictable manner.
We have conducted a review of our computer systems to identify the
systems which we anticipated could be effected by the Year 2000
issue and we believe that all such systems were already, or have
been converted to be, Year 2000 compliant. Such conversion costs,
where required, have not been material and have been expensed as
incurred. Pursuant to our Year 2000 planning, we requested
information regarding the computer systems of our key suppliers,
customers, creditors, and financial service organizations and were
informed that they are substantially Year 2000 compliant. As of
the date of this Report, the Company has experienced no Year 2000
disruptions to its operations since the year 2000 began. There
can be no assurance, however, that such key organizations are
actually Year 2000 compliant and that the Year 2000 issue will not
adversely affect the Company's financial position or results of
operations. We believe that our expenditures in addressing our
Year 2000 issues will not have a material adverse effect on our
financial position or results of operations.
11
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 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 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."
ITEM 2. PROPERTIES
Our principal executive offices are in Gainesville, Florida. Our
waste management operations are located in Gainesville, Orlando and
Ft. Lauderdale, Florida; Dayton, Ohio; Tulsa, Oklahoma; Valdosta,
Georgia; Detroit, Michigan; Albuquerque, New Mexico and Memphis,
Tennessee. Our consulting engineering services are located in St.
Louis, Missouri. We also maintain sales offices in Laverne,
California and Kansas City, Missouri and Government Services
offices in Jacksonville, Florida; Anniston, Alabama; San Diego,
California; Oklahoma City, Oklahoma; Portsmouth, Virginia;
Honolulu, Hawaii and Santa Barbara, California.
We own nine facilities and have an option to purchase another
facility at a nominal amount at the end of the lease term (December
2000), all of which are in the United States. In addition, we
lease twelve 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
CM, which was purchased by the Company effective June 1, 1999, is
a PRP regarding three Superfund sites, two of which had no
relationship with CM according to CM records. The relationship of
CM to the third site, if any, is currently being investigated by
the Company. CCC, which was also purchased by the Company
effective June 1, 1999, is a PRP regarding two Superfund sites.
The Company is currently investigating the relationship of CCC to
the two sites.
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.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders ("Annual Meeting") was
held on December 15, 1999. At the Annual Meeting, the following
matters were voted on and approved by the shareholders:
1. The election of five (5) directors to serve until the
next annual meeting of stockholders or until their
respective successors are duly elected and qualified;
2. Approval and ratification of the appointment of BDO
Seidman, LLP as the independent auditors of the Company
for fiscal 1999.
At the Annual Meeting the five (5) nominated directors were elected
to serve until the next annual meeting of stockholders. The
directors elected at this annual meeting of stockholders and the
votes cast for and withhold authority for each director are as
follows:
Withhold
For Authority
__________ _________
Dr. Louis F. Centofanti 15,659,288 60,462
Jon Colin 15,659,588 60,162
Steve Gorlin(1) 15,248,490 471,260
Thomas P. Sullivan 15,656,770 62,980
Mark A. Zwecker 15,659,588 60,162
Also, at the Annual Meeting the shareholders approved the
appointment of BDO Seidman, LLP as the independent auditors of the
Company for fiscal 1999.
The votes for, against and abstentions and broker non-votes are as
follows:
Abstentions
and Broker
For Against Non-Votes
__________ _______ ___________
Approval and Ratification of the
Appointment of BDO Seidman, LLP 15,658,505 39,150 22,095
as the Independent Auditors
(1) On February 1, 2000, Mr. Gorlin resigned as a director of the
Company.
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:
NAME AGE POSITION
____ ___ ________
Dr. Louis F. Centofanti 56 Chairman of the Board, President and Chief
Executive Officer
Mr. Richard T. Kelecy 44 Chief Financial Officer, Vice President and
Secretary
Mr. Roger Randall 56 Vice President, Industrial Services
Mr. Bernhardt Warren 51 Vice President, Nuclear Services
Mr. Timothy Kimball 54 Vice President, Technical Services
13
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 Vice-President and 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 was 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.
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.
14
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:
1999 1998
_________________ __________________
Low High Low High
_______ _______ ________ _____
Common Stock: 1st Quarter 1 1 3/4 1 25/32 2 1/2
2nd Quarter 7/8 1 15/16 1 7/16 2 1/32
3rd Quarter 1 1/8 1 45/64 1 3/8 2 25/32
4th Quarter 1 3/32 1 9/16 1 1/32 2 7/32
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, 1999, 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 December 31, 1999, was approximately 2,083.
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 1999, as reported
in the Company's Forms 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, which were not registered
under the Securities Act of 1933, as amended ("Securities Act"), we
sold or issued during 1999 the following securities which were also
not registered under the Act:
1. On or about November 15, 1999, pursuant to the terms of a certain
Consulting Agreement ("Consulting Agreement") entered into
effective as of January 1, 1998, the Company issued 6,667 shares
of Common Stock in payment of accrued fees of $6,000 to Alfred C.
Warrington IV, an outside, independent consultant to the Company,
as consideration for certain consulting services rendered to the
Company by Warrington from April through September 1999. The
issuance of Common Stock pursuant to the Consulting Agreement was
a private placement under Section 4(2) of the Act and/or Rule 506
of Regulation D as promulgated under the Act. The Consulting
Agreement provides that Warrington will be paid $1,000 per month
of service to the Company, payable, at the option of Warrington
(i) all in cash, (ii) sixty-five percent in shares of Common Stock
and thirty-five percent in cash, or (iii) all in Common Stock. If
Warrington elects to receive part or all of his compensation in
Common Stock, such will be valued at seventy-five percent of its
"Fair Market Value" (as defined in the Consulting Agreement).
Warrington elected to receive all of his accrued compensation from
April 1999 through the end of September 1999 in Common Stock.
Warrington represented and warranted in the Consulting Agreement,
inter alia, as follows: (i) the Common Stock is being acquired for
Warrington's own account, and not on behalf of any other persons;
(ii) Warrington is acquiring the Common Stock to hold for
investment, and not with a view to the resale or distribution of
all or any part of the Common Stock; (iii) Warrington will not
sell or otherwise transfer the Common Stock in the absence of an
effective registration statement under the Act, or an opinion of
15
counsel satisfactory to the Company, that the transfer can be made
without violating the registration provisions of the Act and the
rules and regulations promulgated thereunder; (iv) Warrington is
an "accredited investor" as defined in Rule 501 of Regulation D as
promulgated under the Act; (v) Warrington has such knowledge,
sophistication and experience in financial and business matters
that he is capable of evaluating the merits and risks of the
acquisition of the Common Stock; (vi) Warrington fully
understands the nature, scope and duration of the limitations on
transfer of the Common Stock as contained in the Consulting
Agreement, (vii) Warrington understands that a restrictive legend
as to transferability will be placed upon the certificates for any
of the shares of Common Stock received by Warrington under the
Consulting Agreement and that stop transfer instructions will be
given to the Company's transfer agent regarding such certificates.
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived from our
audited consolidated financial statements. Financial statements for
the years ended December 31, 1999, 1998, 1997, 1996, and 1995 have
been audited by BDO Seidman, LLP.
Statement of Operations Data:
(Amounts in Thousands, Except
for Share Amounts) December 31,
_______________________________________________________________________
1999(2) 1998 1997 1996 1995
__________ _________ __________ ___________ ___________
Revenues(4) $ 46,464 $ 30,551 $ 28,413 $ 27,041 $ 31,477
Net income (loss) from
continuing operations 1,570 462 192 27 (3,494)
Net loss from discontinued
operations - - (4,101) (287) (5,558)(3)
Preferred Stock dividends (308) (1,160) (1,260)(5) (2,145)(5) -
Gain on Preferred Stock
redemption 188 - - - -
Net income (loss) applicable
to Common Stock from
continuing operations 1,450 (698) (1,068)(5) (2,118)(5) (3,494)
Basic net income (loss) per
common share from
continuing operations(1) .08 (.06) (.10)(5) (.24)(5) (.44)
Diluted net income (loss) per
common share from
continuing operations(1) .07 (.06) (.10)(5) (.24)(5) (.44)
Basic number of shares
used in computing net
income (loss) per share(1) 17,488 12,028 10,650 8,761 7,872
Diluted number of shares and
potential common shares
used in computing net
income (loss) per share(1) 21,224 12,028 10,650 8,761 7,872
Balance Sheet Data:
December 31,
_________________________________________________________________________
1999 1998 1997 1996 1995
__________ ________ _________ _________ ___________
Working capital (deficit) $ (1,400) $ 372 $ 754 $ (773) $ (9,372)
Total assets 54,644 28,748 28,570 29,036 28,873
Long-term debt 15,306 3,042 4,981 6,360 8,478
Total liabilities 34,825 12,795 16,376 16,451 20,935
Stockholders' equity 19,819 15,953 12,194 12,585 7,938
16
(1) 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 for prior years, since the effects
of potential common shares are antidilutive.
(2) Includes financial data of CCC, CCG and CM as acquired during
1999 and accounted for using the purchase method of accounting
from the date of acquisition, June 1, 1999.
(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):
As Originally Reported As Amended
______________________ __________
Quarter Ended Year Ended Quarter Ended Year Ended
_____________ __________ _____________ __________
6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97
_______ _______ __________ _______ _______ __________
Preferred Stock Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $ 1,260
Net Loss Applicable to
Common Stock (525) 58 (4,261) (636) (739) (5,169)
Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements contained within this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" may
be deemed "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended
(collectively, the "Private Securities Litigation Reform Act of
1995"). See "Special Note regarding Forward-Looking Statements"
contained in this report.
Management's discussion and analysis is based, among other things,
upon 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.
17
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,
1999, 1998 and 1997 (amounts in thousands, except for share
amounts):
(Consolidated) 1999 % 1998 % 1997 %
______________ _________ _____ __________ _____ ________ _____
Net Revenue $ 46,464 100.0 $ 30,551 100.0 $ 28,413 100.0
Cost of goods sold 31,271 67.3 21,064 68.9 19,827 69.8
_________ _____ __________ _____ ________ ______
Gross profit 15,193 32.7 9,487 31.1 8,586 30.2
Selling, general and
administrative 10,299 22.2 6,847 22.4 5,682 20.0
Depreciation and
amortization 2,778 6.0 2,109 6.9 1,980 7.0
Other income (expense):
Interest income 50 .1 35 .1 41 .1
Interest expense (650) (1.4) (294) (1.0) (431) (1.5)
Other 54 .1 190 .6 (342) (1.2)
________ _____ ________ _____ ________ _____
Net income from contin-
uing operation 1,570 3.4 462 1.5 192 .7
Loss from discontinued
operations (2) - - - - (4,101) (14.4)
Preferred Stock dividends (308) .7 (1,160) (3.8) (1,260)(1) (4.4)
Gain on Preferred Stock
redemption 188 .4 - - - -
________ _____ _________ ______ _________ ______
Net income (loss)
applicable to
Common Stock $ 1,450 3.1 $ (698) (2.3) $ (5,169)(1) (18.2)
======== ===== ========= ====== ========= ======
Basic net income (loss)
per common share $ .08 $ (.06) $ (.49)
======= ========= ==========
Diluted net income
(loss) per
common share $ .07 $ (.06) $ (.49)
======== ========= ==========
(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,
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):
18
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.
Summary -- Years Ended December 31, 1999 and 1998
Consolidated net revenues increased $15,913,000, or 52.1% for
continuing operations for the year ended December 31, 1999,
compared to the year ended December 31, 1998. This increase is
principally attributable to the additional revenues resulting from
the acquisition of CCC, CCG and CM, effective June 1, 1999, which
in the aggregate contributed approximately $15,605,000 of this
increase. The remaining revenue increase reflects internal growth
within both the waste management and engineering segments.
Cost of goods sold increased $10,207,000, or 48.5% for the year
ended December 31, 1999, compared to the year ended December 31,
1998. This increase in cost of goods sold reflects principally the
increased operating, disposal, and transportation costs
corresponding to the increased revenues from the acquisition of
CCC, CCG and CM as discussed above. The acquired facilities
contributed cost of goods sold totaling approximately $10,471,000,
which was partially offset by a cost of goods sold reduction of
$264,000 from existing operations, even though such existing
operations had achieved increased revenues of $308,000.
Gross profit for the year ended December 31, 1999, increased to
$15,193,000, which as a percentage of revenue is 32.7%, reflecting
an improvement over the 1998 percentage of revenue of 31.1%. This
continued improvement in gross profit as a percentage of revenue is
a result of our ongoing cost reduction efforts and the initial
benefits and efficiencies gained from the acquisition in 1999.
Selling, general and administrative expenses increased $3,452,000
or 50.4% for the year ended December 31, 1999, as compared to 1998.
As a percentage of revenue, selling, general and administrative
expenses however decreased to 22.2% for the year ended December 31,
1999, compared to 22.4% for the same period of 1998. This increase
in selling, general and administrative expense is principally due
to the acquisition of CCC, CCG and CM, which reflects expense of
$2,531,000 directly related to and charged against these
facilities. We continue to focus our efforts on the research and
development of new markets, products and technologies which are
expensed as incurred. However, we did demonstrate in 1999 the
benefit of spreading the fixed overhead over a larger company, as
reflected in the improvement in expense as a percentage of revenue.
Depreciation and amortization expense for the year ended
December 31, 1999, reflects an increase of approximately $669,000
or 31.7% as compared to the year ended December 31, 1998. This
increase is principally a result of the acquisition of CCC, CCG and
CM in 1999, which resulted in an increase in depreciation and
amortization of $666,000 from the date of acquisition, June 1,
1999. Depreciation expense for the year ended December 31, 1999,
was $2,102,000 which included $435,000 for the above discussed
19
acquired facilities and amortization expense for the year ended
December 31, 1999, was $676,000, which included $231,000 for the
above discussed acquired facilities.
Interest expense increased approximately $356,000 for the year
ended December 31, 1999, as compared to the corresponding period of
1998. This increase principally reflects the impact of the
acquisition of CCC, CCG and CM effective June 1, 1999. The
existing debt as assumed in conjunction with the acquisition
resulted in $43,000 of additional interest. The additional
interest resulting from the three promissory notes which comprised
$4,700,000 of the purchase prices totaled approximately $125,000.
The remaining increase in interest expense is a direct result of
the increased borrowing levels on the Congress Financial
Corporation revolving and term loan incurred at the point of
acquisition to (i) fund the cash portion of the purchase price
($1,000,000), (ii) fund certain settlement payments ($1,616,000),
(iii) fund certain debt repayments required at closing ($2,011,000)
and (iv) fund certain other closing and acquisition related costs.
See Note 10 to Notes to Consolidated Financial Statements for a
reconciliation between the expected tax benefit and the provision
for income taxes as reported.
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 $852,000, for the year ended December 31,
1999, as compared to the year ended December 31, 1998. Pursuant to
EITF D-60 and D-42, we 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 $308,000 during 1999. This decrease of approximately
$102,000 is due to the conversion of $4,563,000 (4,563 preferred
shares) of the Preferred Stock into Common Stock on April 20, 1999,
and the redemption of $750,000 (750 preferred shares) of the
Preferred Stock on July 15, 1999. See Note 6 to Notes to
Consolidated Financial Statements regarding the issuance of
Preferred Stock.
As noted above, pursuant to the terms of the Series 12 Preferred
Stock and Series 13 Preferred Stock, we redeemed 300 shares or
$300,000 and 450 shares or $450,000 respectively, of the Preferred
Stock on July 15, 1999. The redemption was done at the Preferred
Stock's original face value and resulted in a gain on Preferred
Stock redemption of $188,000. See Note 6 to Notes to Consolidated
Financial Statements regarding the Preferred Stock.
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.
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
20
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.
See Note 10 to Notes to Consolidated Financial Statements for a
reconciliation between the expected tax benefit and the provision
for income taxes as reported.
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.
Liquidity and Capital Resources of the Company
At December 31, 1999, we had cash and cash equivalents of $816,000,
including discontinued operations. This cash and cash equivalents
total reflects a increase of $40,000 from December 31, 1998, as a
result of net cash provided by continuing operations of
$1,022,000, offset by cash used by discontinued operation of
$1,285,000, cash used in investing activities of $3,217,000
(principally purchases of equipment, net totaling $1,834,000, cash
used for acquisition consideration and settlements totaling
$2,616,000 partially offset by the proceeds from the sale of
property and equipment of $238,000 and the change or decrease in
restricted cash of $1,042,000) and cash provided by financing
activities of $3,520,000.
Accounts receivable, net of allowances for continuing operations,
totaled $13,027,000, an increase of $7,077,000 over the December 31,
1998, balance of $5,950,000. This increase principally reflects the
impact of the acquisition of CCC, CCG and CM which had an acquired
accounts receivable balance of $4,078,000 at June 1, 1999. The
accounts receivable balance for CCC and CCG reflected an
increase of $577,000 from the June 1, 1999, acquisition date, to
December 31, 1999. The accounts receivable balance for CM,
including its government services contracting group, reflected an
increase of $2,549,000 from June 1, 1999, acquisition date, to
December 31, 1999. During 1999, CM and it government services
contracting group were awarded six new contracts, in addition to
the four contracts previously held, which due to the complex
billing process, contributed $1,927,000 of this increase. This
increase is also reflective of the higher revenue levels in the
fourth quarter, in addition to the government services contracting
activities. On certain occasions the government has delayed
payment of receivables due to the Company for an extended period
resulting in a material decrease in the Company's liquidity from
time to time.
21
On January 15, 1998, the Company, as parent and guarantor, and all
direct and indirect subsidiaries of the Company, as co-borrowers
and cross-guarantors, entered into a Loan and Security Agreement
("Agreement") with Congress as lender. The Agreement initially
provided for a term loan in the amount of $2,500,000, which
required principal repayments based on a four-year level principal
amortization over a term of 36 months, with monthly principal
payments of $52,000. Payments commenced on February 1, 1998, with
a final balloon payment in the amount of approximately $573,000 due
on January 14, 2001. The Agreement also provided for a revolving
loan facility in the amount of $4,500,000. At any point in time
the aggregate available borrowings under the facility are subject
to the maximum credit availability as determined through a monthly
borrowing base calculation, as updated for certain information on
a weekly basis, equal to 80% of eligible accounts receivable
accounts of the Company as defined in the Agreement. The
termination date on the revolving loan facility was also the third
anniversary of the closing date. The Company incurred
approximately $230,000 in financing fees relative to the
solicitation and closing of this original loan agreement
(principally commitment, legal and closing fees) which are being
amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1
3/4%. The loans also contain certain closing, management and unused
line fees payable throughout the term. The loans are subject to a
3.0% prepayment fee in the first year, 1.5% in the second and 1.0%
in the third year of the original Agreement dated January 15, 1998.
