UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

Form 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended

September 30, 2019

 

Or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from __________________ to __________________

 

Commission File No. 111596

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   58-1954497

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification Number)

     
8302 Dunwoody Place, Suite 250, Atlanta, GA   30350
(Address of principal executive offices)   (Zip Code)

 

(770) 587-9898

(Registrant’s telephone number)

 

N/A
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated Filer [  ] Non-accelerated Filer [  ] Smaller reporting company [X] Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the close of the latest practical date.

 

Class   Outstanding at November 4, 2019
Common Stock, $.001 Par Value   12,083,478 shares

 

 

 

 
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

 

INDEX

 

    Page No.
     
PART I FINANCIAL INFORMATION
     
  Item 1. Consolidated Financial Statements 3
       
    Consolidated Balance Sheets - September 30, 2019 and December 31, 2018 3
       
    Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2019 and 2018 5
       
    Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2018 6
       
    Consolidated Statement of Stockholders’ Equity - Nine Months Ended September 30, 2019 and 2018 7
       
    Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2019 and 2018 8
       
    Notes to Consolidated Financial Statements 9
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
       
  Item 4. Controls and Procedures 41
       
PART II OTHER INFORMATION  
     
  Item 1. Legal Proceedings 41
       
  Item 1A. Risk Factors 42
       
  Item 6. Exhibits 42

 

  2  
 

 

PART I - FINANCIAL INFORMATION

ITEM 1. – Financial Statements

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Balance Sheets

 

    September 30, 2019     December 31, 2018  
(Amounts in Thousands, Except for Share and Per Share Amounts)   (Unaudited)     (Audited)  
             
ASSETS                
Current assets:                
Cash   $ 2,441     $ 810  
Accounts receivable, net of allowance for doubtful accounts of $252 and $105, respectively     10,781       7,735  
Unbilled receivables - current     9,245       3,105  
Inventories     453       449  
Prepaid and other assets     3,258       2,552  
Current assets related to discontinued operations     99       107  
Total current assets     26,277       14,758  
                 
Property and equipment:                
Buildings and land     19,920       19,782  
Equipment     19,715       19,157  
Vehicles     412       369  
Leasehold improvements     23       23  
Office furniture and equipment     1,556       1,551  
Construction-in-progress     1,420       1,389  
Total property and equipment     43,046       42,271  
Less accumulated depreciation     (27,243 )     (26,532 )
Net property and equipment     15,803       15,739  
                 
Property and equipment related to discontinued operations     81       81  
                 
Operating lease right-of-use assets     2,606        
                 
Intangibles and other long term assets:                
Permits     8,728       8,443  
Other intangible assets - net     1,107       1,278  
Finite risk sinking fund (restricted cash)     11,236       15,971  
Other assets     1,204       1,054  
Other assets related to discontinued operations     57       118  
Total assets   $ 67,099     $ 57,442  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  3  
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Balance Sheets, Continued

 

    September 30, 2019     December 31, 2018  
(Amounts in Thousands, Except for Share and per Share Amounts)   (Unaudited)     (Audited)  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 9,780     $ 5,497  
Accrued expenses     6,179       5,014  
Disposal/transportation accrual     1,659       1,542  
Deferred revenue     6,239       6,595  
Accrued closure costs - current     110       1,142  
Current portion of long-term debt     353       1,184  
Current portion of long-term debt - related party     634        
Current portion of operating lease liabilities     237        
Current portion of finance lease liabilities     319       181  
Current liabilities related to discontinued operations     723       356  
Total current liabilities     26,233       21,511  
                 
Accrued closure costs     5,877       5,608  
Other long-term liabilities           255  
Deferred tax liabilities     612       586  
Long-term debt, less current portion     1,562       2,118  
Long-term debt, less current portion - related party     1,360        
Long-term operating lease liabilities, less current portion     2,406        
Long-term finance lease liabilities, less current portion     351       268  
Long-term liabilities related to discontinued operations     591       963  
Total long-term liabilities     12,759       9,798  
                 
