SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
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June 30, 2012
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Or
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission File No.
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111596
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware
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|
58-1954497
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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8302 Dunwoody Place, Suite 250, Atlanta, GA
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30350
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(Address of principal executive offices)
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(Zip Code)
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(770) 587-9898
(Registrant's telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes T No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes T No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer £
|
Accelerated Filer T
|
Non-accelerated Filer £
|
Smaller reporting company £
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the latest practical date.
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Class
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Outstanding at August 1, 2012
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Common Stock, $.001 Par Value
|
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56,140,017
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shares of registrant’s
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Common Stock
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PERMA-FIX ENVIRONMENTAL SERVICES, INC.
PART I
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FINANCIAL INFORMATION
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Page No.
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Item 1.
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Condensed Financial Statements
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1
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3
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4
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5
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6
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7
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Item 2.
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26
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Item 3.
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49
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Item 4.
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49
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PART II
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OTHER INFORMATION
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Item 1.
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50
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Item 1A.
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50
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Item 6.
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50
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PART I - FINANCIAL INFORMATION
ITEM 1. – Financial Statements
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
(Amount in Thousands, Except for Share and per Share Amounts)
|
|
2012
|
|
|
2011
|
|
|
|
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ASSETS
|
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|
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Current assets:
|
|
|
|
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Cash
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$ |
1,260 |
|
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$ |
12,055 |
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Restricted cash
|
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|
35 |
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1,535 |
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Accounts receivable, net of allowance for doubtful accounts of $275 and $228, respectively
|
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17,404 |
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19,106 |
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Unbilled receivables - current
|
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|
13,308 |
|
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|
9,871 |
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Retainage receivable
|
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|
540 |
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|
912 |
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Inventories
|
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|
401 |
|
|
|
573 |
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Prepaid and other assets
|
|
|
3,478 |
|
|
|
4,604 |
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Deferred tax assets - current
|
|
|
3,300 |
|
|
|
2,426 |
|
Current assets related to discontinued operations
|
|
|
767 |
|
|
|
693 |
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Total current assets
|
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|
40,493 |
|
|
|
51,775 |
|
|
|
|
|
|
|
|
|
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Property and equipment:
|
|
|
|
|
|
|
|
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Buildings and land
|
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|
26,200 |
|
|
|
26,026 |
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Equipment
|
|
|
34,463 |
|
|
|
34,283 |
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Vehicles
|
|
|
823 |
|
|
|
818 |
|
Leasehold improvements
|
|
|
11,529 |
|
|
|
11,529 |
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Office furniture and equipment
|
|
|
2,126 |
|
|
|
2,081 |
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Construction-in-progress
|
|
|
746 |
|
|
|
764 |
|
|
|
|
75,887 |
|
|
|
75,501 |
|
Less accumulated depreciation and amortization
|
|
|
(38,099 |
) |
|
|
(35,666 |
) |
Net property and equipment
|
|
|
37,788 |
|
|
|
39,835 |
|
|
|
|
|
|
|
|
|
|
Property and equipment related to discontinued operations
|
|
|
1,614 |
|
|
|
1,650 |
|
|
|
|
|
|
|
|
|
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Intangibles and other long term assets:
|
|
|
|
|
|
|
|
|
Permits
|
|
|
16,827 |
|
|
|
16,854 |
|
Goodwill
|
|
|
27,021 |
|
|
|
27,063 |
|
Other intangible assets - net
|
|
|
3,906 |
|
|
|
4,258 |
|
Unbilled receivables – non-current
|
|
|
381 |
|
|
|
424 |
|
Finite risk sinking fund
|
|
|
21,253 |
|
|
|
19,354 |
|
Deferred tax asset, net of liabilities
|
|
|
1,295 |
|
|
|
1,295 |
|
Other assets
|
|
|
1,623 |
|
|
|
1,595 |
|
Total assets
|
|
$ |
152,201 |
|
|
$ |
164,103 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets, Continued
(Unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
(Amount in Thousands, Except for Share and per Share Amounts)
|
|
2012
|
|
|
2011
|
|
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
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Current liabilities:
|
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|
|
|
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Accounts payable
|
|
$ |
10,747 |
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$ |
13,117 |
|
Accrued expenses
|
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|
7,340 |
|
|
|
9,533 |
|
Disposal/transportation accrual
|
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|
2,025 |
|
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|
1,957 |
|
Unearned revenue
|
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2,691 |
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6,260 |
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Billings in excess of costs and estimated earnings
|
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3,043 |
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|
3,226 |
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Current liabilities related to discontinued operations
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|
2,040 |
|
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|
2,197 |
|
Current portion of long-term debt
|
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|
3,649 |
|
|
|
3,936 |
|
Total current liabilities
|
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|
31,535 |
|
|
|
40,226 |
|
|
|
|
|
|
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Accrued closure costs
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11,715 |
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11,937 |
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Other long-term liabilities
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|
643 |
|
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|
610 |
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Deferred tax liability
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54 |
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¾ |
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Long-term liabilities related to discontinued operations
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|
1,873 |
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1,775 |
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Long-term debt, less current portion
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13,814 |
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15,007 |
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Total long-term liabilities
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28,099 |
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29,329 |
|
|
|
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|
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Total liabilities
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59,634 |
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|
69,555 |
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Commitments and Contingencies
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Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share plus accrued and unpaid dividends
|
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1,285 |
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1,285 |
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Stockholders' Equity:
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Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding
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¾ |
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¾ |
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Common Stock, $.001 par value; 75,000,000 shares authorized, 56,133,185 and 56,068,248 shares issued, respectively; 56,094,975 and 56,030,038 shares outstanding, respectively
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56 |
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56 |
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Additional paid-in capital
