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                       March 31, 2016          

 

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   

       Common Stock, $.001 Par Value      

       Outstanding at May 4, 2016      

    11,574,331   

       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 - March 31, 2016 and December 31, 2015

1
       
   

Consolidated Statements of Operations - Three Months Ended March 31, 2016 and 2015

3
       
   

Consolidated Statements of Comprehensive Loss - Three Months Ended March 31, 2016 and 2015

4
       
   

Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2016

5
       
   

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015

6
       
   

Notes to Consolidated Financial Statements

7
       
 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

18
     
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27
       
 

Item 4.

Controls and Procedures

27
       
PART II OTHER INFORMATION  
       
  Item 1. Legal Proceedings 28
       
  Item 1A. Risk Factors 28
       
  Item 6. Exhibits 28

 

 
 

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Balance Sheets

(Unaudited)

 

(Amounts in Thousands, Except for Share and per Share Amounts)

 

March 31,

2016

   

December 31,

2015

 
                 

ASSETS

               

Current assets:

               

Cash

  $ 798     $ 1,435  

Restricted cash

          99  

Accounts receivable, net of allowance for doubtful accounts of $1,482 and $1,474, respectively

    8,522       9,673  

Unbilled receivables - current

    3,151       4,569  

Inventories

    374       377  

Prepaid and other assets

    3,546       3,929  

Current assets related to discontinued operations

    29       34  

Total current assets

    16,420       20,116  
                 

Property and equipment:

               

Buildings and land

    20,211       20,209  

Equipment

    35,200       35,191  

Vehicles

    417       422  

Leasehold improvements

    11,626       11,626  

Office furniture and equipment

    1,755       1,755  

Construction-in-progress

    488       497  
      69,697       69,700  

Less accumulated depreciation

    (50,484 )     (49,707 )

Net property and equipment

    19,213       19,993  
                 

Property and equipment related to discontinued operations

    531       531  
                 

Intangibles and other long term assets:

               

Permits

    16,759       16,761  

Other intangible assets - net

    1,985       2,066  

Unbilled receivables – non-current

    296       707  

Finite risk sinking fund

    21,396       21,380  

Other assets

    1,342       1,359  

Total assets

  $ 77,942     $ 82,913  

 

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

 

 
1

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Balance Sheets, Continued

(Unaudited)

 

(Amounts in Thousands, Except for Share and per Share Amounts)

 

March 31,

2016

   

December 31,

2015

 
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 5,729     $ 6,109  

Accrued expenses

    4,250       4,341  

Disposal/transportation accrual

    1,473       1,107  

Deferred revenue

    2,359       2,631  

Current portion of long-term debt

    1,212       1,481  

Current portion of long-term debt - related party

    596       950  

Current liabilities related to discontinued operations

    526       531  

Total current liabilities

    16,145       17,150  
                 

Accrued closure costs

    5,286       5,301  

Other long-term liabilities

    883       867  

Deferred tax liabilities

    5,460       5,424  

Long-term debt, less current portion

    7,297       7,405  

Long-term liabilities related to discontinued operations

    1,047       1,064  

Total long-term liabilities

    19,973       20,061  
                 

Total liabilities

    36,118       37,211  
                 

Commitments and Contingencies (Note 7)

               
                 

Series B 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 $883 and $867, 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 shares authorized; 11,565,586 and 11,551,232 shares issued, respectively; 11,557,944 and 11,543,590 shares outstanding, respectively

    11       11  

Additional paid-in capital

    105,639       105,556  

Accumulated deficit

    (64,648 )     (60,808 )

Accumulated other comprehensive loss

    (65 )     (117 )

Less Common Stock in treasury, at cost; 7,642 shares

    (88 )     (88 )

Total Perma-Fix Environmental Services, Inc. stockholders' equity

    40,849       44,554  

Non-controlling interest

    (310 )     (137 )

Total stockholders' equity

    40,539       44,417  
                 

Total liabilities and stockholders' equity

  $ 77,942     $ 82,913  

 

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

 

 
2

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended

March 31,

 

(Amounts in Thousands, Except for Per Share Amounts)

 

2016

   

2015

 
                 

Net revenues

  $ 10,038     $ 13,600  

Cost of goods sold

    10,004       12,122  

Gross profit

    34       1,478  
                 

Selling, general and administrative expenses

    3,055       2,846  

Research and development

    575       429  

Loss on disposal of property and equipment

    5        

Loss from operations

    (3,601 )     (1,797 )
                 

Other income (expense):

               

Interest income

    16       8  

Interest expense

    (168 )     (126 )

Interest expense-financing fees

    (57 )     (58 )

Foreign currency loss

          (5 )

Loss from continuing operations before taxes

    (3,810 )     (1,978 )

Income tax expense

    36       36  

Loss from continuing operations, net of taxes

    (3,846 )     (2,014 )
                 

Loss from discontinued operations

    (167 )     (223 )

Net loss

    (4,013 )     (2,237 )
                 

Net loss attributable to non-controlling interest

    (173 )     (172 )
                 

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

  $ (3,840 )   $ (2,065 )
                 

Net loss per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic and diluted:

               
                 

Continuing operations

  $ (.32 )   $ (.16 )