Total liabilities     38,992       31,309  
                 
Commitments and Contingencies (Note 10)                
                 
Stockholders’ Equity:                
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding            
Common Stock, $.001 par value; 30,000,000 shares authorized; 12,077,418 and 11,944,215 shares issued, respectively; 12,069,776 and 11,936,573 shares outstanding, respectively     12       12  
Additional paid-in capital     108,215       107,548  
Accumulated deficit     (78,245 )     (79,630 )
Accumulated other comprehensive loss     (202 )     (214 )
Less Common Stock in treasury, at cost; 7,642 shares     (88 )     (88 )
Total Perma-Fix Environmental Services, Inc. stockholders’ equity     29,692       27,628  
Non-controlling interest     (1,585 )     (1,495 )
Total stockholders’ equity     28,107       26,133  
                 
Total liabilities and stockholders’ equity   $ 67,099     $ 57,442  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  4  
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Operations

(Unaudited)

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Amounts in Thousands, Except for Per Share Amounts)   2019     2018     2019     2018  
                         
Net revenues   $ 22,535     $ 11,984     $ 51,378     $ 37,801  
Cost of goods sold     17,378       10,159       40,449       30,612  
Gross profit     5,157       1,825       10,929       7,189  
                                 
Selling, general and administrative expenses     2,945       2,640       8,548       8,061  
Research and development     165       229       615       680  
Loss (gain) on disposal of property and equipment     4       (9 )     3       (34 )
Income (loss) from operations     2,043       (1,035 )     1,763       (1,518 )
                                 
Other income (expense):                                
Interest income     77       82       265       212  
Interest expense     (99 )     (62 )     (293 )     (177 )
Interest expense-financing fees     (69 )     (10 )     (139 )     (27 )
Net gain on exchange offer of Series B Preferred Stock of subsidary                       1,596  
Other     (2 )           222        
Income (loss) from continuing operations before taxes     1,950       (1,025 )     1,818       86  
Income tax expense (benefit)     55       (1,342 )     99       (1,272 )
Income from continuing operations, net of taxes     1,895       317       1,719       1,358  
                                 
Loss from discontinued operations, net of taxes of $0     (156 )     (131 )     (424 )     (495 )
Net income     1,739       186       1,295       863  
                                 
Net loss attributable to non-controlling interest     (29 )     (35 )     (90 )     (102 )
                                 
Net income attributable to Perma-Fix Environmental Services, Inc. common stockholders   $ 1,768     $ 221     $ 1,385     $ 965  
                                 
Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic:                                
Continuing operations   $ .16     $ .03     $ .15     $ .12  
Discontinued operations     (.01 )     (.01 )     (.03 )     (.04 )
Net income per common share   $ .15     $ .02     $ .12     $ .08  
                                 
Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted:                                
Continuing operations   $ .16     $ .03     $ .15     $ .12  
Discontinued operations     (.01 )     (.01 )     (.04 )     (.04 )
Net income per common share   $ .15     $ .02     $ .11     $ .08  
                                 
Number of common shares used in computing net income per share:                                
Basic     12,070       11,922       12,029       11,828  
Diluted     12,123       12,027       12,061       11,909  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  5  
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
(Amounts in Thousands)   2019     2018     2019     2018  
                         
Net income   $ 1,739     $ 186     $ 1,295     $ 863  
Other comprehensive income (loss):                                
Foreign currency translation adjustment     4       18       12       (39 )
                                 
Comprehensive income     1,743       204       1,307       824  
Comprehensive loss attributable to non-controlling interest     (29 )     (35 )     (90 )     (102 )
Comprehensive income attributable to Perma-Fix Environmental Services, Inc. stockholders   $ 1,772     $ 239     $ 1,397     $ 926  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  6  
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC

Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except for share amounts)

 

    Common Stock     Additional
Paid-In
    Common Stock
Held In
    Accumulated Other Comprehensive     Non-controlling
Interest in
    Accumulated    

