10-K
1
form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
[X]
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2020
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. 1-11596
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Exact
name of registrant as specified in its charter)
Delaware
58-1954497
State
or other jurisdiction of
incorporation or organization
(IRS
Employer
Identification
Number)
8302
Dunwoody Place, #250, Atlanta, GA
30350
(Address
of principal executive offices)
(Zip
Code)
(770)
587-9898
(Registrant’s
telephone number)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading
Symbol
Name
of each exchange on which registered
Common
Stock, $.001 Par Value
PESI
NASDAQ
Capital Markets
Preferred
Stock Purchase Rights
NASDAQ
Capital Markets
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ]
Yes [X] No
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ]
Yes [X] No
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.
[X]
Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).
[X]
Yes [ ] No
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,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer [ ] Accelerated Filer [ ] Non-accelerated Filer [X] Smaller reporting company [X] Emerging
growth company [ ]
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. [ ]
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No
The
aggregate market value of the Registrant’s voting and non-voting common equity held by nonaffiliates of the Registrant computed
by reference to the closing sale price of such stock as reported by NASDAQ as of the last business day of the most recently completed
second fiscal quarter (June 30, 2020), was approximately $72,649,482). For the purposes of this calculation, all directors and
executive officers of the Registrant (as indicated in Item 12) have been deemed to be affiliates. Such determination should not
be deemed an admission that such directors and executive officers, are, in fact, affiliates of the Registrant. The Company’s
Common Stock is listed on the NASDAQ Capital Markets.
As
of February 18, 2021, there were 12,165,734 shares of the registrant’s Common Stock, $.001 par value, outstanding.
Documents
incorporated by reference: None
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
INDEX
Page
No.
PART
I
Item
1.
Business
1
Item
1A.
Risk
Factors
7
Item
1B.
Unresolved
Staff Comments
17
Item
2.
Properties
18
Item
3.
Legal
Proceedings
18
Item
4.
Mine
Safety Disclosure
18
PART
II
Item
5.
Market
for Registrant’s Common Equity and Related Stockholder Matters
18
Item
6.
Selected
Financial Data
19
Item
7.
Management’s
Discussion and Analysis of Financial Condition And Results of Operations
19
Item
7A.
Quantitative
and Qualitative Disclosures About Market Risk
34
Special
Note Regarding Forward-Looking Statements
34
Item
8.
Financial
Statements and Supplementary Data
36
Item
9.
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure
76
Item
9A.
Controls
and Procedures
76
Item
9B.
Other
Information
76
PART
III
Item
10.
Directors,
Executive Officers and Corporate Governance
77
Item
11.
Executive
Compensation
87
Item
12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
112
Item
13.
Certain
Relationships and Related Transactions, and Director Independence
115
Item
14.
Principal
Accountant Fees and Services
117
PART
IV
Item
15.
Exhibits
and Financial Statement Schedules
118
PART
I
ITEM
1. BUSINESS
Company
Overview and Principal Products and Services
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), a Delaware corporation incorporated in
December 1990, is an environmental and environmental technology know-how company.
The
principal element of our business strategy consists of upgrading our facilities within our Treatment Segment to increase efficiency
and modernize and expand treatment capabilities to meet the changing markets associated with the waste management industry. Within
our Services Segment, we continue to revitalize and expand our business development programs to further increase competitive procurement
effectiveness and broaden the market penetration within both the commercial and government sectors. The Company remains focused
on expansion into both commercial and international markets to supplement government spending in the United States of America
(“USA”), from which a significant portion of the Company’s revenue is derived. This includes new services, new
customers and increased market share in our current markets.
Our
majority-owned subsidiary, Perma-Fix Medical S.A. and its wholly-owned subsidiary, Perma-Fix Medical Corporation (“PFM Corporation”
– a Delaware corporation) (together known as “PF Medical” or our “Medical Segment”) which is currently
involved on a limited basis in the research and development (“R&D”) of the Company’s medical isotope production
technology, has not generated any revenue and has substantially reduced R&D costs and activities due to the need for capital
to fund these activities. The Company anticipates that the Medical Segment will not resume full R&D activities until the necessary
capital is obtained through its own credit facility or additional equity raise, or obtains partners willing to provide funding
for its R&D.
COVID-19
Pandemic
The
spread of COVID-19 in early 2020 continues to result in significant volatility in the U.S. and international markets. We continue
to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. Since the start of the pandemic, we have
experienced delays in waste shipment from certain customers within our Treatment Segment directly related to the impact of COVID-19
including generator shutdowns and limited sustained operations, along with other factors. However, we expect to see a gradual
return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations. Within our Services
Segment, all of the projects that were previously shutdown in late March 2020 due to the pandemic recommenced starting in late
June 2020 as stay-at-home orders and certain other restrictions resulting from the pandemic were lifted.
Since
the outbreak of COVID-19, we have remained focused on keeping our employees working and, at the same time, focusing on protecting
the health and wellbeing of our employees and the communities in which we operate while assuring the continuity of our business
operations.
Our
management team has proactively implemented our business continuity and safety plans and has taken a variety of measures to ensure
the ongoing availability of our waste treatment and remediation services, while taking health and safety measures, including separating
employee and customer contact, social distancing between employees, implementing enhanced cleaning and hygiene protocols in all
of our facilities, and implementing remote work policies, when necessary.
The
situation surrounding COVID-19 continues to remain fluid and volatile. The potential for a material impact on our business increases
the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may further continue
to delay waste shipments and projects may shut down again. For this reason, we cannot reasonably estimate with any degree of certainty
the future impact COVID-19 may have on our results of operations, financial position, and liquidity during the next twelve months.
1
For
a more detailed discussion of the impact of COVID-19 on the Company’s results of operations, please see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” – “Results of Operations” and
“Liquidity and Capital Resources.”
Segment
Information and Foreign and Domestic Operations and Sales
The
Company has three reportable segments. In accordance with Financial Accounting Standards Board (“FASB”) ASC 280, “Segment
Reporting”, we define an operating segment as:
●
a
business activity from which we may earn revenue and incur expenses;
●
whose
operating results are regularly reviewed by the chief operating decision maker “(CODM”) to make decisions about
resources to be allocated and assess its performance; and
●
for
which discrete financial information is available.
TREATMENT
SEGMENT reporting includes:
-
nuclear,
low-level radioactive, mixed (waste containing both hazardous and low-level radioactive waste), hazardous and non-hazardous
waste treatment, processing and disposal services primarily through four uniquely licensed (Nuclear Regulatory Commission
or state equivalent) and permitted (U.S. Environmental Protection Agency (“EPA”) or state equivalent) treatment
and storage facilities as follow: Perma-Fix of Florida, Inc. (“PFF”), Diversified Scientific Services, Inc., (“DSSI”),
Perma-Fix Northwest Richland, Inc. (“PFNWR”) and Oak Ridge Environmental Waste Operations Center (“EWOC”
– See below for further information of this facility); and
-
R&D
activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.
In
2020, we expanded our low-level radioactive waste processing and treatment capability within our Treatment Segment through the
addition of our EWOC facility. The EWOC facility serves primarily as a multi-disciplinary equipment and component processing center
for large component, size/volume reduction, sort/segregation, waste transload, and system operability testing. The ultimate objective
of the facility will be receipt, preparation, packaging, and transportation of low-level radioactive waste to final disposal facilities
(landfills, approved radiological waste repositories). Operations at the facility have been limited to date as we continue to
complete transition of the site. No revenue was generated at EWOC in 2020.
For
2020, the Treatment Segment accounted for $30,143,000, or 28.6%, of total revenue, as compared to $40,364,000, or 54.9%, of total
revenue for 2019. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’
contracts with government clients (domestic and foreign) or with others as a subcontractor to government clients.
SERVICES
SEGMENT, which includes:
-
Technical
services, which include:
○
professional
radiological measurement and site survey of large government and commercial installations using advanced methods, technology
and engineering;
○
health
physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support
to government and private radioactive materials licensees;
○
integrated
Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys,
e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and
exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational
Safety and Health Administration (“OSHA”) citation assistance;
○
global
technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental),
project management, waste management, environmental, and decontamination and decommissioning (“D&D”) field,
technical, and management personnel and services to commercial and government customers; and
○
waste
management services to commercial and governmental customers.
2
-
Nuclear
services, which include:
○
D&D
of government and commercial facilities impacted with radioactive material and hazardous constituents including engineering,
technology applications, specialty services, logistics, transportation, processing and disposal; and
○
license
termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process:
project management, planning, characterization, waste stream identification and delineation, remediation/demolition, final
status survey, compliance demonstration, reporting, transportation, disposal and emergency response.
-
A
company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental)
health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
-
A
company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.
For
2020, the Services Segment accounted for $75,283,000, or 71.4%, of total revenue, as compared to $33,095,000, or 45.1%, of total
revenue for 2019. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’
contracts with government clients (domestic and foreign) or with others as a subcontractor to government clients.
MEDICAL
SEGMENT (see a discussion of our Medical Segment above under “Company Overview and Principal Products and Services”).
Our
Treatment and Services Segments provide services to research institutions, commercial companies, public utilities, and governmental
agencies (domestic and foreign), including the U.S. Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”).
The distribution channels for our services are through direct sales to customers or via intermediaries.
Our
corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Foreign
Revenue
Our
consolidated revenue for 2020 and 2019 included approximately $5,550,000, or 5.3%, and $5,488,000, or 7.5%, respectively, from
Canadian customers (including revenues generated by our Perma-Fix of Canada, Inc. (“PF Canada”) subsidiary).
Permits
and Licenses
Waste
management service companies are subject to extensive, evolving and increasingly stringent federal, state, and local environmental
laws and regulations. Such federal, state and local environmental laws and regulations govern our activities regarding the treatment,
storage, processing, disposal and transportation of hazardous, non-hazardous and radioactive wastes, and require us to obtain
and maintain permits, licenses and/or approvals in order to conduct our waste activities. We are dependent on our permits and
licenses discussed below in order to operate our businesses. Failure to obtain and maintain our permits or approvals would have
a material adverse effect on us, our operations, and financial condition. The permits and licenses have terms ranging from one
to ten years, and provided that we maintain a reasonable level of compliance, renew with minimal effort, and cost. We believe
that these permit and license requirements represent a potential barrier to entry for possible competitors.
PFF,
located in Gainesville, Florida, operates its hazardous, mixed and low-level radioactive waste activities under a Resource Conservation
and Recovery Act (“RCRA”) Part B permit, Toxic Substances Control Act (“TSCA”) authorization, Restricted
RX Drug Distributor-Destruction license, biomedical, and a radioactive materials license issued by the State of Florida.
DSSI,
located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and treatment activities under RCRA Part
B permits and a radioactive materials license issued by the State of Tennessee Department of Environment and Conservation. Co-regulated
TSCA Polychlorinated Biphenyl (“PCB”) wastes are also managed for PCB destruction under EPA Approval.
3
PFNWR,
located in Richland, Washington, operates a low-level radioactive waste processing facility as well as a mixed waste processing
facility. Radioactive material processing is authorized under radioactive materials licenses issued by the State of Washington
and mixed waste processing is additionally authorized under a RCRA Part B permit with TSCA authorization issued jointly by the
State of Washington and the EPA.
EWOC,
located in Oak Ridge, Tennessee, operates a low-level radioactive waste material processing facility. Radioactive material processing
is authorized under radioactive material licenses issued by the State of Tennessee Department of Environmental and Conservation,
Division of radiological health.
The
combination of RCRA Part B hazardous waste permits, TSCA authorizations, and radioactive material licenses held by the Company
and its subsidiaries comprising our Treatment Segment is very difficult to obtain for a single facility and make this Segment
unique.
We
believe that the permitting and licensing requirements, and the cost to obtain such permits, are barriers to the entry of hazardous
waste and radioactive and mixed waste activities as presently operated by our waste treatment subsidiaries. If the permit requirements
for hazardous waste treatment, storage, and disposal (“TSD”) activities and/or the licensing requirements for the
handling of low-level radioactive matters are eliminated or if such licenses or permits were made less rigorous to obtain, we
believe such would allow companies to enter into these markets and provide greater competition.
Backlog
Our
Treatment Segment maintains a backlog of stored waste, which represents waste that has not been processed. The backlog is principally
a result of the timing and complexity of the waste being brought into the facilities and the selling price per container. At December
31, 2020, our Treatment Segment had a backlog of approximately $7,631,000, as compared to approximately $8,506,000 at December
31, 2019. Additionally, the time it takes to process waste from the time it arrives may increase due to the types and complexities
of the waste we are currently receiving. We typically process our backlog during periods of low waste receipts, which historically
has been in the first or fourth quarters.
Dependence
Upon a Single or Few Customers
Our
Treatment and Services Segments have significant relationships with the U.S and Canadian governmental authorities. A significant
amount of our revenues from our Treatment and Services Segments are generated indirectly as subcontractors for others who are
prime contractors to government authorities, particularly the U.S Department of Energy (“DOE”) and U.S. Department
of Defense (“DOD”) or directly as the prime contractor to government authorities. 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 or renegotiate the contracts on 30 days’ notice, at the government’s election. The contracts/task
order agreements that we are a party to with Canadian governmental authorities generally provide that the government authorities
may terminate the contracts/task order agreements at any time for any reason for convenience. Our inability to continue under
existing contracts that we have with the U.S federal government and Canadian government authorities (directly or indirectly as
a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse
impact on our operations and financial condition.
We
performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either indirectly
for others as a subcontractor to government entities or directly as a prime contractor to government entities, representing approximately
$96,582,000, or 91.6%, of our total revenue during 2020, as compared to $59,985,000, or 81.7%, of our total revenue during 2019.
Revenue
generated by us as a subcontractor to a customer for a remediation project performed for a government entity (the “DOE”)
within our Services Segment in 2020 and 2019 accounted for approximately $41,011,000 or 38.9% and $8,529,000 or 11.6% (included
in revenues generated relating to government clients above) of our total revenue for 2020 and 2019, respectively. This remediation
project included among other things, decontamination support of a building. As work progressed throughout stages of this project
in 2020, additional contaminations were regularly discovered which resulted in approvals for additional work to be performed under
this project. This project is expected to be completed by the first half of 2021.
4
As
our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another
contract with a different customer from year to year, we do not believe the loss of one specific customer from one year to the
next will generally have a material adverse effect on our operations and financial condition.
Competitive
Conditions
The
Treatment Segment’s largest competitor is EnergySolutions (“ES”) which operates treatment facilities in Oak
Ridge, TN and Erwin, TN and disposal facilities for low level radioactive waste in Clive, UT and Barnwell, SC. Waste Control Specialists
(“WCS”), which has licensed disposal capabilities for low level radioactive waste in Andrews, TX, is also a competitor
in the treatment market with increasing market share. These two competitors also provide us with options for disposal of our treated
nuclear waste. The Treatment Segment treats and disposes of DOE generated waste largely at DOE owned sites. Our Treatment Segment
currently solicits business primarily on a North America basis with both government and commercial clients; however, we continue
to focus on emerging international markets for additional work.
Our
Services Segment is engaged in highly competitive businesses in which a number of our government contracts and some of our commercial
contracts are awarded through competitive bidding processes. The extent of such competition varies according to the industries
and markets in which our customers operate as well as the geographic areas in which we operate. The degree and type of competition
we face is also often influenced by the project specification being bid on and the different specialty skill sets of each bidder
for which our Services Segment competes, especially projects subject to the governmental bid process. We also have the ability
to prime federal government small business procurements (small business set asides). Based on past experience, we believe that
large businesses are more willing to team with small businesses in order to be part of these often-substantial procurements. There
are a number of qualified small businesses in our market that will provide intense competition that may provide a challenge to
our ability to maintain strong growth rates and acceptable profit margins. For international business there are additional competitors,
many from within the country the work is to be performed, making winning work in foreign countries more challenging. If our Services
Segment is unable to meet these competitive challenges, it could lose market share and experience an overall reduction in its
profits.
Certain
Environmental Expenditures and Potential Environmental Liabilities
Environmental
Liabilities
We
have three remediation projects, which are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”),
Perma-Fix of Memphis, Inc. (“PFM”), and Perma-Fix South Georgia, Inc. (“PFSG”) subsidiaries, which are
all included within our discontinued operations. These remediation projects principally entail the removal/remediation of contaminated
soil and, in most cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored
by the applicable state regulators.
At
December 31, 2020, we had total accrued environmental remediation liabilities of $854,000. At December 31, 2020, $744,000 of the
total accrued environmental liabilities was recorded as current.
The
nature of our business exposes us to significant cost to comply with governmental environmental laws, rules and regulations and
risk of liability for damages. Such potential liability could involve, for example, claims for cleanup costs, personal injury
or damage to the environment in cases where we are held responsible for the release of hazardous materials; claims of employees,
customers or third parties for personal injury or property damage occurring in the course of our operations; and claims alleging
negligence or professional errors or omissions in the planning or performance of our services. In addition, we could be deemed
a responsible party for the costs of required cleanup of properties, which may be contaminated by hazardous substances generated
or transported by us to a site we selected, including properties owned or leased by us. We could also be subject to fines and
civil penalties in connection with violations of regulatory requirements.
5
Research
and Development (“R&D”)
Innovation
and technical know-how by our operations is very important to the success of our business. Our goal is to discover, develop and
bring to market innovative ways to process waste that address unmet environmental needs. We conduct research internally, and also
through collaborations with other third parties. The majority of our research activities are performed as we receive new and unique
waste to treat. Our competitors also devote resources to R&D and many such competitors have greater resources at their disposal
than we do.
Governmental
Regulation
Environmental
companies, such as us, and their customers are subject to extensive and evolving environmental laws and regulations by a number
of federal, state and local environmental, safety and health agencies, the principal of which being the EPA. These laws and regulations
largely contribute to the demand for our services. Although our customers remain responsible by law for their environmental problems,
we must also comply with the requirements of those laws applicable to our services. We cannot predict the extent to which our
operations may be affected by future enforcement policies as applied to existing laws or by the enactment of new environmental
laws and regulations. Moreover, any predictions regarding possible liability are further complicated by the fact that under current
environmental laws we could be jointly and severally liable for certain activities of third parties over whom we have little or
no control. Although we believe that we are currently in substantial compliance with applicable laws and regulations, we could
be subject to fines, penalties or other liabilities or could be adversely affected by existing or subsequently enacted laws or
regulations. The principal environmental laws affecting our customers and us are briefly discussed below.
The
Resource Conservation and Recovery Act of 1976, as amended (“RCRA”)
RCRA
and its associated regulations establish a strict and comprehensive permitting and regulatory program applicable to companies,
such as us, that treat, store or dispose of hazardous waste. The EPA has promulgated regulations under RCRA for new and existing
treatment, storage and disposal facilities including incinerators, storage and treatment tanks, storage containers, storage and
treatment surface impoundments, waste piles and landfills. Every facility that treats, stores or disposes of hazardous waste must
obtain a RCRA permit or must obtain interim status from the EPA, or a state agency, which has been authorized by the EPA to administer
its program, and must comply with certain operating, financial responsibility and closure requirements.
