Notes
to Consolidated Financial Statements
December
31, 2021 and 2020
NOTE
1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how company,
is a Delaware corporation, engaged through its subsidiaries, in three reportable segments:
TREATMENT
SEGMENT, which includes:
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- |
nuclear,
low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous
waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities;
and |
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R&D
activities to identify, develop and implement innovative waste processing techniques for problematic waste streams. |
SERVICES
SEGMENT, which includes:
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- |
Technical
services, which include: |
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○ |
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology and
engineering; |
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○ |
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; |
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○ |
global
technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and
decommissioning field, technical, and management personnel and services to commercial and government customers; and |
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○ |
on-site
waste management services to commercial and governmental customers. |
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Nuclear
services, which include: |
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|
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○ |
technology-based
services including engineering, D&D, specialty services and construction, logistics, transportation, processing and disposal; |
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○ |
remediation
of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes:
project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition,
and planning; site restoration; logistics; transportation; and emergency response; and |
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A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health
physics, IH and customized NEOSH instrumentation. |
MEDICAL
SEGMENT, which included: R&D of the Company’s medical isotope production technology by the Company’s majority-owned (approximately
60.54%) Polish subsidiary, Perma-Fix Medical S.A (“PFM Poland”), and PFM Poland’s wholly-owned subsidiary, Perma-Fix
Medical Corporation (“PFMC”). The Company’s Medical Segment (or “PF Medical”) had not generated any revenue.
During December 2021, the Company made the strategic decision to cease all R&D activities under the Medical Segment which resulted
in the sale of 100% of PFM Poland (See “Note 14 – PF Medical” for a discussion of this sale).
The
Company’s continuing operations consist of the operations of our subsidiaries/facilities as follow: Diversified Scientific Services,
Inc. (“DSSI”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”),
Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”), Perma-Fix
of Canada, Inc. (“PF Canada”), PF Medical, East Tennessee Materials & Energy Corporation (“M&EC”) (facility
closure completed in 2019), Oak Ridge Environmental Waste Operations Center (“EWOC”) and Perma-Fix ERRG, a variable interest
entity (“VIE”) for which we are the primary beneficiary (See “Note 20 - Variable Interest Entities (“VIE”)”
for a discussion of this VIE).
The
Company’s discontinued operations (see Note 9) consist of operations of all our subsidiaries included in our Industrial Segment
which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.
Financial
Positions and Liquidity
The
Company’s 2021 financial results continued to be impacted by COVID-19 where we experienced continued waste shipment delays from
certain customers within our Treatment Segment. However, the Company expects to see a gradual return in waste receipts from these customers
starting in the second quarter of 2022 as the Company expects these customers to start easing up on COVID-19 restrictions, including
reinstating return-to-work schedule in the upcoming months. Additionally, as a result of the constraint in supply chain, our Treatment
Segment experienced a delay in the delivery of a new technology waste processing unit from our supplier which negatively impacted our
revenue as the associated revenue was not able to be generated. Delivery of this unit had been expected during the third quarter of 2021
but did not occur until the first quarter of 2022. The Company’s Services Segment experienced delays in procurement actions and
contract awards resulting primarily from the impact of COVID-19 in the first half of 2021. Since the end of the second quarter of 2021,
the Services Segment was awarded a number of new contracts but due to customer administrative delay and/or continued COVID-19 impact
experienced by certain customers, work under certain of these new awards was temporarily curtailed/delayed which negatively impacted
our revenue. We expect to see a ramp-up in activities from certain of these new projects starting in the second quarter
of 2022.
The
Company’s cash flow requirements during the twelve months ended December 31, 2021 were primarily financed by our operations, our
credit facility availability and an equity raise that the Company consummated at the end of the third quarter of 2021. The Company received
approximately $6,200,000 in gross proceeds from this equity raise for the sale and issuance of 1,000,000 shares of the Company’s
Common Stock (see “Note 7 – Common Stock Subscription Agreement” for a discussing of this equity raise). At December
31, 2021, the Company had borrowing availability under its revolving credit facility of approximately $8,692,000 which was based on a
percentage of eligible receivables and subject to certain reserves and included its cash on hand of approximately $4,440,000. The Company
has ceased all R&D activities under its Medical Segment and sold its majority-owned subsidiary, PFM Poland (see “Note 14 –
PF Medical” for a discussion of the sale of PFM Poland). The Company’s cash flow requirements for the next twelve months
will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects,
and planned capital expenditures. We plan to fund these requirements from our operations, credit facility availability, our capital expenditure
line, and cash on hand. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs
and non-essential expenditures to bring them in line with revenue levels, when necessary. At this time, we believe that our cash flows
from operations, our available liquidity from our credit facility, our capital expenditure line and our cash on hand should be sufficient
to fund our operations for the next twelve months.
As
the situations surrounding COVID-19 continues to remain fluid, the full impact and extent of the pandemic on our financial results and
liquidity cannot be estimated with any degree of certainty. We continue to closely monitor the impact of the COVID-19 pandemic on all
aspects of our business.
NOTE
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
Company’s consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, our majority-owned Polish
subsidiary (see “Note 15 – PF Medical” for a discussion on the sale of PFM Poland in December 2021), and Perma-Fix
ERRG, a VIE for which we are the primary beneficiary as discussed above, after elimination of all significant intercompany accounts and
transactions.
Use
of Estimates
The
Company prepares financial statements in conformity with accounting standards generally accepted in the United States (“U.S.
GAAP”), which may require estimates of future cash flows and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues
and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results could differ from
those estimates.
Cash
and Finite Risk Sinking Fund (Restricted Cash)
At
December 31, 2021, the Company had cash on hand of approximately $4,444,000, which included account balances of our foreign subsidiaries
totaling approximately $26,000. At December 31, 2020, the Company had cash on hand of approximately $7,924,000, which included account
balances of our foreign subsidiaries totaling approximately $377,000. At December 31, 2021 and 2020, the Company had finite risk sinking
funds of approximately $11,471,000 and $11,446,000, respectively, which represented cash held as collateral under the Company’s
financial assurance policy (see “Note 15 – Commitment and Contingencies – Insurance” for a discussion of this
fund).
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date based on
the customer type (government, broker, or commercial). The carrying amount of accounts receivable is reduced by an allowance for doubtful
accounts, which is a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. The
Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and based on an assessment of current
credit worthiness, estimates the portion, if any, of the balance that will not be collected. This analysis excludes government related
receivables due to our past successful experience in their collectability. Specific accounts that are deemed to be uncollectible are
reserved at 100% of their outstanding balance. The remaining balances aged over 60 days have a percentage applied by aging category,
based on historical experience that allows us to calculate the total allowance required. Once the Company has exhausted all options in
the collection of a delinquent accounts receivable balance, which includes collection letters, demands for payment, collection agencies
and attorneys, the account is deemed uncollectible and subsequently written off. The write off process involves approvals from senior
management based on required approval thresholds.
The
following table sets forth the activity in the allowance for doubtful accounts for the years ended December 31, 2021 and 2020 (in thousands):
SCHEDULE OF CREDIT LOSSES FOR FINANCING RECEIVABLES, CURRENT
| |
Year
Ended December 31, | |
| |
2021 | | |
2020 | |
Allowance for doubtful accounts
- beginning of year | |
$ | 404 | | |
$ | 487 | |
Provision for (recovery of) bad debt reserve | |
| 41 | | |
| (101 | ) |
(Write-off) recovery of
write-off | |
| (360 | ) | |
| 18 | |
Allowance for doubtful
accounts - end of year | |
$ | 85 | | |
$ | 404 | |
Unbilled
Receivables
Unbilled
receivables are generated by differences between invoicing timing and our over time revenue recognition methodology used for revenue
recognition purposes. As major processing and contract completion phases are completed and the costs are incurred, the Company recognizes
the corresponding percentage of revenue. Within our Treatment Segment, the facilities experience delays in processing invoices due to
the complexity of the documentation that is required for invoicing, as well as the difference between completion of revenue recognition
milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing differences occur for several reasons which
include: partially from delays in the final processing of all wastes associated with certain work orders and partially from delays for
analytical testing that is required after the facilities have processed waste but prior to our release of waste for disposal. The tasks
relating to these delays can take months to complete but are generally completed within twelve months.
Unbilled
receivables within our Services Segment can result from work performed under contracts but invoice milestones have not yet been met and/or
contract claims and pending change orders, including REA when work has been performed and collection of revenue is reasonably assured.
Inventories
Inventories
consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, the Company has replacement parts in inventory,
which are deemed critical to the operating equipment and may also have extended lead times should the part fail and need to be replaced.
Inventories are valued at the lower of cost or net realizable value with cost determined by the first-in, first-out method.
Disposal
and Transportation Costs
The
Company accrues for waste disposal based upon a physical count of the waste at each facility at the end of each accounting period. Current
market prices for transportation and disposal costs are applied to the end of period waste inventories to calculate for the transportation
and disposal accruals.
Property
and Equipment
Property
and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets
for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes. Generally, asset
lives range from ten to forty years for buildings (including improvements and asset retirement costs) and three to seven years for office
furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements are capitalized and amortized
over the lesser of the term of the lease or the life of the asset. Maintenance and repairs are charged directly to expense as incurred.
The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss from sale
or retirement is recognized in the accompanying Consolidated Statements of Operations. Renewals and improvements, which extend the useful
lives of the assets, are capitalized.
