UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended |
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. |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number)
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ☐ Accelerated Filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the close of the latest practical date.
| Class | Outstanding at November 4, 2021 | |
| Common Stock, $.001 Par Value | shares |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. – Financial Statements
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Amounts in Thousands, Except for Share and Per Share Amounts) | (Unaudited) | (Audited) | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts
receivable, net of allowance for doubtful accounts of $ | ||||||||
| Unbilled receivables | ||||||||
| Inventories | ||||||||
| Prepaid and other assets | ||||||||
| Current assets related to discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Buildings and land | ||||||||
| Equipment | ||||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Office furniture and equipment | ||||||||
| Construction-in-progress | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | ||||||||
| Property and equipment related to discontinued operations | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangibles and other long term assets: | ||||||||
| Permits | ||||||||
| Other intangible assets - net | ||||||||
| Finite risk sinking fund (restricted cash) | ||||||||
| Deferred tax assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets, Continued
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Amounts in Thousands, Except for Share and per Share Amounts) | (Unaudited) | (Audited) | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Disposal/transportation accrual | ||||||||
| Deferred revenue | ||||||||
| Accrued closure costs - current | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current liabilities related to discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Accrued closure costs | ||||||||
| Deferred tax liabilities | ||||||||
| Long-term debt, less current portion | ||||||||
| Long-term operating lease liabilities, less current portion | ||||||||
| Long-term finance lease liabilities, less current portion | ||||||||
| Other long-term liabilities | ||||||||
| Long-term liabilities related to discontinued operations | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 9) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value; shares authorized, shares issued and outstanding | ||||||||
| Common Stock, $ par value; shares authorized; (1) and shares issued, respectively; (1) and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Common Stock subscriptions | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less Common Stock in treasury, at cost; shares | ( | ) | ( | ) | ||||
| Total Perma-Fix Environmental Services, Inc. stockholders’ equity | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| (1) |
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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Amounts in Thousands, Except for Per Share Amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Loss on disposal of property and equipment | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense-financing fees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other | ( | ) | ||||||||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ||||||||||||||
| (Loss) income from continuing operations before taxes | ( | ) | ||||||||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from continuing operations, net of taxes | ||||||||||||||||
| Loss from discontinued operations, net of taxes (Note 10) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | ||||||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | $ | ||||||||||||
| Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic: | ||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ||||||||||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income per common share | $ | $ | $ | $ | ||||||||||||
| Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted: | ||||||||||||||||
| Continuing operations | $ | $ | $ | $ | ||||||||||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income per common share | $ | $ | $ | $ | ||||||||||||
| Number of common shares used in computing net income (loss) per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Amounts in Thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive income | ||||||||||||||||
| Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive income attributable to Perma-Fix Environmental Services, Inc. stockholders | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC
Consolidated Statement of Stockholders’ Equity
(Unaudited)
(Amounts in thousands, except for share amounts)
| Common | Accumulated | Non- | ||||||||||||||||||||||||||||||||||
| Additional | Stock | Stock | Other | controlling | Total | |||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Held In | Sub- | Comprehensive | Interest in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | Treasury | scriptions | Loss | Subsidiary | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation | — | |||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net Income (loss) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | |||||||||||||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net Income (loss) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Sale of Common Stock (Note 15) |
| (1) | ||||||||||||||||||||||||||||||||||
| Stock Subscriptions (Note 15) | — | (2) | ||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net Income (loss) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net Income (loss) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | |||||||||||||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Net Income (loss) | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | |||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| (1) | |
| (2) |
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (Amounts in Thousands) | 2021 | 2020 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Less: loss from discontinued operations, net of taxes (Note 10) | ( | ) | ( | ) | ||||
| Income from continuing operations, net of taxes | ||||||||
| Adjustments to reconcile income from continuing operations to cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Interest on finance lease with purchase option | ||||||||
| (Gain) loss on extinguishment of debt | ( | ) | ||||||
| Amortization of debt issuance/debt discount costs | ||||||||
| Deferred tax benefit | ( | ) | ( | ) | ||||
| Provision for (recovery of) bad debt reserves | ( | ) | ||||||
| Loss on disposal of property and equipment | ||||||||
| Issuance of common stock for services | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities of continuing operations | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Unbilled receivables | ( | ) | ||||||
| Prepaid expenses, inventories and other assets | ||||||||
| Accounts payable, accrued expenses and unearned revenue | ( | ) | ||||||
| Cash (used in) provided by continuing operations | ( | ) | ||||||
| Cash used in discontinued operations | ( | ) | ( | ) | ||||
| Cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Cash used in investing activities of continuing operations | ( | ) | ( | ) | ||||
| Cash provided by investing activities of discontinued operations | ||||||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayments of revolving credit borrowings | ( | ) | ( | ) | ||||
| Borrowing on revolving credit | ||||||||
| Proceeds from issuance of long-term debt | ||||||||
| Principal repayments of finance lease liabilities | ( | ) | ( | ) | ||||
| Principal repayments of long term debt | ( | ) | ( | ) | ||||
| Payment of debt issuance costs | ( | ) | ( | ) | ||||
| Proceeds from sale of Common Stock, net of Offering costs paid (Note 15) | ||||||||
| Proceeds from stock subscription, net of Offering costs paid (Note 15) | ||||||||
| Proceeds from issuance of common stock upon exercise of options | ||||||||
| Cash provided by financing activities of continuing operations | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| (Decrease) increase in cash and finite risk sinking fund (restricted cash) | ( | ) | ||||||
| Cash and finite risk sinking fund (restricted cash) at beginning of period | ||||||||
| Cash and finite risk sinking fund (restricted cash) at end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | ||||||||
| Equipment purchase subject to finance lease | ||||||||
| Equipment purchase subject to financing | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
September 30, 2021
(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, 2020.
1. Basis of Presentation
The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2021.
The Company suggests that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, and our majority-owned Polish subsidiary, Perma-Fix Medical. Additionally, the Company’s financial statements include the account of a variable interest entity (“VIE”), Perma-Fix ERRG for which we are the primary beneficiary (See “Note 13 - Variable Interest Entity” for a discussion of this VIE).
2. Summary of Significant Accounting Policies
Our accounting policies are set forth in the notes to the December 31, 2020 consolidated financial statements referred to above.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of ASU No. 2019-12 by the Company effective January 1, 2021 did not have a material impact on the Company’s financial statements.
In January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The adoption of ASU No. 2020-01 by the Company effective January 1, 2021 did not have a material impact on the Company’s financial statements.
| 7 |
In October 2020, the FASB issued ASU No 2020-10, “Codification Improvements.” ASU 2020-10 updates various codification topics by clarifying or improving disclosure requirements. ASU 2020-10 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of ASU No. 2020-01 by the Company effective January 1, 2021 did not have a material impact on the Company’s financial statements or disclosures.
Recently Issued Accounting Standards – Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments,” and various subsequent amendments to the initial guidance (collectively, “Topic 326”). Topic 326 introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables and loans. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies (“SRC”) as defined by the Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. These ASUs are effective January 1, 2023 for the Company as an SRC. Under new guidance issued by the Commission in March 2020, the Company will continue to qualify as a smaller reporting company but will also be an accelerated filer for all filings with the Commission after January 1, 2022. The Company is currently evaluating the impact of these ASU on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplifies the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for the Company as an SRC. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures.
In May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 206), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This ASU is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this ASU will have a material impact on its financial statements.
| 8 |
3. Revenue
Disaggregation of Revenue
In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and provides meaningful disaggregation of each business segment’s results of operations. The nature of the Company’s performance obligations within our Treatment and Services Segments result in the recognition of our revenue primarily over time. The following tables present further disaggregation of our revenues by different categories for our Services and Treatment Segments:
| Revenue by Contract Type | ||||||||||||||||||||||||
| (In thousands) | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Fixed price | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Time and materials | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Revenue by Contract Type | ||||||||||||||||||||||||
| (In thousands) | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Fixed price | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Time and materials | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Revenue by generator | ||||||||||||||||||||||||
| (In thousands) | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Domestic government | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Domestic commercial | ||||||||||||||||||||||||
| Foreign government | ||||||||||||||||||||||||
| Foreign commercial | ||||||||||||||||||||||||
| Total | $ | 8,893 | $ | 6,904 | $ | 15,797 | $ | 7,066 | $ | 23,106 | $ | 30,172 | ||||||||||||
| Revenue by generator | ||||||||||||||||||||||||
| (In thousands) | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Domestic government | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Domestic commercial | ||||||||||||||||||||||||
| Foreign government | ||||||||||||||||||||||||
| Foreign commercial | ||||||||||||||||||||||||
| Total | $ | 24,094 | $ | 30,981 | $ | 55,075 | $ | 24,469 | $ | 52,610 | $ | 77,079 | ||||||||||||
Contract Balances
The timing of revenue recognition, billings, and cash collections results in accounts receivable and unbilled receivables (contract assets). The Company’s contract liabilities consist of deferred revenues which represents advance payment from customers in advance of the completion of our performance obligation.
The following table represents changes in our contract assets and contract liabilities balances:
| Year-to-date | Year-to-date | |||||||||||||||
| (In thousands) | September 30, 2021 | December 31, 2020 | Change ($) | Change (%) | ||||||||||||
| Contract assets | ||||||||||||||||
| Account receivables, net of allowance | $ | $ | $ | % | ||||||||||||
| Unbilled receivables - current | ( | ) | ( | )% | ||||||||||||
| Contract liabilities | ||||||||||||||||
| Deferred revenue | $ | $ | $ | ( | ) | ( | )% | |||||||||
The decrease in unbilled receivables was primarily within our Services Segment due to invoicing and collection of accounts receivable on certain large projects which have been completed or are near completion.
| 9 |
During
the three and nine months ended September 30, 2021, the Company recognized revenue of $
Variable Consideration
Remaining Performance Obligations
The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
Within our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts, the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations for those contracts.