The
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA,” also referred to as the “Superfund
Act”)
CERCLA
governs the cleanup of sites at which hazardous substances are located or at which hazardous substances have been released or
are threatened to be released into the environment. CERCLA authorizes the EPA to compel responsible parties to clean up sites
and provides for punitive damages for noncompliance. CERCLA imposes joint and several liabilities for the costs of clean up and
damages to natural resources.
Health
and Safety Regulations
The
operation of our environmental activities is subject to the requirements of the OSHA and comparable state laws. Regulations promulgated
under OSHA by the Department of Labor require employers of persons in the transportation and environmental industries, including
independent contractors, to implement hazard communications, work practices and personnel protection programs in order to protect
employees from equipment safety hazards and exposure to hazardous chemicals.
Atomic
Energy Act
The
Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and Byproduct materials in the U.S. and
its territories. This act authorized the Atomic Energy Commission (now the Nuclear Regulatory Commission “USNRC”)
to enter into “Agreements with states to carry out those regulatory functions in those respective states except for Nuclear
Power Plants and federal facilities like the VA hospitals and the DOE operations.” The State of Florida Department of Health
(with the USNRC oversight), Office of Radiation Control, regulates the licensing and radiological program of the PFF facility;
the State of Tennessee (with the USNRC oversight), Tennessee Division of Radiological Health, regulates licensing and the radiological
program of the DSSI facility and the EWOC facility; and the State of Washington (with the USNRC oversight) Department of Health,
regulates licensing and the radiological operations of the PFNWR facility.
6
Other
Laws
Our
activities are subject to other federal environmental protection and similar laws, including, without limitation, the Clean Water
Act, the Clean Air Act, the Hazardous Materials Transportation Act and the TSCA. Many states have also adopted laws for the protection
of the environment which may affect us, including laws governing the generation, handling, transportation and disposition of hazardous
substances and laws governing the investigation and cleanup of, and liability for, contaminated sites. Some of these state provisions
are broader and more stringent than existing federal law and regulations. Our failure to conform our services to the requirements
of any of these other applicable federal or state laws could subject us to substantial liabilities which could have a material
adverse effect on us, our operations and financial condition. In addition to various federal, state and local environmental regulations,
our hazardous waste transportation activities are regulated by the U.S. Department of Transportation, the Interstate Commerce
Commission and transportation regulatory bodies in the states in which we operate. We cannot predict the extent to which we may
be affected by any law or rule that may be enacted or enforced in the future, or any new or different interpretations of existing
laws or rules.
ITEM
1A.
RISK
FACTORS
The
following are certain risk factors that could affect our business, financial performance, and results of operations. These risk
factors should be considered in connection with evaluating the forward-looking statements contained in this Form 10-K, as the
forward-looking statements are based on current expectations, and actual results and conditions could differ materially from the
current expectations. Investing in our securities involves a high degree of risk, and before making an investment decision, you
should carefully consider these risk factors as well as other information we include or incorporate by reference in the other
reports we file with the Securities and Exchange Commission (the “Commission”).
Risk
Related to COVID-19
COVID-19
could result in material adverse effects on our business, financial position, results of operations and cash flows.
The
extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the responses to the pandemic
continue to evolve rapidly. Since the latter part of the second quarter of 2020, all of the projects within our Services Segment
that were previously shutdown have restarted as stay-at-home orders and certain other restrictions resulting from the pandemic
were lifted. Within our Treatment Segment, we continue to experience delays in waste shipment from certain customers directly
related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However,
we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate
operations. COVID-19 disruption could have a material adverse effect on our business as our customers could curtail and reduce
capital and overall spending.
The
severity of the impact the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to,
the duration and severity of the pandemic, the extent and severity of the impact on our customers, the impact on governmental
programs and budgets, distribution of COVID-19 vaccines, the rate at which people are inoculated with the vaccines, and how quickly
and to what extent normal economic and operating conditions resume, all of which are uncertain and cannot be predicted with any
accuracy or confidence at this time. Our future results of operations and liquidity could be adversely impacted by continued delays
in waste shipments and/or the recurrence of project work shut downs as well as potential partial/full shutdown of any of our facilities
due to COVID-19.
7
Risks
Relating to our Business and Operations
Failure
to maintain our financial assurance coverage that we are required to have in order to operate our permitted treatment, storage and
disposal facilities could have a material adverse effect on us.
We
maintain finite risk insurance policies and bonding mechanisms which provide financial assurance to the applicable states for
our permitted facilities in the event of unforeseen closure of those facilities. We are required to provide and to maintain financial
assurance that guarantees to the state that in the event of closure, our permitted facilities will be closed in accordance with
the regulations. In the event that we are unable to obtain or maintain our financial assurance coverage for any reason, this could
materially impact our operations and our permits which we are required to have in order to operate our treatment, storage, and
disposal facilities.
If
we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.
Our
business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve
allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial.
We believe that our insurance coverage is presently adequate and similar to, or greater than, the coverage maintained by other
companies in the industry of our size. If we are unable to obtain adequate or required insurance coverage in the future, or if
our insurance is not available at affordable rates, we would violate our permit conditions and other requirements of the environmental
laws, rules, and regulations under which we operate. Such violations would render us unable to continue certain of our operations.
These events would have a material adverse effect on our financial condition.
The
inability to maintain existing government contracts or win new government contracts over an extended period could have a material
adverse effect on our operations and adversely affect our future revenues.
A
material amount of our Treatment and Services Segments’ revenues are generated through various government contracts or subcontracts
(domestic and foreign (primarily Canadian)). Our revenues from governmental contracts and subcontracts relating to governmental
facilities within our segments were approximately $96,582,000, or 91.6%, and $59,985,000, or 81.7%, of our consolidated revenues
for 2020 and 2019, respectively. Most of our government contracts or our subcontracts granted under government contracts are awarded
through a regulated competitive bidding process. Some government contracts are awarded to multiple competitors, which increase
overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these
government contracts. All contracts with, or subcontracts involving, the U.S federal government are terminable, or subject to
renegotiation, by the applicable governmental agency on 30 days notice, at the option of the governmental agency. The contracts/task
order agreements that we are a party to with Canadian governmental authorities generally provide that the government authorities
may terminate the contracts/task order agreements at any time for any reason for convenience. If we fail to maintain or replace
these relationships, or if a material contract is terminated or renegotiated in a manner that is materially adverse to us, our
revenues and future operations could be materially adversely affected.
Our
existing and future customers may reduce or halt their spending on hazardous waste and nuclear services with outside vendors,
including us.
A
variety of factors may cause our existing or future customers (including government clients) to reduce or halt their spending
on hazardous waste and nuclear services from outside vendors, including us. These factors include, but are not limited to:
●
accidents,
terrorism, natural disasters or other incidents occurring at nuclear facilities or involving shipments of nuclear materials;
●
failure
of government to approve necessary budgets, or to reduce the amount of the budget necessary, to fund remediation sites, including
DOE and DOD sites;
●
civic
opposition to or changes in government policies regarding nuclear operations;
●
a
reduction in demand for nuclear generating capacity; or
●
failure
to perform under existing contracts, directly or indirectly, with the government.
These
events could result in or cause government clients to terminate or cancel existing contracts involving us to treat, store or dispose
of contaminated waste and/or to perform remediation projects, at one or more of government sites. These events also could adversely
affect us to the extent that they result in the reduction or elimination of contractual requirements, lower demand for nuclear
services, burdensome regulation, disruptions of shipments or production, increased operational costs or difficulties or increased
liability for actual or threatened property damage or personal injury.
8
Economic
downturns, reductions in government funding or other events beyond our control (such as the continued impact of COVID-19) could
have a material negative impact on our businesses.
Demand
for our services has been, and we expect that demand will continue to be, subject to significant fluctuations due to a variety
of factors beyond our control, including, without limitation, economic conditions, reductions in the budget for spending to remediate
federal sites due to numerous reasons including, without limitation, the substantial deficits that the federal government has
and is continuing to incur, and/or the continued impact resulting from COVID-19. During economic downturns, large budget deficits
that the federal government and many states are experiencing, and other events beyond our control, including, but not limited
to the impact from COVID-19, the ability of private and government entities to spend on waste services, including nuclear services,
may decline significantly. Our operations depend, in large part, upon governmental funding (for example, the annual budget of
the DOE) 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 flow.
The
loss of one or a few customers could have an adverse effect on us.
One
or a few governmental customers or governmental related customers have in the past, and may in the future, account for a significant
portion of our revenue in any one year or over a period of several consecutive years. Because customers generally contract with
us for specific projects, we may lose these significant customers from year to year as their projects with us are completed. Our
inability to replace the business with other similar significant projects could have an adverse effect on our business and results
of operations.
We
are a holding company and depend, in large part, on receiving funds from our subsidiaries to fund our indebtedness.
Because
we are a holding company and operations are conducted through our subsidiaries, our ability to meet our obligations depends, in
large part, on the operating performance and cash flows of our subsidiaries.
Our
Treatment Segment has limited end disposal sites to utilize to dispose of its waste which could significantly impact our results
of operations.
Our
Treatment Segment has limited options available for disposal of its nuclear waste. Currently, there are only three disposal sites,
each site having different owners, for our low-level radioactive waste we receive from non-governmental sites, allowing us to
take advantage of the pricing competition between the three sites. If any of these disposal sites ceases to accept waste or closes
for any reason or refuses to accept the waste of our Treatment Segment, for any reason, we would have limited remaining site to
dispose of our nuclear waste. With limited end disposal site to dispose of our waste, we could be subject to significantly increased
costs which could negatively impact our results of operations.
Our
operations are subject to seasonal factors, which cause our revenues to fluctuate.
We
have historically experienced reduced revenues and losses during the first and fourth quarters of our fiscal years due to a seasonal
slowdown in operations from poor weather conditions, overall reduced activities during these periods resulting from holiday periods,
and finalization of government budgets during the fourth quarter of each year. During our second and third fiscal quarters there
has historically been an increase in revenues and operating profits. If we do not continue to have increased revenues and profitability
during the second and third fiscal quarters, this could have a material adverse effect on our results of operations and liquidity.
9
We
are engaged in highly competitive businesses and typically must bid against other competitors to obtain major contracts.
We
are engaged in highly competitive business in which most of our government contracts and some of our commercial contracts are
awarded through competitive bidding processes. We compete with national, international (primarily Canada currently) and regional
firms with nuclear and/or hazardous waste services practices, as well as small or local contractors. Some of our competitors have
greater financial and other resources than we do, which can give them a competitive advantage. In addition, even if we are qualified
to work on a new government contract, we might not be awarded the contract because of existing government policies designed to
protect certain types of businesses and under-represented minority contractors. Although we believe we have the ability to certify
and bid government contract as a small business, there are a number of qualified small businesses in our market that will provide
intense competition. For international business, which we continue to focus on, there are additional competitors, many from within
the country the work is to be performed, making winning work in foreign countries more challenging. Competition places downward
pressure on our contract prices and profit margins. If we are unable to meet these competitive challenges, we could lose market
share and experience on overall reduction in our profits.
We
bear the risk of cost overruns in fixed-price contracts. We may experience reduced profits or, in some cases, losses under these
contracts if costs increase above our estimates.
Our
revenues may be earned under contracts that are fixed-price or maximum price in nature. Fixed-price contracts expose us to a number
of risks not inherent in cost-reimbursable contracts. Under fixed price and guaranteed maximum-price contracts, contract prices
are established in part on cost and scheduling estimates which are based on a number of assumptions, including assumptions about
future economic conditions, prices and availability of labor, equipment and materials, and other exigencies. If these estimates
prove inaccurate, or if circumstances change such as unanticipated technical problems, difficulties in obtaining permits or approvals,
changes in laws or labor conditions, weather delays, cost of raw materials, our suppliers’ or subcontractors’ inability
to perform, and/or other events beyond our control, such as the impact of the Coronavirus, cost overruns may occur and we could
experience reduced profits or, in some cases, a loss for that project. Errors or ambiguities as to contract specifications can
also lead to cost-overruns.
Adequate
bonding is necessary for us to win certain types of new work and support facility closure requirements.
We
are often required to provide performance bonds to customers under certain of our contracts, primarily within our Services Segment.
These surety instruments indemnify the customer if we fail to perform our obligations under the contract. If a bond is required
for a particular project and we are unable to obtain it due to insufficient liquidity or other reasons, we may not be able to
pursue that project. In addition, we provide bonds to support financial assurance in the event of facility closure pursuant to
state requirements. We currently have a bonding facility but, the issuance of bonds under that facility is at the surety’s
sole discretion. Moreover, due to events that affect the insurance and bonding markets generally, bonding may be more difficult
to obtain in the future or may only be available at significant additional cost. There can be no assurance that bonds will continue
to be available to us on reasonable terms. Our inability to obtain adequate bonding and, as a result, to bid on new work could
have a material adverse effect on our business, financial condition and results of operations.
If
we cannot maintain our governmental permits or cannot obtain required permits, we may not be able to continue or expand our operations.
We
are a nuclear services and waste management company. Our business is subject to extensive, evolving, and increasingly stringent
federal, state, and local environmental laws and regulations. Such federal, state, and local environmental laws and regulations
govern our activities regarding the treatment, storage, recycling, disposal, and transportation of hazardous and non-hazardous
waste and low-level radioactive waste. We must obtain and maintain permits or licenses to conduct these activities in compliance
with such laws and regulations. Failure to obtain and maintain the required permits or licenses would have a material adverse
effect on our operations and financial condition. If any of our facilities are unable to maintain currently held permits or licenses
or obtain any additional permits or licenses which may be required to conduct its operations, we may not be able to continue those
operations at these facilities, which could have a material adverse effect on us.
10
Risks
Related to Laws and Regulations
As
a government contractor, we are subject to extensive government regulation, and our failure to comply with applicable regulations
could subject us to penalties that may restrict our ability to conduct our business.
Our
governmental contracts or subcontracts relating to DOE sites, are a significant part of our business. Allowable costs under U.S.
government contracts are subject to audit by the U.S. government. If these audits result in determinations that costs claimed
as reimbursable are not allowed costs or were not allocated in accordance with applicable regulations, we could be required to
reimburse the U.S. government for amounts previously received.
Governmental
contracts or subcontracts involving governmental facilities are often subject to specific procurement regulations, contract provisions
and a variety of other requirements relating to the formation, administration, performance and accounting of these contracts.
Many of these contracts include express or implied certifications of compliance with applicable regulations and contractual provisions.
If we fail to comply with any regulations, requirements or statutes, our existing governmental contracts or subcontracts involving
governmental facilities could be terminated or we could be suspended from government contracting or subcontracting. If one or
more of our governmental contracts or subcontracts are terminated for any reason, or if we are suspended or debarred from government
work, we could suffer a significant reduction in expected revenues and profits. Furthermore, as a result of our governmental contracts
or subcontracts involving governmental facilities, claims for civil or criminal fraud may be brought by the government or violations
of these regulations, requirements or statutes.
Changes
in environmental regulations and enforcement policies could subject us to additional liability and adversely affect our ability
to continue certain operations.
We
cannot predict the extent to which our operations may be affected by future governmental enforcement policies as applied to existing
environmental laws, by changes to current environmental laws and regulations, or by the enactment of new environmental laws and
regulations. Any predictions regarding possible liability under such laws are complicated further by current environmental laws
which provide that we could be liable, jointly and severally, for certain activities of third parties over whom we have limited
or no control.
Our
businesses subject us to substantial potential environmental liability.
Our
business of rendering services in connection with management of waste, including certain types of hazardous waste, low-level radioactive
waste, and mixed waste (waste containing both hazardous and low-level radioactive waste), subjects us to risks of liability for
damages. Such liability could involve, without limitation:
●
claims
for clean-up costs, personal injury or damage to the environment in cases in which we are held responsible for the release
of hazardous or radioactive materials;
●
claims
of employees, customers, or third parties for personal injury or property damage occurring in the course of our operations;
and
●
claims
alleging negligence or professional errors or omissions in the planning or performance of our services.
Our
operations are subject to numerous environmental laws and regulations. We have in the past, and could in the future, be subject
to substantial fines, penalties, and sanctions for violations of environmental laws and substantial expenditures as a responsible
party for the cost of remediating any property which may be contaminated by hazardous substances generated by us and disposed
at such property, or transported by us to a site selected by us, including properties we own or lease.
11
As
our operations expand, we may be subject to increased litigation, which could have a negative impact on our future financial results.
Our
operations are highly regulated and we are subject to numerous laws and regulations regarding procedures for waste treatment,
storage, recycling, transportation, and disposal activities, all of which may provide the basis for litigation against us. In
recent years, the waste treatment industry has experienced a significant increase in so-called “toxic-tort” litigation
as those injured by contamination seek to recover for personal injuries or property damage. We believe that, as our operations
and activities expand, there will be a similar increase in the potential for litigation alleging that we have violated environmental
laws or regulations or are responsible for contamination or pollution caused by our normal operations, negligence or other misconduct,
or for accidents, which occur in the course of our business activities. Such litigation, if significant and not adequately insured
against, could adversely affect our financial condition and our ability to fund our operations. Protracted litigation would likely
cause us to spend significant amounts of our time, effort, and money. This could prevent our management from focusing on our operations
and expansion.
If
environmental regulation or enforcement is relaxed, the demand for our services will decrease.
The
demand for our services is substantially dependent upon the public’s concern with, and the continuation and proliferation
of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous, non-hazardous, and low-level
radioactive waste. A decrease in the level of public concern, the repeal or modification of these laws, or any significant relaxation
of regulations relating to the treatment, storage, recycling, and disposal of hazardous waste and low-level radioactive waste
would significantly reduce the demand for our services and could have a material adverse effect on our operations and financial
condition. We are not aware of any current federal or state government or agency efforts in which a moratorium or limitation has
been, or will be, placed upon the creation of new hazardous or radioactive waste regulations that would have a material adverse
effect on us; however, no assurance can be made that such a moratorium or limitation will not be implemented in the future.
We
and our customers operate in a politically sensitive environment, and the public perception of nuclear power and radioactive materials
can affect our customers and us.
We
and our customers operate in a politically sensitive environment. Opposition by third parties to particular projects can limit
the handling and disposal of radioactive materials. Adverse public reaction to developments in the disposal of radioactive materials,
including any high-profile incident involving the discharge of radioactive materials, could directly affect our customers and
indirectly affect our business. Adverse public reaction also could lead to increased regulation or outright prohibition, limitations
on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse
impact on our customers’ and our business.
The
elimination or any modification of the Price-Anderson Acts indemnification authority could have adverse consequences for our business.
The
Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the manufacture, use, and storage of radioactive
materials. The Price-Anderson Act (“PAA”) supports the nuclear services industry by offering broad indemnification
to DOE contractors for liabilities arising out of nuclear incidents at DOE nuclear facilities. That indemnification protects DOE
prime contractor, but also similar companies that work under contract or subcontract for a DOE prime contract or transporting
radioactive material to or from a site. The indemnification authority of the DOE under the PAA was extended through 2025 by the
Energy Policy Act of 2005.