Discontinued operations

    (.01 )     (.02 )

Net loss per common share

  $ (.33 )   $ (.18 )
                 
                 

Number of common shares used in computing net loss per share:

               

Basic

    11,557       11,486  

Diluted

    11,557       11,486  

 

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

 

 
3

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Comprehensive Loss

(Unaudited)

 

   

Three Months Ended

March 31,

 

(Amounts in Thousands)

 

2016

   

2015

 
                 

Net loss

  $ (4,013 )   $ (2,237 )

Other comprehensive income (loss):

               

Foreign currency translation gain (loss)

    52       (88 )

Total other comprehensive income (loss)

    52       (88 )
                 

Comprehensive loss

    (3,961 )     (2,325 )

Comprehensive loss attributable to non-controlling interest

    (173 )     (172 )

Comprehensive loss attributable to Perma-Fix Environmental Services, Inc. stockholders

  $ (3,788 )   $ (2,153 )

 

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

 

 
4

 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC

Consolidated Statement of Stockholders’ Equity

For the three months ended March 31, 2016

(Unaudited)

 

 

Common Stock

  Additional     

Common 

Stock

 

Accumulated

Other

   

Non-

controlling

        Total  

(Amounts in thousands, except for share amounts)

Shares

 

Amount

 

Paid-In 

Capital

   

 Held In

Treasury

 

Comprehensive

(Loss) Income

   

Interest in

Subsidiary

 

Accumulated

Deficit

 

Stockholders'

Equity

 
                                                     

Balance at December 31, 2015

  11,551,232   $ 11   $ 105,556     $ (88 ) $ (117 )

$ (137 ) $ (60,808 ) $ 44,417  

Net loss

 

 

 

       

  (173 )   (3,840 )   (4,013 )

Foreign currency translation

 

 

 

      52  

          52  

Issuance of Common Stock for services

  14,354    

  55            

          55  

Stock-Based Compensation

 

 

  28            

          28  

Balance at March 31, 2016

  11,565,586   $ 11   $ 105,639     $ (88 ) $ (65 )

$ (310 ) $ (64,648 ) $ 40,539  

 

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

 

 
5

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

   

Three Months Ended

March 31,

 

(Amounts in Thousands)

 

2016

   

2015

 

Cash flows from operating activities:

               

Net loss

  $ (4,013 )   $ (2,237 )

Less: loss from discontinued operations, net of taxes

    (167 )     (223 )
                 

Loss from continuing operations, net of taxes

    (3,846 )     (2,014 )

Adjustments to reconcile loss from continuing operations to cash provided by (used in) operating activities :

               

Depreciation and amortization

    884       966  

Amortization of debt discount

    21       22  

Deferred tax expense

    36       36  

Provision (recovery of) bad debt reserves

    8       (34 )

Loss on disposal of plant, property, and equipment

    5        

Issuance of common stock for services

    55       70  

Stock-based compensation

    28       33  

Changes in operating assets and liabilities of continuing operations

               

Restricted cash

    35        

Accounts receivable

    1,143       (267 )

Unbilled receivables

    1,829       (170 )

Prepaid expenses, inventories and other assets

    599       (4 )

Accounts payable, accrued expenses and unearned revenue

    (546 )     (1,334 )

Cash provided by (used in) continuing operations

    251       (2,696 )

Cash used in discontinued operations

    (184 )     (232 )

Cash provided by (used in) operating activities

    67       (2,928 )
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (9 )     (121 )

Proceeds from sale of plant, property, and equipment

    1        

Payment to finite risk sinking fund

    (16 )     (7 )

Cash used in investing activities

    (24 )     (128 )
                 

Cash flows from financing activities:

               

Repayments of revolving credit borrowings

    (13,853 )     (14,263 )

Borrowing on revolving credit

    14,022       15,808  

Proceeds from issuance of common stock

          3  

Release of proceeds for stock subscription for Perma-Fix Medical S.A. previously held in escrow

    64        

Principal repayments of long term debt

    (577 )     (587 )

Principal repayments of long term debt - related party

    (375 )     (375 )

Cash (used in) provided by financing activities

    (719 )     586  
                 

Effect of exchange rate changes on cash

    39       (82 )
                 

Decrease in cash

    (637 )     (2,552 )

Cash at beginning of period

    1,435       3,680  

Cash at end of period

  $ 798     $ 1,128  
                 

Supplemental disclosure:

               

Interest paid

  $ 100     $ 132  

Income taxes paid

    5       10  

 

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

 

 
6

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements

 

March 31, 2016

(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, 2015.

 

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 three months ended March 31, 2016 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2016.

 

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, 2015. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company determined that the operations of its majority-owned subsidiary, Perma-Fix Medical S.A. (“PF Medical”), which has not generated any revenues as it continues to be primarily in the research and development (“R&D”) stage, meet the definition of a reportable segment in accordance with Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” Accordingly, as detailed on Note 9 – “Operation Segments,” all of the historical numbers presented in the consolidated financial statements have been recast to include the operations of PF Medical as a separate reportable segment (“Medical Segment”).

 

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

 

2.