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102,611 |
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102,411 |
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Accumulated deficit
|
|
|
(11,846 |
) |
|
|
(9,505 |
) |
Accumulated other comprehensive income (loss)
|
|
|
(1 |
) |
|
|
(3 |
) |
Less Common Stock in treasury at cost; 38,210 shares
|
|
|
(88 |
) |
|
|
(88 |
) |
Total Perma-Fix Environmental Services, Inc. stockholders' equity
|
|
|
90,732 |
|
|
|
92,871 |
|
Noncontrolling interest
|
|
|
550 |
|
|
|
392 |
|
Total stockholders' equity
|
|
|
91,282 |
|
|
|
93,263 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$ |
152,201 |
|
|
$ |
164,103 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Three Months Ended
|
|
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Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Amounts in Thousands, Except for Per Share Amounts)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
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2011
|
|
|
|
|
|
|
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|
|
|
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Net revenues
|
|
$ |
33,978 |
|
|
$ |
28,913 |
|
|
$ |
72,051 |
|
|
$ |
52,528 |
|
Cost of goods sold
|
|
|
30,204 |
|
|
|
20,864 |
|
|
|
63,976 |
|
|
|
41,449 |
|
Gross profit
|
|
|
3,774 |
|
|
|
8,049 |
|
|
|
8,075 |
|
|
|
11,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
4,589 |
|
|
|
3,436 |
|
|
|
9,627 |
|
|
|
6,808 |
|
Research and development
|
|
|
574 |
|
|
|
395 |
|
|
|
937 |
|
|
|
661 |
|
Gain on disposal of property and equipment
|
|
|
(3 |
) |
|
|
¾ |
|
|
|
(3 |
) |
|
|
¾ |
|
(Loss) income from operations
|
|
|
(1,386 |
) |
|
|
4,218 |
|
|
|
(2,486 |
) |
|
|
3,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
7 |
|
|
|
13 |
|
|
|
21 |
|
|
|
26 |
|
Interest expense
|
|
|
(199 |
) |
|
|
(183 |
) |
|
|
(420 |
) |
|
|
(359 |
) |
Interest expense-financing fees
|
|
|
(26 |
) |
|
|
(54 |
) |
|
|
(60 |
) |
|
|
(156 |
) |
Other
|
|
|
1 |
|
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
(Loss) income from continuing operations before taxes
|
|
|
(1,603 |
) |
|
|
3,997 |
|
|
|
(2,944 |
) |
|
|
3,124 |
|
Income tax (benefit) expense
|
|
|
(474 |
) |
|
|
1,445 |
|
|
|
(959 |
) |
|
|
1,105 |
|
(Loss) income from continuing operations, net of taxes
|
|
|
(1,129 |
) |
|
|
2,552 |
|
|
|
(1,985 |
) |
|
|
2,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(60 |
) |
|
|
(32 |
) |
|
|
(198 |
) |
|
|
180 |
|
Net (loss) income
|
|
|
(1,189 |
) |
|
|
2,520 |
|
|
|
(2,183 |
) |
|
|
2,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interest
|
|
|
102 |
|
|
|
¾ |
|
|
|
158 |
|
|
|
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
$ |
(1,291 |
) |
|
$ |
2,520 |
|
|
$ |
(2,341 |
) |
|
$ |
2,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(.02 |
) |
|
$ |
.05 |
|
|
$ |
(.04 |
) |
|
$ |
.04 |
|
Discontinued operations
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
Net (loss) income per common share
|
|
$ |
(.02 |
) |
|
$ |
.05 |
|
|
$ |
(.04 |
) |
|
$ |
.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(.02 |
) |
|
$ |
.05 |
|
|
$ |
(.04 |
) |
|
$ |
.04 |
|
Discontinued operations
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
Net (loss) income per common share
|
|
$ |
(.02 |
) |
|
$ |
.05 |
|
|
$ |
(.04 |
) |
|
$ |
.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares used in computing net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
56,094 |
|
|
|
55,136 |
|
|
|
56,078 |
|
|
|
55,118 |
|
Diluted
|
|
|
56,094 |
|
|
|
55,136 |
|
|
|
56,078 |
|
|
|
55,123 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Amounts in Thousands)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(1,189 |
) |
|
$ |
2,520 |
|
|
$ |
(2,183 |
) |
|
$ |
2,199 |
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain
|
|
|
(9 |
) |
|
|
― |
|
|
|
2 |
|
|
|
― |
|
Total other comprehensive (loss) income
|
|
|
(9 |
) |
|
|
― |
|
|
|
2 |
|
|
|
― |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
|
(1,198 |
) |
|
|
2,520 |
|
|
|
(2,181 |
) |
|
|
2,199 |
|
Comprehensive income attributable to non-controlling interest
|
|
|
102 |
|
|
|
― |
|
|
|
158 |
|
|
|
― |
|
Comprehensive (loss) income attributable to Perma-Fix Environmental Services, Inc. stockholders
|
|
$ |
(1,300 |
) |
|
$ |
2,520 |
|
|
$ |
(2,339 |
) |
|
$ |
2,199 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
(Amounts in Thousands)
|
|
2012
|
|
|
2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(2,183 |
) |
|
$ |
2,199 |
|
Less: (loss) income on discontinued operations
|
|
|
(198 |
) |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(1,985 |
) |
|
|
2,019 |
|
Adjustments to reconcile net income to cash provided by operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,443 |
|
|
|
2,332 |
|
Amortization of debt discount
|
|
|
12 |
|
|
|
121 |
|
Amortization of fair value of customer contracts
|
|
|
(1,943 |
) |
|
|
― |
|
Deferred tax (benefit) expense
|
|
|
(959 |
) |
|
|
1,227 |
|
Provision (benefit) for bad debt and other reserves
|
|
|
43 |
|
|
|
(15 |
) |
Gain on disposal of plant, property and equipment
|
|
|
(3 |
) |
|
|
― |
|
Foreign exchange gain
|
|
|
2 |
|
|
|
― |
|
Issuance of common stock for services
|
|
|
102 |
|
|
|
108 |
|
Stock-based compensation
|
|
|
98 |
|
|
|
192 |
|
Changes in operating assets and liabilities of continuing operations, net of effect from business acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
2,031 |
|
|
|
(6,322 |
) |
Unbilled receivables
|
|
|
(3,632 |
) |
|
|
(322 |
) |
Prepaid expenses, inventories and other assets
|
|
|
651 |
|
|
|
667 |
|
Accounts payable, accrued expenses and unearned revenue
|
|
|
(6,557 |
) |
|
|
4,126 |
|
Cash (used in) provided by continuing operations
|
|
|
(8,697 |
) |
|
|
4,133 |
|
Cash used in discontinued operations
|
|
|
(372 |
) |
|
|
(31 |
) |
Cash (used in) provided by operating activities
|
|
|
(9,069 |
) |
|
|
4,102 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(387 |
) |
|
|
(1,689 |
) |
Change in restricted cash, net
|
|
|
1,500 |
|
|
|
― |
|
Proceeds from sale of plant, property and equipment
|
|
|
3 |
|
|
|
― |
|
Payment to finite risk sinking fund
|
|
|
(1,899 |
) |
|
|
(1,905 |
) |
Cash used in investing activities of continuing operations
|
|
|
(783 |
) |
|
|
(3,594 |
) |
Cash used in investing activities of discontinued operations
|
|
|
― |
|
|
|
(135 |
) |
Net cash used in investing activities
|
|
|
(783 |
) |
|
|
(3,729 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net borrowing of revolving credit
|
|
|
643 |
|
|
|
1,047 |
|
Principal repayments of long term debt
|
|
|
(2,134 |
) |
|
|
(2,124 |
) |
Proceeds from finite risk financing
|
|
|
565 |
|
|
|
685 |
|
Cash used in financing activities of continuing operations
|
|
|
(926 |
) |
|
|
(392 |
) |
Principal repayments of long term debt for discontinued operations
|
|
|
(17 |
) |
|
|
(55 |
) |
Cash used in financing activities
|
|
|
(943 |
) |
|
|
(447 |
) |
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(10,795 |
) |
|
|
(74 |
) |
Cash at beginning of period
|
|
|
12,055 |
|
|
|
101 |
|
Cash at end of period
|
|
$ |
1,260 |
|
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
479 |
|
|
$ |
409 |
|
Income taxes paid
|
|
|
470 |
|
|
|
70 |
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Warrants extension for debt modification
|
|
|
― |
|
|
|
36 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited, for the six months ended June 30, 2012)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Common
Stock Held
In Treasury
|
|
|
Accumulated Other
Comprehensive
(Loss) Income
|
|
|
Noncontolling
Interest in
Subsidiary
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders'
Equity
|
|
Balance at December 31, 2011
|
|
|
56,068,248 |
|
|
$ |
56 |
|
|
$ |
102,411 |
|
|
$ |
(88 |
) |
|
$ |
(3 |
) |
|
$ |
392 |
|
|
$ |
(9,505 |
) |
|
$ |
93,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
158 |
|
|
|
(2,341 |
) |
|
|
(2,183 |
) |
Foreign currency translation adjustment
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
2 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
2 |
|
Issuance of Common Stock for services
|
|
|
64,937 |
|
|
|
¾ |
|
|
|
102 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
102 |
|
Stock-Based Compensation
|
|
|
¾ |
|
|
|
¾ |
|
|
|
98 |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
98 |
|
Balance at June 30, 2012
|
|
|
56,133,185 |
|
|
$ |
56 |
|
|
$ |
102,611 |
|
|
$ |
(88 |
) |
|
$ |
(1 |
) |
|
$ |
550 |
|
|
$ |
(11,846 |
) |
|
$ |
91,282 |
|
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
June 30, 2012
(Unaudited)
Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.
The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated condensed financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the six months ended June 30, 2012 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2012.
It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
2.
|
Summary of Significant Accounting Policies
|
Our accounting policies are as set forth in the notes to consolidated financial statements referred to above.
Recently Adopted Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04 (“ASU 2011-04”), “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. ASU 2011-04 improves comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRSs)." ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The amendments in this guidance are to be applied prospectively, and are effective for interim and annual periods beginning after December 15, 2011. We adopted ASU 2011-04 January 1, 2012.
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. Assets measured at fair value on a nonrecurring basis include long-lived assets and goodwill and other intangible assets. 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 and restricted cash (Level 1), accounts receivable, accounts payable, debt obligations and contingent consideration (Level 3). At June 30, 2012 and December 31, 2011, the fair value of the Company’s financial instruments approximated their carrying values. The fair value of the Company’s revolving credit facility approximates its carrying value due to the variable interest rate.
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income," and in December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income." Both ASUs amend guidance for the presentation of comprehensive income. The amended guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. Although the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under existing guidance. Both ASUs were effective for interim and annual periods beginning after December 15, 2011 with early adoption permitted. These ASUs changed our financial statement presentation of comprehensive income but did not impact our net income, financial position, or cash flows. Upon adoption on January 1, 2012, we elected to present comprehensive income in two separate but consecutive statements as part of the condensed financial statements included in this Quarterly Report on Form 10-Q.