Total
Stockholders’

 
    Shares     Amount     Capital     Treasury     Loss     Subsidiary     Deficit     Equity  
                                                 
Balance at December 31, 2018     11,944,215     $ 12     $ 107,548     $ (88 )   $ (214 )   $ (1,495 )   $ (79,630 )   $ 26,133  
Net loss                                   (30 )     (672 )     (702 )
Foreign currency translation                             12                   12  
Issuance of Common Stock for services     24,964             60                               60  
Stock-Based Compensation                 48                               48  
Balance at March 31, 2019     11,969,179     $ 12     $ 107,656     $ (88 )   $ (202 )   $ (1,525 )   $ (80,302 )   $ 25,551  
Net income (loss)                                   (31 )     289       258  
Foreign currency translation                             (4 )                 (4 )
Issuance of Common Stock for services     17,902             62                               62  
Stock-Based Compensation                 36                               36  
Issuance of Common Stock with debt     75,000             263                               263  
Issuance of warrant with debt                 93                               93  
Balance at June 30, 2019     12,062,081     $ 12     $ 108,110     $ (88 )   $ (206 )   $ (1,556 )   $ (80,013 )   $ 26,259  
Net income (loss)                                   (29 )     1,768       1,739  
Foreign currency translation                             4                   4  
Issuance of Common Stock for services     15,337             60                               60  
Stock-Based Compensation                 45                               45  
Balance at September 30, 2019     12,077,418     $ 12     $ 108,215     $ (88 )   $ (202 )   $ (1,585 )   $ (78,245 )   $ 28,107  
                                                                 
Balance at December 31, 2017     11,738,623     $ 12     $ 106,417     $ (88 )   $ (112 )   $ (1,175 )   $ (77,893 )   $ 27,161  
Adoption of accounting standards                                         (317 )     (317 )
Net income (loss)                                   (39 )     135       96  
Foreign currency translation                             (8 )                 (8 )
Issuance of Common Stock for services     16,074             60                               60  
Stock-Based Compensation                 46                               46  
Balance at March 31, 2018     11,754,697     $ 12     $ 106,523     $ (88 )   $ (120 )   $ (1,214 )   $ (78,075 )   $ 27,038  
Net income (loss)                                   (28 )     609       581  
Foreign currency translation                             (49 )                 (49 )
Issuance of Common Stock upon exercise of options     10,000             36                               36  
Issuance of Common Stock from exchange offer of Series B Preferred Stock of subsidiary     134,994             648                               648  
Issuance of Common Stock for services     15,493             65                               65  
Stock-Based Compensation                 45                               45  
Balance at June 30, 2018     11,915,184     $ 12     $ 107,317     $ (88 )   $ (169 )   $ (1,242 )   $ (77,466 )   $ 28,364  
Net income (loss)                                   (35 )     221       186  
Foreign currency translation                             18                   18  
Issuance of Common Stock for services     15,063             66                               66  
Stock-Based Compensation                 52                               52  
Balance at September 30, 2018     11,930,247     $ 12     $ 107,435     $ (88 )   $ (151 )   $ (1,277 )   $ (77,245 )   $ 28,686  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

  7  
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

    Nine Months Ended  
    September 30,  
(Amounts in Thousands)   2019     2018  
Cash flows from operating activities:                
Net income   $ 1,295     $ 863  
Less: loss from discontinued operations, net of taxes of $0     (424 )     (495 )
                 
Income from continuing operations, net of taxes     1,719       1,358  
Adjustments to reconcile income from continuing operations to cash (used in) provided by operating activities:                
Depreciation and amortization     968       1,095  
Amortization of debt issuance costs     139       27  
Deferred tax expense (benefit)     26       (1,344 )
Provision for bad debt reserves     147       22  
Loss (gain) on disposal of property and equipment     3       (34 )
Gain on exchange offer of Series B Preferred Stock of subsidiary           (1,659 )
Issuance of common stock for services     182       191  
Stock-based compensation     129       143  
Changes in operating assets and liabilities of continuing operations                
Accounts receivable     (3,193 )     (382 )
Unbilled receivables     (6,140 )     1,342  
Prepaid expenses, inventories and other assets     500       1,272  
Accounts payable, accrued expenses and unearned revenue     2,516       (983 )
Cash (used in) provided by continuing operations     (3,004 )     1,048  
Cash used in discontinued operations     (459 )     (468 )
Cash (used in) provided by operating activities     (3,463 )     580  
                 