In connection with the acquisition of CCC, CCG and CM on May 27,
1999, Congress, the Company, and the Company's subsidiaries,
including CCC, CCG and CM entered into an Amendment and Joinder to
Loan and Security Agreement (the "Loan Amendment") dated May 27,
1999, pursuant to which the Loan and Security Agreement ("Original
Loan Agreement") among Congress, the Company and the Company's
subsidiaries was amended to provide, among other things, (i) the
credit line being increased from $7,000,000 to $11,000,000, with
the revolving line of credit portion being determined as the
maximum credit of $11,000,000, less the term loan balance, with the
exact amount that can be borrowed under the revolving line of
credit not to exceed eighty percent (80%) of the Net Amount of
Eligible Accounts (as defined in the Original Loan Agreement) less
certain reserves; (ii) the term loan portion of the Original Loan
Agreement being increased from its current balance of approximately
$1,600,000 to $3,750,000 and it shall be subject to a four-year
amortization schedule payable over three years at an interest rate
of 1.75% over prime; (iii) the term of the Original Loan Agreement,
as amended, will be extended for three years from the date of the
acquisition, subject to earlier termination pursuant to the terms
of the Original Loan Agreement, as amended; (iv) CCC, CCG and CM
being added as co-borrowers under the Original Loan Agreement, as
amended; (v) the interest rate on the revolving line of credit will
continue at 1.75% over prime, with a rate adjustment to 1.5% if net
income applicable to Common Stock of the Company is equal to or
greater than $1,500,000 for fiscal year ended December 31, 2000;
(vi) the monthly service fee shall increase from $1,700 to $2,000;
(vii) government receivables will be limited to 20% of eligible
accounts receivable; and (viii) certain obligations of CM shall be
paid at closing of the acquisition of CCC, CCG and CM. The Loan
Amendment became effective on June 1, 1999, when the Stock Purchase
Agreements were consummated. Payments under the term loan
commenced on June 1, 1999, with monthly principal payments of
approximately $78,000 and a final balloon payment in the amount of
$938,000 on June 1, 2002. The Company incurred approximately
$40,000 in additional financing fees relating to the closing of
this amendment, which is being amortized over the remaining term of
the agreement.
Under the terms of the Original Loan Agreement, as amended, the
Company has agreed to maintain an Adjusted Net Worth (as defined in
the Original Loan Agreement) of not less than $3,000,000 throughout
the term of the Original Loan Agreement, which was amended,
pursuant to the above noted acquisition. The adjusted net worth
covenant requirement ranges from a low of $1,200,000 at June 1,
1999, to a high of not less than $3,000,000 from July 1, 2000,
through the remaining term of the Loan Agreement. The covenant
requirement at December 31, 1999, was $1,500,000, which the Company
was in compliance with. The Company has agreed that it will not
pay any dividends on any shares of capital stock of the Company,
except that dividends may be paid on the Company's shares of
Preferred Stock outstanding as of the date of the Loan Amendment
(collectively, "Excepted Preferred Stock") under the terms of the
applicable Excepted Preferred Stock and if and when declared by the
22
Board of Directors of the Company pursuant to Delaware General
Corporation Law. As security for the payment and performance of
the Original Loan Agreement, as amended, the Company and its
subsidiaries (including CCC, CCG and CM) have granted a first
security interest in all accounts receivable, inventory, general
intangibles, equipment and certain of their other assets, as well
as the mortgage on two facilities owned by subsidiaries of the
Company, except for certain real property owned by CM, for which a
first security interest is held by the TPS Trust and the ALS Trust
as security for CM's non-recourse guaranty of the payment of the
Promissory Notes. All other terms and conditions of the original
loan remain unchanged.
As of December 31, 1999, borrowings under the revolving loan
agreement were approximately $5,891,000, an increase of $5,794,000
over the December 31, 1998, balance of $97,000. This increase
represents $2,799,000 funded pursuant to the CCC, CCG and CM
acquisition on June 1, 1999, $766,000 funded for the redemption of
Preferred Stock, including dividends thereon, during July 1999 and
$2,229,000 for capital expenditure and general working capital
needs. The balance under the Congress term loan at December 31,
1999, was $3,203,000, an increase of $1,276,000 over the December
31, 1998, balance of $1,927,000. This increase represents
$2,083,000 funded pursuant to the CCC, CCG and CM acquisition on
June 1, 1999, partially offset by scheduled repayments of $807,000.
We funded through the revolving and term loan a total of $4,882,000
pursuant to the CCC, CCG and CM acquisition excluding legal,
professional and other closing fees, of which $2,651,000
represented the repayment of certain debt obligations, $1,192,000
represented payment of certain settlement obligations and
$1,000,000 of the cash consideration as paid to the former owners
of CCC, CCG and CM. As of December 31, 1999, the Company's
borrowing availability under the Congress credit facility, based on
its then outstanding eligible accounts receivable, was
approximately $1,113,000.
Pursuant to the terms of the Stock Purchase Agreements in
connection with the acquisition of CCC, CCG and CM, a portion of
the consideration was paid in the form of the Promissory Notes, in
the aggregate amount of $4,700,000 payable to the former owners of
CCC, CCG and CM. The Promissory Notes are paid in equal monthly
installments of principal and interest of approximately $90,000
over five years with the first installment due on July 1, 1999, and
having an interest rate of 5.5% for the first three years and 7%
for the remaining two years. The aggregate outstanding balance of
the Promissory Notes total $4,283,000 at December 31, 1999, of
which $819,000 is in the current portion. Payment of such
Promissory Notes are guaranteed by CM under a non-recourse
guaranty, which non-recourse guaranty is secured by certain real
estate owned by CM. See Note 7 to Notes to Consolidated Financial
Statements for further discussion of the above referenced
acquisition.
As of December 31, 1999, total consolidated accounts payable for
continuing operations was $7,587,000, an increase of $5,165,000
from the December 31, 1998, balance of $2,422,000. The increased
accounts payable total is partially a result of the impact of the
acquisition of CCC, CCG and CM, which reflected an acquired balance
at June 1, 1999, of $2,412,000. The increase is also attributable
to the increased revenue activity in the fourth quarter and the
corresponding increase in accounts receivable.
Our net purchases of new capital equipment for continuing
operations for the twelve month period ended December 31, 1999,
totaled approximately $2,660,000. These expenditures were for
expansion and improvements to the operations principally within
the waste management industry segment. These capital expenditures
were principally funded by the cash provided by continuing
operations and $826,000 through various other lease financing
sources. We have budgeted capital expenditures of approximately
$4,000,000 for 2000, which includes completion of certain current
projects, as well as other identified capital and permit compliance
purchases. We anticipate funding these capital expenditures by a
combination of lease financing with lenders other than the
equipment financing arrangement discussed above, and/or internally
generated funds.
The Company has outstanding 4,537 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
23
declared by the Board of Directors, in cash or in the shares of the
Company's Common Stock as described under Note 6 to Notes to Consolidated
Financial Statements.
As of December 31, 1999, 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 for $42,000 and 45,000 shares in
1999 for $50,000 and if the remaining authorized shares were purchased
as of the date of the report such would result in the expenditure of
approximately $550,000 in cash. If the Company should repurchase such
shares, we would anticipate funding these activities from cash provided
by continuing operations and borrowings under the Company's revolving
credit facility.
The working capital deficit position at December 31, 1999, was
$1,400,000, as compared to a working capital position of $372,000
at December 31, 1998, which reflects a decrease in this position of
$1,772,000 during 1999. This reduced working capital position is
principally a result of the impact of the CCC, CCG and CM
acquisition, effective June 1, 1999. The consideration was paid in
the form of cash, debt and equity, with the cash portion being
$1,000,000, funded out of current working capital and the debt
portion being $4,700,000 in the form of three promissory notes,
paid over five years. The Congress term loan was also increased by
$2,083,000 pursuant to this acquisition, which resulted in an
increase of $313,000 in the current portion of the term loan debt.
We also assumed certain other liabilities pursuant to this
acquisition, including the accrued environmental liability related
to the CM facility in Detroit, Michigan, and the CCG Facility in
Valdosta, Georgia, both of which are long term remedial projects,
with increased spending in this first year. These two remedial
projects contributed $1,137,000 to this working capital reduction.
See Note 5, Note 7 and Note 9 to Notes to Consolidated Financial
Statement for further detail on the acquisition and related
reserves. Additionally, we continue to invest current cash
proceeds into the long term capital improvements of our operating
facilities, with the 1999 purchases of property and equipment
totaling $1,834,000.
As discussed above, on June 1, 1999, the Company purchased all of
the outstanding stock of CCC, CCG and CM and paid $8.7 million,
as follows: (i) $1 million in cash, (ii) five (5) year promissory
notes totaling the original principal amount of $4.7 million,
bearing an annual rate of interest of 5.5% for the first three
years and 7% for the last two years, with principal and accrued
interest payable in monthly installments of approximately $90,000
each, and (iii) $3 million payable in the form of 1.5 million
shares of the Company's Common Stock based on each share having an
agreed value of $2.00. If the average of the closing price of the
Company's Common Stock as quoted on the NASDAQ for the five (5)
trading days immediately preceding the date eighteen (18) months
after June 1, 1999 ("Valuation Date") is less than $2.00 per share,
the Company is to pay in cash or Common Stock or a combination
thereof, at the Company's option, the difference between $3 million
and the value of the 1.5 million shares of Common Stock based on
the five (5) trading day average as quoted on the NASDAQ
immediately preceding the Valuation Date. Under the Company's loan
agreement, the Company may pay such amount, if any, only in Common
Stock unless the lender agrees that the Company may satisfy such in
whole or in part in cash. However, the Company is not to issue in
connection with the acquisition of CCC, CCG and CM more than 18%
of the outstanding shares of Common Stock at the closing of the
acquisition of CCC, CCG and CM.
On April 20, 1999, the Company and RBB Bank entered into an
agreement to restructure the Company's Convertible Preferred Stock
held by RBB Bank, which totaled approximately $9.5 million. The
restructuring was accomplished through two exchange agreements
("First Exchange Agreement" and "Second Exchange Agreement") which
are further described in Note 6 to Notes to Consolidated Financial
Statements. Under the restructuring:
24
1. RBB Bank converted, pursuant to existing terms of the
Convertible Preferred Stock, $4.6 million of the Convertible
Preferred Stock into approximately 6.1 million shares of the
Company's Common Stock, which was completed in May 1999.
2. The Company was granted the right to purchase at a stated
value ($1,000 per share) $750,000 of the Convertible
Preferred Stock, which was subsequently purchased on July 15,
1999.
3. The terms of the balance of the Convertible Preferred Stock
(approximately $4.2 million) was changed, as follows:
a. Not subject to conversion for 12 months from the date of
the restructuring ("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up Period, any
conversion of the Convertible Preferred Stock would be
subject to a minimum conversion price of $1.50 per share
of Common Stock; and
c. The Company will be granted the option to redeem the
shares of the Convertible preferred stock at 110% of the
stated value ($1,000 per share) for the first twelve
months from the date of restructuring and RBB Bank may
not convert such shares redeemed during such twelve
month period, and thereafter the Company has the option
to redeem the Convertible Preferred Stock at 120% of the
stated value ($1,000 per share) of the Convertible
preferred stock and upon notice of such redemption RBB
Bank will have the right to exercise its conversion
rights pursuant to the then current terms of the
Convertible Preferred Stock.
4. The Company was required to register with the Commission the
Common Stock issuable upon conversion of the Convertible
Preferred Stock by January 31, 2000, which was completed
timely.
5. The remaining terms of the Convertible Preferred Stock will
remain unchanged.
During 1999, 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 85,802 shares of Common Stock
and $121,000 in cash. Dividends for the period January 1, 1999,
through June 30, 1999, of approximately $190,000 were paid in the
form of 66,692 shares of Common Stock and $83,000 in cash. The
accrued dividends for the period July 1, 1999, through December 31,
1999, in the amount of approximately $110,000 were paid in February
2000, in the form of 95,581 shares of Common Stock. Under the Company's
loan agreement, the Company is required 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, and paid the initial settlement payment amount of
$150,000 in October 1999. The remaining amount of $75,000 is to
be paid in two semi-annual installments of approximately $37,000
each, with the first such payment made on March 16, 2000.
In summary, we have continued to take steps to improve our
operations and liquidity as discussed above. However, with the
acquisition in 1999, we incurred and assumed certain debt
obligations and long-term liabilities, which had a short term
impact on liquidity. We anticipate continued improvement in the
financial performance of the Company and adequate operational cash
flow to fund such requirements. If we are unable to continue to
improve our operations and to continue profitability in the
foreseeable future, such would have a material adverse effect on
our liquidity position.
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
25
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 of $1,048,000 for
the year ended December 31, 1997, is 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
during 1997, 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
1999 and 1998, totaling $677,000 and $653,000, respectively, relate
to the closure and remedial activities performed, and have been
recorded against the accrued environmental reserve. Also recorded
to the closure cost reserve is interest expense of $306,000 and
$213,000 specifically identified to the PFM discontinued operations
as a result of such operations incurring debt under the Company's
revolving and term loan credit facility. During March of 1998, the
Company received a settlement in the amount of $1,475,000 from its
insurance carrier for the business interruption claim which is
recorded as an insurance claim receivable at December 31, 1997.
This settlement was recognized as a gain in 1997 and thereby
reduced the net loss recorded for the discontinued PFM operations
in 1997. Earlier in 1997, PFM received approximately $522,000
(less its deductible of $25,000) in connection with its claim for
loss of contents as a result of the fire and explosion which was
utilized to replace certain assets and reimburse the Company for
certain fire related expense.
The accrued environmental and closure costs related to PFM totals
$1,174,000 as of December 31, 1999, a decrease of $1,327,000 from
the December 31, 1998, accrual balance. This reduction was
principally a result of the specific costs related to the
decommissioning and closure of the fuel blending tank farm and
related processing equipment ($60,000), partial payment of PRP
liability settlement ($150,000), general closure and remedial
activities, including groundwater remediation,and agency and
investigative activities, ($440,000), and the general operating
losses, including indirect labor, materials and supplies, incurred
in conjunction with the above actions ($677,000). The remaining
liability represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $696,000 (see
Note 9 to Notes to Consolidated Financial Statements), future
operating losses to be incurred by PFM as it completes such closure
and remedial activities over the next five (5) year period
($403,000) and the potential PRP liability of $75,000 as further
discussed in Note 12 to Notes to Consolidated Financial Statements.
Revenues of the discontinued PFM operations were $1,878,000 in
1997. 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
26
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 $4,000,000 for 2000
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
2000 an additional $1,656,000 in environmental expenditures to
comply with federal, state and local regulations in connection with
remediation of certain contaminates at four locations. As
previously discussed under "Business -- Capital Spending, Certain
Environmental Expenditures and Potential Environmental
Liabilities," the four 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, PFM's
facility in Memphis, Tennessee, CCG's facility in Valdosta, Georgia
and CM's facility in Detroit, Michigan. We have estimated the
expenditures for 2000 to be approximately $254,000 at the EPS site,
$265,000 at the PFM location, $499,000 at the CCG site and $638,000
at the CM site. Additional funds will be required for the next
five to ten years to properly investigate and remediate these
sites. We expect to fund these expenses to remediate these four
sites from funds generated internally, however, no assurances can
be made that we will be able to do so.
Recent Accounting Pronouncements
In June, 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS
133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. FAS 133 as amended by FAS 137 is effective for
periods beginning after June 15, 2000. Historically, we have not
entered into derivative contracts. Accordingly, FAS 133 is not
expected to affect our financial statements.
27
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 continue and improve
operations and profitability on an annualized basis 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 facilities in
Memphis, Tennessee; Valdosta, Georgia and Detroit Michigan, (viii)
ability to remediate certain contaminated sites for projected
amounts, (ix) "Year 2000" computer issues, (x) the Oak Ridge
Contracts (as defined), (xi) anticipated revenues resulting from
the Oak Ridge Contracts and completion of the scope of work with
M&EC (as defined) 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, (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 facilities at Memphis, Tennessee;
Valdosta, Georgia and Detroit Michigan, 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
continue profitability or if not 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) inability of the Company and M&EC to finalize the
scope of work documents relating to the Oak Ridge Contracts, (xx)
the actual volume of waste to be received under the Oak Ridge
Contracts, (xxi) a determination that the amount of work to be
performed by the Company under the Oak Ridge Contracts is less than
anticipated, (xxii) the inability of the Company to perform the
work assigned to it under the Oak Ridge Contracts in a profitable
manner, (xxiii) 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,
(xxiv) the inability of the Company to maintain the listing of its
Common Stock on the NASDAQ, and (xxv) the determination that CM or
CCC were responsible for a material amount of remediation at
certain Superfund sites. The Company undertakes no obligations to
update publicly any forward-looking statement, whether as a result
of new information, future events or otherwise.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to certain market risks arising from adverse
changes in interest rates, primarily due to the potential effect of
such changes on the Company's variable rate loan arrangements with
Congress, as described under Note 7 to Notes to Consolidated
Financial Statements.
28
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 30
Consolidated Balance Sheets as of December 31, 1999 and 1998 31
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 33
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 34
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1999, 1998 and 1997 35
Notes to Consolidated Financial Statements 36
Financial Statement Schedules:
_____________________________
II Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997 83
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.
29
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, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1999, 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 16, 2000
30
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
Amounts in Thousands, Except for Share Amounts) 1999 1998
______________________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 771 $ 776
Restricted cash equivalents and investments 73 111
Accounts receivable, net of allowance for
doubtful accounts of $952 and $313,
respectively 13,027 5,950
Inventories 229 145
Prepaid expenses 486 471
Other receivables 62 11
Assets of discontinued operations 377 489
________ ________
Total current assets 15,025 7,953
Property and equipment:
Buildings and land 12,555 5,804
Equipment 13,682 8,606
Vehicles 2,274 941
Leasehold improvements 16 16
Office furniture and equipment 1,223 782
Construction in progress 1,210 1,592
________ ________
30,960 17,741
Less accumulated depreciation (7,690) (5,836)
________ _________
Net property and equipment 23,270 11,905
Intangibles and other assets:
Permits, net of accumulated amortization of
$1,504 and $1,088, respectively 8,544 3,661
Goodwill, net of accumulated amortization
of $1,009 and $751, respectively 7,154 4,698
Other assets 651 531
_________ ________
Total assets $ 54,644 $ 28,748
========= ========
The accompanying notes are an integral part of these
consolidated financial statements.