Under
certain conditions, the PAA’s indemnification provisions may not apply to our processing of radioactive waste at governmental
facilities, and may not apply to liabilities that we might incur while performing services as a contractor for the DOE and the
nuclear energy industry. If an incident or evacuation is not covered under PAA indemnification, we could be held liable for damages,
regardless of fault, which could have an adverse effect on our results of operations and financial condition. If such indemnification
authority is not applicable in the future, our business could be adversely affected if the owners and operators of new facilities
fail to retain our services in the absence of commercial adequate insurance and indemnification.
Risks
Relating to our Financial Performance and Position and Need for Financing
If
any of our permits, other intangible assets, and tangible assets becomes impaired, we may be required to record significant charges
to earnings.
Under
accounting principles generally accepted in the United States (“U.S. GAAP”), we review our intangible and tangible
assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Our permits
are tested for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying
value of our permit, other intangible assets, and tangible assets may not be recoverable, include a decline in stock price and
market capitalization, reduced future cash flow estimates, and slower growth rates in our industry. We may be required, in the
future, to record impairment charges in our financial statements, in which any impairment of our permit, other intangible assets,
and tangible assets is determined. Such impairment charges could negatively impact our results of operations.
12
Breach
of any of the covenants in our credit facility could result in a default, triggering repayment of outstanding debt under the credit
facility and the termination of our credit facility.
Our
credit facility with our bank contains financial covenants. A breach of any of these covenants could result in a default under
our credit facility triggering our lender to immediately require the repayment of all outstanding debt under our credit facility
and terminate all commitments to extend further credit. In the past, when we failed to meet our minimum quarterly fixed charge
coverage ratio (“FCCR”) requirement, our lender has either waived these instances of non-compliance or provided certain
amendments to our FCCR requirements which enabled us to meet our quarterly FCCR requirements. Additionally, our lender has in
the past waived our quarterly FCCR testing requirements. If we fail to meet any of our financial covenants going forward, including
the minimum quarterly FCCR requirement, and our lender does not further waive the non-compliance or further revise our covenant
requirement so that we are in compliance, our lender could accelerate the payment of our borrowings under our credit facility
and terminate our credit facility. In such event, we may not have sufficient liquidity to repay our debt under our credit facility
and other indebtedness.
Our
debt and borrowing availability under our credit facility could adversely affect our operations.
At
December 31, 2020, our aggregate consolidated debt was approximately $6,729,000, which included our PPP Loan balance of approximately
$5,318,000. We have applied for loan forgiveness on the entire PPP Loan balance which is subject to the review and approval of
our lender and the SBA. Our Second Amended and Restated Revolving Credit, Term Loan and Security Agreement dated May 8, 2020 provides
for a total credit facility commitment of approximately $19,742,000, consisting of a $18,000,000 revolving line of credit and
a term loan balance of approximately $1,742,000. The maximum we can borrow under the revolving part of the credit facility is
based on a percentage of the amount of our eligible receivables outstanding at any one time reduced by outstanding standby letters
of credit and any borrowing reduction that our lender may impose from time to time. At December 31, 2020, we had no borrowing
under the revolving part of our credit facility and borrowing availability of up to an additional $14,220,000. A lack of positive
operating results could have material adverse consequences on our ability to operate our business. Our ability to make principal
and interest payments, to refinance indebtedness, and borrow under our credit facility will depend on both our and our subsidiaries’
future operating performance and cash flow. Prevailing economic conditions, interest rate levels, and financial, competitive,
business, and other factors affect us. Many of these factors are beyond our control.
Our
indebtedness could limit our financial and operating activities, and adversely affect our ability to incur additional debt to
fund future needs.
As
a result of our indebtedness, we could, among other things, be:
●
required
to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available
for operations and future business opportunities;
●
make
it more difficult for us to satisfy our obligations;
●
limit
our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt
service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all;
●
limit
our ability to adjust to changing economic, business and competitive conditions;
●
place
us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing;
●
make
us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic
conditions; and
●
make
us more susceptible to changes in credit ratings, which could impact our ability to obtain financing in the future and increase
the cost of such financing.
Any
of the foregoing could adversely impact our operating results, financial condition, and liquidity. Our ability to continue our
operations depends on our ability to generate profitable operations or complete equity or debt financings to increase our capital.
13
We
may be unable to utilize loss carryforwards in the future.
We
have approximately $14,264,000 and $71,316,000 in net operating loss carryforwards for federal and state income tax purposes,
respectively, which will expire in various amounts starting in 2021 if not used against future federal and state income tax liabilities,
respectively. Approximately $12,199,000 of our federal net operating loss carryforwards were generated after December 31, 2017
and thus do not expire. Our net loss carryforwards are subject to various limitations. Our ability to use the net loss carryforwards
depends on whether we are able to generate sufficient income in the future years. Further, our net loss carryforwards have not
been audited or approved by the Internal Revenue Service.
Our
Paycheck Protection Loan (“PPP Loan”) may be audited
In
April 2020, we received a PPP Loan under the CARES Act in the amount of approximately $5,666,000 which had a principal balance
of approximately $5,318,000 at December 31, 2020. We are aware that PPP loans in excess of $2,000,000 may be subject to being
audited by the appropriate governmental authority. If our PPP Loan is audited, it is currently unknown how our PPP Loan could
be affected by an audit. An audit could result, among other things, in us being required to return all or a portion of our PPP
Loan.
Risks
Relating to our Common Stock
Issuance
of substantial amounts of our Common Stock could depress our stock price.
Any
sales of substantial amounts of our Common Stock in the public market could cause an adverse effect on the market price of our
Common Stock and could impair our ability to raise capital through the sale of additional equity securities. The issuance of our
Common Stock will result in the dilution in the percentage membership interest of our stockholders and the dilution in ownership
value. At December 31, 2020, we had 12,153,897 shares of Common Stock outstanding.
In
addition, at December 31, 2020, we had outstanding options to purchase 658,400 shares of our Common Stock at exercise prices ranging
from $2.79 to $7.29 per share. Further, our preferred share rights plan, if triggered, could result in the issuance of a substantial
amount of our Common Stock. The existence of this quantity of rights to purchase our Common Stock under the preferred share rights
plan could result in a significant dilution in the percentage ownership interest of our stockholders and the dilution in ownership
value. Future sales of the shares issuable could also depress the market price of our Common Stock.
We
do not intend to pay dividends on our Common Stock in the foreseeable future.
Since
our inception, we have not paid cash dividends on our Common Stock, and we do not anticipate paying any cash dividends in the
foreseeable future. Our credit facility prohibits us from paying cash dividends on our Common Stock without prior approval from
our lender.
The
price of our Common Stock may fluctuate significantly, which may make it difficult for our stockholders to resell our Common Stock
when a stockholder wants or at prices a stockholder finds attractive.
The
price of our Common Stock on the NASDAQ Capital Markets constantly changes. We expect that the market price of our Common Stock
will continue to fluctuate. This may make it difficult for our stockholders to resell the Common Stock when a stockholder wants
or at prices a stockholder finds attractive.
Future
issuance of our Common Stock could adversely affect the price of our Common Stock, our ability to raise funds in new stock offerings
and could dilute the percentage ownership of our common stockholders.
Future
sales of substantial amounts of our Common Stock or equity-related securities in the public market, or the perception that such
sales or conversions could occur, could adversely affect prevailing trading prices of our Common Stock and could dilute the value
of Common Stock held by our existing stockholders. No prediction can be made as to the effect, if any, that future sales of shares
of our Common Stock or the availability of shares of our Common Stock for future sale will have on the trading price of our Common
Stock. Such future sales or conversions could also significantly reduce the percentage ownership of our common stockholders.
14
Our
Preferred Share Rights Plan may adversely affect our stockholders.
The
Company adopted a Preferred Share Purchase Rights Plan (“Rights Plan”) dated May 2018. As part of the Rights Plan,
the Company’s Board of Directors (“Board”) declared a dividend distribution of one Preferred Share Purchase
Right (“Right”) on each outstanding share of the Company’s Common Stock to stockholders of record on May 12,
2018. The Rights Plan is designed to assure that all of the Company’s shareholders receive fair and equal treatment in the
event of any proposed takeover of the Company and to guard against partial tender abusive tactics to gain control of the Company.
The Rights Plan, as amended, is to terminate the earliest of (1) close of business on May 2, 2021, (2) the time at which the Rights
are redeemed, (3) the time at which the Rights are exchange, or (4) closing of any merger or acquisition of the Company which
has been approved by the Board prior to any person becoming such an acquiring person.
In
general, the Rights under the Rights Plan will be exercisable only if a person or group acquires beneficial ownership of 15% or
more of the Company’s Common Stock or announces a tender or exchange offer, the consummation of which would result in ownership
by a person or group of 15% or more of the Common Stock (with certain exceptions). Each Right under the Rights Plan (other than
the Rights owned by such acquiring person or members of such group which are void) will entitle shareholders to buy one one-thousandth
of a share of a new series of participating preferred stock at an exercise price of $20.00. Each one one-thousandth of a share
of such new preferred stock purchasable upon exercise of a Right has economic terms designed to approximate the value of one share
of Common Stock. Shareholders who have beneficial ownership of 15% or more at the adoption of the new Rights Plan are grandfathered
in, but may not acquire additional shares without triggering the new Rights Plan.
If
the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder (other than
Rights owned by such acquiring person or members of such group which are void) to purchase, at the Right’s then current
exercise price, a number of the acquiring company’s common shares having a market value at the time of twice the Right’s
exercise price.
In
addition, if a person or group (with certain exceptions) acquires 15% or more of the Company’s outstanding Common Stock,
each Right will entitle its holder (other than the Rights owned by such acquiring person or members of such group which are void)
to purchase, in lieu of preferred stock, at the Right’s then current exercise price, a number of shares of the Company’s
Common Stock having a market value of twice the Right’s exercise price.
Following
the acquisition by a person or group of beneficial ownership of 15% or more of the Company’s outstanding Common Stock (with
certain exceptions), and prior to an acquisition of 50% or more of the Company’s Common Stock by such person or group, the
Company’s Board may, at its option, exchange the Rights (other than Rights owned by such acquiring person or members of
such group) in whole or in part, for shares of the Company’s Common Stock at an exchange ratio of one share of Common Stock
(or one one-thousandth of a share of the new series of participating preferred stock) per Right.
Prior
to the acquisition by a person or group of beneficial ownership of 15% or more of the Company’s Common Stock (with certain
exceptions), the Rights are redeemable for $0.001 per Right at the option of the Board of Directors.
The
Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board. The
Rights should not interfere with any merger or other business combination approved by our Board.
General
Risk Factors
Loss
of certain key personnel could have a material adverse effect on us.
Our
success depends on the contributions of our key management, environmental and engineering personnel. Our future success depends
on our ability to retain and expand our staff of qualified personnel, including environmental specialists and technicians, sales
personnel, and engineers. Without qualified personnel, we may incur delays in rendering our services or be unable to render certain
services. We cannot be certain that we will be successful in our efforts to attract and retain qualified personnel as their availability
is limited due to the demand for hazardous waste management services and the highly competitive nature of the hazardous waste
management industry. We do not maintain key person insurance on any of our employees, officers, or directors.
15
We
may not be successful in winning new business mandates from our government and commercial customers or international customers.
We
must be successful in winning mandates from our government, commercial customers and international customers to replace revenues
from projects that we have completed or that are nearing completion and to increase our revenues. Our business and operating results
can be adversely affected by the size and timing of a single material contract.
Our
failure to maintain our safety record could have an adverse effect on our business.
Our
safety record is critical to our reputation. In addition, many of our government and commercial customers require that we maintain
certain specified safety record guidelines to be eligible to bid for contracts with these customers. Furthermore, contract terms
may provide for automatic termination in the event that our safety record fails to adhere to agreed-upon guidelines during performance
of the contract. As a result, our failure to maintain our safety record could have a material adverse effect on our business,
financial condition and results of operations.
Systems
failures, interruptions or breaches of security and other cyber security risks could have an adverse effect on our financial condition
and results of operations.
We
are subject to certain operational risks to our information systems. Because of efforts on the part of computer hackers and cyberterrorists
to breach data security of companies, we face risk associated with potential failures to adequately protect critical corporate,
customer and employee data. As part of our business, we develop and retain confidential data about us and our customers, including
the U.S. government. We also rely on the services of a variety of vendors to meet our data processing and communications needs.
Despite
our implemented security measures and established policies, we cannot be certain that all of our systems are entirely free from
vulnerability to attack or other technological difficulties or failures or failures on the part of our employees to follow our
established security measures and policies. Information security risks have increased significantly. Our technologies, systems,
and networks may become the target of cyber-attacks, computer viruses, malicious code, or information security breaches that could
result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential,
proprietary and other information and the disruption of our business operations. A security breach could adversely impact our
customer relationships, reputation and operation and result in violations of applicable privacy and other laws, financial loss
to us or to our customers or to our employees, and litigation exposure. While we maintain a system of internal controls and procedures,
any breach, attack, or failure as discussed above could have a material adverse impact on our business, financial condition, and
results of operations or liquidity.
There
is also an increasing attention on the importance of cybersecurity relating to infrastructure. This creates the potential for
future developments in regulations relating to cybersecurity that may adversely impact us, our customers and how we offer our
services to our customers.
We
may be exposed to certain regulatory and financial risks related to climate change .
Climate
change is receiving ever increasing attention from scientists and legislators alike. The debate is ongoing as to the extent to
which our climate is changing, the potential causes of this change and its potential impacts. Some attribute global warming to
increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts
to limit greenhouse gas emissions. Presently there are no federally mandated greenhouse gas reduction requirements in the United
States. However, there are a number of legislative and regulatory proposals to address greenhouse gas emissions, which are in
various phases of discussion or implementation. The outcome of federal and state actions to address global climate change could
result in a variety of regulatory programs including potential new regulations. Any adoption by federal or state governments mandating
a substantial reduction in greenhouse gas emissions could increase costs associated with our operations. Until the timing, scope
and extent of any future regulation becomes known, we cannot predict the effect on our financial position, operating results and
cash flows.
16
We
believe our proprietary technology is important to us.
We
believe that it is important that we maintain our proprietary technologies. There can be no assurance that the steps taken by
us to protect our proprietary technologies will be adequate to prevent misappropriation of these technologies by third parties.
Misappropriation of our proprietary technology could have an adverse effect on our operations and financial condition. Changes
to current environmental laws and regulations also could limit the use of our proprietary technology.
Failure
to maintain effective internal control over financial reporting or failure to remediate a material weakness in internal control
over financial reporting could have a material adverse effect on our business, operating results, and stock price.
Maintaining
effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important
in helping to prevent financial fraud. If we are unable to maintain adequate internal controls, our business and operating results
could be harmed. We are required to satisfy the requirements of Section 404 of Sarbanes Oxley and the related rules of the Commission,
which require, among other things, management to assess annually the effectiveness of our internal control over financial reporting.
If we are unable to maintain adequate internal control over financial reporting or effectively remediate any material weakness
identified in internal control over financial reporting, there is a reasonable possibility that a misstatement of our annual or
interim financial statements will not be prevented or detected in a timely manner. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly,
and our business, financial condition, and reputation could be harmed.
Delaware
law, certain of our charter provisions, our stock option plans, outstanding warrants and our Preferred Stock may inhibit a change
of control under circumstances that could give you an opportunity to realize a premium over prevailing market prices.
We
are a Delaware corporation governed, in part, by the provisions of Section 203 of the General Corporation Law of Delaware, an
anti-takeover law. In general, Section 203 prohibits a Delaware public corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in a prescribed manner. As a result of Section 203,
potential acquirers may be discouraged from attempting to effect acquisition transactions with us, thereby possibly depriving
our security holders of certain opportunities to sell, or otherwise dispose of, such securities at above-market prices pursuant
to such transactions. Further, certain of our option plans provide for the immediate acceleration of, and removal of restrictions
from, options and other awards under such plans upon a “change of control” (as defined in the respective plans). Such
provisions may also have the result of discouraging acquisition of us.
We
have authorized and unissued 17,120,061 (which include shares issuable under outstanding options to purchase 658,400 shares of
our Common Stock and shares issuable under an outstanding warrant to purchase 60,000 shares of our Common Stock) shares of our
Common Stock and 2,000,000 shares of our Preferred Stock as of December 31, 2020 (which includes 50,000 shares of our Preferred
Stock reserved for issuance under our new preferred share rights plan discussed below). These unissued shares could be used by
our management to make it more difficult for, and thereby discourage an attempt to acquire control of us.
ITEM
1B.
UNRESOLVED
STAFF COMMENTS
Not
Applicable.
17
ITEM
2.
PROPERTIES
Our
principal executive office is in Atlanta, Georgia. Our Business Center is located in Oak Ridge, Tennessee. Our Treatment Segment
facilities are located in Gainesville, Florida; Kingston, Tennessee; Richland, Washington; and Oak Ridge, Tennessee. All of the
properties where these facilities operate on are held by our senior lender as collateral for our credit facility with the exception
of the property at Oak Ridge, Tennessee which is leased which an option to purchase. Our Services Segment maintains offices, which
are all leased properties. We maintain properties in Valdosta, Georgia and Memphis, Tennessee, which are all non-operational and
are included within our discontinued operations.
The
Company currently leases properties in the following locations for operations and administrative functions within our Treatment
and Services Segments, including our corporate office and Business Center:
Square
Footage (SF)/
Location
Acreage
(AC)
Expiration
of Lease
Oak
Ridge, TN (Business Center)
14,932
SF
May
1, 2022
Oak
Ridge, TN (Services)
5,000
SF
September
30, 2021
Blaydon
On Tyne, England (Services)
1,000
SF
Monthly
New
Brighton, PA (Services)
3,558
SF
June
30, 2022
Newport,
KY (Services)
1,566
SF
Monthly
Pembroke,
Ontario, Canada (Services)
800
SF
Monthly
Atlanta,
GA (Corporate)
6,499
SF
July
31, 2024
Oak
Ridge, TN (Treatment)
8.7
AC, including 17,400 SF
October
1, 2021
We
believe that the above facilities currently provide adequate capacity for our operations and that additional facilities are readily
available in the regions in which we operate, which could support and supplement our existing facilities.
ITEM
3.
LEGAL
PROCEEDINGS
See
“Part II” – “Item 8 - Financial Statements and Supplementary Data” – “Notes to Consolidated
Financial Statements” – “Note 14 – Commitments and Contingencies” – “Legal Matters”
for a discussion of our legal proceedings.
ITEM
4.
MINE
SAFETY DISCLOSURE
Not
Applicable.
PART
II
ITEM
5.
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
Common Stock is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol “PESI.” The following
table sets forth the high and low market trade prices quoted for the Common Stock during the periods shown. The source of such
quotations and information is the NASDAQ online trading history reports.
