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.
(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 ☐
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 1, 2022 | |
| 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, | |||||||
| 2022 | 2021 | |||||||
| (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 | |||||||
| 2022 | 2021 | |||||||
| (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 | ||||||||
| Long-term debt, less current portion | ||||||||
| Long-term operating lease liabilities, less current portion | ||||||||
| Long-term finance lease liabilities, less current portion | ||||||||
| 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; and shares issued, respectively; and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less Common Stock in treasury, at cost; shares | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Loss on disposal of property and equipment | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense-financing fees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Note 13) | ( | ) | ||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| Income (loss) from continuing operations before taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) from continuing operations, net of taxes | ( | ) | ||||||||||||||
| Loss from discontinued operations, net of taxes (Note 10) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net income (loss) 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 (loss) per common share | $ | $ | $ | ( | ) | $ | ||||||||||
| Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted: | ||||||||||||||||
| Continuing operations | $ | $ | $ | ( | ) | $ | ||||||||||
| Discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) 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 (Loss)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Amounts in Thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) | ( | ) | ||||||||||||||
| Comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) 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)
| Additional | Common Stock | Accumulated Other | Non-controlling | Total | ||||||||||||||||||||||||||||
| Common Stock | Paid-In | Held In | Comprehensive | Interest in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Treasury | Loss | Subsidiary | Deficit | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation | — | |||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options (cashless) | ||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Issuance of Common Stock upon exercise of options | ||||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC
Consolidated Statement of Stockholders’ Equity, Continued
(Unaudited)
(Amounts in thousands, except for share amounts)
| Common Stock | Additional Paid-In | Common Stock Held In | Stock Sub- | Accumulated Other Comprehensive | Non-controlling Interest in | Accumulated | Total 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 (loss) income | — | ( | ) | |||||||||||||||||||||||||||||||||
| 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 (loss) income | — | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of Common Stock for services | ||||||||||||||||||||||||||||||||||||
| Sale of Common Stock | (1) | |||||||||||||||||||||||||||||||||||
| Stock Subscriptions | — | (2) | ||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | — | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| (1) |
| (2) |
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (Amounts in Thousands) | 2022 | 2021 | ||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Less: loss from discontinued operations, net of taxes (Note 10) | ( | ) | ( | ) | ||||
| (Loss) income from continuing operations, net of taxes | ( | ) | ||||||
| Adjustments to reconcile (loss) income from continuing operations to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Interest on finance lease with purchase option | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Amortization of debt issuance costs | ||||||||
| Deferred tax benefit | ( | ) | ( | ) | ||||
| (Recovery of) provision for 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 continuing operations | ( | ) | ( | ) | ||||
| Cash used in discontinued operations | ( | ) | ( | ) | ||||
| Cash used in 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 flows from financing activities: | ||||||||
| Repayments of revolving credit borrowings | ( | ) | ( | ) | ||||
| Borrowing on revolving credit | ||||||||
| Proceeds from capital line | ||||||||
| 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 | ||||||||
| Proceeds from stock subscription, net of Offering costs paid | ||||||||
| Proceeds from issuance of common stock upon exercise of options | ||||||||
| Cash (used in) provided by financing activities of continuing operations | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Decrease 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.
| 7 |
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
September 30, 2022
(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, 2021.
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, 2022 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2022.
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, 2021.
The
consolidated financial statements include the accounts of our wholly-owned subsidiaries and the account of a variable interest entity
(“VIE”), Perma-Fix ERRG, for which we are the primary beneficiary (See “Note 15 - VIE” for a discussion of this
VIE). The consolidated financial statements for 2021 also included the accounts of the Company’s majority-owned Polish subsidiary,
Perma-Fix Medical S.A (“PFM Poland”) and PFM Poland’s wholly-owned subsidiary, Perma-Fix Medical Corporation (“PFMC”),
which comprised of the Company’s Medical Segment. As previously discussed, the Company made the strategic decision to cease all
research and development (“R&D”) activities under the Medical Segment and sold
Information for the Medical Segment is presented for the quarter and nine months ended September 30, 2021. The Medical Segment was disposed of as of December 31, 2021 and is not relevant for the quarter and nine month ended September 30, 2022. Prior period segment information is not required to be restated for the disposal of the segment.
2. Summary of Significant Accounting Policies
Our accounting policies are set forth in the notes to the December 31, 2021 consolidated financial statements referred to above.
Recently Adopted Accounting Standards
In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adoption of this ASU by the Company effective January 1, 2022 did not have a material impact on its financial statements.
| 8 |
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified the scope and application of the original guidance. The Company has determined that only its obligations under its credit facility are impacted by these ASUs at this time. During the third quarter of 2022, the Company entered into an amendment dated August 29, 2022 to its loan agreement which replaced the LIBOR option with the Secured Overnight Finance Rate (“SOFR”) option under its credit facility. The adoption of these ASUs by the Company during the third quarter of 2022 did not have a material impact to its financial statements (see “Note 8 – Long Term Debt” for a discuss of the Company’s credit facility and the amendment dated August 29, 2022).
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 continued to qualify as a SRC but became an accelerated filer for its 2021 Form 10-K and its 2022 quarterly 10-Q filings. The Company will remain a SRC but will become a non-accelerated filer for its 2022 Form 10-K and subsequent filings. The Company is currently evaluating the impact of these ASU on its consolidated financial statements; however, based on historical credit losses and as a significant amount of the Company’s receivables are generated from government entities, the Company does not expect the adoption of these ASUs to have a material impact to the Company’s financial statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplifies the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for the Company as 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.
| 9 |
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, 2022 | September 30, 2021 | |||||||||||||||||||||||
| 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, 2022 | September 30, 2021 | |||||||||||||||||||||||
| 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, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Domestic government | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Domestic commercial | ||||||||||||||||||||||||
| Foreign government | ||||||||||||||||||||||||
| Foreign commercial | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Revenue by generator | ||||||||||||||||||||||||
| (In thousands) | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||
| Treatment | Services | Total | Treatment | Services | Total | |||||||||||||||||||
| Domestic government | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Domestic commercial | ||||||||||||||||||||||||
| Foreign government | ||||||||||||||||||||||||
| Foreign commercial | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Contract Balances
The Company’s contract liabilities consist of deferred revenues which represent advance payment from customers in advance of the completion of our performance obligation. The following table represents changes in our contract liabilities balances:
| Year-to-date | Year-to-date | |||||||||||||||
|
(In thousands) | September 30, 2022 | December 31, 2021 | Change ($) | Change (%) | ||||||||||||
| Contract liabilities | ||||||||||||||||
| Deferred revenue | $ | $ | $ | ( | ) | ( | )% | |||||||||
The decrease was attributed primarily to revenue recognized in connection with a Services Segment contract.
| 10 |
During
the three and nine months ended September 30, 2022, the Company recognized revenue of $
Variable Consideration
Remaining Performance Obligations
The Company applies the practical expedient in paragraph 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.