Certain
property and equipment expenditures are financed through leases. Amortization of financed leased assets is computed using the straight-line
method over the estimated useful lives of the assets. At December 31, 2021, assets recorded under finance leases were $2,409,000 less
accumulated depreciation of $475,000, resulting in net fixed assets under finance leases of $1,934,000. At December 31, 2020, assets
recorded under finance leases were $2,285,000 less accumulated depreciation of $291,000, resulting in net fixed assets under finance
leases of $1,994,000. These assets are recorded within net property and equipment on the Consolidated Balance Sheets.
Long-lived
assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at
the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Our
depreciation expense totaled approximately $1,476,000 and $1,357,000 in 2021 and 2020, respectively.
Leases
The
Company accounts for leases in accordance with FASB’s ASU 2016-02, “Leases (Topic 842).” 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 warehouse spaces used to conduct our business. These leases have remaining terms of approximately two to eight years which
include additional options to renew. The Company includes renewal options in valuing its ROU assets and liabilities when it determines
that it is reasonably certain to exercise these renewal options. As most of our operating leases do not provide an implicit rate, the
Company uses its incremental borrowing rate as the discount rate when determining the present value of the lease payments. The incremental
borrowing rate is determined based on the Company’s secured borrowing rate, lease terms and current economic environment. Some
of our operating leases include both lease (rent payments) and non-lease components (maintenance costs such as cleaning and landscaping
services). The Company has elected the practical expedient to account for lease component and non-lease component as a single component
for all leases under ASU 2016-02. 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. 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 Company’s finance leases have remaining terms of approximately one to four years and some of the leases include
options to purchase the underlying assets at fair market value at the conclusion of the lease term. See “Property and Equipment”
above for assets recorded under financed leases. Borrowing rates for our finance leases are either explicitly stated in the lease agreements
or implicitly determined from available terms in the lease agreements.
The
Company adopted the policy to not recognize ROU assets and liabilities for short term leases.
Intangible
Assets
Intangible
assets consist primarily of the recognized value of the permits required to operate our business. Indefinite-lived intangible assets
are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment indicate
that the carrying value may be impaired. If the fair value of the asset is less than the carrying amount, a quantitative test is performed
to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair
value. Judgments and estimates are inherent in these analyses and include assumptions for, among other factors, forecasted revenue, gross
margin, growth rate, operating income, timing of expected future cash flows, and the determination of appropriate long-term discount
rates. Impairment testing of our indefinite-lived permits related to our Treatment reporting unit as of October 1, 2021 and 2020 resulted
in no impairment charges.
Intangible
assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the exception
of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible asset valuation
review as of October 1. Definite-lived intangible assets are also tested for impairment whenever events or changes in circumstances suggest
impairment might exist.
R&D
Operational
innovation and technical know-how are very important to the success of our business. Our goal is to discover, develop, and bring to market
innovative ways to process waste that address unmet environmental needs and to develop new company service offerings. The Company conducts
research internally and also through collaborations with other third parties. R&D costs consist primarily of employee salaries and
benefits, laboratory costs, third party fees, and other related costs associated with the development and enhancement of new potential
waste treatment processes and new technology and are charged to expense when incurred in accordance with ASC Topic 730, “Research
and Development.”
Accrued
Closure Costs and ARO
Accrued
closure costs represent our estimated environmental liability to clean up our facilities, as required by our permits, in the event of
closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a liability
for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying cost of the
asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as
estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations, and credit adjusted
risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which the closure will occur,
and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are included within buildings as
part of property and equipment and are depreciated over the estimated useful life of the property. In periods subsequent to initial measurement
of the ARO, the Company must recognize period-to-period changes in the liability resulting from the passage of time and revisions to
either the timing or the amount of the original estimate of undiscounted cash flows. Increases in the ARO liability due to passage of
time impact net income as accretion expense, which is included in cost of goods sold. Changes in costs resulting from changes or expansion
at the facilities require adjustment to the ARO liability and are capitalized and charged as depreciation expense, in accordance with
the Company’s depreciation policy.
Income
Taxes
Income
taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the provision for income taxes is comprised
of taxes that are currently payable and deferred taxes that relate to the temporary differences between financial reporting carrying
values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted income tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all
of the deferred income tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax asset will
be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then
records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not
to be realized. (See “Note 13 – Income Taxes” for a discussion of the release of valuation allowance on deferred tax
assets made by the Company in the third quarter of 2021).
ASC
740 sets out a consistent framework for preparers to use to determine the appropriate recognition and measurement of uncertain tax positions.
ASC 740 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained. The amount
of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized. ASC 740 also sets out
disclosure requirements to enhance transparency of an entity’s tax reserves. The Company recognizes accrued interest and income
tax penalties related to unrecognized tax benefits as a component of income tax expense.
The
Company reassesses the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to determine if facts
or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability
under audit.
Foreign
Currency
The
Company’s foreign subsidiaries include PF UK Limited and PF Canada and also included PF Medical. Assets and liabilities
are translated to U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange
rate for the period. Foreign currency translation adjustments for these subsidiaries are accumulated as a separate component of accumulated
other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions are recognized
in the Consolidated Statements of Operations.
Concentration
Risk
The
Company performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either indirectly
for others as a subcontractor to government entities or directly as a prime contractor, representing approximately $60,812,000,
or 84.2%,
of our total revenue during 2021, as compared to
$96,582,000,
or 91.6%,
of our total revenue during 2020.
Revenue
generated by the Company as a subcontractor to a customer for a remediation project performed for a government entity (the DOE) within
our Services Segment in 2021 and 2020 accounted for approximately $8,526,000
or 11.8%
and $41,011,000
or 38.9%
(included in revenues generated relating to government clients above) of the Company’s total revenue for 2021 and 2020, respectively.
This remediation project included among other things, decontamination support of a building. This project was completed in the second
quarter of 2021.
As
our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract
with a different customer from year to year, the Company does not believe the loss of one specific customer from one year to the next
will generally have a material adverse effect on our operations and financial condition.
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts
receivable. The Company maintains cash with high quality financial institutions, which may exceed Federal Deposit Insurance Corporation
(“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to accounts receivable is limited due
to the Company’s large number of customers and their dispersion throughout the United States as well as with the significant amount
of work that we perform for government entities.
The
Company had two government related customers whose total unbilled and net outstanding receivable balances represented 18.2%
and 23.5%
of the Company’s total consolidated unbilled
and net accounts receivable at December 31, 2021. The Company had three government related customers whose total unbilled and net outstanding
receivable balances represented 41.1%,
19.0%
and 12.5%
of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2020.
Revenue
Recognition and Related Policies
The
Company recognizes revenue in accordance with FASB’s ASC 606, “Revenue from Contracts with Customers.” ASC 606 provides
a single, comprehensive revenue recognition model for all contracts with customers. Under ASC 606, a five-step process is utilized in
order to determine revenue recognition, depicting the transfer of goods or services to a customer at an amount that reflects the consideration
it expects to receive in exchange for those goods or services. Under ASC 606, a performance obligation is a promise in a contract to
transfer a distinct good or service to the customer and is the unit of account. A contract transaction price is allocated to each distinct
performance obligation and recognized as revenues as the performance obligation is satisfied.
Treatment
Segment Revenues:
Contracts
in our Treatment Segment primarily have a single performance obligation as the promise to receive, treat and dispose of waste is not
separately identifiable in the contract and, therefore, not distinct. Performance obligations are generally satisfied over time using
the input method. Under the input method, the Company uses a measure of progress divided into major phases which include receipt (ranging
from 9.0%
to 33%),
treatment/processing (ranging from 15%
to 79%)
and shipment/final disposal (ranging from 9.0%
to 52%).
As major processing phases are completed and the costs are incurred, the proportional percentage of revenue is recognized. Transaction
price for Treatment Segment contracts are determined by the stated fixed rate per unit price as stipulated in the contract.
Services
Segment Revenues:
Revenues
for our Services Segment are generated from time and materials or fixed price arrangements:
The
Company’s primary obligation to customers in time and materials contracts relate to the provision of services to the customer at
the direction of the customer. This provision of services at the request of the customer is the performance obligation, which is satisfied
over time. Revenue earned from time and materials contracts is determined using the input method and is based on contractually defined
billing rates applied to services performed and materials delivered.
Under
fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and all
of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is estimated based
upon the estimated cost to complete the overall project. Revenue from fixed price contracts is recognized over time primarily using the
input method. For the input method, revenue is recognized based on costs incurred on the project relative to the total estimated costs
of the project.
The
majority of our contracts with our customers are short term with an original expected length of one year or less. The Company’s
contracts and subcontracts relating to activities at governmental sites (both U.S. and Canadian) generally allow for termination for
convenience at any time at the government’s option without payment of a substantial penalty.
Variable
Consideration
The
Company’s contracts generally do not give rise to variable consideration. However, during the third quarter of 2021, the Company
recognized approximately $1,286,000 in revenue from a 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.
Significant
Payment Terms
Invoicing
is based on schedules established in customer contracts. Payment terms vary by customers but are generally established at 30 days from
invoicing.
Incremental
Costs to Obtain a Contract
Costs
incurred to obtain contracts with our customers are immaterial and as a result, the Company expenses (within selling, general and administration
expenses (“SG&A”)) incremental costs incurred in obtaining contracts with our customer as incurred.
Remaining
Performance Obligations
The
Company applies the practical expedient in 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 contracts and subcontracts relating to activities at governmental sites generally allow for termination for convenience
at any time at the government’s option without payment of a substantial penalty. The Company does not disclose remaining performance
obligations on these contracts.