4. Leases
At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on facts and circumstances present in that arrangement. Lease classifications, recognition, and measurement are then determined at the lease commencement date.
The Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent primarily leases for office and building spaces used to conduct our business. Finance leases consist primarily of processing and transport equipment used by our facilities’ operations. The Company’s finance leases also included a building with land utilized for our waste treatment operations which included a purchase option. During the third quarter of 2021, the Company concluded that it was more likely than not that it would not exercise this purchase option but will continue to lease the property. Accordingly, a reassessment of this lease was performed which resulted in reclassification of this lease to an operating lease.
| 10 |
The components of lease cost for the Company’s leases for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating Leases: | ||||||||||||||||
| Lease cost | $ | $ | $ | $ | ||||||||||||
| Finance Leases: | ||||||||||||||||
| Amortization of ROU assets | ||||||||||||||||
| Interest on lease liability | ||||||||||||||||
| Short-term lease rent expense | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at September 30, 2021 were:
| Operating Leases | Finance Leases | |||||||
| Weighted average remaining lease terms (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
The following table reconciles the undiscounted cash flows for the operating and finance leases at September 30, 2021 to the operating and finance lease liabilities recorded on the balance sheet (in thousands):
| Operating Leases | Finance Leases | |||||||
| 2021 (Remaining) | $ | $ | ||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2025 and thereafter | ||||||||
| Total undiscounted lease payments | ||||||||
| Less: Imputed interest | ( | ) | ( | ) | ||||
| Present value of lease payments | $ | $ | ||||||
| Current portion of operating lease obligations | $ | $ | — | |||||
| Long-term operating lease obligations, less current portion | $ | $ | — | |||||
| Current portion of finance lease obligations | $ | — | $ | |||||
| Long-term finance lease obligations, less current portion | $ | — | $ | |||||
| 11 |
Supplemental cash flow and other information related to our leases were as follows for the three and nine months ended September 30, 2021 and 2020 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flow used in operating leases | $ | $ | $ | $ | ||||||||||||
| Operating cash flow used in finance leases | $ | $ | $ | $ | ||||||||||||
| Financing cash flow used in finance leases | $ | $ | $ | $ | ||||||||||||
| ROU assets obtained in exchange for lease obligations for: | ||||||||||||||||
| Finance liabilities | $ | $ | $ | $ | ||||||||||||
| Operating liabilities | $ | $ | $ | |||||||||||||
| Reduction to ROU assets resulting from reassessment for: | ||||||||||||||||
| Finance liabilities | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
5. Intangible Assets
The following table summarizes information relating to the Company’s definite-lived intangible assets:
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||
| Weighted Average | Gross | Net | Gross | Net | ||||||||||||||||||||||||
| Amortization Period | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||
| (Years) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
| Other Intangibles (amount in thousands) | ||||||||||||||||||||||||||||
| Patent | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Software | ( | ) | ( | ) | ||||||||||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
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 following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:
| Year | (In thousands) | |||
| 2021 (remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
Amortization
expense relating to the definite-lived intangible assets as discussed above was $
The Company has certain stock option plans under which it may awards incentive stock options (“ISOs”) and/or non-qualified stock options (“NQSOs”) to employees, officers, outside directors, and outside consultants.
| 12 |
On July 20, 2021, the Company issued a NQSO to each of the Company’s seven reelected outside directors for the purchase, under the Company’s 2003 Outside Directors Stock Plan (the “2003 Plan”), of up to shares of the Company’s common stock, par value $ per share (the “Common Stock”). Dr. Louis Centofanti, the Company’s Executive Vice President (“EVP”) of Strategic Initiatives and also a member of the Company’s Board of Directors (the “Board”), was not eligible to receive an option under the 2003 Plan as an employee of the Company. Each NQSO granted is for a contractual term of with . The exercise price of the NQSO is $ per share, which was equal to the fair market value of the Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan.
On May 4, 2021, the Company issued a NQSO to a new director elected by the Company’s Board, for the purchase, under the Company’s 2003 Plan, of up to shares of the Company’s Common Stock. The option granted is for a contractual term of with a vesting period of . The exercise price of the option is $ per share, which was equal to the fair market value of the Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan.
The Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Stock Option Plan (“2017 Plan”) for the purchase of up to shares of the Company’s Common Stock (“Ferguson Stock Option”) in connection with his work as a consultant to the Company’s Test Bed Initiative (“TBI”) at our Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility at an exercise price of $ per share, which was the fair market value of the Company’s Common Stock on the date of grant. The term of the Ferguson Stock Option is seven years from the grant date. The vesting of the Ferguson Stock Option is subject to the achievement of three separate milestones by certain dates. The options under the first milestone were exercised by Robert Ferguson in 2018. The vesting date for the second and third milestones for the purchase of up to and shares of the Company’s Common Stock was previously extended to December 31, 2021 and December 31, 2022, respectively. The Company has not recognized compensation costs (fair value of approximately $ at September 30, 2021) for the remaining Ferguson Stock Option under the remaining two milestones since achievement of the performance obligation under each of the two remaining milestones is uncertain at September 30, 2021. All other terms of the Ferguson Stock Option remain unchanged.
The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted as discussed above and the related assumptions used in the Black-Scholes option model used to value the options granted for the nine months ended September 30, 2021 were as follows:
| Outside Director Stock Option Granted | ||||
| Nine Months Ended September 30, | ||||
| 2021 | ||||
| Weighted-average fair value per share | $ | |||
| Risk -free interest rate (1) | %- | % | ||
| Expected volatility of stock (2) | %- | % | ||
| Dividend yield | ||||
| Expected option life (3) | years | |||
| (1) |
| (2) |
| (3) |
| 13 |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Stock Options | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Employee Stock Options | $ | $ | $ | $ | ||||||||||||
| Director Stock Options | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
At
September 30, 2021, the Company has approximately $ of total unrecognized compensation costs related to unvested options for employee
and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized is approximately
The summary of the Company’s total stock option plans as of September 30, 2021 and September 30, 2020, and changes during the periods then ended, are presented below. The Company’s plans consist of the 2010 Stock Option Plan, the 2017 Plan and the 2003 Plan:
| Shares | Weighted
Average Exercise Price | Weighted
Average Remaining Contractual Term (years) | Aggregate
Intrinsic Value (4) | |||||||||||||
| Options outstanding January 1, 2021 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited/expired | ( | ) | $ | |||||||||||||
| Options outstanding end of period (1) | $ | $ | ||||||||||||||
| Options exercisable at September 30, 2021(2) | $ | $ | ||||||||||||||
| Shares | Weighted
Average Exercise Price | Weighted
Average Remaining Contractual Term (years) | Aggregate
Intrinsic Value (4) | |||||||||||||
| Options outstanding January 1, 2020 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited/expired | ( | ) | $ | |||||||||||||
| Options outstanding end of period (2) | $ | $ | ||||||||||||||
| Options exercisable at September 30, 2020 (3) | $ | $ | ||||||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
During
the nine months ended September 30, 2021, the Company issued a total of
During the nine months ended September 30, 2021, the Company issued shares of its Common Stock from a cashless exercise of an option for the purchase of shares of the Company’s Common Stock at $ per share.
| 14 |
See “Note 15 – Common Stock Subscription Agreements” for a discussion on the sale of shares of the Company’s Common Stock in a registered direct offering during the third quarter of 2021 and completed during the first part of October 2021.
Basic income per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted income per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share. The following table reconciles the income and average share amounts used to compute both basic and diluted income per share:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| (Amounts in Thousands, Except for Per Share Amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net income attributable to Perma-Fix Environmental Services, Inc., common stockholders: | ||||||||||||||||
| Income from continuing operations, net of taxes | $ | |||||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | $ | ||||||||||||
| Loss from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | $ | ||||||||||||
| Basic income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | $ | ||||||||||||
| Diluted income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Add: dilutive effect of stock options | ||||||||||||||||
| Add: dilutive effect of warrant | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
| Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include: | ||||||||||||||||
| Stock options | ||||||||||||||||
| Warrant |
| |||||||||||||||
As disclosed in “Note 15 – Common Stock Subscription Agreement,” the Company entered into subscription agreements for the sale of an aggregate of shares of the Company’s Common Stock in a registered direct offering during the third quarter of 2021 and completed during the first part of October 2021. The above earnings per share calculation does not include shares of the Common Stock as these shares were issued and became outstanding in October 2021.
| 15 |
8.
