Notes
to Consolidated Financial Statements
March
31, 2020
(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, 2019.
1.
Basis of Presentation
The
consolidated 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 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, 2020 are not necessarily indicative of results
to be expected for the fiscal year ending December 31, 2020.
The
Company suggests that these consolidated 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, 2019.
The
consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, and our majority-owned Polish
subsidiary, Perma-Fix Medical. Additionally, the Company’s financial statements include the account of a variable interest
entity (“VIE”), Perma-Fix ERRG for which we are the primary beneficiary (See “Note 15 - VIE” for a discussion
of this VIE).
2.
Summary of Significant Accounting Policies
Our
accounting policies are as set forth in the notes to the December 31, 2019 consolidated financial statements referred to above.
Recently
Adopted Accounting Standards
In
August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement.” ASU 2018-13 improves the disclosure requirements on fair value measurements. ASU 2018-13 is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of ASU No. 2018-13
by the Company effective January 1, 2020 did not have a material impact on the Company’s financial statements or disclosures.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (“ASC 848”): Facilitation of the Effects
of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP
to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London
Interbank Offered Rate (“LIBOR”) or another rate that is expected to be discontinued.
The amendments in the ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04
on March 12, 2020 by the Company did not have a material impact on the Company’s financial statements. The Company will
continue to assess the potential impact of this ASU through the effective period.
Recently
Issued Accounting Standards – Not Yet Adopted
In
June 2016, the FASB issued ASU No. 2016-13, “Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments
and subsequent amendments to the initial guidance: ASU 2018-19 ”Codification Improvements
to Topic 326, Financial Instruments - Credit Losses,” ASU 2019-04 “Codification Improvements to Topic 326, Financial
Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” ASU 2019-05 “Financial
Instruments - Credit Losses (Topic 326): Targeted Transition Relief,” ASU 2019-11 “Codification Improvements to Topic
326, Financial Instruments - Credit Losses” and ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326)
and Leases (Topic 842)” (collectively, “Topic 326”). Topic 326 introduces an approach, based on expected losses,
to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt
securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to
most financial assets measured at amortized cost and certain other instruments, including trade and other receivables and loans.
Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is adopted. These ASUs are effective January 1, 2023 for the Company
as a smaller reporting company. The Company had expected to early adopt theses ASUs effective January 1, 2020; however, due to
the need for reallocation of the Company’s resources to manage COVID-19 related matters, the Company has deferred adoption
of theses ASUs effective January 1, 2020 and expect to adopt these ASUs by January 1, 2023.
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions
to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This
guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with
early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related
disclosures.
In
January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method
and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). ASU 2020-01 clarifies the Interactions between Topic
321, Topic 323, and Topic 815.” This
guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction
of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of
securities. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December
15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial
statements.
3.
COVID-19 Impact
The
spread of COVID-19 around the world in the first quarter of 2020 has resulted in significant volatility in the U.S. and international
markets. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. Although there
have been logistical and other challenges to date, there was no material adverse impact on the Company’s first quarter 2020
results of operations. The Company began to see the impacts of COVID-19 from delayed waste shipment from certain customers and
suspended project work in late March 2020 which is expected to impact its results of operations beginning with the second quarter
of 2020 and potentially further.
At
this time, the Company believes it has sufficient liquidity on hand to continue business operations during the next twelve months.
At March 31, 2020, the Company had cash on hand of approximately $1,859,000 and borrowing availability under our credit facility
of $8,537,000. Additionally, we received a $5,666,300 loan in April 2020 (“PPP Loan”) under
the Paycheck Protection Program (“PPP”) that was established under the recently enacted Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”) (see “Note 16 – Subsequent Events - CARES Act – Paycheck
Protection Program” for further detail of this loan). The Company remains committed to reducing operating costs during this
volatile time, which have included curtailing capital expenditures and implementing a hiring freeze, among other things.
The
Company is closely monitoring our customers’ payment performance. However, as a significant portion of our revenues is derived
from government related contracts, the Company does not expect its accounts receivable collections to be materially impacted,
subject to the impact of COVID-19.
The
situation surrounding COVID-19 remains fluid and the potential for a material impact on the Company increases the longer COVID-19
impacts the level of economic activities in the United States and globally as our customers may continue to delay/halt waste shipments
and project work. For this reason, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have
on our results of operations, financial position, and liquidity which may impact our ability to meet our financial covenant requirements
under our credit facility. Given the current economic environment and the market volatility from COVID-19, the Company considered
whether these events or changes in circumstances triggered the need for an interim impairment analysis of our long-lived tangible
assets and intangible assets. Based on the Company’s assessment of the impact of these conditions on our business, the Company
determined there was no triggering event as of March 31, 2020. However, as the effects of the COVID-19 pandemic continue to evolve,
the Company will continue to assess the need to perform interim impairment tests of our long-lived tangible assets and intangible
assets.
The
CARES Act, among other things, includes modifications to net operating loss carryforwards and corporate alternative minimum tax
(“AMT”) provisions and the net interest expense deduction, and deferment of social security tax payments. The Company
has elected to defer payment of its shares of social security taxes starting in April 2020 (see “Note 16 – Subsequent
Events – CARES ACT – Deferral of
Employment Tax Deposits”). We are currently evaluating the provisions of the CARES Act and
how certain other elections may impact our financial position, results of operations, and disclosures, if elected.
4.
Revenue
Disaggregation
of Revenue
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services
and provides meaningful disaggregation of each business segment’s results of operations. The nature of the Company’s
performance obligations within our Treatment and Services Segments result in the recognition of our revenue primarily over time.
