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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
__________________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 1-11596
_______
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
_____________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-1954497
_____________________________ __________________________
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
1940 N.W. 67th Place
Gainesville, FL 32653
________________________ ________
(Address of Principal (Zip Code)
Executive Offices)
(352)373-4200
______________________________
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ _____________________
Common Stock, $.001 Par Value Boston Stock Exchange
Redeemable Warrants Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Warrants
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
_____ ______
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of March 14, 1997, based on the closing sale
price of such stock as reported by NASDAQ on such day, was
$13,521,998. The Company is listed on the Small-Cap Market on
NASDAQ.
As of March 14, 1997, there were 10,095,948 shares of the
registrant's common stock, $.001 par value, outstanding, excluding
920,000 shares held as treasury stock.
Documents Incorporated by reference: None
_____
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . . . 16
Item 4A. Executive Officers of the Company. . . . . . . . . . . 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 21
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . 79
PART III
Item 10. Directors and Executive Officers of
the Registrant. . . . . . . . . . . . . . . . . . . 80
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 83
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 89
Item 13. Certain Relationships and Related Transactions . . . . 93
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 99
PART I
ITEM 1. BUSINESS
Company Overview
Perma-Fix Environmental Services, Inc. (the "Company") is a
Delaware corporation engaged in the (i) treatment, storage,
recycling and disposal of hazardous and non-hazardous waste, mixed
waste which is both low-level radioactive and hazardous, and
industrial waste management services; and (ii) consulting
engineering services to industry and government for broad-scope
environmental issues. The Company has grown through both
acquisitions and internal development. The Company's present
objective is to maximize the profitability of its existing segments
and to continue to focus on those core businesses and expertise
which will achieve this objective.
Principal Products and Services
Through its subsidiaries, the Company is in the following two
(2) lines of business: (i) waste management, including off-site and
on-site services for the treatment, storage, recycling and disposal
of hazardous, non-hazardous and mixed low-level radioactive and
hazardous wastes; and (ii) environmental engineering and consulting
services specializing in environmental management programs, agency
communications, regulatory permitting, compliance and auditing,
landfill design, field testing and characterization. The Company
services research institutions, commercial companies and
governmental agencies nationwide. Distribution channels for
services are through direct sales to customers or via
intermediaries.
The Company was incorporated in December of 1990 as a Delaware
corporation. Its executive offices are located at 1940 N.W. 67th
Place, Gainesville, Florida 32653.
A more detailed summary of the Company's industrial waste
management and consulting engineering services is provided below:
Waste Management Services: The Company provides off-site waste
storage, treatment, recycling and disposal services through its five
treatment, storage and disposal ("TSD") facility subsidiaries:
Perma-Fix Treatment Services, Inc. ("PFTS") located in Tulsa,
Oklahoma; Perma-Fix of Dayton, Inc. (PFD), located in Dayton, Ohio;
Perma-Fix of Memphis, Inc. ("PFM"), located in Memphis, Tennessee;
Perma-Fix of Ft. Lauderdale, Inc. (PFL), located in Ft. Lauderdale,
Florida; and Perma-Fix of Florida, Inc. (PFF), located in
Gainesville, Florida. PFTS is a permitted facility that provides
transportation, treatment and storage of liquid hazardous and non-
hazardous wastes, stabilization of liquid and solid drum residues
and disposal of non-hazardous liquid waste, including characteristic
hazardous liquid waste in which the hazardous characteristics are
removed, by injection into a deep well located at PFTS' facility.
Prior to disposal, all hazardous liquids are processed in a manner
designed to remove or eliminate the hazardous characteristics of the
liquids. PFTS is permitted to dispose in the deep well non-
hazardous waste liquids (including, but not limited to,
characteristic waste liquids for which the hazardous characteristics
have been removed). The deep well has been specifically designed
and constructed for this purpose.
PFD operates a permitted hazardous waste treatment and storage
facility to collect and treat oily waste waters and used oil from
both small and large quantity generators and provides hazardous
waste treatment services for collecting and processing organic
solvents, sludges, and solids for use as substitute fuels in cement
kilns.
PFM is a permitted facility that provides transportation,
storage, treatment and disposal services to hazardous and non-
hazardous waste generators throughout the United States. PFM
operates a hazardous waste storage facility that primarily blends
and processes hazardous and non-hazardous waste liquids, solids and
sludges into substitute fuel or as a raw material substitute in
cement kilns that have been specially permitted for the processing
of hazardous and non-hazardous wastes.
On January 27, 1997, PFM sustained an explosion and fire at its
TSD facility in Memphis, Tennessee, which resulted in damage to
certain hazardous waste storage tanks located on the facility and
caused certain limited contamination at the facility. From the date
of the fire through the date of this report, this facility has not
been operational. However, PFM has accepted and will continue to
accept waste for processing and disposal, but has arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
utilization of other facilities to process such waste results in
higher costs to PFM than if PFM were able to store and process such
waste at its Memphis, Tennessee, TSD facility, along with the
additional handling and transportation costs associated with these
activities. PFM is in the process of repairing and/or removing the
damaged storage tanks and any contamination resulting from the
occurrence, and, as of the date of this report, anticipates that PFM
will be able to begin certain operations at the facility by the end
of April 1997. The extent of PFM's activities at the facility, once
operations are renewed, are presently being evaluated by the
Company. The Company and PFM have property and business
interruption insurance and have provided notice to its carriers of
such loss. Although there are no assurances, the Company presently
believes that its property insurance will cover any property loss
suffered by PFM at the facility as a result of such occurrence. The
Company is in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
thereof, if any. See "Property," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note
15 to Notes to Consolidated Financial Statements. Certain
statements contained in this paragraph are forward-looking
statements, and (i) PFM may be unable to begin operations as stated
above if repair, removal or restoration of the damaged tanks are
delayed beyond the date stated or any federal, state or local
governmental authority institutes action against PFM prohibiting PFM
from beginning operations or delays issuance of the approvals, if
any, necessary for PFM to begin operations, or (ii) the insurance
carrier determines that property loss coverage is not available or
is available only in limited amounts or contests the amount of PFM's
claim.
PFL is a permitted facility that collects and treats hazardous
waste waters, oily waste waters, used motor oils and other waste
petroleum products. Recycled waste oil is sold as "on-
specification" fuel. PFL also provides underground storage tank
cleaning and removal support services, and other tank and pit
cleaning activities that complement the facility's treatment
capabilities.
PFF specializes in the processing and treatment of certain
types of low-level mixed radioactive and hazardous wastes. Its four
basic services include the treatment and processing of waste Liquid
Scintillation Vials (LSVs), the processing and handling of other
mixed and radioactive wastes, collection and processing of organic
solvents and sludges for fuel blending, and management of various
other hazardous and non-hazardous wastes. The LSVs are generated
primarily by institutional research agencies and biotechnical
companies. These wastes contain mixed (low-level) radioactive
materials and hazardous waste (flammable) constituents. This
business began in 1983 and to this date has processed over one
million ft3 of LSV waste. Management believes that PFF controls
approximately 80% of the available LSV business in the country. The
business has expanded into receiving and handling other low-level
radioactive and mixed wastes primarily from the nuclear utilities,
the U.S. Department of Energy ("USDOE") and other government
facilities. PFF manages the activities at the facility under the
jurisdiction of the State of Florida Office of Radiation Control and
the State Department of Environmental Protection.
Through its wholly-owned subsidiary, Industrial Waste
Management, Inc. ("IWM"), located in St. Louis, Missouri, the
Company is engaged in supplying and managing non-hazardous and
hazardous waste to be used by cement plants as a substitute fuel or
as a source of raw materials used in the production of cement.
The Company also provides on-site (at the generator's site)
waste treatment services to convert certain types of characteristic
hazardous wastes into non-hazardous waste by removing those
characteristics which categorize such waste as "hazardous" and
treats non-hazardous waste as an alternative to off-site waste
treatment and disposal methods. These services are provided by the
Company's wholly-owned subsidiaries, Perma-Fix, Inc. ("PFI") and
Reclamation Systems, Inc. ("RSI"), through "Service Centers".
Service Centers are located in Tulsa, Oklahoma, and Albuquerque, New
Mexico. PFI does not treat on-site waste that is specifically
listed as hazardous waste by the EPA under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), but treats only non-
hazardous waste and characteristic waste deemed hazardous under
RCRA.
For 1996, the Company's waste management services business
accounted for approximately 82.1% of the Company consolidated
revenues, as compared to approximately 82.7% for 1995.
Consulting Engineering Services: The Company provides
environmental engineering and regulatory compliance consulting
services through Schreiber, Grana & Yonley, Inc. ("SG&Y") located
in St. Louis, Missouri, and Mintech, Inc. ("Mintech") located in
Tulsa, Oklahoma, with a field office in Kansas City, Kansas. SG&Y
specializes in environmental management programs, permitting,
compliance and auditing, in addition to landfill design, field
investigation, testing and monitoring. SG&Y clients are primarily
industrial, and include extensive work in the cement manufacturing
industry. Mintech specializes in environmental and geotechnical
consulting, engineering, geology, hydrogeology and geophysics,
including evaluating, selecting and implementing the appropriate
environmental solutions to problems involving soil and water. In
addition, Mintech personnel routinely provide training services
required under RCRA and the Superfund Amendments and Reauthorization
Act ("SARA") to private industry, governmental agencies and military
installations. During 1996 environmental engineering and regulatory
compliance consulting services accounted for approximately 17.9% of
the Company's total revenue, as compared to 17.3% in 1995.
Segment Information and Foreign and Domestic Operations and Export
Sales
During 1996, the Company was engaged in two industry segments:
(i) treatment, recycling and disposal of hazardous and non-hazardous
wastes; and (ii) environmental engineering and consulting services.
See Note 12 of Notes to Consolidated Financial Statements included
in Item 8 of this report. Most of the Company's activities were
conducted in the Southeast, Southwest and Midwest. The Company had
no foreign operations or export sales during 1996.
Importance of Patents and Trademarks, or Concessions Held
The Company does not believe that it is dependent on any
particular patent or trademark in order to operate its business or
any significant segment thereof. The Company has received
registration through the year 2000 for the service mark "Perma-Fix"
by the U.S. Patent and Trademark office.
The Company owns patents covering various systems for the
recycling of waste materials in cement kilns. The Company has an
agreement with Continental Cement Company which provides for the
payment of royalties to Continental at such time as one or more of
the above patents are licensed to other cement manufacturers for the
recycling of waste materials.