On October 31, 2011, we completed the acquisition of all of the issued and outstanding shares of capital stock of Safety and Ecology Holdings Corporation (“SEHC”) and its subsidiaries, Safety & Ecology Corporation (“Safety & Ecology”), SEC Federal Services Corporation, Safety and Ecology Corporation Limited (“SECL” – a United Kingdom operation) and SEC Radcon Alliance, LLC (“SECRA”, which we own 75%), (collectively, “SEC”) pursuant to that certain Stock Purchase Agreement, dated July 15, 2011 (“Purchase Agreement”), between the Company, Homeland Capital Security Corporation (“Homeland”) and SEHC. SEC is an international provider of environmental, hazardous and radiological remediation infrastructure upgrades and nuclear energy services. SEC provides remediation of nuclear materials for the U.S. government and other commercial customers. We acquired SEC for a total consideration of approximately $17,885,000 determined as follows:
(i)
|
cash consideration of approximately $14,885,000, after certain working capital closing adjustments. This cash consideration was reduced by approximately $1,000,000 total consideration for our Common Stock purchased from us by certain security holders of Homeland as discussed below;
|
(ii)
|
$2,500,000 unsecured, non-negotiable promissory note (the “Note”), bearing an annual rate of interest of 6%, payable in 36 monthly installments, which Note provides that we have the right to prepay such at any time without interest or penalty. We prepaid $500,000 of the principal amount of the Note within 10 days of closing of the acquisition. The Note may be subject to offset of amounts Homeland owes us for indemnification for breach of, or failure to perform, certain terms and provisions of the Purchase Agreement if the Escrow Agreement has terminated pursuant to its terms or the amount held in escrow has been exhausted pursuant to the terms of the Purchase Agreement (see Note 13 - “Subsequent Event – Homeland Capital Security Corporation (“Homeland”)” regarding certain indemnification claims that the Company is offsetting against this Note). Under the terms of the Note, in the event of a continuing event of default under the Note, Homeland has the option to convert the unpaid portion of the Note into our restricted shares of Common Stock equal to the quotient determined by dividing the principal amount owing under the Note and all accrued and unpaid interest thereon, plus certain expenses, by the average of the closing prices per share of our Common Stock as reported by the primary national securities exchange or automatic quotation system on which our Common Stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by us of Homeland’s written notice of its election to receive our Common Stock as a result of the event of default that is continuing; provided that the number of shares of our Common Stock to be issued to Homeland under the Note in the event of a continuing event of default plus the number of shares of our Common Stock issued to the Management Investors, as discussed below, shall not exceed 19.9% of the voting power of all of our voting securities issued and outstanding as of the date of the Purchase Agreement; and
|
(iii)
|
the sum of $2,000,000 deposited in an escrow account to satisfy any claims that we may have against Homeland for indemnification pursuant to the Purchase Agreement and the Escrow Agreement, dated October 31, 2011 (“Escrow Agreement”). Homeland and SEHC further agreed that if certain conditions were not met by December 31, 2011, relating to a certain contract, then the Company could withdraw $1,500,000 from the amount deposited into the escrow. On January 10, 2012, we received $1,500,000 from the escrow as certain conditions were not met under this certain contract as of December 31, 2011. (See Note 13 - “Subsequent Event – Homeland Capital Security Corporation (“Homeland”)” for a discussion of the Company’s claim for the remaining $500,000 balance in the escrow).
|
Pursuant to the terms of the Purchase Agreement, upon closing of the Purchase Agreement, certain security holders of Homeland (“Management Investors”) purchased 813,007 restricted shares of our Common Stock for a total consideration of approximately $1,000,000, or $1.23 a share, which was the average of the closing prices of our Common Stock as quoted on the Nasdaq during the 30 trading days ending on the trading day immediately prior to the closing of the acquisition. The purchase of the Company’s Common Stock was pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the “Act”) or Rule 506 of Regulation D promulgated under the Act.
The acquisition was accounted for using the purchase method of accounting, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 – “Business Combinations.” The consideration for the acquisition was attributed to net assets on the basis of the fair values of assets acquired and liabilities assumed as of October 31, 2011. The excess of the cost of the acquisition over the estimated fair values of the net tangible assets and intangible assets on the acquisition date, which amounted to $10,852,000, was allocated to goodwill which is not amortized but subject to an annual impairment test. The Company has not yet finalized the allocation of the purchase price to the net assets acquired in this acquisition. As such, the estimated purchase price allocation is preliminary and subject to further revision. The following table summarizes the preliminary purchase price allocation of the fair values of the assets acquired and liabilities assumed as of June 30, 2012:
(Amounts in thousands)
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
21,993 |
|
Property, plant and equipment
|
|
|
2,135 |
|
Intangible assets
|
|
|
4,474 |
|
Goodwill
|
|
|
10,852 |
|
Total assets acquired
|
|
|
39,454 |
|
Current liabilities
|
|
|
(15,728 |
) |
Customer contracts
|
|
|
(3,380 |
) |
Non-current liabilities
|
|
|
(2,091 |
) |
Total liabilities acquired
|
|
|
(21,199 |
) |
Non Controlling Interest
|
|
|
(370 |
) |
Total consideration
|
|
$ |
17,885 |
|
The following table summarizes the preliminary components of tangible assets acquired:
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
Preliminary
|
|
Estimated
|
(Amounts in thousands)
|
|
Fair Value
|
|
Useful Life
|
|
|
|
|
|
Vehicles
|
|
$ |
583 |
|
5.0 years
|
Lab equipment
|
|
|
1,235 |
|
7.0 years
|
Office furniture and equipment
|
|
|
317 |
|
4.0 years
|
Total tangible assets
|
|
$ |
2,135 |
|
|
The results of operations of SEC have been included in the Company’s consolidated financial statements from the date of the closing of the acquisition, which was October 31, 2011. SEC contributed revenues of approximately $17,325,000 and net loss of $813,000 and revenues of $35,927,000 and net loss of $2,077,000 for the three and six months ended June 30, 2012, respectively. The Company has incurred $659,000 in acquisition-related costs, of which approximately $20,000 and $28,000 was incurred in the first and second quarter of 2012, respectively. These costs are included in selling, general and administrative expenses in the Company’s consolidated statement of operations. The following unaudited pro forma financial information presents the combined results of operations of combining SEC and Perma-Fix as though the acquisition had occurred as of the beginning of the periods presented below, which is January 1, 2011. The pro forma financial information does not necessarily represent the results of operations that would have occurred had SEC and Perma Fix been a single company during the periods presented, nor does Perma Fix believe that the pro forma financial information presented is necessarily representative of future operating results. As the acquisition was a stock transaction, none of the goodwill related to SEC is deductible for tax purposes.
(Amounts in Thousands, Except per Share Data)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2011
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Net revenues
|
|
$ |
55,853 |
|
|
$ |
104,040 |
|
Net income from continuing operations
|
|
$ |
974 |
|
|
$ |
1,502 |
|
Net income per share from continuing operations- basic
|
|
$ |
.02 |
|
|
$ |
.03 |
|
Net income per share from continuing operations- diluted
|
|
$ |
.02 |
|
|
$ |
.03 |
|
4.
|
Other Intangible Assets
|
The following table summarizes information relating to the Company’s other intangible assets:
|
|
|
|
|
June 30, 2012
|
|
|
December 31, 2011
|
|
|
|
Useful
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Lives
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Intangibles (amount in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
|
|
|
8-18 |
|
|
$ |
424 |
|
|
$ |
(91 |
) |
|
$ |
333 |
|
|
$ |
402 |
|
|
$ |
(77 |
) |
|
$ |
325 |
|
Software
|
|
|
3 |
|
|
|
380 |
|
|
|
(91 |
) |
|
|
289 |
|
|
|
158 |
|
|
|
(66 |
) |
|
|
92 |
|
Non-compete agreement
|
|
|
5 |
|
|
|
265 |
|
|
|
(35 |
) |
|
|
230 |
|
|
|
265 |
|
|
|
(9 |
) |
|
|
256 |
|
Customer contracts
|
|
|
0.5 |
|
|
|
835 |
|
|
|
(835 |
) |
|
|
- |
|
|
|
445 |
|
|
|
(144 |
) |
|
|
301 |
|
Customer relationships
|
|
|
12 |
|
|
|
3,370 |
|
|
|
(316 |
) |
|
|
3,054 |
|
|
|
3,370 |
|
|
|
(86 |
) |
|
|
3,284 |
|
Total
|
|
|
|
|
|
$ |
5,274 |
|
|
$ |
(1,368 |
) |
|
$ |
3,906 |
|
|
$ |
4,640 |
|
|
$ |
(382 |
) |
|
$ |
4,258 |
|
Intangible assets recorded as a result of the acquisition of SEC on October 31, 2011 included a non-compete agreement, customer relationships, customer contracts, and software ($4,000) which were recorded at fair market value of approximately $4,474,000 (see “Note 3 –Business Acquisition” for the purchase price allocation of SEC). The intangible assets acquired are amortized on a straight-line basis over their useful lives with the exception of customer relationships which are being amortized using an accelerated method.
The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets noted above and includes the only one definite-lived permit, which is at our DSSI facility. This permit of approximately $545,000 was capitalized in 2009 in connection with the authorization issued by the U.S. EPA to commercially store and dispose of radioactive PCBs. This permit is being amortized over a ten year period in accordance with its estimated useful life.
|
|
Amount
|
|
Year
|
|
(In thousands)
|
|
|
|
|
|
2012 (remaining)
|
|
$ |
394 |
|
2013
|
|
|
575 |
|
2014
|
|
|
519 |
|
2015
|
|
|
471 |
|
2016
|
|
|
429 |
|
|
|
$ |
2,388 |
|
Amortization expense relating to intangible assets for the Company was $621,000 and $1,012,000 for the three and six months ended June 30, 2012, respectively, and $44,000 and $64,000 for the three and six months ended June 30, 2011, respectively. The increase in amortization expense in 2012 was attributed to amortization of intangible assets acquired related to the SEC acquisition.
5.
|
Stock Based Compensation
|
We follow FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) to account for stock-based compensation. ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.
The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors. Stock options granted to employees have either a ten year contractual term with one-fifth yearly vesting over a five year period or a six year contractual term with one-third yearly vesting over a three year period. Stock options granted to outside directors have a ten year contractual term with vesting period of six months.
