The accompanying notes are an integral part of these consolidated financial statements.
Notes
to Consolidated Financial Statements
December
31, 2019 and 2018
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:
|
-
|
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 three uniquely licensed and permitted treatment and storage
facilities; and
|
|
-
|
Research
and Development (“R&D”) activities to identify, develop and implement innovative waste processing techniques
for problematic waste streams.
|
SERVICES
SEGMENT, which includes:
|
-
|
Technical
services, which include:
|
|
o
|
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology
and engineering;
|
|
o
|
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;
|
|
o
|
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; and
|
|
o
|
on-site
waste management services to commercial and governmental customers.
|
|
-
|
Nuclear
services, which include:
|
|
o
|
technology-based
services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction,
logistics, transportation, processing and disposal;
|
|
o
|
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; logistics; transportation; and emergency response; and
|
|
-
|
A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental)
health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
|
|
-
|
A
company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.
|
MEDICAL
SEGMENT, which includes: R&D of the Company’s 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” or the Medical Segment). The Company’s Medical Segment has not generated any revenue as
it remains in the R&D stage and has substantially reduced its R&D costs and activities due to the need for capital to
fund these activities. 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 costs and activities).
The
Company’s continuing operations consist of Diversified Scientific Services, Inc. (“DSSI”), 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”),
PF Medical and East Tennessee Materials & Energy Corporation (“M&EC”) (facility closure completed in 2019).
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 in closure status.
Financial
Position and Liquidity
The
Company’s cash flow requirements during 2019 were primarily financed by our operations, credit facility availability, loan
proceeds of $2,500,000 from a loan that we consummated on April 1, 2019 (see “Note 10 – Long Term Debt” for
further information of this loan), and the receipt of the $5,000,000 in finite risk sinking funds from AIG Specialty Insurance
Company (“AIG”) in July 2019 resulting from the closure of our M&EC facility (see a discussion of this finite
risk sinking funds in “Note 14 – Commitment and Contingencies - Insurance”). The Company’s working capital
at December 31, 2019 was approximately $26,000 as compared to a working capital deficit of $6,753,000 at December 31, 2018.
The
Company’s cash flow requirements for 2020 and into the first quarter of 2021 will consist primarily of general working capital
needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures. The Company
plans to fund these requirements from our operations, credit facility availability, and cash on hand. 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. As previously disclosed, the Company’s Medical Segment has not generated any revenue but continues on a limited
basis to evaluate strategic options to commercialize its medical isotope production technology. These options require substantial
capital to fund research and development (“R&D”) requirements, in addition to start-up and production costs. The
Company’s Medical Segment has substantially reduced its R&D costs and activities due to the need for capital to fund
such activities. The Company anticipates that its Medical Segment will not resume full R&D activities until it obtains the
necessary funding through obtaining its own credit facility or additional equity raise or obtaining new partners willing to fund
its R&D activities. If the Medical Segment is unable to raise the necessary capital, the Medical Segment could be required
to further reduce, delay or eliminate its R&D program.
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.
On
May 24, 2019, the Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) entered into an unpopulated joint
venture agreement for project work bids within the Company’s Services Segment. The joint venture is doing business as Perma-Fix
ERRG, a general partnership. Perma-Fix has a 51% partnership interest in the joint venture and ERRG has a 49% partnership interest
in the joint venture. At December 31, 2019, no activities have occurred under the Perma-Fix ERRG joint venture. Once activities
commence under the joint venture, Perma-Fix will consolidate the operations of Perma-Fix ERRG into the Company’s financial statements.
Use
of Estimates
The
Company prepares financial statements in conformity with accounting standards generally accepted in the United States of America
(“US GAAP”), which may require 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.
Cash
and Finite Risk Sinking Fund (Restricted Cash)
At
December 31, 2019, we had cash on hand of approximately $390,000, which reflects primarily account balances of our foreign subsidiaries
totaling approximately $388,000. At December 31, 2018, the Company had cash on hand of approximately $810,000, which reflects
primarily account balances of our foreign subsidiaries totaling approximately $806,000. At December 31, 2019 and 2018, the Company
has finite risk sinking funds of approximately $11,307,000 and $15,971,000, respectively, which represents cash held as collateral
under the Company’s financial assurance policy (see “Note 14 – Commitment and Contingencies – Insurance”
for a discussion of this fund).
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, estimates 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 sets forth the activity in the allowance for doubtful accounts for the years ended December 31, 2019 and 2018
(in thousands):
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Allowance for doubtful accounts - beginning of year
|
|
$
|
105
|
|
|
$
|
720
|
|
Provision for bad debt reserve
|
|
|
386
|
|
|
|
66
|
|
Write-off
|
|
|
(4
|
)
|
|
|
(681
|
)
|
Allowance for doubtful accounts - end of year
|
|
$
|
487
|
|
|
$
|
105
|
|
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 which include: 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 can take months to complete but are generally
completed within twelve months.
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.
Certain
property and equipment expenditures are financed through the use of leases. Amortization of financed leased assets is computed
using the straight-line method over the estimated useful lives of the assets. At December 31, 2019, assets recorded under finance
leases were $1,410,000 less accumulated depreciation of $71,000, resulting in net fixed assets under finance leases of $1,339,000.
At December 31, 2018, assets recorded under finance leases were approximately $517,000 less accumulated depreciation of $8,000
resulting in net fixed assets under finance leases of $509,000. These assets are recorded within net property and equipment on
the Consolidated Balance Sheets.
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 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.
Our
depreciation expense totaled approximately $1,086,000 and $1,105,000 in 2019 and 2018, respectively.
Leases
The
Company account for leases in accordance with Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”
which the Company adopted effective January 1, 2019 (see “Recently Adopted Accounting Standards” below for a discussion
of this standard). At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based
on facts and circumstances present in that arrangement. Lease classifications, recognition, and measurement are then determined
at the lease commencement date.
The
Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent primarily leases
for office/warehouse spaces used to conduct our business. These leases have remaining terms of approximately 4 to 10 years. The
majority of the Company’s leases includes one or more options to renew, with renewal terms ranging from 3 years to 8 years.
The Company includes renewal options in valuing its ROU assets and liabilities when it determines that it is reasonably certain
to exercise these renewal options. Based on conditions of the Company’s existing leases, historical trend and its overall
business strategies, the Company has included the renewal options in all of its operating leases in valuing its ROU assets and
liabilities. As most of our operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate
as the discount rate when determining the present value of the lease payments. The incremental borrowing rate is determined based
on the Company’s secured borrowing rate, lease terms and current economic environment. Some of our operating leases include
both lease (rent payments) and non-lease components (maintenance costs such as cleaning and landscaping services). The Company
has elected the practical expedient to account for lease component and non-lease component as a single component for all leases
under ASU 2016-02. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Finance
leases primarily consist of processing and lab equipment for our facilities as well as a building with land for our waste treatment
operations. The Company’s finance leases for processing and lab equipment generally have terms between two to three years
and some of the leases include options to purchase the underlying assets at fair market value at the conclusion of the lease term.
The lease for the building and land has a term of two year with option to buy at the end of the lease term which the Company is
reasonably certain exercise. See “Property and Equipment” above for assets recorded under financed leases.
The
Company adopted the policy to not recognize ROU assets and liabilities for short term leases.
Capitalized
Interest
The
Company’s policy is to capitalize interest cost incurred on debt during the construction of projects for its use. A reconciliation
of our total interest cost to “Interest Expense” as reported on our Consolidated Statements of Operations for 2019
and 2018 is as follows:
(Amounts in Thousands)
|
|
2019
|
|
|
2018
|
|
Interest cost capitalized
|
|
$
|
29
|
|
|
$
|
70
|
|
Interest cost charged to expense
|
|
|
432
|
|
|
|
251
|
|
Total interest
|
|
$
|
461
|
|
|
$
|
321
|
|
Intangible
Assets
Intangible
assets consist primarily of the recognized value of the permits required to operate our business. 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, a quantitative
test is performed 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. Impairment testing of our permits related to our Treatment reporting unit as of October
1, 2019 and 2018 resulted in no impairment charges.
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 had one definite-lived permit which was excluded from our annual impairment
review as noted above. This definite-lived permit which had a net carrying value of approximately $7,000 at December 31, 2018
was fully amortized in the first quarter of 2019. Definite-lived intangible assets are also tested for impairment whenever events
or changes in circumstances suggest impairment might exist.
R&D
Operational
innovation and technical know-how are 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 $314,000
and $811,000 for the years ended December 31, 2019 and 2018, respectively, incurred by our Medical Segment.
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 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.
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 government clients (domestic and foreign (primarily Canadian)), either
directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately
$59,985,000, or 81.7%, of our total revenue during 2019, as compared to $35,944,000, or 72.6%, of our total revenue during 2018.
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, the Company does 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 and Canadian government.
The
Company had two government related customers whose total unbilled and net outstanding receivable balances represented 12.5% and
34.3% of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2019. The Company had a government
and a government related customers whose total unbilled and net outstanding receivable balances represented 10.7% and 10.5%, respectively
of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2018.
Revenue
Recognition and Related Policies
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts
with Customers” followed by a series of related accounting standard updates (collectively referred to as “Topic 606”)
which superseded nearly all existing revenue recognition guidance. Under the new standard, a five-step process is utilized in
order to determine revenue recognition, depicting 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. The Company adopted Topic 606 under the modified
retrospective approach to all contracts as of the date of adoption. The Company recognized the cumulative effect of initially
adopting Topic 606 as an increase of approximately $316,000 to the opening balance of accumulated deficit at January 1, 2018.
The adoption of Topic 606 did not result in significant changes to our revenues within our Treatment and Services Segments. The
cumulative impact to the opening balance of accumulated deficit at January 1, 2018 was primarily driven by changes to the timing
of revenue recognition in certain immaterial waste streams within our Treatment Segment. Under Topic 606, a performance obligation
is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract transaction
price is allocated to each distinct performance obligation and recognized as revenues as the performance obligation is satisfied.