The Company does not believe the on-site waste treatment
processes utilized by PFI are patentable. The Company does,
however, believe that its level of expertise in utilizing such
processes is substantial, and, therefore, maintains such processes
as a trade secret of the Company. The Company maintains a policy
whereby key employees of PFI who are involved with the
implementation of the treatment processes utilized by PFI sign
confidentiality agreements with respect to non-disclosure of such
processes.
Permits and Licenses
The Company's business is subject to extensive evolving and
increasingly stringent federal, state and local environmental laws
and regulations. Such federal, state and local environmental laws
and regulations govern the Company's activities regarding the
treatment, storage, recycling, disposal and transportation of
hazardous, non-hazardous and radioactive wastes, and require the
Company and/or its subsidiaries to obtain and maintain permits,
licenses and/or approvals in order to conduct certain of their waste
activities. Failure to obtain and maintain such permits or
approvals would have a material adverse effect on the Company, its
operations and financial condition. Moreover, as the Company
expands its operations it may be required to obtain additional
approvals, licenses or permits, and there can be no assurance that
the Company will be able to do so.
PFTS is presently operating its hazardous waste storage and
treatment activities under a RCRA Part B permit. It operates its
deepwell injection disposal facility under a non-hazardous waste
permit issued by the State of Oklahoma.
PFM operates under a final RCRA permit relating to its
hazardous waste drum storage activities and interim status RCRA
permits to store in tanks the hazardous waste which PFM blends and
processes into substitute fuels. PFM has submitted for renewal its
final RCRA permit.
PFF operates its hazardous and low-level radioactive waste
activities under a RCRA Part B permit and a radioactive materials
license. PFF's low-level radioactive license was issued on August
18, 1995 and amended on March 13 and August 15, 1996 for expanded
radioactive waste management activities. These include larger
numbers of radioisotopes, increased radioactive chemical/physical
forms, research and development, and holding times of up to three
(3) years.
PFD operates a hazardous and non-hazardous waste treatment and
storage facility under a RCRA Part B permit granted January 3, 1996.
The Company believes that its TSD facilities presently have
obtained all approvals, licenses and permits necessary to enable it
to conduct its business as it is presently conducted. The failure
of the Company's TSD facilities to renew any of their present
approvals, licenses and permits, or the termination of any such
approvals, licenses or permits, could have a material adverse effect
on the Company, its operations and financial condition.
The Company believes that its on-site waste treatment services
performed by PFI does not require federal environmental permits
provided certain conditions are met, and PFI has received written
verification from each state in which it is presently operating that
no such permit is required provided certain conditions are met.
There can be no assurance that states in which the Company's waste
facilities presently do business, other states in which the
Company's waste facilities may do business in the future, or the
federal government will not change policies or regulations requiring
PFI to obtain permits to carry on its on-site activities.
Seasonality
Management believes that the Company experiences a seasonal
slowdown during the winter months extending from late November
through early March. The seasonality factor is a combination of the
inability to generate consistent billable hours in the consulting
engineering segment, along with poor weather conditions in the
central plains and midwestern geographical markets it serves for on-
site and off-site services, resulting in a decrease in revenues and
earnings during such period.
Dependence Upon a Single or Few Customers
The majority of the Company's revenues for fiscal 1996 have
been derived from hazardous and non-hazardous waste management
services provided to a variety of industrial and commercial
customers. The Company's customers are principally engaged in
research, biotechnical development, transportation, chemicals, metal
processing, electronic, automotive, petrochemical, refining and
other similar industries, in addition to government agencies that
include the USDOE, USDOD, USDA, VA and other federal, state and
local agencies. The Company is not dependent upon a single
customer, or a few customers, the loss of any one or more of which
would have a material adverse effect on the Company, and the Company
during 1996 did not make sales to any single customer that in the
aggregate amount represented more than ten percent (10%) of the
Company's consolidated revenues.
Competitive Conditions
The Company competes with numerous companies that are able to
provide one or more of the environmental services offered by the
Company and many of which may have greater financial, human and
other resources than the Company. However, the Company believes
that the range of waste management and environmental consulting,
treatment, recycling and remediation services it provides affords
it a competitive advantage with respect to certain of its more
specialized competitors. The Company believes that the treatment
processes it utilizes offer a cost savings alternative to more
traditional remediation and disposal methods offered by the
Company's competitors.
Many other companies presently provide services similar to
those provided by the Company (except in the low-level radioactive
and hazardous mixed waste area, which has only a few competitors),
and there continues to be intense competition within certain
segments of the waste management industry, which has resulted in
reduced gross margin levels for those segments. Competition in the
waste management industry is likely to increase as the industry
continues to mature, as more companies enter the market and expand
the range of services which they offer and as the Company and its
competitors move into new geographic markets. The Company believes
that there are no formidable barriers to entry into the on-site
treatment business within which PFI operates. The Company believes
that the permitting requirements, and the cost to obtain such
permits, are barriers to the entry of hazardous waste TSD facilities
and radioactive activities as presently operated by the Company
through its subsidiaries. Certain of the non-hazardous waste
operations of the Company, however, do not require such permits and,
as a result, entry into these non-hazardous waste businesses would
be easier. In addition, at present there is only one other facility
in the United States that provides low-level radioactive and
hazardous waste recycling of scintillation vials, which requires
both a radioactive permit and a hazardous waste permit. If the
permit requirements for both hazardous waste storage, treatment and
disposal activities and/or the handling of low level radioactive
matters are eliminated or made easier to obtain, such would allow
more companies to enter into these markets and provide greater
competition to the Company.
In the on-site waste treatment service area, the Company
believes that the major competition to its services is the continued
utilization of traditional off-site disposal methods such as
landfilling. As the viability of the Company's on-site treatment
process is demonstrated in the market, the Company believes that the
potential to reduce costs and the ability to limit potential
liability will persuade waste generators to utilize the Company's
services. In the future, the Company believes that it will face
direct competition as processes such as those applied by the Company
are utilized by competitors.
The Company believes that it is a significant participant in
the delivery of off-site waste treatment services in the Southeast,
Midwest and Southwest. The Company competes with TSD facilities
operated by national, regional and independent environmental
services firms located within a several hundred mile radius of the
Company's facilities. The TSD with radiological activities works
on a nationwide basis, to include Puerto Rico, Guam, Samoa, the
Virgin Islands and Antarctica.
The Company's competitors for remediation services include
national and regional environmental services firms that may have
larger environmental remediation staffs and greater resources than
the Company. The Company recognizes its lack of technical and
financial resources necessary to compete for larger remediation
contracts and therefore, presently concentrates on remediation
services projects within its existing customer base or projects in
its service area which are too small for companies without a
presence in the market to perform competitively.
Environmental engineering and consulting services provided by
the Company through Mintech and SG&Y involve competition with larger
engineering and consulting firms. The Company believes that it is
able to compete with these firms based on its established reputation
in its market areas and its expertise in several specific elements
of environmental engineering and consulting such as environmental
applications in the cement industry.
Capital Spending and Certain Environmental Expenditures
During 1996, the Company spent approximately $2,082,000 in
capital expenditures, which was principally for the expansion and
improvements to the operations, and to comply with federal, state
and local environmental laws, rules and regulations at its TSD
facilities. For 1997, the Company has budgeted $1,250,000 for
capital expenditures to maintain permit compliance and improve
operations and $350,000 to comply with federal, state and local
regulations in connection with remediation activities at two
locations. As with 1996, these ongoing environmental expenditures
were not significant, with the exception of remedial activities at
two locations. The two facilities where these expenditures will be
made are Environmental Processing Services, Inc. ("EPS"), a former
RCRA storage and recycling facility, and also the remedial activity
at the PFM facility. EPS operated its facility on property that it
leased from an affiliate of EPS ("Leased Property").
In June 1994, the Company acquired from Quadrex Corporation
and/or a subsidiary of Quadrex Corporation (collectively, "Quadrex")
three TSD companies, including the Dayton, Ohio, PFD facility. The
former owners of PFD had merged EPS with PFD, which was subsequently
sold to Quadrex. The Company, through its acquisition of PFD in
1994 from Quadrex, was indemnified by Quadrex for costs associated
with remediating the Leased Property, which entails remediation of
soil and/or groundwater restoration. The Leased Property used by
EPS to operate its facility is separate and apart from the property
on which PFD's facility is located. During 1995, in conjunction
with the bankruptcy filing by Quadrex, the Company was required to
advance $250,000 into a trust fund to support remedial activities
at the Leased Property used by EPS, which was subsequently increased
to $343,000. As discussed in Note 7 to the consolidated financial
statements included in Item 8, the Company has accrued approximately
$925,000 for the estimated costs of remediating the Leased Property
used by EPS, which is in excess of the current estimate for
completion and will extend for a period of three (3) to five (5)
years.
The PFM facility is situated in an industrial setting in
Memphis, Tennessee, with numerous industrial and commercial
businesses proximate. By and from the acquisition of PFM, the
Company assumed certain liabilities to remediate gasoline
contaminated groundwater and investigate, under the hazardous and
solid waste amendments, potential areas of soil contamination on its
property. Prior to the Company's ownership of PFM, the prior owners
installed monitoring and treatment equipment to restore the
groundwater to acceptable standards in accordance with federal,
state and local authorities. As discussed in Note 7 to the
Consolidated Financial Statements included in Item 8, the Company
has accrued approximately $1,160,000 for the estimated costs of this
continuing restoration, which is in excess of the current estimate
and will extend for a period of five (5) to ten (10) years.
As previously discussed, due to a fire and explosion at PFM's
Memphis, Tennessee, TSD facility in January 1997, the Company
anticipates, although there is no assurance, that its property
insurance will cover substantially all of the costs to repair or
remove tanks damaged at the facility as a result of such occurrence.
The Memphis facility has not been operational since the date of such
occurrence. However, PFM has accepted and will continue to accept
waste for processing and disposal, but has arranged for other
facilities owned by the Company or subsidiaries of the Company or
others not affiliated with the Company to process such waste. The
Company is in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
of such occurrence, if any. See "BUSINESS--Waste Management
Services" for further discussion as to such occurrence and certain
forward-looking statements contained herein and cautionary
statements relating thereto.
