Notes
to Consolidated Financial Statements
December
31, 2017 and 2016
NOTE
1
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how
company, is a Delaware corporation, engaged through its subsidiaries, in three reportable segments:
TREATMENT
SEGMENT, which includes:
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nuclear,
low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous
waste treatment, processing and disposal services primarily through three uniquely licensed and permitted treatment and storage
facilities; and
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research
and development (“R&D”) activities to identify, develop and implement innovative waste processing techniques
for problematic waste streams.
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SERVICES
SEGMENT, which includes:
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Technical
services, which include:
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o
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professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology
and engineering;
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o
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integrated
Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys,
e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and
exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational
Safety and Health Administration (“OSHA”) citation assistance;
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global
technical services providing consulting, engineering, project management, waste management, environmental, and decontamination
and decommissioning field, technical, and management personnel and services to commercial and government customers; and
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on-site
waste management services to commercial and governmental customers.
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Nuclear
services, which include:
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technology-based
services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction,
logistics, transportation, processing and disposal;
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o
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remediation
of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes:
project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition,
and planning; site restoration; logistics; transportation; and emergency response; and
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A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental)
health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
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MEDICAL
SEGMENT, which includes: R&D of 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 continues to be primarily in the R&D stage. All costs incurred by the Medical Segment are reflected within R&D in the
accompanying consolidated financial statements (see “Financial Position and Liquidity” below for further discussion
of Medical Segment’s significant curtailment of its R&D activities during the latter part of 2016).
The
Company’s continuing operations consist of Diversified Scientific Services, Inc. (“DSSI”), Perma-Fix of Florida,
Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), East Tennessee Materials & Energy Corporation
(“M&EC”) (see “Note 3 – M&EC Facility” regarding the pending closure of this facility by
June 30, 2018), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF
UK Limited”), Perma-Fix of Canada, Inc. (“PF Canada”), and PF Medical (a majority-owned Polish subsidiary).
The
Company’s discontinued operations (see Note 8) consist of all our subsidiaries included in our Industrial Segment which
were divested in 2011 and prior, previously closed locations, and our Perma-Fix of South Georgia, Inc. (“PFSG”) facility
which is non-operational and is in closure status.
Financial
Position and Liquidity
The
Company’s cash flow requirements during 2017 were primarily financed by our operations, credit facility availability, and
the restricted finite risk sinking funds that were released back to us in May 2017 from the cancellation of a previous financial
assurance policy issued by American International Group (“AIG”) for our PFNWR subsidiary (see “Note 13 –
Commitments and Contingencies - Insurance” for further information of the finite sinking funds and the replacement closure
mechanism acquired for the PFNWR subsidiary).
The
Company’s cash flow requirements for 2018 and into the first quarter of 2019 will consist primarily of general working capital
needs, scheduled principal payments on our debt obligations, remediation projects, planned capital expenditures and closure spending
requirements in connection with the closure of our M&EC facility (“M&EC closure”) (see “Note 3 –
M&EC facility” for further discussion of the pending M&EC closure) which we plan to fund from operations and our
credit facility availability. The Company continues to explore all sources of increasing revenue. The Company is continually reviewing
operating costs and is committed to further reducing operating costs to bring them in line with revenue levels, when necessary.
As
previously disclosed, during the latter part of 2016, the Company’s Medical Segment reduced its R&D activities substantially
due to the need for capital to fund such 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. Our Medical Segment
continues to seek various sources in order to raise this funding. 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.
Use
of Estimates
When
the Company prepares financial statements in conformity with accounting standards generally accepted in the United States of America
(“US GAAP”), the Company makes estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements, as well as, the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. See Notes 8, 11, 12 and
13 for estimates of discontinued operations and environmental liabilities, closure costs, income taxes and contingencies for details
on significant estimates.
Cash
At
December 31, 2017, the Company had cash on hand of approximately $1,063,000, which included account balances for our foreign subsidiaries
totaling approximately $305,000. At December 31, 2016, the Company had cash on hand of approximately $163,000, which included
account balances for our foreign subsidiaries totaling approximately $157,000.
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date
based on the customer type (government, broker, or commercial). The carrying amount of accounts receivable is reduced by an allowance
for doubtful accounts, which is a valuation allowance that reflects management’s best estimate of the amounts that will
not be collected. The Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and
based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will not be collected.
This analysis excludes government related receivables due to our past successful experience in their collectability. Specific
accounts that are deemed to be uncollectible are reserved at 100% of their outstanding balance. The remaining balances aged over
60 days have a percentage applied by aging category, based on historical experience that allows us to calculate the total allowance
required. Once the Company has exhausted all options in the collection of a delinquent accounts receivable balance, which includes
collection letters, demands for payment, collection agencies and attorneys, the account is deemed uncollectible and subsequently
written off. The write off process involves approvals from senior management based on required approval thresholds.
The
following table set forth the activity in the allowance for doubtful accounts for the years ended December 31, 2017 and 2016 (in
thousands):
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Year
Ended December 31,
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2017
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2016
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Allowance
for doubtful accounts - beginning of year
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$
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272
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$
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1,474
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Provision
for (recovery of) bad debt reserve
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462
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(314
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)
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Write-off
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(14
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)
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(888
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)
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Allowance
for doubtful accounts - end of year
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$
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720
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$
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272
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Unbilled
Receivables
Unbilled
receivables are generated by differences between invoicing timing and our proportional performance based methodology used for
revenue recognition purposes. As major processing and contract completion phases are completed and the costs are incurred, the
Company recognizes the corresponding percentage of revenue. Within our Treatment Segment, the facilities experience delays in
processing invoices due to the complexity of the documentation that is required for invoicing, as well as the difference between
completion of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing
differences occur for several reasons: partially from delays in the final processing of all wastes associated with certain work
orders and partially from delays for analytical testing that is required after the facilities have processed waste but prior to
our release of waste for disposal. The tasks relating to these delays usually take several months to complete. As the Company
now has historical data to review the timing of these delays, the Company realizes that certain issues, including, but not limited
to, delays at our third party disposal site, can extend collection of some of these receivables greater than twelve months. However,
our historical experience suggests that a significant portion of unbilled receivables are ultimately collectible with minimal
concession on our part. The Company, therefore, segregates the unbilled receivables between current and long-term.
Unbilled
receivables within our Services Segment can result from: (1) revenue recognized by our Earned Value Management program (a program
which integrates project scope, schedule, and cost to provide an objective measure of project progress) but invoice milestones
have not yet been met and/or (2) contract claims and pending change orders, including Requests for Equitable Adjustments (“REAs”)
when work has been performed and collection of revenue is reasonably assured.
Inventories
Inventories
consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, the Company has replacement parts in inventory,
which are deemed critical to the operating equipment and may also have extended lead times should the part fail and need to be
replaced. Inventories are valued at the lower of cost or market with cost determined by the first-in, first-out method.
Property
and Equipment
Property
and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the
assets for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes.
Generally, asset lives range from ten to forty years for buildings (including improvements and asset retirement costs) and three
to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements
are capitalized and amortized over the lesser of the term of the lease or the life of the asset. Maintenance and repairs are charged
directly to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective
accounts, and any gain or loss from sale or retirement is recognized in the accompanying Consolidated Statements of Operations.
Renewals and improvements, which extend the useful lives of the assets, are capitalized.
In
accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment”, long-lived
assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections
of the balance sheet. See “Note 3 – M&EC Facility” for impairment charges incurred on tangible assets resulting
from the pending closure of the M&EC facility.
Our
depreciation expense totaled approximately $3,429,000 and $3,717,000 in 2017 and 2016, respectively.
Intangible
Assets
Intangible
assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety
of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying
value.
Indefinite-lived
intangible assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the
business environment indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying
amount, we perform a quantitative test to determine the fair value. The impairment loss, if any, is measured as the excess of
the carrying value of the asset over its fair value. Significant judgments are inherent in these analyses and include assumptions
for, among other factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows,
and the determination of appropriate long term discount rates.
Impairment
testing of our permits related to our Treatment reporting unit as of October 1, 2017 resulted in no impairment charges for the
year ended December 31, 2017. In 2016, the Company fully impaired the permit value of our M&EC subsidiary resulting from the
pending closure of the facility (see “Note 3 – M&EC Facility” for further information of this impairment).
The Company performed impairment testing of its remaining permits related to the Treatment reporting unit as of October 1, 2016
and determined there was no further impairment.
Intangible
assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the
exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible
asset valuation review as of October 1. The Company has one definite-lived permit which was excluded from our annual impairment
review as noted above. Definite-lived intangible assets are also tested for impairment whenever events or changes in circumstances
suggest impairment might exist.
R&D
Operational
innovation and technical know-how is very important to the success of our business. Our goal is to discover, develop, and bring
to market innovative ways to process waste that address unmet environmental needs and to develop new company service offerings.
The Company conducts research internally and also through collaborations with other third parties. R&D costs consist primarily
of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development
and enhancement of new potential waste treatment processes and new technology and are charged to expense when incurred in accordance
with ASC Topic 730, “Research and Development.” The Company’s R&D expenses included approximately $1,141,000
and $1,489,000 for the years ended December 31, 2017 and 2016, respectively, incurred by our Medical Segment in the R&D of
its medical isotope production technology.
Accrued
Closure Costs and Asset Retirement Obligations (“ARO”)
Accrued
closure costs represent our estimated environmental liability to clean up our facilities, as required by our permits, in the event
of closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a
liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying
cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding
such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations,
and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which
the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are
included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property.