Treatment
Segment Revenues:
Contracts
in our Treatment Segment have a single performance obligation as the promise to receive, treat and dispose of waste is not separately
identifiable in the contract and, therefore, not distinct. Performance obligations are generally satisfied over time using the
input method. Under the input method, the Company uses a measure of progress divided into major phases which include receipt (generally
ranging from 9.0% to 33%), treatment/processing (generally ranging from 15% to 79%) and shipment/final disposal (generally ranging
from 9% to 52%). As major processing phases are completed and the costs are incurred, the proportional percentage of revenue is
recognized. Transaction price for Treatment Segment contracts are determined by the stated fixed rate per unit price as stipulated
in the contract.
Services
Segment Revenues:
Revenues
for our Services Segment are generated from time and materials, cost reimbursement or fixed price arrangements:
Our
primary obligation to customers in time and materials contracts relate to the provision of services to the customer at the direction
of the customer. This provision of services at the request of the customer is the performance obligation, which is satisfied over
time. Revenue earned from time and materials contracts is determined using the input method and is based on contractually defined
billing rates applied to services performed and materials delivered.
Our
primary performance obligation to customers in cost reimbursement contracts is to complete certain tasks and work streams. Each
specified work stream or task within the contract is considered to be a separate performance obligation. The transaction price
is calculated using an estimated cost to complete the various scope items to achieve the performance obligation as stipulated
in the contract. An estimate is prepared for each individual scope item in the contract and the transaction price is allocated
on a time and materials basis as services are provided. Revenue from cost reimbursement contracts is recognized over time using
the input method based on costs incurred, plus a proportionate amount of fee earned.
Under
fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and
all of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is estimated
based upon the estimated cost to complete the overall project. Revenue from fixed price contracts is recognized over time using
the output or input method. For the output method, revenue is recognized based on milestone attained on the project. For the input
method, revenue is recognized based on costs incurred on the project relative to the total estimated costs of the project.
The
majority of our revenue is derived from short term contracts with an original expected length of one year or less. Also, the nature
of our contracts does not give rise to variable consideration.
Significant
Payment Terms
Invoicing
is based on schedules established in customer contracts. Payment terms vary by customers but are generally established at 30 days
from invoicing.
Incremental
Costs to Obtain a Contract
Costs
incurred to obtain contracts with our customers are immaterial and as a result, the Company expenses (within selling, general
and administration expenses (“SG&A”)) incremental costs incurred in obtaining contracts with our customer as incurred.
Remaining
Performance Obligations
The
Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations
that have original expected durations of one year or less.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts,
the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount
for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations
for those contracts.
Stock-Based
Compensation
Stock-based
compensation granted to employees are accounted for in accordance with ASC 718, “Compensation – Stock Compensation.”
Stock-based payment transactions for acquiring goods and services from nonemployees (consultants) are also accounted for under
ASC 718 resulting from the adoption of ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting.” by the Company effective January 1, 2019. ASC 718 requires stock-based payments
to employees and nonemployees, including grant of options, to be recognized in the Statement of Operations 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-based awards include the exercise price of the award,
the expected term, the expected volatility of our stock over the stock-based award’s expected term, the risk-free interest
rate over the award’s expected term, and the expected annual dividend yield. The Company accounts for forfeitures when they
occur.
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—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level
2—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—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 (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, 2019 and December 31, 2018, 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
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires the recognition of ROU lease assets
and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance
required application on a modified retrospective basis with the earliest period presented. In July 2018, the FASB issued ASU 2018-11,
“Targeted Improvements,” to Topic 842 which included an option to not restate comparative periods in transition and
elect to use the effective date of Topic 842 as the date of initial application of transition, which the Company elected. As permitted
under Topic 842, the Company adopted several practical expedients that permit us to not reassess (1) whether any expired or existing
contract as of the adoption date is or contain a lease, (2) lease classification for any expired or existing leases as of the
adoption date, and (3) initial direct costs for any existing leases as of the adoption date. As a result of the adoption of Topic
842 on January 1, 2019, the Company recorded both operating ROU assets of $2,602,000 and operating lease liabilities of $2,622,000.
The cumulative-effect adjustment was immaterial to our beginning accumulated deficit upon adoption of ASU 2016-02. The adoption
of Topic 842 had an immaterial impact on our Consolidated Statements of Operations and Cash Flows for the year 2019. The Company’s
accounting for finance leases remained substantially unchanged.
In
February 2018, FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows for the reclassification of certain
income tax effects related to the new Tax Cuts and Jobs Act legislation between “Accumulated other comprehensive income”
and “Retained earnings.” This ASU relates to the requirement that adjustments to deferred tax liabilities and assets
related to a change in tax laws or rates be included in “Income from continuing operations”, even in situations where
the related items were originally recognized in “Other comprehensive income” (rather than in “Income from continuing
operations”). ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be applied either in the period of
adoption or retrospectively to each period in which the effect of the change in the tax laws or rates were recognized. The adoption
of ASU 2018-09 by the Company effective January 1, 2019 did not have a material impact on the Company’s financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting,” which expands the scope of Topic 718 to include all share-based payment transactions for
acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions
in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards.
ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to
the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for
under ASC 606. ASU 2018-07 is effective for annual reporting periods, and interim periods within those years, beginning after
December 15, 2018, with early adoption permitted. The adoption of ASU 2018-09 by the Company effective January 1, 2019 did not
have a material impact on the Company’s financial statements.
Recently
Issued Accounting Standards – Not Yet Adopted
In
June 2016, the FASB issued ASU No. 2016-13, “Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC
326”),” which amends the current approach to estimate credit losses on certain financial assets, including trade and
other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities
to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the
valuation allowance are recorded in current earnings and reversal of previous losses is permitted. In April 2019, the FASB issued
ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging,
and Topic 825, Financial Instruments,” which, with respect to credit losses, among other things, clarifies and addresses
issues related to accrued interest, transfers between classifications of loans or debt securities, recoveries, and variable interest
rates. Additionally, in May 2019, the FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326): Targeted
Transition Relief,” which allows entities to irrevocably elect the fair value option on certain financial instruments. These
standards are effective for interim and annual reporting periods beginning after December 15, 2019. Entities are required to apply
the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is adopted. These ASUs are effective January 1, 2020 for the Company. The Company does not expect
the adoption of these ASUs will have a material impact on the Company’s financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement.” ASU 2018-13 improves the disclosure requirements on fair value measurements. ASU
2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This
ASU is effective January 1, 2020 for the Company. The Company does not expect the adoption of this ASU will have a material impact
on the Company’s financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain
exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020,
with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements
and related disclosures.
NOTE
3
REVENUE
Disaggregation
of Revenue
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and
provides meaningful disaggregation of each business segment’s results of operations. The following tables present further disaggregation
of our revenues by different categories for our Services and Treatment Segments:
Revenue by Contract Type
|
|
Twelve Months Ended
|
|
|
Tweleve Months Ended
|
|
(In thousands)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed price
|
|
$
|
40,364
|
|
|
$
|
12,162
|
|
|
$
|
52,526
|
|
|
$
|
36,271
|
|
|
$
|
1,575
|
|
|
$
|
37,846
|
|
Time and materials
|
|
|
―
|
|
|
|
20,788
|
|
|
|
20,788
|
|
|
|
―
|
|
|
|
11,693
|
|
|
|
11,693
|
|
Cost reimbursement
|
|
|
―
|
|
|
|
145
|
|
|
|
145
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
Total
|
|
$
|
40,364
|
|
|
$
|
33,095
|
|
|
$
|
73,459
|
|
|
$
|
36,271
|
|
|
$
|
13,268
|
|
|
$
|
49,539
|
|
Revenue by generator
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
(In thousands)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic government
|
|
$
|
29,420
|
|
|
$
|
25,077
|
|
|
$
|
54,497
|
|
|
$
|
25,181
|
|
|
$
|
9,630
|
|
|
$
|
34,811
|
|
Domestic commercial
|
|
|
10,601
|
|
|
|
2,724
|
|
|
|
13,325
|
|
|
|
10,969
|
|
|
|
2,521
|
|
|
|
13,490
|
|
Foreign government
|
|
|
279
|
|
|
|
5,209
|
|
|
|
5,488
|
|
|
|
114
|
|
|
|
1,019
|
|
|
|
1,133
|
|
Foreign commercial
|
|
|
64
|
|
|
|
85
|
|
|
|
149
|
|
|
|
7
|
|
|
|
98
|
|
|
|
105
|
|
Total
|
|
$
|
40,364
|
|
|
$
|
33,095
|
|
|
$
|
73,459
|
|
|
$
|
36,271
|
|
|
$
|
13,268
|
|
|
$
|
49,539
|
|
Contract
Balances
The
timing of revenue recognition, billings, and cash collections results in accounts receivable and unbilled receivables (contract
assets). The Company’s contract liabilities consist of deferred revenues which represents advance payment from customers
in advance of the completion of our performance obligation.
The
following table represents changes in our contract assets and contract liabilities balances:
|
|
|
|
|
|
|
|
Year-to-date
|
|
|
Year-to-date
|
|
(In thousands)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Change ($)
|
|
|
Change (%)
|
|
Contract assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account receivables, net of allowance
|
|
$
|
13,178
|
|
|
$
|
7,735
|
|
|
$
|
5,443
|
|
|
|
70.4
|
%
|
Unbilled receivables - current
|
|
|
7,894
|
|
|
|
3,105
|
|
|
|
4,789
|
|
|
|
154.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
5,456
|
|
|
$
|
6,595
|
|
|
$
|
(1,139
|
)
|
|
|
(17.3
|
)%
|
During
the twelve months ended December 31, 2019 and 2018, the Company recognized revenue of $10,354,000 and $8,052,000, respectively,
related to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized
in each period related to performance obligations satisfied within the respective period.
