Notes
to Consolidated Financial Statements
September
30, 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.
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 nine months ended September 30, 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 14 - VIE” for a discussion
of this VIE).
2.
|
Summary
of Significant Accounting Policies
|
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 (“ASU 848”): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying U.S.
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 does not expect the adoption of this ASU will have a material impact on the Company’s financial statements.
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), clarifying 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 does not expect the adoption of this ASU will have a material
impact on the Company’s financial statements.
In
August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging – Contracts in Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible
instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope
exception for contracts in an entity’s own equity, and simplifies the related diluted net income per share calculation for
both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2023, for the Company as a smaller reporting company. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of
this ASU on its consolidated financial statements and disclosures.
3.
COVID-19 Impact
The
spread of COVID-19 continues to result in significant volatility in the U.S. and international markets. The Company continues
to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. As previously reported, the COVID-19 pandemic
did not result in a material impact to the Company’s first quarter 2020 results of operations. Starting in late March 2020,
the Company’s operations were impacted by the shutdown of a number of projects and the delays of certain waste shipments
that continued into the second quarter of 2020. Since the latter part of the second quarter of 2020, all of the projects that
were previously shutdown within our Services Segment have restarted as stay-at-home orders and certain other restrictions resulting
from the pandemic were lifted. Revenues within our Services Segment in the third quarter of 2020 exceeded the corresponding period
of 2019 by approximately $10,652,000. The Company continues to experience delays in waste shipments from certain customers within
our Treatment Segment directly related to the impact of COVID-19 including generator shutdowns and limited sustained operations,
along with other factors. These waste shipment delays may impact the Company’s results of operations for the fourth quarter
of 2020 and potentially the first quarter of 2021.
At
this time, the Company believes it has sufficient liquidity on hand to continue business operations during the next twelve months.
At September 30, 2020, the Company had cash on hand of approximately $4,811,000 and borrowing availability under our revolving
credit facility of approximately $16,404,000 based on a percentage of eligible receivables and subject to certain reserves. The
Company continues to assess reducing operating costs during this volatile time, which include curtailing capital expenditures,
eliminating non-essential expenditures and implementing a hiring freeze as needed.
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 due
to COVID-19.
The
situation surrounding COVID-19 continues to remain fluid. The potential for a material impact on the Company’s business
increases the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may
continue to delay waste shipments and project work may shut down again. 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 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 September 30, 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 assets and intangible assets.
The
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as amended by the Paycheck Protection Program
Flexibility Act of 2020 (the “Flexibility Act”) on June 5, 2020, provides the Company the option to defer the payment
of its share of social security taxes beginning on March 27, 2020 through December 31, 2020. The Company elected to defer payment
of its shares of social security taxes starting in April 2020 (see “Note 15 – Deferral of Employment Tax Deposits”).
The Company also entered into a promissory note (“PPP Loan”) with its credit facility lender under the Paycheck Protection
Program (“PPP”) that was established under the CARES Act, as amended (see “Note 9 – Long Term Debt –
PPP Loan” for further detail of this loan).
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
|
|
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed price
|
|
$
|
7,066
|
|
|
$
|
10,303
|
|
|
$
|
17,369
|
|
|
$
|
10,081
|
|
|
$
|
5,364
|
|
|
$
|
15,445
|
|
Time
and materials
|
|
|
—
|
|
|
|
12,803
|
|
|
|
12,803
|
|
|
|
—
|
|
|
|
7,090
|
|
|
|
7,090
|
|
Total
|
|
$
|
7,066
|
|
|
$
|
23,106
|
|
|
$
|
30,172
|
|
|
$
|
10,081
|
|
|
$
|
12,454
|
|
|
$
|
22,535
|
|
Revenue
by Contract Type
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed
price
|
|
$
|
24,469
|
|
|
$
|
19,001
|
|
|
$
|
43,470
|
|
|
$
|
30,079
|
|
|
$
|
9,231
|
|
|
$
|
39,310
|
|
Time
and materials
|
|
|
—
|
|
|
|
33,609
|
|
|
|
33,609
|
|
|
|
—
|
|
|
|
12,068
|
|
|
|
12,068
|
|
Total
|
|
$
|
24,469
|
|
|
$
|
52,610
|
|
|
$
|
77,079
|
|
|
$
|
30,079
|
|
|
$
|
21,299
|
|
|
$
|
51,378
|
|
Revenue
by generator
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
(In
thousands)
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
5,334
|
|
|
$
|
21,660
|
|
|
$
|
26,994
|
|
|
$
|
7,537
|
|
|
$
|
10,155
|
|
|
$
|
17,692
|
|
Domestic
commercial
|
|
|
1,598
|
|
|
|
459
|
|
|
|
2,057
|
|
|
|
2,535
|
|
|
|
475
|
|
|
|
3,010
|
|
Foreign
government
|
|
|
134
|
|
|
|
966
|
|
|
|
1,100
|
|
|
|
—
|
|
|
|
1,804
|
|
|
|
1,804
|
|
Foreign
commercial
|
|
|
—
|
|
|
|
21
|
|
|
|
21
|
|
|
|
9
|
|
|
|
20
|
|
|
|
29
|
|
Total
|
|
$
|
7,066
|
|
|
$
|
23,106
|
|
|
$
|
30,172
|
|
|
$
|
10,081
|
|
|
$
|
12,454
|
|
|
$
|
22,535
|
|
Revenue
by generator
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
September
30, 2020
|
|
|
September
30, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
19,079
|
|
|
$
|
48,249
|
|
|
$
|
67,328
|
|
|
$
|
21,986
|
|
|
$
|
15,683
|
|
|
$
|
37,669
|
|
Domestic
commercial
|
|
|
5,256
|
|
|
|
1,352
|
|
|
|
6,608
|
|
|
|
7,809
|
|
|
|
2,088
|
|
|
|
9,897
|
|
Foreign
government
|
|
|
134
|
|
|
|
2,945
|
|
|
|
3,079
|
|
|
|
220
|
|
|
|
3,465
|
|
|
|
3,685
|
|
Foreign
commercial
|
|
|
—
|
|
|
|
64
|
|
|
|
64
|
|
|
|