The Company’s contracts and subcontracts relating to activities at governmental sites generally allow for termination for convenience at any time at the government’s option without payment of a substantial penalty. The Company does not disclose remaining performance obligations on these 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 warehouse spaces used to conduct our business. Finance leases consist primarily of processing and transport equipment used by our facilities’ operations.
| 11 |
The components of lease cost for the Company’s leases for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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, 2022 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, 2022 to the operating and finance lease liabilities recorded on the balance sheet (in thousands):
| Operating Leases | Finance Leases | ||||||||
| 2022 (Remaining | ) | $ | $ | ||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027 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 | $ | — | $ | ||||||
| 12 |
Supplemental cash flow and other information related to our leases were as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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:
| Weighted Average | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||
| Amortization Period | Gross Carrying | Accumulated | Net Carrying | Gross Carrying | Accumulated | Net 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:
| Amount | ||||
| Year | (In thousands) | |||
| 2022(Remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
Amortization
expense relating to the definite-lived intangible assets as discussed above was $
The Company has certain stock option plans under which it may award incentive stock options (“ISOs”) and/or non-qualified stock options (“NQSOs”) to employees, officers, outside directors, and outside consultants.
| 13 |
On July 21, 2022, 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 July 21, 2022, the Company granted ISOs to certain employees for purchase under the Company’s 2017 Stock Option Plan, as amended (the “2017 Plan”), of up to an aggregate of shares of the Common Stock. Each ISO granted is for a contractual term of with one-fifth vesting annually over a period. The exercise price of the ISO was $ per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
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 first milestone was met and the shares under the first milestone were issued to Robert Ferguson in May 2018. The Company had previously entered into amendments whereby the vesting dates for the second and third milestones for the purchase of up to and shares of the Company’s Common Stock were extended to December 31, 2021 and December 31, 2022, respectively. On January 20, 2022, the Company’s Compensation and Stock Option Committee (“Compensation Committee”) and the Board further amended the vesting dates of the second and third milestones to December 31, 2022 and December 31, 2023, respectively. This amendment was approved by the Compensation Committee and the Board to take effect December 31, 2021. The Company has not recognized compensation costs (fair value of approximately $ at September 30, 2022) 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, 2022. All other terms of the Ferguson Stock Option remain unchanged. Upon Mr. Ferguson’s death, the remaining Ferguson Stock Options are now held by Mr. Ferguson’s estate.
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, 2022 were as follows:
| Outside Director Stock Option Granted | Employee Stock Option Granted | |||||||
| Nine Months Ended September 30, 2022 | ||||||||
| Weighted-average fair value per share | $ | $ | ||||||
| Risk-free interest rate (1) | % | % | ||||||
| Expected volatility of stock (2) | % | % | ||||||
| Dividend yield | ||||||||
| Expected option life (3) | years | years | ||||||
| (1) |
| (2) |
| (3) |
| 14 |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Stock Options | September 30, | September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Employee Stock Options | $ | $ | $ | $ | ||||||||||||
| Director Stock Options | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
At
September 30, 2022, 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, 2022 and September 30, 2021, and changes during the periods then ended, are presented below. The Company’s plans consist/consisted 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 (3) | |||||||||||||
| Options outstanding January 1, 2022 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited/expired | ( | ) | $ | |||||||||||||
| Options outstanding end of period (1) | $ | $ | ||||||||||||||
| Options exercisable at September 30, 2022(1) | $ | $ | ||||||||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (3) | |||||||||||||
| Options outstanding January 1, 2021 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited/expired | ( | ) | $ | |||||||||||||
| Options outstanding end of period (1) | $ | $ | ||||||||||||||
| Options exercisable at September 30, 2021 (2) | $ | $ | ||||||||||||||
| (1) |
| (2) |
| (3) |
| 15 |
During the nine months ended September 30, 2022, the Company issued a total of shares of its Common Stock under the 2003 Plan to its outside directors as compensation for serving on our Board. The Company has recorded approximately $ in compensation expenses (included in selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares of its Common Stock to outside directors.
During
the nine months ended September 30, 2022, 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. Additionally, the Company issued shares
of its Common Stock from the exercise of an option for the purchase of shares of the Company’s Common Stock at $ per
share resulting in proceeds of approximately $
In
connection with a $
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| (Amounts in Thousands, Except for Per Share Amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net income (loss) attributable to Perma-Fix Environmental Services, Inc., common stockholders: | ||||||||||||||||
| Income (loss) from continuing operations, net of taxes | $ | ( | ) | |||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Income (loss) 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 (loss) attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | ( | ) | $ | ||||||||||
| Basic income (loss) per share attributable to Perma-Fix Environmental Services, Inc. common stockholders | $ | $ | $ | ( | ) | $ | ||||||||||
| Diluted income (loss) 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 | ||||||||||||||||
| 16 |
8. Long Term Debt
Long-term debt consists of the following:
| (Amounts in Thousands) | September 30, 2022 | December 31, 2021 | ||||||
| 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) | ||||||
| Capital
Line dated May 4, 2021, payable in equal monthly installments of principal, balance due on | ||||||||
| Notes
Payable to 2023 and 2025, annual interest rate of | ||||||||
| Total debt | ||||||||
| Less current portion of long-term debt | ||||||||
| Long-term debt | $ | $ | ||||||
| (1) |
| (2) |
Revolving Credit, Term Loan and Capital Line 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 provided the Company
with the following credit facility with a maturity date of
| 17 |
On March 29, 2022, the Company entered into an amendment to its Amended Loan Agreement with its lender which provided, among other things, the following:
| ● | waived the Company’s failure to meet the minimum quarterly fixed charge coverage ratio (“FCCR”) requirement for the fourth quarter of 2021; | |
| ● | removes the quarterly FCCR testing requirement for the first quarter of 2022; | |
| ● | reinstates
| |
| ● | ||
| ● | revises
the annual rate used to calculate the Facility Fee (as defined in the Loan Agreement) on the revolving credit, with addition of the
capital expenditure line, from |
In
connection with the amendment, the Company paid PNC a fee of $
On August 2, 2022, the Company entered into an amendment to its Amended Loan Agreement with its lender which provided the following, among other things:
| ● | waived the Company’s failure to meet the minimum quarterly FCCR requirement for the second quarter of 2022; | |
| ● | removes the quarterly FCCR testing requirement for the third quarter of 2022; | |
| ● | reinstates
| |
| ● |
In
connection with the amendment, the Company paid PNC a fee of $
The Company’s credit facility under its Amended Loan Agreement with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The Company was not required to perform testing of the FCCR requirement in the first and third quarters of 2022 pursuant to the March 29, 2022 and August 2, 2022 amendments, respectively, as discussed above. The Company failed to meet its FCCR requirement in the second quarter of 2022; however, this non-compliance was waived by the Company’s lender pursuant to the August 2, 2022 amendment as discussed above. Other than the FCCR covenant discussion above, the Company met all of its other financial covenant requirements in the first, second and third quarters of 2022.
On
August 29, 2022, the Company entered into an amendment to its Amended Loan Agreement with its lender which set forth certain revisions
to the Amended Loan Agreement, with the amended terms set forth in a revised Loan Agreement. The new revisions to the Amended Loan Agreement
(the “Revised Loan Agreement”), among other things, replace the LIBOR based interest rate benchmark with the SOFR and add
certain additional anti-terrorism provisions to the covenants contained in the Amended Loan Agreement.
| 18 |
After May 7, 2022, the Company may terminate its Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the Revised Loan Agreement with no early termination fees.
At
September 30, 2022, the borrowing availability under the Company’s revolving credit was approximately $
9. Commitments and Contingencies
Hazardous Waste
In connection with our waste management services, the Company processes hazardous, non-hazardous, low-level radioactive and mixed (containing both hazardous and low-level radioactive) 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 may be 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.
Tetra Tech EC, Inc. (“Tetra Tech”)
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 various claims, including a claim for negligence, negligent misrepresentation, equitable indemnification and related business claims 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.
Our
insurance carrier is providing a defense on our behalf in connection with this lawsuit, subject to a $
The majority of Tetra Tech’s claims have been dismissed by the Court. Remaining claims include: (1) Intentional Interference with Contractual Relations; and (2) Inducing a Breach of Contract. The Company continues to believe it does not have any liability to Tetra Tech.
Perma-Fix Canada, Inc. (“PF Canada”)
During
the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from Canadian Nuclear Laboratories, LTD. (“CNL”)
on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada
(“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since
been completed. CNL may terminate the TOA at any time for convenience. As of September 30, 2022, PF Canada has approximately $
| 19 |
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, 2022, 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 $
| 20 |
The following table presents the major class of assets of discontinued operations as of September 30, 2022 and December 31, 2021. No assets and liabilities were held for sale at each of the periods noted.
| September 30, | December 31, | |||||||
| (Amounts in Thousands) | 2022 | 2021 | ||||||
| Current assets | ||||||||
| Other assets | $ | $ | ||||||
| Total current assets | ||||||||
| Long-term assets | ||||||||
| Property, plant and equipment, net (1) | ||||||||
| 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
In accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (1) from which we may earn revenue and incur expenses; (2) whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.
