SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2014 |
Or |
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
Commission File No. |
111596 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC. (Exact name of registrant as specified in its charter) |
Delaware (State or other jurisdiction of incorporation or organization) |
58-1954497 (IRS Employer Identification Number) |
8302 Dunwoody Place, Suite 250, Atlanta, GA (Address of principal executive offices) |
30350 (Zip Code) |
(770) 587-9898 (Registrant's telephone number) |
N/A |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ 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 ☐ 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 ☒ | |
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the latest practical date. |
Class | Outstanding at November 3, 2014 |
Common Stock, $.001 Par Value | 11,468,843 |
shares of registrant’s | |
Common Stock |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
PART I |
FINANCIAL INFORMATION |
Page No. | |
Item 1. |
Consolidated Condensed Financial Statements (Unaudited) |
||
Consolidated Balance Sheets - September 30, 2014 and December 31, 2013 |
1 | ||
Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2014 and 2013 |
3 | ||
Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended September 30, 2014 and 2013 |
4 | ||
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2014 and 2013 |
5 | ||
|
|||
Notes to Consolidated Financial Statements |
6 | ||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
21 | |
|
|||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
37 | |
|
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Item 4. |
Controls and Procedures |
37 | |
PART II | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 38 | |
Item 1A. | Risk Factors | 38 | |
Item 6. | Exhibits | 38 |
PART I - FINANCIAL INFORMATION
ITEM 1. – Financial Statements
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets
(Unaudited)
September 30, |
December 31, |
|||||||
(Amounts in Thousands, Except for Share and per Share Amounts) |
2014 |
2013 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash |
$ | 1,673 | $ | 333 | ||||
Restricted cash |
1,332 | 35 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $1,905 and $1,932, respectively |
9,798 | 8,106 | ||||||
Unbilled receivables - current |
5,816 | 4,917 | ||||||
Inventories |
445 | 520 | ||||||
Prepaid and other assets |
3,461 | 3,084 | ||||||
Current assets related to discontinued operations |
26 | 3,114 | ||||||
Total current assets |
22,551 | 20,109 | ||||||
Property and equipment: |
||||||||
Buildings and land |
19,863 | 19,486 | ||||||
Equipment |
35,765 | 35,279 | ||||||
Vehicles |
403 | 610 | ||||||
Leasehold improvements |
11,613 | 11,625 | ||||||
Office furniture and equipment |
1,911 | 2,046 | ||||||
Construction-in-progress |
454 | 630 | ||||||
70,009 | 69,676 | |||||||
Less accumulated depreciation and amortization |
(46,454 | ) | (43,616 | ) | ||||
Net property and equipment |
23,555 | 26,060 | ||||||
Property and equipment related to discontinued operations |
681 | 1,367 | ||||||
Intangibles and other long term assets: |
||||||||
Permits |
16,705 | 16,744 | ||||||
Goodwill |
― |
1,330 | ||||||
Other intangible assets – net |
2,565 | 2,980 | ||||||
Unbilled receivables – non-current |
275 | 302 | ||||||
Finite risk sinking fund |
21,326 | 21,307 | ||||||
Other assets |
1,290 | 1,401 | ||||||
Total assets |
$ | 88,948 | $ | 91,600 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets, Continued
(Unaudited)
September 30, |
December 31, |
|||||||
(Amounts in Thousands, Except for Share and per Share Amounts) |
2014 |
2013 |
||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 3,474 | $ | 5,462 | ||||
Accrued expenses |
5,786 | 5,201 | ||||||
Disposal/transportation accrual |
2,165 | 1,385 | ||||||
Unearned revenue |
5,993 | 4,149 | ||||||
Current liabilities related to discontinued operations |
1,594 | 3,994 | ||||||
Current portion of long-term debt |
3,765 | 2,876 | ||||||
Total current liabilities |
22,777 | 23,067 | ||||||
Accrued closure costs |
5,437 | 5,222 | ||||||
Other long-term liabilities |
787 | 739 | ||||||
Deferred tax liabilities |
1,102 | 1,012 | ||||||
Long-term liabilities related to discontinued operations |
1,336 | 602 | ||||||
Long-term debt, less current portion |
8,571 | 11,372 | ||||||
Total long-term liabilities |
17,233 | 18,947 | ||||||
Total liabilities |
40,010 | 42,014 | ||||||
Commitments and Contingencies |
||||||||
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 of $787 and $738, respectively |
1,285 | 1,285 | ||||||
Stockholders' Equity: |
||||||||
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding |
― |
― |
||||||
Common Stock, $.001 par value; 30,000,000 and 75,000,000 shares authorized, respectively; 11,456,536 and 11,406,573 shares issued, respectively; 11,448,894 and 11,398,931 shares outstanding, respectively |
11 | 11 | ||||||
Additional paid-in capital |
103,654 | 103,454 | ||||||
Accumulated deficit |
(57,165 | ) | (55,078 | ) | ||||
Accumulated other comprehensive (loss) income |
(6 | ) | 2 | |||||
Less Common Stock in treasury, at cost; 7,642 shares |
(88 | ) | (88 | ) | ||||
Total Perma-Fix Environmental Services, Inc. stockholders' equity |
46,406 | 48,301 | ||||||
Non-controlling interest on Perma-Fix Medical S.A. |
1,247 |
― |
||||||
Total stockholders' equity |
47,653 | 48,301 | ||||||
Total liabilities and stockholders' equity |
$ | 88,948 | $ | 91,600 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(Amounts in Thousands, Except for Per Share Amounts) |
2014 |
2013 |
2014 |
2013 |
||||||||||||
Net revenues |
$ | 16,905 | $ | 19,072 | $ | 40,106 | $ | 61,685 | ||||||||
Cost of goods sold |
11,324 | 15,943 | 32,874 | 53,995 | ||||||||||||
Gross profit |
5,581 | 3,129 | 7,232 | 7,690 | ||||||||||||
Selling, general and administrative expenses |
2,733 | 3,276 | 8,916 | 10,833 | ||||||||||||
Research and development |
253 | 520 | 941 | 1,420 | ||||||||||||
Impairment loss on goodwill |
― |
― |
380 | 1,149 | ||||||||||||
(Gain) loss on disposal of property and equipment |
(25 | ) |
― |
(41 | ) | 2 | ||||||||||
Income (loss) from operations |
2,620 | (667 | ) | (2,964 | ) | (5,714 | ) | |||||||||
Other income (expense): |
||||||||||||||||
Interest income |
7 | 8 | 20 | 27 | ||||||||||||
Interest expense |
(138 | ) | (252 | ) | (505 | ) | (597 | ) | ||||||||
Interest expense-financing fees |
(52 | ) | (40 | ) | (133 | ) | (87 | ) | ||||||||