Summary of Significant Accounting Policies

 

Our accounting policies are as set forth in the notes to the December 31, 2015 consolidated financial statements referred to above. During the first quarter of 2016, all of the restricted cash previously held in escrow at December 31, 2015 was released. Such amount represented $35,000 held in escrow for our worker’s compensation policy with the remaining representing proceeds held in escrow resulting from stock subscription agreements executed in connection with the sale of common stock by PF Medical in previous years.

 

Recently Adopted Accounting Standards

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge asset. It is effective for annual reporting periods beginning after December 15, 2015 (including interim reporting periods), but early adoption is permitted. The Company adopted ASU 2015-03 retroactively in the first quarter of 2016. The adoption of ASU 2015-03 did not have a material impact to the Company’s results of operations, cash flows or financial position. The adoption of ASU 2015-03 resulted in a decrease in prepaid and other assets of approximately $152,000, a decrease in current portion of long-term debt of $27,000, and a decrease in long-term debt, less current portion of $125,000 for the balances as of December 31, 2015 in the accompanying Consolidated Balance Sheets.

 

 
7

 

 

Recently Issued Accounting Standards – Not Yet Adopted

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. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of periods beginning after December 15, 2016 (including interim reporting periods within those periods). The ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. 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.

 

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” ASU 2015-11 requires that inventory within the scope of this update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In March 2016, the FASB issued ASU 2016-07, “Investments- Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting.” ASU 2016-07 eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. ASU 2016-07 is effective for interim and annual periods beginning after December 15, 2016. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

 
8

 

 

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” ASU 2016-08 does not change the core principle of the guidance stated in ASU 2014-09; instead, the amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis. ASU 2016-08 will have the same effective date and transition requirements as the new revenue standard issued in ASU 2014-09. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-07 is effective for interim and annual periods beginning after December 15, 2016. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

3.

Intangible Assets

 

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

 

 

               

March 31, 2016

   

December 31, 2015

 
   

Useful

Lives

(Years)

   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Net

Carrying

Amount

   

Gross

Carrying

Amount

   

Accumulated

Amortization

   

Net

Carrying

Amount

 

Intangibles (amount in thousands)

                                                           

Patent

    8 - 18     $ 546     $ (212 )   $ 334     $ 539     $ (203 )   $ 336  

Software

      3         395       (367 )     28       395       (364 )     31  

Customer relationships

      12         3,370       (1,747 )     1,623       3,370       (1,671 )     1,699  

Permit

      10         545       (386 )     159       545       (373 )     172  

Total

              $ 4,856     $ (2,712 )   $ 2,144     $ 4,849     $ (2,611 )   $ 2,238  

 

The intangible assets noted above are amortized on a straight-line basis over their useful lives with the exception of customer relationships which are being amortized using an accelerated method. The Company has only one definite-lived permit that is subject to amortization.

 

The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets (including the one definite-lived permit):

 

   

Amount

 

Year

 

(In thousands)

 
         

2016 (remaining)

  $ 319  

2017

    373  

2018

    334  

2019

    247  

2020

    221  
    $ 1,494  

 

Amortization expenses relating to the definite-lived intangible assets as discussed above were $101,000 and $127,000 for the three months ended March 31, 2016 and 2015, respectively.

 

4.

Capital Stock, 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. No stock options were granted during the first quarter of 2016 and 2015.

 

 
9

 

 

The summary of the Company’s total Stock Option Plans as of March 31, 2016, as compared to March 31, 2015, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2010 Stock Option Plan and the 2003 Outside Directors Stock Plan (“2003 Plan”):

 

 

   

Shares

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Term

(years)

   

Aggregate

Intrinsic

Value (2)

 

Options outstanding January 1, 2016

    218,200     $ 7.65                  

Granted

             

           

Exercised

                           

Forfeited/expired

             

           

Options outstanding end of period (1)

    218,200     $ 7.65       4.6     $ 13,980  

Options exercisable at March 31, 2016(1)

    181,533     $ 8.18       4.6     $ 13,980  

Options exercisable and expected to be vested at March 31, 2016

    212,333     $ 7.72       4.6     $ 13,980  

 

   

Shares

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Term

(years)

   

Aggregate

Intrinsic

Value (2)

 

Options outstanding Janury 1, 2015

    239,023     $ 7.81                  

Granted

             

           

Exercised

    (1,257 )     2.79             $ 2,043  

Forfeited/expired

    (15,000 )     7.10    

           

Options outstanding end of period (1)

    222,766       7.89       5.0     $ 22,616  

Options exercisable at March 31, 2015(1)

    167,766     $ 8.84       4.9     $ 22,616  

Options exercisable and expected to be vested at March 31, 2015

    213,966     $ 8.01       5.0     $ 22,616  

 

(1) Options with exercise prices ranging from $2.79 to $14.75

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

 

The following table summarizes stock-based compensation recognized for the three months ended March 31, 2016 and 2015 for our employee and director stock options.

 

 

Stock Options

 

Three Months Ended

March 31,

 
   

2016

   

2015

 

Employee Stock Options

  $ 13,000     $ 13,000  

Director Stock Options

    15,000       20,000  

Total

  $ 28,000     $ 33,000  


As of March 31, 2016, the Company has approximately $59,000 of total unrecognized compensation cost related to unvested options, of which $40,000 is expected to be recognized in remaining 2016, with the remaining $19,000 in 2017.

