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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, 1997
__________________________
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 April 6, 1998, based on the
closing sale price of such stock as reported by NASDAQ on such day,
was $18,728,567. The Company is listed on the NASDAQ SmallCap
Market and the Boston Stock Exchange.
As of April 6, 1998, there were 11,867,898 shares of the
registrant's common stock, $.001 par value, outstanding, excluding
920,000 shares held as treasury stock.
Documents Incorporated by reference: Portions of the definitive
Proxy Statement dated April 20, 1998, to be delivered to
Shareholders in connection with the Annual Meeting of Shareholders
to be held May 20, 1998, are incorporated by reference into Part
III.
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . 11
Item 4A. Executive Officers of the Company. . . . . . 12
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . 15
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . 16
Item 8. Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . . . . . . . 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . 57
PART III
Item 10. Directors and Executive Officers of
the Registrant. . . . . . . . . . . . . . . . . 58
Item 11. Executive Compensation . . . . . . . . . . . 58
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . 58
Item 13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . . . . 58
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K. . . . . . . . . . . . . 59
PART I
ITEM 1. BUSINESS
Company Overview
Company Overview and Principal Products and Services
Perma-Fix Environmental Services, Inc. (the "Company") is a
Delaware corporation, engaged through its subsidiaries, in the (i)
treatment, storage, processing, and disposal of hazardous and non-
hazardous waste, mixed waste which, through its subsidiaries, is
both low-level radioactive and hazardous, the development of
nuclear and mixed waste treatment technologies, industrial waste
and wastewater management services; and (ii) environmental
engineering and consulting services to industry and government for
broad-scope environmental issues, including environmental
management programs, 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 has grown through both acquisitions
and internal development.
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, through
subsidiaries, off-site waste storage, treatment, processing 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 Ft. Lauderdale, Inc.
("PFL"), located in Ft. Lauderdale, Florida; Perma-Fix of Florida,
Inc. ("PFF"), located in Gainesville, Florida and Perma-Fix of
Memphis, Inc. ("PFM"), located in Memphis, Tennessee. The Company
has discontinued all fuel blending activities at its PFM facility,
the principal business segment for this subsidiary prior to the
January 1997 fire and explosion. PFM currently provides, on a
limited basis, an off-site waste storage and transfer facility and
continues to explore other new markets for utilization of this
facility.
PFTS is a permitted facility that provides transportation,
treatment and storage of liquid hazardous and non-hazardous wastes
and stabilization of liquid and solid drum residues. In addition,
PFTS is permitted to dispose of non-hazardous liquid waste,
including characteristic hazardous liquid waste in which the
hazardous characteristics are removed prior to injection into a
deepwell 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 deepwell non-hazardous waste liquids
(including, but not limited to, characteristic waste liquids for
which the hazardous characteristics have been removed). The
deepwell has been specifically designed and constructed for this
purpose.
PFD operates a permitted hazardous waste treatment and storage
facility to collect and treat oily wastewaters and used oil from
both small and large quantity generators and provides hazardous
waste treatment and blending services for collecting and
processing organic solvents, sludges, and solids for use as
substitute fuels in cement kilns, and management of various other
hazardous and non-hazardous wastes.
PFL is a permitted facility that collects and treats hazardous
wastewaters, oily wastewaters, 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.
1
PFF specializes in the processing and treatment of certain
types of wastes containing both low-level mixed radioactive and
hazardous wastes, which are known in the industry as mixed waste.
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 types
of 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 a license from
the State of Florida Office of Radiation Control and a RCRA Part B
permit.
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, through two subsidiaries (Perma-Fix, Inc. ("PFI")
and Reclamation Services, Inc. ("RSI")), 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 PFI and 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 U.S. Environmental Protection
Agency ("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. PFF and PFI also
provides on-site waste treatment services for certain low level
radioactive and mixed wastes, for industrial firms, the USDOE and
other governmental facilities.
PFM is a permitted facility that had previously provided
transportation, storage, treatment and disposal services to
hazardous and non-hazardous waste generators. On January 27, 1997,
an explosion and resulting tank fire occurred at the PFM facility,
which resulted in damage to certain hazardous waste storage tanks
located on the facility and caused certain limited contamination at
the facility. Such occurrence was caused by welding activity
performed by employees of an independent contractor at or near the
facility's hazardous waste tank farm contrary to instructions by
PFM. The facility was non-operational from the date of this event
until May 1997, at which time it began limited operations. PFM
continued to accept waste for processing and disposal, but 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
resulted in higher costs to PFM than if PFM were able to store and
process such waste at its Memphis, Tennessee, TSD facility, along
with the additional handling and transportation costs associated
with these activities. As a result of the significant disruption
and the cost to rebuild and operate this segment, the Company made
a strategic decision in February 1998, to discontinue its fuel
blending operations at PFM and to convert PFM into a storage and
transfer facility. PFM entered into an agreement with the
appropriate agency of the state of Tennessee to cease fuel blending
at the facility. PFM intends to operate such facility only to
store hazardous waste in which it is permitted to store and to
operate such facility as a transfer facility. The fuel blending
operations represented the principal line of business for PFM prior
to this event, which included a separate class of customers, and
its discontinuance has required PFM to attempt to develop new
markets and customers, through the utilization of the facility as
a storage facility under its RCRA permit and as a transfer
facility.
PFM has received settlements from its insurance carrier of
approximately $522,000, less $25,000 deductible, as to claims for
loss of contents and $1,475,000, as to its claim for business
interruption relating to the fire and explosion. See "Legal
2
Proceedings", "Management Discussion and Analysis of Financial
Condition and Results of Operation", and Note 4 to Notes to
Consolidated Financial Statements for a discussion of certain
discontinued operations.
For 1997, the Company's waste management services business
accounted for approximately 83.6% of the Company's total revenue,
as compared to approximately 79.5% for 1996, which excludes
discontinued operations.
Consulting Engineering Services: The Company provides
environmental engineering and regulatory compliance consulting
services through its subsidiaries, Schreiber, Yonley & Associates
("SYA") located in St. Louis, Missouri, and Mintech, Inc.
("Mintech") located in Tulsa, Oklahoma. SYA specializes in
environmental management programs, permitting, compliance and
auditing, in addition to landfill design, field investigation,
testing and monitoring. SYA clients are primarily industrial, 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. The engineering firms also
provide the necessary support, compliance and training as required
by the Company's waste management services segment. During 1997
environmental engineering and regulatory compliance consulting
services accounted for approximately 16.4% of the Company's total
revenue, as compared to 20.5% in 1996, which excludes discontinued
operations.
Segment Information and Foreign and Domestic Operations and Export
Sales
During 1997, the Company was engaged in two industry segments:
(i) treatment, storage, processing and disposal of hazardous, non-
hazardous and mixed wastes; and (ii) environmental engineering and
consulting services. See Note 14 of Notes to Consolidated
Financial Statements included in this report. Most of the
Company's activities were conducted in the Southeast, Southwest and
Midwest portions of the United States. The Company had no foreign
operations or export sales during 1997.
