Back to GetFilings.com
=================================================================
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, 1996
__________________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 1-11596
_______
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
_____________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-1954497
_____________________________ __________________________
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
1940 N.W. 67th Place
Gainesville, FL 32653
________________________ ________
(Address of Principal (Zip Code)
Executive Offices)
(352)373-4200
______________________________
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ _____________________
Common Stock, $.001 Par Value Boston Stock Exchange
Redeemable Warrants Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Warrants
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
_____ ______
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of March 14, 1997, based on the closing sale
price of such stock as reported by NASDAQ on such day, was
$13,521,998. The Company is listed on the Small-Cap Market on
NASDAQ.
As of March 14, 1997, there were 10,095,948 shares of the
registrant's common stock, $.001 par value, outstanding, excluding
920,000 shares held as treasury stock.
Documents Incorporated by reference: None
_____
=================================================================
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . 16
Item 4A. Executive Officers of the Company. . . . . . . . . . . 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 21
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . 79
PART III
Item 10. Directors and Executive Officers of
the Registrant. . . . . . . . . . . . . . . . . . . 80
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 83
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 89
Item 13. Certain Relationships and Related Transactions . . . . 93
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 99
PART I
ITEM 1. BUSINESS
Company Overview
Perma-Fix Environmental Services, Inc. (the "Company") is a
Delaware corporation engaged in the (i) treatment, storage,
recycling and disposal of hazardous and non-hazardous waste, mixed
waste which is both low-level radioactive and hazardous, and
industrial waste management services; and (ii) consulting
engineering services to industry and government for broad-scope
environmental issues. The Company has grown through both
acquisitions and internal development. The Company's present
objective is to maximize the profitability of its existing segments
and to continue to focus on those core businesses and expertise
which will achieve this objective.
Principal Products and Services
Through its subsidiaries, the Company is in the following two
(2) lines of business: (i) waste management, including off-site and
on-site services for the treatment, storage, recycling and disposal
of hazardous, non-hazardous and mixed low-level radioactive and
hazardous wastes; and (ii) environmental engineering and consulting
services specializing in environmental management programs, agency
communications, regulatory permitting, compliance and auditing,
landfill design, field testing and characterization. The Company
services research institutions, commercial companies and
governmental agencies nationwide. Distribution channels for
services are through direct sales to customers or via
intermediaries.
The Company was incorporated in December of 1990 as a Delaware
corporation. Its executive offices are located at 1940 N.W. 67th
Place, Gainesville, Florida 32653.
A more detailed summary of the Company's industrial waste
management and consulting engineering services is provided below:
Waste Management Services: The Company provides off-site waste
storage, treatment, recycling and disposal services through its five
treatment, storage and disposal ("TSD") facility subsidiaries:
Perma-Fix Treatment Services, Inc. ("PFTS") located in Tulsa,
Oklahoma; Perma-Fix of Dayton, Inc. (PFD), located in Dayton, Ohio;
Perma-Fix of Memphis, Inc. ("PFM"), located in Memphis, Tennessee;
Perma-Fix of Ft. Lauderdale, Inc. (PFL), located in Ft. Lauderdale,
Florida; and Perma-Fix of Florida, Inc. (PFF), located in
Gainesville, Florida. PFTS is a permitted facility that provides
transportation, treatment and storage of liquid hazardous and non-
hazardous wastes, stabilization of liquid and solid drum residues
and disposal of non-hazardous liquid waste, including characteristic
hazardous liquid waste in which the hazardous characteristics are
removed, by injection into a deep well located at PFTS' facility.
Prior to disposal, all hazardous liquids are processed in a manner
designed to remove or eliminate the hazardous characteristics of the
liquids. PFTS is permitted to dispose in the deep well non-
hazardous waste liquids (including, but not limited to,
characteristic waste liquids for which the hazardous characteristics
have been removed). The deep well has been specifically designed
and constructed for this purpose.
PFD operates a permitted hazardous waste treatment and storage
facility to collect and treat oily waste waters and used oil from
both small and large quantity generators and provides hazardous
waste treatment services for collecting and processing organic
solvents, sludges, and solids for use as substitute fuels in cement
kilns.
PFM is a permitted facility that provides transportation,
storage, treatment and disposal services to hazardous and non-
hazardous waste generators throughout the United States. PFM
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 wastes.
On January 27, 1997, PFM sustained an explosion and fire at its
TSD facility 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. From the date
of the fire through the date of this report, this facility has not
been operational. However, PFM has accepted and will continue to
accept waste for processing and disposal, but has arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
utilization of other facilities to process such waste results 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. PFM is in the process of repairing and/or removing the
damaged storage tanks and any contamination resulting from the
occurrence, and, as of the date of this report, anticipates that PFM
will be able to begin certain operations at the facility by the end
of April 1997. The extent of PFM's activities at the facility, once
operations are renewed, are presently being evaluated by the
Company. The Company and PFM have property and business
interruption insurance and have provided notice to its carriers of
such loss. Although there are no assurances, the Company presently
believes that its property insurance will cover any property loss
suffered by PFM at the facility as a result of such occurrence. The
Company is in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
thereof, if any. See "Property," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note
15 to Notes to Consolidated Financial Statements. Certain
statements contained in this paragraph are forward-looking
statements, and (i) PFM may be unable to begin operations as stated
above if repair, removal or restoration of the damaged tanks are
delayed beyond the date stated or any federal, state or local
governmental authority institutes action against PFM prohibiting PFM
from beginning operations or delays issuance of the approvals, if
any, necessary for PFM to begin operations, or (ii) the insurance
carrier determines that property loss coverage is not available or
is available only in limited amounts or contests the amount of PFM's
claim.
PFL is a permitted facility that collects and treats hazardous
waste waters, oily waste waters, used motor oils and other waste
petroleum products. Recycled waste oil is sold as "on-
specification" fuel. PFL also provides underground storage tank
cleaning and removal support services, and other tank and pit
cleaning activities that complement the facility's treatment
capabilities.
PFF specializes in the processing and treatment of certain
types of low-level mixed radioactive and hazardous wastes. Its four
basic services include the treatment and processing of waste Liquid
Scintillation Vials (LSVs), the processing and handling of other
mixed and radioactive wastes, collection and processing of organic
solvents and sludges for fuel blending, and management of various
other hazardous and non-hazardous wastes. The LSVs are generated
primarily by institutional research agencies and biotechnical
companies. These wastes contain mixed (low-level) radioactive
materials and hazardous waste (flammable) constituents. This
business began in 1983 and to this date has processed over one
million ft3 of LSV waste. Management believes that PFF controls
approximately 80% of the available LSV business in the country. The
business has expanded into receiving and handling other low-level
radioactive and mixed wastes primarily from the nuclear utilities,
the U.S. Department of Energy ("USDOE") and other government
facilities. PFF manages the activities at the facility under the
jurisdiction of the State of Florida Office of Radiation Control and
the State Department of Environmental Protection.
Through its wholly-owned subsidiary, Industrial Waste
Management, Inc. ("IWM"), located in St. Louis, Missouri, the
Company is engaged in supplying and managing non-hazardous and
hazardous waste to be used by cement plants as a substitute fuel or
as a source of raw materials used in the production of cement.
The Company also 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. These services are provided by the
Company's wholly-owned subsidiaries, Perma-Fix, Inc. ("PFI") and
Reclamation Systems, Inc. ("RSI"), through "Service Centers".
Service Centers are located in Tulsa, Oklahoma, and Albuquerque, New
Mexico. PFI does not treat on-site waste that is specifically
listed as hazardous waste by the EPA under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), but treats only non-
hazardous waste and characteristic waste deemed hazardous under
RCRA.
For 1996, the Company's waste management services business
accounted for approximately 82.1% of the Company consolidated
revenues, as compared to approximately 82.7% for 1995.
Consulting Engineering Services: The Company provides
environmental engineering and regulatory compliance consulting
services through Schreiber, Grana & Yonley, Inc. ("SG&Y") located
in St. Louis, Missouri, and Mintech, Inc. ("Mintech") located in
Tulsa, Oklahoma, with a field office in Kansas City, Kansas. SG&Y
specializes in environmental management programs, permitting,
compliance and auditing, in addition to landfill design, field
investigation, testing and monitoring. SG&Y clients are primarily
industrial, and include extensive work in the cement manufacturing
industry. Mintech specializes in environmental and geotechnical
consulting, engineering, geology, hydrogeology and geophysics,
including evaluating, selecting and implementing the appropriate
environmental solutions to problems involving soil and water. In
addition, Mintech personnel routinely provide training services
required under RCRA and the Superfund Amendments and Reauthorization
Act ("SARA") to private industry, governmental agencies and military
installations. During 1996 environmental engineering and regulatory
compliance consulting services accounted for approximately 17.9% of
the Company's total revenue, as compared to 17.3% in 1995.
Segment Information and Foreign and Domestic Operations and Export
Sales
During 1996, the Company was engaged in two industry segments:
(i) treatment, recycling and disposal of hazardous and non-hazardous
wastes; and (ii) environmental engineering and consulting services.
See Note 12 of Notes to Consolidated Financial Statements included
in Item 8 of this report. Most of the Company's activities were
conducted in the Southeast, Southwest and Midwest. The Company had
no foreign operations or export sales during 1996.
Importance of Patents and Trademarks, or Concessions Held
The Company does not believe that it is dependent on any
particular patent or trademark in order to operate its business or
any significant segment thereof. The Company has received
registration through the year 2000 for the service mark "Perma-Fix"
by the U.S. Patent and Trademark office.
The Company owns patents covering various systems for the
recycling of waste materials in cement kilns. The Company has an
agreement with Continental Cement Company which provides for the
payment of royalties to Continental at such time as one or more of
the above patents are licensed to other cement manufacturers for the
recycling of waste materials.
The Company does not believe the on-site waste treatment
processes utilized by PFI are patentable. The Company does,
however, believe that its level of expertise in utilizing such
processes is substantial, and, therefore, maintains such processes
as a trade secret of the Company. The Company maintains a policy
whereby key employees of PFI who are involved with the
implementation of the treatment processes utilized by PFI sign
confidentiality agreements with respect to non-disclosure of such
processes.
Permits and Licenses
The Company's business is 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 the Company's activities regarding the
treatment, storage, recycling, disposal and transportation of
hazardous, non-hazardous and radioactive wastes, and require the
Company and/or its subsidiaries to obtain and maintain permits,
licenses and/or approvals in order to conduct certain of their waste
activities. Failure to obtain and maintain such permits or
approvals would have a material adverse effect on the Company, its
operations and financial condition. Moreover, as the Company
expands its operations it may be required to obtain additional
approvals, licenses or permits, and there can be no assurance that
the Company will be able to do so.
PFTS is presently operating its hazardous waste storage and
treatment activities under a RCRA Part B permit. It operates its
deepwell injection disposal facility under a non-hazardous waste
permit issued by the State of Oklahoma.
PFM operates under a final RCRA permit relating to its
hazardous waste drum storage activities and interim status RCRA
permits to store in tanks the hazardous waste which PFM blends and
processes into substitute fuels. PFM has submitted for renewal its
final RCRA permit.
PFF operates its hazardous and low-level radioactive waste
activities under a RCRA Part B permit and a radioactive materials
license. PFF's low-level radioactive license was issued on August
18, 1995 and amended on March 13 and August 15, 1996 for expanded
radioactive waste management activities. These include larger
numbers of radioisotopes, increased radioactive chemical/physical
forms, research and development, and holding times of up to three
(3) years.
PFD operates a hazardous and non-hazardous waste treatment and
storage facility under a RCRA Part B permit granted January 3, 1996.
The Company believes that its TSD facilities presently have
obtained all approvals, licenses and permits necessary to enable it
to conduct its business as it is presently conducted. The failure
of the Company's 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 the Company, its operations and financial condition.
The Company believes that its on-site waste treatment services
performed by PFI does not require federal environmental permits
provided certain conditions are met, and PFI has received written
verification from each state in which it is presently operating that
no such permit is required provided certain conditions are met.
There can be no assurance that states in which the Company's waste
facilities presently do business, other states in which the
Company's waste facilities may do business in the future, or the
federal government will not change policies or regulations requiring
PFI to obtain permits to carry on its on-site activities.
Seasonality
Management believes that the Company experiences a seasonal
slowdown 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 it serves 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 the Company's revenues for fiscal 1996 have
been derived from hazardous and non-hazardous waste management
services provided to a variety of industrial and commercial
customers. The Company's 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 USDOE, USDOD, USDA, VA and other federal, state and
local agencies. The Company is not dependent upon a single
customer, or a few customers, the loss of any one or more of which
would have a material adverse effect on the Company, and the Company
during 1996 did not make sales to any single customer that in the
aggregate amount represented more than ten percent (10%) of the
Company's consolidated revenues.
Competitive Conditions
The Company competes with numerous companies that are able to
provide one or more of the environmental services offered by the
Company and many of which may have greater financial, human and
other resources than the Company. However, the Company believes
that the range of waste management and environmental consulting,
treatment, recycling and remediation services it provides affords
it a competitive advantage with respect to certain of its more
specialized competitors. The Company believes that the treatment
processes it utilizes offer a cost savings alternative to more
traditional remediation and disposal methods offered by the
Company's competitors.
Many other companies presently provide services similar to
those provided by the Company (except in the low-level radioactive
and hazardous mixed waste area, which has only a few competitors),
and there continues to be intense competition within certain
segments of the waste management industry, which has resulted in
reduced gross margin levels for those segments. 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 the Company and its
competitors move into new geographic markets. The Company believes
that there are no formidable barriers to entry into the on-site
treatment business within which PFI operates. The Company believes
that 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 the Company
through its subsidiaries. Certain of the non-hazardous waste
operations of the Company, however, do not require such permits and,
as a result, entry into these non-hazardous waste businesses would
be easier. In addition, at present there is only one other facility
in the United States that provides low-level radioactive and
hazardous waste recycling of scintillation vials, which requires
both a radioactive permit and a hazardous waste permit. If the
permit requirements for both hazardous waste storage, treatment and
disposal activities and/or the handling of low level radioactive
matters are eliminated or made easier to obtain, such would allow
more companies to enter into these markets and provide greater
competition to the Company.
In the on-site waste treatment service area, the Company
believes that the major competition to its services is the continued
utilization of traditional off-site disposal methods such as
landfilling. As the viability of the Company's on-site treatment
process is demonstrated in the market, the Company believes that the
potential to reduce costs and the ability to limit potential
liability will persuade waste generators to utilize the Company's
services. In the future, the Company believes that it will face
direct competition as processes such as those applied by the Company
are utilized by competitors.
The Company believes that it is a significant participant in
the delivery of off-site waste treatment services in the Southeast,
Midwest and Southwest. The Company competes with TSD facilities
operated by national, regional and independent environmental
services firms located within a several hundred mile radius of the
Company's facilities. The TSD with radiological activities works
on a nationwide basis, to include Puerto Rico, Guam, Samoa, the
Virgin Islands and Antarctica.
The Company's competitors for remediation services include
national and regional environmental services firms that may have
larger environmental remediation staffs and greater resources than
the Company. The Company recognizes its lack of technical and
financial resources necessary to compete for larger remediation
contracts and therefore, presently concentrates on remediation
services projects within its existing customer base or projects in
its service area which are too small for companies without a
presence in the market to perform competitively.
Environmental engineering and consulting services provided by
the Company through Mintech and SG&Y involve competition with larger
engineering and consulting firms. The Company believes that it is
able to compete with these firms based on its established reputation
in its market areas and its expertise in several specific elements
of environmental engineering and consulting such as environmental
applications in the cement industry.
Capital Spending and Certain Environmental Expenditures
During 1996, the Company spent approximately $2,082,000 in
capital expenditures, which was principally for the expansion and
improvements to the operations, and to comply with federal, state
and local environmental laws, rules and regulations at its TSD
facilities. For 1997, the Company has budgeted $1,250,000 for
capital expenditures to maintain permit compliance and improve
operations and $350,000 to comply with federal, state and local
regulations in connection with remediation activities at two
locations. As with 1996, these ongoing environmental expenditures
were not significant, with the exception of remedial activities at
two locations. The two facilities where these expenditures will be
made are Environmental Processing Services, Inc. ("EPS"), a former
RCRA storage and recycling facility, and also the remedial activity
at the PFM facility. EPS operated its facility on property that it
leased from an affiliate of EPS ("Leased Property").
In June 1994, the Company 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 EPS with PFD, which was subsequently
sold to Quadrex. The Company, through its acquisition of PFD in
1994 from Quadrex, was indemnified by Quadrex for costs associated
with remediating the Leased Property, which entails remediation of
soil and/or groundwater restoration. The Leased Property used by
EPS to operate its facility is separate and apart from the property
on which PFD's facility is located. During 1995, in conjunction
with the bankruptcy filing by Quadrex, the Company was 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 $343,000. As discussed in Note 7 to the consolidated financial
statements included in Item 8, the Company has accrued approximately
$925,000 for the estimated costs of remediating the Leased Property
used by EPS, which is in excess of the current estimate for
completion and will extend for a period of three (3) to five (5)
years.
The PFM facility is situated in an industrial setting in
Memphis, Tennessee, with numerous industrial and commercial
businesses proximate. By and from the acquisition of PFM, the
Company assumed certain liabilities to remediate gasoline
contaminated groundwater and investigate, under the hazardous and
solid waste amendments, potential areas of soil contamination on its
property. Prior to the Company's ownership of PFM, the prior owners
installed monitoring and treatment equipment to restore the
groundwater to acceptable standards in accordance with federal,
state and local authorities. As discussed in Note 7 to the
Consolidated Financial Statements included in Item 8, the Company
has accrued approximately $1,160,000 for the estimated costs of this
continuing restoration, which is in excess of the current estimate
and will extend for a period of five (5) to ten (10) years.
As previously discussed, due to a fire and explosion at PFM's
Memphis, Tennessee, TSD facility in January 1997, the Company
anticipates, although there is no assurance, that its property
insurance will cover substantially all of the costs to repair or
remove tanks damaged at the facility as a result of such occurrence.
The Memphis facility has not been operational since the date of such
occurrence. However, PFM has accepted and will continue to accept
waste for processing and disposal, but has arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
Company is in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
of such occurrence, if any. See "BUSINESS--Waste Management
Services" for further discussion as to such occurrence and certain
forward-looking statements contained herein and cautionary
statements relating thereto.
In addition, the Company has budgeted $1,250,000 for capital
expenditures during 1997 in order to upgrade its TSD facilities to
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. However, there is no
assurance that the Company 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".
Number of Employees
As of December 31, 1996, the Company and its subsidiaries
employed approximately 255 persons, of which approximately 61 were
assigned to the Company's engineering and consulting segment and
approximately 189 to the waste management segment. The Company is
not a party to any collective bargaining agreement covering its
employees. The Company believes its relationship with its employees
is satisfactory.
Governmental Regulation
The Company and its customers are subject to extensive and
evolving environmental laws and regulations administered by the EPA
and various other federal, state and local environmental, safety and
health agencies. These laws and regulations largely contribute to
the demand for the Company's services. Although the Company's
customers remain responsible by law for their environmental
problems, the Company must also comply with the requirements of
those laws applicable to its services. Because the field of
environmental protection is both relatively new and rapidly
developing, the Company cannot predict the extent to which its
operations may be affected by future enforcement policies as applied
to existing laws or by the enactment of new environmental laws and
regulations. Moreover, any predictions regarding possible liability
are further complicated by the fact that under current environmental
laws the Company could be jointly and severally liable for certain
activities of third parties over whom the Company has little or no
control. Although management believes that the Company is currently
in substantial compliance with all applicable laws and regulations,
the Company 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 the Company and its 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 specified minimum
amounts 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. Operators of Class I hazardous waste injection
wells that can demonstrate to the satisfaction of the EPA that the
wastes will not migrate from the injection zone for 10,000 years are
able to receive significant exemptions from these regulations. PFTS
does not have and is not expected to receive such an exemption and
therefore only injects non-hazardous liquid waste and certain types
of hazardous liquid waste streams which have been treated prior to
disposal in compliance with applicable regulations or for which no
treatment has been prescribed by applicable law.
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
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. The Company's 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 the Company, 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. The failure of the Company to conform
its services to the requirements of any of these other applicable
federal or state laws could subject the Company to substantial
liabilities which could have a material adverse affect on the
Company, its operations and financial condition. In addition to
various federal, state and local environmental regulations, the
Company's 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 it operates. The Company cannot predict the extent to which
it 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.
Potential Environmental Liability and Insurance
The nature of the Company's business exposes it 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 the Company is 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 the Company's operations;
and claims alleging negligence or professional errors or omissions
in the planning or performance of its services or in the providing
of its products. In addition, the Company could be deemed a
responsible party for the costs of required clean-up of any property
which may be contaminated by hazardous substances generated by the
Company or transported by the Company to a site selected by the
Company, including properties owned or leased by the Company. The
Company could also be subject to fines and civil penalties in
connection with violations of regulatory requirements.
Prior to the time of acquisition of PFM by the Company,
gasoline has been detected in the groundwater at the PFM facility,
and remediation of such gasoline is currently underway. 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 at PFM is currently being investigated. Based upon a
study performed by the Company's environmental engineering group,
the Company does 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, does 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.
The Company currently has $1 million of general liability
insurance coverage with $2 million in the aggregate plus $6 million
excess umbrella coverage. In addition, the Company carries
contractors' pollution and professional liability coverage of $1
million per occurrence and $2 million in the aggregate. The Company
is 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, the Company has doubled these coverage amounts to $2
million per occurrence and $4 million per year in the aggregate.
In particular, the PFTS deep well carries liability insurance of $4
million per occurrence and $8 million per year in the aggregate.
The cost of the Company's insurance is substantial. Although the
Company believes that its insurance coverage is presently adequate
and similar to or greater than the coverage maintained by other
companies of its size in the industry, there can be no assurance
that liabilities that may be incurred by the Company will be covered
by its insurance or that the dollar amount of such liabilities that
are covered will not exceed the Company's policy limits.
Furthermore, there can be no assurance that the Company will be able
to continue to obtain adequate or required insurance coverage or,
if obtainable, to be able to purchase it at affordable rates. If
the Company has difficulty in obtaining such coverage, it could be
at a competitive disadvantage with other companies and/or may be
unable to continue certain of its operations.
ITEM 2. PROPERTIES
The following table describes the principal properties
currently operated by the Company:
Location Entity Own/Lease Description
________ ______ _________ ___________
Dayton, OH Perma-Fix of Dayton, Inc. Own 27,000 sq. ft. of
office and ware-
house space on
25.6 acres
Davie, FL Perma-Fix of Ft. Lauderdale, Own Office and plant on
Inc. 2.5 acres
Davie, FL Perma-Fix of Ft. Lauderdale, Lease 2,115 sq. ft. of
Inc. office space
Gainesville, Perma-Fix of Florida, Inc. Own 45,000 sq. ft. of
FL office and ware-
house space on 7.5
acres
Memphis, TN Perma-Fix of Memphis, Inc. Own 6,000 sq. ft. of
office space on
9.8 acres
Memphis, TN Perma-Fix of Memphis, Inc. Own 3,000 sq. ft. of
office and ware-
house space on 2
acres
Tulsa, OK Perma-Fix Treatment Services, Own 1,950 sq. ft. of
Inc. office space on 25
acres
Tulsa, OK Perma-Fix Treatment Services, Lease(1) 13,541 sq. ft. of
Inc. office and ware-
house space on 10
acres
Atlanta, GA Perma-Fix Environmental Lease 480 sq. ft. of office
Services, Inc. space
Tulsa, OK Mintech, Inc. Lease 8,707 sq. ft. of
office space
Albuquerque, Perma-Fix of New Mexico Lease 5,236 sq. ft. of
NM Inc. warehouse space
Fenton, MO Schrieber, Yonley & Lease 13,000 sq. ft. of
Associates office space
Kansas City, Perma-Fix of Memphis, Lease 5,000 sq. ft. of
MO Inc. office and ware-
house space
____________________
(1) Lease provides an option to purchase for a nominal amount at
the end of the lease term.