Cash flows from investing activities:                
Purchases of property and equipment     (813 )     (1,102 )
Proceeds from sale of property and equipment     1       34  
Cash used in investing activities of continuing operations     (812 )     (1,068 )
Cash provided by investing activities of discontinued operations     100       54  
Cash used in investing activities     (712 )     (1,014 )
                 
Cash flows from financing activities:                
Repayments of revolving credit borrowings     (38,378 )     (40,906 )
Borrowing on revolving credit     37,739       42,189  
Proceeds from issuance of long-term debt - related party     2,500        
Proceeds from finance leases     405        
Proceeds from issuance of common stock upon exercise of options           36  
Principal repayments of finance lease liabilities     (174 )     (21 )
Principal repayments of long term debt     (717 )     (914 )
Principal repayment of long term debt - related party     (208 )      
Payment of debt issuance costs     (112 )      
Cash provided by financing activities of continuing operations     1,055       384  
                 
Effect of exchange rate changes on cash     16       (8 )
                 
Decrease in cash and finite risk sinking fund (restricted cash)     (3,104 )     (58 )
Cash and finite risk sinking fund (restricted cash) at beginning of period     16,781       16,739  
Cash and finite risk sinking fund (restricted cash) at end of period   $ 13,677     $ 16,681  
                 
Supplemental disclosure:                
Interest paid   $ 284     $ 173  
Income taxes paid     168       160  
Purchase of equipment through finance lease obligation     29       213  
Issuance of Common Stock with debt     263        
Issuance of Warrant with debt     93        

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  8  
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Notes to Consolidated Financial Statements

September 30, 2019

(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, 2018.

 

1. Basis of Presentation

 

The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the nine months ended September, 2019 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2019.

 

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, 2018.

 

2. Summary of Significant Accounting Policies

 

Our accounting policies are as set forth in the notes to the December 31, 2018 consolidated financial statements referred to above.

 

Recently Adopted Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” which requires the recognition of right-of-use (“ROU”) lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In July 2018, the FASB issued ASU 2018-11, “Targeted Improvements,” to Topic 842 which included an option to not restate comparative periods in transition and elect to use the effective date of Topic 842 as the date of initial application of transition, which the Company elected. As permitted under Topic 842, the Company adopted several practical expedients that permit us to not reassess (1) whether any expired or existing contract as of the adoption date is or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date, and (3) initial direct costs for any existing leases as of the adoption date. As a result of the adoption of Topic 842 on January 1, 2019, the Company recorded both operating lease right-of-use (“ROU”) assets of $2,602,000 and operating lease liabilities of $2,622,000. The cumulative-effect adjustment was immaterial to our beginning accumulated deficit upon adoption of ASU 2016-02. The adoption of Topic 842 had an immaterial impact on our Consolidated Statements of Operations and Cash Flows for the nine months ended September 30, 2019. The Company’s accounting for finance leases remained substantially unchanged. The Company has expanded its consolidated financial statement disclosure upon adoption of this standard (see “Note 4 – Leases”).

 

  9  
 

 

In February 2018, FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows for the reclassification of certain income tax effects related to the new Tax Cuts and Jobs Act legislation between “Accumulated other comprehensive income” and “Retained earnings.” This ASU relates to the requirement that adjustments to deferred tax liabilities and assets related to a change in tax laws or rates be included in “Income from continuing operations”, even in situations where the related items were originally recognized in “Other comprehensive income” (rather than in “Income from continuing operations”). ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax laws or rates were recognized. The adoption of ASU 2018-09 by the Company effective January 1, 2019 did not have a material impact on the Company’s financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2018-09 by the Company effective January 1, 2019 did not have a material impact on the Company’s financial statements.

