Notes
to Consolidated Financial Statements
December
31, 2020 and 2019
NOTE
1
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how
company, is a Delaware corporation, engaged through its subsidiaries, in three reportable segments:
TREATMENT
SEGMENT, which includes:
|
-
|
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.
|
In
2020, we expanded our low-level radioactive waste processing and treatment capability within our Treatment Segment through the
addition of our Oak Ridge Environmental Waste Operations Center (“EWOC”) facility. The EWOC facility serves primarily
as a multi-disciplinary equipment and component processing center for large component, size/volume reduction, sort/segregation,
waste transload, and system operability testing. The ultimate objective will be receipt, preparation, packaging, and transportation
of low-level radioactive waste to final disposal facilities (landfills, approved radiological waste repositories). Operations
at the facility have been limited to date as we continue to complete transition of the site. No revenue was generated at EWOC
in 2020.
SERVICES
SEGMENT, which includes:
|
-
|
Technical
services, which include:
|
|
○
|
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology
and engineering;
|
|
○
|
integrated
Occupational Safety and Health services including IH assessments; hazardous materials surveys, e.g., exposure monitoring;
lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health
& safety plan/program development, compliance auditing and training services; and OSHA citation assistance;
|
|
○
|
global
technical services providing consulting, engineering, project management, waste management, environmental, and decontamination
and decommissioning field, technical, and management personnel and services to commercial and government customers; and
|
|
○
|
on-site
waste management services to commercial and governmental customers.
|
|
-
|
Nuclear
services, which include:
|
|
○
|
technology-based
services including engineering, 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 NEOSH instrumentation.
|
|
-
|
A
company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.
|
MEDICAL
SEGMENT, which includes: R&D of the Company’s medical isotope production technology by our majority-owned Polish subsidiary,
Perma-Fix Medical (“PF Medical” or the “Medical Segment”). The Company’s Medical Segment has not
generated any revenue as it remains in the R&D stage and has substantially reduced its R&D costs and activities due to
the need for capital to fund these activities. All costs incurred by the Medical Segment are reflected within R&D in the accompanying
consolidated financial statements.
The
Company’s continuing operations consist of the operations of our subsidiaries/facilities as follow: Diversified Scientific
Services, Inc. (“DSSI”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”),
Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”),
Perma-Fix of Canada, Inc. (“PF Canada”), PF Medical, East Tennessee Materials & Energy Corporation (“M&EC”)
(facility closure completed in 2019), EWOC and Perma-Fix ERRG, a variable interest entity (“VIE”) for which we are
the primary beneficiary (See “Note 19 - Variable Interest Entities (“VIE”) for a discussion of this VIE).
The
Company’s discontinued operations (see Note 9) consist of operations of all our subsidiaries included in our Industrial
Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.
NOTE
2
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
Company’s consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, our majority-owned
Polish subsidiary, Perma-Fix Medical and Perma-Fix ERRG, a VIE for which we are the primary beneficiary as discussed above, after
elimination of all significant intercompany accounts and transactions.
Use
of Estimates
The
Company prepares financial statements in conformity with accounting standards generally accepted in U.S. GAAP, which may require
estimates of future cash flows and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during
the reporting period. Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates.
Cash
and Finite Risk Sinking Fund (Restricted Cash)
At
December 31, 2020, the Company had cash on hand of approximately $7,924,000, which included account balances of our foreign subsidiaries
totaling approximately $377,000. At December 31, 2019, the Company had cash on hand of approximately $390,000, which reflected
primarily account balances of our foreign subsidiaries totaling approximately $388,000. At December 31, 2020 and 2019, the Company
had finite risk sinking funds of approximately $11,446,000 and $11,307,000, respectively, which represented cash held as collateral
under the Company’s financial assurance policy (see “Note 14 – Commitment and Contingencies – Insurance”
for a discussion of this fund).
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date
based on the customer type (government, broker, or commercial). The carrying amount of accounts receivable is reduced by an allowance
for doubtful accounts, which is a valuation allowance that reflects management’s best estimate of the amounts that will
not be collected. The Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and
based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will not be collected.
This analysis excludes government related receivables due to our past successful experience in their collectability. Specific
accounts that are deemed to be uncollectible are reserved at 100% of their outstanding balance. The remaining balances aged over
60 days have a percentage applied by aging category, based on historical experience that allows us to calculate the total allowance
required. Once the Company has exhausted all options in the collection of a delinquent accounts receivable balance, which includes
collection letters, demands for payment, collection agencies and attorneys, the account is deemed uncollectible and subsequently
written off. The write off process involves approvals from senior management based on required approval thresholds.
The
following table sets forth the activity in the allowance for doubtful accounts for the years ended December 31, 2020 and 2019
(in thousands):
|
|
Year
Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Allowance
for doubtful accounts - beginning of year
|
|
$
|
487
|
|
|
$
|
105
|
|
(Recovery
of) provision for bad debt reserve
|
|
|
(101
|
)
|
|
|
386
|
|
Recovery
of write-off (write-off)
|
|
|
18
|
|
|
|
(4
|
)
|
Allowance
for doubtful accounts - end of year
|
|
$
|
404
|
|
|
$
|
487
|
|
Unbilled
Receivables
Unbilled
receivables are generated by differences between invoicing timing and our over time revenue recognition methodology used for revenue
recognition purposes. As major processing and contract completion phases are completed and the costs are incurred, the Company
recognizes the corresponding percentage of revenue. Within our Treatment Segment, the facilities experience delays in processing
invoices due to the complexity of the documentation that is required for invoicing, as well as the difference between completion
of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing differences
occur for several reasons which include: partially from delays in the final processing of all wastes associated with certain work
orders and partially from delays for analytical testing that is required after the facilities have processed waste but prior to
our release of waste for disposal. The tasks relating to these delays can take months to complete but are generally completed
within twelve months.
Unbilled
receivables within our Services Segment can result from: (1) revenue recognized by our Earned Value Management program (a program
which integrates project scope, schedule, and cost to provide an objective measure of project progress) but invoice milestones
have not yet been met and/or (2) contract claims and pending change orders, including Requests for Equitable Adjustments (“REAs”)
when work has been performed and collection of revenue is reasonably assured.
Inventories
Inventories
consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, the Company has replacement parts in inventory,
which are deemed critical to the operating equipment and may also have extended lead times should the part fail and need to be
replaced. Inventories are valued at the lower of cost or net realizable value with cost determined by the first-in, first-out
method.
Disposal
and Transportation Costs
The
Company accrues for waste disposal based upon a physical count of the waste at each facility at the end of each accounting period.
Current market prices for transportation and disposal costs are applied to the end of period waste inventories to calculate for
the transportation and disposal accruals.
Property
and Equipment
Property
and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the
assets for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes.
Generally, asset lives range from ten to forty years for buildings (including improvements and asset retirement costs) and three
to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements
are capitalized and amortized over the lesser of the term of the lease or the life of the asset. Maintenance and repairs are charged
directly to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective
accounts, and any gain or loss from sale or retirement is recognized in the accompanying Consolidated Statements of Operations.
Renewals and improvements, which extend the useful lives of the assets, are capitalized.
Certain
property and equipment expenditures are financed through leases. Amortization of financed leased assets is computed using the
straight-line method over the estimated useful lives of the assets. At December 31, 2020, assets recorded under finance leases
were $2,285,000 less accumulated depreciation of $291,000, resulting in net fixed assets under finance leases of $1,994,000. At
December 31, 2019, assets recorded under finance leases were $1,410,000 less accumulated depreciation of $71,000, resulting in
net fixed assets under finance leases of $1,339,000. These assets are recorded within net property and equipment on the Consolidated
Balance Sheets.
Long-lived
assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Our
depreciation expense totaled approximately $1,357,000 and $1,086,000 in 2020 and 2019, respectively.
Leases
The
Company accounts for leases in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Update (“ASU”) 2016-02, “Leases (Topic 842).” At the inception of an arrangement, the Company determines
if an arrangement is, or contains, a lease based on facts and circumstances present in that arrangement. Lease classifications,
recognition, and measurement are then determined at the lease commencement date.
The
Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent primarily leases
for office and warehouse spaces used to conduct our business. These leases have remaining terms of approximately 3 to 9 years
which include one or more options to renew. The Company includes renewal options in valuing its ROU assets and liabilities when
it determines that it is reasonably certain to exercise these renewal options. As most of our operating leases do not provide
an implicit rate, the Company uses its incremental borrowing rate as the discount rate when determining the present value of the
lease payments. The incremental borrowing rate is determined based on the Company’s secured borrowing rate, lease terms
and current economic environment. Some of our operating leases include both lease (rent payments) and non-lease components (maintenance
costs such as cleaning and landscaping services). The Company has elected the practical expedient to account for lease component
and non-lease component as a single component for all leases under ASU 2016-02. Lease expense for operating leases is recognized
on a straight-line basis over the lease term.
Finance
leases primarily consist of processing and transport equipment used by our facilities’ operations. Our finance leases also
include a building with land for our waste treatment operations. The Company’s finance leases generally have initial terms
between one to six years and some of the leases include options to purchase the underlying assets at fair market value at the
conclusion of the lease term. The lease for the building and land has a term of two years with an option to buy at the end of
the lease term, which the Company is reasonably certain to exercise. See “Property and Equipment” above for assets
recorded under financed leases. Borrowing rates for our finance leases are either explicitly stated in the lease agreements or
implicitly determined from available terms in the lease agreements.
The
Company adopted the policy to not recognize ROU assets and liabilities for short term leases.
Capitalized
Interest
The
Company’s policy is to capitalize interest cost incurred on debt during the construction of projects for its use. A reconciliation
of our total interest cost to “Interest Expense” as reported on our Consolidated Statements of Operations for 2020
and 2019 is as follows:
(Amounts
in Thousands)
|
|
2020
|
|
|
2019
|
|
Interest
cost capitalized
|
|
$
|
—
|
|
|
$
|
29
|
|
Interest
cost charged to expense
|
|
|
398
|
|
|
|
432
|
|
Total
interest
|
|
$
|
398
|
|
|
$
|
461
|
|
Intangible
Assets
Intangible
assets consist primarily of the recognized value of the permits required to operate our business. Indefinite-lived intangible
assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment
indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying amount, a quantitative
test is performed to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of
the asset over its fair value. Judgments and estimates are inherent in these analyses and include assumptions for, among other
factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows, and the determination
of appropriate long-term discount rates. Impairment testing of our indefinite-lived permits related to our Treatment reporting
unit as of October 1, 2020 and 2019 resulted in no impairment charges.
Intangible
assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the
exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible
asset valuation review as of October 1. Definite-lived intangible assets are also tested for impairment whenever events or changes
in circumstances suggest impairment might exist.
R&D
Operational
innovation and technical know-how are very important to the success of our business. Our goal is to discover, develop, and bring
to market innovative ways to process waste that address unmet environmental needs and to develop new company service offerings.
The Company conducts research internally and also through collaborations with other third parties. R&D costs consist primarily
of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development
and enhancement of new potential waste treatment processes and new technology and are charged to expense when incurred in accordance
with ASC Topic 730, “Research and Development.” The Company’s R&D expenses included approximately $311,000
and $314,000 for the years ended December 31, 2020 and 2019, respectively, incurred by our Medical Segment.
Accrued
Closure Costs and ARO
Accrued
closure costs represent our estimated environmental liability to clean up our facilities, as required by our permits, in the event
of closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a
liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying
cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding
such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations,
and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which
the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are
included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property.