Long Term Debt
Long-term debt consists of the following:
| (Amounts in Thousands) | September 30, 2021 | December 31, 2020 | ||||||
| Revolving Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due on | $ | $ | ||||||
Term Loan dated May 8, 2020, payable in equal monthly installments of principal, balance due on | (2) | (2) | ||||||
| Promissory Note dated April 14, 2020, balance of loan forgiven. Interest accrued at annual rate of | (4) | (4) | ||||||
| Notes Payable to 2023 and 2025, annual interest rate of | ||||||||
| Total debt | ||||||||
| Less current portion of long-term debt | ||||||||
| Long-term debt | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
Revolving Credit and Term Loan Agreement
The
Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan
Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement provides the Company
with the following credit facility with a maturity date of March 15, 2024: (a) up to $
On May 4, 2021, the Company entered into an amendment to the Loan Agreement with its lender which provided the following, among other things:
| ● | revised
the Company’s fixed charge coverage ratio (“FCCR”) calculation requirement which allows for the add-back of approximately
$ | |
| ● | a
capital expenditure line of up to $ |
| 16 |
In
connection with the amendment, the Company paid its lender a fee of $
On August 10, 2021, the Company entered into another amendment to the Loan Agreement with its lender which provided, among other things, the following:
| ● | waived the Company’s failure to meet the minimum quarterly FCCR requirement for the second quarter of 2021; | |
| ● | removes the quarterly FCCR testing requirement for the third quarter of 2021; | |
| ● | reinstates
| |
| ● | requires
maintenance of a minimum of $ |
In
connection with the amendment, the Company paid its lender a fee of $
Pursuant
to the Loan Agreement, as amended,
The
Company may terminate its Loan Agreement, as amended upon 90 days’ prior written notice upon payment in full of our obligations
under the Loan Agreement. The Company agreed to pay PNC
At
September 30, 2021, the borrowing availability under the Company’s revolving credit was approximately $
The
Company’s credit facility under its Loan Agreement, as amended, 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 the
credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate
all commitments to extend further credit. The Company met its financial covenant requirements in the first quarter of 2021. The Company’s
FCCR calculation in the first quarter of 2021 included the add-back of approximately $
| 17 |
PPP Loan
On
April 14, 2020, the Company entered into a promissory note under the PPP with PNC, our credit facility lender, which had a balance of
approximately $
On
October 5, 2020, the Company applied for forgiveness on repayment of the PPP Loan as permitted under the Flexibility Act. On July 1,
2021, the Company was notified by PNC that the entire balance of the PPP Loan of approximately $
9. Commitments and Contingencies
Hazardous Waste
In connection with our waste management services, the Company processes both hazardous and non-hazardous waste, which we transport to our own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required at the disposal site, the Company could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that could would have a material adverse effect on our financial position, liquidity or results of future operations.
During July 2020, Tetra Tech EC, Inc. (“Tetra Tech”) filed a complaint in the United States District Court for the Northern District of California (the “Court”) against CH2M Hill, Inc. (“CH2M”) and four subcontractors of CH2M, including the Company (“Defendants”). The complaint alleges claims for negligence, negligent misrepresentation and equitable indemnification against all defendants related to alleged damages suffered by Tetra Tech in respect of certain draft reports prepared by defendants at the request of the U.S. Navy as part of an investigation and review of certain whistleblower complaints about Tetra Tech’s environmental restoration at the Hunter’s Point Naval Shipyard in San Francisco.
CH2M was hired by the Navy in 2016 to review Tetra Tech’s work. CH2M subcontracted with environmental consulting and cleanup firms Battelle Memorial Institute, Cabrera Services, Inc., SC&A, Inc. and the Company to assist with the review, according to the complaint.
The complaint alleges that the subject draft reports were prepared negligently and in a biased manner, made public, and caused damage to Tetra Tech’s reputation; triggering related lawsuits and costing it opportunities for both government and commercial contracts.
The
Company has provided notice of this lawsuit to our insurance carrier. Our insurance carrier is providing a defense on our behalf in connection
with this lawsuit, subject to a $
| 18 |
On January 7, 2021, Defendants’ motion to dismiss the complaint in its entirety was granted without prejudice, with leave to amend. Tetra Tech subsequently filed a First Amended Complaint (“FAC”) and Defendants filed a motion to dismiss Tetra Tech’s FAC. Tetra Tech filed an opposition to Defendant’s motion to dismiss Tetra Tech’s FAC. Defendants, subsequently filed a joint reply to Tetra Tech’s motion in opposition. A decision and Order on Defendants’ motion to dismiss is pending from the Court while discovery is allowed to proceed. At this time, the Company continues to believe it does not have any liability to Tetra Tech.
Insurance
The
Company has a
Letter of Credits and Bonding Requirements
From
time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to customers
and other obligations, including facility closures. At September 30, 2021, the total amount of standby letters of credit outstanding
was approximately $
10. Discontinued Operations
The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.
The
Company’s discontinued operations had net losses of $
| 19 |
The following table presents the major class of assets of discontinued operations at September 30, 2021 and December 31, 2020. No assets and liabilities were held for sale at each of the periods noted.
| September 30, | December 31, | |||||||
| (Amounts in Thousands) | 2021 | 2020 | ||||||
| Current assets | ||||||||
| Other assets | $ | $ | ||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Property, plant and equipment, net (1) | ||||||||
| Other assets | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other liabilities | ||||||||
| Environmental liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Closure liabilities | ||||||||
| Environmental liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| (1) |
11. Operating Segments
Our reporting segments are defined as below:
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 & Development (“R&D”) activities to identify, develop and implement innovative waste processing techniques for problematic waste streams. |
SERVICES SEGMENT, which includes:
| - | Technical services, which include: |
| ○ | professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering; | |
| ○ | health physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support to government and private radioactive materials licensees; | |
| ○ | 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; | |
| ○ | global technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental), project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers; and | |
| ○ | waste management services to commercial and governmental customers. |
| - | Nuclear services, which include: |
| ○ | decontamination and decommissioning (“D&D”) of government and commercial facilities impacted with radioactive material and hazardous constituents including engineering, technology applications, specialty services, logistics, transportation, processing and disposal; | |
| ○ | license termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process: project management, planning, characterization, waste stream identification and delineation, remediation/demo, final status survey, compliance demonstration, reporting, transportation, disposal and emergency response. |
| - | A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation. | |
| - | A company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids. |
MEDICAL SEGMENT, which is currently involved on a limited basis in the R&D of the Company’s medical isotope production technology, has not generated any revenue and has substantially reduced its R&D costs and activities due to the need for capital to fund these activities. The Company anticipates that the Medical Segment will not resume full R&D activities until the necessary capital is obtained through its own credit facility or additional equity raise, or obtains partners willing to provide funding for its R&D.
Our reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 10 – Discontinued Operations”) which do not generate revenues.
| 20 |
The table below presents certain financial information of our operating segments for the three and nine months ended September 30, 2021 and 2020 (in thousands).
Segment Reporting for the Quarter Ended September 30, 2021
| Treatment | Services | Medical | Segments Total | Corporate (1) | Consolidated Total | |||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | $ | |||||||||||||||||||
| Intercompany revenues | ||||||||||||||||||||||||
| Gross profit (negative gross profit) | ( | ) | ||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Interest expense-financing fees | ( | ) | ( | ) | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Segment income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Income tax expense (benefit) | ( | ) | ( | )(5) | ||||||||||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Expenditures for segment assets | (2) | |||||||||||||||||||||||
Segment Reporting for the Quarter Ended September 30, 2020
| Treatment | Services | Medical | Segments Total | Corporate (1) | Consolidated Total | |||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | $ | |||||||||||||||||||
| Intercompany revenues | ||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Interest expense-financing fees | ( | ) | ( | ) | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Segment income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Expenditures for segment assets | (3) | |||||||||||||||||||||||
Segment Reporting for the Nine Months Ended September 30, 2021
| Treatment | Services | Medical | Segments Total | Corporate (1) | Consolidated Total | |||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | $ | |||||||||||||||||||
| Intercompany revenues | ||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Interest expense-financing fees | ( | ) | ( | ) | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Segment income (loss) before income taxes | ( | ) | ( | ) | ( | ) | (4) | |||||||||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ( | ) | ( | )(5) | ||||||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Expenditures for segment assets | (2) | |||||||||||||||||||||||
Segment Reporting for the Nine Months Ended September 30, 2020
| Treatment | Services | Medical | Segments Total | Corporate (1) | Consolidated Total | |||||||||||||||||||
| Revenue from external customers | $ | $ | $ | $ | $ | |||||||||||||||||||
| Intercompany revenues | ||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Interest expense-financing fees | ( | ) | ( | ) | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Segment income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Expenditures for segment assets | (3) | |||||||||||||||||||||||
| 21 |
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
12. Income Taxes
The
Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. The Company considers
projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value
of the net deferred income taxes to an amount that is more likely than not to be realized. For the year ended December 31, 2020, the
Company maintained a full valuation allowance against net deferred income tax assets because insufficient evidence existed to support
the realization of any future income tax benefits. As of September 30, 2021, however, the Company has reassessed this conclusion. Based
upon the Company’s assessment of all available evidence, including a number of new contracts awarded to the Company’s Services
Segment since the latter part of the second quarter of 2021 (including a contract award with a value of approximately $
The
Company had income tax benefits of $
13. Variable Interest Entities (“VIE”)
The
Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) previously entered into an unpopulated joint venture agreement
for project work bids within the Company’s Services Segment with the joint venture doing business as Perma-Fix ERRG, a general
partnership. The Company has a
| 22 |
The Company determines whether joint ventures in which it has invested meet the criteria of a VIE at the start of each new venture and when a reconsideration event has occurred. A VIE is a legal entity that satisfies any of the following characteristics: (a) the legal entity does not have sufficient equity investment at risk; (b) the equity investors at risk as a group, lack the characteristics of a controlling financial interest; or (c) the legal entity is structured with disproportionate voting rights.
The Company consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Based
on the Company’s evaluation of Perma-Fix ERRG and related agreements with Perma-Fix ERRG, the Company determined that Perma-Fix
ERRG continues to be a VIE in which the Company is the primary beneficiary. At September 30, 2021, Perma-Fix ERRG had total assets of
$
14. Deferral of Employment Tax Deposits
15. Common Stock Subscription Agreements
On
September 30, 2021, the Company entered into subscription agreements (the “Subscription Agreements”) with certain institutional
and retail investors (the “Purchasers”), pursuant to which the Company agreed to sell and issue, in a registered direct offering
(the “Offering”), an aggregate of shares (the “Shares”) of the Company’s Common Stock, at a negotiated
purchase price per share of $ (the “Shares”), for aggregate gross proceeds to the Company of approximately $
The Shares were offered and sold by the Company through a prospectus supplement pursuant to the Company’s “shelf” registration statement on Form S-3, which was previously filed with the Commission on May 13, 2019 and subsequently declared effective on May 22, 2019 (the “Registration Statement”).