Stock-Based
Compensation
Stock-based
compensation granted to employees are accounted for in accordance with ASC 718, “Compensation – Stock Compensation.”
Stock-based payment transactions for acquiring goods and services from nonemployees are also accounted for under ASC 718. ASC 718 requires
stock-based payments to employees and nonemployees, including grant of options, to be recognized in the Statement of Operations based
on their fair values. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards which
requires subjective assumptions. Assumptions used to estimate the fair value of stock-based awards include the exercise price of the
award, the expected term, the expected volatility of our stock over the stock-based award’s expected term, the risk-free interest
rate over the award’s expected term, and the expected annual dividend yield. The Company accounts for forfeitures when they occur.
Comprehensive
Income (Loss)
The
components of comprehensive income (loss) are net income (loss) and the effects of foreign currency translation adjustments.
Income
(Loss) Per Share
Basic
income (loss) per share is calculated based on the weighted-average number of outstanding common shares during the applicable period.
Diluted income (loss) per share is based on the weighted-average number of outstanding common shares plus the weighted-average number
of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive
earnings per share. Income (loss) per share is computed separately for each period presented.
Fair
Value of Financial Instruments
Certain
assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded
at fair value on a nonrecurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:
Level
1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level
2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data.
Level
3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably
available assumptions made by other market participants.
Financial
instruments include cash (Level 1), accounts receivable, accounts payable, and debt obligations (Level 3). Credit
is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required.
At December 31, 2021 and December 31, 2020, the fair value of the Company’s financial instruments approximated their carrying
values. The fair value of the Company’s revolving credit and term loan approximate its carrying value due to the variable interest
rate.
Recently
Adopted Accounting Standards
In
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
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 continues to qualify as a smaller reporting
company but has become an accelerated filer for all filings with the Commission starting with this Form 10-K filing and all subsequent
filings. 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. This ASU is effective January 1, 2022 for the Company. The Company does not expect
the adoption of this ASU will have a material impact on its financial statements.
NOTE
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 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) | |
Twelve
Months Ended | | |
Twelve
Months Ended | |
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
Treatment | | |
Services | | |
Total | | |
Treatment | | |
Services | | |
Total | |
Fixed price | |
$ | 32,992 | | |
$ | 11,236 | | |
$ | 44,228 | | |
$ | 30,143 | | |
$ | 8,970 | | |
$ | 39,113 | |
Time and materials | |
| — | | |
| 27,963 | | |
| 27,963 | | |
| — | | |
| 66,313 | | |
| 66,313 | |
Total | |
$ | 32,992 | | |
$ | 39,199 | | |
$ | 72,191 | | |
$ | 30,143 | | |
$ | 75,283 | | |
$ | 105,426 | |
Revenue by generator | |
| | |
| | |
| | |
| | |
| | |
| |
(In thousands) | |
Twelve
Months Ended | | |
Twelve
Months Ended | |
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
Treatment | | |
Services | | |
Total | | |
Treatment | | |
Services | | |
Total | |
Domestic government | |
$ | 22,538 | | |
$ | 29,013 | | |
$ | 51,551 | | |
$ | 22,795 | | |
$ | 68,237 | | |
$ | 91,032 | |
Domestic commercial | |
| 9,294 | | |
| 1,412 | | |
| 10,706 | | |
| 6,933 | | |
| 1,825 | | |
| 8,758 | |
Foreign government | |
| 577 | | |
| 8,684 | | |
| 9,261 | | |
| 415 | | |
| 5,135 | | |
| 5,550 | |
Foreign commercial | |
| 583 | | |
| 90 | | |
| 673 | | |
| — | | |
| 86 | | |
| 86 | |
Total | |
$ | 32,992 | | |
$ | 39,199 | | |
$ | 72,191 | | |
$ | 30,143 | | |
$ | 75,283 | | |
$ | 105,426 | |
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) | |
December
31, 2021 | | |
December
31, 2020 | | |
Change
($) | | |
Change
(%) | |
Contract assets | |
| | | |
| | | |
| | | |
| | |
Account receivables, net of allowance | |
$ | 11,372 | | |
$ | 9,659 | | |
$ | 1,713 | | |
| 17.7 | % |
Unbilled receivables - current | |
| 8,995 | | |
| 14,453 | | |
| (5,458 | ) | |
| (37.8 | )% |
| |
| | | |
| | | |
| | | |
| | |
Contract liabilities | |
| | | |
| | | |
| | | |
| | |
Deferred revenue | |
$ | 5,580 | | |
$ | 4,614 | | |
$ | 966 | | |
| 20.9 | % |
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 twelve months ended December 31, 2021 and 2020, the Company recognized revenue of $7,196,000 and $8,094,000, respectively, related
to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized in each period
related to performance obligations satisfied within the respective period.
NOTE
4
LEASES
The
components of lease cost for the Company’s leases were as follows (in thousands):
SCHEDULE OF COMPONENTS OF LEASE COST
| |
2021 | | |
2020 | |
| |
Twelve Months Ended
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Operating Leases: | |
| | | |
| | |
Lease
cost | |
$ | 499 | | |
$ | 456 | |
| |
| | | |
| | |
Finance Leases: | |
| | | |
| | |
Amortization of ROU assets | |
| 220 | | |
| 220 | |
Interest
on lease liability | |
| 97 | | |
| 143 | |
Finance
leases cost | |
| 317 | | |
| 363 | |
| |
| | | |
| | |
Short-term lease rent
expense | |
| 13 | | |
| 15 | |
| |
| | | |
| | |
Total lease cost | |
$ | 829 | | |
$ | 834 | |
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31, 2021 were:
SCHEDULE OF WEIGHTED AVERAGE LEASE
| |
Operating
Leases | | |
Finance
Leases | |
Weighted average remaining lease
terms (years) | |
| 6.9 | | |
| 4.0 | |
| |
| | | |
| | |
Weighted average discount rate | |
| 7.6 | % | |
| 6.2 | % |
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31, 2020 was:
| |
Operating Leases | | |
Finance Leases | |
Weighted average remaining lease
terms (years) | |
| 8.0 | | |
| 3.5 | |
| |
| | | |
| | |
Weighted average discount rate | |
| 8.0 | % | |
| 7.3 | % |
The
following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 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 | |
2022 | |
$ | 576 | | |
$ | 398 | |
2023 | |
| 560 | | |
| 314 | |
2024 | |
| 419 | | |
| 310 | |
2025 | |
| 327 | | |
| 299 | |
2026 | |
| 305 | | |
| 82 | |
2027 and thereafter | |
| 955 | | |
| - | |
Total undiscounted lease payments | |
| 3,142 | | |
| 1,403 | |
Less: Imputed interest | |
| (707 | ) | |
| (186 | ) |
Present value of lease
payments | |
$ | 2,435 | | |
$ | 1,217 | |
| |
| | | |
| | |
Current portion of operating lease obligations | |
$ | 406 | | |
$ | — | |
Long-term operating lease obligations, less
current portion | |
$ | 2,029 | | |
$ | — | |
Current portion of finance lease obligations | |
$ | — | | |
$ | 333 | |
Long-term finance lease obligations, less current
portion | |
$ | — | | |
$ | 884 | |
Supplemental
cash flow and other information related to our leases were as follows (in thousands):
SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES
| |
2021 | |
|
2020 | |
| |
Twelve Months Ended December
31, | |
| |
2021 | |
|
2020 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| |
|
| |
Operating cash
flow from operating leases | |
$ | 439 | |
|
$ | 442 | |
Operating cash flow from
finance leases | |
$ | 97 | |
|
$ | 143 | |
Financing cash flow from
finance leases | |
$ | 334 | |
|
$ | 615 | |
| |
| | |
|
| | |
ROU assets obtained in exchange for lease obligations
for: | |
| | |
|
| | |
Finance liabilities | |
$ | 577 | |
|
$ | 874 | |
Operating liabilities | |
$ | 491 | |
|
$ | — | |
| |
| | |
|
| | |
Reduction to ROU assets resulitng from reassessment
for | |
| | |
|
| | |
Finance liabilities | |
$ | (364 | ) |
|
$ | — | |
NOTE
5
PERMIT
AND OTHER INTANGIBLE ASSETS
The
following table summarizes changes in the carrying value of permits. No permit exists at our Services and Medical Segments.
