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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
____________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 1-11596
_______________
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1954497
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
1940 N.W. 67th Place, Gainesville, FL 32653
(Address of principal executive offices) (Zip Code)
(352) 373-4200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
______________________________ _____________________________
Common Stock, $.001 Par Value Boston Stock Exchange
Redeemable Warrants Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
___ ____
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the Registrant as of March 29, 2000, based on the
closing sale price of such stock as reported by NASDAQ on such day,
was $34,777,998. The Company's Common Stock is listed on the
NASDAQ SmallCap Market and the Boston Stock Exchange.
As of March 29, 2000, there were 21,401,415 shares of the
registrant's Common Stock, $.001 par value, outstanding, excluding
988,000 shares held as treasury stock.
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
________
PART I
Item 1. Business. . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . .12
Item 3. Legal Proceedings . . . . . . . . . . . .12
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . .13
Item 4A. Executive Officers of the Company . . . .13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . .16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . .17
Special Note Regarding Forward-Looking
Statements. . . . . . . . . . . . . . . .28
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . .28
Item 8. Financial Statements and Supplementary
Data. . . . . . . . . . . . . . . . . . .29
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . .62
PART III
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . .63
Item 11. Executive Compensation. . . . . . . . . .65
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . .70
Item 13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . .73
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . .81
PART I
ITEM 1. BUSINESS
Company Overview and Principal Products and Services
Perma-Fix Environmental Services, Inc. (the Company, which may be
referred to as we, us, or our) is a Delaware corporation, engaged
through its subsidiaries, in:
* Waste Management Services, which includes:
* treatment, storage, processing, and disposal of hazardous
and non-hazardous waste and mixed waste which is both low-
level radioactive and hazardous;
* nuclear mixed and low-level radioactive waste treatment,
processing and disposal, which includes research,
development, on-and off-site waste remediation and
processing; and
* industrial waste and wastewater management services,
including the collection, treatment, processing and
disposal, and the design and construction of on-site
wastewater treatment systems.
* Consulting Engineering Services, which includes:
* broad-scope environmental issues, including environmental
management programs, regulatory permitting, compliance and
auditing, landfill design, field testing and
characterization.
We have grown through both acquisitions and internal development. Our
present objective is to focus on the operations, maximize the profit-
ability and to continue the research and development of innovative
technologies for the treatment of nuclear, mixed waste and industrial
waste. Such research and development expenses, although important,
are not considered material.
We service research institutions, commercial companies and
governmental agencies nationwide. The distribution channels for
services are through direct sales to customers or via
intermediaries.
We were incorporated in December of 1990. Our executive offices are
located at 1940 N.W. 67th Place, Gainesville, Florida 32653.
Our home page on the Internet is at www.perma-fix.com. You can
learn more about us by visiting that site.
Operating Segments
We have eleven operating segments which represent each separate
facility or location that we operate. Ten of these segments provide
waste management services and one segment provides consulting
engineering services as described below:
*WASTE MANAGEMENT SERVICES, which includes, off-site waste storage,
treatment, processing and disposal services through our seven
treatment, storage and disposal ("TSD") facilities and numerous
related operations provided by our three other locations, as
discussed below.
Perma-Fix of Florida, Inc. ("PFF"), located in Gainesville,
Florida, is our most uniquely permitted and licensed TSD. PFF
specializes in the processing and treatment of certain types of
wastes containing both low-level mixed radioactive and hazardous
and non-hazardous wastes, which are known in the industry as mixed
waste. PFF is one of only a few facilities nationally to operate
under both a hazardous waste permit and a nuclear materials license,
from which it has built its reputation based on its ability to treat
difficult waste streams using unique processing technologies and its
ability to provide related research and development services. Its
primary services include the treatment and processing of waste Liquid
Scintillation Vials (LSVs), the processing and handling of other
mixed and radioactive wastes, site remediation, storage of customer
wastes, research and development, as well as more typical services
of hazardous and non-hazardous waste management. The LSVs are
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generated primarily by institutional research agencies and
biotechnical companies. These wastes contain mixed (low-level)
radioactive materials and hazardous waste (flammable) constituents.
Management believes that PFF currently processes approximately 80%
of the available LSV waste in the country. The business has
expanded into receiving and handling other types of mixed wastes
primarily from the nuclear utilities, the U.S. Department of Energy
("USDOE") and other government facilities as well as select mixed
waste field remediation projects. PFF manages the activities at
the facility under a license from the State of Florida Office of
Radiation Control and a Resource Conservation and Recovery Act
("RCRA") Part B permit.
Perma-Fix Treatment Services, Inc. ("PFTS") is a RCRA permitted TSD
facility located in Tulsa, Oklahoma. PFTS stores and treats hazardous
waste liquids, provides waste transportation and disposal via its on-site
Class I Injection Well located at the facility. The injection well
is permitted for the disposal of non-hazardous liquids and
characteristic hazardous wastes that have been treated to remove
the hazardous characteristic. PFTS operates a non-hazardous
wastewater treatment system for oil and solids removal, a corrosive
treatment system for neutralization and metals precipitation, and
a container stabilization system. The injection well is controlled
by a state-of-the-art computer system to assist in achieving
compliance with all applicable state and federal regulations.
Perma-Fix of Dayton, Inc. ("PFD"), is a permitted TSD facility
located in Dayton, Ohio. PFD has four main disposal production
areas. The four production areas are a RCRA permitted TSD, a
centralized wastewater treatment area, used oil fuel recycling
area, and non-hazardous solids solidification area. Waste accepted
under the RCRA permit is typically drum waste for incineration or
stabilization. Wastewaters accepted at the facility include
hazardous and non-hazardous wastewaters, which are treated by ultra
filtration and metals precipitation to meet the requirements of
PFD's Clean Water Act pretreatment permit. Waste industrial oils
and used motor oils are processed through high-speed centrifuges to
produce a high quality fuel that is burned by industrial burners.
PFD also designs and constructs on-site wastewater pretreatment
systems.
Perma-Fix of Ft. Lauderdale, Inc. ("PFL") is a permitted
facility located in Ft. Lauderdale, Florida. PFL collects and
treats hazardous wastewaters, oily wastewaters, used oil and other
off-specification petroleum-based products, some of which may
potentially be recycled into usable products. Key activities at
PFL include process cleaning and material recovery, production and
sales of on-specification fuel oil, custom tailored waste
management programs and hazardous material disposal and recycling
materials from generators such as the cruise line and marine
industries.
Chemical Conservation Corporation ("CCC") is a RCRA permitted TSD
facility located in Orlando, Florida, which was acquired effective
June 1, 1999. CCC collects, stores and treats hazardous and non-
hazardous wastes out of two processing buildings, under one of our
most inclusive permits. CCC is also a transporter of hazardous
waste and operates a transfer facility at the site.
Chemical Conservation of Georgia, Inc. ("CCG") is a RCRA permitted TSD
facility located in Valdosta, Georgia, which was acquired effective
June 1, 1999. CCG provides storage, treatment and disposal
services to hazardous and non-hazardous waste generators throughout
the United States, in conjunction with the utilization of the CCC
facility and transportation services. CCG operates a hazardous
waste storage facility that primarily blends and processes
hazardous and non-hazardous waste liquids, solids and sludges into
substitute fuel or as a raw material substitute in cement kilns
that have been specially permitted for the processing of hazardous
and non-hazardous waste.
Chem-Met Services, Inc. ("CM") is a permitted TSD facility located
in Detroit, Michigan, which was acquired effective June 1, 1999.
CM is a waste treatment and storage facility, situated on 60 acres,
that treats hazardous, non-hazardous and inorganic wastes with
solidification/chemical fixation and bulks, repackages and
remanifests wastes that are determined to be unsuitable for
treating. This large bulk processing facility utilizes a chemical
fixation and stabilization process to produce a solid non-hazardous
matrix that can safely be disposed of in a solid waste landfill.
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Chem-Met Government Services ("CMGS") specializes in the on-site
environmental and hazardous waste management, with emphasis on the
management of large long-term federal and industrial on-site field
service contracts. CMGS operates out of nine field service
offices, located throughout the United States and Hawaii. CMGS
currently manages nine (9) hazardous waste management service
contracts with the Defense Reutilization & Marketing Service
("DRMS"), working closely with the above noted permitted facilities
for certain transportation and waste management services.
Perma-Fix of New Mexico, Inc. ("PFNM"), located in Albuquerque, New
Mexico, provides on-site (at the generator's site) waste treatment
services to convert certain types of characteristic hazardous
wastes into non-hazardous waste by removing those characteristics
which categorize such waste as "hazardous" and treats non-hazardous
waste as an alternative to off-site waste treatment and disposal
methods. PFI does not treat on-site waste that is specifically
listed as hazardous waste by the U.S. Environmental Protection
Agency ("EPA") under RCRA, but treats only non-hazardous waste and
characteristic waste deemed hazardous under RCRA on the generator's
site.
Perma-Fix, Inc. ("PFI") provides on-site waste treatment services
for certain low level radioactive and mixed wastes, for industrial
firms, the USDOE and other governmental facilities under licenses
granted to the generator. PFI, in partnership with PFF, continues
to expand its processing capabilities in the nuclear waste field,
utilizing its technologies and project experience, including the
successful processing of legacy waste at the USDOE Fernald Ohio
facility. In addition, PFI has recently opened an Oak Ridge,
Tennessee office to facilitate future USDOE contracts.
For 1999, the Company's waste management services business
accounted for approximately $41,753,000 or 89.9% of the Company's
total revenue, as compared to approximately $26,181,000 or 85.7%
for 1998, which excludes discontinued operations. Contained within
this segment is the nuclear and mixed waste product line, which
accounted for $4,313,000 or 9.28% of total revenue for 1999, as
compared to $4,693,000 or 15.36% of total revenue for 1998,
excluding discontinued operations. See under the caption
"Financial Statements and Supplementary Data" for further details.
*CONSULTING ENGINEERING SERVICES, which provides environmental
engineering and regulatory compliance consulting services through
one subsidiary, as discussed below.
Schreiber, Yonley & Associates ("SYA") is located in St. Louis,
Missouri. SYA specializes in environmental management programs,
permitting, compliance and auditing, in addition to landfill
design, field investigation, testing and monitoring. SYA clients
are primarily industrial, including many within the cement
manufacturing industry. During 1999, the business and operations
of Mintech, Inc., our second engineering company located in Tulsa,
Oklahoma, was merged into and consolidated with the SYA operations.
SYA also provides the necessary support, compliance and training as
required by our operating facilities.
During 1999 environmental engineering and regulatory compliance
consulting services accounted for approximately $4,711,000 or 10.1%
of our total revenue, as compared to approximately $4,370,000 or
14.3% in 1998, which excludes discontinued operations. See under
the caption "Financial Statements and Supplementary Data" for
further details.
Acquisition of CCC, CCG, and CM
On June 1, 1999, the Company acquired Chemical Conservation Corporation,
a Florida corporation ("CCC"), Chemical Conservation of Georgia, Inc., a
Georgia corporation ("CCG"), and Chem-Met Services, Inc., a Michigan
corporation ("CM") for an aggregate purchase price of $8,700,000, as
further described in "Item 13 Certain Relationships and Related
Transactions."
