Notes
to Consolidated Financial Statements
March
31, 2022
(Unaudited)
Reference
is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December
31, 2021.
The
consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without
an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information
and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated
financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for
the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the fiscal year ending December 31,
2022.
The
Company suggests that these consolidated financial statements be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The
consolidated financial statements include the accounts of our wholly-owned subsidiaries and the account of a variable interest entity
(“VIE”), Perma-Fix ERRG for which we are the primary beneficiary (See “Note 13 - VIE” for a discussion of this
VIE). The consolidated financial statements for 2021 also included the accounts of the Company’s majority-owned Polish subsidiary,
Perma-Fix Medical S.A (“PFM Poland”) and PFM Poland’s wholly-owned subsidiary, Perma-Fix Medical Corporation (“PFMC”),
which comprised of the Company’s Medical Segment. As previously discussed, the Company made the strategic decision to cease all
research and development (“R&D”) activities under the Medical Segment and sold 100% of its interest in PFM Poland in
December 2021. As a condition precent to the sale of PFM Poland, the Company acquired PFMC after its conversion to a Delaware limited
liability company. As a result of the sale of PFM Poland, the Company deconsolidated PFM Poland from its consolidated financial statements
in December 2021. The Company’s Medical Segment had not generated any revenue.
Information
for the Medical Segment is presented for the quarter ending March 31, 2021. The Medical Segment was disposed of as of December 31, 2021
and is not relevant for the quarter ending March 31, 2022. Prior period segment information is not required to be restated for the disposal
of the segment.
2.
|
Summary
of Significant Accounting Policies |
Our
accounting policies are as set forth in the notes to the December 31, 2021 consolidated financial statements referred to above.
Recently
Adopted Accounting Standards
In
May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-04,
“Earnings Per Share (Topic 206), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic
718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications
or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” ASU
2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options.
This ASU is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal
years. Early adoption is permitted. The adoption of this ASU by the Company effective January 1, 2022 did not have a material impact
on its financial statements.
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 became an accelerated filer starting with its 2021 Form 10-K and all subsequent filings. The Company is currently evaluating
the impact of these ASU on its consolidated financial statements.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships
and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference
rate expected to be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied
prospectively through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848):
Scope,” which clarified the scope and application of the original guidance. The Company plans to adopt both ASUs when LIBOR is
discontinued. The Company is currently evaluating the impact of the new ASUs on its condensed consolidated financial statements. As of
the date of this report, the Company has determined that only its obligations under the credit facility as described in “Note 8
– Long Term Debt would be impacted by these ASUs. The Company’s obligations under
its credit facility permit for payment of annual rate of interests on its obligations using prime rate or LIBOR.
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.
Disaggregation
of Revenue
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and
provides meaningful disaggregation of each business segment’s results of operations. The nature of the Company’s performance
obligations within our Treatment and Services Segments results in the recognition of our revenue primarily over time. The following tables
present further disaggregation of our revenues by different categories for our Services and Treatment Segments:
Schedule Of Disaggregation Of Revenue
Revenue by Contract Type | |
| | |
| | |
| | |
| | |
| | |
| |
(In thousands) | |