The following tables present further disaggregation of our revenues by different categories for our Services and Treatment Segments:
Revenue
by Contract Type
(In
thousands)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed price
|
|
$
|
9,563
|
|
|
$
|
2,947
|
|
|
$
|
12,510
|
|
|
$
|
9,905
|
|
|
$
|
428
|
|
|
$
|
10,333
|
|
Time and materials
|
|
|
―
|
|
|
|
12,350
|
|
|
|
12,350
|
|
|
|
―
|
|
|
|
1,375
|
|
|
|
1,375
|
|
Total
|
|
$
|
9,563
|
|
|
$
|
15,297
|
|
|
$
|
24,860
|
|
|
$
|
9,905
|
|
|
$
|
1,803
|
|
|
$
|
11,708
|
|
Revenue
by generator
(In
thousands)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic government
|
|
$
|
7,690
|
|
|
$
|
13,798
|
|
|
$
|
21,488
|
|
|
$
|
7,913
|
|
|
$
|
686
|
|
|
$
|
8,599
|
|
Domestic commercial
|
|
|
1,873
|
|
|
|
462
|
|
|
|
2,335
|
|
|
|
1,879
|
|
|
|
758
|
|
|
|
2,637
|
|
Foreign government
|
|
|
―
|
|
|
|
1,014
|
|
|
|
1,014
|
|
|
|
57
|
|
|
|
337
|
|
|
|
394
|
|
Foreign commercial
|
|
|
―
|
|
|
|
23
|
|
|
|
23
|
|
|
|
56
|
|
|
|
22
|
|
|
|
78
|
|
Total
|
|
$
|
9,563
|
|
|
$
|
15,297
|
|
|
$
|
24,860
|
|
|
$
|
9,905
|
|
|
$
|
1,803
|
|
|
$
|
11,708
|
|
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, 2020
|
|
|
December 31, 2019
|
|
|
Year-to-date
Change ($)
|
|
|
Year-to-date
Change (%)
|
|
Contract assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account receivables, net of allowance
|
|
$
|
10,226
|
|
|
$
|
13,178
|
|
|
$
|
(2,952
|
)
|
|
|
(22.4
|
)%
|
Unbilled receivables - current
|
|
|
10,188
|
|
|
|
7,984
|
|
|
|
2,204
|
|
|
|
27.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
5,944
|
|
|
$
|
5,456
|
|
|
$
|
488
|
|
|
|
8.9
|
%
|
During
the three months ended March 31, 2020 and 2019, the Company recognized revenue of $4,023,000 and $5,064,000, respectively, related
to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized in
each period related to performance obligations satisfied within the respective period.
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.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts,
the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount
for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations
for those contracts.
5.
Leases
At
the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on facts and circumstances
present in that arrangement. Lease classifications, recognition, and measurement are then determined at the lease commencement
date.
The
Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent primarily leases
for office/warehouse spaces used to conduct our business. These leases have remaining terms of approximately 4 to 10 years. The
majority of the Company’s leases includes one or more options to renew, with renewal terms ranging from 3 years to 8 years.
The Company includes renewal options in valuing its ROU assets and liabilities when it determines that it is reasonably certain
to exercise these renewal options. Based on conditions of the Company’s existing leases, historical trend and its overall
business strategies, the Company has included the renewal options in all of its operating leases in valuing its ROU assets and
liabilities. As most of our operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate
as the discount rate when determining the present value of the lease payments. The incremental borrowing rate is determined based
on the Company’s secured borrowing rate, lease terms and current economic environment. Some of our operating leases include
both lease (rent payments) and non-lease components (maintenance costs such as cleaning and landscaping services). The Company
has elected the practical expedient to account for lease component and non-lease component as a single component for all leases
in accordance with ASC 842. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Finance
leases consist primarily of equipment used by our facilities’ operations. Our finance leases also includes a building with
land for our waste treatment operations. The Company’s finance leases for equipment generally have terms between one to
three years and some of the leases include options to purchase the underlying assets at fair market value at the conclusion of
the lease term. The lease for the building and land has a term of two year with option to buy at the end of the lease term which
the Company is reasonably certain exercise. At March 31, 2020, assets recorded under finance leases were $1,492,000 less accumulated
depreciation of $97,000, resulting in net fixed assets under finance leases of $1,395,000, which is recorded within net property
and equipment on the Consolidated Balance Sheets.
The
Company adopted the policy to not recognize ROU assets and liabilities for short term leases. The
components of lease cost for the Company’s leases for the three months ended March 31, 2020 and 2019 were (in thousands):
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Operating Lease:
|
|
|
|
|
|
|
|
|
Lease cost
|
|
$
|
114
|
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
|
|
|
|
Amortization of ROU assets
|
|
|
26
|
|
|
|
9
|
|
Interst on lease liablity
|
|
|
21
|
|
|
|
12
|
|
|
|
|
47
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Short-term lease rent expense
|
|
|
3
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
164
|
|
|
$
|
174
|
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2020
was:
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Weighted average remaining lease terms (years)
|
|
|
8.6
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
8.0
|
%
|
|
|
12.1
|
%
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2019
was:
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Weighted average remaining lease terms (years)
|
|
|
9.7
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
8.0
|
%
|
|
|
11.1
|
%
|
The
following table reconciles the undiscounted cash flows for the operating and finance leases at March 31, 2020 to the operating
and finance lease liabilities recorded on the balance sheet (in thousands):
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2020 Remainder
|
|
$
|
333
|
|
|
$
|
512
|
|
2021
|
|
|
450
|
|
|
|
395
|
|
2022
|
|
|
458
|
|
|
|
113
|
|
2023
|
|
|
466
|
|
|
|
―
|
|
2024
|
|
|
342
|
|
|
|
―
|
|
2025 and thereafter
|
|
|
1,458
|
|
|
|
―
|
|
Total undiscounted lease payments
|
|
|
3,507
|
|
|
|
1,020
|
|
Less: Imputed interest
|
|
|
(978
|
)
|
|
|
(100
|
)
|
Present value of lease payments
|
|
$
|
2,529
|
|
|
$
|
920
|
|
|
|
|
|
|
|
|
|
|
Current portion of operating lease obligations
|
|
$
|
251
|
|
|
$
|
―
|
|
Long-term operating lease obligations, less current portion
|
|
$
|
2,278
|
|
|
$
|
―
|
|
Current portion of finance lease obligations
|
|
$
|
―
|
|
|
$
|
510
|
|
Long-term finance lease obligations, less current portion
|
|
$
|
―
|
|
|
$
|
410
|
|
Supplemental
cash flow and other information related to our leases were as follows for the three months ended March 31, 2020 and March 31,
2019 (in thousands):
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flow from operating leases
|
|
$
|
110
|
|
|
$
|
98
|
|
Operating cash flow from finance leases
|
|
$
|
21
|
|
|
$
|
12
|
|
Financing cash flow from finance leases
|
|
$
|
101
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations for:
|
|
|
|
|
|
|
|
|
Finance liabilities
|
|
$
|
82
|
|
|
$
|
138
|
|
Operating liabilities
|
|
$
|
―
|
|
|
$
|
―
|
|
6.