3
Segment Information and Foreign and Domestic Operations and Export
Sales
During 1999, we were engaged in eleven operating segments.
Pursuant to FAS 131, we define an operating segment as:
* A business activity from which we may earn revenue and incur
expenses;
* Whose operating results are regularly reviewed by our chief
operating decision maker to make decisions about resources to
be allocated to the segment and assess its performance; and
* For which discrete financial information is available.
We therefore define our segments as each separate facility or
location that we operate. We clearly view each business as a
separate segment and make decisions based on the activity and
profitability of that particular location. These segments however,
exclude the Corporate headquarters which does not generate revenue
and Perma-Fix of Memphis, Inc. which is reported elsewhere as a
discontinued operation. See Note 4 To Notes to Consolidated
Financial Statements regarding discontinued operations.
Pursuant to FAS 131 we have aggregated our operating segments into
two reportable segments to ease in the presentation and
understanding of our business. We used the following criteria to
aggregate our segments:
* The nature of our products and services;
* The nature of the production processes;
* The type or class of customer for our products and services;
* The methods used to distribute our products or provide our
services; and
* The nature of the regulatory environment.
Most of our activities were conducted in the Southeast, Southwest
and Midwest portions of the United States. We had no foreign
operations or export sales during 1999.
Importance of Patents and Trademarks, or Concessions Held
We do not believe that we are dependent on any particular patent or
trademark in order to operate our business or any significant
segment thereof. We have received registration through the year
2000 for the service mark "Perma-Fix" by the U.S. Patent and
Trademark office.
We do not believe that on-site waste treatment processes for the
stabilization of certain hazardous wastes as utilized by PFI are
patentable except as described below. We do, however, believe that
our level of expertise in utilizing such processes is substantial,
and, therefore, we maintain such processes as a trade secret. We
maintain a policy whereby key employees of PFI who are involved
with the implementation of the treatment processes sign
confidentiality agreements with respect to non-disclosure of such
processes.
A new process ("New Process") designed to remove certain types of
organic hazardous constituents from soils or other solids and
sludges ("Solids") has been developed by us. This New Process is
designed to remove the organic hazardous constituents from the
solids through a water based system. We have filed a patent
application with the U.S. Patent and Trademark Office covering the
New Process. As of the date of this report, we have not received a
patent for the New Process, and there are no assurances that such
a patent will be issued. Until development of this New Process, we
were not aware of a relatively simple and inexpensive process that
would remove the organic hazardous constituents from solids without
elaborate and expensive equipment or expensive treating agents. Due
to the organic hazardous constituents involved, the disposal
options for such materials are limited, resulting in high disposal
cost when there is a disposal option available. By reducing the
organic hazardous waste constituents from the solids to a level
where the solids may be returned to the ground, the generator's
disposal options for such waste are substantially increased,
allowing the generator to dispose of such waste at substantially
less cost. As of the date of this report, we have only used the
New Process, on a limited basis, for commercial use. As a result,
there are no assurances that the New Process will perform as
presently expected. It is anticipated that we will begin more
extensive commercial use of the New Process in 2000. Patent
applications have also been filed for processes to treat radon,
4
selenium and other speciality materials. However, changes to
current environmental laws and regulations could limit the use of
the New Process or the disposal options available to the generator.
See -- "Permits and Licenses."
Permits and Licenses
Waste management companies are subject to extensive, evolving and
increasingly stringent federal, state and local environmental laws
and regulations. Such federal, state and local environmental laws
and regulations govern our activities regarding the treatment,
storage, processing, disposal and transportation of hazardous, non-
hazardous and radioactive wastes, and require us to obtain and
maintain permits, licenses and/or approvals in order to conduct
certain of our waste activities. Failure to obtain and maintain
our permits or approvals would have a material adverse effect on
us, our operations and financial condition. Moreover, as we expand
our operations we may be required to obtain additional approvals,
licenses or permits, and there can be no assurance that we will be
able to do so.
PFTS is a permitted solid and hazardous waste treatment, storage,
and disposal facility. The RCRA part B Permit was issued by the
Waste Management Section of the Oklahoma Department of
Environmental Quality ("ODEQ"). Additionally PFTS maintains an
active Injection Facility Operations Permit issued by the ODEQ
Underground Injection Control Section for our two waste disposal
injection wells, and a Pre-Treatment permit in order to discharge
industrial wastewaters to the City of Tulsa's Publically Owned
Treatment Works. PFTS is also registered with the ODEQ and the
Department of Transportation as a hazardous waste transporter.
PFF operates its hazardous and low-level radioactive waste
activities under a RCRA Part B permit and a radioactive materials
license issued by the state of Florida.
PFL operates under a general permit and used oil processors license
issued by the Florida Department of Environmental Protection
("FDEP"), a transporter license issued by the FDEP and a transfer
facility license issued by Broward County, Florida. Broward County
also issued PFL a discharge pretreatment permit that allows
discharge of treated water to the Broward County Publically Owned
Treatment Works.
PFD operates a hazardous and non-hazardous waste treatment and
storage facility under various permits, including a RCRA Part B
permit. PFD provides wastewater pretreatment under a discharge
permit with Montgomery County Publically Owned Treatment Works and
is a specification and off-specification used oil processor under
the guidelines of the Ohio EPA.
CM operates under an operating license issued in 1982 as an
existing facility for the treatment and storage of certain
hazardous wastes. The operating license continues in effect in
conjunction with the terms of a consent judgement as agreed to in
1991.
CCC operates a hazardous and non-hazardous treatment and storage
facility under various permits, including a RCRA Part B permit,
issued by the State of Florida.
CCG operates a hazardous treatment and storage facility under a
RCRA Part B permit, issued by the State of Georgia.
We believe that our TSD facilities presently have obtained all
approvals, licenses and permits necessary to enable them to conduct
their business as they are presently conducted. The failure of our
TSD facilities to renew any of their present approvals, licenses
and permits, or the termination of any such approvals, licenses or
permits, could have a material adverse effect on us, our operations
and financial condition.
We believe that our on-site waste treatment services do not require
federal environmental permits provided certain conditions are met,
and we have received written verification from each state in which
we are presently operating that no such permit is required provided
certain conditions are met. There can be no assurance that states
in which our waste facilities presently do business, other states
5
in which our waste facilities may do business in the future, or the
federal government will not change policies or regulations
requiring us to obtain permits to carry on our on-site activities.
Seasonality
We experience a seasonal slowdown in operations and revenues during
the winter months extending from late November through early March.
The seasonality factor is a combination of the inability to
generate consistent billable hours in the consulting engineering
segment, along with poor weather conditions in the central plains
and Midwestern geographical markets we serve for on-site and off-
site services, resulting in a decrease in revenues and earnings
during such period.
Dependence Upon a Single or Few Customers
The majority of our revenues for fiscal 1999 have been derived from
hazardous and non-hazardous waste management services provided to
a variety of industrial and commercial customers. Our customers
are principally engaged in research, biotechnical development,
transportation, chemicals, metal processing, electronic,
automotive, petrochemical, refining and other similar industries,
in addition to government agencies that include the U.S. Department
of Energy ("USDOE"), U.S. Department of Defense ("USDOD"), and
other federal, state and local agencies. We are not dependent upon
a single customer, or a few customers, the loss of any one or more
would not have a material adverse effect on us. However, CMGS
currently manages nine (9) hazardous waste management service
contracts with the DRMS. The DRMS is a subagency of the Defense
Logistics Agency and the Department of Defense, which is
considered to be a single customer. The consolidated revenues for
the DRMS contracts for 1999 total $5,277,000 or 11.4% of total
revenue. Delays in the government's payment of amounts owing to
the Company have resulted, from time to time, in a material decrease
in the Company's liquidity.
Oak Ridge System Contract Award
The Company and M&EC entered into the M&EC Contract pursuant to which
the Company and M&EC agreed to act as a team in the performance of
certain contracts that either the Company or M&EC may obtain from
customers of the DOE regarding treatment and disposal of certain types
of radioactive, hazardous or mixed waste (waste containing both
hazardous and low level radioactive waste) at DOE facilities. In
connection with proposals relating to the treatment and disposal of
mixed waste at DOE's Oak Ridge, Tennessee system ("Oak Ridge"), M&EC
and the Company made a joint proposal to DOE, with M&EC to act as the
team leader. In August 1998 M&EC, as the team leader, was awarded
three contracts ("Oak Ridge Contracts") by Bechtel Jacobs Company, LLC,
the government-appointed manager of the environmental program for Oak
Ridge, to perform certain treatment and disposal services relating to
Oak Ridge. The Oak Ridge Contracts were issued by DOE based on certain
proposals by M&EC and the Company.
The Oak Ridge Contracts are similar in nature to a blanket purchase
order whereby the DOE specifies the approved waste treatment process
and team to be used for certain disposal, but the DOE does not specify
a schedule as to dates for disposal or quantities of disposal material
to be processed. The initial term of the contract will represent a
demonstration period for the team's successful treatment of the waste
and the resulting ability of such processed waste to meet acceptance
criteria for its ultimate disposal location.
As with most such blanket processing agreements, the Oak Ridge Contracts
contain no minimum or maximum processing guarantees, and may be terminated
by either party pursuant to standard DOE procurement regulation terms.
Each specific waste stream processed under the Oak Ridge Contracts will
require a separate work order from DOE and will be priced separately with
an intent of recognizing an acceptable profit margin.
The Company anticipates that, as a member of the team with M&EC in connec-
tion with the Oak Ridge Contracts and finalization of the scope of work
documents with M&EC relating to the work to be performed by each of the
Company and M&EC under the Oak Ridge Contracts, it will (i) provide certain
of the Company's environmental remediation technologies, (ii) install
equipment necessary to apply the Company's technology, and (iii) supervise
certain aspects of the remediation process operations. In addition, the
6
teaming agreement provides that M&EC will purchase all of the equipment
necessary to perform the Oak Ridge Contracts. The Company anticipates
that work, if any, under the Oak Ridge Contracts will begin during the
third quarter of 2000. There are no assurances that the Company and
M&EC will complete the scope of work documents. The Company also
anticipates that a substantial portion of any work performed under the
Oak Ridge Contracts will be performed at M&EC's facility at Oak Ridge
currently under development as of the date of this report. As of the
date of this report, however, the Company cannot estimate (i) the
amount of work or revenues, if any, which will be received by M&EC
under the Oak Ridge Contracts, (ii) the percentage or amount of work
received by M&EC under the Oak Ridge Contracts which will be performed
by the Company, or (iii) the ultimate profitability, or lack of profit-
ability, of the Oak Ridge Contracts for the Company. See "Special Note
Regarding Forward Looking Statements" and Business--Oak Ridge System
Contract Award."
Competitive Conditions
Competition is intense in most of our businesses, we compete with
numerous companies both large and small, that are able to provide
one or more of the environmental services offered by us and many of
which may have greater financial, human and other resources than we
have. However, we believe that the range of waste management and
environmental consulting, treatment, processing and remediation
services we provide affords us a competitive advantage with respect
to certain of our more specialized competitors. We believe that the
treatment processes we utilize offer a cost savings alternative to
more traditional remediation and disposal methods offered by our
competitors.