Wellington
Shields & Co., LLC (“Wellington”) served as the exclusive placement agent in connection with the Offering, pursuant to
a placement agency agreement dated as of September 23, 2021 (the “Placement Agency Agreement”), between the Company and Wellington.
The Company agreed to pay Wellington a cash fee of
| 23 |
The Company plans to use the aggregate net proceeds from the Offering primarily for working capital and general corporate purposes, including for certain facility expansion and upgrades, with the use of such proceeds subject to changes, based on the judgment of management.
16. Subsequent Events
Management evaluated events occurring subsequent to September 30, 2021 through November 12, 2021, the date these consolidated financial statements were available for issuance, and other than as noted below determined that no material recognizable subsequent events occurred.
Incentive Stock Option Agreements
On October 14, 2021, the Company’s Compensation and Stock Option Committee (the “Compensation Committee”) and the Board approved the grant of ISOs to certain employees for the purchase, under the Company’s 2017 Plan, of up to an aggregate shares of the Company’s Common Stock. The total ISOs granted included an ISO for each of the Company’s executive officers for the purchase set forth in his respective Incentive Stock Option Agreement, as follows: shares for the Chief Executive Officer; shares for the Chief Financial Officer; shares for the EVP of Strategic Initiatives; shares for the EVP of Waste Treatment Operations; and shares for the EVP of Nuclear and Technical Services. Each of the ISOs granted is for a contractual term of with one-fifth yearly vesting over a -year period. The exercise price of the ISO is $ per share, which is equal to the closing price of the Company’s Common Stock on the date of grant as quoted on Nasdaq.
Common Stock Offering
See “Note 15 – Common Stock Subscription Agreements” above for a description of the Offering of Shares and the collection of the proceeds and issuance of such Shares in connection with the Offering during September 2021 and October 2021.
| 24 |
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; |
| ● | R&D activity and necessary capital of our Medical Segment; |
| ● | reducing operating costs and non-essential expenditures; |
| ● | ramp up of activities under contract awards; |
| ● | ability to meet loan agreement covenant requirements; |
| ● | cash flow requirements; |
| ● | accounts receivable impact and collections; |
| ● | sufficient liquidity to continue business; |
| ● | future results of operations and liquidity; |
| ● | effect of economic disruptions on our business; |
| ● | curtail capital expenditures; |
| ● | government funding for our services; |
| ● | may not have liquidity to repay debt if our lender accelerates payment of our borrowings; |
| ● | manner in which the applicable government will be required to spend funding to remediate various sites; |
| ● | funding operations; |
| ● | fund capital expenditures from cash from operations, credit facility availability, and/or financing; |
| ● | impact from COVID-19; |
| ● | contract awards; |
| ● | fund remediation expenditures for sites from funds generated internally; |
| ● | collection of accounts receivables; |
| ● | compliance with environmental regulations; |
| ● | potential effect of being a PRP; |
| ● | potential sites for violations of environmental laws and remediation of our facilities; |
| ● | continuation of contracts with federal government; |
| ● | partial or full shutdown of any of our facilities; |
| ● | continued waste shipments delays by clients; and |
| ● | R&D costs. |
While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to be 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; |
| ● | contract bids, including international markets; |
| ● | material reduction in revenues; |
| ● | inability 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; |
| ● | 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 continue 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 government agencies (domestic and foreign) or subcontracts involving government agencies (domestic or foreign), or reduction in amount of waste delivered to the Company under the contracts or subcontracts; |
| 25 |
| ● | renegotiation of contracts involving government agencies (domestic and foreign); |
| ● | 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; |
| ● | impact of the COVID-19; |
| ● | delays in waste shipments and contract awards; |
| ● | new governmental regulations; |
| ● | lender refuses to waive non-compliance or revise our covenant so that we are in compliance; |
| ● | other unanticipated factors; and |
| ● | risk factors and other factors set forth in “Special Note Regarding Forward-Looking Statements” contained in the Company’s 2020 Form 10-K and the “Forward-Looking Statements” contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) of the first and second quarter 2021 Form 10-Qs and this third quarter 2021 Form 10-Q. |
COVID-19 Impact
Our management team continues to proactively update our ongoing business operations and safety plans in an effort to mitigate any potential impact of COVID-19. We continue to monitor government mandates and recommendations and remain focused on protecting the health and well-being of our employees and the communities in which we operate while assuring the continuity of our business operations. As previously disclosed, our Treatment Segment’s revenue has been negatively impacted by continued waste shipment delays from certain customers since the latter part of the first quarter of 2020 at the start of the pandemic. However, we are beginning to see a gradual return in waste receipts from these customers starting in the latter part of the third quarter of 2021. As previously disclosed, within our Services Segment, we experienced delays in procurement actions and contract awards resulting primarily from the impact of COVID-19. However, since the end of the second quarter of 2021, we have been awarded a number of new contracts, including a fixed price contract awarded to us at the end of the third quarter of 2021 with a value of approximately $40,000,000 for the decommissioning of a navy ship. Project work under this contract is expected to be completed over an eighteen to twenty-four months period. We expect to see ramp-up of activities from these new projects starting in the fourth quarter of 2021. Within our Treatment and Services Segments, we continue to have bids currently submitted and awaiting awards.
As the situations surrounding COVID-19 continues to remain fluid, the full impact and extent of the pandemic on our financial results and liquidity cannot be estimated with any degree of certainty. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including our customers’ payment performance. However, since a significant portion of our revenues is derived from government related contracts, we do not expect our accounts receivable collections to be materially impacted due to COVID-19.
At this time, we believe we have sufficient liquidity on hand to continue business operations during the next twelve months. At September 30, 2021, our borrowing availability under our revolving credit facility was approximately $10,804,000 which was based on a percentage of eligible receivables and subject to certain reserves. On September 30, 2021, we entered into subscription agreements with certain institutional and retail investors for the sale and issuance of 1,000,000 shares of our Common Stock in a registered direct offering for gross proceeds of approximately $6,200,000 (see “Liquidity and Capital Resources - Financing Activities within this MD&A for a discussion of this direct offering, including the planned usage of the proceeds). We continue to assess the need in reducing operating costs during this volatile time, which may include curtailing certain capital expenditures and eliminating non-essential expenditures. Based on our current projection, we believe that we will be able to meet our current covenant requirements under our loan agreement for the next twelve months, however, such may not be the case due to, among other things, the uncertainty of COVID on our operations and continued delays in waste shipments as discussed above.
| 26 |
Overview
Our overall revenue decreased $14,375,000 or 47.6% to $15,797,000 for the three months ended September 30, 2021 from $30,172,000 for the corresponding period of 2020. The revenue decrease was entirely within our Services Segment where revenue decreased by approximately $16,202,000 or 70.1% to $6,904,000 for the three months ended September 30, 2021 from $23,106,000 for the corresponding period of 2020 primarily due to delays in contract awards resulting primarily from the impact of COVID-19 which was further exacerbated by the completion of a certain large project in the Services Segment in the second quarter and the near completion of a certain other project. However, as disclosed above, since the end of the second quarter of 2021, Our Services Segment has been awarded a number of new contracts, including a fixed price contract awarded to us at the end of the third quarter of 2021 with a value of approximately $40,000,000 for the decommissioning of a navy ship over a period of approximately twenty-four months. We expect to see ramp-up of activities from these new projects starting in the fourth quarter of 2021. Revenue within our Treatment Segment increased by approximately $1,827,000 for the third quarter of 2021 primarily due to revenue recognized in the amount of approximately $1,286,000 from a request for equitable adjustment (“REA”) under a government waste generator contract. As previously disclosed, our Treatment Segment’s revenue has been negatively impacted by continued waste shipment delays from certain customers since the latter part of the first quarter of 2020 at the start of the pandemic. However, we are beginning to see a gradual return in waste receipts from these customers starting in the latter part of the third quarter of 2021. Gross profit decreased $2,526,000 or 53.2% primarily due to the revenue decrease in the Services Segment. Selling, General, and Administrative (“SG&A”) expenses increased slightly by approximately $40,000 or 1.2% for the three months ended September 30, 2021 as compared to the corresponding period of 2020.
Our overall revenue decreased $22,004,000 or 28.5% to $55,075,000 for the nine months ended September 30, 2021 from $77,079,000 for the corresponding period of 2020. The decrease was primarily within our Services Segment where revenue decreased by $21,629,000 or 41.1% to $30,981,000 for the nine months ended September 30, 2021 from $52,610,000 for the corresponding period of 2020 primarily due to delays in procurement actions and contract awards resulting primarily from the impact of COVID-19. Additionally, as discussed above, the completion of a certain large project in the Services Segment in the second quarter of 2021 and the near completion of a certain other project exacerbated the decrease in revenue. Treatment Segment revenue decreased by $375,000 or 1.5% to $24,094,000 for the nine months ended September 30, 2021 from $24,469,000 for the corresponding period of 2020 primarily due to continued delays in waste shipments from certain customers as discussed above. Total gross profit decreased $7,154,000 or 56.3% for the nine months ended September 30, 2021 as compared to the corresponding period of 2020. Total SG&A expenses increased $615,000 or 6.9% for the nine months ended September 30, 2021 as compared to the corresponding period of 2020.
Business Environment
Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government entities or directly as the prime contractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various sites, and/or the impact resulting from COVID-19 as discussed above. In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination or renegotiation on 30 days’ notice at the government’s option, and our governmental contracts/task orders with the Canadian government authorities allow the authorities to terminate the contract/task orders at any time for convenience. 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. As previously disclosed, our Medical Segment has not generated any revenues and has substantially reduced its R&D costs and activities due to the need for capital to fund such activities. We anticipate that our Medical Segment will not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable to raise the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.
| 27 |
We are continually reviewing methods to raise additional capital to supplement our liquidity requirements, when needed, and reducing our operating costs. We continue to aggressively bid on various contracts, including potential contracts within the international markets.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to our three reportable segments: The Treatment, Services, and Medical Segments. Our Medical Segment has not generated any revenue and all costs incurred are included within R&D.