In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-period changes in the liability
resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash
flows. Increases in the ARO liability due to passage of time impact net income as accretion expense, which is included in cost
of goods sold. Changes in costs resulting from changes or expansion at the facilities require adjustment to the ARO liability
and are capitalized and charged as depreciation expense, in accordance with the Company’s depreciation policy.
Income
Taxes
Income
taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the provision for income taxes
is comprised of taxes that are currently payable and deferred taxes that relate to the temporary differences between financial
reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC
740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. The Company regularly assesses the likelihood that the deferred
tax asset will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax
planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount
that is more likely than not to be realized.
ASC
740 sets out a consistent framework for preparers to use to determine the appropriate recognition and measurement of uncertain
tax positions. ASC 740 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be
sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized.
ASC 740 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. The Company recognizes
accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense.
The
Company reassesses the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to determine
if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s
sustainability under audit.
Foreign
Currency
The
Company’s foreign subsidiaries include PF UK Limited, PF Canada and PF Medical. Assets and liabilities are translated to
U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for
the period. Foreign currency translation adjustments for these subsidiaries are accumulated as a separate component of accumulated
other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions
are recognized in the Consolidated Statements of Operations.
Concentration
Risk
The
Company performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either
indirectly for others as a subcontractor to government entities or directly as a prime contractor, representing approximately
$96,582,000, or 91.6%, of our total revenue during 2020, as compared to $59,985,000, or 81.7%, of our total revenue during 2019.
Revenue
generated by the Company as a subcontractor to a customer for a remediation project performed for a government entity (the “DOE”)
within our Services Segment in 2020 and 2019 accounted for approximately $41,011,000 or 38.9% and $8,529,000 or 11.6% (included
in revenues generated relating to government clients above) of the Company’s total revenue for 2020 and 2019, respectively.
This remediation project included among other things, decontamination support of a building. As work progressed throughout stages
of this project in 2020, additional contaminations were regularly discovered which resulted in approval in additional work to
be performed under this project. This project is expected to be completed by the first half of 2021.
As
our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another
contract with a different customer from year to year, the Company does not believe the loss of one specific customer from one
year to the next will generally have a material adverse effect on our operations and financial condition.
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains cash with high quality financial institutions, which may exceed Federal Deposit Insurance
Corporation (“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to accounts receivable
is limited due to the Company’s large number of customers and their dispersion throughout the United States as well as with
the significant amount of work that we perform for the federal and Canadian government.
The
Company had three government related customers whose total unbilled and net outstanding receivable balances represented 41.1%,
19.0% and 12.5% of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2020. The Company
had two government related customers whose total unbilled and net outstanding receivable balances represented 12.5% and 34.3%
of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2019.
Revenue
Recognition and Related Policies
The
Company recognizes revenue in accordance with FASB’s ASC 606, “Revenue from Contracts with Customers.” ASC 606
provides a single, comprehensive revenue recognition model for all contracts with customers. Under ASC 606, a five-step process
is utilized in order to determine revenue recognition, depicting the transfer of goods or services to a customer at an amount
that reflects the consideration it expects to receive in exchange for those goods or services. Under ASC 606, a performance obligation
is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract transaction
price is allocated to each distinct performance obligation and recognized as revenues as the performance obligation is satisfied.
Treatment
Segment Revenues:
Contracts
in our Treatment Segment primarily have a single performance obligation as the promise to receive, treat and dispose of waste
is not separately identifiable in the contract and, therefore, not distinct. Performance obligations are generally satisfied over
time using the input method. Under the input method, the Company uses a measure of progress divided into major phases which include
receipt (ranging from 9.0% to 50%), treatment/processing (ranging from 15% to 89%) and shipment/final disposal (ranging from 2%
to 52%). As major processing phases are completed and the costs are incurred, the proportional percentage of revenue is recognized.
Transaction price for Treatment Segment contracts are determined by the stated fixed rate per unit price as stipulated in the
contract.
Services
Segment Revenues:
Revenues
for our Services Segment are generated from time and materials, cost reimbursement or fixed price arrangements:
The
Company’s primary obligation to customers in time and materials contracts relate to the provision of services to the customer
at the direction of the customer. This provision of services at the request of the customer is the performance obligation, which
is satisfied over time. Revenue earned from time and materials contracts is determined using the input method and is based on
contractually defined billing rates applied to services performed and materials delivered.
The
Company’s primary performance obligation to customers in cost reimbursement contracts is to complete certain tasks and work
streams. Each specified work stream or task within the contract is considered to be a separate performance obligation. The transaction
price is calculated using an estimated cost to complete the various scope items to achieve the performance obligation as stipulated
in the contract. An estimate is prepared for each individual scope item in the contract and the transaction price is allocated
on a time and materials basis as services are provided. Revenue from cost reimbursement contracts is recognized over time using
the input method based on costs incurred, plus a proportionate amount of fee earned.
Under
fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and
all of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is estimated
based upon the estimated cost to complete the overall project. Revenue from fixed price contracts is recognized over time using
the output or input method. For the output method, revenue is recognized based on milestone attained on the project. For the input
method, revenue is recognized based on costs incurred on the project relative to the total estimated costs of the project.
The
majority of our revenue is derived from short term contracts with an original expected length of one year or less. Also, the nature
of our contracts generally does not give rise to variable consideration.
Significant
Payment Terms
Invoicing
is based on schedules established in customer contracts. Payment terms vary by customers but are generally established at 30 days
from invoicing.
Incremental
Costs to Obtain a Contract
Costs
incurred to obtain contracts with our customers are immaterial and as a result, the Company expenses (within selling, general
and administration expenses (“SG&A”)) incremental costs incurred in obtaining contracts with our customer as incurred.
Remaining
Performance Obligations
The
Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations
that have original expected durations of one year or less.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts,
the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount
for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations
for those contracts.
Stock-Based
Compensation
Stock-based
compensation granted to employees are accounted for in accordance with ASC 718, “Compensation – Stock Compensation.”
Stock-based payment transactions for acquiring goods and services from nonemployees are also accounted for under ASC 718. ASC
718 requires stock-based payments to employees and nonemployees, including grant of options, to be recognized in the Statement
of Operations based on their fair values. The Company uses the Black-Scholes option-pricing model to determine the fair-value
of stock-based awards which requires subjective assumptions. Assumptions used to estimate the fair value of stock-based awards
include the exercise price of the award, the expected term, the expected volatility of our stock over the stock-based award’s
expected term, the risk-free interest rate over the award’s expected term, and the expected annual dividend yield. The Company
accounts for forfeitures when they occur.
Comprehensive
Income (Loss)
The
components of comprehensive income (loss) are net income (loss) and the effects of foreign currency translation adjustments.
Income
(Loss) Per Share
Basic
income (loss) per share is calculated based on the weighted-average number of outstanding common shares during the applicable
period. Diluted income (loss) per share is based on the weighted-average number of outstanding common shares plus the weighted-average
number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations
of dilutive earnings per share. Income (loss) per share is computed separately for each period presented.
Fair
Value of Financial Instruments
Certain
assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are
recorded at fair value on a nonrecurring basis. Fair value is determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants. The three-tier value hierarchy, which prioritizes the inputs used in the
valuation methodologies, is:
Level
1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level
2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data.
Level
3—Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably
available assumptions made by other market participants.
Financial
instruments include cash (Level 1), accounts receivable, accounts payable, and debt obligations (Level 3). Credit
is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required.
At December 31, 2020 and December 31, 2019, the fair value of the Company’s financial instruments approximated their
carrying values. The fair value of the Company’s revolving credit and term loan approximate its carrying value due to the
variable interest rate.
Recently
Adopted Accounting Standards
In
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. The adoption
of ASU No. 2018-13 by the Company effective January 1, 2020 did not have a material impact on the Company’s financial statements
or disclosures.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (“ASU 848”): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying U.S.
GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank
Offered Rate (“LIBOR”) or another rate that is expected to be discontinued. The amendments in the ASU are effective
for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 on March 12, 2020 by the Company
did not have a material impact on the Company’s financial statements. The Company will continue to assess the potential
impact of this ASU through the effective period.
Recently
Issued Accounting Standards – Not Yet Adopted
In
June 2016, the FASB issued ASU No. 2016-13, “Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments
and subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments
- Credit Losses,” ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic
815, Derivatives and Hedging, and Topic 825, Financial Instruments,” ASU 2019-05 “Financial Instruments - Credit Losses
(Topic 326): Targeted Transition Relief,” ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments
- Credit Losses” and ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)”
(collectively, “Topic 326”). Topic 326 introduces an approach, based on expected losses, to estimate credit losses
on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach
to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured
at amortized cost and certain other instruments, including trade and other receivables and loans. Entities are required to apply
the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is adopted. These ASUs are effective January 1, 2023 for the Company as a smaller reporting company.
The Company had expected to early adopt theses ASUs effective January 1, 2020; however, due to the need for reallocation of the
Company’s resources to manage COVID-19 related matters, the Company has deferred adoption of theses ASUs effective January
1, 2020 and expect to adopt these ASUs by January 1, 2023.
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,”
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. This ASU is effective January 1, 2021 for the Company. The Company does not expect the adoption of this ASU will have
a material impact on the Company’s financial statements.
In
January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the Interactions between Topic 321, Topic 323,
and Topic 815.” This guidance addresses
accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity
securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard
is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption
is permitted. This ASU is effective January 1, 2021 for the Company. The Company does not expect the adoption of this ASU will
have a material impact on the Company’s financial statements.
In
August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging – Contracts in Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible
instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope
exception for contracts in an entity’s own equity, and simplifies the related diluted net income per share calculation for
both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2023, for the Company as a smaller reporting company. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of
this ASU on its consolidated financial statements and disclosures.
In
October 2020, the FASB issued ASU No 2020-10, “Codification Improvements.” ASU 2020-10 updates various codification
topics by clarifying or improving disclosure requirements. ASU 2020-10 is effective for public entities for fiscal years beginning
after December 15, 2020, with early adoption permitted. This ASU is effective January 1, 2021 for the Company. The Company does
not expect the adoption of this ASU will have a material impact on the Company’s financial statements and disclosures.
NOTE
3
COVID-19
IMPACT
The
COVID-19 pandemic that started in early part of 2020 continues to present potential new risks to our business and continues to
result in significant volatility in the U.S. and international markets. The Company continues to closely monitor the impact of
the COVID-19 pandemic on all aspects of our business. Starting in late March 2020, the Company’s operations were impacted
by the shutdown of a number of projects and the delays of certain waste shipments. Since the latter part of the second quarter
of 2020, all of the projects that were previously shutdown within our Services Segment restarted as stay-at-home orders and certain
other restrictions resulting from the pandemic were lifted. Despite the shutdown of certain projects for part of 2020, revenues
generated within our Services Segment in 2020 exceeded our revenue generated in 2019 by approximately $42,188,000. The Company
continues to experience delays in waste shipments from certain customers within our Treatment Segment directly related to the
impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However, the Company
expects to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations.
As the impact of COVID-19 remains fluid, the uncertainty in waste receipt shipments may impact our results of operations for the
first quarter of 2021 and potentially the second quarter of 2021. The potential for a material impact on the Company’s business
increases the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may
continue to delay waste shipments and project work may shut down again. For this reason, we cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity which
may impact our ability to meet our financial covenant requirements under our credit facility.