Intangible Assets
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
Weighted Average
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Amortization Period
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|
Gross
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Intangibles (amount in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
11
|
|
|
$
|
761
|
|
|
$
|
(364
|
)
|
|
$
|
397
|
|
|
$
|
760
|
|
|
$
|
(358
|
)
|
|
$
|
402
|
|
Software
|
|
|
3
|
|
|
|
420
|
|
|
|
(408
|
)
|
|
|
12
|
|
|
|
414
|
|
|
|
(408
|
)
|
|
|
6
|
|
Customer relationships
|
|
|
10
|
|
|
|
3,370
|
|
|
|
(2,761
|
)
|
|
|
609
|
|
|
|
3,370
|
|
|
|
(2,713
|
)
|
|
|
657
|
|
Total
|
|
|
|
|
|
$
|
4,551
|
|
|
$
|
(3,533
|
)
|
|
$
|
1,018
|
|
|
$
|
4,544
|
|
|
$
|
(3,479
|
)
|
|
$
|
1,065
|
|
The
intangible assets noted above are amortized on a straight-line basis over their useful lives with the exception of customer relationships
which are being amortized using an accelerated method.
The
following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
|
|
Amount
|
|
Year
|
|
(In thousands)
|
|
|
|
|
|
2020(remaining)
|
|
$
|
167
|
|
2021
|
|
|
202
|
|
2022
|
|
|
175
|
|
2023
|
|
|
132
|
|
2024
|
|
|
10
|
|
Amortization
expenses relating to the definite-lived intangible assets as discussed above were $54,000 and $73,000 for the three months ended
March 31, 2020 and 2019, respectively.
7.
Capital Stock, Stock Plans and Stock Based Compensation
The
Company has certain stock option plans under which it may awards incentive stock options (“ISOs”) and/or non-qualified
stock options (“NQSOs”) to employees, officers, outside directors, and outside consultants.
On
February 4, 2020, the Company granted 6,000 NQSOs from the Company’s 2003 Outside Directors Stock Plan (“2003 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 $7.00 per share, which was equal to the Company’s closing stock price per share the day preceding the grant date, pursuant
to the 2003 Outside Director Stock Plan.
On
January 17, 2019 the Company granted 105,000 ISOs from the 2017 Stock Option Plan (“2017 Plan”) to certain employees,
which included our named executive officers as follows: 25,000 ISOs to our Chief Executive Officer (“CEO”), Mark Duff;
15,000 ISOs to our Chief Financial Officer (“CFO”), Ben Naccarato; and 15,000 ISOs to our Executive Vice President
(“EVP”) of Strategic Initiatives, Dr. Louis Centofanti. The ISOs granted were for a contractual term of six years
with one-fifth vesting annually over a five year period. The exercise price of the ISO was $3.15 per share, which was equal to
the fair market value of the Company’s Common Stock per share on the date of grant.
The
Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Plan for the purchase of up to 100,000
shares of the Company’s Common Stock (“Ferguson Stock Option”) in connection with his work as a consultant to
the Company’s Test Bed Initiative (“TBI”) at our Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility
at an exercise price of $3.65 per share, which was the fair market value of the Company’s Common Stock on the date of grant.
The term of the Ferguson Stock Option is seven years from the grant date. The vesting of the Ferguson Stock Option is subject
to the achievement of three separate milestones by certain dates. On January 17, 2019, the Company’s Compensation and Stock
Option Committee (“Compensation Committee”) and Board approved an amendment to the Ferguson Stock Option whereby the
vesting date for the second milestone for the purchase of up to 30,000 shares of the Company’s Common Stock was extended
to March 31, 2020 from January 27, 2019. On March 27, 2020, the Compensation Committee and the Board approved another amendment
to the Ferguson Stock Option whereby the vesting date for the second milestone was further extended to December 31, 2021 from
March 31, 2020 and the vesting date for the third milestone for the purchase of up to 60,000 shares of the Company’s Common
Stock was extended to December 31, 2022 from January 27, 2021. The 10,000 options under the first milestone were exercised by
Robert Ferguson in May 2018. The Company has not recognized compensation costs (fair value of approximately $280,000 at March
31, 2020) for the remaining 90,000 Ferguson Stock Option under the remaining two milestones since achievement of the performance
obligation under each of the two remaining milestones is uncertain at March 31, 2020. All other terms of the Ferguson Stock Option
remain unchanged.