Summary – Three and Nine Months Ended September 30, 2021 and 2020
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| Consolidated (amounts in thousands) | 2021 | % | 2020 | % | 2021 | % | 2020 | % | ||||||||||||||||||||||||
| Net revenues | $ | 15,797 | 100.0 | $ | 30,172 | 100.0 | $ | 55,075 | 100.0 | $ | 77,079 | 100.0 | ||||||||||||||||||||
| Cost of goods sold | 13,573 | 85.9 | 25,422 | 84.3 | 49,529 | 89.9 | 64,379 | 83.5 | ||||||||||||||||||||||||
| Gross profit | 2,224 | 14.1 | 4,750 | 15.7 | 5,546 | 10.1 | 12,700 | 16.5 | ||||||||||||||||||||||||
| Selling, general and administrative | 3,348 | 21.2 | 3,308 | 11.0 | 9,550 | 17.3 | 8,935 | 11.6 | ||||||||||||||||||||||||
| Research and development | 243 | 1.5 | 157 | .4 | 538 | 1.0 | 598 | .8 | ||||||||||||||||||||||||
| Loss on disposal of property and equipment | 1 | — | — | — | 1 | — | 27 | — | ||||||||||||||||||||||||
| (Loss) income from operations | (1,368 | ) | (8.6 | ) | 1,285 | 4.3 | (4,543 | ) | (8.2 | ) | 3,140 | 4.1 | ||||||||||||||||||||
| Interest income | 2 | — | 28 | .1 | 23 | — | 112 | .1 | ||||||||||||||||||||||||
| Interest expense | (77 | ) | (.5 | ) | (87 | ) | (.3 | ) | (209 | ) | (.4 | ) | (306 | ) | (.4 | ) | ||||||||||||||||
| Interest expense-financing fees | (11 | ) | (.1 | ) | (58 | ) | (.2 | ) | (28 | ) | (.1 | ) | (187 | ) | (.2 | ) | ||||||||||||||||
| Other | (1 | ) | — | 180 | .6 | — | — | 189 | .2 | |||||||||||||||||||||||
| Gain (loss) on extinguishment of debt | — | — | — | — | 5,381 | 9.8 | (27 | ) | — | |||||||||||||||||||||||
| (Loss) income from continuing operations before taxes | (1,455 | ) | (9.2 | ) | 1,348 | 4.5 | 624 | 1.1 | 2,921 | 3.8 | ||||||||||||||||||||||
| Income tax benefit | (2,836 | ) | (17.9 | ) | (133 | ) | (.4 | ) | (2,840 | ) | (5.2 | ) | (128 | ) | (.2 | ) | ||||||||||||||||
| Income (loss) from continuing operations, net of taxes | $ | 1,381 | 8.7 | $ | 1,481 | 4.9 | $ | 3,464 | 6.3 | $ | 3,049 | 4.0 | ||||||||||||||||||||
Revenues
Consolidated revenues decreased $14,375,000 for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, as follows:
| (In thousands) | 2021 | % Revenue | 2020 | % Revenue | Change | % Change | ||||||||||||||||||
| Treatment | ||||||||||||||||||||||||
| Government waste | $ | 6,164 | 39.0 | $ | 4,950 | 16.4 | $ | 1,214 | 24.5 | |||||||||||||||
| Hazardous/non-hazardous (1) | 1,094 | 6.9 | 964 | 3.2 | 130 | 13.5 | ||||||||||||||||||
| Other nuclear waste | 1,635 | 10.4 | 1,152 | 3.8 | 483 | 41.9 | ||||||||||||||||||
| Total | 8,893 | 56.3 | 7,066 | 23.4 | 1,827 | 25.9 | ||||||||||||||||||
| Services | ||||||||||||||||||||||||
| Nuclear services | 6,505 | 41.2 | 22,647 | 75.1 | (16,142 | ) | (71.3 | ) | ||||||||||||||||
| Technical services | 399 | 2.5 | 459 | 1.5 | (60 | ) | (13.1 | ) | ||||||||||||||||
| Total | 6,904 | 43.7 | 23,106 | 76.6 | (16,202 | ) | (70.1 | ) | ||||||||||||||||
| Total | $ | 15,797 | 100.0 | $ | 30,172 | 100.0 | $ | (14,375 | ) | (47.6 | ) | |||||||||||||
(1) Includes wastes generated by government clients of $597,000 and $518,000 for the three month ended September 30, 2021 and the corresponding period of 2020, respectively.
| 28 |
Treatment Segment revenue increased $1,827,000 or 25.9% for the three months ended September 30, 2021 over the same period in 2020. Treatment Segment revenue for the three months ended September 30, 2021 included approximately $1,286,000 recognized from a REA under a government waste generator contract resulting from certain pricing provisions of the contract. Revenue generated from other nuclear waste increased primarily due to higher waste volume generated from commercial customers. Since the latter part of the first quarter of 2020 at the start of the COVID-19 pandemic, our overall Treatment Segment revenue has been negatively impacted by continued waste shipment delays from certain customers, however, higher averaged price waste from revenue mix and the REA contributed to the revenue increase in the third quarter of 2021. Services Segment revenue decreased by approximately $16,202,000 or 70.1%. The decrease was primarily due to the completion of a certain large project in the second quarter of 2021 and the near completion of a certain other project which were not replaced with new projects due to delays in procurement actions and contract awards resulting from the impact of COVID-19. However, since the end of the second quarter of 2021, our Services Segment has been awarded a number of contracts with activities expected to ramp up starting in the fourth quarter of 2021. Our Services Segment revenues are project based; as such, the scope, duration and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value.
Consolidated revenues decreased $22,004,000 for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, as follows:
| (In thousands) | 2021 | % Revenue | 2020 | % Revenue | Change | % Change | ||||||||||||||||||
| Treatment | ||||||||||||||||||||||||
| Government waste | $ | 15,653 | 28.4 | $ | 17,576 | 22.7 | $ | (1,923 | ) | (10.9 | ) | |||||||||||||
| Hazardous/non-hazardous (1) | 3,722 | 6.8 | 3,426 | 4.4 | 296 | 8.6 | ||||||||||||||||||
| Other nuclear waste | 4,719 | 8.5 | 3,467 | 4.5 | 1,252 | 36.1 | ||||||||||||||||||
| Total | 24,094 | 43.7 | 24,469 | 31.7 | (375 | ) | (1.5 | ) | ||||||||||||||||
| Services | ||||||||||||||||||||||||
| Nuclear services | 29,832 | 54.2 | 51,257 | 66.5 | (21,425 | ) | (41.8 | ) | ||||||||||||||||
| Technical services | 1,149 | 2.1 | 1,353 | 1.8 | (204 | ) | (15.1 | ) | ||||||||||||||||
| Total | 30,981 | 56.3 | 52,610 | 68.3 | (21,629 | ) | (41.1 | ) | ||||||||||||||||
| Total | $ | 55,075 | 100.0 | $ | 77,079 | 100.0 | $ | (22,004 | ) | (28.5 | ) | |||||||||||||
(1) Includes wastes generated by government clients of $1,886,000 and $1,637,000 for the nine month ended September 30, 2021 and the corresponding period of 2020, respectively.
Treatment Segment revenue decreased $375,000 or 1.5% for the nine months ended September 30, 2021 over the same period in 2020 primarily due to lower waste volume from government waste generators. Treatment Segment revenue for the nine months ended September 30, 2021 included approximately $1,286,000 recognized from a REA under a government waste generator contract resulting from certain pricing provisions of the contract as discussed above. Revenue generated from other nuclear waste increased primarily due to higher waste volume generated from commercial customers. Our overall Treatment Segment revenue has been negatively impacted by continued waste shipment delays from certain customers since the latter part of the first quarter of 2020 at the start of the COVID-19 pandemic, however, the negative impact from lower waste volume was reduced by higher averaged price waste from revenue mix. Services Segment revenue decreased $21,629,000 or 41.4% for the nine months ended September 30, 2021 over the same period in 2020. As previously disclosed, our Services Segment revenue for the first half of 2021 were impacted primarily by delays in procurement actions and contract awards resulting from the impact of COVID-19 and the completion of a certain large contract in the second quarter of 2021 and the near completion of a certain other project. However, since the end of the second quarter of 2021, our Services Segment has been awarded a number of contracts with activities expected to ramp up starting in the fourth quarter of 2021. Our Services Segment revenues are project based; as such, the scope, duration and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value.
| 29 |
Cost of Goods Sold
Cost of goods sold decreased $11,849,000 for the quarter ended September 30, 2021, as compared to the quarter ended September 30, 2020, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2021 | Revenue | 2020 | Revenue | Change | |||||||||||||||
| Treatment | $ | 6,406 | 72.0 | $ | 5,972 | 84.5 | $ | 434 | ||||||||||||
| Services | 7,167 | 103.8 | 19,450 | 84.2 | (12,283 | ) | ||||||||||||||
| Total | $ | 13,573 | 85.9 | $ | 25,422 | 84.3 | $ | (11,849 | ) | |||||||||||
Cost of goods sold for the Treatment Segment increased by approximately $434,000 or 7.3%. Treatment Segment’s variable costs increased by approximately $427,000 primarily in disposal, transportation, material and supplies and lab services. Treatment Segment’s overall fixed costs were slightly higher by approximately $7,000 resulting from the following: salaries and payroll related expenses were higher by approximately $138,000; regulatory expenses were higher by $26,000; general expenses were slightly higher by $8,000; maintenance expenses were lower by $111,000; and depreciation and amortization expenses were lower by approximately $54,000. Services Segment cost of goods sold decreased $12,283,000 or 63.2% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll related, travel, and outside services expenses totaling approximately $11,258,000 with the remaining lower costs in material and supplies, disposal, regulatory, and general expenses. Included within cost of goods sold is depreciation and amortization expense of $403,000 and $469,000 for the three months ended September 30, 2021, and 2020, respectively.