The
Company’s cash flow requirements during 2020 were primarily financed by our operations, credit facility availability, and
proceeds from the PPP Loan (established under the CARES Act) that the Company entered into with its credit facility lender in
April 2020 (see “Note 10 – Long Term Debt – PPP Loan” for further detail of this loan). At December 31,
2020, the Company had borrowing availability under its revolving credit facility of approximately $14,220,000 which was based
on a percentage of eligible receivables and subject to certain reserves and included its cash on hand of approximately $7,924,000.
The Company’s working capital at December 31, 2020 was approximately $3,672,000 as compared to working capital of $26,000
at December 31, 2019. Our working capital at December 31, 2020 included the classification of approximately $3,191,000 of the
outstanding PPP Loan balance of $5,318,000 at December 31, 2020 as “Current portion of long-term debt” on our Consolidated
Balance Sheets. We have applied for forgiveness on repayment of the entire PPP Loan balance which is subject to the review and
approval of our lender and the SBA.
At
this time, the Company believes it has sufficient liquidity on hand to fund cash flow requirements for the next twelve months
which consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects,
and planned capital expenditures. The Company plans to fund these requirements from our operations, credit facility availability,
and cash on hand. The Company is continually reviewing operating costs during this volatile time and is committed to further reducing
operating costs to bring them in line with revenue levels, when necessary. These measures include curtailing capital expenditures,
eliminating non-essential expenditures and implementing a hiring freeze as needed.
The
Company is closely monitoring our customers’ payment performance. However, as a significant portion of our revenues is derived
from government related contracts, the Company does not expect its accounts receivable collections to be materially impacted due
to COVID-19.
As
previously disclosed, the Company’s Medical Segment has not generated any revenue. The Company anticipates that its Medical
Segment will not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility
or additional equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable
to raise the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.
NOTE
4
REVENUE
Disaggregation
of Revenue
In
general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services
and provides meaningful disaggregation of each business segment’s results of operations. The following tables present further
disaggregation of our revenues by different categories for our Services and Treatment Segments:
Revenue
by Contract Type
|
(In
thousands)
|
|
Twelve
Months Ended
|
|
|
Tweleve
Months Ended
|
|
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Fixed
price
|
|
$
|
30,143
|
|
|
$
|
8,970
|
|
|
$
|
39,113
|
|
|
$
|
40,364
|
|
|
$
|
12,162
|
|
|
$
|
52,526
|
|
Time
and materials
|
|
|
—
|
|
|
|
66,313
|
|
|
|
66,313
|
|
|
|
—
|
|
|
|
20,788
|
|
|
|
20,788
|
|
Cost
reimbursement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145
|
|
|
|
145
|
|
Total
|
|
$
|
30,143
|
|
|
$
|
75,283
|
|
|
$
|
105,426
|
|
|
$
|
40,364
|
|
|
$
|
33,095
|
|
|
$
|
73,459
|
|
Revenue
by generator
|
(In
thousands)
|
|
Twelve
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
22,795
|
|
|
$
|
68,237
|
|
|
$
|
91,032
|
|
|
$
|
29,420
|
|
|
$
|
25,077
|
|
|
$
|
54,497
|
|
Domestic
commercial
|
|
|
6,933
|
|
|
|
1,825
|
|
|
|
8,758
|
|
|
|
10,601
|
|
|
|
2,724
|
|
|
|
13,325
|
|
Foreign
government
|
|
|
415
|
|
|
|
5,135
|
|
|
|
5,550
|
|
|
|
279
|
|
|
|
5,209
|
|
|
|
5,488
|
|
Foreign
commercial
|
|
|
—
|
|
|
|
86
|
|
|
|
86
|
|
|
|
64
|
|
|
|
85
|
|
|
|
149
|
|
Total
|
|
$
|
30,143
|
|
|
$
|
75,283
|
|
|
$
|
105,426
|
|
|
$
|
40,364
|
|
|
$
|
33,095
|
|
|
$
|
73,459
|
|
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)
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
Change
($)
|
|
|
Change
(%)
|
|
Contract
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
receivables, net of allowance
|
|
$
|
9,659
|
|
|
$
|
13,178
|
|
|
$
|
(3,519
|
)
|
|
|
(26.7
|
)%
|
Unbilled
receivables - current
|
|
|
14,453
|
|
|
|
7,984
|
|
|
|
6,469
|
|
|
|
81.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
4,614
|
|
|
$
|
5,456
|
|
|
$
|
(842
|
)
|
|
|
(15.4
|
)%
|
During
the twelve months ended December 31, 2020 and 2019, the Company recognized revenue of $8,094,000 and $10,354,000, respectively,
related to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized
in each period related to performance obligations satisfied within the respective period.
NOTE
5
LEASES
The
components of lease cost for the Company’s leases were as follows (in thousands):
|
|
Twelve
Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Operating
Leases:
|
|
|
|
|
|
|
|
|
Lease
cost
|
|
$
|
456
|
|
|
$
|
456
|
|
|
|
|
|
|
|
|
|
|
Finance
Leases:
|
|
|
|
|
|
|
|
|
Amortization
of ROU assets
|
|
|
220
|
|
|
|
63
|
|
Interest
on lease liability
|
|
|
143
|
|
|
|
63
|
|
|
|
|
363
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
Short-term
lease rent expense
|
|
|
15
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total
lease cost
|
|
$
|
834
|
|
|
$
|
625
|
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31,
2020 was:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Weighted
average remaining lease terms (years)
|
|
|
8.0
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
Weighted average
discount rate
|
|
|
8.0
|
%
|
|
|
7.3
|
%
|
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31,
2019 was:
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
Weighted
average remaining lease terms (years)
|
|
|
8.8
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
Weighted average
discount rate
|
|
|
8.0
|
%
|
|
|
9.3
|
%
|
The
following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2020 to the operating
and finance lease liabilities recorded on the balance sheet (in thousands):
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2021
|
|
$
|
450
|
|
|
$
|
587
|
|
2022
|
|
|
458
|
|
|
|
271
|
|
2023
|
|
|
466
|
|
|
|
150
|
|
2024
|
|
|
342
|
|
|
|
146
|
|
2025
|
|
|
304
|
|
|
|
146
|
|
2025
and thereafter
|
|
|
1,154
|
|
|
|
18
|
|
Total
undiscounted lease payments
|
|
|
3,174
|
|
|
|
1,318
|
|
Less:
Imputed interest
|
|
|
(831
|
)
|
|
|
(131
|
)
|
Present
value of lease payments
|
|
$
|
2,343
|
|
|
$
|
1,187
|
|
|
|
|
|
|
|
|
|
|
Current
portion of operating lease obligations
|
|
$
|
273
|
|
|
$
|
—
|
|
Long-term
operating lease obligations, less current portion
|
|
$
|
2,070
|
|
|
$
|
—
|
|
Current
portion of finance lease obligations
|
|
$
|
—
|
|
|
$
|
525
|
|
Long-term
finance lease obligations, less current portion
|
|
$
|
—
|
|
|
$
|
662
|
|
Supplemental
cash flow and other information related to our leases were as follows (in thousands):
|
|
Twelve
Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating
cash flow from operating leases
|
|
$
|
442
|
|
|
$
|
434
|
|
Operating
cash flow from finance leases
|
|
$
|
143
|
|
|
$
|
63
|
|
Financing
cash flow from finance leases
|
|
$
|
615
|
|
|
$
|
272
|
|
|
|
|
|
|
|
|
|
|
ROU
assets obtained in exchange for lease obligations for:
|
|
|
|
|
|
|
|
|
Finance
liabilities
|
|
$
|
874
|
|
|
$
|
893
|
|
Operating
liabilities
|
|
$
|
—
|
|
|
$
|
182
|
|
NOTE
6
PERMIT
AND OTHER INTANGIBLE ASSETS
The
following table summarizes changes in the carrying value of permits. No permit exists at our Services and Medical Segments.
Permit
(amount in thousands)
|
|
Treatment
|
|
Balance
as of December 31, 2018
|
|
$
|
8,443
|
|
PCB
permit amortized (1)
|
|
|
(7
|
)
|
Permit
in progress
|
|
|
354
|
|
Balance
as of December 31, 2019
|
|
|
8,790
|
|
Permit
in progress
|
|
|
132
|
|
Balance
as of December 31, 2020
|
|
$
|
8,922
|
|
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
|
|
Weighted
Average
|
|
|
December
31, 2020
|
|
|
December
31, 2019
|
|
|
|
Amortization
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
Intangibles
(amount in
|
|
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
thousands)
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Patent
|
|
13
|
|
|
$
|
742
|
|
|
$
|
(334
|
)
|
|
$
|
408
|
|
|
$
|
760
|
|
|
$
|
(358
|
)
|
|
$
|
402
|
|
Software
|
|
3
|
|
|
|
418
|
|
|
|
(411
|
)
|
|
|
7
|
|
|
|
414
|
|
|
|
(408
|
)
|
|
|
6
|
|
Customer
relationships
|
|
10
|
|
|
|
3,370
|
|
|
|
(2,910
|
)
|
|
|
460
|
|
|
|
3,370
|
|
|
|
(2,713
|
)
|
|
|
657
|
|
Permit
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
545
|
|
|
|
(545
|
)
|
|
|
—
|
|
Total
|
|
|
|
|
$
|
4,530
|
|
|
$
|
(3,655
|
)
|
|
$
|
875
|
|
|
$
|
5,089
|
|
|
$
|
(4,024
|
)
|
|
$
|
1,065
|
|
The
intangible assets noted above were amortized on a straight-line basis over their useful lives with the exception of customer relationships
which were amortized using an accelerated method.
The
following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
|
|
Amount
|
|
Year
|
|
(In
thousands)
|
|
|
|
|
|
2021
|
|
|
199
|
|
2022
|
|
|
172
|
|
2023
|
|
|
132
|
|
2024
|
|
|
11
|
|
2025
|
|
|
11
|
|
Amortization
expense recorded for definite-lived intangible assets was approximately $239,000 and $256,000, for the years ended December 31,
2020 and 2019, respectively.
NOTE
7
CAPITAL
STOCK, STOCK PLANS, WARRANTS, AND STOCK BASED COMPENSATION
Stock
Option Plans
The
Company adopted the 2003 Outside Directors Stock Plan (the “2003 Plan”), which was approved by our stockholders at
the Company’s July 29, 2003 Annual Meeting of Stockholders. Non-Qualified Stock Options (“NQSOs”) granted under
the 2003 Plan generally have a vesting period of six months from the date of grant and a term of 10 years, with an exercise price
equal to the closing trade price on the date prior to grant date. The 2003 Plan also provides for the issuance to each outside
director a number of shares of the Company’s Common Stock in lieu of 65% or 100% (based on option elected by each director)
of the fee payable to the eligible director for services rendered as a member of the Board. The number of shares issued is determined
at 75% of the market value as defined in the plan (the Company recognizes 100% of the market value of the shares issued). The
2003 Plan, as amended, also provides for the grant of an NQSO to purchase up to 6,000 shares of our Common Stock for each outside
director upon initial election to the Board, and the grant of an NQSO to purchase 2,400 shares of our Common Stock upon each re-election.
The number of shares of the Company’s Common Stock authorized under the 2003 Plan is 1,100,000. At December 31, 2020, the
2003 Plan had available for issuance 218,577 shares.
The
Company’s 2017 Stock Option Plan (“2017 Plan”) authorizes the grant of options to officers and employees of
the Company, including any employee who is also a member of the Board, as well as to consultants of the Company. The 2017 Plan
authorizes an aggregate grant of 1,140,000 NQSOs and ISOs, which includes a rollover of 140,000 shares that had remained available
for issuance under the 2010 Stock Option Plan (“2010 Plan”) immediately upon the approval of the 2017 Plan and an
increase of 600,000 shares to the 2017 Plan which was approved by the Company’s stockholders at the 2020 Annual Meeting
of Stockholders held on July 22, 2020 (“2020 Annual Meeting”). Consultants of the Company can only be granted NQSOs.