31
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(Amounts in Thousands, Except for Share Amounts) 1999 1998
________________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,587 $ 2,422
Accrued expenses 5,885 3,369
Revolving loan and term note facility 938 625
Current portion of long-term debt 1,427 302
Current liabilities of discontinued operations 588 863
_________ _________
Total current liabilities 16,425 7,581
Environmental accruals 3,847 520
Accrued closure costs 962 715
Long-term debt, less current portion 12,937 2,087
Long term liabilities of discontinued operations 654 1,892
_________ _________
Total long-term liabilities 18,400 5,214
_________ _________
Total liabilities 34,825 12,795
Commitments and contingencies (see Notes 4, 7, 9 and 12) - -
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares
authorized, 4,537 and 9,850 shares issued and
outstanding, respectively - -
Common Stock, $.001 par value; 50,000,000 shares
authorized, 21,501,776 and 13,215,093 shares issued,
including 988,000 and 943,000 shares held as treasury
stock, respectively 21 13
Redeemable warrants - 140
Additional paid-in capital 42,367 39,769
Accumulated deficit (20,707) (22,157)
________ _______
21,681 17,765
Less Common Stock in treasury at cost; 988,000 and
943,000 shares issued and outstanding, respect-
ively (1,862) (1,812)
________ ________
Total stockholders' equity 19,819 15,953
________ ________
Total liabilities and stockholders' equity $ 54,644 $ 28,748
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
32
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(Amounts in Thousands, Except for Share Amounts) 1999 1998 1997
_____________________________________________________________________________________________
Net revenues $ 46,464 $ 30,551 $ 28,413
Cost of goods sold 31,271 21,064 19,827
__________ ___________ ___________
Gross profit 15,193 9,487 8,586
Selling, general and administrative expenses 10,299 6,847 5,682
Depreciation and amortization 2,778 2,109 1,980
__________ ___________ ___________
Income from operations 2,116 531 924
Other income (expense):
Interest income 50 35 41
Interest expense (650) (294) (431)
Other 54 190 (342)
__________ ___________ ___________
Net income from continuing operations 1,570 462 192
Discontinued Operations:
Loss from operations - - (1,048)
Loss on disposal - - (3,053)
__________ ___________ __________
Loss from discontinued operations - - (4,101)
Net income (loss) 1,570 462 (3,909)
Preferred Stock dividends (308) (1,160) (1,260)*
Gain on Preferred Stock Redemption 188 - -
___________ ____________ __________
Net income (loss) applicable to
Common Stock $ 1,450 $ (698) $ (5,169)*
=========== ============ ===========
_______________________________________________________________________________
Basic net income (loss) per common share:
Continuing operations $ .08 $ (.06) $ (.10)
Discontinued operations - - (.39)
__________ ___________ __________
Net income (loss) per common share $ .08 $ (.06) $ (.49)*
========== =========== ==========
Diluted net income (loss) per common share:
Continuing operations $ .07 $ (.06) $ (.10)
Discontinued operations - - (.39)
__________ ___________ __________
Net income (loss) per common share $ .07 $ (.06) $ (.49)*
========== =========== =========
Weighted average number of shares and
potential common shares used in
computing net income (loss) per share:
Basic 17,488 12,028 10,650
========= ========== ========
Diluted 21,224 12,028 10,650
========= ========== ========
*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).
The accompanying notes are an integral part of
these consolidated financial statements
33
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(Amounts in Thousands) 1999 1998 1997
______________________________________________________________________________________________________
Cash flows from operating activities:
Net income from continuing operations $ 1,570 $ 462 $ 192
Adjustments to reconcile net income from continuing
operations to cash provided by (used in) operations:
Depreciation and amortization 2,778 2,109 1,980
Loss on impairment of assets - - 371
Provision for bad debt and other reserves 126 61 133
(Gain) loss on sale of plant, property and equipment (30) (24) 21
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable (3,126) (715) (770)
Prepaid expenses, inventories and other assets (218) 1,341 303
Accounts payable and accrued expenses (78) 194 (809)
________ _______ _______
Net cash provided by continuing operations 1,022 3,428 1,421
Net cash used in discontinued operations (1,285) (1,594) (1,398)
Cash flows from investing activities:
Purchases of property and equipment, net (1,834) (1,990) (1,504)
Proceeds from sale of plant, property and equipment 238 53 54
Change in restricted cash, net 1,042 192 (30)
Cash used for acquisition consideration (1,000) - -
Net cash used for acquisition settlements (1,616) - -
Net cash used by discontinued operations (47) (4) (41)
________ ________ ________
Net cash used in investing activities (3,217) (1,749) (1,521)
Cash flows from financing activities:
Net borrowings (repayments) of revolving loan and
term note facility 5,060 (2,140) (743)
Principal repayments on long-term debt (861) (320) (938)
Redemption of Preferred Stock (750) - -
Proceeds from issuance of stock 143 2,941 3,480
Purchase of treasury stock (50) (42) -
Net cash used by discontinued operations (22) (74) (20)
_________ _______ ________
Net cash provided by financing activities 3,520 365 1,779
Increase in cash and cash equivalents 40 450 281
Cash and cash equivalents at beginning of period,
including discontinued operations of $0, $12,
and $8, respectively 776 326 45
_________ _______ ________
Cash and cash equivalents at end of period,
including discontinued operations of $45, $0,
and $12, respectively $ 816 $ 776 $ 326
========= ======= ==========
________________________________________________________________________________________________________
Supplemental disclosure:
Interest paid $ 942 $ 555 $ 710
Dividends paid 205 - -
Non-cash investing and financing activities:
Issuance of Common Stock for services 40 241 76
Long-term debt incurred for purchase of property
and equipment, including discontinued operations
of $31 in 1997 826 564 294
Long-term debt incurred for acquisition 4,700 - -
Issuance of stock for payment of dividends 221 358 314
Issuance of Common Stock for acquisition 3,000 207 -
The accompanying notes are an integral part of these consolidated
financial statements
34
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31
Common
Additional Accumu- Stock
(Amounts in Thousands, Preferred Stock Common Stock Redeemable Paid-In lated Held in
Except for share Amounts) Shares Amount Shares Amount Warrants Capital Deficit Treasury
________________________________________________________________________________________________________________
Balance at December 31, 1996 5,500 $ - 10,399,947 $ 10 $ 140 $ 30,495 $ (16,290) $ (1,770)
Net loss - - - - - - (3,909) -
Preferred Stock dividend - - - - - 908 (1,260) -
Issuance of Common Stock for
preferred stock dividend - - 178,781 - - 314 - -
Issuance of stock for cash and
services - - 128,271 - - 96 - -
Exercise of warrants - - 794,514 1 - 932 - -
Conversion of Series 3 Preferred
Stock to Common Stock (1,500) - 1,027,974 1 - (1) - -
Option Exercise - - 11,000 - - 11 - -
Issuance of Preferred Stock
for cash 2,850 - - - - 2,516 - -
______ ______ __________ ______ _____ ________ _______
Balance at December 31, 1997 6,850 $ - 12,540,487 $ 12 $ 140 $ 35,271 $(21,459) $(1,770)
====== ====== ========== ====== ====== ======== ======= =======
Net income - - - - - - 462 -
Preferred Stock dividends - - - - - 750 (1,160) -
Issuance of Common Stock for
Preferred Stock dividend - - 175,825 - - 358 - -
Issuance of Preferred Stock 3,000 - - - - 2,653 - -
Issuance of Common Stock
for acquisition - - 108,207 - - 207 - -
Issuance of stock for cash and
services - - 174,474 - - 274 - -
Exercise of warrants - - 215,100 1 - 255 - -
Option Exercise - - 1,000 - - 1 - -
Redemption of common shares
to treasury stock - - - - - - - (42)
______ ______ __________ ______ ______ ________ _______ _______
Balance at December 31, 1998 9,850 $ - 13,215,093 $ 13 $ 140 $ 39,769 $(22,157) $(1,812)
====== ====== ========== ====== ====== ========= ======== =======
Net income - - - - - - 1,570 -
Preferred Stock dividends - - - - - - (308) -
Gain on Preferred Stock redemption - - - - - (188) 188 -
Issuance of Common Stock for
Preferred Stock dividend - - 152,494 - - 221 - -
Issuance of Common Stock in
exchange for warrants - - 200,000 - - - - -
Issuance of Common Stock
for acquisition - - 1,594,967 2 - 2,998 - -
Issuance of stock for cash and
services - - 81,560 - - 90 - -
Conversion of Preferred Stock
to Common (4,563) - 6,119,135 6 - (6) - -
Redemption of Preferred Stock (750) - - - - (750) - -
Redemption of Common Stock
to Treasury Stock - - - - - - - (50)
Exercise of warrants - - 97,227 - - 48 - -
Option Exercise - - 41,300 - - 45 - -
Expiration of redeemable warrants - - - - (140) 140 - -
_____ _______ __________ _____ ______ ______ _________ _______
Balance at December 31, 1999 4,537 $ - 21,501,776 $ 21 $ - $42,367 $ (20,707) $(1,862)
===== ======= ========== ====== ====== ======= ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
35
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
______________________________________________________
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. Such research and development expenses,
although important, are not considered material.
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 1997 and 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")
and, Perma-Fix of Ft. Lauderdale, Inc. ("PFL"). Effective June 1,
1999, we acquired Chemical Conservation Corporation ("CCC"),
Chemical Conservation of Georgia, Inc. ("CCG") and Chem-Met
Services, Inc. ("CM"), which have been included in our consolidated
financial statement in 1999, from the date of acquisition. 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 for further discussion on this discontinued operation.
____________________________________________________
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.
36
Reclassifications
Certain prior year amounts have been reclassified to conform with
the 1999 presentation.
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.
See Note 9 for management estimates of closure costs and
environmental liabilities. 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. There were no cash equivalents at
December 31, 1999.
Restricted Cash Equivalents and Investments
Restricted cash equivalents and investments for continuing
operations, which are classified as current assets, decreased
$38,000 to a balance of $73,000 as of December 31, 1999, as
compared to December 31, 1998. During 1999, we replaced a
restricted trust fund for the financial guarantee of the PFD TSD
facility, with an uncollateralized surety bond which resulted in
this decrease in restricted cash. In addition to these current
assets, a trust fund of $401,000 is classified as a long term asset
as of December 31, 1999, as compared to $383,000 as of December 31,
1998. These restricted instruments reflect secured collateral
relative to the various financial assurance instruments
guaranteeing the standard RCRA closure bonding requirements for the
CM 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 $265,000 as of December 31,
1999. This restricted cash amount is reported in current assets of
discontinued operations, and includes a trust fund for $110,000 and
certificates of deposit for $155,000. 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
37
processing equipment. Maintenance and repairs are charged directly
to expense as incurred. The cost and accumulated depreciation of
assets sold or retired are removed from the respective accounts,
and any gain or loss from sale or retirement is recognized in the
accompanying consolidated statements of operations. Renewals and
improvements which extend the useful lives of the assets are
capitalized.
Intangible Assets
Intangible assets relating to acquired businesses consist primarily
of the cost of purchased businesses in excess of the estimated fair
value of net assets acquired ("goodwill") and the recognized permit
value of the business. Goodwill is generally amortized over 20 to
40 years and permits are amortized over 20 years. Amortization
expense approximated $675,000, $429,000 and $388,000 for the years
ended 1999, 1998 and 1997, respectively. This increase principally
reflects the additional amortization expense resulting from the
acquisition of CCC, CCG and CM, in the aggregate amount of
$231,000. 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 1999 was approximately
$1,093,000, as compared to $807,000 and $663,000 for 1998 and 1997,
respectively. This increase principally reflects the additional
claim expense resulting from the acquisition of CCC, CCG and CM
effective June 1, 1999.
Net Income (Loss) Per Share
The Company adopted Financial Accounting Standards Board Statement No.
128, "Earnings per Share" ("SFAS No. 128") effective December 31, 1997.
SFAS No. 128 requires presentation of both Basic Earnings per share
("Basic EPS") and Diluted Earnings per share ("Diluted EPS"). Basic EPS
is based on the weighted average number of shares of Common Stock
outstanding during the year. Diluted EPS also includes the dilutive
effect of potential common shares. Diluted loss per share for the
years ended December 31, 1998 and 1997 do not include potential common
shares as their effect would be anti-dilutive.
38
The following is a reconciliation of basic net income (loss) per share
to diluted net income (loss) per share for the years ended December 31,
1999, 1998 and 1997:
Amounts in Thousands,
Except for Share Amounts 1999 1998 1997
______________________________________________________________________________
Net income (loss) applicable to
Common Stock - basic $ 1,450 $ (698) $(5,169)
Effect of dilutive securities:
Preferred Stock dividends 308 - -
Gain on Preferred Stock redemption (188) - -
_______ _______ ______
Net income (loss) applicable to
Common Stock - diluted $ 1,570 $ (698) $(5,169)
======= ======= =======
Basic net income (loss) per share $ .08 $ (.06) $ (.49)
======= ======= =======
Diluted net income (loss) per share $ .07 $ (.06) $ (.49)
======= ======= ========
Weighted average shares outstanding-basic 17,488 12,028 10,650
Potential shares exercisable under stock
option plans 505 - -
Potential shares upon exercise of
warrants 160 - -
Potential shares upon conversion of
Preferred Stock 3,071 - -
________ ________ _______
Weighted average shares outstanding-diluted 21,224 12,028 10,650
======== ======== ========
The above reconciliation excludes 659,949 options and 4,962,463 warrants not
considered in the above calculation because they were anti-dilutive.
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, 1999 and 1998.
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, 2000. Historically, we have not entered into
derivative contracts. Accordingly, FAS 133, as amended by FAS 137
is not expected to affect our financial statements.
______________________________________________________
NOTE 3
RESTATEMENT OF 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
39
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,
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)
__________________________________________________________
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.
40
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 of $1,048,000 for
the year ended December 31, 1997 is 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
during 1997, 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
1999 and 1998, totaling $677,000 and $653,000, respectively, relate
to the closure and remedial activities performed, and have been
recorded against the accrued environmental reserve. Also recorded
to the closure cost reserve is interest expense of $306,000 and
$213,000 specifically identified to the PFM discontinued operations
as a result of such operations incurring debt under the Company's
revolving and term loan credit facility. During March of 1998, the
Company received a settlement in the amount of $1,475,000 from its
insurance carrier for the business interruption claim which is
recorded as an insurance claim receivable at December 31, 1997.
This settlement was recognized as a gain in 1997 and thereby
reduced the net loss recorded for the discontinued PFM operations
in 1997. Earlier in 1997, PFM received approximately $522,000
(less its deductible of $25,000) in connection with its claim for
loss of contents as a result of the fire and explosion which was
utilized to replace certain assets and reimburse the Company for
certain fire related expense.
Revenues of the discontinued PFM operations were $1,878,000 in
1997. 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:
1999 1998
______ _____
Current assets of discontinued operations:
Cash and cash equivalents $ 45 $ -
Restricted cash equivalents and investments 265 218
Accounts receivable, net of allowance
for doubtful accounts of $0 and $104,
respectively 64 260
Prepaid expenses and other assets 3 11
______ ______
$ 377 $ 489
====== ======
Current liabilities of discontinued operations:
Accounts payable $ 30 $ 100
Accrued expenses 34 126
Accrued environmental costs 520 613
Current portion of long-term debt 4 24
_______ ______
$ 588 $ 863
======= ======
Long-term liabilities of discontinued operations:
Long-term debt, less current portion $ - $ 4
Accrued environmental and closure costs 654 1,888
_______ _______
$ 654 $ 1,892
======= =======
The accrued environmental and closure costs related to PFM totals
$1,174,000 as of December 31, 1999, a decrease of $1,327,000 from
the December 31, 1998, accrual balance. This reduction was
principally a result of the specific costs related to the
decommissioning and closure of the fuel blending tank farm and
related processing equipment ($60,000), partial payment of PRP
liability settlement ($150,000), general closure and remedial
41
activities, including groundwater remediation,and agency and
investigative activities, ($440,000), and the general operating
losses, including indirect labor, materials and supplies, incurred
in conjunction with the above actions ($677,000). The remaining
liability represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $696,000 (see
Note 9), future operating losses to be incurred by PFM as it
completes such closure and remedial activities over the next five
(5) year period ($403,000) and the potential PRP liability of
$75,000 as further discussed in Note 12.
_____________________________________________________
NOTE 5
ACQUISITIONS
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
in April 1998 and the subsequent issuance of 94,967 shares of the
Company's Common Stock in July 1999 reflecting a total purchase price of
$207,000.
On May 27, 1999, (i) the Company, Chemical Conservation
Corporation; a Florida corporation ("CCC"); Chemical Conservation
of Georgia, Inc., a Georgia corporation ("CCG"); The Thomas P.
Sullivan Living Trust, dated September 6, 1978 ("TPS Trust"); The
Ann L. Sullivan Living Trust, dated September 6, 1978 ("ALS
Trust"); Thomas P. Sullivan, an individual ("TPS"); and Ann L.
Sullivan, an individual ("ALS"), entered into a Stock Purchase
Agreement ("Chem-Con Stock Purchase Agreement"), wherein the
Company agreed to purchase all of the outstanding capital stock of
CCC and CCG from the ALS Trust pursuant to the terms of the
Chem-Con Stock Purchase Agreement, and (ii) the Company, Chem-Met
Services, Inc., a Michigan corporation ("CM"), the TPS Trust, the
ALS Trust, TPS and ALS entered into a Stock Purchase Agreement
("Chem-Met Stock Purchase Agreement"), whereby the Company agreed
to purchase all of the outstanding capital stock of CM from the TPS
Trust pursuant to the terms of the Chem-Met Stock Purchase
Agreement. The Chem-Con Stock Purchase Agreement and the Chem-Met
Stock Purchase Agreement are collectively referred to as the "Stock
Purchase Agreements." CCC and CCG are collectively referred to as
"Chem-Con." TPS and ALS are husband and wife.
On May 27, 1999, the Stock Purchase Agreements and related
transaction documents ("Documents") were executed and placed into
escrow pending satisfaction of certain conditions precedent to
closing. On June 1, 1999, the conditions precedent to closing of
the Stock Purchase Agreements were completed, the Stock Purchase
Agreements were consummated and the Documents were released from
escrow.
Under the terms of the Stock Purchase Agreements, the purchase
price paid by the Company in connection with the acquisition of
CCC, CCG and CM was $8,700,000, consisting of (i) $1,000,000 in cash
paid at closing, (ii) three promissory notes ("Promissory Notes"),
in the aggregate amount of $4,700,000, to be paid in equal monthly
installments of principal and interest of approximately $90,000
over five years and having an interest rate of 5.5% for the first
three years and 7% for the remaining two years, with payment of
such Promissory Notes being guaranteed by CM under a non-recourse
guaranty, which non-recourse guaranty is secured by certain real
estate owned by CM, and (iii) $3,000,000 paid in the form of
1,500,000 shares of Perma-Fix Common Stock, par value $.001 per
share ("Common Stock"), paid to the ALS Trust at closing; however,
if the ALS Trust owns any of such shares of Common Stock at the end
of eighteen (18) months from the June 1, 1999, closing date (the
"Guarantee Period") and the market value (as determined below) per
share of Common Stock at the end of the Guarantee Period is less
than $2.00 per share, the Company shall pay the ALS Trust, within
42
ten (10) business days after the end of the Guarantee Period, an
amount equal to the sum determined by multiplying the number of
shares of Common Stock issued to the ALS Trust under the Stock
Purchase Agreements that are still owned by the ALS Trust at the
end of the Guarantee Period by $2.00 less the market value (as
determined below) of such shares of Common Stock owned by the ALS
Trust at the end of the Guarantee Period, with such amount, if any,
payable by the Company to the ALS Trust, at the Company's option,
in cash or in Common Stock or a combination thereof.
Notwithstanding anything to the contrary, the aggregate number of
shares of Common Stock issued or issuable under the Stock Purchase
Agreements for any reason whatsoever shall not exceed eighteen
percent (18%) of the number of issued and outstanding shares of
Common Stock on the date immediately preceding the June 1, 1999,
closing date. The market value of each share of Common Stock at
the end of the Guarantee Period shall be determined based on the
average of the closing sale price per share of Common Stock as
reported on the NASDAQ SmallCap Market ("NASDAQ") for the five (5)
consecutive trading days ending with the trading day immediately
prior to the end of the Guarantee Period. Under the Company's loan
agreement, the Company may only pay any such amount due the ALS
Trust at the end of the Guarantee Period in Common Stock unless the
lender agrees that the Company may satisfy all or part of such in
cash.
The cash portion of the purchase price for CCC, CCG and CM was
obtained through borrowing from the Company's primary lender,
Congress Financial Corporation (Florida) ("Congress"), as described
below. The Company anticipates that the Promissory Notes will be
paid with working capital generated from operations and/or
borrowing under the Company's revolving credit facility with
Congress. In connection with the closing, using funds borrowed from
Congress, the Company paid an aggregate of approximately $3,843,000
to satisfy certain obligations of CM.