In addition, the Company has budgeted $1,250,000 for capital
expenditures during 1997 in order to upgrade its TSD facilities to
reduce the cost of waste processing and handling, expand the range
of wastes that can be accepted for treatment and processing and to
maintain permit compliance requirements. However, there is no
assurance that the Company will have the funds available for such
budgeted expenditures. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources of the Company".
Number of Employees
As of December 31, 1996, the Company and its subsidiaries
employed approximately 255 persons, of which approximately 61 were
assigned to the Company's engineering and consulting segment and
approximately 189 to the waste management segment. The Company is
not a party to any collective bargaining agreement covering its
employees. The Company believes its relationship with its employees
is satisfactory.
Governmental Regulation
The Company and its customers are subject to extensive and
evolving environmental laws and regulations administered by the EPA
and various other federal, state and local environmental, safety and
health agencies. These laws and regulations largely contribute to
the demand for the Company's services. Although the Company's
customers remain responsible by law for their environmental
problems, the Company must also comply with the requirements of
those laws applicable to its services. Because the field of
environmental protection is both relatively new and rapidly
developing, the Company cannot predict the extent to which its
operations may be affected by future enforcement policies as applied
to existing laws or by the enactment of new environmental laws and
regulations. Moreover, any predictions regarding possible liability
are further complicated by the fact that under current environmental
laws the Company could be jointly and severally liable for certain
activities of third parties over whom the Company has little or no
control. Although management believes that the Company is currently
in substantial compliance with all applicable laws and regulations,
the Company could be subject to fines, penalties or other
liabilities or could be adversely affected by existing or
subsequently enacted laws or regulations. The principal
environmental laws affecting the Company and its customers are
briefly discussed below.
The Resource Conservation and Recovery Act of 1976, as amended
("RCRA"). RCRA and its associated regulations establish a strict
and comprehensive regulatory program applicable to hazardous waste.
The EPA has promulgated regulations under RCRA for new and existing
treatment, storage and disposal facilities including incinerators,
storage and treatment tanks, storage containers, storage and
treatment surface impoundments, waste piles and landfills. Every
facility that treats, stores or disposes of specified minimum
amounts of hazardous waste must obtain a RCRA permit or must obtain
interim status from the EPA, or a state agency which has been
authorized by the EPA to administer its program, and must comply
with certain operating, financial responsibility and closure
requirements. RCRA provides for the granting of interim status to
facilities that allows a facility to continue to operate by
complying with certain minimum standards pending issuance or denial
of a final RCRA permit.
Boiler and Industrial Furnace Regulations under RCRA ("BIF
Regulations"). BIF Regulations require boilers and industrial
furnaces, such as cement kilns, to obtain permits or to qualify for
interim status under RCRA before they may use hazardous waste as
fuel. If a boiler or industrial furnace does not qualify for
interim status under RCRA, it may not burn hazardous waste as fuel
or use such as raw materials without first having obtained a final
RCRA permit. In addition, the BIF Regulations require 99.99%
destruction of the hazardous organic compounds used as fuels in a
boiler or industrial furnace and impose stringent restrictions on
particulate, carbon monoxide, hydrocarbons, toxic metals and
hydrogen chloride emissions.
The Safe Drinking Water Act, as amended (the "SDW Act"),
regulates, among other items, the underground injection of liquid
wastes in order to protect usable groundwater from contamination.
The SDW Act established the Underground Injection Control Program
("UIC Program") that provides for the classification of injection
wells into five classes. Class I wells are those which inject
industrial, municipal, nuclear and hazardous wastes below all
underground sources of drinking water in an area. Class I wells are
divided into non-hazardous and hazardous categories with more
stringent regulations imposed on Class I wells which inject
hazardous wastes. Operators of Class I hazardous waste injection
wells that can demonstrate to the satisfaction of the EPA that the
wastes will not migrate from the injection zone for 10,000 years are
able to receive significant exemptions from these regulations. PFTS
does not have and is not expected to receive such an exemption and
therefore only injects non-hazardous liquid waste and certain types
of hazardous liquid waste streams which have been treated prior to
disposal in compliance with applicable regulations or for which no
treatment has been prescribed by applicable law.
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA", also referred to as the "Superfund
Act"). CERCLA governs the clean-up of sites at which hazardous
substances are located or at which hazardous substances have been
released or are threatened to be released into the environment.
CERCLA authorizes the EPA to compel responsible parties to clean up
sites and provides for punitive damages for noncompliance. CERCLA
imposes joint and several liability for the costs of clean-up and
damages to natural resources.
Health and Safety Regulations. The operation of the Company's
environmental activities is subject to the requirements of the
Occupational Safety and Health Act ("OSHA") and comparable state
laws. Regulations promulgated under OSHA by the Department of Labor
require employers of persons in the transportation and environmental
industries, including independent contractors, to implement hazard
communications, work practices and personnel protection programs in
order to protect employees from equipment safety hazards and
exposure to hazardous chemicals.
Atomic Energy Act. The Atomic Energy Act of 1954 governs the
safe handling and use of Source, Special Nuclear and Byproduct
materials in the U.S. and its territories. This act authorized the
Atomic Energy Commission (now the Nuclear Regulatory Commission) to
enter into "Agreements with States to carry out those regulatory
functions in those respective states except for Nuclear Power Plants
and federal facilities like the VA hospitals and the USDOE
operations. On July 1, 1964, the State of Florida signed this
Agreement. Thus, the State of Florida (with the USNRC oversight),
Office of Radiation Control, regulates the radiological program of
the PFF facility.
Other Laws. The Company's activities are subject to other
federal environmental protection and similar laws, including,
without limitation, the Clean Water Act, the Clean Air Act, the
Hazardous Materials Transportation Act and the Toxic Substances
Control Act. Many states have also adopted laws for the protection
of the environment which may affect the Company, including laws
governing the generation, handling, transportation and disposition
of hazardous substances and laws governing the investigation and
clean-up of, and liability for, contaminated sites. Some of these
state provisions are broader and more stringent than existing
federal law and regulations. The failure of the Company to conform
its services to the requirements of any of these other applicable
federal or state laws could subject the Company to substantial
liabilities which could have a material adverse affect on the
Company, its operations and financial condition. In addition to
various federal, state and local environmental regulations, the
Company's hazardous waste transportation activities are regulated
by the U.S. Department of Transportation, the Interstate Commerce
Commission and transportation regulatory bodies in the states in
which it operates. The Company cannot predict the extent to which
it may be affected by any law or rule that may be enacted or
enforced in the future, or any new or different interpretations of
existing laws or rules.
Potential Environmental Liability and Insurance
The nature of the Company's business exposes it to significant
risk of liability for damages. Such potential liability could
involve, for example, claims for clean-up costs, personal injury or
damage to the environment in cases where the Company is held
responsible for the release of hazardous materials; claims of
employees, customers or third parties for personal injury or
property damage occurring in the course of the Company's operations;
and claims alleging negligence or professional errors or omissions
in the planning or performance of its services or in the providing
of its products. In addition, the Company could be deemed a
responsible party for the costs of required clean-up of any property
which may be contaminated by hazardous substances generated by the
Company or transported by the Company to a site selected by the
Company, including properties owned or leased by the Company. The
Company could also be subject to fines and civil penalties in
connection with violations of regulatory requirements.
Prior to the time of acquisition of PFM by the Company,
gasoline has been detected in the groundwater at the PFM facility,
and remediation of such gasoline is currently underway. See
"BUSINESS -- Certain Environmental Expenditures". The PFM facility
is situated in the vicinity of the Memphis Military Defense Depot
(the "Defense Facility"), which Defense Facility is listed as a
Superfund Site and is adjacent to the Allen Well Field utilized by
Memphis Light, Gas & Water, a public water supply utilized in
Memphis, Tennessee. Chlorinated compounds have previously been
detected in the groundwater beneath the Defense Facility, as well
as in very limited amounts in certain production wells in the
adjacent Allen Well Field. Very low concentrations of certain
chlorinated compounds have also been detected in the groundwater
beneath the PFM facility and the possible presence of these
compounds at PFM is currently being investigated. Based upon a
study performed by the Company's environmental engineering group,
the Company does not believe the PFM facility is the source of the
chlorinated compounds in a limited number of production wells in the
Allen Well Field and, as a result, does not believe that the
presence of the low concentrations of chlorinated compounds at the
PFM facility will have a material adverse effect upon the Company.
The Company currently has $1 million of general liability
insurance coverage with $2 million in the aggregate plus $6 million
excess umbrella coverage. In addition, the Company carries
contractors' pollution and professional liability coverage of $1
million per occurrence and $2 million in the aggregate. The Company
is required by EPA regulations to carry environmental impairment
liability insurance providing coverage for damages on a claims-made
basis in amounts of at least $1 million per occurrence and $2
million per year in the aggregate. To meet the requirements of
customers, the Company has doubled these coverage amounts to $2
million per occurrence and $4 million per year in the aggregate.
In particular, the PFTS deep well carries liability insurance of $4
million per occurrence and $8 million per year in the aggregate.
The cost of the Company's insurance is substantial. Although the
Company believes that its insurance coverage is presently adequate
and similar to or greater than the coverage maintained by other
companies of its size in the industry, there can be no assurance
that liabilities that may be incurred by the Company will be covered
by its insurance or that the dollar amount of such liabilities that
are covered will not exceed the Company's policy limits.
Furthermore, there can be no assurance that the Company will be able
to continue to obtain adequate or required insurance coverage or,
if obtainable, to be able to purchase it at affordable rates. If
the Company has difficulty in obtaining such coverage, it could be
at a competitive disadvantage with other companies and/or may be
unable to continue certain of its operations.