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 | |
| - | 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; | ||
| ○ | 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, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers; and | ||
| ○ | on-site waste management services to commercial and governmental customers. |
| 21 |
| - | Nuclear services, which include: |
| ○ | technology-based services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction, logistics, transportation, processing and disposal; | ||
| ○ | remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; logistics; transportation; and emergency response; and |
| - | A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation. |
The
Company’s segment also included the Medical Segment in 2021. As previously discussed, the Company made the strategic decision to
cease all R&D activities under the Medical Segment and sold
Our reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 10 – Discontinued Operations”) which do not generate revenues.
The table below presents certain financial information of our operating segments for the three and nine months ended September 30, 2022 and 2021 (in thousands).
Segment Reporting for the Quarter Ended September 30, 2022
| Treatment | Services | 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 | ( | ) | (2) | |||||||||||||||||
| Income tax expense | ||||||||||||||||||||
| Segment income (loss) | ( | ) | ||||||||||||||||||
| Expenditures for segment assets | (3) | |||||||||||||||||||
Segment Reporting for the Nine Months Ended September 30, 2022
| Treatment | Services | 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 | ( | ) | ( | )(2) | ||||||||||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ||||||||||||||||
| Expenditures for segment assets | (3) | |||||||||||||||||||
| 22 |
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) | ( | ) | ( | )(4) | ||||||||||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Expenditures for segment assets | (6) | |||||||||||||||||||||||
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 | ( | ) | ( | ) | ( | ) | (5) | |||||||||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ( | ) | ( | )(4) | ||||||||||||||||
| Segment income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Expenditures for segment assets | (6) | |||||||||||||||||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) | Includes approximately
$ |
| (6) | Net of financed
amount of $ |
12. Asset Retirement Obligations (“ARO”) and Accrued Closure Costs
Accrued
closure costs represent our estimated environmental liability to clean up our fixed-based regulated facilities as required by our permits,
in the event of closure. During the nine months ended September 30, 2022, the Company recorded a total of $
| 23 |
13. Employee Retention Credit (“ERC”)
The
Coronavirus Aid, Relief and Economic Securities Act (“CARES Act”), which was enacted on March 27, 2020, provides an Employee
Retention Credit (“ERC”) for qualifying businesses keeping employees on their payroll during the COVID-19 pandemic. The ERC
was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and
the American Rescue Plan Act of 2021, all of which amended and extended the ERC availability and guidelines under the CARES Act. Following
these amendments, the Company determined that it was eligible for the ERC, and as a result of the foregoing legislations, is eligible
to claim a refundable tax credit against the
During
the third quarter of 2022, the Company determined it was eligible for the ERC and amended its third quarter 2021 employer payroll tax
filings claiming a refund from the U.S. Treasury in the amount of approximately $
14. Income Taxes
The
Company had income tax expense of $
15. 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
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, 2022, Perma-Fix ERRG had total assets of
$
16. Subsequent Events
Management evaluated events occurring subsequent to September 30, 2022 through November 3, 2022, the date these consolidated financial statements were available for issuance, and determined that no material recognizable subsequent events occurred.
| 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 and improvement in the level of government funding in future years; |
| ● | reducing operating costs and non-essential expenditures; |
| ● | ability to meet loan agreement quarterly financial covenant requirements; |
| ● | cash flow requirements; |
| ● | Canadian receivable; |
| ● | sufficient liquidity to continue business; |
| ● | future results of operations and liquidity; |
| ● | effect of economic disruptions on our business; |
| ● | 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; |
| ● | continued increases in pricing and/or further tightening supply chain; |
| ● | fund capital expenditures from cash from operations and/or financing; |
| ● | impact from COVID-19 and economic conditions; |
| ● | continue improvement in waste receipts and project work; |
| ● | submitted bid; |
| ● | fund remediation expenditures for sites from funds generated internally; |
| ● | ownership percentage interest upon finalization of partnership agreement; |
| ● | investment requirement upon finalization of joint venture; |
| 25 |
| ● | positive trends; |
| ● | 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; |
| ● | ERC refund; |
| ● | remediation of material weakness; |
| ● | future price increases; and |
| ● | continuation of contracts with federal government. |
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 or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts; |
| ● | renegotiation of contracts involving government agencies; |
| ● | 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 and economic uncertainties; |
| 26 |
| ● | new governmental regulations; |
| ● | lender refuses to waive non-compliance or revise our covenant so that we are in compliance; |
| ● | continued supply chain interruptions; |
| ● | continued inflationary pressures; |
| ● | recession; |
| ● | challenge by regulatory authorities of our claim to the ERTC; and |
| ● | risk factors and other factors set forth in “Special Note Regarding Forward-Looking Statements” contained in the Company’s 2021 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 quarters 2022 Form 10-Qs and this third quarter 2022 Form 10-Q. |
Overview
Revenue increased by $2,675,000 or 16.9% to $18,472,000 for the three months ended September 30, 2022 from $15,797,000 for the corresponding period of 2021. Services Segment revenue increased to $9,595,000 from $6,904,000 or approximately 39.0%. The increase was primarily due to achievement of full operational status on certain projects which had been delayed due to COVID-19 impact and/or administrative delays experienced by certain customers since the award of the projects to us late in the second quarter of 2021. As previously disclosed, starting in the second quarter of 2022, work under these projects had resumed/increased as the pandemic impacts began to subside and has since reached full operational status. Treatment Segment revenue decreased slightly by $16,000 or 0.2% for the third quarter of 2022 as compared to the corresponding period of 2021. Treatment Segment revenue for the three months ended September 30, 2021 included approximately $1,286,000 recognized from a significant request for equitable adjustment (“REA”) under a government waste generator contract resulting from certain pricing provisions of the contract. Excluding this REA, Treatment Segment revenue increase approximately $1,270,000 or 16.7% in the third quarter of 2022 primarily due to higher waste volume which was offset by lower averaged price waste due to revenue mix. As previously disclosed, starting in the latter part of the second quarter of 2022, our Treatment Segment began to see improvements in waste receipt from certain customers who had previously delayed waste shipments due, in part, from the impact of COVID-19 which is reflected in our Treatment Segment waste backlog of $7,088,000 at September 30, 2022, an increase of approximately $967,000 or 15.8% from the balance of $6,121,000 at March 31, 2022. Our Treatment Segment revenue was negatively impacted by delays in waste shipments from certain customers at our Florida facility due to Hurricane Ian. We continue to have bids currently submitted in both segments and are awaiting awards. At this time, we expect to see continued steady improvements in waste receipts and increase work from projects, subject to potential impact of COVID-19 and other impacts (See “COVID-19 and Other Impacts” below for a discussion of uncertainties that COVID-19 and other economic impacts may have on the Company’s future results of operations).
Overall gross profit increased by $846,000 or 38.0%. Excluding the REA recorded in the third quarter of 2021 as discussed above, gross profit increased in both segments where Treatment Segment gross profit increased by approximately $766,000 primarily due to higher revenue from higher waste volume which was partially offset by lower averaged priced waste from revenue mix and Services Segment gross profit increased by approximately $1,366,000 due to higher revenue from increased work. Selling, General, and Administrative (“SG&A”) expenses increased $581,000 or 17.4% for the three months ended September 30, 2022 as compared to the corresponding period of 2021.
During the third quarter of 2022, we recorded approximately $1,975,000 in other income and other receivables (within current assets in our Consolidated Balance Sheets), which represent an employee retention credit that we are eligible for under the CARES Act (as amended) as result of the COVID-19 pandemic (see “Employee Retention Credit (“ERC”)”) within this MD&A for a discussion of this refund that we are expecting resulting from this tax credit).
| 27 |
Revenue decreased by $1,233,000 or 2.2% to $53,842,000 for the nine month ended September 30, 2022 from $55,075,000 for the corresponding period of 2021. The decrease was entirely within our Services Segment where revenue decreased to $29,093,000 from $30,981,000 or approximately 6.1%. As previously disclosed, work under certain of the new projects awarded to our Services Segment at the end of the second quarter of 2021 continued to be delayed/curtailed into most of the first quarter of 2022 due to COVID-19 impact and/or administrative delays experienced by certain customers. However, as discussed above, work under these projects had resumed/increased starting in the second quarter of 2022 and has since reached full operational status. The lower revenue in the first nine months of 2022 was further exacerbated by the completion of a large project in the second quarter of 2021 which was not replaced with a similar size contract because of delays in contract awards and procurement from COVID-19 impact in the first half of 2021. Our Treatment Segment revenue increased by $655,000 or 2.7%. As discussed above, our Treatment Segment revenue for the three months ended September 30, 2021 included approximately $1,286,000 recognized from a significant REA under a government waste generator contract resulting from certain pricing provisions of the contract. Excluding this REA, the increase in revenue of $1,941,000 or 8.5% for the nine months ended September 30, 2022 was primarily due to higher waste volume which was offset by lower averaged price waste due to revenue mix.