The intense competition for performing the services performed by us
within the waste industry has resulted in reduced gross margin
levels for certain of those services. The exception is in the low-
level radioactive and hazardous mixed waste area, which has only a
few competitors. In addition, at present we believe there is only
one other facility in the United States that provides low-level
radioactive and hazardous waste processing of scintillation vials,
which requires both a radioactive materials license and a hazardous
waste permit. Competition in the waste management industry is
likely to increase as the industry continues to mature, as more
companies enter the market and expand the range of services which
they offer and as we move into new geographic markets. We believe
that there are no formidable barriers to entry into certain of the
on-site treatment businesses. However, the permitting requirements,
and the cost to obtain such permits, are barriers to the entry of
hazardous waste TSD facilities and radioactive activities as
presently operated by our subsidiaries. Certain of the non-
hazardous waste operations, however, do not require such permits
and, as a result, entry into these non-hazardous waste businesses
would be easier. If the permit requirements for both hazardous
waste storage, treatment and disposal activities and/or the
licensing requirements for the handling of low level radioactive
matters are eliminated or if such licenses or permits were made
easier to obtain, such would allow more companies to enter into
these markets and provide greater competition.
In the on-site waste treatment service area, we believe that the
major competition to our services is the continued utilization of
traditional off-site disposal methods such as land filling. As the
viability of our on-site treatment process is demonstrated in the
market, we believe that the potential to reduce costs and the
ability to limit potential liability will persuade waste generators
to utilize our services. In the future, we believe that we will
face direct competition as processes such as those applied by us
are utilized by our competitors.
We believe that we are a significant participant in the delivery of
off-site waste treatment services in the Southeast, Midwest and
Southwest portions of the United States. We compete with TSD
facilities operated by national, regional and independent
environmental services firms located within a several hundred mile
radius of our facilities. Our subsidiary, PFF, with permitted
radiological activities solicits business on a nationwide basis,
including the U.S. Territories and Antarctica.
Our competitors for remediation services include national and
regional environmental services firms that may have larger
environmental remediation staffs and greater resources. We
recognize our lack of financial resources necessary to compete for
larger remediation contracts and therefore, presently concentrate
7
on remediation services projects within our existing customer base
or projects in our service area which are too small for companies
without a presence in the market to perform competitively.
Environmental engineering and consulting services provided by us
through SYA involve competition with larger engineering and
consulting firms. We believe that we are able to compete with
these firms based on our established reputation in these market
areas and our expertise in several specific elements of
environmental engineering and consulting such as environmental
applications in the cement industry.
Capital Spending, Certain Environmental Expenditures and Potential
Environmental Liabilities
During 1999, we spent approximately $2,660,000 in capital
expenditures, which was principally for the expansion and
improvements to our continuing operations. This 1999 capital
spending total includes $826,000 of which was financed. For 2000,
we have budgeted approximately $4,000,000 for capital expenditures
to improve our operations, reduce the cost of waste processing and
handling, expand the range of wastes that can be accepted for
treatment and processing and to maintain permit compliance
requirements, and approximately $1,656,000 to comply with federal,
state and local regulations in connection with remediation
activities at four locations. See Note 4 and Note 9 to Notes to
Consolidated Financial Statements. However, there is no assurance
that we will have the funds available for such budgeted
expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources of the Company". We do not anticipate the
ongoing environmental expenditures to be significant, with the
exception of remedial activities at the four locations discussed
below.
In June 1994, we acquired from Quadrex Corporation and/or a
subsidiary of Quadrex Corporation (collectively, "Quadrex") three
TSD companies, including the Dayton, Ohio, PFD facility. The
former owners of PFD had merged Environmental Processing Services,
Inc. ("EPS") with PFD, which was subsequently sold to Quadrex.
Through our acquisition of PFD in 1994 from Quadrex, we were
indemnified by Quadrex for costs associated with remediating
certain property leased by EPS from an affiliate of EPS on which
EPS operated a RCRA storage and processing facility ("Leased
Property"). Such remediation involves soil and/or groundwater
restoration. The Leased Property used by EPS to operate its
facility is separate and apart from the property on which PFD's
facility is located. During 1995, in conjunction with the
bankruptcy filing by Quadrex, we were required to advance $250,000
into a trust fund to support remedial activities at the Leased
Property used by EPS, which was subsequently increased to $401,000.
As discussed in Note 9 to the Consolidated Financial Statements, we
have accrued approximately $347,000 for the estimated costs of
remediating the Leased Property used by EPS, which will extend for
a period of three (3) to four (4) years.
Due to the acquisition of PFM, we assumed and recorded certain
liabilities to remediate gasoline contaminated groundwater and
investigate, under the hazardous and solid waste amendments,
potential areas of soil contamination on PFM's property. Prior to
our ownership of PFM, the owners installed monitoring and treatment
equipment to restore the groundwater to acceptable standards in
accordance with federal, state and local authorities. We have
accrued approximately $696,000 for the estimated cost of
remediating the groundwater contamination. See "BUSINESS --
Certain Environmental Expenditures".
The PFM facility is situated in the vicinity of the Memphis
Military Defense Depot (the "Defense Facility"), which Defense
Facility is listed as a Superfund Site and is adjacent to the Allen
Well Field utilized by Memphis Light, Gas & Water, a public water
supply utilized in Memphis, Tennessee. Chlorinated compounds have
previously been detected in the groundwater beneath the Defense
Facility, as well as in very limited amounts in certain production
wells in the adjacent Allen Well Field. Very low concentrations of
certain chlorinated compounds have also been detected in the
groundwater beneath the PFM facility and the possible presence of
these compounds are currently being investigated. Based upon a
study performed by our environmental engineering group, we do not
believe the PFM facility is the source of the chlorinated compounds
in a limited number of production wells in the Allen Well Field
and, as a result, do not believe that the presence of the low
concentrations of chlorinated compounds at the PFM facility will
have a material adverse effect upon the Company. We were also
notified in January 1998 by the EPA that it is believed that PFM is
8
a potentially responsible party ("PRP") regarding the remediation
of a drum reconditioning facility located in Memphis. See "Legal
Proceedings" for further discussion of this environmental
liability.
In conjunction with the acquisition of CM and CCG during 1999, we
recognized long-term environmental accruals of $4,319,000. This
amount represented the Company's estimate of the long-term costs to
remove contaminated soil and to undergo groundwater remediation
activities at the CM acquired facility in Detroit, Michigan, and at
the CCG acquired facility in Valdosta, Georgia. Both facilities
have pursued remedial activities over the past five years with
additional studies forthcoming and potential groundwater
restoration activities could extend for a period of ten years. The
accrued balance at December 31, 1999, for the CM remediation is
$2,103,000, of which we anticipate spending $638,000 during 2000,
with the remaining $1,465,000 reflected in a long-term
environmental accrual. The accrued balance at December 31, 1999,
for the CCG remediation is $2,133,000, of which we anticipate
spending $499,000 during 2000, with the remaining $1,634,000
reflected in a long-term environmental accrual. No insurance or
third party recovery was taken into account in determining our cost
estimates or reserves, nor do our cost estimates or reserves
reflect any discount for present value purposes. We also
recognized certain other long-term potential liabilities related to
the 1999 acquisition of CM, CCC and CCG, the largest of which is
the reserve of possible PRP liabilities, related to disposal
activities prior to the acquisition, for which we have reserved
approximately $403,000. See Note 5 and Note 9 to Notes to
Consolidated Financial Statements.
The nature of our business exposes us to significant risk of
liability for damages. Such potential liability could involve, for
example, claims for clean-up costs, personal injury or damage to
the environment in cases where we are held responsible for the
release of hazardous materials; claims of employees, customers or
third parties for personal injury or property damage occurring in
the course of our operations; and claims alleging negligence or
professional errors or omissions in the planning or performance of
our services or in the providing of our products. In addition, we
could be deemed a responsible party for the costs of required
clean-up of any property which may be contaminated by hazardous
substances generated or transported by us to a site we selected,
including properties owned or leased by us. We could also be
subject to fines and civil penalties in connection with violations
of regulatory requirements.
Research and Development
Innovation by our operations is very important to the success of
our business. Our goal is to discover, develop and bring to market
innovative ways to process waste that address unmet environmental
needs. We are planning for future growth of our research
operations. We conduct research internally, and also through
collaborations with universities. We feel that our investments in
research have been rewarded by the discovery of the Perma-Fix
Process and the New Process. Our competitors also devote resources
to research and development and many such competitors have greater
resources at their disposal than we do.
Number of Employees
In our service-driven business, our employees are vital to our
success. We believe we have good relationships with our employees.
As of December 31, 1999, we employed approximately 396 persons, of
which approximately 24 were assigned to our engineering and
consulting industry segment and approximately 362 to the waste
management industry segment, including approximately 192 employees
at the CCC, CCG and CM facilities acquired in June 1999.
Governmental Regulation
Environmental companies and their customers are subject to
extensive and evolving environmental laws and regulations by a
number of national, state and local environmental, safety and
health agencies, the principal of which being the EPA. These laws
and regulations largely contribute to the demand for our services.
Although our customers remain responsible by law for their
environmental problems, we must also comply with the requirements
of those laws applicable to our services. Because the field of
environmental protection is both relatively new and rapidly
developing, we cannot predict the extent to which our operations
may be affected by future enforcement policies as applied to
existing laws or by the enactment of new environmental laws and
9
regulations. Moreover, any predictions regarding possible
liability are further complicated by the fact that under current
environmental laws we could be jointly and severally liable for
certain activities of third parties over whom we have little or no
control. Although we believe that we are currently in substantial
compliance with applicable laws and regulations, we could be
subject to fines, penalties or other liabilities or could be
adversely affected by existing or subsequently enacted laws or
regulations. The principal environmental laws affecting us and our
customers are briefly discussed below.
The Resource Conservation and Recovery Act of 1976, as amended
("RCRA"). RCRA and its associated regulations establish a strict
and comprehensive regulatory program applicable to hazardous waste.
The EPA has promulgated regulations under RCRA for new and existing
treatment, storage and disposal facilities including incinerators,
storage and treatment tanks, storage containers, storage and
treatment surface impoundments, waste piles and landfills. Every
facility that treats, stores or disposes of hazardous waste must
obtain a RCRA permit or must obtain interim status from the EPA, or
a state agency which has been authorized by the EPA to administer
its program, and must comply with certain operating, financial
responsibility and closure requirements. RCRA provides for the
granting of interim status to facilities that allows a facility to
continue to operate by complying with certain minimum standards
pending issuance or denial of a final RCRA permit.
Boiler and Industrial Furnace Regulations under RCRA ("BIF
Regulations"). BIF Regulations require boilers and industrial
furnaces, such as cement kilns, to obtain permits or to qualify for
interim status under RCRA before they may use hazardous waste as
fuel. If a boiler or industrial furnace does not qualify for
interim status under RCRA, it may not burn hazardous waste as fuel
or use such as raw materials without first having obtained a final
RCRA permit. In addition, the BIF Regulations require 99.99%
destruction of the hazardous organic compounds used as fuels in a
boiler or industrial furnace and impose stringent restrictions on
particulate, carbon monoxide, hydrocarbons, toxic metals and
hydrogen chloride emissions.