No stock options were granted during the first six months of 2012 or 2011.
As of June 30, 2012, we had an aggregate of 1,818,500 employee stock options outstanding (from the 1993 Non-Qualified Stock Option Plan, 2004 and 2010 Stock Option Plans, and a Non-Qualified Stock Option Agreement noted below), of which 1,268,500 are vested. The weighted average exercise price of the 1,268,500 outstanding and fully vested employee stock options is $2.13 with a remaining weighted contractual life of 1.79 years. Additionally, we had an aggregate of 796,000 outstanding director stock options (from the 1992 and 2003 Outside Directors Stock Plans), all of which are vested. The weighted average exercise price of the 796,000 outstanding and fully vested director stock options is $2.13 with a remaining weighted contractual life of 4.89 years.
The Company granted a non-qualified stock option (the “Option”) which allows for the purchase of up to 250,000 shares of the Company’s Common Stock at $1.35 per share by Mr. Christopher Leichtweis, who was appointed a Senior Vice President of the Company and the President of SEC upon the closing of the acquisition of SEC on October 31, 2011. The Option was granted in accordance with, and is subject to, the Non-Qualified Stock Option Agreement, dated October 31, 2011. The Option has a term of 10 years from grant date, with 25% yearly vesting over a four-year period.
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 following table summarizes stock-based compensation recognized for the three and six months ended June 30, 2012 and 2011 for our employee and director stock options.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
Stock Options
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Employee Stock Options
|
|
$ |
34,000 |
|
|
$ |
76,000 |
|
|
$ |
72,000 |
|
|
$ |
152,000 |
|
Director Stock Options
|
|
|
¾ |
|
|
|
¾ |
|
|
|
26,000 |
|
|
|
40,000 |
|
Total
|
|
$ |
34,000 |
|
|
$ |
76,000 |
|
|
$ |
98,000 |
|
|
$ |
192,000 |
|
We recognize stock-based compensation expense using a straight-line amortization method over the requisite period, which is the vesting period of the stock option grant. ASC 718 requires that stock based compensation expense be based on options that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We have generally estimated forfeiture rate based on historical trends of actual forfeitures. When actual forfeitures vary from our estimates, we recognize the difference in compensation expense in the period the actual forfeitures occur or when options vest. As of June 30, 2012, we have approximately $337,000 of total unrecognized compensation cost related to unvested options, of which $68,000 is expected to be recognized in the remainder of 2012, $135,000 in 2013, $96,000 in 2014, with the remaining $38,000 in 2015.
6.
|
Capital Stock, Stock Plans, and Warrants
|
During the six months of 2012, we issued 64,937 shares of our Common Stock under our 2003 Outside Directors Stock Plan to our outside directors as compensation for serving on our Board of Directors. We paid each of our outside directors $6,500 in fees quarterly for serving as a member of our Board of Directors. The Audit Committee Chairman receives an additional quarterly fee of $5,500 due to the position’s additional responsibility. In addition, our Research and Development Committee Chairman receives an additional quarterly fee of $1,000 due to the additional time commitment to the position. Each board member is also paid $1,000 for each board meeting attendance as well as $500 for each telephonic conference call. As a member of the Board of Directors, 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 summary of the Company’s total Stock Plans as of June 30, 2012 as compared to June 30, 2011, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 1993 Non-Qualified Stock Option Plan, the 2004 and 2010 Stock Option Plans, and the 1992 and 2003 Outside Directors Stock Plans:
|
|
Shares
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic
Value
|
|
Options outstanding Janury 1, 2012
|
|
|
2,789,833 |
|
|
$ |
2.03 |
|
|
|
|
|
|
|
Granted
|
|
|
─ |
|
|
|
─ |
|
|
|
|
|
|
|
Exercised
|
|
|
─ |
|
|
|
─ |
|
|
|
|
|
$ |
─ |
|
Forfeited/Expired
|
|
|
(425,333 |
) |
|
|
1.90 |
|
|
|
|
|
|
|
|
Options outstanding End of Period (1)
|
|
|
2,364,500 |
|
|
|
2.06 |
|
|
|
3.3 |
|
|
$ |
─ |
|
Options Exercisable at June 30, 2012(1)
|
|
|
2,064,500 |
|
|
$ |
2.13 |
|
|
|
3.0 |
|
|
$ |
─ |
|
Options Vested and expected to be vested at June 30, 2012
|
|
|
2,364,500 |
|
|
$ |
2.06 |
|
|
|
3.3 |
|
|
$ |
─ |
|
|
|
Shares
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Term
|
|
|
Aggregate Intrinsic
Value
|
|
Options outstanding Janury 1, 2011
|
|
|
2,755,525 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
Granted
|
|
|
─ |
|
|
|
─ |
|
|
|
|
|
|
|
Exercised
|
|
|
─ |
|
|
|
─ |
|
|
|
|
|
$ |
─ |
|
Forfeited/Expired
|
|
|
(288,692 |
) |
|
|
1.79 |
|
|
|
|
|
|
|
|
Options outstanding End of Period (2)
|
|
|
2,466,833 |
|
|
|
2.12 |
|
|
|
3.2 |
|
|
$ |
─ |
|
Options Exercisable at June 30, 2011 (2)
|
|
|
2,155,000 |
|
|
$ |
2.12 |
|
|
|
3.1 |
|
|
$ |
─ |
|
Options Vested and expected to be vested at June 30, 2011
|
|
|
2,450,801 |
|
|
$ |
2.12 |
|
|
|
3.2 |
|
|
$ |
─ |
|
(1) Options with exercise prices ranging from $1.41 to $2.95
(2) Options with exercise prices ranging from $1.42 to $2.98
7.
|
Earnings (Loss) Per Share
|
Basic earnings (loss) per share excludes any dilutive effects of stock options, warrants, and convertible preferred stock. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share.
The following is a reconciliation of basic net income (loss) per share to diluted net income (loss) per share for the three and six months ended June 30, 2012 and 2011:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(Amounts in Thousands, Except for Per Share Amounts)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
(Loss) income per share from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$ |
(1,231 |
) |
|
$ |
2,552 |
|
|
$ |
(2,143 |
) |
|
$ |
2,019 |
|
Basic (loss) income per share
|
|
$ |
(.02 |
) |
|
$ |
.05 |
|
|
$ |
(.04 |
) |
|
$ |
.04 |
|
Diluted (loss) income per share
|
|
$ |
(.02 |
) |
|
$ |
.05 |
|
|
$ |
(.04 |
) |
|
$ |
.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per share from discontinued operations attributable to Perma-Fix Environemental Services, Inc. common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations
|
|
$ |
(60 |
) |
|
$ |
(32 |
) |
|
$ |
(198 |
) |
|
$ |
180 |
|
Basic (loss) income per share
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
Diluted (loss) income per share
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
56,094 |
|
|
|
55,136 |
|
|
|
56,078 |
|
|
|
55,118 |
|
Potential shares exercisable under stock option plans
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
5 |
|
Potential shares upon exercise of Warrants
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
Weighted average shares outstanding – diluted
|
|
|
56,094 |
|
|
|
55,136 |
|
|
|
56,078 |
|
|
|
55,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon exercise of options
|
|
|
2,614 |
|
|
|
2,467 |
|
|
|
2,124 |
|
|
|
2,317 |
|
Upon exercise of Warrants
|
|
|
¾ |
|
|
|
150 |
|
|
|
¾ |
|
|
|
150 |
|
Long-term debt consists of the following at June 30, 2012 and December 31, 2011:
(Amounts in Thousands)
|
|
June 30,
2012
|
|
|
December 31, 2011
|
|
Revolving Credit facility dated October 31, 2011, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.25% at June 30, 2012) plus 2.0% or London InterBank Offer Rate ("LIBOR") plus 3.0%, balance due October 31, 2016. Effective interest rate for first six months of 2012 was 5.3%. (1) (2)
|
|
$ |
642 |
|
|
$ |
— |
|
Term Loan dated October 31, 2011, payable in equal monthly installments of principal of $190, balance due in October 31, 2016, variable interest paid monthly at option of prime rate plus 2.5% or LIBOR plus 3.5%.Effective interest rate for six months of 2012 was 4.0%. (1) (2)
|
|
|
14,667 |
|
|
|
15,810 |
|
Promissory Note dated April 18, 2011, payable in monthly installments of principal of $83 starting May 8, 2011, balance due April 8, 2012, variable interest paid monthly at LIBOR plus 4.5%, with LIBOR at least 1.5%.(3) (4) (5)
|
|
|
— |
|
|
|
318 |
|
Promissory Note dated September 28, 2010, payable in 36 monthly equal installments of $40, which includes interest and principal, beginning October 15, 2010, interest accrues at annual rate of 6.0% (5)
|
|
|
579 |
|
|
|
798 |
|
Promissory Note dated October 31, 2011, payable in monthly installments of $76, which includes interest and principal, starting November 15, 2011, interest accrues at annual rate of 6.0%, balance due May 15, 2014. (5) (6)
|
|
|
1,458 |
|
|
|
1,863 |
|
Various capital lease and promissory note obligations, payable 2012 to 2015, interest at rates ranging from 5.0% to 7.8%.
|
|
|
205 |
|
|
|
259 |
|
|
|
|
17,551 |
|
|
|
19,048 |
|
Less current portion of long-term debt
|
|
|
3,649 |
|
|
|
3,936 |
|
Less long-term debt related to assets held for sale
|
|
|
88 |
|
|
|
105 |
|
|
|
$ |
13,814 |
|
|
$ |
15,007 |
|
(1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.
