Notes
to Consolidated Condensed Financial Statements
March
31, 2018
(Unaudited)
Reference
is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017.
The
consolidated condensed financial statements included herein have been prepared by the Company (which may be referred to as we,
us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”).
Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules
and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not
misleading. Further, the consolidated condensed financial statements reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of
and for the periods indicated. The results of operations for the three months ended March 31, 2018 are not necessarily indicative
of results to be expected for the fiscal year ending December 31, 2018.
The
Company suggests that these consolidated condensed financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
2.
|
Summary
of Significant Accounting Policies
|
Our
accounting policies are as set forth in the notes to the December 31, 2017 consolidated financial statements referred to above.
Recently
Adopted Accounting Standards
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers” followed by a series of related accounting standard updates (collectively
referred to as “Topic 606”), which superseded nearly all existing revenue recognition guidance.
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 adopted Topic 606 effective January 1, 2018 under the modified
retrospective approach to all contracts as of date of adoption. The Company recognized the cumulative effect of initially adopting
Topic 606 as an increase of approximately $317,000 to the opening balance of accumulated deficit at January 1, 2018. The adoption
of Topic 606 did not result in significant changes to our revenue recognition model within our Treatment and Services Segments.
The cumulative impact to the opening balance of accumulated deficit at January 1, 2018 was primarily driven by changes to the
timing of revenue recognition in certain immaterial waste streams within our Treatment Segment. See “Note 3 – Revenue”
for additional disclosures related to our revenues under the new standard. The comparative previous period information continues
to be reported under the accounting standards in effect for that period. We expect the impact of the adoption of Topic 606 to
be immaterial to our consolidated financial statements on an on-going basis.
The
cumulative effect of the changes made to our January 1, 2018 unaudited Consolidated Balance Sheet for the adoption of Topic 606
was as follows (in thousands):
|
|
Balance at
|
|
|
Adjustment
|
|
|
Opening balance at
|
|
|
|
December 31,
|
|
|
Due to
|
|
|
January 1,
|
|
|
|
2017
|
|
|
Topic 606
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal/transportation accrual
|
|
$
|
2,071
|
|
|
$
|
(455
|
)
|
|
$
|
1,616
|
|
Deferred revenue
|
|
|
4,311
|
|
|
|
772
|
|
|
|
5,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
(77,893
|
)
|
|
$
|
(317
|
)
|
|
$
|
(78,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance with Topic 606 requirements, the disclosure of the impact of adoption of Topic 606 on our unaudited Consolidated Balance
Sheets, Consolidated Statement of Operations, and Consolidated Statement of Comprehensive Income was as follows (in thousands):
Consolidated Balance Sheet
|
|
March 31, 2018
|
|
|
|
|
|
|
Balances Before
|
|
|
|
|
|
|
|
|
|
Adoption of
|
|
|
Effect of Change
|
|
|
|
As Reported
|
|
|
Topic 606
|
|
|
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal/transportation accrual
|
|
$
|
1,478
|
|
|
$
|
2,003
|
|
|
$
|
(525
|
)
|
Deferred revenue
|
|
|
4,620
|
|
|
|
5,507
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
(78,074
|
)
|
|
$
|
(78,028
|
)
|
|
$
|
(46
|
)
|
Consolidated Statement of Operations
|
|
For the three months ended March 31, 2018
|
|
|
|
|
|
|
Balances Before
|
|
|
|
|
|
|
|
|
|
Adoption of
|
|
|
Effect of Change
|
|
|
|
As Reported
|
|
|
Topic 606
|
|
|
Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
12,658
|
|
|
$
|
12,773
|
|
|
$
|
(115
|
)
|
Cost of goods sold
|
|
|
9,337
|
|
|
|
9,406
|
|
|
|
(69
|
)
|
Income from continuing operations, net of taxes
|
|
|
253
|
|
|
|
299
|
|
|
|
(46
|
)
|
Net income attributable to Perma-Fix Services, Inc. common stockholders
|
|
|
136
|
|
|
|
182
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Perma-Fix Environmental Services, Inc. common stockholders - basic
and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.02
|
|
|
$
|
.02
|
|
|
$
|
―
|
|
Net income per common shares
|
|
$
|
.01
|
|
|
$
|
.01
|
|
|
$
|
―
|
|
Consolidated
Statement of Comprehensive Income
|
|
For
the three months ended March 31, 2018
|
|
|
|
As
Reported
|
|
|
Balances
Before Adoption of
Topic 606
|
|
|
Effect
of Change Higher/(Lower)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
96
|
|
|
$
|
142
|
|
|
$
|
(46
|
)
|
Comprehensive
income attributable to Perma-Fix Environmental Services, Inc. stockholders
|
|
|
128
|
|
|
|
174
|
|
|
|
(46
|
)
|
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force),” which aims to eliminate diversity in practice in how
certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement
of Cash Flows, and other Topics. Subsequently, in November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic
230), Restricted Cash, a consensus of the FASB Emerging Issues Task Force,” which clarifies the guidance on the cash flow
classification and presentation of changes in restricted cash or restricted cash equivalents. Therefore, amounts generally described
as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flow. ASU 2016-15 and ASU 2016-18 are effective for annual reporting
periods, and interim periods therein, beginning after December 15, 2017. The adoption of these ASUs by the Company effective January
1, 2018 did not 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.
