Notes to Consolidated Financial Statements
December 31, 2016 and 2015
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how company, is a Delaware corporation, engaged through its subsidiaries, in three reportable segments:
TREATMENT SEGMENT, which includes:
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nuclear, low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and
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research and development (“R&D”) activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.
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SERVICES SEGMENT, which includes:
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On-site waste management services to commercial and governmental customers;
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Technical services, which include:
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professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering;
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integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos
management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
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global technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers;
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Nuclear services, which include:
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technology-based services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction, logistics, transportation, processing and disposal;
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remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; site construction; logistics; transportation; and emergency response; and
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A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) of health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
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MEDICAL SEGMENT, which includes: R&D of a new medical isotope production technology by our majority-owned Polish subsidiary, Perma-Fix Medical S.A. and its wholly-owned subsidiary Perma-Fix Medical Corporation (“PFM Corporation”) (together known as “PF Medical”). The Company’s Medical Segment has not generated any revenue as it has been primarily in the R&D stage
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All costs incurred by the Medical Segment are reflected within R&D in the accompanying consolidated financial statements (see “Financial Position and Liquidity” below for further discussion of Medical Segment’s significant curtailment of its R&D activities during the latter part of 2016).
The Company’s continuing operations consist of Diversified Scientific Services, Inc. (“DSSI”), East Tennessee Materials & Energy Corporation (“M&EC”) (see “Note 3 – M&EC Facility” regarding the Company’s decision to shut down this facility by January 2018), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”), Perma-Fix of Canada, Inc. (“PF Canada”), and PF Medical (a majority-owned Polish subsidiary).
The Company’s discontinued operations (see Note 9) consist of all our subsidiaries included in our Industrial Segment which were divested in 2011 and prior, previously closed locations, and our Perma-Fix of South Georgia, Inc. (“PFSG”) facility which is non-operational and is in closure status.
Financial Position and Liquidity
The Company’s 2016 financial results were negatively impacted by certain waste treatment shipments which we expected to receive but were delayed by certain governmental customers. Although the Company saw receipt of certain of these delayed shipments in the fourth quarter of 2016, the Company expects to receive the remaining delayed waste shipments within the first nine months of 2017. The Company’s 2016 financial results were also impacted by certain non-cash impairment losses, write-offs and accruals which were recorded during the second quarter of 2016 in connection with our decision to shut down one of our facilities by January 2018 (see “Note 3 – M&EC Facility”). However, with this pending shut down of the M&EC facility, the Company expects to benefit from reductions in certain operating costs. We are in the process of transitioning waste shipments and operational capabilities from our M&EC facility to our other Treatment Segment facilities, subject to customer requirements and regulatory approvals.
The Company’s cash flow requirements during 2016 consisted of general working capital needs, scheduled payments on our debt obligations, remediation projects and planned capital expenditures and were financed primarily by our operations and credit facility availability. The Company continues to explore all sources of increasing revenue. The Company is continually reviewing operating costs and is committed to further reducing operating costs to bring them in line with revenue levels, when necessary.
During 2016, our Medical Segment continued to commit resources to the R&D of the new medical isotope production technology in pursuing the necessary steps required for eventual submission of this technology for the U.S. Food and Drug Administration (“FDA”) and other regulatory approvals and commercialization of this technology. During the latter part of 2016, our Medical Segment ceased a substantial portion of its R&D activities due to the need for substantial capital to fund such activities. We anticipate that our Medical Segment will not restart its full scale R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional equity raise. The Medical Segment has entered into a letter of intent (“LOI”) to raise capital, which is subject to the completion of a definitive agreement. Although the LOI has expired, the parties to the LOI are continuing to negotiate definitive agreements (see “Note 4 – PF Medical” for a further discussion of this proposed transaction). If the Medical Segment is unable to raise the necessary capital, the Medical Segment would be required to reduce, further delay or eliminate its R&D program.
The Company’s cash flow requirements for 2017 and into the first quarter of 2018 will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, planned capital expenditures and closure spending requirements in connection with the pending shut down of our M&EC facility which we plan to fund from operations, our credit facility availability, and the finite risk sinking funds related to our PFNWR financial assurance policy which we expect to receive by the end of the second quarter of 2017 (see “Note 14 – Commitments and Contingencies” – “Insurance” for a discussion of the finite risk sinking funds).
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, and our majority-owned Polish subsidiary, PF Medical, after elimination of all significant intercompany accounts and transactions.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Use of Estimates
When the Company prepares financial statements in conformity with accounting standards generally accepted in the United States of America (“US GAAP”), the Company makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Notes 9, 12, 13 and 14 for estimates of discontinued operations and environmental liabilities, closure costs, income taxes and contingencies for details on significant estimates.
Restricted Cash
During the first quarter of 2016, all of the restricted cash previously held in escrow at December 31, 2015 was released. Such amount represented $35,000 held in escrow for our worker’s compensation policy with the remaining representing proceeds held in escrow resulting from stock subscription agreements executed in connection with the sale of common stock by PF Medical in 2014.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date based on the customer type (government, broker, or commercial). The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts, which is a valuation allowance that reflects management's best estimate of the amounts that will not be collected. The Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and based on an assessment of current credit worthiness, estimate the portion, if any, of the balance that will not be collected. This analysis excludes government related receivables due to our past successful experience in their collectability. Specific accounts that are deemed to be uncollectible are reserved at 100% of their outstanding balance. The remaining balances aged over 60 days have a percentage applied by aging category, based on historical experience that allows us to calculate the total allowance required. Once the Company has exhausted all options in the collection of a delinquent accounts receivable balance, which includes collection letters, demands for payment, collection agencies and attorneys, the account is deemed uncollectible and subsequently written off. The write off process involves approvals from senior management based on required approval thresholds.
The following table set forth the activity in the allowance for doubtful accounts for the years ended December 31, 2016 and 2015 (in thousands):
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Year Ended December 31,
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2016
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2015
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Allowance for doubtful accounts-beginning of year
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$
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1,474
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$
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2,170
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Net recovery of bad debt reserve
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(314
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)
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(433
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)
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Write-off
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(888
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)
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(263
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)
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Allowance for doubtful accounts-end of year
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$
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272
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$
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1,474
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Retainage receivables represent amounts that are billed or billable to our customers, but are retained by the customer until completion of the project or as otherwise specified in the contract. Our retainage receivable balances are all current. Retainage receivables of approximately $0 and $229,000 as of December 31, 2016 and 2015, respectively, are included in the accounts receivable balance on the Company’s Consolidated Balance Sheets in the respective periods.
Unbilled Receivables
Unbilled receivables are generated by differences between invoicing timing and our proportional performance based methodology used for revenue recognition purposes. As major processing and contract completion phases are completed and the costs are incurred, the Company recognizes the corresponding percentage of revenue. Within our Treatment Segment, the facilities experience delays in processing invoices due to the complexity of the documentation that is required for invoicing, as well as the difference between completion of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing differences occur for several reasons: partially from delays in the final processing of all wastes associated with certain work orders and partially from delays for analytical testing that is required after the facilities have processed waste but prior to our release of waste for disposal. The tasks relating to these delays usually take several months to complete. As the Company now has historical data to review the timing of these delays, the Company realizes that certain issues, including, but not limited to, delays at our third party disposal site, can extend collection of some of these receivables greater than twelve months. However, our historical experience suggests that a significant portion of unbilled receivables are ultimately collectible with minimal concession on our part. The Company, therefore, segregates the unbilled receivables between current and long term.
Unbilled receivables within our Services Segment can result from: (1) revenue recognized by our Earned Value Management program (a program which integrates project scope, schedule, and cost to provide an objective measure of project progress) but invoice milestones have not yet been met and/or (2) contract claims and pending change orders, including Requests for Equitable Adjustments (“REAs”) when work has been performed and collection of revenue is reasonably assured.
Inventories
Inventories consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, the Company has replacement parts in inventory, which are deemed critical to the operating equipment and may also have extended lead times should the part fail and need to be replaced. Inventories are valued at the lower of cost or market with cost determined by the first-in, first-out method.
Property and Equipment
Property and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes. Generally, asset lives range from ten to forty years for buildings (including improvements and asset retirement costs) and three to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements are capitalized and amortized over the lesser of the term of the lease or the life of the asset. Maintenance and repairs are charged directly to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss from sale or retirement is recognized in the accompanying consolidated statements of operations. Renewals and improvements, which extend the useful lives of the assets, are capitalized.
In accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment”, long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.
During the second quarter of 2016, the Company recorded approximately $1,816,000 in tangible asset impairment loss in connection with the Company’s decision to shut down the M&EC facility by January 2018 (see “Note 3 – M&EC Facility” for further information of this impairment).
Our depreciation expense totaled approximately $3,717,000 and $3,246,000 in 2016 and 2015, respectively.
Intangible Assets
Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying value.
Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying amount, we perform a quantitative test to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair value. Significant judgments are inherent in these analyses and include assumptions for, among other factors,
forecasted revenue, gross margin, growth rate, operating income,
timing of expected future cash flows, and the determination of appropriate long term discount rates.
During the second quarter of 2016, we fully impaired the permit value of our M&EC subsidiary (see “Note 3 – M&EC Facility” for further information of this impairment). We performed impairment testing of our remaining permits related to our Treatment reporting unit as of October 1, 2016 and determined there was no impairment. Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2015 resulted in no impairment charges for the year ended December 31, 2015.
Intangible assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible asset valuation review as of October 1. The Company has one definite-lived permit which was excluded from our annual impairment review as noted above. Definite-lived intangible assets are also tested for impairment whenever events or changes in circumstances suggest impairment might exist.