Three Months Ended | | |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
Treatment | | |
Services | | |
Total | | |
Treatment | | |
Services | | |
Total | |
Fixed price | |
$ | 7,479 | | |
$ | 5,761 | | |
$ | 13,240 | | |
$ | 7,495 | | |
$ | 2,581 | | |
$ | 10,076 | |
Time and materials | |
| — | | |
| 2,675 | | |
| 2,675 | | |
| — | | |
| 13,057 | | |
| 13,057 | |
Total | |
$ | 7,479 | | |
$ | 8,436 | | |
$ | 15,915 | | |
$ | 7,495 | | |
$ | 15,638 | | |
$ | 23,133 | |
Revenue by generator | |
| | |
| | |
| | |
| | |
| | |
| |
(In thousands) | |
Three Months Ended | | |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
Treatment | | |
Services | | |
Total | | |
Treatment | | |
Services | | |
Total | |
Domestic government | |
$ | 5,815 | | |
$ | 8,245 | | |
$ | 14,060 | | |
$ | 4,598 | | |
$ | 12,661 | | |
$ | 17,259 | |
Domestic commercial | |
| 1,436 | | |
| 162 | | |
| 1,598 | | |
| 2,265 | | |
| 590 | | |
| 2,855 | |
Foreign government | |
| 92 | | |
| 6 | | |
| 98 | | |
| 534 | | |
| 2,364 | | |
| 2,898 | |
Foreign commercial | |
| 136 | | |
| 23 | | |
| 159 | | |
| 98 | | |
| 23 | | |
| 121 | |
Total | |
$ | 7,479 | | |
$ | 8,436 | | |
$ | 15,915 | | |
$ | 7,495 | | |
$ | 15,638 | | |
$ | 23,133 | |
Contract
Liabilities
The
Company’s contract liabilities consist of deferred revenues which represent advance payment from customers in advance of the completion
of our performance obligation. The following table represents changes in our contract liabilities balances:
Schedule Of Contract Liabilities
| |
| | |
| | |
Year-to-date | | |
Year-to-date | |
(In thousands) | |
March 31, 2022 | | |
December 31, 2021 | | |
Change ($) | | |
Change (%) | |
Contract liabilities | |
| | | |
| | | |
| | | |
| | |
Deferred revenue | |
$ | 2,707 | | |
$ | 5,580 | | |
$ | (2,873 | ) | |
| (51.5 | )% |
The
decrease was primarily due to revenue recognized in connection with a Services Segment contract. The decrease was also attributed to
more processing of Treatment Segment’s backlog due to continued delays in waste receipts from certain customers from the impact
of COVID-19.
During
the three months ended March 31, 2022 and 2021, the Company recognized revenue of $3,521,000 and $4,311,000, respectively, related to
untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized in each period
related to performance obligations satisfied within the respective period.
Remaining
Performance Obligations
The
Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations
that have original expected durations of one year or less.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer in an amount
that corresponds directly with the value to the customer of our performance completed to date. For those contracts, the Company has utilized
the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount for which we have the right
to invoice; accordingly, the Company does not disclose the value of remaining performance obligations for those contracts.
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.
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. Finance leases consist primarily of processing and transport equipment used
by our facilities’ operations.
The
components of lease cost for the Company’s leases were as follows (in thousands):
Schedule Of Components Of Lease Cost
| |
2022 | | |
2021 | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Operating Lease: | |
| | | |
| | |
Lease cost | |
$ | 157 | | |
$ | 111 | |
| |
| | | |
| | |
Finance Leases: | |
| | | |
| | |
Amortization of ROU assets | |
| 47 | | |
| 59 | |
Interest on lease liability | |
| 11 | | |
| 19 | |
Finance leases | |
| 58 | | |
| 78 | |
| |
| | | |
| | |
Short-term lease rent expense | |
| 3 | | |
| 3 | |
| |
| | | |
| | |
Total lease cost | |
$ | 218 | | |
$ | 192 | |
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2022 were:
Schedule Of Weighted Average Lease
| |
Operating Leases | | |
Finance Leases | |
Weighted average remaining lease terms (years) | |
| 6.7 | | |
| 4.0 | |
| |
| | | |
| | |
Weighted average discount rate | |
| 7.6 | % | |
| 6.1 | % |
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2021 were:
| |
Operating Leases | | |
Finance Leases | |
Weighted average remaining lease terms (years) | |
| 7.8 | | |
| 3.4 | |
| |
| | | |
| | |
Weighted average discount rate | |
| 7.8 | % | |
| 6.8 | % |
The
following table reconciles the undiscounted cash flows for the operating and finance leases at March 31, 2022 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 (Remaining) | |
$ | 433 | | |