The adoption of ASU 2016-16 by the Company effective January 1, 2018 did not 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. The adoption
of ASU 2017-01 by the Company effective January 1, 2018 did not 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. The adoption of ASU 2017-01 by the Company effective
January 1, 2018 did not have a material impact on
the
Company’s financial position, results of operations, or cash flows.
Recently
Issued Accounting Standards – Not Yet Adopted
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
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.
The
Company accounts for revenue in accordance with ASC Topic 606, which we adopted on January 1, 2018 using the modified retrospective
method. The majority of our revenue is derived from short term contracts with an original expected length of one year or less.
Performance
Obligation
A
performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account
in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue
as the performance obligation is satisfied.
Treatment
Segment Revenues:
Contracts
in our Treatment Segment have a single performance obligation as the promise to receive, treat and dispose of waste is not separately
identifiable in the contract and, therefore, not distinct. Performance obligations are generally satisfied over time using the
input method. Under the input method, the Company uses a measure of progress divided into major phases which include receipt,
treatment/processing and shipment/final disposal. As major processing phases are completed and the costs are incurred, the proportional
percentage of revenue is recognized. Transaction price for Treatment Segment contracts are determined by the stated fixed rate
per unit price as stipulated in the contract.
Services
Segment Revenues:
Revenues
for our Services Segment are generated from time and materials, cost reimbursement or fixed price arrangements:
The
Company’s primary obligation to customers in time and materials contracts relate to the provision of services to the customer
at the direction of the customer. This provision of services at the request of the customer is the performance obligation, which
is satisfied over time. Revenue earned from time and materials contracts is determined using the input method and is based on
contractually defined billing rates applied to services performed and materials delivered.
The
Company’s primary performance obligation to customers in cost reimbursement contracts is to complete certain tasks and work
steams. Each specified work stream or task within the contract is considered to be a separate performance obligation. The transaction
price is calculated using an estimated cost to complete the various scope items to achieve the performance obligation as stipulated
in the contract. An estimate is prepared for each individual scope item in the contract and the transaction price is allocated
on a time and materials basis as services are provided. Revenue from cost reimbursement contracts is recognized over time using
the input method based on costs incurred, plus a proportionate amount of fee earned.
Under
fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and
all of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is estimated
based upon the estimated cost to complete the overall project. Revenue from fixed price contract is recognized over time using
the output method based on the percentage of project completion multiplied by the total fee as a measure of progress.
The
nature of our contracts does not give rise to variable considerations.
Significant
Payment Terms
Invoicing
is based on schedules established in customer contracts. Payment terms vary by customers but are generally established at 30 days
from invoicing.