 

During the three months ended March 31, 2016, the Company issued a total of 14,354 shares of our Common Stock under the 2003 Plan to our outside directors as compensation for serving on our Board of Directors. The Company has recorded approximately $60,000 in compensation expenses (included in selling, general and administration expenses) in connection with the issuance of these shares of our Common Stock to our outside directors.

 

 
10

 

 

5.

Loss Per Share

 

Basic loss per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted loss per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per shares. The following table reconciles the loss and average share amounts used to compute both basic and diluted loss per share:

 

   

Three Months Ended

March 31,

(Unaudited)

 

(Amounts in Thousands, Except for Per Share Amounts)

 

2016

   

2015

 

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

               

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

  $ (3,673 )   $ (1,842 )

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

    (167 )     (223 )

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

  $ (3,840 )   $ (2,065 )
                 

Basic loss per share attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ (.33 )   $ (.18 )
                 

Diluted loss per share attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ (.33 )   $ (.18 )
                 

Weighted average shares outstanding:

               

Basic weighted average shares outstanding

    11,557       11,486  

Add: dilutive effect of stock options

           

Add: dilutive effect of warrants

           

Diluted weighted average shares outstanding

    11,557       11,486  
                 
                 

Potential shares excluded from above weighted average share calcualtions due to their anti-dilutive effect include:

               

Stock options

    183       186  

 

 
11

 

 

6.

Long Term Debt

 

Long-term debt consists of the following at March 31, 2016 and December 31, 2015:

 

(Amounts in Thousands)

 

March 31, 2016

   

December 31, 2015

 

Revolving Credit facility dated October 31, 2011, as amended, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.50% at March 31, 2016) plus 1.75% or London Interbank Offer Rate ("LIBOR") plus 2.75%, balance due March 24, 2021. Effective interest rate for first quarter of 2016 was 4.6%. (1) (2)

  $ 2,518     $ 2,349  
Term Loan dated October 31, 2011, as amended, payable in equal monthly installments of principal of $190, balance due on March 24, 2021, variable interest paid monthly at option of prime rate plus 2.25% or LIBOR plus 3.25%. Effective interest rate for first quarter of 2016 was 3.6%. (1) (2)     5,974 (5)     6,514 (5)

Promissory Note dated August 2, 2013, payable in twelve monthly installments of interest only, starting September 1, 2013 followed with twenty-four monthly installments of $125 in principal plus accrued interest. Interest accrues at annual rate of 2.99%. (3) (4)

    596       950  

Capital lease (interest at rate of 6.0%)

    17       23  
      9,105       9,836  

Less current portion of long-term debt

    1,808       2,431  

Long-term debt

  $ 7,297     $ 7,405  

 

(1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.

 

(2) See below “Revolving Credit and Term Loan Agreement” for payment interest options prior to March 24, 2016. Effective April 1, 2016, the monthly installment payment under the Term Loan became $101,600 as a result of the March 24, 2016 amendment to the loan agreement as discussed below.

 

(3) Uncollateralized note.

 

(4) Net of debt discount of ($29,000) and ($50,000) at March 31, 2016 and December 31, 2015, respectively. See “Promissory Notes and Installment Agreements” below for additional information.

 

(5) Net of debt issuance costs of ($121,000) and ($152,000) at March 31, 2016 and December 31, 2015, respectively.

 

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 (“Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement, as subsequently amended (“Amended Loan Agreement”), provided the Company with the following Credit Facility: (a) up to $12,000,000 revolving credit (“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 required monthly installments of approximately $190,000 (based on a seven-year amortization).

 

Under the Amended Loan Agreement, the Company had the option of paying an annual rate of interest due on the Revolving Credit at prime plus 2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the Term Loan at prime plus 2.5% or LIBOR plus 3.5%.

 

On March 24, 2016, the Company entered into an amendment to the Amended Loan Agreement with PNC which provided, among other things, the following (the amendment, together with the Amended Loan Agreement is collectively known as the “Revised Loan Agreement”):

 

 

extended the due date of our Credit Facility from October 31, 2016 to March 24, 2021 (“maturity date”);

 

 

amended the Term loan to approximately $6,100,000, which requires monthly payments of $101,600 (based on a five-year amortization) and which approximated the term loan balance under the existing Credit Facility at the date of the amendment. The revolving line of credit remains at up to $12,000,000 (subject to the amount of borrowings based on a percentage of eligible receivables as previously defined under the Amended Loan Agreement);

 

 
12

 

 

 

released $1,000,000 of the $1,500,000 borrowing availability restriction that the lender had previously placed on the Company in connection with the insurance settlement proceeds received on July 28, 2014 by our PFSG facility, which suffered a fire in 2013. The Company’s lender had authorized the Company to use such proceeds for working capital purposes but had placed an indefinite reduction on our borrowing availability of $1,500,000;

 

 

revised the interest payment options to paying an annual rate of interest due on the Revolving Credit at prime plus 1.75% or LIBOR plus 2.75% and the Term Loan at prime plus 2.25% or LIBOR plus 3.25%; and

 

 

revised our annual capital spending maximum limit from $6,000,000 to $3,000,000.