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
processing 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 processing 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 the Company
sign confidentiality agreements with respect to non-disclosure of
such processes.
The Company has developed a new process ("New Process")
designed to remove certain types of organic hazardous constituents
from soils or other solids and sludges ("Solids"). This New
Process will be used at PFF's facility and is designed to remove
the organic hazardous constituents from the solids through a water
based system. The Company has filed a patent application with the
U.S. Patent and Trademark Office covering the New Process. As of
the date of this report, the Company has not received a patent for
the New Process, and there are no assurances that such a patent
will be issued to the Company. Until development by the Company of
this New Process, the Company was not aware of a relatively simple
3
and inexpensive process that would remove the organic hazardous
constituents from solids without elaborate and expensive equipment
or expensive treating agents. Due to the organic hazardous
constituents involved, the disposal options for such materials are
extremely limited, resulting in high disposal cost when there is a
disposal option available. By removing the organic hazardous waste
constituents from the solids to a level where the solids may be
returned to the ground, the generator's disposal options for such
waste are substantially increased, allowing the generator to
dispose of such waste at substantially less costs. As of the date
of this report, the Company has only used the New Process, in a
limited basis, for commercial use. As a result, there are no
assurances that the New Process will perform as presently expected.
It is anticipated that the New Process will be ready for full
commercial use on or before the end of 1998. Further, changes to
current environmental laws and regulations could limit the use of
the New Process or the disposal option available to the generator.
See"--Permits and Licenses."
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, processing, 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.
PFF operates its hazardous and low-level radioactive waste
activities under a RCRA Part B permit and a radioactive materials
license issued by the state of Florida. PFF's current low-level
radioactive license was renewed for five (5) years on August 18,
1995, and has subsequently been amended 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.
PFM is operating its hazardous waste storage facility under a
RCRA permit.
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
conducted by PFI and RSI do not require federal environmental
permits provided certain conditions are met, and the Company 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 the Company to obtain permits to
carry on its on-site activities.
4
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 1997 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 U.S. Department of Energy ("USDOE"), U.S.
Department of Defense ("USDOD"), 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 during 1997 the Company
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, processing 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 certain of the
on-site treatment business' within which it operates through its
subsidiaries. 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 processing of scintillation vials, which requires both a
radioactive license and a hazardous waste permit. If the permit
requirements for both hazardous waste storage, treatment and
disposal activities and/or the licensing requirements for the
handling of low level radioactive matters are eliminated or 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.
5
The Company believes that it is a significant participant in
the delivery of off-site waste treatment services in the Southeast,
Midwest and Southwest portions of the United States. 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 Company's
subsidiary with permitted radiological activities solicits business
on a nationwide basis, including the U.S. Territories 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 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 SYA 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, Certain Environmental Expenditures and Potential
Environmental Liabilities
During 1997, the Company spent approximately $1,767,000 in
capital expenditures, which was principally for the expansion and
improvements to the continuing operations. This 1997 capital
spending total includes $263,000 of which was financed, but
excludes $45,000 related to the PFM discontinued operation. For
1998, the Company has budgeted approximately $1,950,000 for capital
expenditures to improve operations, reduce the cost of waste
processing and handling, expand the range of wastes that can be
accepted for treatment and processing and to maintain permit
compliance requirements, and approximately $1,045,000 to comply
with federal, state and local regulations in connection with
remediation activities at two locations Environmental Processing
Services, Inc. ("EPS"), an affiliated location with PFD, at
approximately $210,000 and the PFM discontinued operation at
approximately $835,000, see Note 4 and Note 9 to Notes to
Consolidated Financial Statements). The Company intends to utilize
a portion of the $1,475,000 insurance claim proceeds, related to
the PFM fire and explosion (see Note 4 to Notes to Consolidated
Financial Statements), received in March 1998, to fund such
expenditures. 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". The Company does not anticipate the ongoing
environmental expenditures to be significant, with the exception of
remedial activities at two locations. The two facilities where
these expenditures will be made are EPS, a former RCRA storage and
processing facility, and 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 $365,000. As discussed in Note
9 to the Consolidated Financial Statements, the Company has accrued
approximately $420,000 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.
6
The PFM facility is situated in an industrial setting in
Memphis, Tennessee, with numerous industrial and commercial
businesses proximate. Due to the acquisition of PFM, the Company
assumed and recorded certain liabilities to remediate gasoline
contaminated groundwater and investigate, under the hazardous and
solid waste amendments, potential areas of soil contamination on
PFM's property. Prior to 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. The Company has accrued approximately
$970,000 for the estimated cost of remediating the groundwater
contamination.
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 was also notified in January 1998 by the EPA that it is
believed that PFM is a potentially responsible party ("PRP")
regarding the remediation of a drum reconditioning facility located
in Memphis. See "Legal Proceedings" for further discussion of this
potential environmental liability.
Number of Employees
As of December 31, 1997, the Company and its subsidiaries
employed approximately 226 persons, of which approximately 52 were
assigned to the Company's engineering and consulting segment and
approximately 168 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 good.
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
7
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.
8
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.
Insurance
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 $2
million per occurrence and $4 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 deepwell 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.
Year 2000 Issues
The staff of the Commission has indicated that each public
company should discuss its "Year 2000" issues. The Year 2000
problem arises because many computer systems were designed to
identify a year using only two digits, instead of four digits, in
order to conserve memory and other resources. For instance, "1997"
would be held in the memory of a computer as "97."
When the year changes from 1999 to 2000, a two digit system
would read the year as changing from "99" to "00." For a variety
of reasons, many computer systems are not designed to make such a
date change or are not designed to "understand" or react
appropriately to such a date change. Therefore, as the date
changes to the year 2000, many computer systems could completely
stop working or could perform in an improper and unpredictable
manner.
9
The Company has conducted a review of its computer systems to
identify the systems which it anticipated could be effected by the
Year 2000 issue and it believes that all such systems were already,
or have been converted to be, Year 2000 compliant. Such
conversion, where required, did not entail material expenditure by
the Company. Pursuant to the Company's Year 2000 planning, the
Company has requested information regarding the computer systems of
its key suppliers, customers, creditors and financial service
organizations and has been informed that they are substantially
Year 2000 compliant. There can be no assurance, however, that such
key organizations are actually Year 2000 compliant and that the
Year 2000 issue will not adversely affect the Company's financial
position or results of operations. The Company believes that its
expenditures in addressing its Year 2000 issues along with any
potential effect on the Company's earnings will not have a material
adverse effect on the Company's financial position or results of
operations.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 1940
N.W. 67th Place, Gainesville, Florida 32653. The Company's waste
management operations are located in Gainesville and Ft.
Lauderdale, Florida; Dayton, Ohio; Tulsa, Oklahoma; Albuquerque,
New Mexico and Memphis, Tennessee. The Company's consulting
engineering services are located in Tulsa, Oklahoma and St. Louis,
Missouri. The Company also maintains a sales office in Tijuana,
California, Kansas City, Missouri, and a satellite engineering
office in Kailua, Hawaii.