The Company believes that the above facilities currently
provide adequate capacity for the Company's operations and that
additional facilities are readily available in the regions in which
the Company currently operates.
The facility owned by Perma-Fix of Memphis, Inc. ("PFM") that
is permitted to store and treat hazardous waste and at which fuels
are blended has not been operational since January 27, 1997, the
date that an explosion and fire occurred at the facility. The
Company anticipates that PFM's facility will be able to resume
operations during the second quarter of 1997. The extent of PFM's
activities at this facility once operations are resumed is presently
being evaluated by the Company. See "BUSINESS -- Waste Management
Services" for further discussion of such occurrence and certain
forward-looking statements contained herein and cautionary language
relating thereto.
ITEM 3. LEGAL PROCEEDINGS
During September 1994, Perma-Fix of Memphis, Inc. (PFM),
formerly American Resource Recovery Corporation ("ARR"), was sued
by Community First Bank ("Community First") to collect a note in the
principal sum of $341,000 that was allegedly made by ARR to CTC
Industrial Services, Inc. ("CTC") in February 1987 (the "Note"), and
which was allegedly pledged by CTC to Community First in December
1988 to secure certain loans to CTC. This lawsuit, styled Community
First Bank v. American Resource Recovery Corporation, was instituted
on September 14, 1994, and is pending in the Circuit Court, Shelby
County, Tennessee. The Company was not aware of either the Note or
its pledge to Community First at the time of the Company's
acquisition of PFM in December 1993. The Company intends to
vigorously defend itself in connection therewith. PFM has filed a
third party complaint against Billie Kay Dowdy, who was the sole
shareholder of PFM immediately prior to the acquisition of PFM by
the Company, alleging that Ms. Dowdy is required to defend and
indemnify the Company and PFM from and against this action under the
terms of the agreement relating to the Company's acquisition of PFM.
Ms. Dowdy has stated in her answer to the third party complaint that
if the Note is determined to be an obligation enforceable against
PFM, she would be liable to PFM, assuming no legal or equitable
defenses.
In May 1995, PFM, a subsidiary of the Company, became aware
that the U.S. District Attorney for the Western District of
Tennessee and the Department of Justice were investigating certain
prior activities of W. R. Drum Company, its successor, First
Southern Container Company, and any other facility owned or
operated, in whole or in part, by Johnnie Williams. PFM used W.
R. Drum Company to dispose of certain of its used drums. In May
1995, PFM received a Grand Jury Subpoena which demanded the
production of any documents in the possession of PFM pertaining to
W. R. Drum Company, First Southern Container Company, or any other
facility owned or operated, and holder in part, by Johnnie Williams.
PFM complied with the Grand Jury Subpoena. Thereafter, in September
of 1995, PFM received another Grand Jury Subpoena for documents from
the Grand Jury investigating W. R. Drum Company, First Southern
Container Company and/or Johnnie Williams. PFM complied with the
Grand Jury Subpoena. In December 1995, representatives of the
Department of Justice advised PFM that it was also currently a
subject of the investigation involving W. R. Drum Company, First
Southern Container Company, and/or Johnnie Williams. Since that
time, however, PFM has had no contact with representatives of either
the United States District Attorney's office for the Western
District of Tennessee or the Department of Justice, and is not aware
of why it is also a subject of such investigation. In accordance
with certain provisions of the Agreement and the Plan of Merger
relating to the prior acquisition of PFM, on or about January 2,
1996, PFM notified Ms. Billie K. Dowdy of the foregoing, and advised
Ms. Dowdy that the Company and PFM would look to Ms. Dowdy to
indemnify, defend and hold the Company and PFM harmless from any
liability, loss, damage or expense incurred or suffered as a result
of, or in connection with, this matter.
In addition to the above matters and in the normal course of
conducting its business, the Company is involved in various other
litigation. The Company is not a party to any litigation or
governmental proceeding which its management believes could result
in any judgments or fines against it that would have a material
adverse affect on the Company's financial position, liquidity or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders ("Annual Meeting")
was held on December 12, 1996. At the Annual Meeting, the following
matters were voted on and approved by the shareholders:
1. The election of four (4) directors to serve until the
next annual meeting of stockholders or until their
respective successors are duly elected and qualified;
2. Approval of the Third Amendment to the Company's 1992
Outside Directors Stock Option and Incentive Plan.
3. Approval of the Company's 1996 Employee Stock Purchase
Plan.
4. Approval of an amendment to the Company's Certificate of
Incorporation increasing the authorized shares of the
Company's common stock from 20,000,000 shares to
50,000,000 shares.
At the Annual Meeting the four (4) 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, against and abstentions for each director are as
follows:
Abstentions
Withhold and Broker
For Authority Non-Votes
_________ _________ _________
Dr. Louis F. Centofanti 7,993,533 61,952 -
Mark A. Zwecker 7,994,533 60,952 -
Steve Gorlin 7,993,533 61,952 -
Jon Colin 7,991,233 64,252 -
Also, at the Annual Meeting the shareholders approved the Third
Amendment to the Company's 1992 Outside Directors Stock Option and
Incentive Plan, which, among other things, 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 of the Company. 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 Plan. Also approved at the Annual
Meeting was the adoption of the Perma-Fix Environmental Services,
Inc. 1996 Employee Stock Purchase Plan. This plan provides that
eligible employees of the Company and its subsidiary, 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 final proposal approved at the Annual
Meeting was the amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase from 20,000,000 to 50,000,000
shares the Company's authorized common stock, par value $.001 per
share.
The votes for, against and abstentions and broker non-votes are
as follows:
Abstentions
and Broker
For Against Non-Votes
_________ _______ ________
Approval of Third Amend- 5,784,580 309,415 1,961,490
ment to the 1992 Out-
side Directors Stock
Option and Incentive
Plan
Approval of the 1996 4,318,672 160,550 3,576,263
Employee Stock Pur-
chase Plan
Amendment to the Restated 6,868,750 293,685 893,050
Certificate of Incor-
poration increasing the
number of authorized
shares of common stock
from 20,000,000 to
50,000,000
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:
Dr. Louis F. Centofanti Dr. Centofanti has served as Chairman of
Chairman of the Board, the Board since formation of the Company
President and in February 1991. Dr. Centofanti also
Chief Executive Officer served as President and Chief Executive
Officer of the Company from February 1991
until September 1995, at which time
Mr. Robert W. Foster, Jr. ("Foster") was
elected as Chief Executive Officer. Upon
the resignation of Foster in March 1996,
Dr. Centofanti was again 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.
("USPCI"), a large integrated hazardous
waste management company, where he was
responsible for managing the treatment,
reclamation and technical groups within
the company. In 1981, he founded PPM,
Inc., a hazardous waste management
company specializing in the treatment of
PCB contaminated oils which was sold to
USPCI in 1985. From 1978 to 1981,
Dr. Centofanti served as Regional
Administrator of the Department of Energy
for the southeastern region of the United
States. Dr. Centofanti has a Ph.D. and a
M.S. in Chemistry from the University of
Michigan, and a B.S. in Chemistry from
Youngstown State University.
Mr. Richard T. Kelecy Mr. Kelecy was elected Chief Financial
Chief Financial Officer Officer in September 1995. He previously
Age: 41 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
("Quadrex"). In February 1995, Quadrex
filed for bankruptcy protection under the
federal bankruptcy laws. 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 in New Wilmington,
Pennsylvania.
_________________________
(1) There is no family relationship between any of the executive
officers.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, with a par value of $.001 per
share, is traded on the NASDAQ Small-Cap Market ("NASDAQ") and the
Boston Stock Exchange ("BSE") under the symbol "PESI" on NASDAQ and
"PES" on the BSE. Effective December 1996, the Company's 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:
1996 1995
__________________ __________________
Low High Low High
_____ ______ _______ _______
Common Stock: 1st Quarter 1 1 3/4 1 3/4 3 1/8
Second Quarter 29/32 2 7/16 1 11/16 3
Third Quarter 1 1/2 2 9/16 1 7/8 2 3/4
Fourth Quarter 1 5/16 2 7/16 1 1/8 1 15/16
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, 1996, there were approximately 182
shareholders of record of the Company's common stock, including
brokerage firms and/or clearing houses holding shares of the
Company's 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 was
approximately 1,100 on this date.
Since its inception, the Company has not paid a dividend on its
common stock and has no dividend policy. Management is subject to
certain restrictions on the payment of dividends by the terms and
covenants under the terms of the Loan and Security Agreement ("Loan
Agreement") with Heller Financial, Inc. The Company is prohibited
from paying dividends unless Heller agrees to such payment. The
Loan Agreement was entered into on January 27, 1995 and is further
discussed in Note 5 of the Notes to Consolidated Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived from
the consolidated financial statements of the Company and its
subsidiaries. Financial statements for the year ended December 31,
1996 have been audited by BDO Seidman, LLP, and for the years ended
December 31, 1995 and 1994, by Arthur Andersen LLP. Financial
statements for the years ended December 31, 1993 and 1992 have been
audited by Coopers & Lybrand L.L.P.
Statement of Operations Data:
(Amounts in Thousands,
Except for Share
Amounts) December 31,
________________________________________________
1996 1995(4) 1994(3) 1993 1992(1)
_______ _______ _______ _______ _______
Revenues $31,037 $34,891 $28,075 $10,123 $ 5,983
Net loss applic-
able to common
stock (405) (9,052) (1,516) (1,895) (1,269)
Net loss per common
share(2) (.05) (1.15) (.25) (.44) (.50)
Weighted average
number of common
shares outstand-
ing(2) 8,761 7,872 5,988 4,287 2,531
Balance Sheet Data:
December 31,
_______________________________________________
1996 1995(4) 1994(3) 1993 1992(1)
_______ _______ _______ _______ _______
Working capital
(deficit) $ (773) $(9,372) $ (705) $ 1,278 $ 7,280
Total assets 29,036 28,873 35,067 17,711 10,523
Long-term debt,
less current
maturities 4,881 1,116 4,772 820 1,516
Total liabilities 16,451 20,935 18,105 6,997 2,286
Stockholders'
equity 12,585 7,938 16,962 10,714 8,237
(1) Includes financial data of IWM using the purchase method of
accounting and only from February 10, 1992, the date of
acquisition.
(2) As adjusted to reflect the stock split approved by the Board
of Directors in July 1992, and to reflect all stock options
and warrants outstanding at December 31, 1993 as if such
options and warrants had been outstanding for all periods
presented prior to December 31, 1993, using the treasury stock
method in accordance with SEC Staff Accounting Bulletin
No. 83.
(3) Includes financial data of Perma-Fix of Florida, Inc., Perma-
Fix of Dayton, Inc. and Perma-Fix of Ft. Lauderdale, Inc., as
acquired from Quadrex Corporation and accounted for using the
purchase method of accounting, from June 30, 1994.
(4) Includes write-down of impaired intangible permit related to
an acquisition completed in December of 1993 and certain
nonrecurring charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is based, among other
things, upon the audited consolidated financial statements of the
Company and its subsidiaries, and includes the accounts of the
Company and its wholly-owned subsidiaries, after elimination of all
significant inter-company balances and transactions.
Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements of the
Company and its subsidiaries and the notes thereto included in Item
8 of this report.
The Company is an active participant in the pollution control
industry, which encompasses numerous segments ranging from
residential solid waste collection and disposal to integrated
remedial services for military and government installations, and the
treatment and disposal of hazardous and mixed waste. The industry
was born out of the promulgation of federal, state and local
environmental regulations. Over the last three to five years, waste
minimization, in conjunction with maturing market conditions, has
lead to acquisitions, consolidations and some firms exiting from
segments in this industry. Today's business environment in the
waste management industry is highly competitive, with customer cost
containment, pricing pressures and market share consolidation
prevalent. As a result of these industry conditions and the related
losses recognized by the Company, a major restructuring program was
initiated during 1995. This program included the closure of several
poorly-performing service centers, the establishment of regional
profit centers and the reduced overall cost structure and overhead
carried by the Company. Charges related to this program are
reflected in the operating results for the year ended December 31,
1995.
The reporting of financial results and pertinent discussions are
tailored to two segments of the pollution control industry: Waste
Management Services and Consulting Engineering Services.
Below are the results of operations for the Company for the prior
three years with subsequent disclosures for industry segments for
this same year found in the segment reporting section.
(Amounts in Thousands) 1996 1995 1994
______________________ _______ _______ _______
Revenues $31,037 $34,891 $28,075
Cost of goods sold 21,934 26,564 22,301
_______ _______ _______
Gross profit 9,103 8,327 5,774
Selling, general and
administrative 6,922 8,132 5,298
Depreciation and amortization 2,252 2,431 1,545
Permit write-down - 4,712 -
Nonrecurring charges - 987 -
Other income (expense):
Interest income 65 70 65
Interest expense (812) (952) (373)
Other 558 (235) (109)
Provision for income taxes - - 30
Preferred stock dividends (145) - -
________ ________ ________
Net loss applicable
to common stock $ (405) $(9,052) $(1,516)
======== ======== ========
Summary -- Years Ended December 31, 1996 and 1995
The Company had net revenues of $31,037,000 for the year ended
December 31, 1996, compared to the 1995 net revenues of $34,891,000.
This decrease in revenue from 1995 to 1996 of $3,854,000 reflects
the impact of the various restructuring programs initiated during
1995, which resulted in the consolidation and closure of certain
offices, the divestiture of a subsidiary and the elimination of
select low margin activities, as the Company continued to focus its
efforts on certain business segments. The above noted increase in
revenues, however, from 1994 to 1995 principally reflects the June
1994 acquisitions of Perma-Fix of Dayton, Inc. ("PFD"), Perma-Fix
of Ft. Lauderdale, Inc. ("PFL"), and certain assets located in
Gainesville, Florida, now known as Perma-Fix of Florida, Inc.
("PFF"), from Quadrex Corporation and its subsidiary Quadrex
Environmental Company (collectively, "Quadrex"). During 1996, the
Company experienced reduced revenues at PFL's facility in Ft.
Lauderdale, Florida, during the period that a major capital
expansion project at such facility was being instituted. In
addition, during such expansion, the PFL facility was vandalized
during October 1996, resulting in a minimal reduction in revenues
over a two to four week period. The combined reduction in revenues
at PFL was approximately $718,000 during 1996, which was partially
offset by increased revenues of $268,000 at certain other fixed-
based facilities of the Company and receipt during 1996 of new
contracts, such as the waste treatment project at the U.S.
Department of Energy's Fernald, Ohio, facility.
Cost of goods sold for the Company decreased during 1996 by
$4,630,000 to a total of $21,934,000, as compared to $26,564,000 for
1995. This decrease is partially attributable to the overall
reduction in revenue of $3,854,000 as discussed above, and to the
cost benefit associated with the various restructuring programs and
a reduced cost structure throughout the organization. This reduced
cost structure can be further reflected by the cost of goods sold
as a percent of revenue, which was 70.7% for 1996, as compared to
76.1% and 79.4% for 1995 and 1994, respectively.
Selling, general and administrative expenses decreased
$1,210,000 from $8,132,000 for fiscal 1995 to $6,922,000 for fiscal
year ended December 31, 1996. This decrease principally reflects
the reduced administrative cost structure, resulting from the
restructuring program, which reflected an overall reduction in
administrative expenses of $1,441,000 during 1996. This reduced
administrative cost was partially offset by an increase in marketing
expenses of approximately $231,000 from 1995 to 1996, reflecting
increased sales and marketing efforts as the Company focuses on new
business areas of the waste industry. The increase in selling,
general and administrative expenses from 1994 to 1995 principally
reflects a full year of expenses in 1995 as a result of the
acquisition from Quadrex of PFD, PFL and PFF, over the partial year
of 1994. As a percent of revenue, SG&A expenses were 22.3% of
revenue for 1996, as compared to 23.3% of revenue for fiscal year
ended December 31, 1995.
During December 1995, the Company recognized a permit
impairment charge of $4,712,000, related to the December 1993
acquisition of Perma-Fix of Memphis, Inc. ("PFM"). The evaluation
of this impairment included the review of prior operating results,
the recent restructuring activities, including the reduction of all
possible operating and overhead costs, margin and revenue
enhancements, and the related estimate of future undiscounted
operating income. Based upon this review, the permit was deemed to
be impaired and a charge recorded for the full carrying amount of
this intangible permit, which is further discussed in Note 13 of the
Notes to Consolidated Financial Statements.
During 1995, the Company recorded several nonrecurring charges
totalling $987,000, for certain unrelated events. Of this amount,
$450,000 represents a divestiture reserve as related to the sale of
a wholly-owned subsidiary and $537,000 are one-time charges
resulting from restructuring programs.
The Company decided in 1994 to divest its wholly-owned
subsidiary, Re-Tech Systems, Inc., which is engaged in post-consumer
plastics recycling. A reserve in the amount of $450,000 was
recorded during the second quarter of 1995 for the estimated loss
to be recognized through a sale transaction. During the first
quarter of 1996, the Company completed the sale transaction for this
business, resulting in total consideration of $970,000, which is
further discussed in "Liquidity and Capital Resources" of this
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 14 of the Notes to Consolidated
Financial Statements. The Company also executed restructuring
programs during 1995 within the waste management services segment.
A one-time charge of $237,000 was recorded to provide for costs,
principally severance and lease termination fees, associated with
the restructuring of the Perma-Fix, Inc. service center group. This
program entailed primarily the consolidation of offices in
conjunction with the implementation of a regional service center
concept, and the related closing of seven (7) of the nine (9)
offices. A one-time charge of $75,000 was also recorded during the
second quarter of 1995 to provide for consolidation costs,
principally severance, associated with the restructuring of the
Southeast Region, which is comprised of PFF and PFL. These
restructuring costs were principally incurred and funded during
1995.
In December of 1995, in conjunction with the above referenced
restructuring program, the Company and Mr. Robert W. Foster, Jr.
("Foster") agreed to Foster's resignation as President, Chief
Executive Officer and Director of the Company, thereby terminating
his employment agreement with the Company effective March 15, 1996.
The Company paid severance benefits of $30,000 in cash, continued
certain employee benefits for a period of time, and issued $171,000
in the form of common stock, par value $.001, of the Company
(152,000 shares). Pursuant to the above, the Company recorded a
nonrecurring charge at December 31, 1995 of $215,000. In addition,
severance costs of approximately $10,000 were also incurred upon the
termination of several corporate executives. These restructuring
costs were principally incurred and funded during the first six (6)
months of 1996.
Depreciation and amortization for 1996 reflects a total of
$2,252,00 or a decrease of $179,000 from the 1995 balance of
$2,431,000. This decrease is principally a result of reduced
amortization in conjunction with the permit write-down of $4,712,000
related to PFM, as recorded in December 1995. The amortization
expense for 1996 was $455,000, which reflects a decrease of $232,000
from the 1995 total of $687,000. This reduced amortization is
partially offset by increased depreciation of $53,000 reflecting new
capital assets acquired during the year, partially offset by asset
dispositions and the divestiture of a subsidiary of the Company.
Interest income totalled $65,000, a reduction of $5,000 from
the 1995 total of $70,000. This total reflects interest earned on
the restricted cash balances maintained by the Company. These
restricted cash balances and related interest income generally
increase from year to year. However, the restricted cash balance
was reduced in the fourth quarter of 1995 as the Company replaced
existing letters of credit with an alternative financial assurance
instrument, thereby eliminating the need for such restricted cash.
This, in turn, resulted in reduced interest income in 1996.
Interest expense also decreased during 1996 by $140,000 to a total
of $812,000, as compared to $952,000 for 1995. The interest expense
is primarily related to the senior debt facility with Heller
Business Credit and the capital lease line with Ally Capital
Corporation, both of which reflect reduced debt balances during 1996
due to repayments and correspondingly reduced interest expense.
Interest expense was also impacted by a reduced revolving credit
line balance during 1996 resulting from the proceeds generated from
the private placements which were used to partially repay said
balance. Offsetting this reduced interest expense, during 1996, was
the preferred stock dividends totalling $145,000 incurred in
conjunction with the Series 3 Class C Convertible Preferred Stock
as issued in July 1996. The preferred stock dividend was paid in
the form of 100,387 shares of common stock of the Company, which
covered the period July 24 through December 31, 1996, and were
issued in January 1997.
Other income (expense) for 1996 reflected an income total of
$558,000, as compared to expense of $235,000 for 1995. In
conjunction with the above discussed restructuring programs and
office closures, the Company renegotiated and settled certain
accounts payable on favorable terms and adjusted other liabilities,
resulting in approximately $334,000 net other income during 1996.
The Company also recognized a gain of approximately $166,000 on the
sale of non-productive assets, including the gain on the sale of Re-
Tech. Effective December 31, 1996, the Company divested its arsenic
removal technology for a net gain of approximately $122,000.
Partially offsetting the above gains during 1996 were other expenses
totalling $65,000, which principally represented costs associated
with the October 1996 vandalism at PFL's facility as discussed
above.
The Company reported a net loss applicable to common stock of
$405,000 in 1996, as compared to $9,052,000 in 1995. The per share
loss was $.05 for 1996 versus $1.15 in 1995. Net loss for 1995
included permit write-down and nonrecurring charges totalling
$5,699,000, which, when deducted from the total loss, results in a
comparable loss of $3,353,000. This significant improvement from
1995 to 1996 reflects again the impact of the various restructuring
programs, cost reduction across all segments of the Company and the
revenue focus on select areas of the waste industry.
Summary -- Years Ended December 31, 1995 and 1994
The Company had net revenues of $34,891,000 for the year ended
December 31, 1995, compared to the 1994 revenue of $28,075,000. The
Company benefited by a full calendar year of its 1994 acquisitions
of PFD, PFL, and certain assets located in Gainesville, Florida, now
known as PFF, from Quadrex. As a percent of revenue, this is a
24.3% increase over 1994 revenue. Despite this increase, the
Company continued to experience flat to declining revenue during
1995, attributable to its service groups and engineering segments,
as a result of discontinuing specific products or locations.
Cost of goods sold for the Company increased 19.1% from 1995
over 1994, totaling $26,564,000 for 1995 versus $22,301,000 for the
year ended December 31, 1994. As a percent of revenue, costs of
goods sold were 79.4% in 1994 versus 76.1% for fiscal 1995. The
cost of goods sold continues to decrease as a percent of revenue,
which is attributable to a business mix based more on fixed-based
processing facilities (82.7% of gross revenue in 1995 versus 74.9%
of gross revenue in 1994). These fixed-based operations generally
have lower costs of goods sold versus the engineering consulting
segments.
Selling, general and administrative expenses increased
$2,834,000 from $5,298,000 for fiscal 1994 to $8,132,000 for fiscal
year ended December 31, 1995. Both marketing and general
administrative expenses were higher than 1994, reflecting increased
costs of acquiring new customers and general administrative
functions, and the full year of the businesses acquired from
Quadrex, which reflected an increase of approximately $1,333,000
over the partial year of 1994. Also impacting this increase was the
additional reserves for "allowance for doubtful accounts" recorded
during 1995 versus 1994; $610,000 and $311,000, respectively. This
increase of $299,000 is principally a result of the Industrial
Compliance and Safety, Inc. acquisition completed during the second
quarter of 1995 and the related forgiveness of its indebtedness to
the Company. As a percent of revenue, SG&A expenses were 23.3% of
revenue for the year ended December 31, 1995, as compared to 18.9%
of revenue for fiscal year ended December 31, 1994.