$ | 315 | |
2023 | |
| 560 | | |
| 327 | |
2024 | |
| 419 | | |
| 323 | |
2025 | |
| 328 | | |
| 300 | |
2026 | |
| 304 | | |
| 171 | |
2027 and thereafter | |
| 955 | | |
| 20 | |
Total undiscounted lease payments | |
| 2,999 | | |
| 1,456 | |
Less: Imputed interest | |
| (662 | ) | |
| (182 | ) |
Present value of lease payments | |
$ | 2,337 | | |
$ | 1,274 | |
| |
| | | |
| | |
Current portion of operating lease obligations | |
$ | 416 | | |
$ | — | |
Long-term operating lease obligations, less current portion | |
$ | 1,921 | | |
$ | — | |
Current portion of finance lease obligations | |
$ | — | | |
$ | 354 | |
Long-term finance lease obligations, less current portion | |
$ | — | | |
$ | 920 | |
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
| |
2022 | | |
2021 | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| |
Operating cash flow from operating leases | |
$ | 143 | | |
$ | 101 | |
Operating cash flow from finance leases | |
$ | 11 | | |
$ | 19 | |
Financing cash flow from finance leases | |
$ | 58 | | |
$ | 114 | |
| |
| | | |
| | |
ROU assets obtained in exchange for lease obligations for: | |
| | | |
| | |
Finance liabilities | |
$ | 147 | | |
$ | — | |
Operating liabilities | |
$ | — | | |
$ | — | |
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
Schedule Of Definite Lived Intangible Assets
| |
| | |
March 31, 2022 | | |
December 31, 2021 | |
| |
Weighted Average
Amortization | | |
Gross | | |
| | |
Net | | |
Gross | | |
| | |
Net | |
| |
Period | | |
Carrying | | |
Accumulated | | |
Carrying | | |
Carrying | | |
Accumulated | | |
Carrying | |
| |
(Years) | | |
Amount | | |
Amortization | | |
Amount | | |
Amount | | |
Amortization | | |
Amount | |
Other Intangibles (amount in thousands) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Patent | |
| 8.3 | | |
$ | 787 | | |
$ | (354 | ) | |
$ | 433 | | |
$ | 787 | | |
$ | (351 | ) | |
$ | 436 | |
Software | |
| 3 | | |
| 606 | | |
| (428 | ) | |
| 178 | | |
| 592 | | |
| (415 | ) | |
| 177 | |
Customer relationships | |
| 10 | | |
| 3,370 | | |
| (3,129 | ) | |
| 241 | | |
| 3,370 | | |
| (3,089 | ) | |
| 281 | |
Total | |
| | | |
$ | 4,763 | | |
$ | (3,911 | ) | |
$ | 852 | | |
$ | 4,749 | | |
$ | (3,855 | ) | |
$ | 894 | |
The
intangible assets noted above are amortized on a straight-line basis over their useful lives with the exception of customer relationships
which are being amortized using an accelerated method.
The
following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
Schedule Of Finite Lived Intangible Assets, Future Amortization Expense
| |
Amount | |
Year | |
(In thousands) | |
| |
| |
2022 (Remaining) | |
$ | 164 | |
2023 | |
| 178 | |
2024 | |
| 46 | |
2025 | |
| 11 | |
2026 | |
| 11 | |
Amortization
expenses relating to the definite-lived intangible assets as discussed above were $56,000 and $50,000 for the three months ended March
31, 2022 and 2021, respectively.
6.
|
Capital
Stock, Stock Plans, Warrants and Stock Based Compensation |
The
Company has certain stock option plans under which it may award incentive stock options (“ISOs”) and/or non-qualified stock
options (“NQSOs”) to employees, officers, outside directors, and outside consultants. No stock options were granted in the
first quarter of 2022.
The
Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Stock Option Plan (“2017 Plan”)
for the purchase of up to 100,000 shares of the Company’s Common Stock (“Ferguson Stock Option”) in connection with
his work as a consultant to the Company’s Test Bed Initiative (“TBI”) at our Perma-Fix Northwest Richland, Inc. (“PFNWR”)
facility at an exercise price of $3.65 per share, which was the fair market value of the Company’s Common Stock on the date of
grant. The term of the Ferguson Stock Option is seven years from the grant date. The vesting of the Ferguson Stock Option is subject
to the achievement of three separate milestones by certain dates. The 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 and Stock Option Committee (“Compensation
Committee”) and the Board of Directors (“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 March 31, 2022)
for the remaining 90,000 Ferguson Stock Option under the remaining two milestones since achievement of the performance obligation under
each of the two remaining milestones is uncertain at March 31, 2022. All other terms of the Ferguson Stock Option remain unchanged.
The
following table summarizes stock-based compensation recognized for the three months ended March 31, 2022 and 2021 for our employee
and director stock options.