The Company, through its subsidiaries, owns five facilities
and has an option to purchase another facility at a nominal amount
at the end of the lease term, all of which are in the United
States. In addition, the Company leases four properties for office
space, one of which also contains a warehouse and one additional
property that is utilized strictly as warehouse space, all of which
are located in the United States as described above.
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 operates.
ITEM 3. LEGAL PROCEEDINGS
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, Inc. ("W.R. Drum") 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 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, 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, 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, First Southern Container
Company, and/or Johnnie Williams. 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.
During January 1998, PFM was notified by the EPA that the EPA
had conducted remediation operations at a site owned and operated
by W.R. Drum in Memphis, Tennessee (the "Drum site"). By
correspondence dated January 15, 1998 ("PRP Letter"), the EPA has
informed PFM that it believes that PFM is a PRP regarding the
remediation of the Drum site, primarily as a result of acts by PFM
10
prior to the time PFM was acquired by the Company. The PRP Letter
states that the EPA is continuing to investigate other PRPs
regarding the Drum site which may be liable for certain remediation
costs of the Drum site. The PRP Letter estimated the remediation
costs incurred by the EPA for the Drum site to be approximately
$1,400,000 as of November 30, 1997, and the EPA has orally informed
the Registrant that such remediation has been substantially
complete as of such date. Because CERCLA provides that liability
for PRPs for a particular site is joint and several, the PRP Letter
includes a demand by the EPA from PFM for the full amount of the
remediation of the Drum site, including interest on such amount, as
provided for in CERCLA. The EPA has advised PFM that PFM was a PRP
at the Drum site; and that the EPA believes that PFM supplied a
substantial amount of the drums at the Drum Site, during a portion
of the years in which W.R. Drum was in operation. In addition, the
EPA has advised PFM that it has sent PRP Letters to approximately
50 other PRP's making demand upon such other PRPs regarding the
Drum site. The Company is currently investigating the allegations
set forth in the PRP Letter and intends to vigorously defend
against such allegations and the associated demand regarding
remediation costs of the Drum site. The Company has notified
certain of the previous owners of PFM that the Company will seek
recovery from them as PRPs in the event PFM is determined to be a
PRP regarding the Drum site. However, no assurance can be made
that PFM will be able to recover remediation costs from such
previous owners. If PFM is determined to be liable for all or a
substantial portion of the remediation cost incurred by the EPA at
the Drum site, such could have a material adverse effect on the
Company.
On January 27, 1997, an explosion and resulting tank fire
occurred at PFM's facility in Memphis, Tennessee, a hazardous waste
storage, processing and blending facility. See "Business Company
Overview and Principal Products and Services" and Note 4
"Discontinued Operations" of the Notes to Consolidated Financial
Statements. As a result of the fire and explosion, the Tennessee
Department of Environmental and Conservation ("TDEC") issued an
order in a matter styled In the Matter of Perma-Fix Incorporated,
Division of Solid Waste Management, Case No. 97-0097, Tennessee
Department of Environmental and Conservation (the "Order"), and in
such Order alleged that PFM violated certain rules and regulations
of the TDEC and assessed a penalty of $145,000 against PFM as a
result of the above-referenced occurrence. The TDEC and the
Company have settled the Order. Under the terms of the settlement
between the TDEC and PFM, dated February 3, 1998, the TDEC and PFM
agreed, among other things, (i) that as a result of the fire and
explosion, which were caused by employees of an independent
contractor, certain hazardous waste was released into the soil at
PFM's facility; (ii) that PFM submitted to the TDEC a soil removal
plan ("plan"), which plan is designed to remediate the soil at
PFM's facility that was impacted by such release, the plan has been
approved by the TDEC, and that PFM is currently implementing the
plan, and (iii) PFM agreed to pay the TDEC a civil penalty of
approximately $108,000, payable as follows: $25,000 within 60 days
and the balance payable in quarterly installments of approximately
$10,400 each beginning June 1, 1998, and on the first day of each
quarter thereafter until paid in full (with all or a portion of the
quarter installments payable by the Company accepting CERCLA waste
from the TDEC on a dollar for dollar basis under certain
conditions). In addition, under the settlement, PFM has agreed to
cease fuel blending at its Memphis, Tennessee, facility and to
implement an amended approved closure plan of its hazardous waste
tank farm, at such facility, subject to certain exceptions.
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 November 12, 1997. 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;
11
2. Approval and ratification of the appointment of BDO
Seidman, LLP as the independent auditors of the Company
for fiscal 1997.
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 7,791,962 22,200 -
Mark A. Zwecker 7,891,762 22,400 -
Steve Gorlin 7,876,962 37,200 -
Jon Colin 7,914,162 22,400 -
Also, at the Annual Meeting the shareholders approved the
appointment of BDO Seidman, LLP as the independent auditors of the
Company for fiscal 1997.
The votes for, against and abstentions and broker non-votes
are as follows:
Abstentions
and Broker
For Against Non-Votes
_________ _______ __________
Approval and Ratification 7,893,962 19,500 700
of the Appointment of
BDO Seidman, LLP as the
Independent Auditors
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:
Principal Occupation and
Executive Officer(1) Other Information
_________________ ________________________
Dr. Louis F. Centofanti Dr. Centofanti has served as Chairman of
Chairman of the Board, the Board since he jointed the Company in
President and February, 1991. Dr. Centofanti also served
Chief Executive Officer as President and Chief Executive Officer
Age 54 of the Company from February, 1991 until
September, 1995 and again in March, 1996
was elected to serve as President and
Chief Executive Officer of the Company
and continues as Chairman of the Board.
From 1985 until joining the Company,
Dr. Centofanti served as Senior Vice
President of USPCI, Inc., a large
hazardous waste management company,
where he was responsible for managing the
treatment, reclamation and technical
groups within USPCI. In 1981, he founded
PPM, Inc., a hazardous waste management
company specializing in the treatment of
PCB contaminated oils which was
subsequently sold to USPCI. From 1978 to
1981, Dr. Centofanti served as Regional
Administrator of the U.S. Department of
Energy for the southeastern region of
the United States. Dr. Centofanti has a
Ph.D. and a M.S. in Chemistry from the
University of Michigan, and a B.S. in
Chemistry from Youngstown State
University.
12
Mr. Richard T. Kelecy Mr. Kelecy was elected Chief Financial
Chief Financial Officer Officer in September 1995. He previously
Age: 42 served as Chief Accounting Officer and
Treasurer of the Company since July 1994.
From 1992 until June 1994, Mr. Kelecy was
Corporate Controller and Treasurer for
Quadrex Corporation. From 1990 to 1992
Mr. Kelecy was Chief Financial Officer
for Superior Rent-a-Car, and from 1983 to
1990 held various positions at Anchor
Glass Container Corporation including
Assistant Treasurer. Mr. Kelecy holds a
B.A. in Accounting and Business
Administration from Westminster College.