The term of each stock option granted under the 2017 Plan shall be fixed by the Compensation Committee, but no stock options will
be exercisable more than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after
the grant date. The exercise price of any ISO granted under the 2017 Plan to an individual who is not a 10% stockholder at the
time of the grant shall not be less than the fair market value of the shares at the time of the grant, and the exercise price
of any ISO granted to a 10% stockholder shall not be less than 110% of the fair market value at the time of grant. The exercise
price of any NQSOs granted under the plan shall not be less than the fair market value of the shares at the time of grant. At
December 31, 2020, the 2017 Plan had available for issuance 647,500 shares.
Upon
the approval of the 2017 Plan as discussed above, no further options remained available for issuance under the 2010 Plan. On September
29, 2020, the 2010 Plan expired; however, an option (ISO) issued under the 2010 Plan prior to the expiration of the 2010 Plan
for the purchase of up to 50,000 shares of our Common Stock at $3.97 per share will remain in effect until the earlier of the
exercise date by the optionee or the maturity date of May 15, 2022.
Stock
Options to Employees and Outside Director
On
February 4, 2020, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the options was $7.00 per share, which was equal to the Company’s closing stock price per
share the day preceding the grant date, pursuant to the 2003 Plan.
On
July 22, 2020, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s 2020 Annual Meeting. Dr. Louis F. Centofanti, the Company’s EVP of Strategic Initiatives
and also a Board member, was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the
2003 Plan. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price
of the NQSO was $6.70 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the
2003 Plan.
On
August 10, 2020, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the options was $7.29 per share, which was equal to the Company’s closing stock price per
share the day preceding the grant date, pursuant to the 2003 Plan.
On
January 17, 2019 the Company granted 105,000 ISOs from the 2017 Plan to certain employees, which included our executive officers
as follows: 25,000 ISOs to our CEO; 15,000 ISOs to our CFO; and 15,000 ISOs to our 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 Plan to five of the six re-elected
directors at the Company’s Annual Meeting of Stockholders held on July 25, 2019. Dr. Louis F. Centofanti (a Board member)
was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted
were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.31 per share,
which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
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.
During
2020, the Company issued 2,000 shares of its Common Stock resulting from the exercise of options from the Company’s 2017
Plan for total proceeds of $6,300. Additionally, the Company issued 1,884 shares of its Common Stock from cashless exercises of
8,000 and 2,500 options at $3.60 per share and $3.15 per share, respectively. The Company issued an aggregate of 32,400 shares
of Common Stock in 2019 from exercises of options resulting in total proceed of approximately $133,000.
The
Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value
of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s
stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected
annual dividend yield. The fair value of the options granted during 2020 and 2019 and the related assumptions used in the Black-Scholes
option model used to value the options granted were as follows. No options were granted to employees in 2020:
|
|
Employee
Stock
|
|
|
|
Option
Granted
|
|
|
|
2019
|
|
Weighted-average
fair value per share
|
|
$
|
1.46
|
|
Risk
-free interest rate (1)
|
|
|
1.40%-2.58
|
%
|
Expected
volatility of stock (2)
|
|
|
48.67%-51.38
|
%
|
Dividend
yield
|
|
|
None
|
|
Expected
option life (3)
|
|
|
5.0
years
|
|
|
|
Outside
Director Stock Options Granted
|
|
|
|
2020
|
|
|
2019
|
|
Weighted-average
fair value per share
|
|
$
|
4.66
|
|
|
$
|
2.27
|
|
Risk
-free interest rate (1)
|
|
|
0.59%-1.61
|
%
|
|
|
2.08
|
%
|
Expected
volatility of stock (2)
|
|
|
55.83%-56.68
|
%
|
|
|
54.28
|
%
|
Dividend
yield
|
|
|
None
|
|
|
|
None
|
|
Expected
option life (3)
|
|
|
10.0
years
|
|
|
|
10.0
years
|
|
(1)
The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the
option.
(2)
The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
(3)
The expected option life is based on historical exercises and post-vesting data.
The
following table summarizes stock-based compensation recognized for fiscal years 2020 and 2019.
|
|
Year
Ended
|
|
|
|
2020
|
|
|
2019
|
|
Employee
Stock Options
|
|
$
|
132,000
|
|
|
$
|
150,000
|
|
Director
Stock Options
|
|
|
104,000
|
|
|
|
29,000
|
|
Total
|
|
$
|
236,000
|
|
|
$
|
179,000
|
|
At
December 31, 2020, the Company has approximately $274,000 of total unrecognized compensation costs related to unvested options
for employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized
is approximately 2.1 years.
Stock
Options to Consultant
The
Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Plan for the purchase of up to 100,000
shares of the Company’s Common Stock (“Ferguson Stock Option”) in connection with his work as a consultant to
the Company’s Test Bed Initiative (“TBI”) at our PFNWR facility at an exercise price of $3.65 per share, which
was the fair market value of the Company’s Common Stock on the date of grant. The term of the Ferguson Stock Option is seven
years from the grant date. The vesting of the Ferguson Stock Option is subject to the achievement of three separate milestones
by certain dates. On January 17, 2019, the Company’s Compensation and Board approved an amendment to the Ferguson Stock
Option whereby the vesting date for the second milestone for the purchase of up to 30,000 shares of the Company’s Common
Stock was extended to March 31, 2020 from January 27, 2019. On March 27, 2020, the Compensation Committee and the Board approved
another amendment to the Ferguson Stock Option whereby the vesting date for the second milestone was further extended to December
31, 2021 from March 31, 2020 and the vesting date for the third milestone for the purchase of up to 60,000 shares of the Company’s
Common Stock was extended to December 31, 2022 from January 27, 2021. The 10,000 options under the first milestone were exercised
by Robert Ferguson in May 2018. The Company has not recognized compensation costs (fair value of approximately $262,000 at December
31, 2020) for the remaining 90,000 Ferguson Stock Option under the remaining two milestones since achievement of the performance
obligation under each of the two remaining milestones is uncertain at December 31, 2020. All other terms of the Ferguson Stock
Option remain unchanged.
Summary
of Stock Option Plans
The
summary of the Company’s total plans as of December 31, 2020 and 2019, and changes during the period then ended are presented
as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average Remaining Contractual Term (years)
|
|
|
Aggregate
Intrinsic
Value
(4)
|
|
Options
outstanding January 1, 2020
|
|
|
681,300
|
|
|
$
|
3.84
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
24,000
|
|
|
$
|
6.92
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(12,500
|
)
|
|
$
|
3.47
|
|
|
|
|
|
|
$
|
16,060
|
|
Forfeited/expired
|
|
|
(34,400
|
)
|
|
$
|
5.52
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period (1)
|
|
|
658,400
|
|
|
$
|
3.87
|
|
|
|
3.5
|
|
|
$
|
1,426,143
|
|
Options
exercisable at December 31, 2020(2)
|
|
|
356,400
|
|
|
$
|
3.99
|
|
|
|
3.3
|
|
|
$
|
732,163
|
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (years)
|
|
|
Aggregate
Intrinsic
Value
(4)
|
|
Options
outstanding January 1, 2019
|
|
|
616,000
|
|
|
$
|
4.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
129,500
|
|
|
|
3.24
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(32,400
|
)
|
|
|
4.10
|
|
|
|
|
|
|
$
|
93,000
|
|
Forfeited/expired
|
|
|
(31,800
|
)
|
|
|
8.68
|
|
|
|
|
|
|
|
|
|
Options
outstanding end of period (3)
|
|
|
681,300
|
|
|
$
|
3.84
|
|
|
|
4.2
|
|
|
$
|
3,587,000
|
|
Options
exercisable as of December 31, 2019(3)
|
|
|
286,800
|
|
|
$
|
4.28
|
|
|
|
3.8
|
|
|
$
|
1,383,000
|
|
(1)
Options with exercise prices ranging from $2.79 to $7.29
(2)
Options with exercise prices ranging from $2.79 to $7.05
(3)
Options with exercise prices ranging from $2.79 to $8.40
(4)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the
exercise
price
The
summary of the Company’s nonvested options as of December 31, 2020 and changes during the period then ended are presented
as follows:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
Non-vested
options January 1, 2020
|
|
|
394,500
|
|
|
$
|
1.77
|
|
Granted
|
|
|
24,000
|
|
|
|
4.66
|
|
Vested
|
|
|
(96,500
|
)
|
|
|
2.00
|
|
Forfeited
|
|
|
(20,000
|
)
|
|
|
1.62
|
|
Non-vested
options at December 31, 2020
|
|
|
302,000
|
|
|
$
|
1.94
|
|
Warrant
In
connection with a $2,500,000 loan that the Company executed April 1, 2019 with Mr. Robert Ferguson, the Company issued a Warrant
to Mr. Ferguson for the purchase of up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share. The Warrant
is exercisable six months from April 1, 2019 and expires on April 1, 2024 and remains outstanding at December 31, 2020 (see “Note
10 – Long Term Debt” for further information of this Warrant).
Common
Stock Issued for Services
The
Company issued a total of 34,135 and 71,905 shares of our Common Stock in 2020 and 2019, respectively, under our 2003 Plan to
our outside directors as compensation for serving on our Board. As a member of the Board, each director elects to receive either
65% or 100% of the director’s fee in shares of our Common Stock. The number of shares received is calculated based on 75%
of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly
fee is due. The balance of each director’s fee, if any, is payable in cash. The Company recorded approximately $250,000
and $232,000 in compensation expense (included in SG&A expenses) for the twelve months ended December 31, 2020 and 2019, respectively,
for the portion of director fees earned in the Company’s Common Stock.
Shares
Reserved
At
December 31, 2020, the Company has reserved approximately 658,400 shares of our Common Stock for future issuance under all of
the option arrangements.
NOTE
8
INCOME
(LOSS) PER SHARE
The
following table reconciles the income (loss) and average share amounts used to compute both basic and diluted loss per share:
|
|
Years
Ended
|
|
|
|
December
31,
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2020
|
|
|
2019
|
|
Net
income attributable to Perma-Fix Environmental Services, Inc., common stockholders:
|
|
|
|
|
|
|
|
|
Income
from continuing operations, net of taxes
|
|
$
|
3,149
|
|
|
$
|
2,732
|
|
Net
loss attributable to non-controlling interest
|
|
|
(123
|
)
|
|
|
(124
|
)
|
Income
from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
3,272
|
|
|
$
|
2,856
|
|
Loss
from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
(412
|
)
|
|
|
(541
|
)
|
Net
income attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
2,860
|
|
|
$
|
2,315
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.24
|
|
|
$
|
.19
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$
|
.23
|
|
|
$
|
.19
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic weighted
average shares outstanding
|
|
|
12,139
|
|
|
|
12,046
|
|
Add:
dilutive effect of stock options
|
|
|
184
|
|
|
|
14
|
|
Add:
dilutive effect of warrants
|
|
|
24
|
|
|
|
—
|
|
Diluted
weighted average shares outstanding
|
|
|
12,347
|
|
|
|
12,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
42
|
|
|
|
482
|
|
Warrant
|
|
|
—
|
|
|
|
60
|
|
NOTE
9
DISCONTINUED
OPERATIONS
The
Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries
divested in 2011 and prior and three previously closed locations.