NOTE
4
LEASES
The
components of lease cost for the Company’s leases were as follows (in thousands):
|
|
Twelve Months Ended
|
|
|
|
December 31, 2019
|
|
|
|
|
|
Operating Leases:
|
|
|
|
|
Lease cost
|
|
$
|
456
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
Amortization of ROU assets
|
|
|
63
|
|
Interest on lease liability
|
|
|
63
|
|
|
|
|
126
|
|
|
|
|
|
|
Short-term lease rent expense
|
|
|
43
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
625
|
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31,
2019 was:
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Weighted average remaining lease terms (years)
|
|
|
8.8
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
8.0
|
%
|
|
|
9.3
|
%
|
The
following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2019 to the operating
and finance lease liabilities recorded on the balance sheet (in thousands):
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2020
|
|
$
|
442
|
|
|
$
|
529
|
|
2021
|
|
|
450
|
|
|
|
396
|
|
2022
|
|
|
458
|
|
|
|
113
|
|
2023
|
|
|
466
|
|
|
|
―
|
|
2024
|
|
|
342
|
|
|
|
―
|
|
2025 and thereafter
|
|
|
1,458
|
|
|
|
―
|
|
Total undiscounted lease payments
|
|
|
3,616
|
|
|
|
1,038
|
|
Less: Imputed interest
|
|
|
(1,030
|
)
|
|
|
(101
|
)
|
Present value of lease payments
|
|
$
|
2,586
|
|
|
$
|
937
|
|
Current
portion of operating lease obligations
|
|
$
|
244
|
|
|
$
|
―
|
|
Long-term
operating lease obligations, less current portion
|
|
$
|
2,342
|
|
|
$
|
―
|
|
Current
portion of finance lease obligations
|
|
$
|
―
|
|
|
$
|
471
|
|
Long-term
finance lease obligations, less current portion
|
|
$
|
―
|
|
|
$
|
466
|
|
Supplemental
cash flow and other information related to our leases were as follows (in thousands):
|
|
Twelve Months Ended
|
|
|
|
December 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flow used in operating leases
|
|
$
|
434
|
|
Operating cash flow used in finance leases
|
|
$
|
63
|
|
Financing cash flow used in finance leases
|
|
$
|
272
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations for:
|
|
|
|
|
Finance liabilities
|
|
$
|
893
|
|
Operating liabilities
|
|
$
|
182
|
|
NOTE
5
PERMIT
AND OTHER INTANGIBLE ASSETS
The
following table summarizes changes in the carrying value of permits. No permit exists at our Services and Medical Segments.
Permit (amount in thousands)
|
|
Treatment
|
|
Balance as of December 31, 2017
|
|
$
|
8,419
|
|
PCB permit amortized (1)
|
|
|
(55
|
)
|
Permit in progress
|
|
|
79
|
|
Balance as of December 31, 2018
|
|
|
8,443
|
|
PCB permit amortized (1)
|
|
|
(7
|
)
|
Permit in progress
|
|
|
354
|
|
Balance as of December 31, 2019
|
|
$
|
8,790
|
|
(1)
Amortization for the one definite-lived permit capitalized in 2009 that was fully amortized in the first quarter of 2019.
This permit was amortized over a ten-year period in accordance with its estimated useful life.
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
Weighted Average
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Amortization
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Intangibles (amount in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
11
|
|
|
$
|
760
|
|
|
$
|
(358
|
)
|
|
$
|
402
|
|
|
$
|
728
|
|
|
$
|
(336
|
)
|
|
$
|
392
|
|
Software
|
|
|
3
|
|
|
|
414
|
|
|
|
(408
|
)
|
|
|
6
|
|
|
|
410
|
|
|
|
(403
|
)
|
|
|
7
|
|
Customer relationships
|
|
|
10
|
|
|
|
3,370
|
|
|
|
(2,713
|
)
|
|
|
657
|
|
|
|
3,370
|
|
|
|
(2,491
|
)
|
|
|
879
|
|
Permit
|
|
|
10
|
|
|
|
545
|
|
|
|
(545
|
)
|
|
|
―
|
|
|
|
545
|
|
|
|
(538
|
)
|
|
|
7
|
|
Total
|
|
|
|
|
|
$
|
5,089
|
|
|
$
|
(4,024
|
)
|
|
$
|
1,065
|
|
|
$
|
5,053
|
|
|
$
|
(3,768
|
)
|
|
$
|
1,285
|
|
The
intangible assets noted above 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:
|
|
Amount
|
|
Year
|
|
(In thousands)
|
|
|
|
|
|
2020
|
|
|
219
|
|
2121
|
|
|
199
|
|
2022
|
|
|
173
|
|
2023
|
|
|
132
|
|
2024
|
|
|
10
|
|
Amortization
expense recorded for definite-lived intangible assets was approximately $256,000 and $350,000, for the years ended December 31,
2019 and 2018, 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 Company’s July 29, 2003 Annual Meeting of Stockholders. Non-Qualified Stock Options (“NQSOs”) 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 the Company’s 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 Company recognizes 100% of the
market value of the shares issued). The 2003 Plan, as amended, also provides for the grant of an NQSO to purchase up to 6,000
shares of our Common Stock for each outside director upon initial election to the Board, and the grant of an NQSO to purchase
2,400 shares of our Common Stock upon each re-election. The number of shares of the Company’s Common Stock authorized under
the 2003 Plan was 1,100,000. At December 31, 2019, the 2003 Plan had available for issuance 262,312 shares.
The
Company’s 2010 Stock Option Plan (“2010 Plan”) authorized an aggregate grant of 200,000 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 was to be fixed by the Compensation and Stock Option Committee (the “Compensation
Committee”), but no stock option was 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. As a result of the approval of the 2017 Stock Option
Plan (“2017 Plan” – see below) at the Company’s 2017 Annual Meeting, no further options remained available
for issuance under the 2010 Plan immediately upon the approval of the 2017 Plan; however, the 2010 Plan remains in full force
and effect with respect to the outstanding options issued and unexercised at the date of the approval of the 2017 Plan. At December
31, 2019, the 2010 Plan had an option for the purchase of up to 50,000 shares of our Common Stock at $3.97 per share with expiration
date of May 15, 2022.
The
Company’s 2017 Stock Option Plan (“2017 Plan”) authorizes the grant of options to officers and employees of
the Company, including any employee who is also a member of the Board, as well as to consultants of the Company. The 2017 Plan
authorizes an aggregate grant of 540,000 NQSOs and ISOs, which includes a rollover of 140,000 shares that remained available for
issuance under the 2010 Plan immediately upon the approval of the 2017 Plan. Consultants of the Company can only be granted NQSOs.
The term of each stock option granted under the 2017 Plan shall be fixed by the Compensation Committee, but no stock options will
be exercisable more than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after
the grant date. The exercise price of any ISO granted under the 2017 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 ISO 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. At
December 31, 2019, the 2017 Plan had available for issuance 27,500 shares.
Stock
Options to Employees and Outside Director
On
January 17, 2019 the Company granted 105,000 ISOs from the 2017 Plan to certain employees, which included our named executive
officers as follows: 25,000 ISOs to our Chief Executive Officer (“CEO”); 15,000 ISOs to our Chief Financial Officer
(“CFO”); and 15,000 ISOs to our Executive Vice President (“EVP”) of Strategic Initiatives. The ISOs granted
were for a contractual term of six years with one-fifth vesting annually over a five-year period. The exercise price of the ISO
was $3.15 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
On
July 25, 2019, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s Annual Meeting of Stockholders held on July 25, 2019. Dr. Louis F. Centofanti (a Board member)
was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted
were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.31 per share,
which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
August 29, 2019 the Company granted an aggregate of 12,500 ISOs from the 2017 Plan to certain employees. The ISOs granted were
for a contractual term of six years with one-fifth vesting annually over a five-year period. The exercise price of the ISO was
$3.90 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
On
January 18, 2018, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the options was $4.05 per share, which was equal to our closing stock price the day preceding the
grant date, pursuant to the 2003 Plan.
On
July 26, 2018, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s July 26, 2018 Annual Meeting of Stockholders. Dr. Louis F. Centofanti (a Board member) was not
eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted were
for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $4.30 per share, which
was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
The
Company issued an aggregate of 14,400 shares of Common Stock to two previous retired outside directors resulting from the exercise
of options from the 2003 Plan for a total proceed of approximately $54,000 in the fourth quarter of 2019. The Company also issued
an aggregate of 18,000 shares of Common Stock to an employee resulting from exercise of options for a total proceed of approximately
$79,000 in the fourth quarter of 2019.
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 2019 and 2018 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 in 2018:
|
|
Employee Stock
|
|
|
Option Granted
|
|
|
2019
|
Weighted-average fair value per share
|
|
$1.46
|
Risk -free interest rate (1)
|
|
1.40%-2.58%
|
Expected volatility of stock (2)
|
|
48.67%-51.38%
|
Dividend yield
|
|
None
|
Expected option life (3)
|
|
5.0 years
|
|
|
Outside Director Stock Options Granted
|
|
|
|
2019
|
|
|
2018
|
|
Weighted-average fair value per share
|
|
|
$2.27
|
|
|
|
$2.87
|
|
Risk -free interest rate (1)
|
|
|
2.08%
|
|
|
|
2.62%-2.98%
|
|
Expected volatility of stock (2)
|
|
|
54.28%
|
|
|
|
55.34%-57.29%
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
Expected option life (3)
|
|
|
10.0 years
|
|
|
|
10.0 years
|
|
(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 2019 and 2018.
|
|
Year Ended
|
|
|
|
2019
|
|
|
2018
|
|
Employee Stock Options
|
|
$
|
150,000
|
|
|
$
|
147,000
|
|
Director Stock Options
|
|
|
29,000
|
|
|
|
51,000
|
|
Total
|
|
$
|
179,000
|
|
|
$
|
198,000
|
|
At
December 31, 2019, the Company has approximately $431,000 of total unrecognized compensation costs related to unvested options
for employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized
is approximately 2.1 years.