Other |
(63 | ) |
― |
(48 | ) | (8 | ) | |||||||||
Income (loss) from continuing operations before taxes |
2,374 | (951 | ) | (3,630 | ) | (6,379 | ) | |||||||||
Income tax expense (benefit) |
30 | (383 | ) | 90 | (1,943 | ) | ||||||||||
Income (loss) from continuing operations, net of taxes |
2,344 | (568 | ) | (3,720 | ) | (4,436 | ) | |||||||||
Loss from discontinued operations, net of taxes |
(462 | ) | (240 | ) | (1,897 | ) | (224 | ) | ||||||||
(Loss) gain on insurance settlement of discontinued operations, net of taxes |
(11 | ) |
― |
3,530 |
― |
|||||||||||
Net income (loss) |
1,871 | (808 | ) | (2,087 | ) | (4,660 | ) | |||||||||
Net loss attributable to non-controlling interest |
― |
― |
― |
(64 | ) | |||||||||||
Net income (loss) attributable to Perma-Fix Environmental Services, Inc. common stockholders |
$ | 1,871 | $ | (808 | ) | $ | (2,087 | ) | $ | (4,596 | ) | |||||
Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic: |
||||||||||||||||
Continuing operations |
$ | .20 | $ | (.05 | ) | $ | (.32 | ) | $ | (.39 | ) | |||||
Discontinued operations |
(.04 | ) | (.02 | ) | (.17 | ) | (.02 | ) | ||||||||
Gain on insurance settlement of discontinued operations, net of taxes |
― |
― |
.31 |
― |
||||||||||||
Net income (loss) per common share |
$ | .16 | $ | (.07 | ) | $ | (.18 | ) | $ | (.41 | ) | |||||
Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted: |
||||||||||||||||
Continuing operations |
$ | .20 | $ | (.05 | ) | $ | (.32 | ) | $ | (.39 | ) | |||||
Discontinued operations |
(.04 | ) | (.02 | ) | (.17 | ) | (.02 | ) | ||||||||
Gain on insurance settlement of discontinued operations, net of taxes |
― |
― |
.31 |
― |
||||||||||||
Net income (loss) per common share |
$ | .16 | $ | (.07 | ) | $ | (.18 | ) | $ | (.41 | ) | |||||
Number of common shares used in computing net income (loss) per share: |
||||||||||||||||
Basic |
11,449 | 11,353 | 11,434 | 11,292 | ||||||||||||
Diluted |
11,490 | 11,353 | 11,434 | 11,292 |
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(Amounts in Thousands) |
2014 |
2013 |
2014 |
2013 |
||||||||||||
Net income (loss) |
$ | 1,871 | $ | (808 | ) | $ | (2,087 | ) | $ | (4,660 | ) | |||||
Other comprehensive (loss) income: |
||||||||||||||||
Foreign currency translation (loss) gain |
(2 | ) | 2 | (8 | ) |
― |
||||||||||
Total other comprehensive (loss) income |
(2 | ) | 2 | (8 | ) |
― |
||||||||||
Comprehensive income (loss) |
1,869 | (806 | ) | (2,095 | ) | (4,660 | ) | |||||||||
Comprehensive income (loss) attributable to non-controlling interest |
― |
― |
― |
(64 | ) | |||||||||||
Comprehensive income (loss) attributable to Perma-Fix Environmental Services, Inc. stockholders |
$ | 1,869 | $ | (806 | ) | $ | (2,095 | ) | $ | (4,596 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended |
||||||||
September 30, |
||||||||
(Amounts in Thousands) |
2014 |
2013 |
||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (2,087 | ) | $ | (4,660 | ) | ||
Less: income (loss) on discontinued operations |
1,633 | (224 | ) | |||||
Loss from continuing operations |
(3,720 | ) | (4,436 | ) | ||||
Adjustments to reconcile net loss to cash used in operations: |
||||||||
Depreciation and amortization |
3,282 | 3,843 | ||||||
Amortization of debt discount |
65 | 14 | ||||||
Amortization of fair value of customer contracts |
― |
(1,298 | ) | |||||
Deferred tax expense (benefit) |
90 | (2,068 | ) | |||||
Provision (benefit) for bad debt and other reserves |
11 | (315 | ) | |||||
Impairment loss on goodwill |
380 | 1,149 | ||||||
(Gain) loss on disposal of plant, property and equipment |
(41 | ) | 2 | |||||
Loss on sale of SYA subsidiary (see Note 4) |
48 |
― |
||||||
Foreign exchange loss |
(8 | ) |
― |
|||||
Issuance of common stock for services |
198 | 151 | ||||||
Stock-based compensation |
(2 | ) | 79 | |||||
Changes in operating assets and liabilities of continuing operations: |
||||||||
Accounts receivable |
(1,960 | ) | (783 | ) | ||||
Unbilled receivables |
(1,246 | ) | 1,832 | |||||
Prepaid expenses, inventories and other assets |
717 | 1,552 | ||||||
Accounts payable, accrued expenses and unearned revenue |
801 | (4,396 | ) | |||||
Cash used in continuing operations |
(1,385 | ) | (4,674 | ) | ||||
Cash used in discontinued operations |
(1,959 | ) | (336 | ) | ||||
Cash used in operating activities |
(3,344 | ) | (5,010 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(375 | ) | (373 | ) | ||||
Proceeds from sale of property and equipment |
133 |
― |
||||||
Proceeds from sale of SYA subsidiary (see Note 4) |
1,218 |
― |
||||||
Non-controlling distribution/redemption |
― |
(508 | ) | |||||
Payment to finite risk sinking fund |
(19 | ) | (27 | ) | ||||
Cash provided by (used in) investing activities of continuing operations |
957 | (908 | ) | |||||
Proceeds from property insurance claims of discontinued operations (see Note 10) |
5,727 |
― |
||||||
Net cash provided by (used in) investing activities |
6,684 | (908 | ) | |||||
Cash flows from financing activities: |
||||||||
Net borrowing of revolving credit |
― |
851 | ||||||
Principal repayments of long term debt |
(1,977 | ) | (2,182 | ) | ||||
Preceeds from issuance of common stock |
4 |
― |
||||||
Proceeds from issuance of long-term debt |
― |
3,000 | ||||||
Cash (used in) provided by financing activities of continuing operations |
(1,973 | ) | 1,669 | |||||
Principal repayments of long term debt for discontinued operations |
(27 | ) | (27 | ) | ||||
Cash (used in) provided by financing activities |
(2,000 | ) | 1,642 | |||||
Increase (decrease) in cash |
1,340 | (4,276 | ) | |||||
Cash at beginning of period |
333 | 4,368 | ||||||
Cash at end of period |
$ | 1,673 | $ | 92 | ||||
Supplemental disclosure: |
||||||||
Interest paid |
$ | 498 | $ | 540 | ||||
Income taxes paid |
30 | 110 | ||||||
Issuance of Common Stock for debt |
― |
200 | ||||||
Issuance of Warrants for debt |
― |
59 |
The accompanying notes are an integral part of these consolidated financial statements.
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2014
(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, 2013.
1. |
Basis of Presentation |
The consolidated condensed financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated 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 nine months ended September 30, 2014 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2014.
The Company suggests 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, 2013.