Mr. Roger Randall Mr. Randall has served as Vice-President/
Vice President General Manager of PFD since its acquisi-
Industrial Services tion by the Company in 1994 and was
Age: 54 elected to the position of Vice President
Industrial Services of the Company in
December 1997. From 1982 to 1995,
Mr. Randall has been associated with PFD
under several ownerships. He has served
a variety of management roles from
Operations Manager to Chairman of the
Board and Chief Executive Officer.
Previous to his involvement with the
waste management industry, Mr. Randall
spent 17 years in public education
serving a variety of administrative
roles. He has a B.S. from Wittenburg
University and an M.A. from Wright State
University.
Mr. Bernhardt Warren Mr. Warren has served as Vice President
Vice President and General Manager of PFF since July
Nuclear Services 1996 and was elected to the position of
Age: 49 Vice President Nuclear Services of the
Company in December 1997. He has held
various positions at PFF since 1982,
including Radiation Safety Officer. He
previously held the position of Manager
of the Office of Radiation Control for
the Florida State Department of Health
and Rehabilitative Services from 1973 to
1982. He has a B.S. degree in Biology
from Florida Southern College, an M.P.A.,
Public Administration from Florida State
University, and graduated from numerous
U.S. Nuclear Regulatory Commission
training programs. Mr. Warren has
authored more than a dozen technical
papers and has achieved Master Level as a
Certified Hazards Material Officer.
Mr. Timothy Kimball Mr. Kimball has served as Vice President
Vice President of two wholly-owned subsidiaries of the
Technical Services Company since January, 1991 and was
Age: 52 elected to the position of Vice President
Technical Services of the Company in
December 1997. He previously served as
the Hazardous Waste Coordinator and
Technical Representative for Rinchem
Company, Inc. from 1985 to 1991. He also
served a variety of management roles
ranging from Planning Director, Partner
and President, as well as Technical and
Research Assistant for the University of
New Mexico. He has a B.A. in Political
Science and Public Administration from
the University of Louisville, and an M.A.
in Anthropology from the University of
New Mexico.
__________________________
(1) There is no family relationship between any of the executive
officers.
13
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 SmallCap 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:
1997 1996
___________________ _________________
Low High Low High
_____ ______ _____ _____
Common Stock: 1st Quarter 1 1/8 1 3/8 1 1 3/4
2nd Quarter 2 3/16 2 15/16 29/32 2 7/16
3rd Quarter 1 15/16 2 1 1/2 2 9/16
4th Quarter 2 1/16 2 1/4 1 5/16 2 7/16
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, 1997, there were approximately 166
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 2,077 on this date.
Since its inception, the Company has not paid any cash
dividends on its Common Stock and has no dividend policy. The
Company does not intend, in the foreseeable future, to pay cash
dividends on its Common Stock, and it intends to use all available
cash for the Company's working capital. The Company's loan
agreement prohibits paying any dividends on its Common Stock.
In addition to the securities sold by the Company during 1997
as reported in the Company's Forms 10-Q for the quarters ended
June 30, 1997 and September 30, 1997, which were not registered
under the Securities Act of 1933, as amended ("Securities Act"),
the Company sold or issued during 1997 the following securities
which were also not registered under the Act:
1. During 1997, the Company issued RBB Bank Aktiengesellschaft,
located in Graz, Austria, 178,781 shares of the Company's
Common Stock in payment of accrued and unpaid dividends in the
Company's Series 3 Class C Convertible Preferred Stock ("Class
3 Preferred"), in accordance with the terms of the Series 3
Preferred. The following shares of Common Stock were issued
to RBB Bank during 1997 in payment of the accrued and unpaid
dividends in the Series 3 Preferred:
Number of
Amount Shares of Date of
of Dividend Common Stock Issuance
___________ ____________ _________
$ 146,000 100,000 1/16/97
1,000 442 5/28/97
10,000 7,035 6/11/97
152,000 66,336 7/14/97
7,000 4,581 8/13/97
14
The issuance of the above described shares of Common Stock in
payment of accrued and unpaid dividends in the Series 3
Preferred, were issued pursuant to an exemption from
registration under Section 4 (2) and/or D of the Securities
Act.
2. During 1997, the Company issued RBB Bank 1,027,974 shares of
Common Stock upon the conversion of 1,500 shares of Series 3
Preferred pursuant to the terms of the Series 3 Preferred.
The conversion of 1,500 shares of Series 3 Preferred during
1997 resulted in 4,000 shares of Series 3 Preferred remaining
outstanding. The issuance of the above described shares of
Common Stock as a result of conversion of 1,500 shares of
Series 3 Preferred during 1997 were issued pursuant to an
exemption from registration under Section 3 (a) (9) of the
Securities Act.
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,
1997, 1996, 1995, and 1994 been audited by BDO Seidman, LLP and
financial statements for the year ended December 31, 1993, have
been audited by Coopers & Lybrand L.L.P.
Statement of Operations Data:
(Amounts in Thousands,
Except for Share
Amounts) December 31,
_____________________________________________________
1997 1996 1995 1994(2) 1993
_______ _______ _______ _______ _______
Revenues(4) $28,413 $27,041 $31,477 $23,522 $10,123
Net income (loss)
from continuing
operations 192 27 (3,494) (1,201) (1,895)
Net loss from discon-
tinued operations (4,101) (287) (5,558)(3) (315) -
Preferred Stock
dividends (352) (2,145)(5) - - -
Net loss applicable
to Common Stock
from continuing
operations (160) (2,118)(5) (3,494) (1,201) (1,895)
Net loss per common
share(1) from con-
tinuing operations (.01) (.24)(5) (.44) (.20) (.44)
Weighted average number
of common shares
outstanding(1) 10,650 8,761 7,872 5,988 4,287
Balance Sheet Data:
December 31,
_______________________________________________________
1997 1996 1995 1994(2) 1993
_______ _______ _______ _______ _______
Working capital
(deficit) $ 754 $ (773) $(9,372) $ (705) $ 1,278
Total assets 28,570 29,036 28,873 35,067 17,711
Long-term debt 4,981 6,360 8,478 6,041 2,349
Total liabilities 16,376 16,451 20,935 18,105 6,997
Stockholders' equity 12,194 12,585 7,938 16,962 10,714
(1) 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. Net loss per share for
the fiscal year ended December 31, 1994 has been restated, in
accordance with Accounting Principles Board Opinion No. 15,
"Earnings Per Share," to reflect the issuance of contingent
shares to Quadrex during 1995. As of December 31, 1997, the
Company applied SFAS 128, the new standard of computing and
15
presenting earnings per share. The adoption of SFAS 128 did
not have a material effect on the Company's EPS presentation
since the effects of potential common shares are antidilutive.
(2) 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.
(3) Includes write-down of impaired intangible permit related to
an acquisition completed in December of 1993 and certain
nonrecurring charges.
(4) Excludes revenues of Perma-Fix of Memphis, Inc., shown
elsewhere as a discontinued operation.