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 February 4, 2020 and January 17, 2019 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
|
|
|
Employee Stock Option Granted
|
|
|
|
February 4, 2020
|
|
|
January 17, 2019
|
|
Weighted-average fair value per option
|
|
$
|
4.89
|
|
|
$
|
1.42
|
|
Risk -free interest rate (1)
|
|
|
1.61
|
%
|
|
|
2.58
|
%
|
Expected volatility of stock (2)
|
|
|
55.83
|
%
|
|
|
48.67
|
%
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
Expected option life (3)
|
|
|
10.0 years
|
|
|
|
5.0 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, 2020 and 2019 for our employee
and director stock options.
|
|
Three Months Ended
|
|
Stock Options
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Employee Stock Options
|
|
$
|
32,000
|
|
|
$
|
43,000
|
|
Director Stock Options
|
|
|
12,000
|
|
|
|
5,000
|
|
Total
|
|
$
|
44,000
|
|
|
$
|
48,000
|
|
At
March 31, 2020, the Company has approximately $383,000 of total unrecognized compensation costs related to unvested options for
employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized
is approximately 2.7 years.
The
summary of the Company’s total Stock Option Plans as of March 31, 2020 and March 31, 2019, and changes during the periods
then ended, are presented below. The Company’s Plans consist of the 2010 and 2017 Plans and the 2003 Plan:
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
|
Aggregate Intrinsic Value (3)
|
|
Options outstanding January 1, 2020
|
|
|
681,300
|
|
|
$
|
3.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,000
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(12,000
|
)
|
|
|
3.48
|
|
|
|
|
|
|
|
14,600
|
|
Forfeited/expired
|
|
|
(20,000
|
)
|
|
|
3.45
|
|
|
|
|
|
|
|
|
|
Options outstanding end of period (1)
|
|
|
655,300
|
|
|
$
|
3.88
|
|
|
|
4.0
|
|
|
$
|
962,189
|
|
Options exercisable at March 31, 2020(1)
|
|
|
306,800
|
|
|
$
|
4.20
|
|
|
|
3.9
|
|
|
$
|
392,614
|
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (years)
|
|
|
Aggregate Intrinsic Value (3)
|
|
Options outstanding January 1, 2019
|
|
|
616,000
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
105,000
|
|
|
|
3.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
─
|
|
|
|
─
|
|
|
|
|
|
|
|
|
|
Options outstanding end of period (2)
|
|
|
721,000
|
|
|
$
|
4.07
|
|
|
|
4.7
|
|
|
$
|
48,360
|
|
Options exercisable at March 31, 2019(2)
|
|
|
261,333
|
|
|
$
|
5.00
|
|
|
|
4.4
|
|
|
$
|
10,560
|
|
(1)
Options with exercise prices ranging from $2.79 to $8.40
(2)
Options with exercise prices ranging from $2.79 to $13.35
(3)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price of the option.
During
the three months ended March 31, 2020, the Company issued a total of 5,128 shares of its Common Stock under the 2003 Plan to its
outside directors as compensation for serving on our Board. The Company has recorded approximately $53,000 in compensation expenses
(included in selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares
of its Common Stock to outside directors.
During
the three months ended March 31, 2020, the Company issued 2,000 shares of its Common Stock to an employee resulting from the exercise
of options from the Company’s 2017 Plan for total proceeds of $6,300. Additionally, the Company issued 1,643 shares of its
Common Stock to a former employee who elected to exercise two separate options for the purchase of 8,000 and 2,000 shares of the
Company’s Common Stock at $3.60 per share and $3.15 per share, respectively by utilizing the cashless exercise option, as
permitted under the 2017 Plan. The net number of shares of the Company’s Common Stock issued to the optionee from the cashless
exercise was determined using the closing price of the Company’s Common Stock of $4.20 on the date of exercise.
8.
Income (Loss) Per Share
Basic
income (loss) income 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 (loss) 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)
|
|
2020
|
|
|
2019
|
|
Net income (loss) attributable to Perma-Fix Environmental Services, Inc., common
stockholders:
|
|
|
|
|
|
|
|
|
Income (loss) income from continuing operations, net of taxes
|
|
$
|
1,308
|
|
|
$
|
(550
|
)
|
Net loss attributable to non-controlling interest
|
|
|
(26
|
)
|
|
|
(30
|
)
|
Income (loss) from continuing operations attributable to Perma-Fix Environmental Services, Inc.
common stockholders
|
|
|
1,334
|
|
|
|
(520
|
)
|
Loss from discontinuing operations attributable to Perma-Fix
Environmental Services, Inc. common stockholders
|
|
|
(114
|
)
|
|
|
(152
|
)
|
Net income (loss) attributable to Perma-Fix Environmental Services, Inc.
common stockholders
|
|
$
|
1,220
|
|
|
$
|
(672
|
)
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share attributable to Perma-Fix Environmental
Services, Inc. common stockholders
|
|
$
|
.10
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share attributable to Perma-Fix Environmental
Services, Inc. common stockholders
|
|
$
|
.10
|
|
|
$
|
(.06
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
12,122
|
|
|
|
11,961
|
|
Add: dilutive effect of stock options
|
|
|
201
|
|
|
|
—
|
|
Add: dilutive effect of warrants
|
|
|
23
|
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
|
|
12,346
|
|
|
|
11,961
|
|
|
|
|
|
|
|
|
|
|
Potential shares excluded from above weighted average share calcualtions due to their
anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
14
|
|
|
|
598
|
|
Warrant
|
|
|
—
|
|
|
|
—
|
|
9.