The acquisition was accounted for using the purchase method
effective June 1, 1999, and accordingly, the assets and liabilities
as of this date are included in the accompanying consolidated
financial statements. As of December 31, 1999, the Company has
performed a preliminary purchase price allocation based upon
information available as of this date. Accordingly, the purchase
price has been preliminarily allocated to the net assets acquired
and net liabilities assumed based on their estimated fair values.
Included in this preliminary allocation were acquired assets of
approximately $15,831,000 and assumed liabilities of approximately
$15,039,000, against total consideration of $8,700,000. This
preliminary allocation has resulted in goodwill and intangible
permits of $2,714,000 and $5,194,000, respectively. The goodwill
and intangible permits are being amortized on a straight line basis
over 20 years. The results of the acquired businesses have been
included in the consolidated financial statements since the date of
acquisition. The audited combined net revenues of CCC, CCG and CM
for the fiscal year ended September 30, 1998, were, in the aggregate,
approximately $21.8 million.
We accrued for the estimated closure costs, determined pursuant to
RCRA guidelines, for the three regulated facilities acquired. This
accrual, recorded at $218,000, represents the potential future
liability to close and remediate such facilities, should such a
cessation of operations ever occur. We also recognized long-term
environmental accruals totaling $4,319,000. This amount represents
the Company's estimate of the long-term costs to remove
contaminated soil and to undergo groundwater remediation activities
at two of the CCG/CM acquired facilities, Valdosta, Georgia and
Detroit, Michigan. Both facilities have pursued remedial
activities for the last five years with additional studies
forthcoming and potential groundwater restoration could extend for
a period of ten years. No insurance or third party recovery was
taken into account in determining our cost estimates or reserve,
nor do our cost estimates or reserve reflect any discount for
present value purposes.
At the date of acquisition, we also initiated the payoff of a Small
Business Administration ("SBA") loan, in the full amount of
$971,000. Prior to the acquisition, as required by a loan
agreement between the SBA and the previous owners ("SBA Loan
Agreement"), the previous owners had placed approximately $331,000
of restricted cash into an SBA trust account. Pursuant to the
acquisition and terms of the SBA Loan Agreement, we placed the
remaining payoff amount ($640,000) into the SBA trust account
(restricted cash), thereby fully funding the loan repayment. The
SBA loan repayment process requires various filings and
notifications which take approximately sixty days, at which time
funds are withdrawn from the trust account. Effective August 1,
1999, restricted cash was withdrawn from the SBA trust account and
the SBA loan was repaid in full.
43
The principal businesses of CCC, CCG and CM are the collection,
treatment, and recycling of industrial and hazardous waste,
including waste oils, water and miscellaneous solid waste. CCC
operates a permitted treatment and storage facility and transfer
station that also serves as the base for a private trucking fleet;
CCG treats hazardous waste and recycles solvents and CM treats and
stabilizes inorganic wastes and maintains a government services
division that is focused principally on the Defense Revitalization
and Marketing Services market. The Company intends to continue
using the Chem-Con and CM facilities for substantially the same
purposes as such were being used prior to the acquisition by the
Company.
The following unaudited pro forma information presents the
consolidated statement of operations of the company as if the
acquisition had taken place on January 1, 1998. CCC, CCG and CM
were on a September 30 fiscal year-end and therefore, their results
for the year ended September 30, 1998, have been consolidated with
our results for the year ended December 31, 1998. Correspondingly,
CCC's, CCG's and CM's results for the twelve months ended December 31,
1999, have been consolidated with our results for the twelve months
ended December 31, 1999.
Year End December 31,
(Amounts in thousands, _____________________
except per share amounts) 1999 1998
___________________________________________________________________________
Net revenues $ 55,115 $ 52,352
Net income (loss) applicable to Common Stock 728 (1,046)
Net income (loss) per share .04 (.08)
Weighted average number of common
shares outstanding 18,063 13,528
These unaudited pro forma results have been prepared for
comparative purposes only and include certain adjustments, such as
additional amortization expense as a result of goodwill and
intangible permits and increased interest expense on acquisition
related debt. They do not purport to be indicative of the results
of operations that actually would have resulted on the date
indicated, or which may result in the future.
______________________________________________________
NOTE 6
PREFERRED STOCK ISSUANCE AND CONVERSION
As of January 1, 1999, 9,850 shares of the Company's preferred
stock were issued and outstanding. During 1999, 4,563 of such
shares were converted into 6,119,135 shares of Common Stock and 750
shares of preferred stock were redeemed by the Company, leaving
4,537 shares of preferred stock issued and outstanding as of
December 31, 1999.
The Preferred Stock issuances and activity for the year ended
December 31, 1999, are as follows:
Preferred Converted
Stock Dividend Preferred Common
Preferred Stock Description Holder Rate Shares Shares
___________________________ __________ ________ _________ _________
Series 14 (Exchanged for Series 3 and 11) RBB Bank 6%
Balance at December 31, 1998 4,000
Conversion - April 1999 (2,231) 3,090,563
_______
Balance at December 31, 1999 1,769
=======
Series 15 (Exchanged for Series 4,6,8, and 12) RBB Bank 4%
Balance at December 31, 1998 2,500
Conversion - April 1999 (1,584) 2,057,143
Redemption - July 1999 (300)
_______
Balance at December 31, 1999 616
=======
44
Series 16 (Exchanged for Series 10 and 13) RBB Bank 4%
Balance at December 31, 1998 3,000
Conversion - April 1999 (748) 971,429
Redemption - July 1999 (450)
_______
Balance at December 31, 1999 1,802
=======
Series 9 (Exchanged for Series 5 and 7) Infinity Fund 4%
Balance at December 31, 1999 and 1998 350
=======
Series 3 Preferred/Series 11 Preferred/Series 14 Preferred
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 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 "Securities
Act"). The Series 3 Preferred had a liquidation preference over the
Common Stock equal to $1,000 consideration per outstanding share of
Series 3 Preferred, plus an amount equal to all unpaid dividends
accrued thereon. As of January 1, 1999, 4,000 shares of Series 3
Preferred remained issued and outstanding as a result of prior
conversions of the Series 3 Preferred. On April 20, 1999, the
holder of the Series 3 Preferred converted 2,231 shares of the
Series 3 Preferred into 3,090,563 shares of Common Stock of the
Company, leaving 1,769 shares of Series 3 Preferred issued and
outstanding.
On July 15, 1999, the Company exchanged the 1,769 outstanding
shares of Series 3 Preferred, all of which were held by RBB Bank,
for an equal number of shares of newly created Series 11 Class K
Convertible Preferred Stock par value $.001 per share ("Series 11
Preferred"). On August 3, 1999, the Company exchanged the 1,769
outstanding shares of Series 11 Preferred, all of which were held
by RBB Bank, for an equal number of shares of newly created Series
14 Class N Convertible Preferred Stock par value $.001 per share
("Series 14 Preferred"). The exchanges were made in private
placements under Section 4(2) and/or Section 3(a)(9) of the
Securities Act. The terms of the Series 11 Preferred and Series 14
Preferred are substantially the same as the terms of the Series 3
Preferred.
The Series 3 Preferred, Series 11 Preferred and Series 14 Preferred
each accrue dividends on a cumulative basis at a rate of six
percent (6%) per annum, which dividends are payable semi-annually
when and as declared by the Board of Directors. Dividends are
paid, at the Company's option, in the form of cash or Common Stock.
During 1999, accrued dividends on the Series 3 Preferred, Series 11
Preferred and Series 14 Preferred in the combined total of
approximately $106,000 were paid in the form of 79,422 shares of
Common Stock of the Company, of which 46,781 shares were issued in
February 2000. Dividends on converted shares of approximately
$40,000 were paid in cash.
The 1,769 shares of Series 14 Preferred which were issued and
outstanding as of December 31, 1999, are convertible from
April 20, 2000 until April 20, 2001, into 1,179,333 shares of
Common Stock of the Company based upon a fixed conversion price of
$1.50 per share. After April 20, 2001, the conversion price is
based on 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 minimum
conversion price is $.50 per share and the maximum conversion price
is $1.50 per share, with the minimum conversion price to be reduced
by $.25 per share each time, if any, the Company sustains a net
loss, on a consolidated basis, in each of two (2) consecutive
quarters. The Series 14 Preferred are redeemable by the Company
from April 20, 2000 until April 20, 2001 for $1,100 per share.
45
Series 8 Preferred/Series 12 Preferred/Series 15 Preferred
On or about February 28, 1998, the Company issued to RBB Bank
2,500 shares of newly-created Series 8 Class H Preferred Stock, par
value $.001 per share ("Series 8 Preferred") in exchange for 2,500
shares of Series 6 Class F Preferred Stock, par value $.001 per
share ("Series 6 Preferred") which had been issued to RBB Bank in
1997. The Series 6 Preferred, along with certain warrants allowing
the purchase of 375,000 shares of Common Stock at an exercise price
of $1.8125 per share and the purchase of 281,250 shares of Common
Stock at the exercise price of $2.125 per share had been issued to
RBB Bank in exchange for an equal number of shares of Series 4
Class D Preferred Stock, par value $.001 per share ("Series 4
Preferred") and warrants allowing the purchase of 187,500 shares of
Common Stock at an exercise price of $2.10 per share and the
purchase of 187,500 shares of Common Stock at the exercise price of
$2.50 per share.
The Series 8 Preferred had a liquidation preference over the Common
Stock equal to $1,000 consideration per outstanding share of Series
8 Preferred, plus an amount equal to all unpaid dividends accrued
thereon. As of January 1, 1999, 2,500 shares of Series 8 Preferred
remained issued and outstanding. On April 20, 1999, the holder of
the Series 8 Preferred converted 1,584 shares of the Series 8
Preferred into 2,057,143 shares of Common Stock of the Company,
leaving 916 shares of Series 8 Preferred issued and outstanding.
On July 15, 1999, (i) the outstanding shares of Series 8 Preferred,
all of which were held by RBB Bank, were exchanged for an equal
number of shares of newly created Series 12 Class L Convertible
Preferred Stock, par value $.001 per share ("Series 12 Preferred"),
and (ii) 300 shares of Series 12 Preferred were redeemed by the
Company for $1,000 per share, leaving 616 shares of Series 12
Preferred issued and outstanding. On August 3, 1999, the 616
outstanding shares of Series 12 Preferred, all of which were held
by RBB Bank, were exchanged for an equal number of shares of newly
created Series 15 Class O Convertible Preferred Stock, par value
$.001 per share ("Series 15 Preferred"). The exchanges were made
in private placements under Section 4(2) and/or Section 3(a)(9) of
the Securities Act. The terms of the Series 12 Preferred and
Series 15 Preferred are substantially the same as the terms of the
Series 8 Preferred.
The Series 8 Preferred, Series 12 Preferred and Series 15 Preferred
each accrue dividends on a cumulative basis at a rate of four
percent (4%) per annum which dividends are payable semi-annually
when and as declared by the Board of Directors. During 1999,
accrued dividends on the Series 8 Preferred, Series 12 Preferred
and Series 15 Preferred, in the combined total of approximately
$25,000 were paid in the form of 18,438 shares of Common Stock of
the Company, of which 10,860 shares were issued in February 2000.
Dividends on converted shares and redeemed shares in the combined
total of approximately $25,000 were paid in cash.
The 616 shares of Series 15 Preferred which were issued and
outstanding as of December 31, 1999, are convertible at a
conversion price of the lesser of (a) the product of the average
closing bid quotation of the Common Stock for the five (5) trading
days immediately preceding the conversion date multiplied by eighty
percent (80%) or (b) $1.6875. However, from April 20, 2000 until
April 20, 2001, there is a minimum conversion price of $1.50 per
share for the Series 15 Preferred. Conversion at such minimum
conversion price would result in the issuance of approximately
410,667 shares of Common Stock. After April 20, 2001, the Series
15 Preferred has no minimum conversion price. The Series 15
Preferred are redeemable by the Company from April 20, 2000 until
April 20, 2001 for $1,100 per share.
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 of the
Preferred Stock. 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,
we recognized a dividend in 1997 of approximately $798,000 as
related to the issuance of the Series 4 Preferred, and Series 6
Preferred and the related warrants.
46
Series 10 Preferred/Series 13 Preferred/Series 16 Preferred
On or about June 30, 1998, the Company issued to RBB Bank 3,000
shares of newly-created Series 10 Class J Preferred Stock, par
value $.001 per share ("Series 10 Preferred") at a price of $1,000
per share in a private placement under Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D under the Securities
Act. The Series 10 Preferred has a liquidation preference over the
Common Stock equal to $1,000 consideration per outstanding share of
Series 10 Preferred, plus an amount equal to all unpaid dividends
accrued thereon. As of January 1, 1999, there were 3,000 shares of
Series 10 Preferred which were issued and outstanding. On April 20,
1999, the holder of the Series 10 Preferred converted 748
shares of Series 10 Preferred into 971,429 shares of Common Stock,
leaving 2,252 shares of Series 10 Preferred issued and outstanding.
On July 15, 1999, (i) the outstanding shares of Series 10
Preferred, all of which were held by RBB Bank, were exchanged for
an equal number of shares of newly created Series 13 Class M
Convertible Preferred Stock, par value $.001 per share ("Series 13
Preferred"), and (ii) 450 shares of Series 13 Preferred were
redeemed by the Company for $1,000 per share, leaving 1,802 shares
of Series 13 Preferred issued and outstanding. On August 3, 1999,
the 1,802 outstanding shares of Series 13 Preferred, all of which
were held by RBB Bank, were exchanged for an equal number of shares
of newly created Series 16 Class P Convertible Preferred Stock, par
value $.001 per share ("Series 16 Preferred"). The exchanges were
made in private placements under Section 4(2) and/or Section
3(a)(9) of the Securities Act. The terms of the Series 13
Preferred and Series 16 Preferred are substantially the same as the
terms of the Series 10 Preferred.
The Series 10 Preferred, Series 13 Preferred and Series 16
Preferred each accrue dividends on a cumulative basis at a rate of
four percent (4%) per annum which dividends are payable semi-
annually when and as declared by the Board of Directors. During
1999, accrued dividends on the Series 10 Preferred, Series 13
Preferred and Series 16 Preferred, in the combined total of
approximately $72,000 were paid in the form of 53,936 shares of
Common Stock of the Company, of which 31,769 shares were issued
in February 2000. Dividends on converted shares and redeemed
shares in the combined total of approximately $19,000 were
paid in cash.
The 1,802 shares of Series 16 Preferred which were issued and
outstanding as of December 31, 1999, are convertible at a
conversion price of $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 was 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 is less than $2.34, then the conversion
price for that particular conversion is to be eighty percent (80%)
of the average of the closing bid price of the Common Stock on the
NASDAQ. However, from April 20, 2000 until April 20, 2001, there
is a minimum conversion price of $1.50 per share for the Series 16
Preferred. Conversion at such minimum conversion price would
result in the issuance of approximately 1,201,333 shares of Common
Stock. After April 20, 2001, the Series 16 Preferred has no
minimum conversion price. The Series 16 Preferred are redeemable
by the Company from April 20, 2000 until April 20, 2001 for $1,100
per share.
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 of the
Preferred Stock. 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,
we recognized a dividend of approximately $750,000 as related to
the issuance of the Series 10 Preferred, with approximately
$383,000 recorded in the third quarter of 1998 and $367,000
recorded in the fourth quarter of 1998.
47
Series 5 Preferred/Series 7 Preferred/Series 9 Preferred
On or about April 30, 1998, the Company issued to The Infinity
Fund, L.P. ("Infinity") 350 shares of newly-created Series 9 Class
I Preferred Stock, par value $.001 per share ("Series 9 Preferred")
in exchange for 350 shares of Series 7 Class G Preferred Stock, par
value $.001 per share ("Series 7 Preferred") which had been issued
to Infinity in 1997. The Series 7 Preferred, along with certain
warrants allowing the purchase of 35,000 shares of Common Stock at
an exercise price of $1.8125 per share were issued to RBB Bank in
exchange for an equal number of shares of Series 5 Class E
Preferred Stock, par value $.001 per share ("Series 5 Preferred")
and warrants allowing the purchase of 187,500 shares of Common
Stock at an exercise price of $2.10 per share and the purchase of
187,500 shares of Common Stock at the exercise price of $2.50 per
share. The exchanges were made in private placements under Section
4(2) and/or Section 3(a)(9) of the Securities Act. The terms of
the Series 9 Preferred are substantially the same as the terms of
the Series 7 Preferred. As of January 1, 1999 and December 31,
1999, there were 350 shares of Series 9 Preferred which were issued
and outstanding.
The Series 9 Preferred has a liquidation preference over the Common
Stock equal to $1,000 consideration per outstanding share of Series
9 Preferred, 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. Which dividends
are payable semi-annually when and as declared by the Board of
Directors. Dividends are paid, at the Company's option, in the
form of cash or Common Stock. During 1999, accrued dividends on
the Series 9 Preferred, in the combined total of approximately
$13,400 were paid in the form of 10,477 shares of Common Stock of
the Company, of which 6,171 shares were issued in February 2000.
The 350 shares of Series 9 Preferred which were issued and
outstanding as of December 31, 1999, are convertible at the lesser
of $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%. As of the date of this report all 350 shares of the Series
9 Preferred have been converted into 324,610 shares of Common
Stock, including shares issued in payment of accrued dividends on
the Series 9 Preferred from January 1, 2000 until the dates of
conversion.
As further discussed in Note 3, the Securities and Exchange
Commission Staff (the "Staff") announced its position on accounting
for Preferred Stock which is convertible into Common Stock at a
discount from the market rate at the date of issuance, in March of
1997. The Staff's position pursuant to EITF D-60 relating to
beneficial conversion features is that a preferred stock dividend
should be recorded for the difference between the conversion price
and the quoted market price of common stock as determined at the
date of issuance. To comply with this position, we recognized a
dividend in 1997 of approximately $110,000 as related to the
issuance of the Series 5 Preferred, Series 7 Preferred and the
related warrants.
In summary, we recorded the following dividends related to
Preferred Stock issuances:
1999 1998 1997
___________ ____________ ____________
Paid Dividends $ 308,000 $ 410,000 $ 352,000
Beneficial Conversion Feature - 750,000(2) 908,000(1)
___________ ___________ ____________
Total Dividends Reported $ 308,000 $ 1,160,000 $ 1,260,000
=========== =========== ============
(1) 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.
(2) Amounts for 1998 reflect beneficial conversion feature on
Series 10 Class J Preferred Stock. See Note 3 related to the
beneficial conversion feature.
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.
During April of 1999, we purchased an aggregate of 45,000 shares of our
stock at the market prices ranging from $1.04 through $1.14, for the
aggregate amount of $49,000.