 

In connection with the amendment, the Company paid PNC a closing fee of $70,000. As a result of the amendment dated March 24, 2016, the Company recorded approximately $68,000 in loss on extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishments,” which has been included in interest expense in the accompanying Consolidated Statements of Operations.

 

Pursuant to the amendment, the Company may terminate the Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of its obligations under the Revised Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the event the Company pays off its obligations on or before March 23, 2017, .50% of the total financing if the Company pays off its obligations after March 23, 2017 but prior to or on March 23, 2018, and .25% of the total financing if the Company pays off its obligations after March 23, 2018 but prior to or on March 23, 2019. No early termination fee shall apply if the Company pays off its obligations after March 23, 2019.

 

All other terms of the Amended Loan Agreement remain principally unchanged.

 

As of March 31, 2016, the availability under our revolving credit was $2,740,000, based on our eligible receivables and includes the remaining indefinite reduction of borrowing availability of $500,000 as discussed above.

 

The Company’s 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 Company met its quarterly financial covenants in the first quarter of 2016 with the exception of its minimum quarterly fixed charge coverage ratio requirement of 1.15:1. The Company has obtained a waiver from its lender for this non-compliance (see Note 11- “Subsequent Events – Credit Facility”). The Company expects to meet its quarterly financial covenants in each of the remaining quarters of 2016.

 

Promissory Note

The Company entered into a $3,000,000 loan dated August 2, 2013 with Messrs. Robert Ferguson and William Lampson (each known as the “Lender”). As consideration for the Company receiving the loan, the Company issued to each Lender a Warrant to purchase up to 35,000 shares of the Company’s Common at an exercise price of $2.23 per share. The Warrants expire on August 2, 2016. As further consideration for the loan, the Company also issued to each Lender 45,000 shares of the Company’s Common Stock. The fair value of the Warrants and Common Stock and the related closing fees incurred from this 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.

 

 
13

 

 

7.

Commitments and Contingencies

 

Hazardous Waste

In connection with our waste management services, we process 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 for the costs of the cleanup notwithstanding any absence of fault on our part.

 

Legal Matters

In the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that 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, have been made by the Company. As of March 31, 2016, our financial assurance coverage amount under this policy totaled approximately $38,874,000. The Company has recorded $15,474,000 in sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance Sheets, which includes interest earned of $1,003,000 on the sinking fund as of March 31, 2016. Interest income for the three months ended March 31, 2016 and 2015 was approximately $14,000 and $6,000, respectively. If the Company so elects, AIG is obligated to pay the Company an amount equal to 100% of the sinking fund account balance in return for complete release of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.

 

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 March 31, 2016, the Company has recorded $5,922,000 in our sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance Sheets, which includes interest earned of $222,000 on the sinking fund as of March 31, 2016. Interest income for the three months ended March 31, 2016 and 2015 was approximately $2,000 and $1,000, 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 2015 (with fees ranging from $41,000 to $46,000 annually). All other terms of the policy remain substantially unchanged.

 

Letters of Credit and Bonding Requirements

From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of March 31, 2016, the total amount of these bonds and letters of credit outstanding was approximately $1,539,000, of which the majority of the amount relates to various bonding requirements.

 

8.

Discontinued Operations

 

The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment: (1) subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility which suffered a fire and explosion on August 14, 2013 and is currently undergoing closure, subject to regulatory approval.

 

 
14

 

 

The Company’s discontinued operations had losses of $167,000 and $223,000 for the three months ended March 31, 2015 and 2014 (net of taxes of $0 for each period). The losses were primarily due to costs incurred in the administration and continued monitoring of our discontinued operations. The Company’s discontinued operations had no revenues for each of the periods noted above.

 

The following table presents the major class of assets of discontinued operations that are classified as held for sale as of March 31, 2016 and December 31, 2015. The asset held for sale is the property which Perma-Fix Michigan, Inc. (“PFMI” – a closed location) formerly operated on (see Note 11- “Subsequent Events – PFMI” for further information on the sale of this property).

  

(Amounts in Thousands)

 

March 31,

2016

   

December 31,

2015

 
                 

Property

  $ 450     $ 450  

Total assets held for sale

  $ 450     $ 450  

 

The following table presents the major classes of assets and liabilities of discontinued operations that are not held for sale as of March 31, 2016 and December 31, 2015:

  

(Amounts in Thousands)

 

March 31,

2016

   

December 31,

2015

 

Current assets

               

Other assets

  $ 29       34  

Total current assets

    29       34  

Long-term assets

               

Property, plant and equipment, net (1)

    81       81  

Total long-term assets

    81       81  

Total assets not held for sale

  $ 110     $ 115  

Current liabilities

               

Accounts payable

  $ 70     $ 85  

Accrued expenses and other liabilities

    447       437  

Environmental liabilities

    9       9  

Total current liabilities

    526       531  

Long-term liabilities

               

Closure liabilities

    156       173  

Environmental liabilities

    891       891  

Total long-term liabilities

    1,047       1,064  

Total liabilities not held for sale

  $ 1,573     $ 1,595  

 

(1) net of accumulated depreciation of $10,000 for each period presented.

 

9.