Research and Development
(“R&D”)
Operational innovation and technical know-how is very important to the success of our business. Our goal is to discover, develop, and bring to market innovative ways to process waste that address unmet environmental needs and to develop new company service offerings. The Company conducts research internally and also through collaborations with other third parties. R&D costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development and enhancement of new potential waste treatment processes and new technology and are charged to expense when incurred in accordance with ASC Topic 730, “Research and Development.” The Company’s R&D expenses included approximately $1,489,000 and $2,114,000 for the years ended December 31, 2016 and 2015, respectively, incurred by our Medical Segment in the R&D of its medical isotope production technology.
Accrued Closure Costs and Asset Retirement Obligations (“ARO”)
Accrued closure costs represent our estimated environmental liability to clean up our facilities, as required by our permits, in the event of closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations, and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property. In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Increases in the ARO liability due to passage of time impact net income as accretion expense, which is included in cost of goods sold. Changes in costs resulting from changes or expansion at the facilities require adjustment to the ARO liability and are capitalized and charged as depreciation expense, in accordance with the Company’s depreciation policy.
Income Taxes
Income taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to the temporary differences between financial reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company evaluates the realizability of its deferred income tax assets annually (see “Note 13 – Income Taxes” for further information of this assessment).
ASC 740 sets out a consistent framework for preparers to use to determine the appropriate recognition and measurement of uncertain tax positions. ASC 740 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized. ASC 740 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense.
The Company reassesses the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit.
Foreign
Currency
The Company’s foreign subsidiaries include PF UK Limited, PF Canada and PF Medical. Assets and liabilities are translated to U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for the period. Foreign currency translation adjustments for these subsidiaries are accumulated as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions are recognized in the Consolidated Statements of Operations.
Concentration Risk
The Company performed services relating to waste generated by the federal government, either directly as a prime contractor or indirectly for others as a subcontractor to the federal government, representing approximately $27,354,000 or 53.4% of total revenue during 2016, as compared to $36,105,000 or 57.9% of total revenue during 2015.
Revenue generated by one of the customers (PSC Metal, Inc.) (non-government related and excluded from above) in the Services Segment accounted for approximately $9,763,000 or 19.1% of the total revenues generated for the twelve months ended December 31, 2016. Project work for this customer commenced in March 2016 and was completed in December 2016. Revenue generated by another customer (Prologis Teterboro, LLC) (non-government related and excluded from above) in the Services Segment accounted for $10,686,000 or 17.1% of the total revenues generated for the twelve months ended December 31, 2015. Project work for this customer was completed in December 2015.
As our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with a different customer from year to year, we do not believe the loss of one specific customer from one year to the next will generally have a material adverse effect on our operations and financial condition.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains cash with high quality financial institutions, which may exceed Federal Deposit Insurance Corporation (“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to accounts receivable is limited due to the Company's large number of customers and their dispersion throughout the United States as well as with the significant amount of work that we perform for the federal government as discussed above.
The Company has two customers whose net outstanding receivable balance represented 10.1% and 20.8% of the Company’s total consolidated net accounts receivable at December 31, 2016. The Company had one customer whose net outstanding receivable balance represented 16.2% of the Company’s total consolidated net accounts receivable at December 31, 2015.
Gross Receipts Taxes and Other Charges
ASC 605-45, “Revenue Recognition – Principal Agent Consideration” provides guidance regarding the accounting and financial statement presentation for certain taxes assessed by a governmental authority. These taxes and surcharges include, among others, universal service fund charges, sales, use, waste, and some excise taxes. In determining whether to include such taxes in its revenue and expenses, the Company assesses, among other things, whether it is the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where the Company does business. As the Company is merely a collection agent for the government authority in certain of our facilities, the Company records the taxes on a net bases and excludes them from revenue and cost of services.
Revenue Recognition
Treatment Segment r
evenues.
The processing of mixed waste is complex and may take several months or more to complete; as such, the Treatment Segment recognizes revenues using a proportional performance based methodology with its measure of progress towards completion determined based on output measures consisting of milestones achieved and completed. The Treatment Segment has waste tracking capabilities, which it continues to enhance, to allow for better matching of revenues earned to the processing phases achieved. The revenues are recognized as each of the following three processing phases are completed: receipt, treatment/processing and shipment/final disposal. However, based on the processing of certain waste streams, the treatment/processing and shipment/final disposal phases may be combined as sometimes they are completed concurrently. As major processing phases are completed and the costs are incurred, the Treatment Segment recognizes the corresponding percentage of revenue utilizing a proportional performance model. The Treatment Segment experiences delays in processing invoices due to the complexity of the documentation that is required for invoicing, as well as the difference between completion of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing differences occur for several reasons, partially from delays in the final processing of all wastes associated with certain work orders and partially from delays for analytical testing that is required after the waste is processed waste but prior to our release of the waste for disposal. As the waste moves through these processing phases and revenues are recognized, the correlating costs are expensed as incurred. Although the Treatment Segment uses its best estimates and all available information to accurately determine these disposal expenses, the risk does exist that these estimates could prove to be inadequate in the event the waste requires retreatment. Furthermore, should the waste be returned to the customer, the related receivables could be uncollectible; however, historical experience has not indicated this to be a material uncertainty.
Services Segment revenues
. Revenue includes services performed under time and material, fixed price, and cost-reimbursement contracts. Revenues and costs associated with fixed price contracts are recognized using the percentage of completion (efforts expended) method. The Services Segment estimates its percentage of completion based on attainment of project milestones. Revenues and costs associated with time and material contracts are recognized as revenue when earned and costs are incurred.
Under cost reimbursement contracts, the Services Segment is reimbursed for costs incurred plus a certain percentage markup for indirect costs, in accordance with contract provisions. Costs incurred in excess of contract funding may be renegotiated for reimbursement. The Services Segment also earns a fee based on the approved costs to complete the contract. The Services Segment recognizes this fee using the proportion of costs incurred to total estimated contract costs.
Contract costs include all direct labor, material and other non-labor costs and those indirect costs related to contract support, such as depreciation, fringe benefits, overhead labor, supplies, tools, repairs and equipment rental. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”.
ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards which requires subjective assumptions. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield.
The Company recognizes stock-based compensation expense using a straight-line amortization method over the requisite service period, which is the vesting period of the stock option grant. As ASC 718 requires that stock-based compensation expense be based on options that are ultimately expected to vest, our stock-based compensation expense is reduced by an estimated forfeiture rate. Our estimated forfeiture rate is generally based on historical trends of actual forfeitures.
Comprehensive Income
(Loss)
The components of comprehensive income (loss) are net income (loss) and the effects of foreign currency translation adjustments.
Income (Loss) Per Share
Basic income (loss) per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted income (loss) per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share. Income (loss) per share is computed separately for each period presented.
Fair Value of Financial Instruments
Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded at fair value on a nonrecurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level 1
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Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2
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Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3
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Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.
Financial instruments include cash and restricted cash (Level 1), accounts receivable, accounts payable, and debt obligations (Level 3). Credit is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required. At December 31, 2016 and December 31, 2015, the fair value of the Company’s financial instruments approximated their carrying values. The fair value of the Company’s revolving credit and term loan approximate its carrying value due to the variable interest rate.
Recently Adopted Accounting Standards
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred
charge asset. It is effective for annual reporting periods beginning after December 15, 2015 (including interim reporting periods), but early adoption is permitted.
The Company adopted ASU 2015-03 retroactively in the first quarter of 2016. The adoption of ASU 2015-03 did not have a material impact to the Company’s results of operations, cash flows or financial position. The adoption of ASU 2015-03 resulted in a decrease in prepaid and other assets of approximately $152,000, a decrease in current portion of long-term debt of $27,000, and a decrease in long-term debt, less current portion of $125,000 for the previously reported balances as of December 31, 2015 in the accompanying Consolidated Balance Sheets.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard is effective for all entities for the first annual period ending after December 15, 2016. The adoption of ASU 2014-15 during the fourth quarter of 2016 did not have a material impact on our financial statements (see “Note 1 – Description of Business and Basis of Presentation” for discussion of the Company’s liquidity).
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” ASU
2015-11 requires that inventory within the scope of this update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU 2015-11 by the Company in the fourth quarter of 2016 did not have a material impact on our financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 is
effective for interim and annual periods beginning after December 15, 2016. The adoption of ASU 2015-11 did not have a material impact on our financial statements.
Recently Issued Accounting Standards – Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," as amended, which will supersede nearly all existing revenue recognition guidance. ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. ASU 2014-09 require a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Early adoption is permitted for ASU 2014-09, as amended, to the original effective date of period beginning after December 15, 2016 (including interim reporting periods within those periods). ASU 2014-09 may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently in the early stages of evaluating these ASUs to determine the impact they will have on our financial statements. Also, the Company is currently still reviewing the transition method it will select upon adoption of this guidance.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)," which aims to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. Subsequently, in November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230), Restricted Cash, a consensus of the FASB Emerging Issues Task Force," which clarifies the guidance on the cash flow classification and presentation of changes in restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flow. ASU 2016-15 and ASU 2016-18 are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company does not expect the adoption of these ASUs to have a material impact on our financial statements.
In October 2016, the FASB issued ASU 2016-16
,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” which eliminates the existing exception in U.S. GAAP prohibiting the recognition of the income tax consequences for intra-entity asset transfers. Under ASU 2016-16, entities will be required to recognize the income tax consequences of intra-entity asset transfers other than inventory when the transfer occurs. ASU 2016-16 is effective on a modified retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is still evaluating the potential impact of this ASU on its consolidated financial statements.
NOTE 3
M&EC FACILITY
During the second quarter of 2016, the Company’s M&EC subsidiary was notified by the lessor that the lease agreement under which M&EC currently operates its Oak Ridge, Tennessee facility would not be renewed at the end of the current lease term ending January 21, 2018. In light of this event and our strategic review of operations within our Treatment Segment, the Company is proceeding with a plan to close its M&EC facility located in Oak Ridge, Tennessee at the end of the lease term. Operations at the M&EC facility are continuing during the remaining term of the lease and the facility has begun the process of transitioning waste shipments and operational capabilities to our other Treatment Segment facilities, subject to customer requirements and regulatory approvals.