Stock
Options to Consultant
Robert
Ferguson is a consultant to the Company in connection with the Company’s Test Bed Initiative (“TBI”) at its
PFNWR facility. For Robert Ferguson’s consulting work in connection with the Company’s TBI, on July 27, 2017 (“grant
date”), the Company granted Robert Ferguson a NQSO from the Company’s 2017 Plan for the purchase of up to 100,000
shares of the Company’s Common Stock at an exercise price of $3.65 a share, which was the fair market value of the Company’s
Common Stock on the date of grant (“Ferguson Stock Option”). The vesting of the Ferguson Stock Option is subject to
the achievement of the following milestones (“waste” as noted below is defined as liquid LAW (“low activity
waste”) and/or liquid TRU (“transuranic waste”)):
|
●
|
Upon
treatment and disposal of three gallons of waste at the PFNWR facility by January 27, 2018, 10,000 shares of the Ferguson
Stock Option shall become exercisable;
|
|
|
|
|
●
|
Upon
treatment and disposal of 2,000 gallons of waste at the PFNWR facility by January 27, 2019, 30,000 shares of the Ferguson
Stock Option shall become exercisable; and
|
|
|
|
|
●
|
Upon
treatment and disposal of 50,000 gallons of waste at the PFNWR facility and assistance, on terms satisfactory to the Company,
in preparing certain justifications of cost and pricing data for the waste and obtaining a long-term commercial contract relating
to the treatment, storage and disposal of waste by January 27, 2021, 60,000 shares of the Ferguson Stock Option shall become
exercisable.
|
The
term of the Ferguson Stock Option is seven (7) years from the grant date. Each of the milestones is exclusive of each other; therefore,
achievement of any of the milestones above by Robert Ferguson by the designated date will provide Robert Ferguson the right to
exercise the number of options in accordance with the milestone attained. On January 17, 2019, the Ferguson Stock Option was amended
whereby the vesting date of the Ferguson Stock Option for the second milestone as discussed above was amended from “by January
27, 2019” to “by March 31, 2020.” All other terms of the Ferguson Stock Option remain unchanged.
On
May 1, 2018, Robert Ferguson exercised the 10,000 options which became vested by Mr. Ferguson in December 2017 for the purchase
of 10,000 shares of the Company’s Common Stock, resulting in total proceeds paid to the Company of approximately $36,500.
At
December 31, 2019, the Company has not recognized compensation costs (fair value of approximately $123,000 at December 31, 2019)
for the remaining Ferguson Stock Option discussed above since achievement of the performance obligation under the second milestone
is unlikely and achievement of the performance obligation under the third milestone is uncertain at December 31, 2019.
Summary
of Stock Option Plans
The
summary of the Company’s total plans as of December 31, 2019 and 2018, 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 (3)
|
|
Options outstanding January 1, 2019
|
|
|
616,000
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
129,500
|
|
|
|
3.24
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(32,400
|
)
|
|
|
4.10
|
|
|
|
|
|
|
$
|
93,000
|
|
Forfeited/expired
|
|
|
(31,800
|
)
|
|
|
8.68
|
|
|
|
|
|
|
|
|
|
Options outstanding end of period (1)
|
|
|
681,300
|
|
|
$
|
3.84
|
|
|
|
4.2
|
|
|
$
|
3,587,000
|
|
Options exercisable as of December 31, 2019(1)
|
|
|
286,800
|
|
|
$
|
4.28
|
|
|
|
3.8
|
|
|
$
|
1,383,000
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(years)
|
|
|
Aggregate Intrinsic Value (3)
|
|
Options outstanding January 1, 2018
|
|
|
624,800
|
|
|
$
|
4.42
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
18,000
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(10,000
|
)
|
|
|
3.65
|
|
|
|
|
|
|
$
|
8,000
|
|
Forfeited/expired
|
|
|
(16,800
|
)
|
|
|
11.70
|
|
|
|
|
|
|
|
|
|
Options outstanding end of period (2)
|
|
|
616,000
|
|
|
$
|
4.23
|
|
|
|
4.7
|
|
|
$
|
─
|
|
Options exercisable at December 31, 2018(2)
|
|
|
249,333
|
|
|
$
|
5.04
|
|
|
|
4.4
|
|
|
$
|
─
|
|
(1) Options with exercise prices ranging from $2.79 to $8.40
(2) Options with exercise prices ranging from $2.79 to $13.35
(3) The intrinsic
value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price
The
summary of the Company’s nonvested options as of December 31, 2019 and changes during the period then ended are presented
as follows:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested options January 1, 2019
|
|
|
366,667
|
|
|
$
|
1.91
|
|
Granted
|
|
|
129,500
|
|
|
|
1.53
|
|
Vested
|
|
|
(90,667
|
)
|
|
|
2.02
|
|
Forfeited
|
|
|
(11,000
|
)
|
|
|
1.60
|
|
Non-vested options at December 31, 2019
|
|
|
394,500
|
|
|
$
|
1.77
|
|
Warrant
In
connection with a $2,500,000 loan that the Company executed April 1, 2019 with Mr. Robert Ferguson, the Company issued a Warrant
to Mr. Ferguson for the purchase of up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share. The Warrant
is exercisable six months from April 1, 2019 and expires on April 1, 2024 and remains outstanding at December 31, 2019 (see “Note
10 – Long Term Debt” for further information of this Warrant).
Common
Stock Issued for Services
The
Company issued a total of 71,905 and 60,598 shares of our Common Stock in 2019 and 2018, 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 $232,000
and $249,000 in compensation expense (included in Selling, General &Administrative (“SG&A”) expenses) for
the twelve months ended December 31, 2019 and 2018, respectively, for the portion of director fees earned in the Company’s
Common Stock.
Shares
Reserved
At
December 31, 2019, the Company has reserved approximately 681,300 shares of our Common Stock for future issuance under all of
the option arrangements.
NOTE
7
INCOME
(LOSS) PER SHARE
The
following table reconciles the income (loss) and average share amounts used to compute both basic and diluted loss per share:
|
|
Years Ended
|
|
|
|
December 31,
|
|
(Amounts in Thousands, Except for Per Share Amounts)
|
|
2019
|
|
|
2018
|
|
Net income (loss) attributable to Perma-Fix Environmental Services, Inc., common stockholders:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes
|
|
$
|
2,732
|
|
|
$
|
(1,074
|
)
|
Net loss attributable to non-controlling interest
|
|
|
(124
|
)
|
|
|
(320
|
)
|
Income (loss) from continuing operations attributable to Perma-Fix Environmental Services,
Inc. common stockholders
|
|
$
|
2,856
|
|
|
$
|
(754
|
)
|
Loss from discontinuing operations attributable to Perma-Fix
Environmental Services, Inc. common stockholders
|
|
|
(541
|
)
|
|
|
(667
|
)
|
Net income (loss) attributable to Perma-Fix Environmental Services,
Inc. common stockholders
|
|
$
|
2,315
|
|
|
$
|
(1,421
|
)
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share attributable to
Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.19
|
|
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share attributable to
Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.19
|
|
|
$
|
(.12
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
12,046
|
|
|
|
11,855
|
|
Add: dilutive effect of stock options
|
|
|
14
|
|
|
|
─
|
|
Add: dilutive effect of warrants
|
|
|
─
|
|
|
|
─
|
|
Diluted weighted average shares outstanding
|
|
|
12,060
|
|
|
|
11,855
|
|
|
|
|
|
|
|
|
|
|
Potential shares excluded from above weighted average share calculations due to their
anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
482
|
|
|
|
107
|
|
Warrant
|
|
|
60
|
|
|
|
─
|
|
NOTE
8
SERIES
B PREFERRED STOCK
The
1,284,730 shares of the Series B Preferred Stock (the “Series B Preferred Stock”) of the Company’s wholly-owned
consolidated subsidiary, M&EC, were non-voting and non-convertible, had a $1.00 liquidation preference per share and were
redeemable at the option and sole discretion of M&EC at any time, and from time to time, from and after one year from the
date of issuance (June 25, 2001) of the Series B Preferred Stock for the purchase price of $1.00 per share. As previously disclosed,
the Company completed the closure of its M&EC facility in 2019 in accordance with M&EC’s license and permit requirements.
Holders of shares of M&EC Series B Preferred Stock were entitled to receive, when, as and if declared by M&EC’s
Board out of funds legally available for payment, cumulative dividends at the rate per annum of 5% per share on the liquidation
preference of $1.00 per share of Series B Preferred Stock. Dividends on the Series B Preferred Stock accrued without interest
beginning one year from the date of original issuance (June 25, 2001), and was payable in cash, if, when, and as declared by M&EC
Board, quarterly each year commencing on the first dividend due date following the expiration of one year from the date of original
issuance. On April 24, 2018, the Company announced a private exchange offer (“Exchange Offer”), to all 13 holders
of the M&EC Series B Preferred Stock, to exchange in a private placement exempt from registration, for every share of Series
B Preferred Stock tendered, (a) 0.1050805 shares of newly issued Common Stock of the Company, par value $.001 per share (“Common
Stock”), and (b) cash in lieu of fractional shares of Common Stock that would otherwise be issuable to the tendering holder
of Series B Preferred Stock, in an amount equal to such fractional share of Common Stock multiplied by the closing price per share
of the Common Stock on the last trading day immediately preceding the expiration date of the Exchange Offer. The Exchange Offer
was made on an all-or-none basis, for all 1,284,730 shares of Series B Preferred Stock outstanding and had an expiration date
of May 30, 2018. The Company owns 100% of the voting capital stock of M&EC. On May 30, 2018, the Exchange Offer was consummated,
resulting in the issuance of an aggregate 134,994 unregistered shares of the Company’s Common Stock in exchange for the
1,284,730 shares of Series B Preferred Stock and the payment of an aggregate of approximately $29.00 in cash in lieu of the fractional
shares of the Company’s Common Stock that would otherwise have been issuable to the tendering holders of the Series B Preferred
Stock. The fair value of the 134,994 shares of the Company’s Common Stock issued was determined to be approximately $648,000
which was based on the closing price of the Company’s Common Stock on May 30, 2018 of $4.80 per share. Upon the consummation
of the Exchange Offer, the previous holders of the M&EC Series B Preferred Stock forfeited all rights of a holder of Series
B Preferred Shares, including the right to receive quarterly cash dividends, and the rights to the cumulative accrued and unpaid
dividends with M&EC Series B Preferred Stock in the amount of approximately $1,022,000 at May 30, 2018. The M&EC Board
never declared dividends on the Series B Preferred Stock and our credit facility prohibits the payment of cash dividends without
the lender’s consent. After the Exchange Offer, the 1,284,730 shares of the Series B Preferred Stock acquired by the Company
were contributed by the Company to M&EC and the Series B Preferred Stock was no longer outstanding. The Company recorded a
gain of approximately $1,596,000 in 2018, which was net of approximately $63,000 in legal costs incurred for the completion of
the transaction.