SCHEDULE
OF INTANGIBLE ASSETS
Permit (amount in thousands) | |
Treatment | |
Balance as of December 31, 2019 | |
$ | 8,790 | |
Permit in progress | |
| 132 | |
Balance as of December 31, 2020 | |
$ | 8,922 | |
Permit renewal | |
$ | 121 | |
Permit in progress | |
| 433 | |
Balance as of December 31, 2021 | |
$ | 9,476 | |
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
SCHEDULE
OF DEFINITE LIVED INTANGIBLE ASSETS
| |
| | |
December
31, 2021 | | |
December
31, 2020 | |
| |
Weighted Average
Amortization | | |
Gross | | |
| | |
Net | | |
Gross | | |
| | |
Net | |
Other Intangibles | |
Period | | |
Carrying | | |
Accumulated | | |
Carrying | | |
Carrying | | |
Accumulated | | |
Carrying | |
(amount in thousands) | |
(Years) | | |
Amount | | |
Amortization | | |
Amount | | |
Amount | | |
Amortization | | |
Amount | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Patent | |
8.3 | | |
$ | 787 | | |
$ | (351 | ) | |
$ | 436 | | |
$ | 742 | | |
$ | (334 | ) | |
$ | 408 | |
Software | |
3 | | |
| 592 | | |
| (415 | ) | |
| 177 | | |
| 418 | | |
| (411 | ) | |
| 7 | |
Customer relationships | |
10 | | |
| 3,370 | | |
| (3,089 | ) | |
| 281 | | |
| 3,370 | | |
| (2,910 | ) | |
| 460 | |
Total | |
| | |
$ | 4,749 | | |
$ | (3,855 | ) | |
$ | 894 | | |
$ | 4,530 | | |
$ | (3,655 | ) | |
$ | 875 | |
The
intangible assets noted above were amortized on a straight-line basis over their useful lives with the exception of customer relationships
which were 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
| |
Amount | |
Year | |
(In
thousands) | |
| |
| |
2022 | |
$ | 233 | |
2023 | |
| 192 | |
2024 | |
| 61 | |
2025 | |
| 14 | |
2026 | |
| 11 | |
Amortization
expense recorded for definite-lived intangible assets was approximately $211,000 and $239,000, for the years ended December 31, 2021
and 2020, respectively.
NOTE
6
CAPITAL
STOCK, STOCK PLANS, WARRANTS AND STOCK BASED COMPENSATION
Stock
Option Plans
The
Company’s 2003 Outside Directors Stock Plan (the “2003 Plan”) provides for the grant of Non-Qualified Stock Options
(“NQSOs”) to member of the Company’s Board who is not an employee of the Company or its subsidiaries (“Eligible
Director”). On July 20, 2021, the Company’s stockholders approved an amendment (the “Amendment”) to the 2003
Plan which provided the following, among other things: i) authorizes an additional 500,000 shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock”) for issuance under the 2003 Plan, (ii) increases (a) the number of shares
of Common Stock subject to the automatic option grant made to each Eligible Director upon initial election, from 6,000 to 20,000 shares,
and (b) the number of shares of Common Stock subject to the automatic option grant made to each Eligible Director upon reelection, from
2,400 to 10,000 shares, (iii) amends the vesting period of options granted under the 2003 Plan, from a six-month vesting period to 25%
per year, beginning on the first anniversary date of the grant, and (iv) provides for acceleration of vesting under certain conditions.
The exercise price of options to be granted under the 2003 Plan continues to equal to the closing trade price on the date prior to the
grant date. The 2003 Plan continues to provide for the issuance to each Eligible Director a number of shares of the Company’s Common
Stock in lieu of 65% or 100% (based on option elected by each director) of the fee payable to the Eligible Director for services rendered
as a member of the Board. The number of shares issued is determined at 75% of the market value as defined in the 2003 Plan (the Company
recognizes 100% of the market value of the shares issued). The number of shares of the Company’s Common Stock authorized under
the 2003 Plan is 1,600,000. At December 31, 2021, the 2003 Plan had available for issuance 599,854 shares.
The
Company’s 2017 Stock Option Plan (“2017 Plan”) authorizes the grant of options to officers and employees of the Company,
including any employee who is also a member of the Board, as well as to consultants of the Company. The 2017 Plan, as amended, authorizes
an aggregate grant of 1,140,000 NQSOs and Incentive Stock Options (“ISOs”). Consultants of the Company can only be granted
NQSOs. The term of each stock option granted under the 2017 Plan shall be fixed by the Compensation Committee, but no stock options will
be exercisable more than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after the
grant date. The exercise price of any ISO granted under the 2017 Plan to an individual who is not a 10% stockholder at the time of the
grant shall not be less than the fair market value of the shares at the time of the grant, and the exercise price of any ISO granted
to a 10% stockholder shall not be less than 110% of the fair market value at the time of grant. The exercise price of any NQSOs granted
under the plan shall not be less than the fair market value of the shares at the time of grant. At December 31, 2021, the 2017 Plan had
available for issuance 344,000 shares.
The
Company’s 2010 Stock Option Plan (“2010 Plan”) expired on September 29, 2020; however, an option (ISO) issued under
the 2010 Plan prior to the expiration of the 2010 Plan for the purchase of up to 50,000 shares of our Common Stock at $3.97 per share
remains in effect until the earlier of the exercise date by the optionee or the maturity date of May 15, 2022.
Stock
Options to Employees and Outside Director
On
October 14, 2021, the Company granted 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 ISO Agreement, as follows: 50,000 shares for the CEO; 25,000 shares for the CFO;
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 has 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 was equal to the fair market value of the Company’s
Common Stock on the date of grant.
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 Plan, of up to 10,000 shares of the Company’s Common Stock. Each NQSO granted has 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 NQSO granted has a contractual term of ten years with a vesting
period of six months. The exercise price of the NQSO 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.
On
August 10, 2020, the Company issued a NQSO from the Company’s 2003 Plan to a new director elected by the Company’s Board
to fill a vacancy on the Board, for the purchase of up to 6,000 shares of the Company’s Common Stock. The NQSO granted has for
a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO is $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 issued a NQSO to each of the Company’s five reelected outside directors for the purchase, under the
Company’s 2003 Plan, of up to 2,400 shares of the Company’s Common Stock. Each NQSO granted has a contractual term of ten
years with a vesting period of six months. The exercise price of the NQSO is $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 issued a NQSO from the Company’s 2003 Plan to a new director elected by the Company’s Board
to fill a vacancy on the Board, for the purchase of up to 6,000 shares of the Company’s Common Stock. The NQSO granted has a contractual
term of ten years with a vesting period of six months. The exercise price of the options is $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.
During
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. During 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.
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 during 2020 and 2019 and the related assumptions used in the Black-Scholes option model
used to value the options granted were as follows. No options were granted to employees in 2020:
SCHEDULE OF SHARE-BASED PAYMENT AWARD, STOCK OPTIONS, VALUATION ASSUMPTIONS
| |
Employee Stock | |
| |
Option
Granted | |
| |
2021 | |
Weighted-average fair value per share | |
$ | 3.51 | |
Risk -free interest rate (1) | |
| 1.05 | % |
Expected volatility of stock
(2) | |
| 58.61 | % |
Dividend yield | |
| None | |
Expected option life (3) | |
| 5.0
years | |
| |
Outside
Director Stock Options Granted | |
| |
2021 | | |
2020 | |
Weighted-average fair value per share | |
$ | 3.9 | | |
$ | 4.66 | |
Risk -free interest rate (1) | |
| 1.23%-1.61 | % | |
| 0.59%-1.61 | % |
Expected volatility of stock
(2) | |
| 55.84%-55.91 | % | |
| 55.83%-56.68 | % |
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 fiscal years 2021 and 2020.
SCHEDULE OF SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS
| |
2021 | | |
2020 | |
| |
Year
Ended | |
| |
2021 | | |
2020 | |
Employee Stock Options | |
$ | 178,000 | | |
$ | 132,000 | |
Director Stock Options | |
| 72,000 | | |
| 104,000 | |
Total | |
$ | 250,000 | | |
$ | 236,000 | |
At
December 31, 2021, the Company has approximately $1,389,000 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
4.3 years.
Stock
Options to Consultant
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 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 first milestone
was met and the shares under the first milestone were issued to Robert Ferguson in May 2018. The Company had previously entered into
amendments whereby the vesting dates for the second and third milestones for the purchase of up to 30,000 and 60,000 shares of the Company’s
Common Stock were extended to December 31, 2021 and December 31, 2022, respectively. On January 20, 2022, the Company’s Compensation
Committee and the Board further amended the vesting dates of the second and third milestones to December 31, 2022 and December 31, 2023,
respectively. This amendment was approved by the Compensation Committee and the Board to take effect December 31, 2021. The Company has
not recognized compensation costs (fair value of approximately $289,000 at December 31, 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 December 31, 2021. All other terms of the Ferguson Stock Option remain unchanged.
Summary
of Stock Option Plans
The
summary of the Company’s total plans as of December 31, 2021 and 2020, and changes during the period then ended are presented as
follows:
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 | |
| 381,000 | | |
$ | 6.82 | | |
| | | |
| | |
Exercised | |
| (500 | ) | |
$ | 3.15 | | |
| | | |
$ | 2,175 | |
Forfeited/expired | |
| (19,500 | ) | |
$ | 6.75 | | |
| | | |
| | |
Options outstanding end
of period (1) | |
| 1,019,400 | | |
$ | 4.91 | | |
| 4.0 | | |
$ | 1,669,687 | |
Options exercisable at
December 31, 2021(1) | |
| 438,400 | | |
$ | 3.95 | | |
| 2.7 | | |
$ | 1,064,432 | |
| |
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 | | |
| 3.5 | | |
$ | 1,426,143 | |
Options
exercisable at December 31, 2020(3) | |
| 356,400 | | |
$ | 3.99 | | |
| 3.3 | | |
$ | 732,163 | |
(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 |
The
summary of the Company’s nonvested options as of December 31, 2021 and changes during the period then ended are presented as follows:
SCHEDULE OF NON VESTED OPTIONS
| |
| | |
Weighted Average | |
| |
| | |
Grant-Date | |
| |
Shares | | |
Fair
Value | |
Non-vested options January 1, 2021 | |
| 302,000 | | |
$ | 1.94 | |
Granted | |
| 381,000 | | |
| 3.59 | |
Vested | |
| (100,500 | ) | |
| 2.44 | |
Forfeited | |
| (1,500 | ) | |
| 1.42 | |
Non-vested options at December 31, 2021 | |
| 581,000 | | |
$ | 3.13 | |
Warrant
In
connection with a $2,500,000 loan that the Company executed April 1, 2019 with Mr. Robert Ferguson, the Company issued a Warrant to Mr.
