Notes
to Consolidated Financial Statements
September
30, 2021
(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, 2020.
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 nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the fiscal year ending December
31, 2021.
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, 2020.
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 13 - Variable Interest Entity” for a discussion of this
VIE).
2.
Summary of Significant Accounting Policies
Our
accounting policies are set forth in the notes to the December 31, 2020 consolidated financial statements referred to above.
Recently
Adopted Accounting Standards
In
December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adoption of ASU No. 2019-12 by the Company
effective January 1, 2021 did not 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 adoption of ASU No. 2020-01 by the Company effective January 1, 2021 did not have a material impact on the Company’s
financial statements.
In
October 2020, the FASB issued ASU No 2020-10, “Codification Improvements.” ASU 2020-10 updates various codification topics
by clarifying or improving disclosure requirements. ASU 2020-10 is effective for public entities for fiscal years beginning after December
15, 2020, with early adoption permitted. The adoption of ASU No. 2020-01 by the Company effective January 1, 2021 did not have a material
impact on the Company’s financial statements or disclosures.
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 various subsequent amendments to the initial guidance (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. In November 2019, FASB issued ASU 2019-10, “Financial Instruments –
Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date of ASU
2016-13 for public companies that are considered smaller reporting companies (“SRC”) as defined by the Commission to fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. These ASUs are effective January 1, 2023
for the Company as an SRC. Under new guidance issued by the Commission in March 2020, the Company will continue to qualify as a smaller
reporting company but will also be an accelerated filer for all filings with the Commission after January 1, 2022. The Company is currently
evaluating the impact of these ASU on its consolidated 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 an
SRC. 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.
In
May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 206), Debt-Modifications and Extinguishments (Subtopic 470-50),
Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging
Issues Task Force).” ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified
written call options. This ASU is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this ASU will have a material impact
on its financial statements.
3.
Revenue
Disaggregation
of Revenue
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and
provides meaningful disaggregation of each business segment’s results of operations. The 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:
Schedule
of Disaggregation of Revenue
Revenue
by Contract Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30, 2021
|
|
|
September
30, 2020
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed
price
|
|
$
|
8,893
|
|
|
$
|
3,031
|
|
|
$
|
11,924
|
|
|
$
|
7,066
|
|
|
$
|
2,372
|
|
|
$
|
9,438
|
|
Time
and materials
|
|
|
—
|
|
|
|
3,873
|
|
|
|
3,873
|
|
|
|
—
|
|
|
|
20,734
|
|
|
|
20,734
|
|
Total
|
|
$
|
8,893
|
|
|
$
|
6,904
|
|
|
$
|
15,797
|
|
|
$
|
7,066
|
|
|
$
|
23,106
|
|
|
$
|
30,172
|
|
Revenue
by Contract Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2021
|
|
|
September
30, 2020
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed
price
|
|
$
|
24,094
|
|
|
$
|
7,094
|
|
|
$
|
31,188
|
|
|
$
|
24,469
|
|
|
$
|
6,093
|
|
|
$
|
30,562
|
|
Time
and materials
|
|
|
—
|
|
|
|
23,887
|
|
|
|
23,887
|
|
|
|
—
|
|
|
|
46,517
|
|
|
|
46,517
|
|
Total
|
|
$
|
24,094
|
|
|
$
|
30,981
|
|
|
$
|
55,075
|
|
|
$
|
24,469
|
|
|
$
|
52,610
|
|
|
$
|
77,079
|
|
Revenue
by generator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30, 2021
|
|
|
September
30, 2020
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
6,725
|
|
|
$
|
4,552
|
|
|
$
|
11,277
|
|
|
$
|
5,334
|
|
|
$
|
21,660
|
|
|
$
|
26,994
|
|
Domestic
commercial
|
|
|
1,956
|
|
|
|
399
|
|
|
|
2,355
|
|
|
|
1,598
|
|
|
|
459
|
|
|
|
2,057
|
|
Foreign
government
|
|
|
36
|
|
|
|
1,931
|
|
|
|
1,967
|
|
|
|
134
|
|
|
|
966
|
|
|
|
1,100
|
|
Foreign
commercial
|
|
|
176
|
|
|
|
22
|
|
|
|
198
|
|
|
|
—
|
|
|
|
21
|
|
|
|
21
|
|
Total
|
|
$
|
8,893
|
|
|
$
|
6,904
|
|
|
$
|
15,797
|
|
|
$
|
7,066
|
|
|
$
|
23,106
|
|
|
$
|
30,172
|
|
Revenue
by generator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2021
|
|
|
September
30, 2020
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
16,962
|
|
|
$
|
24,172
|
|
|
$
|
41,134
|
|
|
$
|
19,079
|
|
|
$
|
48,249
|
|
|
$
|
67,328
|
|
Domestic
commercial
|
|
|
6,284
|
|
|
|
1,185
|
|
|
|
7,469
|
|
|
|
5,256
|
|
|
|
1,352
|
|
|
|
6,608
|
|
Foreign
government
|
|
|
577
|
|
|
|
5,556
|
|
|
|
6,133
|
|
|
|
134
|
|
|
|
2,945
|
|
|
|
3,079
|
|
Foreign
commercial
|
|
|
271
|
|
|
|
68
|
|
|
|
339
|
|
|
|
—
|
|
|
|
64
|
|
|
|
64
|
|
Total
|
|
$
|
24,094
|
|
|
$
|
30,981
|
|
|
$
|
55,075
|
|
|
$
|
24,469
|
|
|
$
|
52,610
|
|
|
$
|
77,079
|
|
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:
Schedule
of Contract Assets and Liabilities
|
|
|
|
|
|
|
|
Year-to-date
|
|
|
Year-to-date
|
|
(In
thousands)
|
|
September
30, 2021
|
|
|
December
31, 2020
|
|
|
Change
($)
|
|
|
Change
(%)
|
|
Contract
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
receivables, net of allowance
|
|
$
|
11,816
|
|
|
$
|
9,659
|
|
|
$
|
2,157
|
|
|
|
22.3
|
%
|
Unbilled
receivables - current
|
|
|
5,696
|
|
|
|
14,453
|
|
|
|
(8,757
|
)
|
|
|
(60.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
3,435
|
|
|
$
|
4,614
|
|
|
$
|
(1,179
|
)
|
|
|
(25.6
|
)%
|
The
decrease in unbilled receivables was primarily within our Services Segment due to invoicing and collection of accounts receivable on
certain large projects which have been completed or are near completion.