Overall gross profit for the nine months ended September 30, 2022 increased $2,044,000 or 36.9%. Excluding the REA recorded in the third quarter of 2021 as discussed above, gross profit increased in both segments where Treatment Segment gross profit increased by approximately $609,000 primarily due to higher revenue from higher waste volume which was partially offset by lower averaged priced waste from revenue mix and Services Segment gross profit increased by approximately $2,721,000 due to higher revenue from increased work. SG&A expenses increased $1,485,000 or 15.5% for the nine months ended September 30, 2022 as compared to the corresponding period of 2021.
COVID-19 and Other Impacts
Since the start of the COVID-19 pandemic, our financial results have been impacted by delays in waste shipments from certain customers, delays in procurement actions and contract awards, and delays/curtailment in work under projects. However, as disclosed above, we continue to see steady waste receipt improvements and work under projects resume/increase as our customers continue to ease up on COVID-19 restrictions. We continue to have submitted bids awaiting awards in both segments. At this time, we expect these positive trends to continue; however, such may not be the case based on the uncertainty of COVID-19 and how our customers respond to COVID-19. Even if the pandemic continues to subside, we may continue to experience adverse effect on our business and financial results because of economic impacts, including labor shortages, supply chain disruptions, as well as continued inflation or potential recession (see “Known Trends and Uncertainties” – “Supply Chain” and “Inflation and Cost Increases” within this MD&A).
We believe we have sufficient liquidity on hand to continue business operations during the next twelve months. At September 30, 2022, we had borrowing availability under our revolving credit facility of approximately $4,548,000 which was based on a percentage of eligible receivables and subject to certain reserves. As a result of an amendment to our Loan Agreement that we entered into with our lender in August 2022, we are required to maintain a minimum of $3,000,000 in borrowing availability under our revolving credit until the minimum FCCR requirement for the quarter ended December 31, 2022 has been met and certified to our lender (see “Financing Activities” within this MD&A for a discussion of this amendment). We continue to assess ways to improve our liquidity and the need in reducing operating costs during this volatile time. Reducing operating costs may include curtailing certain capital expenditures and eliminating non-essential expenditures.
We continue to closely monitor 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.
As the situations surrounding COVID-19 and the countries’ economic conditions continue to remain fluid, the full impact and extent of the pandemic and the countries’ economic conditions on our financial results and liquidity cannot be estimated with any degree of certainty. We continue to closely monitor the impact of both the COVID-19 pandemic and the countries’ economic conditions on all aspects of our business.
| 28 |
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 potential further impact from COVID-19. In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option, and our governmental contracts/task orders with the Canadian government authorities also allow the authorities to terminate the contract/task orders at any time for convenience. Work under all of our contracts/task order agreements with Canadian government authorities has substantially been completed. A significant account receivable due to PF Canada is subject to continuing negotiations. See “Known Trends and Uncertainties – Perma-Fix Canada, Inc. (“PF Canada”)” for additional discussion as to a terminated Canadian TOA. 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.
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.
Based upon current regulations, for the Company’s 2022 Form 10-K, we will continue to be a SRC but no longer an accelerated filer.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment and Services. Our financial results for 2021 also included our Medical Segments. As previously disclosed, we made the strategic decision to cease all R&D activities under the Medical Segment and sold 100% of our interest in PFM Poland (which comprised the Medical Segment) in December 2021. Our Medical Segment had not generated any revenue and was involved in our medical isotope production technology. All costs previously incurred by the Medical Segment were included within R&D.
Summary – Three and Nine Months Ended September 30, 2022 and 2021
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| Consolidated (amounts in thousands) | 2022 | % | 2021 | % | 2022 | % | 2021 | % | ||||||||||||||||||||||||
| Net revenues | $ | 18,472 | 100.0 | $ | 15,797 | 100.0 | $ | 53,842 | 100.0 | $ | 55,075 | 100.0 | ||||||||||||||||||||
| Cost of goods sold | 15,402 | 83.4 | 13,573 | 85.9 | 46,252 | 85.9 | 49,529 | 89.9 | ||||||||||||||||||||||||
| Gross profit | 3,070 | 16.6 | 2,224 | 14.1 | 7,590 | 14.1 | 5,546 | 10.1 | ||||||||||||||||||||||||
| Selling, general and administrative | 3,929 | 21.3 | 3,348 | 21.2 | 11,035 | 20.5 | 9,550 | 17.3 | ||||||||||||||||||||||||
| Research and development | 69 | .3 | 243 | 1.5 | 245 | .5 | 538 | 1.0 | ||||||||||||||||||||||||
| Loss on disposal of property and equipment | — | — | 1 | — | 1 | — | 1 | — | ||||||||||||||||||||||||
| Loss from operations | (928 | ) | (5.0 | ) | (1,368 | ) | (8.6 | ) | (3,691 | ) | (6.9 | ) | (4,543 | ) | (8.2 | ) | ||||||||||||||||
| Interest income | 29 | .2 | 2 | — | 69 | .1 | 23 | — | ||||||||||||||||||||||||
| Interest expense | (47 | ) | (.2 | ) | (77 | ) | (.5 | ) | (123 | ) | (.2 | ) | (209 | ) | (.4 | ) | ||||||||||||||||
| Interest expense-financing fees | (16 | ) | (.1 | ) | (11 | ) | (.1 | ) | (44 | ) | — | (28 | ) | (.1 | ) | |||||||||||||||||
| Other | 1,965 | 10.6 | (1 | ) | — | 1,960 | 3.6 | — | — | |||||||||||||||||||||||
| Gain on extinguishment of debt | — | — | — | — | — | — | 5,381 | 9.8 | ||||||||||||||||||||||||
| Income (loss) from continuing operations before taxes | 1,003 | 5.5 | (1,455 | ) | (9.2 | ) | (1,829 | ) | (3.4 | ) | 624 | 1.1 | ||||||||||||||||||||
| Income tax expense (benefit) | 179 | 1.0 | (2,836 | ) | (17.9 | ) | (147 | ) | (.3 | ) | (2,840 | ) | (5.2 | ) | ||||||||||||||||||
| Income (loss) from continuing operations, net of taxes | $ | 824 | 4.5 | $ | 1,381 | 8.7 | $ | (1,682 | ) | (3.1 | ) | $ | 3,464 | 6.3 | ||||||||||||||||||
| 29 |
Revenues
Consolidated revenues increased $2,675,000 for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, as follows:
| (In thousands) | 2022 | % Revenue | 2021 | % Revenue | Change | % Change | ||||||||||||||||||
| Treatment | ||||||||||||||||||||||||
| Government waste | $ | 5,475 | 29.7 | $ | 6,164 | 39.0 | $ | (689 | ) | (11.2 | ) | |||||||||||||
| Hazardous/non-hazardous (1) | 1,150 | 6.2 | 1,094 | 6.9 | 56 | 5.1 | ||||||||||||||||||
| Other nuclear waste | 2,252 | 12.2 | 1,635 | 10.4 | 617 | 37.7 | ||||||||||||||||||
| Total | 8,877 | 48.1 | 8,893 | 56.3 | (16 | ) | (0.2 | ) | ||||||||||||||||
| Services | ||||||||||||||||||||||||
| Nuclear services | 9,360 | 50.7 | 6,505 | 41.2 | 2,855 | 43.9 | ||||||||||||||||||
| Technical services | 235 | 1.2 | 399 | 2.5 | (164 | ) | (41.1 | ) | ||||||||||||||||
| Total | 9,595 | 51.9 | 6,904 | 43.7 | 2,691 | 39.0 | ||||||||||||||||||
| Total | $ | 18,472 | 100.0 | $ | 15,797 | 100.0 | $ | 2,675 | 16.9 | |||||||||||||||
(1) Includes wastes generated by government clients of $540,000 and $597,000 for the three month ended September 30, 2022 and the corresponding period of 2021, respectively.