Disaggregation
of Revenue
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services
and provides meaningful disaggregation of each business segment’s results of operations. The following tables present further
disaggregation of our revenues by different categories for our Services and Treatment Segments:
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
Revenue
by Contract Type
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
(In
thousands)
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed
price
|
|
$
|
8,959
|
|
|
$
|
90
|
|
|
$
|
9,049
|
|
|
$
|
10,034
|
|
|
$
|
98
|
|
|
$
|
10,132
|
|
Cost
reimbursement
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
Time
and materials
|
|
|
―
|
|
|
|
3,609
|
|
|
|
3,609
|
|
|
|
―
|
|
|
|
2,575
|
|
|
|
2,575
|
|
Total
|
|
$
|
8,959
|
|
|
$
|
3,699
|
|
|
$
|
12,658
|
|
|
$
|
10,034
|
|
|
$
|
2,673
|
|
|
$
|
12,707
|
|
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
Revenue
by generator
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
(In
thousands)
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
6,536
|
|
|
$
|
3,118
|
|
|
$
|
9,654
|
|
|
$
|
7,371
|
|
|
$
|
2,068
|
|
|
$
|
9,439
|
|
Domestic
commercial
|
|
|
2,423
|
|
|
|
402
|
|
|
|
2,825
|
|
|
|
2,663
|
|
|
|
519
|
|
|
|
3,182
|
|
Foreign
government
|
|
|
―
|
|
|
|
153
|
|
|
|
153
|
|
|
|
―
|
|
|
|
65
|
|
|
|
65
|
|
Foreign
commercial
|
|
|
―
|
|
|
|
26
|
|
|
|
26
|
|
|
|
―
|
|
|
|
21
|
|
|
|
21
|
|
Total
|
|
$
|
8,959
|
|
|
$
|
3,699
|
|
|
$
|
12,658
|
|
|
$
|
10,034
|
|
|
$
|
2,673
|
|
|
$
|
12,707
|
|
Contract
Balances
The
timing of revenue recognition, billings, and cash collections results in accounts receivable and unbilled receivables (contract
assets). The Company’s contract liabilities consist of deferred revenues which represents advance payment from customers
in advance of the completion of our performance obligation.
The
following table represents changes in our contract assets and contract liabilities balances:
(In
thousands)
|
|
March
31, 2018
|
|
|
January
1, 2018
|
|
|
Year-to-date
Change ($)
|
|
|
Year-to-date
Change (%)
|
|
Contract
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
receivables, net of allowance
|
|
$
|
4,762
|
|
|
$
|
7,940
|
|
|
$
|
(3,178
|
)
|
|
|
(40.0
|
)%
|
Unbilled
receivables - current
|
|
|
4,574
|
|
|
|
4,547
|
|
|
|
27
|
|
|
|
0.6
|
%
|
Unbilled
receivables - non-current
|
|
|
92
|
|
|
|
184
|
|
|
|
(92
|
)
|
|
|
(50.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
4,620
|
|
|
$
|
5,083
|
|
|
$
|
(463
|
)
|
|
|
(9.1
|
)%
|
The
net decrease in our contract assets was primarily due to increased accounts receivable collections. The Company provides various
payment terms to our customers; therefore, our accounts receivable are impacted by these terms and the related timing of accounts
receivable collections.
Revenue
recognized for the three months ended March 31, 2018 and 2017 that was included in the contract liability balance at the beginning
of each year was $3,811,000 and $2,977,000, respectively. All revenue recognized in each period related to performance obligations
satisfied within the respective period.
Incremental
Costs to Obtain a Contract
Costs
incurred to obtain contracts with our customers are immaterial and as a result, the Company expenses (within selling, general
and administration expenses (“SG&A”)) incremental costs incurred in obtaining contracts with our customer as incurred.
Remaining
Performance Obligations
The
Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance
obligations that have original expected durations of one year or less.
The
Company applies the transition practical expedient in paragraph 606-10-65-1(f)(3) and does not disclose the amount of the transaction
price allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount
as revenue for periods prior to the adoption of Topic 606.