Going Concern
The accompanying financial statements have been prepared assuming we will continue as a going concern. Our former independent registered public accounting firm included in its report covering our 2013 audited consolidated financial statements an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. The Company’s financial position and operating results raised substantial doubt about the Company’s ability to continue as a going concern, as reflected by the accumulated deficit of $57,165,000 incurred through September 30, 2014. The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. During the nine months ended September 30, 2014, we incurred a net loss of $2,087,000 (which included a gain on insurance settlement of approximately $3,530,000 from our Perma-Fix of South Georgia, Inc. subsidiary which suffered a fire on August 14, 2013 (See “Note 4 – Divestitures and Discontinued Operations for further details relating to this insurance settlement)). As of September 30, 2014, we have a deficit in working capital of $226,000. Revenues for the nine months ended September 30, 2014 were $40,106,000 and were below our expectations and internal forecasts primarily due to the reduced and inconsistent (seasonal) spending of government clients operating under reduced budgets, completion of contracts, and general adverse economic conditions. However, we have seen significant improvement in our business starting in the latter part of the second quarter of 2014 and into the third quarter of 2014 with a number of sizable projects awarded to us, which is reflected by our third quarter financial results. As of September 30, 2014, the Company’s backlog was approximately $10,681,000, which increased approximately $2,986,000 from the December 31, 2013 balance and increased approximately $4,604,000 from the June 30, 2014 balance.
Our cash flow requirements during the fiscal year 2013 were financed by cash on hand, operations, our credit facility, and debt financings. For the nine month ended September 30, 2014, we are in a positive cash flow position primarily as a result of the proceeds we received from the sale of our Schreiber, Yonley and Associates, Inc. (“SYA”) subsidiary and the insurance settlement proceeds that our lender authorized us to use for general working capital purposes (see “Note 4 – Divestitures and Discontinued Operations” for the divestiture of SYA and the insurance settlement proceeds received by the Company on June 30, 2014). We are continually reviewing operating costs and are committed to further reducing operating costs to bring them in line with revenue levels when deemed necessary.
Our ability to achieve and maintain profitability is dependent upon our ability to successfully increase revenues, continue to cut our cost (when deemed necessary), and continue to develop our business plans of expansion into both commercial and international markets (to help offset the uncertainties of government spending in the United States of America) that will generate profitable revenues. We continue to explore all sources of increasing revenue.
Reclassification
To conform to our current year presentation, the Company included the $65,000 of loss on debt modification recorded during the three and nine months ended September 30, 2013 as interest expense. Approximately $37,000 of loss on debt modification was recorded in the second quarter of 2014 and included as interest expense. The amount recorded for loss on debt modification for each period noted above was not material and therefore, was included in interest expenses.
2. |
Summary of Significant Accounting Policies |
Our accounting policies are as set forth in the notes to the December 31, 2013 consolidated financial statements referred to above.
Recently Adopted Accounting Standards
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08, among other things, raises the threshold for disposals to qualify as discontinued operations. Under ASU 2014-08, a discontinued operation is (1) a component of an entity or group of components that has been disposed of by sale, disposed of other than by sale or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or (2) an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. ASU 2014-08 also requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This ASU is effective for annual periods beginning on or after December 15, 2014 and interim periods within that year. Early adoption of ASU 2014-08 is permitted but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issue. The Company elected to early adopt ASU 2014-08 during the second quarter of 2014. On April 3, 2014, the Company’s Board of Directors (“Board”) approved management to pursue the sale of our wholly owned subsidiary, SYA. On July 29, 2014, the Company completed the divestiture of SYA. As a result of the adoption of ASU 2014-08, the Company has presented the divestiture of SYA within our continuing operations. The sale of SYA does not represent a strategic shift that has or will have a major effect on the Company's operations and financial results as defined by ASU 2014-08. The Company has continued to present discontinued operations as previously presented in the Company's fiscal 2013 Annual Report on Form 10-K for the discontinued operations prior to the adoption of ASU 2014-08 (see “Note 4 - Divestitures and Discontinued Operations” for further detail of the divestiture of SYA).
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. The revenue guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016 for public entities, with no early adoption permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.
In June 2014, the FASB issued ASU 2014-12, “Compensation Stock – Compensation (Topic 718).” ASU 2014-12 applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. It requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and follows existing accounting guidance for the treatment of performance conditions. The standard will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.
3. |
Reduction in Authorized Shares |
On September 18, 2014 at the Company’s 2014 Annual Meeting of Stockholders, the Company’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to reduce the number of shares of Common Stock the Company is authorized to issue from 75,000,000 to 30,000,000. This amendment became effective on September 19, 2014.
4. |
Divestitures and Discontinued Operations |
Divestiture of SYA
The Company early adopted ASU 2014-08 during the second quarter of 2014. On July 29, 2014, the Company completed the sale of our wholly-owned subsidiary, SYA. As a result of the early adoption of ASU 2014-08, the divestiture of SYA is reported in continuing operations for all periods presented. The purchaser of SYA paid approximately $1,300,000 for 100% of the capital stock and $60,000 for estimated excess working capital which is subject to adjustment within 90 days of the closing date, in cash, to the Company at the closing, with $50,000 of such consideration placed in escrow for a period of one year to cover any claims by the purchaser for indemnification for certain limited types of losses incurred by the purchaser following the closing. The proceeds received were used to pay down our revolver and used for working capital. SYA was a professional engineering and environmental consulting services company and was in the Company’s Services Segment. As of September 30, 2014, expenses related to the sale of SYA totaled approximately $92,000. The Company recorded a loss on the sale of SYA of approximately $48,000 (net of taxes of $0), which included an additional estimated excess working capital of approximately $42,000. The loss on the sale of $48,000 was included in “other” expense on our Consolidated Statements of Operations. In 2013, SYA had net revenues of $2,564,736 and a net loss of $621,288.
Discontinued Operations
In accordance with ASU 2014-08, the Company continues to present discontinued operations as previously presented in the Company’s fiscal 2013 Annual Report on Form 10-K prior to the adoption of ASU 2014-08 as follows:
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 include two previously shut down locations, Perma-Fix of Michigan, Inc. (“PFMI”), and Perma-Fix of Memphis, Inc. (“PFM”).
On August 14, 2013, our PFSG facility incurred fire damage which left it non-operational. Certain equipment and portions of the building structures were damaged. The Company carries general liability, pollution, property and business interruption, and workers compensation insurance with a maximum deductible of approximately $300,000. On June 20, 2014, the Company entered into a settlement agreement and release with one of its insurance carriers, resulting in receipt of approximately $3,850,000 in insurance settlement proceeds on June 30, 2014, which was used to pay down the Company’s Revolving Credit facility. As of September 30, 2014, the Company recognized a gain of $3,530,000 (of which a $11,000 loss was recognized in the third quarter of 2014), which was comprised of a $2,977,000 gain on disposal of property and equipment and $553,000 of expenses, clean-up costs, and business interruption recoveries. During the nine months ended September 30, 2014, the Company received $8,462,000 of insurance proceeds of which $5,727,000 was for property and equipment and $2,735,000 was for expenses, clean-up costs, and business interruption recoveries. During the twelve months ended December 31, 2013, the Company received $3,664,000 of insurance proceeds of which $1,750,000 was for property and equipment and $1,914,000 was for expenses, clean-up costs, and business interruption recoveries.