In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-period changes in the liability
resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash
flows. Increases in the ARO liability due to passage of time impact net income as accretion expense, which is included in cost
of goods sold. Changes in costs resulting from changes or expansion at the facilities require adjustment to the ARO liability
and are capitalized and charged as depreciation expense, in accordance with the Company’s depreciation policy.
Income
Taxes
Income
taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the provision for income taxes
is comprised of taxes that are currently payable and deferred taxes that relate to the temporary differences between financial
reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC
740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. The Company 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 the federal government, either directly as a prime contractor or indirectly
for others as a subcontractor to the federal government, representing approximately $36,654,400 or 73.6% of total revenue during
2017, as compared to $27,354,000 or 53.4% of total revenue during 2016.
Revenue
generated by one of the customers (PSC Metal, Inc.) (non-government related and excluded from above) in the Services Segment accounted
for approximately $9,763,000 or 19.1% of the total revenues generated for the twelve months ended December 31, 2016. Project work
for this customer commenced in March 2016 and was completed in December 2016.
As
our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another
contract with a different customer from year to year, we do not believe the loss of one specific customer from one year to the
next will generally have a material adverse effect on our operations and financial condition.
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains cash with high quality financial institutions, which may exceed Federal Deposit Insurance
Corporation (“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to accounts receivable
is limited due to the Company’s large number of customers and their dispersion throughout the United States as well as with
the significant amount of work that we perform for the federal government as discussed above.
The
Company had two government related customers whose net outstanding receivable balance represented 17.9% and 16.8% of the Company’s
total consolidated net accounts receivable at December 31, 2017. The Company had two customers whose net outstanding receivable
balance represented 10.1% (government related account) and 20.8% (non-government related account) of the Company’s total
consolidated net accounts receivable at December 31, 2016.
Gross
Receipts Taxes and Other Charges
ASC
605-45, “Revenue Recognition – Principal Agent Consideration” provides guidance regarding the accounting and
financial statement presentation for certain taxes assessed by a governmental authority. These taxes and surcharges include, among
others, universal service fund charges, sales, use, waste, and some excise taxes. In determining whether to include such taxes
in its revenue and expenses, the Company assesses, among other things, whether it is the primary obligor or principal taxpayer
for the taxes assessed in each jurisdiction where the Company does business. As the Company is merely a collection agent for the
government authority in certain of our facilities, the Company records the taxes on a net basis and excludes them from revenue
and cost of services.
Revenue
Recognition
Treatment
Segment revenues.
The processing of mixed waste is complex and may take several months or more to complete; as such, the Treatment
Segment recognizes revenues using a proportional performance based methodology with its measure of progress towards completion
determined based on output measures consisting of milestones achieved and completed. The Treatment Segment has waste tracking
capabilities, which it continues to enhance, to allow for better matching of revenues earned to the processing phases achieved.
The revenues are recognized as each of the following three processing phases are completed: receipt, treatment/processing and
shipment/final disposal. However, based on the processing of certain waste streams, the treatment/processing and shipment/final
disposal phases may be combined as sometimes they are completed concurrently. As major processing phases are completed and the
costs are incurred, the Treatment Segment recognizes the corresponding percentage of revenue utilizing a proportional performance
model. The Treatment Segment experiences delays in processing invoices due to the complexity of the documentation that is required
for invoicing, as well as the difference between completion of revenue recognition milestones and agreed upon invoicing terms,
which results in unbilled receivables. The timing differences occur for several reasons, partially from delays in the final processing
of all wastes associated with certain work orders and partially from delays for analytical testing that is required after the
waste is processed but prior to our release of the waste for disposal. As the waste moves through these processing phases and
revenues are recognized, the correlating costs are expensed as incurred. Although the Treatment Segment uses its best estimates
and all available information to accurately determine these disposal expenses, the risk does exist that these estimates could
prove to be inadequate in the event the waste requires retreatment. Furthermore, should the waste be returned to the customer,
the related receivables could be uncollectible; however, historical experience has not indicated this to be a material uncertainty.
Services
Segment revenues
. Revenue includes services performed under fixed price, time and material, and cost-reimbursement contracts.
Revenues and costs associated with fixed price contracts are recognized using the percentage of completion (efforts expended)
method. The Services Segment estimates its percentage of completion based on attainment of project milestones. Revenues and costs
associated with time and material contracts are recognized as revenue when earned and costs are incurred.
Under
cost reimbursement contracts, the Services Segment is reimbursed for costs incurred plus a certain percentage markup for indirect
costs, in accordance with contract provisions. Costs incurred in excess of contract funding may be renegotiated for reimbursement.
The Services Segment also earns a fee based on the approved costs to complete the contract. The Services Segment recognizes this
fee using the proportion of costs incurred to total estimated contract costs.
Contract
costs include all direct labor, material and other non-labor costs and those indirect costs related to contract support, such
as depreciation, fringe benefits, overhead labor, supplies, tools, repairs and equipment rental. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions
and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result
in revisions to costs and income and are recognized in the period in which the revisions are determined.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation.”
ASC 718 requires all stock-based payments to employees, including grant of options, to be recognized in the Statement of Operations
based on their fair values. The Company accounts for stock-based compensation issued to consultants in accordance with the provisions
of ASC 505-50, “Equity-Based Payments to Non-Employees.” Measurement of stock-based payment transactions with consultants,
including options, is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or
(b) the equity instrument issued. The measurement date for the fair value of the stock-based payment transaction is determined
at the earlier of performance commitment date or performance completion date. 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, 2017 and December 31, 2016, 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
January 2017, the Financial Accounting Standards Board (“FASB”) issued Accountings Standards Update (“ASU”)
No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures
(Topic 232) – Amendments to SEC Paragraphs Pursuant to staff Announcements at the September 22, 2016 and November 17, 2016
EITF Meetings.” This amendment states that registrants should consider additional qualitative disclosures if the impact
of an issued but not yet adopted ASU is unknown or cannot be reasonably estimated and to include a description of the effect of
the accounting policies that the registrant expects to apply, if determined. Transition guidance included in certain issued but
not yet adopted ASUs were also updated to reflect this update. This update is effective immediately. The adoption of ASU 2017-03
by the Company in the first quarter of 2017 did not have a material impact on the Company’s financial position, results
of operations and cash flows. The Company will revise its disclosures for the standards not yet adopted as required by ASU 2017-03
as the Company progresses through its impact assessments.
Recently
Issued Accounting Standards – Not Yet Adopted
In
May 2014, the 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 will supersede nearly all existing revenue
recognition guidance. Topic 606 provides a single, comprehensive revenue recognition model for all contracts with customers. 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.
Topic 606 also requires additional disclosure surrounding the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred
to obtain or fulfill a contract. Topic 606 is effective for annual reporting periods beginning after December 15, 2017 (including
interim reporting periods within those periods). The new standard permits two implementation approaches: the full retrospective
method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying
the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative
effect of applying the standard would be recognized at the date of initial application. The Company has completed the evaluation
of customer contracts and continues to identify and implement appropriate changes to our business policies, processes, systems
and controls to support the adoption, recognition and disclosures under the new standard. The Company will adopt the new revenue
standard in the first quarter of 2018 applying the modified retrospective method. Based on our evaluation, we do not believe that
the adoption of ASU 2014-09 will result in a significant change in accounting principles applied to the Company’s financial
position, results of operations or cash flows. We believe that revenue will continue to be generally recognized consistent with
our current revenue recognition model. The potential future impacts would be limited to the capitalization of direct and incremental
contract acquisition costs, which have not historically been material. The Company will continue to monitor the materiality of
these contract acquisition costs on an ongoing basis to determine if these costs become material and should be capitalized. In
accordance with the new standard, the Company will expand revenue recognition disclosures beginning in the first quarter of 2018
to address the new qualitative and quantitative requirements.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under ASU 2016-02, an entity will be required
to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.
ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors
are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is
effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period,
and requires a modified retrospective adoption, with early adoption permitted. This ASU is effective January 1, 2019 for the Company.
The Company is still evaluating the potential impact of adopting this guidance on our financial statements.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force),” which aims to eliminate diversity in practice in how
certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement
of Cash Flows, and other Topics. Subsequently, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic
230), Restricted Cash, a consensus of the FASB Emerging Issues Task Force,” which clarifies the guidance on the cash flow
classification and presentation of changes in restricted cash or restricted cash equivalents. Therefore, amounts generally described
as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flow. ASU 2016-15 and ASU 2016-18 are effective for annual reporting
periods, and interim periods therein, beginning after December 15, 2017 and are effective January 1, 2018 for the Company. The
Company does not expect the adoption of these ASUs to have a material impact on the Company’s financial position, results
of operations, or cash flows.
In
October 2016, the FASB issued ASU 2016-16
,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory,” which eliminates the existing exception in U.S. GAAP prohibiting the recognition of the income tax consequences
for intra-entity asset transfers. Under ASU 2016-16, entities will be required to recognize the income tax consequences of intra-entity
asset transfers other than inventory when the transfer occurs. ASU 2016-16 is effective on a modified retrospective basis for
fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.
This ASU is effective January 1, 2018 for the Company. The Company does not expect the adoption of this ASU to have a material
impact on the Company’s financial position, results of operations, or cash flows
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) – Clarifying the Definition of a
Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition
of a business affects many areas of accounting including acquisition, disposals, goodwill and consolidation. This standard is
effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period and is effective
for the Company January 1, 2018. The Company does not expect the adoption of this ASU to have a material impact on the Company’s
financial position, results of operations, or cash flows.