(5) In March 1997, the Securities and Exchange Commission,
("Commission") announced its position in accounting for
Preferred Stock which is convertible in Common Stock at a
discount from the market rate on the date of issuance of such
Preferred Stock. The Commission's position is that a
Preferred Stock dividend should be recorded for the difference
between the conversion price and quoted market price of Common
Stock as determined on the date of issuance of such Preferred
Stock. To comply with this position, the Company restated its
prior year's financial statements to reflect a dividend of
approximately $2 million related to the fiscal 1996 sales of
convertible Preferred Stock. As a result, the amount noted in
this table as the Company's net loss applicable to Common
Stock for 1996 reflects the restated amount from the
previously reported net loss applicable to Common Stock of
$405,000 and the amount noted in this table as the Company's
net loss per share of Common Stock for 1996 reflects the
restated amount from the previously reported net loss per
share of Common Stock of ($.05).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements contained within this "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" may be deemed "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, the "Private Securities Litigation Reform Act of
1995"). See "Special Note regarding Forward-Looking Statements"
contained in this report.
Management's discussion and analysis is based, among other
things, upon 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, mixed waste and
wastewater. 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 certain 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 under a new management
team, the Company restructured its core businesses during 1995. In
conjunction with these changes, the Company increased its emphasis
on the research and development of innovative technologies for the
16
treatment of nuclear, mixed waste, industrial waste and wastewater.
This restructuring 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.
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM facility located in Memphis, Tennessee, which
resulted in damage to certain hazardous waste storage tanks located
on the facility, and caused certain limited contamination at the
facility. Due to the nature of the loss, the significant
disruption and limited operating activities at the facility, the
Company made a strategic decision in February 1998, to discontinue
its fuel blending operations at PFM. See "Business" and Note 4 to
Notes to Consolidated Financial Statements and to "Discontinued
Operations" in this section for further discussion on PFM.
Hereafter, the PFM will be referred to as a discontinued operation,
and excluded from the discussions on the operating results of the
continuing operations.
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
years ended December 31, 1997, 1996 and 1995 (in thousands):
(Consolidated) 1997 % 1996 % 1995 %
______________ _______ _____ _______ _____ _______ _____
Revenue $28,413 100.0 $27,041 100.0 $31,477 100.0
Cost of goods sold 19,827 69.8 18,912 69.9 23,764 75.5
_______ _____ _______ _____ _______ _____
Gross Profit 8,586 30.2 8,129 30.1 7,713 24.5
Selling, general
and administra-
tive 5,682 20.0 5,942 22.0 7,168 22.8
Depreciation and
amortization 1,980 7.0 2,083 7.0 2,051 6.5
Nonrecurring
charges - - - - 987 3.1
Other income
(expense):
Interest income 41 .1 43 .2 58 .2
Interest expense (431) (1.5) (643) (2.4) (814) (2.6)
Other (342) (1.2) 523 1.9 (245) (.8)
________ ______ ________ ______ ________ ______
Net income (loss)
from continuing
operations 192 .7 27 - (3,494) 11.1
Loss from discon-
tinued opera-
tions (4,101) (14.4) (287) (1.1) (5,558) (17.7)
Preferred Stock
dividends (352) (1.1) (2,145)(1) (7.9) - -
________ ______ ________ ______ ________ ______
Net loss
applicable
to Common
Stock $ (4,261) (14.9) $(2,405)(1) (8.9) $(9,052) (28.8)
======== ====== ======== ===== ======== ======
(1) In March 1997, the Securities and Exchange Commission
("Commission") announced its position on accounting for
Preferred Stock which is convertible in Common Stock at a
discount from the market rate on the date of issuance of such
Preferred Stock. The Commission's position is that a
Preferred Stock dividend should be recorded for the difference
between the conversion price and the quoted market price of
Common Stock as determined on the date of issuance of such
Preferred Stock. To comply with this position, the Company
restated its prior year's financial statements to reflect a
dividend of approximately $2 million related to the fiscal
1996 sales of convertible Preferred Stock. As a result, the
amount noted in this table as the Company's net loss
applicable to Common Stock for 1996 reflects the restated
amount from the previously reported net loss applicable to
Common Stock of $405,000.
17
Discontinued Operations
On January 27, 1997, an explosion and resulting tank fire
occurred at the PFM facility, a hazardous waste storage, processing
and blending facility, which resulted in damage to certain
hazardous waste storage tanks located on the facility and caused
certain limited contamination at the facility. Such occurrence was
caused by welding activity performed by employees of an independent
contractor at or near the facility's hazardous waste tank farm
contrary to instructions by PFM. The facility was non-operational
from the date of this event until May 1997, at which time it began
limited operations. During the remainder of 1997, PFM continued to
accept waste for processing and disposal, but arranged for other
facilities owned by 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 resulted in
higher costs to PFM than if PFM were able to store and process such
waste at its Memphis, Tennessee, TSD facility, along with the
additional handling and transportation costs associated with these
activities. As a result of the significant disruption and the cost
to rebuild and operate this segment, the Company made a strategic
decision, in February 1998, to discontinue its fuel blending
operations at PFM. The fuel blending operations represented the
principal line of business for PFM prior to this event, which
included a separate class of customers, and its discontinuance has
required PFM to attempt to develop new markets and customers,
through the utilization of the facility as a storage facility under
its RCRA permit and as a transfer facility. Accordingly, during
the fourth quarter of 1997, the Company recorded a loss on disposal
of discontinued operations of $3,053,000, which included $1,272,000
for impairment of certain assets and $1,781,000 for the
establishment of certain closure liabilities.
During December 1995, the Company recognized a permit
impairment charge of $4,712,000, related to the December 1993
acquisition of 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 undiscontinued 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 4 of the Notes to Consolidated
Financial Statements.
The net loss from the discontinued PFM operations for the
years ended December 31, 1997, 1996, and 1995 ($1,048,000,
$287,000, and $5,558,000, respectively) are shown separately in the
Consolidated Statements of Operations. The results of the
discontinued PFM operations do not reflect management fees charged
by the Company, but do include interest expense of $254,000,
$169,000 and $138,000 during 1997, 1996 and 1995, respectively,
specifically identified to such operations as a result of such
operations actual incurred debt under the Corporation's revolving
and term loan credit facility. During March of 1998, the Company
received a settlement in the amount of $1,475,000 from its
insurance carrier for the business interruption claim. This
settlement was recognized as a gain in 1997 and thereby reducing
the net loss recorded for the discontinued PFM operations in 1997.
Earlier in 1997, PFM received approximately $522,000 (less its
deductible of $25,000) in connection with its claim for loss of
contents as a result of the fire and explosion which was utilized
to replace certain assets and reimburse the Company for certain
fire related expense.
Revenues of the discontinued PFM operations were $1,878,000 in
1997, $3,996,000 in 1996 and $3,414,000 in 1995. These revenues
are not included in revenues as reported in the Consolidated
Statements of Operation. See Note 4 to Notes to Consolidated
Financial Statements for further discussion on PFM.