2020
2019
Low
High
Low
High
Common
Stock
1 st
Quarter
$ 3.82
$ 9.50
$ 2.50
$ 3.94
2 nd
Quarter
4.76
6.54
3.40
4.46
3 rd
Quarter
5.94
7.40
3.10
4.77
4 th
Quarter
5.80
7.13
4.30
9.98
At
February 12, 2021, there were approximately 137 stockholders of record of our Common Stock. The actual number of our stockholders
is greater than this number, and includes beneficial owners whose shares are held in “street name” by banks, brokers,
and other nominees.
18
Since
our inception, we have not paid any cash dividends on our Common Stock and have no dividend policy. Our loan agreement dated May
8, 2020 prohibits us from paying any cash dividends on our Common Stock without prior approval from our lender. We do not anticipate
paying cash dividends on our outstanding Common Stock in the foreseeable future.
There
were no purchases made by us or on behalf of us or any of our affiliated members of shares of our Common Stock during 2020.
We
adopted a preferred share rights plan (the “Rights Plan”), as amended, which is designed to protect us against certain
creeping acquisitions, open market purchases, and certain mergers and other combinations with acquiring companies. The Rights
Plan is to terminate at the earliest of (1) close of business on May 2, 2021 (the “Final Expiration Date”), (2) the
time at which the Rights are redeemed, (3) the time at which the Rights are exchange, or (4) closing of any merger or acquisition
of the Company approved by the Board prior to any person becoming acquiring person.
See
Item 1A. - Risk Factors – “Our Preferred Share Rights Plan may adversely affect our stockholders” as to further
discussion relating to the terms of our Rights Plan in addition to its termination date.
See
Note 7 “Capital Stock, Stock Plans, Warrants, and Stock Based Compensation” in Part II, Item 8, “Financial Statements
and Supplementary Data” and “Equity Compensation Plans” in Part III, Item 12, “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholders Matter” for securities authorized for issuance under equity compensation
plans which are incorporated herein by reference.
ITEM
6.
SELECTED
FINANCIAL DATA
Not
required under Regulation S-K for smaller reporting companies.
ITEM
7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain
statements contained within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
(“MD&A”) may be deemed “forward-looking statements” within the meaning of Section 27A of the Act,
and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the “Private Securities Litigation Reform
Act of 1995”). See “Special Note regarding Forward-Looking Statements” contained in this report.
Management’s
discussion and analysis is based, among other things, upon our audited consolidated financial statements and includes our accounts,
the accounts of our wholly-owned subsidiaries, the accounts of our majority-owned Polish subsidiary, and the account of a variable
interest entity for which we are the primary beneficiary, after elimination of all significant intercompany balances and transactions.
The
following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto
included in Item 8 of this report.
COVID-19
Impact
Since
the outbreak of COVID-19 in early part of 2020, we have remained focused on keeping our employees working and, at the same time,
focusing on protecting the health and wellbeing of our employees and the communities in which we operate while assuring the continuity
of our business operations.
Our
management team has proactively implemented our business continuity and safety plans and has taken a variety of measures to ensure
the ongoing availability of our waste treatment and remediation services, while taking health and safety measures, including separating
employee and customer contact, social distancing between employees, implementing enhanced cleaning and hygiene protocols in all
of our facilities, and implementing remote work policies, when necessary.
19
The
COVID-19 pandemic presents potential new risks to our business and results in significant volatility in the U.S. and international
markets. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. Starting in late March
2020, our operations were impacted by the shutdown of a number of projects and the delays of certain waste shipments. Since the
latter part of the second quarter of 2020, all of the projects that were previously shutdown within our Services Segment restarted
as stay-at-home orders and certain other restrictions resulting from the pandemic were lifted. Despite the shutdown of certain
projects for part of 2020, revenues generated within our Services Segment in 2020 exceeded our revenue generated in 2019 by approximately
$42,188,000. We continue to experience delays in waste shipments from certain customers within our Treatment Segment directly
related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However,
we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate
operations. As the impact of COVID-19 remains fluid, the uncertainty in waste receipt shipments may impact our results of operations
for the first quarter of 2021 and potentially the second quarter of 2021. The potential for a material impact on our business
increases the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may
continue to delay waste shipments and project work may shut down again. For this reason, we cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity during
the next twelve months.
At
this time, we believe we have sufficient liquidity on hand to continue business operations during the next twelve months. At December
31, 2020, our borrowing availability under our revolving credit facility was approximately $14,220,000 which was based on a percentage
of eligible receivables and subject to certain reserves and included our cash on hand of approximately $7,924,000. In April 2020,
we entered into a promissory note (“PPP Loan”) with our credit facility lender in the amount of approximately $5,666,000
under the Paycheck Protection Program (“PPP”) that was established under the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act” - see “CARES Act – PPP Loan” under “Liquidity and Capital Resources”
below for a discussion of the PPP Loan). During the third quarter of 2020, we repaid approximately $348,000 of the PPP Loan resulting
from clarification in the loan calculation at the time of the loan origination. On October 5, 2020, we applied for forgiveness
on the entire PPP Loan balance as permitted under the program, which is subject to the review and approval of our lender and Small
Business Administration (“SBA”). Proceeds from the PPP Loan have allowed us to avoid having to furlough or layoff
certain eligible employees as a result of the COVID-19 pandemic, although there are no assurances that such will not be required
going forward. We continue to assess reducing operating costs during this volatile time, which include curtailing capital expenditures,
eliminating non-essential expenditures and implementing a hiring freeze as needed. We elected to defer payment of our share of
social security taxes as permitted under the CARES Act, as amended (see “CARES Act – Deferral of Employment Tax Deposits”
within this MD&A for a discussion of this deferral). Based on our current projection, we believe that we will be able to meet
the current covenant requirements under our loan agreement for the next twelve months despite the impact of COVID-19.
We
are closely monitoring 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.
Review
Revenue
increased $31,967,000 or 43.5% to $105,426,000 for the twelve months ended December 31, 2020 from $73,459,000 for the corresponding
period of 2019. The increase was entirely within our Services Segment where revenue increased $42,188,000 or 127.5% from increased
projects and the sizable value of certain projects. Our Treatment Services revenue decreased by $10,221,000 or 25.3% primarily
due to delays in waste shipments from certain customers resulting from the impact of COVID-19 as discussed above. The delays in
waste shipments were also partly attributed to the transition of new prime contractors at certain DOE sites which resulted in
delays in waste shipments to us as subcontractors under certain contracts. Additionally, lower averaged price waste from revenue
mix contributed to the decrease in revenue within the Treatment Segment. Gross profit increased $309,000 or 2.0% due to the increase
in revenues in the Services Segment. Selling, General, and Administrative (“SG&A”) expenses decreased by approximately
$88,000 or 0.7% for the twelve months ended December 31, 2020 as compared to the corresponding period of 2019. At December 31,
2020, we had working capital of approximately $3,672,000 as compared to working capital of $26,000 at December 31, 2019. Our working
capital at December 31, 2020 included the classification of approximately $3,191,000 of the outstanding PPP Loan balance of $5,318,000
as “Current portion of long-term debt” on our Consolidated Balance Sheets. As previously discussed, we have applied
for forgiveness on repayment of the entire PPP Loan balance which is subject to the review and approval of our lender and the
SBA.
20
Business
Environment and Outlook
Our
Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental
clients directly as the contractor or indirectly as a subcontractor. We believe demand for our services will continue to be subject
to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions, the manner
in which the applicable government will be required to spend funding to remediate various sites, and/or the impact resulting from
COVID-19 as discussed above. In addition, our governmental contracts and subcontracts relating to activities at governmental sites
in the United States are generally subject to termination or renegotiation on 30 days’ notice at the government’s
option, and our governmental contracts/task orders with the Canadian government authorities allow the authorities to terminate
the contract/task orders at any time for convenience. Significant reductions in the level of governmental funding or specifically
mandated levels for different programs that are important to our business could have a material adverse impact on our business,
financial position, results of operations and cash flows. As previously disclosed, our Medical Segment has substantially reduced
its R&D costs and activities due to the need for capital to fund such activities. We anticipate that our Medical Segment will
not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional
equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable to raise the necessary
capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.
We
are continually reviewing methods to raise additional capital to supplement our liquidity requirements, when needed, and reducing
our operating costs. We continue to aggressively bid on various contracts, including potential contracts within the international
markets.
Results
of Operations
The
reporting of financial results and pertinent discussions are tailored to our three reportable segments: The Treatment Segment
(“Treatment”), the Services Segment (“Services”), and the Medical Segment (“Medical”). Our
Medical Segment has not generated any revenue and all costs incurred are included within R&D.
Summary
- Years Ended December 31, 2020 and 2019
Below
are the results of continuing operations for years ended December 31, 2020 and 2019 (amounts in thousands):
(Consolidated)
2020
%
2019
%
Net
revenues
$ 105,426
100.0
$ 73,459
69.7
Cost
of goods sold
89,533
84.9
57,875
78.8
Gross
profit
15,893
15.1
15,584
21.2
Selling,
general and administrative
11,774
11.2
11,862
16.1
Research
and development
762
.7
750
1.0
Loss
on disposal of property and equipment
29
—
3
—
Income
from operations
3,328
3.2
2,969
4.0
Interest
income
140
.1
337
.5
Interest
expense
(398 )
(.4 )
(432 )
(.6 )
Interest
expense – financing fees
(294 )
(.3 )
(208 )
(.3 )
Other
211
.2
223
.3
Loss
on extinguishment of debt
(27 )
—
—
—
Income
from continuing operations before taxes
2,960
2.8
2,889
3.9
Income
tax (benefit) expense
(189 )
(.2 )
157
.2
Income
from continuing operations
$ 3,149
3.0
$ 2,732
3.7
21
Revenue
Consolidated
revenues increased $31,967,000 for the year ended December 31, 2020 compared to the year ended December 31, 2019, as follows:
(In
thousands)
2020
%
Revenue
2019
%
Revenue
Change
%
Change
Treatment
Government
waste
$ 21,234
20.1
$ 27,277
37.1
$ (6,043 )
(22.2 )
Hazardous/non-hazardous
(1)
5,072
4.8
6,376
8.7
(1,304 )
(20.5 )
Other
nuclear waste
3,837
3.6
6,711
9.1
(2,874 )
(42.8 )
Total
30,143
28.6
40,364
54.9
(10,221 )
(25.3 )
Services
Nuclear
73,458
69.7
30,371
41.4
43,087
141.9
Technical
1,825
1.7
2,724
3.7
(899 )
(33.0 )
Total
75,283
71.4
33,095
45.1
42,188
127.5
Total
$ 105,426
100.0
$ 73,459
100.0
$ 31,967
43.5
1)
Includes wastes generated by government clients of $1,976,000 and $2,422,000 for the twelve months ended December 31, 2020
and 2019, respectively.
Treatment
Segment revenue decreased $10,221,000 or 25.3 % for the twelve months ended December 31, 2020 over the same period in 2019. The
revenue decrease was primarily due to lower revenue generated from lower waste volume resulting from waste shipment delays since
late March 2020 from certain of our customers due to the impact of COVID-19 including generator shutdowns and limited sustained
operations. The delays in waste shipments were also partly attributed to the transition of new prime contractors at certain DOE
sites which resulted in delays in waste shipments to us as subcontractors under certain contracts. Additionally, lower averaged
price waste from revenue mix contributed to the decrease in revenue. Our Services Segment revenue increased $42,188,000 or 127.1%
due to the increase in number of projects and the sizeable value of certain projects. Our Services Segment experienced this increase
in revenue despite a number of our projects being shut down starting in late March 2020 due to COVID-19. These projects did not
restart until the latter part of the second quarter of 2020. 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 $31,658,000 for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as
follows:
(In
thousands)
2020
%
Revenue
2019
%
Revenue
Change
Treatment
$ 24,652
81.8
$ 28,116
69.7
$ (3,464 )
Services
64,881
86.2
29,759
89.9
35,122
Total
$ 89,533
84.9
$ 57,875
78.8
$ 31,658
Cost
of goods sold for the Treatment Segment decreased approximately $3,464,000 or 12.3%. Treatment Segment costs of goods sold for
the twelve months ended December 31, 2019 included additional closure costs recorded in the amount of $330,000 for our East Tennessee
Materials and Energy Corporation (“M&EC”) facility due to finalization of closure requirements in connection with
the closure of the facility. Excluding the closure costs recorded in 2019, Treatment Segment cost of goods sold decreased $3,134,000
or 11.3% primarily due to the decrease in revenue. Excluding the closure costs recorded in 2019, Treatment Segment variable costs
decreased by approximately $3,516,000 primarily due to lower disposal, transportation, material and supplies and outside services
costs. Our overall fixed costs were higher by approximately $382,000 resulting from the following: maintenance expenses were higher
by $280,000; regulatory expenses were higher by approximately $190,000; depreciation expenses were higher by approximately $219,000
primarily due to more financed leases; general expenses were lower by approximately $61,000 in various categories; salaries and
payroll costs were lower by approximately $175,000; and travel expenses were lower by approximately $71,000 due to restrictions
implemented resulting from COVID-19. Services Segment cost of goods sold increased $35,122,000 or 118.0% primarily due to increased
revenue as discussed above. The increase in cost of goods sold within our Services Segment was primarily due to higher salaries
and payroll costs, travel, and outside services expenses totaling approximately $31,068,000, higher material and supplies, regulatory
and disposal costs totaling approximately $3,312,000, and higher general expenses of $742,000 in various categories. Payroll costs
within our Services Segment included higher expenses for project related incentives. Included within cost of goods sold is depreciation
and amortization expense of $1,555,000 and $1,301,000 for the twelve months ended December 31, 2020, and 2019, respectively.
22
Gross
Profit
Gross
profit for the year ended December 31, 2020 was $309,000 higher than 2019 as follows:
(In
thousands)
2020
%
Revenue
2019
%
Revenue
Change
Treatment
$ 5,491
18.2
$ 12,248
30.3
$ (6,757 )
Services
10,402
13.8
3,336
10.1
7,066
Total
$ 15,893
15.1
$ 15,584
21.2
$ 309
Treatment
Segment gross profit decreased $6,757,000 or 55.2% and gross margin decreased to 18.2% from 30.3%. Excluding the additional closure
costs of $330,000 recorded in the twelve months ended December 31, 2019 in connection with the closure of our M&EC facility
as discussed above, gross profit decreased $7,087,000 or 56.3% and gross margin decreased to 18.2% from 31.2% primarily due to
lower revenue from lower waste volume and lower averaged price waste from revenue mix. In the Services Segment, gross profit increased
$7,066,000 or 211.8% and gross margin increased from 10.1% to 13.8% primarily due to the increase in revenue. Our overall Services
Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin
structures.
SG&A
SG& A
expenses decreased $88,000 for the year ended December 31, 2020 as compared to the corresponding period for 2019 as follows:
(In
thousands)
2020
%
Revenue
2019
%
Revenue
Change
Administrative
$ 5,537
—
$ 5,395
—
$ 142
Treatment
3,819
12.7
3,955
9.8
(136 )
Services
2,418
3.2
2,512
7.6
(94 )
Total
$ 11,774
11.2
$ 11,862
16.1
$ (88 )
The
increase in Administrative SG&A was primarily due to the following: general expenses were higher by approximately $84,000
in various categories; director stock option expenses were higher by approximately $75,000 due to options granted to new directors
in addition to higher fair value of options granted to re-elected directors; outside services expenses were higher by approximately
$16,000 resulting from more consulting/subcontract matters; depreciation expenses were higher by approximately $14,000; salaries
and payroll costs were higher by approximately $13,000; and travel expenses were lower by approximately $60,000 due to restrictions
implemented resulting from the impact of COVID-19. Treatment SG&A was lower primarily due to the following: travel expenses
were lower by approximately $109,000 due to restrictions implemented resulting from the impact of COVID-19; general expenses were
lower by $123,000 in various categories which included lower trade show expenses of $122,000 resulting from the cancellation of
certain trade shows due to impact of COVID-19; and salaries and payroll costs were higher by approximately $96,000. Services Segment
SG&A was lower primarily due to the following: travel expenses were lower by approximately $119,000 due to restrictions implemented
resulting from the impact of COVID-19; bad debt expenses were lower by approximately $432,000 as certain customer accounts which
we had previously reserved for were collected in 2020 and additional bad debt expenses were recorded in 2019 for a certain account
receivable which was determined not to be collectible at December 31, 2019 ; and salaries
and payroll costs were higher by approximately $457,000. Included in SG&A expenses is depreciation and amortization expense
of $41,000 and $41,000 for the twelve months ended December 31, 2020 and 2019, respectively.
23
R&D
R&D
expenses increased $12,000 for the year ended December 31, 2020 as compared to the corresponding period of 2019 as follows:
(In
thousands)
2020
2019
Change
Administrative
$ 76
$ 23
$ 53
Treatment
243
401
(158 )
Services
132
12
132
PF
Medical
311
314
(3 )
Total
$ 762
$ 750
$ 12
Research
and development costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related
costs associated with the development of new technologies and technological enhancement of new potential waste treatment processes.
Interest
Income
Interest
income decreased by approximately $197,000 for the twelve months ended December 31, 2020 as compared to the corresponding period
of 2019. The decrease was primarily due to lower interest earned on the finite risk sinking funds from lower interest rate. The
decrease in interest income was also attributed to lower interest earned from lower finite risk sinking fund balance resulting
from the release of $5,000,000 in finite risk sinking funds by AIG Specialty Insurance Company (“AIG”) to us at the
end of July 2019 in connection with the closure of our M&EC facility. The $5,000,000 in finite sinking funds represented a
partial release of the total collateral held under our finite risk insurance policy.
Interest
Expense
Interest
expense decreased by approximately $34,000 for the twelve months ended December 31, 2020 as compared to the corresponding period
of 2019 primarily due to lower interest expense from our declining term loan balance outstanding and lower interest rate. Also,
interest expense was lower from accelerated declining loan balance outstanding resulting from payments of principal on the $2,500,000
loan that we entered into with Robert Ferguson on April 1, 2019. This loan was paid-in-full by us by the end December 2020. The
overall decrease in interest expense was partially offset by higher interest expense from more finance leases and interest accrued
for the PPP Loan (see “Liquidity and Capital Resources – Financing Activities” and “The CARES Act –
PPP Loan” for further information of these loans).
Interest
Expense- Financing Fees
Interest
expense-financing fees increased approximately $86,000 for the twelve months ended December 31, 2020 as compared to the corresponding
period of 2019. The increase was primarily due to debt discount/debt issuance costs amortized as financing fees in connection
with the issuance of our Common Stock and a purchase Warrant as consideration for us receiving the $2,500,000 loan from Robert
Ferguson which was paid off early by us at the end of December 2020.
Income
Taxes
We
had income tax benefit of $189,000 and income tax expense of $157,000 for continuing operations for the years ended December 31,
2020 and 2019, respectively. The Company’s effective tax rates were approximately 6.4% and 5.4% for the twelve months ended
December 31, 2020 and 2019, respectively. The tax benefit for the year ended December 31, 2020 resulted primarily from state tax
true-ups related to our amended tax returns and a reduction in the naked credit deferred tax liabilities (“DTL”) resulting
from a reduction in estimated state apportionment percentage.