The Company is currently evaluating options regarding the future operation of the PFSG facility. The Company continues to market our PFSG facility for sale. As required by ASC 360, based on our internal financial valuations, the Company concluded that tangible asset impairments existed for PFSG as of September 30, 2014 and recorded approximately $723,000 of asset impairment charges, of which approximately $38,000 was recorded in the third quarter of 2014, with the remaining $685,000 recorded in the second quarter of 2014. The asset impairment charges are included in “loss from discontinued operations, net of taxes.” No remaining intangible assets exist at PFSG at September 30, 2014.
The following table summarizes the results of discontinued operations for the three and nine months ended September 30, 2014 and 2013. The operating results of discontinued operations are included in our Consolidated Statements of Operations as part of our “Income (loss) from discontinued operations, net of taxes.”
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(Amounts in Thousands) |
2014 |
2013 |
2014 |
2013 |
||||||||||||
Net revenues |
$ | — | $ | 311 | $ | — | $ | 1,784 | ||||||||
Interest expense |
$ | (1 | ) | $ | (7 | ) | $ | (7 | ) | $ | (20 | ) | ||||
Operating loss from discontinued operations |
$ | (462 | ) | $ | (369 | ) | $ | (1,897 | ) | $ | (342 | ) | ||||
Income tax benefit |
$ | — | $ | (129 | ) | $ | — | $ | (118 | ) | ||||||
(Loss) gain on insurance settlement of discontinued operations |
$ | (11 | ) | $ | — | $ | 3,530 | $ | — | |||||||
(Loss) income from discontinued operations |
$ | (473 | ) | $ | (240 | ) | $ | 1,633 | $ | (224 | ) |
5. |
Other Intangible Assets and Goodwill |
The following table summarizes information relating to the Company’s other intangible assets:
September 30, 2014 |
December 31, 2013 |
|||||||||||||||||||||||||||
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 | $ | 528 | $ | (158 | ) | $ | 370 | $ | 514 | $ | (155 | ) | $ | 359 | |||||||||||||
Software |
3 | 372 | (305 | ) | 67 | 379 | (258 | ) | 121 | |||||||||||||||||||
Non-compete agreement |
1.2 | 265 | (265 | ) | — | 265 | (174 | ) | 91 | |||||||||||||||||||
Customer contracts |
.5 | 790 | (790 | ) | — | 790 | (790 | ) | — | |||||||||||||||||||
Customer relationships |
12 | 3,370 | (1,242 | ) | 2,128 | 3,370 | (961 | ) | 2,409 | |||||||||||||||||||
Total |
$ | 5,325 | $ | (2,760 | ) | $ | 2,565 | $ | 5,318 | $ | (2,338 | ) | $ | 2,980 |
The intangible assets 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 (which include the one definite-lived permit at our Diversified Scientific Services, Inc. (“DSSI”) subsidiary):
Amount |
|||||||||||||||
Year |
(In thousands) |
||||||||||||||
2014 (remaining) |
$ | 117 | |||||||||||||
2015 | 459 | ||||||||||||||
2016 |
419 | ||||||||||||||
2017 |
385 | ||||||||||||||
2018 |
355 | ||||||||||||||
$ | 1,735 |
Amortization expense relating to intangible assets and our one definite-lived permit for the Company was $149,000 and $501,000 for the three and nine months ended September 30, 2014, respectively, and $185,000 and $528,000 for the three and nine months ended September 30, 2013, respectively.
Goodwill Impairment
On April 3, 2014, the Company’s Board approved management to pursue the sale of our SYA subsidiary. As permitted by ASC Topic 350 “Intangibles – Goodwill and Other,” when an impairment indicator arises, the Company may recognize its best estimate of that impairment loss. Based on the Company’s preliminary analysis prepared as of June 30, 2014, the Company recorded a goodwill impairment charge of $380,000 during the three months ended June 30, 2014 for the SYA reporting unit. On July 29, 2014, the Company completed the divestiture of SYA (see Note 4 – “Divestitures and Discontinued Operations – Divestiture of SYA”). The Company determined that there was no change in the estimated goodwill impairment recorded above upon the divestiture of SYA on July 29, 2014.
During the second quarter of 2013, the Company recorded a goodwill impairment charge of $1,149,000 which represented the total goodwill for our CH Plateau Remediation Company (“CHPRC”) reporting unit, our operation under the CHPRC subcontract. This subcontract expired on September 30, 2013.
The impairment charges noted above are noncash in nature and did not affect our liquidity or cash flows from operating activities. Additionally, the goodwill impairment had no effect on our borrowing availability or covenants under our credit facility agreement.
6. |
Stock Plans and Stock Based Compensation |
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 a vesting period of six months.
On July 10, 2014, the Company granted an aggregate of 55,000 incentive stock options (“ISOs”) from the Company’s 2010 Stock Option Plan to certain employees, of which 45,000 ISOs were granted to the Company’s Chief Operating Officer (“COO” who was appointed March 20, 2014). The ISOs granted were for a contractual term of six years with one-third yearly vesting over a three year period. The exercise price of the ISOs was $5.00 per share, which was equal to our closing stock price as reported on Nasdaq on the date of grant.
On September 18, 2014, the Company granted an aggregate of 16,800 non-qualified stock options (“NQSOs”) from the Company’s 2003 Outside Directors Stock Plan to our seven re-elected directors at our Annual Meeting of Stockholders held on September 18, 2014. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSOs was $3.70 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Outside Directors Stock Plan.
As of September 30, 2014, the Company had an aggregate of 76,000 employee stock options outstanding (from the 2004 and 2010 Stock Option Plans), of which 21,000 are vested. The weighted average exercise price of the 21,000 outstanding and fully vested employee stock options is $7.13 with a remaining weighted contractual life of 0.3 years. Additionally, the Company had an aggregate of 170,343 outstanding director stock options (from the 2003 Outside Directors Stock Plans), of which 153,543 are vested. The weighted average exercise price of the 153,543 outstanding and fully vested director stock options is $9.30 with a remaining weighted contractual life of 4.9 years.