(2) On October 31, 2011, the Company entered into an “Amended and Restated Revolving Credit, Term Loan and Security Agreement” with PNC Bank. Under the original credit facility with PNC dated December 22, 2000, as amended, variable interest was determined based on the options as noted; however, variable interest under the LIBOR option provided for a minimum floor base of 1.0% for both our Revolving Credit and Term Loan from January 1, 2011 to October 30, 2011.
(3) Original promissory note dated May 8, 2009 of $3,000,000 was modified on April 18, 2011, with principal balance of approximately $990,000. See “Promissory Notes and Installment Agreements” below for terms of original and amended promissory notes and the final payment made on the note.
(4) Net of debt discount of ($0) and ($117,000) for June 30, 2012 and December 31, 2011, respectively. See “Promissory Notes and Installment Agreements” below for additional information.
(5) Uncollateralized note.
(6) Promissory note entered into in connection with acquisition of SEC on October 31, 2011. See “Promissory Notes and Installment Agreements” below. Also see Note 13 – “Subsequent Event – Homeland Capital Security Corporation (“Homeland”).”
Revolving Credit and Term Loan Agreement
On October 31, 2011, in connection with the acquisition of SEC, we entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC, replacing our previous Loan Agreement with PNC. The Amended Loan Agreement provides us with the following credit facilities:
|
·
|
up to $25,000,000 revolving credit facility (“Revolving Credit”), subject to the amount of borrowings based on a percentage of eligible receivables. The revolving credit advances are subject to limitations of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up to 150 days from invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent reasonably deems proper and necessary;
|
|
·
|
a term loan (“Term Loan”) of $16,000,000, which requires monthly installments of approximately $190,000 (based on a seven-year amortization); and
|
|
·
|
equipment line of credit up to $2,500,000, subject to certain limitations.
|
The Amended Loan Agreement terminates as of October 31, 2016, unless sooner terminated.
We have the option of paying an annual rate of interest due on the revolving credit facility at prime plus 2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the term loan and equipment credit facilities at prime plus 2.5% or LIBOR plus 3.5%.
As a condition of the Amended Loan Agreement, we paid the remaining balance due under the term loan under our previous Loan Agreement, totaling approximately $3,833,000, using our credit facilities under the Amended Loan Agreement. In connection with the Amended Loan Agreement, we paid PNC a fee of $217,500 and incurred other direct costs of approximately $298,000 (of which $24,000 and $9,000 was incurred in the first and second quarter of 2012, respectively), which are being amortized over the term of the Amended Loan Agreement as interest expense – financing fees. As a result of the termination of the original Loan Agreement with PNC, we recorded approximately $91,000 during the fourth quarter of 2011, in loss on extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishments.” As of June 30, 2012, the excess availability under our revolving credit was $10,982,000 based on our eligible receivables.
Pursuant to the Amended Loan Agreement, we may terminate the Amended Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the Amended Loan Agreement. We agreed to pay PNC 1.0% of the total financing in the event we pay off our obligations on or before October 31, 2012 and 1/2% of the total financing if we pays off our obligations after October 31, 2012 but prior to or on October 31, 2013. No early termination fee shall apply if we pay off our obligations under the Amended Loan Agreement after October 31, 2013.
Promissory Notes and Installment Agreements
The Company had a promissory note dated May 8, 2009, with William N. Lampson and Diehl Rettig (collectively, the “Lenders”) for $3,000,000. The Lenders were formerly shareholders of Nuvotec USA, Inc. (“Nuovtec”) (n/k/a Perma-Fix Northwest, Inc. (“PFNW”)) prior to our acquisition of PFNW and Pacific EcoSolution, Inc. (“PEcoS”) (n/k/a Perma-Fix Northwest Richland, Inc. (“PFNWR”)) and are also stockholders of the Company, having received shares of our Common Stock in connection with our acquisition of PFNW and PFNWR. As consideration of the Company receiving this loan, we issued a Warrant to Mr. Lampson and a Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares, respectively, of the Company’s Common Stock at an exercise price of $1.50 per share. The Warrants were exercisable six months from May 8, 2009 and were to expire on May 8, 2011. We also issued an aggregate of 200,000 shares of the Company’s Common Stock, with Mr. Lampson receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s Common Stock. The fair value of the Common Stock and Warrants on the date of issuance was estimated to be $476,000 and $190,000, respectively, and was recorded as a debt discount and amortized over the term of the loan as interest expense – financing fees. On April 18, 2011, we entered into an amendment to the promissory note whereby the remaining principal balance on the promissory note of approximately $990,000 was to be repaid in twelve monthly principal payments of approximately $82,500 plus accrued interest, starting May 8, 2011, with interest payable at the same rate of the original loan which was at LIBOR plus 4.5%, with LIBOR at least 1.5%. As consideration of the amended loan, the original Warrants issued to Mr. Lampson and to Mr. Rettig which were to expire on May 8, 2011, were extended to May 8, 2012 at the same exercise price (Mr. Rettig is deceased; accordingly, the amended Warrant and the remaining portion of the note payable to Mr. Rettig is held by and payable to his personal representative or estate). Also, as previously disclosed, Mr. Robert Ferguson, a member of our Board of Directors acquired one-half of Mr. Lampson’s Warrant during 2011 to purchase up to 65,000 shares of the Company’s Common Stock. We accounted for the amended loan as a modification in accordance with ASC 470-50, “Debt – Modifications and Extinguishments.” At the date of the loan modification, unamortized debt discount and fees on the original loan and the fair value of the modified Warrants were determined to be approximately $42,000 which was amortized as a debt discount over the term of the modified loan as interest expense-financing fees in accordance to ASC 470-50. The Company made the final payment on the note in April 2012. The Warrants as discussed above were not exercised and expired on May 8, 2012.
The promissory note included an embedded Put Option (“Put”) that could have been exercised upon default, whereby the lender had the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest, or the number of whole shares of our Common Stock equal to the outstanding principal balance. The maximum number of payoff shares was restricted to less than 19.9% of the outstanding equity. We concluded that the Put should have been bifurcated at inception. We determined that the Put had nominal value during its life; therefore, no liability had been recorded to its expiration date.
In connection with the acquisition of SEC, we entered into a $2,500,000 unsecured, non-negotiable promissory note (the “Note”) on October 31, 2011, bearing an annual rate of interest of 6%, payable in 36 monthly installments, with Homeland. The Note provides that we have the right to prepay such at any time without interest or penalty. We prepaid $500,000 of the principal amount of the Note within 10 days of closing of the acquisition. The Note is subject to offset of amounts Homeland owes us under certain terms and provisions of the Purchase Agreement and the Note. Our monthly payments consist of approximately $76,000 (which includes interest) starting November 15, 2011. As a result of the $500,000 prepayment, the final payment of approximately $15,500 will be due on March 15, 2014. See “Subsequent Event – Homeland Capital Security Corporation (“Homeland”)” regarding certain indemnification claims the Company is offsetting against this Note.
The promissory note payable to SEC includes an embedded conversion option (“Conversion Option”) that can be exercised upon default, whereby Homeland has the option to convert the unpaid portion of the Note into a number of whole shares of our restricted Common Stock. The number of shares of our restricted Common Stock to be issuable under the Conversion Option is determined by the principal amount owing under the Note at the time of default plus all accrued and unpaid interest divided by the average of the closing prices per share of our Common Stock as reported by the primary national securities exchange on which our Common Stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by us of Homeland’s written notice of its election to receive our Common Stock as a result of the event of default by us, with the number of shares of our Common Stock issuable upon such default subject to certain limitations. We concluded that the Conversion Option had and continues to have nominal value as of June 30, 2012. We will continue to monitor the fair value of the Conversion Option on a regular basis.
On September 28, 2010, the Company entered into a promissory note in the principal amount of $1,322,000, with the former shareholders of Nuvotec in connection with an earn-out amount that we are required to pay upon meeting certain conditions for each earn-out measurement year ended June 30, 2008 to June 30, 2011, as a result of our acquisition of PFNW and PFNWR. Interest is accrued at an annual interest rate of 6%. The promissory note provides for 36 equal monthly payments of approximately $40,000, consisting of interest and principal, starting October 15, 2010. The promissory note may be prepaid at any time without penalty. See further details of the earn-out amount in “Note 9 - Commitments and Contingencies - Earn-Out Amount.”