Long Term Debt
Long-term
debt consists of the following at March 31, 2020 and December 31, 2019:
(Amounts in Thousands)
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Revolving Credit facility dated October 31, 2011, as amended, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due on March 24, 2021. Effective interest rate for the first quarter of 2020 was 6.4%. (1)
|
|
$
|
—
|
(5)
|
|
$
|
321
|
|
Term Loan dated October 31, 2011, as amended, payable in equal monthly installments of
principal, balance due on March 24, 2021. Effective interest rate for the first quarter of 2020 was
6.9%. (1)
|
|
|
1,739
|
(2)(5)
|
|
|
1,827
|
(2)
|
Promissory Note dated April 1, 2019, payable in twelve monthly installments of interest only, starting May 1, 2019 followed with twelve monthly installments of approximately $208 in principal plus accrued interest. Interest accrues at annual rate of 4.0%. (3)
|
|
|
1,470
|
(4)
|
|
|
1,732
|
(4)
|
Total debt
|
|
|
3,209
|
|
|
|
3,880
|
|
Less current portion of long-term debt
|
|
|
1,614
|
(4)
|
|
|
1,300
|
(4)
|
Long-term debt
|
|
$
|
1,595
|
|
|
$
|
2,580
|
|
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property,
plant, and equipment. Effective July 1, 2019, monthly installment principal payment on the Term Loan was amended to approximately
$35,500 from approximately $101,600.
(2)
Net of debt issuance costs of ($74,000) and ($92,000) at March 31, 2020 and December 31, 2019, respectively.
(3)
Uncollateralized note.
(4)
Net of debt discount/debt issuance costs of ($198,000) and ($248,000) at March 31, 2020 and December 31, 2019, respectively.
The Promissory Note provides for prepayment of principal over the term of the Note without penalty. The Company made prepayments
of principal of $312,000 in the first quarter of 2020 and $520,000 in 2019 which were reflected in the current portion of the
debt.
(5)
As discussed in Note 16 – “Subsequent Events – Credit Facility,” on May 8, 2020, the Company entered
into a new loan agreement, replacing the Revised Loan Agreement dated October 31, 2011 as discussed below, with PNC. The new loan
agreement has a maturity date of May 15, 2024. In accordance with ASC 470, “Debt,” this post balance-sheet date agreement
demonstrated the Company’s ability to refinance its short-term obligations on a long-term basis; therefore, the Company
has reclassified the current portion of the outstanding debt to long-term except for $427,000 in principal payments that will
be due by March 31, 2021 (see Note 16 - “Subsequent Events – Credit Facility” for further details of this new
loan agreement).
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. The maximum that the Company can borrow under the revolving credit is based on a percentage of eligible
receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender
may impose from time to time.
Payment
of annual rate of interest due on the revolving credit is at prime (3.25% at March 31, 2020) plus 2% and the term loan at prime
plus 2.5%. Prior to March 29, 2019, the Company also had the option of paying annual rate of interest due on the revolving credit
of London InterBank Offer Rate (“LIBOR”) plus 3% and the term loan at LIBOR plus 3.5%.
At
March 31, 2020, the borrowing availability under our revolving credit was approximately $8,537,000, based on our eligible receivables
and includes a reduction an in borrowing availability of approximately $3,139,000 from outstanding standby letters of credit.
This $8,537,000 in borrowing availability included the release of $250,000 in reduction in borrowing availability on March 31,
2020 that the Company’s lender had previously imposed.
The
Company’s credit facility under its Revised Loan Agreement 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 fixed charge coverage ratio (“FCCR”) requirement
in the first quarter of 2020. Additionally, the Company met its remaining financial covenant requirements in the first quarter
of 2020.
Loan
and Securities Purchase Agreement, Promissory Note and Subordination Agreement
On
April 1, 2019, the Company completed a lending transaction with Robert Ferguson (the “Lender”), whereby the Company
borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory
note (the “Loan”). The Lender is a shareholder of the Company. The Lender also currently serves as a consultant to
the Company in connection with the Company’s TBI at its PFNWR subsidiary. The proceeds from the Loan were used for general
working capital purposes. The Loan is unsecured, with a term of two years with interest payable at a fixed interest rate of 4.00%
per annum. The Loan provides for monthly payments of accrued interest only during the first year of the Loan, with the first interest
payment due May 1, 2019 and monthly payments of approximately $208,333 in principal plus accrued interest starting in the second
year of the Loan. The Loan also allows for prepayment of principal payments over the term of the Loan without penalty with such
prepayment of principal payments to be applied to the second year of the loan payments at the Company’s discretion. Since
inception of the loan, the Company has made total prepayments in principal of $832,000, of which $312,000 was made in the first
three months of 2020. In connection with the above Loan, the Lender agreed under the terms of the Loan and a Subordination Agreement
with our credit facility lender, to subordinate payment under the Loan, and agreed that the Loan will be junior in right of payment
to the credit facility in the event of default or bankruptcy or other insolvency proceeding by us. In connection with this capital
raise transaction described above and consideration for us receiving the Loan, the Company issued a Warrant (the “Warrant”)
to the Lender to purchase up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share, which was the closing
bid price for a share of our Common Stock on NASDAQ.com immediately preceding the execution of the Loan and Warrant. The Warrant
is exercisable six months from April 1, 2019 and expires on April 1, 2024 and remains outstanding at March 31, 2020. The fair
value of the Warrant was estimated to be approximately $93,000 using the Black-Scholes option pricing model. As further consideration
for this capital raise transaction relating to the Loan, the Company issued 75,000 shares of its Common Stock to the Lender. The
Company determined the fair value of the 75,000 shares of Common Stock to be approximately $263,000 which was based on the closing
bid price for a share of the Company’s Common Stock on NASDAQ.com immediately preceding the execution of the Loan, pursuant
to the Loan and Securities Purchase Agreement. The fair value of the Warrant and Common Stock and the related closing fees incurred
totaling approximately $398,000 from the transaction was recorded as debt discount/debt issuance costs, which is being amortized
over the term of the loan as interest expense – financing fees. The 75,000 shares of Common Stock, the Warrant and the 60,000
shares of Common Stock that may be purchased under the Warrant were and will be issued in a private placement that was and will
be exempt from registration under Rule 506 and/or Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933, as amended (the
“Act”) and bear a restrictive legend against resale except in a transaction registered under the Act or in a transaction
exempt from registration thereunder.