Depreciation and amortization for 1995 reflects a total of
$2,431,000 or an increase of $886,000 over the 1994 balance of
$1,545,000. This increase was principally a result of the
depreciation and amortization related to the businesses acquired
from Quadrex, which resulted in an increase of $588,000 in 1995,
over the six (6) months of 1994.
Interest income reflected a slight increase during 1995, with
$70,000 for fiscal 1995 versus $65,000 for fiscal year ended
December 31, 1994. However, interest expense increased to $952,000
for the year ended December 31, 1995 as compared to $373,000 for the
year ended December 31, 1994. This increase is principally
attributable to the senior debt facility with Heller Business Credit
and a capital lease line with Ally Capital Corporation. Under these
facilities the Company utilized debt financing to fund capital
expenditures and working capital needs, which resulted in increased
interest expense of $579,000 for fiscal 1995.
Other expense for 1995 was $235,000, which reflects an increase
of $126,000 over the 1994 total of $109,000. This expense
represents primarily the $281,000 in financing fees relative to
securing the Heller Financial, Inc. Loan and Security Agreement,
partially offset by various other income items.
The Company reported a net loss of $9,052,000 in 1995 as
compared to a net loss of $1,516,000 in 1994. The per share loss
was $1.15 for 1995 versus $.25 in 1994. The increase in both the
dollars lost and per share loss are generally attributable to
discontinuing certain of the service center/mobile treatment
centers, the write-down in anticipation of the loss from divesting
the plastics business, poor performance from the Memphis fixed-based
facility and resulting permit impairment charge, and generally poor
performances from the remainder of the Company's operations.
Subsequent Event
On January 27, 1997, the Company's subsidiary, PFM, sustained
an explosion and fire at its Memphis, Tennessee, TSD facility. As
a result, this facility has not been operational since the date of
the explosion and fire. However, during this period, PFM has
accepted and will continue to accept waste for processing and
disposal, but has arranged for other facilities owned by the Company
or subsidiaries of the Company or others not affiliated with the
Company to process such waste. The utilization of other facilities
to process such waste results 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. The Company anticipates
that this facility will begin certain limited operations on or prior
to the end of April 1997, upon the repair and/or removal of the
tanks that were damaged as a result of such occurrence. The Company
presently believes that its property insurance will cover any
property loss suffered by PFM as a result of such occurrence. The
Company is presently in the process of determining the amount of
business interruption that may be recoverable by PFM as a result of
such explosion and fire. See "BUSINESS--Waste Management Services"
for a discussion of certain forward-looking statements contained
herein and certain cautionary statements relating thereto.
Liquidity and Capital Resources of the Company
At December 31, 1996, the Company had cash and cash equivalents
of $45,000. This cash and cash equivalents total reflects a
decrease of $156,000 from December 31, 1995, as a result of net cash
used in operations of $1,291,000 (principally related to the
reduction of accounts payable and accrued expenses of $2,085,000,
partially offset by increases in accounts receivable and other
assets), cash used in investing activities of $963,000 (principally
purchases of equipment, net totaling $2,082,000, partially offset
by the proceeds from the sale of property and equipment of
$1,214,000) and cash provided by financing activities of $2,098,000.
Accounts receivable, net of allowances, totalled $5,549,000, an
increase of $518,000 over the December 31, 1995 balance of
$5,031,000, which reflects an increase in the days sales outstanding
at year end, resulting from the timing of collections.
In January 1995, the Company entered into a term and revolving
loan agreement with Heller Financial, Inc. ("Heller"). Under the
loan agreement with Heller, the Company was provided a term loan of
$2,500,000 and a revolving loan facility in the amount of
$7,000,000. The term loan is for a term of 36 months, payable in
monthly installments of $42,000 and a balloon payment for the
balance on January 31, 1998. The revolving loan facility is reduced
by the outstanding unpaid principal amount due on the term loan and
is subject to the maximum credit availability, determined on a
monthly borrowing base equal to 80% of the eligible accounts
receivable (as defined in the loan agreement) of the Company and its
subsidiaries. See Note 5 to Notes to Consolidated Financial
Statements.
As of December 31, 1996, the borrowings under the Company's
revolving loan facility totalled $2,879,000, a decrease of $297,000
from the December 31, 1995 balance of $3,176,000, with a related
borrowing availability of $958,000, based on 80% of the amount of
eligible receivables of the Company as of December 31, 1996. The
balance on the term loan totalled $1,383,000, as compared to
$2,083,000 at December 31, 1995. Total indebtedness under the
Agreement with Heller, as amended, as of December 31, 1996 was
$4,262,000, a reduction of $997,000 from the December 31, 1995,
balance of $5,259,000. See Note 5 to Notes to Consolidated
Financial Statements.
Pursuant to the Agreement with Heller, as amended by the Third
Amendment, the term loan bears interest at a floating rate equal to
the base rate (prime) plus 1 3/4% per annum, and the revolving loan
bears interest at a floating rate equal to the base rate (prime)
plus 1 1/2% per annum. The loans also contain certain closing,
management and unused line fees payable throughout the term. Both
the revolving loan and term loan were prime based loans at December
31, 1996, bearing interest at a rate of 9.75% and 10.00%,
respectively.
Pursuant to the Sixth Amendment to the Agreement with Heller,
the Company is obligated to raise an additional $700,000 on or
before August 15, 1997. Under such amendment, this additional
amount may be in the form of proceeds received under property and/or
business interruption insurance as a result of the explosion and
fire at PFM's facility, insurance proceeds with regard to vandalism
at the PFL facility, selling of additional equity securities by the
Company, or other proceeds obtained in a manner approved by Heller.
The Company believes that it will be able to comply with such a
requirement. Whether the Company will be able to comply with such
a requirement is a forward-looking statement, and the results of
such could materially differ from the above statement if, among
other things, PFM is unable to recover from its insurance carrier
insurance proceeds and the Company is unable to sell equity
securities in an aggregate amount necessary to comply with such
requirement.
Under the Sixth Amendment to the Agreement with Heller, the
Company is to provide Heller with evidence on or before May 9, 1997,
that the adjusted orderly liquidation value of the equipment owned
by the Company and its subsidiaries that are borrowers under the
Agreement with Heller exceeds 75% of the principal amount of the
term loan with Heller, which totaled $1,217,000 as of April 1, 1997.
If such principal balance of the term loan exceeds 75% of the
liquidation value of such equipment, then the Company and Heller are
to discuss the appropriate required repayment of the term loan. If
Heller and the Company are unable to agree on an amount on or prior
to May 31, 1997, then Heller shall make such determination of the
amount of such required prepayment, which shall be paid by the
Company on or prior to May 26, 1997, or, in lieu thereof, Heller may
cause such amount to be paid by making a revolving loan in the
amount thereof under the Agreement with Heller. The Company
believes that the liquidation value of its owned equipment will
exceed 75% of the principal amount of the term loan with Heller,
and, if for any reason, such does not occur, the Company believes
that it will have sufficient availability under its revolving credit
line with Heller to pay such amount. The penultimate sentence
contains a forward-looking statement, the results of which could be
materially different than such statement if damage occurs to a
material amount of the Company's equipment or there is a decline in
the Company's business resulting in a substantial reduction in the
Company's receivables that would cause the Company not to have the
necessary availability under its revolving line of credit with
Heller.
As of December 31, 1996, total consolidated accounts payable
for the Company was $3,677,000, a reduction of $1,725,000 from the
December 31, 1995 balance of $5,402,000. This December 1996 balance
also reflects a reduction of $1,804,000 in the balance of payables
in excess of sixty (60) days, to a total of $1,422,000. The Company
utilized a portion of the net proceeds received in connection with
the sale of preferred stock during 1996, as discussed below, to
reduce accounts payable.
Ally Capital Corporation ("Ally") had previously provided the
Company with an equipment financing arrangement to finance the
purchase of capital equipment. As of December 31, 1996, the
Company's outstanding principal balance owing under this equipment
financing arrangement was $1,257,000. The Company has fully
utilized this equipment financing arrangement with Ally. See Note
5 to Notes to Consolidated Financial Statements.
At December 31, 1996, the Company had $6,360,000 in aggregate
principal amounts of outstanding debt, as compared to $8,478,000 at
December 31, 1995. This decrease in outstanding debt of $2,118,000
during 1996 reflects the net repayment of the revolving loan and
term note facility of $997,000, the scheduled principal repayments
on long-term debt of $920,000, including the equipment finance
agreement payments to Ally, and the repayment of $582,000 on a
mortgage obligation in conjunction with the Re-Tech sale, as
discussed below.
The Company's net purchases of new capital equipment for the
twelve month period ended December 31, 1996 totalled approximately
$2,082,000. These expenditures were for improvements to the
operations, including two (2) large capital expansion projects
within the waste management segment, and other capital expenditures
necessary to maintain compliance with federal, state or local permit
standards. These capital expenditures were principally funded by
the proceeds from the issuance of preferred stock, as discussed
below, with the exception of $57,000, which was financed by the
Company's equipment financing lender, as discussed above, and
$424,000 through various other lease financing sources. The Company
has budgeted capital expenditures of $1,250,000 for 1997 (excluding
any expenditures at PFM due to the explosion and fire), which
includes completion of the two (2) above noted expansion projects,
as well as other identified capital and permit compliance purchases.
The Company anticipates funding these capital expenditures by a
combination of lease financing with lenders other than the equipment
financing arrangement discussed above, and/or internally generated
funds.
The working capital deficit position at December 31, 1996 was
$773,000, as compared to a deficit position of $9,372,000 at
December 31, 1995. The December 1995, deficit position includes the
reclassification of certain long-term debt to current as a result
of a default under certain financial ratios under certain loan
agreements at that time. Prior to this reclassification, the
December 1995, deficit position would have been $3,399,000, which
reflects an improvement in this position of $2,626,000 during 1996.
The Company issued to RBB Bank Aktiengesellschaft ("RBB Bank"),
during February 1996, 1,100 shares of newly created convertible
Series 1 Preferred at a price of $1,000 per share, for an aggregate
sales price of $1,100,000, and paid placement and closing fees of
$180,000. The Company also issued to RBB Bank 330 shares of newly
created convertible Series 2 Preferred at a price of $1,000 per
share, for an aggregate sales price of $330,000, and paid placement
and closing fees of $35,000. The Series 1 Preferred and Series 2
Preferred accrued dividends on a cumulative basis at a rate per
share of five percent (5%) per annum, payable, at the Company's
option, in cash or in common stock of the Company. All dividends
on the Series 1 Preferred and Series 2 Preferred were paid by the
issuance of shares of common stock. During the second quarter of
1996, a total of 722 shares of the Series 1 Preferred were converted
into approximately 1,034,000 shares of the Company's common stock
and the associated accrued dividends were paid in the form of
approximately 16,000 shares of the Company's common stock. Pursuant
to a subscription and purchase agreement for the issuance of Series
3 Class C Convertible Preferred Stock ("Series 3 Preferred"), as
discussed below, the remaining 378 shares of the Series 1 Preferred
and the 330 shares of the Series 2 Preferred were converted during
July 1996 into 920,000 shares of the Company's common stock, which
included the accrued and unpaid dividends thereon, and the Company
purchased the 920,000 shares for $1,770,000. As a result of such
conversions, the Series 1 Preferred and Series 2 Preferred are no
longer outstanding.
On July 17, 1996, the Company issued to RBB Bank 5,500 shares
of newly-created Series 3 Preferred at a price of $1,000 per share,
for an aggregate sales price of $5,500,000, and paid placement and
closing fees of approximately $586,000. As part of the
consideration for the issuance 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 the other 1,000,000 shares of common
stock exercisable at an exercise price equal to $3.50 per share.
Dividends on the Series 3 Preferred are paid when and as declared
by the Board of Directors at a rate of six percent (6%) per annum
and are payable semi-annually. Dividends are cumulative and shall
be paid, at the option of the Company, in the form of cash or common
stock of the Company. It is the present intent of the Company to
pay such dividends, if any, in common stock of the Company. The
shares of the Series 3 Preferred may be converted into shares of
common stock. See Note 4 of Notes to Consolidated Financial
Statements and "Certain Relationships and Related Transactions" for
further discussion of the Series 3 Preferred and the conversions of
such series of preferred. The Company received from the sale of the
Series 3 Preferred net proceeds of approximately $4,900,000.
Pursuant to the terms of the Subscription Agreement relating to the
sale of the Series 3 Preferred, the Company has purchased from RBB
Bank from the net proceeds 920,000 shares of common stock of the
Company that RBB Bank received upon conversion of the balance of the
outstanding shares of Series 1 Preferred and Series 2 Preferred for
$1,770,000. The Company used the net proceeds for capital
improvements at its various facilities, to reduce outstanding trade
payables, and for general working capital requirements. As of this
date, the holder of the Series 3 Preferred has not elected to
convert any of the Series 3 Preferred into common stock of the
Company. The accrued dividends for the period July 17, 1996 through
December 31, 1996 were paid in January 1997, in the form of
approximately 101,000 shares of the Company's common stock.
Effective March 15, 1996, the Company completed the sale of Re-
Tech Systems, Inc., its plastics recycling subsidiary in Houston,
Texas. The sale transaction included all real and personal property
of the subsidiary, for a total consideration of $970,000. Net cash
proceeds to the Company were approximately $320,000, after the
repayment of a mortgage obligation of $595,000 and certain other
closing and real estate costs. In conjunction with this
transaction, the Company also made a prepayment of $50,000 to Heller
Financial, Inc. for application to the term loan. As previously
disclosed, the Company recorded during 1995, a nonrecurring charge
(recorded as an asset reduction) of $450,000 for the estimated loss
on the sale of this subsidiary, which, based upon closing balances,
the Company recognized a small gain on this sale after the asset
write-down. The Company sold total assets of approximately
$1,346,000, while retaining certain assets totalling approximately
$94,000 and certain liabilities totalling approximately $48,000.
In addition to the above asset sale, the Company also sold certain
non-productive assets during 1996, principally at closed service
center locations and at the Perma-Fix of Dayton, Inc. facility.
Proceeds from these asset sales total approximately $320,000.
Effective February 7, 1997, the Company amended five (5)
warrants with an original issuance date of February 10, 1992, to
purchase an aggregate of 487,814 shares of the Company's common
stock ("Acquisition Warrants"). The Acquisition Warrants were
amended to (i) reduce the exercise price from $2.1475 per share of
common stock to $1.00 per share of common stock, and (ii) extend the
expiration date of the warrants from February 10, 1997 to March 3,
1997. All Acquisition Warrants were subsequently exercised prior
to this March 3, 1997 date, which resulted in $487,814 of additional
capital/equity.
As previously discussed, the Company's subsidiary, PFM,
sustained an explosion and fire at its TSD facility in Memphis,
Tennessee, on January 27, 1997, damaging certain hazardous waste
storage tanks and causing certain limited contamination at the
facility. Since such event the facility has not been operational.
It is not presently anticipated that such facility will become
operational until the damaged tanks are repaired, which is presently
anticipated to be the end of April 1997. PFM is in the process of
repairing or removing the damaged tanks and removing or remediating
the contamination caused by the explosion and fire. During the
period that PFM's facility is not operational, PFM has accepted and
will continue to accept waste for processing and disposal, but has
arranged for other facilities owned by the Company or subsidiaries
of the Company or others not affiliated with the Company to process
such waste. The utilization of other facilities to process such
waste results 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. The additional costs incurred or
to be incurred are undetermined at this time. The Company has also
experienced a reduction in revenues as a result of this occurrence,
as it attempts to selectively accept and reroute waste, which the
Company does not believe is material at this time. As previously
discussed, the Company and PFM have property and business
interruption insurance. The Company presently believes, although
there are no assurances, that its property insurance will reimburse
the company for repair, replacement or removal of the damaged
property, due to the explosion and fire. The cost of this property
repair and restoration is undetermined at this time. The Company
is presently in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
of such occurrence, if any. See "BUSINESS--Waste Management
Services" for a discussion of certain forward-looking statements
contained herein and cautionary statements relating thereto.
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, including the
equity raised in 1996. If the Company is unable to continue to
improve its operations and to sustain profitability in the
foreseeable future, such would have a material adverse effect on the
Company's liquidity position and on the Company. This is a forward-
looking statement and is subject to certain factors that could cause
actual results to differ materially from those in the forward-
looking statement, including, but not limited to, the Company's
ability to maintain profitability or, if the Company is not able to
maintain profitability, whether the Company is able to raise
additional liquidity in the form of additional equity or debt.
Environmental Contingencies
The Company is engaged in the waste management services segment
of the pollution control industry. As a participant in the on-site
treatment, storage and disposal market and the off-site treatment
and services market, the Company is subject to rigorous federal,
state and local regulations. These regulations mandate strict
compliance and therefore are a cost and concern to the Company.
Because of the integral part of providing quality environmental
services, the Company makes every reasonable attempt to maintain
complete compliance with these regulations; however, even with a
diligent commitment, the Company, as with many of its competitors,
may be required to pay fines for violations or investigate and
potentially remediate its waste management facilities.
The Company routinely uses third party disposal companies, who
ultimately destroy or secure landfill residual materials generated
at its facilities or at a client's site. The Company, compared to
its competitors, disposes of significantly less hazardous or
industrial by-products from its operations due to rendering material
non-hazardous, discharging treated waste waters to publicly-owned
treatment works and/or recycling wastes into saleable products. In
the past, numerous third party disposal sites have improperly
managed wastes and consequently require remedial action;
consequently, any party utilizing these sites may be liable for some
or all of the remedial costs. Despite the Company's aggressive
compliance and auditing procedures for disposal of wastes, the
Company could, in the future, be notified that it is a PRP at a
remedial action site, which could have a material adverse effect on
the Company.
In addition to budgeted capital expenditures of $1,250,000 for
1997 at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above under
"Business -- Certain Environmental Expenditures" and "Liquidity and
Capital Resources of the Company" of this Management's Discussion
and Analysis, the Company has also budgeted for 1997 an additional
$350,000 in environmental expenditures to comply with federal, state
and local regulations in connection with remediation of certain
contaminates at two locations. As previously discussed under
"Business -- Certain Environmental Expenditures," the two locations
where these expenditures will be made are the Affiliated Property
in Dayton, Ohio, a former RCRA storage facility as operated by the
former owners of PFD, and PFM's facility in Memphis, Tennessee.
Additional funds will be required for the next five to fifteen years
to properly investigate and remediate these sites. As discussed in
Note 7 to the Consolidated Financial Statements, the Company has
accrued $2,085,000 for estimated costs of remediating these two
sites, which is projected to be the maximum exposure and is expected
to be performed over a period in excess of ten (10) years. The
Company expects to fund these expenses to remediate these two sites
from funds generated internally. This is a forward looking
statement and is subject to numerous conditions, including, but not
limited to, the Company's ability to generate sufficient cash flow
from operations to fund all costs of operations and remediation of
these two sites, the discovery of additional contamination or
expanded contamination which would result in a material increase in
such expenditures, or changes in governmental laws or regulations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements: Page No.
_________________________________ _______
Reports of Independent Certified Public
Accountants
BDO Seidman, LLP 37
Arthur Andersen LLP 38
Consolidated Balance Sheets as of
December 31, 1996 and 1995 40
Consolidated Statements of Operations
for the years ended December 31, 1996,
1995 and 1994 43
Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995
and 1994 45
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995 and 1994 47
Notes to Consolidated Financial Statements 49
Financial Statement Schedules:
II Valuation and Qualifying Accounts for
the years ended December 31, 1996,
1995 and 1994 101
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.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Perma-Fix Environmental Services, Inc.
We have audited the accompanying consolidated balance sheet of
Perma-Fix Environmental Services, Inc. and subsidiaries as of
December 31, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then
ended. We have also audited the schedule listed in the accompanying
index. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and
schedule based on our audit.
We conducted our audit 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 audit provides 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, 1996, and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
February 14, 1997, except
for Note 5 which is as of
April 14, 1997
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Perma-Fix Environmental Services, Inc.:
We have audited the accompanying consolidated balance sheet of
PERMA-FIX ENVIRONMENTAL SERVICES, INC. (a Delaware corporation) and
Subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, cash lows and stockholders' equity for
each of the two years in the period ended December 31, 1995. These
consolidated financial statements and the schedule referred to below
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 are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Perma-
Fix Environmental Services, Inc. as of December 31, 1995, and the
results of their operations and their cash flows for each of the two
years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and and for the year ended
December 31, 1995, the Company had a net working capital deficiency
of approximately $9,372,000, an accumulated deficit of $13,885,000,
and was in violation of substantially all financial covenants under
its debt agreements with its two major lenders (see Note 5). These
factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company
be unable to continue as a going concern.