64
|
|
|
|
63
|
|
|
|
127
|
|
Total
|
|
$
|
24,469
|
|
|
$
|
52,610
|
|
|
$
|
77,079
|
|
|
$
|
30,079
|
|
|
$
|
21,299
|
|
|
$
|
51,378
|
|
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)
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
|
Year-to-date
Change ($)
|
|
|
Year-to-date
Change (%)
|
|
Contract
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
receivables, net of allowance
|
|
$
|
13,442
|
|
|
$
|
13,178
|
|
|
$
|
264
|
|
|
|
2.0
|
%
|
Unbilled
receivables - current
|
|
|
14,366
|
|
|
|
7,984
|
|
|
|
6,382
|
|
|
|
79.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
4,806
|
|
|
$
|
5,456
|
|
|
$
|
(650
|
)
|
|
|
(11.9
|
)%
|
During
the three and nine months ended September 30, 2020, the Company recognized revenue of $1,134,000 and $7,673,000, respectively,
related to untreated waste that was in the Company’s control as of the beginning of the year. During the three and nine
months ended September 30, 2019, the Company recognized revenue of $1,877,000 and $9,322,000, respectively, related to untreated
waste that was in the Company’s control as of the beginning of the year. All revenue recognized in each period related to
performance obligations satisfied within the respective period.
Remaining
Performance Obligations
The
Company applies the practical expedient in FASB Accounting Standards Codification (“ASC”) 606-10-50-14 and does not
disclose information about remaining performance obligations that have original expected durations of one year or less.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts,
the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount
for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations
for those contracts.
The
Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent primarily leases
for office spaces used to conduct our business. These leases have remaining terms of approximately 3 to 10 years which include
one or more options to renew (which are included in valuing our 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. Lease expense for operating leases is recognized on a straight-line basis over the
lease term.
Finance
leases primarily consist of processing and transport equipment used by our facilities’ operations. Our finance leases also
include a building with land for our waste treatment operations. The Company’s finance leases generally have initial terms
between one to six 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 years with an option to buy
at the end of the lease term, which the Company is reasonably certain to exercise.
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 and nine months ended September 30, 2020 and 2019 were as
follows (in thousands):
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
cost
|
|
$
|
114
|
|
|
$
|
114
|
|
|
$
|
342
|
|
|
$
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of ROU assets
|
|
|
109
|
|
|
|
20
|
|
|
|
161
|
|
|
|
39
|
|
Interest
on lease liability
|
|
|
47
|
|
|
|
15
|
|
|
|
97
|
|
|
|
40
|
|
|
|
|
156
|
|
|
|
35
|
|
|
|
258
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
lease rent expense
|
|
|
3
|
|
|
|
41
|
|
|
|
7
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
lease cost
|
|
$
|
273
|
|
|
$
|
190
|
|
|
$
|
607
|
|
|
$
|
534
|
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at September 30,
2020 were:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Weighted average
remaining lease terms (years)
|
|
|
8.2
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
8.0
|
%
|
|
|
7.9
|
%
|
The
following table reconciles the undiscounted cash flows for the operating and finance leases at September 30, 2020 to the operating
and finance lease liabilities recorded on the balance sheet (in thousands):
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2020 Remainder
|
|
$
|
112
|
|
|
$
|
263
|
|
2021
|
|
|
450
|
|
|
|
554
|
|
2022
|
|
|
458
|
|
|
|
272
|
|
2023
|
|
|
466
|
|
|
|
149
|
|
2024
|
|
|
342
|
|
|
|
146
|
|
2025
and thereafter
|
|
|
1,457
|
|
|
|
164
|
|
Total undiscounted lease
payments
|
|
|
3,285
|
|
|
|
1,548
|
|
Less:
Imputed interest
|
|
|
(879
|
)
|
|
|
(158
|
)
|
Present
value of lease payments
|
|
$
|
2,406
|
|
|
$
|
1,390
|
|
|
|
|
|
|
|
|
|
|
Current portion of operating
lease obligations
|
|
$
|
265
|
|
|
$
|
—
|
|
Long-term operating lease
obligations, less current portion
|
|
$
|
2,141
|
|
|
$
|
—
|
|
Current portion of finance
lease obligations
|
|
$
|
—
|
|
|
$
|
675
|
|
Long-term finance lease
obligations, less current portion
|
|
$
|
—
|
|
|
$
|
715
|
|
Supplemental
cash flow and other information related to our leases were as follows for the three and nine months ended September 30, 2020 and
2019 (in thousands):
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
cash flow used in operating leases
|
|
$
|
111
|
|
|
$
|
109
|
|
|
$
|
331
|
|
|
$
|
326
|
|
Operating
cash flow used in finance leases
|
|
$
|
47
|
|
|
$
|
15
|
|
|
$
|
97
|
|
|
$
|
40
|
|
Financing
cash flow used in finance leases
|
|
$
|
182
|
|
|
$
|
73
|
|
|
$
|
411
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in
exchange for lease obligations for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
liabilities
|
|
$
|
751
|
|
|
$
|
390
|
|
|
$
|
874
|
|
|
$
|
528
|
|
Operating
liabilities
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
Weighted
Average
|
|
|
September
30, 2020
|
|
|
|
|
|
December
31, 2019
|
|
|
|
|
|
|
Amortization
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
Intangibles
(amount in thousands)
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
9.7
|
|
|
$
|
785
|
|
|
$
|
(375
|
)
|
|
$
|
410
|
|
|
$
|
760
|
|
|
$
|
(358
|
)
|
|
$
|
402
|
|
Software
|
|
|
3
|
|
|
|
414
|
|
|
|
(410
|
)
|
|
|
4
|
|
|
|
414
|
|
|
|
(408
|
)
|
|
|
6
|
|
Customer
relationships
|
|
|
10
|
|
|
|
3,370
|
|
|
|
(2,861
|
)
|
|
|
509
|
|
|
|
3,370
|
|
|
|
(2,713
|
)
|
|
|
657
|
|
Total
|
|
|
|
|
|
$
|
4,569
|
|
|
$
|
(3,646
|
)
|
|
$
|
923
|
|
|
$
|
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)
|
|
|
$
|
56
|
|
2021
|
|
|
|
202
|
|
2022
|
|
|
|
176
|
|
2023
|
|
|
|
135
|
|
2024
|
|
|
|
13
|
|
Amortization
expense relating to the definite-lived intangible assets as discussed above was $58,000 and $167,000 for the three and nine months
ended September 30, 2020, respectively, and $60,000 and $194,000 for the three and nine months ended September 30, 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
August 10, 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 $7.29 per share, which was equal to the Company’s closing stock price per share the day preceding the grant date, pursuant
to the 2003 Plan.