The
Company incurred losses from discontinued operations of $412,000 and $541,000 for the years ended December 31, 2020 and 2019 (net
of taxes of $0 for each period), respectively. The loss for the year ended 2019 included an increase of approximately $50,000
in remediation reserve for our PFM subsidiary due to reassessment of the remediation reserve. The remaining loss for each of the
periods noted above was primarily due to costs incurred in the administration and continued monitoring of our discontinued operations.
The
following table presents the major class of assets of discontinued operations at December 31, 2020 and December 31, 2019. No assets
and liabilities were held for sale at each of the periods noted.
|
|
December
31,
|
|
|
December
31,
|
|
(Amounts
in Thousands)
|
|
2020
|
|
|
2019
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
22
|
|
|
$
|
104
|
|
Total
current assets
|
|
|
22
|
|
|
|
104
|
|
Long-term
assets
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net (1)
|
|
|
81
|
|
|
|
81
|
|
Other
assets
|
|
|
—
|
|
|
|
36
|
|
Total
long-term assets
|
|
|
81
|
|
|
|
117
|
|
Total
assets
|
|
$
|
103
|
|
|
$
|
221
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4
|
|
|
$
|
8
|
|
Accrued
expenses and other liabilities
|
|
|
150
|
|
|
|
169
|
|
Environmental
liabilities
|
|
|
744
|
|
|
|
817
|
|
Total
current liabilities
|
|
|
898
|
|
|
|
994
|
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
Closure
liabilities
|
|
|
142
|
|
|
|
134
|
|
Environmental
liabilities
|
|
|
110
|
|
|
|
110
|
|
Total
long-term liabilities
|
|
|
252
|
|
|
|
244
|
|
Total
liabilities
|
|
$
|
1,150
|
|
|
$
|
1,238
|
|
(1)
net of accumulated depreciation of $10,000 for each period presented.
The
Company’s discontinued operations included a note receivable in the original amount of approximately $375,000 recorded in
May 2016 resulting from the sale of property at our Perma-Fix of Michigan, Inc. (“PFMI”) subsidiary. This note required
60 equal monthly installment payments by the buyer of approximately $7,250 (which includes interest). On July 24, 2020, the purchaser
of the property paid off the outstanding note receivable balance of approximately $105,000.
Environmental
Liabilities
The
Company has three remediation projects, which are currently in progress relating to our PFD, PFM and PFSG (closed locations) subsidiaries.
The Company divested PFD in 2008; however, the environmental liability of PFD was retained by the Company upon the divestiture
of PFD. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation
of surrounding ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators.
At
December 31, 2020, we had total accrued environmental remediation liabilities of $854,000, a decrease of $73,000 from the December
31, 2019 balance of $927,000. The decrease represents payments made on remediation projects for our PFSG and PFD subsidiaries.
At December 31, 2020, $744,000 of the total accrued environmental liabilities was recorded as current.
The
current and long-term accrued environmental liabilities at December 31, 2020 are summarized as follows (in thousands).
|
|
Current
|
|
|
Long-term
|
|
|
|
|
|
|
Accrual
|
|
|
Accrual
|
|
|
Total
|
|
PFD
|
|
$
|
17
|
|
|
$
|
60
|
|
|
$
|
77
|
|
PFM
|
|
$
|
50
|
|
|
|
15
|
|
|
|
65
|
|
PFSG
|
|
$
|
677
|
|
|
|
35
|
|
|
|
712
|
|
Total
liability
|
|
$
|
744
|
|
|
$
|
110
|
|
|
$
|
854
|
|
NOTE
10
LONG-TERM
DEBT
Long-term
debt consists of the following at December 31, 2020 and December 31, 2019:
(Amounts
in Thousands)
|
|
December
31,
2020
|
|
|
December
31,
2019
|
|
Revolving
Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base
calculation, balance due on May 15, 2024.
|
|
|
|
|
|
|
|
|
Effective
interest rate for 2020 and 2019 was 6.1% and 6.6%, respectively. (1)
|
|
$
|
—
|
|
|
$
|
321
|
|
Term
Loan dated May 8, 2020, payable in equal monthly installments of principal, balance due on May 15, 2024. Effective interest
rate for 2020 and 2019 was 5.2% and 6.9%, respectively. (1)
|
|
|
1,388
|
(2)
|
|
|
1,827
|
(2)
|
Promissory
Note dated April 1, 2019, payable in twelve monthly installments of interest only, starting May 1, 2019 followed with
twelve monthly installments of approximately $208 in principal plus accrued interest. Interest accrues at annual rate of
4.0%. (3)
|
|
|
—
|
(4)
|
|
|
1,732
|
(4)
|
Promissory
Note dated April 14, 2020, balance subject to loan forgiveness. Interest accrues at annual rate of 1.0%. (3)
|
|
|
5,318
|
(5)
|
|
|
—
|
|
Note
Payable dated June 10, 2020, payable in 36 monthly installments, starting in July 2020 at annual interest rate of $5.64%.
|
|
|
23
|
|
|
|
—
|
|
Total
debt
|
|
|
6,729
|
|
|
|
3,880
|
|
Less
current portion of long-term debt
|
|
|
3,595
|
(4)
|
|
|
1,300
|
(4)
|
Long-term
debt
|
|
$
|
3,134
|
|
|
$
|
2,580
|
|
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property,
plant, and equipment. Effective July 1, 2019, monthly installment principal payment on the Term Loan was amended to approximately
$35,500 from approximately $101,600. See “Revolving Credit and Term Loan Agreement” below for terms of the Company’s
credit facility prior to the New Loan Agreement dated May 8, 2020.
(2)
Net of debt issuance costs of ($105,000) and ($92,000) at December 31, 2020 and December 31, 2019, respectively.
(3)
Uncollateralized note.
(4)
Net of debt discount/debt issuance costs of ($0) and ($248,000) at December 31, 2020 and December 31, 2019, respectively.
The Promissory Note provided for prepayment of principal over the term of the Note without penalty. In 2019, the Company made
total prepayment of principal of $520,000 which was reflected in the current portion of the debt. In 2020, the outstanding principal
balance of $1,980,000 was paid-in-full of which of which $416,000 was prepaid.
(5)
Entered into with the Company’s credit facility lender under the PPP under the CARES Act (see “PPP Loan”
below for further information on this loan and its terms).
Revolving
Credit and Term Loan Agreement
The
Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended
Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Amended Loan Agreement
had been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently
amended (“Revised Loan Agreement”), provided the Company with the following credit facility with a maturity date of
March 24, 2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”)
of approximately $6,100,000. The maximum that the Company can borrow under the revolving credit was based on a percentage of eligible
receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender
may impose from time to time.
Payment
of annual rate of interest due on the revolving credit under the Revised Loan Agreement was at prime (3.25% at December 31, 2020)
plus 2% and the term loan at prime plus 2.5%.
On
May 8, 2020, the Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “New
Loan Agreement”) with PNC, replacing our previous Revised Loan Agreement with PNC. The New Loan Agreement provides the Company
with the following credit facility:
|
●
|
up
to $18,000,000 revolving credit facility, subject to the amount of borrowings based on a percentage of eligible receivables
and subject to certain reserves; and
|
|
|
|
|
●
|
a
term loan of $1,741,818, which requires monthly installments of $35,547.
|
The
New Loan Agreement terminates as of May 15, 2024, unless sooner terminated.
Similar
to our Revised Loan Agreement, the New Loan Agreement requires the Company to meet certain customary financial covenants, including,
among other things, a minimum Tangible Adjusted Net Worth requirement of $27,000,000 at all times; maximum capital spending of
$6,000,000 annually; and a minimum FCCR requirement of 1.15:1.
Under
the New Loan Agreement, payment of annual rate of interest due on the credit facility is as follows:
●
|
revolving
credit at prime plus 2.50% or LIBOR plus 3.50% and the term loan at prime plus 3.00% or LIBOR plus 4.00%. The Company can
only elect to use the LIBOR interest payment option after it becomes compliant with meeting the minimum FCCR of 1.15:1; and
|
|
|
●
|
Upon
the achievement of a FCCR of greater than 1.25:1, the Company has the option of paying an annual rate of interest due on the
revolving credit at prime plus 2.00% or LIBOR plus 3.00% and the term loan at prime plus 2.50% or LIBOR plus 3.50%. The Company
met this FCCR in each of the quarters in 2020. Upon meeting the FCCR of 1.25:1, this interest payment option will remain in
place in the event that the Company’s future FCCR falls below 1.25:1.
|
Under
the LIBOR option of interest payment noted above, a LIBOR floor of 0.75% shall apply in the event that LIBOR falls below 0.75%
at any point in time.
Pursuant
to the New Loan Agreement, the Company may terminate the New Loan Agreement upon 90 days’ prior written notice upon payment
in full of our obligations under the New Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the
event we pay off our obligations on or before May 7, 2021 and 0.5% of the total financing if we pay off our obligations after
May 7, 2021 but prior to or on May 7, 2022. No early termination fee shall apply if we pay off our obligations under the New Loan
Agreement after May 7, 2022.
In
connection with New Loan Agreement, the Company paid its lender a fee of $50,000 and incurred other direct costs of approximately
$35,000, which are being amortized over the term of the New Loan Agreement as interest expense-financing fees. As a result of
the termination of the Revised Loan Agreement, the Company recorded approximately $27,000 in loss on extinguishment of debt in
accordance with ASC 470-50, “Debt – Modifications and Extinguishment.”
At
December 31, 2020, the borrowing availability under our revolving credit was approximately $14,220,000, based on our eligible
receivables and includes a reduction in borrowing availability of approximately $3,026,000 from outstanding standby letters of
credit.
The
Company’s credit facility under its Revised and New Loan Agreement with PNC contains certain financial covenants, along
with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result
in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under
our credit facility and terminate all commitments to extend further credit. The Company met its financial covenant requirements
in 2020, including its quarterly FCCR requirements.
Loan
and Securities Purchase Agreement, Promissory Note and Subordination Agreement
On
April 1, 2019, the Company completed a lending transaction with Robert Ferguson (the “Lender”), whereby the Company
borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory
note (the “Loan”). The Lender is a shareholder of the Company and also serves as a consultant to the Company in connection
with the Company’s TBI at its PFNWR subsidiary. Proceeds from the Loan were used for general working capital purposes. The
Loan is unsecured, with a term of two years with interest payable at a fixed interest rate of 4.00% per annum. The Loan provides
for monthly payments of accrued interest only during the first year of the Loan, with the first interest payment due May 1, 2019
and monthly payments of approximately $208,333 in principal plus accrued interest starting in the second year of the Loan. The
Loan also allows for prepayment of principal payments over the term of the Loan without penalty with such prepayment of principal
payments to be applied to the second year of the loan payments at the Company’s discretion. In December 2020, the Loan was
paid-in-full. In connection with this capital raise transaction described above and consideration for us receiving the Loan, the
Company issued a Warrant (the “Warrant”) to the Lender to purchase up to 60,000 shares of our Common Stock at an exercise
price of $3.51 per share, which was the closing bid price for a share of our Common Stock on NASDAQ.com immediately preceding
the execution of the Loan and Warrant. The Warrant expires on April 1, 2024 and remains outstanding at December 31, 2020. As further
consideration for this capital raise transaction relating to the Loan, the Company also issued 75,000 shares of its Common Stock
to the Lender. The fair value of the Warrant and Common Stock and the related closing fees incurred from the transaction totaled
approximately $398,000 and was recorded as debt discount/debt issuance costs which has been fully amortized as interest expense
– financing fees. The 75,000 shares of Common Stock, the Warrant and the 60,000 shares of Common Stock that may be purchased
under the Warrant were and will be issued in a private placement that was and will be exempt from registration under Rule 506
and/or Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933, as amended (the “Act”) and bear a restrictive legend
against resale except in a transaction registered under the Act or in a transaction exempt from registration thereunder.