Ferguson for the purchase of up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share. The Warrant is exercisable
six months from April 1, 2019 and expires on April 1, 2024 and remains outstanding at December 31, 2021. The loan was paid-in-full by
the Company in December 2020.
Common
Stock Issued for Services
The
Company issued a total of 60,723 and 34,135 shares of our Common Stock in 2021 and 2020, respectively, under our 2003 Plan to our outside
directors as compensation for serving on our Board. As a member of the Board, each director elects to receive either 65% or 100% of the
director’s fee in shares of our Common Stock. The number of shares received is calculated based on 75% of the fair market value
of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due. The balance of each
director’s fee, if any, is payable in cash. The Company recorded approximately $ and $ in compensation expense (included
in SG&A expenses) for the twelve months ended December 31, 2021 and 2020, respectively, for the portion of director fees earned in
the Company’s Common Stock.
Sale
of Common Stock
On
September 30, 2021, the Company entered into subscription agreements with certain institutional and retail investors in a registered
direct offering, for the sale and issuance of 1,000,000 shares of the Company’s Common Stock (See “Note 7 – Common
Stock Subscription Agreement” for a discussion of the issuance of the shares from this direct offering).
Shares
Reserved
At
December 31, 2021, the Company has reserved approximately 1,019,400 shares of our Common Stock for future issuance under all of the option
arrangements.
NOTE
7
COMMON
STOCK SUBSCRIPTION AGREEMENT
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,
an aggregate of 1,000,000 shares (the “Shares”) of our Common Stock, at a negotiated purchase price per share of $6.20 (the
“Shares”), for aggregate gross proceeds to us of approximately $6,200,000. The offering price per share was negotiated based
on the average closing price of our Common Stock as quoted on Nasdaq over the three-week period immediately preceding the date of the
Subscription Agreements, less a five percent discount.
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 paid Wellington a cash fee of 6.00% of the aggregate gross proceeds in the Offering which totaled $372,000. The Company also
reimbursed Wellington for certain expenses in connection with the Offering in an aggregate amount not to exceed $50,000. After deducting
costs incurred directly in connection with the offering which were recorded as deduction to equity, net proceeds to the Company totaled
approximately $5,704,000. As of December 31, 2021, approximately $435,000 of the $496,000 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.
NOTE
8
INCOME
(LOSS) PER SHARE
The
following table reconciles the income (loss) and average share amounts used to compute both basic and diluted income per share:
SCHEDULE OF EARNINGS PER SHARE, BASIC AND DILUTED
| |
| | | |
| | |
| |
Years Ended | |
| |
December
31, | |
(Amounts in Thousands, Except
for Per Share Amounts) | |
2021 | | |
2020 | |
Net income attributable to Perma-Fix Environmental
Services, Inc., common stockholders: | |
| | | |
| | |
Income
from continuing operations, net of taxes | |
$ | 1,092 | | |
$ | 3,149 | |
Net
loss attributable to non-controlling interest | |
| (164 | ) | |
| (123 | ) |
Income from continuing
operations attributable to Perma-Fix Environmental
Services, Inc. common stockholders | |
$ | 1,256 | | |
$ | 3,272 | |
Loss from discontinuing
operations attributable to Perma-Fix
Environmental Services, Inc. common stockholders | |
| (421 | ) | |
| (412 | ) |
Net
income attributable to Perma-Fix Environmental Services, Inc. common stockholders | |
$ | 835 | | |
$ | 2,860 | |
| |
| | | |
| | |
Basic income per share
attributable to Perma-Fix Environmental Services, Inc. common stockholders | |
$ | .07 | | |
$ | .24 | |
| |
| | | |
| | |
Diluted income per share
attributable to Perma-Fix Environmental Services, Inc. common stockholders | |
$ | .07 | | |
$ | .23 | |
| |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | |
Basic weighted average shares outstanding | |
| 12,433 | | |
| 12,139 | |
Add: dilutive effect of
stock options | |
| 211 | | |
| 184 | |
Add:
dilutive effect of warrants | |
| 29 | | |
| 24 | |
Diluted weighted average shares outstanding | |
| 12,673 | | |
| 12,347 | |
| |
| | | |
| | |
Potential shares excluded from above weighted
average share calculations due to their anti-dilutive effect include: | |
| | | |
| | |
Stock options | |
| 323 | | |
| 42 | |
Warrant | |
| — | | |
| — | |
NOTE
9
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 incurred losses from discontinued operations of $421,000 (net of tax benefit of $139,000) and $412,000 (net of taxes of $0) for
the years ended December 31, 2021 and 2020, respectively. The loss for the year ended 2021 included an increase of approximately $100,000
in remediation reserve for our PFSG subsidiary due to reassessment of the remediation reserve. The remaining loss for each of the periods
noted above was primarily due to costs incurred in the administration and continued monitoring of our discontinued operations.
The
following table presents the major class of assets of discontinued operations at December 31, 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
| |
| | | |
| | |
| |
December 31, | | |
December 31, | |
(Amounts in Thousands) | |
2021 | | |
2020 | |
Current assets | |
| | | |
| | |
Other assets | |
$ | 15 | | |
$ | 22 | |
Total current assets | |
| 15 | | |
| 22 | |
Long-term assets | |
| | | |
| | |
Property, plant and equipment,
net (1) | |
| 81 | | |
| 81 | |
Total
long-term assets | |
| 81 | | |
| 81 | |
Total
assets | |
$ | 96 | | |
$ | 103 | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 3 | | |
$ | 4 | |
Accrued expenses and other liabilities | |
| 154 | | |
| 150 | |
Environmental liabilities | |
| 349 | | |
| 744 | |
Total current liabilities | |
| 506 | | |
| 898 | |
Long-term liabilities | |
| | | |
| | |
Closure liabilities | |
| 150 | | |
| 142 | |
Environmental liabilities | |
| 527 | | |
| 110 | |
Total
long-term liabilities | |
| 677 | | |
| 252 | |
Total
liabilities | |
$ | 1,183 | | |
$ | 1,150 | |
(1) |
net of accumulated depreciation of $10,000 for each period
presented. |
Environmental
Liabilities
The
Company has three remediation projects, which are currently in progress relating to our PFD, PFM and PFSG (closed locations) subsidiaries,
all within our discontinued operations. The Company divested PFD in 2008; however, the environmental liability of PFD was retained
by the Company upon the divestiture of PFD. These remediation projects principally entail the removal/remediation of contaminated soil
and, in most cases, the remediation of surrounding ground water. The remediation activities are closely reviewed and monitored by the
applicable state regulators.
At
December 31, 2021, the Company had total accrued environmental remediation liabilities of $876,000, an increase of $22,000 from the December
31, 2020 balance of $854,000. The net increase represents an increase of $100,000 made to the reserve at our PFSG subsidiary as discussed
above and payments of approximately $78,000 for remediation projects for the three subsidiaries. At December 31, 2021, $349,000 of the
total accrued environmental liabilities was recorded as current.
The
current and long-term accrued environmental liabilities at December 31, 2021 are summarized as follows (in thousands).
SCHEDULE OF CURRENT AND LONG TERM ACCRUED ENVIRONMENTAL LIABILITY
| |
Current | | |
Long-term | | |
| |
| |
Accrual | | |
Accrual | | |
Total | |
PFD | |
$ | 8 | | |
$ | 60 | | |
$ | 68 | |
PFM | |
| — | | |
| 15 | | |
| 15 | |
PFSG | |
| 341 | | |
| 452 | | |
| 793 | |
Total liability | |
$ | 349 | | |
$ | 527 | | |
$ | 876 | |
NOTE
10
LONG-TERM
DEBT
Long-term
debt consists of the following at December 31, 2021 and December 31, 2020:
SCHEDULE OF LONG TERM DEBT
(Amounts in Thousands) | |
December
31, 2021 | | |
December
31, 2020 | |
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 2021 and 2020 was 5.3% and 6.1%. (1) | |
$ | — | | |
$ | — | |
Term
Loan dated May 8, 2020, payable in equal monthly installments of principal, balance due on May 15, 2024. Effective interest rate
for 2021 and 2020 was 4.5% and 5.2%. (1) | |
| 954 | (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%. | |
| 39 | | |
| 23 | |
Total debt | |
| 993 | | |
| 6,729 | |
Less current portion of
long-term debt | |
| 393 | | |
| 3,595 | |
Long-term debt | |
$ | 600 | | |
$ | 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/debt discount costs of ($112,000) and ($105,000) at December 31, 2021 and December 31, 2020, respectively. |
(3) |
Uncollateralized
note. |
(4) |
Entered
into with the Company’s credit facility lender under the PPP under the 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 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 December 31, 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 December 31,
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
December 31, 2021, the borrowing availability under the Company’s revolving credit was approximately $8,692,000 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’s Loan Agreement prohibits us from paying cash dividends on our Common Stock
without prior approval from our lender. 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. The Company met its financial covenant requirements for the fourth quarter of 2021, with the exception of the FCCR requirement;
however, this non-compliance was waived by the Company’s lender pursuant to an amendment to our Loan Agreement dated March 29,
2022 (see “Note 21 - Subsequent Events – Credit Facility” for a discussion of this waiver and additional provisions
of this amendment).