Summary -- Years Ended December 31, 1997 and 1996
Consolidated net revenues increased $1,372,000, or 5.1% for
continuing operations for the year ended December 31, 1997,
compared to the year ended December 31, 1996. This increase is
attributable to the Waste Management segment, which experienced an
increase in revenues of approximately $2,259,000 during 1997, as
compared to 1996. The Company's four (4) TSD's all experienced
increased revenues during 1997, which in the aggregate totaled
approximately $3,042,000 and were principally attributable to
growth in the wastewater and mixed waste markets. The most
significant TSD increase occurred at the PFF facility, which
recognized a $2,184,000 increase resulting from new mixed waste
18
contracts. Partially offsetting these increases within the waste
management segment were two (2) sale transactions completed during
1996, whereby the Company sold its PermaCool Technology which had
generated $689,000 in revenue during 1996 and sold its plastic
recycling subsidiary (Re-Tech Systems, Inc.) which had generated
$129,000 in revenue during 1996. This increase in the waste
management segment was partially offset by a reduction in revenues
of $887,000 in the Consulting Engineering segment. This consulting
engineering reduction is partially a result of two one-time
projects for 1996, which totaled $396,000 and were not duplicated
in 1997, and a significant reduction in the Bartlesville, Oklahoma,
three year project that reduced 1997 consulting engineering revenue
by approximately $554,000 as compared to 1996.
Cost of goods sold for the Company increased $915,000 or 4.8%
to a total of $5,682,000 for the year ended December 31, 1997,
compared to the year ended December 31, 1996. This consolidated
increase in cost of goods sold reflects principally the increased
operating, disposal, and transportation costs, corresponding to the
increased revenues as discussed above. The resulting gross profit
for the year ended December 31, 1997, increased to $8,586,000,
which as a percentage of revenue is 30.2%, reflecting a slight
improvement over 1996.
Selling, general and administrative expenses decreased
$260,000 or 4.4% for the year ended December 31, 1997, as compared
to 1996. As a percentage of revenue, selling, general and
administrative expense also decreased to 20.0% for the year ended
December 31, 1997, compared to 22.0% for the same period in 1996.
This decrease of $260,000 reflects a reduction in costs of $168,000
in the Consulting Engineering segment and a $153,000 reduction in
costs in the Waste Management segment, which was partially offset
by an increase of approximately $61,000 in corporate overhead, for
certain outside services. The consolidated reduction in selling,
general and administrative expenses reflects the Company's
continued efforts towards reduced cost structure throughout the
organization.
Depreciation and amortization expense for the year ended
December 31, 1997, reflects a decrease of $103,000 or .7% of
revenue as compared to the year ended December 31, 1996. This
decrease is attributable to a depreciation expense reduction of
47,000 due to the sale of certain assets as a result of the
Company's previous restructuring programs and various other assets
becoming fully depreciated. Amortization expense reflects a total
decrease of $67,000 for the year ended December 31, 1997, as
compared to the year ended December 31, 1996, which is a direct
result of the "Covenant Not to Compete" having become fully
amortized during the first quarter of 1997.
Interest expense decreased $212,000 from year ended
December 31, 1997, as compared to the corresponding period of 1996.
The decrease in interest expense reflects the reduced borrowing
levels on the Heller Financial, Inc. revolving and term note and
the Ally Capital Equipment Lease Agreements. Offsetting this
reduced interest expense, during the year ended December 31, 1997,
was the Preferred Stock dividend totaling $352,000 incurred in
conjunction with the Series 3 Class C, Series 6 Class F, and series
7 Class G Convertible Preferred Stock. As a result of the issuance
of the Series 6 Class F, and Series 7 Class G Preferred Stock
during 1997, dividends increased by $207,000 for the year ended
1997 as compared to the year ended 1996. In March 1997, the
Securities and Exchange Commission Staff (the "Staff") announced
its position on accounting for Preferred Stock which is convertible
into Common Stock at a discount from the market rate at the date of
issuance. The Staff's position is that a Preferred Stock dividend
should be recorded for the difference between the conversion price
and the quoted market price of Common Stock, as determined at the
date of issuance. To comply with this position, the Company
restated its 1996 financial statements and recorded a dividend of
approximately $2,000,000 related to the fiscal 1996 sales of
certain series of Preferred Stock issued by the Company in 1996.
See Note 6 to Notes to Consolidated Financial Statements.
Summary -- Years Ended December 31, 1996 and 1995
Consolidated net revenues decreased $4,436,000, or 14% for the
year ended December 31, 1996, compared to the year ended
December 31, 1995. This decrease reflects the impact of 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
19
segments. During 1996, the Company experienced reduced revenues at
PFL in Ft. Lauderdale, Florida, during the period that a capital
expansion project at such facility was instituted. In addition,
during such expansion, the PFL facility was vandalized in October
1996, resulting in a minimal reduction in revenues over a one month
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 $4,852,000, or
20% for the year ended December 31, 1996, compared to the year
ended December 31, 1995. This decrease is partially attributable
to the overall reduction in revenue, 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 percentage of revenue, which was 69.9%, an improvement over
the 1995 results of 75.5%.
Selling, general and administrative expenses decreased 17% for
the year ended December 31, 1996, as compared to 1995. As a
percentage of revenue, selling, general and administrative expenses
also decreased to 22.0% for the year ended December 31, 1996,
compared to 22.8% for the same period in 1995. The decrease of
$1,226,000 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.
During 1995, the Company recorded several nonrecurring charges
totaling $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 processing. 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 Note 15 of the Notes to Consolidated
Financial Statements included in Item 8. 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 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.
20
Depreciation and amortization expense for the year ended
December 31, 1996, reflects an increase of $32,000 or .1% of
revenue as compared to the year ended December 31, 1995. The
amortization expense increased $13,000 for the year ended
December 31, 1996, as compared to the same period of 1995,
principally a result of the acquisition of the Industrial
Compliance and Safety waste management firm during the second
quarter of 1995. Additionally, depreciation expense increased
$19,000 for the year ended December 31, 1996, as compared to the
same period of 1995, reflecting new capital assets acquired during
the year, partially offset by asset dispositions and the
divestiture of a subsidiary of the Company.
Interest income totaled $43,000, a reduction of $15,000 from
the 1995 total of $58,000. 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 $171,000 to a total
of $643,000, as compared to $814,000 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 totaling $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. Due to recent accounting
pronouncements, a Preferred Stock Discount of $2,000,000 was
expensed in 1996 in conjunction with the Series 1 Class A, Series
2 Class B, and Series 3 Class C issuance of Preferred Stock at a
discount. See Note 2 of the Notes to Consolidated Financial
Statements.
Other income (expense) for 1996 reflected an income total of
$523,000, as compared to an expense of $245,000 for 1995. In
conjunction with the above discussed restructuring programs and
office closures, the Company renegotiated and settled certain
accounts payable liabilities 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 totaling $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
$2,405,000 in 1996 after restating its 1996 net loss applicable to
Common Stock to record as a dividend (approximately $2,000,000),
representing the difference between the conversion price and the
quoted market price of Common Stock as determined at the date of
issuance of certain series of Preferred Stock, as compared to a net
loss of $9,052,000 in 1995. The per share loss was $.27 for 1996
versus $1.15 in 1995. Net loss for 1995 included permit write-down
and nonrecurring charges totaling $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.