Upon
default, the Lender will have the right to elect to receive in full and complete satisfaction of the Company’s obligations
under the Loan either: (a) the cash amount equal to the sum of the unpaid principal balance owing under the loan and all accrued
and unpaid interest thereon (the “Payoff Amount”) or (b) upon meeting certain conditions, the number of whole shares
of the Company’s Common Stock (the “Payoff Shares”) determined by dividing the Payoff Amount by the dollar amount
equal to the closing bid price of our Common Stock on the date immediately prior to the date of default, as reported or quoted
on the primary nationally recognized exchange or automated quotation system on which our Common Stock is listed; provided however,
that the dollar amount of such closing bid price shall not be less than $3.51, the closing bid price for our Common Stock as disclosed
on NASDAQ.com immediately preceding the signing of this loan agreement.
If
issued, the Payoff Shares will not be registered and the Lender will not be entitled to registration rights with respect to the
Payoff Shares. The aggregate number of shares, warrant shares, and Payoff Shares that are or will be issued to the Lender pursuant
to the Loan, together with the aggregate shares of the Company’s Common Stock and other voting securities of the Company
owned by the Lender or which may be acquired by the Lender as of the date of issuance of the Payoff Shares, shall not exceed the
number of shares of the Company’s Common Stock equal to 14.9% of the number of shares of the Company’s Common Stock
issued and outstanding as of the date immediately prior to the default, less the number of shares of the Company’s Common
Stock owned by the Lender immediately prior to the date of such default plus the number of shares of our Common Stock that may
be acquired by the Lender under warrants and/or options outstanding immediately prior to the date of such default.
10. 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 (“2003 Closure Policy”) with AIG Specialty
Insurance Company (“AIG”), which provides financial assurance to the applicable states for our permitted facilities
in the event of unforeseen closure. The 2003 Closure Policy, as amended, provides for a maximum allowable coverage of $28,177,000
which includes available capacity to allow for annual inflation and other performance and surety bond requirements. Total coverage
under the 2003 Closure Policy, as amended, was $19,651,000 at March 31, 2020. At March 31, 2020 and December 31, 2019, finite
risk sinking funds contributed by the Company related to the 2003 Closure Policy which is included in other long term assets on
the accompanying Consolidated Balance Sheets totaled $11,363,000 and $11,307,000, respectively, which included interest earned
of $1,892,000 and $1,836,000 on the finite risk sinking funds as of March 31, 2020 and December 31, 2019, respectively. Interest
income for the three months ended March 31, 2020 and 2019 was approximately $56,000 and $81,000, respectively. If we so elect,
AIG is obligated to pay us an amount equal to 100% of the finite risk sinking fund account balance in return for complete release
of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance
requirements.
Letter
of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to
customers and other obligations, including facility closures. At March 31, 2020, the total amount of standby letters of credit
outstanding was approximately $3,139,000 and the total amount of bonds outstanding was approximately $51,538,000.
11. Discontinued Operations
The
Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries
divested in 2011 and prior and three previously closed locations.
The
Company’s discontinued operations had net losses of $114,000 and $152,000 for the three months ended March 31, 2020 and
2019 (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, 2020 and December 31, 2019. No assets
and liabilities were held for sale at each of the periods noted.
|
|
March 31,
|
|
|
December 31,
|
|
(Amounts in Thousands)
|
|
2020
|
|
|
2019
|
|
Current assets
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
110
|
|
|
$
|
104
|
|
Total current assets
|
|
|
110
|
|
|
|
104
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net (1)
|
|
|
81
|
|
|
|
81
|
|
Other assets
|
|
|
16
|
|
|
|
36
|
|
Total long-term assets
|
|
|
97
|
|
|
|
117
|
|
Total assets
|
|
$
|
207
|
|
|
$
|
221
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6
|
|
|
$
|
8
|
|
Accrued expenses and other liabilities
|
|
|
161
|
|
|
|
169
|
|
Environmental liabilities
|
|
|
785
|
|
|
|
817
|
|
Total current liabilities
|
|
|
952
|
|
|
|
994
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Closure liabilities
|
|
|
135
|
|
|
|
134
|
|
Environmental liabilities
|
|
|
110
|
|
|
|
110
|
|
Total long-term liabilities
|
|
|
245
|
|
|
|
244
|
|
Total liabilities
|
|
$
|
1,197
|
|
|
$
|
1,238
|
|
(1)
net of accumulated depreciation of $10,000 for each period presented.
The
Company’s discontinued operations included a note receivable in the original amount of approximately $375,000 recorded in
May 2016 resulting from the sale of property at our Perma-Fix of Michigan, Inc. subsidiary. This note requires 60 equal monthly
installment payments by the buyer of approximately $7,250 (which includes interest). At March 31, 2020, the outstanding amount
on this note receivable totaled approximately $105,000, of which approximately $89,000 is included in “Current assets related
to discontinued operations” and approximately $16,000 is included in “Other assets related to discontinued operations”
in the accompanying Consolidated Balance Sheets.
12. Operating Segments
In
accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (1)
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
& 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 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 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 NIOSH instrumentation.
|
|
-
|
A
company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.
|
MEDICAL
SEGMENT, which includes: R&D of the Company’s medical isotope production technology by our majority-owned Polish subsidiary,
Perma-Fix of Medical or the Medical Segment. The Medical Segment has not generated any revenues and all costs incurred are reflected
within R&D in the accompanying consolidated financial statements. As previously disclosed, the Medical Segment has substantially
reduced its R&D costs and activities due to the need for capital to fund these activities. The Company anticipates that the
Medical Segment will not resume full R&D activities until the necessary capital is obtained through its own credit facility
or additional equity raise, or obtains partners willing to provide funding for its R&D.