Our audits were made for the purpose of performing an opinion on the
basic financial statements taken as a whole. The schedule listed
in the index to consolidated financial statements is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied
in our aduits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data for each
of the two years in the period ended December 31, 1995 required to
be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Jacksonville, Florida
March 15, 1996
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1996 1995
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 45 $ 201
Restricted cash equivalents
and investments 448 380
Accounts receivable, net of
allowance for doubtful accounts
of $383 and $392, respectively 5,549 5,031
Inventories 107 183
Prepaid expense 549 414
Other receivables 545 134
_________ ________
Total current assets 7,243 6,343
Property and equipment:
Buildings and land 4,894 6,055
Equipment 6,429 5,874
Vehicles 1,421 1,589
Leasehold improvements 289 143
Office furniture and equipment 1,136 1,252
Construction in progress 3,028 1,435
_________ ________
17,197 16,348
Less accumulated depreciation (4,593) (3,378)
_________ ________
Net property and equipment 12,604 12,970
Intangibles and other assets:
Permits, net of accumulated
amortization of $598 and
$366, respectively 3,949 4,036
Goodwill, net of accumulated
amortization of $435 and
$289, respectively 4,846 4,992
Covenant not to compete, net of
accumulated amortization of
$383 and $304, respectively 9 87
Other assets 385 445
________ ________
Total assets $ 29,036 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1996 1995
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,677 $ 5,402
Accrued expenses 2,860 2,951
Revolving loan and term note
facility 500 5,259
Equipment financing agreement 646 1,778
Current portion of long-term debt 333 325
_________ _______
Total current liabilities 8,016 15,715
Long-term debt, less current portion 4,881 1,116
Environmental accruals 2,460 3,063
Accrued closure costs 1,094 1,041
_________ _______
Total long-term liabilities 8,435 5,220
Commitments and contingencies
(see Notes 3, 5, 7 and 10) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
5,500 and 0 shares issued and
outstanding, respectively - -
Common stock, $.001 par value;
50,000,000 shares authorized,
10,399,947 and 7,872,384 shares
issued, including 920,000 and
0 shares held as treasury
stock, respectively 10 8
Redeemable warrants 140 269
Additional paid-in capital 28,495 21,546
Accumulated deficit (14,290) (13,885)
________ _______
14,355 7,938
Less common stock in treasury at
cost; 920,000 and 0 shares issued
and outstanding, respectively (1,770) -
________ _______
Total stockholders' equity 12,585 7,938
________ _______
Total liabilities and
stockholders' equity $ 29,036 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(Amounts in Thousands,
Except for Share Amounts) 1996 1995 1994
___________________________________________________________________
Net revenues $ 31,037 $ 34,891 $ 28,075
Cost of goods sold 21,934 26,564 22,301
________ ________ ________
Gross profit 9,103 8,327 5,774
Selling, general and
administrative
expenses 6,922 8,132 5,298
Depreciation and
amortization 2,252 2,431 1,545
Permit write-down
(see Note 13) - 4,712 -
Nonrecurring charges
(see Note 14) - 987 -
________ _______ ________
Loss from operations (71) (7,935) (1,069)
Other income (expense):
Interest income 65 70 65
Interest expense (812) (952) (373)
Other 558 (235) (109)
________ ________ ________
Net loss before
provision for
income taxes (260) (9,052) (1,486)
Provision for income taxes - - 30
________ ________ ________
Net loss (260) (9,052) (1,516)
Preferred stock dividends 145 - -
________ ________ ________
Net loss applicable
to common stock $ (405) $ (9,052) $ (1,516)
======== ======== ========
Net loss per common share $ (.05) $ (1.15) $ (.25)
======== ======== ========
Weighted average number of
common and common equiva-
lent shares outstanding 8,761 7,872 5,988
======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(Amounts in Thousands) 1996 1995 1994
___________________________________________________________________
Cash flows from operating
activities:
Net loss $ (405) $ (9,052) $ (1,516)
Adjustments to reconcile
net loss to cash pro-
vided by (used in)
operations:
Depreciation and amorti-
zation 2,252 2,431 1,718
Permit write-down 4,712
Divestiture reserve 450
Provision for bad debt
and other reserves 17 844 114
(Gain) loss on sale of
plant, property and
equipment (4) 8 9
Changes in assets and
liabilities, net of
effects from business
acquisitions:
Accounts receivable (535) 957 (779)
Prepaid expenses, inven-
tories and other assets (531) (42) 246
Accounts payable and accrued
expenses (2,085) (246) (2,210)
_______ ________ ________
Net cash provided by
(used in) operations (1,291) 62 (2,418)
________ ________ ________
Cash flows from investing
activities:
Proceeds of short-term
investments 2,384
Purchases of property and
equipment, net (2,082) (2,953) (1,914)
Proceeds from sale of plant,
property and equipment 1,214 14 4
Effect of acquisitions 9 292
Change in restricted cash,
net (95) 171 63
_________ ________ _______
Net cash provided by
(used in) investing
activities (963) (2,759) 829
_________ ________ _______
Cash flows from financing
activities:
Borrowings (repayments)
from revolving loan
and term note facility (997) 2,162
Borrowings on long-term
debt and equipment
financing agreement 1,573 668
Principal repayments on
long-term debt (1,502) (1,327) (2,279)
Proceeds from issuance
of stock 6,367 3,641
Purchase of treasury stock (1,770)
________ ________ ________
Net cash provided by
financing activities 2,098 2,408 2,030
________ ________ ________
(Decrease) increase in cash and
cash equivalents (156) (289) 441
Cash and cash equivalents at
beginning of period 201 490 49
________ ________ _______
Cash and cash equivalents at
end of period $ 45 $ 201 $ 490
========= ======= =======
___________________________________________________________________
Supplemental disclosure:
Interest paid $ 844 $ 923 $ 435
Income taxes paid - - -
Non-cash investing and financing
activities:
Issuance of common stock
for services $ 462 $ - $ -
Long-term debt incurred
for purchase of property
and equipment 424 - -
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31
Preferred Stock Common Stock
(Amounts in Thousands, ___________________ __________________
Except for Share Amounts) Shares Amount Shares Amount
_________________________________________________________________________
Balance at December 31, 1993 - $ - 4,473,208 $ 4
Net loss - - - -
Issuance of stock for
acquisitions - - 575,659 1
Issuance of stock and
warrants for cash - - 1,400,000 1
Issuance of stock for
note conversion - - 78,140 -
Issuance of stock for
transaction costs - - 210,000 1
Amortization of deferred
compensation - - - -
______ _______ _________ _______
Balance at December 31, 1994 - - 6,737,007 7
Net loss - - - -
Issuance of stock for
acquisitions - - 1,135,377 1
Amortization of deferred
compensation - - - -
______ _______ _________ _______
Balance at December 31, 1995 7,872,384 8
Net loss - - - -
Preferred stock dividend - - - -
Issuance of stock for cash
and services - - 573,916 -
Issuance of preferred stock
for cash 6,930 - - -
Conversion of preferred stock
to common (1,430) - 1,953,647 2
Expiration of redeemable
warrants - - - -
Redemption of common shares
to treasury stock - - - -
_______ ______ __________ _______
Balance at December 31, 1996 5,500 $ - 10,399,947 $ 10
======== ====== ========== =======
Common
Additional Stock
Redeemable Paid-In Accumulated Held in Deferred
Warrants Capital Deficit Treasury Comp.
_______________________________________________________________________
$ 121 $13,982 $ (3,317) $ - $ (76)
- - (1,516) - -
- 3,217 - - -
140 3,500 - - -
8 220 - - -
- 630 - - -
- - - - 46
_________ _______ ________ ________ ________
269 21,549 (4,833) - (30)
- - (9,052) - -
- (3) - - -
- - - - 30
_________ _______ ________ ________ ________
269 21,546 (13,885) - -
- - (260) - -
- - (145) - -
- 693 - - -
- 6,129 - - -
- (2) - - -
(129) 129 - - -
- - - (1,770) -
_________ _______ ________ ________ _________
$ 140 $28,495 $ (14,290) $ (1,770) $ -
========= ======= ======== ======== =========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
________________________________________________________________
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix Environmental Services, Inc. (the "Company") is a
Delaware corporation engaged in the treatment, storage, processing
and disposal of hazardous and non-hazardous industrial and
commercial wastes, and provides consulting engineering services to
industry and government for broad-scope environmental problems. The
Company has grown through both acquisitions and internal
development. The Company's present objective is to focus the
operations and to maximize the profitability of its existing
businesses.
The Company is subject to certain risks: (1) It is involved
in the transportation, treatment, handling and storage of hazardous
and non-hazardous, mixed and industrial wastes. Such activities
contain risks against which the Company believes it is adequately
insured, and (2) in general, the industries in which the Company
operates are characterized by intense competition among a number of
larger, more established companies with significantly greater
resources than the Company.
The consolidated financial statements of the Company for the
years 1994 through 1996 include the accounts of Perma-Fix
Environmental Services, Inc. ("PESI") and its wholly-owned
subsidiaries, Perma-Fix, Inc. ("PFI") and subsidiaries, Industrial
Waste Management, Inc. ("IWM") and subsidiaries, Perma-Fix Treatment
Services, Inc. ("PFTS"), Perma-Fix of Florida, Inc. ("PFF"), Perma-
Fix of Dayton, Inc. ("PFD"), Perma-Fix of Ft. Lauderdale, Inc.
("PFL"), Perma-Fix of Memphis, Inc. ("PFM") and Perma-Fix Recycling,
Inc. ("Re-Tech"). The Perma-Fix Recycling, Inc. (Re-Tech) plastic
recycling subsidiary was, however, sold effective March 15, 1996.
________________________________________________________________
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of
all significant intercompany accounts and transactions. See Note
3 for acquisitions.
Reclassifications
Certain prior year amounts have been reclassified to conform
with the 1996 presentation.
Business Segments
The Company provides services and products through two business
segments -- Waste Management Services and Consulting Engineering
Services. See Note 12 for a further description of these segments
and certain business information.
Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements as well as the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash Equivalents
The Company considers short-term investments with an initial
maturity date of three months or less at the date of purchase to be
cash equivalents.
Restricted Cash Equivalents and Investments
Restricted cash equivalents and investments include
certificates of deposit ($145,000 and $289,000 at December 31, 1996
and 1995, respectively) and amounts deposited in cash collateral
accounts ($645,000 and $406,000 at December 31, 1996 and 1995,
respectively). As of December 31, 1996, $234,000 of the restricted
cash balance was pledged as collateral for the Company's secured
letters of credit, as compared to $226,000 at December 31, 1995.
Of the total restricted cash for 1996 and 1995 ($790,000 and
$695,000, respectively), $448,000 of the 1996 total is classified
as a current asset, as compared to $380,000 in 1995. The long-term
portion totaling $342,000 for 1996 ($315,000 in 1995) reflects cash
held for long-term commitments related to the RCRA closure action
at a facility affiliated with PFD as further discussed in Note 7.
The remainder of the restricted cash, as recorded as a current
asset, represents secured collateral relative to the various
financial assurance instruments guaranteeing the standard RCRA
closure bonding requirements for the PFM, PFD and PFTS TSD
facilities. The letters of credit secured by this restricted cash
renew annually, and the Company plans to replace the letters of
credit with other alternative financial assurance instruments.
Inventories
Inventories consist of fly ash, cement kiln dust and treatment
chemicals. Inventories are valued at the lower of cost or market
with cost determined by the first-in, first-out method.
Property and Equipment
Property and equipment expenditures are capitalized and
depreciated using the straight-line method over the estimated useful
lives of the assets for financial statement purposes, while
accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from ten to
forty years for buildings (including improvements) and three to
seven years for office furniture and equipment, vehicles, and
decontamination and processing equipment. Maintenance and repairs
are charged directly to expense as incurred. The cost and
accumulated depreciation of assets sold or retired are removed from
the respective accounts, and any gain or loss from sale or
retirement is recognized in the accompanying consolidated statements
of operations. Renewals and improvements which extend the useful
lives of the assets are capitalized.
Intangible Assets
Intangible assets relating to acquired businesses consist
primarily of the cost of purchased businesses in excess of the
estimated fair value of net assets acquired ("goodwill") and the
recognized permit value of the business. Goodwill is generally
amortized over 40 years and permits are amortized over 20 years.
Amortization expense approximated $455,000, $686,000 and $573,000
for the years ended 1996, 1995 and 1994, respectively. The Company
continually reevaluates the propriety of the carrying amount of
permits and goodwill as well as the amortization period to determine
whether current events and circumstances warrant adjustments to the
carrying value and estimates of useful lives. The Company uses an
estimate of the related undiscounted operating income over the
remaining lives of goodwill and permit costs in measuring whether
they are recoverable. At December 31, 1995, the Company recognized
a permit impairment charge of approximately $4,712,000 related to
the December 1993 acquisition of Perma-Fix of Memphis, Inc. See
Note 13 for further discussion of this charge. At this time, the
Company believes that no additional 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,"
which is effective for fiscal years beginning after December 15,
1995. Adoption of this pronouncement did not have a material impact
on the financial statements.
Accrued Closure Costs
Accrued closure costs represent the Company's estimated
environmental liability to clean up their facilities in the event
of closure.
Income Taxes
The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires use of the liability method. SFAS No.
109 provides that deferred tax assets and liabilities are recorded
based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets
or liabilities at the end of each period are determined using the
currently enacted tax rates to apply to taxable income in the
periods in which the deferred tax assets or liabilities are expected
to be settled or realized.
Net Revenues
Revenues for services and reimbursable costs are recognized at
the time services are rendered or, in the case of fixed price
contracts, under the percentage-of-completion method of accounting.
No customer accounted for more than ten percent (10%) of
consolidated net revenues.
Self-Insurance
During June of 1994, the Company began a self-insurance program
for certain health benefits, which was implemented initially at only
three (3) locations. As of January 1, 1995, all employees were
included in this program. The Company has stop-loss coverage of
$60,000 per individual per occurrence with an annual aggregate
limitation of approximately $776,000 per year. However, as the
employment of the Company increases or decreases, the aggregate
limitation rises or falls proportionally. The cost of such benefits
is recognized as expense in the period in which the claim occurred,
including estimates of claims incurred but not reported. The claims
expense for 1996 was approximately $748,000, as compared to $693,000
for 1995. This increase principally reflects the full
implementation of this program, to include all employees of the
corporation, and the occurrence of several larger claims during
1996.
Net Loss Per Share
Net loss per share has been presented using the weighted
average number of common shares outstanding. Common stock
equivalents (stock options and warrants) have not been included in
the net loss per share calculations since their effects would be
antidilutive. Net loss per share for the fiscal year ended December
31, 1994 has been restated, in accordance with Accounting Principles
Board Opinion No. 15, "Earnings Per Share", to reflect the issuance
of contingent shares to Quadrex during 1995.
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 the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of similar terms and
maturities. Under this method, the Company's fair value of long-
term debt was not significantly different from the stated value at
December 31, 1996 and 1995.
________________________________________________________________
NOTE 3
ACQUISITIONS
During the second quarter of 1995, the Company completed the
acquisition of substantially all of the assets and certain
liabilities of Industrial Compliance and Safety, Inc. ("ICS") of
Kansas City, Missouri. ICS has provided environmental, remedial,
emergency response and waste management services for clients across
the U.S. since 1989, and has been consolidated with the Company's
existing waste management operations in Kansas City. The assets of
ICS were acquired through the forgiveness of indebtedness to the
Company and assumption of certain liabilities. The acquisition was
accounted for using the purchase method effective June 1, 1995 and,
accordingly, the assets and liabilities as of this date and the
statement of operations from the effective date were included in the
accompanying consolidated financial statements. The Company
performed a purchase price allocation as of June 30, 1995, which
resulted in an unallocated excess purchase price over net assets
acquired, or goodwill, of $177,000, to be amortized over 10 years.
The forgiven debt by the Company totalled $376,000 and was recorded
against the respective bad debt reserve, and not utilized in
determination of the purchase price. ICS assets of $233,000 were
acquired through the assumption of accounts payable, debt and other
liabilities of $358,000, and transaction costs of $52,000. The
acquisition of ICS had an insignificant impact on historical
financial data and, thus, pro forma financial information giving
effect to the acquisition has not been provided.
On June 17, 1994, the Company acquired three treatment, storage
and disposal facilities (the "Quadrex Facilities") from Quadrex
Corporation ("Quadrex"), acquiring all of the outstanding stock of
two facilities and purchasing certain assets and assuming certain
liabilities of one facility. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the purchase
price has been allocated to the net assets acquired based on their
estimated fair values. This allocation has resulted in goodwill and
intangible permit costs of $3,359,000 and $3,335,000, respectively.
The goodwill is being amortized over 40 years and the intangible
permit costs over 20 years, both on a straight-line basis. The
results of operations of the Quadrex Facilities have been included
in the consolidated statements of operations since June 30, 1994.
The Quadrex Facilities were acquired for a combination of debt
assumed ($5,532,000), accounts payable and other liabilities assumed
($8,141,000) and shares of the Company's common stock ($3,217,000).
The value of the common stock reflected the market value of the
Company's common stock adjusted to account for restrictions common
to unregistered securities. Under the terms of the acquisition
agreement, the Company held back issuance of certain shares
contingent upon Quadrex's satisfying certain conditions. As of
December 31, 1994, 576,000 shares had been recorded as issued and
outstanding, and during 1995 the Company issued approximately
1,135,000 shares of common stock in full and complete settlement of
all shares due Quadrex.
________________________________________________________________
NOTE 4
PREFERRED STOCK ISSUANCE AND CONVERSION
The Company issued, during February 1996, to RBB Bank
Aktiengesellschaft, located in Graz, Austria ("RBB Bank"), 1,100
shares of newly created Series 1 Class A Preferred Stock ("Series
1 Preferred") at a price of $1,000 per share, for an aggregate sales
price of $1,100,000, and paid placement and closing fees of
$180,000. During February 1996, the Company also issued 330 shares
of newly created Series 2 Class B Convertible Preferred Stock
("Series 2 Preferred") to RBB Bank at a price of $1,000 per share,
for an aggregate sales price of $330,000, and paid placement and
closing fees of $35,000. The Series 1 Preferred and Series 2
Preferred accrued dividends on a cumulative basis at a rate per
share of five percent (5%) per annum, payable at the option of the
Company in cash or Company common stock. All dividends on the
Series 1 Preferred and Series 2 Preferred were paid in common stock.
The Series 1 Preferred and Series 2 Preferred were convertible, at
any time, commencing forty-five (45) days after issuance into shares
of the Company's common stock at a conversion price equal to the
aggregate value of the shares of the Preferred Stock being
converted, together with all accrued but unpaid dividends thereon,
divided by the "Average Stock Price" per share (the "Conversion
Price"). The Average Stock Price means the lesser of (i) seventy
percent (70%) of the average daily closing bid prices of the common
stock for the period of five (5) consecutive trading days
immediately preceding the date of subscription by the holder or (ii)
seventy percent (70%) of the average daily closing bid prices of the
common stock for a period of five (5) consecutive trading days
immediately preceding the date of conversion of the Preferred Stock.
During the second quarter of 1996, a total of 722 shares of the
Series 1 Preferred were converted into approximately 1,034,000
shares of the Company's common stock and the associated accrued
dividends were paid in the form of approximately 16,000 shares of
the Company's common stock. Pursuant to a subscription and purchase
agreement for the issuance of Series 3 Class C Convertible Preferred
Stock, as discussed below, the remaining 378 shares of the Series
1 Preferred and the 330 shares of the Series 2 Preferred were
converted during July 1996 into 920,000 shares of the Company's
common stock. By terms of the subscription agreement, the 920,000
shares of common stock were purchased by the Company at a purchase
price of $1,770,000 and are included in treasury stock as of
December 31, 1996. As a result of such conversions, the Series 1
Preferred and the Series 2 Preferred are no longer outstanding.
On July 17, 1996, the Company issued to RBB Bank 5,500 shares
of newly-created Series 3 Class C Convertible Preferred Stock
("Series 3 Preferred") at a price of $1,000 per share, for an
aggregate sales price of $5,500,000, and paid placement and closing
fees as a result of such transaction of approximately $586,000. As
part of the sale of the Series 3 Preferred, the Company also issued
to RBB Bank two (2) common stock purchase warrants entitling RBB
Bank to purchase, after December 31, 1996, until July 18, 2001, an
aggregate of up to 2,000,000 shares of common stock, with 1,000,000
shares exercisable at an exercise price equal to $2.00 per share and
1,000,000 shares exercisable at an exercise price equal to $3.50 per
share. The Series 3 Preferred accrues dividends on a cumulative
basis at a rate of six percent (6%) per annum, and is payable semi-
annually when and as declared by the Board of Directors. Dividends
shall be paid, at the option of the Company, in the form of cash or
common stock of the Company. The holder of the Series 3 Preferred
may convert into common stock of the Company up to (i) 1,833 shares
of the Series 3 Preferred on and after October 1, 1996, (ii) 1,833
shares of the Series 3 Preferred on and after November 1, 1996, and
(iii) the balance of the Series 3 Preferred on and after December 1,
1996. The conversion price shall be the product of (i) the average
closing bid quotation for the five (5) trading days immediately
preceding the conversion date multiplied by (ii) seventy-five
percent (75%). The conversion price shall be a minimum of $.75 per
share or a maximum of $1.50 per share, with the minimum conversion
price to be reduced by $.25 per share each time, if any, after
July 1, 1996, the Company sustains a net loss, on a consolidated
basis, in each of two (2) consecutive quarters. At no time shall
a quarter that has already been considered in such determination be
considered in any subsequent determination. The common stock
issuable on the conversion of the Series 3 Preferred is subject to
certain registration rights pursuant to the subscription agreement.
The subscription agreement also provides that the Company utilize
$1,770,000 of the net proceeds to purchase from RBB Bank 920,000
shares of the Company's common stock owned by RBB Bank. As
discussed above, RBB Bank had previously acquired from the Company
1,100 shares of Series 1 Preferred and 330 shares of Series 2
Preferred and, as of the date of the subscription agreement, was the
owner of record and beneficially owned all of the issued and
outstanding shares of Series 1 Preferred and Series 2 Preferred,
which totalled 378 shares of Series 1 Preferred and 330 shares of
Series 2 Preferred. Pursuant to the terms of the subscription
agreement relating to the Series 3 Preferred, RBB Bank converted all
of the remaining outstanding shares of Series 1 Preferred and Series
2 Preferred into common stock of the Company (920,000 shares)
pursuant to the terms, provisions, restrictions and conditions of
the Series 1 Preferred and Series 2 Preferred, which were in turn
purchased by the Company pursuant to the terms of such subscription
agreement. As of this date, the holder of the Series 3 Preferred
has not elected to convert any of the Series 3 Preferred into common
stock of the Company. The accrued dividends for the period July 17,
1996 through December 31, 1996 were paid in January 1997, in the
form of approximately 101,000 shares of the Company's common stock.
________________________________________________________________
NOTE 5
LONG-TERM DEBT
Long-term debt at December 31 includes the following (in
thousands):
Revolving loan facility dated January 27,
1995, collateralized by eligible accounts
receivable, subject to monthly borrowing
base calculation, variable interest paid
monthly at base rate (prime) plus 1 1/2. $ 2,879 $ 3,176
Term loan agreement dated January 27, 1995,
payable in monthly principal installments
of $42, due in January 1998, variable
interest paid monthly at base rate (prime)
plus 1 3/4. Secured by real property. 1,383 2,083
Mortgage note payable under an installment
agreement, payable in monthly principal
and interest installments of $5 (interest
at 8%), collateralized by certain real
estate. - 582
Mortgage note agreement payable in quarterly
installments of $15 plus accrued interest
at 10%. Secured by real property. 123 184
Mortgage note payable in monthly principal
and interest payments of $8, interest at
7.25%, due October 1996. Secured by real
property. - 79
Equipment financing agreements, secured by
equipment, interest ranging from 10.2%
to 13.05%, principal and interest due in
equal installments of $62 through June
1999. 1,257 1,778
Various capital lease and promissory note
obligations, payable 1997 to 2001,
interest at rates ranging from 8.0% to
36.4%. 718 596
_______ _______
6,360 8,378
Less current portion of long-term debt 333 325
Less current portion of revolving loan and
term note facility 500 5,259
Less current portion of equipment financing
agreements 646 1,778
_______ _______
$ 4,881 $ 1,116
======= =======
On January 27, 1995, the Company, as parent and guarantor, and
all direct and indirect subsidiaries of the Company, as co-borrowers
and cross-guarantors, entered into a Loan and Security Agreement
("Agreement") with Heller Financial, Inc. ("Heller"). The Agreement
provides for a term loan in the amount of $2,500,000, which requires
principal repayments based on a five-year level principal
amortization over a term of 36 months, with monthly principal
payments of $42,000. Payments commenced on February 28, 1995, with
a final balloon payment in the amount of $846,000 due on January 31,
1998. The Agreement also provides for a revolving loan facility in
the amount of $7,000,000. At any point in time the aggregate
available borrowings under the facility are reduced by any amounts
outstanding under the term loan and are also subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, equal to 80% of eligible accounts receivable accounts
of the Company as defined in the Agreement. The termination date
on the revolving loan facility is also the third anniversary of the
closing date. The Company expensed during 1995 approximately
$281,000 in financing fees relative to the solicitation and closing
of this loan agreement (principally investment banking, legal and
closing fees).
During the second quarter of 1995, the Company became in
violation of certain of the restrictive financial ratio covenants
of the Agreement. During the second quarter of 1996, the Company
negotiated and subsequently entered into an amendment ("Third
Amendment") to the Loan and Security Agreement, whereby, among other
things, Heller waived the existing events of default, amended the
financial covenants and amended certain other provisions of the Loan
Agreement as set forth therein. Applicable interest rate provisions
were also amended, whereby the term loan shall bear interest at a
rate of interest per annum equal to the base rate plus 2 1/4%, and
the revolving loan shall bear interest equal to the base rate plus
2%. The Amendment also contains a performance price adjustment
which provides that upon the occurrence of an "equity infusion,"
applicable interest rates on the loans shall be reduced, in each
instance by 1/2% per annum. Due to the equity infusion as discussed
in Note 4, applicable interest rates on the loans were reduced
pursuant to the terms of the Third Amendment effective August 16,
1996, and were subsequently increased during the first quarter of
1997 back to the base rate plus 2-1/4% on the term loan and the base
rate plus 2% on the revolving loan. Also, during the first quarter
of 1997, Heller extended to the Company an overformula line in an
amount not to exceed $300,000, for a period ending the earliest of
90 days after the date of first advance or May 20, 1997.