Simultaneously, the Company has begun required clean-up/maintenance procedures at M&EC’s Oak Ridge, Tennessee facility in accordance with M&EC’s Resource Conservation and Recovery Act (“RCRA”) permit requirements. As a result of the Company’s decision to close its M&EC facility, the Company’s financial results were impacted by certain non-cash impairment losses, write-offs and accruals recorded during the second quarter of 2016 as described below.
The Company performs its annual intangible test as of October 1 of each year. As permitted by ASC 350, “Intangibles-Goodwill and Other,” when an impairment indicator arises during an interim reporting period, the Company may recognize its best estimates of that impairment loss. The Company performed a discounted cash flow analysis prepared as of June 30, 2016 for M&EC’s intangible assets (permits), utilizing our best estimates of projected future cash flows. Based on this analysis, the Company concluded that potential impairment existed and subsequently determined that the permit for our M&EC subsidiary was fully impaired as a result of the non-renewal of the lease, resulting in an intangible impairment loss of approximately $8,288,000.
M&EC is required to complete certain clean-up/maintenance activities at its Oak Ridge, Tennessee facility pursuant to its RCRA permit. The extent and cost of these activities are determined by federal/state mandate requirements. The Company performed an analysis and related estimate of the cost to complete the RCRA portion of these activities and based on this analysis, the Company recorded an additional $1,626,000 in closure liabilities with a corresponding increase to capitalized ARO costs, which is to be depreciated over the remaining term of the lease. The capitalized ARO costs is reported as a component of “Net Property and equipment” in the Consolidated Balance Sheets.
In accordance with ASC 360, “Property, Plant, and Equipment,” the Company also performed an updated financial valuation of M&EC’s long-lived tangible assets, inclusive of the capitalized asset retirement costs, for potential impairment. Based on our analysis using an undiscounted cash flows approach, the Company concluded that the carrying value of certain tangible assets (property and equipment) for M&EC was not recoverable and exceeded its fair value. Consequently, the Company recorded $1,816,000 in tangible asset impairment loss in the second quarter of 2016. The Company also reevaluated the estimated useful lives of the remaining tangible assets and as a result of this analysis, reduced the current estimated useful lives of these assets ranging from 2 to 28 years at June 30, 2016 to 1.6 years, the remaining term of the lease. Accordingly, the Company is depreciating the carrying value of M&EC’s remaining tangible assets of approximately $4,728,000 at June 30, 2016 over a period of approximately 1.6 years to the lease expiration date.
In the second quarter of 2016, the Company also wrote-off approximately $587,000 in fees previously incurred relating to emission performance testing certification requirement in order to meet state compliance mandate in connection with certain M&EC equipment which was impaired. Such amount had been previously included in “Prepaid and other assets” on the Consolidated Balance Sheets.
During the year ended December 31, 2016 and 2015, M&EC’s revenues were approximately $4,419,000 and $6,591,000, respectively.
NOTE4
PF MEDICAL
On July 24, 2015, PF Medical, the Company’s majority-owned Polish subsidiary, and Digirad Corporation, a Delaware corporation (“Digirad”), Nasdaq: DRAD, entered into a multi-year Tc-99m Supplier Agreement (the “Supplier Agreement”) and a Series F Stock Subscription Agreement (the “Subscription Agreement”), (together, the “Digirad Agreements”). The Supplier Agreement became effective upon the completion of the Subscription Agreement. Pursuant to the terms of the Digirad Agreements,
Digirad purchased, in a private placement, 71,429 shares of PF Medical’s restricted Series F Stock for an aggregate purchase price of $1,000,000, which was received on July 24, 2015. Legal expenses incurred for this offering totaled approximately $29,000. The 71,429 share investment made by Digirad constituted approximately 5.4% of the outstanding common shares of PF Medical. As a result of this transaction, the Company’s ownership interest in PF Medical diluted from approximately 64.0% to 60.5%. The Supplier Agreement provides, among other things, that upon PF Medical’s commercialization of certain Tc99m generators, Digirad will purchase agreed upon quantities of Tc-99m for its nuclear imaging operations either directly or in conjunction with its preferred nuclear pharmacy supplier and PF Medical will supply Digirad, or its preferred nuclear pharmacy supplier, with Tc-99m at a preferred pricing, subject to certain conditions.
On October 11, 2016, the Company and its Medical Segment entered into a letter of intent (“LOI”) with a private investor, subject to certain closing and other conditions, including, but not limited to, the execution of a definitive agreement, for the purchase of $10,000,000 of Preferred Shares in PFM Corporation at a price of $8.00 per share. The termination date of the LOI has since expired but the parties continue to negotiate definitive agreements with the following proposed terms, among other things, $5,000,000 to be invested by the investor at the initial closing and $5,000,000 to be invested at the second closing which is to occur within 120 days after the initial closing. Upon the initial closing, one half of the Preferred Shares will be issued to the investor and the remaining half of the Preferred Shares will be issued to the investor at the second closing. The Preferred Shares of PFM Corporation to be issued to the investor would be voting securities and, after completion of both closings, the investor will own approximately 48.6% of PFM Corporation’s issued and outstanding voting securities and Perma-Fix Medical S.A. will own the balance of PFM Corporation’s voting securities. At each closing, subject to certain terms and conditions, the investor would also receive a 48-month warrant to purchase up to 468,750 shares of PFM Corporation’s common stock at an exercise price of $9.00 for each share. In addition, at the initial closing, the Company would receive a 48 month warrant, subject to certain terms and conditions, to purchase up to 183,606 shares of PFM Corporation’s common stock at an exercise price of $14.00 per share. Further, the Company would be repaid $500,000 of the amounts owed to it by the Medical Segment within 30 days after the initial closing and the remaining balance (which stands at approximately $1,962,000 at December 31, 2016) within 120 days after the initial closing.
NOTE 5
PERMIT AND OTHER INTANGIBLE ASSETS
The following table summarizes changes in the carrying amount of permits. No permit exists at our Services and Medical Segment.
Permit (amount in thousands)
|
|
Treatment
|
|
Balance as of December 31, 2014
|
|
$
|
16,709
|
|
PCB permit amortized
(1)
|
|
|
(55
|
)
|
Permit in progress
|
|
|
107
|
|
Balance as of December 31, 2015
|
|
|
16,761
|
|
PCB permit amortized
(1)
|
|
|
(55
|
)
|
Permit in progress
|
|
|
56
|
|
Permit impairment for M&EC subsidiary
|
|
|
(8,288
|
)
|
Balance as of December 31, 2016
|
|
$
|
8,474
|
|
(1)
Amortization for the one definite-lived permit capitalized in 2009. This permit is being amortized over a ten year period in accordance with its estimated useful life. Net carrying value of this permit was approximately $117,000 and $172,000 as of December 31, 2016 and 2015, respectively.
The following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Useful
Lives
(Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Intangibles (amount in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
3
|
-
|
17
|
|
|
$
|
577
|
|
|
$
|
(274
|
)
|
|
$
|
303
|
|
|
$
|
539
|
|
|
$
|
(203
|
)
|
|
$
|
336
|
|
Software
|
|
|
3
|
|
|
|
|
405
|
|
|
|
(383
|
)
|
|
|
22
|
|
|
|
395
|
|
|
|
(364
|
)
|
|
|
31
|
|
Customer relationships
|
|
|
12
|
|
|
|
|
3,370
|
|
|
|
(1,974
|
)
|
|
|
1,396
|
|
|
|
3,370
|
|
|
|
(1,671
|
)
|
|
|
1,699
|
|
Permit
|
|
|
10
|
|
|
|
|
545
|
|
|
|
(428
|
)
|
|
|
117
|
|
|
|
545
|
|
|
|
(373
|
)
|
|
|
172
|
|
Total
|
|
|
|
|
|
|
$
|
4,897
|
|
|
$
|
(3,059
|
)
|
|
$
|
1,838
|
|
|
$
|
4,849
|
|
|
$
|
(2,611
|
)
|
|
$
|
2,238
|
|
The intangible assets are amortized on a straight-line basis over their useful lives with the exception of customer relationships which are being amortized using an accelerated method.
The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
Year
|
|
Amount
(In thousands)
|
|
|
|
|
|
|
2017
|
|
$
|
372
|
|
2018
|
|
|
337
|
|
2019
|
|
|
254
|
|
2020
|
|
|
218
|
|
2021
|
|
|
198
|
|
|
|
$
|
1,379
|
|
Amortization expense recorded for definite-lived intangible assets was approximately $448,000 and $471,000, for the years ended December 31, 2016 and 2015, respectively.
NOTE 6
CAPITAL STOCK, STOCK PLANS, WARRANTS, AND STOCK BASED COMPENSATION
Stock Option Plans
The Company adopted the 2003 Outside Directors Stock Plan (the “2003 Plan”), which was approved by our stockholders at the Annual Meeting of Stockholders on July 29, 2003. Options granted under the 2003 Plan generally have a vesting period of six months from the date of grant and a term of 10 years, with an exercise price equal to the closing trade price on the date prior to grant date. The 2003 Plan also provides for the issuance to each outside director a number of shares of Common Stock in lieu of 65% or 100% (based on option elected by each director) of the fee payable to the eligible director for services rendered as a member of the Board of Directors (“Board”). The number of shares issued is determined at 75% of the market value as defined in the plan. The 2003 Plan, as amended, also provides for the grant of an option to purchase up to 6,000 shares of Common Stock for each outside director upon initial election to the Board, and the grant of an option to purchase 2,400 shares of Common Stock upon each re-election. The number of shares of the Company’s Common Stock authorized under the 2003 Plan is 800,000, pursuant to the 2003 Plan, as amended.