In
May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.”
This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim
periods within those fiscal years, and early adoption is permitted, including in an interim period. ASU 2017-09 is to be applied
on a prospective basis to an award modified on or after the adoption date. This ASU is effective January 1, 2018 for the Company.
The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results
of operations, or cash flows.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.” Part I of this update addresses the complexity
of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked
instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity
offerings. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a
down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s
own stock. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because
of the existence of extensive pending content in the FASB Accounting Standards Codification and does not have an accounting effect.
This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption
is permitted. This ASU is effective for the Company January 1, 2019. The Company is currently assessing the impact that this standard
will have on its financial statements.
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 Tax Cuts and Jobs Act 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 to 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 Company is currently assessing
the impact that this standard will have on its financial statements.
NOTE
3
M&EC
FACILITY
During
the second quarter of 2016, the Company’s M&EC subsidiary was notified by the lessor that the lease agreement under
which M&EC operates its Oak Ridge, Tennessee facility would not be renewed at the end of the lease term ending January 21,
2018. In light of this event and our strategic review of operations within our Treatment Segment, the Company instituted a plan
to close its M&EC facility located in Oak Ridge, Tennessee at the end of the lease term which has been extended to June
30, 2018. Operations at the M&EC facility are limited during the remaining term of the lease and the facility continues
to transition waste shipments and operational capabilities to our other Treatment Segment facilities, subject to customer requirements
and regulatory approvals. Simultaneously, the Company continues with closure and decommissioning activities in accordance with
M&EC’s license and permit requirements. As a result of the Company’s decision to close its M&EC facility,
the Company’s financial results have been impacted by certain non-cash impairment losses, write-offs and accruals as described
below for years ended December 31, 2017 and 2016.
The
Company performed a discounted cash flow analysis prepared at June 30, 2016 for M&EC’s intangible assets (permits),
utilizing our best estimates of projected future cash flows. Based on this analysis, the Company concluded that impairment existed
and subsequently determined that the permit for our M&EC subsidiary was fully impaired resulting in an intangible impairment
loss of approximately $8,288,000.
M&EC
is required to complete certain clean-up/maintenance activities at its facility pursuant to its permit requirements. The extent
and cost of these activities are determined by federal/state mandate requirements. The Company performed an analysis and related
estimate of the cost to complete the closure activities in accordance with its permit requirements during the second quarter of
2016 and based on this analysis, the Company recorded an additional $1,626,000 in closure liabilities with a corresponding increase
to capitalized ARO costs, which were being depreciated over the remaining term of the lease. The capitalized ARO costs were reported
as a component of “Net Property and equipment” in the Consolidated Balance Sheets.
In
accordance with ASC 360, “Property, Plant, and Equipment,” the Company performed an updated financial valuation of
M&EC’s long-lived tangible assets during the second quarter of 2016, inclusive of the capitalized ARO costs, for potential
impairment. Based on our analysis using an undiscounted cash flows approach, the Company concluded that the carrying value of
certain tangible assets (property and equipment) for M&EC was not recoverable and exceeded its fair value. Consequently, the
Company recorded $1,816,000 in tangible asset impairment loss in the second quarter of 2016. The Company also reevaluated the
estimated useful lives of the remaining tangible assets and as a result of this analysis, reduced the current estimated useful
lives of these assets ranging from 2 to 28 years at June 30, 2016 to 1.6 years, the remaining term of the lease. Accordingly,
the Company was depreciating the carrying value of M&EC’s remaining tangible assets of approximately $4,728,000 at June
30, 2016 over a period of approximately 1.6 years, which was to the original lease expiration date of January 21, 2018.
In
the second quarter of 2016, the Company also wrote-off approximately $587,000 in fees previously incurred relating to emission
performance testing certification requirement in order to meet state compliance mandate in connection with certain M&EC equipment
which was impaired. Such amount had been previously included in “Prepaid and other assets” on the Consolidated Balance
Sheets.
During
the third quarter of 2017, the Company performed an updated financial valuation of M&EC’s remaining long-lived tangible
assets (inclusive of ARO costs) for further potential impairment. Based on our analysis using an undiscounted cash flow approach,
the Company concluded that the carrying value of the remaining tangible assets for M&EC was not recoverable and exceeded its
fair value. Consequently, the Company fully impaired the remaining tangible assets at M&EC resulting in a tangible asset impairment
loss of $672,000. Additionally, during the third and fourth quarters of 2017, the Company recorded an additional $550,000 and
$850,000, respectively, in closure costs and current closure costs liabilities due to change in estimated closure costs.
During
the years ended December 31, 2017 and 2016, M&EC’s revenues were approximately $6,312,000 and $4,419,000, respectively.
NOTE
4
PERMIT
AND OTHER INTANGIBLE ASSETS
The
following table summarizes changes in the carrying amount of permits. No permit exists at our Services and Medical Segments.
Permit
(amount in thousands)
|
|
Treatment
|
|
Balance
as of December 31, 2015
|
|
$
|
16,761
|
|
PCB
permit amortized
(1)
|
|
|
(55
|
)
|
Permit
in progress
|
|
|
56
|
|
Permit
impairment for M&EC subsidiary
|
|
|
(8,288
|
)
|
Balance
as of December 31, 2016
|
|
|
8,474
|
|
PCB
permit amortized
(1)
|
|
|
(55
|
)
|
Balance
as of December 31, 2017
|
|
$
|
8,419
|
|
(1)
Amortization for the one definite-lived permit capitalized in 2009. This permit is being amortized over a ten year period
in accordance with its estimated useful life. Net carrying value of this permit was approximately $62,000 and $117,000 as of December
31, 2017 and 2016, respectively.
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
Useful
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Lives
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Intangibles
(amount in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
1-17
|
|
|
$
|
657
|
|
|
$
|
(306
|
)
|
|
$
|
351
|
|
|
$
|
577
|
|
|
$
|
(274
|
)
|
|
$
|
303
|
|
Software
|
|
|
3
|
|
|
|
410
|
|
|
|
(398
|
)
|
|
|
12
|
|
|
|
405
|
|
|
|
(383
|
)
|
|
|
22
|
|
Customer
relationships
|
|
|
12
|
|
|
|
3,370
|
|
|
|
(2,246
|
)
|
|
|
1,124
|
|
|
|
3,370
|
|
|
|
(1,974
|
)
|
|
|
1,396
|
|
Permit
|
|
|
10
|
|
|
|
545
|
|
|
|
(483
|
)
|
|
|
62
|
|
|
|
545
|
|
|
|
(428
|
)
|
|
|
117
|
|
Total
|
|
|
|
|
|
$
|
4,982
|
|
|
$
|
(3,433
|
)
|
|
$
|
1,549
|
|
|
$
|
4,897
|
|
|
$
|
(3,059
|
)
|
|
$
|
1,838
|
|
The
intangible assets are amortized on a straight-line basis over their useful lives with the exception of customer relationships
which are being amortized using an accelerated method.
The
following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
|
|
Amount
|
|
Year
|
|
(In
thousands)
|
|
|
|
|
|
2018
|
|
$
|
336
|
|
2019
|
|
|
254
|
|
2020
|
|
|
218
|
|
2021
|
|
|
198
|
|
2022
|
|
|
173
|
|
|
|
$
|
1,179
|
|
Amortization
expense recorded for definite-lived intangible assets was approximately $374,000 and $448,000, for the years ended December 31,
2017 and 2016, respectively.
NOTE
5
CAPITAL
STOCK, STOCK PLANS, WARRANTS, AND STOCK BASED COMPENSATION
Stock
Option Plans
The
Company adopted the 2003 Outside Directors Stock Plan (the “2003 Plan”), which was approved by our stockholders at
the Annual Meeting of Stockholders on July 29, 2003. Options granted under the 2003 Plan generally have a vesting period of six
months from the date of grant and a term of 10 years, with an exercise price equal to the closing trade price on the date prior
to grant date. The 2003 Plan also provides for the issuance to each outside director a number of shares of 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 2003 Plan, as amended, also provides for the grant of an option to purchase up
to 6,000 shares of Common Stock for each outside director upon initial election to the Board, and the grant of an option to purchase
2,400 shares of Common Stock upon each re-election. At the Annual Meeting of Stockholders held on July 27, 2017 (“2017 Annual
Meeting”), the Company’s stockholders approved an amendment to the 2003 Plan which authorized the issuance of an additional
300,000 shares of the Company’s Common Stock under the plan. After the approval of the amendment, the number of shares of
the Company’s Common Stock authorized under the 2003 Plan was 1,100,000. At December 31, 2017, the 2003 Plan had available
for issuance approximately 391,215 shares.
On
April 28, 2010, the Company adopted the 2010 Stock Option Plan (“2010 Plan”), which was approved by our stockholders
at the Company’s Annual Meeting of Stockholders on September 29, 2010. The 2010 Plan authorized an aggregate grant of 200,000
Non-Qualified Stock Options (“NQSOs”) and Incentive Stock Options (“ISOs”) to officers and employees of
the Company for the purchase of up to 200,000 shares of the Company’s Common Stock. The term of each stock option granted
is to be fixed by the Compensation and Stock Option Committee (the “Compensation Committee”), but no stock option
is exercisable more than ten years after the grant date, or in the case of an incentive stock option granted to a 10% stockholder,
five years after the grant date. The exercise price of any ISO granted under the 2010 Plan to an individual who is not a 10% stockholder
at the time of the grant is not to be less than the fair market value of the shares at the time of the grant, and the exercise
price of any incentive stock option granted to a 10% stockholder is not to be less than 110% of the fair market value at the time
of grant. The exercise price of any NQSOs granted under the plan is not to be less than the fair market value of the shares at
the time of grant. As discussed below, as the result of the approval of the 2017 Stock Option Plan (“2017 Plan”) at
the Company’s 2017 Annual Meeting, no further options remain 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 which consisted of an option for the purchase of up to 10,000
shares of our common stock with expiration date of July 10, 2020 and an option for the purchase of up to 50,000 shares of the
Company’s Common Stock with expiration date of May 15, 2022.