The Safe Drinking Water Act, as amended (the "SDW Act"), regulates,
among other items, the underground injection of liquid wastes in
order to protect usable groundwater from contamination. The SDW
Act established the Underground Injection Control Program ("UIC
Program") that provides for the classification of injection wells
into five classes. Class I wells are those which inject
industrial, municipal, nuclear and hazardous wastes below all
underground sources of drinking water in an area. Class I wells
are divided into non-hazardous and hazardous categories with more
stringent regulations imposed on Class I wells which inject
hazardous wastes. PFTS' permit to operate its underground
injection disposal wells is limited to non-hazardous wastewaters.
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA", also referred to as the "Superfund
Act"). CERCLA governs the clean-up of sites at which hazardous
substances are located or at which hazardous substances have been
released or are threatened to be released into the environment.
CERCLA authorizes the EPA to compel responsible parties to clean up
sites and provides for punitive damages for noncompliance. CERCLA
imposes joint and several liability for the costs of clean-up and
damages to natural resources.
Health and Safety Regulations. The operation of the Company's
environmental activities is subject to the requirements of the
Occupational Safety and Health Act ("OSHA") and comparable state
laws. Regulations promulgated under OSHA by the Department of
Labor require employers of persons in the transportation and
environmental industries, including independent contractors, to
implement hazard communications, work practices and personnel
protection programs in order to protect employees from equipment
safety hazards and exposure to hazardous chemicals.
Atomic Energy Act. The Atomic Energy Act of 1954 governs the safe
handling and use of Source, Special Nuclear and Byproduct materials
in the U.S. and its territories. This act authorized the Atomic
Energy Commission (now the Nuclear Regulatory Commission) to enter
into "Agreements with States to carry out those regulatory
functions in those respective states except for Nuclear Power
Plants and federal facilities like the VA hospitals and the USDOE
10
operations." On July 1, 1964, the state of Florida signed this
Agreement. Thus, the state of Florida (with the USNRC oversight),
Office of Radiation Control, regulates the radiological program of
the PFF facility.
Other Laws. Our activities are subject to other federal
environmental protection and similar laws, including, without
limitation, the Clean Water Act, the Clean Air Act, the Hazardous
Materials Transportation Act and the Toxic Substances Control Act.
Many states have also adopted laws for the protection of the
environment which may affect us, including laws governing the
generation, handling, transportation and disposition of hazardous
substances and laws governing the investigation and clean-up of,
and liability for, contaminated sites. Some of these state
provisions are broader and more stringent than existing federal law
and regulations. Our failure to conform our services to the
requirements of any of these other applicable federal or state laws
could subject us to substantial liabilities which could have a
material adverse affect on us, our operations and financial
condition. In addition to various federal, state and local
environmental regulations, our hazardous waste transportation
activities are regulated by the U.S. Department of Transportation,
the Interstate Commerce Commission and transportation regulatory
bodies in the states in which we operate. We cannot predict the
extent to which we may be affected by any law or rule that may be
enacted or enforced in the future, or any new or different
interpretations of existing laws or rules.
Insurance
We believe we maintain insurance coverage adequate for our needs
and which is similar to, or greater than, the coverage maintained
by other companies of our size in the industry. There can be no
assurances, however, that liabilities which may be incurred by us
will be covered by our insurance or that the dollar amount of such
liabilities which are covered will not exceed our policy limits.
Under our insurance contracts, we usually accept self-insured
retentions which we believe appropriate for our specific business
risks. We are required by EPA regulations to carry environmental
impairment liability insurance providing coverage for damages on a
claims-made basis in amounts of at least $1 million per occurrence
and $2 million per year in the aggregate. To meet the requirements
of customers, we have exceeded these coverage amounts.
Year 2000 Issues
The Year 2000 problem arises because many computer systems were
designed to identify a year using only two digits, instead of four
digits, in order to conserve memory and other resources. For
instance, "1999" would be held in the memory of a computer as "99."
When the year changes from 1999 to 2000, a two digit system would
read the year as changing from "99" to "00." For a variety of
reasons, many computer systems are not designed to make such a date
change or are not designed to "understand" or react appropriately
to such a date change. Therefore, after the date changes to the
year 2000, many computer systems could completely stop working or
could perform in an improper and unpredictable manner.
We have conducted a review of our computer systems to identify the
systems which we anticipated could be effected by the Year 2000
issue and we believe that all such systems were already, or have
been converted to be, Year 2000 compliant. Such conversion costs,
where required, have not been material and have been expensed as
incurred. Pursuant to our Year 2000 planning, we requested
information regarding the computer systems of our key suppliers,
customers, creditors, and financial service organizations and were
informed that they are substantially Year 2000 compliant. As of
the date of this Report, the Company has experienced no Year 2000
disruptions to its operations since the year 2000 began. There
can be no assurance, however, that such key organizations are
actually Year 2000 compliant and that the Year 2000 issue will not
adversely affect the Company's financial position or results of
operations. We believe that our expenditures in addressing our
Year 2000 issues will not have a material adverse effect on our
financial position or results of operations.
11
Oak Ridge System Contract Award
The Company and East Tennessee Materials and Energy Corp. ("M&EC")
entered into a teaming agreement ("M&EC Contract") pursuant to
which the Company and M&EC agreed to act as a team in the
performance of certain contracts that either the Company or M&EC
may obtain from customers of the U.S. Department of Energy ("DOE")
regarding treatment and disposal of certain types of radioactive,
hazardous or mixed waste (waste containing both hazardous and low
level radioactive waste) at DOE facilities.
The Company anticipates that, as a member of the team with M&EC in
connection with the contracts and finalization of the scope of work
documents with M&EC relating to the work to be performed by each of
the Company and M&EC under the contracts, it will (i) provide
certain of the Company's environmental remediation technologies,
(ii) install equipment necessary to apply the Company's technology,
and (iii) supervise certain aspects of the remediation process
operations. As of the date of this Report, however, the Company
has engaged in only minimal design work in connection with the M&EC
Contract. The revenues which will be received by the Company, if
any, as a result of the M&EC Contract are subject to a variety of
factors and the Company cannot currently estimate what such amount
of revenue may be. See "Special Note Regarding Forward Looking
Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Oak Ridge System Contract
Award."
ITEM 2. PROPERTIES
Our principal executive offices are in Gainesville, Florida. Our
waste management operations are located in Gainesville, Orlando and
Ft. Lauderdale, Florida; Dayton, Ohio; Tulsa, Oklahoma; Valdosta,
Georgia; Detroit, Michigan; Albuquerque, New Mexico and Memphis,
Tennessee. Our consulting engineering services are located in St.
Louis, Missouri. We also maintain sales offices in Laverne,
California and Kansas City, Missouri and Government Services
offices in Jacksonville, Florida; Anniston, Alabama; San Diego,
California; Oklahoma City, Oklahoma; Portsmouth, Virginia;
Honolulu, Hawaii and Santa Barbara, California.
We own nine facilities and have an option to purchase another
facility at a nominal amount at the end of the lease term (December
2000), all of which are in the United States. In addition, we
lease twelve properties for office space, one of which also
contains a warehouse and one additional property that is utilized
strictly as warehouse space, all of which are located in the United
States as described above.
We believe that the above facilities currently provide adequate
capacity for our operations and that additional facilities are
readily available in the regions in which we operate.
ITEM 3. LEGAL PROCEEDINGS
CM, which was purchased by the Company effective June 1, 1999, is
a PRP regarding three Superfund sites, two of which had no
relationship with CM according to CM records. The relationship of
CM to the third site, if any, is currently being investigated by
the Company. CCC, which was also purchased by the Company
effective June 1, 1999, is a PRP regarding two Superfund sites.
The Company is currently investigating the relationship of CCC to
the two sites.
In addition to the above matters and in the normal course of
conducting our business, we are involved in various other
litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any
judgments or fines against us that would have a material adverse
affect on our financial position, liquidity or results of
operations.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders ("Annual Meeting") was
held on December 15, 1999. At the Annual Meeting, the following
matters were voted on and approved by the shareholders:
1. The election of five (5) directors to serve until the
next annual meeting of stockholders or until their
respective successors are duly elected and qualified;
2. Approval and ratification of the appointment of BDO
Seidman, LLP as the independent auditors of the Company
for fiscal 1999.
At the Annual Meeting the five (5) nominated directors were elected
to serve until the next annual meeting of stockholders. The
directors elected at this annual meeting of stockholders and the
votes cast for and withhold authority for each director are as
follows:
Withhold
For Authority
__________ _________
Dr. Louis F. Centofanti 15,659,288 60,462
Jon Colin 15,659,588 60,162
Steve Gorlin(1) 15,248,490 471,260
Thomas P. Sullivan 15,656,770 62,980
Mark A. Zwecker 15,659,588 60,162
Also, at the Annual Meeting the shareholders approved the
appointment of BDO Seidman, LLP as the independent auditors of the
Company for fiscal 1999.
The votes for, against and abstentions and broker non-votes are as
follows:
Abstentions
and Broker
For Against Non-Votes
__________ _______ ___________
Approval and Ratification of the
Appointment of BDO Seidman, LLP 15,658,505 39,150 22,095
as the Independent Auditors
(1) On February 1, 2000, Mr. Gorlin resigned as a director of the
Company.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of the date hereof, information
concerning the Executive Officers of the Company:
NAME AGE POSITION
____ ___ ________
Dr. Louis F. Centofanti 56 Chairman of the Board, President and Chief
Executive Officer
Mr. Richard T. Kelecy 44 Chief Financial Officer, Vice President and
Secretary
Mr. Roger Randall 56 Vice President, Industrial Services
Mr. Bernhardt Warren 51 Vice President, Nuclear Services
Mr. Timothy Kimball 54 Vice President, Technical Services
13
DR. LOUIS F. CENTOFANTI
Dr. Centofanti has served as Chairman of the Board since he joined
the Company in February 1991. Dr. Centofanti also served as
President and Chief Executive Officer of the Company from February
1991 until September, 1995 and again in March 1996 was elected to
serve as President and Chief Executive Officer of the Company and
continues as Chairman of the Board. From 1985 until joining the
Company, Dr. Centofanti served as Senior Vice President of USPCI,
Inc., a large hazardous waste management company, where he was
responsible for managing the treatment, reclamation and technical
groups within USPCI. In 1981 he founded PPM, Inc., a hazardous
waste management company specializing in the treatment of PCB
contaminated oils which was subsequently sold to USPCI. From 1978
to 1981, Dr. Centofanti served as Regional Administrator of the
U.S. Department of Energy for the southeastern region of the
United States. Dr. Centofanti has a Ph.D. and a M.S. in Chemistry
from the University of Michigan, and a B.S. in Chemistry from
Youngstown State University.
MR. RICHARD T. KELECY
Mr. Kelecy was elected Vice-President and Chief Financial Officer
in September 1995. He previously served as Chief Accounting
Officer and Treasurer of the Company since July 1994. From 1992
until June 1994, Mr. Kelecy was Corporate Controller and Treasurer
for Quadrex Corporation. From 1990 to 1992 Mr. Kelecy was Chief
Financial Officer for Superior Rent-a-Car, and from 1983 to 1990
held various positions at Anchor Glass Container Corporation
including Assistant Treasurer. Mr. Kelecy holds a B.A. in
Accounting and Business Administration from Westminster College.