As disclosed at December 31, 1995, Heller had agreed to
forebear from exercising any rights and remedies under the Agreement
as a result of these previous defaults and continued to make normal
advances under the revolving loan facility. However, in compliance
with generally accepted accounting principles, and since there was
no waiver or reset, the Company, at December 31, 1995, reclassified
as a current liability $3,882,000 outstanding under the Agreement
that would otherwise have been classified as long-term debt. The
Company was in default of the "fixed charge coverage" and "capital
expenditures" financial covenants for the year ending December 31,
1996. The Company obtained a waiver from Heller for the year ended
December 31, 1996, and reset certain covenants for 1997, under the
Sixth Amendment to the Agreement (effective April 14, 1997).
Therefore, $3,762,000 of such loans with Heller is classified as
long-term debt at December 31, 1996, in compliance with generally
accepted accounting principles. Pursuant to this Sixth Amendment,
the Company is obligated to raise an additional $700,000 on or
before August 15, 1997, of which $150,000 is to be paid by June 15,
1997. Under such amendment, this additional amount may be in the
form of proceeds received under property and/or business
interruption insurance as a result of the explosion and fire at
PFM's facility, insurance proceeds with regard to the vandalism at
the PFL facility, selling of additional equity securities by the
Company, or other proceeds obtained in a manner approved by Heller.
The Company believes that it will be able to comply with such a
requirement.
Pursuant to the initial agreement, the term loan bears interest
at a floating rate equal to the base rate (prime) plus 1 3/4% per
annum The revolving loan bears interest at a floating rate equal
to the base rate (prime) plus 1 1/2% per annum. The loans also
contain certain closing, management and unused line fees payable
throughout the term. As discussed above, in conjunction with the
Third and Sixth Amendments, applicable interest rates were amended.
Both the revolving loan and term loan were prime based loans at
December 31, 1996, bearing interest at a rate of 9.75% and 10.00%,
respectively.
As of December 31, 1996, the borrowings under the revolving
loan facility total $2,879,000, a decrease of $297,000 from the
December 31, 1995 balance of $3,176,000, with borrowing availability
of $958,000. The balance on the term loan totalled $1,383,000, as
compared to $2,083,000 at December 31, 1995. Total indebtedness
under the Heller Agreement as of December 31, 1996 was $4,262,000,
a reduction of $997,000 from the December 31, 1995 balance of
$5,259,000.
During October 1994, the Company entered into a $1,000,000
equipment financing agreement with Ally Capital Corporation
("Ally"), which provides lease commitments for the financing of
certain equipment through June 1995. During 1995, the Company
negotiated an increase in the total lease commitment to $1,600,000.
The agreement provides for an initial term of 42 months, which may
be extended to 48, and bears interest at a fixed interest rate of
11.3%. As of December 31, 1995, the Company had utilized $1,496,000
of this credit facility to purchase capital equipment and
subsequently drew down an additional $57,000 in January 1996,
bringing the total financing under this agreement to $1,553,000.
In conjunction with a 1994 acquisition, the Company also assumed
$679,000 of debt obligations with Ally Capital Corporation, which
had terms expiring from September 1997 through August 1998, at a
rate ranging from 10.2% to 13.05%. At December 31, 1995, the
Company was not in compliance with the minimum tangible net worth
covenant of this agreement and Ally had waived compliance with
this covenant and no acceleration was demanded by the lender.
However, in compliance with generally accepted accounting
principles, the Company, at December 31, 1995, reclassified as
a current liability $1,778,000 outstanding under the agreement,
which would otherwise have been classified as long-term debt.
During the second quarter of 1996, the Company negotiated and
subsequently entered into an amendment to the equipment financing
agreement, whereby, among other things, Ally waived the existing
event of default and amended the required covenants. The Company
was in default of the "fixed charge covecoverage" and "capital
expenditures" financial covenant for the year ending December 31,
1996. Pursuant to an amendment to the Lease Agreement dated
April 14, 1997, the Company obtained a waiver from Ally for the year
ended December 31, 1997, and reset certain covenants for 1997. The
outstanding balance on these equipment financing agreements at
December 31, 1996 is $1,257,000, as compared to $1,778,000 at
December 31, 1995. As a result of the above discussed waiver and
amendment and the resetting of certain covenants for 1997, $611,000
has been classified as long-term debt at December 31, 1996, pursuant
to generally accepted accounting principles.
The aggregate amount of the maturities of long-term debt
maturing in future years as of December 31, 1996 is $1,479,000 in
1997; $4,507,000 in 1998; $234,000 in 1999; $130,000 in 2000; and
$10,000 in 2001.
________________________________________________________________
NOTE 6
ACCRUED EXPENSES
Accrued expenses at December 31 include the following (in
thousands):
1996 1995
________ ________
Salaries and employee benefits $ 808 $ 818
Accrued sales, property and other tax 365 548
Waste disposal and other related expenses 667 657
Accrued environmental 482 338
Other 538 590
________ ________
Total accrued expenses $ 2,860 $ 2,951
======== ========
________________________________________________________________
NOTE 7
ACCRUED CLOSURE COSTS AND ENVIRONMENTAL LIABILITIES
The Company accrues for the estimated closure costs of its
fixed-based RCRA regulated facilities upon cessation of operations.
The amount recorded in 1993 in accordance with EPA approved closure
plans was $290,000. With the 1994 acquisition of two RCRA regulated
facilities from Quadrex, the Company increased its liability to
$935,000 as of December 31, 1994, which was subsequently increased
to $1,041,000 in 1995. During 1996, the accrued closure cost
increased by $53,000 to a total of $1,094,000, principally as a
result of inflationary factors. The closure costs will increase in
the future, as indexed to an inflationary factor, and may also
increase or decrease as the Company changes its current operations
at these regulated facilities. Additionally, unlike solid waste
facilities, the Company, consistent with EPA regulations, does not
have post-closure liabilities that extend substantially beyond the
effective life of the facility.
At December 31, 1996 the Company had accrued environmental and
acquisition related liabilities totalling $2,460,000, which reflects
a decrease of $603,000 from the December 31, 1995 balance of
$3,063,000. This amount principally represents management's best
estimate of the costs to remove contaminated sludge and soil, and
to undergo groundwater remediation activities at one of its RCRA
facilities and one former RCRA facility that is under a closure
action from 1989 that its wholly-owned subsidiary, PFD, leases.
Perma-Fix of Memphis, Inc., acquired December 30, 1993, is currently
remediating gasoline contamination from a shallow aquifer on its
property. The Company expects this activity to continue into the
foreseeable future. Perma-Fix of Dayton, Inc. is the owner of a
RCRA facility currently under closure since it ceased operations in
1989. This facility has pursued remedial activities for the last
five years with additional studies forthcoming, and potential
groundwater restoration which could extend five (5) to ten (10)
years. The Company has estimated the potential liability related
to the remedial activity of the above properties to approximate
$2,085,000 (PFD $925,000 and PFM $1,160,000), which has been
included in the above accrued environmental total.
________________________________________________________________
NOTE 8
INCOME TAXES
The components of the provision for income taxes are as follows
(in thousands):
1996 1995 1994
_______ _______ ________
Current
Federal $ - $ - $ -
State - - 30
________ _______ ________
$ - $ - $ 30
Deferred - - -
________ _______ ________
Provision for income taxes $ - $ - $ -
======== ======= ========
At December 31, 1996 and 1995 the Company had temporary
differences and net operating loss carryforwards which gave rise to
deferred tax assets and liabilities at December 31, as follows (in
thousands):
1996 1995
________ ________
Net operating losses $ 3,376 $ 2,770
Environmental reserves 980 1,131
Other 172 453
Valuation allowance (4,034) (3,849)
________ ________
Deferred tax assets 494 505
________ ________
Depreciation 466 493
Other 28 12
________ ________
Deferred tax liability 494 505
________ ________
Net deferred tax asset (liability) $ - $ -
======== ========
A reconciliation between the expected tax benefit using the
federal statutory rate of 34% and the provision for income taxes as
reported in the accompanying consolidated statements of operations
is as follows (in thousands):
1996 1995 1994
_______ ________ _______
Tax benefit at statutory rate $ (137) $ (3,077) $ (505)
Permit impairment charge and
goodwill amortization 43 1,811 -
Other 85 97
State income taxes - - 30
Increase in valuation
allowance 9 1,169 505
________ _________ ________
Provision for income taxes $ - $ - $ 30
======== ========= ========
The Company's valuation allowance increased by approximately
$185,000 and $1,169,000 for the years ended December 31, 1996 and
1995, respectively, which represents the effect of changes in the
temporary differences and net operating losses (NOLs), as amended.
The Company has recorded a valuation allowance to state its deferred
tax assets at estimated net realizable value due to the uncertainty
related to realization of these assets through future taxable
income.
The Company had estimated net operating loss carryforwards for
federal income tax purposes of approximately $9,900,000 at
December 31, 1996. These net operating losses can be carried
forward and applied against future taxable income, if any, and
expire in the years 2006 through 2011. However, as a result of
various stock offerings and certain acquisitions, the use of
$7,800,00 of these NOLs will be limited to approximately $1,500,000
per year 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 9
CAPITAL STOCK, EMPLOYEE STOCK PLAN AND INCENTIVE COMPENSATION
In February 1996, the Company issued 1,100 shares of newly
created Series 1 Class A Preferred Stock at a price of $1,000 per
share, for net proceeds of $920,000. The Company also issued 330
shares of newly created Series 2 Class B Preferred Stock at a price
of $1,000 per share, for net proceeds of $295,000. Both of the
Series 1 and Series 2 Preferred Stock were fully converted into
1,953,467 shares of the Company's common stock. During July 1996,
the Company issued 5,500 shares of newly created Series 3 Class C
Convertible Preferred Stock at a price of $1,000 per share for an
aggregate sales price of $5,500,000. See Note 4 for further
discussion.
In March 1996, the Company entered into a Stock Purchase
Agreement with Dr. Centofanti, currently the President, Chief
Executive Officer, Chairman of the Board, and Director of the
Company, whereby the Company sold, and Dr. Centofanti purchased,
133,333 shares of the Company's common stock for 75% of the closing
bid price of such common stock as quoted on the NASDAQ on the date
that Dr. Centofanti notified the Company of his desire to purchase
such stock, as authorized by the Board of Directors of the Company.
During February 1996, Dr. Centofanti tendered to the Company
$100,000 for such 133,333 shares by delivering to the Company
$86,028.51 and forgiving $13,971.49 that was owing to Dr. Centofanti
by the Company for expenses incurred by Dr. Centofanti on behalf of
the Company. On the date that Dr. Centofanti notified the Company
of his desire to purchase such shares, the closing bid price as
quoted on the NASDAQ for the Company's common stock was $1.00 per
share.
In June 1996, the Company entered into a second Stock Purchase
Agreement with Dr. Centofanti, whereby the Company sold, and Dr.
Centofanti purchased, 76,190 shares of the Company's common stock
for 75% of the closing bid price of such common stock as quoted on
the NASDAQ on the date that Dr. Centofanti notified the Company of
his desire to purchase such stock (closing bid of $1.75 on June 11,
1996), as previously authorized by the Board of Directors of the
Company. Dr. Centofanti tendered to the Company $100,000 for such
76,190 shares of common stock. During 1996, the Company also issued
347,912 shares of common stock to outside consultants of the Company
for past and future services, valued at approximately $462,000.
At the Company's Annual Meeting of Stockholders ("Annual
Meeting"), as held on December 12, 1996, the stockholders approved
the adoption of the Perma-Fix Environmental Services, Inc. 1996
Employee Stock Purchase Plan. This plan provides eligible employees
of the Company and its subsidiaries who wish to become stockholders,
an opportunity to purchase common stock of the Company through
payroll deductions. The maximum number of shares of common stock
of the Company that may be issued under the plan will be 500,000.
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. Also approved at the Annual Meeting was the amendment to
the Company's Restated Certificate of Incorporation, as amended, to
increase from 20,000,000 to 50,000,000 shares the Company's
authorized common stock, par value $.001 per share.
In June 1994, the Company acquired from Quadrex Corporation
("Quadrex") and its wholly-owned subsidiary, Quadrex Environmental
Company ("QEC"), three businesses ("Quadrex Acquisitions"). Quadrex
and QEC are collectively referred to as "Quadrex". As consideration
for the Quadrex Acquisitions, the Company assumed certain debts of
Quadrex and QEC and issued to Quadrex 575,659 shares of the
Company's common stock and agreed to issue to Quadrex up to an
additional 1,479,413 shares of Company common stock upon certain
conditions being met, with such balance being subject to reductions
under certain conditions.
Subsequent to the closing of the Quadrex Acquisitions, the
Company issued to Quadrex during the first quarter of 1995 an
additional 94,377 shares of common stock upon certain conditions
having been met. However, certain disputes and disagreements had
arisen among the parties whether under the terms of the Quadrex
Acquisitions the conditions required for delivery of the balance of
such shares had been met, and even if conditions were met, the
amount of such shares subject to reduction. In February 1995,
Quadrex filed for federal bankruptcy protection. The Company and
Quadrex negotiated and entered into a Settlement Agreement resolving
their differences as a result of the Quadrex Acquisitions without
resorting to litigation. Under the terms of the Settlement
Agreement, the Company issued to Quadrex in November 1995 an
additional 1,041,000 shares of common stock in full and complete
settlement of any and all claims which the parties may have against
each other relating to the Quadrex Acquisitions.
During July 1994, the Company completed the private placement
of 140 units, with each unit consisting of 10,000 shares of its
unregistered common stock and Class B Warrants to purchase up to
20,000 shares of the Company's common stock for $5.00 per share.
The Company closed the private placement on July 30, 1994 and
received total proceeds of $4,200,000, which resulted in the
issuance of 1,400,000 shares of unregistered common stock and Class
B Warrants to purchase 2,800,000 shares of common stock, as
described above. Of the issuance costs of $559,000, the Company
paid approximately $391,000 in fees to brokers, representatives or
finders in connection with the private placement. In addition, the
Company granted two warrants to purchase up to 331,000 shares of
common stock to two investment banking corporations. Each of the
warrants is for a term of five years and provides for an exercise
price of $3.625 per share.
On August 31, 1994, in connection with the conversion of
certain of the Company's notes then outstanding in the principal
amount of $225,000 and accrued interest of $9,000, the Company
issued 78,140 shares of its unregistered common stock and issued
three warrants to purchase 156,280 shares of common stock. The
warrants are exercisable for five years at a price of $5.00 per
share.
On December 30, 1994, the Company registered the above
mentioned shares of common stock and warrants issued during 1994,
as well as previously unregistered shares of common stock and
warrants issued in prior years.
Stock Options
On December 16, 1991, the Company adopted a Performance Equity
Plan (the "Plan"), under which 500,000 shares of the Company's
common stock are reserved for issuance, pursuant to which officers,
directors and key employees are eligible to receive incentive or
nonqualified stock options. Incentive awards consist of stock
options, restricted stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards. Incentive stock
options granted under the Plan are exercisable for a period of up
to ten years from the date of grant at an exercise price which is
not less than the market price of the common stock on the date of
grant, except that the term of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the then-
outstanding shares of common stock may not exceed five years and the
exercise price may not be less than 110% of the market price of the
common stock on the date of grant. To date, all grants of options
under the Performance Equity Plan have been made at an exercise
price not less than the market price of the common stock at the date
of grant.
Effective September 13, 1993, the Company adopted a
Nonqualified 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, the Company adopted the 1992
Outside Directors Stock Option Plan, pursuant to which options to
purchase an aggregate of 100,000 shares of common stock had been
authorized. This Plan provides for the grant of options on an annual
basis to each outside director of the Company to purchase up to
5,000 shares of common stock. The options have an exercise price
equal to the closing trading price, or, if not available, the fair
market value of the common stock on the date of grant. The Plan
also provides for the grant of additional options to purchase up to
10,000 shares of common stock on the foregoing terms to each outside
director upon election to the Board. During the Company's annual
meeting held on December 12, 1994, the stockholders approved the
second amendment to the Company's 1992 Outside Directors Stock
Option Plan which, among other things, (i) increased from 100,000
to 250,000 the number of shares reserved for issuance under the
Plan, and (ii) provides for automatic issuance to each director of
the Company, who is not an employee of the Company, a certain number
of shares of common stock in lieu of sixty-five percent (65%) of the
cash payment of the fee payable to each director for his services
as director of the Company. The Third Amendment to the Outside
Directors Plan, as approved at the December 1996 Annual Meeting,
provided that each eligible director shall receive, at such eligible
director's option, either sixty-five percent (65%) or one hundred
percent (100%) of the fee payable to such director for services
rendered to the Company as a member of the Board in common stock.
In either case, the number of shares of common stock of the Company
issuable to the eligible director shall be determined by valuing the
common stock of the Company at seventy-five percent (75%) of its
fair market value as defined by the Outside Directors Plan.
The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for
options issued to employees. Accordingly, no compensation cost has
been recognized for options granted to employees at exercise prices
which equal or exceed the market price of the Company's common stock
at the date of grant. Options granted at exercise prices below
market prices are recognized as compensation cost measured as the
difference between market price and exercise price at the date of
grant.
Statement of Financial Accounting Standards No. 123 (FAS 123)
"Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's employee stock
options had been determined in accordance with the fair market value
based method prescribed in FAS 123. The Company estimates the fair
value of each stock option at the grant date by using the Black-
Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: no
dividend yield for both years; an expected life of ten years for
both years; expected volatility of 46.8% and 47.0%; and risk-free
interest rates of 6.63% and 7.69%.
Under the accounting provisions of FASB Statement 123, the
Company's net loss and loss per share would have been reduced to the
pro forma amounts indicated below:
1996 1995
____________ ___________
Net loss applicable
to common stock
As reported $ (405,000) $ (9,052,000)
Pro forma (758,000) $ (9,553,000)
Net loss per share
As reported $ (.05) $ (1.15)
Pro forma (.09) (1.21)
A summary of the status of options under the plans as of
December 31, 1996 and 1995, and changes during the years ending on
those dates are presented below:
1996 1995
__________________________________________
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
_________ _________ _________ ________
Performance Equity Plan:
Balance at beginning
of year 263,282 $3.22 361,615 $3.31
Granted 110,000 1.00 15,000 2.47
Exercised - - - -
Forfeited (57,056) 3.32 (113,333) 3.41
________ ________
Balance at end
of year 316,226 2.43 263,282 3.22
======== ========
Options exercisable
at year end 183,609 3.14 158,874 3.17
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 110,000 1.00 15,000 2.47
Weighted average
fair value 110,000 .68 15,000 1.69
Nonqualified Stock Option
Plan:
Balance at beginning
of year 263,995 $3.17 119,295 $3.72
Granted 345,000 1.00 193,000 2.88
Exercised - - - -
Forfeited (133,600) 2.88 (48,300) 3.40
________ ________
Balance at end
of year 475,395 1.68 263,995 3.17
======== ========
Options exercisable
at year end 34,158 3.77 8,079 4.75
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 345,000 1.00 193,000 2.88
Weighted average
fair value 345,000 .68 193,000 2.23
Outside Directors Stock
Option Plan:
Balance at beginning
of year 110,000 $3.08 90,000 $3.05
Granted 35,000 1.75 20,000 3.25
Exercised - - - -
Forfeited - - - -
________ ________
Balance at end
of year 145,000 2.76 110,000 3.08
======== ========
Options exercisable
at year end 110,000 3.08 110,000 3.08
Options granted during
the year at exercise
prices which equal
market price of stock
at date of grant:
Weighted average
exercise price 35,000 1.75 20,000 3.25
Weighted average
fair value 35,000 1.25 20,000 2.27
The following table summarizes information about options under
the plan outstanding at December 31, 1996:
Options Outstanding
________________________________________
Weighted
Average Weighted
Description and Number Remaining Average
Range of Outstanding at Contractual Exercise
Exercise Price Dec. 31, 1996 Life Price
________________________ ______________ ___________ ________
Performance Equity Plan:
1991/1992 Awards ($3.02) 190,226 5.3 years $3.02
1993 Awards ($5.25) 16,000 6.8 years 5.25
1996 Awards ($1.00) 110,000 9.4 years 1.00
_________
316,226 2.43
=========
Nonqualified Stock
Option Plan:
1994 Awards ($4.75) 40,395 7.7 years $4.75
1995 Awards ($2.88) 90,000 8.0 years 2.88
1996 Awards ($1.00) 345,000 9.4 years 1.00
_________
475,395 1.68
=========
Outside Directors Stock
Option Plan:
1993 Awards ($3.02) 45,000 5.5 years $3.02
1994 Awards ($3.00-$3.22) 45,000 7.5 years 3.07
1995 Awards ($3.25) 20,000 8.0 years 3.25
1996 Awards ($1.75) 35,000 9.9 years 1.75
_________
145,000 2.76
=========
Options Exercisable
_______________________________
Weighted
Number Average
Exercisable at Exercise
Dec. 31, 1996 Price
_______________ ________
174,009 $3.02
9,600 5.25
- -
__________
183,609 3.14
==========
16,158 $4.75
18,000 2.88
- 1.00
__________
34,158 3.77
==========
45,000 $3.02
45,000 3.07
20,000 3.25
-
________
110,000 3.08
Warrants
The Company has issued various warrants pursuant to
acquisitions, private placements, debt and debt conversion and to
facilitate certain financing arrangements. The warrants principally
are for a term of five years and entitle the holder to purchase one
share of common stock for each warrant at the stated exercise price.
Also, the Company had issued certain Redeemable Warrants (Class A)
which entitled the holder to purchase one-quarter share of common
stock at an exercise price of $1.50 per quarter share ($6 per whole
share) commencing on December 8, 1993, all of which expired on
December 7, 1996. During 1996, pursuant to the issuance of the
Series 3 Class C Convertible Preferred Stock, as further discussed
in Note 4, the Company issued to RBB Bank two (2) common stock
purchase warrants entitling RBB Bank to purchase, after December 31,
1996, until July 18, 2001, an aggregate of up to 2,000,000 shares
of common stock, with 1,000,000 shares exercisable at an exercise
price equal to $2.00 per share and 1,000,000 at $3.50 per share.
In connection with the preferred stock issuance as discussed fully
in Note 4, the Company issued additional warrants during 1996 for
the purchase of 1,420,000 shares of common stock which are included
in other financing warrants. Certain of the warrant agreements
contain antidilution provisions which have been triggered by the
various stock and warrant transactions as entered into by the
Company since the issuance of such warrants by the Company. The
impact of these antidilution provisions was the reduction of certain
warrant exercise prices and the increase in the total number of
underlying shares for all warrants issued prior to 1996 from their
initial amount of 5,902,060 as of December 31, 1995, to an amended
total of 6,893,697, of which 1,126,579 expired during 1996.