 

Recently Issued Accounting Standards – Not Yet Adopted

 

In June 2016, the FASB issued ASU No. 2016-13, “Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”),” which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses is permitted. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which, with respect to credit losses, among other things, clarifies and addresses issues related to accrued interest, transfers between classifications of loans or debt securities, recoveries, and variable interest rates. Additionally, in May 2019, the FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief,” which allows entities to irrevocably elect the fair value option on certain financial instruments. These standards are effective for interim and annual reporting periods beginning after December 15, 2019. 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. The Company is currently assessing the impact that these standards will have on its financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 improves the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the impact that this standard will have on its financial statements.

 

  10  
 

 

3. Revenue

 

Disaggregation of Revenue

 

In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and provides meaningful disaggregation of each business segment’s results of operations. The nature of the Company’s performance obligations within our Treatment and Services Segments result in the recognition of our revenue primarily over time. The following tables present further disaggregation of our revenues by different categories for our Services and Treatment Segments:

 

Revenue by Contract Type

(In thousands)   Three Months Ended     Three Months Ended  
    September 30, 2019     September 30, 2018  
    Treatment     Services     Total     Treatment     Services     Total  
Fixed price   $ 10,081     $ 5,364     $ 15,445     $ 9,103     $ 304     $ 9,407  
Time and materials      ―       7,090       7,090        ―       2,577       2,577  
Total   $ 10,081     $ 12,454     $ 22,535     $ 9,103     $ 2,881     $ 11,984  

 

Revenue by Contract Type

(In thousands)   Nine Months Ended     Nine Months Ended  
    September 30, 2019     September 30, 2018  
    Treatment     Services     Total     Treatment     Services     Total  
Fixed price   $ 30,079     $ 9,231     $ 39,310     $ 27,207     $ 1,040     $ 28,247  
Time and materials      ―       12,068       12,068        ―       9,554       9,554  
Total   $ 30,079     $ 21,299     $ 51,378     $ 27,207     $ 10,594     $ 37,801  

 

Revenue by generator

(In thousands)   Three Months Ended     Three Months Ended  
    September 30, 2019     September 30, 2018  
    Treatment     Services     Total     Treatment     Services     Total  
Domestic government   $ 7,537     $ 10,155     $ 17,692     $ 6,552     $ 1,848     $ 8,400  
Domestic commercial     2,535       475       3,010       2,437       718       3,155  
Foreign government      ―       1,804       1,804       114       294       408  
Foreign commercial     9       20       29        ―       21       21  
Total   $ 10,081     $ 12,454     $ 22,535     $ 9,103     $ 2,881     $ 11,984  

 

Revenue by generator

(In thousands)   Nine Months Ended     Nine Months Ended  
    September 30, 2019     September 30, 2018  
    Treatment     Services     Total     Treatment     Services     Total  
Domestic government   $ 21,986     $ 15,683     $ 37,669     $ 19,098     $ 8,231     $ 27,329  
Domestic commercial     7,809       2,088       9,897       7,995       1,661       9,656  
Foreign government     220       3,465       3,685       114       632       746  
Foreign commercial     64       63       127        ―       70       70  
Total   $ 30,079     $ 21,299     $ 51,378     $ 27,207     $ 10,594     $ 37,801  

 

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:

 

                Year-to-date     Year-to-date  
(In thousands)   September 30, 2019     December 31, 2018     Change ($)     Change (%)  
Contract assets                                
Account receivables, net of allowance   $ 10,781     $ 7,735     $ 3,046       39.4 %
Unbilled receivables - current     9,245       3,105       6,140       197.7 %
                                 
Contract liabilities                                
Deferred revenue   $ 6,239     $ 6,595     $ (356 )     (5.4 )%

 

  11  
 

 

During the three and nine months ended September 30, 2019, the Company recognized revenue of $1,877,000 and $9,322,000, respectively, related to untreated waste that was in the Company’s control as of December 31, 2018. During the three and nine months ended September 30, 2018, the Company recognized revenue of $1,032,000 and $6,605,000, respectively, related to untreated waste that was in the Company’s control as of December 31, 2017. All revenue recognized in each period related to performance obligations satisfied within the respective period.