On April 28, 2010, the Company adopted the
2010 Stock Option Plan (“2010 Plan”), which was approved by our stockholders at the Company’s Annual Meeting of Stockholders on September 29, 2010. The 2010 Plan authorizes an aggregate grant of 200,000 Non-Qualified Stock Options (“NQSOs”) and Incentive Stock Options (“ISOs”) to officers and employees of the Company for the purchase of up to 200,000 shares of the Company’s Common Stock. The term of each stock option granted shall be fixed by the Compensation and Stock Option Committee (“Compensation Committee”), but no stock options will be exercisable more than ten years after the grant date, or in the case of an incentive stock option granted to a 10% stockholder, five years after the grant date. The exercise price of any ISO granted under the 2010 Plan to an individual who is not a 10% stockholder at the time of the grant shall not be less than the fair market value of the shares at the time of the grant, and the exercise price of any incentive stock option granted to a 10% stockholder shall not be less than 110% of the fair market value at the time of grant. The exercise price of any NQSOs granted under the plan shall not be less than the fair market value of the shares at the time of grant.
No employees exercised options during 2016 and 2015. During 2015, the Company issued a total of 3,423 shares of our Common Stock upon exercise of 3,423 NQSOs by an outside director from the 2003 Plan, at an exercise price of $2.79 per share which resulted in total proceeds of approximately $10,000.
The summary of the Company’s total plans as of December 31, 2016 and 2015, and changes during the period then ended are presented as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
(2)
|
|
Options outstanding January 1, 2016
|
|
|
218,200
|
|
|
$
|
7.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
62,000
|
|
|
|
4.09
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
─
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(33,000
|
)
|
|
|
8.14
|
|
|
|
|
|
|
|
|
|
Options outstanding end of period
(1)
|
|
|
247,200
|
|
|
$
|
6.69
|
|
|
|
4.3
|
|
|
$
|
20,940
|
|
Options exercisable at December 31, 2016
(1)
|
|
|
181,867
|
|
|
$
|
7.61
|
|
|
|
3.7
|
|
|
$
|
20,940
|
|
Options vested and expected to be vested at December 31, 2016
|
|
|
239,750
|
|
|
$
|
6.78
|
|
|
|
4.3
|
|
|
$
|
20,940
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
(2)
|
|
Options outstanding January 1, 2015
|
|
|
239,023
|
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
12,000
|
|
|
|
4.19
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,423
|
)
|
|
|
2.79
|
|
|
|
|
|
|
$
|
4,298
|
|
Forfeited/expired
|
|
|
(29,400
|
)
|
|
|
8.13
|
|
|
|
|
|
|
|
|
|
Options outstanding end of period
(1)
|
|
|
218,200
|
|
|
$
|
7.65
|
|
|
|
4.8
|
|
|
$
|
14,676
|
|
Options exercisable at December 31, 2015
(1)
|
|
|
169,533
|
|
|
$
|
8.47
|
|
|
|
4.5
|
|
|
$
|
14,676
|
|
Options vested and expected to be vested at December 31, 2015
|
|
|
212,333
|
|
|
$
|
7.72
|
|
|
|
4.8
|
|
|
$
|
14,676
|
|
(1)
Options with exercise prices ranging from $2.79 to $14.75
(2)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price of the option.
The summary of the Company’s nonvested options as of December 31, 2016 and changes during the period then ended are presented as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
Non-vested options January 1, 2016
|
|
|
48,667
|
|
|
$
|
2.87
|
|
Granted
|
|
|
62,000
|
|
|
|
2.19
|
|
Vested
|
|
|
(30,334
|
)
|
|
|
2.87
|
|
Forfeited
|
|
|
(15,000
|
)
|
|
|
2.88
|
|
Non-vested options at December 31, 2016
|
|
|
65,333
|
|
|
$
|
2.23
|
|
Capital Stock Issued for Services
The Company issued a total of 55,793 and 71,324 shares of our Common Stock in 2016 and 2015, respectively, under our 2003 Plan to our outside directors as compensation for serving on our Board. As a member of the Board, each director elects to receive either 65% or 100% of the director’s fee in shares of our Common Stock. The number of shares received is calculated based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due. The balance of each director’s fee, if any, is payable in cash. The Company recorded approximately $233,000 and $269,000 in compensation expense for the twelve months ended December 31, 2016 and 2015, respectively, for the portion of director fees earned in the Company’s Common Stock.
Preferred Share Rights Plan
In May 2008, the Company adopted a preferred share rights plan (the “Rights Plan”), designed to ensure that all of our stockholders receive fair and equal treatment in the event of a proposed takeover or abusive tender offer.
In general, under the terms of the Rights Plan, subject to certain limited exceptions, if a person or group acquires 20% or more of our Common Stock or a tender offer or exchange offer for 20% or more of our Common Stock is announced or commenced, our other stockholders may receive upon exercise of the rights (the “Rights”) issued under the Rights Plan the number of shares our Common Stock or of one-one hundredths of a share of our Series A Junior Participating Preferred Stock, par value $.001 per share, having a value equal to two times the purchase price of the Right. In addition, if the Company is acquired in a merger or other business combination transaction in which we are not the survivor or more than 50% of our assets or earning power is sold or transferred, then each holder of a Right (other than the acquirer) will thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the Right. The initial purchase price of each Right was $13.00, subject to adjustment as defined in plan.
The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors. The Rights may be redeemed by us at $0.001 per Right at any time before any person or group acquires 20% or more of our outstanding Common Stock. The Rights expire on May 2, 2018.
Warrants
and Capital Stock Issuance for Debt
As of December 31, 2016, the Company has no Warrant outstanding. On August 2, 2016, the Company issued an aggregate of 70,000 shares of the Company Common Stock resulting from the exercise of two Warrants, at an exercise price of $2.23, issued to two lenders in connection with a $3,000,000 loan dated August 2, 2013 received by the Company (See Note 10 – “Long-Term Debt – Promissory Note” for further information on the exercise of the Warrants and the loan).
Shares Reserved
At December 31, 2016, the Company has reserved approximately 247,200 shares of Common Stock for future issuance under all of the option arrangements.
Stock Based Compensation
As discussed above, the Company has certain stock option plans which it awards NQSOs and ISOs to employees, officers, and outside directors. Stock options granted to employees generally have a six year contractual term with one-third yearly vesting over a three year period. Stock options granted to outside directors generally have a ten year contractual term with vesting period of six months.
On May 15, 2016, the Company granted 50,000 ISOs from the Company’s 2010 Stock Option Plan to our newly named Executive Vice President (“EVP”). The ISOs granted were for a contractual term of six years with one-third vesting annually over a three year period. The exercise price of the ISOs was $3.97 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
On July 28, 2016, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the seven re-elected directors at our Annual Meeting of Stockholders held on July 28, 2016. Two of the directors are not eligible to receive options under the 2003 Plan as they are employees of the Company or its subsidiaries. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSOs was $4.60 per share, which was equal to the Company’s closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted during 2016 and 2015 and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows (No options were granted to employees during 2015):
|
|
Employee Stock Option Granted
May 15, 2016
|
|
Weighted-average fair value per share
|
|
$
|
2.00
|
|
Risk -free interest rate
(1)
|
|
|
1.27%
|
|
Expected volatility of stock
(2)
|
|
|
53.12%
|
|
Dividend yield
|
|
|
None
|
|
Expected option life
(3)
(in years)
|
|
|
6.0
|
|
|
|
Outside Director Stock Options Granted
|
|
|
|
July 28, 2016
|
|
|
September 17, 2015
|
|
Weighted-average fair value per share
|
|
$
|
3.0
|
|
|
$
|
2.84
|
|
Risk -free interest rate
(1)
|
|
|
1.52%
|
|
|
|
2.21%
|
|
Expected volatility of stock
(2)
|
|
|
55.99%
|
|
|
|
57.98%
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
Expected option life
(3)
(in years)
|
|
|
10.0
|
|
|
|
10.0
|
|
(1)
The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.
(2)
The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
(3
)
The expected option life is based on historical exercises and post-vesting data.
The following table summarizes stock-based compensation recognized for fiscal years 2016 and 2015.
|
|
Year Ended
|
|
|
|
2016
|
|
|
2015
|
|
Employee Stock Options
|
|
$
|
53,000
|
|
|
$
|
53,000
|
|
Director Stock Options
|
|
|
45,000
|
|
|
|
39,000
|
|
Total
|
|
$
|
98,000
|
|
|
$
|
92,000
|
|
As of December 31, 2016, the Company has approximately $74,000 of total unrecognized compensation cost related to unvested options, of which $43,000 is expected to be recognized in 2017, $30,000 in 2018, with the remaining $1,000 in 2019.
NOTE 7
INCOME (LOSS) PER SHARE
The following table reconciles the income (loss) and average share amounts used to compute both basic and diluted income (loss) per share:
|
|
Twelve Months Ended
December 31,
|
|
(Amounts in Thousands, Except for Per Share Amounts)
|
|
2016
|
|
|
2015
|
|
Net income (loss) attributable to Perma-Fix Environmental Services,
Inc., common stockholders:
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
(12,675
|
)
|
|
$
|
814
|
|
Loss from discontinuing operations attributable to
Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
(730
|
)
|
|
|
(1,864
|
)
|
Net loss attributable to Perma-Fix Environmental Services, Inc.
common stockholders
|
|
$
|
(13,405
|
)
|
|
$
|
(1,050
|
)
|
|
|
|
|
|
|
|
|
|
Basic loss per share attributable to Perma-Fix Environmental
Services, Inc. common stockholders
|
|
$
|
(1.15
|
)
|
|
$
|
(.09
|
)
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to Perma-Fix Environmental
Services, Inc. common stockholders
|
|
$
|
(1.15
|
)
|
|
$
|
(.09
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
11,608
|
|
|
|
11,516
|
|
Add: dilutive effect of stock options
|
|
─
|
|
|
|
6
|
|
Add: dilutive effect of warrants
|
|
─
|
|
|
|
30
|
|
Diluted weighted average shares outstanding
|
|
|
11,608
|
|
|
|
11,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares excluded from above weighted average share
calcualtions due to their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
150
|
|
|
|
183
|
|
NOTE 8
PREFERRED STOCK ISSUANCE AND CONVERSION
Series B Preferred Stock
The Series B Preferred Stock of the Company’s subsidiary, M&EC, is non-voting and non-convertible, has a $1.00 liquidation preference per share and may be redeemed at the option of the former stockholders of M&EC at any time for the per share price of $1.00. The holders of the Series B Preferred Stock will be entitled to receive when, as, and if declared by the Board of M&EC out of legally available funds, dividends at the rate of 5% per year per share applied to the amount of $1.00 per share, which dividends are fully cumulative. M&EC has not paid any of the cumulative dividends since the Series B Preferred Stock was issued. M&EC has been accruing dividends for the Series B Preferred Stock issued July 2002, and have accrued a total of approximately $931,000 of unpaid cumulative dividends since July 2002, of which $64,000 was accrued in each of the years ended December 31, 2003 to 2016 and is included in other long term liabilities in the accompanying Consolidated Balance Sheets.