The following details the warrants currently outstanding as of
December 31, 1996, after giving effect to antidilution provisions:
Number of
Underlying Exercise Expiration
Warrant Series Shares Price Date
______________ _________ ________ __________
Class A Warrants 291,316 $4.12 12/97
Class B Warrants 3,963,258 $3.53 6/99
Acquisition Warrants 487,814 $2.15 2/97
Debt Conversion Warrants 219,684 $3.56 8/99
Financing Warrants
(Preferred Stock) 1,000,000 $2.00 7/01
Financing Warrants
(Preferred Stock) 1,000,000 $3.50 7/01
Other Financing Warrants 2,225,046 $.73-$3.63 6/99-9/00
_________
9,187,118
==========
The above noted acquisition warrants, which were originally set
to expire in February of 1997, were amended and subsequently
exercised in their entirety. See Note 15 for further discussion of
these amended warrants.
Shares Reserved
At December 31, 1996, the Company has reserved approximately
14,300,000 shares of common stock for future issuance under all of
the above arrangements and the convertible Series 3 Preferred Stock
using the maximum conversion price (see Note 4).
Deferred Compensation
The stock grants issued in 1992 in connection with the IWM
acquisition have been accounted for as deferred compensation and
were amortized over three years, the period over which the
respective employees must earn their respective grant. Compensation
expense was $5,000 and $40,000 for 1995 and 1994, respectively,
related to these grants.
During 1993, 25,000 shares of the Company's common stock were
granted to a key employee of the Company at no cost as deferred
compensation. Upon issuance, 8,000 shares vested immediately, 9,000
shares vested on January 1, 1994, and 8,000 shares vested on
January 1, 1995. Compensation expense was $25,000 and $6,000 for
1995 and 1994, respectively, related to this grant.
_________________________________________________________________
NOTE 10
COMMITMENTS AND CONTINGENCIES
Hazardous Waste
In connection with the Company's waste management services, the
Company handles both hazardous and non-hazardous waste which it
transports to its own or other facilities for destruction or
disposal. As a result of disposing of hazardous substances, in the
event any cleanup is required, the Company could be a potentially
responsible party for the costs of the cleanup notwithstanding any
absence of fault on the part of the Company.
Legal
During September 1994, PFM, formerly American Resource Recovery
Corporation ("ARR"), was sued by Community First Bank ("Community
First") to collect a note in the principal sum of $341,000 that was
allegedly made by ARR to CTC Industrial Services, Inc. ("CTC") in
February 1987 (the "Note"), and which was allegedly pledged by CTC
to Community First in December 1988 to secure certain loans to CTC.
This lawsuit, styled Community First Bank v. American Resource
Recovery Corporation, was instituted on September 14, 1994, and is
pending in the Circuit Court, Shelby County, Tennessee. The Company
was not aware of either the Note or its pledge to Community First
at the time of the Company's acquisition of PFM in December 1993.
The Company intends to vigorously defend itself in connection
therewith. PFM has filed a third party complaint against Billie Kay
Dowdy, who was the sole shareholder of PFM immediately prior to the
acquisition of PFM by the Company, alleging that Ms. Dowdy is
required to defend and indemnify the Company and PFM from and
against this action under the terms of the agreement relating to the
Company's acquisition of PFM. Ms. Dowdy has stated in her answer
to the third party complaint that if the Note is determined to be
an obligation enforceable against PFM, she would be liable to PFM,
assuming no legal or equitable defenses. Management believes that
the final outcome of these proceedings will not have a material
adverse effect on the Company's financial position, liquidity or
results of operations.
In May 1995, Perma-Fix of Memphis, Inc. ("PFM"), a subsidiary
of the Company, became aware that the U.S. District Attorney for the
Western District of Tennessee and the Department of Justice were
investigating certain prior activities of W. R. Drum Company, its
successor, First Southern Container Company, and any other facility
owned or operated, in whole or in part, by Johnnie Williams. PFM
used W. R. Drum Company to dispose of certain of its used drums.
In May 1995, PFM received a Grand Jury Subpoena which demanded the
production of any documents in the possession of PFM pertaining to
W. R. Drum Company, First Southern Container Company, or any other
facility owned or operated, and holder in part, by Johnnie Williams.
PFM complied with the Grand Jury Subpoena. Thereafter, in September
of 1995, PFM received another Grand Jury Subpoena for documents from
the Grand Jury investigating W. R. Drum Company, First Southern
Container Company and/or Johnnie Williams. PFM complied with the
Grand Jury Subpoena. In December 1995, representatives of the
Department of Justice advised PFM that it was also currently a
subject of the investigation involving W. R. Drum Company, First
Southern Container Company, and/or Johnnie Williams. Since that
time, however, PFM has had no contact with representatives of either
the United States District Attorney's office for the Western
District of Tennessee or the Department of Justice, and is not aware
of why it is also a subject of such investigation. In accordance
with certain provisions of the Agreement and the Plan of Merger
relating to the prior acquisition of PFM, on or about January 2,
1996, PFM notified Ms. Billie K. Dowdy of the foregoing, and advised
Ms. Dowdy that the Company and PFM would look to Ms. Dowdy to
indemnify, defend and hold the Company and PFM harmless from any
liability, loss, damage or expense incurred or suffered as a result
of, or in connection with, this matter. Management believes that
the final outcome of these proceedings will not have a material
adverse effect on the Company's financial position, liquidity or
results of operations.
In addition to the above matters and in the normal course of
conducting its business, the Company is involved in various other
litigation. The Company is not a party to any litigation or
governmental proceeding which its management believes could result
in any judgments or fines against it that would have a material
adverse affect on the Company's financial position, liquidity or
results of operations.
Permits
The Company is subject to various regulatory requirements,
including the procurement of requisite licenses and permits at its
facilities. These licenses and permits are subject to periodic
renewal without which the Company's operations would be adversely
affected. The Company anticipates that, once a license or permit
is issued with respect to a facility, the license or permit will be
renewed at the end of its term if the facility's operations are in
compliance with the applicable regulatory requirements.
Accrued Closure Costs and Environmental Liabilities
The Company maintains closure cost funds to insure the proper
decommissioning of its RCRA facilities upon cessation of operations.
Additionally, in the course of owning and operating on-site
treatment, storage and disposal facilities, the Company is subject
to corrective action proceedings to restore soil and/or groundwater
to its original state. These activities are governed by federal,
state and local regulations and the Company maintains the
appropriate accruals for restoration. As discussed in Note 7, the
Company has recorded accrued liabilities for estimated closure costs
and identified environmental remediation costs.
Insurance
The business of the Company exposes it to various risks,
including claims for causing damage to property or injuries to
persons or claims alleging negligence or professional errors or
omissions in the performance of its services, which claims could be
substantial. The Company carries general liability insurance which
provides coverage in the aggregate amount of $2 million and an
additional $6 million excess umbrella policy and carries $1 million
per occurrence and $2 million annual aggregate of errors and
omissions/professional liability insurance coverage, which includes
pollution control coverage.
The Company also carries specific pollution liability insurance
for operations involved in the Waste Management Services segment.
The Company believes that this coverage, combined with its various
other insurance policies, is adequate to insure the Company against
the various types of risks encountered.
Operating Leases
The Company leases certain facilities and equipment under
operating leases. Future minimum rental payments as of December 31,
1996 required under these leases are $941,000 in 1997, $848,000 in
1998, $504,000 in 1999, $308,000 in 2000 and $95,000 in 2001.
Net rent expense relating to the Company's operating leases was
$1,657,000, $1,982,000 and $1,349,000 for 1996, 1995 and 1994,
respectively.
________________________________________________________________
NOTE 11
PROFIT SHARING PLAN
The Company adopted the Perma-Fix Environmental Services, Inc.
401(k) Plan (the "401(k) Plan") in 1992, which is intended to comply
under Section 401 of the Internal Revenue Code and the provisions
of the Employee Retirement Income Security Act of 1974. All full-
time employees of the Company and its subsidiaries who have attained
the age of 21 are eligible to participate in the 401(k) Plan.
Participating employees may make annual pre-tax contributions to
their accounts up to 15% of their compensation, up to a maximum
amount as limited by law. The Company, at its discretion, may make
matching contributions based on the employee's elective
contributions. Company contributions vest over a period of six
years. The Company elected not to provide any matching
contributions for the years ended December 31, 1996, 1995 and 1994.
________________________________________________________________
NOTE 12
BUSINESS SEGMENT INFORMATION
The Company provides services through two business segments.
The Waste Management Services segment, which provides off-site waste
treatment, recycling and disposal services through its five
treatment, storage and disposal facilities (TSD facilities); Perma-
Fix Treatment Services, Inc., Perma-Fix of Dayton, Inc., Perma-Fix
of Memphis, Inc., Perma-Fix of Ft. Lauderdale, Inc. and Perma-Fix
of Florida, Inc. The Company also provides through this segment:
(i) on-site waste treatment services to convert certain types of
characteristic hazardous wastes into non-hazardous waste, through
its Perma-Fix, Inc. subsidiary; and (ii) the supply and management
of non-hazardous and hazardous waste to be used by cement plants as
a substitute fuel or raw material source. Effective June 30, 1994,
the Company acquired Perma-Fix of Dayton, Inc., Perma-Fix of Ft.
Lauderdale, Inc. and Perma-Fix of Florida, Inc., which are included
in the results during 1994.
The Company also provides services through the Consulting
Engineering Services segment. The Company provides environmental
engineering and regulatory compliance consulting services through
Schreiber, Grana & Yonley, Inc. in St. Louis, Missouri, and Mintech,
Inc. in Tulsa, Oklahoma. These engineering groups provide oversight
management of environmental restoration projects, air and soil
sampling and compliance reporting, surface and subsurface water
treatment design for removal of pollutants, and various compliance
and training activities.
The table below shows certain financial information by business
segment for 1996, 1995 and 1994. Income (loss) from operations
includes revenues less operating costs and expenses. Marketing,
general and administrative expenses of the corporate headquarters
have not been allocated to the segments. Identifiable assets are
those used in the operations of each business segment, including
intangible assets. Corporate assets are principally cash, cash
equivalents and certain other assets.
Waste Consulting Corporate
Management Engineering and
Dollars in Thousands Services Services Other Consolidated
____________________________________________________________________________
1996
Net revenues $ 25,493 $ 5,544 $ - $ 31,037
Depreciation and amortization 2,075 156 21 2,252
Income (loss) from operations 722 505 (1,298) (71)
Identifiable assets 26,403 2,565 68 29,036
Capital expenditures, net 1,301 (5) - 1,296
1995
Net revenues $ 28,843 $ 6,048 $ - $ 34,891
Depreciation and amortization 2,242 169 20 2,431
Permit write-down 4,712 - - 4,712
Nonrecurring charges 762 - 225 987
Income (loss) from operations (6,260) $ 350 (2,025) (7,935)
Identifiable assets 25,524 2,884 465 28,873
Capital expenditures, net 2,765 69 97 2,931
(exclusive of acquisitions)
1994
Net revenues $ 21,031 $ 7,044 $ - $ 28,075
Depreciation and amortization 1,518 186 14 1,718
Income (loss) from operations 172 283 (1,524) (1,069)
Identifiable assets 31,295 3,237 535 35,067
Capital expenditures, net 1,499 105 300 1,904
(exclusive of acquisitions)
________________________________________________________________
NOTE 13
PERMIT WRITE-DOWN
During December 1995, the Company recognized a permit
impairment charge of $4,712,000, related to the December 1993
acquisition of Perma-Fix of Memphis, Inc. ("PFM")(f/k/a American
Resource Recovery, Inc.). The acquisition was accounted for under
the purchase method of accounting and the related intangible permit
represents the excess of the purchase price over the fair value of
the net assets of the acquired company and the intrinsic value
related to the Resource Conservation and Recovery Act ("RCRA")
permits maintained by the facility. Subsequent to the acquisition,
PFM, as reported under the waste management services segment of the
Company, has consistently reflected operating losses. As a result,
during late 1994 and the first six (6) months of 1995, PFM had
undergone a series of restructuring programs aimed at the reduction
of operating and overhead costs, and increased gross margin and
revenues. However, PFM continued to experience intense competition
for its services, and a decline in market share and operating
losses. Therefore, as a result of the continued decline in
operating results, the detailed strategic and operational review,
and the application of the Company's objective measurement tests,
an evaluation of the permit for possible impairment was completed
in December 1995.
The evaluation of such impairment included the development of
the Company's best estimate of the related undiscounted operating
income over the remaining life of the intangible permit.
Consequently, the results of the Company's best estimate of
forecasted future operations, given the consistent prior losses and
uncertainty of the impact of the restructuring programs, was that
they do not support the recoverability of this permit. As a result
of these estimates and related uncertainties, the permit was deemed
to be impaired and a charge was recorded to write-down the full
value of the intangible permit of approximately $5,235,000, net of
the accumulated amortization totaling approximately $523,000. This
net charge of $4,712,000 was recorded through the consolidated
statement of operations in December 1995 as "Permit write-down".
______________________________________________________________
NOTE 14
NONRECURRING CHARGES
During 1995, the Company recorded several nonrecurring charges
totalling $987,000, for certain unrelated events. Of this amount,
$450,000 represents a divestiture reserve as related to the sale of
a wholly-owned subsidiary and $537,000 are one-time charges
resulting from restructuring programs.
As previously disclosed, the Company decided in 1994 to divest
its wholly-owned subsidiary, Re-Tech Systems, Inc., which is engaged
in post-consumer plastics recycling. Effective March 15, 1996, the
Company completed the sale of Re-Tech Systems, Inc., its plastics
recycling subsidiary in Houston, Texas. The sale transaction
included all real and personal property of the subsidiary, for a
total consideration of $970,000. Net cash proceeds to the Company
were approximately $320,000, after the repayment of a mortgage
obligation of $595,000 and certain other closing and real estate
costs. In conjunction with this transaction, the Company also made
a prepayment of $50,000 to Heller Financial, Inc. for application
to the term loan. The Company recorded during 1995 a nonrecurring
charge of $450,000 (recorded as an asset reduction) for the
estimated loss on the sale of this subsidiary, which, based upon the
closing balances, the Company recognized a small gain on this sale
after the asset write-down. The Company sold total assets of
approximately $1,346,000, while retaining certain assets totalling
approximately $94,000 and certain liabilities totalling
approximately $48,000.
The Company also executed restructuring programs within the
waste management services segment. A one-time charge of $237,000
was recorded to provide for costs, principally severance and lease
termination fees, associated with the restructuring of the Perma-
Fix, Inc. service center group. This program entailed primarily the
consolidation of offices in conjunction with the implementation of
a regional service center concept, and the related closing of seven
(7) of the nine (9) offices. A one-time charge of $75,000 was also
recorded during the second quarter of 1995 to provide for
consolidation costs, principally severance, associated with the
restructuring of the Southeast Region, which is comprised of Perma-
Fix of Florida and Perma-Fix of Ft. Lauderdale. These restructuring
costs were principally incurred and funded during 1995.
In December of 1995, in conjunction with the above referenced
restructuring program, the Company and Mr. Robert W. Foster, Jr.
("Foster") agreed to Foster's resignation as President, Chief
Executive Officer and Director of the Company, thereby terminating
his employment agreement with the Company effective March 15, 1996.
The Company agreed to severance benefits of $30,000 in cash, the
continuation of certain employee benefits for a period of time and
the issuance of $171,000 in the form of common stock, par value
$.001, of the Company. Pursuant to the above, the Company recorded
a nonrecurring charge at December 31, 1995 of $215,000. In
addition, severance costs of approximately $10,000 were incurred
upon the termination of several corporate executives. These
restructuring costs were principally incurred and funded during the
first six months of 1996.
_____________________________________________________________
NOTE 15
SUBSEQUENT EVENTS
Effective February 7, 1997, the Company amended five (5)
warrants with an original issuance date of February 10, 1992 to
purchase an aggregate of 487,814 shares of the Company's common
stock ("Acquisition Warrants"). The Acquisition Warrants were
amended to (i) reduce the exercise price from $2.1475 per share of
common stock to $1.00 per share of common stock, and (ii) extend the
expiration date of the warrants from February 10, 1997 to March 3,
1997. All Acquisition Warrants were subsequently exercised prior
to this March 3, 1997 date, which resulted in $487,814 of additional
capital/equity.
On January 27, 1997, an explosion and resulting tank fire
occurred at the Perma-Fix of Memphis, Inc. ("PFM") facility, a
hazardous waste storage, processing and blending facility, located
in Memphis, Tennessee, which resulted in damage to certain hazardous
waste storage tanks located on the facility and caused certain
limited contamination at the facility. From the date of the fire
through the date of this report, this facility has not been
operational. However, PFM has accepted and will continue to accept
waste for processing and disposal, but has arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
utilization of other facilities to process such waste results 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. PFM is in the process of repairing and/or removing the
damaged storage tanks and any contamination resulting from the
occurrence, and, as of the date of this report, anticipates that PFM
will be able to begin certain limited operations at the facility by
the end of April 1997. The extent of PFM's activities at the
facility, once operations are renewed, are presently being evaluated
by the Company. The company and PFM have property and business
interruption insurance and have provided notice to its carriers of
such loss. Although there are no assurances, the Company presently
believes that its property insurance will cover any property loss
suffered by PFM at the facility as a result of such occurrence. The
Company is in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
thereof, if any.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Since information relating to changes in accountants and
engagement of new accountants by the Company during the Company's
two most recent fiscal years or any subsequent interim period have
been previously reported (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) and there
were no disagreements or reportable events required to be reported
under paragraph (b) of Item 304 of Regulation S-K, the information
called for under this Item 9 is not required to be provided pursuant
to Item 304 of Regulation S-K.
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:
Directors and Principal Occupation and
Executive Officers Other Information
_______________________ _____________________________________
Dr. Louis F. Centofanti See Item 4A -- "Executive Officers of
Director since 1991, the Company" of this report for a
Chairman of the Board, discussion of the principal occupa-
President and tion and other information regarding
Chief Executive Officer Dr. Centofanti
Age: 53
Mr. Mark A. Zwecker(1)(2) Mr. Zwecker has served as a Director
Director since 1990 of the Company since its inception in
Age: 46 December 1990. Mr. Zwecker resigned
his position as Secretary of the
Company in June 1996, at which time
Richard T. Kelecy was appointed to
this position. Mr. Zwecker also
resigned his position as Treasurer
and Chief Financial Officer of the
Company in July 1994 and is
currently Vice President of Finance
and Administration for American
Combustion, Inc., a position he
previously held from 1986 to 1990.
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
an M.B.A. from Harvard University
and a B.S. in Industrial and Systems
Engineering from the Georgia
Institute of Technology.
Mr. Steve Gorlin(1) Mr. Gorlin has served as a Director
Director since 1992 of the Company since October 1992.
Age: 59 Mr. Gorlin is a private investor
working with several technology-
based companies. He was formerly
Chairman of the Board of Directors
of EntreMed, Inc. and currently is a
member of the Board of Directors of
Advanced Aerodynamics & Structures,
Inc. Mr. Gorlin is a co-founder and
served as President and Chairman of
the Board of Directors of CytRx
Corporation until 1990.
Mr. Jon Colin(2) Mr. Colin was elected as a Director
Director since 1996 of the Company on December 12, 1996.
Age: 41 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., an environmental services
company traded on the NASDAQ.
Mr. Colin has a B.S. degree in
Accounting from the University of
Maryland.
Mr. Richard T. Kelecy See Item 4A -- "Executive Officers of
Chief Financial Officer the Coompany" of this report for a
Age: 41 discussion of the principal occupa-
tion and other information regarding
Mr. Kelecy.
_________________________
(1) Member of Compensation and Stock Option Committee
(2) Member of Audit Committee
Directors of the Company are elected to serve for a term of one
year or until their successors are elected and qualify, or until
their earlier death, resignation or removal. There are presently
four (4) members serving as directors. Pursuant to the By-Laws of
the Company, the Board of Directors has set the number of directors
at a minimum of three. No family or contractual relationship exist
between or among any directors or officers of the Company. The
Company has agreed that for five years after the effective date of
its Registration Statement on Form S-1 (December 8, 1992), if
requested by A.S. Goldmen & Co., Inc., the managing underwriter of
the Company's initial public offering (the "Underwriter"), it will
use its best efforts to cause one individual designated by the
Underwriter to be elected to the Company's Board of Directors, which
individual may be an officer, director, employee or affiliate of the
Underwriter. At this time the Underwriter has not requested to have
one individual designated to be elected to the Company's Board of
Directors.
In conjunction with the Company's restructuring program, the
Company and Mr. Robert W. Foster, Jr. ("Foster") agreed to Foster's
resignation as President, Chief Executive Officer and Director of
the Company effective March 15, 1996. The Company paid severance
benefits of $30,000 in cash, continued certain employee benefits,
and issued approximately $171,000 in the form of common stock, par
value $.001, of the Company. See "Executive Compensation." In
addition to his position of Chairman of the Board of the Company,
Dr. Louis F. Centofanti was elected as President and Chief Executive
Officer of the Company to replace Mr. Foster. See "Executive
Officers of the Company."
The Company's officers are elected annually by, and serve at
the pleasure of, the Board of Directors, subject to the terms of any
employment agreements. See "Employment Contracts, Termination of
Employment and Change in Control Arrangements."
Certain Relationships
There are no family relationships between any existing
director, executive officer, or person nominated or chosen by the
Company to become a director or executive officer. Dr. Centofanti
is the only director who is an employee of the Company.
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 1996 none of the executive officers
and directors of the Company failed to timely file reports under
Section 16(a).
RBB Bank Aktiengesellschaft ("RBB Bank"), which may have become
a beneficial owner (as that term is defined under Rule 13d-3 as
promulgated under the Exchange Act) of more than ten percent (10%)
of the Company's common stock on February 9, 1996, as a result of
its acquisition of 1,100 shares of Series 1 Preferred (as defined
in "Certain Relationships and Related Transactions") that were
convertible into a maximum of 1,282,798 shares of common stock of
the Company commencing 45 days after issuance of the Series 1
Preferred, failed to file a Form 3 to report such transaction, if
required. RBB Bank has advised the Company that it acquired such
preferred stock on behalf of numerous clients and no one client is
the beneficial owner of more than 250 shares of such preferred
stock, and thus, RBB Bank believes it was 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 and thereby
required to file reports under Section 16(a) of the Exchange Act,
then RBB Bank may have also failed to file (i) a Form 4 for single
transaction which occurred on February 22, 1996; (ii) a Form 4 for
four transactions which occurred in July 1996; (iii) a Form 4 for
a single transaction which occurred in September 1996; (iv) a Form
4 for a single transaction which occurred in January 1997; and (v)
a Form 5 for 1996 as a result of not filing the above referenced
reports.
For further discussion of the RBB Bank transactions, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources of the
Company," "Security Ownership of Certain Beneficial Owners and
Management--Security Ownership of Certain Beneficial Owners," and
"--Potential Change of Control."
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate cash compensation
paid to the Chairman and Chief Executive Officers of the Company.
No executive officer of the Company or its subsidiaries received a
total salary and bonus for 1996 in excess of $100,000.
Annual Compensation
______________________________
Other
Annual
Name and Principal Bonus Compen-
Position Year Salary($) ($) sation($)
_________________________ ____ ________ _______ _________
Dr. Louis F. Centofanti(1) 1996 65,000 - 66,666(3)
Chairman of the Board 1995 120,000 - -
and Chief Executive 1994 86,000 - -
Officer
Robert W. Foster, Jr.(2) 1996 34,000 - 30,000
President and 1995 130,000 5,000 -
Chief Executive Officer
Long Term
Compensation
________________________
Restricted All
Stock Options Other
Award(s) SARs Compen-
($) (#) sation ($)
__________ ________ __________
- - -
- 20,000 -
- - -
- - 171,000
- 78,000 -
_____________
(1) Dr. Centofanti, the Company's Chairman of the Board, received
compensation pursuant to an employment agreement, which provided for
annual compensation to Dr. Centofanti of $75,000 beginning June 1992
and expiring in June 1995. Under the expired contract, Dr.