The summary of the Company’s total Stock Plans as of September 30, 2014, as compared to September 30, 2013, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2004 and 2010 Stock Option Plans and the 2003 Outside Directors Stock Plans:
Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
Options outstanding Janury 1, 2014 |
362,800 | $ | 9.53 | |||||||||||||
Granted |
71,800 | 4.70 | ||||||||||||||
Exercised |
(1,257 | ) | 2.79 | $ | 2,319 | |||||||||||
Forfeited |
(187,000 | ) | 10.04 | |||||||||||||
Options outstanding End of Period (1) |
246,343 | 7.77 | 5.1 | $ | 23,065 | |||||||||||
Options Exercisable at September 30, 2014(1) |
174,543 | $ | 9.04 | 4.4 | $ | 21,049 | ||||||||||
Options Vested and expected to be vested at September 30, 2014 |
237,543 | $ | 7.87 | 5.0 | $ | 23,065 |
Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
Options outstanding Janury 1, 2013 |
528,800 | $ | 9.82 | |||||||||||||
Granted |
18,000 | 2.79 | ||||||||||||||
Exercised |
─ |
─ |
$ |
─ | ||||||||||||
Forfeited |
(156,000 | ) | 8.28 | |||||||||||||
Options outstanding End of Period (2) |
390,800 | 9.66 | 3.2 | $ | 15,900 | |||||||||||
Options Exercisable at September 30, 2013(2) |
352,800 | $ | 10.11 | 2.9 |
$ |
─ | ||||||||||
Options Vested and expected to be vested at September 30, 2013 |
390,800 | $ | 9.66 | 3.2 | $ | 15,900 |
(1) Options with exercise prices ranging from $2.79 to $14.75
(2) Options with exercise prices ranging from $5.50 to $14.75
The Company follows 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 estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted during the nine months ended September 30, 2014 and 2013 and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows (No options were granted to employees during the nine months ended September 30, 2013):
Outside Director Stock Options Granted |
||||||||
September 30, 2014 |
September 30, 2013 |
|||||||
Weighted-average fair value per share |
$ | 2.73 | $ | 1.96 | ||||
Risk -free interest rate (1) |
2.63% | 2.92% | ||||||
Expected volatility of stock (2) |
59.59% | 58.88% | ||||||
Dividend yield | None | None | ||||||
Expected option life (3) (years) |
10.0 | 10.0 |
Employee Stock Option Granted |
|||||
as of September 30, 2014 |
|||||
Weighted-average fair value per share |
$ | 2.88 | |||
Risk -free interest rate (1) |
1.91% | ||||
Expected volatility of stock (2) |
61.84% |
||||
Dividend yield | None | ||||
Expected option life (3) (years) |
6.0 |
(1) The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.
(2) The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
(3) The expected option life is based on historical exercises and post-vesting data.
The following table summarizes stock-based compensation recognized, which is included in selling, general and administrative expenses, for the three and nine months ended September 30, 2014 and 2013 for our employee and director stock options.
Three Months Ended |
Nine Months Ended |
|||||||||||||||
Stock Options |
September 30, |
September 30, |
||||||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||||||
Employee Stock Options |
$ | 12,000 | $ | 22,000 | $ | (27,000 | ) | $ | 58,000 | |||||||
Director Stock Options |
3,000 | 4,000 | 25,000 | 21,000 | ||||||||||||
Total |
$ | 15,000 | $ | 26,000 | $ | (2,000 | ) | $ | 79,000 |
The Company recognized stock-based compensation expense using a straight-line amortization method over the requisite service 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. The Company has generally estimated forfeiture rates based on historical trends of actual forfeitures. When actual forfeitures vary from our estimates, the Company recognizes the difference in compensation expense in the period the actual forfeitures occur or when options vest. The total stock-based compensation expense for the nine months ended September 30, 2014 included a reduction in expense of approximately $54,000 resulting from the forfeiture of options by Mr. Jim Blankenhorn, our previous COO, who voluntarily resigned from the Company effective March 28, 2014. The COO was granted an option from the Company’s 2010 Stock Option Plan on July 25, 2011, which provided for the purchase of up to 60,000 shares of the Company’s Common Stock at $7.85 per share. The options had a six year contractual term with one-third yearly vesting over a three year period. As of September 30, 2014, the Company has approximately $181,000 of total unrecognized compensation cost related to unvested options, of which $36,000 is expected to be recognized in remaining 2014, $73,000 in 2015, $53,000 in 2016, with the remaining $19,000 in 2017.
7. |
CEE Opportunity Partners Poland S.A (n/k/a Perma-Fix Medical S.A.) |
On April 4, 2014, the Company completed the acquisition of 80% of a Polish Company, CEE Opportunity Partners Poland S.A. (“the Polish shell”), a publicly traded shell company on the NewConnect (alternative share market run by the Warsaw Stock Exchange) in Poland, for $1.00 (U.S.) and sold to the Polish shell all of the shares of Perma-Fix Medical Corporation, a Delaware corporation (“PF Medical”) organized by the Company. PF Medical’s only asset was a worldwide license granted by the Company to use, develop and market the new process and technology developed by the Company in the production of Technetium-99 (Tc-99m) for medical diagnostic applications. Since the acquired shell company does not meet the definition of a business under Accounting Standards Codification (“ASC”) 805, “Business Combinations”, the transaction was accounted for as a capital transaction. The Company renamed the Polish shell to Perma-Fix Medical S.A (“PF Medical S.A.”). The primary purpose of PF Medical S.A. is to provide a financing vehicle for the development and marketing of its medical isotope (Tc-99m) technology used in medical diagnostic testing for potential use throughout the world.
During August, 2014, PF Medical S.A. executed stock subscription agreements totaling approximately $2,550,000 for its Series E Common Stock to non-U.S. persons in an offshore private placement under Regulation S promulgated under the Securities Act of 1933, as amended (“Securities Act”). The closing of this transaction is subject to approvals by the Polish court and compliance with certain other legal requirements under Polish law. In connection with this transaction, as of September 30, 2014, PF Medical S.A. has received approximately $1,247,000 for 125,159 shares (before deduction for commissions and legal expenses relating to this offering), which is being held in an escrow account until the appropriate approvals are obtained and certain legal compliance requirements under Polish securities law are completed. The Company expects that the approvals and necessary requirements will be obtained and completed during November 2014. The Company has recorded the amount held in escrow as restricted cash on the Consolidated Balance Sheet. PF Medical S.A. expects to receive another approximately $553,000 for 56,680 shares related to this transaction by January 2015. PF Medical S.A. further expects to receive the remaining approximately $750,000, prior to any commission, on or prior to August 17, 2015, for payment of the remaining 68,161 of such shares. The unpaid shares as of September 30, 2014 in this transaction were accounted for as subscription receivables and are offset against non-controlling interest. If PF Medical S.A. is not paid for the 68,161 shares on or prior to August 17, 2015, PF Medical S.A. has the option to have the purchaser of such shares transfer all of its rights, title and interest in such shares to PF Medical S.A. or for PF Medical S.A. be paid for the 68,161 shares with shares in another publicly traded company. Assuming PF Medical S.A. is paid for all of the shares sold in the offshore private placement, the Company will own approximately 64% of the outstanding shares of PF Medical S.A. If PF Medical S.A. is not paid for the 68,161 shares as provided above and such shares are transferred back to PF Medical S.A., then, in such event, the Company will own approximately 68% of the outstanding shares of PF Medical S.A. This is neither an offer to sell nor a solicitation of an offer to buy PF Medical S.A.’s E Common Stock or any other securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful. PF Medical S.A.’s E Common Stock is not registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S. absent registration or applicable exemption from registration from the registration requirements under the Securities Act and applicable state securities laws. As a result, the share certificate or purchase confirmation issued in connection with such private placement of PF Medical S.A.’s E Common Stock will be required to bear a legend describing the restrictions of transferring such to U.S. persons and prohibiting hedging transactions in such shares unless in compliance with the Securities Act.