MR. ROGER RANDALL
Mr. Randall has served as Vice-President/General Manager of PFD
since its acquisition by the Company in June 1994 and was elected
to the position of Vice President Industrial Services of the
Company in December 1997. From June 1992 to June 1994, Mr. Randall
served as General Manager of the Dayton facility under the
ownership of Quadrex Corporation. From 1982 to June 1992, Mr.
Randall served a variety of management roles at the Dayton
facility, ranging from Operations Manager to Chairman of the Board
and Chief Executive Officer under the ownership of Clark
Processing, Inc. Previous to his involvement with the waste
management industry, Mr. Randall spent 17 years in public education
serving a variety of administrative roles. He has a B.S. from
Wittenberg University and an M.A. from Wright State University.
MR. BERNHARDT WARREN
Mr Warren has served as Vice President/General Manager of PFF since
1996 and was elected to the position of Vice President Nuclear
Services of the Company in December 1997. From 1992 to 1996, Mr.
Warren provided contractual consulting services for PFF and other
companies through Applied Environmental Consulting, Inc., of which
Mr. Warren was Owner and President. From 1982 to 1992, Mr. Warren
served a variety of management roles at the Florida facility under
the ownership of Quadrex Corporation. He was involved in
radioactive materials and radioactive waste management from 1973 to
1982, when he was Manager of Radioactive Materials Licensing
Program for the State of Florida. He has a B.S. degree in biology
from Florida Southern College, a Master of Public Administration
from Florida State University and graduated from the United States
Nuclear Regulatory Commission sponsored Oak Ridge Associated
University program. Mr. Warren has authored more than a dozen
technical papers and has achieved Master Level as a Certified
Hazardous Materials Manager.
MR. TIMOTHY KIMBALL
Mr. Kimball has served as Vice President of PFI and PFNM since
January 1991 and was elected to the position of Vice President
Technical Services of the Company in December 1997. He previously
served as the Hazardous Waste Coordinator and Technical
Representative for Rinchem Company, Inc. from 1985 to 1991. He
also served a variety of management roles ranging from Planning
Director, Partner and President, as well as Technical and Research
Assistant for the University of New Mexico. He has a B.A. in
Political Science and Public Administration from the University of
Louisville, and an M.A. in Anthropology from the University of New
Mexico.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock, with a par value of $.001 per share, is traded on
the NASDAQ SmallCap Market ("NASDAQ") and the Boston Stock Exchange
("BSE") under the symbol "PESI" on NASDAQ and "PES" on the BSE.
Effective December 1996, our Common Stock also began trading on the
Berlin Stock Exchange under the symbol "PES.BE." The following
table sets forth the high and low bid prices quoted for the Common
Stock during the periods shown. The source of such quotations and
information is the NASDAQ Stock market statistical summary reports:
1999 1998
_________________ __________________
Low High Low High
_______ _______ ________ _____
Common Stock: 1st Quarter 1 1 3/4 1 25/32 2 1/2
2nd Quarter 7/8 1 15/16 1 7/16 2 1/32
3rd Quarter 1 1/8 1 45/64 1 3/8 2 25/32
4th Quarter 1 3/32 1 9/16 1 1/32 2 7/32
Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-ups or commissions and may not
represent actual transactions.
As of December 31, 1999, there were approximately 191 shareholders
of record of our Common Stock, including brokerage firms and/or
clearing houses holding shares of our Common Stock for their
clientele (with each brokerage house and/or clearing house being
considered as one holder). However, the total number of beneficial
shareholders as of December 31, 1999, was approximately 2,083.
Since our inception, we have not paid any cash dividends on our
Common Stock and have no dividend policy. Our loan agreement
prohibits paying any cash dividends on our Common Stock without
prior approval.
In addition to the securities sold by us during 1999, as reported
in the Company's Forms 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999, which were not registered
under the Securities Act of 1933, as amended ("Securities Act"), we
sold or issued during 1999 the following securities which were also
not registered under the Act:
1. On or about November 15, 1999, pursuant to the terms of a certain
Consulting Agreement ("Consulting Agreement") entered into
effective as of January 1, 1998, the Company issued 6,667 shares
of Common Stock in payment of accrued fees of $6,000 to Alfred C.
Warrington IV, an outside, independent consultant to the Company,
as consideration for certain consulting services rendered to the
Company by Warrington from April through September 1999. The
issuance of Common Stock pursuant to the Consulting Agreement was
a private placement under Section 4(2) of the Act and/or Rule 506
of Regulation D as promulgated under the Act. The Consulting
Agreement provides that Warrington will be paid $1,000 per month
of service to the Company, payable, at the option of Warrington
(i) all in cash, (ii) sixty-five percent in shares of Common Stock
and thirty-five percent in cash, or (iii) all in Common Stock. If
Warrington elects to receive part or all of his compensation in
Common Stock, such will be valued at seventy-five percent of its
"Fair Market Value" (as defined in the Consulting Agreement).
Warrington elected to receive all of his accrued compensation from
April 1999 through the end of September 1999 in Common Stock.
Warrington represented and warranted in the Consulting Agreement,
inter alia, as follows: (i) the Common Stock is being acquired for
Warrington's own account, and not on behalf of any other persons;
(ii) Warrington is acquiring the Common Stock to hold for
investment, and not with a view to the resale or distribution of
all or any part of the Common Stock; (iii) Warrington will not
sell or otherwise transfer the Common Stock in the absence of an
effective registration statement under the Act, or an opinion of
15
counsel satisfactory to the Company, that the transfer can be made
without violating the registration provisions of the Act and the
rules and regulations promulgated thereunder; (iv) Warrington is
an "accredited investor" as defined in Rule 501 of Regulation D as
promulgated under the Act; (v) Warrington has such knowledge,
sophistication and experience in financial and business matters
that he is capable of evaluating the merits and risks of the
acquisition of the Common Stock; (vi) Warrington fully
understands the nature, scope and duration of the limitations on
transfer of the Common Stock as contained in the Consulting
Agreement, (vii) Warrington understands that a restrictive legend
as to transferability will be placed upon the certificates for any
of the shares of Common Stock received by Warrington under the
Consulting Agreement and that stop transfer instructions will be
given to the Company's transfer agent regarding such certificates.
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived from our
audited consolidated financial statements. Financial statements for
the years ended December 31, 1999, 1998, 1997, 1996, and 1995 have
been audited by BDO Seidman, LLP.
Statement of Operations Data:
(Amounts in Thousands, Except
for Share Amounts) December 31,
_______________________________________________________________________
1999(2) 1998 1997 1996 1995
__________ _________ __________ ___________ ___________
Revenues(4) $ 46,464 $ 30,551 $ 28,413 $ 27,041 $ 31,477
Net income (loss) from
continuing operations 1,570 462 192 27 (3,494)
Net loss from discontinued
operations - - (4,101) (287) (5,558)(3)
Preferred Stock dividends (308) (1,160) (1,260)(5) (2,145)(5) -
Gain on Preferred Stock
redemption 188 - - - -
Net income (loss) applicable
to Common Stock from
continuing operations 1,450 (698) (1,068)(5) (2,118)(5) (3,494)
Basic net income (loss) per
common share from
continuing operations(1) .08 (.06) (.10)(5) (.24)(5) (.44)
Diluted net income (loss) per
common share from
continuing operations(1) .07 (.06) (.10)(5) (.24)(5) (.44)
Basic number of shares
used in computing net
income (loss) per share(1) 17,488 12,028 10,650 8,761 7,872
Diluted number of shares and
potential common shares
used in computing net
income (loss) per share(1) 21,224 12,028 10,650 8,761 7,872
Balance Sheet Data:
December 31,
_________________________________________________________________________
1999 1998 1997 1996 1995
__________ ________ _________ _________ ___________
Working capital (deficit) $ (1,400) $ 372 $ 754 $ (773) $ (9,372)
Total assets 54,644 28,748 28,570 29,036 28,873
Long-term debt 15,306 3,042 4,981 6,360 8,478
Total liabilities 34,825 12,795 16,376 16,451 20,935
Stockholders' equity 19,819 15,953 12,194 12,585 7,938
16
(1) As of December 31, 1997, the Company applied SFAS 128, the new
standard of computing and presenting earnings per share. The
adoption of SFAS 128 did not have a material effect on the
Company's EPS presentation for prior years, since the effects
of potential common shares are antidilutive.
(2) Includes financial data of CCC, CCG and CM as acquired during
1999 and accounted for using the purchase method of accounting
from the date of acquisition, June 1, 1999.
(3) Includes write-down of impaired intangible permit related to
an acquisition completed in December of 1993 and certain
nonrecurring charges.
(4) Excludes revenues of Perma-Fix of Memphis, Inc., shown
elsewhere as a discontinued operation.
(5) In March 1997, the Securities and Exchange Commission,
("Commission") announced its position on the accounting for
Preferred Stock which is or may be convertible in Common Stock
at a discount from the market rate on the date of issuance of
such Preferred Stock. The Commission's position pursuant to
Emerging Issues Task Force ("EITF") D-60 regarding beneficial
conversion features is that a Preferred Stock dividend should
be recorded for the difference between the conversion price
and quoted market price of Common Stock as determined on the
date of issuance of such Preferred Stock. To comply with this
position, we restated our 1996 consolidated financial
statements to reflect a dividend of approximately $2 million
related to the fiscal 1996 sales of Convertible Preferred
Stock. As a result, the amount noted in this table as our net
loss applicable to Common Stock for 1996 reflects the restated
amount from the previously reported net loss applicable to
Common Stock of $405,000 and the amount noted in this table as
our net loss per share of Common Stock for 1996 reflects the
restated amount from the previously reported net loss per
share of Common Stock of ($.05). Pursuant to the Commission's
position regarding EITF D-60 and EITF D-42, we restated our
1997 consolidated financial statements to reflect a dividend
of approximately $908,000 ($195,000 attributable to warrants)
related to the fiscal 1997 sales and subsequent exchanges of
Convertible Preferred Stock, of which approximately $111,000
was attributable to the quarter ended June 30, 1997, and
approximately $797,000 was attributable to the quarter ended
September 30, 1997. The impact of the restatement on the
second and third quarters of 1997 and the year ended December 31,
1997, is shown as follows (amounts in thousands, except
for share amounts):
As Originally Reported As Amended
______________________ __________
Quarter Ended Year Ended Quarter Ended Year Ended
_____________ __________ _____________ __________
6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97
_______ _______ __________ _______ _______ __________
Preferred Stock Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $ 1,260
Net Loss Applicable to
Common Stock (525) 58 (4,261) (636) (739) (5,169)
Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements contained within this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" may
be deemed "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended
(collectively, the "Private Securities Litigation Reform Act of
1995"). See "Special Note regarding Forward-Looking Statements"
contained in this report.
Management's discussion and analysis is based, among other things,
upon our audited consolidated financial statements and includes the
accounts of the Company and our wholly-owned subsidiaries, after
elimination of all significant inter-company balances and
transactions.