On
July 22, 2020, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s Annual Meeting of Stockholders held on July 22, 2020. Dr. Louis F. Centofanti, the Company’s
Executive Vice President (“EVP”) of Strategic Initiatives and also a Board member, was not eligible to receive options
under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted were for a contractual term of
ten years with a vesting period of six months. The exercise price of the NQSO was $6.70 per share, which was equal to our closing
stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
February 4, 2020, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the options was $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 Plan.
On
August 29, 2019 the Company granted an aggregate of 12,500 ISOs from the 2017 Stock Option Plan (“2017 Plan”) to certain employees. The ISOs granted were for a contractual term of six years with one-fifth vesting annually over a five
year period. The exercise price of the ISO was $3.90 per share, which was equal to the fair market value of the Company’s
Common Stock on the date of grant.
On
July 25, 2019, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s Annual Meeting of Stockholders held on July 25, 2019. Dr. Louis F. Centofanti (a Board member)
was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted
were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.31 per share,
which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
January 17, 2019 the Company granted 105,000 ISOs from the 2017 Plan to certain employees,
which included an aggregate of 55,000 ISOs to certain of our executive officers. The ISOs granted were for a contractual term
of six years with one-fifth vesting annually over a five year period. The exercise price of the ISO was $3.15 per share, which
was equal to the fair market value of the Company’s Common Stock on the date of grant.
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 $262,000 at September
30, 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 September 30, 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 as discussed above and the related assumptions used in the Black-Scholes
option model used to value the options granted for the nine months ended September 30, 2020 and 2019 were as follows:
|
|
Employee Stock Option Granted
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
Weighted-average fair value per share
|
|
$
|
1.46
|
|
Risk -free interest rate (1)
|
|
|
1.4%-2.58
|
%
|
Expected volatility of stock (2)
|
|
|
48.67%-51.38
|
%
|
Dividend yield
|
|
|
None
|
|
Expected option life (3)
|
|
|
5.0 years
|
|
|
|
Outside Director Stock
Option Granted
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Weighted-average fair value per share
|
|
$
|
4.66
|
|
|
$
|
2.27
|
|
Risk -free interest
rate (1)
|
|
|
0.59%-1.61
|
%
|
|
|
2.08
|
%
|
Expected volatility
of stock (2)
|
|
|
55.83%-56.68
|
%
|
|
|
54.28
|
%
|
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 and nine months ended September 30, 2020 and 2019
for our employee and director stock options.
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
Stock
Options
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Employee Stock
Options
|
|
$
|
34,000
|
|
|
$
|
35,000
|
|
|
$
|
99,000
|
|
|
$
|
114,000
|
|
Director
Stock Options
|
|
|
35,000
|
|
|
|
10,000
|
|
|
|
62,000
|
|
|
|
15,000
|
|
Total
|
|
$
|
69,000
|
|
|
$
|
45,000
|
|
|
$
|
161,000
|
|
|
$
|
129,000
|
|
At
September 30, 2020, the Company has approximately $349,000 of total unrecognized compensation costs related to unvested options
for employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized
is approximately 2.1 years.