ITEM 2. PROPERTIES
The following table describes the principal properties
currently operated by the Company:
Location Entity Own/Lease Description
________ ______ _________ ___________
Dayton, OH Perma-Fix of Dayton, Inc. Own 27,000 sq. ft. of
office and ware-
house space on
25.6 acres
Davie, FL Perma-Fix of Ft. Lauderdale, Own Office and plant on
Inc. 2.5 acres
Davie, FL Perma-Fix of Ft. Lauderdale, Lease 2,115 sq. ft. of
Inc. office space
Gainesville, Perma-Fix of Florida, Inc. Own 45,000 sq. ft. of
FL office and ware-
house space on 7.5
acres
Memphis, TN Perma-Fix of Memphis, Inc. Own 6,000 sq. ft. of
office space on
9.8 acres
Memphis, TN Perma-Fix of Memphis, Inc. Own 3,000 sq. ft. of
office and ware-
house space on 2
acres
Tulsa, OK Perma-Fix Treatment Services, Own 1,950 sq. ft. of
Inc. office space on 25
acres
Tulsa, OK Perma-Fix Treatment Services, Lease(1) 13,541 sq. ft. of
Inc. office and ware-
house space on 10
acres
Atlanta, GA Perma-Fix Environmental Lease 480 sq. ft. of office
Services, Inc. space
Tulsa, OK Mintech, Inc. Lease 8,707 sq. ft. of
office space
Albuquerque, Perma-Fix of New Mexico Lease 5,236 sq. ft. of
NM Inc. warehouse space
Fenton, MO Schrieber, Yonley & Lease 13,000 sq. ft. of
Associates office space
Kansas City, Perma-Fix of Memphis, Lease 5,000 sq. ft. of
MO Inc. office and ware-
house space
____________________
(1) Lease provides an option to purchase for a nominal amount at
the end of the lease term.
The Company believes that the above facilities currently
provide adequate capacity for the Company's operations and that
additional facilities are readily available in the regions in which
the Company currently operates.
The facility owned by Perma-Fix of Memphis, Inc. ("PFM") that
is permitted to store and treat hazardous waste and at which fuels
are blended has not been operational since January 27, 1997, the
date that an explosion and fire occurred at the facility. The
Company anticipates that PFM's facility will be able to resume
operations during the second quarter of 1997. The extent of PFM's
activities at this facility once operations are resumed is presently
being evaluated by the Company. See "BUSINESS -- Waste Management
Services" for further discussion of such occurrence and certain
forward-looking statements contained herein and cautionary language
relating thereto.
ITEM 3. LEGAL PROCEEDINGS
During September 1994, Perma-Fix of Memphis, Inc. (PFM),
formerly American Resource Recovery Corporation ("ARR"), was sued
by Community First Bank ("Community First") to collect a note in the
principal sum of $341,000 that was allegedly made by ARR to CTC
Industrial Services, Inc. ("CTC") in February 1987 (the "Note"), and
which was allegedly pledged by CTC to Community First in December
1988 to secure certain loans to CTC. This lawsuit, styled Community
First Bank v. American Resource Recovery Corporation, was instituted
on September 14, 1994, and is pending in the Circuit Court, Shelby
County, Tennessee. The Company was not aware of either the Note or
its pledge to Community First at the time of the Company's
acquisition of PFM in December 1993. The Company intends to
vigorously defend itself in connection therewith. PFM has filed a
third party complaint against Billie Kay Dowdy, who was the sole
shareholder of PFM immediately prior to the acquisition of PFM by
the Company, alleging that Ms. Dowdy is required to defend and
indemnify the Company and PFM from and against this action under the
terms of the agreement relating to the Company's acquisition of PFM.
Ms. Dowdy has stated in her answer to the third party complaint that
if the Note is determined to be an obligation enforceable against
PFM, she would be liable to PFM, assuming no legal or equitable
defenses.
In May 1995, PFM, a subsidiary of the Company, became aware
that the U.S. District Attorney for the Western District of
Tennessee and the Department of Justice were investigating certain
prior activities of W. R. Drum Company, its successor, First
Southern Container Company, and any other facility owned or
operated, in whole or in part, by Johnnie Williams. PFM used W.
R. Drum Company to dispose of certain of its used drums. In May
1995, PFM received a Grand Jury Subpoena which demanded the
production of any documents in the possession of PFM pertaining to
W. R. Drum Company, First Southern Container Company, or any other
facility owned or operated, and holder in part, by Johnnie Williams.
PFM complied with the Grand Jury Subpoena. Thereafter, in September
of 1995, PFM received another Grand Jury Subpoena for documents from
the Grand Jury investigating W. R. Drum Company, First Southern
Container Company and/or Johnnie Williams. PFM complied with the
Grand Jury Subpoena. In December 1995, representatives of the
Department of Justice advised PFM that it was also currently a
subject of the investigation involving W. R. Drum Company, First
Southern Container Company, and/or Johnnie Williams. Since that
time, however, PFM has had no contact with representatives of either
the United States District Attorney's office for the Western
District of Tennessee or the Department of Justice, and is not aware
of why it is also a subject of such investigation. In accordance
with certain provisions of the Agreement and the Plan of Merger
relating to the prior acquisition of PFM, on or about January 2,
1996, PFM notified Ms. Billie K. Dowdy of the foregoing, and advised
Ms. Dowdy that the Company and PFM would look to Ms. Dowdy to
indemnify, defend and hold the Company and PFM harmless from any
liability, loss, damage or expense incurred or suffered as a result
of, or in connection with, this matter.
In addition to the above matters and in the normal course of
conducting its business, the Company is involved in various other
litigation. The Company is not a party to any litigation or
governmental proceeding which its management believes could result
in any judgments or fines against it that would have a material
adverse affect on the Company's financial position, liquidity or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders ("Annual Meeting")
was held on December 12, 1996. At the Annual Meeting, the following
matters were voted on and approved by the shareholders:
1. The election of four (4) directors to serve until the
next annual meeting of stockholders or until their
respective successors are duly elected and qualified;
2. Approval of the Third Amendment to the Company's 1992
Outside Directors Stock Option and Incentive Plan.
3. Approval of the Company's 1996 Employee Stock Purchase
Plan.
4. Approval of an amendment to the Company's Certificate of
Incorporation increasing the authorized shares of the
Company's common stock from 20,000,000 shares to
50,000,000 shares.
At the Annual Meeting the four (4) nominated directors were
elected to serve until the next annual meeting of stockholders. The
directors elected at this annual meeting of stockholders and the
votes cast for, against and abstentions for each director are as
follows:
Abstentions
Withhold and Broker
For Authority Non-Votes
_________ _________ _________
Dr. Louis F. Centofanti 7,993,533 61,952 -
Mark A. Zwecker 7,994,533 60,952 -
Steve Gorlin 7,993,533 61,952 -
Jon Colin 7,991,233 64,252 -
Also, at the Annual Meeting the shareholders approved the Third
Amendment to the Company's 1992 Outside Directors Stock Option and
Incentive Plan, which, among other things, provided that each
eligible director shall receive, at such eligible director's option,
either sixty-five percent (65%) or one hundred percent (100%) of the
fee payable to such director for services rendered to the Company
as a member of the Board in Common Stock of the Company. In either
case, the number of shares of common stock of the Company issuable
to the eligible director shall be determined by valuing the common
stock of the Company at seventy-five percent (75%) of its fair
market value as defined by the Plan. Also approved at the Annual
Meeting was the adoption of the Perma-Fix Environmental Services,
Inc. 1996 Employee Stock Purchase Plan. This plan provides that
eligible employees of the Company and its subsidiary, who wish to
become stockholders, an opportunity to purchase common stock of the
Company through payroll deductions. The maximum number of shares
of common stock of the Company that may be issued under the plan
will be 500,000 shares. The plan provides that shares will be
purchased two (2) times per year and that the exercise price per
share shall be eighty-five percent (85%) of the market value of each
such share of common stock on the offering date on which such offer
commences or on the exercise date on which the offer period expires,
whichever is lowest. The final proposal approved at the Annual
Meeting was the amendment to the Company's Restated Certificate of
Incorporation, as amended, to increase from 20,000,000 to 50,000,000
shares the Company's authorized common stock, par value $.001 per
share.
The votes for, against and abstentions and broker non-votes are
as follows:
Abstentions
and Broker
For Against Non-Votes
_________ _______ ________
Approval of Third Amend- 5,784,580 309,415 1,961,490
ment to the 1992 Out-
side Directors Stock
Option and Incentive
Plan
Approval of the 1996 4,318,672 160,550 3,576,263
Employee Stock Pur-
chase Plan
Amendment to the Restated 6,868,750 293,685 893,050
Certificate of Incor-
poration increasing the
number of authorized
shares of common stock
from 20,000,000 to
50,000,000
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of the date hereof,
information concerning the executive officers of the Company:
Dr. Louis F. Centofanti Dr. Centofanti has served as Chairman of
Chairman of the Board, the Board since formation of the Company
President and in February 1991. Dr. Centofanti also
Chief Executive Officer served as President and Chief Executive
Officer of the Company from February 1991
until September 1995, at which time
Mr. Robert W. Foster, Jr. ("Foster") was
elected as Chief Executive Officer. Upon
the resignation of Foster in March 1996,
Dr. Centofanti was again elected to serve
as President and Chief Executive Officer
of the Company and continues as Chairman
of the Board. From 1985 until joining
the Company, Dr. Centofanti served as
Senior Vice President of USPCI, Inc.
("USPCI"), a large integrated hazardous
waste management company, where he was
responsible for managing the treatment,
reclamation and technical groups within
the company. In 1981, he founded PPM,
Inc., a hazardous waste management
company specializing in the treatment of
PCB contaminated oils which was sold to
USPCI in 1985. From 1978 to 1981,
Dr. Centofanti served as Regional
Administrator of the Department of Energy
for the southeastern region of the United
States. Dr. Centofanti has a Ph.D. and a
M.S. in Chemistry from the University of
Michigan, and a B.S. in Chemistry from
Youngstown State University.
Mr. Richard T. Kelecy Mr. Kelecy was elected Chief Financial
Chief Financial Officer Officer in September 1995. He previously
Age: 41 served as Chief Accounting Officer and
Treasurer of the Company, since July
1994. From 1992 until June 1994,
Mr. Kelecy was Corporate Controller and
Treasurer for Quadrex Corporation
("Quadrex"). In February 1995, Quadrex
filed for bankruptcy protection under the
federal bankruptcy laws. From 1990 to
1992 Mr. Kelecy was Chief Financial
Officer for Superior Rent-a-Car, and from
1983 to 1990 held various positions at
Anchor Glass Container Corporation
including Assistant Treasurer.
Mr. Kelecy holds a B.A. in Accounting
and Business Administration from
Westminster College in New Wilmington,
Pennsylvania.
_________________________
(1) There is no family relationship between any of the executive
officers.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, with a par value of $.001 per
share, is traded on the NASDAQ Small-Cap Market ("NASDAQ") and the
Boston Stock Exchange ("BSE") under the symbol "PESI" on NASDAQ and
"PES" on the BSE. Effective December 1996, the Company's common
stock also began trading on the Berlin Stock Exchange under the
symbol "PES.BE." The following table sets forth the high and low
bid prices quoted for the common stock during the periods shown.