24
Discontinued
Operations
Our
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.
Our
discontinued operations had no revenue for the twelve months ended December 31, 2020 and 2019. We incurred net losses of $412,000
and $547,000 for our discontinued operations for the twelve months ended December 31, 2020 and 2019, respectively (net of taxes
of $0 for each period). The losses incurred for each period were primarily due to the administration and continued monitoring
of our discontinued operations. Our net loss for the year ended December 31, 2019 also included an increase of approximately $50,000
in remediation reserve for our Perma-Fix of Memphis (“PFM”) subsidiary due to reassessment of the remediation reserve.
Liquidity
and Capital Resources
Our
cash flow requirements during 2020 were primarily financed by our operations, credit facility availability, and the PPP Loan that
we received under the CARES Act as discussed below (see “CARES Act – PPP Loan”). We generated approximately
$7,867,000 of cash from our continuing operations. Subject to the impact of COVID-19 as discussed above, our cash flow requirements
for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations,
remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility
availability, and cash on hand which was approximately $7,924,000 at December 31, 2020. We continue to explore all sources of
increasing our capital to supplement our liquidity requirements, when needed, 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, and our cash on hand should be sufficient to fund our operations for the next
twelve months. However, due to the uncertainty of COVID-19, there are no assurances such will be the case in the events that certain
of our customers continue to delay waste shipments and/or elect to shut down projects again due to COVID-19. As previously disclosed,
our Medical Segment substantially reduced its R&D costs and activities due to the need for capital to fund such activities.
We continue to seek various sources of potential funding for our Medical Segment. We anticipate that our Medical Segment will
not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional
equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable to raise the necessary
capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.
The
following table reflects the cash flow activity for the year ended December 31, 2020 and the corresponding period of 2019:
(In
thousands)
2020
2019
Cash
provided by (used in) operating activities of continuing operations
$ 7,867
$ (4,023 )
Cash
used in operating activities of discontinued operations
(499 )
(660 )
Cash
used in investing activities of continuing operations
(1,711 )
(1,533 )
Cash
provided by investing activities of discontinued operations
118
121
Cash
provided by financing activities of continuing operations
1,892
992
Effect
of exchange rate changes on cash
6
19
Increase
(decrease) in cash and finite risk sinking fund (restricted cash)
$ 7,673
$ (5,084 )
At
December 31, 2020, we were in a positive cash position with no revolving credit balance. At December 31, 2020, we had cash on
hand of approximately $7,924,000, which included account balances of our foreign subsidiaries totaling approximately $377,000.
At December 31, 2020, we had finite risk sinking funds (restricted cash) of approximately $11,446,000, which represents cash held
as collateral under our financial assurance policy.
25
Operating
Activities
Accounts
receivable, net of allowances for doubtful accounts, totaled $9,659,000 at December 31, 2020, a decrease of $3,519,000 from the
December 31, 2019 balance of $13,178,000. The decrease was primarily due to timing of invoicing which was reflective of the increase
in our unbilled receivables and timing of our accounts receivable collection. We provide a variety of payment terms to our customers;
therefore, our accounts receivable are impacted by these terms and the related timing of accounts receivable collections. The
amount of our accounts receivables and collection could be materially impacted the longer COVID-19 persists.
Accounts
payable, totaled $15,382,000 at December 31, 2020, an increase of $6,105,000 from the December 31, 2019 balance of $9,277,000.
The increase in accounts payable was attributed to an increase in costs within our Services Segment resulting from the significant
increase in revenue. Additionally, our accounts payable are impacted by the timing of payments as we are continually managing
payment terms with our vendors to maximize our cash position throughout all segments.
We
had working capital of $3,672,000 (which included working capital of our discontinued operations) at December 31, 2020, as compared
to working capital of $26,000 at December 31, 2019. The improvement in our working capital was primarily due to the proceeds that
we received from the PPP Loan under the Paycheck Protection Program (see “PPP Loan” under “CARES Act”
below for a discussion of this loan) and the increase in our unbilled receivables from the significant increase in revenues within
our Services Segment. The improvement in our working capital was partially offset by the increase in our accounts payable. Additionally,
at December 31, 2020, we classified approximately $3,191,000 of the outstanding PPP Loan balance of $5,318,000 as “Current
portion of long-term debt” on our Consolidated Balance Sheets. We have applied for forgiveness on repayment of the entire
PPP Loan balance which is subject to the review and approval of our lender and the SBA.
Investing
Activities
During
2020, our purchases of capital equipment totaled approximately $2,598,000, of which $883,000 was subject to financing, with the
remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2021 capital
expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and
support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We
plan to fund our capital expenditures from cash from operations and/or financing. The initiation and timing of projects are also
determined by financing alternatives or funds available for such capital projects.
Financing
Activities
We
entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended
Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Amended Loan Agreement
had been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently
amended (“Revised Loan Agreement”), provided us with the following credit facility with a maturity date of March 24,
2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”) of
approximately $6,100,000. The maximum that we can borrow under the revolving credit was 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.
Payment
of annual rate of interest due on the revolving credit under the Revised Loan Agreement was at prime (3.25% at December 31, 2020)
plus 2% and the term loan at prime plus 2.5%.
On
May 8, 2020, we entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “New
Loan Agreement”) with PNC, replacing our previous Revised Loan Agreement with PNC. The New Loan Agreement provides us with
the following credit facility:
●
up
to $18,000,000 revolving credit facility, subject to the amount of borrowings based on a percentage of eligible receivables
and subject to certain reserves; and
26
●
a
term loan of $1,741,818, which requires monthly installments of $35,547.
The
New Loan Agreement terminates as of May 15, 2024, unless sooner terminated.
Similar
to our Revised Loan Agreement, the New Loan Agreement requires us to meet certain customary financial covenants, including, among
other things, a minimum Tangible Adjusted Net Worth requirement of $27,000,000 at all times; maximum capital spending of $6,000,000
annually; and a minimum fixed charge coverage ratio (“FCCR”) requirement of 1.15:1.
Under
the New Loan Agreement, payment of annual rate of interest due on the credit facility is as follows:
●
revolving
credit at prime plus 2.50% or London InterBank Offer Rate (“LIBOR”) plus 3.50% and the term loan at prime plus
3.00% or LIBOR plus 4.00%. We can only elect to use the LIBOR interest payment option after we become compliant with meeting
the minimum FCCR of 1.15:1; and
●
Upon
the achievement of a FCCR of greater than 1.25:1, we have the option of paying an annual rate of interest due on the revolving
credit at prime plus 2.00% or LIBOR plus 3.00% and the term loan at prime plus 2.50% or LIBOR plus 3.50%. We met this FCCR
in each of the quarters of 2020. Upon meeting the FCCR of 1.25:1, this interest payment option will remain in place in the
event that our future FCCR falls below 1.25:1.
Under
the LIBOR option of interest payment noted above, a LIBOR floor of 0.75% shall apply in the event that LIBOR falls below 0.75%
at any point in time.
Pursuant
to the New Loan Agreement, we may terminate the New Loan Agreement upon 90 days’ prior written notice upon payment in full
of our obligations under the New Loan Agreement. We have agreed to pay PNC 1.0% of the total financing in the event we pay off
our obligations on or before May 7, 2021 and 0.5% of the total financing if we pays off our obligations after May 7, 2021 but
prior to or on May 7, 2022. No early termination fee shall apply if we pay off our obligations under the New Loan Agreement after
May 7, 2022.
At
December 31, 2020, the borrowing availability under our revolving credit was approximately $14,220,000, based on our eligible
receivables and includes a reduction in borrowing availability of approximately $3,026,000 from outstanding standby letters of
credit.
Our
credit facility under our Revised and New Loan Agreement with PNC contains certain financial covenant requirements, along with
customary representations and warranties. A breach of any of these financial covenant requirements, unless waived by PNC, could
result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt
under our credit facility and terminate all commitments to extend further credit. We met our financial covenant requirements in
2020, including our quarterly FCCR requirements. We expect to meet our financial covenant requirements in the next twelve months;
however, if we fail to meet any of our financial covenant requirements and our lender does not waive the non-compliance or revise
our covenant so that we are in compliance, our lender could accelerate the repayment of borrowings under our credit facility and
terminate our credit facility. In the event that our lender accelerates the payment of our borrowings and terminate our credit
facility, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness.
27
As
previously disclosed, on April 1, 2019, we completed a lending transaction with Robert Ferguson (the “Lender”), whereby
we borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory
note (the “Loan”). The Lender is a shareholder of ours and also serves as a consultant to us in connection with our
Test Bed Initiative (“TBI”) at our Perma-Fix Northwest Richland, Inc. (“PFNWR”) subsidiary. The proceeds
from the Loan were used for general working capital purposes. The Loan is unsecured, with a term of two years with interest payable
at a fixed interest rate of 4.00% per annum. The Loan provides for monthly payments of accrued interest only during the first
year of the Loan, with the first interest payment due May 1, 2019 and monthly payments of approximately $208,333 in principal
plus accrued interest starting in the second year of the Loan. The Loan also allows for prepayment of principal payments over
the term of the Loan without penalty with such prepayment of principal payments to be applied to the second year of the loan payments
at our discretion. In December 2020, the Loan was paid-in-full. In connection with this capital raise transaction described above
and consideration for us receiving the Loan, we issued a Warrant (the “Warrant”) to the Lender to purchase up to 60,000
shares of our Common Stock at an exercise price of $3.51 per share, which was the closing bid price for a share of our Common
Stock on NASDAQ.com immediately preceding the execution of the Loan and Warrant. The Warrant expires on April 1, 2024 and remains
outstanding at December 31, 2020. As further consideration for this capital raise transaction relating to the Loan, we also issued
75,000 shares of its Common Stock to the Lender. The fair value of the Warrant and Common Stock and the related closing fees incurred
from the transaction totaled approximately $398,000 and was recorded as debt discount/debt issuance costs which has been fully
amortized as interest expense – financing fees. The 75,000 shares of Common Stock, the Warrant and the 60,000 shares of
Common Stock that may be purchased under the Warrant were and will be issued in a private placement that was and will be exempt
from registration under Rule 506 and/or Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933, as amended (the “Act”)
and bear a restrictive legend against resale except in a transaction registered under the Act or in a transaction exempt from
registration thereunder.
The
CARES Act
PPP
Loan
On
April 14, 2020, we entered into a promissory note with PNC, our credit facility lender, in the amount of approximately $5,666,000
under the PPP (the “PPP Loan”). The PPP was established under the CARES Act and is administered by the SBA. On June
5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”) was signed into law which amended
the CARES Act. The note evidencing the PPP Loan contains events of default relating to, among other things, payment defaults,
breach of representations and warranties, and provisions of the promissory note. During the third quarter of 2020, we repaid approximately
$348,000 of the PPP Loan to PNC resulting from clarification in the loan calculation at the time of the loan origination.
Under
the terms of the Flexibility Act, we can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness
will be determined, subject to limitations, based on the use of loan proceeds by us for eligible payroll costs, mortgage interest,
rent and utility costs and the maintenance of employee and compensation levels for the covered period (which is defined as a 24
week period, beginning April 14, 2020, the date in which proceeds from the PPP Loan was disbursed to us by PNC). At least 60%
of such forgiven amount must be used for eligible payroll costs. On October 5, 2020, we applied for forgiveness on repayment of
the loan balance as permitted under the program, which is subject to the review and approval of our lender and the SBA. If all
or a portion of the PPP Loan is not forgiven, all or the remaining portion of the loan will be for a term of two years but can
be prepaid at any time prior to maturity without any prepayment penalties. The annual interest rate on the PPP Loan is 1.0% and
no payments of principal or interest are due until the date that the SBA remits the loan forgiveness amount to our lender. While
our PPP Loan currently has a two year maturity, the Flexibility Act permits us to request a five year maturity with our lender.
At December 31, 2020, we have not received a determination on potential forgiveness on any portion of the PPP Loan balance;
therefore, we have classified approximately $3,191,000 of the PPP Loan balance as “Current portion of long-term debt,”
on our Consolidated Balance Sheets, which was based on payment of the PPP Loan starting in July 2021 (10 months from end of our
covered period) in accordance with the terms of our PPP Loan agreement.
Deferral
of Employment Tax Deposits
The
CARES Act, as amended by the Flexibility Act, provides employers the option to defer the payment of an employer’s share
of social security taxes beginning on March 27, 2020 through December 31, 2020, with 50% of the amount of social security taxes
deferred to become due on December 31, 2021 with the remaining 50% due on December 31, 2022. We elected to defer such taxes starting
in mid-April 2020. At December 31, 2020, we deferred payment of approximately $1,252,000 in our share of social security taxes,
of which approximately $626,000 is included in “Other long-term liabilities,” with the remaining balance included
in “Accrued expenses” within current liabilities in the Company’s Consolidated Balance Sheets.
28
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 December 31, 2020, the total amount of standby letters of credit outstanding
totaled approximately $3,026,000 and the total amount of bonds outstanding totaled approximately $46,388,000. We also provide
closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through
AIG. At December 31, 2020, the closure and post-closure requirements for these facilities were approximately $19,651,000.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements are prepared based upon the selection and application of accounting principles generally accepted
in the United States of America (“US GAAP”), which may require us to make estimates, judgments and assumptions that
affect amounts reported in our financial statements and accompanying notes. The accounting policies below are those we believe
affect the more significant estimates and judgments used in preparation of our financial statements. Our other accounting policies
are described in the accompanying notes to our consolidated financial statements of this Form 10-K (see “Item 8 –
Financial Statements and Supplementary Data” – “Notes to Consolidated Financial Statements” – “Note
2 – Summary of Significant Accounting Policies”):
Intangible
Assets . Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually
monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments
to the carrying value.
Indefinite-lived
intangible assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the
business environment indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying
amount, we perform a quantitative test to determine the fair value. The impairment loss, if any, is measured as the excess of
the carrying value of the asset over its fair value. Significant judgments are inherent in these analyses and include assumptions
for, among other factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows,
and the determination of appropriate long-term discount rates.
Impairment
testing of our permits related to our Treatment reporting unit as of October 1, 2020 and 2019 resulted in no impairment charges.
Intangible
assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the
exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible
asset valuation review as of October 1. Intangible assets with definite useful lives are also tested for impairment whenever events
or changes in circumstances indicate that the asset’s carrying value may not be recoverable.
Accrued
Closure Costs and Asset Retirement Obligations (“ARO”). Accrued closure costs represent our estimated environmental
liability to clean up our facilities as required by our permits, in the event of closure. Accounting Standards Codification (“ASC”)
410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a liability for an
ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying cost of the
asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors
as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations, and credit
adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which the closure
will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are included within
buildings as part of property and equipment and are depreciated over the estimated useful life of the property. In periods subsequent
to initial measurement of the ARO, we must recognize period-to-period changes in the liability resulting from the passage of time
and revisions to either the timing or the amount of the original estimate of undiscounted cash flow. Increases in the ARO liability
due to passage of time impact net income as accretion expense and are included in cost of goods sold in the Consolidated Statements
of Operations. Changes in the estimated future cash flows costs underlying the obligations (resulting from changes or expansion
at the facilities) require adjustment to the ARO liability calculated and are capitalized and charged as depreciation expense,
in accordance with our depreciation policy.
29
Recent
Accounting Pronouncements
See
“Item 8 – Financial Statements and Supplementary Data” – “Notes to Consolidated Financial Statements”
– “Note 2 – Summary of Significant Accounting Policies” for the recent accounting pronouncements that
have been adopted during the year ended December 31, 2020, or will be adopted in future periods.
Known
Trends and Uncertainties
Economic
Conditions. Our 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 authorities (particularly the U.S Department of Energy and
U.S. Department of Defense) 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 the economic conditions and the manner in which the
government entity will be required to spend funding to remediate various sites. In addition, our U.S. governmental contracts and
subcontracts relating to activities at governmental sites are generally subject to termination or renegotiation on 30 days notice
at the government’s option. The TOAs with the Canadian government generally provide that the government may terminate a
TOA at any time for convenience. Significant reductions in the level of governmental funding or specifically mandated levels for
different programs that are important to our business could have a material adverse impact on our business, financial position,
results of operations and cash flows.
Significant
Customers . Our Treatment and Services Segments have significant relationships with the U.S and Canadian governmental authorities
through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor
to government authorities. Our inability to continue under existing contracts that we have with the U.S government and Canadian
government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding
in any given year could have a material adverse impact on our operations and financial condition.
We
performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either directly
as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately $96,582,000,
or 91.6%, of our total revenue during 2020, as compared to $59,985,000, or 81.7%, of our total revenue during 2019.
Revenue
generated by us as a subcontractor to a customer for a remediation project performed for a government entity (the “DOE”)
within our Services Segment in 2020 and 2019 accounted for approximately $41,011,000 or 38.9% and $8,529,000 or 11.6% (included
in revenue generated relating to government clients above) of our total revenue for 2020 and 2019, respectively. This remediation
project included among other things, decontamination support of a building. As work progressed throughout stages of this project
in 2020, additional contaminations were regularly discovered which resulted in approval for additional work to be performed under
this project. This project is expected to be completed by the first half of 2021.
As
our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another
contract with a different customer from year to year, we do not believe the loss of one specific customer from one year to the
next will generally have a material adverse effect on our operations and financial condition.
COVID-19
Impact. The extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the responses
to the pandemic continue to evolve rapidly. Since the latter part of the second quarter of 2020, all of the projects within our
Services Segment that were previously shutdown have restarted as stay-at-home orders and certain other restrictions resulting
from the pandemic were lifted. Within our Treatment Segment, we continue to experience delays in waste shipment from certain customers
directly related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors.
However, we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate
operations. COVID-19 disruption could have a material adverse effect on our business as our customers could curtail and reduce
capital and overall spending.
30
The
severity of the impact the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to,
the duration and severity of the pandemic, the extent and severity of the impact on our customers, the impact on governmental
programs and budgets, distribution of COVID-19 vaccines, the rate at which people are inoculated with the vaccines, and how quickly
and to what extent normal economic and operating conditions resume, all of which are uncertain and cannot be predicted with any
accuracy or confidence at this time. Our future results of operations and liquidity could be adversely impacted by continued delays
in waste shipments and/or the recurrence of project work shut downs as well as potential partial/full shutdown of any of our facilities
due to COVID-19.
Environmental
Contingencies
We
are engaged in the waste management services segment of the pollution control industry. As a participant in the on-site treatment,
storage and disposal market and the off-site treatment and services market, we are subject to rigorous federal, state and local
regulations. These regulations mandate strict compliance and therefore are a cost and concern to us. Because of their integral
role in providing quality environmental services, we make every reasonable attempt to maintain complete compliance with these
regulations; however, even with a diligent commitment, we, along with many of our competitors, may be required to pay fines for
violations or investigate and potentially remediate our waste management facilities.