Centofanti received an annual salary of $75,000, which was increased
to $125,000 in October, 1994, and continued until December, 1995,
when Dr. Centofanti's salary was reduced to $65,000.
Dr. Centofanti's current annual salary is $65,000. 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) Mr. Foster resigned his positions of President and Chief
Executive Officer effective March 15, 1996, and the parties agreed
to terminate his employment agreement effective as of the date of
such termination. The Company agreed to severance benefits of
$30,000 in cash plus continuation of certain employee benefits. In
addition, concurrently with Mr. Foster's termination, the Company
and Mr. Foster entered into a consulting agreement with a term of
three (3) months and compensation of $171,000, which was paid in the
form of common stock, par value $.001, of the Company. See
"Employment Contracts, Termination of Employment and Change in
Control Arrangements" in Item 11.
(3) The Company entered into two Stock Purchase Agreements with Dr.
Centofanti whereby the Company sold, and Dr. Centofanti purchased,
133,333 shares and 76,190 shares, in March 1996, and in June 1996,
respectively, of the Company's common stock for 75% of the closing
bid price of such common stock as quoted on the NASDAQ on the date
that Dr. Centofanti notified the Company of his desire to purchase
such stock, as authorized by the Board of Directors of the company.
The closing bid price as quoted on the NASDAQ for the Company's
common stock on the dates that Dr. Centofanti notified the Company
of his desire to purchase the shares was $1.00 per share for the
march sale and $1.75 per share for the June sale. As a result, the
difference between the price paid by Dr. Centofanti for such stock
and the fair market value thereof was approximately $33,333 for each
transaction. See "Certain Relationships and Related Transactions."
Options/SAR Grants in Last Fiscal Year
During 1996, there were no individual grants of stock options
or SAR's made to any of the executive officers named in the summary
compensation table.
Aggregated Option Exercises in 1996 and Fiscal Year-End Option
Values
The following table sets forth information concerning each
exercise of stock options during the last completed fiscal year by
each of the executive officers named in the Summary Compensation
Table and the fiscal year-end value of unexercised options:
Shares Value
Acquired on Realized
Exercise (#)(1) ($)(1)
_______________ ________
Dr. Louis F. Centofanti 0 $0
Robert W. Foster, Jr.(3) 0 $0
Number of Unexercised
Options at Fiscal Year-End
(#)
_____________________________
Exercisable Unexercisable
___________ _____________
33,763 16,000
0 0(3)
Value of Unexercised
in-the-Money Options
at Fiscal Year End ($)(2)
_____________________________
Exercisable Unexercisable
___________ _____________
$0 $0
$0 $0
_____________
(1) No options were exercised during 1996.
(2) Values have been calculated based on 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, 1996, which was $1.375 per share. 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. As of December 31, 1996, the unexercised
options were not in the money since the fair market value of the
underlying securities was less than the exercise price of such
options.
(3) Mr. Foster resigned his position of President and Chief
Executive Officer effective March 15, 1996 and, simultaneous with
such resignation, all unexercised options totaling 155,000 were
forfeited.
401(k) Plan
The Company has adopted the Perma-Fix Environmental Services,
Inc. 401(k) Plan which is intended to comply under Section 401 of
the Internal Revenue Code and the provisions of the Employee
Retirement Security Act of 1974 (the "401(k) Plan"). All full-time
employees of the Company and its subsidiaries who have attained the
age of twenty-one (21) are eligible to participate in the 401(k)
Plan. Participating employees may make annual pre-tax contributions
to their accounts up to fifteen percent (15%) of their compensation,
up to a maximum amount as limited by law. The Company, at its
discretion, may make matching contributions based on full-time
employees' elective contributions. Company contributions vest
twenty percent (20%) after two (2) years, forty percent (40%) after
three (3) years, sixty percent (60%) after four (4) years, eighty
percent (80%) after five (5) years, and are one hundred percent
(100%) vested thereafter. As of December 31, 1996, the Company has
elected not to provide any matching contributions. Distributions
generally are payable in lump sums after termination, retirement,
death or disability.
Compensation of Directors
In 1996, the two outside directors of the Company, which number
was subsequently increased to three pursuant to the Annual Meeting
in December of 1996, received annual director's fees in the
aggregate amount of $28,000, with each director's fee payable in
shares of common stock of the Company, subject to the election of
each director, based on the fair market value of such stock
determined on the business day immediately preceding the date that
the fee is due and the balance payable in cash. Reimbursement of
expenses for attending meetings of the Board are paid in cash at the
time of occurrence. The director fees in 1996 were based on monthly
payments of $1,000 for each month of service. These directors do
not receive additional compensation for committee participation or
special assignments except for reimbursement of expenses. The
Company does not compensate the directors that also serve as
officers or employees of the Company or its subsidiaries for their
service as directors.
The Company believes that it is important for directors to have
a personal interest in the success and growth of the Company and for
their interests to be aligned with those of its stockholders.
Therefore, under the Company's 1992 Outside Directors Stock Option
and Incentive Plan ("Outside Directors Plan"), each outside director
is granted an option to purchase up to 15,000 shares of common stock
on the date such director is initially elected to the Board of
Directors and receives on an annual basis an option to purchase up
to another 5,000 shares of common stock, with the exercise price
being the fair market value of the common stock on the date that the
option is granted. No option granted under the Outside Directors
Plan is exercisable until after the expiration of six months from
the date the option was 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, 1995, options to purchase 110,000
shares of common stock have been granted under the Outside Directors
Plan. During 1996, the Company granted options to purchase 35,000
shares of common stock under the Outside Directors Plan. In
addition, under the second amendment to the Outside Directors Plan,
approved at the Annual Meeting of Shareholders held in December
1994, beginning January 1995, each outside director was, in lieu of
65% of the fees payable to the outside director, issued a number of
shares of common stock having a value equal to 65% of the fee
payable to each such director based on the fair market value of such
stock determined on the business day immediately preceding the date
that the fee was due, with the remaining 35% paid in cash. 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 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 250,000 shares, subject to
adjustment.
Robert W. Foster, Jr., formerly President, Chief Executive
Officer and a director of the Company until March 15, 1996, was
compensated pursuant to an employment agreement during 1994, 1995
and 1996, and a consulting agreement during 1996. See "--Employment
Contracts, Termination of Employment and Change in Control
Arrangements" and "EXECUTIVE COMPENSATION--Summary Compensation
Table."
Although Dr. Centofanti is not compensated for his services
provided as a director of the Company, Dr. Centofanti is compensated
for his services rendered to the Company as an officer of the
Company. See "Employment Contracts, Termination of Employment and
Change in Control Arrangements."
Employment Contracts, Termination of Employment and Change in
Control Arrangements
In June 1994, the Company entered into a three (3) year
employment agreement with Robert W. Foster, Jr. Under the
Agreement, Mr. Foster was to receive an annual salary of $110,000,
which was subsequently increased to $135,000 during 1995, as
determined by the Compensation and Stock Option Committee. However,
in conjunction with the Company's restructuring program, the Company
and Mr. Robert W. Foster, Jr. ("Foster") agreed to Foster's
resignation as President, Chief Executive Officer and Director of
the Company, thereby terminating his employment agreement with the
Company effective March 15, 1996. The Company agreed to severance
benefits of $30,000 in cash plus continuation of certain employee
benefits. In addition, the Company and Foster entered into a
consulting agreement with a term of three (3) months and
compensation of a minimum of approximately $171,000 payable in the
form of common stock, par value $.001, of the Company. Based upon
a stock price at the close of business on April 1, 1996, the Company
issued approximately 152,000 shares of common stock to Mr. Foster
relative to this agreement. The fair market value of the 152,000
shares exceeded $171,000 on the 90th day after March 15, 1996 and,
as a result, Mr. Foster reimbursed to the Company approximately
$41,000 of such excess proceeds. Foster is engaged as an
independent, outside consultant to the Company and agrees to certain
non-competition conditions for a period of one (1) year following
the date of this agreement.
The Company's 1991 Performance Equity Plan and the 1993
Nonqualified 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 the executive officers of the Company
shall immediately become exercisable upon such a change in control
of the Company.
Compensation Committee Interlocks and Insider Participation
During 1996, the Compensation and Stock Option Committee for
the Company's Board of Directors was composed of Steve Gorlin and
Mark Zwecker. Neither Mr. Gorlin nor Mr. Zwecker is or was, during
the year, an officer or employee of the Company.
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 14, 1997 by each
person known by the Company to be the beneficial owner of more than
five percent (5%) of any class of the Company's voting securities.
Beneficial ownership by the Company's 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 14, 1997.
Amount and
Nature of Percent
Name of Title Beneficial of
Beneficial Owner of Class Ownership Class(1)
______________________________ ________ _____________ _________
Dr. Louis F. Centofanti(2) Common 674,438(2) 6.62%
American Ecology Corporation(3) Common 795,000(3) 7.87%
RBB Bank Aktiengesellschaft(4) Common 6,823,728(4) 42.32%
Preferred 5,500(4) 100.00%
____________________
(1) In computing the number of shares and the percentage of
outstanding common stock "beneficially owned" by a person, the
calculations are based upon 10,095,948 shares of common stock
issued and outstanding on March 14, 1997, 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) 571,744 shares held of record by Dr.
Centofanti; (ii) 61,618 shares receivable upon exercise of
warrants to purchase common stock; and (iii) options to
purchase 33,763 shares granted pursuant to the 1991
Performance Equity Plan and the 1993 Nonqualified Stock Option
Plan, which are immediately exercisable. This amount does not
include options to purchase 16,000 shares granted pursuant to
the above referenced plans which are not exercisable within
sixty (60) days. Dr. Centofanti has sole voting and
investment power of these shares, except the following shares
for which Dr. Centofanti shares voting and investment power:
4,000 shares and 500 shares receivable upon the exercise of
warrants to purchase common stock held by the wife of Dr.
Centofanti and 2,500 shares and 313 shares receivable upon the
exercise of warrants to purchase common stock held by the son
of Dr. Centofanti's wife. The business address of Dr.
Centofanti, for the purposes hereof, is c/o Perma-Fix
Environmental Services, Inc., 1940 N.W. 67th Place,
Gainesville, Florida 32653.
(3) American Ecology Corporation ("AEC") has sole voting and
investment power over these shares. The address for AEC is
805 West Idaho, Suite 200, Boise, Idaho 83702-8916.
(4) The outstanding shares of Preferred Stock consist of the
Series 3 Preferred that RBB Bank acquired from the Company
pursuant to the Subscription Agreement. The holders of the
Series 3 Preferred have no voting rights, except as required
by law. The shares of common stock included as beneficially
owned by RBB Bank in this table are shares that RBB Bank would
be entitled to receive upon conversion of all of the Series 3
Preferred Stock held by RBB Bank (assuming that the average of
the closing bid prices of the common stock for the five (5)
trading days prior to conversion equals or exceeds $2.00 per
share), and the number of shares of common stock noted is
based on the assumption that RBB Bank converted such shares of
Series 3 Preferred into the maximum number possible. The
above calculation does include 2,000,000 shares of common
stock that RBB Bank has the right to acquire upon exercise of
the RBB Warrants, which entitle RBB Bank to purchase 2,000,000
shares of common stock after December 31, 1996, at an exercise
price of $2.00 per share for 1,000,000 shares, and $3.50 a
share for 1,000,000 shares. However, the above calculation
does include approximately 300,000 shares of common stock that
RBB Bank may receive in payment of the accrued dividends on
the Series 3 Preferred. RBB Bank has advised the Company that
it is holding the Preferred Stock on behalf of 43 clients of
RBB Bank and that no client is the beneficial owner of more
than 250 shares of such Preferred Stock. RBB Bank may be
considered to be the beneficial owner of these shares with its
clients. See "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 14, 1997 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 of Percentage
Common Stock of
Name of Benefically Common
Beneficial Owner Owned Stock(1)
_____________________________ ____________ ___________
Dr. Louis F. Centofanti(2)(3) 674,438(3) 6.62%
Richard T. Kelecy(2)(4) 6,000(4) *
Mark A. Zwecker(2)(5) 176,628(5) 1.74%
Steve Gorlin(2)(6) 393,793(6) 3.89%
Jon Colin(7) - -
Directors and Executive 1,250,859(8) 12.19%
Officers as a Group
(5 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) See footnote (2) of the table under "Security Ownership of
Certain Beneficial Owners."
(4) Does not include options to purchase 84,000 shares of common
stock granted pursuant to the 1993 Nonqualified Stock Option
Plan which are not exercisable within sixty (60) days.
(5) Mr. Zwecker has sole voting and investment power over these
shares which include (i) 145,746 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) 1,000 options to purchase common stock pursuant to
the 1993 Nonqualified Stock Option Plan, which are immediately
exercisable; and (iv) options to purchase 15,000 shares
granted pursuant to the 1992 Outside Directors Stock Option
and Incentive Plan which are immediately exercisable. Does
not include options to purchase 4,000 shares of common stock
granted pursuant to the 1993 Nonqualified Stock Option Plan
which are not exercisable within sixty (60) days.
(6) Mr. Gorlin has sole voting and investment power over these
shares which include: (i) 363,793 shares held of record by Mr.
Gorlin; and (ii) 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 200,000 shares which Mr. Gorlin has the right to
acquire on and after January 1, 1997, until September 15,
1999, under the terms of a warrant granted by the Company to
Mr. Gorlin in September 1996. See "Certain Relationships and
Related Transactions."
(7) As of March 14, 1997, Mr. Colin did not beneficially own any
voting securities of the Company. Does not include the 15,000
options issued to Mr. Colin upon his election as an outside
director of the Company, pursuant to the terms of the 1992
Outside Directors Stock Option and Incentive Plan, which are
not exercisable until six (6) months after his election. His
address is 13 Meadow Lane, Old Bridge, New Jersey 08857.
(8) Includes 62,431 shares receivable upon exercise of warrants to
purchase common stock and options and warrants to purchase
107,145 shares of common stock which are immediately
exercisable. Does not include 319,000 shares of common stock
covered by options and warrants which are not exercisable
within sixty (60) days from the Record Date.
Potential Change in Control
If RBB Bank were to acquire approximately 7,300,000 shares of
common stock upon conversion of the Series 3 Preferred, which is the
maximum number of shares of common stock that RBB Bank could acquire
upon conversion of the Series 3 Preferred assuming the conversion
price is based on the minimum conversion price of $.75 a share and
as a result of the average of fair market value of the common stock
being $1.00 or less within five (5) trading days immediately
preceding the conversion date and assuming such minimum conversion
price is not reduced pursuant to the terms of the Series 3 Preferred
and it exercised all of the RBB Warrants, RBB Bank would own
approximately 10,100,000 shares of common stock, or approximately
fifty percent (50%) of the outstanding shares of common stock of the
Company, assuming no other shares of common stock are issued by the
Company, no other warrants or options issued by the Company are
exercised, the Company does not acquire additional shares of common
stock as treasury shares and RBB Bank does not dispose of any such
shares. In such event, RBB Bank would have a sufficient number of
voting shares of the Company to result in a change in control of the
Company. See "--Security Ownership of Certain Beneficial Owners"
and "Certain Relationships and Related Transactions."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company made a private offering to accredited
investors (the "Private Placement") of units ("Units"), each Unit
consisting of 10,000 shares of common stock and 20,000 Class B
Warrants to Purchase common stock (the "Class B Warrants"). The
Class B Warrants are for a term of five (5) years from June 17,
1994. Each Class B Warrant entitles the holder thereof to purchase
one (1) share of common stock for $5.00. The Class B Warrants are
subject to certain antidilution provisions. Under certain
conditions, the Class B Warrants are redeemable by the Company at
a redemption price of $0.05 per Class B Warrant, provided that the
market price of the common stock shall exceed an average price of
$8.00 per share. In connection with the Private Placement, Dr.
Louis F. Centofanti, Chairman of the Board and Chief Executive
Officer of the Company, purchased two Units from the Company, which
consisted of 20,000 shares of common stock and Class B Warrants to
purchase up to 40,000 shares of common stock. The purchase price
paid for the two Units was $60,000.
In September 1996, the Company issued a warrant ("Gorlin
Warrant") to Steve Gorlin, a Director of the Company, for services
rendered, other than those rendered as a Director, to the Company.
The Gorlin Warrant allows the holder to purchase 200,000 shares of
common stock of the Company for $1.75 per share from January 1,
1997, until September 15, 1999. The Gorlin Warrant is subject to
certain antidilution provisions.
In March 1996, the Company entered into a Stock Purchase
Agreement with Dr. Centofanti, currently the President, Chief
Executive Officer, Chairman of the Board, and Director of the
Company, whereby the Company sold, and Dr. Centofanti purchased,
133,333 shares of the Company's common stock for 75% of the closing
bid price of such common stock as quoted on the NASDAQ on the date
that Dr. Centofanti notified the Company of his desire to purchase
such stock, as authorized by the Board of Directors of the Company.
During February 1996, Dr. Centofanti tendered to the Company
$100,000 for such 133,333 shares by delivering to the Company
$86,028.51 and forgiving $13,971.49 that was owing to Dr. Centofanti
by the Company for expenses incurred by Dr. Centofanti on behalf of
the Company. On the date that Dr. Centofanti notified the Company
of his desire to purchase such shares, the closing bid price as
quoted on the NASDAQ for the Company's common stock was $1.00 per
share.
In June 1996, the Company entered into a second Stock Purchase
Agreement with Dr. Centofanti, whereby the Company sold, and
Dr. Centofanti purchased, 76,190 shares of the Company's common
stock for 75% of the closing bid price of such common stock as
quoted on the NASDAQ on the date that Dr. Centofanti notified the
Company of his desire to purchase such stock (closing bid of $1.75
on June 11, 1996), as previously authorized by the Board of
Directors of the Company. Dr. Centofanti tendered to the Company
$100,000 for such 76,190 shares of common stock.
In March 1996, Robert W. Foster, Jr. resigned as President,
Chief Executive Officer and a Director of the Company, and as an
officer and Director of the Company's subsidiaries and terminated
his employment agreement with the Company pursuant to the terms of
a Termination and Severance Agreement (the "Termination Agreement")
between the Company and Mr. Foster, and effective as of the date of
such termination, the Company and Mr. Foster entered into a
consulting agreement dated March 15, 1996. See "Executive
Compensation--Employment Contracts, Termination of Employment and
Change in Control Arrangements" for further discussion.
During February 1996, the Company entered into two (2)
different offshore transactions with RBB Bank Aktiengesellschaft
("RBB Bank"). In the first transaction, the Company sold to RBB
Bank 1,100 shares of a newly created Series 1 Class A Preferred
Stock, par value $.001 ("Series 1 Preferred"), for $1,000 per share,
for an aggregate purchase price of $1,100,000, pursuant to an
Offshore Securities Subscription Agreement, dated February 9, 1996.
In the second transaction, the Company sold to RBB Bank 330 shares
of a newly created Series 2 Class B Preferred Stock, par value $.001
("Series 2 Preferred"), for $1,000 per share for an aggregate sales
price of $330,000, pursuant to an Offshore Securities Subscription
Agreement, dated February 22, 1996. The Series 1 Preferred and the
Series 2 Preferred are collectively referred to herein as "RBB
Preferred Stock." In connection with both transactions, the Company
paid placement fees totaling $209,000. The RBB Preferred Stock was
convertible at any time, commencing forty-five (45) days after
issuance, into shares of the Company's common stock at a conversion
price equal to the aggregate value of the shares of the RBB
Preferred Stock being converted, together with all accrued but
unpaid dividends thereon, divided by the "Average Stock Price" per
share (the "Conversion Price"). The Average Stock Price was defined
as the lesser of (i) seventy percent (70%) of the average daily
closing bid prices of the common stock for the period of five (5)
consecutive trading days immediately preceding the date of
subscription by the holder or (ii) seventy percent (70%) of the
average daily closing bid prices of the common stock for a period
of five (5) consecutive trading days immediately preceding the date
of conversion of the RBB Preferred Stock. The RBB Preferred Stock
entitled the holder thereof to receive dividends accruing at the
rate per share of five percent (5%) per annum of consideration paid
for each share of the RBB Preferred Stock, or $50.00 per annum,
payable in arrears at the rate of $12.50 for each full calendar
quarter. Dividends on the RBB Preferred Stock were paid at the
election of the Company by the issuance of shares of common stock.
During 1996, all outstanding shares of the RBB Preferred Stock were
converted into approximately 1,970,000 shares of common stock of the
Company, which includes approximately 17,000 shares issued by the
Company in satisfaction of accrued dividends. Pursuant to the
Subscription Agreement for the issuance of Series 3 Class C
Convertible Preferred Stock, as discussed below, 920,000 of these
shares of converted common stock were purchased by the Company at
a purchase price of $1,770,000. As a result of such conversions,
the RBB Preferred Stock is no longer outstanding.
During July 1996, the Company issued 5,500 shares of newly-
created Series 3 Class C Convertible Preferred Stock, par value
$.001 per share ("Series 3 Preferred") at a price of $1,000 per
share, for an aggregate sales price of $5,500,000, and paid
placement and closing fees as a result of such transaction of
approximately $586,000. The transaction was pursuant to a
Subscription and Purchase Agreement ("Subscription Agreement")
between the Company and RBB Bank and included the Company granting
to RBB Bank two Warrants to purchase up to 2,000,000 shares of the
Company's common stock, with 1,000,000 shares of common stock
exercisable at $2.00 per share and 1,000,000 shares of common stock
exercisable at $3.50 per share (collectively, the "RBB Warrants").
The RBB Warrants are for a term of five (5) years and may be
exercised at any time after December 31, 1996, and until the end of
the term of such Warrants. The Series 3 Preferred is not entitled
to any voting rights, except as required by law. Dividends on the
Series 3 Preferred accrue at a rate of six percent (6%) per annum,
payable semi-annually as and when declared by the Board of
Directors, and such dividends are cumulative. Dividends shall be
paid, at the option of the Company, in the form of cash or common
stock of the Company. If the Dividends are paid in common stock,
each share of outstanding Series 3 Preferred shall receive shares
of common stock equal to the quotient of (i) six percent (6%) of
$1,000 divided by (ii) the average closing bid quotation 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 prior to the applicable
dividend declaration date. The Company issued 100,387 shares during
January 1997 in payment of accrued dividends for the period July
through December 1996.
RBB Bank may convert the Series 3 Preferred into common stock
of the Company as follows: (i) up to 1,833 shares on or after
October 1, 1996; (ii) an additional 1,833 shares on or after
November 1, 1996; and (iii) the balance on or after December 1,
1996. The conversion price shall be the product of (i) the average
closing bid quotation for the five (5) trading days immediately
preceding the conversion date multiplied by (ii) seventy-five
percent (75%). The conversion price shall be a minimum of $.75 per
share or a maximum of $1.50 per share, with the minimum conversion
price to be reduced by $.25 per share each time, if any, after July
1, 1996, the Company sustains a net loss, on a consolidated basis,
in each of two (2) consecutive quarters ("Minimum Conversion Price
Reduction"). For the purpose of determining whether the Company has
had a net loss 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.