Liquidity and Capital Resources of the Company
At December 31, 1997, the Company had cash and cash
equivalents of $326,000, including $12,000 from discontinued
operations. This cash and cash equivalents total reflects a
increase of $281,000 from December 31, 1996, as a result of net
cash provided by continuing operations of $1,421,000, offset by
cash used by discontinued operation of $1,398,000, cash used in
21
investing activities of $1,521,000 (principally purchases of
equipment, net totaling $1,504,000, partially offset by the
proceeds from the sale of property and equipment of $54,000) and
cash provided by financing activities of $1,779,000. Accounts
receivable, net of allowances for continuing operations , totaled
$5,282,000, an increase of $638,000 over the December 31, 1996,
balance of $4,644,000, which reflects the impact of increased
revenues during the fourth quarter of 1997, over the same period of
1996.
On January 15, 1998, the Company, as parent and guarantor,
and all direct and indirect subsidiaries of the Company, as co-
borrowers and cross-guarantors, entered into a Loan and Security
Agreement ("Agreement") with Congress Financial Corporation
(Florida) as lender ("Congress"). The Agreement provides for a
term loan in the amount of $2,500,000, which requires principal
repayments based on a four-year level principal amortization over
a term of 36 months, with monthly principal payments of $52,000.
Payments commenced on February 1, 1998, with a final balloon
payment in the amount of approximately $573,000 due on January 14,
2001. The Agreement also provides for a revolving loan facility in
the amount of $4,500,000. At any point in time the aggregate
available borrowings under the facility are subject to the maximum
credit availability as determined through a monthly borrowing base
calculation, as updated for certain information on a weekly basis,
equal to 80% of eligible accounts receivable accounts of the
Company as defined in the Agreement. The termination date on the
revolving loan facility is also the third anniversary of the
closing date. The Company incurred approximately $230,000 in
financing fees relative to the solicitation and closing of this
loan agreement (principally commitment, legal and closing fees)
which are being amortized over the term of the Agreement.
Pursuant to the Agreement, the term loan and revolving loan
both bear interest at a floating rate equal to the prime rate plus
1 3/4%. The Agreement also provides for a one time rate adjustment
of 1/4%, subject to the company meeting certain 1998 performance
objectives. The loans also contain certain closing, management and
unused line fees payable throughout the term. The loans are
subject to a 3.0% prepayment fee in the first year, 1.5% in the
second and 1.0% in the third year of the Agreement.
As security for the payment and performance of the Agreement,
the Company granted a first security interest in all accounts
receivable, inventory, general intangibles, equipment and other
assets of the Company and its subsidiaries, as well as the
mortgage on two (2) facilities owned by subsidiaries of the
Company. The Agreement contains affirmative covenants including,
but not limited to, certain financial statement disclosures and
certifications, management reports, maintenance of insurance and
collateral. The Agreement also contains an Adjusted Net Worth
financial covenant, as defined in the Agreement, of $3,000,000.
Under the Agreement, the Company, and its subsidiaries are limited
to granting liens on their equipment, including capitalized leases,
(other than liens on the equipment to which Congress has a security
interest) in an amount not to exceed $2,500,000 in the aggregate at
any time outstanding.
The proceeds of the Agreement were utilized to repay in full
on January 15, 1998, the outstanding balance of the Heller
Financial, Inc. ("Heller") Loan and Security Agreement which was
comprised of a revolving loan and term loan, and to repay and
buyout all assets under the Ally Capital Corporation ("Ally")
Equipment Financing Agreements. As of December 31, 1997, the
borrowings under the Heller revolving loan facility totaled
$2,652,000, a reduction of $227,000 from the December 31, 1996,
balance of $2,879,000, with borrowing availability of approximately
$762,000. The balance of the revolving loan on January 15, 1998,
as repaid pursuant to the Congress agreement was $2,289,000. The
balance under the Heller term loan at December 31, 1997, was
$867,000, a reduction of $516,000 from the December 31, 1996,
balance of $1,383,000. The Company subsequently made a term loan
payment of $41,000 on January 2, 1998, resulting in a balance of
$826,000, as repaid pursuant to the Congress Agreement. As of
December 31, 1997, the outstanding balance on the Ally Equipment
Financing Agreement was $624,000, a reduction of $633,000 from the
December 31, 1996, balance of $1,257,000 and represents the
principal balance repaid pursuant to the Congress Agreement. In
conjunction with the above debt repayments, the Company also repaid
a small mortgage, paid certain fees, taxes and expenses, resulting
in an initial Congress term loan of $2,500,000 and revolving loan
balance of $1,705,000 as of the date of closing. The Company had
borrowing availability under the Congress Agreement of
approximately $1,500,000 as of the date of closing, based on 80% of
22
eligible accounts receivable accounts. The Company recorded the
December 31, 1997, Heller and Ally debt balances as though the
Congress transaction had been closed as of December 31, 1997. As
a result of this transaction, and the repayment of the Heller and
Ally debt, the combined monthly debt payments were reduced from
approximately $104,000 per month to $52,000 per month.
At December 31, 1997, the Company had $4,865,000 in aggregate
principal amounts of outstanding debt, related to continuing
operations, as compared to $6,281,000 at December 31, 1996. This
decrease in outstanding debt of $1,416,000 during 1997 reflects the
net repayment of the Heller Financial, Inc. revolving loan and
term note facility of $742,000, the scheduled principal repayments
on the Ally Capital Equipment Finance Agreements of $633,000 and
the scheduled principal repayments on other long-term debt of
$363,000, partially offset by the new debt and capital lease
obligations secured during the year of $322,000. As of December
31, 1997, the Company had $116,000 in aggregate principal amounts
of outstanding debt related to PFM discontinued operations, of
which $99,000 is classified as current.
As of December 31, 1997, total consolidated accounts payable
for continuing operations of the Company was $2,263,000, a
reduction of $951,000 from the December 31, 1996, balance of
$3,214,000. This December 1997 balance also reflects a reduction
of $673,000 in the balance of payables in excess of sixty (60)
days, to a total of $608,000. The Company utilized a portion of
the net proceeds received in connection with the sale of Preferred
Stock during 1997, as discussed below, to reduce accounts payable,
in conjunction with cash provided by operations.
The Company's net purchases of new capital equipment for
continuing operations for the twelve month period ended
December 31, 1997, totaled approximately $1,767,000. These
expenditures were for expansion and improvements to the operations
principally within the waste management segment. These capital
expenditures were principally funded by the proceeds from the
issuance of Preferred Stock, as discussed below, and $263,000
through various other lease financing sources. The Company has
budgeted capital expenditures of $1,950,000 for 1998, which
includes completion of certain current 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 Company will also utilize a portion of the $1,475,000 insurance
settlement, as received in March of 1998 relative to the PFM
business interruption claim to fund such expenditures. See Note 4
to the Notes to Consolidated Financial Statements.