The
shares of Company Common Stock issued in exchange for shares of M&EC’s Series B Preferred Stock were issued pursuant
to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), and, as a result,
were considered restricted securities when issued.
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 in closure status and which final closure
is subject to regulatory approval of necessary plans and permits.
The
Company incurred losses from discontinued operations of $541,000 and $667,000 for the years ended December 31, 2019 and 2018 (net
of taxes of $0 for each period), respectively. The loss for the year ended 2019 included an increase of approximately $50,000
in remediation reserve for our Perma-Fix of Memphis, Inc. (“PFM”) due to reassessment of the remediation reserve.
The loss for the year ended 2018 included an increase of approximately $50,000 in remediation reserve for our Perma-Fix of Dayton
(“PFD”) subsidiary due to reassessment of the remediation reserve. The remaining loss for each of the periods noted
above was primarily due to costs incurred in the administration and continued monitoring of our discontinued operations.
The
following table presents the major class of assets of discontinued operations at December 31, 2019 and December 31, 2018. No assets
and liabilities were held for sale at each of the periods noted.
(Amounts in Thousands)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Current assets
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
104
|
|
|
$
|
107
|
|
Total current assets
|
|
|
104
|
|
|
|
107
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net (1)
|
|
|
81
|
|
|
|
81
|
|
Other assets
|
|
|
36
|
|
|
|
118
|
|
Total long-term assets
|
|
|
117
|
|
|
|
199
|
|
Total assets
|
|
$
|
221
|
|
|
$
|
306
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8
|
|
|
$
|
10
|
|
Accrued expenses and other liabilities
|
|
|
169
|
|
|
|
296
|
|
Environmental liabilities
|
|
|
817
|
|
|
|
50
|
|
Total current liabilities
|
|
|
994
|
|
|
|
356
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Closure liabilities
|
|
|
134
|
|
|
|
126
|
|
Environmental liabilities
|
|
|
110
|
|
|
|
837
|
|
Total long-term liabilities
|
|
|
244
|
|
|
|
963
|
|
Total liabilities
|
|
$
|
1,238
|
|
|
$
|
1,319
|
|
(1)
net of accumulated depreciation of $10,000 for each period presented.
The
Company’s discontinued operations included a note receivable in the original amount of approximately $375,000 recorded in
May 2016 resulting from the sale of property at our Perma-Fix of Michigan, Inc. subsidiary. This note requires 60 equal monthly
installment payments by the buyer of approximately $7,250 (which includes interest). At December 31, 2019, the outstanding amount
on this note receivable totaled approximately $118,000, of which approximately $82,000 is included in “Current assets related
to discontinued operations” and approximately $36,000 is included in “Other assets related to discontinued operations”
in the accompanying Consolidated Balance Sheets.
Environmental
Liabilities
The
Company has three remediation projects, which are currently in progress at our PFD, 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, 2019, the Company had total accrued environmental remediation liabilities of $927,000, an increase of $40,000 from
the December 31, 2018 balance of $887,000. The net increase presents an increase of approximately $50,000 made to the reserve
at our PFM subsidiary as discussed above and payments of approximately $10,000 on remediation projects for our PFD subsidiary.
The
current and long-term accrued environmental liability at December 31, 2019 is summarized as follows (in thousands).
|
|
Current
|
|
|
Long-term
|
|
|
|
|
|
|
Accrual
|
|
|
Accrual
|
|
|
Total
|
|
PFD
|
|
$
|
41
|
|
|
$
|
60
|
|
|
$
|
101
|
|
PFM
|
|
$
|
50
|
|
|
|
15
|
|
|
|
65
|
|
PFSG
|
|
$
|
726
|
|
|
|
35
|
|
|
|
761
|
|
Total liability
|
|
$
|
817
|
|
|
$
|
110
|
|
|
$
|
927
|
|
NOTE
10
LONG-TERM
DEBT
Long-term
debt consists of the following at December 31, 2019 and December 31, 2018:
(Amounts in Thousands)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Revolving Credit facility dated October 31, 2011, as amended, borrowings based uponeligible accounts receivable, subject to monthly borrowing base calculation, balance due on March 24, 2021. Effective interest rate for 2019 and 2018 was 6.6% and 5.8%, respectively. (1)
|
|
$
|
321
|
|
|
$
|
639
|
|
Term Loan dated October 31, 2011, as amended, payable in equal monthly installments of principal, balance due on March 24, 2021. Effective interest rate for 2019 and 2018 was 6.9% and 5.5%, respectively. (1)
|
|
|
1,827
|
(2)
|
|
|
2,663
|
(2)
|
Promissory Note dated April 1, 2019, payable in twelve monthly installments of interest only, starting May 1, 2019 followed with twelve monthly installments of approximatelyt $208 in principal plus accrued interest. Interest accrues at annual rate of 4.0%. (3)
|
|
|
1,732
|
(4)
|
|
|
─
|
|
Total debt
|
|
|
3,880
|
|
|
|
3,302
|
|
Less current portion of long-term debt
|
|
|
1,300
|
(4)
|
|
|
1,184
|
|
Long-term debt
|
|
$
|
2,580
|
|
|
$
|
2,118
|
|
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property,
plant, and equipment. Effective July 1, 2019, monthly installment principal payment on the Term Loan was amended to approximately
$35,500 from approximately $101,600. See discussion of the amendment dated June 20, 2019 to the Company’s loan agreement
below.
(2)
Net of debt issuance costs of ($92,000) and ($80,000) at December 31, 2019 and December 31, 2018, respectively.
(3)
Uncollateralized note.
(4)
Net of debt discount/debt issuance costs of ($248,000) at December 31, 2019. The Promissory Note provides for prepayment
of principal over the term of the Note without penalty. The Company made prepayments of principal totaling $520,000 in 2019 which
was reflected in the current portion of the debt.
Revolving
Credit and Term Loan Agreement
The
Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended
Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Amended Loan Agreement
has been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently
amended (“Revised Loan Agreement”), provides the Company with the following credit facility with a maturity date of
March 24, 2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”)
of approximately $6,100,000, which requires monthly installments of approximately $101,600 (based on a seven-year amortization).
The maximum that the Company can borrow under the revolving credit is based on a percentage of eligible receivables (as defined)
at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender may impose from time
to time.
On
March 29, 2019, the Company entered into an amendment to its Revised Loan Agreement with its lender under the credit facility
which provided the following:
●
|
waived
the Company’s failure to meet the minimum quarterly fixed charge coverage ratio (“FCCR”) requirement for
the fourth quarter of 2018;
|
●
|
waived
the quarterly FCCR testing requirement for the first quarter of 2019;
|
●
|
revised
the methodology to be used in calculating the FCCR in each of the second and third quarters of 2019 (with continued requirement
to maintain a minimum 1.15:1 ratio in each of the quarters);
|
●
|
revised
the minimum Tangible Adjusted Net Worth requirement (as defined in the Revised Loan Agreement) from $26,000,000 to $25,000,000;
|
●
|
eliminated
the London InterBank Offer Rate (“LIBOR”) interest payment option of paying annual rate of interest due on our
term loan and revolving credit until the Company becomes compliant with its FCCR requirement again. Prior to this amendment,
the Company had the option of paying annual rate of interest due on the revolving credit at prime (4.75% at December 31, 2019)
plus 2% or LIBOR plus 3% and the term loan at prime plus 2.5% or LIBOR plus 3.5%;
|
●
|
provided
consent for the $2,500,000 loan that the Company entered into with Robert Ferguson on April 1, 2019 discussed below. No principal
prepayment on this loan was allowed until the Company received the restricted finite risk sinking funds of approximately $5,000,000
held as collateral by AIG Specialty Insurance Company (“AIG”) under our financial assurance policy resulting from
the closure of the Company’s M&EC facility (see “Note 14 – Commitments and Contingencies – Insurance”
for a discussion of the receipt of this $5,000,000 in finite risk sinking funds on July 22, 2019); and
|
●
|
revised
the annual rate used to calculate the Facility Fee (as defined in the Revised Loan Agreement) (unused revolving credit line
fee) from 0.250% to 0.375%.
|
On
June 20, 2019, we entered into another amendment to our Revised Loan Agreement with our lender under the credit facility which
provided the following, among other things:
●
|
removal
of the FCCR calculation requirement for the second, third and fourth quarter of 2019. Starting in the first quarter of 2020,
the Company will again be required to maintain a minimum FCCR of not less than 1.15 to 1.0 for the four-quarter period ending
March 31, 2020 and for each fiscal quarter thereafter;
|
●
|
requires
the Company to maintain a minimum Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted
EBITDA” as defined in the Amendment) of at least (i) $475,000 for the one quarter period ending June 30, 2019; (ii)
$2,350,000 for the two quarter period ending September 30, 2019; and (iii) $3,750,000 for the three quarter period ending
December 31, 2019;
|
●
|
immediate
release of $450,000 of the $1,000,000 indefinite reduction in borrowing availability that PNC had previously imposed; the
release of another $300,000 of the remaining $550,000 reduction in borrowing availability if the Company meets it minimum
Adjusted EBITDA requirement for the quarter ending September 30, 2019 as discussed above (which our lender released in November
2019), in addition to the Company having received no less than $4,000,000 of the restricted finite risk sinking funds held
as collateral by AIG under our financial assurance policy; and the release the final $250,000 reduction in borrowing availability
if we meet our Adjusted EBITDA requirement for the three quarter period ending December 31, 2019; and
|
●
|
reduce
the term loan monthly principal payment starting July 1, 2019 from $101,600 to approximately $35,547, with the remaining balance
of the term loan due at the maturity of the Revised Loan Agreement which is March 24, 2021.
|
Most
of the other terms of the Revised Loan Agreement, as amended, remain principally unchanged. In connection with amendment dated
March 29, 2019 and June 20, 2019, the Company paid its lender a fee of $20,000 and $50,000, respectively.