Schedule of Share-based Compensation, Allocation of Recognized Period Costs
| |
|
2022 |
2021 | |
| |
Three Months Ended | |
Stock Options | |
March 31, | |
| |
2022 | | |
2021 | |
Employee Stock Options | |
$ | 86,000 | | |
$ | 33,000 | |
Director Stock Options | |
| 16,000 | | |
| 12,000 | |
Total | |
$ | 102,000 | | |
$ | 45,000 | |
At
March 31, 2022, the Company has approximately $1,287,000 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
4.1 years.
The
summary of the Company’s total Stock Option Plans as of March 31, 2022 and March 31, 2021, and changes during the periods then
ended, are presented below. The Company’s Plans consist of the 2010 Stock Option Plan, the 2017 Plan and the 2003 Outside Directors
Stock Plan (“2003 Plan”):
Schedule of Stock Options Roll Forward
| |
Shares | | |
Weighted Average
Exercise
Price | | |
Weighted Average Remaining Contractual Term
(years) | | |
Aggregate Intrinsic
Value (3) | |
Options outstanding January 1, 2022 | |
| 1,019,400 | | |
$ | 4.91 | | |
| | | |
| — | |
Granted | |
| — | | |
$ | — | | |
| | | |
| | |
Exercised | |
| — | | |
$ | — | | |
| | | |
$ | — | |
Forfeited/expired | |
| — | | |
$ | — | | |
| | | |
| | |
Options outstanding end of period (1) | |
| 1,019,400 | | |
$ | 4.91 | | |
| 3.8 | | |
$ | 1,150,167 | |
Options exercisable at March 31, 2022(1) | |
| 455,900 | | |
$ | 3.92 | | |
| 2.5 | | |
$ | 779,362 | |
| |
Shares | | |
Weighted Average
Exercise
Price | | |
Weighted Average Remaining Contractual Term
(years) | | |
Aggregate Intrinsic
Value (3) | |
Options outstanding January 1, 2021 | |
| 658,400 | | |
$ | 3.87 | | |
| | | |
| — | |
Granted | |
| — | | |
| — | | |
| | | |
| | |
Exercised | |
| — | | |
| — | | |
| | | |
$ | — | |
Forfeited/expired | |
| — | | |
| — | | |
| | | |
| | |
Options outstanding end of period (2) | |
| 658,400 | | |
$ | 3.87 | | |
| 3.2 | | |
$ | 2,279,267 | |
Options exercisable at March 31, 2021(2) | |
| 392,400 | | |
$ | 4.08 | | |
| 3.4 | | |
$ | 1,274,287 | |
(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) |
The intrinsic value of a stock option is the amount by which
the market value of the underlying stock exceeds the exercise price of the option. |
During
the three months ended March 31, 2022, the Company issued a total of 19,520 shares of its Common Stock under the 2003 Plan to its outside
directors as compensation for serving on our Board. The Company recorded approximately $120,000 in compensation expenses (included in
selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares of its Common Stock
to outside directors.
In
connection with a $2,500,000 loan that the Company entered into with Mr. Robert Ferguson (the “Ferguson Loan”) on April 1,
2019, 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 expires on April 1, 2024 and remains outstanding at March 31, 2022. The Ferguson Loan was paid-in-full in
December 2020.
Basic
loss per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted
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 loss earnings per
shares. The following table reconciles the loss and average share amounts used to compute both basic and diluted loss per share:
Schedule
of Earning Per Share
| |
|
2022 |
2021 | |
| |
Three Months Ended | |
| |
(Unaudited) | |
| |
March 31, | |
(Amounts in Thousands, Except for Per Share Amounts) | |
2022 | | |
2021 | |
Net loss attributable to Perma-Fix Environmental Services, Inc., common stockholders: | |
| | | |
| | |
Loss from continuing operations, net of taxes | |
$ | (1,249 | ) | |
$ | (1,038 | ) |
Net loss attributable to non-controlling interest | |
| — | | |
| (30 | ) |
Loss from continuing operations attributable to Perma-Fix Environmental Services,
Inc. common stockholders | |
| (1,249 | ) | |
| (1,008 | ) |
Loss from discontinuing operations attributable to Perma-Fix
Environmental Services, Inc. common stockholders | |
| (94 | ) | |
| (115 | ) |
Net loss attributable to Perma-Fix Environmental Services,
Inc. common stockholders | |
$ | (1,343 | ) | |
$ | (1,123 | ) |
| |
| | | |
| | |
Basic loss per share attributable to Perma-Fix Environmental Services, Inc. common stockholders | |
$ | (.10 | ) | |
$ | (.09 | ) |
| |
| | | |
| | |
Diluted loss per share attributable to Perma-Fix Environmental Services, Inc.