The
summary of the Company’s total Stock Option Plans as of September 30, 2020 and September 30, 2019, and changes during the
periods then ended, are presented below. The Company’s Plans consist of the 2010 Stock Option Plan, the 2017 Plans and the
2003 Plan:
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (years)
|
|
|
Aggregate
Intrinsic Value (4)
|
|
Options
outstanding January 1, 2020
|
|
|
|
681,300
|
|
|
$
|
3.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
24,000
|
|
|
$
|
6.92
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(12,500
|
)
|
|
$
|
3.47
|
|
|
|
|
|
|
$
|
16,060
|
|
Forfeited/expired
|
|
|
|
(34,400
|
)
|
|
$
|
5.52
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period (1)
|
|
|
|
658,400
|
|
|
$
|
3.87
|
|
|
|
3.7
|
|
|
$
|
2,096,355
|
|
Options
exercisable at September 30, 2020(2)
|
|
|
|
340,400
|
|
|
$
|
4.01
|
|
|
|
3.6
|
|
|
$
|
1,036,255
|
|
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (years)
|
|
|
Aggregate
Intrinsic Value (4)
|
|
Options
outstanding January 1, 2019
|
|
|
|
616,000
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
129,500
|
|
|
$
|
3.24
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
─
|
|
|
$
|
─
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
(31,800
|
)
|
|
$
|
8.68
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period (3)
|
|
|
|
713,700
|
|
|
$
|
3.85
|
|
|
|
4.4
|
|
|
$
|
611,942
|
|
Options
exercisable as of September 30, 2019(3)
|
|
|
|
299,200
|
|
|
$
|
4.30
|
|
|
|
4.0
|
|
|
$
|
188,082
|
|
(1)
Options with exercise prices ranging from $2.79 to $7.29
(2)
Options with exercise prices ranging from $2.79 to $7.05
(3)
Options with exercise prices ranging from $2.79 to $13.35
(4)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price.
During
the nine months ended September 30, 2020, the Company issued a total of 24,959 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 $179,000 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 nine months ended September 30, 2020, the Company issued 2,000 shares of its Common Stock resulting from the exercise of options
from the Company’s 2017 Plan for total proceeds of $6,300. Additionally, the Company issued 1,884 shares of its Common Stock
from cashless exercises of 8,000 and 2,500 options at $3.60 per share and $3.15 per share, respectively.
Basic
income per share is calculated based on the weighted-average number of outstanding common shares during the applicable period.
Diluted income per share is based on the weighted-average number of outstanding common shares plus the weighted-average number
of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations
of dilutive earnings per share. The following table reconciles the income (loss) and average share amounts used to compute both
basic and diluted income per share:
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(Amounts in Thousands,
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Except for Per Share Amounts)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Perma-Fix Environmental Services, Inc., common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations, net of taxes
|
|
$
|
1,481
|
|
|
|
1,895
|
|
|
|
3,049
|
|
|
|
1,719
|
|
Net
loss attributable to non-controlling interest
|
|
|
(32
|
)
|
|
|
(29
|
)
|
|
|
(87
|
)
|
|
|
(90
|
)
|
Income
from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
1,513
|
|
|
$
|
1,924
|
|
|
$
|
3,136
|
|
|
$
|
1,809
|
|
Loss
from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
(67
|
)
|
|
|
(156
|
)
|
|
|
(266
|
)
|
|
|
(424
|
)
|
Net
income attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
1,446
|
|
|
$
|
1,768
|
|
|
$
|
2,870
|
|
|
$
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.12
|
|
|
$
|
.15
|
|
|
$
|
.24
|
|
|
$
|
.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.12
|
|
|
$
|
.15
|
|
|
$
|
.23
|
|
|
$
|
.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
12,145
|
|
|
|
12,070
|
|
|
|
12,134
|
|
|
|
12,029
|
|
Add:
dilutive effect of stock options
|
|
|
201
|
|
|
|
47
|
|
|
|
181
|
|
|
|
29
|
|
Add:
dilutive effect of warrant
|
|
|
25
|
|
|
|
6
|
|
|
|
22
|
|
|
|
3
|
|
Diluted weighted
average shares outstanding
|
|
|
12,371
|
|
|
|
12,123
|
|
|
|
12,337
|
|
|
|
12,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares excluded
from above weighted average share calculations due to their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
30
|
|
|
|
159
|
|
|
|
42
|
|
|
|
165
|
|
Warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Long-term
debt consists of the following at September 30, 2020 and December 31, 2019:
(Amounts
in Thousands)
|
|
September
30, 2020
|
|
|
December
31, 2019
|
|
Revolving
Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base
calculation, balance due on May 15, 2024. Effective interest rate for the first
nine months of 2020 was 6.1%. (1)
|
|
$
|
—
|
|
|
$
|
321
|
|
Term Loan dated
May 8, 2020, payable in equal monthly installments of principal, balance due on
May 15, 2024. Effective interest rate for the first nine months of 2020 was 5.5%. (1)
|
|
|
1,487
|
(2)
|
|
|
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)
|
|
|
424
|
(4)
|
|
|
1,732
|
(4)
|
Promissory Note
dated April 14, 2020, subject to loan forgiveness, balance due April 14, 2022.
Interest accrues at annual rate of 1.0%. (3)
|
|
|
5,318
|
(5)
|
|
|
—
|
|
Note
Payable dated June 10, 2020, payable in 36 monthly installments, starting in July 2020 at annual interest rate of $5.64%.
|
|
|
25
|
|
|
|
—
|
|
Total debt
|
|
|
7,254
|
|
|
|
3,880
|
|
Less
current portion of long-term debt
|
|
|
828
|
(4)
|
|
|
1,300
|
(4)
|
Long-term
debt
|
|
$
|
6,426
|
|
|
$
|
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. See “Revolving Credit and Term Loan Agreement” below for terms of the Company’s
credit facility prior to the New Loan Agreement dated May 8, 2020.
(2)
Net of debt issuance costs of ($113,000) and ($92,000) at September 30, 2020 and December 31, 2019, respectively.
(3)
Uncollateralized note.
(4)
Net of debt discount/debt issuance costs of ($99,000) and ($248,000) at September 30, 2020 and December 31, 2019, respectively.
The Promissory Note provides for prepayment of principal over the term of the Note without penalty. In 2019, the Company made
total prepayment of principal of $520,000 which was reflected in the current portion of the debt. During the first nine months
of 2020, the Company made total principal repayment of $1,457,000 of which $416,000 was prepaid. At September 30, 2020, the outstanding
balance of the loan is current.