Operating Segments

 

In accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (a) from which we may earn revenue and incur expenses; (2) whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.

 

 
15

 

 

Our reporting segments are defined as below:

 

TREATMENT SEGMENT reporting includes:

 

-

nuclear, low-level radioactive, mixed, hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and

 

-

R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

 

SERVICES SEGMENT, which includes:

 

-

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 advanced 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;

 

-

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.

 

MEDICAL SEGMENT reporting includes: R&D costs for the new medical isotope production technology from our majority-owned Polish subsidiary, PF Medical. The Medical Segment has not generated any revenue as it continues to be primarily in the R&D stage. All costs incurred for the Medical Segment are reflected within R&D in the accompanying Consolidated Statements of Operations and consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development of this new technology.

 

Our reporting segments exclude our corporate headquarters and our discontinued operations (see Note 8 – “Discontinued Operations”) which do not generate revenues.

 

 
16

 

 

The table below presents certain financial information of our operating segments as of and for the three months ended March 31, 2016 and 2015 (in thousands).

 

Segment Reporting as of and for the Quarter Ended March 31, 2016

                 
   

Treatment

   

Services

   

Medical

   

Segments

Total

   

Corporate (1)

   

Consolidated

Total

 

Revenue from external customers

  $ 7,204     $ 2,834           $ 10,038     $     $ 10,038  

Intercompany revenues

    4       5             9              

Gross profit

    (138 )     172             34             34  

Research and development

    106       26       438       570       5       575  

Interest income

                            16       16  

Interest expense

    (2 )                 (2 )     (166 )     (168 )

Interest expense-financing fees

                            (57 )     (57 )

Depreciation and amortization

    713       161             874       10       884  

Segment loss before income taxes

    (1,248 )     (725 )     (438 )     (2,411 )     (1,399 )     (3,810 )

Income tax expense

    36                   36             36  

Segment loss

    (1,284 )     (725 )     (438 )     (2,447 )     (1,399 )     (3,846 )

Expenditures for segment assets

    8             1       9             9  

 

Segment Reporting as of and for the Quarter Ended March 31, 2015

                 
   

Treatment

   

Services

   

Medical

   

Segments

Total

   

Corporate (1)

   

Consolidated

Total

 

Revenue from external customers

  $ 9,749     $ 3,851           $ 13,600     $     $ 13,600  

Intercompany revenues

    2       8             10              

Gross profit

    1,235       243             1,478             1,478  

Research and development

    34             395       429             429  

Interest income

                            8       8  

Interest expense

    (22 )                 (22 )     (104 )     (126 )

Interest expense-financing fees

                            (58 )     (58 )

Depreciation and amortization

    764       190             954       12       966  

Segment income (loss) before income taxes

    221       (303 )     (395 )     (477 )     (1,501 )     (1,978 )

Income tax expense

    36                   36             36  

Segment income (loss)

    185       (303 )     (395 )     (513 )     (1,501 )     (2,014 )

Expenditures for segment assets

    104       16             120       1       121  

 

(1) Amounts reflect the activity for corporate headquarters not included in the segment information.

 

10.

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.

 

Income tax expense was $36,000 and $36,000 for continuing operations for the three months ended March 31, 2016 and the corresponding period of 2015, respectively. The Company’s effective tax rate was approximately (1.0%) for the three months ended March 31, 2016 as compared to a tax rate of approximately (.2.0%) for the corresponding period of 2015.

 

11.

Subsequent Events

 

Credit Facility

As discussed in Note 6 – “Long Term Debt”, on May 23, 2016, the Company’s lender waived the Company’s non-compliance with its minimum quarterly fixed charge coverage ratio for the first quarter of 2016. In connection with this waiver, the Company paid PNC a fee of $5,000.

 

Perma-Fix of Michigan, Inc. (“PFMI”)

On May 2, 2016, PFMI entered into an Agreement as to the sale of the property which it formerly operated on for a sale price of $450,000 (see Note 8- “Discontinued Operations” for further information of PFMI). The Agreement provides for a down payment of approximately $75,000 which after certain closing and settlement costs, PFMI received approximately $36,000. The Agreement also provides for, among other things, the balance of the purchase price of $375,000 to be paid by the buyer in 60 equal monthly installment of approximately $7,250, with the first payment due June 15, 2016. PFMI retains legal title to the property until the buyer fulfills the obligations under the Contract except under limited conditions.

 

 
17

 

 

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 relate to, among other things,

 

demand for our services;

reductions in the level of government funding in future years;

ability of PF Medical to fund its R&D program;

reducing operating costs;

expect to meet our quarterly financial covenant requirements in remaining 2016;

may not have liquidity to repay debt if our lender accelerates payment of our borrowings;

our cash flows from operations and our available liquidity from our Credit Facility are sufficient to service our Treatment and Services Segments’ obligations;

manner in which the government will be required to spend funding to remediate federal sites;

reducing operating costs to bring them in line with revenue level, when necessary;

fund capital expenditures from cash from operations and/or financing;

fund remediation expenditures for sites from funds generated internally;

expect to receive certain large waste treatment shipments in the second and/or third quarters;

compliance with environmental regulations;

potential effect of being a PRP; and

potential sites for violations of environmental laws and remediation of our facilities. 