common stockholders | |
$ | (.10 | ) | |
$ | (.09 | ) |
| |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | |
Basic weighted average shares outstanding | |
| 13,234 | | |
| 12,165 | |
Add: dilutive effect of stock options | |
| — | | |
| — | |
Add: dilutive effect of warrants | |
| — | | |
| — | |
Diluted weighted average shares outstanding | |
| 13,234 | | |
| 12,165 | |
| |
| | | |
| | |
Potential shares excluded from above weighted average share calculations due to their anti-dilutive
effect include: | |
| | | |
| | |
Stock options | |
| 405 | | |
| 30 | |
Warrant | |
| — | | |
| — | |
Long-term
debt consists of the following:
Schedule of Long Term Debt
(Amounts in Thousands) | |
March 31, 2022 | | |
December 31, 2021 | |
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 first quarter of 2022 was 0%. (1) | |
$ | — | | |
$ | — | |
Term Loan dated May
8, 2020, payable in equal monthly installments of principal, balance due on May 15, 2024. Effective interest rate for the first quarter
of 2022 was 4.3%. (1) | |
| 840 | (2) | |
| 954 | (2) |
Notes Payable to 2023 and 2025, annual interest
rate of 5.6% and 9.1%. | |
| 35 | | |
| 39 | |
Total debt | |
| 875 | | |
| 993 | |
Less current portion of long-term debt | |
| 384 | | |
| 393 | |
Long-term debt | |
$ | 491 | | |
$ | 600 | |
(1) | | Our revolving credit
facility is collateralized by our accounts receivable and our term loan is collateralized by our property, plant, and equipment. |
(2) | | Net of debt issuance
costs of ($120,000) and ($112,000) at March 31, 2022 and December 31, 2021, respectively. |
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. The Loan Agreement, as
amended, also provides 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. 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, as amended, any unpaid principal
balance plus interest, if any, will become due. No advance on the capital line has been made as of March 31, 2022.
On
March 29, 2022, the Company entered into an amendment to its Loan Agreement with its lender which provided, among other things, the following:
|
● |
waived
the Company’s failure to meet the minimum quarterly fixed charge coverage ratio (“FCCR”) requirement for the fourth
quarter of 2021; |
|
● |
removes
the quarterly FCCR testing requirement for the first quarter of 2022; |
|
● |
reinstates
the quarterly FCCR testing requirement starting for the second quarter of 2022 and revises the methodology to be used in calculating
the FCCR for the quarters ending June 30, 2022, September 30, 2022, and December 31, 2022 (with no change to the minimum 1.15:1 ratio
requirement for each quarter); |
|
● |
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 June 30, 2022 has been met and certified to the lender; and |
|
● |
revises
the annual rate used to calculate the Facility Fee (as defined in the Loan Agreement) on the revolving credit, with addition of the
capital expenditure line, from 0.375% to 0.500%. Upon meeting the minimum FCCR requirement of 1.15:1 on a twelve months trailing
basis, the Facility Fee rate of 0.375% will be reinstated. |
In
connection with the amendment, we paid PNC 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 (3.50% at March 31, 2022)
plus 2% or 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 has agreed to pay PNC 0.5% of the total financing if it 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
March 31, 2022, the borrowing availability under the Company’s revolving credit was approximately $4,544,000 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 our
credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate
all commitments to extend further credit. The Company was not required to perform testing of the FCCR requirement in the first
quarter of 2022 pursuant to the March 29, 2022 amendment as discussed above, otherwise, it met all of its other financial covenant
requirements.
9.
|
Commitments
and Contingencies |
Hazardous
Waste
In
connection with our waste management services, the Company processes both hazardous and non-hazardous waste, which we transport to our
own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is
required at the disposal site, the Company could be a potentially responsible party for the costs of the cleanup notwithstanding any
absence of fault on our part.
Legal
Matters
In
the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any judgments or fines against us that could would have a material adverse effect
on our financial position, liquidity or results of future operations.