9.
|
Commitments and Contingencies
|
Hazardous Waste
In connection with our waste management services, we handle 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, we could be a potentially responsible party (“PRP”) 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 litigations. 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 would have a material adverse effect on our financial position, liquidity or results of future operations.
Earn-Out Amount
In connection with the acquisition of PFNW and PFNWR in June 2007, we were required to pay to those former shareholders of Nuvotec an earn-out amount upon meeting certain conditions for each measurement year ended June 30, 2008 to June 30, 2011, with the aggregate of the full earn-out amount not to exceed $4,552,000, pursuant to the Merger Agreement, as amended (“Agreement”). As of June 30, 2012, an aggregate earn-out amount of $3,896,000 has been paid as follows: (i) $2,574,000 in cash; and (ii) we issued a promissory note, dated September 28, 2010, in the principal amount of $1,322,000, as discussed above. The total $3,896,000 in earn-out amount paid to date or to be paid pursuant to the promissory note excludes approximately an aggregate $656,000 in Offset Amount, which represents an indemnification obligation (as defined by the Merger Agreement) which is payable or may be payable to the Company by the former shareholders of Nuvotec. Pursuant to the Merger Agreement, the aggregate amount of any Offset Amount may total up to $1,000,000, except an Offset Amount is unlimited as to indemnification relating to liabilities for taxes, misrepresentation or inaccuracies with respect to the capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation of any representation, warranty or covenant. The $656,000 Offset Amount represents approximately $93,000 relating to an excise tax issue and a refund request from a PEcoS customer in connection with services for waste treatment prior to our acquisition of PFNWR and PFNW and an anticipated Offset Amount of $563,000 in connection with the receipt of nonconforming waste at the PFNWR facility prior to our acquisition of PFNWR and PFNW. We are currently involved in litigation with the party that delivered the nonconforming waste to the facility prior to our acquisition of PFNWR and PFNW.
Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with Chartis, a subsidiary of American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. Prior to obtaining or renewing operating permits, we are required to provide financial assurance that guarantees to the states that in the event of closure, our permitted facilities will be closed in accordance with the regulations. The policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other performance and surety bond requirements. We have made all of the required payments for this finite risk insurance policy, as amended, of which the last two payments ($1,073,000 and $1,054,000) were made in the first quarter of 2012. Fourteen payments totaling $18,305,000 have been made for this policy of which $14,472,000 has been deposited into a sinking fund account which represents a restricted cash account; $2,883,000 represented full/terrorism premium; and $950,000 represented fee payable to Chartis. As of June 30, 2012, our financial assurance coverage amount under this policy totaled approximately $37,496,000. We have recorded $15,368,000 in our sinking fund related to the policy noted above on the balance sheet, which includes interest earned of $896,000 on the sinking fund as of June 30, 2012. Interest income for the three and six months ended June 30, 2012, was approximately $7,000 and $15,000, respectively. On the fourth and subsequent anniversaries of the contract inception, we may elect to terminate this contract. If we so elect, Chartis is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for complete releases of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.
In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility with Chartis. The policy provided an initial $7,800,000 of financial assurance coverage with an annual growth rate of 1.5%, which at the end of the four year term policy, provides maximum coverage of $8,200,000. We have the option to renew this policy at the end of the four year term. We have made all of the required payments on this policy, totaling $7,158,000, of which $5,700,000 has been deposited into a sinking fund account and $1,458,000 represented premium. As of June 30, 2012, we have recorded $5,885,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $185,000 on the sinking fund as of June 30, 2012. Interest income for the three and six months ended June 30, 2012 totaled approximately $0 and $4,000, respectively. On July 31, 2011, the policy was renewed for an additional year which required a $46,000 fee. We have the option to renew this policy annually going forward with a similar fee which will be determined at the time of renewal. All other terms of the policy remain substantially unchanged.
10.
|
Discontinued Operations and Divestitures
|
Our discontinued operations consist of our Perma-Fix of South Georgia, Inc. (“PFSG”) facility which met the held for sale criteria under ASC 360, “Property, Plant, and Equipment” on October 6, 2010. Our discontinued operations also encompass our Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of Orlando, Inc. (“PFO”), Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”) facilities, which were divested on August 12, 2011, October 14, 2011, January 8, 2008, March 14, 2008, and May 30, 2008, respectively. Our discontinued operations also includes two previously shut down locations, Perma-Fix of Michigan, Inc. (“PFMI”) and Perma-Fix of Memphis, Inc. (“PFM”), which were approved as discontinued operations by our Board of Directors effective October 4, 2004, and March 12, 1998, respectively.
On August 12, 2011, we completed the sale of our wholly-owned subsidiary, PFFL, pursuant to the terms of a Stock Purchase Agreement, dated June 13, 2011. In consideration for the sale of 100% of the capital stock of PFFL, the buyer paid us $5,500,000 in cash at closing. The cash consideration is subject to certain working capital adjustments after closing. As of June 30, 2012, expenses related to the sale of PFFL totaled approximately $160,000, of which all have been paid ($3,000 was paid during the first quarter of 2012). As of June 30, 2012, the gain on the sale of PFFL totaled approximately $1,707,000 (net of taxes of $1,067,000), which included a working capital adjustment of $185,000 to be received from the buyer. The gain was recorded during the twelve months ended December 31, 2011.
On October 14, 2011, we completed the sale of our wholly-owned subsidiary, PFO, pursuant to the terms of an Asset Purchase Agreement, dated August 12, 2011. In consideration for such assets, the buyer paid us $2,000,000 in cash at the closing and assumed certain liabilities of PFO. The cash consideration is subject to certain working capital adjustments after closing. As of June 30, 2012, expenses related to the sale of PFO totaled approximately $37,000, of which all have been paid ($17,000 was paid during the first quarter of 2012). As of June 30, 2012, loss on the sale of PFO totaled approximately $198,000 (net of taxes of $209,000), which was recorded during the fourth quarter of 2011. No working capital adjustment has been made on the sale of PFO.
We continue to market our PFSG facility for sale. As required by ASC 360, based on our internal financial valuations, we concluded that no tangible asset impairments existed for PFSG as of June 30, 2012. No intangible asset exists at PFSG.
The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2012 and 2011. The operating results of discontinued operations are included in our Consolidated Statements of Operations as part of our “(Loss) income from discontinued operations, net of taxes.”
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(Amounts in Thousands)
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
599 |
|
|
$ |
2,538 |
|
|
$ |
1,215 |
|
|
$ |
5,167 |
|
Interest expense
|
|
$ |
(9 |
) |
|
$ |
(18 |
) |
|
$ |
(17 |
) |
|
$ |
(37 |
) |
Operating (loss) income from discontinued operations
|
|
$
|
(86 |
) |
|
$ |
(45 |
) |
|
$ |
(294 |
) |
|
$ |
278 |
|
Income tax (benefit) expense
|
|
$ |
(26 |
) |
|
$ |
(13 |
) |
|
$ |
(96 |
) |
|
$ |
98 |
|
(Loss) ncome from discontinued operations
|
|
$ |
(60 |
) |
|
$ |
(32 |
) |
|
$ |
(198 |
) |
|
$ |
180 |
|
Assets related to discontinued operations total $2,381,000 and $2,343,000 as of June 30, 2012 and December 31, 2011, respectively, and liabilities related to discontinued operations total $3,913,000 and $3,972,000 as of June 30, 2012 and December 31, 2011, respectively.
The following table presents the major classes of asset and liabilities of discontinued operations that are classified as held for sale as of June 30, 2012 and December 31, 2011. The held for sale assets and liabilities may differ at the closing of a sale transaction from the reported balances as of June 30, 2012:
|
|
June 30,
|
|
|
December 31,
|
|
(Amounts in Thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Accounts receivable, net (1)
|
|
$ |
466 |
|
|
$ |
385 |
|
Inventories
|
|
|
31 |
|
|
|
25 |
|
Other assets
|
|
|
15 |
|
|
|
22 |
|
Property, plant and equipment, net (2)
|
|
|
1,614 |
|
|
|
1,650 |
|
Total assets held for sale
|
|
$ |
2,126 |
|
|
$ |
2,082 |
|
Accounts payable
|
|
$ |
303 |
|
|
$ |
190 |
|
Accrued expenses and other liabilities
|
|
|
523 |
|
|
|
577 |
|
Note payable
|
|
|
88 |
|
|
|
105 |
|
Environmental liabilities
|
|
|
1,496 |
|
|
|
1,497 |
|
Total liabilities held for sale
|
|
$ |
2,410 |
|
|
$ |
2,369 |
|
(1) net of allowance for doubtful accounts of $41,000 and $48,000 as of June 30, 2012 and December 31, 2011, respectively.
(2) net of accumulated depreciation of $62,000 for each period noted.