Treatment Segment revenue decreased by $16,000 or 0.2% for the three months ended September 30, 2022 over the same period in 2021. Treatment Segment revenue for the three months ended September 30, 2021 included a significant REA in the amount of approximately $1,286,000 recognized under a government waste generator contract resulting from certain pricing provisions of the contract. Excluding this REA, the overall increase in revenue of $1,270,000 or 16.7% was primarily due to higher waste volume which was partly offset by lower averaged price waste due to revenue mix. As previously disclosed, since the latter part of the second quarter of 2022, our Treatment Segment began to see improvement in waste receipts from certain customers who had previously delayed waste shipments due, in part, to impact of COVID-19. This improvement has continued in the third quarter but was partly negatively impacted by some delays in waste shipment from certain customers at our Florida facility from Hurricane Ian. Services Segment revenue increased by approximately $2,691,000 or 39.0% primarily due to achievement of full operational status on certain projects which had previously been delayed/curtailed due to COVID-19 impact and/or administrative delays experienced by certain customers since the award of these projects to us late in the second quarter of 2021. Since the second quarter of 2022, work under these projects had resumed/increased and has since reached full operational status. 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 $1,233,000 for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, as follows:
| (In thousands) | 2022 | % Revenue | 2021 | % Revenue | Change | % Change | ||||||||||||||||||
| Treatment | ||||||||||||||||||||||||
| Government waste | $ | 16,666 | 31.0 | $ | 15,653 | 28.4 | $ | 1,013 | 6.5 | |||||||||||||||
| Hazardous/non-hazardous (1) | 3,515 | 6.5 | 3,722 | 6.8 | (207 | ) | (5.6 | ) | ||||||||||||||||
| Other nuclear waste | 4,568 | 8.5 | 4,719 | 8.5 | (151 | ) | (3.2 | ) | ||||||||||||||||
| Total | 24,749 | 46.0 | 24,094 | 43.7 | 655 | 2.7 | ||||||||||||||||||
| Services | ||||||||||||||||||||||||
| Nuclear services | 28,320 | 52.6 | 29,832 | 54.2 | (1,512 | ) | (5.1 | ) | ||||||||||||||||
| Technical services | 773 | 1.4 | 1,149 | 2.1 | (376 | ) | (32.7 | ) | ||||||||||||||||
| Total | 29,093 | 54.0 | 30,981 | 56.3 | (1,888 | ) | (6.1 | ) | ||||||||||||||||
| Total | $ | 53,842 | 100.0 | $ | 55,075 | 100.0 | $ | (1,233 | ) | (2.2 | ) | |||||||||||||
(1) Includes wastes generated by government clients of $1,652,000 and $1,886,000 for the nine month ended September 30, 2022 and the corresponding period of 2021, respectively.
| 30 |
Treatment Segment revenue increased by $655,000 or 2.7% for the nine months ended September 30, 2022 over the same period in 2021. Excluding the significant REA of $1,286,000 recorded in the third quarter of 2021 as discussed above, the overall increase in revenue of $1,941,000 or 8.5% was primarily due to higher waste volume as we continue to see steady improvements in waste receipts as our customers continue to ease up on COVID-19 restrictions. As disclosed above, this steady improvement in waste receipts was negatively impacted by some delays in waste shipment from certain customers at our Florida facility from Hurricane Ian. The higher revenue from higher waste volume was offset by lower averaged price waste from revenue mix. Services Segment revenue decreased by approximately $1,888,000 or 6.1%. As previously disclosed, work under certain of the new projects awarded to our Services Segment at the end of the second quarter of 2021 continued to be delayed/curtailed into most of the first quarter of 2022 due to COVID-19 impact and/or administrative delays experienced by certain customers. However, as previously disclosed, since the second quarter of 2022, work under these projects had resumed/increased and has since reached full operational status. The lower revenue in the first nine months of 2022 was further exacerbated by the completion of a large project in the second quarter of 2021 which was not replaced with a similar size contract because of delays in contract awards and procurement from COVID-19 impact in the first half 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.
Cost of Goods Sold
Cost of goods sold increased $1,829,000 for the quarter ended September 30, 2022, as compared to the quarter ended September 30, 2021, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2022 | Revenue | 2021 | Revenue | Change | |||||||||||||||
| Treatment | $ | 6,910 | 77.8 | $ | 6,406 | 72.0 | $ | 504 | ||||||||||||
| Services | 8,492 | 88.5 | 7,167 | 103.8 | 1,325 | |||||||||||||||
| Total | $ | 15,402 | 83.4 | $ | 13,573 | 85.9 | $ | 1,829 | ||||||||||||
Cost of goods sold for the Treatment Segment increased by approximately $504,000 or 7.9%. Treatment Segment’s variable costs increased by approximately $365,000 primarily in transportation and material and supplies costs. Treatment Segment’s overall fixed costs were higher by approximately $139,000 resulting from the following: general expenses were higher by $96,000 mostly due to higher utility costs; depreciation expenses were higher by approximately $65,000 due to depreciation for asset retirement obligations in connection with our EWOC facility; maintenance costs were higher by approximately $36,000; regulatory expenses were lower by approximately $16,000; travel expenses were lower by approximately $20,000 and payroll related and travel costs were lower by approximately $22,000. Services Segment cost of goods sold increased $1,325,000 or 18.5% primarily due to higher revenue. The increase in cost of goods sold was primarily due to higher salaries/payroll related costs, travel, outside services and general costs totaling approximately $1,451,000. The overall higher costs were offset by lower disposal and materials and supplies costs. Included within cost of goods sold is depreciation and amortization expense of $471,000 and $403,000 for the three months ended September 30, 2022, and 2021, respectively.
| 31 |
Cost of goods sold decreased $3,277,000 for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2022 | Revenue | 2021 | Revenue | Change | |||||||||||||||
| Treatment | $ | 20,581 | 83.2 | $ | 19,249 | 79.9 | $ | 1,332 | ||||||||||||
| Services | 25,671 | 88.2 | 30,280 | 97.7 | (4,609 | ) | ||||||||||||||
| Total | $ | 46,252 | 85.9 | $ | 49,529 | 89.9 | $ | (3,277 | ) | |||||||||||
Cost of goods sold for the Treatment Segment increased by approximately $1,332,000 or 6.9%. Treatment Segment’s variable costs increased by approximately $593,000 primarily due to higher material and supplies, transportation, and outside services costs. Treatment Segment’s overall fixed costs were higher by approximately $739,000 resulting from the following: salaries and payroll related expenses were higher by $97,000 as in the prior year, more vacation hours were used by employees during the first nine months of 2021 which reduced the first nine months prior year payroll costs; general expenses were higher by $380,000 mostly due to higher utility costs; depreciation expenses were higher by approximately $193,000 due to depreciation for asset retirement obligations in connection with our EWOC facility; regulatory expenses were higher by approximately $16,000; maintenance costs were higher by approximately $86,000; and travel expenses were lower by approximately $33,000. Services Segment cost of goods sold decreased $4,609,000 or 15.2% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll related, disposal and outside services costs totaling approximately $5,195,000 which was offset by higher material and supplies and general expenses. Included within cost of goods sold is depreciation and amortization expense of $1,373,000 and $1,191,000 for the nine months ended September 30, 2022, and 2021, respectively.