Cost of goods sold decreased $14,850,000 for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2021 | Revenue | 2020 | Revenue | Change | |||||||||||||||
| Treatment | $ | 19,249 | 79.9 | $ | 18,936 | 77.4 | $ | 313 | ||||||||||||
| Services | 30,280 | 97.7 | 45,443 | 86.4 | (15,163 | ) | ||||||||||||||
| Total | $ | 49,529 | 89.9 | $ | 64,379 | 83.5 | $ | (14,850 | ) | |||||||||||
Cost of goods sold for the Treatment Segment increased by approximately $313,000 or 1.7%. Treatment Segment’s variable costs increased by approximately $138,000 primarily in disposal, transportation, material and supplies and lab services. Treatment Segment’s overall fixed costs were higher by approximately $175,000 resulting from the following: general expenses were higher by $179,000 in various categories; salaries and payroll related expenses were higher by approximately $122,000; depreciation expenses were higher by approximately $26,000; regulatory expenses were higher by approximately $48,000; and maintenance expenses were lower by $200,000. Services Segment cost of goods sold decreased $15,163,000 or 33.4% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll related, travel, and outside services expenses totaling approximately $13,340,000 with the remaining lower costs in material and supplies, disposal, regulatory, and general expenses. Included within cost of goods sold is depreciation and amortization expense of $1,191,000 and $1,169,000 for the nine months ended September 30, 2021, and 2020, respectively.
| 30 |
Gross Profit (Negative Gross Profit)
Gross profit for the quarter ended September 30, 2021 decreased $2,526,000 over the same period of 2020, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2021 | Revenue | 2020 | Revenue | Change | |||||||||||||||
| Treatment | $ | 2,487 | 28.0 | $ | 1,094 | 15.5 | $ | 1,393 | ||||||||||||
| Services | (263 | ) | (3.8 | ) | 3,656 | 15.8 | (3,919 | ) | ||||||||||||
| Total | $ | 2,224 | 14.1 | $ | 4,750 | 15.7 | $ | (2,526 | ) | |||||||||||
Treatment Segment gross profit increased by $1,393,000 and gross margin increased to 28.0% from 15.5% primarily due to revenue from the REA as discussed previously. Additionally, higher averaged price waste from revenue mix positively impacted Treatment Segment’s gross profit and margin. Services Segment gross profit decreased by $3,919,000 or 107.2% and gross margin decreased from 15.8% to a negative 3.8% primarily due to lower revenue from fewer projects and lower margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.
Gross profit for the nine months ended September 30, 2021 decreased $7,154,000 over the same period in 2020, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2021 | Revenue | 2020 | Revenue | Change | |||||||||||||||
| Treatment | $ | 4,845 | 20.1 | $ | 5,533 | 22.6 | $ | (688 | ) | |||||||||||
| Services | 701 | 2.3 | 7,167 | 13.6 | (6,466 | ) | ||||||||||||||
| Total | $ | 5,546 | 10.1 | $ | 12,700 | 16.5 | $ | (7,154 | ) | |||||||||||
Treatment Segment gross profit decreased by $688,000 or 12.4% and gross margin decreased to 20.1% from 22.6% primarily due to lower revenue from lower waste volume and the impact of our fixed costs. However, revenue from the REA reduced the negative impact of the decreases in gross profit and gross margin. The decrease in gross profit and gross margin in the Services Segment was primarily due to lower revenue from fewer projects and overall lower margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.
SG&A
SG&A expenses increased $40,000 for the three months ended September 30, 2021, as compared to the corresponding period for 2020, as follows:
| (In thousands) | 2021 | %
Revenue | 2020 | %
Revenue | Change | |||||||||||||||
| Administrative | $ | 1,580 | — | $ | 1,564 | — | $ | 16 | ||||||||||||
| Treatment | 1,066 | 12.0 | 910 | 12.9 | 156 | |||||||||||||||
| Services | 702 | 10.2 | 834 | 3.6 | (132 | ) | ||||||||||||||
| Total | $ | 3,348 | 21.2 | $ | 3,308 | 11.0 | $ | 40 | ||||||||||||
Administrative SG&A expenses were higher primarily due to the following: director fees were higher by approximately $68,000 resulting from one additional director and fee increases that went into effect January 1, 2021; general expenses were slightly higher by $8,000; outside services expenses were lower by approximately $28,000 due to fewer consulting/subcontract/legal matters; and salaries and payroll related expenses were lower by approximately $32,000 primarily due to lower estimated progress expenses related to our incentive plans which was partially offset by higher salaries and other payroll related expenses. Treatment Segment SG&A expenses were higher due to the following: salaries and payroll related expenses were higher by approximately $200,000 as in 2020 more of the resources were supporting a large Services Segment project; travel expenses were higher by approximately $29,000 due to ease of travel restrictions since the start of the pandemic; and general expenses were lower by approximately $73,000 in various categories. Services Segment SG&A expenses were lower due to the following: salaries and payroll related expenses were lower by approximately $106,000; outside services expenses were lower by approximately $23,000 primarily due to fewer consulting matters; and general expenses were lower by $3,000. Included in SG&A expenses is depreciation and amortization expense of $6,000 and $9,000 for the three months ended September 30, 2021, and 2020, respectively.
| 31 |
SG&A expenses increased $615,000 for the nine months ended September 30, 2021, as compared to the corresponding period for 2020, as follows:
| (In thousands) | 2021 | %
Revenue | 2020 | %
Revenue | Change | |||||||||||||||
| Administrative | $ | 4,243 | — | $ | 4,219 | — | $ | 24 | ||||||||||||
| Treatment | 2,945 | 12.2 | 2,838 | 11.6 | 107 | |||||||||||||||
| Services | 2,362 | 7.6 | 1,878 | 3.6 | 484 | |||||||||||||||
| Total | $ | 9,550 | 17.3 | $ | 8,935 | 11.6 | $ | 615 | ||||||||||||
Administrative SG&A expenses were higher primarily due to the following: director fees were higher by approximately $179,000 resulting from one additional director and fee increases that went into effect January 1, 2021; general expenses were higher by approximately $11,000 in various categories; travel expenses were lower by approximately $7,000; outside services expenses were lower by approximately $48,000 resulting from fewer consulting/subcontract/legal matters; and salaries and payroll related expenses were lower by approximately $111,000 primarily due to lower estimated progress expenses related to our incentive plans and forfeiture of 401(k) plan matching funds contributed by us for former employees which failed to meet the 401(k) plan vesting requirements, offset by higher salaries and other payroll related expenses. Treatment Segment SG&A expenses were higher due to the following: salaries and payroll related expenses were higher by approximately $235,000 as in 2020 more of the resources were supporting a large Services Segment project; bad debt expenses were higher by approximately $50,000 as in the third quarter of 2020, certain customer accounts which had previously been reserved for were collected; and general expenses were lower by $178,000 in various categories. The increase in SG&A expenses within our Services Segment was primarily due to the following: salaries and payroll related expenses were higher by approximately $260,000 primarily due to increased resources for bid and proposals; outside services expenses were higher by approximately $169,000 due to more consulting matters related to bid and proposals; bad debt expenses were higher by approximately $44,000 as in the first quarter of 2020, certain customer accounts which had previously been reserved for were collected; and general expenses were slightly higher by $11,000. Included in SG&A expenses is depreciation and amortization expense of $17,000 and $20,000 for the nine months ended September 30, 2021 and 2020, respectively.
R&D
R&D expenses increased $86,000 and decreased $60,000 for the three and nine months ended September 30, 2021, respectively, as compared to the corresponding period of 2020.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| (In thousands) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||
| Administrative | $ | 11 | $ | 20 | $ | (9 | ) | $ | 35 | $ | 64 | $ | (29 | ) | ||||||||||
| Treatment | 52 | 49 | 3 | 142 | 194 | (52 | ) | |||||||||||||||||
| Services | 18 | 7 | 11 | 50 | 119 | (69 | ) | |||||||||||||||||
| PF Medical | 162 | 81 | 81 | 311 | 221 | 90 | ||||||||||||||||||
| Total | $ | 243 | $ | 157 | $ | 86 | $ | 538 | $ | 598 | $ | (60 | ) | |||||||||||
R&D costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development of new technologies and technological enhancement of new potential waste treatment processes.
Interest Income
Interest income decreased by approximately $26,000 and $89,000 for the three and nine months ended September 30, 2021, respectively, as compared to the corresponding period of 2020 primarily due to lower interest earned from lower finite risk sinking fund.
| 32 |
Interest Expense
Interest expense decreased by approximately $10,000 and $97,000 for the three and nine months ended September 30, 2021, respectively, as compared to the corresponding period of 2020 primarily due to lower interest expense from our declining term loan balance outstanding. Also, interest expense was lower resulting from the payoff of the $2,500,000 loan at year end 2020 that we had previously entered into with Robert Ferguson on April 1, 2019.
Interest Expense- Financing Fees
Interest expense-financing fees decreased by approximately $47,000 and $159,000 for the three and six months ended June 30, 2021, respectively, as compared to the corresponding period 2020 primarily due to debt discount/debt issuance costs that became fully amortized as financing fees at year end 2020 in connection with the issuance of our Common Stock and a purchase Warrant as consideration for us receiving the $2,500,000 loan from Robert Ferguson dated April 1, 2019.