17
Results of Operations
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto
included in Item 8 of this report.
The reporting of financial results and pertinent discussions are
tailored to two reportable segments: Waste Management Services and
Consulting Engineering Services.
Below are the results of operations for our years ended December 31,
1999, 1998 and 1997 (amounts in thousands, except for share
amounts):
(Consolidated) 1999 % 1998 % 1997 %
______________ _________ _____ __________ _____ ________ _____
Net Revenue $ 46,464 100.0 $ 30,551 100.0 $ 28,413 100.0
Cost of goods sold 31,271 67.3 21,064 68.9 19,827 69.8
_________ _____ __________ _____ ________ ______
Gross profit 15,193 32.7 9,487 31.1 8,586 30.2
Selling, general and
administrative 10,299 22.2 6,847 22.4 5,682 20.0
Depreciation and
amortization 2,778 6.0 2,109 6.9 1,980 7.0
Other income (expense):
Interest income 50 .1 35 .1 41 .1
Interest expense (650) (1.4) (294) (1.0) (431) (1.5)
Other 54 .1 190 .6 (342) (1.2)
________ _____ ________ _____ ________ _____
Net income from contin-
uing operation 1,570 3.4 462 1.5 192 .7
Loss from discontinued
operations (2) - - - - (4,101) (14.4)
Preferred Stock dividends (308) .7 (1,160) (3.8) (1,260)(1) (4.4)
Gain on Preferred Stock
redemption 188 .4 - - - -
________ _____ _________ ______ _________ ______
Net income (loss)
applicable to
Common Stock $ 1,450 3.1 $ (698) (2.3) $ (5,169)(1) (18.2)
======== ===== ========= ====== ========= ======
Basic net income (loss)
per common share $ .08 $ (.06) $ (.49)
======= ========= ==========
Diluted net income
(loss) per
common share $ .07 $ (.06) $ (.49)
======== ========= ==========
(1) In March 1997, the Securities and Exchange Commission
("Commission") announced its position on the accounting for
Preferred Stock which is convertible into Common Stock at a
discount from the market rate on the date of issuance of such
Preferred Stock. The Commission's position pursuant to EITF
D-60 regarding beneficial conversion features is that a
Preferred Stock dividend should be recorded for the
difference between the conversion price and quoted market
price of Common Stock as determined on the date of issuance
of such Preferred Stock. To comply with this position,
pursuant to the Commission's position regarding EITF D-60 and
EITF D-42, we restated our 1997 consolidated financial
statements to reflect a dividend of approximately $908,000
($195,000 attributable to warrants) related to the fiscal
1997 sales and subsequent exchanges of Convertible Preferred
Stock, of which approximately $111,000 was attributable to
the quarter ended June 30, 1997, and approximately $797,000
was attributable to the quarter ended September 30, 1997. The
impact of the restatement on the second and third quarters of 1997
and the year ended December 31, 1997, is shown as follows (amounts
in thousands, except for share amounts):
18
As Originally Reported As Amended
______________________ __________
Quarter Ended Year Ended Quarter Ended Year Ended
_____________ __________ _____________ __________
6/30/97 9/30/97 12/31/97 6/30/97 9/30/97 12/31/97
_______ ______ _______ _______ _______ __________
Preferred Stock Dividends $ 82 $ 99 $ 352 $ 193 $ 896 $ 1,260
Net Loss Applicable to
Common Stock (525) 58 (4,261) (636) (739) (5,169)
Net Loss Per Share (.05) .01 (.40) (.06) (.07) (.49)
(2) On January 27, 1997, an explosion and resulting tank fire occurred
at the PFM facility located in Memphis, Tennessee, which resulted
in damage to certain hazardous waste storage tanks located on the
facility, and caused certain limited contamination at the facility.
Due to the nature of the loss, the significant disruption and
limited operating activities at the facility, we made a strategic
decision in February 1998, to discontinue our fuel blending
operations at PFM, which comprised virtually all of the revenue
producing operations of PFM. See "Business" and Note 4 to Notes to
Consolidated Financial Statements and to "Discontinued Operations"
in this section for further discussion on PFM. Hereafter, PFM will
be referred to as a discontinued operation, and excluded from the
discussions on the operating results of the continuing operations.
Summary -- Years Ended December 31, 1999 and 1998
Consolidated net revenues increased $15,913,000, or 52.1% for
continuing operations for the year ended December 31, 1999,
compared to the year ended December 31, 1998. This increase is
principally attributable to the additional revenues resulting from
the acquisition of CCC, CCG and CM, effective June 1, 1999, which
in the aggregate contributed approximately $15,605,000 of this
increase. The remaining revenue increase reflects internal growth
within both the waste management and engineering segments.
Cost of goods sold increased $10,207,000, or 48.5% for the year
ended December 31, 1999, compared to the year ended December 31,
1998. This increase in cost of goods sold reflects principally the
increased operating, disposal, and transportation costs
corresponding to the increased revenues from the acquisition of
CCC, CCG and CM as discussed above. The acquired facilities
contributed cost of goods sold totaling approximately $10,471,000,
which was partially offset by a cost of goods sold reduction of
$264,000 from existing operations, even though such existing
operations had achieved increased revenues of $308,000.
Gross profit for the year ended December 31, 1999, increased to
$15,193,000, which as a percentage of revenue is 32.7%, reflecting
an improvement over the 1998 percentage of revenue of 31.1%. This
continued improvement in gross profit as a percentage of revenue is
a result of our ongoing cost reduction efforts and the initial
benefits and efficiencies gained from the acquisition in 1999.
Selling, general and administrative expenses increased $3,452,000
or 50.4% for the year ended December 31, 1999, as compared to 1998.
As a percentage of revenue, selling, general and administrative
expenses however decreased to 22.2% for the year ended December 31,
1999, compared to 22.4% for the same period of 1998. This increase
in selling, general and administrative expense is principally due
to the acquisition of CCC, CCG and CM, which reflects expense of
$2,531,000 directly related to and charged against these
facilities. We continue to focus our efforts on the research and
development of new markets, products and technologies which are
expensed as incurred. However, we did demonstrate in 1999 the
benefit of spreading the fixed overhead over a larger company, as
reflected in the improvement in expense as a percentage of revenue.
Depreciation and amortization expense for the year ended
December 31, 1999, reflects an increase of approximately $669,000
or 31.7% as compared to the year ended December 31, 1998. This
increase is principally a result of the acquisition of CCC, CCG and
CM in 1999, which resulted in an increase in depreciation and
amortization of $666,000 from the date of acquisition, June 1,
1999. Depreciation expense for the year ended December 31, 1999,
was $2,102,000 which included $435,000 for the above discussed
19
acquired facilities and amortization expense for the year ended
December 31, 1999, was $676,000, which included $231,000 for the
above discussed acquired facilities.
Interest expense increased approximately $356,000 for the year
ended December 31, 1999, as compared to the corresponding period of
1998. This increase principally reflects the impact of the
acquisition of CCC, CCG and CM effective June 1, 1999. The
existing debt as assumed in conjunction with the acquisition
resulted in $43,000 of additional interest. The additional
interest resulting from the three promissory notes which comprised
$4,700,000 of the purchase prices totaled approximately $125,000.
The remaining increase in interest expense is a direct result of
the increased borrowing levels on the Congress Financial
Corporation revolving and term loan incurred at the point of
acquisition to (i) fund the cash portion of the purchase price
($1,000,000), (ii) fund certain settlement payments ($1,616,000),
(iii) fund certain debt repayments required at closing ($2,011,000)
and (iv) fund certain other closing and acquisition related costs.
See Note 10 to Notes to Consolidated Financial Statements for a
reconciliation between the expected tax benefit and the provision
for income taxes as reported.
The Preferred Stock dividends include the dividends recognized upon
the issuance of new series' of Preferred Stock due to the
beneficial conversion feature and dividends paid on a semi-annual
basis on outstanding Preferred Stock, which on a combined basis
decreased approximately $852,000, for the year ended December 31,
1999, as compared to the year ended December 31, 1998. Pursuant to
EITF D-60 and D-42, we recorded a dividend of approximately
$750,000 related to the fiscal 1998 sales of certain series of
Convertible Preferred Stock. However, Preferred Stock dividends
paid during 1998 were approximately $410,000 as compared to
approximately $308,000 during 1999. This decrease of approximately
$102,000 is due to the conversion of $4,563,000 (4,563 preferred
shares) of the Preferred Stock into Common Stock on April 20, 1999,
and the redemption of $750,000 (750 preferred shares) of the
Preferred Stock on July 15, 1999. See Note 6 to Notes to
Consolidated Financial Statements regarding the issuance of
Preferred Stock.
As noted above, pursuant to the terms of the Series 12 Preferred
Stock and Series 13 Preferred Stock, we redeemed 300 shares or
$300,000 and 450 shares or $450,000 respectively, of the Preferred
Stock on July 15, 1999. The redemption was done at the Preferred
Stock's original face value and resulted in a gain on Preferred
Stock redemption of $188,000. See Note 6 to Notes to Consolidated
Financial Statements regarding the Preferred Stock.
Summary -- Years Ended December 31, 1998 and 1997
Consolidated net revenues increased $2,138,000, or 7.5% for
continuing operations for the year ended December 31, 1998,
compared to the year ended December 31, 1997. This increase is
attributable to the growth in the wastewater treatment market at
PFTS, which totaled approximately $1,283,000 and the growth in the
oily wastewater and field services markets at PFFL, which totaled
approximately $1,168,000. Partially offsetting these increases was
a decrease in the consulting engineering segment of approximately
$287,000 and a decrease in on-site treatment of approximately
$357,000.
Cost of goods sold increased $1,237,000, or 6.2% for the year ended
December 31, 1998, compared to the year ended December 31, 1997.
This increase in cost of goods sold reflects principally the
increased operating, disposal, and transportation costs
corresponding to the increased revenues as discussed above.
Gross profit for the year ended December 31, 1998, increased to
$9,487,000, which as a percentage of revenue is 31.1%, reflecting
a slight improvement over 1997.
Selling, general and administrative expenses increased $1,165,000
or 20.5% for the year ended December 31, 1998, as compared to 1997.
As a percentage of revenue, selling, general and administrative
expenses also increased to 22.4% for the year ended December 31,
1998, compared to 20.0% for the same period of 1997. This increase
reflects an increase in costs of approximately $53,000 in the
20
consulting engineering segment, approximately $983,000 increase in
costs in the waste management segment, and an increase of
approximately $129,000 in corporate overhead. These increases
reflect our efforts to continue to research and develop new
markets, products and technologies that will allow us to become
more profitable.
Depreciation and amortization expense for the year ended December 31,
1998, reflects an increase of approximately $129,000 or 6.5% as
compared to the year ended December 31, 1997. This increase is
attributable to the capitalization and subsequent depreciation of
completed capital asset projects in 1998. Amortization expense
increased approximately $45,000 for the year ended December 31,
1998, as a result of new capitalized permitting costs and their
subsequent current year amortization and the additional
amortization of goodwill resulting from the 1998 acquisition of
Action Environmental.