The
Company adopted the 2017 Plan, which was approved by the Company’s stockholders at the Company’s 2017 Annual Meeting.
The 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 remaining available for issuance under the 2010 Plan as discussed above. 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 incentive stock option granted to a 10% stockholder shall not be less than 110% of the
fair market value at the time of grant. The exercise price of any NQSOs granted under the plan shall not be less than the fair
market value of the shares at the time of grant.
Stock
Options to Employees and Outside Director
On
January 13, 2017, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill the vacancy left by Jack Lahav who retired from the Board in October 2016. The options granted were for a contractual
term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.79 per share, which was equal to
our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
July 27, 2017, the Company granted 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected directors at
the 2017 Annual Meeting. Dr. Louis F. Centofanti, who is a member of the Board, is not eligible to receive options under the 2003
Plan since he is also an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted to the five directors were for
a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.55 per share, which
was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
July 27, 2017, the Company granted ISOs from the 2017 Plan (following the approval of the 2017 Plan as discussed above) to the
named executive officers as follows: ISOs to exercise 50,000 shares to the Chief Executive Officer (“CEO”) (Dr. Louis
Centofanti); ISOs to exercise 100,000 shares to the Executive Vice President (“EVP”)/Chief Operating Officer (“COO”)
(Mark Duff); and ISOs to exercise 50,000 shares to the Chief Financial Officer (“CFO”) (Ben Naccarato). Effective
September 8, 2017, Mark Duff succeeded Dr. Louis Centofanti as the CEO with Dr. Louis Centofanti serving as EVP of Strategic Initiatives
and continuing to serve as a member of the Board (see “Note 15 – Related Party Transaction for further detail of this
transition”). The share covered by each ISO granted has a contractual term of six years with one-fifth yearly vesting over
a five year period. The exercise price of each share covered by the ISO was $3.65 per share, which was equal to the fair market
value of the Company’s Common Stock on the date of grant. At December 31, 2017, the 2017 Plan had an additional 130,000
shares of the Company’s Common Stock available for the granting of additional options.
On
October 19, 2017, the Company granted an aggregate of 110,000 ISOs from the 2017 Plan to certain employees. The ISOs granted were
for a contractual term of six years with one-fifth yearly vesting over a five year period. The exercise price of the ISO was $3.60
per share, which was equal to the fair market value of the Company’s common stock on the date of grant.
On
May 15, 2016, the Company granted 50,000 ISOs from the Company’s 2010 Plan to Mark Duff. The ISOs granted were for a contractual
term of six years with one-third yearly vesting over a three year period. The exercise price of the ISO was $3.97 per share, which
was equal to the fair market value of the Company’s Common Stock on the date of grant.
On
July 28, 2016, the Company granted an aggregate of 12,000 NQSOs from the 2003 Plan to five of the seven re-elected directors at
our Annual Meeting of Stockholders held on July 28, 2016. Two of the directors were not eligible to receive options under the
2003 Stock Plan as they were employees of the Company or its subsidiaries. The NQSOs granted were for a contractual term of ten
years with a vesting period of six months. The exercise price of the NQSOs was $4.60 per share, which was equal to the Company’s
closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
No
employees or directors exercised options during 2017 and 2016.
The
Company estimates the 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 2017 and 2016 and the related assumptions used in the Black-Scholes
option model used to value the options granted were as follows:
|
|
Employee
Stock Option Granted
|
|
|
|
October
19, 2017
|
|
|
July
27, 2017
|
|
|
May
15, 2016
|
|
Weighted-average
fair value per share
|
|
$
|
1.75
|
|
|
|
1.88
|
|
|
$
|
2.00
|
|
Risk
-free interest rate
(1)
|
|
|
1.98
%
|
|
|
|
1.98
%
|
|
|
|
1.27%
|
|
Expected
volatility of stock
(2)
|
|
|
54.64
%
|
|
|
|
53.15%
|
|
|
|
53.12
%
|
|
Dividend
yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Expected
option life
(3)
|
|
|
5.0
years
|
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
|
|
Outside
Director Stock Options Granted
|
|
|
|
July
27, 2017
|
|
|
January
13, 2017
|
|
|
July
28, 2016
|
|
Weighted-average
fair value per share
|
|
$
|
2.48
|
|
|
$
|
2.63
|
|
|
$
|
3.00
|
|
Risk
-free interest rate
(1)
|
|
|
2.32%
|
|
|
|
2.40%
|
|
|
|
1.52%
|
|
Expected
volatility of stock
(2)
|
|
|
57.21
%
|
|
|
|
56.32
%
|
|
|
|
55.99
%
|
|
Dividend
yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Expected
option life
(3)
|
|
|
10.0
years
|
|
|
|
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 2017 and 2016.
|
|
Year
Ended
|
|
|
|
2017
|
|
|
2016
|
|
Employee
Stock Options
|
|
$
|
78,000
|
|
|
$
|
53,000
|
|
Director
Stock Options
|
|
|
46,000
|
|
|
|
45,000
|
|
Total
|
|
$
|
124,000
|
|
|
$
|
98,000
|
|
At
December 31, 2017, the Company has approximately $578,000 of total unrecognized compensation cost related to unvested employee
and director options, of which $151,000 is expected to be recognized in 2018, $126,000 in 2019, $114,000 in 2020, $114,000 in
2021, with the remaining $73,000 in 2022.
Stock
Options to Consultant
Robert Ferguson is a consultant to the Board and a consultant to the Company in connection with the Company’s Test Bed Initiative
(“TBI”) at its PFNWR facility (see “Note 15 – Related Party Transactions” for further discussion).
For Robert Ferguson’s consulting work with the Board, he has been receiving monthly compensation of $4,000. 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 stock option 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.
The
Company has recorded approximately $20,000 in consulting expenses (included in selling, general and administrative expenses (“SG&A”))
and additional paid-in capital in connection with this transaction which amount was estimated to be the fair value of the 10,000
options on the performance completion date of December 19, 2017 under the first milestone. The fair value of the 10,000 options
was estimated using the Black-Scholes valuation model with the following assumptions: 52.65% volatility, risk free interest rate
of 2.30%, and an expected life of approximately 6.6 years and no dividends.
Summary
of Stock Option Plans
The
summary of the Company’s total plans as of December 31, 2017 and 2016, 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, 2017
|
|
|
247,200
|
|
|
$
|
6.69
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
428,000
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(50,400
|
)
|
|
|
8.95
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period
(1)
|
|
|
624,800
|
|
|
|
4.42
|
|
|
|
5.5
|
|
|
$
|
19,780
|
|
Options
exercisable at December 31, 2017
(1)
|
|
|
179,467
|
|
|
|
6.30
|
|
|
|
4.6
|
|
|
$
|
13,080
|
|
Options
vested and expected to be vested at December 31, 2017
|
|
|
624,800
|
|
|
$
|
4.42
|
|
|
|
5.5
|
|
|
$
|
19,780
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
(3)
|
|
Options
outstanding January 1, 2016
|
|
|
218,200
|
|
|
$
|
7.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
62,000
|
|
|
|
4.09
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(33,000
|
)
|
|
|
8.14
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period
(2)
|
|
|
247,200
|
|
|
|
6.69
|
|
|
|
4.3
|
|
|
$
|
20,940
|
|
Options
exercisable at December 31, 2016
(2)
|
|
|
181,867
|
|
|
|
7.61
|
|
|
|
3.7
|
|
|
$
|
20,940
|
|
Options
vested and expected to be vested at December 31, 2016
|
|
|
239,750
|
|
|
$
|
6.78
|
|
|
|
4.3
|
|
|
$
|
20,940
|
|
(1)
Options with exercise prices ranging from $2.79 to $13.35
(2)
Options with exercise prices ranging from $2.79 to $14.75
(3)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price of the option.
The
summary of the Company’s nonvested options as of December 31, 2017 and changes during the period then ended are presented
as follows:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
Non-vested
options January 1, 2017
|
|
|
65,333
|
|
|
$
|
2.23
|
|
Granted
|
|
|
428,000
|
|
|
|
1.89
|
|
Vested
|
|
|
(48,000
|
)
|
|
|
2.32
|
|
Forfeited
|
|
|
─
|
|
|
|
─
|
|
Non-vested
options at December 31, 2017
|
|
|
445,333
|
|
|
$
|
1.89
|
|
Common
Stock Issued for Services
The
Company issued a total of 61,598 and 55,793 shares of our Common Stock in 2017 and 2016, 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 $234,000
and $233,000 in compensation expense (included in SG&A) for the twelve months ended December 31, 2017 and 2016, respectively,
for the portion of director fees earned in the Company’s Common Stock.
Preferred
Share Rights Plan
In
May 2008, the Company adopted a preferred share rights plan (the “Rights Plan”), designed to ensure that all of our
stockholders receive fair and equal treatment in the event of a proposed takeover or abusive tender offer.