NOTE 9
DISCONTINUED OPERATIONS
The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment: (1) subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility which is currently undergoing closure, subject to regulatory approval.
The following table presents the major class of assets of discontinued operations as of December 31, 2016 and 2015. On May 2, 2016, Perma-Fix of Michigan, Inc. (“PFMI” – a closed location) entered into an Agreement for the sale of the property (which was held for sale as of December 31, 2015) for a price of $450,000. The Agreement provides for a down payment of approximately $75,000. After certain closing and settlement costs, PFMI received approximately $46,000. The Agreement also provides for, among other things, the balance of the purchase price of $375,000 to be paid by the buyer in 60 equal monthly installments of approximately $7,250, with the first payment due June 15, 2016. As of December 31, 2016, receivables related to this transaction totaled approximately $337,000, of which approximately $69,000 is included in “Current assets related to discontinued operations” and approximately $268,000 is included in “Other assets related to discontinued operations” in the accompanying Consolidated Balance Sheets. No assets and liabilities are held for sale as of December 31, 2016.
(Amounts in Thousands)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Current assets
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
85
|
|
|
$
|
34
|
|
Total current assets
|
|
|
85
|
|
|
|
34
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
(1)
|
|
|
81
|
|
|
|
531
|
|
Other assets
|
|
|
268
|
|
|
|
—
|
|
Total long-term assets
|
|
|
349
|
|
|
|
531
|
|
Total assets
|
|
$
|
434
|
|
|
$
|
565
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13
|
|
|
$
|
85
|
|
Accrued expenses and other liabilities
|
|
|
268
|
|
|
|
437
|
|
Environmental liabilities
|
|
|
677
|
|
|
|
9
|
|
Total current liabilities
|
|
|
958
|
|
|
|
531
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Closure liabilities
|
|
|
113
|
|
|
|
173
|
|
Environmental liabilities
|
|
|
248
|
|
|
|
891
|
|
Total long-term liabilities
|
|
|
361
|
|
|
|
1,064
|
|
Total liabilities
|
|
$
|
1,319
|
|
|
$
|
1,595
|
|
(1)
net of accumulated depreciation of $10,000 for each period presented.
The following table summarizes the results of discontinued operations for the years ended December 31, 2016 and 2015.
|
|
For The Year Ended December 31,
|
|
Amount in Thousands
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
(401
|
)
|
Operating loss from discontinued operations
|
|
|
(730
|
)
|
|
|
(1,915
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
(51
|
)
|
Loss from discontinued operations
|
|
|
(730
|
)
|
|
|
(1,864
|
)
|
Our loss for the twelve months ended December 31, 2015 included a penalty in the amount of approximately $201,000 recorded for PFSG in connection with a Consent Order from the Georgia Department of Natural Resources Environmental Protection Division and an asset impairment charge of $150,000 recorded for PFMI in connection with the sale of property as discussed above. In addition, our net loss for the twelve months ended December 31, 2015 included $407,000 in expenses (with $400,000 recorded as interest expenses) recorded in the fourth quarter of 2015 in connection with an arbitration award that PFSG was required to pay to a contractor hired to perform emergency response services at our PFSG subsidiary resulting from the fire which occurred at the facility in 2013. Remaining losses for the periods discussed above were primarily due to costs incurred in the administration and continued monitoring of our discontinued operations.
Environmental Liabilities
The Company has three remediation projects, which are currently in progress at our Perma-Fix of Dayton, Inc. (“PFD”), Perma-Fix of Memphis, Inc. (“PFM” – closed location), and PFSG (in closure status) subsidiaries. The Company divested PFD in 2008; however, the environmental liability of PFD was retained by the Company upon the divestiture of PFD. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators.
At December 31, 2016, we had total accrued environmental remediation liabilities of $925,000, of which $677,000 are recorded as a current liability, an increase of $25,000 from the December 31, 2015 balance of $900,000. The net increase of $25,000 represents payments on remediation projects at PFSG and an increase to the reserve of approximately $66,000 at PFD due to reassessment of the remediation reserve.
The current and long-term accrued environmental liability at December 31, 2016 is summarized as follows (in thousands).
|
|
Current
Accrual
|
|
|
Long-term
Accrual
|
|
|
Total
|
|
PFD
|
|
$
|
75
|
|
|
$
|
60
|
|
|
$
|
135
|
|
PFM
|
|
|
—
|
|
|
|
15
|
|
|
|
15
|
|
PFSG
|
|
|
602
|
|
|
|
173
|
|
|
|
775
|
|
Total liability
|
|
$
|
677
|
|
|
$
|
248
|
|
|
$
|
925
|
|
NOTE 10
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2016 and December 31, 2015:
(Amounts in Thousands)
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Revolving Credit
facility dated October 31, 2011, as amended, borrowings based upon
eligible accounts receivable, subject to monthly borrowing base calculation, balance due
March 24, 2021. Effective interest rate for 2016 and 2015 was 3.9% and 4.0%,
respectively. (1) (2)
|
|
$
|
3,803
|
|
|
$
|
2,349
|
|
Term Loan
dated October 31, 2011, as amended, payable in equal monthly installments of
principal of $102, balance due on March 24, 2021. Effective interest rate for 2016 and 2015
was 3.8% and 3.7%, respectively.
(1) (2)
|
|
|
5,030
|
(5)
|
|
|
6,514
|
(5)
|
Promissory Note
dated August 2, 2013, payable in twelve monthly installments of interest
only, starting September 1, 2013 followed with twenty-four monthly installments of $125 in
principal plus accrued interest (at annual rate of 2.99%). Note paid in full in August 2016.
(3) (4)
|
|
|
─
|
|
|
|
950
|
(4)
|
Capital lease (
interest at rate of 6.0%)
|
|
|
─
|
|
|
|
23
|
|
Total debt
|
|
|
8,833
|
|
|
|
9,836
|
|
Less current portion of long-term debt
|
|
|
1,184
|
|
|
|
2,431
|
|
Long-term debt
|
|
$
|
7,649
|
|
|
$
|
7,405
|
|
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property, plant, and equipment.
(2)
See below “Revolving Credit and Term Loan Agreement” for monthly payment interest options. Prior to April 1, 2016, the monthly installment payment under the term loan was approximately $190,000.
(3)
Uncollateralized note.
(4)
Net of debt discount of ($50,000) at December 31, 2015. See “Promissory Notes” below for additional information.
(5)
Net of debt issuance costs of ($151,000) and ($152,000) at December 31, 2016 and December 31, 2015, respectively.
Revolving Credit and Term Loan
Agreement
The Company is subject to an Amended and Restated Revolving Credit, Term Loan and Security Agreement (“Loan Agreement”) with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement, as subsequently amended prior to the March 24, 2016 amendment discussed below (“Amended Loan Agreement”), provided the Company with the following credit facility: (a) up to $12,000,000 revolving line of credit (“revolving credit”), subject to the amount of borrowings based on a percentage of eligible receivables (as defined) and (b) a term loan (“term loan”) of $16,000,000, which required monthly installments of approximately $190,000 (based on a seven-year amortization).
Under the Amended Loan Agreement, the Company had the option of paying an annual rate of interest due on the revolving credit at prime plus 2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the term loan at prime plus 2.5% or LIBOR plus 3.5%.
On March 24, 2016, the Company entered into an amendment to the Amended Loan Agreement with PNC which provided, among other things, the following (the amendment, together with the Amended Loan Agreement is collectively the “Revised Loan Agreement”):
|
●
|
extended the due date of our credit facility from October 31, 2016 to March 24, 2021 (“maturity date”);
|
|
●
|
amended the term loan to approximately $6,100,000, which requires monthly payments of $101,600 (based on a five-year amortization) and which approximated the term loan balance under the existing credit facility at the date of the amendment. The revolving credit remains at up to $12,000,000 (subject to the amount of borrowings based on a percentage of eligible receivables as previously defined under the Amended Loan Agreement);
|
|
●
|
released $1,000,000 of the $1,500,000 borrowing availability restriction that the lender had previously placed on the Company in connection with the insurance settlement proceeds received in 2014 by our PFSG facility. The Company’s lender had authorized the Company to use such proceeds for working capital purposes but had placed an indefinite reduction on our borrowing availability of $1,500,000;
|
|
●
|
revised the interest payment options to paying an annual rate of interest due on the revolving credit at prime plus 1.75% or LIBOR plus 2.75% and the term loan at prime (3.75% at December 31, 2016) plus 2.25% or LIBOR plus 3.25%; and
|
|
●
|
revised our annual capital spending maximum limit from $6,000,000 to $3,000,000.
|
In connection with the March 24, 2016 amendment, the Company paid PNC total closing fees of approximately $72,000. As a result of the March 24, 2016 amendment, the Company recorded approximately $68,000 in loss on extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishments,” which was included in interest expense in the accompanying Consolidated Statements of Operations.