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 (the “Motion”). 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, the Motion was granted in part and
denied in part by the Court. Tetra Tech’s claims for: (1) Negligence; (2) Equitable Indemnification/Contribution; and (3) Unfair
Business Practices were dismissed. Tetra Tech was given leave to re-assert the Unfair Business Practices claim but chose not to do so,
which means that claim is now also dismissed. Tetra Tech’s claims that survived the Motion are: (1) Intentional Interference with
Contractual Relations; and (2) Inducing a Breach of Contract. The Company continues to believe it does not have any liability to Tetra
Tech.
Perma-Fix
Canada, Inc. (“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 and work under the TOA has since
been completed. CNL may terminate the TOA at any time for convenience. As of March 31, 2022, PF Canada has approximately $2,722,000 in
unpaid receivables and unbilled costs due from CNL as a result of work performed under the TOA. Additionally, CNL has approximately $1,150,000
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 Specialty Insurance
Company (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of
unforeseen closure. The 2003 Closure Policy, as amended, provides for a maximum allowable coverage of $28,177,000 which includes available
capacity to allow for annual inflation and other performance and surety bond requirements. Total coverage under the 2003 Closure Policy,
as amended, was $21,047,000 at March 31, 2022. At March 31, 2022 and December 31, 2021, 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 $11,482,000 and $11,471,000, respectively, which included interest earned of $2,011,000 and $2,000,000 on the finite risk sinking
funds as of March 31, 2022 and December 31, 2021, respectively. Interest income for the three months ended March 31, 2022 and 2021 was
approximately $11,000 and $18,000, respectively. If we so elect, AIG is obligated to pay us an amount equal to 100% of the finite risk
sinking fund account balance in return for complete release of liability from both us and any applicable regulatory agency using this
policy as an instrument to comply with financial assurance requirements.
Letter
of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to customers
and other obligations, including facility closures. At March 31, 2022, the total amount of standby letters of credit outstanding was
approximately $3,020,000 and the total amount of bonds outstanding was approximately $51,295,000.
10. |
Discontinued
Operations |
The
Company’s discontinued operations consist of all our subsidiaries included in our previous Industrial Segment which encompasses
subsidiaries divested in 2011 and prior and three previously closed locations.
The
Company’s discontinued operations had net losses of $94,000 (net of tax benefit of $63,000) and $115,000 (net of taxes of $0) for
the three months ended March 31, 2022 and 2021. The losses were primarily due to costs incurred in the administration and continued monitoring
of our discontinued operations. The Company’s discontinued operations had no revenues for each of the periods noted above.
The
following table presents the major class of assets of discontinued operations as of March 31, 2022 and December 31, 2021. No assets and
liabilities were held for sale at each of the periods noted.
Schedule of Disposal Groups, Including Discontinued Operation Balance Sheet
| |
March 31, | | |
December 31, | |
(Amounts in Thousands) | |
2022 | | |
2021 | |
Current assets | |
| | | |
| | |
Other assets | |
$ | 27 | | |
$ | 15 | |
Total current assets | |
| 27 | | |
| 15 | |
Long-term assets | |
| | | |
| | |
Property, plant and equipment, net (1) | |
| 81 | | |
| 81 | |
Total long-term assets | |
| 81 | | |
| 81 | |
Total assets | |
$ | 108 | | |
$ | 96 | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 34 | | |
$ | 3 | |
Accrued expenses and other liabilities | |
| 147 | | |
| 154 | |
Environmental liabilities | |
| 621 | | |
| 349 | |
Total current liabilities | |
| 802 | | |
| 506 | |
Long-term liabilities | |
| | | |
| | |
Closure liabilities | |
| 153 | | |
| 150 | |
Environmental liabilities | |
| 255 | | |
| 527 | |
Total long-term liabilities | |
| 408 | | |
| 677 | |
Total liabilities | |
$ | 1,210 | | |
$ | 1,183 | |
(1) | | net of accumulated
depreciation of $10,000 for each period presented. |
In
accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (1) from which
we may earn revenue and incur expenses; (2) whose operating results are regularly reviewed by the chief operating decision maker (“CODM”)
to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information
is available.
