PERMA FIX ENVIRONMENTAL SERVICES INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________

Form 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002

[ ]	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)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the latest practical date.

Class Outstanding at August 9, 2002
Common Stock, $.001 Par Value 34,276,276
Outstanding at August 9, 2002

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

INDEX

PART I		FINANCIAL INFORMATION	Page No.

	Item 1	Financial Statements

		Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . .	2

		Consolidated Statements of Operations - Three and Six Months Ended June 30, 2002 and 2001 . . . . . . . . . . . .	4

		Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . . .	5

		Consolidated Statements of Stockholders' Equity - Six Months Ended June 30, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6

		Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . .	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . .	15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29

PART II		OTHER INFORMATION

	Item 1.	Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30

	Item 4.	Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . .	30

	Item 6.	Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS

PART I, ITEM 1

The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated.

It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

The results of operations for the six months ended June 30, 2002, are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2002.

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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except for Share Amounts)

June 30,
2002
(Unaudited)

December 31, 2001


ASSETS
Current assets:
Cash	$ 90		$ 860
Restricted cash	20		20
Accounts receivable, net of allowance for doubtful accounts of $660 and $725	17,861		17,191
Inventories	760		756
Prepaid expenses	2,740		1,651
Other receivables	60		142

Total current assets	21,531		20,620

Property and equipment:
Buildings and land	15,384		15,210
Equipment	28,324		26,915
Vehicles	2,192		2,120
Leasehold improvements	10,348		10,029
Office furniture and equipment	1,612		1,657
Construction-in-progress	5,202		4,382

	63,062		60,313
Less accumulated depreciation and amortization	(13,737	)	(11,940	)

Net property and equipment	49,325		48,373

Intangibles and other assets:
Permits, net	11,956		20,639
Goodwill, net	15,281		6,509
Other assets	2,671		2,996

Total assets	$ 100,764		$ 99,137

The accompanying notes are an integral part of these consolidated financial statements.

- -2-

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED

(Amounts in Thousands, Except for Share Amounts)

June 30,
2002
(Unaudited)

December 31, 2001


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 10,017		$ 7,167
Current environmental accrual	782		1,202
Accrued expenses	8,011		8,431
Current portion of long-term debt	3,189		2,989

Total current liabilities	21,999		19,789
Environmental accruals	2,241		2,332
Accrued closure costs	4,925		4,919
Other long-term liabilities	1,027		814
Long-term debt, less current portion	26,216		28,157

Total long-term liabilities	34,409		36,222

Total liabilities	56,408		56,011
Commitments and Contingencies (see Note 5)	--		--
Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share	1,285		1,285
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized, 2,500 shares issued and outstanding	--		--
Common Stock, $.001 par value; 75,000,000 shares authorized, 35,221,359 and 35,008,005 shares issued, including 988,000 shares held as treasury stock, respectively	35		35
Additional paid-in capital	66,546		66,042
Accumulated deficit	(21,481	)	(22,216	)
Interest rate swap	(167	)	(158	)

	44,933		43,703
Less Common Stock in treasury at cost; 988,000 shares issued and outstanding	(1,862	)	(1,862	)

Total stockholders' equity	43,071		41,841

Total liabilities and stockholders' equity	$ 100,764		$ 99,137

The accompanying notes are an integral part of these consolidated financial statements.

- -3-

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,

(Amounts in Thousands, Except for Per Share Amounts)	2002		2001		2002		2001

Net revenues	$ 22,485		$ 17,840		$ 38,936		$ 36,552
Cost of goods sold	13,565		12,734		25,926		26,257

Gross profit	8,920		5,106		13,010		10,295
Selling, general and administrative expenses	4,042		3,435		8,120		6,905
Depreciation and amortization	1,049		1,015		2,076		2,032

Income from operations	3,829		656		2,814		1,358
Other income (expense):
Interest income	4		8		9		16
Interest expense	(722	)	(819	)	(1,427	)	(1,535	)
Interest expense-Warrants	--		7		--		(234	)
Interest expense-financing fees	(260	)	(565	)	(517	)	(823	)
Other	(54	)	(1	)	(81	)	(18	)

Net income (loss)	2,797		(714	)	798		(1,236	)
Preferred Stock dividends	(32	)	(32	)	(63	)	(82)

Net income (loss) applicable to Common Stock	$ 2,765		$ (746	)	$ 735		$ (1,318	)


Net income (loss) per common share:
Basic	$ .08		$ (.03	)	$ .02		$ (.06	)

Diluted	$ .06		$ (.03	)	$ .02		$ (.06	)

Number of shares and potential common shares used in computing net income (loss) per common share:
Basic	34,210		22,910		34,134		22,711

Diluted	43,556		22,910		43,216		22,711

The accompanying notes are an integral part of these consolidated financial statements.