During
the three and nine months ended September 30, 2021, the Company recognized revenue of $561,000 and $6,635,000, 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, 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. All revenue recognized in each period related to performance obligations satisfied within the
respective period.
Variable
Consideration
The
Company’s contracts generally do not give rise to variable consideration. However, during the three and nine months ended September
30, 2021, the Company recognized approximately $1,286,000 in revenue from a request for equitable adjustment (“REA”) under
one of the Company’s Treatment Services contracts that resulted in cumulative catch-up adjustment in the transaction price that
had been constrained in prior periods.
Remaining
Performance Obligations
The
Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations
that have original expected durations of one year or less.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer in an amount
that corresponds directly with the value to the customer of our performance completed to date. For those contracts, the Company has utilized
the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount for which we have the right
to invoice; accordingly, the Company does not disclose the value of remaining performance obligations for those contracts.
4.
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 and building spaces used to conduct our business. Finance leases consist primarily of processing and transport equipment used
by our facilities’ operations. The Company’s finance leases also included a building with land utilized for our waste treatment
operations which included a purchase option. During the third quarter of 2021, the Company concluded that it was more likely than not
that it would not exercise this purchase option but will continue to lease the property. Accordingly, a reassessment of this lease was
performed which resulted in reclassification of this lease to an operating lease.
The
components of lease cost for the Company’s leases for the three and nine months ended September 30, 2021 and 2020 were as follows
(in thousands):
Schedule of Components of Lease Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
cost
|
|
$
|
115
|
|
|
$
|
114
|
|
|
$
|
341
|
|
|
$
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of ROU assets
|
|
|
53
|
|
|
|
109
|
|
|
|
170
|
|
|
|
161
|
|
Interest
on lease liability
|
|
|
50
|
|
|
|
47
|
|
|
|
85
|
|
|
|
97
|
|
Finance
Leases
|
|
|
103
|
|
|
|
156
|
|
|
|
255
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
lease rent expense
|
|
|
4
|
|
|
|
3
|
|
|
|
10
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
lease cost
|
|
$
|
222
|
|
|
$
|
273
|
|
|
$
|
606
|
|
|
$
|
607
|
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at September 30, 2021 were:
Schedule of Weighted Average Lease
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Weighted
average remaining lease terms (years)
|
|
|
7.1
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Weighted average
discount rate
|
|
|
7.6
|
%
|
|
|
4.6
|
%
|
The
following table reconciles the undiscounted cash flows for the operating and finance leases at September 30, 2021 to the operating and
finance lease liabilities recorded on the balance sheet (in thousands):
Schedule
of Operating and Finance Lease Liability Maturity
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2021
(Remaining)
|
|
$
|
132
|
|
|
$
|
64
|
|
2022
|
|
|
576
|
|
|
|
271
|
|
2023
|
|
|
560
|
|
|
|
150
|
|
2024
|
|
|
420
|
|
|
|
146
|
|
2025
|
|
|
327
|
|
|
|
146
|
|
2025
and thereafter
|
|
|
1,260
|
|
|
|
341
|
|
Total
undiscounted lease payments
|
|
|
3,275
|
|
|
|
1,118
|
|
Less:
Imputed interest
|
|
|
(754
|
)
|
|
|
(85
|
)
|
Present
value of lease payments
|
|
$
|
2,521
|
|
|
$
|
1,033
|
|
|
|
|
|
|
|
|
|
|
Current
portion of operating lease obligations
|
|
$
|
387
|
|
|
$
|
—
|
|
Long-term
operating lease obligations, less current portion
|
|
$
|
2,134
|
|
|
$
|
—
|
|
Current
portion of finance lease obligations
|
|
$
|
—
|
|
|
$
|
257
|
|
Long-term
finance lease obligations, less current portion
|
|
$
|
—
|
|
|
$
|
776
|
|
Supplemental
cash flow and other information related to our leases were as follows for the three and nine months ended September 30, 2021 and 2020
(in thousands):
Schedule of Supplemental Cash Flow and Other Information Related to Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
cash flow used in operating leases
|
|
$
|
103
|
|
|
$
|
111
|
|
|
$
|
307
|
|
|
$
|
331
|
|
Operating
cash flow used in finance leases
|
|
$
|
50
|
|
|
$
|
47
|
|
|
$
|
85
|
|
|
$
|
97
|
|
Financing
cash flow used in finance leases
|
|
$
|
76
|
|
|
$
|
182
|
|
|
$
|
281
|
|
|
$
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU
assets obtained in exchange for lease obligations for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
liabilities
|
|
$
|
323
|
|
|
$
|
751
|
|
|
$
|
323
|
|
|
$
|
874
|
|
Operating
liabilities
|
|
$
|
184
|
|
|
|
—
|
|
|
$
|
350
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
to ROU assets resulting from reassessment for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
liabilities
|
|
$
|
(364
|
)
|
|
$
|
—
|
|
|
$
|
(364
|
)
|
|
$
|
—
|
|
5.