Pursuant
to the Revised Loan Agreement, as amended, the Company may terminate the Revised Loan Agreement, as amended, upon 90 days’
prior written notice upon payment in full of its obligations under the Revised Loan Agreement, as amended. No early termination
fee shall apply if the Company pays off its obligations after March 23, 2019.
At
December 31, 2019, the borrowing availability under our revolving credit was approximately $8,714,000, based on our eligible receivables
and includes an indefinite reduction of borrowing availability of $250,000 that the Company’s lender has imposed. This $8,714,000
in borrowing availability under our revolving credit also included a reduction in borrowing availability of approximately $2,639,000
from outstanding standby letters of credit.
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. As discussed above, our lender waived/removed our FCCR testing requirement for each of the quarters
in 2019. The Company met its “Adjusted EBITDA” minimum requirement in the second, third and fourth quarters of 2019
in accordance to the amendment dated June 20, 2019 as discussed above. Additionally, the Company met its remaining financial covenant
requirements in each of the quarters of 2019. As a result of the Company meeting the “Adjusted EBITDA” minimum requirement
for the fourth quarter of 2019, the Company’s lender is expected to release the remaining $250,000 reduction in borrowing
availability subsequent to the filing of our 2019 Form 10-K.
Loan
and Securities Purchase Agreement, Promissory Note and Subordination Agreement
On
April 1, 2019, the Company completed a lending transaction with Robert Ferguson (the “Lender”), whereby the Company
borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory
note (the “Loan”). The Lender is a shareholder of the Company. The Lender also currently serves as a consultant to
the Company in connection with the Company’s TBI at its PFNWR subsidiary. The proceeds from the Loan were used for general
working capital purposes. The Loan is unsecured, with a term of two years with interest payable at a fixed interest rate of 4.00%
per annum. The Loan provides for monthly payments of accrued interest only during the first year of the Loan, with the first interest
payment due May 1, 2019 and monthly payments of approximately $208,333 in principal plus accrued interest starting in the second
year of the Loan. The Loan also allows for prepayment of principal payments over the term of the Loan without penalty with such
prepayment of principal payments to be applied to the second year of the loan payments at the Company’s discretion. In 2019,
the Company made total prepayments in principal of $520,000. In connection with the above Loan, the Lender agreed under the terms
of the Loan and a Subordination Agreement with our credit facility lender, to subordinate payment under the Loan, and agreed that
the Loan will be junior in right of payment to the credit facility in the event of default or bankruptcy or other insolvency proceeding
by us. In connection with this capital raise transaction described above and consideration for us receiving the Loan, the Company
issued a Warrant (the “Warrant”) to the Lender to purchase up to 60,000 shares of our Common Stock at an exercise
price of $3.51 per share, which was the closing bid price for a share of our Common Stock on NASDAQ.com immediately preceding
the execution of the Loan and Warrant. The Warrant is exercisable six months from April 1, 2019 and expires on April 1, 2024 and
remains outstanding at December 31, 2019. The fair value of the Warrant was estimated to be approximately $93,000 using the Black-Scholes
option pricing model with the following assumptions: 50.76% volatility, risk free interest rate of 2.31%, an expected life of
five years and no dividends. As further consideration for this capital raise transaction relating to the Loan, the Company issued
75,000 shares of its Common Stock to the Lender. The Company determined the fair value of the 75,000 shares of Common Stock to
be approximately $263,000 which was based on the closing bid price for a share of the Company’s Common Stock on NASDAQ.com
immediately preceding the execution of the Loan, pursuant to the Loan and Securities Purchase Agreement. The fair value of the
Warrant and Common Stock and the related closing fees incurred totaling approximately $398,000 from the transaction was recorded
as debt discount/debt issuance costs, which is being amortized over the term of the loan as interest expense – financing
fees. The 75,000 shares of Common Stock, the Warrant and the 60,000 shares of Common Stock that may be purchased under the Warrant
were and will be issued in a private placement that was and will be exempt from registration under Rule 506 and/or Sections 4(a)(2)
and 4(a)(5) of the Securities Act of 1933, as amended (the “Act”) and bear a restrictive legend against resale except
in a transaction registered under the Act or in a transaction exempt from registration thereunder.
Upon
default, the Lender will have the right to elect to receive in full and complete satisfaction of the Company’s obligations
under the Loan either: (a) the cash amount equal to the sum of the unpaid principal balance owing under the loan and all accrued
and unpaid interest thereon (the “Payoff Amount”) or (b) upon meeting certain conditions, the number of whole shares
of the Company’s Common Stock (the “Payoff Shares”) determined by dividing the Payoff Amount by the dollar amount
equal to the closing bid price of our Common Stock on the date immediately prior to the date of default, as reported or quoted
on the primary nationally recognized exchange or automated quotation system on which our Common Stock is listed; provided however,
that the dollar amount of such closing bid price shall not be less than $3.51, the closing bid price for our Common Stock as disclosed
on NASDAQ.com immediately preceding the signing of this loan agreement.
If
issued, the Payoff Shares will not be registered and the Lender will not be entitled to registration rights with respect to the
Payoff Shares. The aggregate number of shares, warrant shares, and Payoff Shares that are or will be issued to the Lender pursuant
to the Loan, together with the aggregate shares of the Company’s Common Stock and other voting securities owned by the Lender
or which may be acquired by the Lender as of the date of issuance of the Payoff Shares, shall not exceed the number of shares
of the Company’s Common Stock equal to 14.9% of the number of shares of the Company’s Common Stock issued and outstanding
as of the date immediately prior to the default, less the number of shares of the Company’s Common Stock owned by the Lender
immediately prior to the date of such default plus the number of shares of our Common Stock that may be acquired by the Lender
under warrants and/or options outstanding immediately prior to the date of such default.
The
following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2019 (excludes
debt issuance/debt discount costs of $340,000).
Year ending December 31:
|
|
|
|
(In thousands)
|
|
|
|
2020
|
|
|
1,573
|
|
2021
|
|
|
2,647
|
|
Total
|
|
$
|
4,220
|
|
NOTE
11
ACCRUED
EXPENSES
Accrued
expenses include the following (in thousands) at December 31:
|
|
2019
|
|
|
2018
|
|
Salaries and employee benefits
|
|
$
|
3,908
|
|
|
$
|
3,228
|
|
Accrued sales, property and other tax
|
|
|
793
|
|
|
|
404
|
|
Interest payable
|
|
|
17
|
|
|
|
7
|
|
Insurance payable
|
|
|
935
|
|
|
|
710
|
|
Other
|
|
|
465
|
|
|
|
665
|
|
Total accrued expenses
|
|
$
|
6,118
|
|
|
$
|
5,014
|
|
Each
of our executives has an individual Management Incentive Plan (“MIP”) for fiscal years 2019 and 2018 which provides
for the potential payment of performance compensation (see “Note 16 – Related Party Transactions – MIPs”
for further discussion of the MIPs). The Company accrued an aggregate of approximately $270,700 in compensation expenses for the
three MIPs in 2019 for the Company’s 2019 three named executive officers (“NEOs”) (Mr. Mark Duff, Mr. Ben Naccarato,
and Mr. Louis Centofanti. No performance compensation payments were earned under any of the MIPs for 2018 for the NEOs.
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 (current and long-term) for the years ended December
31, 2019 and 2018, were as follows:
Amounts in thousands
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
8,395
|
|
Accretion expense
|
|
|
325
|
|
Spending
|
|
|
(5,293
|
)
|
Adjustment to closure liability
|
|
|
3,323
|
|
Balance as of December 31, 2018
|
|
|
6,750
|
|
Accretion expense
|
|
|
320
|
|
Spending
|
|
|
(1,359
|
)
|
Adjustment to closure liability
|
|
|
330
|
|
Balance as of December 31, 2019
|
|
$
|
6,041
|
|
The
Company recorded an additional $330,000 of closure costs and current closure liabilities in 2019 due to finalization of closure
requirements for the Company’s M&EC facility. In 2019, the Company completed the closure and decommissioning activities
of its M&EC facility in accordance with M&EC’s license and permit requirements. The Company had recorded an additional
$3,323,000 in closure costs and current closure liabilities in 2018 due to changes in estimated future closure costs for the M&EC
subsidiary.
The
spending of approximately $1,359,000 in 2019 was primarily for the closure of the Company’s M&EC facility. In 2018,
the Company had total spending of approximately $5,293,000, of which $4,991,000 was for activities related to the closure of the
M&EC facility with the remaining for the PFNWR facility in connection with the closure of certain processing equipment/enclosure.
At
December 31, 2019 and 2018, M&EC’s closure liabilities totaled approximately $84,000 and $1,142,000, respectively, with
the entire amount classified as current.