- -4-

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended June 30,

(Amounts in Thousands)	2002	2001

Cash flows from operating activities:
Net income (loss)	$ 798		$ (1,236	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operations:
Depreciation and amortization	2,076		2,032
Provision for bad debt and other reserves	91		66
Loss on sale of plant, property and equipment	3		34
Issuance of Warrants for financing	--		234
Changes in assets and liabilities, net of effects from business acquisitions:
Accounts receivable	(761	)	470
Prepaid expenses, inventories and other assets	(364	)	(271	)
Accounts payable and accrued expenses	1,904		207

Net cash provided by operations	3,747		1,536

Cash flows from investing activities:
Purchases of property and equipment, net	(2,616	)	(1,021	)
Proceeds from sale of plant, property and equipment	--		139
Net cash used for acquisition consideration	--		(10,083	)
Change in restricted cash, net	(3	)	(11	)

Net cash used in investing activities	(2,619	)	(10,976	)

Cash flows from financing activities:
Net repayments of revolving loan and term note facility	(1,292	)	(62	)
Principal repayments of long-term debt	(1,024	)	(1,330	)
Proceeds from issuance of long-term debt	--		6,469
Proceeds from issuance of stock	418		4,819

Net cash (used in) provided by financing activities	(1,898	)	9,896

(Decrease) increase in cash	(770	)	456
Cash at beginning of period	860		498

Cash at end of period	$ 90		$ 954

Supplemental disclosure:
Interest paid	$ 1,232		$ 1,088
Non-cash investing and financing activities:
Issuance of Common Stock for services	23		11
Issuance of Common Stock for payment of dividends	63		155
Issuance of Common Stock for acquisition	--		2,916
Issuance of Preferred Stock of subsidiary for acquisition	--		1,285
Issuance of Warrants for services and financing, net	--		1,539
Loss on interest rate swap	(9	)	(88	)
Long-term debt incurred for purchase of property and equipment	414		--

The accompanying notes are an integral part of these consolidated financial statements

- -5-

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, for the six months ended June 30, 2002)


(Amounts in thousands, except for share amounts)	Preferred Stock Shares Amount	Common Stock Shares Amount	Additional Paid-In Capital	Accumulated Deficit	Interest Rate Swap	Common Stock Held In Treasury	Total Stockholders Equity

Balance at December 31, 2001	2,500	$ --	35,008,005	$35	$66,042	$( 22,216	)	$(158	)	$(1,862	)	$41,841

Comprehensive income:
Net income	--	--	--	--	--	735		--		--		735
Other comprehensive income:
Loss on interest rate swap	--	--	--	--	--	--		(9	)	--		(9	)
Comprehensive income	--	--	--	--	--	--		--		--		726

Issuance of Common Stock for Preferred Stock dividend	--	--	24,217	--	63	--		--		--		63
Issuance of stock for cash and services	--	--	189,137	--	441	--		--		--		441

Balance at June 30, 2002	2,500	$ --	35,221,359	$35	$66,546	$ (21,481	)	$(167	)	$(1,862	)	$43,071

The accompanying notes are an integral part of these consolidated financial statements.

- -6-

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)

Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001.

1. Summary of Significant Accounting Policies

Our accounting policies are as set forth in the notes to consolidated financial statements referred to above.

There is no provision for income taxes for the three and six months ended June 30, 2002, as the taxes are offset by prior year net operating loss carryforwards.

2. Recently Adopted Accounting Standards

The Company adopted the Financial Accounting Standards Board FASB Statements No. 141, Business Combinations ("SFAS 141"), and No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), effective January 1, 2002. SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria, SFAS 141 applies to all business combinations initiated after June 30, 2001, and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company has completed the first step of its evaluation of intangible assets for impairment, and has determined that no impairment existed as of January 1, 2002. The Company has discontinued amortizing its indefinite-life intangible assets (goodwill and permits). Prior to January 1, 2002, goodwill and permits were amortized on a straight-line basis over ten to forty years. Amortization expense for goodwill and permits for the three and six months ended June 30, 2001, was $292,000 and $584,000, respectively.