Intangible Assets
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
Schedule of Finite-Lived Intangible Assets
|
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Weighted
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Other
Intangibles (amount in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
12.5
|
|
|
$
|
784
|
|
|
$
|
(348
|
)
|
|
$
|
436
|
|
|
$
|
742
|
|
|
$
|
(334
|
)
|
|
$
|
408
|
|
Software
|
|
|
3
|
|
|
|
588
|
|
|
|
(415
|
)
|
|
|
173
|
|
|
|
418
|
|
|
|
(411
|
)
|
|
|
7
|
|
Customer
relationships
|
|
|
10
|
|
|
|
3,370
|
|
|
|
(3,044
|
)
|
|
|
326
|
|
|
|
3,370
|
|
|
|
(2,910
|
)
|
|
|
460
|
|
Total
|
|
|
|
|
|
$
|
4,742
|
|
|
$
|
(3,807
|
)
|
|
$
|
935
|
|
|
$
|
4,530
|
|
|
$
|
(3,655
|
)
|
|
$
|
875
|
|
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:
Schedule
of Finite-Lived Intangible Assets, Future Amortization Expense
Year
|
|
(In
thousands)
|
|
|
|
|
|
2021
(remaining)
|
|
$
|
59
|
|
2022
|
|
|
227
|
|
2023
|
|
|
187
|
|
2024
|
|
|
57
|
|
2025
|
|
|
14
|
|
Amortization
expense relating to the definite-lived intangible assets as discussed above was $51,000 and $152,000 for the three and nine months ended
September 30, 2021, respectively, and $58,000 and $167,000 for the three and nine months ended September 30, 2020, respectively.
6.
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
July 20, 2021, the Company issued a NQSO to each of the Company’s seven reelected outside directors for the purchase, under the
Company’s 2003 Outside Directors Stock Plan (the “2003 Plan”), of up to 10,000 shares of the Company’s common
stock, par value $0.001 per share (the “Common Stock”). Dr. Louis Centofanti, the Company’s Executive Vice President
(“EVP”) of Strategic Initiatives and also a member of the Company’s Board of Directors (the “Board”), was
not eligible to receive an option under the 2003 Plan as an employee of the Company. Each NQSO granted is for a contractual term of ten
years with one-fourth vesting annually over a four-year period. The exercise price of the NQSO is $5.93 per share, which was equal to
the fair market value of the Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan.
On
May 4, 2021, the Company issued a NQSO to a new director elected by the Company’s Board, for the purchase, under the Company’s
2003 Plan, of up to 6,000 shares of the Company’s Common Stock. The option granted is for a contractual term of ten years with
a vesting period of six months. The exercise price of the option is $7.50 per share, which was equal to the fair market value of the
Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan.
The
Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Stock Option Plan (“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. The 10,000 options under the first milestone were exercised by Robert
Ferguson in 2018. The vesting date for the second and third milestones for the purchase of up to 30,000 and 60,000 shares of the Company’s
Common Stock was previously extended to December 31, 2021 and December 31, 2022, respectively. The Company has not recognized compensation
costs (fair value of approximately $262,000 at September 30, 2021) 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,
2021. 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, 2021 were as follows:
Schedule of Stock Options Valuation Assumptions
|
|
Outside
Director Stock Option Granted
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2021
|
|
Weighted-average
fair value per share
|
|
$
|
3.90
|
|
Risk
-free interest rate (1)
|
|
|
1.23%-1.61
|
%
|
Expected
volatility of stock (2)
|
|
|
55.84%-55.91
|
%
|
Dividend
yield
|
|
|
None
|
|
Expected
option life (3)
|
|
|
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, 2021 and 2020 for our
employee and director stock options.
Schedule of Share-based Compensation, Allocation of Recognized Period Costs
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
Stock
Options
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Employee
Stock Options
|
|
$
|
34,000
|
|
|
$
|
34,000
|
|
|
$
|
100,000
|
|
|
$
|
99,000
|
|
Director
Stock Options
|
|
|
28,000
|
|
|
|
35,000
|
|
|
|
49,000
|
|
|
|
62,000
|
|
Total
|
|
$
|
62,000
|
|
|
$
|
69,000
|
|
|
$
|
149,000
|
|
|
$
|
161,000
|
|
Stock-Based Compensation
|
|
$
|
62,000
|
|
|
$
|
69,000
|
|
|
$
|
149,000
|
|
|
$
|
161,000
|
|
At
September 30, 2021, the Company has approximately $420,000 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
2.9 years.