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 SBA. The
CARES Act was subsequently amended by the 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 for the year ended 2021.
The
following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2021 (excludes debt issuance
costs of $112,000).
SCHEDULE OF MATURITIES OF LONG-TERM DEBT
Year ending December 31: | |
| |
| |
(In thousands) | |
2022 | |
$ | 441 | |
| |
2023 | |
| 437 | |
| |
2024 | |
| 220 | |
| |
2025 | |
| 7 | |
| |
Total | |
$ | 1,105 | |
NOTE
11
ACCRUED
EXPENSES
Accrued
expenses include the following (in thousands) at December 31:
SCHEDULE
OF ACCRUED EXPENSES
| |
2021 | | |
2020 | |
Salaries and employee benefits | |
$ | 3,049 | | |
$ | 4,203 | |
Accrued sales, property and other tax | |
| 183 | | |
| 589 | |
Interest payable | |
| 3 | | |
| 50 | |
Insurance payable | |
| 1,209 | | |
| 1,145 | |
Other | |
| 634 | | |
| 394 | |
Total
accrued expenses | |
$ | 5,078 | | |
$ | 6,381 | |
Accrued
expenses for 2020 included an aggregate of approximately $419,000 in compensation expenses accrued under 2020 MIPs for our executive
officers which was paid in July 2021.
NOTE
12
ACCRUED
CLOSURE COSTS AND ARO
Accrued
closure costs represent our estimated environmental liability to clean up our fixed-based regulated facilities as required by our permits,
in the event of closure. Changes to reported closure liabilities (current and long-term) for the years ended December 31, 2021 and 2020,
were as follows:
SCHEDULE
OF CHANGE IN ASSET RETIREMENT OBLIGATION
Amounts in thousands | |
| |
Balance as of December 31, 2019 | |
$ | 6,041 | |
Accretion expense | |
| 335 | |
Spending | |
| (11 | ) |
Balance as of December 31, 2020 | |
$ | 6,365 | |
Accretion expense | |
| 377 | |
Addition to closure liability | |
| 499 | |
Spending | |
| (50 | ) |
Balance as of December 31, 2021 | |
$ | 7,191 | |
The
addition to closure liabilities for 2021 reflects primarily estimated costs for decommissioning activities required to restore the leased
property at our EWOC facility back to its original condition at the end of its lease term. As of December 31, 2021, current portion of
the closure liabilities totaled approximately $578,000 which consists primarily of the closure liabilities for our EWOC facility.
The
reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance Sheets
at December 31, 2021 and 2020 with the following activity for the years ended December 31, 2021 and 2020:
SCHEDULE
OF ASSET RETIREMENT OBLIGATIONS
Amounts in thousands | |
| |
Balance as of December 31, 2019 | |
$ | 3,539 | |
Amortization of closure
and post-closure asset | |
| (191 | ) |
Balance as of December 31, 2020 | |
$ | 3,348 | |
Addition to closure and post-closure asset | |
| 478 | |
Amortization of closure
and post-closure asset | |
| (250 | ) |
Balance as of December 31, 2021 | |
$ | 3,576 | |
The
addition to ARO reflects closure obligations related to our EWOC facility as discussed above.
NOTE
13
INCOME
TAXES
The
components of (loss) income before income tax benefits by jurisdiction for continuing operations for the years ended December 31, consisted
of the following (in thousands):
SCHEDULE
OF INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) EXPENSE
| |
2021 | | |
2020 | |
United States | |
| ) | |
| |
Canada | |
| ) | |
| ) |
United Kingdom | |
| ) | |
| ) |
Poland | |
| | |
| ) |
Total
(loss) income before tax benefit | |
$ | ) | |
$ | |
The
components of current and deferred federal and state income tax (benefits) expense for continuing operations for the years ended December
31, consisted of the following (in thousands):
SCHEDULE
OF COMPONENTS OF INCOME TAX (BENEFIT) EXPENSE
| |
2021 | | |
2020 | |
Federal income tax (benefit) expense
- deferred | |
| (3,503 | ) | |
| 4 | |
State income tax benefit - current | |
| (56 | ) | |
| (70 | ) |
Foreign income tax expense - current | |
| 26 | | |
| — | |
State income tax benefit
- deferred | |
| (357 | ) | |
| (123 | ) |
Total
income tax benefit | |
$ | (3,890 | ) | |
$ | (189 | ) |
An
overall reconciliation between the expected tax benefit using the federal statutory rate of 21% for each of the years ended 2021 and
2020 and the benefit for income taxes from continuing operations as reported in the accompanying Consolidated Statement of Operations
is provided below (in thousands).
SCHEDULE
OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| |
2021 | | |
2020 | |
Federal tax (benefit) expense at
statutory rate | |
$ | (588 | ) | |
$ | 622 | |
State tax benefit, net of federal benefit | |
| (412 | ) | |
| (192 | ) |
Change in deferred tax rates | |
| (93 | ) | |
| (71 | ) |
Permanent items | |
| 62 | | |
| 126 | |
PPP Loan forgiveness | |
| (1,130 | ) | |
| — | |
Debt forgiveness (PFM Poland) | |
| (518 | ) | |
| — | |
Difference in foreign rate | |
| (135 | ) | |
| (68 | ) |
True-up of deferred tax items | |
| 1,058 | | |
| (256 | ) |
Other | |
| (7 | ) | |
| 117 | |
Decrease in valuation
allowance | |
| (2,127 | ) | |
| (467 | ) |
Income tax benefit | |
$ | (3,890 | ) | |
$ | (189 | ) |
During
the fourth quarter of 2021, the Company sold PFM Poland resulting from its decision to cease all R&D activities under its Medical
Segment. Prior to the sale, the Company purchased Perma-Fix Medical LLC which was converted from PFMC, a wholly-owned subsidiary of PFM
Poland. Perma-Fix Medical LLC was treated as a disregarded entity for tax purposes, resulting in a realized tax loss of $2,466,000 from
uncollected payables. As a condition of the sale of PFM Poland, the Company forgave its receivables from PFM Poland resulting in a $3,089,000
capital loss on the sale of 100% interest of PFM Poland stock (see “Note 14 – PF Medical for a discussion on the sale of
PFM Poland).
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. Since the end of the second quarter of 2021, however, the Company entered into a number
of new contracts awarded to the Company’s Services Segment (including a contract award with a value of approximately $40,000,000
for the decommissioning of a navy ship). As a
result of these new contracts, the Company expected future profitability and improved overall prospects of future business.
As such, as of September 30, 2021, the Company determined that it was more likely than not that it would be able to realize
a portion of the deferred income tax assets. 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 primarily related to U.S. Federal income taxes was realized in the three months ended September
30, 2021. The Company continues to maintain a valuation allowance against certain state and foreign tax attributes that may not be realizable
along with the capital loss carryover generated during 2021 that it does not expect to realize.
The
global intangible low-taxed income (“GILTI”) provisions under the Tax Cuts and Jobs Act of 2017 (the “TCJA”)
require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign
subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore
has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2021 and
2020. As the Canada and United Kingdom foreign subsidiaries are in loss positions for 2021, no GILTI inclusion is expected for these
entities for the current year. In addition, the aforementioned sale of PFM Poland is not expected to result in any GILTI inclusion.
On
March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act included a number of income tax law changes, including modifications
to the interest limitation under Internal Revenue Code (“IRC”) §163(j) and reinstatement of the ability to carry back
net operating losses. On July 1, 2021, the Company received forgiveness of its PPP Loan which is included in its Consolidated Statement
of Operations as “Gain on extinguishment of debt” but is exempt from income taxes.
The
Company had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations, which gave
rise to deferred tax assets and liabilities at December 31, 2021 and 2020 as follows (in thousands):
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2021 | | |
2020 | |
Deferred tax assets: | |
| | |
| |
Net operating
losses | |
$ | 10,057 | | |
$ | 8,662 | |
Environmental and closure
reserves | |
| 2,040 | | |
| 1,839 | |
Lease liability | |
| 575 | | |
| 642 | |
Capital loss carryforward | |
| 740 | | |
| — | |
Other | |
| 1,099 | | |
| 1,734 | |
Deferred tax liabilities: | |
| | | |
| | |
Depreciation and amortization | |
| (3,362 | ) | |
| (3,447 | ) |
Indefinite lived intangible
assets | |
| (464 | ) | |
| (471 | ) |
Right-of-use lease asset | |
| (583 | ) | |
| (627 | ) |
481(a) adjustment | |
| (104 | ) | |
| (209 | ) |
Prepaid
expenses | |
| (24 | ) | |
| (22 | ) |
Deferred
tax assets, gross | |
| 9,974 | | |
| 8,101 | |
Valuation
allowance | |
| (6,447 | ) | |
| (8,572 | ) |
Net deferred income
tax asset (liabilities) | |
| 3,527 | | |
| (471 | ) |
The
Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately
$19,920,000
and $72,767,000,
respectively, as of December 31, 2021. These NOLs can be carried forward and applied against future taxable income, if any, and expire
in various amounts starting in 2021. Approximately
$19,725,000
of our federal NOLs were generated after
December 31, 2017 and thus do not expire.
The
tax years 2018 through 2020 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.
No
uncertain tax positions were identified by the Company for the years currently open under statute of limitations.
The
Company had no federal income tax payable for the years ended December 31, 2021 and 2020.