Interest expense decreased approximately $137,000 from the year
ended December 31, 1998, as compared to the corresponding period of
1997. This decrease reflects reduced borrowing levels on the
Congress Financial revolver and term note.
See Note 10 to Notes to Consolidated Financial Statements for a
reconciliation between the expected tax benefit and the provision
for income taxes as reported.
The Preferred Stock dividends include the dividends recognized upon
the issuance of new series' of Preferred Stock due to the
beneficial conversion feature and dividends paid on a semi-annual
basis on outstanding Preferred Stock, which on a combined basis
decreased approximately $100,000, for the year ended December 31,
1998, as compared to the year ended December 31, 1997. Pursuant to
EITF D-60, we restated our 1997 consolidated financial statements
to record a dividend of approximately $908,000 related to the
fiscal 1997 sales of certain series of Convertible Preferred Stock.
Pursuant to EITF D-60 and D-42, we have recorded a dividend of
approximately $750,000 related to the fiscal 1998 sales of certain
series of Convertible Preferred Stock. However, Preferred Stock
dividends paid during 1998 were approximately $410,000 as compared
to approximately $352,000 during 1997. This increase of
approximately $58,000 is due to the issuance of the new Series 10
Preferred Stock issued in July 1998. See Note 6 to Notes to
Consolidated Financial Statements regarding the issuance of
Preferred Stock. See Note 3 to Notes to Consolidated Financial
Statements regarding the restatements due to the beneficial
conversion features of our various issuances of Preferred Stock.
Liquidity and Capital Resources of the Company
At December 31, 1999, we had cash and cash equivalents of $816,000,
including discontinued operations. This cash and cash equivalents
total reflects a increase of $40,000 from December 31, 1998, as a
result of net cash provided by continuing operations of
$1,022,000, offset by cash used by discontinued operation of
$1,285,000, cash used in investing activities of $3,217,000
(principally purchases of equipment, net totaling $1,834,000, cash
used for acquisition consideration and settlements totaling
$2,616,000 partially offset by the proceeds from the sale of
property and equipment of $238,000 and the change or decrease in
restricted cash of $1,042,000) and cash provided by financing
activities of $3,520,000.
Accounts receivable, net of allowances for continuing operations,
totaled $13,027,000, an increase of $7,077,000 over the December 31,
1998, balance of $5,950,000. This increase principally reflects the
impact of the acquisition of CCC, CCG and CM which had an acquired
accounts receivable balance of $4,078,000 at June 1, 1999. The
accounts receivable balance for CCC and CCG reflected an
increase of $577,000 from the June 1, 1999, acquisition date, to
December 31, 1999. The accounts receivable balance for CM,
including its government services contracting group, reflected an
increase of $2,549,000 from June 1, 1999, acquisition date, to
December 31, 1999. During 1999, CM and it government services
contracting group were awarded six new contracts, in addition to
the four contracts previously held, which due to the complex
billing process, contributed $1,927,000 of this increase. This
increase is also reflective of the higher revenue levels in the
fourth quarter, in addition to the government services contracting
activities. On certain occasions the government has delayed
payment of receivables due to the Company for an extended period
resulting in a material decrease in the Company's liquidity from
time to time.
21
On January 15, 1998, the Company, as parent and guarantor, and all
direct and indirect subsidiaries of the Company, as co-borrowers
and cross-guarantors, entered into a Loan and Security Agreement
("Agreement") with Congress as lender. The Agreement initially
provided for a term loan in the amount of $2,500,000, which
required principal repayments based on a four-year level principal
amortization over a term of 36 months, with monthly principal
payments of $52,000. Payments commenced on February 1, 1998, with
a final balloon payment in the amount of approximately $573,000 due
on January 14, 2001. The Agreement also provided for a revolving
loan facility in the amount of $4,500,000. At any point in time
the aggregate available borrowings under the facility are subject
to the maximum credit availability as determined through a monthly
borrowing base calculation, as updated for certain information on
a weekly basis, equal to 80% of eligible accounts receivable
accounts of the Company as defined in the Agreement. The
termination date on the revolving loan facility was also the third
anniversary of the closing date. The Company incurred
approximately $230,000 in financing fees relative to the
solicitation and closing of this original loan agreement
(principally commitment, legal and closing fees) which are being
amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan both
bear interest at a floating rate equal to the prime rate plus 1
3/4%. The loans also contain certain closing, management and unused
line fees payable throughout the term. The loans are subject to a
3.0% prepayment fee in the first year, 1.5% in the second and 1.0%
in the third year of the original Agreement dated January 15, 1998.
In connection with the acquisition of CCC, CCG and CM on May 27,
1999, Congress, the Company, and the Company's subsidiaries,
including CCC, CCG and CM entered into an Amendment and Joinder to
Loan and Security Agreement (the "Loan Amendment") dated May 27,
1999, pursuant to which the Loan and Security Agreement ("Original
Loan Agreement") among Congress, the Company and the Company's
subsidiaries was amended to provide, among other things, (i) the
credit line being increased from $7,000,000 to $11,000,000, with
the revolving line of credit portion being determined as the
maximum credit of $11,000,000, less the term loan balance, with the
exact amount that can be borrowed under the revolving line of
credit not to exceed eighty percent (80%) of the Net Amount of
Eligible Accounts (as defined in the Original Loan Agreement) less
certain reserves; (ii) the term loan portion of the Original Loan
Agreement being increased from its current balance of approximately
$1,600,000 to $3,750,000 and it shall be subject to a four-year
amortization schedule payable over three years at an interest rate
of 1.75% over prime; (iii) the term of the Original Loan Agreement,
as amended, will be extended for three years from the date of the
acquisition, subject to earlier termination pursuant to the terms
of the Original Loan Agreement, as amended; (iv) CCC, CCG and CM
being added as co-borrowers under the Original Loan Agreement, as
amended; (v) the interest rate on the revolving line of credit will
continue at 1.75% over prime, with a rate adjustment to 1.5% if net
income applicable to Common Stock of the Company is equal to or
greater than $1,500,000 for fiscal year ended December 31, 2000;
(vi) the monthly service fee shall increase from $1,700 to $2,000;
(vii) government receivables will be limited to 20% of eligible
accounts receivable; and (viii) certain obligations of CM shall be
paid at closing of the acquisition of CCC, CCG and CM. The Loan
Amendment became effective on June 1, 1999, when the Stock Purchase
Agreements were consummated. Payments under the term loan
commenced on June 1, 1999, with monthly principal payments of
approximately $78,000 and a final balloon payment in the amount of
$938,000 on June 1, 2002. The Company incurred approximately
$40,000 in additional financing fees relating to the closing of
this amendment, which is being amortized over the remaining term of
the agreement.
Under the terms of the Original Loan Agreement, as amended, the
Company has agreed to maintain an Adjusted Net Worth (as defined in
the Original Loan Agreement) of not less than $3,000,000 throughout
the term of the Original Loan Agreement, which was amended,
pursuant to the above noted acquisition. The adjusted net worth
covenant requirement ranges from a low of $1,200,000 at June 1,
1999, to a high of not less than $3,000,000 from July 1, 2000,
through the remaining term of the Loan Agreement. The covenant
requirement at December 31, 1999, was $1,500,000, which the Company
was in compliance with. The Company has agreed that it will not
pay any dividends on any shares of capital stock of the Company,
except that dividends may be paid on the Company's shares of
Preferred Stock outstanding as of the date of the Loan Amendment
(collectively, "Excepted Preferred Stock") under the terms of the
applicable Excepted Preferred Stock and if and when declared by the
22
Board of Directors of the Company pursuant to Delaware General
Corporation Law. As security for the payment and performance of
the Original Loan Agreement, as amended, the Company and its
subsidiaries (including CCC, CCG and CM) have granted a first
security interest in all accounts receivable, inventory, general
intangibles, equipment and certain of their other assets, as well
as the mortgage on two facilities owned by subsidiaries of the
Company, except for certain real property owned by CM, for which a
first security interest is held by the TPS Trust and the ALS Trust
as security for CM's non-recourse guaranty of the payment of the
Promissory Notes. All other terms and conditions of the original
loan remain unchanged.
As of December 31, 1999, borrowings under the revolving loan
agreement were approximately $5,891,000, an increase of $5,794,000
over the December 31, 1998, balance of $97,000. This increase
represents $2,799,000 funded pursuant to the CCC, CCG and CM
acquisition on June 1, 1999, $766,000 funded for the redemption of
Preferred Stock, including dividends thereon, during July 1999 and
$2,229,000 for capital expenditure and general working capital
needs. The balance under the Congress term loan at December 31,
1999, was $3,203,000, an increase of $1,276,000 over the December
31, 1998, balance of $1,927,000. This increase represents
$2,083,000 funded pursuant to the CCC, CCG and CM acquisition on
June 1, 1999, partially offset by scheduled repayments of $807,000.
We funded through the revolving and term loan a total of $4,882,000
pursuant to the CCC, CCG and CM acquisition excluding legal,
professional and other closing fees, of which $2,651,000
represented the repayment of certain debt obligations, $1,192,000
represented payment of certain settlement obligations and
$1,000,000 of the cash consideration as paid to the former owners
of CCC, CCG and CM. As of December 31, 1999, the Company's
borrowing availability under the Congress credit facility, based on
its then outstanding eligible accounts receivable, was
approximately $1,113,000.
Pursuant to the terms of the Stock Purchase Agreements in
connection with the acquisition of CCC, CCG and CM, a portion of
the consideration was paid in the form of the Promissory Notes, in
the aggregate amount of $4,700,000 payable to the former owners of
CCC, CCG and CM. The Promissory Notes are paid in equal monthly
installments of principal and interest of approximately $90,000
over five years with the first installment due on July 1, 1999, and
having an interest rate of 5.5% for the first three years and 7%
for the remaining two years. The aggregate outstanding balance of
the Promissory Notes total $4,283,000 at December 31, 1999, of
which $819,000 is in the current portion. Payment of such
Promissory Notes are guaranteed by CM under a non-recourse
guaranty, which non-recourse guaranty is secured by certain real
estate owned by CM. See Note 7 to Notes to Consolidated Financial
Statements for further discussion of the above referenced
acquisition.
As of December 31, 1999, total consolidated accounts payable for
continuing operations was $7,587,000, an increase of $5,165,000
from the December 31, 1998, balance of $2,422,000. The increased
accounts payable total is partially a result of the impact of the
acquisition of CCC, CCG and CM, which reflected an acquired balance
at June 1, 1999, of $2,412,000. The increase is also attributable
to the increased revenue activity in the fourth quarter and the
corresponding increase in accounts receivable.
Our net purchases of new capital equipment for continuing
operations for the twelve month period ended December 31, 1999,
totaled approximately $2,660,000. These expenditures were for
expansion and improvements to the operations principally within
the waste management industry segment. These capital expenditures
were principally funded by the cash provided by continuing
operations and $826,000 through various other lease financing
sources. We have budgeted capital expenditures of approximately
$4,000,000 for 2000, which includes completion of certain current
projects, as well as other identified capital and permit compliance
purchases. We anticipate funding these capital expenditures by a
combination of lease financing with lenders other than the
equipment financing arrangement discussed above, and/or internally
generated funds.