 

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 customers as incurred.

 

Remaining Performance Obligations

 

The Company applies the practical expedient in paragraph 606-10-50-14 of ASC 606, “Revenue from Contract with Customers,” and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

 

4. Leases

 

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on facts and circumstances present in that arrangement. Lease classifications, recognition, and measurement are then determined at the lease commencement date.

 

The Company’s operating lease ROU assets and operating lease liabilities represent primarily leases for office/warehouse spaces used to conduct our business. These leases have remaining terms of approximately 4 to 11 years which include one or more options to renew, with renewal terms from 3 years to 8 years. Based on the Company’s reasonable certainty to exercise these renewal options, the renewal to extend the lease terms are included in valuing our ROU assets and liabilities. As most of our operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate as the discount rate when determining the present value of the lease payments. The incremental borrowing rate is determined based on the Company’s secured borrowing rate, lease terms and current economic environment. 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. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

 

Finance leases primarily consist of processing and lab equipment for our facilities. The Company’s finance leases generally have terms between two to three years and some of the leases include options to purchase the underlying assets at fair market value at the conclusion of the lease term. At September 30, 2019, assets recorded under finance leases were $1,046,000 less accumulated depreciation of $48,000, resulting in net fixed assets under finance leases of $998,000, which is recorded within net property and equipment on the Consolidated Balance Sheets.

 

The Company adopted the policy to not recognize ROU assets and liabilities for short term leases.

 

  12  
 

 

The components of lease cost for the Company’s leases were as follows (in thousands):

 

    Three Months Ended     Nine Months Ended  
    September 30, 2019     September 30, 2019  
             
Operating Leases:                
Lease cost   $      114     $     342  
                 
Finance Leases:                
Amortization of ROU assets     20       39  
Interest on lease liability     15       40  
      35       79  
Short-term lease rent expense     41       113  
                 
Total lease cost   $ 190     $ 534  

 

The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at September 30, 2019 was:

 

    Operating Leases     Finance Leases  
Weighted average remaining lease terms (years)     9.0       2.1  
                 
Weighted average discount rate     8.0 %     11.6 %

 

The following table reconciles the undiscounted cash flows for the operating and finance leases at September 30, 2019 to the operating and finance lease liabilities recorded on the balance sheet (in thousands):

 

    Operating Leases     Finance Leases  
2019 Remainder   $ 108     $ 103  
2020     443       433  
2021     450       124  
2022     459       105  
2023     466        ―  
2024 and thereafter     1,799        ―  
Total undiscounted lease payments     3,725       765  
Less: Imputed interest     (1,082 )     (95 )
Present value of lease payments   $ 2,643     $ 670  
                 
Current portion of operating lease obligations   $ 237     $  ―  
Long-term operating lease obligations, less current portion   $ 2,406     $  ―  
Current portion of finance lease obligations   $  ―     $ 319  
Long-term finance lease obligations, less current portion   $  ―     $ 351  

 

Supplemental cash flow and other information related to our leases were as follows (in thousands):

 

    Three Months Ended     Nine Months Ended  
    September 30, 2019     September 30, 2019  
Cash paid for amounts included in the measurement of lease liabilities:                
Operating cash flow used in operating leases   $ 109     $ 326  
Operating cash flow used in finance leases   $ 15     $ 40  
Financing cash flow used in finance leases   $ 73     $      174  
                 
ROU assets obtained in exchange for lease obligations for:                
Finance liabilities   $      390     $ 528  
Operating liabilities   $  ―     $ 182  