The
reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance
Sheets at December 31, 2019 and 2018 with the following activity for the years ended December 31, 2019 and 2018:
Amounts in thousands
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
3,921
|
|
Amortization of closure and post-closure asset
|
|
|
(191
|
)
|
Balance as of December 31, 2018
|
|
|
3,730
|
|
Amortization of closure and post-closure asset
|
|
|
(191
|
)
|
Balance as of December 31, 2019
|
|
$
|
3,539
|
|
NOTE
13
INCOME
TAXES
The
components of income (loss) before income tax expense (benefit) by jurisdiction for continuing operations for the years ended
December 31, consisted of the following (in thousands):
|
|
2019
|
|
|
2018
|
|
United
States
|
|
|
4,120
|
|
|
|
(857
|
)
|
Canada
|
|
|
(735
|
)
|
|
|
(138
|
)
|
United Kingdom
|
|
|
(184
|
)
|
|
|
(210
|
)
|
Poland
|
|
|
(312
|
)
|
|
|
(805
|
)
|
Total
income (loss) before tax expense (benefit)
|
|
$
|
2,889
|
|
|
$
|
(2,010
|
)
|
The
components of current and deferred federal and state income tax expense (benefit) expense for continuing operations for the years
ended December 31, consisted of the following (in thousands):
|
|
2019
|
|
|
2018
|
|
Federal income tax expense (benefit) - deferred
|
|
|
5
|
|
|
|
(1,171
|
)
|
State income tax expense - current
|
|
|
153
|
|
|
|
173
|
|
State income tax (benefit) expense - deferred
|
|
|
(1
|
)
|
|
|
62
|
|
Total income tax expense (benefit)
|
|
$
|
157
|
|
|
$
|
(936
|
)
|
An
overall reconciliation between the expected tax expense (benefit) using the federal statutory rate of 21% for each of the years
ended 2019 and 2018 and the expense (benefit) for income taxes from continuing operations as reported in the accompanying Consolidated
Statement of Operations is provided below (in thousands).
|
|
2019
|
|
|
2018
|
|
Federal tax expense (benefit) at statutory rate
|
|
$
|
607
|
|
|
$
|
(392
|
)
|
State tax expense (benefit), net of federal benefit
|
|
|
152
|
|
|
|
(178
|
)
|
Change in deferred tax rates
|
|
|
106
|
|
|
|
(78
|
)
|
Permanent items
|
|
|
54
|
|
|
|
(388
|
)
|
Difference in foreign rate
|
|
|
(27
|
)
|
|
|
13
|
|
Change in deferred tax liabilities
|
|
|
835
|
|
|
|
114
|
|
Other
|
|
|
(218
|
)
|
|
|
(99
|
)
|
(Decrease) increase in valuation allowance
|
|
|
(1,352
|
)
|
|
|
72
|
|
Income tax expense (benefit)
|
|
$
|
157
|
|
|
$
|
(936
|
)
|
A
provision of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) which was signed into law in December 2017 provides an
indefinite carryforward period for net operating losses (“NOLs”) generated starting in 2018. Also, the law limits
the utilization of these NOLs to 80% of taxable income in the year in which the NOL is utilized. The Company had been carrying
on its balance sheet a deferred tax liability related to indefinite-lived intangible assets. A common accounting interpretation
of the TCJA provisions is that deferred tax assets related to indefinite-lived NOLs may be used to offset indefinite-lived deferred
tax liabilities, up to 80% of the amount of the liability. During 2018, the Company forecasted a substantial tax loss for the
full year due to the closure of the M&EC facility. As a result, the Company released a portion of the valuation allowance
against deferred tax assets equal to 80% of the deferred tax liability related to indefinite-lived intangible assets and recorded
a tax benefit in the amount of approximately $1,235,000 in accordance to the provisions of the TCJA.
The
global intangible low-taxed income (“GILTI”) provisions under the TCJA require the Company to include in its U.S.
income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.
The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred
tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2019 and 2018. As the foreign subsidiaries
are all in loss positions for 2019, there is no GILTI inclusion for the current year.
The
base-erosion and anti-abuse tax provisions (“BEAT”) in the TCJA eliminates the deduction of certain base-erosion payments
made to related foreign corporations, and imposes a minimum tax if greater than regular tax. The Company does not expect it will
be subject to this tax due to the immaterial amounts of outbound U.S. payments and therefore has not included any tax impacts
of BEAT in its consolidated financial statements for the years ended December 31, 2019 and 2018.
The
Company 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, 2019 and 2018 as follows (in thousands):
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
9,391
|
|
|
$
|
9,540
|
|
Environmental and closure reserves
|
|
|
1,977
|
|
|
|
2,124
|
|
Lease liability
|
|
|
742
|
|
|
|
—
|
|
Other
|
|
|
1,295
|
|
|
|
1,263
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(3,211
|
)
|
|
|
(2,418
|
)
|
Goodwill and indefinite lived intangible assets
|
|
|
(590
|
)
|
|
|
(586
|
)
|
Right-of-use lease asset
|
|
|
(730
|
)
|
|
|
—
|
|
481(a) adjustment
|
|
|
(336
|
)
|
|
|
—
|
|
Prepaid expenses
|
|
|
(22
|
)
|
|
|
(30
|
)
|
|
|
|
8,516
|
|
|
|
9,893
|
|
Valuation allowance
|
|
|
(9,106
|
)
|
|
|
(10,479
|
)
|
Net deferred income tax liabilities
|
|
|
(590
|
)
|
|
|
(586
|
)
|
In
2019 and 2018, the Company concluded that it was more likely than not that $9,106,000 and $10,479,000 of our deferred income
tax assets would not be realized, and as such, a full valuation allowance was applied against those deferred income tax assets.
The
Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately
$20,548,000 and $57,809,000, respectively, as of December 31, 2019. The estimated consolidated federal and state NOLs include
approximately $2,410,000 and $3,763,000, 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. Approximately $12,199,000 of our federal NOLs were generated after December
31, and thus do not expire. 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 2017 through 2019 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 2019
and 2018.
The
Company had no federal income tax payable for the years ended December 31, 2019 and 2018.
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 at the disposal site, 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 (“2003 Closure Policy”) with AIG, which
provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The 2003
Closure Policy, as amended, provided for a maximum allowable coverage of $39,000,000 which included available capacity to allow
for annual inflation and other performance and surety bond requirements. As a result of the closure of the Company’s M&EC
facility, on July 22, 2019, AIG released $5,000,000 of the finite risk sinking funds held as collateral under the 2003 Closure
Policy to the Company. The finite risk sinking funds received by the Company are to be used for general working capital needs.
In conjunction with the release of the finite risk sinking funds by AIG, total coverage under the 2003 Closure Policy was amended
from $30,549,000 to $19,314,000. Additionally, the maximum coverage allowable under the 2003 Closure Policy was amended from $39,000,000
to approximately $28,177,000 which includes available capacity to allow for annual inflation and other performance and surety
bond requirements. At December 31, 2019 and December 31, 2018, finite risk sinking funds contributed by the Company related to
the 2003 Closure Policy which is included in other long term assets on the accompanying Consolidated Balance Sheets totaled $11,307,000
and $15,971,000, respectively, which included interest earned of $1,836,000 and $1,500,000 on the finite risk sinking funds as
of December 31, 2019 and December 31, 2018, respectively. Interest income for the year ended 2019 and 2018 was approximately $336,000
and $295,000, respectively. If we so elect, AIG is obligated to pay us an amount equal to 100% of the finite risk 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.
Letter
of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to
customers and other obligations, including facility closures. At December 31, 2019, the total amount of standby letters of credit
outstanding was approximately $2,639,000 and the total amount of bonds outstanding was approximately $28,937,000.
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 2019 and 2018, the Company contributed approximately $395,000 and $338,000 in 401(k) matching funds, respectively.
NOTE
16
RELATED
PARTY TRANSACTIONS
David
Centofanti
David
Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $177,000
and $173,000 for 2019 and 2018, respectively. David Centofanti is the son of our EVP of Strategic Initiatives and a Board member,
Dr. Louis Centofanti. Dr. Louis Centofanti previously held the position of President and CEO until September 8, 2017.
Robert
Ferguson
Robert
Ferguson previously served as an advisor to the Company’s Board until the first quarter of 2019 and continues to serve as
a consultant to the Company relating to our TBI at our PFNWR facility (see “Note 6 – Capital Stock, Stock Plan, Warrants,
and Stock Based Compensation” for a discussion of the options granted to Robert Ferguson in connection with the TBI initiatives).
For his services to the Company, Robert Ferguson was paid $4,000 monthly plus reasonable expenses. Mr. Ferguson ceased to be a
related party to the Company when he ceased providing advisory services to the Board.
Employment
Agreements
The
Company entered into employment agreements with each of Mark Duff (President and CEO), Ben Naccarato (CFO), and Dr. Louis Centofanti,
(EVP of Strategic Initiatives), with each employment agreement dated September 8, 2017. Each of the employment agreements is effective
for three years from September 8, 2017 (the “Initial Term”) unless earlier terminated by us or by the executive officer.
At the end of the Initial Term of each employment agreement, each employment agreement will automatically be extended for one
additional year, unless at least six months prior to the expiration of the Initial Term, the Company or the executive officer
provides written notice not to extend the terms of the employment agreement. Each employment agreement provides for annual base
salaries, performance bonuses as provided in the MIP as approved by our Board, and other benefits commonly found in such agreements.
In addition, each employment agreement provides that in the event the executive officer terminates his employment for “good
reason” (as defined in the agreements) or is terminated by the Company without cause (including the executive officer terminating
his employment for “good reason” or is terminated by us without cause within 24 months after a Change in Control (as
defined in the agreement)), the Company will pay the executive officer the following: (a) a sum equal to any unpaid base salary;
(b) accrued unused vacation time and any employee benefits accrued as of termination but not yet been paid (“Accrued Amounts”);
(c) two years of full base salary; and (d) two times the performance compensation (under the MIP) earned with respect to the fiscal
year immediately preceding the date of termination provided the performance compensation earned with respect to the fiscal year
immediately preceding the date of termination has not been paid. If performance compensation earned with respect to the fiscal
year immediately preceding the date of termination has been made to the executive officer, the executive officer will be paid
an additional year of the performance compensation earned with respect to the fiscal year immediately preceding the date of termination.
If the executive terminates his employment for a reason other than for good reason, the Company will pay to the executive the
amount equal to the Accrued Amounts plus any performance compensation payable pursuant to the MIP.
If
there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase common stock held by the
executive officer will immediately become exercisable in full commencing on the date of termination through the original term
of the options. In the event of the death of an executive officer, all outstanding stock options to purchase common stock held
by the executive officer will immediately become exercisable in full commencing on the date of death, with such options exercisable
for the lesser of the original option term or twelve months from the date of the executive officer’s death. In the event
of an executive officer terminating his employment for “good reason” or is terminated by us without cause, all outstanding
stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on
the date of termination, with such options exercisable for the lesser of the original option term or within 60 days from the date
of the executive’s date of termination.
MIPs
On
January 17, 2019, the Company’s Board and the Compensation Committee approved individual MIP for the CEO, CFO, and EVP of
Strategic Initiatives. Each MIP is effective January 1, 2019 and applicable for the year ended December 31, 2019. 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 the executive’s annual 2019 base salary. The potential target performance compensation ranges from 5%
to 150% of the 2019 base salary for the CEO ($14,350 to $430,500), 5% to 100% of the 2019 base salary for the CFO ($11,762 to
$235,231), and 5% to 100% of the 2019 base salary for the EVP of Strategic Initiatives ($11,449 to $228,985). The amount payable
under the 2019 MIP was approximately $110,700, $81,100, and $78,900, for the CEO, CFO, and EVP of Strategic Initiatives, respectively,
which we anticipate will be paid in April 2020.