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
Useful
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Lives
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
Intangibles
(amount in thousands)
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
1-17
|
|
|
$
|
673
|
|
|
$
|
(314
|
)
|
|
$
|
359
|
|
|
$
|
657
|
|
|
$
|
(306
|
)
|
|
$
|
351
|
|
Software
|
|
|
3
|
|
|
|
410
|
|
|
|
(400
|
)
|
|
|
10
|
|
|
|
410
|
|
|
|
(398
|
)
|
|
|
12
|
|
Customer
relationships
|
|
|
12
|
|
|
|
3,370
|
|
|
|
(2,307
|
)
|
|
|
1,063
|
|
|
|
3,370
|
|
|
|
(2,246
|
)
|
|
|
1,124
|
|
Permit
|
|
|
10
|
|
|
|
545
|
|
|
|
(496
|
)
|
|
|
49
|
|
|
|
545
|
|
|
|
(483
|
)
|
|
|
62
|
|
Total
|
|
|
|
|
|
$
|
4,998
|
|
|
$
|
(3,517
|
)
|
|
$
|
1,481
|
|
|
$
|
4,982
|
|
|
$
|
(3,433
|
)
|
|
$
|
1,549
|
|
The
intangible assets noted above are amortized on a straight-line basis over their useful lives with the exception of customer relationships
which are being amortized using an accelerated method. The Company has only one definite-lived permit that is subject to amortization.
The
following table summarizes the expected amortization over the next five years for our definite-lived intangible assets (including
the one definite-lived permit):
|
|
|
Amount
|
|
Year
|
|
|
(In
thousands)
|
|
|
|
|
|
|
2018
(remaining)
|
|
|
$
|
251
|
|
2019
|
|
|
|
254
|
|
2020
|
|
|
|
218
|
|
2121
|
|
|
|
198
|
|
2022
|
|
|
|
173
|
|
Amortization
expenses relating to the definite-lived intangible assets as discussed above were $84,000 and $94,000 for the three months ended
March 31, 2018 and 2017, respectively.
5.
|
Capital
Stock, Stock Plans and Stock Based Compensation
|
The
Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers,
and outside directors.
On
January 18, 2018, the Company granted 6,000 options from the Company’s 2003 Outside Directors Stock Plan to a new director
elected by the Company’s Board of Directors (“Board”) to fill a vacancy on the Board. The options granted were
for a contractual term of ten years with a vesting period of six months. The exercise price of the options was $4.05 per share,
which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Outside Directors Stock Plan.
On
January 13, 2017, the Company granted 6,000 options from the Company’s 2003 Outside Directors Stock Plan to a new director
elected by the Company’s Board to fill a 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 options was $3.79
per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Outside Directors
Stock Plan.
The
Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value
of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s
stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected
annual dividend yield. The fair value of the options granted on January 18, 2018 and January 13, 2017 as discussed above and the
related assumptions used in the Black-Scholes option model used to value the options granted were as follows:
|
|
Outside Director Stock Options Granted
|
|
|
|
January 18, 2018
|
|
|
January 13, 2017
|
|
Weighted-average fair value per option
|
|
$
|
2.55
|
|
|
$
|
2.63
|
|
Risk -free interest rate
(1)
|
|
|
2.62
|
%
|
|
|
2.40
|
%
|
Expected volatility of stock
(2)
|
|
|
57.29
|
%
|
|
|
56.32
|
%
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
Expected option life
(3)
|
|
|
10.0 years
|
|
|
|
10.0 years
|
|
(1)
|
The
risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.
|
|
|
(2)
|
The
expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
|
|
|
(3)
|
The
expected option life is based on historical exercises and post-vesting data.
|
The
following table summarizes stock-based compensation recognized for the three months ended March 31, 2018 and 2017 for our employee
and director stock options.
|
|
Three
Months Ended
March 31,
|
|
Stock
Options
|
|
2018
|
|
|
2017
|
|
Employee
Stock Options
|
|
$
|
10,000
|
|
|
$
|
11,000
|
|
Director
Stock Options
|
|
|
36,000
|
|
|
|
12,000
|
|
Total
|
|
$
|
46,000
|
|
|
$
|
23,000
|
|
At
March 31, 2018, the Company has approximately $547,000 of total unrecognized compensation cost related to unvested options, of
which $148,000 is expected to be recognized in remaining 2018, $126,000 in 2019, $114,000 in 2020, $114,000 in 2021, with the
remaining $45,000 in 2022.