Our
reporting segments are defined as below:
TREATMENT
SEGMENT, which includes:
|
- |
nuclear,
low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous
waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities;
and |
|
- |
R&D
activities to identify, develop and implement innovative waste processing techniques for problematic waste streams. |
SERVICES
SEGMENT, which includes:
|
- |
Technical
services, which include: |
|
○ |
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology and
engineering; |
|
○ |
integrated
Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys,
e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure
assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and
Health Administration (“OSHA”) citation assistance; |
|
○ |
global
technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and
decommissioning field, technical, and management personnel and services to commercial and government customers; and |
|
○ |
on-site
waste management services to commercial and governmental customers. |
|
- |
Nuclear
services, which include: |
|
○ |
technology-based
services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction,
logistics, transportation, processing and disposal; |
|
○ |
remediation
of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes:
project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition,
and planning; site restoration; logistics; transportation; and emergency response; and |
|
- |
A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health
physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation. |
The
Company’s segment also included the Medical Segment in 2021. As previously discussed, the Company made the strategic decision
to cease all R&D activities under the Medical Segment and sold 100%
of its interest in PFM Poland (which comprised the Medical Segment) in December 2021. The Company’s Medical Segment had not generated
any revenue and was involved in the Company’s medical isotope production technology.
Our
reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 10 – Discontinued Operations”)
which do not generate revenues.
The
table below presents certain financial information of our operating segments for the three months ended March 31, 2022 and 2021 (in thousands):
Segment
Reporting for the Quarter Ended March 31, 2022
Schedule
of Segment Reporting Information
| |
Treatment | | |
Services | |
|
Segments Total | | |
Corporate(1) | | |
Consolidated Total | |
Revenue from external customers | |
$ | 7,479 | | |
$ | 8,436 | |
|
$ | 15,915 | | |
$ | — | | |
$ | 15,915 | |
Intercompany revenues | |
| 111 | | |
| 183 | |
|
| 294 | | |
| — | | |
| — | |
Gross profit | |
| 638 | | |
| 998 | |
|
| 1,636 | | |
| — | | |
| 1,636 | |
Research and development | |
| 65 | | |
| 14 | |
|
| 79 | | |
| 17 | | |
| 96 | |
Interest income | |
| — | | |
| — | |
|
| — | | |
| 11 | | |
| 11 | |
Interest expense | |
| (14 | ) | |
| (1 | ) |
|
| (15 | ) | |
| (20 | ) | |
| (35 | ) |
Interest expense-financing fees | |
| — | | |
| — | |
|
| — | | |
| (13 | ) | |
| (13 | ) |
Depreciation and amortization | |
| 371 | | |
| 71 | |
|
| 442 | | |
| 14 | | |
| 456 | |
Segment (loss) income before income taxes | |
| ) | |
| |
|
| ) | |
| (1,726 | ) | |
| ) |
Income tax benefit | |
| (559 | ) | |
| (114 | ) |
|
| (673 | ) | |
| — | | |
| (673 | ) |
Segment income (loss) | |
| 78 | | |
| 399 | |
|
| 477 | | |
| (1,726 | ) | |
| (1,249 | ) |
Expenditures for segment assets | |
| 296 | | |
| 49 | |
|
| 345 | | |
| — | | |
| 345 | (2) |
Segment
Reporting for the Quarter Ended March 31, 2021
| |
Treatment | | |
Services | | |
Medical | | |
Segments Total | | |
Corporate(1) | | |
Consolidated Total | |
Revenue from external customers | |
$ | 7,495 | | |
$ | 15,638 | | |
$ | — | | |
$ | 23,133 | | |
$ | — | | |
$ | 23,133 | |
Intercompany revenues | |
| 660 | | |
| 7 | | |
| — | | |
| 667 | | |
| — | | |
| — | |
Gross profit | |
| 925 | | |
| 1,431 | | |
| — | | |
| 2,356 | | |
| — | | |
| 2,356 | |
Research and development | |
| 47 | | |
| 13 | | |
| 76 | | |
| 136 | | |
| 14 | | |
| 150 | |
Interest income | |
| — | | |
| — | | |
| — | | |
| — | | |
| 18 | | |
| 18 | |
Interest expense | |
| (19 | ) | |
| (8 | ) | |
| — | | |
| (27 | ) | |
| (40 | ) | |
| (67 | ) |
Interest expense-financing fees | |
| — | | |
| — | | |
| — | | |
| — | | |
| (8 | ) | |
| (8 | ) |
Depreciation and amortization | |
| 310 | | |
| 85 | | |
| — | | |
| 395 | | |
| 5 | | |
| 400 | |
Segment (loss) income before income taxes | |
| ) | |
| | |
| ) | |
| | |
| (1,415 | ) | |
| ) |
Income tax benefit | |
| (17 | ) | |
| — | | |
| — | | |
| (17 | ) | |
| — | | |
| (17 | ) |
Segment (loss) income | |
| (102 | ) | |
| 555 | | |
| (76 | ) | |
| 377 | | |
| (1,415 | ) | |
| (1,038 | ) |
Expenditures for segment assets | |
| 357 | | |
| 4 | | |
| — | | |
| 361 | | |
| — | | |
| 361 | (2) |
(1) | | Amounts reflect
the activity for corporate headquarters not included in the segment information. |
| | |
(2) | | Net of financed
amount of $114,000 and $29,000 for the three months ended March 31, 2022 and 2021, respectively. |
The
Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities
available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.