NOTE
14
PF
MEDICAL
As
previously disclosed, the Company made the strategic decision during the fourth quarter to
cease all R&D activities under its Medical Segment. The Medical Segment conducted its
activities through the Company’s majority-owned Polish subsidiary, PFM Poland and PFM
Poland’s wholly-owned subsidiary PFMC, a Delaware corporation. On December 30, 2021,
the Company entered into a Sales of Shares Agreement (the “sales agreement”)
for its entire stock ownership (60.54%) of PFM Poland for notes receivable of approximately
$47,000 (USD). The notes receivable will be paid to the Company by the buyer on the earlier
of either twelve months from the closing date or within three days of a resale of the shares
by the buyer. As condition precedent to the sales agreement, the Company released PFM Poland
from unsatisfied trade payables owed by PFM Poland to the Company totaling approximately
$2,537,000 (USD). The Company will have no continuing involvement with PFM Poland other than
administrative requirements, as applicable, through the completion of PFM Poland’s
2021 Polish year-end financial audit, which is expected to be completed in late May 2022.
Immediately before the sales agreement was executed,
the Company converted PFMC from a S Corporation to a limited liability company (Perm-Fix Medical LLC or “PFM LLC”) and acquired
the entire ownership from the majority-owned Polish subsidiary for $10. The transaction was deemed to be a common control transaction
and all assets and liabilities were transferred using the historical carrying values in accordance with guidance in ASC 805-50-25, “Business
Combinations, Related Issues, Recognition.” The carrying amount of the non-controlling interest was adjusted to reflect the change
in the ownership of the subsidiary. As a result, approximately $1,004,000 of the non-controlling interest related to the cumulative loss
of PFM LLC was recognized as additional paid-in capital on the Company’s Consolidated Statements of Stockholders’ Equity and
approximately $902,000 was recognized as a component within “Loss on deconsolidation of subsidiary” recorded on the Company’s
Consolidated Statement of Operations.
As a result, effective December 30, 2021, PFM Poland
was no longer a subsidiary of the Company and the Company deconsolidated the entity from its consolidated financial statements in accordance
with guidance in ASC 810-10-40, “Consolidation, Overall, Derecognition.” Accordingly, the Company’s Consolidated
Balance Sheet at December 31, 2020, as reported, includes the consolidated assets and liabilities after intercompany eliminations for
PFM Poland. However, the December 31, 2021 Consolidated Balance Sheet does not in include balances due to the sale and deconsolidation
of PFM Poland. In addition, the Company’s Consolidated Statements of Operations include results of its majority-owned Polish subsidiary
for the period through December 30, 2021.
The Company recognized a non-cash “Loss on deconsolidation
of subsidiary” of approximately $1,062,000 on its Consolidated Statements of Operation from the above transaction. The loss included
approximately $94,000 in legal and accounting costs incurred for the transaction.
SCHEDULE
OF LOSS ON DECONSOLIDATION
(In thousands) | |
| |
Note receivable consideration received | |
$ | 47 | |
| |
| | |
Less: | |
| | |
Carrying amount of non-controlling interest | |
| 902 | |
Carrying amount of accumulated other comprehensive
loss | |
| 148 | |
Net liabilities | |
| (35 | ) |
Transaction costs | |
| 94 | |
| |
| | |
Loss on deconsolidation
of subsidiary | |
$ | (1,062 | ) |
NOTE
15
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.
Tetra
Tech EC, Inc. (“Tetra Tech”)
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 various claims, including a claim for negligence, negligent misrepresentation, equitable
indemnification and related business claims 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.
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. On January 27, 2022 a decision and Order on Defendants’ motion to dismiss was
issued by the Court, which dismissed some claims, allowed for the potential amendment of other claims and declined to dismiss other claims
at this time. The Company continues to believe it does not have any liability to Tetra Tech.
PF
Canada
During
the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from Canadian Nuclear Laboratories, LTD. (“CNL”)
on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada
(“Agreement”). The NOT was received after work under the TOA was substantially completed. CNL may terminate the TOA at any
time for convenience. As of December 31, 2021, PF Canada has approximately $2,640,000
in unpaid receivables and unbilled costs
due from CNL as a result of work performed under the TOA. Additionally, CNL has approximately $871,000
in contractual holdback under the TOA that is
payable to PF Canada. CNL also established a bond securing approximately $1,900,000
(CAD) to cover certain issue raised in connection
with the TOA. Under the TOA, CNL may be entitled to set off certain costs and expenses incurred by CNL in connection with the termination
of the TOA, including the bond as discussed above, against amounts owed to PF Canada for work performed by PF Canada or its
subcontractors. PF Canada continues to be in discussions with CNL to finalize the amounts due to PF Canada under the TOA and continues
to believes these amounts are due and payable.
Insurance
The
Company has a 25-year finite risk insurance policy entered into in June 2003 (“2003 Closure Policy”) with 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 $20,403,000 at December
31, 2021. At December 31, 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 $11,471,000 and $11,446,000,
respectively, which included interest earned of $2,000,000 and $1,975,000 on the finite risk sinking funds as of December 31, 2021 and
December 31, 2020, respectively. Interest income for the year ended 2021 and 2020 was approximately $25,000 and $139,000, 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 December 31, 2021, the total amount of standby letters of credit outstanding was
approximately $3,020,000 and the total amount of bonds outstanding was approximately $50,109,000.
NOTE
16
PROFIT
SHARING PLAN
The
Company adopted a 401(k) Plan in 1992, which is intended to comply with Section 401 of the Internal Revenue Code and the provisions of
the Employee Retirement Income Security Act of 1974. All full-time employees who have attained the age of 18 are eligible to participate
in the 401(k) Plan. Eligibility is immediate upon employment but enrollment is only allowed during four quarterly open periods of January
1, April 1, July 1, and October 1. Participating employees may make annual pretax contributions to their accounts up to 100% of their
compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make matching contributions of 25% based
on the employee’s elective contributions. Company contributions vest over a period of five years. In 2021 and 2020, the Company
contributed approximately $589,000 and $594,000 in 401(k) matching funds, respectively.
NOTE
17
RELATED
PARTY TRANSACTIONS
David
Centofanti
David
Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $184,000 and $181,000
for 2021 and 2020, respectively. David Centofanti is the son of our EVP of Strategic Initiatives and a Board member.
Employment
Agreements
The
Company entered into an employment agreement dated July 22, 2020 with each of our executive officers (each employment agreement referred
to as “Employment Agreement”).
Each
Employment Agreement 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 Employment Agreement, each Employment Agreement will automatically
be extended for one additional year, unless at least six months prior to the expiration of the Initial Term, we or the executive officer
provides written notice not to extend the terms of the Employment Agreement. Each Employment Agreement provides for annual base salary,
performance bonuses (as provided in the MIP as approved by our Compensation Committee and Board) and other benefits commonly found in
such agreement.
Pursuant
to each Employment Agreement, if the executive officer’s employment is terminated due to death/disability or for cause (as defined
in the agreement), 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 agreement) or is terminated by us 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 agreement), 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)).
MIPs
On
January 21, 2021, the Compensation Committee and our Board approved individual MIP for the calendar year 2021 for each of our executive
officers. Each MIP is effective January 1, 2021 and applicable for year 2021. Each MIP provides guidelines for the calculation of annual
cash incentive-based compensation, subject to Compensation Committee oversight and modification. The performance compensation under each
of the MIPs is based upon meeting certain of the Company’s separate target objectives during 2021. Assuming each target objective
is achieved under the same performance threshold range under each MIP, the total potential target performance compensation payable ranged
from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000),
5% to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP of
Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of Waste Treatment
Operations. No performance compensation was earned under any of the 2021 MIPs.
Board
Compensation
On
January 21, 2021, the Company’s Compensation Committee and the Board approved, effective January 1, 2021, the following revisions
to the annual compensation of each non-employee Board member for service on the Board and the Board Committee(s) for which the Board
member serves:
● |
each
director is to be paid a quarterly fee of $11,500, compared to the previous quarterly fee of $8,000; |
● |
the
Chairman of the Board is to be paid an additional quarterly fee of $8,750, compared to the Chairman’s previous additional quarterly
fee of $7,500; |
● |
the
Chairman of the Audit Committee is to be paid an additional quarterly fee of $6,250, compared to the Audit Chair’s previous
additional quarterly fee of $5,500; |
● |
the
Chairman of each of the Compensation Committee, the Corporate Governance and Nominating Committee (“Nominating Committee”),
and the Strategic Advisory Committee (“Strategic Committee”) is to receive $3,125 in additional quarterly fees. No additional
quarterly fees were previously paid to the chairs of such committees. The Chairman of the Board is not eligible to receive a quarterly
fee for serving as the Chairman of any the aforementioned committees; |
● |
each
Audit Committee member (excluding the Chairman of the Audit Committee) is to receive an additional quarterly fee of $1,250; and |
● |
each
member of the Compensation Committee, the Nominating Committee, and the Strategic Committee is to receive a quarterly fee of $500.
Such fee is payable only if the member does not also serve as the Chairman of another standing committee or as the Chairman of the
Board. |
Each
non-employee Board member continues to receive $1,000 for each in-person board meeting attendance and a $500 fee for meeting attendance
via conference call. Reimbursements of expenses for attending meetings of the Board are paid in cash at the time of the applicable Board
meeting.
Each
non-employee director may continue to elect to have either 65% or 100% of such fees payable in Common Stock under the 2003 Plan, with
the balance, if any, payable in cash (see “Note 6 – Capital Stock, Stock Plans, Warrants, and Stock Based Compensation –
Stock Option Plans” for a discussion of the 2003 Plan).