The
summary of the Company’s total stock option plans as of September 30, 2021 and September 30, 2020, and changes during the periods
then ended, are presented below. The Company’s plans consist of the 2010 Stock Option Plan, the 2017 Plan and the 2003 Plan:
Schedule of Stock Options Roll Forward
|
|
Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average Remaining Contractual Term
(years)
|
|
|
Aggregate
Intrinsic
Value (4)
|
|
Options
outstanding January 1, 2021
|
|
|
658,400
|
|
|
$
|
3.87
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
76,000
|
|
|
$
|
6.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(500
|
)
|
|
$
|
3.15
|
|
|
|
|
|
|
$
|
2,175
|
|
Forfeited/expired
|
|
|
(19,500
|
)
|
|
$
|
6.75
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period (1)
|
|
|
714,400
|
|
|
$
|
4.02
|
|
|
|
3.6
|
|
|
$
|
1,888,695
|
|
Options
exercisable at September 30, 2021(2)
|
|
|
416,400
|
|
|
$
|
3.91
|
|
|
|
2.9
|
|
|
$
|
1,146,320
|
|
|
|
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 (2)
|
|
|
658,400
|
|
|
$
|
3.87
|
|
|
|
3.7
|
|
|
$
|
2,096,355
|
|
Options
exercisable at September 30, 2020 (3)
|
|
|
340,400
|
|
|
$
|
4.01
|
|
|
|
3.6
|
|
|
$
|
1,036,255
|
|
(1)
|
|
Options with exercise
prices ranging from $2.79 to $7.50
|
(2)
|
|
Options with exercise
prices ranging from $2.79 to $7.29
|
(3)
|
|
Options with exercise
prices ranging from $2.79 to $7.05
|
(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, 2021, the Company issued a total of 42,436 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 $343,000 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, 2021, the Company issued 290 shares of its Common Stock from a cashless exercise of an option for
the purchase of 500 shares of the Company’s Common Stock at $3.15 per share.
See
“Note 15 – Common Stock Subscription Agreements” for a discussion on the sale of 1,000,000 shares of the Company’s
Common Stock in a registered direct offering during the third quarter of 2021 and completed during the first part of October 2021.
7.
Income Per Share
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 and average share amounts used to compute both basic and diluted income per share:
Schedule of Earnings Per Share, Basic and Diluted
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Income
from continuing operations, net of taxes
|
|
$
|
1,381
|
|
|
|
1,481
|
|
|
|
3,464
|
|
|
|
3,049
|
|
Net
loss attributable to non-controlling interest
|
|
|
(64
|
)
|
|
|
(32
|
)
|
|
|
(123
|
)
|
|
|
(87
|
)
|
Income
from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
1,445
|
|
|
$
|
1,513
|
|
|
$
|
3,587
|
|
|
$
|
3,136
|
|
Loss
from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
(43
|
)
|
|
|
(67
|
)
|
|
|
(285
|
)
|
|
|
(266
|
)
|
Net
income attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
1,402
|
|
|
$
|
1,446
|
|
|
$
|
3,302
|
|
|
$
|
2,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.11
|
|
|
$
|
.12
|
|
|
$
|
.27
|
|
|
$
|
.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.11
|
|
|
$
|
.12
|
|
|
$
|
.27
|
|
|
$
|
.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average
shares outstanding
|
|
|
12,198
|
|
|
|
12,145
|
|
|
|
12,181
|
|
|
|
12,134
|
|
Add:
dilutive effect of stock options
|
|
|
183
|
|
|
|
201
|
|
|
|
206
|
|
|
|
181
|
|
Add:
dilutive effect of warrant
|
|
|
25
|
|
|
|
25
|
|
|
|
29
|
|
|
|
22
|
|
Diluted
weighted average shares outstanding
|
|
|
12,406
|
|
|
|
12,371
|
|
|
|
12,416
|
|
|
|
12,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares
excluded from above weighted average share calculations due to their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
30
|
|
|
|
30
|
|
|
|
30
|
|
|
|
42
|
|
Warrant
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock Options and Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
disclosed in “Note 15 – Common Stock Subscription Agreement,” the Company entered into subscription agreements for
the sale of an aggregate of 1,000,000 shares of the Company’s Common Stock in a registered direct offering during the third quarter
of 2021 and completed during the first part of October 2021. The above earnings per share calculation does not include 900,000 shares
of the Common Stock as these shares were issued and became outstanding in October 2021.
8.
Long Term Debt
Long-term
debt consists of the following:
Schedule of Long term Debt
(Amounts in Thousands)
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Total debt
|
|
|
1,098
|
|
|
|
6,729
|
|
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 month of 2021 was 5.3%. (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
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 2021 was 4.4%. (1)
|
|
|
1,056
|
(2)
|
|
|
1,388
|
(2)
|
Promissory Note dated April 14, 2020, balance of loan forgiven. Interest accrued at annual rate of 1.0%. (3)
|
|
|
—
|
(4)
|
|
|
5,318
|
(4)
|
Notes Payable to 2023 and 2025, annual interest rate of 5.6% and 9.1%.
|
|
|
42
|
|
|
|
23
|
|
Total debt
|
|
|
1,098
|
|
|
|
6,729
|
|
Less current portion of long-term debt
|
|
|
396
|
|
|
|
3,595
|
|
Long-term debt
|
|
$
|
702
|
|
|
$
|
3,134
|
|
(1)
|
|
Our revolving credit
facility is collateralized by our accounts receivable and our term loan is collateralized by our property, plant, and equipment.
|
(2)
|
|
Net of debt issuance
costs of ($117,000) and ($105,000) at September 30, 2021 and December 31, 2020, respectively.
|
(3)
|
|
Uncollateralized
note.
|
(4)
|
|
Entered into with
the Company’s credit facility lender under the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief,
and Economic Security Act (“CARES Act”) (see “PPP Loan” below for information regarding forgiveness on the entire
loan balance, along with accrued interest, effective June 15, 2021).
|
Revolving
Credit and Term Loan Agreement
The
Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan
Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement provides the Company
with the following credit facility with a maturity date of March 15, 2024: (a) up to $18,000,000 revolving credit (“revolving credit”)
and (b) a term loan (“term loan”) of approximately $1,742,000, requiring monthly installments of $35,547. The maximum that
the Company can borrow under the revolving credit is based on a percentage of eligible receivables (as defined) at any one time reduced
by outstanding standby letters of credit and borrowing reductions that our lender may impose from time to time.