The
summary of the Company’s total Stock Option Plans as of March 31, 2018 and March 31, 2017, and changes during the periods
then ended, are presented below. The Company’s Plans consist of the 2010 and 2017 Stock Option Plans and the 2003 Outside
Directors Stock Plan:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average Remaining Contractual Term
(years)
|
|
|
Aggregate
Intrinsic
Value
(3)
|
|
Options
outstanding January 1, 2018
|
|
|
624,800
|
|
|
$
|
4.42
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,000
|
|
|
|
4.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period
(1)
|
|
|
630,800
|
|
|
$
|
4.41
|
|
|
|
5.3
|
|
|
$
|
259,070
|
|
Options
exercisable at March 31, 2018
(1)
|
|
|
191,467
|
|
|
$
|
6.13
|
|
|
|
4.7
|
|
|
$
|
46,970
|
|
Options
exercisable and expected to be vested at March 31, 2018
|
|
|
630,800
|
|
|
$
|
4.41
|
|
|
|
5.3
|
|
|
$
|
259,070
|
|
|
|
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
|
|
|
6,000
|
|
|
|
3.79
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(30,000
|
)
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period
(2)
|
|
|
223,200
|
|
|
$
|
6.84
|
|
|
|
4.7
|
|
|
$
|
4,380
|
|
Options
exercisable at March 31, 2017
(2)
|
|
|
163,867
|
|
|
$
|
7.87
|
|
|
|
4.5
|
|
|
$
|
4,380
|
|
Options
exercisable and expected to be vested at March 31, 2017
|
|
|
223,200
|
|
|
$
|
6.84
|
|
|
|
4.7
|
|
|
$
|
4,380
|
|
(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.
|
During
the three months ended March 31, 2018, the Company issued a total of 16,074 shares of its Common Stock under the 2003 Outside
Directors Stock Plan to its outside directors as compensation for serving on our Board. The Company has recorded approximately
$64,000 in compensation expenses (included in selling, general and administration expenses) in connection with the issuance of
shares of its common stock to outside directors.
6.
|
(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 shares. The following table reconciles the income (loss) and average share amounts used to compute both
basic and diluted income (loss) per share:
|
|
Three
Months Ended
(Unaudited)
|
|
|
|
March
31,
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
|
2018
|
|
|
|
2017
|
|
Net
income (loss) attributable to Perma-Fix Environmental Services, Inc., common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
293
|
|
|
$
|
(596
|
)
|
Loss
from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
(157
|
)
|
|
|
(131
|
)
|
Net
income (loss) attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
136
|
|
|
$
|
(727
|
)
|
|
|
|
|
|
|
|
|
|
Basic
Income (loss) per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.01
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.01
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding: Basic weighted average shares outstanding
|
|
|
11,747
|
|
|
|
11,681
|
|
Add:
dilutive effect of stock options
|
|
|
26
|
|
|
|
—
|
|
Diluted
weighted average shares outstanding
|
|
|
11,773
|
|
|
|
11,681
|
|
|
|
|
|
|
|
|
|
|
Potential
shares excluded from above weighted average share calcualtions due to their anti-dilutive effect include: Stock options
|
|
|
168
|
|
|
|
205
|
|
Long-term
debt consists of the following at March 31, 2018 and December 31, 2017:
(Amounts
in Thousands)
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
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.
(1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
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 the first quarter of 2018 was 5.0%.
(1)
|
|
|
3,551
|
(2)
|
|
|
3,847
|
(2)
|
Total
debt
|
|
|
3,551
|
|
|
|
3,847
|
|
Less
current portion of long-term debt
|
|
|
1,184
|
|
|
|
1,184
|
|
Long-term
debt
|
|
$
|
2,367
|
|
|
$
|
2,663
|
|
(1)
|
Our
revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property,
plant, and equipment.
|
|
|
(2)
|
Net
of debt issuance costs of ($107,000) and ($115,000) at March 31, 2018 and December 31, 2017, 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
had the Company paid off its obligations on or before March 23, 2017, .50% of the total financing had the Company paid 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
March 31, 2018, the borrowing availability under our revolving credit was approximately $2,823,000, based on our eligible receivables
and includes an indefinite reduction of borrowing availability of $2,000,000 that the Company’s lender has imposed. Our
borrowing availability under our revolving credit was also reduced by outstanding standby letters of credit totaling approximately
$2,660,000.
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 its quarterly financial covenants in the first quarter of 2018 and expects to meet its
quarterly financial covenants in each of the remaining quarters of 2018 and into the first half of 2019.