(5)
Entered into with the Company’s credit facility lender under the Paycheck Protection Program (see “PPP Loan”
below for further information on this loan).
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
had been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently
amended (“Revised Loan Agreement”), provided 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 was 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 under the Revised Loan Agreement was at prime (3.25% at September 30, 2020)
plus 2% and the term loan at prime plus 2.5%.
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. The New Loan Agreement provides the Company
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 fixed charge coverage ratio (“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 has 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, second and third quarters of 2020. Upon meeting the FCCR of 1.25:1, this interest payment option
will remain in place in the event that the Company’s future FCCR falls below 1.25:1.
|
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 0.5% of the total financing if we pay 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 and incurred other direct costs of approximately
$35,000, which are being amortized over the term of the New Loan Agreement as interest expense-financing fees. As a result of
the termination of the Revised Loan Agreement, the Company recorded approximately $27,000 in loss on extinguishment of debt in
accordance with ASC 470-50, “Debt – Modifications and Extinguishment.”
At
September 30, 2020, the borrowing availability under our revolving credit was approximately $16,404,000, based on our eligible
receivables and includes a reduction in borrowing availability of approximately $3,026,000 from outstanding standby letters
of credit.
The
Company’s credit facility under its Revised and New 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 FCCR requirement in the first,
second and third quarters of 2020. Additionally, the Company met its remaining financial covenant requirements in the first, second
and third quarters 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 and also 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 $936,000, of which $416,000 was made in the first nine 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 expires on
April 1, 2024 and remains outstanding at September 30, 2020. As further consideration for this capital raise transaction relating
to the Loan, the Company also issued 75,000 shares of its Common Stock to the Lender. The fair value of the Warrant and Common
Stock and the related closing fees incurred from the transaction totaled approximately $398,000 and 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.
PPP
Loan
On
April 14, 2020, the Company entered into a promissory note with PNC, our credit facility lender, in the amount of approximately
$5,666,000 (“PPP Loan”) under the PPP. The PPP was established under the CARES Act and is administered by the U.S.
Small Business Administration (“SBA”). On June 5, 2020, the Flexibility Act was signed into law which amended the
CARES Act. 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. During the third quarter of 2020, the Company repaid
approximately $348,000 of the PPP Loan to PNC resulting from clarification made in the loan calculation at the time of the loan
origination.
Under
the terms of the Flexibility 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 the covered period
(which is defined as a 24 week period, beginning April 14, 2020, the date in which proceeds from the PPP Loan was disbursed to
the Company by PNC). At least 60% of such forgiven amount must be used for eligible payroll costs. On October 5, 2020, the Company
applied for forgiveness on repayment of the loan balance as permitted under the program, which is subject to the review and approval
of our lender and the SBA. The approval of the loan forgiveness allows for a maximum period of 150 days from the submittal of
a complete loan forgiveness application. If all or a portion of the PPP Loan is not forgiven, all or the remaining portion of
the loan will be for a term of two years but can be prepaid at any time prior to maturity without any prepayment penalties. The
annual interest rate on the PPP Loan is 1.0% and no payments of principal or interest are due until the date that the SBA remits
the loan forgiveness amount to our lender. While the Company’s PPP Loan currently has a two year maturity, the Flexibility
Act permits the Company to request a five year maturity with our lender which the Company does not expect to request at this time.
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 could would have a material adverse
effect on our financial position, liquidity or results of future operations.
During
July 2020, Tetra Tech EC, Inc. (“Tetra Tech”) filed a complaint in the United States District Court for the Northern
District of California against CH2M Hill, Inc. (“CH2M”) and four subcontractors of CH2M, including the Company (“defendants”).
The complaint alleges claims for negligence, negligent misrepresentation and equitable indemnification against all defendants
related to alleged damages suffered by Tetra Tech in respect of certain draft reports prepared by defendants at the request of
the U.S. Navy as part of an investigation and review of certain whistleblower complaints about Tetra Tech’s environmental
restoration at the Hunter’s Point Naval Shipyard in San Francisco.
CH2M
was hired by the Navy in 2016 to review Tetra Tech’s work. CH2M subcontracted with environmental consulting and cleanup
firms Battelle Memorial Institute, Cabrera Services, Inc., SC&A, Inc. and the Company to assist with the review, according
to the complaint.
The
complaint alleges that the subject draft reports were prepared negligently and in a biased manner, made public, and caused damage
to Tetra Tech’s reputation; triggering related lawsuits and costing it opportunities for both government and commercial
contracts.
At
this time, the Company does not believe it has any liability to Tetra Tech. The Company has provided notice of this lawsuit to
our insurance carrier. Our insurance carrier is providing a defense on our behalf in connection with this lawsuit, subject to
a $100,000 self-insured retention and the terms and limitations contained in the insurance policy.
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 September 30, 2020. At September 30, 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 $11,418,000 and $11,307,000, respectively, which included interest earned
of $1,947,000 and $1,836,000 on the finite risk sinking funds as of September 30, 2020 and December 31, 2019, respectively. Interest
income for the three and nine months ended September 30, 2020 was approximately $28,000 and $111,000, respectively. Interest income
for the three and nine months ended September 30, 2019 was approximately $77,000 and $265,000, respectively. If the Company so
elects, 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 September 30, 2020, the total amount of standby letters of credit
outstanding was approximately $3,026,000 and the total amount of bonds outstanding was approximately $45,814,000.
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 $67,000 and $156,000 for the three months ended September 30, 2020 and
2019, respectively (net of taxes of $0 for each period) and net losses of $266,000 and $424,000 for the nine months ended September
30, 2020 and 2019, respectively, (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 any of the periods noted above.