8. |
Income (Loss) Per Share |
Basic income (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. Net loss attributable to non-controlling interests are excluded from loss from continuing operations in the below calculation in accordance with ASC 260, “Earnings Per Share.”
The following is a reconciliation of basic income (loss) per share to diluted net income (loss) per share for the three and nine months ended September 30, 2014 and 2013:
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, |
September 30, |
|||||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||||
(Amounts in Thousands, Except for Per Share Amounts) |
2014 |
2013 |
2014 |
2013 |
||||||||||||
Income (loss) per share from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders |
||||||||||||||||
Income (loss) from continuing operations |
$ | 2,344 | $ | (568 | ) | $ | (3,720 | ) | $ | (4,372 | ) | |||||
Basic income (loss) per share |
$ | .20 | $ | (.05 | ) | $ | (.32 | ) | $ | (.39 | ) | |||||
Diluted income (loss) per share |
$ | .20 | $ | (.05 | ) | $ | (.32 | ) | $ | (.39 | ) | |||||
Loss per share from discontinued operations attributable to Perma-Fix Environmental Services, Inc. common stockholders |
||||||||||||||||
Loss from discontinued operations |
$ | (462 | ) | $ | (240 | ) | $ | (1,897 | ) | $ | (224 | ) | ||||
Basic loss per share |
$ | (.04 | ) | $ | (.02 | ) | $ | (.17 | ) | $ | (.02 | ) | ||||
Diluted loss per share |
$ | (.04 | ) | $ | (.02 | ) | $ | (.17 | ) | $ | (.02 | ) | ||||
(Loss) income per share from insurance settlement of discontinued operations, net of taxes attributable to Perma-Fix Environmental Services, Inc. common stockholders |
||||||||||||||||
(Loss) gain on insurance settlement of discontinued operations, net of taxes |
$ | (11 | ) |
$ |
― | $ | 3,530 |
$ |
― | |||||||
Basic income per share |
$ |
― |
$ |
― | $ | .31 |
$ |
― | ||||||||
Diluted income per share |
$ |
― |
$ |
― | $ | .31 |
$ |
― | ||||||||
Weighted average common shares outstanding – basic |
11,449 | 11,353 | 11,434 | 11,292 | ||||||||||||
Potential shares exercisable under stock option plans |
8 |
― |
― |
― |
||||||||||||
Potential shares upon exercise of Warrants |
33 |
― |
― |
― |
||||||||||||
Weighted average shares outstanding – diluted |
11,490 | 11,353 | 11,434 | 11,292 | ||||||||||||
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include: |
||||||||||||||||
Upon exercise of stock options |
207 | 391 | 207 | 373 | ||||||||||||
Upon exercise of Warrants |
― |
― |
― |
― |
9. |
Long Term Debt |
Long-term debt consists of the following at September 30, 2014 and December 31, 2013:
(Amounts in Thousands) |
September 30, 2014 |
December 31, 2013 |
||||||
Revolving Credit facility dated October 31, 2011, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at our option of prime rate (3.25% at September 30, 2014) plus 2.0% or London Interbank Offer Rate ("LIBOR") plus 3.0%, balance due October 31, 2016. Effective interest rate for the first nine months of 2014 was 4.2%. (1) |
$ | — | $ | — | ||||
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 the first nine months of 2014 was 3.8%. (1) |
9,523 | 11,238 | ||||||
Promissory Note dated February 12, 2013, payable in monthly installments of $10, which includes interest and principal, starting February 28, 2013, interest accrues at annual rate of 6.0%, balance due January 31, 2015. (2) |
40 | 127 | ||||||
Promissory Note dated August 2, 2013, payable in twelve monthly installments of interest only, starting September 1, 2013 and twenty-four monthly installments of $125 in principal plus accrued interest. Interest accrues at annual rate of 2.99%. (2) (3) |
2,717 | 2,777 | ||||||
Various capital lease and promissory note obligations, payable 2014 to 2016, interest at rates ranging from 5.2% to 6.0%. |
64 | 141 | ||||||
12,344 | 14,283 | |||||||
Less current portion of long-term debt |
3,765 | 2,876 | ||||||
Less long-term debt related to assets held for sale |
8 | 35 | ||||||
$ | 8,571 | $ | 11,372 |
(1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.
(2) Uncollateralized note.
(3) Net of debt discount of ($158,000) and ($223,000) for September 30, 2014 and December 31, 2013, respectively. See “Promissory Notes” below for additional information.
Revolving Credit and Term Loan Agreement
The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011, (“Agreement”), with PNC Bank, National Association (“PNC”), acting as agent and lender. The Agreement, as amended (“Amended Loan Agreement”), provides us with the following credit facilities: (a) up to $12,000,000 revolving credit facility (reduced from $18,000,000 pursuant to an amendment dated April 14, 2014) (“Revolving Credit”), subject to the amount of borrowings based on a percentage of eligible receivables (as defined) and (b) a term loan (“Term Loan”) of $16,000,000, which requires monthly installments of approximately $190,000 (based on a seven-year amortization). As a result of the reduction in the maximum borrowing Revolving Credit noted above, the Company recorded approximately $37,000 in loss on debt modification (included in interest expense) during the second quarter of 2014 in accordance with ASC 470-50, “Debt – Modification and Extinguishment.”
On July 25, 2014, the Company entered into Amendment 5 to the Amended Loan Agreement. This Amendment added our Perma-Fix of Canada, Inc. subsidiary as a guarantor under our credit facility. On July 28, 2014, the Company entered into Amendment 6 to the Amended Loan Agreement. This Amendment authorized the Company to sell our SYA subsidiary and released a hold by PNC which allows the Company to use the $3,850,000 insurance settlement proceeds received on June 30, 2014 by our PFSG subsidiary for working capital purposes but placed an indefinite reduction on our borrowing availability by $1,500,000. As a condition of Amendment 6, the Company agreed to pay PNC a fee of $15,000, which is being amortized over the term of the Amended Loan Agreement. All other terms of the Amended Loan Agreement remains principally unchanged.
The Amended Loan Agreement terminates as of October 31, 2016, unless sooner terminated. The Company may terminate the Amended Loan Agreement upon 90 days’ prior written notice and upon payment in full of our obligations under the Amended Loan Agreement. No early termination fee shall apply if we pay off our obligations under the Amended Loan Agreement after October 31, 2013.
As of September 30, 2014, the excess availability under our revolving credit was $8,558,000, based on our eligible receivables and includes the indefinite reduction of borrowing availability of $1,500,000 as discussed above.
Our credit facility with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The fixed charge coverage ratio requirement for the first quarter of 2014 was waived by PNC. The Company met its fixed charge coverage ratio in the second and third quarters of 2014 and expects to meet its quarterly fixed charge coverage ratio requirement in the remaining quarter of 2014; however, if the Company fails to meet the minimum quarterly fixed charge coverage ratio requirement in the remaining quarter of 2014 and PNC does not waive the non-compliance or further revise our covenant so that the Company is in compliance, our lender could accelerate the repayment of borrowings under our credit facility. In the event that our lender accelerates the payment of our borrowings, the Company may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness.