PPP
Loan
On
April 14, 2020, the Company entered into a promissory note with PNC, our credit facility lender, in the amount of approximately
$5,666,000 (“PPP Loan”) under the PPP. The PPP was established under the CARES Act and is administered by the SBA.
On June 5, 2020, the Flexibility Act was signed into law which amended the CARES Act. The note evidencing the PPP Loan contains
events of default relating to, among other things, payment defaults, breach of representations and warranties, and provisions
of the promissory note. During the third quarter of 2020, the Company repaid approximately $348,000 of the PPP Loan to PNC resulting
from clarification made in the loan calculation at the time of the loan origination.
Under
the terms of the Flexibility Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such
forgiveness will be determined, subject to limitations, based on the use of loan proceeds by the Company for eligible payroll
costs, mortgage interest, rent and utility costs and the maintenance of employee and compensation levels for the covered period
(which is defined as a 24 week period, beginning April 14, 2020, the date in which proceeds from the PPP Loan was disbursed to
the Company by PNC). At least 60% of such forgiven amount must be used for eligible payroll costs. On October 5, 2020, the Company
applied for forgiveness on repayment of the loan balance as permitted under the program, which is subject to the review and approval
of our lender and the SBA. If all or a portion of the PPP Loan is not forgiven, all or the remaining portion of the loan will
be for a term of two years but can be prepaid at any time prior to maturity without any prepayment penalties. The annual interest
rate on the PPP Loan is 1.0% and no payments of principal or interest are due until SBA remits the loan forgiveness amount to
our lender. While the Company’s PPP Loan currently has a two year maturity, the Flexibility Act permits the Company to request
a five year maturity with our lender. At December 31, 2020, the Company has not received a determination on potential forgiveness
on any portion of the PPP Loan balance; therefore, the Company has classified approximately $3,191,000 of the PPP Loan balance
as “Current portion of long-term debt,” on its Consolidated Balance Sheets, which was based on payment of the PPP
Loan starting in July 2021 (10 months from end of our covered period) in accordance with the terms of our PPP Loan agreement.
The
following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2020 (excludes
debt issuance costs of $105,000).
Year ending
December 31:
|
|
|
|
|
|
|
(In
thousands)
|
|
|
2021
|
|
|
|
3,627
|
|
|
|
|
2022
|
|
|
|
2,562
|
|
|
|
|
2023
|
|
|
|
431
|
|
|
|
|
2024
|
|
|
|
214
|
|
Total
|
|
|
|
|
|
$
|
6,834
|
|
NOTE
11
ACCRUED
EXPENSES
Accrued
expenses include the following (in thousands) at December 31:
|
|
2020
|
|
|
2019
|
|
Salaries
and employee benefits
|
|
$
|
4,203
|
|
|
$
|
3,908
|
|
Accrued
sales, property and other tax
|
|
|
589
|
|
|
|
793
|
|
Interest
payable
|
|
|
50
|
|
|
|
17
|
|
Insurance
payable
|
|
|
1,145
|
|
|
|
935
|
|
Other
|
|
|
394
|
|
|
|
465
|
|
Total
accrued expenses
|
|
$
|
6,381
|
|
|
$
|
6,118
|
|
Accrued
expenses for 2020 included a total of approximately $419,000 in compensation expenses accrued under the 2020 Management Incentive
Plans (“MIPs”) for our executives (see “Note 16 – Related Party Transactions – MIPs” for further
discussion of the 2020 MIPs) in addition to a 2020 discretionary bonus of approximately $27,000 payable to the Company’s
EVP of Nuclear and Technical Services approved by the Company’s Compensation Committee. Accrued expenses for 2019 included
an aggregate of approximately $360,000 in compensation expenses accrued under 2019 MIPs for our executive officers and our SVP
of Nuclear and Technical Services, which total amount was paid at the end of May 2020.
NOTE
12
ACCRUED
CLOSURE COSTS AND ARO
Accrued
closure costs represent our estimated environmental liability to clean up our fixed-based regulated facilities as required by
our permits, in the event of closure. Changes to reported closure liabilities (current and long-term) for the years ended December
31, 2020 and 2019, were as follows:
Amounts
in thousands
|
|
|
|
Balance
as of December 31, 2018
|
|
|
6,750
|
|
Accretion
expense
|
|
|
320
|
|
Spending
|
|
|
(1,359
|
)
|
Adjustment
to closure liability
|
|
|
330
|
|
Balance
as of December 31, 2019
|
|
$
|
6,041
|
|
Accretion
expense
|
|
|
335
|
|
Spending
|
|
|
(11
|
)
|
Balance
as of December 31, 2020
|
|
$
|
6,365
|
|
The
Company recorded an additional $330,000 of closure costs and current closure liabilities in 2019 due to finalization of closure
requirements for the Company’s M&EC facility. In 2019, the Company completed the closure and decommissioning activities
of its M&EC facility in accordance with M&EC’s license and permit requirements.
The
spending of approximately $11,000 and $1,359,000 in 2020 and 2019, respectively, was primarily for the closure of the Company’s
M&EC facility. Closure liabilities of M&EC are classified as current in the Consolidated Balance Sheets for 2020 and 2019.
The
reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance
Sheets at December 31, 2020 and 2019 with the following activity for the years ended December 31, 2020 and 2019:
Amounts
in thousands
|
|
|
|
Balance
as of December 31, 2018
|
|
|
3,730
|
|
Amortization
of closure and post-closure asset
|
|
|
(191
|
)
|
Balance
as of December 31, 2019
|
|
$
|
3,539
|
|
Amortization
of closure and post-closure asset
|
|
|
(191
|
)
|
Balance
as of December 31, 2020
|
|
$
|
3,348
|
|
NOTE
13
INCOME
TAXES
The
components of income (loss) before income tax (benefit) expense by jurisdiction for continuing operations for the years ended
December 31, consisted of the following (in thousands):
|
|
2020
|
|
|
2019
|
|
United
States
|
|
|
4,778
|
|
|
|
4,120
|
|
Canada
|
|
|
(1,391
|
)
|
|
|
(735
|
)
|
United
Kingdom
|
|
|
(121
|
)
|
|
|
(184
|
)
|
Poland
|
|
|
(306
|
)
|
|
|
(312
|
)
|
Total
income before tax (benefit) expense
|
|
$
|
2,960
|
|
|
$
|
2,889
|
|
The
components of current and deferred federal and state income tax (benefit) expense for continuing operations for the years ended
December 31, consisted of the following (in thousands):
|
|
2020
|
|
|
2019
|
|
Federal
income tax expense - deferred
|
|
|
4
|
|
|
|
5
|
|
State
income tax (benefit) expense - current
|
|
|
(70
|
)
|
|
|
153
|
|
State
income tax (benefit) expense - deferred
|
|
|
(123
|
)
|
|
|
(1
|
)
|
Total
income tax (benefit) expense
|
|
$
|
(189
|
)
|
|
$
|
157
|
|
An
overall reconciliation between the expected tax (benefit) expense using the federal statutory rate of 21% for each of the years
ended 2020 and 2019 and the (benefit) expense for income taxes from continuing operations as reported in the accompanying Consolidated
Statement of Operations is provided below (in thousands).
|
|
2020
|
|
|
2019
|
|
Federal
tax expense at statutory rate
|
|
$
|
622
|
|
|
$
|
607
|
|
State
tax (benefit) expense, net of federal benefit
|
|
|
(192
|
)
|
|
|
152
|
|
Change
in deferred tax rates
|
|
|
(71
|
)
|
|
|
106
|
|
Permanent
items
|
|
|
126
|
|
|
|
54
|
|
Difference
in foreign rate
|
|
|
(68
|
)
|
|
|
(27
|
)
|
Change
in deferred tax liabilities
|
|
|
(256
|
)
|
|
|
835
|
|
Other
|
|
|
117
|
|
|
|
(218
|
)
|
Decrease
in valuation allowance
|
|
|
(467
|
)
|
|
|
(1,352
|
)
|
Income
tax (benefit) expense
|
|
$
|
(189
|
)
|
|
$
|
157
|
|
The
global intangible low-taxed income (“GILTI”) provisions under the Tax Cuts and Jobs Act of 2017 (the “TCJA”)
require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the
foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred,
and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended
December 31, 2020 and 2019. As the foreign subsidiaries are all in loss positions for 2020, there is no GILTI inclusion for the
current year.
On
March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act included a number of income tax law changes, including
modifications to the interest limitation under Internal Revenue Code (“IRC”) §163(j) and reinstatement of the
ability to carry back net operating losses. The income tax items in the CARES Act did not have a material impact on the
Company’s 2020 income tax provision.
The
Company had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations,
which gave rise to deferred tax assets and liabilities at December 31, 2020 and 2019 as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating losses
|
|
$
|
8,662
|
|
|
$
|
9,391
|
|
Environmental
and closure reserves
|
|
|
1,839
|
|
|
|
1,977
|
|
Lease
liability
|
|
|
642
|
|
|
|
742
|
|
Other
|
|
|
1,734
|
|
|
|
1,295
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(3,447
|
)
|
|
|
(3,211
|
)
|
Goodwill
and indefinite lived intangible assets
|
|
|
(471
|
)
|
|
|
(590
|
)
|
Right-of-use
lease asset
|
|
|
(627
|
)
|
|
|
(730
|
)
|
481(a)
adjustment
|
|
|
(209
|
)
|
|
|
(336
|
)
|
Prepaid
expenses
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
|
8,101
|
|
|
|
8,516
|
|
Valuation
allowance
|
|
|
(8,572
|
)
|
|
|
(9,106
|
)
|
Net
deferred income tax liabilities
|
|
|
(471
|
)
|
|
|
(590
|
)
|
In
2020 and 2019, the Company concluded that it was more likely than not that $8,572,000 and $9,106,000 of our deferred income tax
assets would not be realized, and as such, a full valuation allowance was applied against those deferred income tax assets.
The
Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately
$14,264,000 and $71,316,000, respectively, as of December 31, 2020. The estimated consolidated federal and state NOLs include
approximately $2,455,000 and $3,774,000, respectively, of our majority-owned subsidiary, PF Medical, which is not part of our
consolidated group for tax purposes. These net operating losses can be carried forward and applied against future taxable income,
if any, and expire in various amounts starting in 2021. Approximately $12,199,000 of our federal NOLs were generated after December
31, 2017 and thus do not expire. However, as a result of various stock offerings and certain acquisitions, which in the aggregate
constitute a change in control, the use of these NOLs will be limited under the provisions of Section 382 of the Internal Revenue
Code of 1986, as amended. Additionally, NOLs may be further limited under the provisions of Treasury Regulation 1.1502-21 regarding
Separate Return Limitation Years.
The
tax years 2017 through 2020 remain open to examination by taxing authorities in the jurisdictions in which the Company
operates.
No
uncertain tax positions were identified by the Company for the years currently open under statute of limitations.
The
Company had no federal income tax payable for the years ended December 31, 2020 and 2019.
NOTE
14
COMMITMENTS
AND CONTINGENCIES
Hazardous
Waste
In
connection with our waste management services, the Company processes both hazardous and non-hazardous waste, which we transport
to our own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any
cleanup is required at the disposal site, the Company could be a potentially responsible party for the costs of the cleanup notwithstanding
any absence of fault on our part.
Legal
Matters
In
the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any judgments or fines against us that could would have a material adverse
effect on our financial position, liquidity or results of future operations.