The source of such quotations and information is the NASDAQ Stock
market statistical summary reports:
1996 1995
__________________ __________________
Low High Low High
_____ ______ _______ _______
Common Stock: 1st Quarter 1 1 3/4 1 3/4 3 1/8
Second Quarter 29/32 2 7/16 1 11/16 3
Third Quarter 1 1/2 2 9/16 1 7/8 2 3/4
Fourth Quarter 1 5/16 2 7/16 1 1/8 1 15/16
Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-ups or commissions and may not represent
actual transactions.
As of December 31, 1996, there were approximately 182
shareholders of record of the Company's common stock, including
brokerage firms and/or clearing houses holding shares of the
Company's common stock for their clientele (with each brokerage
house and/or clearing house being considered as one holder).
However, the total number of beneficial shareholders was
approximately 1,100 on this date.
Since its inception, the Company has not paid a dividend on its
common stock and has no dividend policy. Management is subject to
certain restrictions on the payment of dividends by the terms and
covenants under the terms of the Loan and Security Agreement ("Loan
Agreement") with Heller Financial, Inc. The Company is prohibited
from paying dividends unless Heller agrees to such payment. The
Loan Agreement was entered into on January 27, 1995 and is further
discussed in Note 5 of the Notes to Consolidated Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in this table has been derived from
the consolidated financial statements of the Company and its
subsidiaries. Financial statements for the year ended December 31,
1996 have been audited by BDO Seidman, LLP, and for the years ended
December 31, 1995 and 1994, by Arthur Andersen LLP. Financial
statements for the years ended December 31, 1993 and 1992 have been
audited by Coopers & Lybrand L.L.P.
Statement of Operations Data:
(Amounts in Thousands,
Except for Share
Amounts) December 31,
________________________________________________
1996 1995(4) 1994(3) 1993 1992(1)
_______ _______ _______ _______ _______
Revenues $31,037 $34,891 $28,075 $10,123 $ 5,983
Net loss applic-
able to common
stock (405) (9,052) (1,516) (1,895) (1,269)
Net loss per common
share(2) (.05) (1.15) (.25) (.44) (.50)
Weighted average
number of common
shares outstand-
ing(2) 8,761 7,872 5,988 4,287 2,531
Balance Sheet Data:
December 31,
_______________________________________________
1996 1995(4) 1994(3) 1993 1992(1)
_______ _______ _______ _______ _______
Working capital
(deficit) $ (773) $(9,372) $ (705) $ 1,278 $ 7,280
Total assets 29,036 28,873 35,067 17,711 10,523
Long-term debt,
less current
maturities 4,881 1,116 4,772 820 1,516
Total liabilities 16,451 20,935 18,105 6,997 2,286
Stockholders'
equity 12,585 7,938 16,962 10,714 8,237
(1) Includes financial data of IWM using the purchase method of
accounting and only from February 10, 1992, the date of
acquisition.
(2) As adjusted to reflect the stock split approved by the Board
of Directors in July 1992, and to reflect all stock options
and warrants outstanding at December 31, 1993 as if such
options and warrants had been outstanding for all periods
presented prior to December 31, 1993, using the treasury stock
method in accordance with SEC Staff Accounting Bulletin
No. 83.
(3) Includes financial data of Perma-Fix of Florida, Inc., Perma-
Fix of Dayton, Inc. and Perma-Fix of Ft. Lauderdale, Inc., as
acquired from Quadrex Corporation and accounted for using the
purchase method of accounting, from June 30, 1994.
(4) Includes write-down of impaired intangible permit related to
an acquisition completed in December of 1993 and certain
nonrecurring charges.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is based, among other
things, upon the audited consolidated financial statements of the
Company and its subsidiaries, and includes the accounts of the
Company and its wholly-owned subsidiaries, after elimination of all
significant inter-company balances and transactions.
Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements of the
Company and its subsidiaries and the notes thereto included in Item
8 of this report.
The Company is an active participant in the pollution control
industry, which encompasses numerous segments ranging from
residential solid waste collection and disposal to integrated
remedial services for military and government installations, and the
treatment and disposal of hazardous and mixed waste. The industry
was born out of the promulgation of federal, state and local
environmental regulations. Over the last three to five years, waste
minimization, in conjunction with maturing market conditions, has
lead to acquisitions, consolidations and some firms exiting from
segments in this industry. Today's business environment in the
waste management industry is highly competitive, with customer cost
containment, pricing pressures and market share consolidation
prevalent. As a result of these industry conditions and the related
losses recognized by the Company, a major restructuring program was
initiated during 1995. This program included the closure of several
poorly-performing service centers, the establishment of regional
profit centers and the reduced overall cost structure and overhead
carried by the Company. Charges related to this program are
reflected in the operating results for the year ended December 31,
1995.
The reporting of financial results and pertinent discussions are
tailored to two segments of the pollution control industry: Waste
Management Services and Consulting Engineering Services.
Below are the results of operations for the Company for the prior
three years with subsequent disclosures for industry segments for
this same year found in the segment reporting section.
(Amounts in Thousands) 1996 1995 1994
______________________ _______ _______ _______
Revenues $31,037 $34,891 $28,075
Cost of goods sold 21,934 26,564 22,301
_______ _______ _______
Gross profit 9,103 8,327 5,774
Selling, general and
administrative 6,922 8,132 5,298
Depreciation and amortization 2,252 2,431 1,545
Permit write-down - 4,712 -
Nonrecurring charges - 987 -
Other income (expense):
Interest income 65 70 65
Interest expense (812) (952) (373)
Other 558 (235) (109)
Provision for income taxes - - 30
Preferred stock dividends (145) - -
________ ________ ________
Net loss applicable
to common stock $ (405) $(9,052) $(1,516)
======== ======== ========
Summary -- Years Ended December 31, 1996 and 1995
The Company had net revenues of $31,037,000 for the year ended
December 31, 1996, compared to the 1995 net revenues of $34,891,000.
This decrease in revenue from 1995 to 1996 of $3,854,000 reflects
the impact of the various restructuring programs initiated during
1995, which resulted in the consolidation and closure of certain
offices, the divestiture of a subsidiary and the elimination of
select low margin activities, as the Company continued to focus its
efforts on certain business segments. The above noted increase in
revenues, however, from 1994 to 1995 principally reflects the June
1994 acquisitions of Perma-Fix of Dayton, Inc. ("PFD"), Perma-Fix
of Ft. Lauderdale, Inc. ("PFL"), and certain assets located in
Gainesville, Florida, now known as Perma-Fix of Florida, Inc.
("PFF"), from Quadrex Corporation and its subsidiary Quadrex
Environmental Company (collectively, "Quadrex"). During 1996, the
Company experienced reduced revenues at PFL's facility in Ft.
Lauderdale, Florida, during the period that a major capital
expansion project at such facility was being instituted. In
addition, during such expansion, the PFL facility was vandalized
during October 1996, resulting in a minimal reduction in revenues
over a two to four week period. The combined reduction in revenues
at PFL was approximately $718,000 during 1996, which was partially
offset by increased revenues of $268,000 at certain other fixed-
based facilities of the Company and receipt during 1996 of new
contracts, such as the waste treatment project at the U.S.
Department of Energy's Fernald, Ohio, facility.
Cost of goods sold for the Company decreased during 1996 by
$4,630,000 to a total of $21,934,000, as compared to $26,564,000 for
1995. This decrease is partially attributable to the overall
reduction in revenue of $3,854,000 as discussed above, and to the
cost benefit associated with the various restructuring programs and
a reduced cost structure throughout the organization. This reduced
cost structure can be further reflected by the cost of goods sold
as a percent of revenue, which was 70.7% for 1996, as compared to
76.1% and 79.4% for 1995 and 1994, respectively.
Selling, general and administrative expenses decreased
$1,210,000 from $8,132,000 for fiscal 1995 to $6,922,000 for fiscal
year ended December 31, 1996. This decrease principally reflects
the reduced administrative cost structure, resulting from the
restructuring program, which reflected an overall reduction in
administrative expenses of $1,441,000 during 1996. This reduced
administrative cost was partially offset by an increase in marketing
expenses of approximately $231,000 from 1995 to 1996, reflecting
increased sales and marketing efforts as the Company focuses on new
business areas of the waste industry. The increase in selling,
general and administrative expenses from 1994 to 1995 principally
reflects a full year of expenses in 1995 as a result of the
acquisition from Quadrex of PFD, PFL and PFF, over the partial year
of 1994. As a percent of revenue, SG&A expenses were 22.3% of
revenue for 1996, as compared to 23.3% of revenue for fiscal year
ended December 31, 1995.
During December 1995, the Company recognized a permit
impairment charge of $4,712,000, related to the December 1993
acquisition of Perma-Fix of Memphis, Inc. ("PFM"). The evaluation
of this impairment included the review of prior operating results,
the recent restructuring activities, including the reduction of all
possible operating and overhead costs, margin and revenue
enhancements, and the related estimate of future undiscounted
operating income. Based upon this review, the permit was deemed to
be impaired and a charge recorded for the full carrying amount of
this intangible permit, which is further discussed in Note 13 of the
Notes to Consolidated Financial Statements.
During 1995, the Company recorded several nonrecurring charges
totalling $987,000, for certain unrelated events. Of this amount,
$450,000 represents a divestiture reserve as related to the sale of
a wholly-owned subsidiary and $537,000 are one-time charges
resulting from restructuring programs.
The Company decided in 1994 to divest its wholly-owned
subsidiary, Re-Tech Systems, Inc., which is engaged in post-consumer
plastics recycling. A reserve in the amount of $450,000 was
recorded during the second quarter of 1995 for the estimated loss
to be recognized through a sale transaction. During the first
quarter of 1996, the Company completed the sale transaction for this
business, resulting in total consideration of $970,000, which is
further discussed in "Liquidity and Capital Resources" of this
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 14 of the Notes to Consolidated
Financial Statements. The Company also executed restructuring
programs during 1995 within the waste management services segment.
A one-time charge of $237,000 was recorded to provide for costs,
principally severance and lease termination fees, associated with
the restructuring of the Perma-Fix, Inc. service center group. This
program entailed primarily the consolidation of offices in
conjunction with the implementation of a regional service center
concept, and the related closing of seven (7) of the nine (9)
offices. A one-time charge of $75,000 was also recorded during the
second quarter of 1995 to provide for consolidation costs,
principally severance, associated with the restructuring of the
Southeast Region, which is comprised of PFF and PFL. These
restructuring costs were principally incurred and funded during
1995.