______________________________________________________
NOTE 7
LONG-TERM DEBT
Long-term debt at December 31 includes the following (in
thousands):
1999 1998
_______ _______
Revolving loan facility dated January 15, 1998, as amended
May 27, 1999, borrowings based upon by eligible accounts
receivable, subject to monthly borrowing base calculation,
variable interest paid monthly at prime rate plus 1 3/4
(10.25% at December 31, 1999). $ 5,891 $ 97
Term loan agreement dated January 15, 1998, as amended
May 27, 1999, payable in monthly principal installments
of $78, balance due in June 2002, variable interest
paid monthly at prime rate plus 1 3/4 (10.25% at
December 31, 1999). 3,203 1,927
Three promissory notes dated May 27, 1999, payable in
equal monthly installments of principal and interest of $90
over 60 months, due June 2004, interest at 5.5% for first
three years and 7% for remaining two years. 4,283 -
Various capital lease and promissory note obligations, payable
2000 to 2004, interest at rates ranging from 7.5% to 13.0%. 1,925 990
_______ ________
15,302 3,014
Less current portion of revolving loan and term note facility 938 625
Less current portion of long-term debt 1,427 302
_______ ________
$12,937 $ 2,087
======= ========
On January 15, 1998, the Company, as parent and guarantor, and all
direct and indirect subsidiaries of the Company, as co-borrowers
and cross-guarantors, entered into a Loan and Security Agreement
("Agreement") with Congress as lender. The Agreement initially
provided for a term loan in the amount of $2,500,000, which
required principal repayments based on a four-year level principal
amortization over a term of 36 months, with monthly principal
payments of $52,000. Payments commenced on February 1, 1998, with
a final balloon payment in the amount of approximately $573,000 due
on January 14, 2001. The Agreement also provided for a revolving
loan facility in the amount of $4,500,000. At any point in time
the aggregate available borrowings under the facility are subject
to the maximum credit availability as determined through a monthly
borrowing base calculation, as updated for certain information on
a weekly basis, equal to 80% of eligible accounts receivable
accounts of the Company as defined in the Agreement. The
termination date on the revolving loan facility was also the third
anniversary of the closing date. The Company incurred
approximately $230,000 in financing fees relative to the
solicitation and closing of this original loan agreement
(principally commitment, legal and closing fees) which are being
amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1
3/4%. The loans also contain certain closing, management and unused
line fees payable throughout the term. The loans are subject to a
3.0% prepayment fee in the first year, 1.5% in the second and 1.0%
in the third year of the original Agreement dated January 15, 1998.
49
In connection with the acquisition of CCC, CCG and CM on May 27,
1999, Congress, the Company, and the Company's subsidiaries,
including CCC, CCG and CM entered into an Amendment and Joinder to
Loan and Security Agreement (the "Loan Amendment") dated May 27,
1999, pursuant to which the Loan and Security Agreement ("Original
Loan Agreement") among Congress, the Company and the Company's
subsidiaries was amended to provide, among other things, (i) the
credit line being increased from $7,000,000 to $11,000,000, with
the revolving line of credit portion being determined as the
maximum credit of $11,000,000, less the term loan balance, with the
exact amount that can be borrowed under the revolving line of
credit not to exceed eighty percent (80%) of the Net Amount of
Eligible Accounts (as defined in the Original Loan Agreement) less
certain reserves; (ii) the term loan portion of the Original Loan
Agreement being increased from its current balance of approximately
$1,600,000 to $3,750,000 and it shall be subject to a four-year
amortization schedule payable over three years at an interest rate
of 1.75% over prime; (iii) the term of the Original Loan Agreement,
as amended, will be extended for three years from the date of the
acquisition, subject to earlier termination pursuant to the terms
of the Original Loan Agreement, as amended; (iv) CCC, CCG and CM
being added as co-borrowers under the Original Loan Agreement, as
amended; (v) the interest rate on the revolving line of credit will
continue at 1.75% over prime, with a rate adjustment to 1.5% if net
income applicable to Common Stock of the Company is equal to or
greater than $1,500,000 for fiscal year ended December 31, 2000;
(vi) the monthly service fee shall increase from $1,700 to $2,000;
(vii) government receivables will be limited to 20% of eligible
accounts receivable; and (viii) certain obligations of CM shall be
paid at closing of the acquisition of CCC, CCG and CM. The Loan
Amendment became effective on June 1, 1999, when the Stock Purchase
Agreements were consummated. Payments under the term loan
commenced on June 1, 1999, with monthly principal payments of
approximately $78,000 and a final balloon payment in the amount of
$938,000 on June 1, 2002. The Company incurred approximately
$40,000 in additional financing fees relating to the closing of
this amendment, which is being amortized over the remaining term of
the agreement. The interest rate on the revolving loan and term
loan was 10.25% at December 31, 1999.
Under the terms of the Original Loan Agreement, as amended, the
Company has agreed to maintain an Adjusted Net Worth (as defined in
the Original Loan Agreement) of not less than $3,000,000 throughout
the term of the Original Loan Agreement, which was amended,
pursuant to the above noted acquisition. The adjusted net worth
covenant requirement ranges from a low of $1,200,000 at June 1,
1999, to a high of not less than $3,000,000 from July 1, 2000,
through the remaining term of the Loan Agreement. The covenant
requirement at December 31, 1999, was $1,500,000, which the Company
was in compliance with. The Company has agreed that it will not
pay any dividends on any shares of capital stock of the Company,
except that dividends may be paid on the Company's shares of
Preferred Stock outstanding as of the date of the Loan Amendment
(collectively, "Excepted Preferred Stock") under the terms of the
applicable Excepted Preferred Stock and if and when declared by the
Board of Directors of the Company pursuant to Delaware General
Corporation Law. As security for the payment and performance of
the Original Loan Agreement, as amended, the Company and its
subsidiaries (including CCC, CCG and CM) have granted a first
security interest in all accounts receivable, inventory, general
intangibles, equipment and certain of their other assets, as well
as the mortgage on two facilities owned by subsidiaries of the
Company, except for certain real property owned by CM, for which a
first security interest is held by the TPS Trust and the ALS Trust
as security for CM's non-recourse guaranty of the payment of the
Promissory Notes. All other terms and conditions of the original
loan remain unchanged.
As of December 31, 1999, borrowings under the revolving loan
agreement were approximately $5,891,000, an increase of $5,794,000
over the December 31, 1998, balance of $97,000. This increase
represents $2,799,000 funded pursuant to the CCC, CCG and CM
acquisition on June 1, 1999, $766,000 funded for the redemption of
Preferred Stock, including dividends thereon, during July 1999 and
$2,229,000 for capital expenditure and general working capital
needs. The balance under the Congress term loan at December 31,
1999, was $3,203,000, an increase of $1,276,000 over the December 31,
50
1998, balance of $1,927,000. This increase represents
$2,083,000 funded pursuant to the CCC, CCG and CM acquisition on
June 1, 1999, partially offset by scheduled repayments of $807,000.
We funded through the revolving and term loan a total of $4,882,000
pursuant to the CCC, CCG and CM acquisition excluding legal,
professional and other closing fees, of which $2,651,000
represented the repayment of certain debt obligations, $1,192,000
represented payment of certain settlement obligations and
$1,000,000 of the cash consideration as paid to the former owners
of CCC, CCG and CM. As of December 31, 1999, the Company's
borrowing availability under the Congress credit facility, based on
its then outstanding eligible accounts receivable, was
approximately $1,113,000.
Pursuant to the terms of the Stock Purchase Agreements in
connection with the acquisition of CCC, CCG and CM, a portion of
the consideration was paid in the form of the Promissory Notes, in
the aggregate amount of $4,700,000 payable to the former owners of
CCC, CCG and CM. The Promissory Notes are paid in equal monthly
installments of principal and interest of approximately $90,000
over five years with the first installment due on July 1, 1999, and
having an interest rate of 5.5% for the first three years and 7%
for the remaining two years. The aggregate outstanding balance of
the Promissory Notes total $4,283,000 at December 31, 1999, of
which $819,000 is in the current portion. Payment of such
Promissory Notes are guaranteed by CM under a non-recourse
guaranty, which non-recourse guaranty is secured by certain real
estate owned by CM. See Note 5 for further discussion of the above
referenced acquisition.
As further discussed in Note 2, the long-term debt, other than
revolving and term loan debt, associated with the discontinued PFM
operation is excluded from the above and is recorded in the
Liabilities of Discontinued Operations total. The PFM debt
obligations total $4,000, all of which is current.
The aggregate amount of the maturities of long-term debt maturing
in future years as of December 31, 1999, is $2,365,000 in 2000;
$2,331,000 in 2001; $8,586,000 in 2002; $1,338,000 in 2003; and
$682,000 in 2004.
____________________________________________________
NOTE 8
ACCRUED EXPENSES
Accrued expenses at December 31 include the following (in
thousands):
1999 1998
_________ __________
Salaries and employee benefits $ 1,581 $ 783
Accrued sales, property and other tax 633 387
Waste disposal and other operating related expenses 2,009 1,608
Accrued environmental 1,461 278
Other 201 313
_________ __________
Total accrued expenses $ 5,885 $ 3,369
========= ==========
The above amounts exclude Perma-Fix of Memphis, Inc. accrued
expenses for the years ended December 31, 1999, and 1998 of $554
and $739, respectively, which are reported as current
liabilities of discontinued operations. See Note 4 for further
discussion of this discontinued operations.
_______________________________________________________
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 1999, the accrued long-term closure cost for its continuing
operations increased by $247,000 to a total of $962,000 as compared
to the 1998 total of $715,000. This increase is principally a
result of the acquisition of CM and CCC during 1999, which
contributed $218,000 of this accrued closure cost and the normal
operational related increases accounted for the remaining increase
of $29,000. 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.
51
At December 31, 1999, we have accrued long-term environmental and
acquisition related liabilities totaling $3,847,000, which reflects
an increase of $3,327,000 from the December 31, 1998, balance of
$520,000. The 1998 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 six years with additional
studies forthcoming, and potential groundwater restoration which
could extend three (3) to four (4) years. We have estimated the
potential liability related to the remaining remedial activity of
the above property to be approximately $347,000, representing the
remaining reserve balance, of which we anticipate spending
approximately $254,000 during 2000, with the remaining $93,000
reflected in this long-term accrual. 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.
In conjunction with the acquisition of CM and CCG during 1999, we
recognized long-term environmental accruals of $4,319,000. This
amount represented the Company's estimate of the long-term costs to
remove contaminated soil and to undergo groundwater remediation
activities at the CM acquired facility in Detroit, Michigan, and at
the CCG acquired facility in Valdosta, Georgia. Both facilities
have pursued remedial activities over the past five years with
additional studies forthcoming and potential groundwater
restoration activities could extend for a period of ten years. The
accrued balance at December 31, 1999, for the CM remediation is
$2,103,000, of which we anticipate spending $638,000 during 2000,
with the remaining $1,465,000 reflected in this long-term accrual.
The accrued balance at December 31, 1999, for the CCG remediation
is $2,133,000, of which we anticipate spending $449,000 during
2000, with the remaining $1,634,000 reflected in this long-term
accrual. No insurance or third party recovery was taken into
account in determining our cost estimates or reserves, nor do our
cost estimates or reserves reflect any discount for present value
purposes. We also recognized certain other long-term potential
liabilities related to the 1999 acquisition of CM and CCG, the
largest of which is the reserve of possible PRP liabilities,
related to disposal activities prior to the acquisition, for which
we have reserved approximately $403,000.
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 $544,000 and
have a reserve balance of approximately $696,000 as of December 31,
1999. Neither our cost estimates nor reserves reflect any discount
for present value purpose and such remediation is expected to
extend for a period of three to five years. We have recorded
approximately $265,000 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.
52
_______________________________________________________
NOTE 10
INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
At December 31, 1999, 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):
1999 1998 1997
_________ ________ _________
Net operating losses $ 3,562 $ 3,684 $ 3,393
Environmental reserves 517 990 1,498
Impairment of assets 560 560 560
Other 189 210 213
Valuation allowance (4,308) (5,015) (5,139)
_________ ________ ________
Deferred tax assets 520 429 525
Depreciation and amortization 520 429 525
_________ ________ ________
Deferred tax liability 520 429 525
_________ _________ ________
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 accompany-
ing consolidated statements of operations is as follows (in thousands):
1999 1998 1997
_______ _______ _______
Tax expense (benefit) at statutory rate $ 534 $ 157 $(1,329)
Goodwill amortization 155 76 77
Other 18 (109) 147
Increase (decrease) in valuation allowance (707) (124) 1,105
_______ _______ ______
Provision for income taxes $ - $ - $ -
======= ======= ======
Our valuation allowance decreased by approximately $707,000 and
$124,000 for the years ended December 31, 1999 and 1998
respectively, and increased $1,105,000 for the year ended
December 31, 1997, 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 $10,830,000 at December 31,
1999. 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.
_______________________________________________________________
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
53
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, which through subsequent exchange
agreements became Series 11 and then finally Series 14. 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, which through subsequent exchange agreements
became Series 6, then Series 8, then Series 12 and then finally
Series 15. 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, which through subsequent exchange
agreements became Series 7 and then finally Series 9. During June
1998, we issued 3,000 shares of newly created Series 10 Preferred
at a price of $1,000 per share for an aggregate sales price of
$3,000,000, which through subsequent exchange agreements became
Series 13 and then finally Series 16. During 1997, 1,500 shares of
the Series 3 Preferred were converted into 1,027,974 shares of the
Company's Common Stock. During 1999, 2,231 shares of the Series 3
Preferred were converted into 3,090,563 shares of the Company's
Common Stock, 1,584 shares of the Series 8 Preferred were converted
into 2,057,143 shares of the Company's Common Shares and 748 shares
of the Series 10 Preferred were converted into 971,429 shares of
the Company's Common Stock. Also during 1999 we redeemed, for its
face value of $1,000 per share, 300 shares of the Series 8
Preferred for $300,000 and 450 shares of the Series 10 Preferred
for $450,000. See Note 6 for further discussion.
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. The following table details the resulting employee
stock purchase totals.
Shares
Purchase Period Proceeds Purchased
_______________ ________ _________
July 1 - December 31, 1997 $ 16,000 8,276
January 1 - June 30, 1998 17,000 10,732
July 1 - December 31, 1998 22,000 17,517
January 1 - June 30, 1999 28,000 21,818
July 1 - December 31, 1999 49,000 48,204
The shares for the purchase period ending December 31, 1999, were
purchased in February 2000.
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
54
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.
We applied APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for options
issued to employees and directors. Accordingly, no compensation
cost has been recognized for options granted to employees and
directors 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 and directors 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 1999, 1998 and 1997, respectively:
no dividend yield for all years; an expected life of ten years for
55
all years; expected volatility of 40.0%, 45.0%, and 42.0%; and
risk-free interest rates of 5.7%, 4.58%, and 6.91%.
Under the accounting provisions of FASB Statement 123, our net
income (loss) and net income (loss) per share would have been
reduced to the pro forma amounts indicated below:
1999 1998 1997
___________ __________ ___________
Net income (loss) applicable to Common
Stock from continuing operations
As reported $ 1,450 $ (698,000) $(1,068,000)
Pro forma 1,417 (962,000) (1,666,000)
Basic net income (loss) per share
from continuing operations
As reported $ .08 $ (.06) $ (.10)
Pro forma .08 (.08) (.16)
Diluted net income (loss) per share
from continuing operations
As reported $ .07 $ (.06) $ (.10)
Pro forma .07 (.08) (.16)
___________________________________________________________________________
Net income (loss) applicable to Common Stock
As reported $ 1,450 $ (698,000) $(5,169,000)
Pro forma 1,417 (962,000) (5,767,000)
Basic net income (loss) per share
As reported $ .08 $ (.06) $ (.49)
Pro forma .08 (.08) (.54)
Diluted net income (loss) per share
As reported $ .07 $ (.06) $ (.49)
Pro forma .07 (.08) (.54)
56
A summary of the status of options under the plans as of
December 31, 1999, 1998 and 1997 and changes during the years
ending on those dates is presented below:
1999 1998 1997
__________________ _________________ __________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
________ ________ _______ _________ ________ ________
Performance Equity Plan:
_______________________
Balance at beginning of year 341,832 $ 2.23 288,138 $ 2.54 316,226 $ 2.43
Granted - - 70,000 1.25 - -
Exercised (23,000) 1.00 (1,000) 1.00 - -
Forfeited (58,683) 2.44 (15,306) 3.66 (28,088) 1.34
_______ _______ _______
Balance at end of year 260,149 2.28 341,832 2.23 288,138 2.54
======= ======= =======
Options exercisable at year end 195,749 2.66 223,832 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 885,300 1.37 650,710 $ 1.41 475,395 $ 1.68
Granted - - 255,000 1.25 290,000 1.375
Exercised (18,300) 1.17 - - (11,000) 1.00
Forfeited (29,200) 1.29 (20,410) 1.375 (103,685) 2.54
_______ ________ _________
Balance at end of year 837,800 1.37 885,300 1.37 650,710 1.41
======= ======== =========
Options exercisable at year end 376,300 1.47 216,240 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 2.69 160,000 $ 2.69 145,000 $ 2.76
Granted 45,000 1.29 - - 15,000 2.13
Exercised - - - - - -
Forfeited - - - - - -
________ _______ _______
Balance at end of year 205,000 2.39 160,000 2.69 160,000 2.69
======== ======= =======
Options exercisable at year end 205,000 2.39 160,000 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 45,000 1.29 - - 15,000 2.13
Weighted average fair value 45,000 .74 - - 15,000 1.34
57
The following table summarizes information about options under the plan
outstanding at December 31, 1999:
Options Outstanding Options Exercisable
__________________________________________ ____________________________
Weighted
Average Weighted Weighted
Description and Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices Dec. 31, 1999 Life Price Dec. 31, 1999 Price
________________________ ______________ ___________ _________ _______________ _________
Performance Equity Plan:
_______________________
1991/1992 Awards ($3.02) 145,649 2.1 years $ 3.02 145,649 $ 3.02
1993 Awards ($5.25) 6,500 3.8 years 5.25 6,500 5.25
1996 Awards ($1.00) 55,000 6.4 years 1.00 33,000 1.00
1998 Awards ($1.25) 53,000 8.8 years 1.25 10,600 1.25
________ __________
260,149 4.4 years 2.28 195,749 2.66
======== ==========
Non-Qualified Stock Option Plan:
_______________________________
1994 Awards ($4.75) 300 4.2 years $ 4.75 300 $ 4.75
1995 Awards ($2.88) 85,000 5.0 years 2.88 68,000 2.88
1996 Awards ($1.00) 270,000 6.4 years 1.00 162,000 1.00
1997 Awards ($1.375) 247,500 7.3 years 1.38 99,000 1.38
1998 Awards ($1.25) 235,000 8.8 years 1.25 47,000 1.25
_______ _________
837,800 7.2 years 1.37 376,300 1.47
======= =========
Outside Directors Stock Option Plan:
___________________________________
1993 Awards ($3.02) 45,000 2.5 years $ 3.02 45,000 $ 3.02
1994 Awards ($3.00-$3.22) 45,000 4.5 years 3.07 45,000 3.07
1995 Awards ($3.25) 20,000 5.0 years 3.25 20,000 3.25
1996 Awards ($1.75) 35,000 6.9 years 1.75 35,000 1.75
1997 Awards ($2.125) 15,000 7.9 years 2.13 15,000 2.13
1999 Awards ($1.375) 15,000 9.0 years 1.38 15,000 1.38
1999 Awards ($1.25) 30,000 9.9 years 1.25 30,000 1.25
_______ _________
205,000 5.9 years 2.39 205,000 2.39
======= =========
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 March, 1999, the Company entered
into an Exchange Agreement with Liviakis and Prag whereby the
warrants 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. The fair value of the warrants exchanged exceeds the fair
value of the Common Stock issued and, therefore, no expense was
recognized as a result of the exchange.