The
following table presents the major class of assets of discontinued operations at September 30, 2020 and December 31, 2019. No
assets and liabilities were held for sale at each of the periods noted.
|
|
September 30,
|
|
|
December 31,
|
|
(Amounts in Thousands)
|
|
2020
|
|
|
2019
|
|
Current assets
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
17
|
|
|
$
|
104
|
|
Total current assets
|
|
|
17
|
|
|
|
104
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net (1)
|
|
|
81
|
|
|
|
81
|
|
Other assets
|
|
|
—
|
|
|
|
36
|
|
Total
long-term assets
|
|
|
81
|
|
|
|
117
|
|
Total
assets
|
|
$
|
98
|
|
|
$
|
221
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8
|
|
|
$
|
8
|
|
Accrued expenses and other liabilities
|
|
|
167
|
|
|
|
169
|
|
Environmental
liabilities
|
|
|
744
|
|
|
|
817
|
|
Total current liabilities
|
|
|
919
|
|
|
|
994
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Closure liabilities
|
|
|
140
|
|
|
|
134
|
|
Environmental
liabilities
|
|
|
110
|
|
|
|
110
|
|
Total
long-term liabilities
|
|
|
250
|
|
|
|
244
|
|
Total
liabilities
|
|
$
|
1,169
|
|
|
$
|
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. (“PFMI”) subsidiary. This note required
60 equal monthly installment payments by the buyer of approximately $7,250 (which includes interest). On July 24, 2020, the purchaser
of the property paid off the outstanding note receivable balance of approximately $105,000.
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
|
|
●
|
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 and nine months ended September 30,
2020 and 2019 (in thousands).
Segment
Reporting for the Quarter Ended September 30, 2020
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$
|
7,066
|
|
|
$
|
23,106
|
|
|
|
—
|
|
|
$
|
30,172
|
|
|
$
|
—
|
|
|
$
|
30,172
|
|
Intercompany revenues
|
|
|
226
|
|
|
|
6
|
|
|
|
—
|
|
|
|
232
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
1,094
|
|
|
|
3,656
|
|
|
|
—
|
|
|
|
4,750
|
|
|
|
—
|
|
|
|
4,750
|
|
Research and development
|
|
|
49
|
|
|
|
7
|
|
|
|
81
|
|
|
|
137
|
|
|
|
20
|
|
|
|
157
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
28
|
|
Interest expense
|
|
|
(34
|
)
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(37
|
)
|
|
|
(50
|
)
|
|
|
(87
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
Depreciation and amortization
|
|
|
373
|
|
|
|
97
|
|
|
|
—
|
|
|
|
470
|
|
|
|
8
|
|
|
|
478
|
|
Segment income (loss) before income
taxes
|
|
|
280
|
|
|
|
2,813
|
|
|
|
(81
|
)
|
|
|
3,012
|
|
|
|
(1,664
|
)
|
|
|
1,348
|
|
Income tax (benefit) expense
|
|
|
(170
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
(168
|
)
|
|
|
35
|
|
|
|
(133
|
)
|
Segment income (loss)
|
|
|
450
|
|
|
|
2,811
|
|
|
|
(81
|
)
|
|
|
3,180
|
|
|
|
(1,699
|
)
|
|
|
1,481
|
|
Expenditures for segment assets
|
|
|
95
|
|
|
|
24
|
|
|
|
—
|
|
|
|
119
|
|
|
|
3
|
|
|
|
122
|
(2)
|
Segment
Reporting for the Quarter Ended September 30, 2019
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$
|
10,081
|
|
|
$
|
12,454
|
|
|
|
—
|
|
|
$
|
22,535
|
|
|
$
|
—
|
|
|
$
|
22,535
|
|
Intercompany revenues
|
|
|
75
|
|
|
|
38
|
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
3,338
|
|
|
|
1,819
|
|
|
|
—
|
|
|
|
5,157
|
|
|
|
—
|
|
|
|
5,157
|
|
Research and development
|
|
|
85
|
|
|
|
—
|
|
|
|
74
|
|
|
|
159
|
|
|
|
6
|
|
|
|
165
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77
|
|
|
|
77
|
|
Interest expense
|
|
|
(19
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
(75
|
)
|
|
|
(99
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(69
|
)
|
|
|
(69
|
)
|
Depreciation and amortization
|
|
|
243
|
|
|
|
79
|
|
|
|
—
|
|
|
|
322
|
|
|
|
6
|
|
|
|
328
|
|
Segment income (loss) before income
taxes
|
|
|
2,244
|
|
|
|
1,193
|
|
|
|
(74
|
)
|
|
|
3,363
|
|
|
|
(1,413
|
)
|
|
|
1,950
|
|
Income tax expense
|
|
|
55
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55
|
|
|
|
—
|
|
|
|
55
|
|
Segment income (loss)
|
|
|
2,189
|
|
|
|
1,193
|
|
|
|
(74
|
)
|
|
|
3,308
|
|
|
|
(1,413
|
)
|
|
|
1,895
|
|
Expenditures for segment assets
|
|
|
470
|
|
|
|
31
|
|
|
|
—
|
|
|
|
501
|
|
|
|
—
|
|
|
|
501
|
(3)
|
Segment
Reporting for the Nine Months Ended September 30, 2020
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$
|
24,469
|
|
|
$
|
52,610
|
|
|
|
—
|
|
|
$
|
77,079
|
|
|
$
|
—
|
|
|
$
|
77,079
|
|
Intercompany revenues
|
|
|
879
|
|
|
|
19
|
|
|
|
—
|
|
|
|
898
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
5,533
|
|
|
|
7,167
|
|
|
|
—
|
|
|
|
12,700
|
|
|
|
—
|
|
|
|
12,700
|
|
Research and development
|
|
|
194
|
|
|
|
119
|
|
|
|
221