In
general, under the terms of the Rights Plan, subject to certain limited exceptions, if a person or group acquires 20% or more
of our Common Stock or a tender offer or exchange offer for 20% or more of our Common Stock is announced or commenced, our other
stockholders may receive upon exercise of the rights (the “Rights”) issued under the Rights Plan the number of shares
of our Common Stock or of one-one hundredths of a share of our Series A Junior Participating Preferred Stock, par value $.001
per share, having a value equal to two times the purchase price of the Right. In addition, if the Company is acquired in a merger
or other business combination transaction in which we are not the survivor or more than 50% of our assets or earning power is
sold or transferred, then each holder of a Right (other than the acquirer) will thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the purchase price of the Right. The initial purchase
price of each Right was $13.00, subject to adjustment as defined in the plan.
The
Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of
directors. The Rights may be redeemed by us at $0.001 per Right at any time before any person or group acquires 20% or more of
our outstanding Common Stock. The Rights Plan terminates on May 2, 2018.
Warrants
and Common Stock Issuance for Debt
As
December 31, 2017, the Company has no Warrant outstanding. On August 2, 2016, the Company issued an aggregate of 70,000 shares
of the Company’s Common Stock resulting from the exercise of two Warrants, at an exercise price of $2.23 per share, issued
to two lenders in connection with a $3,000,000 loan dated August 2, 2013 received by the Company (See Note 9 – “Long-Term
Debt – Promissory Note” for further information on the exercise of the Warrants and the loan).
Shares
Reserved
At
December 31, 2017, the Company has reserved approximately 624,800 shares of our Common Stock for future issuance under all of
the option arrangements.
NOTE
6
INCOME
(LOSS) PER SHARE
The
following table reconciles the income (loss) and average share amounts used to compute both basic and diluted income (loss) per
share:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2017
|
|
|
2016
|
|
Net
loss attributable to Perma-Fix Environmental Services, Inc., common stockholders:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
(3,088
|
)
|
|
$
|
(12,675
|
)
|
Loss
from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
(592
|
)
|
|
|
(730
|
)
|
Net
loss attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
(3,680
|
)
|
|
$
|
(13,405
|
)
|
|
|
|
|
|
|
|
|
|
Basic
loss per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
(.31
|
)
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
loss per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
(.31
|
)
|
|
$
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic weighted
average shares outstanding
|
|
|
11,706
|
|
|
|
11,608
|
|
Add:
dilutive effect of stock options
|
|
|
─
|
|
|
|
─
|
|
Add:
dilutive effect of warrants
|
|
|
─
|
|
|
|
─
|
|
Diluted
weighted average shares outstanding
|
|
|
11,706
|
|
|
|
11,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
shares excluded from above weighted average share calcualtions due to their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
595
|
|
|
|
150
|
|
NOTE
7
PREFERRED
STOCK ISSUANCE AND CONVERSION
Series
B Preferred Stock
The
Series B Preferred Stock of the Company’s consolidated subsidiary, M&EC, is non-voting and non-convertible, has a $1.00
liquidation preference per share and may be redeemed at the option of the former stockholders of M&EC at any time for the
per share price of $1.00. The holders of the Series B Preferred Stock will be entitled to receive when, as, and if declared by
the Board of M&EC out of legally available funds, dividends at the rate of 5% per year per share applied to the amount of
$1.00 per share, which dividends are fully cumulative. M&EC has failed to pay dividends on its Series B Preferred Stock since
the Series B Preferred Stock was issued. Since the dividends on M&EC’s Series B Preferred Stock are cumulative, M&EC
has been accruing dividends for the Series B Preferred Stock issued July 2002, and have accrued a total of approximately $995,000
of unpaid cumulative dividends since July 2002, of which $64,000 was accrued in each of the years ended December 31, 2003 to 2017
and is included in other long term liabilities in the accompanying Consolidated Balance Sheets.
NOTE
8
DISCONTINUED
OPERATIONS
The
Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment: (1) subsidiaries divested
in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility, which is currently in the process of undergoing
closure, subject to regulatory approval of necessary plans and permits.
The
following table presents the major class of assets of discontinued operations at December 31, 2017 and 2016. The Company’s
discontinued operations include a note receivable in the amount of approximately $375,000 recorded in May 2016 resulting from
the sale of property at our Perma-Fix of Michigan, Inc. (“PFMI” – a closed location) subsidiary. This note requires
60 equal monthly installment payments by the buyer of approximately $7,250 (which includes interest). At December 31, 2017, receivables
related to this transaction totaled approximately $268,000, of which approximately $73,000 is included in “Current assets
related to discontinued operations” and approximately $195,000 is included in “Other assets related to discontinued
operations” in the accompanying Consolidated Balance Sheets. No assets and liabilities were held for sale at December 31,
2017 and 2016.
(Amounts
in Thousands)
|
|
December
31, 2017
|
|
|
December
31,
2016
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
89
|
|
|
$
|
85
|
|
Total
current assets
|
|
|
89
|
|
|
|
85
|
|
Long-term
assets
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
(1)
|
|
|
81
|
|
|
|
81
|
|
Other
assets
|
|
|
195
|
|
|
|
268
|
|
Total
long-term assets
|
|
|
276
|
|
|
|
349
|
|
Total
assets
|
|
$
|
365
|
|
|
$
|
434
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
8
|
|
|
$
|
13
|
|
Accrued
expenses and other liabilities
|
|
|
265
|
|
|
|
268
|
|
Environmental
liabilities
|
|
|
632
|
|
|
|
677
|
|
Total
current liabilities
|
|
|
905
|
|
|
|
958
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Closure
liabilities
|
|
|
120
|
|
|
|
113
|
|
Environmental
liabilities
|
|
|
239
|
|
|
|
248
|
|
Total
long-term liabilities
|
|
|
359
|
|
|
|
361
|
|
Total
liabilities
|
|
$
|
1,264
|
|
|
$
|
1,319
|
|
(1)
net of accumulated depreciation of $10,000 for each period presented.
The
Company incurred losses from discontinued operations of $592,000 and $730,000 for the years ended December 31, 2017 and 2016 (net
of taxes of $0 for each period), respectively. Losses for the periods discussed above were primarily due to costs incurred in
the administration and continued monitoring of our discontinued operations.
Environmental
Liabilities
The
Company has three remediation projects, which are currently in progress at our Perma-Fix of Dayton, Inc. (“PFD”),
Perma-Fix of Memphis, Inc. (“PFM” – closed location), and PFSG (in closure status) subsidiaries. The Company
divested PFD in 2008; however, the environmental liability of PFD was retained by the Company upon the divestiture of PFD. These
remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding
ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators.
At
December 31, 2017, we had total accrued environmental remediation liabilities of $871,000, of which $632,000 are recorded as a
current liability, a decrease of $54,000 from the December 31, 2016 balance of $925,000. The net decrease of $54,000 represents
payments on remediation projects at PFSG and PFD totaling approximately of $79,000 and an increase to the reserve of approximately
$25,000 at PFD due to reassessment of the remediation reserve.
The
current and long-term accrued environmental liability at December 31, 2017 is summarized as follows (in thousands).
|
|
Current
Accrual
|
|
|
Long-term
Accrual
|
|
|
Total
|
|
PFD
|
|
$
|
25
|
|
|
$
|
60
|
|
|
$
|
85
|
|
PFM
|
|
|
—
|
|
|
|
15
|
|
|
|
15
|
|
PFSG
|
|
|
607
|
|
|
|
164
|
|
|
|
771
|
|
Total
liability
|
|
$
|
632
|
|
|
$
|
239
|
|
|
$
|
871
|
|
NOTE
9
LONG-TERM
DEBT
Long-term
debt consists of the following at December 31, 2017 and December 31, 2016:
(Amounts
in Thousands)
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Revolving
Credit
facility dated October 31, 2011, as amended, borrowings based upon eligible accounts receivable, subject to monthly
borrowing base calculation, balance due March 24, 2021. Effective interest rate for 2017 and 2016 was 4.1% and 3.9%, respectively.
(1)
(2)
|
|
$
|
—
|
|
|
$
|
3,803
|
|
Term
Loan
dated October 31, 2011, as amended, payable in equal monthly installments of principal of $102, balance due on March
24, 2021. Effective interest rate for 2017 and 2016 was 4.6% and 3.8%, respectively.
(1) (2)
|
|
|
3,847
|
(3)
|
|
|
5,030
|
(3)
|
Total
debt
|
|
|
3,847
|
|
|
|
8,833
|
|
Less
current portion of long-term debt
|
|
|
1,184
|
|
|
|
1,184
|
|
Long-term
debt
|
|
$
|
2,663
|
|
|
$
|
7,649
|
|
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property,
plant, and equipment.
(2)
See below “Revolving Credit and Term Loan Agreement” for monthly payment interest options. Prior to April 1,
2016, the monthly installment payment under the term loan was approximately $190,000.
(3)
Net of debt issuance costs of ($115,000) and ($151,000) at December 31, 2017 and December 31, 2016, respectively.
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 we 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.
Under
the Revised Loan Agreement, we have the option of paying an annual rate of interest due on the revolving credit at prime plus
2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the term loan at prime plus 2.5% or LIBOR plus 3.5%.