Promissory Notes
On February 12, 2013, the Company entered into an unsecured promissory note (“the new note”) with Timios National Corporation (“TNC” and formerly known as Homeland Security Capital Corporation) in the principal amount of approximately $230,000 as a result of a settlement with TNC in connection with certain claims that the Company asserted against TNC for breach of certain representations and covenant subsequent to our acquisition of Safety & Ecology Holdings Corporation and its subsidiaries (collectively known as Safety and Ecology Corporation or “SEC”) from TNC on October 31, 2011 (See payment terms of this promissory note in the table above). The new note was entered into as a result of the settlement in which a previously issued promissory note (with principal balance of $1,460,000 at February 12, 2013) that the Company entered into with TNC as partial consideration of the purchase price of SEC was cancelled and terminated and replaced with the new note. The outstanding principal balance of the new note as of September 30, 2014, was approximately $40,000. The new note provides the Company the right to prepay such at any time without interest or penalty.
In the event of default of the new note payable to TNC by the Company, TNC has the option to convert the unpaid portion of the new note into a number of whole shares of the Company’s restricted Common Stock. The number of shares of the Company’s restricted Common Stock issuable is determined by the principal amount owing under the new note at the time of default plus all accrued and unpaid interest and expenses (as defined) divided by the average of the closing price per share of the Company’s Common Stock as reported by the primary national securities exchange on which the Company’s Common Stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by the Company of TNC’s written notice of its election to receive the Company’s restricted Common Stock as a result of the event of default by the Company, with the number of shares of the Company’s Common Stock issuable upon such default subject to certain limitations.
On August 2, 2013, the Company completed a lending transaction with Messrs. Robert Ferguson and William Lampson (“collectively, the “Lenders”), whereby the Company borrowed from the Lenders the sum of $3,000,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory note (the “Loan”) (See payment terms of this promissory note in the table above). The Lenders are stockholders of the Company, having received shares of our Common Stock in connection with the acquisition of our Perma-Fix Northwest Richland, Inc. subsidiary (“PFNWR”) in June 2007. The proceeds from the Loan were used for general working capital purposes. In connection with this Loan, the Lenders entered into a Subordination Agreement dated August 2, 2013, with the Company’s credit facility lender, whereby the Lenders agreed to subordinate payment under the Loan, and agreed that the Loan will be junior in right of payment to the credit facility in the event of default or bankruptcy or other insolvency proceeding by the Company. As consideration for the Company receiving the Loan, the Company issued a Warrant to each Lender to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price based on the closing price of the Company’s Common Stock at the closing of the transaction which was determined to be $2.23. The Warrants are exercisable six months from August 2, 2013 and expire on August 2, 2016. The fair value of the Warrants was estimated to be approximately $59,000 using the Black-Scholes option pricing model. As further consideration for the Loan, the Company also issued an aggregate 90,000 shares of the Company’s Common Stock, with each Lender receiving 45,000 shares. The Company determined the fair value of the 90,000 shares of Common Stock to be approximately $200,000 which was based on the closing price of the stock of $2.23 per share on August 2, 2013. The fair value of the Warrants and Common Stock and the related closing fees incurred from the transaction were recorded as a debt discount, which is being amortized using the effective interest method over the term of the loan as interest expense – financing fees.
In the event of default of the promissory note by the Company, the Lenders have the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest (“Payoff Amount”), or the number of whole shares of the Company’s Common Stock equal to the Payoff Amount divided by the closing bid price of the Company’s Common Stock on the date immediately prior to the date of default of the promissory note, as reported by the primary national securities exchange on which the Company’s Common Stock is traded. The maximum number of payoff shares is restricted to less than 20% of the outstanding equity.
10. |
Commitments and Contingencies |
Hazardous Waste
In connection with our waste management services, the Company handles hazardous waste, non-hazardous waste, low level radioactive waste and mixed waste (containing both hazardous and low level radioactive waste), which the Company transports to our own, or other, facilities for destruction or disposal. As a result of disposing of these substances, in the event any cleanup is required, the Company could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, the Company is involved in various litigation. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.
Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. 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. All of the required payments for this finite risk insurance policy, as amended, were made by the first quarter of 2012. As of September 30, 2014, our financial assurance coverage amount under this policy totaled approximately $38,679,000. The Company has recorded $15,424,000 in our sinking fund related to the policy noted above in other long term assets on the accompanying balance sheets, which includes interest earned of $953,000 on the sinking fund as of September 30, 2014. Interest income for three and nine months ended September 30, 2014, was approximately $5,000 and $15,000, respectively. On the fourth and subsequent anniversaries of the contract inception, the Company may elect to terminate this contract. If the Company so elects, AIG 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, the Company entered into a second finite risk insurance policy for our PFNWR facility with AIG. 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. The Company has made all of the required payments on this policy. As of September 30, 2014, the Company has recorded $5,902,000 in our sinking fund related to this policy in other long term assets on the accompanying balance sheets, which includes interest earned of $202,000 on the sinking fund as of September 30, 2014. Interest income for the three and nine months ended September 30, 2014 was approximately $1,000 and $4,000, respectively. This policy is renewed annually at the end of the four year term with a nominal fee for the variance between the coverage requirement and the sinking fund balance. The Company has renewed this policy annually from 2011 to 2014 (with fees ranging from $41,000 to $46,000 annually). All other terms of the policy remain substantially unchanged.
11. |
Operating Segments |
In accordance with ASC 280, “Segment Reporting”, the Company defines 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. |
The Company currently has two reporting segments, which are based on a service offering approach. This however, excludes corporate headquarters, which does not generate revenue, our discontinued operations, which includes all facilities as discussed in “Note 4 – Divestiture and Discontinued Operations and Divestitures”, and PF Medical S.A., a developmental entity whose primary purpose at this time is the research and development and marketing of medical isotope technology used in medical diagnostic testing (which is not generating any revenues).
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 include: |
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, Inc. subsidiary (“SYA”) – which was divested July 29, 2014) 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; |
- |
Nuclear services, which include: |
o |
technology-based services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction, logistics, transportation, processing and disposal; |
o |
remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; site construction; logistics; transportation; and emergency response; and |
- |
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 nine months ended September 30, 2014 and 2013 (in thousands).