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
58
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. 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 1999 the Company
entered into a consulting agreement for certain investor relations
services whereby we agreed to pay a consulting fee and agreed to issue
two Common Stock purchase warrants for an aggregate of up to 480,000
shares of Common Stock, with 240,000 exercisable at an exercise price
equal to $1.20 per share and 240,000 at $1.40 per share. During 1999,
a total of 97,227 shares were exercised for proceeds in the amount of
$48,000 and 8,038,606 warrants expired, including the Liviakis and Prag
warrant exchanges noted above During 1998, a total of 215,100 warrants
were exercised for proceeds in the amount of $255,000 and no warrants
expired.
On January 6, 2000, we extended the expiration date of certain warrants,
for the exercise of up to an aggregate total of 727,000 shares of Common
Stock, previously issued and adjusted the exercise price of such
warrants to $1.00 per share. Such warrants were exercised in their full
amount prior to the date of this report and have been included in the
following table as adjusted.
The following details the warrants currently outstanding as of
December 31, 1999:
Number of
Underlying Exercise Expiration
Warrant Series Shares Price Date
______________ __________ _____________ ___________
Class C Preferred Stock Warrants 2,390,000 $1.00 - $3.50 1/00 - 7/01
Class D Preferred Stock Warrants 1,504,450 $1.00 - $3.00 2/00 - 7/02
Class E Preferred Stock Warrants 35,000 $1.8125 6/00
Class J Preferred Stock Warrants 850,000 $1.875 - $2.50 6/01 - 6/02
Other Financing Warrants 795,513 $1.00 - $2.4375 1/00 - 4/03
_________
5,574,963
=========
Shares Reserved
At December 31, 1999, we have reserved approximately 10.5 million
shares of Common Stock for future issuance under all of the above
arrangements and the convertible Series 9, Series 14, Series 15 and
Series 16 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
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
59
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 and paid the initial ssettlement
payment amount of $150,000 in October 1999. The remaining amount of
$75,000 is to be paid in quarterly installments of approximately $37,000
each, with the first such payment made on March 16, 2000.
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 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 $1,174,000 as
of December 31, 1999. 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, 1999, required under these
leases are $1,179,000 in 2000, $916,000 in 2001, $676,000 in 2002,
$486,000 in 2003 and $310,000 in 2004.
Net rent expense relating to our operating leases was $1,958,000,
$1,465,000 and $1,533,000 for 1999, 1998 and 1997, respectively.
60
________________________________________________________
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 five years. We elected not to provide any matching
contributions for the years ended December 31, 1998 and 1997. However,
beginning January 1, 1999, we agreed to match up to 25% of our employees
contributions, not to exceed 3% of a participants compensation. In
conjunction with the CM, CCC and CCG acquisition in 1999, a similar
401(k) Plan was assumed and maintained for such acquired companies, until
such time as the plans are merged, which is expected to occur by no later
than December 31, 2000. The 401(k) Plans are similar in nature except
that the CM, CCC and CCG Plan provides for a match of up to 25% of their
employees contributions, not to exceed $250 per year per participants.
We contributed $100,111 in matching funds to both Plans during 1999.
______________________________________________________
NOTE 14
OPERATING SEGMENTS
During 1999, we were engaged in eleven 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, radioactive waste and
wastewater through our seven TSD facilities; Perma-Fix Treatment
Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft. Lauderdale,
Inc., Perma-Fix of Florida, Inc., Chemical Conservation Corporation,
Chemical Conservation of Georgia, Inc., and Chem-Met Services, Inc. We
provide through Perma-Fix Inc. and Perma-Fix of New Mexico, Inc. on-site
waste treatment services to convert certain types of characteristic
hazardous and mixed wastes into non-hazardous waste, and various waste
management services to certain governmental agencies through Chem-Met
Government Services.
61
The Consulting Engineering Services segment provides environmental
engineering and regulatory compliance services through Schreiber, Yonley
& Associates, Inc. which includes oversight management of environmental
restoration projects, air and soil sampling and compliance and training
activities, as well as, engineering support as needed by our other
segment. During 1999, the business and operations of Mintech, Inc., our
second engineering company located in Tulsa, Oklahoma, was merged into
and consolidated with the SYA operations.
The table below shows certain financial information by business
segment for 1999, 1998 and 1997 and excludes the results of
operations of the discontinued operations.
Segment Reporting 12/31/99
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ ______ _______ ___________
Revenue from external customers $41,753 $4,711 $46,464 $ - $ - $ 46,464
Intercompany revenues 3,122 396 3,518 - - 3,518
Interest income 42 - 42 8 - 50
Interest expense 621 35 656 (6)(5) - 650
Depreciation and amortization 2,670 90 2,760 18 - 2,778
Segment profit (loss) 1,525 (75) 1,450 - - 1,450
Segment assets(1) 50,927 2,565 53,492 775 377 54,644
Expenditures for segment assets 2,430 20 2,450 210 - 2,660
Segment Reporting 12/31/98
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
________ ___________ ________ ____ _______ ____________
Revenue from external customers $26,181 $4,370 $30,551 $ - $ - $ 30,551
Intercompany revenues 329 510 839 - - 839
Interest income 31 - 31 4 - 35
Interest expense 369 54 423 (129)(5) - 294
Depreciation and amortization 2,015 77 2,092 17 - 2,109
Segment profit (loss) 265 (213) 52 (750)(4) - (698)
Segment assets(1) 24,882 2,326 27,208 1,051 489 28,748
Expenditures for segment assets 2,492 20 2,512 42 - 2,554
Segment Reporting 12/31/97
Waste Segments Consolidated
Services Engineering Total Corp(2) Memphis(3) Total
_________ ___________ ________ _____ _______ ____________
Revenue from external customers $23,756 $4,657 $28,413 $ - $ - $ 28,413
Intercompany revenues 932 522 1,454 - - 1,454
Interest income 38 - 38 3 - 41
Interest expense 366 30 396 35 - 431
Depreciation and amortization 1,850 110 1,960 20 - 1,980
Segment profit (loss) 402 (421) (19) (1,049)(4) - (1,068)
Segment assets(1) 23,576 2,593 26,169 171 2,230 28,570
Expenditures for segment assets 1,744 21 1,765 8 45 1,818
(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 (See Note 4).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
62
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 56 Chairman of the Board, President and
Chief Executive Officer
Mr. Jon Colin 44 Director
Mr. Thomas P. Sullivan 67 Director
Mr. Mark A. Zwecker 49 Director
Mr. Richard T. Kelecy 44 Chief Financial Officer, Vice
President and Secretary
Mr. Timothy Kimball 54 Vice President, Technical Services
Mr. Roger Randall 56 Vice President, Industrial Services
Mr. Bernhardt Warren 51 Vice President, Nuclear 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 13 is incorporated by reference.
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. THOMAS P. SULLIVAN
Thomas Sullivan has served as a Director of the Company since June 1,
1999, the date of his election by the Board of Directors to fill a newly
created directorship pursuant to the terms of the Stock Purchase
Agreements wherein the Company purchased all of the outstanding stock of
CCC, CCG and CM. From 1976, when Mr. Sullivan purchased CM, until June 1,
1999, he served as Director and President of CM. Mr. Sullivan founded
and served as Director and President of CCC from its inception in 1983
until June 1, 1999. From 1988, when Mr. Sullivan purchased CCG, until
June 1, 1999, he served as Director and President of CCG. From 1957 to
1973, Mr. Sullivan held various positions with Crown Zellerbach
Corporation and since 1982 has served as a director of Charter National
Bank, located in Detroit, Michigan. Mr. Sullivan has a degree from John
Carroll University, located in Cleveland, Ohio. Certain claims have been
made against CM, CCC and/or CCG after the closing of the acquisition by the
Company of these companies relating to matters arising prior to the
acquisition. The Company is presently evaluating whether it has any
claims against Mr. Sullivan and/or members of his immediate family as
a result of these claims under the terms of the Stock Purchase Agreements.
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.
63
MR. RICHARD T. KELECY
The information set forth under the caption "Executive Officers of the
Company" on page 13 is incorporated by reference.
MR. TIMOTHY KIMBALL
The information set forth under the caption "Executive Officers of the
Company" on page 13 is incorporated by reference.
MR. ROGER RANDALL
The information set forth under the caption "Executive Officers of the
Company" on page 13 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.
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 1999 none of the executive
officers and directors of the Company failed to timely file reports
under Section 16(a), except that (i) a Form 4 was not timely filed
for Louis Centofanti upon the expiration of Class B warrants for
61,048 shares of the Company's common stock in June 1999; (ii) a
Form 4 was not timely filed for Jon Colin upon the issuance of
6,667 shares of the Company's common stock in November 1999 and the
grant of an option to purchase 5,000 shares of the Company's common
stock in December 1999; (iii) a Form 4 was not timely filed for
Steve Gorlin upon the issuance of 6,667 shares of the Company's
common stock in November 1999 and the grant of an option to
purchase 5,000 shares of the Company's common stock in December
1999; (iv) a Form 4 was not timely filed for Mark Zwecker upon the
issuance of 6,667 shares of the Company's common stock in November
1999 and the grant of an option to purchase 5,000 shares of the
Company's common stock in December 1999; (v) a Form 4 was not
timely filed for Thomas P. Sullivan upon the issuance of 889 shares
of the Company's common stock in November 1999 and the grant of an
option to purchase 15,000 shares of the Company's Common Stock in
December 1999; (vi) a Form 4 was not timely filed for Richard
Kelecy upon the issuance of 1,400 shares of the Company's common
stock in August 1999; (vii) a Form 4 was not timely filed for
Timothy Kimball upon the issuance of 880 shares of the Company's
common stock in August 1999; and (viii) a Form 4 was not timely
filed for Bernhardt Warren upon the issuance of 1,692 shares of the
Company's common stock in August 1999.
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 is a banking institution
regulated by the banking regulations of Austria which holds the
64
Company's shares of 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 two transactions which
occurred in February 1999; (ii) a Form 4 for four transactions
which occurred in May 1999; (iii) a Form 4 for three transactions
which occurred in August 1999; and (iv) a Form 5 for 1999.
As of the date of this Report, RBB Bank has not filed a Schedule
13D or Schedule 13G, pursuant to Section 13(d) of the Exchange Act
and Regulation 13D as promulgated thereunder, reporting RBB Bank as
the beneficial owner of Common Stock of the Company. RBB Bank has
informed the Company that its clients (and not RBB Bank) maintain
full voting and dispositive power over such shares. Consequently,
RBB Bank has advised the Company it believes it is not the
beneficial owner, as such term is defined in Rule 13d-3 under the
Exchange Act ("Rule 13d-3"), of the shares of stock registered in
the name of RBB Bank because it has neither voting nor investment
power, as such terms are defined in Rule 13d-3, over such shares.
As a result, RBB Bank has informed the Company that it does not
believe that it is required to file either Schedule 13D or Schedule
13G in connection with the shares of the Company's Common Stock
registered in the name of RBB Bank.
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.
Long-Term
Annual Compensation Compensation
__________________________________ _______________________
Securities
Other Restricted Underlying All
Annual Stock Options/ Other
Name and Principal Salary Bonus Compen- Award(s) SARs Compen-
Position Year ($) ($) sation($) ($) (#) sation($)
_________________________ ____ ________ _______ _________ __________ _________ __________
Dr. Louis F. Centofanti(1) 1999 $123,421 $ - $ - - $ - $4,500
Chairman of the Board, 1998 112,250 - - - - -
President and 1997 75,431 - 6,667(2) - 300,000 -
Chief Executive Officer
Bernhardt C. Warren (3) 1999 $ 87,341 $ 55,275 - - - -
Vice President of 1998 87,341 223,800 56,950 - 25,000 -
Nuclear Services 1997 87,341 88,629 - - 30,000 -
Richard T. Kelecy(4) 1999 $111,373 $ 15,000 - - - 4,500
Vice President and 1998 102,553 15,000 - - 30,000 -
Chief Financial Officer 1997 91,250 - - - 40,000 -
Roger Randall(5) 1999 $106,231 $ 15,000 - - - 9,000
Vice President of 1998 101,268 12,710 - - 30,000 9,039(6)
Industrial Services 1997 80,000 - - - 40,000 9,042
(1) 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
65
to the terms of the agreement Dr. Centofanti's annual salary was
increased to $112,250 effective October 1, 1998, and subsequently
to $130,000 effective July 1, 1999. Dr. Centofanti was also
provided a monthly automobile allowance in the amount of $750, in
lieu of a company car. 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 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) 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 the
above noted 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 was
also paid a cash bonus of $168,000, of which $57,000 was paid in December
1998, which was intended for payment of taxes on the stock portion of
bonus and the remainder to be over the two years of the agreement. As
of December 31, 1999, the full bonus obligation to Mr. Warren has been
paid. Stock Options were granted to Mr. Warren on April 8, 1997 and
October 14, 1998, pursuant to the 1993 Non-Qualified Stock Option Plan.
(4) Mr. Kelecy, the Chief Financial Officer, received annual
compensation of $102,000. Effective July 1, 1999, Mr. Kelecy annual
salary was increased to $120,000 and he was provided with a monthly
automobile allowance in the amount of $750, in lieu of a Company car.
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.
(5) Mr. Randall was General Manager of Perma-Fix of Dayton, Inc. from its
acquisition in 1994 until December 8, 1997. Effective December 8, 1997,
Mr. Randall became the Vice President of Industrial Services for the
66
Company. Mr. Randall received annual compensation of $94,000.
Effective December 1998, Mr. Randall received a monthly car allowance in
the amount of $750, in lieu of a Company car, as previously provided.
Effective July 1, 1999, Mr. Randall's annual salary was increased to
$115,000. Mr. Randall also received additional compensation paid on a
variable rate in proportion to certain revenue goals. Stock Options
were granted to Mr. Randall on January 11, 1995, May 24, 1996, April 8,
1997 and October 14, 1998, pursuant to the 1993 Non-Qualified Stock
Option Plan.
Option/SAR Grants in Last Fiscal Year
During 1999, there were no individual grants of stock options made to
any of the named executive officers in the above Summary Compensation
Table.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth information concerning each exercise
of stock options during the last completed fiscal year by each of
the executive officers named in the Summary Compensation Table and
the fiscal year-end value of unexercised options:
Number of Unexercised Value of Unexercised
Options at Fiscal Year End in-the-Money Options
Shares Value (#) at Fiscal Year End ($)(2)
Acquired on Realized _________________________ _________________________
Name Exercise (#)(1) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
_______________________ _______________ ________ ___________ _____________ __________ _____________
Dr. Louis F. Centofanti - $- 245,763 104,000 $ - $ -
Bernhardt C. Warren - - 17,000 38,000 3,093 5,811
Richard Kelecy - - 82,000 78,000 45,429 17,840
Roger Randall - - 66,000 74,000 17,851 10,945
(1) No options were exercised during 1999.
(2) Represents the difference between $1.15625 (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, 1999), 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.
401(k) 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 five years. We elected not to provide any matching
contributions for the years ended December 31, 1998 and 1997. However,
beginning January 1, 1999, we agreed to match up to 25% of our employees
contributions, not to exceed 3% of a participants compensation. In
conjunction with the CM, CCC and CCG acquisition in 1999, a similar
401(k) Plan was assumed and maintained for such acquired companies, until
such time as the plans are merged, which is expected to occur by no later
than December 31, 2000. The 401(k) Plans are similar in nature except
that the CM, CCC and CCG Plan provides for a match of up to 25% of their
employees contributions, not to exceed $250 per year per participants.
We contributed $100,111 in matching funds to both Plans during 1999.
67
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 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 first purchase
period commenced July 1, 1997. The following table details the resulting
employee stock purchase totals.
Shares
Purchase Period Proceeds Purchased
_______________ ________ _________
July 1 - December 31, 1997 $ 16,000 8,276
January 1 - June 30, 1998 17,000 10,732
July 1 - December 31, 1998 22,000 17,517
January 1 - June 30, 1999 28,000 21,818
July 1 - December 31, 1999 49,000 48,204
Compensation of Directors
In 1999, we paid our outside director's fees based on monthly
payments of $1,000 for each month of service, resulting in the four
outside directors earning annual director's fees in the total
amount of $43,000. 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 1999 to the four outside
directors (Messrs. Colin, Gorlin, Sullivan and Zwecker) was
$28,000, paid by the issuance of 28,891 shares of Common Stock .
The aggregate amount of accrued director fees at December 31, 1999,
to be paid in 2000, totals $24,000. 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.
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
68
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, 1999, options to purchase 205,000 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 report, we have issued 117,506 shares
of the Company's Common Stock in payment of director fees, covering
the period January 1, 1995 through December 31, 1999. 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.
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 also received a bonus of
approximately $168,000 which was paid in monthly installments over the
two years of the agreement, with the final payment made in 1999.
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 the period January - May 1999, 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 1999, 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
69
during 1999. Upon his election to the Board of Directors, in
conjunction with the acquisition of CCC, CCG and CM effective
June 1, 1999, Thomas Sullivan was appointed to the Compensation and
Stock Option Committee, at which time he was neither an officer nor
an employee of the Company. Effective February 1, 2000, Mr. Gorlin
resigned his position on the Board of Directors.
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 24, 2000, 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 24, 2000.
Amount and Percent
Name of Title Nature of of
Beneficial Owner of Class Ownership Class(1)
______________________ ________ _________ _____
Thomas P. Sullivan and Common 1,525,889(2) 7.12%
the Ann L. Sullivan
Living Trust(2)
RBB Bank Common 9,780,343(3) 40.07%
Aktiengesellschaft(3)
(1) In computing the number of shares and the percentage of
outstanding Common Stock "beneficially owned" by a person, the
calculations are based upon 21,401,415 shares of Common Stock
issued and outstanding on March 29, 1999 (excluding 988,000
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) 10,889 shares held of record by Mr.
Sullivan, (ii) options to purchase 15,000 shares granted pursuant
to the 1992 Outside Directors Stock Option and Incentive Plan,
which are immediately exercisable, and (iii) 1,500,000 shares held
by the Ann L. Sullivan Living Trust, dated September 6, 1998 ("ALS
Trust"), a trust established for the benefit of Ann L. Sullivan.
Ann L. Sullivan is the wife of Mr. Sullivan and is the trustee and
primary beneficiary of the ALS Trust. The business address for Mr.
Sullivan and the ALS Trust, for the purposes hereof, is c/o
Perma-Fix Environmental Services, Inc., 1940 N.W. 67th Place,
Gainesville, Florida 32653.