We
routinely use third party disposal companies, who ultimately destroy or secure landfill residual materials generated at our facilities
or at a client’s site. In the past, numerous third-party disposal sites have improperly managed waste and consequently require
remedial action; consequently, any party utilizing these sites may be liable for some or all of the remedial costs. Despite our
aggressive compliance and auditing procedures for disposal of wastes, we could further be notified, in the future, that we are
a potentially responsible party (“PRP”) at a remedial action site, which could have a material adverse effect.
We
have three remediation projects, which are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”),
PFM and Perma-Fix of South Georgia, Inc. (“PFSG”) subsidiaries, all within our discontinued operations. These remediation
projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground
water. The remediation activities are closely reviewed and monitored by the applicable state regulators. While no assurances can
be made that we will be able to do so, we expect to fund the expenses to remediate these sites from funds generated internally.
At
December 31, 2020, we had total accrued environmental remediation liabilities of $854,000, a decrease of $73,000 from the December
31, 2019 balance of $927,000. The decrease represents payments made on remediation projects for our PFSG and PFD subsidiaries.
At December 31, 2020, $744,000 of the total accrued environmental liabilities was recorded as current.
Related
Party Transactions
David
Centofanti
David
Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $181,000
and $177,000 for 2020 and 2019, respectively. David Centofanti is the son of Dr. Louis Centofanti, our Executive Vice President
(“EVP”) of Strategic Initiatives and a member of our Board of Directors (“Board”). We believe the compensation
received by David Centofanti for his technical expertise which he provides to us is competitive and comparable to compensation
we would have to pay to an unaffiliated third party with the same technical expertise.
Employment
Agreements
We
entered into an employment agreement with each of Mark Duff, President and Chief Executive Officer (“CEO”), Dr. Louis
Centofanti, EVP of Strategic Initiatives, Ben Naccarato, Chief Financial Officer (“CFO”), Andrew Lombardo, EVP of
Nuclear and Technical Services, and Richard Grondin, EVP of Waste Treatment Operations, with each employment agreement dated July
22, 2020 (each employment agreement referred to as the “New Employment Agreement”). We had entered into an employment
agreement with each of Mark Duff, Dr. Louis Centofanti and Ben Naccarato on September 8, 2017 which each of the employment agreement
was terminated effective July, 22, 2020 upon the execution of the New Employment Agreement with Mark Duff, Dr. Louis Centofanti
and Ben Naccarato.
31
Each
New Employment Agreement is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier terminated
by the Company or by the executive officer. At the end of the Initial Term of each New Employment Agreement, each New Employment
Agreement will automatically be extended for one additional year, unless at least six months prior to the expiration of the Initial
Term, we or the executive officer provides written notice not to extend the terms of the New Employment Agreement. Each New Employment
Agreement provides for annual base salary, performance bonuses (as provided in the Management Incentive Plan (“MIP”)
as approved by our Compensation and Stock Option Committee (the “Compensation Committee”) and Board) and other benefits
commonly found in such agreement.
Pursuant
to each New Employment Agreement, if the executive officer’s employment is terminated due to death/disability or for cause
(as defined in the agreements), we will pay to the executive officer or to his estate an amount equal to the sum of any unpaid
base salary and accrued unused vacation time through the date of termination and any benefits due to the executive officer under
any employee benefit plan (the “Accrued Amounts”) plus any performance compensation payable pursuant to the MIP with
respect to the fiscal year immediately preceding the date of termination.
If
the executive officer terminates his employment for “good reason” (as defined in the agreements) or is terminated
by us without cause (including any such termination for “good reason” or without cause within 24 months after a Change
in Control (as defined in the agreement)), we will pay the executive officer the Accrued Amounts, two years of full base salary,
and two times the performance compensation (under the MIP) earned with respect to the fiscal year immediately preceding the date
of termination provided the performance compensation earned with respect to the fiscal year immediately preceding the date of
termination has not been paid. If performance compensation earned with respect to the fiscal year immediately preceding the date
of termination has been made to the executive officer, the executive officer will be paid an additional year of the performance
compensation earned with respect to the fiscal year immediately preceding the date of termination. If the executive terminates
his employment for a reason other than for good reason, we will pay to the executive an amount equal to the Accrued Amounts plus
any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of termination.
If
there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase common stock held by the
executive officer will immediately become exercisable in full commencing on the date of termination through the original term
of the options. In the event of the death of an executive officer, all outstanding stock options to purchase common stock held
by the executive officer will immediately become exercisable in full commencing on the date of death, with such options exercisable
for the lesser of the original option term or twelve months from the date of the executive officer’s death. In the event
an executive officer terminates his employment for “good reason” or is terminated by the Company without cause, all
outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing
on the date of termination, with such options exercisable for the lesser of the original option term or within 60 days from the
date of the executive’s date of termination. Severance benefits payable with respect to a termination (other than Accrued
Amounts) shall not be payable until the termination constitutes a “separation from service” (as defined under Treasury
Regulation Section 1.409A-1(h)).
32
MIPs
On
January 16, 2020, our Board and the Compensation Committee approved individual MIP for each Mark Duff, CEO and President, Ben
Naccarato, EVP and CFO, Dr. Louis Centofanti, EVP of Strategic Initiatives and Andy Lombardo, who was appointed by our Board to
the position of EVP of Nuclear and Technical Services and an executive officer of the Company on January 16, 2020. Mr. Lombardo
previously held the position of Senior Vice President (“SVP”) of Nuclear and Technical Services. Additionally, on
July 22, 2020, our Board and our Compensation Committee approved a MIP for Richard Grondin who was appointed by our Board to the
position of EVP of Waste Treatment Operations and an executive officer of the Company. Mr. Grondin previously held the position
of Vice President of Western Operations within our Treatment Segment. Each of the MIPs is effective January 1, 2020 and applicable
for year ended December 31, 2020. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation,
subject to Compensation Committee oversight and modification. Each MIP awards cash compensation based on achievement of performance
thresholds, with the amount of such compensation established as a percentage of the executive’s 2020 annual base salary.
The potential target performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5%
to 100% of the base salary for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives
($11,667 to $233,336), 5% to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000) and 5%
to 100% ($12,000 to $240,000) of the base salary for the EVP of Waste Treatment Operations. The total incentive compensation earned
under the 2020 MIPs for the executive officers was approximately $419,000 and is payable on or about 90 days after year-end, or
sooner, based on finalization of our audited financial statements for 2020 in accordance to the MIPs.
On
January 21, 2021, our Board and the Company Compensation Committee approved individual MIP for the calendar year 2021 for each
CEO, EVP and CFO, EVP of Strategic Initiatives, EVP of Nuclear and Technical Services and EVP of Waste Treatment Operations. Each
of the MIPs is effective January 1, 2021 and applicable for year 2021. Each MIP provides guidelines for the calculation of annual
cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash compensation
based on achievement of performance thresholds, with the amount of such compensation established as a percentage of the executive’s
2021 annual base salary at the time of the approval of the MIP. The potential target performance compensation ranges from 5% to
150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000), 5%
to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP
of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of
Waste Treatment Operations.
Salary
On
January 16, 2020, the Board, with the approval of the Compensation Committee approved the following salary increase for the Company’s
executive officers effective January 1, 2020:
●
Annual
base salary for Mark Duff, CEO and President, was increased to $344,400 from $287,000.
●
Annual
base salary for Ben Naccarato, who was promoted to EVP and CFO from VP and CFO, was increased to $280,000 from $235,231; and
●
Annual
base salary for Andy Lombardo, who was appointed to the position of EVP of Nuclear and Technical Services as discussed above,
was increased to $280,000 from $258,662, which was the annual base salary that Mr. Lombardo earned as SVP of Nuclear and Technical
Services and prior to his appointment as an executive officer of the Company by the Board.
Additionally,
as a result of Richard Grondin’s appointment by the Board to the position of EVP of Waste Treatment and an executive officer
on July 22, 2020, his annual salary was increased from $208,000 as Vice President of Western Operations within our Treatment Segment
to $240,000, effective July 22, 2020.
In
February 2021, the Compensation Committee approved an annual salary cost of living adjustment of approximately 2.3% to take into
effect April 1, 2021 for each of our executive officers.
33
ITEM
7A.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required under Regulation S-K for smaller reporting companies.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking
Statements
Certain
statements contained within this report may be deemed “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the
“Private Securities Litigation Reform Act of 1995”). All statements in this report other than a statement of historical
fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could
cause actual results and performance of the Company to differ materially from such statements. The words “believe,”
“expect,” “anticipate,” “intend,” “will,” and similar expressions identify forward-looking
statements. Forward-looking statements contained herein relate to, among other things,
●
demand
for our services;
●
reductions
in the level of government funding in future years;
●
R&D
activity and necessary capital of our Medical Segment;
●
business
strategy;
●
reducing
operating costs and non-essential expenditures;
●
ability
to meet loan agreement covenant requirements;
●
cash
flow requirements;
●
accounts
receivable impact;
●
sufficient
liquidity to continue business;
●
PPP
Loan forgiveness;
●
furlough
or layoff eligible employees;
●
future
results of operations and liquidity;
●
effect
of economic disruptions on our business;
●
curtail
capital expenditures;
●
government
funding for our services;
●
may
not have liquidity to repay debt if our lender accelerates payment of our borrowings;
●
manner
in which the applicable government will be required to spend funding to remediate various sites;
●
funding
operations;
●
fund
capital expenditures from cash from operations and/or financing;
●
impact
from COVID-19;
●
completion
of material contract;
●
gradual
return in waste shipments;
●
fund
remediation expenditures for sites from funds generated internally;
●
collection
of accounts receivables;
●
compliance
with environmental regulations;
●
potential
effect of being a PRP;
●
potential
sites for violations of environmental laws and remediation of our facilities;
●
continuation
of contracts with federal government;
●
loss
of contracts;
●
permitting
and licensing requirements;
●
partial
or full shutdown of any of our facilities;
●
liability
from Tetra Tech claims;
●
shutdown
of projects and continued waste shipments delays by clients; and
●
R&D
costs.
While
the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such
expectations will prove to be correct. There are a variety of factors, which could cause future outcomes to differ materially
from those described in this report, including, but not limited to:
●
general
economic conditions;
●
contract
bids, including international markets;
●
material
reduction in revenues;
●
inability
to meet PNC covenant requirements;
●
inability
to collect in a timely manner a material amount of receivables;
●
increased
competitive pressures;
34
●
inability
to maintain and obtain required permits and approvals to conduct operations;
●
public
not accepting our new technology;
●
inability
to develop new and existing technologies in the conduct of operations;
●
inability
to maintain and obtain closure and operating insurance requirements;
●
inability
to retain or renew certain required permits;
●
discovery
of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries
which would result in a material increase in remediation expenditures;
●
delays
at our third-party disposal site can extend collection of our receivables greater than twelve months;
●
refusal
of third-party disposal sites to accept our waste;
●
changes
in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
●
requirements
to obtain permits for TSD activities or licensing requirements to handle low level radioactive materials are limited or lessened;
●
potential
increases in equipment, maintenance, operating or labor costs;
●
management
retention and development;
●
financial
valuation of intangible assets is substantially more/less than expected;
●
the
requirement to use internally generated funds for purposes not presently anticipated;
●
inability
to continue to be profitable on an annualized basis;
●
inability
of the Company to maintain the listing of its Common Stock on the NASDAQ;
●
terminations
of contracts with government agencies (domestic and foreign) or subcontracts involving government agencies (domestic or foreign),
or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
●
renegotiation
of contracts involving government agencies (domestic and foreign);
●
federal
government’s inability or failure to provide necessary funding to remediate contaminated federal sites;
●
disposal
expense accrual could prove to be inadequate in the event the waste requires re-treatment;
●
inability
to raise capital on commercially reasonable terms;
●
inability
to increase profitable revenue;
●
impact
of the COVID-19;
●
audit
of our PPP Loan;
●
new
governmental regulations;
●
lender
refuses to waive non-compliance or revise our covenant so that we are in compliance; and
●
risk
factors contained in Item 1A of this report.
35
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
to Consolidated Financial Statements
Consolidated
Financial Statements
Page
No.
Report
of Independent Registered Public Accounting Firm
37
Consolidated
Balance Sheets as of December 31, 2020 and 2019
38
Consolidated
Statements of Operations for the years ended December 31, 2020 and 2019
40
Consolidated
Statements of Comprehensive Income for the years ended December 31, 2020 and 2019
41
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019
42
Consolidated
Statements of Cash Flows for the years ended December 31, 2020 and 2019
43
Notes
to Consolidated Financial Statements
44
Financial
Statement Schedules
In
accordance with the rules of Regulation S-X, schedules are not submitted because they are not applicable to or required by the
Company.
36
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of Directors and Stockholders
Perma-Fix
Environmental Services, Inc.
Opinion
on the financial statements
We
have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results
of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America.
Basis
for opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical
audit matters
Critical
audit matters are matters arising from the current period audit of the financial statements that were communicated or required
to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit
matters.
/s/
GRANT THORNTON LLP
We
have served as the Company’s auditor since 2014.
Atlanta,
Georgia
March
29, 2021
37
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS
As
of December 31,
(Amounts
in Thousands, Except for Share and Per Share Amounts)
2020
2019
ASSETS
Current
assets:
Cash
$ 7,924
$ 390
Accounts
receivable, net of allowance for doubtful accounts of $404 and $487, respectively
9,659
13,178
Unbilled
receivables
14,453
7,984
Inventories
610
487
Prepaid
and other assets
3,967
2,983
Current
assets related to discontinued operations
22
104
Total
current assets
36,635
25,126
Property
and equipment:
Buildings
and land
20,139
19,967
Equipment
22,090
20,068
Vehicles
457
410
Leasehold
improvements
23
23
Office
furniture and equipment
1,413
1,418
Construction-in-progress
1,569
1,609
Total
property and equipment
45,691
43,495
Less
accumulated depreciation
(27,908 )
(26,919 )
Net
property and equipment
17,783
16,576
Property
and equipment related to discontinued operations
81
81
Operating
lease right-of-use assets
2,287
2,545
Intangibles
and other long term assets:
Permits
8,922
8,790
Other
intangible assets - net
875
1,065
Finite
risk sinking fund (restricted cash)
11,446
11,307
Other
assets
890
989
Other
assets related to discontinued operations
—
36
Total
assets
$ 78,919
$ 66,515
The
accompanying notes are an integral part of these consolidated financial statements.
38
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS, CONTINUED
As
of December 31,
(Amounts
in Thousands, Except for Share and per Share Amounts)
2020
2019
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Current
liabilities:
Accounts
payable
$ 15,382
$ 9,277
Accrued
expenses
6,381
6,118
Disposal/transportation
accrual
1,220
1,156
Deferred
revenue
4,614
5,456
Accrued
closure costs - current
75
84
Current
portion of long-term debt
3,595
1,300
Current
portion of operating lease liabilities
273
244
Current
portion of finance lease liabilities
525
471
Current
liabilities related to discontinued operations
898
994
Total
current liabilities
32,963
25,100
Accrued
closure costs
6,290
5,957
Deferred
tax liabilities
471
590
Long-term
debt, less current portion
3,134
2,580
Long-term
operating lease liabilities, less current portion
2,070
2,342
Long-term
finance lease liabilities, less current portion
662
466
Other
long-term liabilities
626
—
Long-term
liabilities related to discontinued operations
252
244
Total
long-term liabilities
13,505
12,179
Total
liabilities
46,468
37,279
Commitments
and Contingencies (Note 14)
Stockholders’
Equity:
Preferred
Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding
-
-
Common
Stock, $.001 par value; 30,000,000 shares authorized; 12,161,539 and 12.123,520 shares issued, respectively; 12,153,897 and
12,115,878 shares outstanding, respectively
12
12
Additional
paid-in capital
108,931
108,457
Accumulated
deficit
(74,455 )
(77,315 )
Accumulated
other comprehensive loss
(207 )
(211 )
Less
Common Stock in treasury, at cost; 7,642 shares
(88 )
(88 )
Total
Perma-Fix Environmental Services, Inc. stockholders’ equity
34,193
30,855
Non-controlling
interest
(1,742 )
(1,619 )
Total
stockholders’ equity
32,451
29,236
Total
liabilities and stockholders’ equity
$ 78,919
$ 66,515
The
accompanying notes are an integral part of these consolidated financial statements.
39
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the years ended December 31,
(Amounts
in Thousands, Except for Per Share Amounts)
2020
2019
Net
revenues
$ 105,426
$ 73,459
Cost
of goods sold
89,533
57,875
Gross
profit
15,893
15,584
Selling,
general and administrative expenses
11,774
11,862
Research
and development
762
750
Loss
on disposal of property and equipment
29
3
Income
from operations
3,328
2,969
Other
income (expense):
Interest
income
140
337
Interest
expense
(398 )
(432 )
Interest
expense-financing fees
(294 )
(208 )
Other
211
223
Loss
on debt extinguishment of debt
(27 )
-
Income
from continuing operations before taxes
2,960
2,889
Income
tax (benefit) expense
(189 )
157
Income
from continuing operations, net of taxes
3,149
2,732
Loss
from discontinued operations, net of taxes of $0
(412 )
(541 )
Net
income
2,737
2,191
Net
loss attributable to non-controlling interest
(123 )
(124 )
Net
income attributable to Perma-Fix Environmental Services, Inc. common stockholders
$ 2,860
$ 2,315
Net
income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic:
Continuing
operations
$ .27
$ .24
Discontinued
operations
(.03 )
(.05 )
Net
income per common share
$ .24
$ .19
Net
income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted:
Continuing
operations
$ .26
$ .24
Discontinued
operations
(.03 )
(.05 )
Net
income per common share
$ .23
$ .19
Number
of common shares used in computing net income (loss) per share:
Basic
12,139
12,046
Diluted
12,347
12,060
The
accompanying notes are an integral part of these consolidated financial statements.
40
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
For
the years ended December 31,
(Amounts
in Thousands)
2020
2019
Net
Income
$ 2,737
$ 2,191
Other
comprehensive income:
Foreign
currency translation adjustments
4
3
Total
other comprehensive income
4
3
Comprehensive
income
2,741
2,194
Comprehensive
loss attributable to non-controlling interest
(123 )
(124 )
Comprehensive
income attributable to Perma-Fix Environmental Services, Inc. common stockholders
$ 2,864
$ 2,318
The
accompanying notes are an integral part of these consolidated financial statements.