During
July 2020, Tetra Tech EC, Inc. (“Tetra Tech”) filed a complaint in the United States District Court for the Northern
District of California against CH2M Hill, Inc. (“CH2M”) and four subcontractors of CH2M, including the Company (“Defendants”).
The complaint alleges claims for negligence, negligent misrepresentation and equitable indemnification against all defendants
related to alleged damages suffered by Tetra Tech in respect of certain draft reports prepared by defendants at the request of
the U.S. Navy as part of an investigation and review of certain whistleblower complaints about Tetra Tech’s environmental
restoration at the Hunter’s Point Naval Shipyard in San Francisco.
CH2M
was hired by the Navy in 2016 to review Tetra Tech’s work. CH2M subcontracted with environmental consulting and cleanup
firms Battelle Memorial Institute, Cabrera Services, Inc., SC&A, Inc. and the Company to assist with the review, according
to the complaint.
The
complaint alleges that the subject draft reports were prepared negligently and in a biased manner, made public, and
caused damage to Tetra Tech’s reputation; triggering related lawsuits and costing it opportunities for both government
and commercial contracts.
The
Company has provided notice of this lawsuit to our insurance carrier. Our insurance carrier is providing a defense on our behalf
in connection with this lawsuit, subject to a $100,000 self-insured retention and the terms and limitations contained in the insurance
policy.
On
January 7, 2021 Defendants’ motion to dismiss the complaint in its entirety was granted without prejudice, with leave to
amend. Tetra Tech subsequently filed a First Amended Complaint (“FAC”) and Defendants filed a motion to dismiss Tetra
Tech’s FAC. At this time, the Company continues to believe it does not have any liability to Tetra Tech.
Insurance
The
Company has a 25-year finite risk insurance policy entered into in June 2003 (“2003 Closure Policy”) with AIG which
provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The 2003
Closure Policy, as amended, provides for a maximum allowable coverage of $28,177,000 which includes available capacity to allow
for annual inflation and other performance and surety bond requirements. Total coverage under the 2003 Closure Policy, as amended,
was $19,651,000 at December 31, 2020. At December 31, 2020 and December 31, 2019, finite risk sinking funds contributed by the
Company related to the 2003 Closure Policy which is included in other long term assets on the accompanying Consolidated Balance
Sheets totaled $11,446,000 and $11,307,000, respectively, which included interest earned of $1,975,000 and $1,836,000 on the finite
risk sinking funds as of December 31, 2020 and December 31, 2019, respectively. Interest income for the year ended 2020 and 2019
was approximately $139,000 and $337,000, respectively. If the Company so elects, AIG is obligated to pay us an amount equal to
100% of the finite risk sinking fund account balance in return for complete release of liability from both us and any applicable
regulatory agency using this policy as an instrument to comply with financial assurance requirements.
Letter
of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to
customers and other obligations, including facility closures. At December 31, 2020, the total amount of standby letters of credit
outstanding was approximately $3,026,000 and the total amount of bonds outstanding was approximately $46,388,000.
NOTE
15
PROFIT
SHARING PLAN
The
Company adopted a 401(k) Plan in 1992, which is intended to comply with Section 401 of the Internal Revenue Code and the provisions
of the Employee Retirement Income Security Act of 1974. All full-time employees who have attained the age of 18 are eligible to
participate in the 401(k) Plan. Eligibility is immediate upon employment but enrollment is only allowed during four quarterly
open periods of January 1, April 1, July 1, and October 1. Participating employees may make annual pretax contributions to their
accounts up to 100% of their compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make
matching contributions of 25% based on the employee’s elective contributions. Company contributions vest over a period of
five years. In 2020 and 2019, the Company contributed approximately $594,000 and $395,000 in 401(k) matching funds, respectively.
NOTE
16
RELATED
PARTY TRANSACTIONS
David
Centofanti
David
Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $181,000
and $177,000 for 2020 and 2019, respectively. David Centofanti is the son of our EVP of Strategic Initiatives and a Board member.
Employment
Agreements
The
Company entered into an employment agreement with each of Mark Duff, President and CEO, Dr. Louis Centofanti, EVP of Strategic
Initiatives, Ben Naccarato, EVP and CFO, Andrew Lombardo, EVP of Nuclear and Technical Services, and Richard Grondin, EVP of Waste
Treatment Operations, with each employment agreement dated July 22, 2020 (each employment agreement referred to as the “New
Employment Agreement”). The Company had entered into an employment agreement with each of Mark Duff, Dr. Louis Centofanti
and Ben Naccarato on September 8, 2017 which each of the employment agreement was terminated effective July, 22, 2020 upon the
execution of the New Employment Agreement with Mark Duff, Dr. Louis Centofanti and Ben Naccarato.
Each
New Employment Agreement is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier terminated
by the Company or by the executive officer. At the end of the Initial Term of each New Employment Agreement, each New Employment
Agreement will automatically be extended for one additional year, unless at least six months prior to the expiration of the Initial
Term, we or the executive officer provides written notice not to extend the terms of the New Employment Agreement. Each New Employment
Agreement provides for annual base salary, performance bonuses (as provided in the MIP as approved by our Compensation Committee
and Board) and other benefits commonly found in such agreement.
Pursuant
to each New Employment Agreement, if the executive officer’s employment is terminated due to death/disability or for cause
(as defined in the agreements), the Company will pay to the executive officer or to his estate an amount equal to the sum of any
unpaid base salary and accrued unused vacation time through the date of termination and any benefits due to the executive officer
under any employee benefit plan (the “Accrued Amounts”) plus any performance compensation payable pursuant to the
MIP with respect to the fiscal year immediately preceding the date of termination.
If
the executive officer terminates his employment for “good reason” (as defined in the agreements) or is terminated
by us without cause (including any such termination for “good reason” or without cause within 24 months after a Change
in Control (as defined in the agreement)), the Company will pay the executive officer the Accrued Amounts, two years of full base
salary, and two times the performance compensation (under the MIP) earned with respect to the fiscal year immediately preceding
the date of termination provided the performance compensation earned with respect to the fiscal year immediately preceding the
date of termination has not been paid. If performance compensation earned with respect to the fiscal year immediately preceding
the date of termination has been made to the executive officer, the executive officer will be paid an additional year of the performance
compensation earned with respect to the fiscal year immediately preceding the date of termination. If the executive terminates
his employment for a reason other than for good reason, the Company will pay to the executive an amount equal to the Accrued Amounts
plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of
termination.
If
there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase common stock held by the
executive officer will immediately become exercisable in full commencing on the date of termination through the original term
of the options. In the event of the death of an executive officer, all outstanding stock options to purchase common stock held
by the executive officer will immediately become exercisable in full commencing on the date of death, with such options exercisable
for the lesser of the original option term or twelve months from the date of the executive officer’s death. In the event
an executive officer terminates his employment for “good reason” or is terminated by the Company without cause, all
outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing
on the date of termination, with such options exercisable for the lesser of the original option term or within 60 days from the
date of the executive’s date of termination. Severance benefits payable with respect to a termination (other than Accrued
Amounts) shall not be payable until the termination constitutes a “separation from service” (as defined under Treasury
Regulation Section 1.409A-1(h)).
MIPs
On
January 16, 2020, the Company’s Board and the Compensation Committee approved individual MIP for each Mark Duff, CEO and
President, Ben Naccarato, EVP and CFO, Dr. Louis Centofanti, EVP of Strategic Initiatives and Andy Lombardo, who was appointed
by our Board to the position of EVP of Nuclear and Technical Services and an executive officer of the Company on January 16, 2020.
Mr. Lombardo previously held the position of SVP of Nuclear and Technical Services. Additionally, on July 22, 2020, the Company’s
Board and the Compensation Committee approved a MIP for Richard Grondin who was appointed by the Board to the position of EVP
of Waste Treatment Operations and an executive officer of the Company. Mr. Grondin previously held the position of Vice President
of Western Operations within our Treatment Segment. Each of the MIPs is effective January 1, 2020 and applicable for year ended
December 31, 2020. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to Compensation
Committee oversight and modification. Each MIP awards cash compensation based on achievement of performance thresholds, with the
amount of such compensation established as a percentage of the executive’s 2020 annual base salary. The potential target
performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary
for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5%
to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000)
of the base salary for the EVP of Waste Treatment Operations.
Each
of the three executives in 2019 (Mark Duff, Ben Naccarato, Dr. Louis Centofanti) also had a MIP for 2019 which also provided guidelines
for the calculation of annual cash incentive-based compensation, similar to the 2020 MIPs discussed above. An aggregate of approximately
$271,000 in compensation expenses was earned under the MIPs for the Company’s three executives for 2019 which was paid to
the executives at the end of May 2020. Prior to being named an executive officer of the Company on January 16, 2020, Andy Lombardo
had a MIP for 2019 as the SVP of Nuclear and Technical Services. Andy Lombardo earned approximately $89,000 under the 2019 MIP
which was also paid by the Company to him at the end of May 2020.
Salary
On
January 16, 2020, the Board, with the approval of the Compensation Committee approved the following salary increase for the Company’s
NEO effective January 1, 2020:
|
●
|
Annual
base salary for Mark Duff, CEO and President, was increased to $344,400 from $287,000.
|
|
●
|
Annual
base salary for Ben Naccarato, who was promoted to EVP and CFO from VP and CFO, was increased
to $280,000 from $235,231; and
|
|
●
|
Annual
base salary for Andy Lombardo, who was appointed to the position of EVP of Nuclear and
Technical Services as discussed above, was increased to $280,000 from $258,662, which
was the annual base salary that Mr. Lombardo earned as SVP of Nuclear and Technical Services
and prior to his appointment as an executive officer of the Company by the Board.
|
Additionally,
as a result of Mr. Grondin’s appointment by the Board to the position of EVP of Waste Treatment and an executive officer
on July 22, 2020, his annual salary was increased from $208,000 as Vice President of Western Operations within our Treatment Segment
to $240,000, effective July 22, 2020.
NOTE
17
SEGMENT
REPORTING
In
accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
|
●
|
from
which we may earn revenue and incur expenses;
|
|
●
|
whose
operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about
resources to be allocated to the segment and assess its performance; and
|
|
●
|
for
which discrete financial information is available.
|
We
currently have three reporting segments, which include Treatment and Services Segments, which are based on a service offering
approach; and Medical, whose primary purpose is the R&D of a medical isotope production technology. The Medical Segment has
not generated any revenues and all costs incurred are reflected within R&D in the accompanying consolidated financial statements.
As previously disclosed, the Medical Segment has substantially reduced its R&D costs and activities due to the need for capital
to fund these activities. The Company anticipates that the Medical Segment will not resume full R&D activities until the necessary
capital is obtained through its own credit facility or additional equity raise, or obtains partners willing to provide funding
for its R&D. Our reporting segments exclude our corporate headquarter, business center and our discontinued operations (see
“Note 9 – Discontinued Operations”) which do not generate revenues.
The
table below shows certain financial information of our reporting segments as of and for the years ended December 31, 2020 and
2019 (in thousands).