The Company has outstanding 4,537 shares of Preferred Stock, with each
share having a liquidation preference of $1,000 ("Liquidation Value").
Annual dividends on the Preferred Stock ranges from 4% to 6% of the
Liquidation Value, depending upon the Series. Dividends on the Preferred
Stock are cumulative, and are payable, if and when declared by the
Company's Board of Directors, on a semi-annual basis. Dividends on the
outstanding Preferred Stock may be paid at the option of the Company, if
23
declared by the Board of Directors, in cash or in the shares of the
Company's Common Stock as described under Note 6 to Notes to Consolidated
Financial Statements.
As of December 31, 1999, there are certain events, which may have a
material impact on the Company's liquidity on a short-term basis. The
Company's Board of Directors has authorized the repurchase of up to
500,000 shares of the Company's Common Stock from time to time in the
open market or privately negotiated transactions, in accordance with SEC
Rule 10b-18, as promulgated under the Exchange Act, of which we
repurchased 23,000 shares during 1998 for $42,000 and 45,000 shares in
1999 for $50,000 and if the remaining authorized shares were purchased
as of the date of the report such would result in the expenditure of
approximately $550,000 in cash. If the Company should repurchase such
shares, we would anticipate funding these activities from cash provided
by continuing operations and borrowings under the Company's revolving
credit facility.
The working capital deficit position at December 31, 1999, was
$1,400,000, as compared to a working capital position of $372,000
at December 31, 1998, which reflects a decrease in this position of
$1,772,000 during 1999. This reduced working capital position is
principally a result of the impact of the CCC, CCG and CM
acquisition, effective June 1, 1999. The consideration was paid in
the form of cash, debt and equity, with the cash portion being
$1,000,000, funded out of current working capital and the debt
portion being $4,700,000 in the form of three promissory notes,
paid over five years. The Congress term loan was also increased by
$2,083,000 pursuant to this acquisition, which resulted in an
increase of $313,000 in the current portion of the term loan debt.
We also assumed certain other liabilities pursuant to this
acquisition, including the accrued environmental liability related
to the CM facility in Detroit, Michigan, and the CCG Facility in
Valdosta, Georgia, both of which are long term remedial projects,
with increased spending in this first year. These two remedial
projects contributed $1,137,000 to this working capital reduction.
See Note 5, Note 7 and Note 9 to Notes to Consolidated Financial
Statement for further detail on the acquisition and related
reserves. Additionally, we continue to invest current cash
proceeds into the long term capital improvements of our operating
facilities, with the 1999 purchases of property and equipment
totaling $1,834,000.
As discussed above, on June 1, 1999, the Company purchased all of
the outstanding stock of CCC, CCG and CM and paid $8.7 million,
as follows: (i) $1 million in cash, (ii) five (5) year promissory
notes totaling the original principal amount of $4.7 million,
bearing an annual rate of interest of 5.5% for the first three
years and 7% for the last two years, with principal and accrued
interest payable in monthly installments of approximately $90,000
each, and (iii) $3 million payable in the form of 1.5 million
shares of the Company's Common Stock based on each share having an
agreed value of $2.00. If the average of the closing price of the
Company's Common Stock as quoted on the NASDAQ for the five (5)
trading days immediately preceding the date eighteen (18) months
after June 1, 1999 ("Valuation Date") is less than $2.00 per share,
the Company is to pay in cash or Common Stock or a combination
thereof, at the Company's option, the difference between $3 million
and the value of the 1.5 million shares of Common Stock based on
the five (5) trading day average as quoted on the NASDAQ
immediately preceding the Valuation Date. Under the Company's loan
agreement, the Company may pay such amount, if any, only in Common
Stock unless the lender agrees that the Company may satisfy such in
whole or in part in cash. However, the Company is not to issue in
connection with the acquisition of CCC, CCG and CM more than 18%
of the outstanding shares of Common Stock at the closing of the
acquisition of CCC, CCG and CM.
On April 20, 1999, the Company and RBB Bank entered into an
agreement to restructure the Company's Convertible Preferred Stock
held by RBB Bank, which totaled approximately $9.5 million. The
restructuring was accomplished through two exchange agreements
("First Exchange Agreement" and "Second Exchange Agreement") which
are further described in Note 6 to Notes to Consolidated Financial
Statements. Under the restructuring:
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1. RBB Bank converted, pursuant to existing terms of the
Convertible Preferred Stock, $4.6 million of the Convertible
Preferred Stock into approximately 6.1 million shares of the
Company's Common Stock, which was completed in May 1999.
2. The Company was granted the right to purchase at a stated
value ($1,000 per share) $750,000 of the Convertible
Preferred Stock, which was subsequently purchased on July 15,
1999.
3. The terms of the balance of the Convertible Preferred Stock
(approximately $4.2 million) was changed, as follows:
a. Not subject to conversion for 12 months from the date of
the restructuring ("Lock-Up Period");
b. For one (1) year from the end of the Lock-Up Period, any
conversion of the Convertible Preferred Stock would be
subject to a minimum conversion price of $1.50 per share
of Common Stock; and
c. The Company will be granted the option to redeem the
shares of the Convertible preferred stock at 110% of the
stated value ($1,000 per share) for the first twelve
months from the date of restructuring and RBB Bank may
not convert such shares redeemed during such twelve
month period, and thereafter the Company has the option
to redeem the Convertible Preferred Stock at 120% of the
stated value ($1,000 per share) of the Convertible
preferred stock and upon notice of such redemption RBB
Bank will have the right to exercise its conversion
rights pursuant to the then current terms of the
Convertible Preferred Stock.
4. The Company was required to register with the Commission the
Common Stock issuable upon conversion of the Convertible
Preferred Stock by January 31, 2000, which was completed
timely.
5. The remaining terms of the Convertible Preferred Stock will
remain unchanged.
During 1999, accrued dividends for the period July 1, 1998, through
December 31, 1998, in the amount of approximately $235,000 were
paid in January 1999, in the form of 85,802 shares of Common Stock
and $121,000 in cash. Dividends for the period January 1, 1999,
through June 30, 1999, of approximately $190,000 were paid in the
form of 66,692 shares of Common Stock and $83,000 in cash. The
accrued dividends for the period July 1, 1999, through December 31,
1999, in the amount of approximately $110,000 were paid in February
2000, in the form of 95,581 shares of Common Stock. Under the Company's
loan agreement, the Company is required to pay any dividends declared
by the Company's Board of Directors on its outstanding shares of
Preferred Stock in Common Stock of the Company.
During January 1998, PFM was notified by the EPA that it believed
that PFM was a PRP regarding the remediation of a site owned and
operated by W.R. Drum, Inc. ("WR Drum") in Memphis, Tennessee (the
"Drum Site"), as further discussed in Item 3 "Legal Proceedings."
During the third quarter of 1998, the government agreed to PFM's
offer to pay $225,000 ($150,000 payable at closing and the balance
payable over a twelve month period) to settle any potential
liability regarding this Drum Site. During January 1999, the
Company executed a "Partial Consent Decree" pursuant to this
settlement, and paid the initial settlement payment amount of
$150,000 in October 1999. The remaining amount of $75,000 is to
be paid in two semi-annual installments of approximately $37,000
each, with the first such payment made on March 16, 2000.
In summary, we have continued to take steps to improve our
operations and liquidity as discussed above. However, with the
acquisition in 1999, we incurred and assumed certain debt
obligations and long-term liabilities, which had a short term
impact on liquidity. We anticipate continued improvement in the
financial performance of the Company and adequate operational cash
flow to fund such requirements. If we are unable to continue to
improve our operations and to continue profitability in the
foreseeable future, such would have a material adverse effect on
our liquidity position.
Discontinued Operations
On January 27, 1997, an explosion and resulting tank fire occurred
at the PFM facility, a hazardous waste storage, processing and
blending facility, which resulted in damage to certain hazardous
waste storage tanks located on the facility and caused certain
limited contamination at the facility. Such occurrence was caused
by welding activity performed by employees of an independent
contractor at or near the facility's hazardous waste tank farm
25
contrary to instructions by PFM. The facility was non-operational
from the date of this event until May 1997, at which time it began
limited operations. During the remainder of 1997, PFM continued to
accept waste for processing and disposal, but arranged for other
facilities owned by us or our subsidiaries or others not affiliated
with us to process such waste. The utilization of other facilities
to process such waste resulted in higher costs to PFM than if PFM
were able to store and process such waste at its Memphis,
Tennessee, TSD facility, along with the additional handling and
transportation costs associated with these activities. As a result
of the significant disruption and the cost to rebuild and operate
this segment, we made a strategic decision, in February 1998, to
discontinue the fuel blending operations at PFM. The fuel blending
operations represented the principal line of business for PFM prior
to this event, which included a separate class of customers, and
its discontinuance has required PFM to attempt to develop new
markets and customers, through the utilization of the facility as
a storage facility under its RCRA permit and as a transfer
facility. Accordingly, during the fourth quarter of 1997, the
Company recorded a loss on disposal of discontinued operations of
$3,053,000, which included $1,272,000 for impairment of certain
assets and $1,781,000 for the establishment of certain closure
liabilities.
The net loss from the discontinued PFM operations of $1,048,000 for
the year ended December 31, 1997, is shown separately in the
Consolidated Statements of Operations. The results of the
discontinued PFM operations do not reflect management fees charged
by the Corporation, but does include interest expense of $254,000
during 1997, specifically identified to such operations as a result
of such operations incurring debt under the Company's revolving and
term loan credit facility. The operating expenses incurred during
1999 and 1998, totaling $677,000 and $653,000, respectively, relate
to the closure and remedial activities performed, and have been
recorded against the accrued environmental reserve. Also recorded
to the closure cost reserve is interest expense of $306,000 and
$213,000 specifically identified to the PFM discontinued operations
as a result of such operations incurring debt under the Company's
revolving and term loan credit facility. During March of 1998, the
Company received a settlement in the amount of $1,475,000 from its
insurance carrier for the business interruption claim which is
recorded as an insurance claim receivable at December 31, 1997.
This settlement was recognized as a gain in 1997 and thereby
reduced the net loss recorded for the discontinued PFM operations
in 1997. Earlier in 1997, PFM received approximately $522,000
(less its deductible of $25,000) in connection with its claim for
loss of contents as a result of the fire and explosion which was
utilized to replace certain assets and reimburse the Company for
certain fire related expense.
The accrued environmental and closure costs related to PFM totals
$1,174,000 as of December 31, 1999, a decrease of $1,327,000 from
the December 31, 1998, accrual balance. This reduction was
principally a result of the specific costs related to the
decommissioning and closure of the fuel blending tank farm and
related processing equipment ($60,000), partial payment of PRP
liability settlement ($150,000), general closure and remedial
activities, including groundwater remediation,and agency and
investigative activities, ($440,000), and the general operating
losses, including indirect labor, materials and supplies, incurred
in conjunction with the above actions ($677,000). The remaining
liability represents the best estimate of the cost to complete the
groundwater remediation at the site of approximately $696,000 (see
Note 9 to Notes to Consolidated Financial Statements), future
operating losses to be incurred by PFM as it completes such closure
and remedial activities over the next five (5) year period
($403,00