| Business Acquisition |
On October 31, 2011, we completed the acquisition of all of the issued and outstanding shares of capital stock of Safety and Ecology Holdings Corporation ("SEHC") and its subsidiaries, Safety & Ecology Corporation ("Safety & Ecology"), SEC Federal Services Corporation, Safety and Ecology Corporation Limited ("SECL" - a United Kingdom operation) and SEC Radcon Alliance, LLC ("SECRA", which we own 75%), (collectively, "SEC") pursuant to that certain Stock Purchase Agreement, dated July 15, 2011 ("Purchase Agreement"), between the Company, Homeland Capital Security Corporation ("Homeland") and SEHC. SEC is an international provider of environmental, hazardous and radiological remediation infrastructure upgrades and nuclear energy services. SEC provides remediation of nuclear materials for the U.S. government and other commercial customers. We acquired SEC for a total consideration of approximately $17,885,000 determined as follows:
(i) | cash consideration of approximately $14,885,000, after certain working capital closing adjustments. This cash consideration was reduced by approximately $1,000,000 total consideration for our Common Stock purchased from us by certain security holders of Homeland as discussed below; |
(ii) | $2,500,000 unsecured, non-negotiable promissory note (the "Note"), bearing an annual rate of interest of 6%, payable in 36 monthly installments, which Note provides that we have the right to prepay such at any time without interest or penalty. We prepaid $500,000 of the principal amount of the Note within 10 days of closing of the acquisition. The Note may be subject to offset of amounts Homeland owes us for indemnification for breach of, or failure to perform, certain terms and provisions of the Purchase Agreement if the Escrow Agreement has terminated pursuant to its terms or the amount held in escrow has been exhausted pursuant to the terms of the Purchase Agreement. Under the terms of the Note, in the event of a continuing event of default under the Note, Homeland has the option to convert the unpaid portion of the Note into our restricted shares of Common Stock equal to the quotient determined by dividing the principal amount owing under the Note and all accrued and unpaid interest thereon, plus certain expenses, by the average of the closing prices per share of our Common Stock as reported by the primary national securities exchange or automatic quotation system on which our Common Stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by us of Homeland's written notice of its election to receive our Common Stock as a result of the event of default that is continuing; provided that the number of shares of our Common Stock to be issued to Homeland under the Note in the event of a continuing event of default plus the number of shares of our Common Stock issued to the Management Investors, as discussed below, shall not exceed 19.9% of the voting power of all of our voting securities issued and outstanding as of the date of the Purchase Agreement; and |
(iii) | the sum of $2,000,000 deposited in an escrow account to satisfy any claims that we may have against Homeland for indemnification pursuant to the Purchase Agreement and the Escrow Agreement, dated October 31, 2011 ("Escrow Agreement"). On January 3, 2012, we received $1,500,000 of the amount deposited in the escrow account as certain terms pursuant to an agreement entered into by Homeland, SEHC and us at closing of the acquisition were not met by December 31, 2011. |
Pursuant to the terms of the Purchase Agreement, upon closing of the Purchase Agreement, certain security holders of Homeland ("Management Investors") purchased 813,007 restricted shares of our Common Stock for a total consideration of approximately $1,000,000, or $1.23 a share, which was the average of the closing prices of our Common Stock as quoted on the Nasdaq during the 30 trading days ending on the trading day immediately prior to the closing of the acquisition. The purchase of the Company's Common Stock was pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the "Act") or Rule 506 of Regulation D promulgated under the Act. The acquisition was accounted for using the purchase method of accounting, in accordance with FASB ASC 805 - "Business Combinations". The consideration for the acquisition was attributed to net assets on the basis of the fair values of assets acquired and liabilities assumed as of October 31, 2011. The excess of the cost of the acquisition over the estimated fair values of the net tangible assets and intangible assets on the acquisition date, which amounted to $11,215,000 (of which $322,000 was recorded during the first quarter of 2012), was allocated to goodwill which is not amortized but subject to an annual impairment test. The Company has not yet finalized the allocation of the purchase price to the net assets acquired in this acquisition. As such the estimated purchase price allocation is preliminary and subject to further revision. The following table summarizes the preliminary purchase price allocation of the fair values of the assets acquired and liabilities assumed as of March 31, 2012:
(Amounts in thousands) | | | | | | | | | Current assets | | $ | 22,174 | | Property, plant and equipment | | | 2,135 | | Intangible assets | | | 4,084 | | Goodwill | | | 11,215 | | Total assets acquired | | | 39,608 | | Current liabilities | | | (15,797 | ) | Customer contracts | | | (3,465 | ) | Non-current liabilities | | | (2,091 | ) | Total liabilities acquired | | | (21,353 | ) | Non Controlling Interest | | | (370 | ) | Total consideration | | $ | 17,885 | |
The following table summarizes the preliminary components of tangible assets acquired: | | | | | Weighted | | | | | | Average | | | | Preliminary | | Estimated | (Amounts in thousands) | | Fair Value | | Useful Life | | | | | | | Vehicles | | $ | 583 | | 5.0 years | Lab equipment | | | 1,235 | | 7.0 years | Office furniture and equipment | | | 317 | | 4.0 years | Total tangible assets | | $ | 2,135 | | |
The results of operations of SEC have been included in the Company's consolidated financial statements from the date of the closing of the acquisition, which was October 31, 2011. SEC contributed revenues of approximately $18,602,000 and net loss of $1,264,000 for the three months ended March 31, 2012. The Company has incurred $632,000 in acquisition-related costs, of which approximately $20,000 was incurred in the first quarter of 2012. These costs are included in selling, general and administrative expenses in the Company's consolidated statement of operations. The following unaudited pro forma financial information presents the combined results of operations of combining SEC and Perma Fix as though the acquisition had occurred as of the beginning of the periods presented below, which is January 1, 2011. The pro forma financial information does not necessarily represent the results of operations that would have occurred had SEC and Perma Fix been a single company during the periods presented, nor does Perma Fix believe that the pro forma financial information presented is necessarily representative of future operating results. As the acquisition was a stock transaction, none of the goodwill related to SEC is deductible for tax purposes.
(Amounts in Thousands, Except per Share Data) | | | | | | Three Months Ended | | | | | March 31, 2011 | | | | (unaudited) | | Net revenues | | $ | 48,094 | | Net income from continuing operations | | $ | 442 | | Net income per share from continuing operations- basic | | $ | .01 | | Net income per share from continuing operations- diluted | | $ | .01 | |
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