Pursuant to the Revised Loan Agreement, the Company may terminate the Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of its obligations under the Revised Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the event the Company pays off its obligations on or before March 23, 2017, .50% of the total financing if the Company pays off its obligations after March 23, 2017 but prior to or on March 23, 2018, and .25% of the total financing if the Company pays off its obligations after March 23, 2018 but prior to or on March 23, 2019. No early termination fee shall apply if the Company pays off its obligations after March 23, 2019.
The Company’s credit facility with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The Company failed to meet its minimum quarterly fixed charge coverage ratio (“FCCR”) requirement of 1.15:1 in the first quarter of 2016. On May 23, 2016, the Company’s lender waived this non-compliance. In connection with this waiver, the Company paid PNC a fee of $5,000 which was included in selling, general and administrative expenses. The Company met its financial covenant requirements in the second quarter of 2016 except for its quarterly FCCR requirement. On August 22, 2016, the Company entered into an amendment to its Revised Loan Agreement with its lender which waived the Company’s non-compliance with its minimum quarterly FCCR for the second quarter of 2016. In addition, the amendment revised the methodology to be used in calculating the FCCR in the third quarter of 2016, the fourth quarter of 2016 and the first quarter of 2017. This amendment also revised the Company’s minimum Tangible Adjusted Net Worth requirement (as defined in the Revised Loan Agreement) from $30,000,000 to $26,000,000. In connection with the amendment, the Company paid PNC a fee of $25,000, which is being amortized over the remaining term of the loan as interest expense – financing fees. The Company failed to meet its FCCR in the third quarter of 2016. On November 17, 2016, the Company entered into another amendment to its Revised Loan Agreement with its lender. This amendment included the following:
|
●
|
waived the Company’s non-compliance with its minimum quarterly FCCR for the third quarter of 2016;
|
|
●
|
further revised the methodology to be used in calculating the FCCR as follows (with continued requirement to maintain a minimum 1:15:1 ratio in each of the quarters): FCCR for the fourth quarter of 2016 is to be calculated using the financial results for the three month period ending December 31, 2016; FCCR for first quarter of 2017 is to be calculated using financial results for the six month period ending March 31, 2017; FCCR for second quarter of 2017 is to be calculated using the financial results for the nine month period ending June 30, 2017; and FCCR for the third quarter of 2017 and each fiscal quarter thereafter is to be calculated using the financial results for a trailing twelve month period basis;
|
|
●
|
placed an immediate additional restriction on the Company’s borrowing availability of $750,000, in addition to the restriction on our borrowing availability of $500,000 which had been previously placed by our lender; and
|
|
●
|
revised the interest payment options to paying an annual rate of interest due on the revolving credit at prime plus 2% or LIBOR plus 3% and the term loan at Prime plus 2.5% or LIBOR plus 3.5%. Such interest payment option will automatically revert back to interest payment options as revised on the March 24, 2016 amendment (see the March 24, 2016 amendment the Company entered into with PNC above) if the Company is able to attain minimally a FCCR of 1:15:1, as calculated using a trailing twelve month period, subsequent to any quarters after the third quarter of 2016.
|
As of December 31, 2016, the availability under our revolving credit was $1,748,000, based on our eligible receivables and includes the remaining indefinite reduction of borrowing availability of $1,250,000 as discussed above.
Pursuant to the amendment dated November 17, 2016 as discussed above, the Company’s lender also established a “Condition Subsequent” which requires the Company to receive restricted cash from a finite risk sinking fund in connection with our PFNWR closure policy. Immediately upon the receipt of funds, the Company’s lender is to immediately place another $750,000 restriction on the Company’s borrowing availability resulting in a total of $2,000,000 restriction on the Company’s borrowing availability (see “Note 14 – Commitments and Contingencies” – “Insurance” for further information of the PFNWR closure policy and the pending receipt of the related sinking fund).
All other terms of the Revised Loan Agreement remain principally unchanged. In connection with this amendment, the Company paid its lender a fee of $25,000, which is being amortized over the remaining term of the loan as interest expense-financing fees.
Promissory Note
The Company entered into a $3,000,000 loan dated August 2, 2013 with Messrs. Robert Ferguson and William Lampson (each known as the “Lender”). As consideration for the Company receiving the loan, the Company issued to each Lender a Warrant to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price of $2.23 per share. On August 2, 2016, each Lender exercised his Warrant for the purchase of 35,000 shares of our Common Stock, resulting in total proceeds paid to the Company of approximately $156,000. As further consideration for the loan, the Company had also issued to each Lender 45,000 shares of the Company’s Common Stock. The fair value of the Warrants and Common Stock and the related closing fees incurred from this transaction were recorded as a debt discount, which has been fully amortized using the effective interest method over the term of the loan as interest expense – financing fees. The loan was repaid in full by the Company in August 2016.
The following table details the amount of the maturities of long-term debt maturing in future years as of December 31, 2016 of our continuing operations (excludes debt issuance costs).
Year ending December 31:
|
|
|
|
|
(In thousands)
|
|
|
|
|
2017
|
|
$
|
1,219
|
|
2018
|
|
|
1,219
|
|
2019
|
|
|
1,219
|
|
2020
|
|
|
1,219
|
|
2021
|
|
|
4,108
|
|
Total
|
|
$
|
8,984
|
|
NOT
E 1
1
ACCRUED EXPENSES
Accrued expenses at December 31, include the following (in thousands):
|
|
2016
|
|
|
2015
|
|
Salaries and employee benefits
|
|
$
|
2,695
|
|
|
$
|
2,822
|
|
Accrued sales, property and other tax
|
|
|
265
|
|
|
|
202
|
|
Interest payable
|
|
|
6
|
|
|
|
9
|
|
Insurance payable
|
|
|
675
|
|
|
|
833
|
|
Other
|
|
|
453
|
|
|
|
475
|
|
Total accrued expenses
|
|
$
|
4,094
|
|
|
$
|
4,341
|
|
The Company had an individual Management Incentive Plan (“MIP”) for each of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”) (who retired from the position of COO effective September 30, 2016 and remained a part-time employee through December 31, 2016, at which time the COO retired from the Company), which awarded cash compensation based on achievement of certain performance targets for fiscal year 2015. A total of approximately $214,000 (included in “salaries and employee benefits”) was accrued under the three MIPs for 2015 and was paid by the end of the third quarter of 2016. No performance incentive payments were earned and accrued under any of the MIPs for 2016.
NOTE 12
ACCRUED CLOSURE COSTS AND ARO
Accrued closure costs represent our estimated environmental liability to clean up our fixed-based regulated facilities as required by our permits, in the event of closure. Changes to reported closure liabilities for the years ended December 31, 2016 and 2015, were as follows:
Amounts in thousands
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
5,508
|
|
Accretion expense
|
|
|
299
|
|
Payments
|
|
|
(331
|
)
|
Adjustment to closure liability
|
|
|
(175
|
)
|
Balance as of December 31, 2015
|
|
|
5,301
|
|
Accretion expense
|
|
|
374
|
|
Payments
|
|
|
(693
|
)
|
Adjustment to closure liability
|
|
|
2,333
|
|
Balance as of December 31, 2016
|
|
$
|
7,315
|
|
As a result of the Company’s decision to close the M&EC subsidiary by January 2018, the Company recorded an additional $1,626,000 in closure liabilities during the second quarter of 2016 due to a change in estimated closure costs (see “Note 3 – M&EC Facility” for further information of this additional closure liability). The Company also increased the closure liabilities for its PFNWR facility in the amount of approximately $707,000 resulting from a change in estimated closure costs. In 2016, the Company had spendings of approximately $283,000 and $410,000 in closure related activities for the M&EC and PFNWR subsidiaries, respectively. The spendings at PFNWR facility were made in connection with the closure of certain processing unit/equipment.
As of December 31, 2016, total accrued closure liabilities for our M&EC subsidiary totaled approximately $3,058,000 of which $2,177,000 are recorded as current liabilities.
The decreases in closure liabilities in 2015 included approximately $331,000 of costs incurred in connection with the closure of processing unit/equipment at our PFNWR facility and a reduction of approximately $175,000 in closure liabilities at our PFNWR facility resulting from a change in estimated closure costs.
The reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance Sheet for the years ended December 31, 2016 and 2015 as follows:
Amounts in thousands
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
2,870
|
|
Amortization of closure and post-closure asset
|
|
|
(152
|
)
|
Adjustment to closure and post-closure asset
|
|
|
(143
|
)
|
Balance as of December 31, 2015
|
|
|
2,575
|
|
Amortization of closure and post-closure asset
|
|
|
(760
|
)
|
Adjustment to closure and post-closure asset
|
|
|
2,333
|
|
Balance as of December 31, 2016
|
|
$
|
4,148
|
|
The adjustment to the ARO for 2016 was due to the adjustment made to our closure liability as discussed above.