Income Taxes
We regularly assess the likelihood that the deferred tax asset will be recovered from future taxable income. We consider projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not to be realized. For the year ended December 31, 2020, we maintained a full valuation allowance against net deferred income tax assets because insufficient evidence existed to support the realization of any future income tax benefits. As of September 30, 2021, however, we reassessed this conclusion. Based upon our assessment of all available evidence, including a number of new contracts awarded to our Services Segment since the latter part of the second quarter of 2021 (including a contract award with a value of approximately $40,000,000 for decommissioning of a navy ship), a return to profitability, expectation of future profitability, and our overall prospects of future business, we have determined that it is more likely than not that we will be able to realize a portion of the deferred income tax assets as of September 30, 2021. As a result, a deferred income tax benefit in the amount of approximately $2,351,000 attributable to the valuation allowance release on beginning of year deferred tax assets was realized in the three months ended September 30, 2021.
We had income tax benefits of $2,836,000 and $133,000 for continuing operations for the three months ended September 30, 2021 and 2020, respectively and income tax benefits of $2,840,000 and $128,000 for the nine months ended September 30, 2021 and 2020, respectively. Our effective tax rates were approximately 194.9% and (9.9%) for the three months ended September 30, 2021 and 2020, respectively, and (455.1%) and (4.4%) for the nine months ended September 30, 2021 and 2020, respectively. Our effective tax rates for the three and nine months ended September 30, 2021 were substantially impacted by the release of valuation allowance as discussed above. Our tax rates for the three and nine months ended September 30, 2020 were impacted by the full valuation on our net deferred tax assets. For the three and nine months ended September 30, 2021, the primary reasons for the differences between our effective tax rate and statutory tax rate were due to the aforementioned release of valuation allowance and the forgiveness of our PPP Loan which is included in our Consolidated Statement of Operations as “Gain on extinguishment of debt” but is exempt from income taxes.
| 33 |
Liquidity and Capital Resources
Our cash flow requirements during the nine months ended September 30, 2021 were primarily financed by our operations, cash on hand and credit facility availability. Our cash on hand at September 30, 2021 was approximately $7,222,000 and included approximately $5,456,000 of the $6,200,000 in gross proceeds received from subscription agreements that we entered into with certain institutional and retail investors, for the sale and issuance of 1,000,000 shares of our Common Stock in a registered direct offering. On October 5, 2021, the remaining $744,000 from the direct offering was received by us (see “Financing Activities” below for a discussion of this direct offering, including the planned usage of the proceeds). Subject to the impact of COVID-19 as discussed above, our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility availability, our capital expenditure line, and cash on hand. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. At this time, we believe that our cash flows from operations, our available liquidity from our credit facility, our capital expenditure line and our cash on hand should be sufficient to fund our operations for the next twelve months. However, due to the uncertainty of COVID-19, which has resulted in continued delays in waste shipments from certain customers and delays in contract awards on certain bids already submitted, there are no assurances such will be the case. As previously disclosed, our Medical Segment, which has not generated any revenues, has substantially reduced its R&D costs and activities due to the need for capital to fund such activities. We continue to seek various sources of potential funding for our Medical Segment. We anticipate that our Medical Segment will not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable to raise the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.
The following table reflects the cash flow activities during the first nine months of 2021:
| (In thousands) | ||||
| Cash used in operating activities of continuing operations | $ | (4,031 | ) | |
| Cash used in operating activities of discontinued operations | (296 | ) | ||
| Cash used in investing activities of continuing operations | (1,131 | ) | ||
| Cash provided by financing activities of continuing operations | 4,783 | |||
| Effect of exchange rate changes in cash | (4 | ) | ||
| Decrease in cash and finite risk sinking fund (restricted cash) | $ | (679 | ) | |
At September 30, 2021, we were in a positive cash position with no revolving credit balance. At September 30, 2021, we had cash on hand of approximately $7,222,000, which includes account balances of our foreign subsidiaries totaling approximately $349,000.
Operating Activities
Accounts receivable, net of allowances for doubtful accounts, totaled $11,816,000 at September 30, 2021, an increase of $2,157,000 from the December 31, 2020 balance of $9,659,000. The increase was primarily due to timing of accounts receivable collection and timing of invoicing. Our contracts with our customers are subject to various payment terms and conditions; therefore, our accounts receivable are impacted by these terms and conditions and the related timing of accounts receivable collections. Additionally, contracts with our customers may sometimes result in modifications which can cause delays in collections.
Unbilled receivables totaled $5,696,000 at September 30, 2021, a decrease of $8,757,000 from the December 31, 2020 balance of $14,453,000. The decrease in unbilled receivables was primarily within our Services Segment due to invoicing and collection of accounts receivable on certain large projects which have been completed or are near completion.
Accounts payable, totaled $9,717,000 at September 30, 2021, a decrease of $5,665,000 from the December 31, 2020 balance of $15,382,000. Our accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout all segments.
We had working capital of $7,147,000 (which included working capital of our discontinued operations) at September 30, 2021, as compared to working capital of $3,672,000 at December 31, 2020. Our working capital was positively impacted by the forgiveness of the entire balance of our PPP Loan, along with accrued interest, by the SBA effective June 15, 2021 (see “CARES Act – PPP Loan” for information on this loan”). Our working capital was also positively impacted by proceeds that we received from subscription agreements that we entered into with certain institutional and retail investors, for the sale and issuance of 1,000,000 shares of our Common Stock in a registered direct offering (see “Financing Activities” below for a discussion of this direct offering, including the planned usage of the proceeds).
| 34 |
Investing Activities
For the nine months ended September 30, 2021, our purchases of capital equipment totaled approximately $1,480,000, of which $348,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2021 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.
Financing Activities
We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement provides us with the following credit facility with a maturity date of March 15, 2024: (a) up to $18,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”) of approximately $1,742,000, requiring monthly installments of $35,547. The maximum that we can borrow under the revolving credit is based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender may impose from time to time.
On May 4, 2021, we entered into an amendment to our Loan Agreement with our lender which provided the following, among other things:
| ● | revised our fixed charge coverage ratio (“FCCR”) calculation requirement which allows for the add-back of approximately $5,318,000 in eligible expenses that were incurred and covered by the PPP Loan that we received in 2020. The add-back is to be applied retroactively to the second and third quarters of 2020. (see below for a discussion of the PPP Loan); and | |
| ● | a capital expenditure line of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve months starting May 4, 2021 (the “Borrowing Period”). Only interest is payable on advances during the Borrowing Period (see annual rate of interest below on the capital expenditure line). At the end of the Borrowing Period, the total amount advanced under the line will amortize equally based on a five-year amortization schedule with principal payment due monthly plus interest. At the maturity date of the Loan Agreement, any unpaid principal balance plus interest, if any, will become due. No advance on the capital line has been made as of June 30, 2021. |
In connection with the amendment, we paid our lender a fee of $15,000.
On August 10, 2021, we entered into an amendment to our Loan Agreement with our lender which provided, among other things, the following:
| ● | waived our failure to meet the minimum quarterly FCCR requirement for the second quarter of 2021; | |
| ● | removes the quarterly FCCR testing requirement for the third quarter of 2021; | |
| ● | reinstates the quarterly FCCR testing requirement starting for the fourth quarter of 2021 and revises the methodology to be used in calculating the FCCR for the quarters ending December 31, 2021, March 31, 2022, and June 30, 2022 (with no change to the minimum 1.15:1 ratio requirement for each quarter); and | |
| ● | requires maintenance of a minimum of $3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for the quarter ended December 31, 2021 has been met and certified to the lender. |
| 35 |
In connection with the amendment, we paid our lender a fee of $15,000.
Pursuant to our Loan Agreement, as amended, payment of annual rate of interest due on the revolving credit is at prime (3.25% at June 30, 2021) plus 2% or London InterBank Offer Rate (“LIBOR”) plus 3.00% and the term loan and capital expenditure line at prime plus 2.50% or LIBOR plus 3.50%. Under the LIBOR option of interest payment, a LIBOR floor of 0.75% applies in the event that LIBOR falls below 0.75% at any point in time.
We may terminate our Loan Agreement, as amended, upon 90 days’ prior written notice upon payment in full of our obligations under the Loan Agreement. We agreed to pay PNC 1.0% of the total financing had we paid off our obligations on or before May 7, 2021 and 0.5% of the total financing if we pay off our obligations after May 7, 2021 but prior to or on May 7, 2022. No early termination fee will apply if we pay off our obligations under the Loan Agreement after May 7, 2022.
Our credit facility under our Loan Agreement, as amended, 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. We met our financial covenant requirements in the first quarter of 2021. Our FCCR calculation in the first quarter of 2021 included the add-back of approximately $5,318,000 in eligible expenses that were incurred and covered by the PPP Loan that we received in 2020 as permitted by the amendment dated May 4, 2021 as discussed above. We did not meet our FCCR requirement in the second quarter of 2021; however, this non-compliance was waived by our lender as discussed above. Testing of our FCCR was not required for the third quarter 2021 pursuant to the August 10, 2021 amendment to the Loan Agreement as discussed above. We expect to meet our quarterly financial covenant requirements for the next twelve months under our Loan Agreement, as amended, as discussed above.