On
May 4, 2021, the Company entered into an amendment to the Loan Agreement with its lender which provided the following, among other things:
|
●
|
revised
the Company’s fixed charge coverage ratio (“FCCR”) calculation requirement which allows for the add-back of approximately
$5,318,000 in eligible expenses that were incurred and covered by the PPP Loan that the Company received in 2020. The add-back is
to be applied retroactively to the second and third quarters of 2020. (see below for a discussion of the PPP Loan); and
|
|
●
|
a
capital expenditure line of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve
months starting May 4, 2021 (the “Borrowing Period”). Only interest is payable on advances during the Borrowing Period
(see annual rate of interest below on the capital expenditure line). At the end of the Borrowing Period, the total amount advanced
under the line will amortize equally based on a five-year amortization schedule with principal payment due monthly plus interest.
At the maturity date of the Loan Agreement, any unpaid principal balance plus interest, if any, will become due. No advance on the
capital line has been made as of September 30, 2021.
|
In
connection with the amendment, the Company paid its lender a fee of $15,000 which is being amortized over the remaining term of the Loan
Agreement, as amended, as interest expense-financing fees.
On
August 10, 2021, the Company entered into another amendment to the Loan Agreement with its lender which provided, among other things,
the following:
|
●
|
waived
the Company’s failure to meet the minimum quarterly FCCR requirement for the second quarter of 2021;
|
|
●
|
removes
the quarterly FCCR testing requirement for the third quarter of 2021;
|
|
●
|
reinstates
the quarterly FCCR testing requirement starting for the fourth quarter of 2021 and revises the methodology to be used in calculating
the FCCR for the quarters ending December 31, 2021, March 31, 2022, and June 30, 2022 (with no change to the minimum 1.15:1 ratio
requirement for each quarter); and
|
|
●
|
requires
maintenance of a minimum of $3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for
the quarter ended December 31, 2021 has been met and certified to the lender.
|
In
connection with the amendment, the Company paid its lender a fee of $15,000 which is being amortized over the remaining term of the Loan
Agreement, as amended, as interest expense-financing fees.
Pursuant
to the Loan Agreement, as amended, payment of annual rate of interest due on the revolving credit is at prime (3.25% at September 30,
2021) plus 2% or London InterBank Offer Rate (“LIBOR”) plus 3.00% and the term loan and the capital expenditure line at prime
plus 2.50% or LIBOR plus 3.50%. Under the LIBOR option of interest payment, a LIBOR floor of 0.75% applies in the event that LIBOR falls
below 0.75% at any point in time.
The
Company may terminate its Loan Agreement, as amended upon 90 days’ prior written notice upon payment in full of our obligations
under the Loan Agreement. The Company agreed to pay PNC 1.0% of the total financing had the Company paid off its obligations on or before
May 7, 2021 and 0.5% of the total financing if the Company pays off its obligations after May 7, 2021 but prior to or on May 7, 2022.
No early termination fee will apply if the Company pays off its obligations under the Loan Agreement after May 7, 2022.
At
September 30, 2021, the borrowing availability under the Company’s revolving credit was approximately $10,804,000 based on our
eligible receivables and includes a reduction in borrowing availability of approximately $3,020,000 from outstanding standby letters
of credit.
The
Company’s credit facility under its Loan Agreement, as amended, 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 the
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 financial covenant requirements in the first quarter of 2021. The Company’s
FCCR calculation in the first quarter of 2021 included the add-back of approximately $5,318,000 in eligible expenses that were incurred
and covered by the PPP Loan that the Company received in 2020 as permitted by the amendment dated May 4, 2021 to the Company’s
Loan Agreement as discussed above. The Company did not meet its FCCR requirement in the second quarter of 2021. However, this FCCR non-compliance
was waived by the Company’s lender pursuant to the amendment dated August 10, 2021 to the Company’s Loan Agreement as discussed
above. The Company was not required to test its FCCR for the third quarter 2021 pursuant to the August 10, 2021 amendment to the Loan
Agreement.
PPP
Loan
On
April 14, 2020, the Company entered into a promissory note under the PPP with PNC, our credit facility lender, which had a balance of
approximately $5,318,000 (the “PPP Loan”). The PPP was established under the CARES Act and is administered by the U.S. Small
Business Administration (“SBA”). The CARES Act was subsequently amended by the Paycheck Protection Program Flexibility Act
of 2020 (“Flexibility Act”). Proceeds from the promissory note was used by the Company for eligible payroll costs, mortgage
interest, rent and utility costs as permitted under the Flexibility Act. The annual interest rate on the PPP Loan is 1.0%
On
October 5, 2020, the Company applied for forgiveness on repayment of the PPP Loan as permitted under the Flexibility Act. On July 1,
2021, the Company was notified by PNC that the entire balance of the PPP Loan of approximately $5,318,000, along with accrued interest
of approximately $63,000 was forgiven by the SBA, effective June 15, 2021. Accordingly, the Company recorded the entire forgiven PPP
Loan balance, along with accrued interest, totaling approximately $5,381,000 as “Gain on extinguishment of debt” on its Consolidated
Statement of Operations in the second quarter of 2021.