Gross Profit
Gross profit for the quarter ended September 30, 2022 increased $846,000 over the same period of 2021, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2022 | Revenue | 2021 | Revenue | Change | |||||||||||||||
| Treatment | $ | 1,967 | 22.2 | $ | 2,487 | 28.0 | $ | (520 | ) | |||||||||||
| Services | 1,103 | 11.5 | (263 | ) | (3.8 | ) | 1,366 | |||||||||||||
| Total | $ | 3,070 | 16.6 | $ | 2,224 | 14.1 | $ | 846 | ||||||||||||
Treatment Segment gross profit decreased by $520,000 or 20.9%. Excluding the significant REA of approximately $1,286,000 recorded during the third quarter of 2021 as discussed above, Treatment Segment gross profit increased by approximately $766,000 or 63.8% and gross margin increased to 22.2% from 15.8% primarily due to increased waste volume which was partly offset by lower averaged price waste from revenue mix. Services Segment gross profit increased by $1,366,000 or 519.4% and gross margin increased to 11.5% from a negative 3.8% primarily due to higher revenue and higher 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, 2022 increased $2,044,000 over the same period in 2021, as follows:
| % | % | |||||||||||||||||||
| (In thousands) | 2022 | Revenue | 2021 | Revenue | Change | |||||||||||||||
| Treatment | $ | 4,168 | 16.8 | $ | 4,845 | 20.1 | $ | (677 | ) | |||||||||||
| Services | 3,422 | 11.8 | 701 | 2.3 | 2,721 | |||||||||||||||
| Total | $ | 7,590 | 14.1 | $ | 5,546 | 10.1 | $ | 2,044 | ||||||||||||
Treatment Segment gross profit decreased by $677,000 or 14.0%. Excluding the significant REA of approximately $1,286,000 recorded in the third quarter of 2021 as discussed above, Treatment Segment gross profit increased $609,000 or 17.1% and gross margin increased to 16.8% from 15.6% primarily due to higher revenue from higher waste volume which was offset by lower averaged price waste from revenue mix and the impact of our fixed costs which continue to include much higher utility costs. Services Segment gross profit increased by $2,721,000 or 388.2% and gross margin increased from 2.3% to 11.8% primarily due to higher revenue and more higher 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.
| 32 |
SG&A
SG&A expenses increased $581,000 for the three months ended September 30, 2022, as compared to the corresponding period for 2021, as follows:
| (In thousands) | 2022 | % Revenue | 2021 | % Revenue | Change | |||||||||||||||
| Administrative | $ | 1,826 | — | $ | 1,580 | — | $ | 246 | ||||||||||||
| Treatment | 1,144 | 12.9 | 1,066 | 12.0 | 78 | |||||||||||||||
| Services | 959 | 10.0 | 702 | 10.2 | 257 | |||||||||||||||
| Total | $ | 3,929 | 21.3 | $ | 3,348 | 21.2 | $ | 581 | ||||||||||||
Administrative SG&A expenses were higher primarily due to the following: overall outside services expenses were higher by approximately $157,000 from higher consulting/outside services/audit fees; travel expenses were higher by approximately $6,000; general expenses were higher by approximately $12,000 in various categories; and salaries and payroll related expenses were higher by approximately $71,000 due to higher stock-based compensation expenses from options granted to certain employees in October 2021 and higher 401(k) plan matching expenses as our payroll expenses in the third quarter of 2021 included forfeitures of 401(k) plan matching funds contributed by us for former employees who failed to meet the 401(k) plan vesting requirements. Additionally, Administrative salaries and payroll related expenses were higher in the quarter as in 2021, resources were allocated in supporting Medical Segment’s R&D/administrative functions. Treatment Segment SG&A expenses were higher primarily due to the following: outside services expense were higher by $32,000 due to more consulting/business matters; general expenses were higher by approximately $54,000 which included higher tradeshow expenses and various other categories; salaries and payroll related expenses were higher by approximately $10,000; and travel expense were lower by approximately $18,000. The increase in Services Segment SG&A was primarily due to higher salaries/payroll related and consulting expenses totaling approximately $176,000 due to bid and proposals efforts; higher travel expenses by approximately $14,000 and higher general expenses by approximately $67,000 which included higher tradeshow expenses and various other categories. Included in SG&A expenses is depreciation and amortization expense of $26,000 and $6,000 for the three months ended September 30, 2022, and 2021, respectively.
SG&A expenses increased $1,485,000 for the nine months ended September 30, 2022, as compared to the corresponding period for 2021, as follows:
| (In thousands) | 2022 | % Revenue | 2021 | % Revenue | Change | |||||||||||||||
| Administrative | $ | 5,278 | — | $ | 4,243 | — | $ | 1,035 | ||||||||||||
| Treatment | 3,302 | 13.3 | 2,945 | 12.2 | 357 | |||||||||||||||
| Services | 2,455 | 8.4 | 2,362 | 7.6 | 93 | |||||||||||||||
| Total | $ | 11,035 | 20.5 | $ | 9,550 | 17.3 | $ | 1,485 | ||||||||||||
Administrative SG&A expenses were higher primarily due to the following: overall outside services expenses were higher by approximately $491,000 resulting from higher consulting/outside services/audit fees; travel expenses were higher by approximately $31,000; general expenses were higher by approximately $32,000 in various categories; and salaries and payroll related expenses were higher by approximately $481,000 primarily due to higher stock-based compensation expenses from options granted to certain employees in October 2021 and higher 401(k) plan matching expenses as our payroll expenses in the first nine months of 2021 included forfeitures of 401(k) plan matching funds contributed by us for former employees who failed to meet the 401(k) plan vesting requirements. Additionally, Administrative salaries and payroll related expenses were higher as in 2021, resources were allocated in supporting Medical Segment’s R&D/administrative functions. Treatment Segment SG&A expenses were higher primarily due to the following: salaries and payroll related expenses were higher by approximately $84,000 as in the prior year, more vacation hours were used by employees during the first nine months of 2021 which reduced the first nine months prior year payroll costs; outside services expense were higher by $76,000 due to more consulting/business matters (including our Environmental, Social and Governance initiatives); travel expense were higher by approximately $39,000; and general expenses were higher by $158,000 which included higher tradeshow expenses and various other categories. The increase in SG&A expenses within our Services Segment was primarily due to the following: travel expenses were higher by $32,000; general expenses were higher by approximately $95,000 which included higher tradeshow expenses and various other categories; and salaries/payroll related and consulting expenses were lower by approximately $34,000 as in 2021, increased hours and consulting costs were spent on bid and proposal efforts. Included in SG&A expenses is depreciation and amortization expense of $60,000 and $17,000 for the nine months ended September 30, 2022 and 2021, respectively.
| 33 |
R&D
R&D expenses decreased $174,000 and 293,000 for the three and nine months ended September 30, 2022, respectively, as compared to the corresponding period of 2021.
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||||||||||
| (In thousands) | 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||
| Administrative | $ | 14 | $ | 11 | $ | 3 | $ | 43 | $ | 35 | $ | 8 | ||||||||||||
| Treatment | 55 | 52 | 3 | 179 | 142 | 37 | ||||||||||||||||||
| Services | — | 18 | (18 | ) | 23 | 50 | (27 | ) | ||||||||||||||||
| PF Medical | — | 162 | (162 | ) | — | 311 | (311 | ) | ||||||||||||||||
| Total | $ | 69 | $ | 243 | $ | (174 | ) | $ | 245 | $ | 538 | $ | (293 | ) | ||||||||||
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. The decrease was primarily the result of the sale of PF Poland in December 2021 which comprised of our Medical Segment and which previously was involved in the R&D of our medical isotope technology.
Interest Income
Interest income increased by approximately $27,000 and $46,000 for the three and nine months ended September 30, 2022, respectively, as compared to the corresponding period of 2021 primarily due to higher interest earned from lower finite risk sinking fund.
Interest Expense
Interest expense decreased by approximately $30,000 and $86,000 for the three and nine months ended September 30, 2022, respectively, as compared to the corresponding period of 2021 primarily due to lower interest expense from our declining term loan balance outstanding. Also, interest expense for the first six months of 2021 included interest accrued for our Paycheck Protection Program Loan which was forgiven by the U.S. Small Business Administration effective June 15, 2021.