The following table presents the major classes of assets and liabilities of discontinued operations that are not held for sale as of June 30, 2012 and December 31, 2011:
|
|
June 30,
|
|
|
December 31,
|
|
(Amounts in Thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Other assets
|
|
$ |
255 |
|
|
$ |
261 |
|
Total assets of discontinued operations
|
|
$ |
255 |
|
|
$ |
261 |
|
Accrued expenses and other liabilities
|
|
$ |
1,059 |
|
|
$ |
1,083 |
|
Accounts payable
|
|
|
14 |
|
|
|
15 |
|
Environmental liabilities
|
|
|
430 |
|
|
|
505 |
|
Total liabilities of discontinued operations
|
|
$ |
1,503 |
|
|
$ |
1,603 |
|
The environmental liabilities for our discontinued operations consist of remediation projects currently in progress at PFMI, PFM, PFD, and PFSG. These remediation projects principally entail the removal/remediation of contaminated soil, and in some cases, the remediation of surrounding ground water. All of the remedial clean-up projects were an issue for years prior to our acquisition of the facility and were recognized pursuant to a business combination and recorded as part of the purchase price allocation to assets acquired and liabilities assumed. The environmental liability for PFD was retained by the Company upon the sale of PFD in March 2008 and pertains to the remediation of a leased property which was separate and apart from the property on which PFD’s facility was located. The reduction of approximately $76,000 in environmental liabilities from the December 31, 2011 balance of $2,002,000 reflects payment on remediation projects.
“Accrued expenses and other liabilities” (not held for sale) for our discontinued operations include a pension payable at PFMI of $402,000 as of June 30, 2012. The pension plan withdrawal liability is a result of the termination of the union employees of PFMI. The PFMI union employees participated in the Central States Teamsters Pension Fund ("CST"), which provides that a partial or full termination of union employees may result in a withdrawal liability, due from PFMI to CST. The recorded liability is based upon a demand letter received from CST in August 2005 that provided for the payment of $22,000 per month over an eight year period. This obligation is recorded as a long-term liability, with a current portion of $232,000 that we expect to pay over the next year.
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 Officer 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 two reporting segments, which are based on a service offering approach. This however, excludes corporate headquarters, which does not generate revenue, and our discontinued operations, which includes all facilities as discussed in “Note 10 – Discontinued Operations and Divestitures."
Our reporting segments are defined as follows:
TREATMENT SEGMENT which includes:
|
-
|
nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and
|
|
-
|
research and development activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.
|
SERVICES SEGMENT which includes:
|
-
|
On-site waste management services to commercial and government customers;
|
|
-
|
Technical services which includes:
|
|
o
|
professional radiological measurement and site survey of large government and commercial installations using advance methods, technology and engineering;
|
|
o
|
integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
|
|
o
|
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
|
|
o
|
augmented engineering services (through our Schreiber, Yonley & Associates subsidiary – “SYA”) providing consulting environmental services to industrial and government customers:
|
|
§
|
including air, water, and hazardous waste permitting, air, soil and water sampling, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities; and
|
|
§
|
engineering and compliance support to other segments.
|
|
-
|
A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e.rental) of health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
|
The table below presents certain financial information of our operating segments as of and for the three and six months ended June 30, 2012 and 2011 (in thousands).
Segment Reporting for the Quarter Ended June 30, 2012
|
|
Treatment
|
|
|
Services
|
|
|
Segments Total
|
|
|
Corporate (2)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$ |
10,037 |
|
|
$ |
23,941 |
|
|
$ |
33,978 |
(3) |
|
$ |
¾ |
|
|
$ |
33,978 |
|
Intercompany revenues
|
|
|
549 |
|
|
|
49 |
|
|
|
598 |
|
|
|
¾ |
|
|
|
¾ |
|
Gross profit
|
|
|
1,088 |
|
|
|
2,686 |
|
|
|
3,774 |
|
|
|
¾ |
|
|
|
3,774 |
|
Interest income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
7 |
|
|
|
7 |
|
Interest expense
|
|
|
3 |
|
|
|
¾ |
|
|
|
3 |
|
|
|
196 |
|
|
|
199 |
|
Interest expense-financing fees
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
26 |
|
|
|
26 |
|
Depreciation and amortization
|
|
|
1,125 |
|
|
|
692 |
|
|
|
1,817 |
|
|
|
18 |
|
|
|
1,835 |
|
Segment profit (loss)
|
|
|
72 |
|
|
|
869 |
|
|
|
941 |
|
|
|
(2,070 |
) |
|
|
(1,129 |
) |
Segment assets(1)
|
|
|
78,982 |
|
|
|
41,988 |
|
|
|
120,970 |
|
|
|
31,231 |
(4) |
|
|
152,201 |
|
Expenditures for segment assets
|
|
|
74 |
|
|
|
103 |
|
|
|
177 |
|
|
|
2 |
|
|
|
179 |
|
Total long-term debt
|
|
|
108 |
|
|
|
9 |
|
|
|
117 |
|
|
|
17,346 |
|
|
|
17,463 |
|
Segment Reporting for the Quarter Ended June 30, 2011
|
|
Treatment
|
|
|
Services
|
|
|
Segments Total
|
|
|
Corporate (2)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$ |
17,631 |
|
|
$ |
11,282 |
|
|
$ |
28,913 |
(3) |
|
$ |
¾ |
|
|
$ |
28,913 |
|
Intercompany revenues
|
|
|
376 |
|
|
|
87 |
|
|
|
463 |
|
|
|
¾ |
|
|
|
¾ |
|
Gross profit
|
|
|
5,972 |
|
|
|
2,077 |
|
|
|
8,049 |
|
|
|
¾ |
|
|
|
8,049 |
|
Interest income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
13 |
|
|
|
13 |
|
Interest expense
|
|
|
31 |
|
|
|
1 |
|
|
|
32 |
|
|
|
151 |
|
|
|
183 |
|
Interest expense-financing fees
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
54 |
|
|
|
54 |
|
Depreciation and amortization
|
|
|
1,137 |
|
|
|
10 |
|
|
|
1,147 |
|
|
|
29 |
|
|
|
1,176 |
|
Segment profit (loss)
|
|
|
3,261 |
|
|
|
1,177 |
|
|
|
4,438 |
|
|
|
(1,886 |
) |
|
|
2,552 |
|
Segment assets(1)
|
|
|
98,239 |
|
|
|
2,974 |
|
|
|
101,213 |
|
|
|
31,069 |
(4) |
|
|
132,282 |
|
Expenditures for segment assets
|
|
|
947 |
|
|
|
5 |
|
|
|
952 |
|
|
|
20 |
|
|
|
972 |
|
Total long-term debt
|
|
|
205 |
|
|
|
15 |
|
|
|
220 |
|
|
|
9,037 |
(5) |
|
|
9,257 |
|
Segment Reporting for the Six Months Ended June 30, 2012
|
|
Treatment
|
|
|
Services
|
|
|
Segments Total
|
|
|
Corporate (2)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$ |
22,879 |
|
|
$ |
49,172 |
|
|
$ |
72,051 |
(3) |
|
$ |
¾ |
|
|
$ |
72,051 |
|
Intercompany revenues
|
|
|
1,158 |
|
|
|
117 |
|
|
|
1,275 |
|
|
|
¾ |
|
|
|
¾ |
|
Gross profit
|
|
|
3,809 |
|
|
|
4,266 |
|
|
|
8,075 |
|
|
|
¾ |
|
|
|
8,075 |
|
Interest income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
21 |
|
|
|
21 |
|
Interest expense
|
|
|
5 |
|
|
|
6 |
|
|
|
11 |
|
|
|
409 |
|
|
|
420 |
|
Interest expense-financing fees
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
60 |
|
|
|
60 |
|
Depreciation and amortization
|
|
|
2,255 |
|
|
|
1,152 |
|
|
|
3,407 |
|
|
|
36 |
|
|
|
3,443 |
|
Segment profit (loss)
|
|
|
1,164 |
|
|
|
925 |
|
|
|
2,089 |
|
|
|
(4,074 |
) |
|
|
(1,985 |
) |
Segment assets(1)
|
|
|
78,982 |
|
|
|
41,988 |
|
|
|
120,970 |
|
|
|
31,231 |
(4) |
|
|
152,201 |
|
Expenditures for segment assets
|
|
|
242 |
|
|
|
141 |
|
|
|
383 |
|
|
|
4 |
|
|
|
387 |
|
Total long-term debt
|
|
|
108 |
|
|
|
9 |
|
|
|
117 |
|
|
|
17,346 |
|
|
|
17,463 |
|
Segment Reporting for the Six Months Ended June 30, 2011
|
|
Treatment
|
|
|
Services
|
|
|
Segments Total
|
|
|
Corporate (2)
|
|
|
Consolidated Total
|
|
Revenue from external customers
|
|
$ |
29,966 |
|
|
$ |
22,562 |
|
|
$ |
52,528 |
(3) |
|
$ |
¾ |
|
|
$ |
52,528 |
|
Intercompany revenues
|
|
|
794 |
|
|
|
156 |
|
|
|
950 |
|
|
|
¾ |
|
|
|
¾ |
|
Gross profit
|
|
|
6,932 |
|
|
|
4,147 |
|
|
|
11,079 |
|
|
|
¾ |
|
|
|
11,079 |
|
Interest income
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
26 |
|
|
|
26 |
|
Interest expense
|
|
|
64 |
|
|
|
1 |
|
|
|
65 |
|
|
|
294 |
|
|
|
359 |
|
Interest expense-financing fees
|
|
|
¾ |
|
|
|
¾ |
|
|
|
¾ |
|
|
|
156 |
|
|
|
156 |
|
Depreciation and amortization
|
|
|
2,278 |
|
|
|
20 |
|
|
|
2,298 |
|
|
|
34 |
|
|
|
2,332 |
|
Segment profit (loss)
|
|
|
3,379 |
|
|
|
2,305 |
|
|
|
5,684 |
|
|
|
(3,665 |
) |
|
|
2,019 |
|
Segment assets(1)
|
|
|
98,239 |
|
|
|
2,974 |
|
|
|
101,213 |
|
|
|
31,069 |
(4) |
|
|
132,282 |
|
Expenditures for segment assets
|
|
|
1,659 |
|
|
|
6 |
|
|
|
1,665 |
|
|
|
24 |
|
|
|
1,689 |
|
Total long-term debt
|
|
|
205 |
|
|
|
15 |
|
|
|
220 |
|
|
|
9,037 |
(5) |
|
|
9,257 |
|
(1)
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Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
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(2)
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Amounts reflect the activity for corporate headquarters not included in the segment information.