41
PERMA-FIX
ENVIRONMENTAL SERVICES, INC
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the years ended December 31,
(Amounts
in Thousands, Except for Share Amounts)
Common
Stock
Accumulated
Non-
Additional
Held
Other
controlling
Total
Common
Stock
Paid-In
In
Comprehensive
Interest
in
Accumulated
Stockholders'
Shares
Amount
Capital
Treasury
Loss
Subsidiary
Deficit
Equity
Balance
at December 31, 2018
11,944,215
$ 12
$ 107,548
$ (88 )
$ (214 )
$ (1,495 )
$ (79,630 )
$ 26,133
Net
income (loss)
—
—
—
—
—
(124 )
2,315
2,191
Foreign
currency translation
—
—
—
—
3
—
—
3
Issuance
of Common Stock for services
71,905
—
241
—
—
—
—
241
Stock-Based
Compensation
—
—
179
—
—
—
—
179
Issuance
of Common Stock with debt
75,000
—
263
—
—
—
—
263
Issuance
of warrant with debt
—
—
93
—
—
—
—
93
Issuance
of Common Stock upon exercise of options
32,400
—
133
—
—
—
—
133
Balance
at December 31, 2019
12,123,520
$ 12
$ 108,457
$ (88 )
$ (211 )
$ (1,619 )
$ (77,315 )
$ 29,236
Net
income (loss)
—
—
—
—
—
(123 )
2,860
2,737
Foreign
currency translation
—
—
—
—
4
—
—
4
Issuance
of Common Stock for services
34,135
—
232
—
—
—
—
232
Stock-Based
Compensation
—
—
236
—
—
—
—
236
Issuance
of Common Stock upon exercise of options
3,884
—
6
—
—
—
—
6
Balance
at December 31, 2020
12,161,539
$ 12
$ 108,931
$ (88 )
$ (207 )
$ (1,742 )
$ (74,455 )
$ 32,451
The
accompanying notes are an integral part of these condensed consolidated financial statements.
42
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31,
(Amounts
in Thousands)
2020
2019
Cash
flows from operating activities:
Net
income
$ 2,737
$ 2,191
Less:
loss on discontinued operations, net of taxes of $0 (Note 9)
(412 )
(541 )
Income
from continuing operations
3,149
2,732
Adjustments
to reconcile net income from continuing operations to cash provided by (used in) operating activities:
Depreciation
and amortization
1,596
1,342
Interest
on finance lease with purchase option
9
3
Loss
on extinguishment of debt
27
—
Amortization
of debt issuance/debt discount costs
294
208
Deferred
tax (benefit) expense
(119 )
4
(Recovery
of) provision for bad debt reserves
(101 )
386
Loss
on disposal of property and equipment
29
3
Issuance
of common stock for services
232
241
Stock-based
compensation
236
179
Changes
in operating assets and liabilities of continuing operations:
Accounts
receivable
3,620
(5,829 )
Unbilled
receivables
(6,469 )
(4,879 )
Prepaid
expenses, inventories and other assets
1,147
923
Accounts
payable, accrued expenses and unearned revenue
4,217
664
Cash
provided by (used in) continuing operations
7,867
(4,023 )
Cash
used in discontinued operations
(499 )
(660 )
Cash
provided by (used in) operating activities
7,368
(4,683 )
Cash
flows from investing activities:
Purchases
of property and equipment (net)
(1,715 )
(1,535 )
Proceeds
from sale of property and equipment
4
2
Cash
used in investing activities of continuing operations
(1,711 )
(1,533 )
Cash
provided by investing activities of discontinued operations
118
121
Cash
used in investing activities
(1,593 )
(1,412 )
Cash
flows from financing activities:
Borrowing
on revolving credit
102,788
59,333
Repayments
of revolving credit borrowings
(103,109 )
(59,651 )
Proceeds
from issuance of long-term debt
5,666
2,500
Proceeds
from finance leases
—
405
Principal
repayment of finance lease liabilities
(615 )
(272 )
Principal
repayments of long term debt
(2,759 )
(1,344 )
Payment
of debt issuance costs
(85 )
(112 )
Proceeds
from issuance of common stock upon exercise of options
6
133
Cash
provided by financing activities of continuing operations
1,892
992
Effect
of exchange rate changes on cash
6
19
Increase
(decrease) in cash and finite risk sinking fund (restricted cash) (Note 2)
7,673
(5,084 )
Cash
and finite risk sinking fund (restricted cash) at beginning of period (Note 2)
11,697
16,781
Cash
and finite risk sinking fund (restricted cash) at end of period (Note 2)
$ 19,370
$ 11,697
Supplemental
disclosure:
Interest
paid
$ 366
$ 422
Income
taxes paid
70
245
Non-cash
investing and financing activities:
Equipment
purchase subject to finance lease
856
393
Equipment
purchase subject to financing
27
—
Issuance
of Common Stock with debt
—
263
Issuance
of Warrant with debt
—
93
The
accompanying notes are an integral part of these consolidated financial statements.
43
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
Notes
to Consolidated Financial Statements
December
31, 2020 and 2019
NOTE
1
DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix
Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how
company, is a Delaware corporation, engaged through its subsidiaries, in three reportable segments:
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.
In
2020, we expanded our low-level radioactive waste processing and treatment capability within our Treatment Segment through the
addition of our Oak Ridge Environmental Waste Operations Center (“EWOC”) facility. The EWOC facility serves primarily
as a multi-disciplinary equipment and component processing center for large component, size/volume reduction, sort/segregation,
waste transload, and system operability testing. The ultimate objective will be receipt, preparation, packaging, and transportation
of low-level radioactive waste to final disposal facilities (landfills, approved radiological waste repositories). Operations
at the facility have been limited to date as we continue to complete transition of the site. No revenue was generated at EWOC
in 2020.
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 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 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.
-
Nuclear
services, which include:
○
technology-based
services including engineering, 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 NEOSH instrumentation.
-
A
company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.
MEDICAL
SEGMENT, which includes: R&D of the Company’s medical isotope production technology by our majority-owned Polish subsidiary,
Perma-Fix Medical (“PF Medical” or the “Medical Segment”). The Company’s Medical Segment has not
generated any revenue as it remains in the R&D stage and has substantially reduced its R&D costs and activities due to
the need for capital to fund these activities. All costs incurred by the Medical Segment are reflected within R&D in the accompanying
consolidated financial statements.
The
Company’s continuing operations consist of the operations of our subsidiaries/facilities as follow: Diversified Scientific
Services, Inc. (“DSSI”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”),
Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”),
Perma-Fix of Canada, Inc. (“PF Canada”), PF Medical, East Tennessee Materials & Energy Corporation (“M&EC”)
(facility closure completed in 2019), EWOC and Perma-Fix ERRG, a variable interest entity (“VIE”) for which we are
the primary beneficiary (See “Note 19 - Variable Interest Entities (“VIE”) for a discussion of this VIE).
The
Company’s discontinued operations (see Note 9) consist of operations of all our subsidiaries included in our Industrial
Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.
44
NOTE
2
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
Company’s consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, our majority-owned
Polish subsidiary, Perma-Fix Medical and Perma-Fix ERRG, a VIE for which we are the primary beneficiary as discussed above, after
elimination of all significant intercompany accounts and transactions.
Use
of Estimates
The
Company prepares financial statements in conformity with accounting standards generally accepted in U.S. GAAP, which may require
estimates of future cash flows and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during
the reporting period. Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates.
Cash
and Finite Risk Sinking Fund (Restricted Cash)
At
December 31, 2020, the Company had cash on hand of approximately $7,924,000, which included account balances of our foreign subsidiaries
totaling approximately $377,000. At December 31, 2019, the Company had cash on hand of approximately $390,000, which reflected
primarily account balances of our foreign subsidiaries totaling approximately $388,000. At December 31, 2020 and 2019, the Company
had finite risk sinking funds of approximately $11,446,000 and $11,307,000, respectively, which represented cash held as collateral
under the Company’s financial assurance policy (see “Note 14 – Commitment and Contingencies – Insurance”
for a discussion of this fund).
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date
based on the customer type (government, broker, or commercial). The carrying amount of accounts receivable is reduced by an allowance
for doubtful accounts, which is a valuation allowance that reflects management’s best estimate of the amounts that will
not be collected. The Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and
based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will not be collected.
This analysis excludes government related receivables due to our past successful experience in their collectability. Specific
accounts that are deemed to be uncollectible are reserved at 100% of their outstanding balance. The remaining balances aged over
60 days have a percentage applied by aging category, based on historical experience that allows us to calculate the total allowance
required. Once the Company has exhausted all options in the collection of a delinquent accounts receivable balance, which includes
collection letters, demands for payment, collection agencies and attorneys, the account is deemed uncollectible and subsequently
written off. The write off process involves approvals from senior management based on required approval thresholds.
The
following table sets forth the activity in the allowance for doubtful accounts for the years ended December 31, 2020 and 2019
(in thousands):
Year
Ended December 31,
2020
2019
Allowance
for doubtful accounts - beginning of year
$ 487
$ 105
(Recovery
of) provision for bad debt reserve
(101 )
386
Recovery
of write-off (write-off)
18
(4 )
Allowance
for doubtful accounts - end of year
$ 404
$ 487
45
Unbilled
Receivables
Unbilled
receivables are generated by differences between invoicing timing and our over time revenue recognition methodology used for revenue
recognition purposes. As major processing and contract completion phases are completed and the costs are incurred, the Company
recognizes the corresponding percentage of revenue. Within our Treatment Segment, the facilities experience delays in processing
invoices due to the complexity of the documentation that is required for invoicing, as well as the difference between completion
of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing differences
occur for several reasons which include: partially from delays in the final processing of all wastes associated with certain work
orders and partially from delays for analytical testing that is required after the facilities have processed waste but prior to
our release of waste for disposal. The tasks relating to these delays can take months to complete but are generally completed
within twelve months.
Unbilled
receivables within our Services Segment can result from: (1) revenue recognized by our Earned Value Management program (a program
which integrates project scope, schedule, and cost to provide an objective measure of project progress) but invoice milestones
have not yet been met and/or (2) contract claims and pending change orders, including Requests for Equitable Adjustments (“REAs”)
when work has been performed and collection of revenue is reasonably assured.
Inventories
Inventories
consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, the Company has replacement parts in inventory,
which are deemed critical to the operating equipment and may also have extended lead times should the part fail and need to be
replaced. Inventories are valued at the lower of cost or net realizable value with cost determined by the first-in, first-out
method.
Disposal
and Transportation Costs
The
Company accrues for waste disposal based upon a physical count of the waste at each facility at the end of each accounting period.
Current market prices for transportation and disposal costs are applied to the end of period waste inventories to calculate for
the transportation and disposal accruals.
Property
and Equipment
Property
and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the
assets for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes.
Generally, asset lives range from ten to forty years for buildings (including improvements and asset retirement costs) and three
to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements
are capitalized and amortized over the lesser of the term of the lease or the life of the asset. Maintenance and repairs are charged
directly to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective
accounts, and any gain or loss from sale or retirement is recognized in the accompanying Consolidated Statements of Operations.
Renewals and improvements, which extend the useful lives of the assets, are capitalized.
46
Certain
property and equipment expenditures are financed through leases. Amortization of financed leased assets is computed using the
straight-line method over the estimated useful lives of the assets. At December 31, 2020, assets recorded under finance leases
were $2,285,000 less accumulated depreciation of $291,000, resulting in net fixed assets under finance leases of $1,994,000. At
December 31, 2019, assets recorded under finance leases were $1,410,000 less accumulated depreciation of $71,000, resulting in
net fixed assets under finance leases of $1,339,000. These assets are recorded within net property and equipment on the Consolidated
Balance Sheets.
Long-lived
assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Our
depreciation expense totaled approximately $1,357,000 and $1,086,000 in 2020 and 2019, respectively.
Leases
The
Company accounts for leases in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Update (“ASU”) 2016-02, “Leases (Topic 842).” 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. These leases have remaining terms of approximately 3 to 9 years
which include one or more options to renew. The Company includes renewal options in valuing its ROU assets and liabilities when
it determines that it is reasonably certain to exercise these renewal options. As most of our operating leases do not provide
an implicit rate, the Company uses its incremental borrowing rate as the discount rate when determining the present value of the
lease payments. The incremental borrowing rate is determined based on the Company’s secured borrowing rate, lease terms
and current economic environment. Some of our operating leases include both lease (rent payments) and non-lease components (maintenance
costs such as cleaning and landscaping services). The Company has elected the practical expedient to account for lease component
and non-lease component as a single component for all leases under ASU 2016-02. Lease expense for operating leases is recognized
on a straight-line basis over the lease term.
Finance
leases primarily consist of processing and transport equipment used by our facilities’ operations. Our finance leases also
include a building with land for our waste treatment operations. The Company’s finance leases generally have initial terms
between one to six years and some of the leases include options to purchase the underlying assets at fair market value at the
conclusion of the lease term. The lease for the building and land has a term of two years with an option to buy at the end of
the lease term, which the Company is reasonably certain to exercise. See “Property and Equipment” above for assets
recorded under financed leases. Borrowing rates for our finance leases are either explicitly stated in the lease agreements or
implicitly determined from available terms in the lease agreements.
The
Company adopted the policy to not recognize ROU assets and liabilities for short term leases.
Capitalized
Interest
The
Company’s policy is to capitalize interest cost incurred on debt during the construction of projects for its use. A reconciliation
of our total interest cost to “Interest Expense” as reported on our Consolidated Statements of Operations for 2020
and 2019 is as follows:
(Amounts
in Thousands)
2020
2019
Interest
cost capitalized
$ —
$ 29
Interest
cost charged to expense
398
432
Total
interest
$ 398
$ 461
47
Intangible
Assets
Intangible
assets consist primarily of the recognized value of the permits required to operate our business. Indefinite-lived intangible
assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment
indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying amount, a quantitative
test is performed to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of
the asset over its fair value. Judgments and estimates are inherent in these analyses and include assumptions for, among other
factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows, and the determination
of appropriate long-term discount rates. Impairment testing of our indefinite-lived permits related to our Treatment reporting
unit as of October 1, 2020 and 2019 resulted in no impairment charges.
Intangible
assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the
exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible
asset valuation review as of October 1. Definite-lived intangible assets are also tested for impairment whenever events or changes
in circumstances suggest impairment might exist.
R&D
Operational
innovation and technical know-how are very important to the success of our business. Our goal is to discover, develop, and bring
to market innovative ways to process waste that address unmet environmental needs and to develop new company service offerings.
The Company conducts research internally and also through collaborations with other third parties. R&D costs consist primarily
of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development
and enhancement of new potential waste treatment processes and new technology and are charged to expense when incurred in accordance
with ASC Topic 730, “Research and Development.” The Company’s R&D expenses included approximately $311,000
and $314,000 for the years ended December 31, 2020 and 2019, respectively, incurred by our Medical Segment.
Accrued
Closure Costs and ARO
Accrued
closure costs represent our estimated environmental liability to clean up our facilities, as required by our permits, in the event
of closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a
liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying
cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding
such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations,
and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which
the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are
included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property.
In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-period changes in the liability
resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash
flows. Increases in the ARO liability due to passage of time impact net income as accretion expense, which is included in cost
of goods sold. Changes in costs resulting from changes or expansion at the facilities require adjustment to the ARO liability
and are capitalized and charged as depreciation expense, in accordance with the Company’s depreciation policy.
Income
Taxes
Income
taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the provision for income taxes
is comprised of taxes that are currently payable and deferred taxes that relate to the temporary differences between financial
reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted
income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
48
ASC
740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion
or all of the deferred income tax assets will not be realized. The Company regularly assesses the likelihood that the deferred
tax asset will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax
planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount
that is more likely than not to be realized.
ASC
740 sets out a consistent framework for preparers to use to determine the appropriate recognition and measurement of uncertain
tax positions. ASC 740 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be
sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized.
ASC 740 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. The Company recognizes
accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense.
The
Company reassesses the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to determine
if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s
sustainability under audit.
Foreign
Currency
The
Company’s foreign subsidiaries include PF UK Limited, PF Canada and PF Medical. Assets and liabilities are translated to
U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for
the period. Foreign currency translation adjustments for these subsidiaries are accumulated as a separate component of accumulated
other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions
are recognized in the Consolidated Statements of Operations.
Concentration
Risk
The
Company performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either
indirectly for others as a subcontractor to government entities or directly as a prime contractor, representing approximately
$96,582,000, or 91.6%, of our total revenue during 2020, as compared to $59,985,000, or 81.7%, of our total revenue during 2019.
Revenue
generated by the Company as a subcontractor to a customer for a remediation project performed for a government entity (the “DOE”)
within our Services Segment in 2020 and 2019 accounted for approximately $41,011,000 or 38.9% and $8,529,000 or 11.6% (included
in revenues generated relating to government clients above) of the Company’s total revenue for 2020 and 2019, respectively.
This remediation project included among other things, decontamination support of a building. As work progressed throughout stages
of this project in 2020, additional contaminations were regularly discovered which resulted in approval in additional work to
be performed under this project. This project is expected to be completed by the first half of 2021.
As
our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another
contract with a different customer from year to year, the Company does not believe the loss of one specific customer from one
year to the next will generally have a material adverse effect on our operations and financial condition.
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains cash with high quality financial institutions, which may exceed Federal Deposit Insurance
Corporation (“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to accounts receivable
is limited due to the Company’s large number of customers and their dispersion throughout the United States as well as with
the significant amount of work that we perform for the federal and Canadian government.
49
The
Company had three government related customers whose total unbilled and net outstanding receivable balances represented 41.1%,
19.0% and 12.5% of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2020. The Company
had two government related customers whose total unbilled and net outstanding receivable balances represented 12.5% and 34.3%
of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2019.
Revenue
Recognition and Related Policies
The
Company recognizes revenue in accordance with FASB’s ASC 606, “Revenue from Contracts with Customers.” ASC 606
provides a single, comprehensive revenue recognition model for all contracts with customers. Under ASC 606, a five-step process
is utilized in order to determine revenue recognition, depicting the transfer of goods or services to a customer at an amount
that reflects the consideration it expects to receive in exchange for those goods or services. Under ASC 606, a performance obligation
is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract transaction
price is allocated to each distinct performance obligation and recognized as revenues as the performance obligation is satisfied.
Treatment
Segment Revenues:
Contracts
in our Treatment Segment primarily have a single performance obligation as the promise to receive, treat and dispose of waste
is not separately identifiable in the contract and, therefore, not distinct. Performance obligations are generally satisfied over
time using the input method. Under the input method, the Company uses a measure of progress divided into major phases which include
receipt (ranging from 9.0% to 50%), treatment/processing (ranging from 15% to 89%) and shipment/final disposal (ranging from 2%
to 52%). As major processing phases are completed and the costs are incurred, the proportional percentage of revenue is recognized.
Transaction price for Treatment Segment contracts are determined by the stated fixed rate per unit price as stipulated in the
contract.
Services
Segment Revenues:
Revenues
for our Services Segment are generated from time and materials, cost reimbursement or fixed price arrangements:
The
Company’s primary obligation to customers in time and materials contracts relate to the provision of services to the customer
at the direction of the customer. This provision of services at the request of the customer is the performance obligation, which
is satisfied over time. Revenue earned from time and materials contracts is determined using the input method and is based on
contractually defined billing rates applied to services performed and materials delivered.
The
Company’s primary performance obligation to customers in cost reimbursement contracts is to complete certain tasks and work
streams. Each specified work stream or task within the contract is considered to be a separate performance obligation. The transaction
price is calculated using an estimated cost to complete the various scope items to achieve the performance obligation as stipulated
in the contract. An estimate is prepared for each individual scope item in the contract and the transaction price is allocated
on a time and materials basis as services are provided. Revenue from cost reimbursement contracts is recognized over time using
the input method based on costs incurred, plus a proportionate amount of fee earned.