 

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5. Intangible Assets

 

The following table summarizes information relating to the Company’s definite-lived intangible assets:

 

   

Weighted

Average
    September 30, 2019     December 31, 2018  
   

Amortization

Period

   

Gross

 Carrying

    Accumulated    

Net

 Carrying

   

Gross

 Carrying

    Accumulated    

Net

 Carrying

 
Intangibles (amount in thousands)   (Years)     Amount     Amortization     Amount     Amount     Amortization     Amount  
                                         
Patent   11     $ 740     $ (353 )   $ 387     $ 728     $ (336 )   $ 392  
Software   3       414       (407 )     7       410       (403 )     7  
Customer relationships   10       3,370       (2,657 )     713       3,370       (2,491 )     879  
Permit   10       545       (545 )      ―       545       (538 )     7  
Total         $ 5,069     $ (3,962 )   $ 1,107     $ 5,053     $ (3,768 )   $ 1,285  

 

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 Company had only one definite-lived permit that was subject to amortization. This definite-lived permit was fully amortized in the first quarter of 2019.

 

The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:

 

    Amount  
Year   (In thousands)  
       
2019 (remaining)   $         61  
2020     219  
2121     199  
2022     173  
2023     132  

 

Amortization expense relating to the definite-lived intangible assets as discussed above was $60,000 and $194,000 for the three and nine months ended September 30, 2019, respectively, and $84,000 and $253,000 for the three and nine months ended September 30, 2018, respectively.

 

6. Capital Stock, Stock Plans and Stock-Based Compensation

 

The Company has certain stock option plans under which it may awards incentive stock options (“ISOs”) and/or non-qualified stock options (“NQSOs”) to employees, officers, outside directors, and outside consultants.

 

On January 17, 2019 the Company granted 105,000 ISOs from the 2017 Stock Option Plan (“2017 Plan”) to certain employees, which included our named executive officers as follows: 25,000 ISOs to our Chief Executive Officer (“CEO”); 15,000 ISOs to our Chief Financial Officer (“CFO”); and 15,000 ISOs to our Executive Vice President (“EVP”) of Strategic Initiatives. The ISOs granted were for a contractual term of six years with one-fifth vesting annually over a five year period. The exercise price of the ISO was $3.15 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

 

On July 25, 2019, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Outside Directors Stock Plan (“2003 Plan”) to five of the six re-elected directors at the Company’s Annual Meeting of Stockholders held on July 25, 2019. Dr. Louis F. Centofanti (a Board member) was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.31 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.

 

  14  
 

 

On August 29, 2019 the Company granted an aggregate of 12,500 ISOs from the 2017 Plan to certain employees. The ISOs granted were for a contractual term of six years with one-fifth vesting annually over a five year period. The exercise price of the ISO was $3.90 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

 

On January 18, 2018, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s Board of Directors (“Board”) to fill a vacancy on the Board. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the options was $4.05 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.

 

On July 26, 2018, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected directors at the Annual Meeting. Dr. Louis F. Centofanti (a Board member) was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $4.30 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.

 

The Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 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. The vesting of the Ferguson Stock Option is subject to the achievement of three separate milestones by certain dates. On January 17, 2019, the Company’s Compensation and Stock Option Committee (“Compensation Committee”) and Board approved an amendment to the Ferguson Stock Option whereby the vesting date for the second milestone was extended to March 31, 2020 from January 27, 2019. The 10,000 options under the first milestone were vested and exercised by Robert Ferguson in May 2018. All other terms of the Ferguson Stock Option remain unchanged.