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(3)
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The following customers accounted for 10% or more of the total revenues generated from continuing operations for the three and six months ended June 30, 2012 and the corresponding period of 2011: (1) Revenues from CH Plateau Remediation Company (“CHPRC”) totaled $6,323,000 or 18.5% and $12,633,000 or 17.5% for the three and six months ended June 30, 2012, respectively and $17,171,000 or 59.4% and $30,833,000 or 58.7% for the corresponding period of 2011, respectively (2) Revenues generated directly from the U.S. Department of Energy (“DOE”) accounted for $9,709,000 or 28.6% and $19,408,000 or 26.9% for the three and six months ended June 30, 2012, respectively and $0 or 0% and $0 or 0% for the corresponding period of 2011, respectively. The increase in revenue generated directly from the DOE was attributable to the acquisition of SEC in October 31, 2011.
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(4)
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Amount includes assets from discontinued operations of $2,381,000 and $7,590,000 as of June 30, 2012 and 2011, respectively.
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(5)
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Net of debt discount of ($32,000) in connection with Warrants and Common Stock issued on May 8, 2009 in connection with a $3,000,000 promissory note entered into by the Company and Mr. William Lampson and Mr. Diehl Rettig on May 8, 2009. The promissory note and the Warrants were modified on April 18, 2011. The promissory note was paid off and the debt discount became fully amortized in April 2012. See Note 8 - “Promissory Note and Installment Agreement” for additional information.
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The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.
We had an income tax benefit of $474,000 and income tax expense of $1,445,000 for continuing operations for the three months ended June 30, 2012 and the corresponding period of 2011, respectively, and income tax benefit of $959,000 and income tax expense of $1,105,000 for the for the six months ended June 30, 2012 and the corresponding period of 2011, respectively. The Company’s effective tax rates was approximately 27.8% and 36.2% for the three months ended June 30, 2012 and 2011, respectively, and 30.9% and 35.4% for the six months ended June 30, 2012 and 2011, respectively.
The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. Deferred income tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income 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 income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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 tax assets to an amount that is more likely than not to be realized.
Homeland Capital Security Corporation (“Homeland”)
As previously reported, in connection with the closing of the Company’s acquisition of Safety & Ecology Holdings Corporation (“SEHC”) and its subsidiaries (collectively “SEC”) from Homeland, Homeland and SEHC agreed that they were in material breach of certain representations and warranties contained in the Stock Purchase Agreement, dated July 15, 2011 (“Agreement”), relating to a fixed cost contract to which a subsidiary of SEHC was a party (“Subcontract”). At the closing, the Company deposited $2,000,000, which represented a portion of the purchase price, in an escrow account to satisfy certain claims that the Company has or may have against Homeland for indemnification pursuant to the Agreement. Homeland and SEHC further agreed that if certain conditions were not met by December 31, 2011, relating to another contract, then the Company could withdraw $1,500,000 from the amount deposited by the Company in escrow. As previously reported, on January 10, 2012, the Company received from the escrow the $1,500,000, leaving a balance of $500,000 in the escrow account.
As a portion of the purchase price under the Agreement, the Company issued to Homeland an unsecured Promissory Note, dated October 31, 2012, in the principal amount of $2,500,000 (the “Note”). The outstanding principal balance of the Note as of June 30, 2012, was $1,458,000. The Agreement further provides that the Company may offset certain indemnification claims (including those arising from a breach of representations, warranties or covenants) that exceed the amount in the escrow account, against any amounts the Company owes to Homeland under the Note.
The Company currently estimates that the cost to complete the Subcontract will be $5,000,000 to $7,000,000 more than represented by Homeland in the Agreement. As a result, on July 13, 2012, the Company notified Homeland that the Company will offset its losses resulting from such breach against the payments otherwise due under the Note, pursuant to the terms of the Note and the Agreement, including, but not limited to, the July 15, 2012 regular $76,054 monthly Note payment. The Company has asserted a claim for the remaining balance in the escrow account as a result of this breach. Homeland has notified the escrow agent that it does not believe that the Company is entitled to assert a claim against the escrow and has notified the Company that it does not believe the Company is entitled to offset the amounts payable under the Note. Also, Homeland has notified the Company that it intends to assert that the Company will be in default under the terms of the Note if the regular July payment is not paid within 30 days of the due date.
If it is determined by a court of competent jurisdiction that we were not entitled to offset against the Note and, as a result, our actions resulted in an event of default under the Note, Homeland would have the right to receive in full and complete satisfaction of our obligations under the Note:
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the cash amount of the unpaid balance of the Note, accrued and unpaid interest thereon and certain expenses (the “Payoff Amount”); or
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·
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number of shares of our common stock equal to the quotient determined by dividing the Payoff Amount by the average of the closing price per share of our common stock as reported on the national securities exchange on which the shares are traded during the 30 consecutive trading day period ending on the trading day immediately prior to our receipt of a demand notice pursuant to the Agreement, subject to certain limitations; or
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·
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a combination thereof, subject to certain limitations.
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The Agreement limits the aggregate amount of Homeland’s liability to the Company to (a) $3,000,000 for indemnification claims relating to breaches of Homeland’s representations and warranties, except claims relating to any fundamental warranty (as defined in the Agreement) are limited to the $24,500,000 purchase price; and (b) $4,900,000 for indemnification claims relating to breaches of Homeland’s covenants or agreements under the Agreement.
In connection with the Subcontract discussed above and another subcontract (“second Subcontract”) that SEHC was working on prior to our acquisition, our SEC subsidiary entered into two surety bonds in the amounts of approximately $5,137,000 and $5,718,000, respectively, prior to our acquisition. We have been informed that one of the sureties who issued the bonds is the subject of a bankruptcy proceeding. The second Subcontract has been completed. The Company has not been informed by the obligee that either of the subcontracts is in default as a result of the bankruptcy proceeding. The Company has discussed this matter with its bonding agent in the event we are required to replace the bond for the Subcontract.
Forward-looking Statements
Certain statements contained within this report may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the "Private Securities Litigation Reform Act of 1995"). All statements in this report other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements. The words "believe," "expect," "anticipate," "intend," "will," and similar expressions identify forward-looking statements. Forward-looking statements contained herein relate to, among other things,
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demand for our services subject to fluctuations;
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funding by the federal government;
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ability to improve operations;
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receivables are normally considered collectible within twelve month;
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we anticipate meeting our financial covenants in remaining 2012;
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ability to close and remediate certain contaminated sites for projected amounts over the projected periods;
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fluctuation of cash balances;
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ability to fund expenses to remediate sites from funds generated internally;
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ability to replace surety bond for Subcontract;
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collectability of our receivables;
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adoption of programs by federal or state government mandating a substantial reduction in greenhouse gas emissions;
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ability to fund budgeted capital expenditures during 2012 through our operations and lease financing;
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·
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our cash flows from operations and our available liquidity from our line of credit are sufficient to service the Company’s current obligations and current obligations resulting from the acquisition of SEC;
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·
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continue to take steps to improve our operations and liquidity and to invest working capital into our facilities to fund capital additions to our segments;
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due to the continued uncertainty in the economy and changes within the environmental insurance market, we have no guarantee that we will be able to obtain similar insurance in future years, or that the cost of such insurance will not increase materially;
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we could be subject to fines, penalties or other liabilities or could be adversely affected by existing or subsequently enacted laws or regulations;
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as our operations and activities expand, there could be an increase in potential litigation;
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our inability to continue under existing contracts that we have with the federal government (directly or indirectly as a subcontractor) could have a material adverse effect on our operations and financial condition;
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investment of working capital;
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seasonality and the government’s budget process;
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funding of any repurchases of our common stock;
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contracts with the federal government;
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treatment processes we utilize offer a cost saving alternative to more traditional remediation and disposal methods offered by certain of our competitors;
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