Income Taxes
We had income tax expense of $179,000 and income tax benefit of $2,836,000 for continuing operations for the three months ended September 30, 2022 and 2021, respectively, and income tax benefits of $147,000 and $2,840,000 for the nine months ended September 30, 2022 and 2021, respectively. Our effective tax rates were approximately 17.8% and 194.9% for the three months ended September 30, 2022 and 2021, respectively, and 8.0% and (455.1%) for the nine months ended September 30, 2022 and 2021, respectively. Our effective tax rates for the three and nine months ended September 30, 2022 were impacted by non-deductible expenses and state taxes. Our effective tax rates for the three and nine months ended September 30, 2021 were substantially impacted by the release of our valuation allowance during the third quarter of 2021. 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 release of valuation allowance and the forgiveness of our PPP Loan which was included in our Consolidated Statement of Operations as “Gain on extinguishment of debt” but is exempt from income taxes.
| 34 |
Liquidity and Capital Resources
Our cash flow requirements during the nine months ended September 30, 2022 were primarily financed by our operations, cash on hand and credit facility availability. Subject to COVID-19 and other impacts 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, cash on hand and a refund that we expect to receive under the ERC program under the CARES Act, as amended (see a discussion of this expected refund below – “Employee Retention Credit (“ERC”)). We continue to explore all sources of increasing our capital and/or liquidity and to improve our revenue and working capital. 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 cash on hand and the expected refund from the ERC program should be sufficient to fund our operations for the next twelve months. However, due to the uncertainty of COVID-19 as disclosed in “COVID-19 and Other Impacts” within this MD&A, there are no assurances such will be the case.
The following table reflects the cash flow activities during the first nine months of 2022:
| (In thousands) | ||||
| Cash used in operating activities of continuing operations | $ | (334 | ) | |
| Cash used in operating activities of discontinued operations | (559 | ) | ||
| Cash used in investing activities of continuing operations | (922 | ) | ||
| Cash used in financing activities of continuing operations | (694 | ) | ||
| Effect of exchange rate changes in cash | (4 | ) | ||
| Decrease in cash and finite risk sinking fund (restricted cash) | $ | (2,513 | ) | |
At September 30, 2022, we were in a positive cash position with no revolving credit balance. At September 30, 2022, we had cash on hand of approximately $1,858,000.
Operating Activities
Accounts receivable, net of allowances for doubtful accounts, totaled $9,993,000 at September 30, 2022, a decrease of $1,379,000 from the December 31, 2021 balance of $11,372,000. The decrease was attributed to timing of invoicing and timing of our accounts receivable collection. 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, our contracts with our customers may sometimes result in modifications which can cause delays in collections. Our accounts receivable at September 30, 2022 include invoices for work performed which previously was in our unbilled account for a certain Canadian project that remain outstanding and subject to negotiations (see unbilled receivables discussion below). See discussion under “Known Trends and Uncertainties – Perma-Fix Canada, Inc. (“PF Canada”) for a discussion as to certain account receivable.
Unbilled receivables totaled $6,306,000 at September 30, 2022, a decrease of $2,689,000 from the December 31, 2021 balance of $8,995,000. The decrease in unbilled receivables was primarily within our Services Segment due to invoicing in connection with our Canadian projects.
Accounts payable, totaled $10,37,000 at September 30, 2022, a decrease of $1,605,000 from the December 31, 2021 balance of $11,975,000. 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.
| 35 |
We had working capital of $1,505,000 (which included working capital of our discontinued operations) at September 30, 2022, as compared to working capital of $4,060,000 at December 31, 2021. Our working capital was negatively impacted primarily by our results of operations which were heavily impacted from COVID-19 and other delays, especially in the first quarter of 2022. Additionally, our working capital was negatively impacted by the reclass of approximately $400,000 in remediation reserve within our discontinued operations from long-term to current and the approximately $621,000 in additional current closure liabilities recorded for our EWOC facility. Our working capital was positively impacted by the employee retention credit in the amount of approximately $1,975,000 recorded as current receivables (within “Prepaid and other assets” in our Consolidated Balance Sheets. See a discussion of this credit below “Employee Retention Credit (“ERC”)”).
Investing Activities
For the nine months ended September 30, 2022, our purchases of capital equipment totaled approximately $1,061,000, of which $114,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2022 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.
During March 2022, we signed a joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”) in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European nuclear market. It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five (55) percent and our interest will be forty-five (45) percent. The finalization, form and capitalization of this unpopulated partnership is subject to numerous conditions, including but not limited to, winning a certain contract, completion and execution of a definitive agreement and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast future economic conditions. Upon finalization of this venture, we will be required to make an investment in this venture. The amount of our investment, the period of which it is to be made and the method of funding are to be determined.
Financing Activities
We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, (the “Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement provided 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. Our Loan Agreement, as amended (the “Amended Loan Agreement”), also provides 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. 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 Amended Loan Agreement, any unpaid principal balance plus interest, if any, will become due. At the end of the Borrowing Period, advance on the capital line totaled approximately $524,000. We are required to make monthly principal installment payment of approximately $8,700 starting June 1, 2022 plus interest. At September 30, 2022, balance on the capital line was approximately $480,000. The advance made on the capital line was used to purchase the underlying asset under a previous finance lease.
| 36 |
On March 29, 2022, we entered into an amendment to our Amended Loan Agreement with our lender which provided, among other things, the following:
| ● | waived our failure to meet the minimum quarterly FCCR requirement for the fourth quarter of 2021; | |
| ● | removes the quarterly FCCR testing requirement for the first quarter of 2022; | |
| ● | reinstates the quarterly FCCR testing requirement starting for the second quarter of 2022 and revises the methodology to be used in calculating the FCCR for the quarters ending June 30, 2022, September 30, 2022, and December 31, 2022 (with no change to the minimum 1.15:1 ratio requirement for each quarter); | |
| ● | 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 June 30, 2022 has been met and certified to the lender; and | |
| ● | revises the annual rate used to calculate the Facility Fee (as defined in the Loan Agreement) on the revolving credit, with addition of the capital expenditure line, from 0.375% to 0.500%. Upon meeting the minimum FCCR requirement of 1.15:1 on a twelve month trailing basis, the Facility Fee rate of 0.375% will be reinstated. |
In connection with the amendment, we paid our lender a fee of $15,000 which is being amortized over the remaining term of the Amended Loan Agreement as interest expense-financing fees.
On August 2, 2022, we entered into an amendment to our Amended Loan Agreement with our lender which provided the following, among other things:
| ● | waived our failure to meet the minimum quarterly FCCR requirement for the second quarter of 2022; | |
| ● | removes the quarterly FCCR testing requirement for the third quarter of 2022; | |
| ● | reinstates the quarterly FCCR testing requirement starting for the fourth quarter of 2022 and revises the methodology to be used in calculating the FCCR for the quarters ending December 31, 2022 and March 31, 2023 (with no change to the minimum 1.15:1 ratio requirement for each quarter); | |
| ● | 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, 2022 has been met and certified to the lender. |
In connection with the amendment, we paid our lender a fee of $15,000 which is being amortized over the remaining term of the Amended Loan Agreement as interest expense-financing fees.
Our credit facility under our Amended Loan Agreement with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. We were not required to perform testing of the FCCR requirement in the first and third quarters of 2022 pursuant to the March 29, 2022 and August 2, 2022 amendments, respectively, as discussed above. We failed to meet our FCCR requirement in the second quarter of 2022; however, this non-compliance was waived by our lender pursuant to the August 2, 2022 amendment as discussed above. Other than the FCCR covenant discussion above, we met all of our other financial covenant requirements in the first, second and third quarters of 2022. We expect to meet our quarterly financial covenant requirements for the next twelve months under our Amended Loan Agreement.
| 37 |
On August 29, 2022, we entered into an amendment to our Amended Loan Agreement with our lender which set forth certain revisions to our Amended Loan Agreement, with the amended terms set forth in a revised Loan Agreement. The new revisions to the Amended Loan Agreement (the “Revised Loan Agreement”) among other things, replaced the London InterBank Offer Rate (“LIBOR”) based interest rate benchmark with the Secured Overnight Finance Rate (“SOFR”) and added certain additional anti-terrorism provisions to the covenants contained in the Amended Loan Agreement. As a result of this amendment, payment of annual rate of interest due on the revolving credit is at prime (6.25% at September 30, 2022) plus 2% or Term SOFR Rate (as defined in the Revised Loan Agreement) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by us and payment of annual rate of interest due on the term loan and the capital expenditure line is at prime plus 2.50% or Term SOFR Rate plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by us. Pursuant to the Revised Loan Agreement, SOFR Adjustment rates of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by us.