Our
reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 11 – 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, 2020 and 2019
(in thousands):
Segment
Reporting for the Quarter Ended March 31, 2020
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments Total
|
|
|
Corporate(1)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$
|
9,563
|
|
|
$
|
15,297
|
|
|
|
—
|
|
|
$
|
24,860
|
|
|
$
|
—
|
|
|
$
|
24,860
|
|
Intercompany revenues
|
|
|
207
|
|
|
|
8
|
|
|
|
—
|
|
|
|
215
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
2,745
|
|
|
|
1,895
|
|
|
|
—
|
|
|
|
4,640
|
|
|
|
—
|
|
|
|
4,640
|
|
Research and development
|
|
|
94
|
|
|
|
66
|
|
|
|
66
|
|
|
|
226
|
|
|
|
6
|
|
|
|
232
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56
|
|
|
|
56
|
|
Interest expense
|
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
(96
|
)
|
|
|
(120
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(68
|
)
|
|
|
(68
|
)
|
Depreciation and amortization
|
|
|
264
|
|
|
|
77
|
|
|
|
—
|
|
|
|
341
|
|
|
|
5
|
|
|
|
346
|
|
Segment income (loss) before income taxes
|
|
|
1,547
|
|
|
|
1,318
|
|
|
|
(66
|
)
|
|
|
2,799
|
|
|
|
(1,477
|
)
|
|
|
1,322
|
|
Income tax expense
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
(14
|
)
|
Segment income (loss)
|
|
|
1,533
|
|
|
|
1,318
|
|
|
|
(66
|
)
|
|
|
2,785
|
|
|
|
(1,477
|
)
|
|
|
1,308
|
|
Expenditures for segment assets
|
|
|
679
|
|
|
|
214
|
|
|
|
—
|
|
|
|
893
|
|
|
|
3
|
|
|
|
896
|
(2)
|
Segment
Reporting for the Quarter Ended March 31, 2019
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments Total
|
|
|
Corporate(1)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$
|
9,905
|
|
|
$
|
1,803
|
|
|
|
—
|
|
|
$
|
11,708
|
|
|
$
|
—
|
|
|
$
|
11,708
|
|
Intercompany revenues
|
|
|
2
|
|
|
|
21
|
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit/(negative) gross profit
|
|
|
2,957
|
|
|
|
(456
|
)
|
|
|
—
|
|
|
|
2,501
|
|
|
|
—
|
|
|
|
2,501
|
|
Research and development
|
|
|
147
|
|
|
|
—
|
|
|
|
74
|
|
|
|
221
|
|
|
|
6
|
|
|
|
227
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81
|
|
|
|
81
|
|
Interest expense
|
|
|
(17
|
)
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
(61
|
)
|
|
|
(87
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Depreciation and amortization
|
|
|
237
|
|
|
|
78
|
|
|
|
—
|
|
|
|
315
|
|
|
|
8
|
|
|
|
323
|
|
Segment income (loss) before income taxes
|
|
|
1,875
|
|
|
|
(1,012
|
)
|
|
|
(74
|
)
|
|
|
789
|
|
|
|
(1,300
|
)
|
|
|
(511
|
)
|
Income tax expense
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
(39
|
)
|
Segment income (loss)
|
|
|
1,836
|
|
|
|
(1,012
|
)
|
|
|
(74
|
)
|
|
|
750
|
|
|
|
(1,300
|
)
|
|
|
(550
|
)
|
Expenditures for segment assets
|
|
|
222
|
|
|
|
2
|
|
|
|
—
|
|
|
|
224
|
|
|
|
—
|
|
|
|
224
|
(2)
|
(1)
Amounts reflect the activity for corporate headquarters not included in the segment information.
(2)
Net of financed amount of $82,000 and $4,000 for the three month ended March 31, 2020 and 2019, respectively.
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 $14,000 and $39,000 for continuing operations for the three months ended March 31, 2020 and the corresponding
period of 2019, respectively. The Company’s effective tax rate was approximately 1.0% and 7.6% for the three months ended
March 31, 2020 and the corresponding period of 2019, respectively. The tax expense for the quarter ended 2020 and 2019 was comprised
of state tax expense for separate company filing states. The Company’s tax rate for each of the periods discussed above
was impacted by the Company’s full valuation on its net deferred tax assets.
The
CARES Act, among other things, includes modifications to net operating loss carryforwards and AMT provisions. At this time, the
Company is not expecting any effects to its tax provisions from the CARES Act. However, the Company will continue to monitor for
any potential impact to its tax provisions from the CARES Act.
14. Executive Officer Compensations
Management
Incentive Plans (“MIP”)
On
January 16, 2020, the Company’s Board and the Compensation Committee approved individual MIP for each Mark Duff, CEO and
President, Ben Naccarato, CFO, and Dr. Louis Centofanti, EVP of Strategic Initiatives. Additionally, the Board and the Compensation
Committee approved a MIP for Andy Lombardo, who was elected EVP of Nuclear and Technical Services and an executive officer of
the Company. Mr. Lombardo previously held the position of Senior Vice President (“SVP”) of Nuclear and Technical Services.
The MIPs are effective January 1, 2020 and applicable for year ended December 31, 2020. Each MIP provides guidelines for the calculation
of annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash
compensation based on achievement of performance thresholds, with the amount of such compensation established as a percentage
of the executive’s 2020 annual base salary (see below for salary increase approved for certain executive officers for 2020).
The potential target performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5%
to 100% of the base salary for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives
($11,667 to $233,336) and 5% to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000).