 

The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted as discussed above and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows:

 

    Employee Stock Option Granted  
    January 17, 2019     August 29, 2019  
Weighted-average fair value per share   $ 1.42     $ 1.77  
Risk -free interest rate (1)     2.58 %     1.40 %
Expected volatility of stock (2)     48.67 %     51.38 %
Dividend yield     None       None  
Expected option life (3)     5.0 years       5.0 years  

 

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    Outside Director Stock Option Granted  
    July 25, 2019     January 18, 2018     July 26, 2018  
Weighted-average fair value per share   $ 2.27     $ 2.55     $ 3.02  
Risk -free interest rate (1)     2.08 %     2.62 %     2.98 %
Expected volatility of stock (2)     54.28 %     57.29 %     55.34 %
Dividend yield     None       None       None  
Expected option life (3)     10.0 years       10.0 years       10.0 years  

  

(1) The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.

 

(2) The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.

 

(3) The expected option life is based on historical exercises and post-vesting data.

 

The following table summarizes stock-based compensation recognized for the three and nine months ended September 30, 2019 and 2018 for our employee and director stock options.

 

    Three Months Ended     Nine Months Ended  
Stock Options   September 30,     September 30,  
    2019     2018     2019     2018  
Employee Stock Options   $ 35,000     $ 37,000     $ 114,000     $ 110,000  
Director Stock Options     10,000       15,000       15,000       33,000  
Total   $ 45,000     $ 52,000     $ 129,000     $ 143,000  

 

At September 30, 2019, the Company has approximately $480,000 of total unrecognized compensation cost related to unvested options for employee and directors, of which $49,000 is expected to be recognized in remaining 2019, $147,000 in 2020, $143,000 in 2021, $104,000 in 2022, $33,000 in 2023, with the remaining $4,000 in 2024. At September 30, 2019, the Company has not recognized compensation costs (fair value of approximately $148,000 at September 30, 2019) for the remaining 90,000 Ferguson Stock Option discussed above since achievement of the performance obligation under each of the two remaining milestones is uncertain at September 30, 2019.

 

  16  
 

 

The summary of the Company’s total Stock Option Plans as of September 30, 2019 and September 30, 2018, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2010 Stock Option Plan, the 2017 Plans and the 2003 Plan:

 

    Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (years)    

Aggregate Intrinsic

Value (2)

 
Options outstanding January 1, 2019     616,000     $ 4.23                  
Granted     129,500       3.24                  
Exercised      ─        ─                  
Forfeited/expired     (31,800 )     8.68                  
Options outstanding end of period (1)     713,700     $ 3.85       4.4     $ 611,942  
Options exercisable as of September 30, 2019(1)     299,200     $ 4.30       4.0     $ 188,082  

 

    Shares     Weighted Average Exercise Price     Weighted Average Remaining Contractual Term (years)     Aggregate Intrinsic
Value (2)
 
Options outstanding January 1, 2018     624,800     $ 4.42                  
Granted     18,000       4.22                  
Exercised     (10,000 )     3.65                  
Forfeited/expired     (16,800 )     11.70                  
Options outstanding end of period (1)     616,000     $ 4.23       5.0     $ 279,630  
Options exercisable at September 30, 2018(1)     227,333     $ 5.17       4.6     $ 72,296  

 

(1) Options with exercise prices ranging from $2.79 to $13.35

(2) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price

 

During the nine months ended September 30, 2019, the Company issued a total of 58,203 shares of its Common Stock under the 2003 Plan to its outside directors as compensation for serving on our Board. The Company has recorded approximately $182,000 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.

 

  17  
 

 

7. 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 (loss) per share. The following table reconciles the income (loss) and average share amounts used to compute both basic and diluted income (loss) per share:

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    (Unaudited)     (Unaudited)  
(Amounts in Thousands, Except for Per Share Amounts)   2019     2018     2019     2018  
Net income attributable to Perma-Fix Environmental Services, Inc., common stockholders:                                
Income from continuing operations, net of taxes   $ 1,895       317       1,719       1,358  
Net loss attributable to non-controlling interest     (29 )     (35 )     (90 )     (102 )

Income from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ 1,924     $ 352     $ 1,809     $ 1,460  

Loss from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders

    (156 )     (131 )     (424 )     (495 )

Net income attributable to Perma-Fix Environmental Services, Inc. common stockholders