Each
of the executives also had a MIP for the year ended December 31, 2018, which also provides guidelines for the calculation of annual
cash incentive-based compensation, similar to the 2019 MIPs discussed above. No performance compensation was earned or payable
under each of the 2018 MIPs.
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 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 financial
statements. As previously disclosed, the Medical Segment has substantially reduced its R&D costs and activities due to the
need for capital to fund these activities. The Company anticipates that the Medical Segment will not resume full R&D activities
until the necessary capital is obtained through its own credit facility or additional equity raise, or obtains partners willing
to provide funding for its R&D. 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 as of and for the years ended December 31, 2019 and
2018 (in thousands).
Segment
Reporting as of and for the year ended December 31, 2019
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments Total
|
|
|
Corporate (2)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$
|
40,364
|
|
|
$
|
33,095
|
|
|
|
—
|
|
|
$
|
73,459
|
(3)(4)
|
|
$
|
—
|
|
|
$
|
73,459
|
|
Intercompany revenues
|
|
|
329
|
|
|
|
38
|
|
|
|
—
|
|
|
|
367
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
12,248
|
|
|
|
3,336
|
|
|
|
—
|
|
|
|
15,584
|
|
|
|
—
|
|
|
|
15,584
|
|
Research and development
|
|
|
401
|
|
|
|
12
|
|
|
|
314
|
|
|
|
727
|
|
|
|
23
|
|
|
|
750
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
337
|
|
|
|
337
|
|
Interest expense
|
|
|
(129
|
)
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
(152
|
)
|
|
|
(280
|
)
|
|
|
(432
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(208
|
)
|
|
|
(208
|
)
|
Depreciation and amortization
|
|
|
999
|
|
|
|
318
|
|
|
|
—
|
|
|
|
1,317
|
|
|
|
25
|
|
|
|
1,342
|
|
Segment income (loss) before income taxes
|
|
|
7,973
|
|
|
|
795
|
|
|
|
(314
|
)
|
|
|
8,454
|
|
|
|
(5,565
|
)
|
|
|
2,889
|
|
Income tax expense
|
|
|
153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
|
|
4
|
|
|
|
157
|
|
Segment income (loss)
|
|
|
7,820
|
|
|
|
795
|
|
|
|
(314
|
)
|
|
|
8,301
|
|
|
|
(5,569
|
)
|
|
|
2,732
|
|
Segment assets(1)
|
|
|
34,260
|
|
|
|
15,410
|
(10)
|
|
|
16
|
|
|
|
49,686
|
|
|
|
16,829
|
(5)
|
|
|
66,515
|
|
Expenditures for segment assets (net)
|
|
|
169
|
|
|
|
1,366
|
|
|
|
—
|
|
|
|
1,535
|
|
|
|
—
|
|
|
|
1,535
|
(9)
|
Total debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,880
|
|
|
|
3,880
|
(6)
|
Segment
Reporting as of and for the year ended December 31, 2018
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments Total
|
|
|
Corporate (2)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$
|
36,271
|
|
|
$
|
13,268
|
|
|
|
—
|
|
|
$
|
49,539
|
(3)(4)
|
|
$
|
—
|
|
|
$
|
49,539
|
|
Intercompany revenues
|
|
|
509
|
|
|
|
70
|
|
|
|
—
|
|
|
|
579
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
7,197
|
|
|
|
1,264
|
|
|
|
—
|
|
|
|
8,461
|
|
|
|
—
|
|
|
|
8,461
|
|
Research and development
|
|
|
483
|
|
|
|
—
|
|
|
|
811
|
|
|
|
1,294
|
|
|
|
76
|
|
|
|
1,370
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
295
|
|
|
|
295
|
|
Interest expense
|
|
|
(22
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
(227
|
)
|
|
|
(251
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
(38
|
)
|
Depreciation and amortization
|
|
|
943
|
|
|
|
465
|
|
|
|
—
|
|
|
|
1,408
|
|
|
|
47
|
|
|
|
1,455
|
|
Segment income (loss) before income taxes
|
|
|
4,550
|
(7)
|
|
|
(756
|
)
|
|
|
(811
|
)
|
|
|
2,983
|
|
|
|
(4,993
|
)
|
|
|
(2,010
|
)
|
Income tax (benefit) expense
|
|
|
(943
|
)(8)
|
|
|
—
|
|
|
|
—
|
|
|
|
(943
|
)
|
|
|
7
|
|
|
|
(936
|
)
|
Segment income (loss)
|
|
|
5,493
|
|
|
|
(756
|
)
|
|
|
(811
|
)
|
|
|
3,926
|
|
|
|
(5,000
|
)
|
|
|
(1,074
|
)
|
Segment assets(1)
|
|
|
32,800
|
|
|
|
5,188
|
(10)
|
|
|
25
|
|
|
|
38,013
|
|
|
|
19,429
|
(5)
|
|
|
57,442
|
|
Expenditures for segment assets (net)
|
|
|
1,311
|
|
|
|
117
|
|
|
|
—
|
|
|
|
1,428
|
|
|
|
4
|
|
|
|
1,432
|
(9)
|
Total debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,302
|
|
|
|
3,302
|
(6)
|
(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 government clients (domestic and foreign (primarily Canadian)),
either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately
$59,985,000 or 81.7% of total revenue for 2019 and $35,944,000 or 72.6% of total revenue for 2018. The following reflects
such revenue generated by our two segments:
|
|
|
2019
|
|
|
2018
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic government
|
|
$
|
29,420
|
|
|
$
|
25,077
|
|
|
$
|
54,497
|
|
|
$
|
25,181
|
|
|
$
|
9,630
|
|
|
$
|
34,811
|
|
Foreign government
|
|
|
279
|
|
|
|
5,209
|
|
|
|
5,488
|
|
|
|
114
|
|
|
|
1,019
|
|
|
|
1,133
|
|
Total
|
|
$
|
29,699
|
|
|
$
|
30,286
|
|
|
$
|
59,985
|
|
|
$
|
25,295
|
|
|
$
|
10,649
|
|
|
$
|
35,944
|
|
(4)
|
The
following table reflects revenue based on customer location:
|
|
|
2019
|
|
|
2018
|
|
United States
|
|
$
|
67,822
|
|
|
$
|
48,301
|
|
Canada
|
|
|
5,488
|
|
|
|
1,140
|
|
United Kingdom
|
|
|
149
|
|
|
|
98
|
|
Total
|
|
$
|
73,459
|
|
|
$
|
49,539
|
|
(5)
|
Amount
includes assets from our discontinued operations of $221,000 and $306,000 at December 31, 2019 and 2018, respectively.
|
|
|
(6)
|
Net
of debt discount/debt issuance costs of ($340,000) and ($80,000) for 2019 and 2018, respectively (see “Note 10 –
“Long-Term Debt” for additional information).
|
|
|
(7)
|
Amount
includes a net gain of $1,596,000 recorded resulting from the exchange offer of the Series B Preferred Stock of the Company’s
M&EC subsidiary (see “Note 8 – Series B Preferred Stock”)
|
|
|
(8)
|
For
the year ended December 31, 2018, amount includes a tax benefit recorded in the amount of approximately $1,235,000 resulting
from certain provisions of the TCJA (see “Note 13 – Income Taxes” for further information of this tax benefit).
|
|
|
(9)
|
Net
of financed amount of $393,000 and $545,000 for the year ended December 31, 2019 and 2018, respectively.
|
|
|
(10)
|
Includes
long-lived asset (net) for our PF Canada, Inc. subsidiary of $41,000 and $0, for the year ended December 31, 2019 and 2018,
respectively.
|
NOTE
18
SUBSEQUENT
EVENTS
MIPs
On
January 16, 2020, the Company’s Board and the Compensation Committee approved individual MIP for each Mark Duff, CEO and
President, Ben Naccarato, CFO, and Dr. Louis Centofanti, EVP of Strategic Initiatives. Additionally, the Board and the Compensation
Committee approved a MIP for Andy Lombardo, who was elected EVP of Nuclear and Technical Services and an executive officer of
the Company. Mr. Lombardo previously held the position of Senior Vice President (“SVP”) of Nuclear and Technical Services.
The MIPs are effective January 1, 2020 and applicable for year ended December 31, 2020. 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 the executive’s 2020 annual base salary (see below for salary of each executive officers for 2020). The potential target
performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary
for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336) and
5% to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000).
Salary
On
January 16, 2020, the Board, with the approval of the Compensation Committee approved the following salary increase for the Company’s
NEO effective January 1, 2020:
|
●
|
Annual
base salary for Mark Duff, CEO and President, was increased to $344,400 from $287,000.
|
|
●
|
Annual
base salary for Ben Naccarato, who was promoted to EVP and CFO from VP and CFO, was increased to $280,000 from $235,231; and
|
|
●
|
Annual
base salary for Andy Lombardo, who was elected to EVP of Nuclear and Technical Services as discussed above, was increased
to $280,000 from $258,662, which was the annual base salary that Mr. Lombardo was paid as SVP of Nuclear and Technical Services
and prior to his election as an executive officer of the Company by the Board.
|
Coronavirus (“Covid-19”)
The spread of Coronavirus around the
world in the first quarter of 2020 has resulted in significant volatility in the U.S. and international markets. Currently,
there is significant uncertainty around the breadth and duration of business disruptions related to the Coronavirus, as well
as its impact on the U.S and international economies. As a result of the Coronavirus, the Company has been informed that
certain field projects for remediation work are being suspended until further notice due to precautions associated with the
risk of potential virus spread among staff and client. Additionally, certain customers have delayed waste shipments to us
into the second quarter of 2020 that were originally scheduled for the first quarter of 2020. At this time, the Company is
unable to determine if the Coronavirus will have a material impact to its operations.