Results for June 30, 2001, assuming the discontinuation of amortization would be as follows:

	Three Months Ended June 30, 2001				Six Months Ended June 30, 2001

(Amounts in thousands, except per share amount)	Total		Per Share		Total		Per Share

Net loss, as reported	$ (714	)	$ (.03	)	$ (1,236	)	$ (.06	)
Amortization of goodwill and permits	292		.01		584		.03

Net loss, as adjusted	$ (422	)	$ (.02	)	$ (652	)	$ (.03	)

-7-

Pursuant to the Company's adoption of SFAS 141 and 142, the Company changed its method of recording acquired permits in connection with business combinations. For all acquisitions prior to July 2001, the Company allocated the excess purchase price between goodwill and permits, based upon the percentage of revenue generated through permitted activities. If all revenue/business base of an entity was derived from and subject to the permit, then the full intangible amount was recorded to permits. The permits, therefore were allocated this intangible value, and were generally amortized over a 20 year life.

For permits acquired beginning in July 2001 the Company will determine the actual cost to obtain such a permit and record it as an intangible permit with an indefinite life. The Company will expense as incurred any ongoing costs to maintain and renew its permits. These ongoing costs are significantly less than the initial costs to obtain a permit.

In conjunction with the final purchase price allocation as completed in June 2002, the Company reclassified a portion of the permits recorded upon the acquisition of M&EC on June 25, 2001. Permits were originally recorded at $10,553,000 when the Company recorded the acquisition in June 2001. During June 2002, $9,149,000 was reclassified from permits to goodwill, additional accrued liabilities were recognized in the amount of $63,000 and $1,403,000 recorded in permits which represents the actual costs in obtaining the permits.

3. Earnings Per Share

Basic EPS is based on the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS includes the dilutive effect of potential common shares. Diluted loss per share for the three and six months ended June 30, 2001, does not include potential common shares as their effect would be anti-dilutive.

The following is a reconciliation of basic net income (loss) per share and diluted net income (loss) per share for the three and six months ended June 30, 2002 and 2001.

Three Months Ended
June 30,

Six Months Ended
June 30,

2002 2001 2002 2001

Net income (loss) applicable to Common Stock - basic $ 2,765 $ (746 ) $ 735 $ (1,318 )

Effect of dilutive securities - Preferred Stock dividends 32 -- 63 --

Net income (loss) applicable to Common Stock - diluted $ 2,797 $ (746 ) $ 798 $ (1,318 )

Basic net income (loss) per share $ 0.08 $ (0.03 ) $ 0.02 $ (0.06 )

Diluted net income (loss) per share $ 0.06 $ (0.03 ) $ 0.02 $ (0.06 )

Weighted average shares outstanding - basic 34,210 22,910 34,134 22,711

Potential shares exercisable under stock option plans 1,237 -- 1,197 --

Potential shares upon exercise of Warrants 6,442 -- 6,218 --

Potential shares upon conversion of Preferred Stock 1,667 -- 1,667 --

Weighted average shares outstanding - diluted 43,556 22,910 43,216 22,711

Potential shares excluded from above weighted average share
calculations due to their anti-dilutive effect
   include:

     Upon exercise of options 41,800 2,095,949 171,800 2,095,949

      Upon exercise of Warrants -- 7,602,329 -- 7,602,329

      Upon conversion of Preferred Stock -- 1,666,667 -- 1,666,667

-8-

4. Long-term Debt

Long-term debt consists of the following at June 30, 2002, and December 31, 2001:

(Amounts in Thousands)	June 30, 2002 (Unaudited)	December 31, 2001

Revolving loan facility dated December 22, 2000, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at prime rate plus 1% (5.75% at June 30, 2002), balance due in December 2005.	$ 6,871	$ 7,663

Term Loan Agreement dated December 22, 2000, payable in equal monthly installments of principal of $83, balance due in December 2005, variable interest paid monthly at prime rate plus 1 1/2% (6.25% at June 30, 2002).	5,583	6,083

Three promissory notes dated May 27, 1999, payable in equal monthly installments of principal and interest of $90 over 60 months, due June 2004, interest at 5.5% for first three years and 7% for remaining two years.	2,016	2,495

Promissory note dated August 31, 2000, payable in one lump sum in August 2005, interest paid annually at 7%.	3,500	3,500

Senior subordinated notes dated July 31, 2001, payable in one lump sum on July 31, 2006, interest payable quarterly at an annual interest rate of 13.5%, net of unamortized debt discount of $1,325 and $1,487.	4,300	4,138