NOTE
18
SEGMENT
REPORTING
In
accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
|
● |
from
which we may earn revenue and incur expenses; |
|
● |
whose
operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess
its performance; and |
|
● |
for
which discrete financial information is available. |
We
have three reporting segments, which include Treatment and Services Segments, which are based on a service offering approach; and Medical,
whose primary purpose was the R&D of a medical isotope production technology. The Medical Segment had not generated any revenues.
During December 2021, the Company made the strategic decision to cease all R&D activities under the Medical Segment which resulted
in the sale of 100% of its interest of PFM Poland (see “Note 14 – PF Medical” for a discussion of this transaction).
Our reporting segments exclude our corporate headquarter, business center and our discontinued operations (see “Note 9 –
Discontinued Operations”) which do not generate revenues.
The
table below shows certain financial information of our reporting segments as of and for the years ended December 31, 2021 and 2020 (in
thousands).
SCHEDULE OF SEGMENT REPORTING INFORMATION
Segment Reporting as of and for the
year ended December 31, 2021
| |
Treatment | | |
Services | | |
Medical | | |
Segments
Total | | |
Corporate
(2) | | |
Consolidated
Total | |
Revenue
from external customers | |
$ | 32,992 | | |
$ | 39,199 | | |
| — | | |
$ | 72,191 | (3)(4) | |
$ | — | | |
$ | 72,191 | |
Intercompany
revenues | |
| 1,265 | | |
| 47 | | |
| — | | |
| 1,312 | | |
| — | | |
| — | |
Gross
profit | |
| 6,718 | | |
| 106 | | |
| — | | |
| 6,824 | | |
| — | | |
| 6,824 | |
Research
and development | |
| 221 | | |
| 71 | | |
| 414 | | |
| 706 | | |
| 40 | | |
| 746 | |
Interest
income | |
| 1 | | |
| — | | |
| — | | |
| 1 | | |
| 25 | | |
| 26 | |
Interest
expense | |
| (100 | ) | |
| (10 | ) | |
| — | | |
| (110 | ) | |
| (137 | ) | |
| (247 | ) |
Interest
expense-financing fees | |
| — | | |
| (1 | ) | |
| — | | |
| (1) | | |
| (40 | ) | |
| (41 | ) |
Depreciation
and amortization | |
| 1,306 | | |
| 353 | | |
| — | | |
| 1,659 | | |
| 28 | | |
| 1,687 | |
Segment
income (loss) before income taxes | |
| | |
| ) | |
| (11)(12) | |
| ) | |
| (561) | (9)(11) | |
| ) |
Income
tax (benefit) expense | |
| (150 | ) | |
| (962 | ) | |
| 26 | | |
| (1,086 | ) | |
| (2,804 | ) | |
| (3,890) | (10) |
Segment
income (loss) | |
| 2,433 | | |
| (2,082 | ) | |
| (1,502 | ) | |
| (1,151 | ) | |
| 2,243 | | |
| 1,092 | |
Segment
assets(1) | |
| 37,050 | | |
| 15,244 | (8) | |
| 48 | | |
| 52,342 | | |
| 24,959 | (5) | |
| 77,301 | |
Expenditures
for segment assets (net) | |
| 1,363 | | |
| 205 | | |
| — | | |
| 1,568 | | |
| 9 | | |
| 1,577 | (7) |
Total
debt | |
| 25 | | |
| 14 | | |
| — | | |
| 39 | | |
| 954 | | |
| 993 | (6) |
Segment Reporting as of and for the
year ended December 31, 2020
| |
Treatment | | |
Services | | |
Medical | | |
Segments
Total | | |
Corporate
(2) | | |
Consolidated
Total | |
Revenue
from external customers | |
$ | 30,143 | | |
$ | 75,283 | | |
| — | | |
$ | 105,426
| (3)(4) | |
$ | — | | |
$ | 105,426 | |
Intercompany
revenues | |
| 1,493 | | |
| 25 | | |
| — | | |
| 1,518 | | |
| — | | |
| — | |
Gross
profit | |
| 5,491 | | |
| 10,402 | | |
| — | | |
| 15,893 | | |
| — | | |
| 15,893 | |
Research
and development | |
| 243 | | |
| 132 | | |
| 311 | | |
| 686 | | |
| 76 | | |
| 762 | |
Interest
income | |
| 1 | | |
| — | | |
| — | | |
| 1 | | |
| 139 | | |
| 140 | |
Interest
expense | |
| (115 | ) | |
| (27 | ) | |
| — | | |
| (142 | ) | |
| (256 | ) | |
| (398 | ) |
Interest
expense-financing fees | |
| — | | |
| — | | |
| — | | |
| — | | |
| (294 | ) | |
| (294 | ) |
Depreciation
and amortization | |
| 1,204 | | |
| 354 | | |
| — | | |
| 1,558 | | |
| 38 | | |
| 1,596 | |
Segment
income (loss) before income taxes | |
| | |
| | |
| ) | |
| | |
| (6,049 | ) | |
| |
Income
tax (benefit) expense | |
| (264 | ) | |
| 6 | | |
| — | | |
| (258 | ) | |
| 69 | | |
| (189 | ) |
Segment
income (loss) | |
| 1,758 | | |
| 7,820 | | |
| (311 | ) | |
| 9,267 | | |
| (6,118 | ) | |
| 3,149 | |
Segment
assets(1) | |
| 32,324 | | |
| 22,368 | (8) | |
| 17 | | |
| 54,709 | | |
| 24,210
| (5) | |
| 78,919 | |
Expenditures
for segment assets (net) | |
| 1,264 | | |
| 451 | | |
| — | | |
| 1,715 | | |
| — | | |
| 1,715 | (7) |
Total
debt | |
| — | | |
| 23 | | |
| — | | |
| 23 | | |
| 6,706 | | |
| 6,729 | (6) |
(1) |
Segment assets have been adjusted for intercompany accounts
to reflect actual assets for each segment. |
(2) |
Amounts reflect the activity for corporate headquarters not
included in the segment information. |
(3) |
The
Company performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either
directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately 60,812,000
or 84.2%
of total revenue for 2021 and 96,582,000
or 91.6%
of total revenue for 2020. The following reflects such revenue generated by our two segments: |
| (4) | The
following table reflects revenue based on customer location: |
(5) | Amount
includes assets from our discontinued operations of $96,000 and $103,000 at December 31,
2021 and 2020, respectively. |
| |
(6) | Net
of debt discount/debt issuance costs of ($112,000) and ($105,000) for 2021 and 2020, respectively
(see “Note 10 – “Long-Term Debt” for additional information). |
| |
(7) | Net
of financed amount of $585,000 and $883,000 for the year ended December 31, 2021 and 2020,
respectively. |
| |
(8) | Includes
long-lived asset (net) for our PF Canada, Inc. subsidiary of $25,000 and $33,000 for the
year ended December 31, 2021 and 2020, respectively. |
| |
(9) | Amount
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 10 – Long Term Debt – PPP Loan” for information
of this loan forgiveness). |
| |
(10) | 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 13 Income Taxes”
for a discussion of this tax benefit). |
| |
(11) | Includes
elimination of gain/loss of $2,537,000 in debt forgiveness between PFM Poland and the Company
(see “Note 14 – PF Medical for a discussion of this debt forgiveness. |
| |
(12) | Amount
includes a “Loss on deconsolidation of subsidiary” recorded in the amount of
approximately $1,062,000 resulting from the sale of PFM Poland (see “Note 14 –
PF Medical for a discussion of this loss). |
SCHEDULE OF REVENUE BY MAJOR CUSTOMERS BY REPORTING SEGMENTS
| |
2021 | | |
2020 | |
| |
Treatment | | |
Services | | |
Total | | |
Treatment | | |
Services | | |
Total | |
Domestic government | |
$ | 22,538 | | |
$ | 29,013 | | |
$ | 51,551 | | |
$ | 22,795 | | |
$ | 68,237 | | |
$ | 91,032 | |
Foreign government | |
| 577 | | |
| 8,684 | | |
| 9,261 | | |
| 415 | | |
| 5,135 | | |
| 5,550 | |
Total | |
$ | 23,115 | | |
$ | 37,697 | | |
$ | 60,812 | | |
$ | 23,210 | | |
$ | 73,372 | | |
$ | 96,582 | |
SCHEDULE
OF REVENUE BASED ON CUSTOMER LOCATION
| |
2021 | | |
2020 | |
United States | |
$ | 62,257 | | |
$ | 99,790 | |
Canada | |
| 9,277 | | |
| 5,550 | |
Germany | |
| 567 | | |
| — | |
United Kingdom | |
| 90 | | |
| 86 | |
Total | |
$ | 72,191 | | |
$ | 105,426 | |
NOTE
19
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’s
deferment of such taxes totaled approximately $1,252,000 of which approximately $626,000 was paid in December 2021. At December 31, 2021,
the remaining $626,000 in deferred social security taxes was included in “Accrued expenses” within current liabilities in
the Company’s Consolidated Balance Sheets.
NOTE
20
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 December 31, 2021, Perma-Fix ERRG had total assets of
$1,423,000 and total liabilities of $1,423,000 which are all recorded as current.
NOTE
21
SUBSEQUENT
EVENTS
Management
evaluated events occurring subsequent to December 31, 2021 through April 6, 2022, the date these consolidated financial statements
were available for issuance, and other than as noted below determined that no material recognizable subsequent events occurred.