In December of 1995, in conjunction with the above referenced
restructuring program, the Company and Mr. Robert W. Foster, Jr.
("Foster") agreed to Foster's resignation as President, Chief
Executive Officer and Director of the Company, thereby terminating
his employment agreement with the Company effective March 15, 1996.
The Company paid severance benefits of $30,000 in cash, continued
certain employee benefits for a period of time, and issued $171,000
in the form of common stock, par value $.001, of the Company
(152,000 shares). Pursuant to the above, the Company recorded a
nonrecurring charge at December 31, 1995 of $215,000. In addition,
severance costs of approximately $10,000 were also incurred upon the
termination of several corporate executives. These restructuring
costs were principally incurred and funded during the first six (6)
months of 1996.
Depreciation and amortization for 1996 reflects a total of
$2,252,00 or a decrease of $179,000 from the 1995 balance of
$2,431,000. This decrease is principally a result of reduced
amortization in conjunction with the permit write-down of $4,712,000
related to PFM, as recorded in December 1995. The amortization
expense for 1996 was $455,000, which reflects a decrease of $232,000
from the 1995 total of $687,000. This reduced amortization is
partially offset by increased depreciation of $53,000 reflecting new
capital assets acquired during the year, partially offset by asset
dispositions and the divestiture of a subsidiary of the Company.
Interest income totalled $65,000, a reduction of $5,000 from
the 1995 total of $70,000. This total reflects interest earned on
the restricted cash balances maintained by the Company. These
restricted cash balances and related interest income generally
increase from year to year. However, the restricted cash balance
was reduced in the fourth quarter of 1995 as the Company replaced
existing letters of credit with an alternative financial assurance
instrument, thereby eliminating the need for such restricted cash.
This, in turn, resulted in reduced interest income in 1996.
Interest expense also decreased during 1996 by $140,000 to a total
of $812,000, as compared to $952,000 for 1995. The interest expense
is primarily related to the senior debt facility with Heller
Business Credit and the capital lease line with Ally Capital
Corporation, both of which reflect reduced debt balances during 1996
due to repayments and correspondingly reduced interest expense.
Interest expense was also impacted by a reduced revolving credit
line balance during 1996 resulting from the proceeds generated from
the private placements which were used to partially repay said
balance. Offsetting this reduced interest expense, during 1996, was
the preferred stock dividends totalling $145,000 incurred in
conjunction with the Series 3 Class C Convertible Preferred Stock
as issued in July 1996. The preferred stock dividend was paid in
the form of 100,387 shares of common stock of the Company, which
covered the period July 24 through December 31, 1996, and were
issued in January 1997.
Other income (expense) for 1996 reflected an income total of
$558,000, as compared to expense of $235,000 for 1995. In
conjunction with the above discussed restructuring programs and
office closures, the Company renegotiated and settled certain
accounts payable on favorable terms and adjusted other liabilities,
resulting in approximately $334,000 net other income during 1996.
The Company also recognized a gain of approximately $166,000 on the
sale of non-productive assets, including the gain on the sale of Re-
Tech. Effective December 31, 1996, the Company divested its arsenic
removal technology for a net gain of approximately $122,000.
Partially offsetting the above gains during 1996 were other expenses
totalling $65,000, which principally represented costs associated
with the October 1996 vandalism at PFL's facility as discussed
above.
The Company reported a net loss applicable to common stock of
$405,000 in 1996, as compared to $9,052,000 in 1995. The per share
loss was $.05 for 1996 versus $1.15 in 1995. Net loss for 1995
included permit write-down and nonrecurring charges totalling
$5,699,000, which, when deducted from the total loss, results in a
comparable loss of $3,353,000. This significant improvement from
1995 to 1996 reflects again the impact of the various restructuring
programs, cost reduction across all segments of the Company and the
revenue focus on select areas of the waste industry.
Summary -- Years Ended December 31, 1995 and 1994
The Company had net revenues of $34,891,000 for the year ended
December 31, 1995, compared to the 1994 revenue of $28,075,000. The
Company benefited by a full calendar year of its 1994 acquisitions
of PFD, PFL, and certain assets located in Gainesville, Florida, now
known as PFF, from Quadrex. As a percent of revenue, this is a
24.3% increase over 1994 revenue. Despite this increase, the
Company continued to experience flat to declining revenue during
1995, attributable to its service groups and engineering segments,
as a result of discontinuing specific products or locations.
Cost of goods sold for the Company increased 19.1% from 1995
over 1994, totaling $26,564,000 for 1995 versus $22,301,000 for the
year ended December 31, 1994. As a percent of revenue, costs of
goods sold were 79.4% in 1994 versus 76.1% for fiscal 1995. The
cost of goods sold continues to decrease as a percent of revenue,
which is attributable to a business mix based more on fixed-based
processing facilities (82.7% of gross revenue in 1995 versus 74.9%
of gross revenue in 1994). These fixed-based operations generally
have lower costs of goods sold versus the engineering consulting
segments.
Selling, general and administrative expenses increased
$2,834,000 from $5,298,000 for fiscal 1994 to $8,132,000 for fiscal
year ended December 31, 1995. Both marketing and general
administrative expenses were higher than 1994, reflecting increased
costs of acquiring new customers and general administrative
functions, and the full year of the businesses acquired from
Quadrex, which reflected an increase of approximately $1,333,000
over the partial year of 1994. Also impacting this increase was the
additional reserves for "allowance for doubtful accounts" recorded
during 1995 versus 1994; $610,000 and $311,000, respectively. This
increase of $299,000 is principally a result of the Industrial
Compliance and Safety, Inc. acquisition completed during the second
quarter of 1995 and the related forgiveness of its indebtedness to
the Company. As a percent of revenue, SG&A expenses were 23.3% of
revenue for the year ended December 31, 1995, as compared to 18.9%
of revenue for fiscal year ended December 31, 1994.
Depreciation and amortization for 1995 reflects a total of
$2,431,000 or an increase of $886,000 over the 1994 balance of
$1,545,000. This increase was principally a result of the
depreciation and amortization related to the businesses acquired
from Quadrex, which resulted in an increase of $588,000 in 1995,
over the six (6) months of 1994.
Interest income reflected a slight increase during 1995, with
$70,000 for fiscal 1995 versus $65,000 for fiscal year ended
December 31, 1994. However, interest expense increased to $952,000
for the year ended December 31, 1995 as compared to $373,000 for the
year ended December 31, 1994. This increase is principally
attributable to the senior debt facility with Heller Business Credit
and a capital lease line with Ally Capital Corporation. Under these
facilities the Company utilized debt financing to fund capital
expenditures and working capital needs, which resulted in increased
interest expense of $579,000 for fiscal 1995.
Other expense for 1995 was $235,000, which reflects an increase
of $126,000 over the 1994 total of $109,000. This expense
represents primarily the $281,000 in financing fees relative to
securing the Heller Financial, Inc. Loan and Security Agreement,
partially offset by various other income items.
The Company reported a net loss of $9,052,000 in 1995 as
compared to a net loss of $1,516,000 in 1994. The per share loss
was $1.15 for 1995 versus $.25 in 1994. The increase in both the
dollars lost and per share loss are generally attributable to
discontinuing certain of the service center/mobile treatment
centers, the write-down in anticipation of the loss from divesting
the plastics business, poor performance from the Memphis fixed-based
facility and resulting permit impairment charge, and generally poor
performances from the remainder of the Company's operations.
Subsequent Event
On January 27, 1997, the Company's subsidiary, PFM, sustained
an explosion and fire at its Memphis, Tennessee, TSD facility. As
a result, this facility has not been operational since the date of
the explosion and fire. However, during this period, PFM has
accepted and will continue to accept waste for processing and
disposal, but has arranged for other facilities owned by the Company
or subsidiaries of the Company or others not affiliated with the
Company to process such waste. The utilization of other facilities
to process such waste results in higher costs to PFM than if PFM
were able to store and process such waste at its Memphis, Tennessee,
TSD facility, along with the additional handling and transportation
costs associated with these activities. The Company anticipates
that this facility will begin certain limited operations on or prior
to the end of April 1997, upon the repair and/or removal of the
tanks that were damaged as a result of such occurrence. The Company
presently believes that its property insurance will cover any
property loss suffered by PFM as a result of such occurrence. The
Company is presently in the process of determining the amount of
business interruption that may be recoverable by PFM as a result of
such explosion and fire. See "BUSINESS--Waste Management Services"
for a discussion of certain forward-looking statements contained
herein and certain cautionary statements relating thereto.
Liquidity and Capital Resources of the Company
At December 31, 1996, the Company had cash and cash equivalents
of $45,000. This cash and cash equivalents total reflects a
decrease of $156,000 from December 31, 1995, as a result of net cash
used in operations of $1,291,000 (principally related to the
reduction of accounts payable and accrued expenses of $2,085,000,
partially offset by increases in accounts receivable and other
assets), cash used in investing activities of $963,000 (principally
purchases of equipment, net totaling $2,082,000, partially offset
by the proceeds from the sale of property and equipment of
$1,214,000) and cash provided by financing activities of $2,098,000.
Accounts receivable, net of allowances, totalled $5,549,000, an
increase of $518,000 over the December 31, 1995 balance of
$5,031,000, which reflects an increase in the days sales outstanding
at year end, resulting from the timing of collections.
In January 1995, the Company entered into a term and revolving
loan agreement with Heller Financial, Inc. ("Heller"). Under the
loan agreement with Heller, the Company was provided a term loan of
$2,500,000 and a revolving loan facility in the amount of
$7,000,000. The term loan is for a term of 36 months, payable in
monthly installments of $42,000 and a balloon payment for the
balance on January 31, 1998. The revolving loan facility is reduced
by the outstanding unpaid principal amount due on the term loan and
is subject to the maximum credit availability, determined on a
monthly borrowing base equal to 80% of the eligible accounts
receivable (as defined in the loan agreement) of the Company and its
subsidiaries. See Note 5 to Notes to Consolidated Financial
Statements.