|
|
|
|
534
|
|
|
|
64
|
|
|
|
598
|
|
Interest income
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
111
|
|
|
|
112
|
|
Interest expense
|
|
|
(80
|
)
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
(213
|
)
|
|
|
(306
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(187
|
)
|
|
|
(187
|
)
|
Depreciation and amortization
|
|
|
912
|
|
|
|
259
|
|
|
|
—
|
|
|
|
1,171
|
|
|
|
18
|
|
|
|
1,189
|
|
Segment income (loss) before income
taxes
|
|
|
2,577
|
|
|
|
5,162
|
|
|
|
(221
|
)
|
|
|
7,518
|
|
|
|
(4,597
|
)
|
|
|
2,921
|
|
Income tax (benefit) expense
|
|
|
(165
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
(163
|
)
|
|
|
35
|
|
|
|
(128
|
)
|
Segment income (loss)
|
|
|
2,742
|
|
|
|
5,160
|
|
|
|
(221
|
)
|
|
|
7,681
|
|
|
|
(4,632
|
)
|
|
|
3,049
|
|
Expenditures for segment assets
|
|
|
1,095
|
|
|
|
385
|
|
|
|
—
|
|
|
|
1,480
|
|
|
|
8
|
|
|
|
1,488
|
(2)
|
Segment
Reporting for the Nine Months Ended September 30, 2019
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue from external customers
|
|
$
|
30,079
|
|
|
$
|
21,299
|
|
|
|
—
|
|
|
$
|
51,378
|
|
|
$
|
—
|
|
|
$
|
51,378
|
|
Intercompany revenues
|
|
|
83
|
|
|
|
101
|
|
|
|
—
|
|
|
|
184
|
|
|
|
—
|
|
|
|
—
|
|
Gross profit
|
|
|
8,921
|
|
|
|
2,008
|
|
|
|
—
|
|
|
|
10,929
|
|
|
|
—
|
|
|
|
10,929
|
|
Research and development
|
|
|
367
|
|
|
|
—
|
|
|
|
228
|
|
|
|
595
|
|
|
|
20
|
|
|
|
615
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
265
|
|
|
|
265
|
|
Interest expense
|
|
|
(66
|
)
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
(84
|
)
|
|
|
(209
|
)
|
|
|
(293
|
)
|
Interest expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(139
|
)
|
|
|
(139
|
)
|
Depreciation and amortization
|
|
|
713
|
|
|
|
236
|
|
|
|
—
|
|
|
|
949
|
|
|
|
19
|
|
|
|
968
|
|
Segment income (loss) before income
taxes
|
|
|
5,731
|
|
|
|
318
|
|
|
|
(228
|
)
|
|
|
5,821
|
|
|
|
(4,003
|
)
|
|
|
1,818
|
|
Income tax expense
|
|
|
99
|
|
|
|
—
|
|
|
|
—
|
|
|
|
99
|
|
|
|
—
|
|
|
|
99
|
|
Segment income (loss)
|
|
|
5,632
|
|
|
|
318
|
|
|
|
(228
|
)
|
|
|
5,722
|
|
|
|
(4,003
|
)
|
|
|
1,719
|
|
Expenditures for segment assets
|
|
|
764
|
|
|
|
49
|
|
|
|
—
|
|
|
|
813
|
|
|
|
—
|
|
|
|
813
|
(3)
|
(1)
|
Amounts
reflect the activity for corporate headquarters not included in the segment information.
|
|
|
(2)
|
Net
of financed amount of $751,000 and $883,000 for the three and nine months ended September 30, 2020, respectively.
|
|
|
(3)
|
Net
of financed amount of $6,000 and $29,000 for the three and nine months ended September 30, 2019, respectively.
|
The
Company had an income tax benefit of $133,000 and income tax expense of $55,000 for continuing operations for the three months
ended September 30, 2020 and 2019, respectively and an income tax benefit of $128,000 and income tax expense of $99,000 for the
nine months ended September 30, 2020 and 2019, respectively. Our effective tax rates were approximately 9.9% and 2.8% for the
three months ended September 30, 2020 and 2019, respectively, and 4.4% and 5.4% for the nine months ended September 30, 2020 and
2019, respectively. The tax benefit and expense for the periods above were comprised of state tax benefit and 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 income tax benefit for the three and nine months ended September 30, 2020 included
refunds from amended state returns filed in separate company filing states.
14.
|
Variable
Interest Entities (“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 meet the criteria of a 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 September 30, 2020, Perma-Fix ERRG had total assets of $5,302,000 and
total liabilities of $5,302,000 which are all recorded as current.
15.
|
Deferral
of Employment Tax Deposits
|
The
CARES Act, as amended by the Flexibility Act which was signed into law on June 5, 2020, provides employers the option to defer
the payment of an employer’s share of social security taxes beginning on March 27, 2020 through December 31, 2020 with 50%
of the amount of social security taxes deferred to become due on December 31, 2021 with the remaining 50% due on December 31,
2022. The Company elected to defer such taxes starting in mid-April 2020. The Company estimates the remaining payment of approximately
$1,225,000 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. At September 30, 2020, the Company has deferred payment of approximately $838,000 in its share of
social security taxes, which amount has been included in “other long-term liabilities” in the Company’s Consolidated
Balance Sheet at September 30, 2020.