9.
Commitments and Contingencies
Hazardous
Waste
In
connection with our waste management services, the Company processes both hazardous and non-hazardous waste, which we transport to our
own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is
required at the disposal site, the Company 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 (the “Court”) 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.
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.
On
January 7, 2021, Defendants’ motion to dismiss the complaint in its entirety was granted without prejudice, with leave to amend.
Tetra Tech subsequently filed a First Amended Complaint (“FAC”) and Defendants filed a motion to dismiss Tetra Tech’s
FAC. Tetra Tech filed an opposition to Defendant’s motion to dismiss Tetra Tech’s FAC. Defendants, subsequently filed a joint
reply to Tetra Tech’s motion in opposition. A decision and Order on Defendants’ motion to dismiss is pending from the Court
while discovery is allowed to proceed. At this time, the Company continues to believe it does not have any liability to Tetra Tech.
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 $19,898,000 at September 30, 2021. At September 30, 2021 and December 31, 2020, 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 $11,469,000 and $11,446,000, respectively, which included interest earned of $1,998,000 and $1,975,000 on the finite risk
sinking funds as of September 30, 2021 and December 31, 2020, respectively. Interest income for the three and nine months ended September
30, 2021 was approximately $2,000 and $23,000, respectively. Interest income for the three and nine months ended September 30, 2020 was
approximately $28,000 and $111,000, respectively. If we so elect, AIG is obligated to pay the Company an amount equal to 100% of the
finite risk sinking fund account balance in return for complete release of liability from both the Company and any applicable regulatory
agency using this policy as an instrument to comply with financial assurance requirements.
Letter
of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to customers
and other obligations, including facility closures. At September 30, 2021, the total amount of standby letters of credit outstanding
was approximately $3,020,000 and the total amount of bonds outstanding was approximately $50,092,000.
10.
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 $43,000
and $67,000
for the three months ended September 30, 2021
and 2020, respectively (net of tax benefit of $98,000
and tax expense of $0
for the three month ended September 30, 2021
and 2020, respectively) and net losses of $285,000
and $266,000
for the nine months ended September 30, 2021
and 2020, respectively, (net of tax benefit of $98,000
and tax expense of $0
for the nine month ended September 30, 2021 and
2020, respectively). The losses (excluding the tax benefits) 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, 2021 and December 31, 2020. No assets
and liabilities were held for sale at each of the periods noted.
Schedule of Disposal Groups, Including Discontinued Operation Balance Sheet
|
|
September
30,
|
|
|
December
31,
|
|
(Amounts
in Thousands)
|
|
2021
|
|
|
2020
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
18
|
|
|
$
|
22
|
|
Total
current assets
|
|
|
18
|
|
|
|
22
|
|
Long-term
assets
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net (1)
|
|
|
81
|
|
|
|
81
|
|
Other
assets
|
|
|
—
|
|
|
|
—
|
|
Total
long-term assets
|
|
|
81
|
|
|
|
81
|
|
Total
assets
|
|
$
|
99
|
|
|
$
|
103
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3
|
|
|
$
|
4
|
|
Accrued
expenses and other liabilities
|
|
|
207
|
|
|
|
150
|
|
Environmental
liabilities
|
|
|
122
|
|
|
|
744
|
|
Total
current liabilities
|
|
|
332
|
|
|
|
898
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Closure
liabilities
|
|
|
148
|
|
|
|
142
|
|
Environmental
liabilities
|
|
|
654
|
|
|
|
110
|
|
Total
long-term liabilities
|
|
|
802
|
|
|
|
252
|
|
Total
liabilities
|
|
$
|
1,134
|
|
|
$
|
1,150
|
|
(1)
|
|
net of accumulated
depreciation of $10,000 for each period presented.
|
11.
Operating Segments
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 four 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;
|
|
○
|
health
physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support to
government and private radioactive materials licensees;
|
|
○
|
integrated
Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys,
e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure
assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and
Health Administration (“OSHA”) citation assistance;
|
|
○
|
global
technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental), project
management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and
services to commercial and government customers; and
|
|
○
|
waste
management services to commercial and governmental customers.
|
|
-
|
Nuclear
services, which include:
|
|
○
|
decontamination
and decommissioning (“D&D”) of government and commercial facilities impacted with radioactive material and hazardous
constituents including engineering, technology applications, specialty services, logistics, transportation, processing and disposal;
|
|
○
|
license
termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process: project
management, planning, characterization, waste stream identification and delineation, remediation/demo, final status survey, compliance
demonstration, reporting, transportation, disposal and emergency response.
|
|
-
|
A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health
physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
|
|
-
|
A
company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.
|
MEDICAL
SEGMENT, which is currently involved on a limited basis in the R&D of the Company’s medical isotope production technology,
has not generated any revenue and 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 10 – 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, 2021 and
2020 (in thousands).