Pursuant
to the Revised Loan Agreement, the Company may terminate the Revised Loan Agreement, upon 90 days’ prior written notice
upon payment in full of its obligations under the Revised Loan Agreement. The Company agreed to pay PNC 1.0% of the total financing
in the event the Company had paid off its obligations on or before March 23, 2017, .50% of the total financing if the Company
pays off its obligations after March 23, 2017 but prior to or on March 23, 2018, and .25% of the total financing if the Company
pays off its obligations after March 23, 2018 but prior to or on March 23, 2019. No early termination fee shall apply if the Company
pays off its obligations after March 23, 2019.
At
December 31, 2017, the borrowing availability under our revolving credit was approximately $3,687,000, based on our eligible receivables
and includes an indefinite reduction of borrowing availability of $2,000,000 that the Company’s lender has imposed. The
$2,000,000 in borrowing availability reduction included a $750,000 additional reduction imposed by the Company’s lender
upon the receipt by the Company in May 2017 of $5,941,000 in finite risk funds in connection with the cancellation the closure
policy for the Company’s PFNWR subsidiary (see “Note 13 – Commitments and Contingencies – Insurance”
for further discussion of the closure policy). Our borrowing availability under our revolving credit was also reduced by outstanding
standby letters of credit totaling approximately $2,675,000.
In
connection with one of the amendments that the Company entered into with PNC during 2016 extending the maturity date of the credit
facility, the Company recorded approximately $68,000 in loss on extinguishment of debt in accordance with ASC 470-50, “Debt
– Modifications and Extinguishments,” which was included in interest expense in the accompanying Consolidated Statements
of Operations for fiscal year 2016. Additionally, the Company paid its lenders closing fees totaling approximately $122,000 in
connection with the amendments executed in 2016 which is being amortized over the remaining term of the loan as interest expense-financing
fees.
The
Company’s credit facility with PNC contains certain financial covenants, along with customary representations and warranties.
A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing
our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments
to extend further credit. The Company met all of its quarterly financial covenant requirements in 2017 and expects to meet these
financial covenant requirements in 2018 and into the first quarter of 2019.
Promissory
Note
The
Company entered into a $3,000,000 loan dated August 2, 2013 with Robert Ferguson and William Lampson (each known as the “Lender”).
As consideration for the Company receiving the loan, the Company issued to each Lender a Warrant to purchase up to 35,000 shares
of the Company’s Common Stock at an exercise price of $2.23 per share. On August 2, 2016, each Lender exercised his Warrant
for the purchase of 35,000 shares of our Common Stock, resulting in total proceeds paid to the Company of approximately $156,000.
As further consideration for the loan, the Company had also issued to each Lender 45,000 shares of the Company’s Common
Stock. The fair value of the Warrants and Common Stock and the related closing fees incurred from this transaction were recorded
as debt discount, which has been fully amortized using the effective interest method over the term of the loan as interest expense
– financing fees. The loan was repaid in full by the Company in August 2016.
The
following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2017 (net of debt
issuance costs of $115,000).
Year ending
December 31:
|
|
|
|
(In
thousands)
|
|
|
|
|
2018
|
|
$
|
1,184
|
|
2019
|
|
|
1,184
|
|
2020
|
|
|
1,184
|
|
2021
|
|
|
295
|
|
Total
|
|
$
|
3,847
|
|
NOTE
10
ACCRUED
EXPENSES
Accrued
expenses include the following (in thousands) at December 31:
|
|
2017
|
|
|
2016
|
|
Salaries
and employee benefits
|
|
$
|
2,988
|
|
|
$
|
2,695
|
|
Accrued
sales, property and other tax
|
|
|
402
|
|
|
|
265
|
|
Interest
payable
|
|
|
3
|
|
|
|
6
|
|
Insurance
payable
|
|
|
630
|
|
|
|
675
|
|
Other
|
|
|
759
|
|
|
|
453
|
|
Total
accrued expenses
|
|
$
|
4,782
|
|
|
$
|
4,094
|
|
Each
of our executives has an individual Management Incentive Plan (“MIP”) for fiscal year 2017 and 2016 which provides
for the potential payment of performance compensation (see “Note 15 – Related Party Transactions – MIPs for
further discussion of the MIPs). No performance compensation payments were earned under any of the MIPs for years 2017 and 2016.
NOTE
11
ACCRUED
CLOSURE COSTS AND ARO
Accrued
closure costs represent our estimated environmental liability to clean up our fixed-based regulated facilities as required by
our permits, in the event of closure. Changes to reported closure liabilities for the years ended December 31, 2017 and 2016,
were as follows:
Amounts
in thousands
|
|
|
|
Balance
as of December 31, 2015
|
|
$
|
5,301
|
|
Accretion
expense
|
|
|
374
|
|
Payments
|
|
|
(693
|
)
|
Adjustment
to closure liability
|
|
|
2,333
|
|
Balance
as of December 31, 2016
|
|
|
7,315
|
|
Accretion
expense
|
|
|
460
|
|
Payments
|
|
|
(2,037
|
)
|
Adjustment
to closure liability
|
|
|
2,657
|
|
Balance
as of December 31, 2017
|
|
$
|
8,395
|
|
As
a result of the Company’s decision to close our M&EC subsidiary, the Company recorded an additional $1,400,000 and $1,626,000
in closure liabilities in 2017 and 2016, respectively, due to changes in estimated closure costs (see “Note 3 – M&EC
Facility” for further information of these additional closure liabilities recorded). The Company also recorded an additional
$1,257,000 in closure liabilities in 2017 for its DSSI subsidiary due to changes in estimated closure costs. Additionally,
the Company increased the closure liabilities for its PFNWR subsidiary in the amount of approximately $707,000 during 2016 resulting
from a change in estimated closure costs.
In
2017, the Company had spending of approximately $1,872,000 and $165,000 in closure related activities for the M&EC and PFNWR
subsidiaries, respectively. In 2016, the Company had spending of approximately $283,000 and $410,000 in closure related activities
for the M&EC and PFNWR subsidiaries, respectively. The spending at our PFNWR facility for years 2017 and 2016 was made in
connection with the closure of certain processing unit/equipment.
At
December 31, 2017, M&EC’s closure liabilities totaled approximately $2,791,000 with the entire amount classified as
current. At December 31, 2016, total accrued closure liabilities for our M&EC subsidiary totaled approximately $3,058,000
of which $2,177,000 were recorded as current liabilities.
The
reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance
Sheet at December 31, 2017 and 2016 with the following activity for the years ended December 31, 2017 and 2016:
Amounts
in thousands
|
|
|
|
Balance
as of December 31, 2015
|
|
$
|
2,575
|
|
Amortization
of closure and post-closure asset
|
|
|
(760
|
)
|
Adjustment
to closure and post-closure asset
|
|
|
2,333
|
|
Balance
as of December 31, 2016
|
|
|
4,148
|
|
Amortization
of closure and post-closure asset
|
|
|
(1,071
|
)
|
Impairment
of closure and post-closure asset
|
|
|
(413
|
)
|
Adjustment
to closure and post-closure asset
|
|
|
1,257
|
|
Balance
as of December 31, 2017
|
|
$
|
3,921
|
|
The
impairment of ARO for 2017 resulted from the impairment of M&EC’s remaining tangible assets recorded in the third quarter
of 2017 (See “Note 3 – M&EC Facility”). The adjustment made to ARO for 2017 was due to the increase in closure
liabilities recorded for the DSSI subsidiary as discussed above. The adjustments made to ARO for 2016 were due to the increases
in closure liabilities recorded for the PFNWR and M&EC subsidiaries as discussed above.
NOTE
12
INCOME
TAXES
The
components of current and deferred federal and state income tax (benefit) expense for continuing operations for the years ended
December 31, consisted of the following (in thousands):
|
|
2017
|
|
|
2016
|
|
Federal
income tax (benefit) expense - current
|
|
$
|
(780
|
)
|
|
$
|
9
|
|
Federal
income tax benefit - deferred
|
|
|
(778
|
)
|
|
|
(2,657
|
)
|
State
income tax expense - current
|
|
|
163
|
|
|
|
59
|
|
State
income tax expense (benefit) - deferred
|
|
|
110
|
|
|
|
(405
|
)
|
Total
income tax (benefit) expense
|
|
$
|
(1,285
|
)
|
|
$
|
(2,994
|
)
|
An
overall reconciliation between the expected tax benefit using the federal statutory rate of 34% and the benefit for income taxes
from continuing operations as reported in the accompanying Consolidated Statement of Operations is provided below (in thousands).
|
|
2017
|
|
|
2016
|
|
Tax
benefit at statutory rate
|
|
$
|
(1,640
|
)
|
|
$
|
(5,527
|
)
|
State
tax benefit, net of federal benefit
|
|
|
(295
|
)
|
|
|
(785
|
)
|
Change
in deferred tax rates
|
|
|
1,711
|
|
|
|
(82
|
)
|
Impact
of Tax Act
|
|
|
(1,695
|
)
|
|
|
—
|
|
Permanent
items
|
|
|
104
|
|
|
|
119
|
|
Difference
in foreign rate
|
|
|
170
|
|
|
|
98
|
|
Change
in deferred tax liabilities
|
|
|
881
|
|
|
|
(260
|
)
|
Other
|
|
|
(135
|
)
|
|
|
(241
|
)
|
(Decrease)
increase in valuation allowance
|
|
|
(386
|
)
|
|
|
3,684
|
|
Income
tax (benefit) expense
|
|
$
|
(1,285
|
)
|
|
$
|
(2,994
|
)
|
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes
to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for
tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial
system, the elimination of alternative minimum tax (“AMT”) for corporations and a one-time transition tax on the mandatory
deemed repatriation of foreign earnings. As of December 31, 2017, the Company has estimated its provision for income taxes in
accordance with the Tax Act and guidance available resulting in the recognition of approximately $1,695,000 of income tax benefit
in the fourth quarter of 2017, the period in which the legislation was enacted. The tax benefit of $1,695,000 consists
of $916,000 related to the re-measurement of deferred tax assets and liabilities, based on the rates at which they are expected
to reverse in the future and $779,000 related to the reversal of valuation allowance and refunding of AMT credit carryforwards.