The
Company had income tax benefit of approximately $673,000 for continuing operations for the three months ended March 31, 2022 as compared
to income tax benefit of approximately $17,000 for continuing operations for the three months ended March 31, 2021. The Company’s
effective tax rate was approximately 35.0% and 1.6% for the three months ended March 31, 2022 and the corresponding period of 2021, respectively.
The Company’s tax rate for the three months ended March 31, 2022 was impacted by non-deductible expenses and state taxes. The Company’s
tax rate for the three months ended March 31, 2021 was impacted by non-deductible expenses, state taxes, and by the Company’s full
valuation on its net deferred tax assets which was subsequently released partially in the third quarter of 2021.
13. |
Variable Interest Entities (“VIE”) |
The
Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) previously entered into an unpopulated joint venture agreement
for project work bids within the Company’s Services Segment with the joint venture doing business as Perma-Fix ERRG, a general
partnership. The Company has a 51% partnership interest in the joint venture and ERRG has a 49% partnership interest in the joint venture.
The
Company determines whether joint ventures in which it has invested meet the criteria of a VIE at the start of each new venture and when
a reconsideration event has occurred. A VIE is a legal entity that satisfies any of the following characteristics: (a) the legal entity
does not have sufficient equity investment at risk; (b) the equity investors at risk as a group, lack the characteristics of a controlling
financial interest; or (c) the legal entity is structured with disproportionate voting rights.
The
Company consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to
direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb
losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Based
on the Company’s evaluation of Perma-Fix ERRG and related agreements with Perma-Fix ERRG, the Company determined that Perma-Fix
ERRG continues to be a VIE in which we are the primary beneficiary. At March 31, 2022, Perma-Fix ERRG had total assets of $122,000 and
total liabilities of approximately $122,000 which are all recorded as current.
14. |
Executive Compensation |
The
Company’s Compensation Committee and the Board determined that no performance payment would be made to each executive officer under
his 2021 Management Incentive Plan (“MIP”). In lieu of any performance payment to each executive officer under his 2021 MIP
and in an attempt to retain the executive officer, on January 20, 2022, the Compensation Committee and the Board determined that the
base annual compensation for each executive officer for 2022 is increased by approximately 6.4%, effective January 1, 2022, to offset
the cost-of-living increase.
On
January 20, 2022, the Board and the Compensation Committee also approved individual MIP for the calendar year 2022 for each of our executive
officers. Each MIP is effective January 1, 2022 and applicable for year 2022. 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 2022. Assuming each target objective
is achieved under the same performance threshold range under each MIP, the total potential target performance compensation payable ranges
from 25% to 150% of the 2022 base salary for the CEO ($93,717 to $562,304), 25% to 100% of the 2022 base salary for the CFO ($76,193
to $304,772), 25% to 100% of the 2022 base salary for the EVP of Strategic Initiatives ($63,495 to $253,980), 25% to 100% of the 2022
base salary for the EVP of Nuclear and Technical Services ($76,193 to $304,772) and 25% to 100% ($65,308 to $261,233) of the 2022 base
salary for the EVP of Waste Treatment Operations.
Management
evaluated events occurring subsequent to March 31, 2022 through May 5, 2022, the date these consolidated financial statements were available
for issuance, and determined that no material recognizable subsequent events occurred.