(3) Includes 6,774,093 shares that RBB Bank owns and 3,006,250 shares
that RBB Bank has the right to acquire within 60 days from the date of
this proxy statement under certain warrants that are exercisable. The
warrants are exercisable at exercise prices ranging from $1.875 to $3.50
per share of Common Stock. As of March 29, 2000, the closing price per
share of Common Stock was $1.75. RBB Bank has advised the Company that
it is holding these shares on behalf of numerous clients. As a result,
RBB Bank may share voting and investment power over such shares. In
addition, RBB Bank owns three (3) series of the Company's outstanding
preferred stock consisting of 1,769 shares of Series 14 Class N
Convertible Preferred Stock ("Series 14 Preferred"), 616 shares of Series
15 Class O Convertible Preferred Stock ("Series 15 Preferred") and 1,802
shares of Series 16 Class P Convertible Preferred Stock ("Series 16
Preferred") (collectively, the RBB Preferred") that RBB Bank acquired
from the Company. The RBB Preferred are not convertible until on or
after April 20, 2000, and have no voting rights except as required by
law. If the conversion of the currently outstanding RBB Preferred occurs
between April 20, 2000 and April 20, 2001, then the (i) Series 14
Preferred, which during this period has a set conversion price of $1.50
per share of Common Stock, is convertible into 1,179,333 shares of Common
Stock, (ii) Series 15 Preferred, which during this period has a minimum
conversion price of $1.50 per share of Common Stock, is convertible into
410,667 shares of Common Stock, assuming the conversion is at $1.50 per
70
share of Common Stock and (iii) Series 16 Preferred, which during this
period has a minimum conversion price of $1.50 per share of Common Stock,
is convertible into 1,201,333 shares of Common Stock, assuming the
conversion is at $1.50 per share of Common Stock. If RBB Bank were to
acquire an aggregate of 2,791,333 shares of Common Stock upon conversion
of the outstanding shares of the RBB Preferred based on a conversion
price of $1.50 per share of Common Stock and were to exercise all of the
outstanding warrants to acquire Common Stock which are held by RBB Bank,
RBB Bank would own 46.2% of the outstanding Common Stock assuming that
the Company does not issue any other shares of Common Stock or acquire
any of the RBB Preferred or the Common Stock and RBB Bank does not sell
or otherwise dispose of any shares of Common Stock. Does not include the
shares of Common Stock which may be issuable for payment of dividends on
the RBB Preferred. See "Potential Change in Control" and "Certain
Relationships and Related Transactions." RBB Bank's address is Burgring
16, 8010 Graz, Austria.
Security Ownership of Management
The following table sets forth information as to the shares of voting
securities beneficially owned as of March 29, 2000, 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) 1,020,697(3) 4.72%
Mark A. Zwecker(2)(4) 226,876(4) 1.06%
Jon Colin(2)(5) 50,249(5) *
Thomas P. Sullivan(2)(6) 1,525,889(2)(6) 7.12%
Richard T. Kelecy(2)(7) 62,220(7) *
Timothy Kimball(2)(8) 44,374(8) *
Roger Randall(2)(9) 40,000(9) *
Bernhardt Warren(2)(10) 108,954(10) *
Directors and Executive 3,079,259 14.07%
Officers as a Group
(8 persons)
*Indicates beneficial ownership of less than one percent (1%).
(1) See footnote (1) of the table under "Security Ownership of
Certain Beneficial Owners."
(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) These shares include (i) 468,434 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) 200,000 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
71
to purchase 4,000 shares granted pursuant to the above
referenced plans or the options to purchase 100,000 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.
(4) Mr. Zwecker has sole voting and investment power over these
shares which include: (i) 177,994 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 30,000
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.
(5) Mr. Colin has sole voting and investment power over these
shares which include: (i) 20,249 shares held of record by Mr.
Colin, and (ii) options to purchase 30,000 shares granted
pursuant to the 1992 Outside Directors Stock Option and
Incentive Plan which are immediately exercisable.
(6) See footnote (2) of the table under "Security Ownership of
Certain Beneficial Owners."
(7) Mr. Kelecy has sole voting and investment power over 6,220
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) 5,491 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 102,954 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.
Potential Change in Control
RBB Bank has the right to acquire an aggregate of approximately
5,797,583 additional shares of Common Stock, consisting of (i)
1,179,333 shares upon conversion of the issued and outstanding
Series 14 Preferred (assuming conversion occurs between April 20,
2000 and April 20, 2001, during which period a set conversion price
of $1.50 is in effect) and (ii) 410,667 shares upon conversion of
the issued and outstanding Series 15 Preferred (assuming conversion
occurs at the conversion price of $1.50 per share, which is the
minimum conversion price between April 20, 2000 and April 20, 2001)
(iii) 1,201,333 shares upon conversion of the issued and
outstanding Series 16 Preferred (assuming conversion occurs at the
conversion price of $1.50 per share which is the minimum conversion
price between April 20, 2000 and April 20, 2001) and (iv) 3,006,250
shares upon the exercise of the RBB Series 3 Warrants, RBB Series
4 Warrants and RBB Series 10 Warrants. Upon such conversion and
exercise, RBB Bank would own approximately 46.2% of the outstanding
shares of Common Stock of the Company, which includes the 6,774,093
shares of Common Stock directly held by RBB Bank as of March 29,
72
2000, but does not include the shares of Common Stock which are
issuable for payment of dividends on the various series of
preferred stock held by RBB Bank. The foregoing estimate assumes
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.
If RBB Bank were to acquire the shares of Common Stock as described
in the previous paragraph, RBB Bank will 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
Thomas P. Sullivan, Ann L. Sullivan, and the Sullivan Trust
On May 27, 1999, (i) the Company, CCC, CCG, The Thomas P. Sullivan
Living Trust, dated September 6, 1978 ("TPS Trust"); The Ann L.
Sullivan Living Trust, dated September 6, 1978 ("ALS Trust");
Thomas P. Sullivan, an individual ("Mr. Sullivan"); and Ann L.
Sullivan, an individual ("ALS"), entered into a Stock Purchase
Agreement ("Chem-Con Stock Purchase Agreement"), wherein the
Company purchased all of the outstanding capital stock of CCC
and CCG from the ALS Trust pursuant to the terms of the Chem-Con
Stock Purchase Agreement, and (ii) the Company, CM, the TPS Trust,
the ALS Trust, Mr. Sullivan and ALS entered into a Stock Purchase
Agreement ("Chem-Met Stock Purchase Agreement"), whereby the Company
purchased all of the outstanding capital stock of CM from the
TPS Trust pursuant to the terms of the Chem-Met Stock Purchase
Agreement. The Chem-Con Stock Purchase Agreement and the Chem-Met
Stock Purchase Agreement are collectively referred to as the "Stock
Purchase Agreements." The TPS Trust and the ALS Trust are
collectively referred to as the "Sullivan Trusts." Mr. Sullivan
and ALS are husband and wife.
Under the terms of the Stock Purchase Agreements, the purchase price paid
by the Company in connection with the acquisition of CCC, CCG and CM
was $8,700,000, consisting of (i) $1,000,000 in cash paid at closing,
(ii) three promissory notes ("Promissory Notes"), in the aggregate amount
of $4,700,000, to be paid in equal monthly installments of principal and
interest of approximately $90,276.96 over five years and having an interest
rate of 5.5% for the first three years and 7% for the remaining two years,
with payment of such Promissory Notes being guaranteed by CM under a non-
recourse guaranty, which non-recourse guaranty is secured by certain real
estate owned by CM, and (iii) $3,000,000 paid in the form of 1,500,000
shares of Common Stock, paid to the ALS Trust at closing; however, if the
ALS Trust owns any of such shares of Common Stock at the end of eighteen
(18) months from the June 1, 1999, closing date (the "Guarantee Period")
and the market value (as determined below) per share of Common Stock at
the end of the Guarantee Period is less than $2.00 per share, the Company
shall pay the ALS Trust, within ten (10) business days after the end of
the Guarantee Period, an amount equal to the sum determined by
multiplying the number of shares of Common Stock issued to the ALS Trust
under the Stock Purchase Agreements that are still owned by the ALS Trust
at the end of the Guarantee Period by $2.00 less the market value (as
determined below) of such shares of Common Stock owned by the ALS Trust
at the end of the Guarantee Period, with such amount, if any, payable by
the Company to the ALS Trust, at the Company's option, in cash or in
Common Stock or a combination thereof. Notwithstanding anything to the
contrary, the aggregate number of shares of Common Stock issued or
issuable under the Stock Purchase Agreements for any reason whatsoever
shall not exceed eighteen percent (18%) of the number of issued and
outstanding shares of Common Stock on the date immediately preceding the
June 1, 1999, closing date. The market value of each share of Common
Stock at the end of the Guarantee Period shall be determined based on the
average of the closing sale price per share of Common Stock as reported
on the NASDAQ SmallCap Market ("NASDAQ") for the five (5) consecutive
trading days ending with the trading day immediately prior to the end of
73
the Guarantee Period. Under the Company's loan agreement, the Company
may only pay any such amount due the ALS Trust at the end of the
Guarantee Period in Common Stock unless the lender agrees that the
Company may satisfy all or part of such in cash.
Pursuant to the terms of the Stock Purchase Agreements, for a
period of thirty (30) calendar days prior to the end of the
Guarantee Period, (i) the TPS Trust, ALS Trust, Mr. Sullivan and
ALS shall not, directly or indirectly, or in conjunction with or
through any other person, firm, corporation, entity, partnership,
company or association, sell or dispose of or otherwise transfer
any shares of Common Stock, or other securities of the Company, and
(ii) the Company shall not, and shall cause its directors to not,
buy or otherwise acquire any shares of Common Stock over the NASDAQ
(other than in connection with the exercise of any outstanding
warrants or the conversion of any outstanding options or
convertible securities of the Company, or in connection with an
underwritten public offering of Common Stock).
In connection with the Stock Purchase Agreements, the ALS Trust,
the TPS Trust, ALS and Mr. Sullivan agreed that for a period of two
(2) years from the date of Closing, none of them shall without the
prior consent of the Board of Directors of the Company (i) acquire
or permit any of their affiliates to acquire beneficial ownership
of any voting securities of the Company or any rights or option to
acquire voting securities of the Company or any securities
convertible into any voting securities of the Company, with the
exception that Michael F. Sullivan and Patrick Sullivan, sons of
Mr. Sullivan and ALS, may acquire shares of Common Stock; (ii)
solicit, or encourage any solicitation of, or permit any of their
affiliates to solicit, or encourage any solicitation of, (a)
proxies with respect to voting securities of the Company, or (b)
tender or exchange offers for voting securities of the Company or
(c) any election contest relating to the election of directors of
the Company; or (iii) take any action to acquire or affect the
control of the Company, except that under the Stock Purchase
Agreements, it is recognized that the Sullivan Trusts have the
right to select one nominee to the Board of Directors of the
Company under certain limited conditions. In connection with the
closing of the Stock Purchase Agreements, a new seat was created on
the Board of Directors of the Company and Mr. Sullivan was
appointed to fill such vacant seat. Mr. Sullivan was also
appointed at such time to the Stock Option and Compensation
Committee.
The cash portion of the purchase price for CCC, CCG and CM were
obtained through borrowing from the Company's primary lender.
In connection with the closing, using funds borrowed from the
Company's primary lender, the Company paid an aggregate of
approximately $3,842,560 to satisfy certain obligations of
Chem-Met.
The principal businesses of CCC, CCG and CM are the collection,
treatment, and recycling of industrial and hazardous waste,
including waste oils, water and miscellaneous solid waste.
CCC operates a permitted treatment and storage facility and transfer
station that also serves as the base for a private trucking fleet;
CCG treats hazardous waste and recycles solvents and CM treats and
stabilizes inorganic wastes and maintains a government services
division that is focused principally on the Defense Revitalization
and Marketing Services market. The Company intends to continue using
the CCC, CCG and CM facilities for substantially the same purposes as
such were being used prior to the acquisition by the Company.
Certain claims have been made against CM, CCC and/or CCG after the
closing of the acquisition by the Company of these companies relating
to matters arising prior to the acquisition. The Company is presently
evaluating whether it has any claims against Mr. Sullivan and/or
members of his immediate family as a result of these claims under
the terms of the Stock Purchase Agreements.
RBB Bank Aktiengesellschaft
On July 17, 1996, the Company issued to RBB Bank 5,500 shares of
newly-created Series 3 Class C Convertible Preferred Stock ("Series
3 Preferred") at a price of $1,000 per share, for an aggregate
sales price of $5,500,000. As part of the sale of the Series 3
Preferred, the Company also issued to RBB Bank two (2) Common Stock
purchase warrants entitling RBB Bank to purchase, after
December 31, 1996, until July 18, 2001, an aggregate of up to
2,000,000 shares of Common Stock, with 1,000,000 shares exercisable
at an exercise price equal to $2.00 per share and 1,000,000 shares
exercisable at an exercise price equal to $3.50 per share. The
74
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
"Securities Act"). The Series 3 Preferred accrues dividends on a
cumulative basis at a rate of six percent (6%) per annum, and is
payable semi-annually when and as declared by the Board of
Directors. Dividends shall be paid, at the Company's option, in
the form of cash or Common Stock. The holder of the Series 3
Preferred could convert the Series 3 Preferred into Common Stock of
the Company based on 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 was 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
sustained 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. As a result of the net loss recorded for each of the two
consecutive quarters (first and second quarter of 1997) the minimum
conversion price was reduced by $.25 per share to $.50 per share,
effective July 1, 1997. The Common Stock issuable on the conversion of
the Series 3 Preferred was subject to certain registration rights
pursuant to the subscription agreement. The accrued dividends for the
period January 1, 1999 through December 31, 1999, in the amount of
approximately $146,000 were paid in the form of 79,422 shares of Common
Stock of the Company of which 46,781 shares of Common Stock of the
Company were issued in February 2000 and approximately $40,000 in the
form of cash.
On or about June 11, 1997, the Company issued to RBB Bank 2,500
shares of newly-created Series 4 Class D Convertible Preferred
Stock, par value $.001 per share ("Series 4 Preferred"), at a price
of $1,000 per share, for an aggregate sales price of $2,500,000.
The sale to RBB Bank was made in a private placement under Sections
4(2) and/or 3(b) and/or Rule 506 of Regulation D under the
Securities Act, pursuant to the terms of a Subscription and
Purchase Agreement, dated June 9, 1997, between the Company and RBB
Bank ("Subscription Agreement"). The Series 4 Preferred had 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 accrued dividends on a cumulative basis at a
rate of four percent (4%) per annum of the Liquidation Value
("Dividend Rate"), and was payable semi-annually when and as
declared by the Board of Directors. No dividends or other
distributions could 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 were paid or set
aside for payment. Dividends were paid, at the Company's option, in
the form of cash or Common Stock. If the Company paid dividends in
Common Stock, such were payable in the number of shares of Common
Stock equal to the product of (a) the quotient of (i) four percent
(4%) of $1,000 divided by (ii) the average of the closing bid
quotation of the Common Stock as reported on the NASDAQ for the
five trading days immediately prior to the applicable dividend
declaration date, times (b) a fraction, the numerator of which is
the number of days elapsed during the period for which the dividend
was paid and the denominator of which is 365.
The Series 4 Preferred was convertible into Common Stock at a
conversion price per share of 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 Company had 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 had the option to convert the Series 4
Preferred prior to redemption by the Company.
As part of the sale of the Series 4 Preferred, the Company also
issued to RBB Bank two Common Stock purchase warrants
(collectively, the "Series 4 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
75
Common Stock issuable on the conversion of the Series 4 Preferred
and on the exercise of the Warrants are subject to certain
registration rights pursuant to the Subscription Agreement.
Effective September 16, 1997, the Company entered into an Exchange
Agreement with RBB Bank ("Series 4 Exchange Agreement") which
provided that the 2,500 shares of Series 4 Preferred and the Series
4 Warrants were tendered to the Company in exchange for (i) 2,500
shares of a newly created Series 6 Class F Preferred Stock, par
value $.001 per share ("Series 6 Preferred"), (ii) two warrants
each to purchase 187,500 shares of Common Stock exercisable at
$1.8125 per share, and (iii) one warrant to purchase 281,250 shares of
Common Stock exercisable at $2.125 per share (collectively, the "Series
6 Warrants"). The Series 6 Warrants are 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 was $1.8125 per
share, unless the closing bid quotation of the Common Stock was
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 was to 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. The remaining terms of the Series 6
Preferred were substantially the same as the terms of the Series 4
Preferred. No shares of the Series 6 Preferred were converted.
Effective February 28, 1998, the Company entered into an Exchange
Agreement with RBB Bank (the "Series 6 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 were the same as the rights
under the Series 6 Preferred, except for the conversion price. The
Series 8 Preferred was 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, were less than $2.50, the
conversion price for only that particular conversion was to 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%.
The terms of the Series 8 Preferred included 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 accrued 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 were
payable semi-annually when and as declared by the Board of
Directors. No dividends or other distributions could 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 were paid or set aside for payment. Dividends
could be paid, at the option of the Company, in the form of cash or
Common Stock of the Company. If the Company paid dividends in
Common Stock, such were 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 Series 6
Warrants were not affected by the Series 6 Exchange Agreement.
On or about June 30, 1998, the Company issued to 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
76
under Section 4(2) of the Securities Act and/or Rule 506 of
Regulation D under the Securities Act, pursuant to the terms of a
Subscription and Purchase Agreement, dated June 30, 1998 between
the Company and RBB Bank ("Series 10 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 had 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 accrued dividends on a cumulative basis at
a rate of four percent (4%) per annum of the Liquidation Value
("Dividend Rate"), which were payable semi-annually within ten (10)
business days after each subsequent June 30 and December 31 (each
a "Dividend Declaration Date"), and were 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 could 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 were
paid or set aside for payment. Dividends could be paid, at the
option of the Company, in the form of cash or Common Stock of the
Company. If the Company paid dividends in Common Stock, such were
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 was 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 could 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 ("Series 10 Conversion Price")
was $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 was 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 ("Series 10 Conversion Date") was less than $2.34, then
the Series 10 Conversion Price for that particular conversion was
to be eighty percent (80%) of the average of the closing bid price
of the Common Stock on the NASDAQ (or if the Common Stock was 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 Series 10 Conversion Date.
During 1999, 748 shares of the Series 10 Preferred were converted
into 971,429 shares of Common Stock.
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 "Series 10 RBB Warrants." The Common
Stock issuable upon the conversion of the Series 10 Preferred and
upon the exercise of the Series 10 RBB Warrants is subject to
certain registration rights pursuant to the Series 10 Subscription
Agreement.
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;
77
(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 19, 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.
July 1999 Exchange Agreements
On July 15, 1999, the Company and RBB Bank entered into (i) an
Exchange Agreement, dated July 15, 1999 ("Series 3 Exchange
Agreement"), pursuant to which the 1,769 outstanding shares of
Series 3 Preferred, all of which were held by RBB Bank, were
exchanged for an equal number of shares of newly created Series 11
Class K Convertible Preferred Stock par value $.001 per share
("Series 11 Preferred"); (ii) an Exchange Agreement, dated July 15,
1999 ("Series 8 Exchange Agreement"), pursuant to which the
outstanding shares of Series 8 Preferred, all of which were held by
RBB Bank, were exchanged for an equal number of shares of newly
created Series 12 Class L Convertible Preferred Stock, par value
$.001 per share ("Series 12 Preferred"); and (iii) an Exchange
Agreement, dated July 15, 1999 ("Series 10 Exchange Agreement"),
pursuant to which the outstanding shares of Series 10 Preferred
Stock, all of which were held by RBB Bank, were exchanged for an
equal number of shares of newly created Series 13 Class M
Convertible Preferred Stock, par value $.001 per share ("Series 13
Preferred").
The exchanges of the Series 11 Preferred, Series 12 Preferred, and
Series 13 Preferred to RBB Bank were made in private placements
under Section 4(2) and/or Section 3(a)(9) of the Securities Act.
The terms of the newly issued securities are substantially the same
as the series for which each was exchanged with the exception of
certain differences as described hereafter.