On September 30, 2021, we entered into subscription agreements (the “Subscription Agreements”) with certain institutional and retail investors (the “Purchasers”), pursuant to which we agreed to sell and issue, in a registered direct offering, an aggregate of 1,000,000 shares (the “Shares”) of our Common Stock, at a negotiated purchase price per share of $6.20 (the “Shares”), for aggregate gross proceeds to us of approximately $6,200,000. The offering price per share was negotiated based on the average closing price of our Common Stock as quoted on Nasdaq over the three-week period immediately preceding the date of the Subscription Agreements, less a five percent discount. As of September 30, 2021, we received proceeds of approximately $5,456,000 from the Subscription Agreements with the remaining $744,000 proceeds received on October 5, 2021. As of September 30, 2021, 100,000 shares of the 1,000,000 Shares were issued with the remaining Shares issued in early October 2021. As such, our issued and outstanding shares of Common Stock on our Consolidated Balance Sheets as of September 30, 2021 do not include the 900,000 Shares. The 900,000 Shares were recorded as stock subscriptions in our Consolidated Statement of Stockholder’s Equity at September 30, 2021 and will be reclassed to additional-paid-in capital in October 2021.
The Shares were offered and sold by us through a prospectus supplement pursuant to our “shelf” registration statement on Form S-3, which was previously filed with the U.S. Securities and Exchange Commission (the “Commission”) on May 13, 2019 and subsequently declared effective on May 22, 2019 (the “Registration Statement”).
Wellington Shields & Co., LLC (“Wellington”) served as the exclusive placement agent in connection with the Offering, pursuant to a placement agency agreement dated as of September 23, 2021 (the “Placement Agency Agreement”), between us and Wellington. We agreed to pay Wellington a cash fee of 6.00% of the aggregate gross proceeds in the Offering which totaled $372,000. We also agreed to reimburse Wellington for certain expenses in connection with the Offering in an aggregate amount not to exceed $50,000. After deducting costs incurred directly in connection with the Offering which were recorded as deduction to equity, net proceeds to us totaled approximately $5,701,000. As of September 30, 2021, approximately $22,000 of the $499,000 in incurred Offering costs were paid.
| 36 |
We plan to use the aggregate net proceeds from the Offering primarily for working capital and general corporate purposes, including for certain facility expansion and upgrades, with the use of such proceeds subject to changes, based on the judgment of management.
The CARES Act
PPP Loan
On April 14, 2020, we entered into a promissory note under the PPP with PNC, our credit facility lender, which had a balance of approximately $5,318,000 (the “PPP Loan”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and is administered by the SBA. The CARES Act was subsequently amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). Proceeds from the promissory note was used by us for eligible payroll costs, mortgage interest, rent and utility costs as permitted under the Flexibility Act. The annual interest rate on the PPP Loan is 1.0%
On October 5, 2020, we applied for forgiveness on repayment of the PPP Loan as permitted under the Flexibility Act. On July 1, 2021, we were notified by PNC that the entire balance of the PPP Loan of approximately $5,318,000, along with accrued interest of approximately $63,000 was forgiven by the SBA, effective June 15, 2021. Accordingly, we recorded the entire forgiven PPP Loan balance, along with accrued interest, totaling approximately $5,381,000 as “Gain on extinguishment of debt” on our Consolidated Statement of Operations for the second quarter 2021.
Deferral of Employment Tax Deposits
The Flexibility Act provides employers the option to defer the payment of an employer’s share of social security taxes beginning on March 27, 2020 through December 31, 2020, with 50% of the amount of social security taxes deferred to become due on December 31, 2021 with the remaining 50% due on December 31, 2022. We elected to defer such taxes starting in mid-April 2020. At September 30, 2021, we have deferred payment of approximately $1,252,000 in our share of social security taxes, of which approximately $626,000 is included in “Other long-term liabilities,” with the remaining balance included in “Accrued expenses” within current liabilities in the Company’s Consolidated Balance Sheets.
Off Balance Sheet Arrangements
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. At September 30, 2021, the total amount of standby letters of credit outstanding totaled approximately $3,020,000 and the total amount of bonds outstanding totaled approximately $50,092000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At September 30, 2021, the closure and post-closure requirements for these facilities were approximately $19,898,000.
Critical Accounting Policies and Estimates
There were no significant changes in our accounting policies or critical accounting estimates that are discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
See “Note 2 – Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” for the recent accounting pronouncements that have been adopted during the first nine months of 2021, or will be adopted in future periods.
| 37 |
Known Trends and Uncertainties
Significant Customers. Our Treatment and Services Segments have significant relationships with the U.S and Canadian governmental authorities through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to government authorities. As stated previously, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination or renegotiation on 30 days’ notice at the government’s option, and our governmental contracts/task orders with the Canadian government authorities allow the authorities to terminate the contract/task orders at any time for convenience. Our inability to continue under existing material contracts that we have with government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.
We performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately $13,244,000 or 83.8% and $47,267,000 or 85.8% of our total revenues generated during the three and nine months ended September 30, 2021, respectively, as compared to $28,094,000 or 93.1% and $70,407,000 or 91.3% of our total revenues generated during the three and nine months ended September 30, 2020, respectively.
COVID-19 Impact. The extent of the impact of the COVID-19 pandemic on our business continues to be uncertain and difficult to predict, as the responses to the pandemic continue to evolve rapidly. We continue to experience delays in waste shipments from certain customers within our Treatment Segment primarily related to the impact of COVID-19. However, we are beginning to see a gradual return in waste receipts from these customers starting in the latter part of the third quarter of 2021. Our Services Segment has been impacted by delays in procurement actions and contract awards resulting primarily from the impact of COVID-19. However, since the end of the second quarter of 2021, we have received a number of new contract awards, including a fixed price contract awarded to us during the third quarter of 2021, with a value of approximately $40,000,000 for the decommissioning of a navy ship We expect activities to ramp up on these new projects starting in the fourth quarter of 2021. Within our Treatment and Services Segments, we continue to have bids currently submitted and awaiting awards.
The severity of the impact the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, impact from emergence of potential new variants of the virus, potential impact on our workforce from government vaccine mandates, the extent and severity of the impact on our customers, the impact on governmental programs and budgets, inoculation rate of the vaccines, and how quickly and to what extent normal economic and operating conditions resume, all of which are uncertain and cannot be predicted with any accuracy or confidence at this time. Our future results of operations and liquidity could be adversely impacted from the impact of COVID-19, including continued delays in waste shipments and contract awards, and/or occurrence of project work shut downs as well as potential partial/full shutdown of any of our facilities due to COVID-19.
Supply Chain. We use various commercially available materials and supplies which include among other things chemicals, containers/drums and personal protection equipment (“PPE”) in our operations. We generally source these items from various suppliers in order to take advantage of competitive pricing.
We also utilize various types of equipment, which include among other things trucks, flatbeds, lab equipment, heavy machineries, in carrying out our business operations. Our equipment may be obtained through direct purchase, rental option or leases. Within our Services Segment, equipment required for projects are often provided by our subcontractors as part of our contract agreement with the subcontractor. Due to some of our specialized waste treatment processes, certain equipment that we utilize are designed and built to our specifications. We rely on various commercially equipment supplier for the construction of these equipment.
Despite the global supply chain issues, we have been able to obtain equipment, materials and supplies without material disruption to our operations or financial impact, however, we continue to monitor our supply chain and any potential price pressure resulting from the impact of COVID-19, among other things.
| 38 |
Environmental Contingencies
We are engaged in the waste management services segment of the pollution control industry. As a participant in the on-site treatment, storage and disposal market and the off-site treatment and services market, we are subject to rigorous federal, state and local regulations. These regulations mandate strict compliance and therefore are a cost and concern to us. Because of their integral role in providing quality environmental services, we make every reasonable attempt to maintain complete compliance with these regulations; however, even with a diligent commitment, we, along with many of our competitors, may be required to pay fines for violations or investigate and potentially remediate our waste management facilities.
We routinely use third party disposal companies, who ultimately destroy or secure landfill residual materials generated at our facilities or at a client’s site. In the past, numerous third party disposal sites have improperly managed waste and consequently require remedial action; consequently, any party utilizing these sites may be liable for some or all of the remedial costs. Despite our aggressive compliance and auditing procedures for disposal of wastes, we could further be notified, in the future, that we are a potentially responsible party (“PRP”) at a remedial action site, which could have a material adverse effect.
Our subsidiaries where remediation expenditures will be made are at three sites within our discontinued operations. While no assurances can be made that we will be able to do so, we expect to fund the expenses to remediate these sites from funds generated from operations.
At September 30, 2021, we had total accrued environmental remediation liabilities of $776,000, a decrease of $78,000 from the December 31, 2020 balance of $854,000. The decrease represents primarily payments made on remediation projects. At September 30, 2021, $122,000 of the total accrued environmental liabilities was recorded as current.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not applicable
Item 4. Controls and Procedures
| (a) | Evaluation of disclosure controls and procedures. |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management. As of the end of the period covered by this report, we carried out an evaluation with the participation of our Principal Executive Officer and Principal Financial Officer. Based on this recent assessment, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective as of September 30, 2021
| |
| (b) | Changes in internal control over financial reporting. |
| There was no other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. |
| 39 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending against us and/or our subsidiaries not previously reported by us in Item 3 of our Form 10-K for the year ended December 31, 2020 or in our Form 10-Qs for the periods ended March 31, 2021 and June 30, 2021. Additionally, there has been no other material change in legal proceedings previously disclosed by us in our Form 10-K for the year ended December 31, 2020 and our Form 10-Qs.
Item
1A. Risk Factors
There has been no other material change from the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2020.
Item 6. Exhibits
* Pursuant to Rule 406T of Regulation S-T, the Inline Interactive Data File in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purpose of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
| 40 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| PERMA-FIX ENVIRONMENTAL SERVICES | ||
| Date: November 12, 2021 | By: | /s/ Mark Duff |
Mark Duff President and Chief (Principal) Executive Officer | ||
| Date: November 12, 2021 | By: | /s/ Ben Naccarato |
| Ben Naccarato | ||
| Chief (Principal) Financial Officer | ||
| 41 |