Schedule of Segment Reporting Information
Segment
Reporting for the Quarter Ended September 30, 2021
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
8,893
|
|
|
$
|
6,904
|
|
|
|
—
|
|
|
$
|
15,797
|
|
|
$
|
—
|
|
|
$
|
15,797
|
|
Intercompany
revenues
|
|
|
220
|
|
|
|
5
|
|
|
|
—
|
|
|
|
225
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit (negative gross profit)
|
|
|
2,487
|
|
|
|
(263
|
)
|
|
|
—
|
|
|
|
2,224
|
|
|
|
—
|
|
|
|
2,224
|
|
Research
and development
|
|
|
52
|
|
|
|
18
|
|
|
|
162
|
|
|
|
232
|
|
|
|
11
|
|
|
|
243
|
|
Interest
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
Interest
expense
|
|
|
(51
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(52
|
)
|
|
|
(25
|
)
|
|
|
(77
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Depreciation
and amortization
|
|
|
319
|
|
|
|
85
|
|
|
|
—
|
|
|
|
404
|
|
|
|
5
|
|
|
|
409
|
|
Income
tax expense (benefit)
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
(2,837
|
)
|
|
|
(2,836
|
)(5)
|
Segment
income (loss)
|
|
|
1,316
|
|
|
|
(984
|
)
|
|
|
(162
|
)
|
|
|
170
|
|
|
|
1,211
|
|
|
|
1,381
|
|
Expenditures
for segment assets
|
|
|
482
|
|
|
|
—
|
|
|
|
—
|
|
|
|
482
|
|
|
|
—
|
|
|
|
482
|
(2)
|
Segment
Reporting for the Quarter Ended September 30, 2020
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
|
|
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
|
|
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
|
(3)
|
Segment
Reporting for the Nine Months Ended September 30, 2021
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
24,094
|
|
|
$
|
30,981
|
|
|
|
—
|
|
|
$
|
55,075
|
|
|
$
|
—
|
|
|
$
|
55,075
|
|
Intercompany
revenues
|
|
|
1,199
|
|
|
|
44
|
|
|
|
—
|
|
|
|
1,243
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
4,845
|
|
|
|
701
|
|
|
|
—
|
|
|
|
5,546
|
|
|
|
—
|
|
|
|
5,546
|
|
Research
and development
|
|
|
142
|
|
|
|
50
|
|
|
|
311
|
|
|
|
503
|
|
|
|
35
|
|
|
|
538
|
|
Interest
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
23
|
|
Interest
expense
|
|
|
(88
|
)
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(97
|
)
|
|
|
(112
|
)
|
|
|
(209
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28
|
)
|
|
|
(28
|
)
|
Depreciation
and amortization
|
|
|
939
|
|
|
|
255
|
|
|
|
—
|
|
|
|
1,194
|
|
|
|
14
|
|
|
|
1,208
|
|
Income
tax (benefit) expense
|
|
|
(13
|
)
|
|
|
10
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(2,837
|
)
|
|
|
(2,840
|
)(5)
|
Segment
income (loss)
|
|
|
1,682
|
|
|
|
(1,731
|
)
|
|
|
(311
|
)
|
|
|
(360
|
)
|
|
|
3,824
|
|
|
|
3,464
|
|
Expenditures
for segment assets
|
|
|
1,109
|
|
|
|
14
|
|
|
|
—
|
|
|
|
1,123
|
|
|
|
9
|
|
|
|
1,132
|
(2)
|
Segment
Reporting for the Nine Months Ended September 30, 2020
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
(1)
|
|
|
Consolidated
Total
|
|
|
|
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
|
|
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
|
(3)
|
(1)
|
|
Amounts reflect
the activity for corporate headquarters not included in the segment information.
|
(2)
|
|
Net of financed
amount of $271,000 and $348,000 for the three and nine months ended September 30, 2021, respectively.
|
(3)
|
|
Net of financed
amount of $751,000 and $883,000 for the three and nine months ended September 30, 2020, respectively.
|
(4)
|
|
Amounts includes
approximately $5,381,000 of “Gain on extinguishment of debt” recorded in connection with the Company’s PPP Loan which
was forgiven by the SBA effective June 15, 2021 (see “Note 8 – Long Term Debt – PPP Loan” for information of
this loan forgiveness).
|
(5)
|
|
Includes tax benefit
recorded in amount of approximately $2,351,000 resulting from release of valuation allowance on the Company’s deferred tax assets
(see “Note 12 – Income Taxes” below a discussion of this tax benefit).
|
12.
Income Taxes
The
Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. The Company considers
projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value
of the net deferred income taxes to an amount that is more likely than not to be realized. For the year ended December 31, 2020, the
Company maintained a full valuation allowance against net deferred income tax assets because insufficient evidence existed to support
the realization of any future income tax benefits. As of September 30, 2021, however, the Company has reassessed this conclusion. Based
upon the Company’s assessment of all available evidence, including a number of new contracts awarded to the Company’s Services
Segment since the latter part of the second quarter of 2021 (including a contract award with a value of approximately $40,000,000 for
the decommissioning of a navy ship), a return to profitability, expectation of future profitability, and the Company’s overall
prospects of future business, the Company has determined that it is more likely than not that the Company will be able to realize a portion
of the deferred income tax assets as of September 30, 2021. As a result, a deferred income tax benefit in the amount of approximately
$2,351,000 attributable to the valuation allowance release on beginning of year deferred tax assets was realized in the three months
ended September 30, 2021.
The
Company had income tax benefits of $2,836,000 and $133,000 for continuing operations for the three months ended September 30, 2021 and
2020, respectively and income tax benefits of $2,840,000 and $128,000 for the nine months ended September 30, 2021 and 2020, respectively.