 

While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to have been correct. There are a variety of factors, which could cause future outcomes to differ materially from those described in this report, including, but not limited to:

 

general economic conditions;

material reduction in revenues;

ability to meet PNC covenant requirements;

inability to collect in a timely manner a material amount of receivables;

increased competitive pressures;

inability to maintain and obtain required permits and approvals to conduct operations;

public not accepting our new technology;

 

inability to develop new and existing technologies in the conduct of operations;

inability to maintain and obtain closure and operating insurance requirements;

inability to retain or renew certain required permits;

discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures;

 

 
18

 

 

delays at our third party disposal site can extend collection of our receivables greater than twelve months;

refusal of third party disposal sites to accept our waste;

changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;

requirements to obtain permits for TSD activities or licensing requirements to handle low level radioactive materials are limited or lessened;

potential increases in equipment, maintenance, operating or labor costs;

management retention and development;

financial valuation of intangible assets is substantially more/less than expected;

the requirement to use internally generated funds for purposes not presently anticipated;

inability to be profitable on an annualized basis;

inability of the Company to maintain the listing of its Common Stock on the NASDAQ;

terminations of contracts with federal agencies or subcontracts involving federal agencies, or reduction in amount of waste delivered to the Company under the contracts or subcontracts;

renegotiation of contracts involving the federal government;

federal government’s inability or failure to provide necessary funding to remediate contaminated federal sites;

disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment;

inability to raise capital on commercially reasonable terms;

inability to increase profitable revenue;

lender refuses to waive non-compliance or revises our covenant so that we are in compliance; and

risk factors and other factors set forth in “Special Note Regarding Forward-Looking Statements” contained in the Company’s 2015 Form 10-K.

 

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company determined that the operations of its majority-owned subsidiary, Perma-Fix Medical S.A. (“PF Medical”), which has not generated any revenues as it continues to be primarily in the research and development (“R&D”) stage, meet the definition of a reportable segment in accordance with Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” Accordingly, all of the historical numbers presented in the consolidated financial statements have been recast to include the operations of PF Medical as a separate reportable segment (“Medical Segment”).

 

Overview

Revenue decreased $3,562,000 or 26.2% to $10,038,000 for the three months ended March 31, 2016 from $13,600,000 for the corresponding period of 2015. Revenue from our Treatment Segment decreased $2,545,000 or 26.1% primarily due to both lower averaged price waste and lower volume. Our first quarter 2016 financial results were impacted by the timing of certain large waste treatment shipments that were delayed to later this year. We expect to receive these shipments in the second and/or third quarters. Services Segment revenue decreased $1,017,000 or 26.4% primarily due to the completion of a certain large contract in December 2015 in the nuclear services area. Gross profit decreased $1,444,000 or 97.7% primarily due to reduced revenue. Selling, General, and Administrative (SG&A) expenses increased $209,000 or 7.3% for the three months ended March 31, 2016 as compared to the corresponding period of 2015.

 

Business Environment, Outlook and Liquidity

Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients directly as the contractor or indirectly as a subcontractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including the current economic conditions and the manner in which the government will be required to spend funding to remediate federal sites. In addition, our governmental contracts and subcontracts relating to activities at governmental sites are generally subject to termination or renegotiation on 30 days notice at the government’s option. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows. 

 

 
19

 

 

Our cash flow requirements for remaining 2016 will consist primarily of general working capital needs, scheduled principal payments on our debt obligations and capital leases, remediation projects and planned capital expenditures which we plan to fund from operations and our Credit Facility availability. Our majority-owned Polish subsidiary, PF Medical, continues to dedicate resources to the R&D of the new medical isotope production technology and to take the necessary steps for eventual submission of this technology for U.S. Food and Drug Administration (“FDA”) and other regulatory approval and commercialization of this technology. We believe that the need for capital by PF Medical will require PF Medical to obtain such capital requirements through obtaining its own credit facility or additional equity raise, which if such equity raise is successful, could dilute our ownership of PF Medical. If PF Medical is unable to raise the necessary capital, PF Medical may be required to reduce, delay or eliminate for a period of time its R&D program.

 

Results of Operations

The reporting of financial results and pertinent discussions are tailored to three reportable segments: The Treatment, Services, and Medical Segments. Our Medical Segment encompasses the operations of our majority-owned Polish subsidiary, PF Medical, which has not generated any revenue and all costs incurred are included within R&D.

 

   

Three Months Ended

March 31,

 

Consolidated (amounts in thousands)

 

2016

   

%

   

2015

     

%

 

Net revenues

  $ 10,038       100.0     $ 13,600         100.0  

Cost of good sold

    10,004       99.7       12,122         89.1  

Gross profit

    34       .3       1,478         10.9  

Selling, general and administrative

    3,055       30.4       2,846         20.9  

Research and development

    575       5.7       429         3.2  

Loss on disposal of property and equipment

    5                      

Loss from operations

  $ (3,601 )     (35.8 )   $ (1,797 )       (13.2 )

Interest income

    16       .2       8          

Interest expense

    (168 )     (1.7 )     (126 )       (.9 )

Interest expense-financing fees

    (57 )     (.6 )     (58 )       (.4 )