NOTE 1
3
INCOME TAXES
The components of current and deferred federal and state income tax (benefit) expense for continuing operations for the years ended December 31, consisted of the following (in thousands):
|
|
2016
|
|
|
2015
|
|
Federal income tax expense - current
|
|
$
|
9
|
|
|
$
|
116
|
|
Federal income tax (benefit) expense - deferred
|
|
|
(2,657
|
)
|
|
|
142
|
|
State income tax expense - current
|
|
|
59
|
|
|
|
9
|
|
State income tax (benefit) expense - deferred
|
|
|
(405
|
)
|
|
|
276
|
|
Total income tax (benefit) expense
|
|
$
|
(2,994
|
)
|
|
$
|
543
|
|
We had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations, which gave rise to deferred tax assets and liabilities at December 31, 2016 and 2015 as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
7,288
|
|
|
$
|
4,566
|
|
Environmental and closure reserves
|
|
|
3,189
|
|
|
|
2,497
|
|
Other
|
|
|
2,285
|
|
|
|
2,800
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(162
|
)
|
|
|
(1,130
|
)
|
Goodwill and indefinite lived intangible assets
|
|
|
(2,362
|
)
|
|
|
(5,443
|
)
|
Prepaid expenses
|
|
|
(72
|
)
|
|
|
(122
|
)
|
|
|
|
10,166
|
|
|
|
3,168
|
|
Valuation allowance
|
|
|
(12,528
|
)
|
|
|
(8,592
|
)
|
Net deferred income tax liabilities
|
|
|
(2,362
|
)
|
|
|
(5,424
|
)
|
An overall reconciliation between the expected tax (benefit) expense using the federal statutory rate of 34% and the (benefit) expense for income taxes from continuing operations as reported in the accompanying Consolidated Statement of Operations is provided below (in thousands).
|
|
2016
|
|
|
2015
|
|
Tax (benefit) expense at statutory rate
|
|
$
|
(5,527
|
)
|
|
$
|
166
|
|
State tax benefit, net of federal benefit
|
|
|
(785
|
)
|
|
|
(93
|
)
|
Change in deferred tax rates
|
|
|
(82
|
)
|
|
|
208
|
|
Permanent items
|
|
|
119
|
|
|
|
84
|
|
Difference in foreign rate
|
|
|
98
|
|
|
|
40
|
|
Change in deferred tax liabilities
|
|
|
(260
|
)
|
|
|
206
|
|
Other
|
|
|
(241
|
)
|
|
|
(124
|
)
|
Increase in valuation allowance
|
|
|
3,684
|
|
|
|
56
|
|
Income tax (benefit) expense
|
|
$
|
(2,994
|
)
|
|
$
|
543
|
|
The provision for income taxes is determined in accordance with ASC 740, “Income Taxes.” Deferred income tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not to be realized. In 2016 and 2015, we determined that it was more likely than not that approximately $12,528,000 and $8,592,000, respectively, of deferred income tax assets would not be realized, and as such, a full valuation allowance was applied against those deferred income tax assets. Our valuation allowance increased by $3,684,000 and $56,000 for the years ended December 31, 2016 and 2015, respectively.
We have estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately $10,372,000 and $65,658,000, respectively, as of December 31, 2016. The estimated consoliated federal and state NOLs include approximately $3,259,000 and $4,179,000, respectively, of our majority-owned subsidiary, PF Medical, which is not part of our consolidated group for tax purposes. These net operating losses can be carried forward and applied against future taxable income, if any, and expire in various amounts starting in 2021. However, as a result of various stock offerings and certain acquisitions, which in the aggregate constitute a change in control, the use of these NOLs will be limited under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended. Additionally, NOLs may be further limited under the provisions of Treasury Regulation 1.1502-21 regarding Separate Return Limitation Years.
The tax years 2013 through 2015 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.
No uncertain tax positions were identified by the Company for the years currently open under statute of limitations, including 2015 and 2016.
As of December 31, 2016 and 2015, the Company had approximately $0 and $32,000 of federal income tax payable, respectively.
NOTE 14
COMMITMENTS AND CONTINGENCIES
Hazardous Waste
In connection with our waste management services, we process both hazardous and non-hazardous waste, which we transport to our own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required, we could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments
or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.
Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other performance and surety bond requirements. All of the required payments for this finite risk insurance policy, as amended, were made by 2012. During the fourth quarter of 2016, the Company’s DSSI subsidiary recalculated the state mandated closure obligation requirement resulting in a reduction in the financial requirement of approximately $9,711,000. As of December 31, 2016, our financial assurance coverage amount under this policy totaled approximately $29,163,000. The Company has recorded $15,546,000 and $15,460,000 in sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance Sheets as of December 31, 2016 and 2015, respectively, which includes interest earned of $1,075,000 and $989,000 on the sinking fund as of December 31, 2016 and 2015, respectively. Interest income for the twelve months ended December 31, 2016 and 2015 was approximately $86,000 and $31,000, respectively. If the Company so elects, AIG is obligated to pay the Company an amount equal to 100% of the sinking fund account balance in return for complete release of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.
In August 2007, the Company entered into a second finite risk insurance policy for our PFNWR (“PFNWR policy”) facility with AIG. The policy provided an initial $7,800,000 of financial assurance coverage with an annual growth rate of 1.5%, which at the end of the four year term policy, provides maximum coverage of $8,200,000. The Company has made all of the required payments on this policy. As of December 31, 2016, our financial assurance coverage amount under this policy totaled approximately $7,973,000. The Company has recorded $5,941,000 and $5,920,000 in our sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance Sheets as of December 31, 2016 and 2015, respectively, which includes interest earned of $241,000 and $220,000 on the sinking fund as of December 31, 2016 and 2015, respectively. Interest income for the twelve months ended December 31, 2016 and 2015 was approximately $21,000 and $15,000, respectively. This policy is renewed annually at the end of the four year term with a nominal fee for the variance between the coverage requirement and the sinking fund balance. The Company has renewed this policy annually from 2011 to 2016 (with fees ranging from $41,000 to $46,000 annually). All other terms of the policy remain substantially unchanged.
During the latter part of 2016, the Company initiated a plan to secure other options in providing financial assurance coverage for our PFNWR facility, including acquiring a separate bonding mechanism, which would enable the Company to cancel the PFNWR policy, thereby allowing for the release of the sinking fund securing the PFNWR policy as discussed above. The Company is currently waiting for final approval on the release of the PFNWR policy from Washington state regulators. Once the Company obtains this release, the Company will cancel the PFNWR policy with AIG which would result in the release of the $5,941,000 in sinking fund securing the PFNWR back to the Company. The new bonding mechanism in the amount of approximately $7,000,000 (“new bond”) which is to provide financial assurance for the PFNWR facility will require approximately $2,500,000 in collateral and will be provided for by the $5,941,000 in sinking fund to be released by AIG. The Company expects this transaction to be completed by the end of the second quarter of 2017. After the release of the $5,941,000 in finite sinking fund by AIG and payment of the required collateral for the new bond, the Company expects to receive the approximately remaining $3,441,000 in finite sinking funds which will be used to pay down our revolving credit.
Letter of Credits and Bonding Requirements
From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of December 31, 2016, the total amount of these bonds and letters of credit outstanding was approximately $1,514,000, of which the majority of the amount relates to various bonding requirements.
Operating Leases
The Company leases certain facilities and equipment under operating leases. The following table lists future minimum rental payments as of December 31, 2016 under these leases for our continuing operations (in thousands):
Year ending December 31:
|
|
|
|
|
2017
|
|
|
700
|
|
2018
|
|
|
178
|
|
beyond 2018
|
|
|
―
|
|
Total
|
|
$
|
878
|
|
Total rent expense was $1,027,000 and $976,000 for the years ended 2016 and 2015, respectively, for our continuing operations. These amounts included payments on non-cancelable operating leases of approximately $735,000 and $659,000 for the years ended 2016 and 2015, respectively. The remaining rent expense was for non-contractual monthly and daily rentals of specific use vehicles, machinery and equipment.
NOTE 15
PROFIT SHARING PLAN
The Company adopted a 401(k) Plan in 1992, which is intended to comply with Section 401 of the Internal Revenue Code and the provisions of the Employee Retirement Income Security Act of 1974. All full-time employees who have attained the age of 18 are eligible to participate in the 401(k) Plan. Eligibility is immediate upon employment but enrollment is only allowed during four quarterly open periods of January 1, April 1, July 1, and October 1. Participating employees may make annual pretax contributions to their accounts up to 100% of their compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make matching contributions of 25% based on the employee’s elective contributions. Company contributions vest over a period of five years. In 2016 and 2015, the Company contributed approximately $307,000 and $303,000 in 401(k) matching funds, respectively.
NOTE 16
RELATED PARTY TRANSACTIONS
Related Party Transactions
Mr. David Centofanti
Mr. David Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $168,000 for each of the years 2016 and 2015. Mr. David Centofanti is the son of our CEO, President and a Board member, Dr. Louis F. Centofanti.
Mr.
Robert L. Ferguson
Mr. Robert L. Ferguson serves as an advisor to the Company’s Board and is also a member of the Supervisory Board of PF Medical, a majority-owned Polish subsidiary of the Company. Mr. Ferguson previously served as a Board member of the Company from June 2007 to February 2010 and again from August 2011 to September 2012. As an advisor to the Company’s Board, Mr. Ferguson is paid $4,000 monthly plus reasonable expenses. For such services, Mr. Ferguson received compensation of approximately $59,000 and $58,000 for the years ended December 31, 2016 and 2015, respectively. On August 2, 2013, the Company completed a lending transaction with Messrs. Robert Ferguson and William Lampson (“collectively, the “Lenders”), whereby the Company borrowed from the Lenders the sum of $3,000,000 (which was paid off by the Company in August 2016) pursuant to the terms of a Loan and Security Purchase Agreement and promissory note (the “Loan”) (see further details and terms of this Loan in “Note 10 – Long Term Debt – Promissory Note”).
Mr. John Climaco
On June 2, 2015, Mr. Climaco, a current member of the Company’s Board, was elected as the EVP of PF Medical. As EVP of PF Medical, Mr. Climaco receives an annual salary of $150,000 and is not eligible to receive compensation for serving on the Company’s Board.
Mr. Climaco previously had a consulting agreement with the Company effective September 2014 (approved by the Board with Mr. Climaco abstaining) to perform certain consulting functions for the Company as determined by the Board, including review of operating and accounting functions, strategic opportunity and other initiatives, and the development of the Company’s medical isotope production technology. The consulting agreement was terminated effective June 2, 2015 upon Mr. Climaco’s election as EVP of PF Medical. Mr. Climaco was paid $22,000 per month under the consulting agreement and received approximately $117,000 in 2015 for his services under the consulting agreement.