Subject to the closing bid price of the Company's common stock at
the time of conversion and the other conditions which could increase
the number of shares to be issued upon conversion, the Series 3
Preferred, if all of the shares of Series 3 Preferred were
converted, such could be converted into between approximately
3,700,000 and approximately 7,300,000 shares of common stock, or
more pursuant to the Minimum Conversion Price Reduction. The common
stock issuable on the conversion of the Series 3 Preferred is
subject to certain registration rights pursuant to the Subscription
Agreement, pursuant to which a Form S-3 Registration Statement was
filed by the Company with the Securities and Exchange Commission on
October 21, 1996.
Under the terms of the Subscription Agreement, from the net
proceeds of the sale of the Series 3 Preferred (approximately
$4,900,000) received by the Company after payment of placement fees
to brokers, legal fees and other expenses, the Company purchased
from RBB Bank 920,000 shares of common stock of the Company acquired
by RBB Bank upon conversion of the Company's Series 1 Preferred and
Series 2 Preferred for $1,770,000.
In June 1995, the Company entered into a consulting agreement
("Zwecker Consulting Agreement") with Mark A. Zwecker, a Director,
to provide certain financial consulting services to the Company.
Under this arrangement, the Company paid to Mr. Zwecker a consulting
fee of $1,500 per month. Mr. Zwecker agreed to accept, in lieu of
65% of the consulting fee due at any time, to be issued a number of
shares of common stock having a value equal to 65% of the fee based
on the fair market value of such stock determined on the business
day immediately preceding that date such fee is due. The consulting
agreement was terminated effective June 30, 1996, pursuant to Mr.
Zwecker's resignation as Secretary and the corresponding appointment
of Richard Kelecy as the Company's Secretary. As a result of the
above, Mr. Zwecker will receive compensation consistent with all
other outside Directors. From January 1995, through September 30,
1996, Mr. Zwecker received, or is to receive, from the Company
approximately $19,000 under the Zwecker Consulting Agreement and
subject to the above-described arrangements.
The Company acquired Perma-Fix of Memphis, Inc., a subsidiary
of the Company (f/k/a American Resource Recovery Corporation
["ARR"]), located in Memphis, Tennessee ("PFM"), in December 1993,
from Billie Kay Dowdy ("Dowdy"), who was the sole stockholder of PFM
immediately prior to such acquisition, and, in connection therewith,
issued to Dowdy 601,500 shares of common stock, which represented
more than five percent (5%) of the Company's outstanding shares of
common stock. During 1996, Dowdy ceased being the beneficial owner
of more than five percent (5%) of the Company's outstanding shares
of common stock. In connection with such acquisition, Ms. Dowdy
agreed to defend, indemnify and hold harmless the Company and PFM
under certain conditions. During September 1994, PFM was sued by
Community First Bank ("Community First") to collect a note in the
principal sum of $341,000 that was allegedly made by ARR to CTC
Industrial Services, Inc. ("CTC") in February 1987 (the "Note"), and
which was allegedly pledged by CTC to Community First in December
1988, to secure certain loans to CTC. This lawsuit, styled
Community First Bank v. American Resource Recovery Corporation, was
instituted on September 14, 1994, and is pending in the Circuit
Court, Shelby County, Tennessee. The Company was not aware of the
Note nor its pledge to Community First at the time of the Company's
acquisition of PFM in December 1993. The Company has filed a third
party complaint against Dowdy in the lawsuit to defend and indemnify
the Company and PFM from and against this action under the terms of
the agreement relating to the Company's acquisition of PFM. Dowdy
has agreed to indemnify and defend the Company and PFM under certain
conditions. The Company intends to vigorously defend itself in
connection with this lawsuit.
In May 1995, PFM became aware that the U.S. District Attorney
for the Western District of Tennessee and the Department of Justice
were investigating certain prior activities of W. R. Drum Company,
its successor, First Southern Container Company, and any other
facility owned or operated, in whole or in part, by Johnnie
Williams, which activities were generally prior to the time the
Company acquired PFM. PFM used W. R. Drum Company to dispose of
certain of its used drums. In May 1995, PFM received a Grand Jury
Subpoena which demanded the production of any documents in the
possession of PFM pertaining to W. R. Drum Company, First Southern
Container Company, or any other facility owned or operated, or held
in part, by Johnnie Williams. PFM complied with the Grand Jury
Subpoena. Thereafter, in September of 1995, PFM received another
Grand Jury Subpoena for documents from the Grand Jury investigating
W. R. Drum Company, First Southern Container Company and/or Johnnie
Williams. PFM complied with the Grand Jury Subpoena. In December
1995, representatives of the Department of Justice advised PFM that
it was also currently a subject of the investigation involving W.
R. Drum Company, First Southern Container Company, and/or Johnnie
Williams. Since that time, however, PFM has had no contact with
representatives of either the United States District Attorney's
office for the Western District of Tennessee or the Department of
Justice, and is not aware of why it is also a subject of such
investigation. In accordance with certain provisions of the
Agreement and the Plan of Merger relating to the prior acquisition
of PFM, on or about January 2, 1996, PFM notified Ms. Billie K.
Dowdy of the foregoing, and advised Ms. Dowdy that the Company and
PFM would look to Ms. Dowdy to indemnify, defend and hold the
Company and PFM harmless from any liability, loss, damage or expense
incurred or suffered as a result of, or in connection with, this
matter.
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.
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 on page 102
are filed or incorporated by reference as a part of
this report.
(b) Reports on Form 8-K
A current report on Form 8-K (Item 4 -- Changes in
Registrant's Certifying Accountant) was filed on
November 21, 1996 reporting that on November 15,
1996 Arthur Andersen LLP, the outside independent
auditors of the Registrant, notified the Registrant
that it was resigning, effective immediately, as the
Registrant's independent auditors.
A current report on Form 8-K (Item 4 -- Changes in
Registrant's Certifying Accountant) was filed on
December 20, 1996 reporting that on December 18,
1996 the Registrant's Board of Directors approved
the employment of BDO Seidman, LLP as the
Registrant's new independent auditors.
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 14, 1997
______________________________ ____________________
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By: /s/ Richard T. Kelecy Date: April 14, 1997
______________________________ ___________________
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/ Mark A. Zwecker Date: April 14, 1997
_________________________ ____________________
Mark A. Zwecker, Director
/s/ Steve Gorlin Date: April 14, 1997
_________________________ ____________________
Steve Gorlin, Director
/s/ Jon Colin Date: April 14, 1997
________________________ ___________________
Jon Colin, Director
/s/ Louis F. Centofanti Date: April 14, 1997
_________________________ ____________________
Dr. Louis F. Centofanti, Director
SCHEDULE II
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
(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,
1996:
Allowance for doubtful
accounts $ 392 $ 17 $ 26 $ 383
Divestiture reserve 450 - 450 -
Restructuring reserve 257 - 257 -
Year ended December 31,
1995:
Allowance for doubtful
accounts $ 689 $ 610(1) $ 907 $ 392
Divestiture reserve - 450(2) - 450
Restructuring reserve - 537(3) 280 257
Year ended December 31,
1994:
Allowance for doubtful
accounts $ 414 $ 311(4) $ 36 $ 689
(1) Includes $26 recorded in conjunction with the asset purchase
of Industrial Compliance and Safety, Inc. on June 1, 1995.
(2) Reflects the divestiture reserve for the Company's wholly-
owned subsidiary Re-Tech Systems, Inc., recorded as a
reduction to the asset value in the second quarter of 1995.
The sale transaction was completed in the first quarter of
1996.
(3) Includes one-time charges resulting from restructuring charges
within the waste management services segment.
(4) Includes $197 acquired in the acquisition of Perma-Fix of
Florida, Inc., Perma-Fix of Dayton, Inc. and Perma-Fix of Ft.
Lauderdale, Inc. on June 30, 1994.
EXHIBIT INDEX
Exhibit
No. Description
______ ___________
3(i) Restated Certificate of Incorporation, as amended, and
all Certificates of Designations.
3(ii) Bylaws, as incorporated by reference from Exhibit 3.2 to
the Company's Registration Statement, No. 33-51874.
4.1 Warrant Agreement, dated May 15, 1994, between the
Company and Continental Stock Transfer & Trust Company,
as Warrant Agent, as incorporated by reference from
Exhibit 4.2 to the Company's Form 10-Q for the quarter
ended June 30, 1994.
4.2 Specimen Warrant Certificate relating to Class B
Warrants, as incorporated by reference from Exhibit 4.9
to the Company's Registration Statement, No. 33-85118.
4.3 Specimen Common Stock Certificate as incorporated by
reference from Exhibit 4.3 to the Company's Registration
Statement, No. 33-51874.
4.4 Loan and Security Agreement, dated January 31, 1995,
between the Company, subsidiaries of the Company, and
Heller Financial, Inc., as incorporated by reference from
Exhibit 4.4 to the Company's Form 10-K for the year ended
December 31, 1994. The Loan and Security Agreement
contains a list briefly identifying the schedules and
exhibits included therein, all of which are omitted from
this filing, and the Company agrees to furnish
supplementally a copy of any omitted schedule and exhibit
to the Commission upon request.
4.5 First Amendment to Loan and Security Agreement with
Heller Financial, Inc. and forbearance letter dated
March 31, 1996 from Heller Financial, Inc., as
incorporated by reference from Exhibit 4.5 to the
Company's Form 10-K for the year ended December 31,
1995.
4.6 Second Amendment to Loan and Security Agreement with
Heller Financial, Inc. and forbearance letter, dated
May 10, 1996, from Heller Financial, Inc., as
incorporated by reference from Exhibit 4.1 and Exhibit
4.2, respectively, to the Company's Form 10-Q for the
quarter ended March 31, 1996.
4.7 Third Amendment to Loan and Security Agreement with
Heller Financial, Inc. and Letter Agreement with Heller
Financial, Inc., dated June 19, 1996, as incorporated by
reference from Exhibit 4.1 and Exhibit 4.2, respectively,
to the Company's Form 10-Q for the quarter ended June 30,
1996.
4.8 Fourth Amendment to Loan and Security Agreement with
Heller Financial, Inc., as incorporated by reference from
Exhibit 4.4 to the Company's Form 10-Q for the quarter
ended September 30, 1996.
4.9 Fifth Amendment to Loan and Security Agreement with
Heller Financial, Inc., dated December 5, 1996.
4.10 Letter Agreement with Heller Financial, Inc., dated
February 25, 1997.
4.11 Sixth Amendment to Loan and Security Agreement with
Heller Financial, Inc., dated April 14, 1997.
4.12 Amendment to Ally Capital Corporation Lease Agreement
dated August 16, 1996, as incorporated by reference from
Exhibit 4.3 to the Company's Form 10-Q for the quarter
ended June 30, 1996.
4.13 Amendment to Ally Capital Corporation Lease Agreement
dated November 14, 1996, as incorporated by reference
from Exhibit 4.5 to the Company's Form 10-Q for the
quarter ended September 30, 1996.
4.14 Amendment to Ally Capital Corporation Lease Agreement
dated April 14, 1997.
4.15 Warrant Agreement between the Company and the Warrant
Agent, dated December 8, 1992, as incorporated by
reference from Exhibit 4.2 to the Company's Registration
Statement, No. 33-51874.
4.16 Form of Subscription Agreement, as incorporated by
reference from Exhibit 4.1 to the Company's Form 10-Q for
the quarter ended June 30, 1994.
4.17 Offshore Securities Subscription Agreement, dated
February 9, 1996, between the Company and RBB Bank
Aktiengesellschaft, as incorporated by reference from
Exhibit 4.10 to the Company's Form 10-K for the year
ended December 31, 1995.
4.18 Offshore Securities Subscription Agreement, dated
February 22, 1996, between the Company and RBB Bank
Aktiengesellschaft, as incorporated by reference from
Exhibit 4.11 to the Company's Form 10-K for the year
ended December 31, 1995.
4.19 Subscription and Purchase Agreement dated July 17, 1996,
between the Company and RBB Bank Aktiengesellschaft, as
incorporated by reference from Exhibit 4.4 to the
Company's Form 10-Q for the quarter ended June 30, 1996.
4.20 Form of Certificate for Series 3 Preferred, as
incorporated by reference from Exhibit 4.6 to the
Company's Form 10-Q for the quarter ended June 30,
1996.
10.1 Note and Warrant Purchase Agreement, dated February 10,
1992, between the Company and Al Warrington, Productivity
Fund II, L.P. ("Productivity Fund"), Environmental
Venture Fund, L.P. ("Environmental Venture Fund"), and
Steve Gorlin, as incorporated by reference from Exhibit
4.1 of the Company's Registration Statement, No. 33-
85118.
10.2 Investors' Rights Agreement, dated February 10, 1992,
between the Company and Al Warrington, Productivity Fund,
Environmental Venture Fund, and Steve Gorlin, as
incorporated by reference from Exhibit 4.2 of the
Company's Registration Statement, No. 33-85118.
10.3 Warrant to Purchase Common Stock, dated February 10,
1992, issued by the Company to Al Warrington, as
incorporated by reference from Exhibit 4.3 of the
Company's Registration Statement, No. 33-85118.
10.4 Warrant to Purchase Common Stock, dated February 10,
1992, issued by the Company to Productivity Fund, as
incorporated by reference from Exhibit 4.4 of the
Company's Registration Statement, No. 33-85118.
10.5 Warrant to Purchase Common Stock, dated February 10,
1992, issued by the Company to Environmental Venture
Fund, as incorporated by reference from Exhibit 4.5 of
the Company's Registration Statement, No. 33-85118.
10.6 Warrant to Purchase Common Stock, dated February 10,
1992, issued by the Company to Steve Gorlin, as
incorporated by reference from Exhibit 4.6 to the
Company's Registration Statement, No. 33-85118.
10.7 Warrant to Purchase Common Stock, dated February 10,
1992, issued by the Company to D.H. Blair Investment
Banking Corporation, as incorporated by reference from
Exhibit 4.1 to the Company's Form 8-K dated February 7,
1997.
10.8 Amendments, dated February 7, 1997, to Common Stock
Warrants for the Purchase of Shares of Common Stock,
dated February 10, 1992, between the Company and each of
Alfred C. Warrington, IV, Productivity Fund II, L.P.,
Environmental Venture Fund II, L.P., Steve Gorlin, and
D.H. Blair Investment Banking Corporation, as
incorporated by reference from, respectively, Exhibits
4.2, 4.3, 4.4, 4.5 and 4.6 to the Company's Form 8-K
dated February 7, 1997.
10.9 1991 Performance Equity Plan of the Company, as
incorporated herein by reference from Exhibit 10.3 to the
Company's Registration Statement, No. 33-51874.
10.10 Warrant, dated September 1, 1994, granted by the Company
to Productivity Fund, as incorporated herein by reference
from Exhibit 4.12 to the Company's Registration Statement
No. 33-85118.
10.11 Warrant, dated September 1, 1994, for the Purchase of
Common Stock granted by the Company to Environmental
Venture Fund, as incorporated by reference from Exhibit
4.14 to the Company's Registration Statement No. 33-
85118.
10.12 Warrant, dated September 1, 1994, for the Purchase of
Common Stock granted by the Company to Warrington, as
incorporated by reference from Exhibit 4.16 to the
Company's Registration Statement No. 33-85118.
10.13 Warrant, dated September 1, 1994, for the Purchase of
Common Stock granted by the Company to Joseph Stevens &
Company, L.P. ("Stevens"), as incorporated by reference
from Exhibit 4.17 to the Company's Registration Statement
No. 33-85118.
10.14 Warrant, dated October 6, 1994, for the Purchase of
Common Stock granted by the Company to Stevens, as
incorporated by reference from Exhibit 4.20 to the
Company's Registration Statement No. 33-85118.
10.15 Agreement, dated September 30, 1994, between AEC,
Quadrex, QEC, and the Company, as incorporated by
reference from Exhibit 4.21 to the Company's Registration
Statement No. 33-85118.
10.16 Restricted Stock Award between the Company and Dominic
Grana, as incorporated by reference from Exhibit 4.23 to
the Company's Registration Statement No. 33-85118.
10.17 Restricted Stock Award between the Company and Robert
Schreiber, as incorporated by reference from Exhibit 4.25
to the Company's Registration Statement No. 33-85118.
10.18 Restricted Stock Award between the Company and Carolyn
Yonley, as incorporated by reference from Exhibit 4.26 to
the Company's Registration Statement No. 33-85118.
10.19 Warrant, dated September 30, 1994, for the Purchase of
Shares of Common Stock granted by the Company to Ally
Capital Management, Inc., as incorporated by reference
from Exhibit 4.27 to the Company's Registration Statement
No. 33-85118.
10.20 Warrant, dated June 17, 1994, for the purchase of Common
Stock granted by the Company to Sun Bank, National
Association, as incorporated by reference from Exhibit
4.2 to the Company's Form 8-K dated June 17, 1994.
10.21 Warrant, dated September 1, 1994, for the Purchase of
Shares of Common Stock granted by the Company to D. H.
Blair Investment Banking Corporation, as incorporated by
reference from Exhibit 10.24 to the Company's Form 10-K
for the year ended December 31, 1994. Blair assigned a
portion of its initial warrant to certain officers and
directors of Blair. The warrants issued to such officers
and directors are substantially similar to the warrant
issued to Blair, except as to name of the warrant holder
and the number of shares covered by each such warrant, as
follows:
J. Morton Davis 9,775 shares
Martin A. Bell 8,000 shares
Alan Stahler 39,100 shares
Kalman Renov 39,100 shares
Richard Molinsky 25,125 shares
Jeff Berns 25,500 shares
Nick DiFalco 21,000 shares
Richard Molinsky 50,250 shares
and the Company agrees to file copies of the omitted
documents to the Commission upon the Commission's
request.
10.22 1992 Outside Directors' Stock Option Plan of the Company,
as incorporated by reference from Exhibit 10.4 to the
Company's Registration Statement, No. 33-51874.
10.23 First Amendment to the Company's 1992 Outside Directors'
Stock Option Plan, as incorporated by reference from
Exhibit 10.29 to the Company's Form 10-K for the year
ended December 31, 1994.
10.24 Second Amendment to the Company's 1992 Outside Directors'
Stock Option Plan, as incorporated by reference from the
Company's Proxy Statement, dated November 4, 1994.
10.25 Third Amendment to the Company's 1992 Outside Directors'
Stock Option Plan, as incorporated by reference from the
Company's Proxy Statement, dated November 8, 1996.
10.26 1993 Nonqualified Stock Option Plan, as incorporated by
reference from the Company's Proxy Statement, dated
October 12, 1993.
10.27 401(K) Profit Sharing Plan and Trust of the Company, as
incorporated by reference from Exhibit 10.5 to the
Company's Registration Statement, No. 33-51874.
10.28 Stock Purchase Agreement between the Company and Dr.
Louis F. Centofanti, dated March 1, 1996, as incorporated
by reference from Exhibit 10.30 to the Company's Form 10-
K for the year ended December 31, 1995.
10.29 Stock Purchase Agreement between the Company and Dr.
Louis F. Centofanti, dated June 11, 1996.
10.30 Termination and Severance Agreement, dated March 15,
1996, between the Company and Robert W. Foster, Jr., as
incorporated by reference from Exhibit 10.31 to the
Company's Form 10-K for the year ended December 31,
1995.
10.31 Consulting Agreement, dated March 15, 1996, between the
Company and Robert W. Foster, Jr., as incorporated by
reference from Exhibit 10.32 to the Company's Form 10-K
for the year ended December 31, 1995.
10.32 Consulting Agreement with Bobby Meeks, as incorporated by
reference from Exhibit 99.2 to the Company's Registration
Statement No. 333-3664.
10.33 Consulting Agreement with Gary Myers, as incorporated by
reference from Exhibit 99.3 to the Company's Registration
Statement No. 333-3664.
10.34 Consulting Agreement with David Cowherd, as incorporated
by reference from Exhibit 99.4 to the Company's
Registration Statement No. 333-3664.
10.35 Common Stock Purchase Warrant Certificate, dated July 19,
1996, granted to RBB Bank Aktiengesellschaft, as
incorporated by reference from Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1996.
10.36 Common Stock Purchase Warrant Certificate, dated July 19,
1996, between the Company and RBB Bank
Aktiengesellschaft, as incorporated by reference from
Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended June 30, 1996.
10.37 Common Stock Purchase Warrant Certificate No. 1-9-96,
dated September 16, 1996, between the Company and J. P.
Carey Enterprises, Inc., as incorporated by reference
from Exhibit 4.8 to the Company's Registration Statement,
No. 333-14513.
10.38 Common Stock Purchase Warrant Certificate No. 2-9-96,
dated September 16, 1996, between the Company and J. P.
Carey Enterprises, Inc., as incorporated by reference
from Exhibit 4.9 to the Company's Registration Statement,
No. 333-14513.
10.39 Common Stock Purchase Warrant Certificate No. 3-9-96,
dated September 16, 1996, between the Company and J W
Charles Financial Services, Inc., as incorporated by
reference from Exhibit 4.10 to the Company's Registration
Statement, No. 333-14513.
10.40 Common Stock Purchase Warrant Certificate No. 4-9-96,
dated September 16, 1996, between the Company and Search
Group Capital, Inc., as incorporated by reference from
Exhibit 4.11 to the Company's Registration Statement, No.
333-14513.
10.41 Common Stock Purchase Warrant Certificate No. 5-9-96,
dated September 16, 1996, between the Company and Search
Group Capital, Inc., as incorporated by reference from
Exhibit 4.12 to the Company's Registration Statement, No.
333-14513.
10.42 Common Stock Purchase Warrant Certificate No. 6-9-96,
dated September 16, 1996, between the Company and Search
Group Capital, Inc., as incorporated by reference from
Exhibit 4.13 to the Company's Registration Statement, No.
333-14513.
10.43 Common Stock Purchase Warrant Certificate No. 7-9-96,
dated September 16, 1996, between the Company and Marvin
S. Rosen, as incorporated by reference from Exhibit 4.14
to the Company's Registration Statement, No. 333-14513.
10.44 Common Stock Purchase Warrant Certificate No. 8-9-96,
dated September 16, 1996, between the Company and D. H.
Blair Investment Banking Corporation, as incorporated by
reference from Exhibit 4.15 to the Company's Registration
Statement, No. 333-14513.
10.45 Common Stock Purchase Warrant Certificate No. 9-9-96,
dated September 16, 1996, between the Company and Steve
Gorlin, as incorporated by reference from Exhibit 4.16 to
the Company's Registration Statement, No. 333-14513.
10.46 Consulting Agreement with C. Lee Daniel, Jr., as
incorporated by reference from Exhibit 99.1 to the
Company's Registration Statement No. 333-17899.
10.47 Consulting Agreement with Rita D. Durocher, as
incorporated by reference from Exhibit 99.2 to the
Company's Registration Statement No. 333-17899.
10.48 Consulting Agreement with Sam Elam, as incorporated by
reference from Exhibit 99.3 to the Company's Registration
Statement No. 333-17899.
10.49 Consulting Agreement with R. Keith Fetter, as
incorporated by reference from Exhibit 99.4 to the
Company's Registration Statement No. 333-17899.
10.50 Consulting Agreement with John Henderson, as incorporated
by reference from Exhibit 99.5 to the Company's
Registration Statement No. 333-17899.
10.51 Consulting Agreement with Robert Hicks, as incorporated
by reference from Exhibit 99.6 to the Company's
Registration Statement No. 333-17899.
10.52 Consulting Agreement with Dr. Jeffrey Sherman, as
incorporated by reference from Exhibit 99.7 to the
Company's Registration Statement No. 333-17899.
10.53 Consulting Agreement with Gary Thomas, as incorporated by
reference from Exhibit 99.8 to the Company's Registration
Statement No. 333-17899.
22.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.