Segment Reporting for the Quarter Ended September 30, 2014 |
||||||||||||||||||||||||
Treatment |
Services |
Segments Total |
Corporate (1) |
PF Medical S.A. (1) |
Consolidated Total |
|||||||||||||||||||
Revenue from external customers |
$ | 12,705 | $ | 4,200 | $ | 16,905 | $ | — | — | $ | 16,905 | |||||||||||||
Intercompany revenues |
— | 19 | 19 | — | — | — | ||||||||||||||||||
Gross profit |
4,943 | 638 | 5,581 | — | — | 5,581 | ||||||||||||||||||
Interest income |
— |
— | — | 7 | — | 7 | ||||||||||||||||||
Interest expense |
(10 | ) | — | (10 | ) | (128 | ) | — | (138 | ) | ||||||||||||||
Interest expense-financing fees |
— | — | — | (52 | ) | — | (52 | ) | ||||||||||||||||
Depreciation and amortization |
748 | 213 | 961 | 12 | — | 973 | ||||||||||||||||||
Segment profit (loss) |
3,985 | 10 | 3,995 | (1,422 | ) | (229 | ) | 2,344 | ||||||||||||||||
Expenditures for segment assets |
3 | 39 | 42 | — | — | 42 |
Segment Reporting for the Quarter Ended September 30, 2013 |
||||||||||||||||||||||||
Treatment |
Services |
Segments Total |
Corporate (1) |
PF Medical S.A. (1) |
Consolidated Total |
|||||||||||||||||||
Revenue from external customers |
$ | 8,929 | $ | 10,143 | $ | 19,072 | $ | — | — | $ | 19,072 | |||||||||||||
Intercompany revenues |
82 | 11 | 93 | — | — | — | ||||||||||||||||||
Gross profit |
1,801 | 1,328 | 3,129 | — | — | 3,129 | ||||||||||||||||||
Interest income |
— | — | — | 8 | — | 8 | ||||||||||||||||||
Interest expense |
(10 | ) | (1 | ) | (11 | ) | (241 | ) | — | (252 | ) | |||||||||||||
Interest expense-financing fees |
— | — | — | (40 | ) | — | (40 | ) | ||||||||||||||||
Depreciation and amortization |
999 | 248 | 1,247 | 20 | — | 1,267 | ||||||||||||||||||
Segment profit (loss) |
616 | 387 | 1,003 | (1,571 | ) | — | (568 | ) | ||||||||||||||||
Expenditures for segment assets |
192 | 6 | 198 | — | — | 198 |
Segment Reporting for the Nine Months Ended September 30, 2014 |
||||||||||||||||||||||||
Treatment |
Services |
Segments Total |
Corporate (1) |
PF Medical S.A. (1) |
Consolidated Total |
|||||||||||||||||||
Revenue from external customers |
$ | 29,773 | $ | 10,333 | $ | 40,106 | $ | — | — | $ | 40,106 | |||||||||||||
Intercompany revenues |
— | 64 | 64 | — | — | — | ||||||||||||||||||
Gross profit |
6,379 | 853 | 7,232 | — | — | 7,232 | ||||||||||||||||||
Interest income |
— | — | — | 20 | — | 20 | ||||||||||||||||||
Interest expense |
(35 | ) | (1 | ) | (36 | ) | (469 | ) | — | (505 | ) | |||||||||||||
Interest expense-financing fees |
— | 2 | 2 | (135 | ) | — | (133 | ) | ||||||||||||||||
Depreciation and amortization |
2,535 | 709 | 3,244 | 38 | — | 3,282 | ||||||||||||||||||
Segment profit (loss) |
2,977 | (1,981 | ) | 996 | (4,302 | ) | (414 | ) | (3,720 | ) | ||||||||||||||
Expenditures for segment assets |
334 | 41 | 375 | — | — | 375 |
Segment Reporting for the Nine Months Ended September 30, 2013 |
||||||||||||||||||||||||
Treatment |
Services |
Segments Total |
Corporate (1) |
PF Medical S.A. (1) |
Consolidated Total |
|||||||||||||||||||
Revenue from external customers |
$ | 26,379 | $ | 35,306 | $ | 61,685 | $ | — | — | $ | 61,685 | |||||||||||||
Intercompany revenues |
1,149 | 66 | 1,215 | — | — | — | ||||||||||||||||||
Gross profit |
3,968 | 3,722 | 7,690 | — | — | 7,690 | ||||||||||||||||||
Interest income |
— | — | — | 27 | — | 27 | ||||||||||||||||||
Interest expense |
(38 | ) | 3 | (35 | ) | (562 | ) | — | (597 | ) | ||||||||||||||
Interest expense-financing fees |
— | — | — | (87 | ) | — | (87 | ) | ||||||||||||||||
Depreciation and amortization |
3,063 | 708 | 3,771 | 72 | — | 3,843 | ||||||||||||||||||
Segment profit (loss) |
524 | (432 | ) | 92 | (4,528 | ) | — | (4,436 | ) | |||||||||||||||
Expenditures for segment assets |
367 | 6 | 373 | — | — | 373 |
(1) Amounts reflect the activity for corporate headquarters and PF Medical S.A. not included in the segment information.
12. |
Income Taxes |
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.
The Company had income tax expenses of $30,000 and income tax benefit of $383,000 from continuing operations for the three months ended September 30, 2014 and the corresponding period of 2013, respectively, and income tax expense of $90,000 and income tax benefit of $1,943,000 for the nine months ended September 30, 2014 and the corresponding period of 2013, respectively. The Company’s effective tax rates were approximately 1.3% and 40.3% for the three months ended September 30, 2014 and 2013, respectively, and (2.8%) and 37.6% for the nine months ended September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and September 30, 2013, the Company treated the goodwill impairment loss of approximately $380,000 recorded for our SYA subsidiary (in the second quarter of 2014) and the goodwill impairment loss of approximately $1,149,000 recorded for our CHPRC reporting unit (recorded in the second quarter of 2013) as discrete items and therefore were not included in our estimated effective tax rates for the nine month ended September 30, 2014 and corresponding period of 2013 in accordance with ASC 740-270-30-8 (see Note 5 – “Other Intangible Assets and Goodwill” for further information regarding these goodwill impairments). The lower tax rate for the three and nine months ended September 30, 2014 as compared to the corresponding period of 2013 was primarily the result of the Company recording a full valuation allowance on its net deferred tax assets.
13. |
Subsequent Events |
Consulting Agreement
On October 17, 2014, the Company’s Compensation and Stock Option Committee (“Compensation Committee”) and the Board of Directors (“Board”) approved a consulting agreement with John Climaco (a director of the Company), with Mr. Climaco abstaining. The Company and Mr. Climaco entered into the consulting agreement on October 17, 2014. Mr. Climaco is also is a member of the Strategic Advisory Committee of the Board. Pursuant to the consulting agreement, the services to be provided by the Consultant shall include, among other things, the following:
● |
Review the Company’s operations to restructure costs to render the Company more competitive; |
● |
Evaluate all functions, including but not limited to sales, marketing, accounting, operations, and executive management as well as cost structures for each facility; |
● |
Assist in the development of the Company’s strategy opportunity and other initiatives, including but not limited to the development of the Company’s medical isotope technology; and |
● |
Other assignments as determined by the Board. |
The Consultant shall be paid $22,000 per month plus reasonable expenses. The agreement shall continue unless terminated by either party for any reason or no reason by providing thirty (30) days written notice to the other party. The Consultant shall remain on the Company’s Board of Director until the expiration of the term.
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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 include, but are not limited to the following:
● |
significant reduction in the level of governmental funding could have a material adverse impact to our business, financial position, results of operations and cash flows; |
● |
expect to meet our financial covenants in remaining quarter of 2014; |
● |
increase revenues and generate positive cash flow for remainder of 2014; |
● |
reducing operating cost; |
● |
ability to achieve and maintain profitability; |
● |
ability to successfully raise additional capital; |
● |
successfully expand into both commercial and international markets; |
● |
increase market share; |
● |