While
the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the
global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”)
provisions.
The
GILTI provisions 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 year ended December 31, 2017.
The
BEAT provisions in the Tax Act 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 and therefore
has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2017.
The
Tax Act imposes a one-time transition tax on previously untaxed earnings and profits of foreign subsidiaries. As of December 31,
2017, the Company has current and accumulated deficits in earnings and profits for all of its foreign subsidiaries. As such, the
Company does not expect any exposure to the one-time transition tax.
The
changes to existing U.S. tax laws as a result of the Tax Act, which the Company believes have the most significant impact on the
Company’s federal income taxes are as follows:
Reduction
of the U.S. Corporate Income Tax Rate
The
Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary
differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were re-measured
to reflect the reduction in the U.S. corporate income tax rate from 34% to 21%, resulting in a deferred tax benefit of $916,000
for the year ended December 31, 2017 and a corresponding $916,000 decrease in net deferred tax liabilities as of December 31,
2017. This benefit is attributable to the Company being in a net deferred tax liability position at the time of re-measurement.
Repeal
of Alternative Minimum Tax and Refund of existing AMT Credits
The
Tax Act fully repeals the corporate alternative minimum tax beginning in 2018. Additionally, any AMT credits generated in prior
years will be refundable between 2018 and 2021. The Company had AMT credits in the amount of $779,000 that it was carrying with
a full valuation allowance. As a result of the Tax Act, the valuation allowance against these credits is reversed and the credits
are reclassified from a deferred tax asset to current and long-term tax receivables.
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, 2017 and 2016 as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating losses
|
|
$
|
5,992
|
|
|
$
|
7,288
|
|
Environmental
and closure reserves
|
|
|
2,158
|
|
|
|
3,189
|
|
Depreciation
and amortization
|
|
|
907
|
|
|
|
—
|
|
Other
|
|
|
1,252
|
|
|
|
2,285
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
|
(162
|
)
|
Goodwill
and indefinite lived intangible assets
|
|
|
(1,694
|
)
|
|
|
(2,362
|
)
|
Prepaid
expenses
|
|
|
(50
|
)
|
|
|
(72
|
)
|
|
|
|
8,565
|
|
|
|
10,166
|
|
Valuation
allowance
|
|
|
(10,259
|
)
|
|
|
(12,528
|
)
|
Net
deferred income tax liabilities
|
|
|
(1,694
|
)
|
|
|
(2,362
|
)
|
In
2017 and 2016, the Company concluded that it was more likely than not that $10,259,000 and $12,528,000 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
$10,099,000 and $57,956,000, respectively, as of December 31, 2017. The estimated consolidated federal and state NOLs include
approximately $2,618,000 and $3,769,000, respectively, of our majority-owned subsidiary, PF Medical, which is not part of our
consolidated group for tax purposes. These net operating losses can be carried forward and applied against future taxable income,
if any, and expire in various amounts starting in 2021. However, as a result of various stock offerings and certain acquisitions,
which in the aggregate constitute a change in control, the use of these NOLs will be limited under the provisions of Section 382
of the Internal Revenue Code of 1986, as amended. Additionally, NOLs may be further limited under the provisions of Treasury Regulation
1.1502-21 regarding Separate Return Limitation Years.
The
tax years 2014 through 2016 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 2017
and 2016.
The
Company had no federal income tax payable for the years ended December 31, 2017 and 2016.
NOTE
13
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 (“Master Closure Policy”) with AIG, which
provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The Master
Closure Policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual
inflation and other performance and surety bond requirements. All of the required payments for this Master Closure Policy, as
amended, were made by 2012. At December 31, 2017, our financial assurance coverage amount under this Master Closure Policy totaled
approximately $29,473,000, which included a reduction in financial assurance requirement of approximately $9,711,000 for our DSSI
subsidiary made during the fourth quarter of 2016 resulting from a recalculation the state mandated closure requirement. The Company
has recorded $15,676,000 and $15,546,000 in sinking fund related to this policy in other long term assets on the accompanying
Consolidated Balance Sheets at December 31, 2017 and 2016, respectively, which includes interest earned of $1,205,000 and $1,075,000
on the sinking fund as of December 31, 2017 and 2016, respectively. Interest income for the years ended 2017 and 2016 was approximately
$130,000 and $86,000, respectively. If the Company so elects, AIG is obligated to pay the Company an amount equal to 100% of the
sinking fund account balance in return for complete release of liability from both us and any applicable regulatory agency using
this policy as an instrument to comply with financial assurance requirements.
The
Company also had a finite risk insurance policy dated August 2007 for our PFNWR facility with AIG (“PFNWR policy”)
which provided financial assurance to the State of Washington in the event of closure of the PFNWR facility. The Company had recorded
$5,941,000 in finite risk sinking funds at December 31, 2016 in other long term assets on the accompanying Consolidated Balance
Sheets which included interest earned of $241,000 on the sinking fund. In April 2017, the Company received final releases from
state and federal regulators for the PFNWR policy which enabled the Company to cancel the PFNWR policy resulting in the release
of approximately $5,951,000 on May 1, 2017 in finite sinking funds previously held by AIG as collateral for the PFNWR policy.
The Company used the released finite sinking funds to pay off our revolving credit with the remaining funds used for general working
capital needs. The Company has acquired new bonds in the required amount of approximately $7,000,000 (“new bonds”)
to replace the PFNWR policy in providing financial assurance for the PFNWR facility. Upon receipt of the $5,951,000 in finite
sinking funds from AIG, the Company and its lender executed a standby letter of credit in the amount of $2,500,000 as collateral
for the new bonds for the PFNWR facility. In addition, the Company’s lender imposed an additional $750,000 restriction on
the Company’s borrowing availability pursuant to a “Condition Subsequent” clause in an amendment that the Company
entered into with its lender in the latter part of 2016. Interest income earned under the PFNWR policy for the years ended December
2017 and 2016 was approximately $10,000 and $21,000, respectively.
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, 2017, the total amount of standby letters of credit
outstanding totaled approximately $2,675,000 and the total amount of bonds outstanding totaled approximately $8,305,000.
Operating
Leases
The
Company leases certain facilities and equipment under non-cancelable operating leases. The following table lists future minimum
rental payments at December 31, 2017 under these (in thousands):
Year
ending December 31:
|
|
|
|
2018
|
|
|
366
|
|
2019
|
|
|
141
|
|
2020
|
|
|
118
|
|
2021
|
|
|
20
|
|
Total
|
|
$
|
645
|
|
Total
rent expense under these leases was $754,000 and $735,000 for the years ended 2017 and 2016, respectively.
NOTE
14
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 2017 and 2016, the Company contributed approximately $326,000 and $307,000 in 401(k) matching funds, respectively.
NOTE
15
RELATED
PARTY TRANSACTIONS
David
Centofanti
David
Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $168,000
for each of the years 2017 and 2016. 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
L. Ferguson
Robert
L. Ferguson serves as an advisor to our Board and is also a member of the Supervisory Board of PF Medical, our majority-owned
Polish subsidiary. Robert Ferguson previously served as our Board member from June 2007 to February 2010 and again from August
2011 to September 2012. The Company previously completed a lending transaction with Robert Ferguson and William Lampson in August
2013 (collectively, the “Lenders”) whereby we borrowed from the Lenders $3,000,000 which was paid in full by us in
August 2016 (see “Note 9 – Long-Term Debt – Promissory Note” for further details). As an advisor to our
Board, Robert Ferguson is paid $4,000 monthly plus reasonable expenses. For such services, Robert Ferguson received compensation
of approximately $51,000 and $59,000 for the years 2017 and 2016, respectively. Robert Ferguson is also a consultant to us in
connection with our TBI at our PFNWR facility (see “Note 5 – 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).
John
Climaco
John
Climaco, who had been a Board member since October 2013, did not stand for reelection at the Company’s 2017 Annual Meeting
of Stockholders held on July 27, 2017. In addition to his previous service as a Board member, John Climaco also served as EVP
of PF Medical, a majority-owned Polish subsidiary of the Company, from June 2, 2015 to June 30, 2017. As EVP of PF Medical, John
Climaco received an annual salary of $150,000 and was not eligible to receive compensation for serving on the Company’s
Board. PF Medical had entered into a multi-year supplier agreement and stock subscription agreement in July 2015 with Digirad
Corporation, where John Climaco serves as a board member.
Employment
Agreements
The
Company entered into employment agreements with each of Mark Duff (President and CEO effective September 8, 2017, who previously
held the position of EVP and COO), Ben Naccarato (CFO), and Dr. Louis Centofanti, (EVP of Strategic Initiatives, who retired from
the position of President and CEO effective September 8, 2017) 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,
we 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; (d) performance compensation under the MIP
earned with respect to the fiscal year immediately preceding the date of termination; and (e) an additional year of performance
compensation as provided under the MIP earned, if not already paid, 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.
We
had previously entered into an employment agreement with each of Dr. Louis Centofanti and Ben Naccarato on July 10, 2014 which
both employment agreements are due to expire on July 10, 2018, as amended (the “July 10, 2014 Employment Agreements”).