16.
|
Employment
Agreements and Management Incentive Plan (“MIP”)
|
On
July 22, 2020, the Company’s Board appointed Richard Grondin to the position of EVP of Waste Treatment Operations and an
executive officer of the Company. Mr. Grondin previously held the position of Vice President of Western Operations within our
Treatment Segment. Immediately after the appointment of Richard Grondin to the position of EVP of Waste Treatment Operations and
an executive officer of the Company, the Company’s Compensation Committee and the Board approved, and the Company entered
into, an employment agreement with each of Mark Duff, CEO (the “CEO Employment Agreement”), Dr. Louis Centofanti,
EVP of Strategic Initiatives (the “EVP of Strategic Initiatives Employment Agreement”), Ben Naccarato, CFO (the “CFO
Employment Agreement”), Andrew Lombardo, EVP of Nuclear and Technical Services (the “EVP of Nuclear and Technical
Services Employment Agreement”), and Richard Grondin, EVP of Waste Treatment Operations (the “EVP of Waste Treatment
Operations Employment Agreement”), collectively with the CEO Employment Agreement, the EVP of Strategic Initiative Employment
Agreement, the CFO Employment Agreement, the EVP of Nuclear and Technical Services Employment Agreement and the EVP of Waste Treatment
Operations Employment Agreement, the “New Employment Agreements” and each individually the “New Employment Agreement”.
The Company had previously entered into an employment agreement with each of Mark Duff, Dr. Louis Centofanti and Ben Naccarato
on September 8, 2017, all three of which were due to expire on September 8, 2020. These three employment agreements dated September
8, 2017 were terminated effective July, 22, 2020.
Pursuant
to New Employment Agreements, which are effective July 22, 2020, each of these executive officers is provided an annual salary,
which annual salary may be increased, but not reduced, from time to time as determined by the Compensation Committee. As a result
of Richard Grondin’s promotion to EVP of Waste Treatment and an executive officer of the Company, his annual salary was
increased from $208,000 as Vice President of Western Operations within our Treatment Segment to $240,000, effective July 22, 2020.
No change was made to the salary of the remaining executive officers for fiscal year 2020. In addition, each of these executive
officers is entitled to participate in the Company’s broad-based benefits plans and to certain performance compensation
payable under separate Management Incentive Plans (“MIP”) as approved by the Company’s Compensation Committee
and the Company’s Board. The Company’s Compensation Committee and the Board approved individual 2020 MIP on January
16, 2020 (which are effective January 1, 2020) for each Mark Duff, Dr. Louis Centofanti, Ben Naccarato and Andrew Lombardo which
remains effective for fiscal year 2020. See “MIP” below for the MIP approved by the Compensation Committee and the
Board for Richard Grondin.
Each
of the New Employment Agreements is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier
terminated by the Company or by the executive officer. At the end of the Initial Term of each New Employment Agreement, each New
Employment Agreement will automatically be extended for one additional year, unless at least six months prior to the expiration
of the Initial Term, the Company or the executive officer provides written notice not to extend the terms of the New Employment
Agreement.
Pursuant
to the New Employment Agreements, if the executive officer’s employment is terminated due to death/disability or for cause
(as defined in the agreements), the Company will pay to the executive officer or to his estate an amount equal to the sum of any
unpaid base salary and accrued unused vacation time through the date of termination and any benefits due to the executive officer
under any employee benefit plan (the “Accrued Amounts”) plus any performance compensation payable pursuant to the
MIP with respect to the fiscal year immediately preceding the date of termination.
If
the executive officer terminates his employment for “good reason” (as defined in the agreements) or is terminated
by the Company without cause (including any such termination for “good reason” or without cause within 24 months after
a Change in Control (as defined in the agreement)), the Company will pay the executive officer the Accrued Amounts, two years
of full base salary, and two times the performance compensation (under the MIP) earned with respect to the fiscal year immediately
preceding the date of termination provided the performance compensation earned with respect to the fiscal year immediately preceding
the date of termination has not been paid. If performance compensation earned with respect to the fiscal year immediately preceding
the date of termination has been made to the executive officer, the executive officer will be paid an additional year of the performance
compensation earned with respect to the fiscal year immediately preceding the date of termination. If the executive terminates
his employment for a reason other than for good reason, the Company will pay to the executive an amount equal to the Accrued Amounts
plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of
termination.
If there is a Change in Control (as defined
in the agreements), all outstanding stock options to purchase common stock held by the executive officer will immediately become
exercisable in full commencing on the date of termination through the original term of the options. In the event of the death of
an executive officer, all outstanding stock options to purchase common stock held by the executive officer will immediately become
exercisable in full commencing on the date of death, with such options exercisable for the lesser of the original option term or
twelve months from the date of the executive officer’s death. In the event an executive officer terminates his employment
for “good reason” or is terminated by the Company without cause, all outstanding stock options to purchase common stock
held by the executive officer will immediately become exercisable in full commencing on the date of termination, with such options
exercisable for the lesser of the original option term or within 60 days from the date of the executive’s date of termination.
Severance benefits payable with respect to a termination (other than Accrued Amounts) shall not be payable until the termination
constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)).
On July 22, 2020, upon the approval of the
EVP of Waste Treatment Operations Employment Agreement as discussed above, the Company’s Board and the Company’s Compensation
Committee approved a MIP for Richard Grondin effective January 1, 2020, applicable for fiscal 2020. The MIP provides guidelines
for the calculation of annual cash incentive-based compensation, subject to Compensation Committee oversight and modification.
The MIP awards cash compensation based on achievement of performance thresholds, with the amount of such compensation established
as a percentage of the Mr. Grondin’s 2020 annual base salary as the EVP of Waste Treatment Operations. The potential target
performance compensation ranges from 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of Waste Treatment Operations,
which became effective on July 22, 2020.