Salary
On
January 16, 2020, the Board, with the approval of the Compensation Committee approved the following salary increase for the Company’s
executive officers effective January 1, 2020:
|
●
|
Annual
base salary for Mark Duff, CEO and President, was increased to $344,400 from $287,000.
|
|
●
|
Annual
base salary for Ben Naccarato, who was promoted to EVP and CFO from Vice President and
CFO, was increased to $280,000 from $235,231; and
|
|
●
|
Annual
base salary for Andy Lombardo, who was elected to EVP of Nuclear and Technical Services
as discussed above, was increased to $280,000 from $258,662, which was the annual base
salary that Mr. Lombardo was paid as SVP of Nuclear and Technical Services and prior
to his election as an executive officer of the Company by the Board.
|
15. VIE
On
May 24, 2019, the Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) entered into an unpopulated joint
venture agreement for project work bids within the Company’s Services Segment. The joint venture is doing business as Perma-Fix
ERRG, a general partnership. The Company has a 51% partnership interest in the joint venture and ERRG has a 49% partnership interest
in the joint venture. Activities under Perma-Fix ERRG did not commence until the first quarter of 2020.
The
Company determines whether joint ventures in which it has invested are VIE at the start of each new venture and when a reconsideration
event has occurred. A VIE is a legal entity that satisfies any of the following characteristics: (a) the legal entity does not
have sufficient equity investment at risk; (b) the equity investors at risk as a group, lack the characteristics of a controlling
financial interest; or (c) the legal entity is structured with disproportionate voting rights.
The
Company consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the
power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation
to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Based
on the Company’s evaluation of Perma-Fix ERRG and related agreements with Perma-Fix ERRG, the Company determined that Perma-Fix
ERRG is a VIE in which we are the primary beneficiary. At March 31, 2020, Perma-Fix ERRG had total assets of $1,087,000 and total
liabilities of $1,087,000 which are all recorded as current.
16. Subsequent Events
Credit
Facility
On
May 8, 2020, the Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “New
Loan Agreement”) with PNC, replacing our previous Revised Loan Agreement with PNC (see Note 9 – “Long Term Debt”
for information on the Revised Loan Agreement with PNC). The New Loan Agreement provides us with the following credit facility:
|
●
|
up
to $18,000,000 revolving credit facility, subject to the amount of borrowings based on
a percentage of eligible receivables and subject to certain reserves; and
|
|
●
|
a
term loan of $1,741,818, which requires monthly installments of $35,547.
|
The
New Loan Agreement terminates as of May 15, 2024, unless sooner terminated.
Similar
to our Revised Loan Agreement, the New Loan Agreement requires the Company to meet certain customary financial covenants, including,
among other things, a minimum Tangible Adjusted Net Worth requirement of $27,000,000 at all times; maximum capital spending of
$6,000,000 annually; and a minimum FCCR requirement of 1.15:1.
Under
the New Loan agreement, payment of annual rate of interest due on the credit facility is as follows:
●
|
revolving
credit at prime plus 2.50% or LIBOR plus 3.50% and the term loan at prime plus 3.00% or LIBOR plus 4.00%. The Company can
only elect to use the LIBOR interest payment option after it becomes compliant with meeting the minimum FCCR of 1.15:1; and
|
●
|
Upon
the achievement of a FCCR of greater than 1.25:1, the Company will have the option of paying an annual rate of interest due
on the revolving credit at prime plus 2.00% or LIBOR plus 3.00% and the term loan at prime plus 2.50% or LIBOR plus 3.50%.
The Company met this FCCR in the first quarter of 2020.
|
Under
the LIBOR option of interest payment noted above, a LIBOR floor of 0.75% shall apply in the event that LIBOR falls below 0.75%
at any point in time.
Pursuant
to the New Loan Agreement, the Company may terminate the New Loan Agreement upon 90 days’ prior written notice upon payment
in full of our obligations under the New Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the
event we pay off our obligations on or before May 7, 2021 and 1/2% of the total financing if we pays off our obligations after
May 7, 2021 but prior to or on May 7, 2022. No early termination fee shall apply if we pay off our obligations under the New Loan
Agreement after May 7, 2022.
In
connection with New Loan Agreement, the Company paid its lender a fee of $50,000.
CARES
Act
Paycheck
Protection Program
On
April 14, 2020, the Company entered into a promissory note with PNC, our credit facility lender, in the amount of $5,666,300 under
the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (“PPP”) was established
under the recently enacted CARES Act and is administered by the U.S. Small Business Administration (“SBA”).
The
PPP Loan is unsecured, with a term of two years and has interest rate of 1.00% per annum. Payment of accrued interest and principal
shall be deferred for the first six months of the loan. The note evidencing the PPP Loan contains events of default relating to,
among other things, payment defaults, breach of representations and warranties, and provisions of the promissory note.
Under
the terms of the CARES Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness
will be determined, subject to limitations, based on the use of loan proceeds by the Company for eligible payroll costs, mortgage
interest, rent and utility costs and the maintenance of employee and compensation levels for an eight-week period, beginning April
14, 2020, the date in which proceeds from the PPP Loan was disbursed to the Company by PNC. At least 75% of such forgiven amount
must be used for eligible payroll costs. The Company expects to apply for forgiveness on repayment of a portion of the loan as
permitted under the program, which is subject to the approval of its lender.
Deferral
of Employment Tax Deposits
The
CARES Act, among other things, provides employers the option to defer the payment of an employer’s share of social security
taxes beginning on March 27, 2020. In the event that a company receives a loan under the PPP, which the Company did on April 14,
2020, deferment of the employer’s share of social security taxes ceases immediately on the date that the company receives
forgiveness on the loan under the PPP from its lender. However, 50% of the amount of social security taxes deferred prior to the
loan forgiveness will become due on December 31, 2021 with the remaining 50% due on December 31, 2022. The Company has elected
to defer such taxes starting in mid-April 2020. The Company estimates the remaining payment of approximately $815,000 of social
security taxes otherwise due in 2020 will be deferred with 50% due by December 31, 2021 and the remaining 50% due by December
31, 2022. This estimated deferral amount does not take into account the timing of forgiveness on the loan under the PPP which
forgiveness is subject to the approval by the Company’s lender.