As of December 31, 1996, the borrowings under the Company's
revolving loan facility totalled $2,879,000, a decrease of $297,000
from the December 31, 1995 balance of $3,176,000, with a related
borrowing availability of $958,000, based on 80% of the amount of
eligible receivables of the Company as of December 31, 1996. The
balance on the term loan totalled $1,383,000, as compared to
$2,083,000 at December 31, 1995. Total indebtedness under the
Agreement with Heller, as amended, as of December 31, 1996 was
$4,262,000, a reduction of $997,000 from the December 31, 1995,
balance of $5,259,000. See Note 5 to Notes to Consolidated
Financial Statements.
Pursuant to the Agreement with Heller, as amended by the Third
Amendment, the term loan bears interest at a floating rate equal to
the base rate (prime) plus 1 3/4% per annum, and the revolving loan
bears interest at a floating rate equal to the base rate (prime)
plus 1 1/2% per annum. The loans also contain certain closing,
management and unused line fees payable throughout the term. Both
the revolving loan and term loan were prime based loans at December
31, 1996, bearing interest at a rate of 9.75% and 10.00%,
respectively.
Pursuant to the Sixth Amendment to the Agreement with Heller,
the Company is obligated to raise an additional $700,000 on or
before August 15, 1997. Under such amendment, this additional
amount may be in the form of proceeds received under property and/or
business interruption insurance as a result of the explosion and
fire at PFM's facility, insurance proceeds with regard to vandalism
at the PFL facility, selling of additional equity securities by the
Company, or other proceeds obtained in a manner approved by Heller.
The Company believes that it will be able to comply with such a
requirement. Whether the Company will be able to comply with such
a requirement is a forward-looking statement, and the results of
such could materially differ from the above statement if, among
other things, PFM is unable to recover from its insurance carrier
insurance proceeds and the Company is unable to sell equity
securities in an aggregate amount necessary to comply with such
requirement.
Under the Sixth Amendment to the Agreement with Heller, the
Company is to provide Heller with evidence on or before May 9, 1997,
that the adjusted orderly liquidation value of the equipment owned
by the Company and its subsidiaries that are borrowers under the
Agreement with Heller exceeds 75% of the principal amount of the
term loan with Heller, which totaled $1,217,000 as of April 1, 1997.
If such principal balance of the term loan exceeds 75% of the
liquidation value of such equipment, then the Company and Heller are
to discuss the appropriate required repayment of the term loan. If
Heller and the Company are unable to agree on an amount on or prior
to May 31, 1997, then Heller shall make such determination of the
amount of such required prepayment, which shall be paid by the
Company on or prior to May 26, 1997, or, in lieu thereof, Heller may
cause such amount to be paid by making a revolving loan in the
amount thereof under the Agreement with Heller. The Company
believes that the liquidation value of its owned equipment will
exceed 75% of the principal amount of the term loan with Heller,
and, if for any reason, such does not occur, the Company believes
that it will have sufficient availability under its revolving credit
line with Heller to pay such amount. The penultimate sentence
contains a forward-looking statement, the results of which could be
materially different than such statement if damage occurs to a
material amount of the Company's equipment or there is a decline in
the Company's business resulting in a substantial reduction in the
Company's receivables that would cause the Company not to have the
necessary availability under its revolving line of credit with
Heller.
As of December 31, 1996, total consolidated accounts payable
for the Company was $3,677,000, a reduction of $1,725,000 from the
December 31, 1995 balance of $5,402,000. This December 1996 balance
also reflects a reduction of $1,804,000 in the balance of payables
in excess of sixty (60) days, to a total of $1,422,000. The Company
utilized a portion of the net proceeds received in connection with
the sale of preferred stock during 1996, as discussed below, to
reduce accounts payable.
Ally Capital Corporation ("Ally") had previously provided the
Company with an equipment financing arrangement to finance the
purchase of capital equipment. As of December 31, 1996, the
Company's outstanding principal balance owing under this equipment
financing arrangement was $1,257,000. The Company has fully
utilized this equipment financing arrangement with Ally. See Note
5 to Notes to Consolidated Financial Statements.
At December 31, 1996, the Company had $6,360,000 in aggregate
principal amounts of outstanding debt, as compared to $8,478,000 at
December 31, 1995. This decrease in outstanding debt of $2,118,000
during 1996 reflects the net repayment of the revolving loan and
term note facility of $997,000, the scheduled principal repayments
on long-term debt of $920,000, including the equipment finance
agreement payments to Ally, and the repayment of $582,000 on a
mortgage obligation in conjunction with the Re-Tech sale, as
discussed below.
The Company's net purchases of new capital equipment for the
twelve month period ended December 31, 1996 totalled approximately
$2,082,000. These expenditures were for improvements to the
operations, including two (2) large capital expansion projects
within the waste management segment, and other capital expenditures
necessary to maintain compliance with federal, state or local permit
standards. These capital expenditures were principally funded by
the proceeds from the issuance of preferred stock, as discussed
below, with the exception of $57,000, which was financed by the
Company's equipment financing lender, as discussed above, and
$424,000 through various other lease financing sources. The Company
has budgeted capital expenditures of $1,250,000 for 1997 (excluding
any expenditures at PFM due to the explosion and fire), which
includes completion of the two (2) above noted expansion projects,
as well as other identified capital and permit compliance purchases.
The Company anticipates funding these capital expenditures by a
combination of lease financing with lenders other than the equipment
financing arrangement discussed above, and/or internally generated
funds.
The working capital deficit position at December 31, 1996 was
$773,000, as compared to a deficit position of $9,372,000 at
December 31, 1995. The December 1995, deficit position includes the
reclassification of certain long-term debt to current as a result
of a default under certain financial ratios under certain loan
agreements at that time. Prior to this reclassification, the
December 1995, deficit position would have been $3,399,000, which
reflects an improvement in this position of $2,626,000 during 1996.
The Company issued to RBB Bank Aktiengesellschaft ("RBB Bank"),
during February 1996, 1,100 shares of newly created convertible
Series 1 Preferred at a price of $1,000 per share, for an aggregate
sales price of $1,100,000, and paid placement and closing fees of
$180,000. The Company also issued to RBB Bank 330 shares of newly
created convertible Series 2 Preferred at a price of $1,000 per
share, for an aggregate sales price of $330,000, and paid placement
and closing fees of $35,000. The Series 1 Preferred and Series 2
Preferred accrued dividends on a cumulative basis at a rate per
share of five percent (5%) per annum, payable, at the Company's
option, in cash or in common stock of the Company. All dividends
on the Series 1 Preferred and Series 2 Preferred were paid by the
issuance of shares of common stock. During the second quarter of
1996, a total of 722 shares of the Series 1 Preferred were converted
into approximately 1,034,000 shares of the Company's common stock
and the associated accrued dividends were paid in the form of
approximately 16,000 shares of the Company's common stock. Pursuant
to a subscription and purchase agreement for the issuance of Series
3 Class C Convertible Preferred Stock ("Series 3 Preferred"), as
discussed below, the remaining 378 shares of the Series 1 Preferred
and the 330 shares of the Series 2 Preferred were converted during
July 1996 into 920,000 shares of the Company's common stock, which
included the accrued and unpaid dividends thereon, and the Company
purchased the 920,000 shares for $1,770,000. As a result of such
conversions, the Series 1 Preferred and Series 2 Preferred are no
longer outstanding.
On July 17, 1996, the Company issued to RBB Bank 5,500 shares
of newly-created Series 3 Preferred at a price of $1,000 per share,
for an aggregate sales price of $5,500,000, and paid placement and
closing fees of approximately $586,000. As part of the
consideration for the issuance of the Series 3 Preferred, the
Company also issued to RBB Bank two (2) common stock purchase
warrants entitling RBB Bank to purchase, after December 31, 1996,
until July 18, 2001, an aggregate of up to 2,000,000 shares of
common stock, with 1,000,000 shares exercisable at an exercise price
equal to $2.00 per share and the other 1,000,000 shares of common
stock exercisable at an exercise price equal to $3.50 per share.
Dividends on the Series 3 Preferred are paid when and as declared
by the Board of Directors at a rate of six percent (6%) per annum
and are payable semi-annually. Dividends are cumulative and shall
be paid, at the option of the Company, in the form of cash or common
stock of the Company. It is the present intent of the Company to
pay such dividends, if any, in common stock of the Company. The
shares of the Series 3 Preferred may be converted into shares of
common stock. See Note 4 of Notes to Consolidated Financial
Statements and "Certain Relationships and Related Transactions" for
further discussion of the Series 3 Preferred and the conversions of
such series of preferred. The Company received from the sale of the
Series 3 Preferred net proceeds of approximately $4,900,000.
Pursuant to the terms of the Subscription Agreement relating to the
sale of the Series 3 Preferred, the Company has purchased from RBB
Bank from the net proceeds 920,000 shares of common stock of the
Company that RBB Bank received upon conversion of the balance of the
outstanding shares of Series 1 Preferred and Series 2 Preferred for
$1,770,000. The Company used the net proceeds for capital
improvements at its various facilities, to reduce outstanding trade
payables, and for general working capital requirements. As of this
date, the holder of the Series 3 Preferred has not elected to
convert any of the Series 3 Preferred into common stock of the
Company. The accrued dividends for the period July 17, 1996 through
December 31, 1996 were paid in January 1997, in the form of
approximately 101,000 shares of the Company's common stock.
Effective March 15, 1996, the Company completed the sale of Re-
Tech Systems, Inc., its plastics recycling subsidiary in Houston,
Texas. The sale transaction included all real and personal property
of the subsidiary, for a total consideration of $970,000. Net cash
proceeds to the Company were approximately $320,000, after the
repayment of a mortgage obligation of $595,000 and certain other
closing and real estate costs. In conjunction with this
transaction, the Company also made a prepayment of $50,000 to Heller
Financial, Inc. for application to the term loan. As previously
disclosed, the Company recorded during 1995, a nonrecurring charge
(recorded as an asset reduction) of $450,000 for the estimated loss
on the sale of this subsidiary, which, based upon closing balances,
the Company recognized a small gain on this sale after the asset
write-down. The Company sold total assets of approximately
$1,346,000, while retaining certain assets totalling approximately
$94,000 and certain liabilities totalling approximately $48,000.
In addition to the above asset sale, the Company also sold certain
non-productive assets during 1996, principally at closed service
center locations and at the Perma-Fix of Dayton, Inc. facility.
Proceeds from these asset sales total approximately $320,000.