8.
|
East
Tennessee Materials and Energy Corporation (“M&EC”)
|
The
Company continues its plan to close its M&EC facility by the end of the M&EC’s amended lease term of 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.
At
March 31, 2018, total accrued closure liabilities for our M&EC subsidiary totaled approximately $1,864,000 which are recorded
as current liabilities. The following reflects changes to the closure liabilities for the M&EC facility from year end 2017:
Amounts
in thousands
|
|
|
|
Balance
as of December 31, 2017
|
|
$
|
2,791
|
|
Accretion
expense
|
|
|
19
|
|
Payments
|
|
|
(946
|
)
|
Balance
as of March 31, 2018
|
|
$
|
1,864
|
|
During
the first quarter of 2018 and 2017, M&EC’s revenues were approximately $56,000 and $3,379,000, respectively.
9.
|
Commitments
and Contingencies
|
Hazardous
Waste
In
connection with our waste management services, we process both hazardous and non-hazardous waste, which we transport to our own,
or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is
required, we could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our
part.
Legal
Matters
In
the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any judgments or fines against us that would have a material adverse
effect on our financial position, liquidity or results of future operations.
Insurance
The
Company has a 25-year finite risk insurance policy entered into in June 2003 with American International Group, Inc. (“AIG”),
which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The
policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation
and other performance and surety bond requirements. At March 31, 2018, our financial assurance coverage amount under this policy
totaled approximately $29,911,000. The Company has recorded $15,726,000 and $15,676,000 in sinking funds related to this policy
in other long term assets on the accompanying Consolidated Balance Sheets at March 31, 2018 and December 31, 2017, respectively,
which includes interest earned of $1,255,000 and $1,205,000 on the sinking funds as of March 31, 2018 and December 31, 2017, respectively.
Interest income for the three months ended March 31, 2018 and 2017 was approximately $50,000 and $27,000, 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 the Company and any applicable regulatory agency using this policy as an instrument to
comply with financial assurance requirements.
Letter
of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to
customers and other obligations, including facility closures. At March 31, 2018, the total amount of standby letters of credit
outstanding totaled approximately $2,660,000 and the total amount of bonds outstanding totaled approximately $8,767,000.
10.
|
Discontinued
Operations
|
The
Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment: (1) subsidiaries divested
in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility which is currently undergoing closure, subject
to final regulatory approval.
The
Company’s discontinued operations had net losses of $157,000 and $131,000 for the three months ended March 31, 2018 and
2017 (net of taxes of $0 for each period). The losses were primarily due to costs incurred in the administration and continued
monitoring of our discontinued operations. The Company’s discontinued operations had no revenues for each of the periods
noted above.
The
following table presents the major class of assets of discontinued operations as of March 31, 2018 and December 31, 2017.
(Amounts
in Thousands)
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
94
|
|
|
$
|
89
|
|
Total
current assets
|
|
|
94
|
|
|
|
89
|
|
Long-term
assets
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
(1)
|
|
|
81
|
|
|
|
81
|
|
Other
assets
|
|
|
176
|
|
|
|
195
|
|
Total
long-term assets
|
|
|
257
|
|
|
|
276
|
|
Total
assets
|
|
$
|
351
|
|
|
$
|
365
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
11
|
|
|
$
|
8
|
|
Accrued
expenses and other liabilities
|
|
|
262
|
|
|
|
265
|
|
Environmental
liabilities
|
|
|
619
|
|
|
|
632
|
|
Total
current liabilities
|
|
|
892
|
|
|
|
905
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Closure
liabilities
|
|
|
122
|
|
|
|
120
|
|
Environmental
liabilities
|
|
|
229
|
|
|
|
239
|
|
Total
long-term liabilities
|
|
|
351
|
|
|
|
359
|
|
Total
liabilities
|
|
$
|
1,243
|
|
|
$
|
1,264
|
|
|
(1)
|
net
of accumulated depreciation of $10,000 for each period presented.
|
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. subsidiary. This note requires 60 equal monthly installment
payments by the buyer of approximately $7,250 (which includes interest). At March 31, 2018, the outstanding amount on this note
receivable totaled approximately $250,000, of which approximately $74,000 is included in “Current assets related to discontinued
operations” and approximately $176,000 is included in “Other assets related to discontinued operations” in the
accompanying Consolidated Balance Sheets.