The working capital position at December 31, 1997, was
$754,000, as compared to a deficit position of $773,000 at
December 31, 1996, which reflects an improvement in this position
of $1,527,000 during 1997. The improved working capital position
principally reflects the impact of the equity raised in 1997 as
discussed below, in addition to the improvement in cash provided by
continuing operations and the increase revenues during the fourth
quarter of 1997 which resulted in an increase in accounts
receivable at year-end. Also impacting this working capital
position was the recognition at December 31, 1997, of the
$1,475,000 insurance settlement receivable, partially offset by
accrued expenses associated with the PFM discontinued operations.
See Note 4 to the Notes to Consolidated Financial Statements for
further discussion of this discontinued operation.
During 1997, accrued dividends for the period July 17, 1996,
through June 30, 1997, and dividends on converted shares, in the
combined total of approximately $314,000 were paid in the form of
178,781 shares of Common Stock of the Company. The accrued
dividends for the period July 1, 1997, through December 31, 1997,
in the amount of approximately $121,000 were paid in January 1998,
in the form of 54,528 shares of Common Stock of the Company.
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
23
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.
During 1997, the Company issued to RBB Bank 2,500 shares of
newly-created series of Preferred Stock at a price of $1,000 per
share, for an aggregate sales price of $2,500,000. See "Market for
Registrant's Common Equity and Related Stockholder Matters" and
Note 6 to Notes to Consolidated Financial Statements.
The Company paid fees (excluding legal and accounting) of
$200,000 in connection with the placement of Preferred Stock to RBB
Bank during 1997 and issued to the investment banking firm that
handled the placement two (2) Common Stock purchase warrants
entitling the investment banking firm to purchase an aggregate of
up to 300,000 shares of Common Stock, subject to certain anti-
dilution provisions, with one warrant for a five year term to
purchase up to 200,000 shares at an exercise price of $2.00 per
share and the second warrant for a three year term to purchase up
to 100,000 shares of Common Stock at an exercise price of $1.50 per
share, subject to certain anti-dilution provisions. Under the terms
of each warrant, the investment banking firm is entitled to certain
registration rights with respect to the shares of Common Stock
issuable on the exercise of each warrant.
During 1997, the Company issued to the Infinity Fund, L.P.
("Infinity"), 350 shares of a newly-created series of Preferred
Stock at a price of $1,000 per share, for an aggregate sales price
of $350,000. The Company utilized the proceeds received on the
sale of Preferred Stock to Infinity for the payment of debt and
general working capital. See "Market for Registrant's Common
Equity and Related Stockholder Matters" and Note 6 to Notes to
Consolidated Financial Statements.
On June 30, 1997, the Company entered into a Stock Purchase
Agreement ("Centofanti Agreement") with Dr. Louis F. Centofanti,
whereby the Company agreed to sell, and Dr. Centofanti agreed to
purchase 24,381 shares of the Company's Common Stock. The purchase
price was $1.6406 per share representing 75% of the $2.1875 closing
bid price of the Common Stock as quoted on the NASDAQ on the date
that Dr. Centofanti notified the Company of his desire to purchase
such shares. Pursuant to the terms of the Centofanti Agreement,
Dr. Centofanti was to pay the Company the aggregate purchase price
of $40,000 for the 24,381 shares of Common Stock. However Dr.
Centofanti purchased 12,190 shares during July 1997, for $20,000,
and during October, the Agreement was amended to reduce the number
of shares of Common Stock that Dr. Centofanti is to acquire under
the Centofanti Agreement to the 12,190 shares already acquired by
Dr. Centofanti under the Centofanti Agreement, upon consideration
of the certain recent accounting pronouncements related to stock
based compensation. The sale of the shares pursuant to the
Centofanti Agreement and its subsequent amendment dated October 7,
1997, for the sale of 12,190 shares were authorized by the
Company's Board of Directors.
In consideration of certain investment banking services as
performed for the Company, a warrant was issued to J.W. Charles
Financial Services, Inc. ("Charles") during September 1996. This
warrant was subsequently assigned by Charles to certain partners,
officers or broker and, during July 1997, one of the assigned
warrants was exercised which resulted in the issuance of 155,000
shares of the Company's Common Stock and raised $232,000 in equity
or capital for the Company.
In summary, the Company has taken a number of steps to improve
its operations and liquidity as discussed above, including the
equity raised in 1997. If the Company is unable to continue to
improve its operations and to become profitable in the foreseeable
future, such would have a material adverse effect on the Company's
liquidity position and on the Company.
24
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 wastewaters to
publicly-owned treatment works and/or processing wastes into
saleable products. In the past, numerous third party disposal
sites have improperly managed wastes and consequently require
remedial action; consequently, any party utilizing these sites may
be liable for some or all of the remedial costs. Despite 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 $1,950,000 for
1998 at the TSD facilities, which are necessary to maintain permit
compliance and improve operations, as discussed above under
"Business -- Capital Spending, Certain Environmental Expenditures"
and "Liquidity and Capital Resources of the Company" of this
Management's Discussion and Analysis, the Company has also budgeted
for 1998 an additional $1,045,000 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 -- Capital Spending, Certain
Environmental Expenditures and Potential Environmental
Liabilities," the two locations where these expenditures will be
made are the Affiliated Property in Dayton, Ohio (EPS), a former
RCRA storage facility as operated by the former owners of PFD, and
PFM's facility in Memphis, Tennessee. The Company has estimated
the expenditures for 1998 to be approximately $210,000 at the EPS
site and $835,000 at the PFM location. Additional funds will be
required for the next five to ten years to properly investigate and
remediate these sites. 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.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("FAS 130") and No. 131, "Disclosure about
Segments of an Enterprise and Related Information," ("FAS 131").
FAS 130 establishes standards for reporting and displaying
comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public.
Both FAS 130 and FAS 131 are effective for periods beginning after
December 15, 1997. FAS 130 is not expected to have a material
impact on the Company's financial statement. The Company has not
determined the impact FAS 131 will have on its future financial
statements and disclosures.
25
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained with this report may be deemed
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (collectively, the
"Private Securities Litigation Reform Act of 1995"). All
statements in this report other than an statements of historical
fact are forward-looking statements that are subject to known and
unknown risks, uncertainties and other factors which could cause
actual results and performance of the Company to differ materially
from such statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to,
among other things, (i) ability or inability to improve operations
and become profitable on an annualized basis and continue its
operations, (ii) the Company's ability to develop or adopt new and
existing technologies in the conduct of its operations, (iii)
anticipated financial performance, (iv) ability to comply with the
Company's general working capital requirements, (v) ability to
retain or receive certain permits or patents, (vi) ability to be
able to continue to borrow under the Company's revolving line of
credit, (vii) ability to generate sufficient cash flow from
operations to fund all costs of operations and remediation of
certain formerly leased property in Dayton, O