Effective February 7, 1997, the Company amended five (5)
warrants with an original issuance date of February 10, 1992, to
purchase an aggregate of 487,814 shares of the Company's common
stock ("Acquisition Warrants"). The Acquisition Warrants were
amended to (i) reduce the exercise price from $2.1475 per share of
common stock to $1.00 per share of common stock, and (ii) extend the
expiration date of the warrants from February 10, 1997 to March 3,
1997. All Acquisition Warrants were subsequently exercised prior
to this March 3, 1997 date, which resulted in $487,814 of additional
capital/equity.
As previously discussed, the Company's subsidiary, PFM,
sustained an explosion and fire at its TSD facility in Memphis,
Tennessee, on January 27, 1997, damaging certain hazardous waste
storage tanks and causing certain limited contamination at the
facility. Since such event the facility has not been operational.
It is not presently anticipated that such facility will become
operational until the damaged tanks are repaired, which is presently
anticipated to be the end of April 1997. PFM is in the process of
repairing or removing the damaged tanks and removing or remediating
the contamination caused by the explosion and fire. During the
period that PFM's facility is not operational, PFM has accepted and
will continue to accept waste for processing and disposal, but has
arranged for other facilities owned by the Company or subsidiaries
of the Company or others not affiliated with the Company to process
such waste. The utilization of other facilities to process such
waste results in higher costs to PFM than if PFM were able to store
and process such waste at its Memphis, Tennessee, TSD facility,
along with the additional handling and transportation costs
associated with these activities. The additional costs incurred or
to be incurred are undetermined at this time. The Company has also
experienced a reduction in revenues as a result of this occurrence,
as it attempts to selectively accept and reroute waste, which the
Company does not believe is material at this time. As previously
discussed, the Company and PFM have property and business
interruption insurance. The Company presently believes, although
there are no assurances, that its property insurance will reimburse
the company for repair, replacement or removal of the damaged
property, due to the explosion and fire. The cost of this property
repair and restoration is undetermined at this time. The Company
is presently in the process of determining the amount of business
interruption insurance that may be recoverable by PFM as a result
of such occurrence, if any. See "BUSINESS--Waste Management
Services" for a discussion of certain forward-looking statements
contained herein and cautionary statements relating thereto.
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, including the
equity raised in 1996. If the Company is unable to continue to
improve its operations and to sustain profitability in the
foreseeable future, such would have a material adverse effect on the
Company's liquidity position and on the Company. This is a forward-
looking statement and is subject to certain factors that could cause
actual results to differ materially from those in the forward-
looking statement, including, but not limited to, the Company's
ability to maintain profitability or, if the Company is not able to
maintain profitability, whether the Company is able to raise
additional liquidity in the form of additional equity or debt.
Environmental Contingencies
The Company is engaged in the waste management services segment
of the pollution control industry. As a participant in the on-site
treatment, storage and disposal market and the off-site treatment
and services market, the Company is subject to rigorous federal,
state and local regulations. These regulations mandate strict
compliance and therefore are a cost and concern to the Company.
Because of the integral part of providing quality environmental
services, the Company makes every reasonable attempt to maintain
complete compliance with these regulations; however, even with a
diligent commitment, the Company, as with many of its competitors,
may be required to pay fines for violations or investigate and
potentially remediate its waste management facilities.
The Company routinely uses third party disposal companies, who
ultimately destroy or secure landfill residual materials generated
at its facilities or at a client's site. The Company, compared to
its competitors, disposes of significantly less hazardous or
industrial by-products from its operations due to rendering material
non-hazardous, discharging treated waste waters to publicly-owned
treatment works and/or recycling wastes into saleable products. In
the past, numerous third party disposal sites have improperly
managed wastes and consequently require remedial action;
consequently, any party utilizing these sites may be liable for some
or all of the remedial costs. Despite the Company's aggressive
compliance and auditing procedures for disposal of wastes, the
Company could, in the future, be notified that it is a PRP at a
remedial action site, which could have a material adverse effect on
the Company.
In addition to budgeted capital expenditures of $1,250,000 for
1997 at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above under
"Business -- Certain Environmental Expenditures" and "Liquidity and
Capital Resources of the Company" of this Management's Discussion
and Analysis, the Company has also budgeted for 1997 an additional
$350,000 in environmental expenditures to comply with federal, state
and local regulations in connection with remediation of certain
contaminates at two locations. As previously discussed under
"Business -- Certain Environmental Expenditures," the two locations
where these expenditures will be made are the Affiliated Property
in Dayton, Ohio, a former RCRA storage facility as operated by the
former owners of PFD, and PFM's facility in Memphis, Tennessee.
Additional funds will be required for the next five to fifteen years
to properly investigate and remediate these sites. As discussed in
Note 7 to the Consolidated Financial Statements, the Company has
accrued $2,085,000 for estimated costs of remediating these two
sites, which is projected to be the maximum exposure and is expected
to be performed over a period in excess of ten (10) years. The
Company expects to fund these expenses to remediate these two sites
from funds generated internally. This is a forward looking
statement and is subject to numerous conditions, including, but not
limited to, the Company's ability to generate sufficient cash flow
from operations to fund all costs of operations and remediation of
these two sites, the discovery of additional contamination or
expanded contamination which would result in a material increase in
such expenditures, or changes in governmental laws or regulations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements: Page No.
_________________________________ _______
Reports of Independent Certified Public
Accountants
BDO Seidman, LLP 37
Arthur Andersen LLP 38
Consolidated Balance Sheets as of
December 31, 1996 and 1995 40
Consolidated Statements of Operations
for the years ended December 31, 1996,
1995 and 1994 43
Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995
and 1994 45
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995 and 1994 47
Notes to Consolidated Financial Statements 49
Financial Statement Schedules:
II Valuation and Qualifying Accounts for
the years ended December 31, 1996,
1995 and 1994 101
Schedules Omitted
In accordance with the rules of Regulation S-X, other schedules
are not submitted because (a) they are not applicable to or required
by the Company, or (b) the information required to be set forth
therein is included in the consolidated financial statements or
notes thereto.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Perma-Fix Environmental Services, Inc.
We have audited the accompanying consolidated balance sheet of
Perma-Fix Environmental Services, Inc. and subsidiaries as of
December 31, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then
ended. We have also audited the schedule listed in the accompanying
index. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and
schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and schedule are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements and schedule. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Perma-Fix Environmental Services, Inc. and subsidiaries
at December 31, 1996, and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
February 14, 1997, except
for Note 5 which is as of
April 14, 1997
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Perma-Fix Environmental Services, Inc.:
We have audited the accompanying consolidated balance sheet of
PERMA-FIX ENVIRONMENTAL SERVICES, INC. (a Delaware corporation) and
Subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, cash lows and stockholders' equity for
each of the two years in the period ended December 31, 1995. These
consolidated financial statements and the schedule referred to below
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Perma-
Fix Environmental Services, Inc. as of December 31, 1995, and the
results of their operations and their cash flows for each of the two
years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and and for the year ended
December 31, 1995, the Company had a net working capital deficiency
of approximately $9,372,000, an accumulated deficit of $13,885,000,
and was in violation of substantially all financial covenants under
its debt agreements with its two major lenders (see Note 5). These
factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company
be unable to continue as a going concern.
Our audits were made for the purpose of performing an opinion on the
basic financial statements taken as a whole. The schedule listed
in the index to consolidated financial statements is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied
in our aduits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data for each
of the two years in the period ended December 31, 1995 required to
be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Jacksonville, Florida
March 15, 1996
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1996 1995
___________________________________________________________________
ASSETS
Current assets:
Cash and cash equivalents $ 45 $ 201
Restricted cash equivalents
and investments 448 380
Accounts receivable, net of
allowance for doubtful accounts
of $383 and $392, respectively 5,549 5,031
Inventories 107 183
Prepaid expense 549 414
Other receivables 545 134
_________ ________
Total current assets 7,243 6,343
Property and equipment:
Buildings and land 4,894 6,055
Equipment 6,429 5,874
Vehicles 1,421 1,589
Leasehold improvements 289 143
Office furniture and equipment 1,136 1,252
Construction in progress 3,028 1,435
_________ ________
17,197 16,348
Less accumulated depreciation (4,593) (3,378)
_________ ________
Net property and equipment 12,604 12,970
Intangibles and other assets:
Permits, net of accumulated
amortization of $598 and
$366, respectively 3,949 4,036
Goodwill, net of accumulated
amortization of $435 and
$289, respectively 4,846 4,992
Covenant not to compete, net of
accumulated amortization of
$383 and $304, respectively 9 87
Other assets 385 445
________ ________
Total assets $ 29,036 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31
(Amounts in Thousands,
Except for Share Amounts) 1996 1995
___________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,677 $ 5,402
Accrued expenses 2,860 2,951
Revolving loan and term note
facility 500 5,259
Equipment financing agreement 646 1,778
Current portion of long-term debt 333 325
_________ _______
Total current liabilities 8,016 15,715
Long-term debt, less current portion 4,881 1,116
Environmental accruals 2,460 3,063
Accrued closure costs 1,094 1,041
_________ _______
Total long-term liabilities 8,435 5,220
Commitments and contingencies
(see Notes 3, 5, 7 and 10) - -
Stockholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized,
5,500 and 0 shares issued and
outstanding, respectively - -
Common stock, $.001 par value;
50,000,000 shares authorized,
10,399,947 and 7,872,384 shares
issued, including 920,000 and
0 shares held as treasury
stock, respectively 10 8
Redeemable warrants 140 269
Additional paid-in capital 28,495 21,546
Accumulated deficit (14,290) (13,885)
________ _______
14,355 7,938
Less common stock in treasury at
cost; 920,000 and 0 shares issued
and outstanding, respectively (1,770) -
________ _______
Total stockholders' equity 12,585 7,938
________ _______
Total liabilities and
stockholders' equity $ 29,036 $ 28,873
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31
(Amounts in Thousands,
Except for Share Amounts) 1996 1995 1994
___________________________________________________________________
Net revenues $ 31,037 $ 34,891 $ 28,075
Cost of goods sold 21,934 26,564 22,301
________ ________ ________
Gross profit 9,103 8,327 5,774
Selling, general and
administrative
expenses 6,922 8,132 5,298
Depreciation and
amortization 2,252 2,431 1,545
Permit write-down
(see Note 13) - 4,712 -
Nonrecurring charges
(see Note 14) - 987 -
________ _______ ________
Loss from operations (71) (7,935) (1,069)
Other income (expense):
Interest income 65 70 65
Interest expense