Our effective tax rates were approximately 194.9% and (9.9%) for the three months ended September 30, 2021 and 2020, respectively, and
(455.1%) and (4.4%) for the nine months ended September 30, 2021 and 2020, respectively. The Company’s effective tax rates for
the three and nine months ended September 30, 2021 were substantially impacted by the release of valuation allowance as discussed above.
The Company’s tax rates for the three and nine months ended September 30, 2020 were impacted by the Company’s full valuation
on its net deferred tax assets. For the three and nine months ended September 30, 2021, the primary reasons for the differences between
the Company’s effective tax rate and statutory tax rate were due to the aforementioned release of valuation allowance and the forgiveness
of the Company’s PPP Loan which is included in the Company’s Consolidated Statement of Operations as “Gain on extinguishment
of debt” but is exempt from income taxes.
13.
Variable Interest Entities (“VIE”)
The
Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) previously entered into an unpopulated joint venture agreement
for project work bids within the Company’s Services Segment with the joint venture 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.
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 continues to be a VIE in which the Company is the primary beneficiary. At September 30, 2021, Perma-Fix ERRG had total assets of
$2,535,000 and total liabilities of $2,535,000 which are all recorded as current.
14.
Deferral of Employment Tax Deposits
The
Flexibility Act 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. At September 30,
2021, the Company has deferred payment of approximately $1,252,000 in its share of social security taxes, of which approximately $626,000
is included in “Other long-term liabilities,” with the remaining balance included in “Accrued expenses” within
current liabilities in the Company’s Consolidated Balance Sheets.
15.
Common Stock Subscription Agreements
On
September 30, 2021, the Company entered into subscription agreements (the “Subscription Agreements”) with certain institutional
and retail investors (the “Purchasers”), pursuant to which the Company agreed to sell and issue, in a registered direct offering
(the “Offering”), an aggregate of 1,000,000 shares (the “Shares”) of the Company’s Common Stock, at a negotiated
purchase price per share of $6.20 (the “Shares”), for aggregate gross proceeds to the Company of approximately $6,200,000.
The offering price per share was negotiated based on the average closing price of the Company’s Common Stock as quoted on Nasdaq
over the three-week period immediately preceding the date of the Subscription Agreements, less a five percent discount. As of September
30, 2021, the Company received proceeds of approximately $5,456,000 from the Subscription Agreements with the remaining $744,000 proceeds
received on October 5, 2021. As of September 30, 2021, 100,000 shares of the 1,000,000 Shares were issued with the remaining 900,000
Shares issued in early October 2021. As such, the Company’s issued and outstanding shares of Common Stock on its Consolidated Balance
Sheets as of September 30, 2021 do not include the 900,000 Shares. The 900,000 Shares were recorded as stock subscriptions in the Company’s
Consolidated Statement of Stockholder’s Equity at September 30, 2021 and will be reclassed to additional-paid-in capital in October
2021.
The
Shares were offered and sold by the Company through a prospectus supplement pursuant to the Company’s “shelf” registration
statement on Form S-3, which was previously filed with the Commission on May 13, 2019 and subsequently declared effective on May 22,
2019 (the “Registration Statement”).
Wellington
Shields & Co., LLC (“Wellington”) served as the exclusive placement agent in connection with the Offering, pursuant to
a placement agency agreement dated as of September 23, 2021 (the “Placement Agency Agreement”), between the Company and Wellington.
The Company agreed to pay Wellington a cash fee of 6.00% of the aggregate gross proceeds in the Offering which totaled $372,000. The
Company also agreed to reimburse Wellington for certain expenses in connection with the Offering in an aggregate amount not to exceed
$50,000. After deducting total costs incurred directly in connection with the Offering of approximately $499,000, which were recorded
as deduction to equity, net proceeds to the Company totaled approximately $5,701,000. As of September 30, 2021, approximately $22,000
of the $499,000 in incurred Offering costs were paid.
The
Company plans to use the aggregate net proceeds from the Offering primarily for working capital and general corporate purposes, including
for certain facility expansion and upgrades, with the use of such proceeds subject to changes, based on the judgment of management.
16.
Subsequent Events
Management
evaluated events occurring subsequent to September 30, 2021 through November 12, 2021, the date these consolidated financial statements
were available for issuance, and other than as noted below determined that no material recognizable subsequent events occurred.
Incentive
Stock Option Agreements
On
October 14, 2021, the Company’s Compensation and Stock Option Committee (the “Compensation Committee”) and the Board
approved the grant of ISOs to certain employees for the purchase, under the Company’s 2017 Plan, of up to an aggregate 305,000
shares of the Company’s Common Stock. The total ISOs granted included an ISO for each of the Company’s executive officers
for the purchase set forth in his respective Incentive Stock Option Agreement, as follows: 50,000 shares for the Chief Executive Officer;
25,000 shares for the Chief Financial Officer; 20,000 shares for the EVP of Strategic Initiatives; 25,000 shares for the EVP of Waste
Treatment Operations; and 25,000 shares for the EVP of Nuclear and Technical Services. Each of the ISOs granted is for a contractual
term of six years with one-fifth yearly vesting over a five-year period. The exercise price of the ISO is $7.005 per share, which is
equal to the closing price of the Company’s Common Stock on the date of grant as quoted on Nasdaq.
Common
Stock Offering
See
“Note 15 – Common Stock Subscription Agreements” above for a description of the Offering of Shares and the collection
of the proceeds and issuance of such Shares in connection with the Offering during September 2021 and October 2021.