In
accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (a)
from which we may earn revenue and incur expenses; (2) 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 (3)
for which discrete financial information is available.
Our
reporting segments are defined as below:
TREATMENT
SEGMENT, which includes:
|
-
|
nuclear,
low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous
waste treatment, processing and disposal services primarily through three uniquely licensed and permitted treatment and storage
facilities; and
|
|
|
|
|
-
|
research
and development (“R&D”) activities to identify, develop and implement
innovative waste processing techniques for problematic waste streams.
|
SERVICES
SEGMENT, which includes:
|
-
|
Technical
services, which include:
|
|
○
|
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology
and engineering;
|
|
○
|
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;
|
|
○
|
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
|
|
○
|
on-site
waste management services to commercial and governmental customers.
|
|
-
|
Nuclear
services, which include:
|
|
○
|
technology-based
services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction,
logistics, transportation, processing and disposal;
|
|
○
|
remediation
of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes:
project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition,
and planning; site restoration; logistics; transportation; and emergency response; and
|
|
-
|
A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental)
health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
|
MEDICAL
SEGMENT reporting includes: R&D costs for the new medical isotope production technology from our majority-owned Polish subsidiary,
PF Medical. The Medical Segment has not generated any revenue as it continues to be primarily in the R&D stage. All costs
incurred for the Medical Segment are reflected within R&D in the accompanying Consolidated Statements of Operations.
Our
reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 10 – Discontinued
Operations”) which do not generate revenues.
The
table below presents certain financial information of our operating segments for the three months ended March 31, 2018 and 2017
(in thousands).
Segment
Reporting for the Quarter Ended March 31, 2018
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
8,959
|
|
|
$
|
3,699
|
|
|
|
—
|
|
|
$
|
12,658
|
|
|
$
|
—
|
|
|
$
|
12,658
|
|
Intercompany
revenues
|
|
|
213
|
|
|
|
14
|
|
|
|
—
|
|
|
|
227
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
2,780
|
|
|
|
541
|
|
|
|
—
|
|
|
|
3,321
|
|
|
|
—
|
|
|
|
3,321
|
|
Research
and development
|
|
|
114
|
|
|
|
—
|
|
|
|
100
|
|
|
|
214
|
|
|
|
18
|
|
|
|
232
|
|
Interest
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49
|
|
|
|
49
|
|
Interest
expense
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(52
|
)
|
|
|
(53
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Depreciation
and amortization
|
|
|
240
|
|
|
|
123
|
|
|
|
—
|
|
|
|
363
|
|
|
|
9
|
|
|
|
372
|
|
Segment
income (loss) before income taxes
|
|
|
1,744
|
|
|
|
(86
|
)
|
|
|
(100
|
)
|
|
|
1,558
|
|
|
|
(1,254
|
)
|
|
|
304
|
|
Income
tax expense
|
|
|
(51
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(51
|
)
|
|
|
—
|
|
|
|
(51
|
)
|
Segment
income (loss)
|
|
|
1,693
|
|
|
|
(86
|
)
|
|
|
(100
|
)
|
|
|
1,507
|
|
|
|
(1,254
|
)
|
|
|
253
|
|
Expenditures
for segment assets
|
|
|
220
|
|
|
|
25
|
|
|
|
—
|
|
|
|
245
|
|
|
|
3
|
|
|
|
248
|
|
Segment
Reporting for the Quarter Ended March 31, 2017
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
10,034
|
|
|
$
|
2,673
|
|
|
|
—
|
|
|
$
|
12,707
|
|
|
$
|
—
|
|
|
$
|
12,707
|
|
Intercompany
revenues
|
|
|
16
|
|
|
|
3
|
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
2,687
|
|
|
|
32
|
|
|
|
—
|
|
|
|
2,719
|
|
|
|
—
|
|
|
|
2,719
|
|
Research
and development
|
|
|
181
|
|
|
|
—
|
|
|
|
200
|
|
|
|
381
|
|
|
|
8
|
|
|
|
389
|
|
Interest
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
35
|
|
Interest
expense
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(91
|
)
|
|
|
(100
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Depreciation
and amortization
|
|
|
1,009
|
|
|
|
136
|
|
|
|
—
|
|
|
|
1,145
|
|
|
|
10
|
|
|
|
1,155
|
|
Segment
income (loss) before income taxes
|
|
|
1,602
|
|
|
|
(707
|
)
|
|
|
(200
|
)
|
|
|
695
|
|
|
|
(1,289
|
)
|
|
|
(594
|
)
|
Income
tax expense
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
(1
|
)
|
|
|
(81
|
)
|
Segment
income (loss)
|
|
|
1,522
|
|
|
|
(707
|
)
|
|
|
(200
|
)
|
|
|
615
|
|
|
|
(1,290
|
)
|
|
|
(675
|
)
|
Expenditures
for segment assets
|
|
|
15
|
|
|
|
7
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
22
|
|
(1)
|
Amounts
reflect the activity for corporate headquarters not included in the segment information.