Mr. Climaco is also a Director of Digirad Corporation. On July 24, 2015, PF Medical and Digirad entered into a multi-year Tc-99m Supplier Agreement and a Subscription Agreement (see further details of these agreements in “Note 4 – PF Medical”)..
Employment Agreements
The Company has employment agreements (each dated July 10, 2014 and effective for three years) with each of Dr. Centofanti (our President and CEO) and Ben Naccarato (our CFO). Each employment agreement provides for annual base salaries, bonuses (including MIPs as approved by our Board and Compensation Committee), and other benefits commonly found in such agreements. In addition, each employment agreement provides that in the event of termination of such officer without cause or termination by the officer for good reason (as such terms are defined in the employment agreement), the terminated officer shall receive payments of an amount equal to benefits that have accrued as of the termination but had not yet been paid, plus an amount equal to one year’s base salary at the time of termination. In addition, each of the employment agreements provide that in the event of a change in control (as defined in the employment agreements), all outstanding stock options to purchase the Company’s Common Stock granted to, and held by, the officer covered by the employment agreement to be immediately vested and exercisable. Mr. John Lash, our previous COO who retired from the position effective September 30, 2016 and who remained as a part-time employee of the Company through December 31, 2016, also had an employment agreement dated July 10, 2014 with substantially the same provisions as described above. Upon Mr. Lash’s resignation as COO effective September 30, 2016, his employment agreement also terminated. No amount was payable under Mr. Lash’s employment agreement upon his resignation as COO. (See “Note 18 – Subsequent Events – Employment Agreement and MIPs” for a discussion of the Employment Agreement with the Company’s EVP/COO and the Company’s MIPs with its CEO, EVP/COO, and CFO).
NOTE 17
SEGMENT REPORTING
In accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
●
|
from which we may earn revenue and incur expenses;
|
|
|
●
|
whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance; and
|
|
|
●
|
for which discrete financial information is available.
|
We currently have three reporting segments, which include Treatment and Services Segments, which are based on a service offering approach; and Medical, whose primary purpose at this time is the R&D of a new medical isotope production technology. The Medical Segment has not generated any revenues and all costs incurred are reflected within R&D in the accompanying Consolidated Statements of Operations. Our reporting segments exclude our corporate headquarter and our discontinued operations (see “Note 9 – Discontinued Operations”) which do not generate revenues.
The table below shows certain financial information of our reporting segments for 2016 and 2015 (in thousands).
Segment Reporting as of and for the year ended December 31, 2016
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
|
(2)
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$
|
32,253
|
|
|
$
|
18,966
|
|
|
|
—
|
|
|
$
|
51,219
|
(3)
|
|
$
|
—
|
|
|
$
|
51,219
|
|
Intercompany revenues
|
|
|
40
|
|
|
|
28
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
4,015
|
|
|
|
3,069
|
|
|
|
—
|
|
|
|
7,084
|
|
|
|
—
|
|
|
|
7,084
|
|
Research and development
|
|
|
504
|
|
|
|
38
|
|
|
|
1,489
|
|
|
|
2,031
|
|
|
|
15
|
|
|
|
2,046
|
|
Interest income
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
107
|
|
|
|
110
|
|
Interest expense
|
|
|
(29
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
(458
|
)
|
|
|
(489
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(108
|
)
|
|
|
(108
|
)
|
Depreciation and amortization
|
|
|
3,451
|
|
|
|
632
|
|
|
|
—
|
|
|
|
4,083
|
|
|
|
82
|
|
|
|
4,165
|
|
Segment (loss) income before income taxes
|
|
|
(10,119
|
)
(6)
|
|
|
744
|
|
|
|
(1,489
|
)
|
|
|
(10,864
|
)
|
|
|
(5,393
|
)
|
|
|
(16,257
|
)
|
Income tax (benefit) expense
|
|
|
(3,013
|
)
(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,013
|
)
|
|
|
19
|
|
|
|
(2,994
|
)
|
Segment (loss) income
|
|
|
(7,106
|
)
|
|
|
744
|
|
|
|
(1,489
|
)
|
|
|
(7,851
|
)
|
|
|
(5,412
|
)
|
|
|
(13,263
|
)
|
Segment assets
(1)
|
|
|
32,482
|
|
|
|
8,105
|
|
|
|
382
|
|
|
|
40,969
|
|
|
|
24,366
|
(4)
|
|
|
65,335
|
|
Expenditures for segment assets
|
|
|
418
|
|
|
|
17
|
|
|
|
1
|
|
|
|
436
|
|
|
|
—
|
|
|
|
436
|
|
Total debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,833
|
(5)
|
|
|
8,833
|
|
Segment Reporting as of and for the year ended December 31, 2015
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
|
(2)
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$
|
41,318
|
|
|
$
|
21,065
|
|
|
|
—
|
|
|
$
|
62,383
|
(3)
|
|
$
|
—
|
|
|
$
|
62,383
|
|
Intercompany revenues
|
|
|
113
|
|
|
|
25
|
|
|
|
—
|
|
|
|
138
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
10,910
|
|
|
|
3,441
|
|
|
|
—
|
|
|
|
14,351
|
|
|
|
—
|
|
|
|
14,351
|
|
Research and development
|
|
|
179
|
|
|
|
—
|
|
|
|
2,114
|
|
|
|
2,293
|
|
|
|
9
|
|
|
|
2,302
|
|
Interest income
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
47
|
|
|
|
53
|
|
Interest expense
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
(451
|
)
|
|
|
(489
|
)
|
Interest expense-financing fees
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(226
|
)
|
|
|
(228
|
)
|
Depreciation and amortization
|
|
|
2,949
|
|
|
|
725
|
|
|
|
—
|
|
|
|
3,674
|
|
|
|
43
|
|
|
|
3,717
|
|
Segment income (loss) before income taxes
|
|
|
7,101
|
|
|
|
1,178
|
|
|
|
(2,114
|
)
|
|
|
6,165
|
|
|
|
(5,685
|
)
|
|
|
480
|
|
Income tax expense
|
|
|
538
|
|
|
|
—
|
|
|
|
—
|
|
|
|
538
|
|
|
|
5
|
|
|
|
543
|
|
Segment income (loss)
|
|
|
6,563
|
|
|
|
1,178
|
|
|
|
(2,114
|
)
|
|
|
5,627
|
|
|
|
(5,690
|
)
|
|
|
(63
|
)
|
Segment assets
(1)
|
|
|
46,307
|
|
|
|
9,481
|
|
|
|
1,793
|
|
|
|
57,581
|
|
|
|
25,332
|
(4)
|
|
|
82,913
|
|
Expenditures for segment assets
|
|
|
579
|
|
|
|
33
|
|
|
|
—
|
|
|
|
612
|
|
|
|
11
|
|
|
|
623
|
|
Total debt
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
9,813
|
(5)
|
|
|
9,836
|
|
(1)
Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
(2)
Amounts reflect the activity for corporate headquarters not included in the segment information.
(
3)
The Company performed services relating to waste generated by the federal government, either directly as a prime contractor or indirectly for others as a subcontractor to the federal government, representing approximately $27,354,000 or 53.4% of total revenue from continuing operations during 2016 and $36,105,000 or 57.9% of total revenue from continuing operations during 2015. The following reflects such revenue generated by our two segments:
|
|
2016
|
|
|
2015
|
|
Treatment
|
|
$
|
21,434,000
|
|
|
$
|
30,130,000
|
|
Services
|
|
|
5,920,000
|
|
|
|
5,975,000
|
|
Total
|
|
$
|
27,354,000
|
|
|
$
|
36,105,000
|
|
(4)
|
Amount includes assets from our discontinued operations of $434,000 and $565,000, as of December 31, 2016 and 2015, respectively.
|
(5)
|
Net of debt discount of ($0) and ($50,000) for 2016 and 2015, respectively, and net of debt issuance costs of ($151,000) and ($152,000) for 2016 and 2015, respectively (see “Note 10 – “Long-Term Debt” for additional information).
|
(6)
|
Amounts include tangible and intangible asset impairment losses of $1,816,000 and $8,288,000, respectively for the Company’s M&EC subsidiary recorded in the second quarter of 2016 (see “Note 3 – M&EC Facility”). Also includes a tax benefit of approximately $3,203,000 recorded resulting from the intangible impairment loss recorded for our M&EC subsidiary.
|
NOTE
18
SUBSEQUENT EVENTS
Employment Agreement and MIPs
On January 19, 2017, the Company entered into an employment agreement (the “EVP/COO Employment Agreement”) with Mr. Mark Duff, EVP/COO. Upon Mr. Lash’s retirement as COO effective September 30, 2016, Mr. Duff assumed the additional position of COO and continues his position as EVP of the Company. The EVP/COO Employment Agreement is effective June 11, 2016 (Mr. Duff’s effective date of employment as EVP) and has a term of three years. Pursuant to the EVP/COO Employment Agreement, Mr. Duff will continue to serve as the Company’s EVP/COO, with an annual base salary of $267,000. The EVP/COO Employment Agreement also provides substantially the same provisions as the employment agreements described for the CEO and CFO (see “Note 16 – Related Party Transactions – Employment Agreements” for these provisions).
On January 19, 2017, the Board and Compensation Committee approved individual MIPs for the CEO, EVP/COO, and CFO. The MIPs are effective January 1, 2017. Each MIP provides guidelines for the calculation of annual cash incentive based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash compensation based on achievement of performance thresholds, with the amount of such compensation established as a percentage of base salary. The potential target performance compensation ranges from 5% to 100% of the 2017 base salary for the CEO ($13,962 to $279,248), 5% to 100% of the 2017 base salary for the EVP/COO ($13,350 to $267,000), and 5% to 100% of the 2017 base salary for the CFO ($11,033 to $220,667).