Segment
Reporting as of and for the year ended December 31, 2020
|
|
Treatment
|
|
|
Services
|
|
|
Medical
|
|
|
Segments
Total
|
|
|
Corporate
|
(2)
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
30,143
|
|
|
$
|
75,283
|
|
|
|
—
|
|
|
$
|
105,426
|
(3)(4)
|
|
$
|
—
|
|
|
$
|
105,426
|
|
Intercompany
revenues
|
|
|
1,493
|
|
|
|
25
|
|
|
|
—
|
|
|
|
1,518
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
5,491
|
|
|
|
10,402
|
|
|
|
—
|
|
|
|
15,893
|
|
|
|
—
|
|
|
|
15,893
|
|
Research
and development
|
|
|
243
|
|
|
|
132
|
|
|
|
311
|
|
|
|
686
|
|
|
|
76
|
|
|
|
762
|
|
Interest
income
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
139
|
|
|
|
140
|
|
Interest
expense
|
|
|
(115
|
)
|
|
|
(27
|
)
|
|
|
—
|
|
|
|
(142
|
)
|
|
|
(256
|
)
|
|
|
(398
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(294
|
)
|
|
|
(294
|
)
|
Depreciation
and amortization
|
|
|
1,204
|
|
|
|
354
|
|
|
|
—
|
|
|
|
1,558
|
|
|
|
38
|
|
|
|
1,596
|
|
Segment
income (loss) before income taxes
|
|
|
1,494
|
|
|
|
7,826
|
|
|
|
(311
|
)
|
|
|
9,009
|
|
|
|
(6,049
|
)
|
|
|
2,960
|
|
Income
tax (benefit) expense
|
|
|
(264
|
)
|
|
|
6
|
|
|
|
—
|
|
|
|
(258
|
)
|
|
|
69
|
|
|
|
(189
|
)
|
Segment
income (loss)
|
|
|
1,758
|
|
|
|
7,820
|
|
|
|
(311
|
)
|
|
|
9,267
|
|
|
|
(6,118
|
)
|
|
|
3,149
|
|
Segment
assets(1)
|
|
|
32,324
|
|
|
|
22,368
|
(8)
|
|
|
17
|
|
|
|
54,709
|
|
|
|
24,210
|
(5)
|
|
|
78,919
|
|
Expenditures
for segment assets (net)
|
|
|
1,264
|
|
|
|
451
|
|
|
|
—
|
|
|
|
1,715
|
|
|
|
—
|
|
|
|
1,715
|
(7)
|
Total
debt
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
23
|
|
|
|
6,706
|
|
|
|
6,729
|
(6)
|
Segment
Reporting as of and for the year ended December 31, 2019
|
|
|
Treatment
|
|
|
|
Services
|
|
|
|
Medical
|
|
|
|
Segments
Total
|
|
|
|
Corporate
|
(2)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
40,364
|
|
|
$
|
33,095
|
|
|
|
—
|
|
|
$
|
73,459
|
(3)(4)
|
|
$
|
—
|
|
|
$
|
73,459
|
|
Intercompany
revenues
|
|
|
329
|
|
|
|
38
|
|
|
|
—
|
|
|
|
367
|
|
|
|
—
|
|
|
|
—
|
|
Gross
profit
|
|
|
12,248
|
|
|
|
3,336
|
|
|
|
—
|
|
|
|
15,584
|
|
|
|
—
|
|
|
|
15,584
|
|
Research
and development
|
|
|
401
|
|
|
|
12
|
|
|
|
314
|
|
|
|
727
|
|
|
|
23
|
|
|
|
750
|
|
Interest
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
337
|
|
|
|
337
|
|
Interest
expense
|
|
|
(129
|
)
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
(152
|
)
|
|
|
(280
|
)
|
|
|
(432
|
)
|
Interest
expense-financing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(208
|
)
|
|
|
(208
|
)
|
Depreciation
and amortization
|
|
|
999
|
|
|
|
318
|
|
|
|
—
|
|
|
|
1,317
|
|
|
|
25
|
|
|
|
1,342
|
|
Segment
income (loss) before income taxes
|
|
|
7,973
|
|
|
|
795
|
|
|
|
(314
|
)
|
|
|
8,454
|
|
|
|
(5,565
|
)
|
|
|
2,889
|
|
Income
tax expense
|
|
|
153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
|
|
4
|
|
|
|
157
|
|
Segment
income (loss)
|
|
|
7,820
|
|
|
|
795
|
|
|
|
(314
|
)
|
|
|
8,301
|
|
|
|
(5,569
|
)
|
|
|
2,732
|
|
Segment
assets(1)
|
|
|
34,260
|
|
|
|
15,410
|
(8)
|
|
|
16
|
|
|
|
49,686
|
|
|
|
16,829
|
(5)
|
|
|
66,515
|
|
Expenditures
for segment assets (net)
|
|
|
1,366
|
|
|
|
169
|
|
|
|
—
|
|
|
|
1,535
|
|
|
|
—
|
|
|
|
1,535
|
(7)
|
Total
debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,880
|
|
|
|
3,880
|
(6)
|
(1)
|
Segment
assets have been adjusted for intercompany accounts to reflect actual assets for each
segment.
|
|
|
(2)
|
Amounts
reflect the activity for corporate headquarters not included in the segment information.
|
(3)
|
The
Company performed services relating to waste generated by government clients (domestic
and foreign (primarily Canadian)), either directly as a prime contractor or indirectly
for others as a subcontractor to government entities, representing approximately 96,582,000
or 91.6% of total revenue for 2020 and $59,985,000 or 81.7% of total revenue for 2019.
The following reflects such revenue generated by our two segments:
|
|
|
2020
|
|
|
2019
|
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
|
Treatment
|
|
|
Services
|
|
|
Total
|
|
Domestic
government
|
|
$
|
22,795
|
|
|
$
|
68,237
|
|
|
$
|
91,032
|
|
|
$
|
29,420
|
|
|
$
|
25,077
|
|
|
$
|
54,497
|
|
Foreign
government
|
|
|
415
|
|
|
|
5,135
|
|
|
|
5,550
|
|
|
|
279
|
|
|
|
5,209
|
|
|
|
5,488
|
|
Total
|
|
$
|
23,210
|
|
|
$
|
73,372
|
|
|
$
|
96,582
|
|
|
$
|
29,699
|
|
|
$
|
30,286
|
|
|
$
|
59,985
|
|
(4)
|
The
following table reflects revenue based on customer location:
|
|
|
2020
|
|
|
2019
|
|
United
States
|
|
$
|
99,790
|
|
|
$
|
67,822
|
|
Canada
|
|
|
5,550
|
|
|
|
5,488
|
|
United
Kingdom
|
|
|
86
|
|
|
|
149
|
|
Total
|
|
$
|
105,426
|
|
|
$
|
73,459
|
|
(5)
|
Amount
includes assets from our discontinued operations of $103,000 and $221,000 at December
31, 2020 and 2019, respectively.
|
(6)
|
Net
of debt discount/debt issuance costs of ($105,000) and ($340,000) for 2020 and 2019,
respectively (see “Note 10 – “Long-Term Debt” for additional
information).
|
(7)
|
Net
of financed amount of $883,000 and $393,000 for the year ended December 31, 2020 and
2019, respectively.
|
(8)
|
Includes
long-lived asset (net) for our PF Canada, Inc. subsidiary of $33,000 and $41,000 for
the year ended December 31, 2020 and 2019, respectively.
|
NOTE
18
DEFERRAL
OF EMPLOYMENT TAX DEPOSITS
The
CARES Act, as amended by the Flexibility Act which was signed into law on June 5, 2020, provides employers the option to defer
the payment of an employer’s share of social security taxes beginning on March 27, 2020 through December 31, 2020 with 50%
of the amount of social security taxes deferred to become due on December 31, 2021 with the remaining 50% due on December 31,
2022. The Company elected to defer such taxes starting in mid-April 2020. At December 31, 2020, the Company has deferred payment
of approximately $1,252,000 in its share of social security taxes, of which approximately $626,000 is included in “Other
long-term liabilities,” with the remaining balance included in “Accrued expenses” within current liabilities
in the Company’s Consolidated Balance Sheets.
NOTE
19
VARIABLE
INTEREST ENTITIES (“VIE”)
On
May 24, 2019, the Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) entered into an unpopulated joint
venture agreement for project work bids within the Company’s Services Segment. The joint venture is doing business as Perma-Fix
ERRG, a general partnership. The Company has a 51% partnership interest in the joint venture and ERRG has a 49% partnership interest
in the joint venture. Activities under Perma-Fix ERRG did not commence until the first quarter of 2020.
The
Company determines whether joint ventures in which it has invested meet the criteria of a VIE at the start of each new venture
and when a reconsideration event has occurred. A VIE is a legal entity that satisfies any of the following characteristics: (a)
the legal entity does not have sufficient equity investment at risk; (b) the equity investors at risk as a group, lack the characteristics
of a controlling financial interest; or (c) the legal entity is structured with disproportionate voting rights.
The
Company consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the
power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation
to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Based
on the Company’s evaluation of Perma-Fix ERRG and related agreements with Perma-Fix ERRG, the Company determined that Perma-Fix
ERRG is a VIE in which we are the primary beneficiary. At December 31, 2020, Perma-Fix ERRG had total assets of $2,723,000 and
total liabilities of $2,723,000 which are all recorded as current.
NOTE
20
SUBSEQUENT
EVENTS
Management
evaluated events occurring subsequent to December 31, 2020 through March 29, 2021, the date these consolidated financial
statements were available for issuance, and other than as noted below determined that no material recognizable subsequent events
occurred.
MIPs
On
January 21, 2021, the Company’s Compensation Committee and the Board approved individual MIP for the calendar year 2021
for each CEO, EVP and CFO, EVP of Strategic Initiatives, EVP of Nuclear and Technical Services and EVP of Waste Treatment Operations.
Each of the MIPs is effective January 1, 2021 and applicable for year 2021. Each MIP provides guidelines for the calculation of
annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash compensation
based on achievement of performance thresholds, with the amount of such compensation established as a percentage of the executive’s
2021 annual base salary at the time of the approval of the MIP. The potential target performance compensation ranges from 5% to
150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000), 5%
to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP
of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of
Waste Treatment Operations.
Executive
Officer Salary
In
February 2021, the Company’s Compensation Committee approved an annual salary cost of living adjustment of approximately
2.3% to take into effect April 1, 2021 for each of our executive officers.
Board
Compensation
On
January 21, 2021, the Company’s Compensation Committee and the Board approved the following revision to the compensation
of each non-employee Board member and the Board Committee(s) for which the Board member serves, effective January 1, 2021.
●
|
each
director is to be paid a quarterly fee of $11,500 from $8,000;
|
●
|
the
Chairman of the Board is to be paid an additional quarterly fee of $8,750 from $7,500;
|
●
|
the
Chairman of the Audit Committee is to be paid an additional quarterly fee of $6,250 from
$5,500;
|
●
|
the
Chairman of each of the Compensation Committee, the Corporate Governance and Nominating
Committee (the “Nominating Committee”), and the Strategic Advisory Committee
(the “Strategic Committee”) is to receive $3,125 in quarterly fee. No such
quarterly fee was previously paid. The Chairman of the Board is not eligible to receive
a quarterly fee for serving as the Chairman of any the aforementioned Committees ;
|
●
|
each
Audit Committee member (excluding the Chairman of the Audit Committee) is to receive
$1,250 in quarterly fee; and
|
●
|
each
member of the Compensation Committee, the Nominating Committee, and the Strategic Committee
is to receive a quarterly fee of $500. Such fee is payable only if the member does not
serve as the Chairman of the Audit Committee, the Nominating Committee, the Strategic
Committee or as the Chairman of the Board.
|
Each
non-employee Board member will continue to receive $1,000 for each board meeting attendance and a $500 fee for meeting attendance
via conference call.
Each non-employee director may continue to elect to have either 65% or
100% of such fees payable in Common Stock under the 2003 Plan, with the balance, if any, payable in cash (see “Note 7 – Capital
Stock, Stock Plans, Warrants, and Stock Based Compensation – Stock Option Plans” for a discussion of the 2003 Plan).