|
The
Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning
opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income
taxes.
Income
tax expenses were $51,000 and $81,000 for continuing operations for the three months ended March 31, 2018 and the corresponding
period of 2017, respectively. The Company’s effective tax rate was approximately (16.8%) for the three months ended March
31, 2018 as compared to a tax rate of approximately (13.6%) for the corresponding period of 2017.
13.
|
Management
Incentive Plans (“MIPs”)
|
On
January 18, 2018, the Company’s Board and Compensation and Stock Option Committee (the “Compensation Committee”)
approved individual MIPs for the (“CEO”), Chief Financial Officer (“CFO”), and Executive Vice President
(“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).
14.
Subsequent Events
M&EC
Series B Preferred Stock
The
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 and sole discretion
of M&EC at any time, and from time to time, from and after one year from the date of issuance of the Series B Preferred Stock
for the purchase price of $1.00. Holders of shares of M&EC Series B Preferred Stock are entitled to receive, when, as and
if declared by M&EC’s board of directors out of funds legally available for payment, cumulative dividends at the rate
per annum of 5% per share on the liquidation preference of $1.00 per share of Series B Preferred Stock. Dividends on the Series
B Preferred Stock shall accrue without interest beginning one year from the date of original issuance (June 25, 2001), and shall
be payable in cash, if, when, and as declared by M&EC board, quarterly each year commencing on the first dividend due date
following the expiration of one year from the date of original issuance. On April 24, 2018, the Company announced a private exchange
offer (“Exchange Offer”), to all holders of the M&EC Series B Preferred Stock , to exchange, for every share of
Series B Preferred Stock tendered, (a) 0.1050805 shares of newly issued common stock of the Company, par value $.001 per share
(“Common Stock”), and (b) cash in lieu of fractional shares of Common Stock that would otherwise be issuable to the
tendering holder of Series B Preferred Stock, in an amount equal to such fractional share of Common Stock multiplied by the closing
price per share of the Common Stock on the last trading day immediately preceding the expiration date of the Exchange Offer. The
Exchange Offer is being made on an all-or-none basis, for all 1,284,730 shares of Series B Preferred Stock outstanding and has
an expiration date of May 30, 2018. Assuming all currently outstanding shares of Series B Preferred Stock are tendered for exchange
and not validly withdrawn, the Company would issue an amount of its shares of Common Stock not to exceed 135,000. The Company
owns 100% of the voting capital stock of M&EC. If the Exchange Offer is consummated, holders of the M&EC Series B Preferred
Stock would forfeit all rights of a holder of Series B Preferred Shares, including the right to receive quarterly cash dividends,
and the rights to the cumulative accrued and unpaid dividends with M&EC Series B Preferred Stock in the amount of approximately
$1,011,000 as of April 1, 2018. M&EC Board has never declared dividends on the Series B Preferred Stock and our credit facility
prohibits the payment of cash dividends without the lender’s consent.
The
shares of Company common stock to be issued in exchange for shares of M&EC’s Series B Preferred Stock will be issued
pursuant to an exemption from registration under the Securities Act of 1933, as amended, and, as a result, will be considered
restricted securities that have restrictions on transferability.
This
discussion as to an exchange offer does not constitute an offer or an invitation by the Company to participate in the exchange
offer in any manner.