After May 7, 2022, we may terminate its Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the Revised Loan Agreement with no early termination fees.
Employee Retention Credit (“ERC”)
The CARES Act, which was enacted on March 27, 2020, provides an ERC for qualifying businesses keeping employees on their payroll during the COVID-19 pandemic. The ERC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERC availability and guidelines under the CARES Act. Following these amendments, we determined that we were eligible for the ERC, and as a result of the foregoing legislations, are eligible to claim a refundable tax credit against our share of certain payroll taxes equal to 70% of the qualified wages paid to employees between July 1, 2021 and September 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021 for a maximum allowable ERC per employee of $7,000 per calendar quarter in 2021. For purposes of the amended ERC, an eligible employer is defined as having experienced a significant (20% or more) decline in gross receipts during one or more of the first three 2021 calendar quarters when compared to 2019.
During the third quarter of 2022, we determined we were eligible for the ERC and amended our third quarter 2021 employer payroll tax filings claiming a refund from the U.S. Treasury in the amount of approximately $1,975,000. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we account for the ERC by analogy to International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC and recorded the expected refund as other income (within “Other income (expense)”) on our Consolidated Statements of Operations and other receivables (within “Prepaid and other assets”) on our 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, 2022, the total amount of standby letters of credit outstanding totaled approximately $3,016,000 and the total amount of bonds outstanding totaled approximately $59,322,000. 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, 2022, the closure and post-closure requirements for these facilities were approximately $21,175,000.
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, 2021.
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 2022, or will be adopted in future periods.
| 38 |
Known Trends and Uncertainties
Significant Customers. Our Treatment and Services Segments have significant relationships with the U.S governmental authorities through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to government authorities. We also had significant relationships with Canadian government authorities primarily through TOAs entered into with Canadian government authorities. Project work under all TOAs with Canadian government authorities has substantially been completed. The contracts that we are a party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. The contracts/TOAs that we are a party to with Canadian governmental authorities also generally provide that the government authorities may terminate the contracts/TOAs at any time for any reason for convenience. Our inability to continue under existing contracts that we have with the U.S government (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 $15,279,000 or 82.7% and $46,488,000 or 86.3% of our total revenues generated during the three and nine months ended September 30, 2022, respectively, as compared to $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.
COVID-19 Impact. See “COVID-19 and Other Impacts” within this MD&A for a discussion of the impact of COVID-19 and other on our financial results and the potential impact it may have on our future financial results and business operations.
Perma-Fix Canada, Inc. (“PF Canada”)
During the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from CNL on a TOA that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada (“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since been completed. CNL may terminate the TOA at any time for convenience. As of September 30, 2022, PF Canada has approximately $2,385,000 in unpaid receivables due from CNL as a result of work performed under the TOA. Additionally, CNL has approximately $1,044,000 in contractual holdback under the TOA that is payable to PF Canada. CNL also established a bond securing approximately $1,900,000 (CAD) to cover certain issue raised in connection with the TOA. Under the TOA, CNL may be entitled to set off certain costs and expenses incurred by CNL in connection with the termination of the TOA, including the bond as discussed above, against amounts owed to PF Canada for work performed by PF Canada or its subcontractors. PF Canada continues to be in discussions with CNL to finalize the amounts due to PF Canada under the TOA and continues to believe these amounts are due and payable.
Potential Partnership with Springfields Fuels Limited. As discussed above, we have signed a term sheet addressing plans to partner with Springfields Fuels Limited, an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility in the United Kingdom. See “Liquidity and Capital Resources – Investing Activities” of this MD&A for a discussion of this transaction.
Supply Chain. We use various commercially available materials and supplies which include among other things chemicals, containers/drums and personal protective equipment in our operations. We generally source these items from various suppliers in order to take advantage of competitive pricing.
| 39 |
We also utilize various types of equipment, which include among other things trucks, flatbeds, lab equipment, heavy machinery, 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 commercial equipment suppliers for the construction of these equipment. Due to supply chain challenges, we previously experienced a delay in the delivery of a new waste processing unit to us by our supplier due to shortage of parts required for the construction of the unit, among other things, This supply chain interruption delayed deployment of our new technology which negatively impacted our revenue for 2021 and the first quarter of 2022 as associated revenue was not able to be generated. Deployment of this unit commenced in mid-May of 2022. Continued increases in pricing and/or potential delays in procurements of material and supplies and equipment required for our operations resulting from further tightening supply chain could further adversely affect our operations and profitability.
Inflation and Cost Increases. Continued increases in any of our operating costs, including further changes in fuel prices (which impacts our transportation costs), wage rates, supplies, and utility costs, may further increase our overall cost of goods sold or operating expenses. Some of these cost increases have been the result of inflationary pressures that could further reduce profitability. We may attempt to increase our sales prices in order to maintain satisfactory margin; however, competitive pressures in our industry may have the effect of inhibiting our ability to reflect these increased costs in the prices of our services that we provide to our customers and therefore reduce our profitability.
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 believe 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.
We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. We expect to fund the expenses to remediate these sites from funds generated from operations. At September 30, 2022, we had total accrued environmental remediation liabilities of $861,000, a decrease of $15,000 from the December 31, 2021 balance of $876,000. The decrease represents payments for remediation projects. At September 30, 2022, $751,000 of the total accrued environmental liabilities was recorded as current.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not applicable
| 40 |
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 not effective as of September 30, 2022 as a result of the identified material weakness in our internal control over financial reporting as discussed in more detail below and in our 2021 Form 10-K filing. | |
| As previously disclosed in our 2021 Form 10-K, management concluded that a material weakness existed in our internal control over financial reporting because management did not have the appropriate controls in place over the determination of revenue recognition for nonroutine and complex revenue transactions in accordance with ASC 606, “Revenue from Contracts with Customers” in certain contracts that contained nonstandard terms and conditions. | |
| Remediation of Material Weakness in Internal Control Over Financial Reporting | |
| In order to remediate this material weakness, management has implemented its remediation plan which included the following: |
| ● | consultation with third-party expertise for guidance on large and/or unique contracts to ensure ASC 606 guidance are accurately applied and documented; | |
| ● | updated our ASC 606 revenue templates to ensure unique contract provisions are able to be identified so ASC 606 guidance are applied accurately; | |
| ● | instituted more robust collaboration with the Company’s operation personnel to identify nonstandard contract terms in order to determine appropriate treatment under ASC 606; and | |
| ● | continue training of accounting and operations personnel on ASC 606 by subject matter experts and internal financial department to ensure proper application of guidance under ASC 606. |
| Management is committed to improving our internal control processes and believes that the measures described above should remediate the material weakness identified above and strengthen internal control over financial reporting. As we continue to evaluate and improve internal control over financial reporting resulting from the material weakness described above, additional measures to remediate the material weakness may be necessary. The material weakness will not be considered remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. At this time, notwithstanding the material weakness in our internal control over financial reporting as described above, we believe that our consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly present our financial position, results of operations and cash flows for the period covered thereby. | |
| (b) | Changes in internal control over financial reporting. |
| Except for the remediation procedures implemented by the Company as described above, there have been 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. |
| 41 |
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, 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, 2021.
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, 2021, and our Form 10-Q for the quarter ended March 31, 2022.
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. |
| 42 |
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 3, 2022 | By: | /s/ Mark Duff |
Mark Duff President and Chief (Principal) Executive Officer | ||
| Date: November 3, 2022 | By: | /s/ Ben Naccarato |
| Ben Naccarato | ||
| Chief (Principal) Financial Officer | ||
| 43 |