Foreign currency loss

                (5 )        

Loss from continuing operations before taxes

    (3,810 )     (37.9 )     (1,978 )       (14.5 )

Income tax expense

    36       .4       36         .3  

Loss from continuing operations

  $ (3,846 )     (38.3 )   $ (2,014 )       (14.8 )

 

Summary – Three Months Ended March 31, 2016 and 2015

 

 
20

 

 

Consolidated revenues decreased $3,562,000 for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, as follows:

 

(In thousands)

 

2016

   

%

Revenue

   

2015

   

%

Revenue

   

Change

   

% Change

 

Treatment

                                               

Government waste

  $ 4,968       49.5     $ 7,054       51.9     $ (2,086 )     (29.6 )

Hazardous/non-hazardous

    1,085       10.8       997       7.3       88       8.8  

Other nuclear waste

    1,151       11.5       1,698       12.5       (547 )     (32.2 )

Total

    7,204       71.8       9,749       71.7       (2,545 )     (26.1 )
                                                 

Services

                                               

Nuclear services

    2,385       23.7       3,078       22.6       (693 )     (22.5 )

Technical services

    449       4.5       773       5.7       (324 )     (41.9 )

Total

    2,834       28.2       3,851       28.3       (1,017 )     (26.4 )
                                                 

Total

  $ 10,038       100.0     $ 13,600       100.0     $ (3,562 )     (26.2 )

 

Net Revenue

Treatment Segment revenue decreased $2,545,000 or 26.1% for the three months ended March 31, 2016 over the same period in 2015. The revenue decrease was primarily due to lower revenue generated from government clients of approximately $2,086,000 or 29.6% due to both lower averaged price waste and lower volume. Other nuclear revenue decreased approximately $547,000 primarily due to lower averaged price waste. The Services Segment revenue decrease of $1,017,000 or 26.4% in the three months ended March 31, 2016 from the corresponding period of 2015 was primarily the result of the completion of a certain large project in the nuclear services area in December 2015. This project was awarded to us in the second half of 2014 and had generated revenue of approximately $1,900,000 in the first quarter of 2015.

 

Cost of Goods Sold

Cost of goods sold decreased $2,118,000 for the quarter ended March 31, 2016, compared to the quarter ended March 31, 2015, as follows:

 

(In thousands)

 

2016

   

%

Revenue

   

2015

   

%

Revenue

   

Change

 

Treatment

  $ 7,342       101.9     $ 8,514       87.3     $ (1,172 )

Services

    2,662       93.9       3,608       93.7       (946 )

Total

  $ 10,004       99.7     $ 12,122       89.1     $ (2,118 )

 

Cost of goods sold for the Treatment Segment decreased by $1,172,000 or 13.8% primarily due to lower revenue. We incurred lower disposal, transportation, lab, and material and supplies costs totaling approximately $850,000. Our overall fixed costs were lower by approximately $361,000. Salaries and payroll related expenses were lower by approximately $159,000 and general expenses were lower by approximately $56,000 in various categories as we continue to streamline our costs. Depreciation expense was lower by approximately $49,000 as certain assets became fully depreciated in the latter part of 2015. In addition, maintenance costs were lower by approximately $112,000. In the prior period of 2015, we incurred higher costs in connection with the maintenance of certain buildings and equipment. Services Segment cost of goods sold decreased $946,000 or 26.2% primarily due to the decrease in revenue as discussed above. The decrease in cost of goods sold was primarily in salaries and payroll related, travel, and outside services expenses totaling approximately $817,000. The remaining decrease was in material and supplies of approximately $85,000 and general expenses in various categories totaling approximately $28,000. Included within cost of goods sold is depreciation and amortization expense of $852,000 and $912,000 for the three months ended March 31, 2016, and 2015, respectively.

 

 
21

 

 

Gross Profit 

Gross profit for the quarter ended March 31, 2016 decreased $1,444,000 over the corresponding period of 2015, as follows:

 

(In thousands)

 

2016

   

%

Revenue

   

2015

   

%

Revenue

   

Change

 

Treatment

  $ (138 )     (1.9 )   $ 1,235       12.7     $ (1,373 )

Services

    172       6.1       243       6.3       (71 )

Total

  $ 34       0.3     $ 1,478       10.9     $ (1,444 )

 

Gross profit decreased primarily due to decreased revenue. Treatment Segment gross profit decreased $1,373,000 or 111.2% and gross margin decreased to (1.9%) from 12.7% primarily due to decreased revenue from both lower averaged price waste and volume and the impact of our fixed costs. In the Services Segment, the decreases in gross profit of $71,000 and gross margin from 6.3% to 6.1% was primarily due to the decrease in revenue as discussed above.

 

Selling, General and Administrative (“SG&A)

SG&A expenses increased $209,000 for the three months ended March 31, 2016, as compared to the corresponding period for 2015, as follows:

 

(In thousands)

 

2016

   

%

Revenue

   

2015

   

%

Revenue

   

Change

 

Administrative

  $ 1,188           $ 1,349           $ (161 )

Treatment

    1,001       13.9       956       9.8       45  

Services

    866       30.6       541       14.0       325  

Total

  $ 3,055       30.4     $ 2,846       20.9     $ 209