We also had previously entered into an employment agreement dated January 19, 2017 (which was effective June 11, 2016) with Mark
Duff which is due to expire on June 11, 2019 (the “January 19, 2017 Employment Agreement”). The July 10, 2014 Employment
Agreements and the January 19, 2017 Employment Agreement were terminated effective September 8, 2017.
MIPs
On
January 19, 2017, our Board and the Compensation Committee approved individual MIP for each Mark Duff, Ben Naccarato, and Dr.
Louis Centofanti. Each MIP is effective January 1, 2017 and applicable for the year ended December 31, 2017. Each MIP provides
guidelines for the calculation of annual cash incentive based compensation, subject to Compensation Committee oversight and modification.
Each MIP awards cash compensation based on achievement of performance thresholds, with the amount of such compensation established
as a percentage of the executive’s 2017 annual base salary on the approval date of the MIP. The potential target performance
compensation ranges approved was from 5% to 100% ($13,962 to $279,248) of the base salary for Dr. Louis Centofanti, EVP of Strategic
Initiatives effective September 8, 2017 and previously the CEO and President; 5% to 100% ($13,350 to $267,000) of the base salary
for Mark Duff, CEO and President effective September 8, 2017 and previously the EVP/COO; and 5% to 100% ($11,033 to $220,667)
of the base salary for Ben Naccarato, CFO. Pursuant to the MIPs, the Compensation Committee had the right to modify, change or
terminate the MIPs at any time and for any reason. No performance compensation was earned or payable under each of the 2017 MIPs
as discussed above.
NOTE
16
SEGMENT
REPORTING
In
accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
|
●
|
from
which we may earn revenue and incur expenses;
|
|
●
|
whose
operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about
resources to be allocated to the segment and assess its performance; and
|
|
●
|
for
which discrete financial information is available.
|
We
currently have three reporting segments, which include Treatment and Services Segments, which are based on a service offering
approach; and Medical, whose primary purpose at this time is the R&D of a new medical isotope production technology. The Medical
Segment has not generated any revenues and all costs incurred are reflected within R&D in the accompanying Consolidated Statements
of Operations. Our reporting segments exclude our corporate headquarter and our discontinued operations (see “Note 8 –
Discontinued Operations”) which do not generate revenues.
The
table below shows certain financial information of our reporting segments as of and for the years then ended December 31, 2017
and 2016 (in thousands).
Segment
Reporting as of and for the year ended December 31, 2017
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(2)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
37,750
|
|
|
$
|
12,019
|
|
|
|
—
|
|
|
$
|
49,769
|
(3)
|
|
$
|
—
|
|
|
$
|
49,769
|
|
Intercompany
revenues
|
|
|
362
|
|
|
|
31
|
|
|
|
—
|
|
|
|
393
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
7,916
|
|
|
|
704
|
|
|
|
—
|
|
|
|
8,620
|
|
|
|
—
|
|
|
|
8,620
|
|
Research
and development
|
|
|
439
|
|
|
|
—
|
|
|
|
1,141
|
|
|
|
1,580
|
|
|
|
15
|
|
|
|
1,595
|
|
Interest
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
140
|
|
|
|
140
|
|
Interest
expense
|
|
|
(35
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(40
|
)
|
|
|
(275
|
)
|
|
|
(315
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(35
|
)
|
|
|
(35
|
)
|
Depreciation
and amortization
|
|
|
3,228
|
|
|
|
536
|
|
|
|
—
|
|
|
|
3,764
|
|
|
|
39
|
|
|
|
3,803
|
|
Segment
income (loss) before income taxes
|
|
|
3,577
|
(6)
|
|
|
(2,286
|
)
|
|
|
(1,141
|
)
|
|
|
150
|
|
|
|
(4,973
|
)
|
|
|
(4,823
|
)
|
Income
tax (benefit) expense
|
|
|
(1,290)
|
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,290
|
)
|
|
|
5
|
|
|
|
(1,285
|
)
|
Segment
income (loss)
|
|
|
4,867
|
|
|
|
(2,286
|
)
|
|
|
(1,141
|
)
|
|
|
1,440
|
|
|
|
(4,978
|
)
|
|
|
(3,538
|
)
|
Segment
assets
(1)
|
|
|
32,724
|
|
|
|
6,324
|
|
|
|
548
|
|
|
|
39,596
|
|
|
|
19,942
|
(4)
|
|
|
59,538
|
|
Expenditures
for segment assets
|
|
|
396
|
|
|
|
43
|
|
|
|
—
|
|
|
|
439
|
|
|
|
—
|
|
|
|
439
|
|
Total
debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,847
|
(5)
|
|
|
3,847
|
|
Segment
Reporting as of and for the year ended December 31, 2016
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(2)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
32,253
|
|
|
$
|
18,966
|
|
|
|
—
|
|
|
$
|
51,219
|
(3)
|
|
$
|
—
|
|
|
$
|
51,219
|
|
Intercompany
revenues
|
|
|
40
|
|
|
|
28
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
4,015
|
|
|
|
3,069
|
|
|
|
—
|
|
|
|
7,084
|
|
|
|
—
|
|
|
|
7,084
|
|
Research
and development
|
|
|
504
|
|
|
|
38
|
|
|
|
1,489
|
|
|
|
2,031
|
|
|
|
15
|
|
|
|
2,046
|
|
Interest
income
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
107
|
|
|
|
110
|
|
Interest
expense
|
|
|
(29
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
(458
|
)
|
|
|
(489
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(108
|
)
|
|
|
(108
|
)
|
Depreciation
and amortization
|
|
|
3,451
|
|
|
|
632
|
|
|
|
—
|
|
|
|
4,083
|
|
|
|
82
|
|
|
|
4,165
|
|
Segment
(loss) income before income taxes
|
|
|
(10,119)
|
(6)
|
|
|
744
|
|
|
|
(1,489
|
)
|
|
|
(10,864
|
)
|
|
|
(5,393
|
)
|
|
|
(16,257
|
)
|
Income
tax (benefit) expense
|
|
|
(3,013)
|
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,013
|
)
|
|
|
19
|
|
|
|
(2,994
|
)
|
Segment
(loss) income
|
|
|
(7,106
|
)
|
|
|
744
|
|
|
|
(1,489
|
)
|
|
|
(7,851
|
)
|
|
|
(5,412
|
)
|
|
|
(13,263
|
)
|
Segment
assets
(1)
|
|
|
32,482
|
|
|
|
8,105
|
|
|
|
382
|
|
|
|
40,969
|
|
|
|
24,366
|
(4)
|
|
|
65,335
|
|
Expenditures
for segment assets
|
|
|
418
|
|
|
|
17
|
|
|
|
1
|
|
|
|
436
|
|
|
|
—
|
|
|
|
436
|
|
Total
debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,833
|
(5)
|
|
|
8,833
|
|
|
(1)
|
Segment
assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
|
|
|
|
|
(2)
|
Amounts
reflect the activity for corporate headquarters not included in the segment information.
|
|
|
|
|
(3)
|
The
Company performed services relating to waste generated by the federal government, either directly as a prime contractor or
indirectly for others as a subcontractor to the federal government, representing approximately $36,654,000 or 73.6% of total
revenue for 2017 and $27,354,000 or 53.4% of total revenue for 2016. The following reflects such revenue generated by our
two segments:
|
|
|
2017
|
|
|
2016
|
|
Treatment
|
|
$
|
27,591,000
|
|
|
$
|
21,434,000
|
|
Services
|
|
|
9,063,000
|
|
|
|
5,920,000
|
|
Total
|
|
$
|
36,654,000
|
|
|
$
|
27,354,000
|
|
|
(4)
|
Amount
includes assets from our discontinued operations of $365,000 and $434,000 at December 31, 2017 and 2016, respectively.
|
|
|
|
|
(5)
|
net
of debt issuance costs of ($115,000) and ($151,000) for 2017 and 2016, respectively (see “Note 9 – “Long-Term
Debt” for additional information).
|
|
|
|
|
(6)
|
For
the year ended December 31, 2016, amounts include tangible and intangible asset impairment losses of $1,816,000 and $8,288,000,
respectively, recorded in connection with the pending closure of M&EC. For the year ended December 31, 2017, amount includes
tangible asset impairment loss of $672,000 recorded in connection with the pending closure of M&EC (see “Note 3
– M&EC Facility”).
|
|
|
|
|
(7)
|
For
the year ended December 31, 2016, amount includes a tax benefit of approximately $3,203,000 recorded resulting from the intangible
impairment loss recorded for our M&EC subsidiary (see “Note 3 – M&EC Facility”). For the year ended
December 31, 2017, amount includes a tax benefit recorded in the amount of approximately $1,695,000 resulting
from the Tax Cuts and Jobs Act enacted on December 22, 2017 (see “Note 12 – Income Taxes” for further information
of this tax benefit).
|
NOTE
17
SUBSEQUENT
EVENTS
MIPs
On
January 18, 2018, the Board and Compensation Committee approved individual MIP for the CEO, CFO, and EVP of Strategic Initiatives.
Each MIP is effective January 1, 2018 and applicable for the year ended December 31, 2018. 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 2018 base salary on the approval date of the MIP. The potential target performance
compensation ranges from 5% to 100% of the 2018 base salary for the CEO ($13,350 to $267,000), 5% to 100% of the 2018 base salary
for the CFO ($11,475 to $229,494), and 5% to 100% of the 2018 base salary for the EVP of Strategic Initiatives ($11,170 to $223,400).