Redemption Terms of Series 8 Preferred and Series 12 Preferred
The Series 8 Preferred was redeemable by the Company (a) within
four (4) years from June 9, 1997 at $1,300 per share when the
average of the closing bid price of the Common Stock for ten (10)
consecutive days is in excess of $4.00 per share as quoted on the
NASDAQ and (b) at $1,000 per share after four years from June 9,
1997. The Company had to provide thirty (30) days notice to the
Series 8 Preferred holder prior to any date stipulated by the
Company for redemption and at such time, the Series 8 Preferred
holder has the option of converting the shares which are to be
redeemed.
Under the terms of the Series 12 Preferred, the Company is
permitted to redeem up to 300 shares of Series 12 Preferred for
$1,000 per share, or an aggregate of $300,000, provided that any
such redemption must occur within 120 days of issuance of the
Series 12 Preferred. On July 15, 1999, the Company redeemed 300
shares of Series 12 Preferred leaving 616 shares of Series 12
Preferred issued and outstanding.
Redemption Terms of Series 10 Preferred and Series 13 Preferred
The Series 10 was not redeemable by the Company. Under the terms
of the Series 13 Preferred, the Company is permitted to redeem up
to 450 shares of Series 13 Preferred for $1,000 per share, or an
aggregate of $450,000, provided that any such redemption must occur
within 120 days of issuance of the Series 13 Preferred. On July
15, 1999, the Company redeemed 450 shares of Series 13 Preferred
leaving 1,802 shares of Series 13 Preferred issued and outstanding.
78
Other Differences
In addition to the different redemption terms for the Series 12
Preferred and the Series 13 Preferred described above, the Series
11 Preferred, Series 12 Preferred and Series 13 Preferred
(collectively, the "July 1999 Exchange Preferred") each contain
provisions, described hereafter, which are different from those
provisions in the Series 3 Preferred, Series 8 Preferred and Series
10 Preferred, as applicable.
* RBB Bank may make no conversions of the July 1999 Exchange
Preferred for 12 months from July 15, 1999.
* Each of the July 1999 Exchange Preferred has a minimum
conversion price of $1.50 per share for a 24 month period from
July 15, 1999.
* For 12 months from July 15, 1999, the Company may redeem at any
time and from time to time any of the July 1999 Exchange
Preferred held by RBB Bank at 110% of its "stated value" of
$1,000 per share. Thereafter, the Company may redeem at any time
and from time to time any of such July 1999 Exchange Preferred
at 120% of its "stated value" of $1,000 per share. After 12
months from July 15, 1999, upon any notice of redemption, RBB
shall have only 5 business days to exercise its conversion
rights regarding the redeemed shares. For 12 months from
July 15, 1999, RBB Bank cannot elect to convert shares of July
1999 Exchange Preferred even if the Company redeems such shares
of July 1999 Exchange Preferred.
August 1999 Exchange Agreements
On August 3, 1999, the Company and RBB Bank entered into (i) an
Exchange Agreement, dated August 3, 1999 ("Series 11 Exchange
Agreement"), pursuant to which the 1,769 outstanding shares of
Series 11 Preferred, all of which were held by RBB Bank, were
exchanged for an equal number of shares of newly created Series 14
Class N Convertible Preferred Stock par value $.001 per share
("Series 14 Preferred"); (ii) an Exchange Agreement, dated
August 3, 1999 ("Series 12 Exchange Agreement"), pursuant to which
the 616 outstanding shares of Series 12 Preferred, all of which
were held by RBB Bank, were exchanged for an equal number of shares
of newly created Series 15 Class O Convertible Preferred Stock, par
value $.001 per share ("Series 15 Preferred"); and (iii) an
Exchange Agreement, dated August 3, 1999 ("Series 13 Exchange
Agreement"), pursuant to which the 1,802 outstanding shares of
Series 13 Preferred Stock, all of which were held by RBB Bank, were
exchanged for an equal number of shares of newly created Series 16
Class P Convertible Preferred Stock, par value $.001 per share
("Series 16 Preferred").
The exchange of the Series 14 Preferred, Series 15 Preferred, and
Series 16 Preferred (collectively, the "August 1999 Exchange
Preferred") to RBB Bank were made in private placements under
Section 4(2) and/or Section 3(a)(9) of the Securities Act. The
terms of each of the August 1999 Exchange Preferred are
substantially identical to the particular July 1999 Exchange
Preferred for which each was exchanged except that the July 15 dates as
described above in connection with the July 1999 Exchange Preferred were
changed to April 20 and certain registration rights were granted
regarding the shares of Common Stock issuable under the August 1999
Exchange Preferred. Therefore, (i) RBB Bank may make no conversions of
the August 1999 Exchange Preferred for 12 months from April 20, 1999;
(ii) each of the August 1999 Exchange Preferred has a minimum conversion
price of $1.50 per share for a 24 month period from April 20, 1999; (iii)
for 12 months from April 20, 1999, the Company may redeem at any time and
from time to time any of the August 1999 Exchange Preferred held by RBB
Bank at 110% of its "stated value" of $1,000 per share; and (iv) if the
Company does not register with the Commission the Common Stock issuable
upon conversion of the August 1999 Exchange Preferred by January 31,
2000, the Company agrees to pay to RBB Bank a penalty in an amount equal
to two percent of the product of (a) the number of shares of such August
1999 Exchange Preferred then outstanding times (b) $1,000, payable in
cash. The Company further agreed that for each month thereafter which
terminates without such registration statement being declared effective
by the Commission before the end of the last day thereof, the Company
shall pay to RBB Bank a penalty in an amount equal to two percent of the
product of (a) the number of shares of August 1999 Exchange Preferred
then outstanding times (b) $1,000, payable in cash. After twelve months
from April 20, 1999, the Company may redeem at any time and from time to
time any of such August 1999 Exchange Preferred at 120% of its "stated
value" of $1,000 per and, upon any notice of redemption, RBB Bank shall
79
have five business days to exercise its conversion rights regarding the
redeemed shares. During the 12 months after April 20, 1999, RBB Bank
cannot elect to convert shares of August 1999 Exchange Preferred even if
the Company redeems such shares of August 1999 Exchange Preferred.
The accrued dividends for the Series 3 Preferred, Series 11 Preferred and
Series 14 Preferred for the period January 1, 1999, through June 30,
1999, were paid in August 1999 in the form of 32,641 shares of Common
Stock and approximately $40,000 in the form of cash. The accrued
dividends for the Series 3 Preferred, Series 11 Preferred and Series 14
Preferred for the period July 1, 1999, through December 31, 1999, were
paid in February 2000 in the form of 46,781 shares of Common Stock.
The accrued dividends for the Series 8 Preferred, Series 12
Preferred and Series 15 Preferred for the period January 1, 1999,
through June 30, 1999, were paid in August 1999 in the form of
7,578 shares of Common Stock and approximately $25,000 in the form
of cash. The accrued dividends for the Series 8 Preferred, Series
12 Preferred and Series 13 Preferred for the period July 1, 1999,
through December 31, 1999, were paid in February 2000 in the form
of 10,860 shares of Common Stock. Regarding the Series 8
Preferred, the Company recognized a dividend, related to the
beneficial conversion feature, in the total amount of $798,000,
which was recorded in 1997.
The accrued dividends for the Series 10 Preferred, Series 13
Preferred and Series 16 Preferred for the period January 1, 1999,
through June 30, 1999, were paid in August 1999 in the form of
22,167 shares of Common Stock and approximately $19,000 in the form
of cash. The accrued dividends for the Series 10 Preferred, Series
13 Preferred and Series 15 Preferred for the period July 1, 1999,
through December 31, 1999, were paid in February 2000 in the form
of 31,769 shares of Common Stock. Regarding the Series 10
Preferred, the Company recognized a dividend, related to the
beneficial conversion feature, 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.
Liviakis Financial Communications
In connection with the placement of Series 10 Preferred to RBB
Bank, the Company 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 could be exercised after January
15, 1999, and which were to expire after four (4) years and (b)
Robert B. Prag, an executive officer of Liviakis ("Prag"), 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 could be exercised after January 15, 1999,
and which were to expire after four (4) years.
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 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.
80
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 1999.
81
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 April 13, 2000
_____________________________ ____________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By /s/ Richard T. Kelecy Date April 13, 2000
_____________________________ ____________________
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/ Jon Colin Date April 13, 2000
_________________________________ ___________________
Jon Colin, Director
/s/ Thomas P. Sullivan Date April 13, 2000
_________________________________ ___________________
Thomas P. Sullivan, Director
/s/ Mark A. Zwecker Date April 13, 2000
_________________________________ ____________________
Mark A. Zwecker, Director
/s/ Dr. Louis F. Centofanti Date April 13, 2000
________________________________ _____________________
Dr. Louis F. Centofanti, Director
82
SCHEDULE II
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1999, 1998 and 1997
(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, 1999:
Allowance for doubtful accounts(1) $ 313 $ 1,039 $ 400 $ 952
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
(1) Excludes Perma-Fix of Memphis, Inc. facility considered a
discontinued operation. See Note 4 of Notes to Consolidated
Financial Statements.
83
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, 1999
3(ii) Bylaws are incorporated by reference from the Company's
Registration Statement, No. 33-51874
4.1 Specimen Common Stock Certificate is incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement, No. 33-51874
4.2 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
4.3 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
4.4 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
4.5 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
4.6 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
4.7 Amendment and Joinder to Loan and Security Agreement (the
"Loan Amendment") dated May 27, 1999, among Congress
Financial Corporation (Florida), Perma-Fix Environmental
Services, Inc. and the subsidiaries of Perma-Fix
Environmental Services, Inc. as incorporated by reference
from Exhibit 4.1 to the Company's Form 8-K dated June 1,
1999
4.8 Exchange Agreement exchanging 1,769 shares of Series 11
Class K Convertible Preferred Stock, Par Value $.001 per
share of Perma-Fix Environmental Services, Inc. for 1,769
shares of Series 14 Class N Convertible Preferred Stock,
Par Value $.001 per share of Perma-Fix Environmental
Services, Inc. dated August 3, 1999, between the Company
and RBB Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.10 to the Company's Form 10-Q
for quarter ended June 30, 1999
4.9 Exchange Agreement exchanging 616 shares of Series 12
Class L Convertible Preferred Stock, Par Value $.001 per
share of Perma-Fix Environmental Services, Inc. for 616
shares of Series 15 Class O Convertible Preferred Stock,
Par Value $.001 per share of Perma-Fix Environmental
Services, Inc. dated August 3, 1999, between the Company
and RBB Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.11 to the Company's Form 10-Q
for quarter ended June 30, 1999
84
Exhibit Sequential
No. Description Page No.
_______ ___________ ___________
4.10 Exchange Agreement exchanging 1,802 shares of Series 13
Class M Convertible Preferred Stock, Par Value $.001 per
share of Perma-Fix Environmental Services, Inc. for 1,802
shares of Series 16 Class P Convertible Preferred Stock,
Par Value $.001 per share of Perma-Fix Environmental
Services, Inc. dated August 3, 1999, between the Company
and RBB Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.12 to the Company's Form 10-Q
for quarter ended June 30, 1999
4.11 Certificate of Designations of Series 14 Class N
Convertible Preferred Stock, dated August 10, 1999, as
incorporated by reference from Exhibit 3(i) to the
Company's Form 10-Q for quarter ended June 30, 1999
4.12 Specimen copy of Certificate relating to the Series 14
Class N Convertible Preferred Stock as incorporated by
reference from Exhibit 4.14 to the Company's Form 10-Q
for quarter ended June 30, 1999
4.13 Certificate of Designations of Series 15 Class O
Convertible Preferred Stock, dated August 10, 1999, as
incorporated by reference from Exhibit 3(i) to the
Company's Form 10-Q for quarter ended June 30, 1999
4.14 Specimen copy of Certificate relating to the Series 15
Class O Convertible Preferred Stock as incorporated by
reference from Exhibit 4.16 to the Company's Form 10-Q
for quarter ended June 30, 1999
4.15 Certificate of Designations of Series 16 Class P
Convertible Preferred Stock, dated August 10, 1999, as
incorporated by reference from Exhibit 3(i) to the
Company's Form 10-Q for quarter ended June 30, 1999
4.16 Specimen copy of Certificate relating to the Series 16
Class P Convertible Preferred Stock as incorporated by
reference from Exhibit 4.18 to the Company's Form 10-Q
for quarter ended June 30, 1999
10.1 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
10.2 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
10.3 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
10.4 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
10.5 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
10.6 Third Amendment to the Company's 1992 Outside Directors'
Stock Option Plan is incorporated by reference from the
Company's Proxy Statement, dated November 8, 1996
10.7 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
85
Exhibit Sequential
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________ ___________ ___________
10.8 1993 Non-qualified Stock Option Plan is incorporated by
reference from the Company's Proxy Statement, dated
October 12, 1993
10.9 401(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
10.10 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
10.11 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
10.12 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
10.13 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
10.14 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
10.15 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
10.16 Common Stock Purchase Warrant Certificate No. 8-9-96,
dated September 16, 1996, between the Company and D. H.
Blair Investment Banking Corporation is incorporated by
reference from Exhibit 4.15 to the Company's Registration
Statement, No. 333-14513
10.17 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
10.18 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
10.19 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
10.20 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
10.21 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
86
Exhibit Sequential
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_______ ___________ __________
10.22 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
10.23 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
10.24 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
10.25 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
10.26 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
10.27 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
10.28 Certificate of Designations of Series 10 Class J Convertible
Preferred Stock, dated July 16, 1998, as incorporated by
reference from Exhibit 3(i) above
10.29 Certificate of Designations of Series 8 Class H Convertible
Preferred Stock as incorporated by reference from Exhibit 3(i)
above
10.30 Certificate of Designations of Series 9 Class I Convertible
Preferred Stock as incorporated by reference from Exhibit 3(i)
above
10.31 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.
10.32 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
10.33 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
10.34 Common Stock Purchase Warrant effective June 30, 1998,
between the Company and Liviakis Financial Communica-
tions, Inc. as incorporated by reference from Exhibit
4.7 to the Company's Form 8-K, dated June 30, 1998
10.35 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
10.36 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
87
Exhibit Sequential
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_______ ___________ __________
10.37 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
10.38 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
10.39 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
10.40 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
10.41 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
10.42 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
10.43 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
10.44 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
10.45 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
10.46 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
10.47 Exchange Agreement dated March 14, 1999, among Liviakis
Financial Communications, Inc., Robert B. Prag and Perma-
Fix Environmental Services, Inc. is incorporated by
reference from Exhibit 10.56 to the Company's Form 10-K
for the year ended December 31, 1998
10.48 Stock Purchase Agreement dated as of May 27, 1999, among
Perma-Fix Environmental Services, Inc., Chemical
Conservation Corporation, Chemical Conservation of
Georgia, Inc., the Thomas P. Sullivan Living Trust, dated
September 6, 1978, the Ann L. Sullivan Living Trust,
dated September 6, 1978, Thomas P. Sullivan, and Ann L.
Sullivan is incorporated herein by reference from Exhibit
2.1 to the Company's Form 8-K dated June 1, 1999
88
Exhibit Sequential
No. Description Page No.
________ ___________ __________
10.49 Stock Purchase Agreement dated as of May 27, 1999, among
Perma-Fix Environmental Services, Inc., Chem-Met
Services, Inc., the Thomas P. Sullivan Living Trust,
dated September 6, 1978, the Ann L. Sullivan Living
Trust, dated September 6, 1978, Thomas P. Sullivan, and
Ann L. Sullivan as incorporated herein by reference from
Exhibit 2.2 to the Company's Form 8-K dated June 1, 1999
10.50 Promissory Note for $1,230,000 issued to the Ann L.
Sullivan Living Trust dated September 6, 1978, as
incorporated by reference from Exhibit 10.1 to the
Company's Form 8-K dated June 1, 1999
10.51 Promissory Note for $1,970,000 issued to the Ann L.
Sullivan Living Trust dated September 6, 1978, as
incorporated by reference from Exhibit 10.2 to the
Company's Form 8-K dated June 1, 1999
10.52 Promissory Note for $1,500,000 issued to the Thomas P.
Sullivan Living Trust dated September 6, 1978, s
incorporated by reference from Exhibit 10.3 to the
Company's Form 8-K dated June 1, 1999
10.53 Non-recourse Guaranty dated May 28, 1999, by and among
Chem-Met Services, Inc., the Thomas P. Sullivan Living
Trust dated September 6, 1978, and the Ann L. Sullivan
Living Trust dated September 6, 1978, as incorporated by
reference from Exhibit 10.4 to the Company's Form 8-K
dated June 1, 1999
10.54 Mortgage dated May 28, 1999, by Chem-Met Services, Inc.
to the Thomas P. Sullivan Living Trust dated September 6,
1978 and the Ann L. Sullivan Living Trust dated
September 6, 1978, as incorporated by reference from
Exhibit 10.5 to the Company's Form 8-K dated June 1, 1999
10.55 Subordination Agreement dated May 27, 1999 among Congress
Financial Corporation (Florida), Perma-Fix Environmental
Services, Inc., the subsidiaries of Perma-Fix
Environmental Services, Inc., the Thomas P. Sullivan
Living Trust dated September 6, 1978 and the Ann L.
Sullivan Living Trust dated September 6, 1978, as
incorporated by reference from Exhibit 10.6 to the
Company's Form 8-K dated June 1, 1999
10.56 Exchange Agreement exchanging 1,769 shares of Series 3
Class C Convertible Preferred Stock, Par Value $.001 per
share of Perma-Fix Environmental Services, Inc. for 1,769
shares of Series 11 Class K Convertible Preferred Stock,
Par Value $.001 per share of Perma-Fix Environmental
Services, Inc. dated July 15, 1999, between the Company
and RBB Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for
quarter ended June 30, 1999
10.57 Exchange Agreement exchanging 916 shares of Series 8
Class H Convertible Preferred Stock, Par Value $.001 per
share of Perma-Fix Environmental Services, Inc. for 916
shares of Series 12 Class L Convertible Preferred Stock,
Par Value $.001 per share of Perma-Fix Environmental
Services, Inc. dated July 15, 1999, between the Company
and RBB Bank Aktiengesellschaft as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for
quarter ended June 30, 1999
10.58 Exchange Agreement exchanging 2,252 shares of Series 10
Class J Convertible Preferred Stock, Par Value $.001 per
share of Perma- Fix Environmental Services, Inc. for
2,252 shares of Series 13 Class Convertible Preferred
Stock, Par Value $.001 per share of Perma-Fix
Environmental Services, Inc. dated July 15, 1999, between
the Company and RBB Bank Aktiengesellschaft as
incorporated by reference from Exhibit 4.1 to the
Company's Form 10-Q for quarter ended June 30, 1999
89
Exhibit Sequential
No. Description Page No.
_______ ____________ __________
10.59 Certificate of Designations of Series 11 Class K
Convertible Preferred Stock, dated July 15, 1999, as
contained in Exhibit 3(i) herein
10.60 Certificate of Designations of Series 12 Class L
Convertible Preferred Stock, dated July 15, 1999, as
contained in Exhibit 3(i) herein as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for
quarter ended June 30, 1999
10.61 Certificate of Designations of Series 13 Class M
Convertible Preferred Stock, dated July 15, 1999, as
contained in Exhibit 3(i) herein as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q
for quarter ended June 30, 1999
21.1 List of Subsidiaries 90
23.1 Consent of BDO Seidman, LLP 91
27.1 Financial Data Schedule 1999 92
90