Under
fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and
all of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is estimated
based upon the estimated cost to complete the overall project. Revenue from fixed price contracts is recognized over time using
the output or input method. For the output method, revenue is recognized based on milestone attained on the project. For the input
method, revenue is recognized based on costs incurred on the project relative to the total estimated costs of the project.
The
majority of our revenue is derived from short term contracts with an original expected length of one year or less. Also, the nature
of our contracts generally does not give rise to variable consideration.
50
Significant
Payment Terms
Invoicing
is based on schedules established in customer contracts. Payment terms vary by customers but are generally established at 30 days
from invoicing.
Incremental
Costs to Obtain a Contract
Costs
incurred to obtain contracts with our customers are immaterial and as a result, the Company expenses (within selling, general
and administration expenses (“SG&A”)) incremental costs incurred in obtaining contracts with our customer as incurred.
Remaining
Performance Obligations
The
Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations
that have original expected durations of one year or less.
Within
our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer
in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts,
the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount
for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations
for those contracts.
Stock-Based
Compensation
Stock-based
compensation granted to employees are accounted for in accordance with ASC 718, “Compensation – Stock Compensation.”
Stock-based payment transactions for acquiring goods and services from nonemployees are also accounted for under ASC 718. ASC
718 requires stock-based payments to employees and nonemployees, including grant of options, to be recognized in the Statement
of Operations based on their fair values. The Company uses the Black-Scholes option-pricing model to determine the fair-value
of stock-based awards which requires subjective assumptions. Assumptions used to estimate the fair value of stock-based awards
include the exercise price of the award, the expected term, the expected volatility of our stock over the stock-based award’s
expected term, the risk-free interest rate over the award’s expected term, and the expected annual dividend yield. The Company
accounts for forfeitures when they occur.
Comprehensive
Income (Loss)
The
components of comprehensive income (loss) are net income (loss) and the effects of foreign currency translation adjustments.
Income
(Loss) Per Share
Basic
income (loss) per share is calculated based on the weighted-average number of outstanding common shares during the applicable
period. Diluted income (loss) per share is based on the weighted-average number of outstanding common shares plus the weighted-average
number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations
of dilutive earnings per share. Income (loss) per share is computed separately for each period presented.
Fair
Value of Financial Instruments
Certain
assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are
recorded at fair value on a nonrecurring basis. Fair value is determined based on the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants. The three-tier value hierarchy, which prioritizes the inputs used in the
valuation methodologies, is:
Level
1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level
2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data.
Level
3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably
available assumptions made by other market participants.
51
Financial
instruments include cash (Level 1), accounts receivable, accounts payable, and debt obligations (Level 3). Credit
is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required.
At December 31, 2020 and December 31, 2019, the fair value of the Company’s financial instruments approximated their
carrying values. The fair value of the Company’s revolving credit and term loan approximate its carrying value due to the
variable interest rate.
Recently
Adopted Accounting Standards
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement.” ASU 2018-13 improves the disclosure requirements on fair value measurements. ASU
2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption
of ASU No. 2018-13 by the Company effective January 1, 2020 did not have a material impact on the Company’s financial statements
or disclosures.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (“ASU 848”): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying U.S.
GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank
Offered Rate (“LIBOR”) or another rate that is expected to be discontinued. The amendments in the ASU are effective
for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 on March 12, 2020 by the Company
did not have a material impact on the Company’s financial statements. The Company will continue to assess the potential
impact of this ASU through the effective period.
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 subsequent amendments to the initial guidance: ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments
- Credit Losses,” ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic
815, Derivatives and Hedging, and Topic 825, Financial Instruments,” ASU 2019-05 “Financial Instruments - Credit Losses
(Topic 326): Targeted Transition Relief,” ASU 2019-11 “Codification Improvements to Topic 326, Financial Instruments
- Credit Losses” and ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)”
(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. These ASUs are effective January 1, 2023 for the Company as a smaller reporting company.
The Company had expected to early adopt theses ASUs effective January 1, 2020; however, due to the need for reallocation of the
Company’s resources to manage COVID-19 related matters, the Company has deferred adoption of theses ASUs effective January
1, 2020 and expect to adopt these ASUs by January 1, 2023.
In
December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,”
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. This ASU is effective January 1, 2021 for the Company. The Company does not expect the adoption of this ASU will have
a material impact on the Company’s financial statements.
In
January 2020, the FASB issued ASU 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), clarifying the Interactions between Topic 321, Topic 323,
and Topic 815.” This guidance addresses
accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity
securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard
is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption
is permitted. This ASU is effective January 1, 2021 for the Company. The Company does not expect the adoption of this ASU will
have a material impact on 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 a smaller reporting company. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of
this ASU on its consolidated financial statements and disclosures.
In
October 2020, the FASB issued ASU No 2020-10, “Codification Improvements.” ASU 2020-10 updates various codification
topics by clarifying or improving disclosure requirements. ASU 2020-10 is effective for public entities for fiscal years beginning
after December 15, 2020, with early adoption permitted. This ASU is effective January 1, 2021 for the Company. The Company does
not expect the adoption of this ASU will have a material impact on the Company’s financial statements and disclosures.
52
NOTE
3
COVID-19
IMPACT
The
COVID-19 pandemic that started in early part of 2020 continues to present potential new risks to our business and continues to
result in significant volatility in the U.S. and international markets. The Company continues to closely monitor the impact of
the COVID-19 pandemic on all aspects of our business. Starting in late March 2020, the Company’s operations were impacted
by the shutdown of a number of projects and the delays of certain waste shipments. Since the latter part of the second quarter
of 2020, all of the projects that were previously shutdown within our Services Segment restarted as stay-at-home orders and certain
other restrictions resulting from the pandemic were lifted. Despite the shutdown of certain projects for part of 2020, revenues
generated within our Services Segment in 2020 exceeded our revenue generated in 2019 by approximately $42,188,000. The Company
continues to experience delays in waste shipments from certain customers within our Treatment Segment directly related to the
impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However, the Company
expects to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations.
As the impact of COVID-19 remains fluid, the uncertainty in waste receipt shipments may impact our results of operations for the
first quarter of 2021 and potentially the second quarter of 2021. The potential for a material impact on the Company’s business
increases the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may
continue to delay waste shipments and project work may shut down again. For this reason, we cannot reasonably estimate with any
degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity which
may impact our ability to meet our financial covenant requirements under our credit facility.
The
Company’s cash flow requirements during 2020 were primarily financed by our operations, credit facility availability, and
proceeds from the PPP Loan (established under the CARES Act) that the Company entered into with its credit facility lender in
April 2020 (see “Note 10 – Long Term Debt – PPP Loan” for further detail of this loan). At December 31,
2020, the Company had borrowing availability under its revolving credit facility of approximately $14,220,000 which was based
on a percentage of eligible receivables and subject to certain reserves and included its cash on hand of approximately $7,924,000.
The Company’s working capital at December 31, 2020 was approximately $3,672,000 as compared to working capital of $26,000
at December 31, 2019. Our working capital at December 31, 2020 included the classification of approximately $3,191,000 of the
outstanding PPP Loan balance of $5,318,000 at December 31, 2020 as “Current portion of long-term debt” on our Consolidated
Balance Sheets. We have applied for forgiveness on repayment of the entire PPP Loan balance which is subject to the review and
approval of our lender and the SBA.
At
this time, the Company believes it has sufficient liquidity on hand to fund cash flow requirements for the next twelve months
which consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects,
and planned capital expenditures. The Company plans to fund these requirements from our operations, credit facility availability,
and cash on hand. The Company is continually reviewing operating costs during this volatile time and is committed to further reducing
operating costs to bring them in line with revenue levels, when necessary. These measures include curtailing capital expenditures,
eliminating non-essential expenditures and implementing a hiring freeze as needed.
The
Company is closely monitoring our customers’ payment performance. However, as a significant portion of our revenues is derived
from government related contracts, the Company does not expect its accounts receivable collections to be materially impacted due
to COVID-19.
As
previously disclosed, the Company’s Medical Segment has not generated any revenue. The Company anticipates that its Medical
Segment will not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility
or additional equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable
to raise the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.
53
NOTE
4
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 following tables present further
disaggregation of our revenues by different categories for our Services and Treatment Segments:
Revenue
by Contract Type
(In
thousands)
Twelve
Months Ended
Tweleve
Months Ended
December
31, 2020
December
31, 2019
Treatment
Services
Total
Treatment
Services
Total
Fixed
price
$ 30,143
$ 8,970
$ 39,113
$ 40,364
$ 12,162
$ 52,526
Time
and materials
—
66,313
66,313
—
20,788
20,788
Cost
reimbursement
—
—
—
—
145
145
Total
$ 30,143
$ 75,283
$ 105,426
$ 40,364
$ 33,095
$ 73,459
Revenue
by generator
(In
thousands)
Twelve
Months Ended
Twelve
Months Ended
December
31, 2020
December
31, 2019
Treatment
Services
Total
Treatment
Services
Total
Domestic
government
$ 22,795
$ 68,237
$ 91,032
$ 29,420
$ 25,077
$ 54,497
Domestic
commercial
6,933
1,825
8,758
10,601
2,724
13,325
Foreign
government
415
5,135
5,550
279
5,209
5,488
Foreign
commercial
—
86
86
64
85
149
Total
$ 30,143
$ 75,283
$ 105,426
$ 40,364
$ 33,095
$ 73,459
Contract
Balances
The
timing of revenue recognition, billings, and cash collections results in accounts receivable and unbilled receivables (contract
assets). The Company’s contract liabilities consist of deferred revenues which represents advance payment from customers
in advance of the completion of our performance obligation.
The
following table represents changes in our contract assets and contract liabilities balances:
Year-to-date
Year-to-date
(In
thousands)
December
31, 2020
December
31, 2019
Change
($)
Change
(%)
Contract
assets
Account
receivables, net of allowance
$ 9,659
$ 13,178
$ (3,519 )
(26.7 )%
Unbilled
receivables - current
14,453
7,984
6,469
81.0 %
Contract
liabilities
Deferred
revenue
$ 4,614
$ 5,456
$ (842 )
(15.4 )%
During
the twelve months ended December 31, 2020 and 2019, the Company recognized revenue of $8,094,000 and $10,354,000, respectively,
related to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized
in each period related to performance obligations satisfied within the respective period.
54
NOTE
5
LEASES
The
components of lease cost for the Company’s leases were as follows (in thousands):
Twelve
Months Ended December 31,
2020
2019
Operating
Leases:
Lease
cost
$ 456
$ 456
Finance
Leases:
Amortization
of ROU assets
220
63
Interest
on lease liability
143
63
363
126
Short-term
lease rent expense
15
43
Total
lease cost
$ 834
$ 625
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31,
2020 was:
Operating
Leases
Finance
Leases
Weighted
average remaining lease terms (years)
8.0
3.5
Weighted average
discount rate
8.0 %
7.3 %
The
weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31,
2019 was:
Operating
Leases
Finance
Leases
Weighted
average remaining lease terms (years)
8.8
2.0
Weighted average
discount rate
8.0 %
9.3 %
55
The
following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2020 to the operating
and finance lease liabilities recorded on the balance sheet (in thousands):
Operating
Leases
Finance
Leases
2021
$ 450
$ 587
2022
458
271
2023
466
150
2024
342
146
2025
304
146
2025
and thereafter
1,154
18
Total
undiscounted lease payments
3,174
1,318
Less:
Imputed interest
(831 )
(131 )
Present
value of lease payments
$ 2,343
$ 1,187
Current
portion of operating lease obligations
$ 273
$ —
Long-term
operating lease obligations, less current portion
$ 2,070
$ —
Current
portion of finance lease obligations
$ —
$ 525
Long-term
finance lease obligations, less current portion
$ —
$ 662
Supplemental
cash flow and other information related to our leases were as follows (in thousands):
Twelve
Months Ended December 31,
2020
2019
Cash
paid for amounts included in the measurement of lease liabilities:
Operating
cash flow from operating leases
$ 442
$ 434
Operating
cash flow from finance leases
$ 143
$ 63
Financing
cash flow from finance leases
$ 615
$ 272
ROU
assets obtained in exchange for lease obligations for:
Finance
liabilities
$ 874
$ 893
Operating
liabilities
$ —
$ 182
56
NOTE
6
PERMIT
AND OTHER INTANGIBLE ASSETS
The
following table summarizes changes in the carrying value of permits. No permit exists at our Services and Medical Segments.
Permit
(amount in thousands)
Treatment
Balance
as of December 31, 2018
$ 8,443
PCB
permit amortized (1)
(7 )
Permit
in progress
354
Balance
as of December 31, 2019
8,790
Permit
in progress
132
Balance
as of December 31, 2020
$ 8,922
The
following table summarizes information relating to the Company’s definite-lived intangible assets:
Weighted
Average
December
31, 2020
December
31, 2019
Amortization
Gross
Net
Gross
Net
Intangibles
(amount in
Period
Carrying
Accumulated
Carrying
Carrying
Accumulated
Carrying
thousands)
(Years)
Amount
Amortization
Amount
Amount
Amortization
Amount
Patent
13
$ 742
$ (334 )
$ 408
$ 760
$ (358 )
$ 402
Software
3
418
(411 )
7
414
(408 )
6
Customer
relationships
10
3,370
(2,910 )
460
3,370
(2,713 )
657
Permit
—
—
—
—
545
(545 )
—
Total
$ 4,530
$ (3,655 )
$ 875
$ 5,089
$ (4,024 )
$ 1,065
The
intangible assets noted above were amortized on a straight-line basis over their useful lives with the exception of customer relationships
which were 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)
2021
199
2022
172
2023
132
2024
11
2025
11
Amortization
expense recorded for definite-lived intangible assets was approximately $239,000 and $256,000, for the years ended December 31,
2020 and 2019, respectively.
57
NOTE
7
CAPITAL
STOCK, STOCK PLANS, WARRANTS, AND STOCK BASED COMPENSATION
Stock
Option Plans
The
Company adopted the 2003 Outside Directors Stock Plan (the “2003 Plan”), which was approved by our stockholders at
the Company’s July 29, 2003 Annual Meeting of Stockholders. Non-Qualified Stock Options (“NQSOs”) granted under
the 2003 Plan generally have a vesting period of six months from the date of grant and a term of 10 years, with an exercise price
equal to the closing trade price on the date prior to grant date. The 2003 Plan also provides for the issuance to each outside
director a number of shares of the Company’s Common Stock in lieu of 65% or 100% (based on option elected by each director)
of the fee payable to the eligible director for services rendered as a member of the Board. The number of shares issued is determined
at 75% of the market value as defined in the plan (the Company recognizes 100% of the market value of the shares issued). The
2003 Plan, as amended, also provides for the grant of an NQSO to purchase up to 6,000 shares of our Common Stock for each outside
director upon initial election to the Board, and the grant of an NQSO to purchase 2,400 shares of our Common Stock upon each re-election.
The number of shares of the Company’s Common Stock authorized under the 2003 Plan is 1,100,000. At December 31, 2020, the
2003 Plan had available for issuance 218,577 shares.
The
Company’s 2017 Stock Option Plan (“2017 Plan”) authorizes the grant of options to officers and employees of
the Company, including any employee who is also a member of the Board, as well as to consultants of the Company. The 2017 Plan
authorizes an aggregate grant of 1,140,000 NQSOs and ISOs, which includes a rollover of 140,000 shares that had remained available
for issuance under the 2010 Stock Option Plan (“2010 Plan”) immediately upon the approval of the 2017 Plan and an
increase of 600,000 shares to the 2017 Plan which was approved by the Company’s stockholders at the 2020 Annual Meeting
of Stockholders held on July 22, 2020 (“2020 Annual Meeting”). Consultants of the Company can only be granted NQSOs.
The term of each stock option granted under the 2017 Plan shall be fixed by the Compensation Committee, but no stock options will
be exercisable more than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after
the grant date. The exercise price of any ISO granted under the 2017 Plan to an individual who is not a 10% stockholder at the
time of the grant shall not be less than the fair market value of the shares at the time of the grant, and the exercise price
of any ISO granted to a 10% stockholder shall not be less than 110% of the fair market value at the time of grant. The exercise
price of any NQSOs granted under the plan shall not be less than the fair market value of the shares at the time of grant. At
December 31, 2020, the 2017 Plan had available for issuance 647,500 shares.
Upon
the approval of the 2017 Plan as discussed above, no further options remained available for issuance under the 2010 Plan. On September
29, 2020, the 2010 Plan expired; however, an option (ISO) issued under the 2010 Plan prior to the expiration of the 2010 Plan
for the purchase of up to 50,000 shares of our Common Stock at $3.97 per share will remain in effect until the earlier of the
exercise date by the optionee or the maturity date of May 15, 2022.
58
Stock
Options to Employees and Outside Director
On
February 4, 2020, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the options was $7.00 per share, which was equal to the Company’s closing stock price per
share the day preceding the grant date, pursuant to the 2003 Plan.
On
July 22, 2020, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s 2020 Annual Meeting. Dr. Louis F. Centofanti, the Company’s EVP of Strategic Initiatives
and also a Board member, was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the
2003 Plan. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price
of the NQSO was $6.70 per share, which was equal to our closing stock price the day preceding the grant date, pursuant to the
2003 Plan.
On
August 10, 2020, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director elected by the Company’s
Board to fill a vacancy on the Board. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the options was $7.29 per share, which was equal to the Company’s closing stock price per
share the day preceding the grant date, pursuant to the 2003 Plan.
On
January 17, 2019 the Company granted 105,000 ISOs from the 2017 Plan to certain employees, which included our executive officers
as follows: 25,000 ISOs to our CEO; 15,000 ISOs to our CFO; and 15,000 ISOs to our EVP of Strategic Initiatives. The ISOs granted
were for a contractual term of six years with one-fifth vesting annually over a five-year period. The exercise price of the ISO
was $3.15 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
On
July 25, 2019, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-elected
directors at the Company’s Annual Meeting of Stockholders held on July 25, 2019. Dr. Louis F. Centofanti (a Board member)
was not eligible to receive options under the 2003 Plan as an employee of the Company, pursuant to the 2003 Plan. The NQSOs granted
were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSO was $3.31 per share,
which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
On
August 29, 2019 the Company granted an aggregate of 12,500 ISOs from the 2017 Plan to certain employees. The ISOs granted were
for a contractual term of six years with one-fifth vesting annually over a five-year period. The exercise price of the ISO was
$3.90 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.
During
2020, the Company issued 2,000 shares of its Common Stock resulting from the exercise of options from the Company’s 2017
Plan for total proceeds of $6,300. Additionally, the Company issued 1,884 shares of its Common Stock from cashless exercises of
8,000 and 2,500 options at $3.60 per share and $3.15 per share, respectively. The Company issued an aggregate of 32,400 shares
of Common Stock in 2019 from exercises of options resulting in total proceed of approximately $133,000.
The
Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value
of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s
stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected
annual dividend yield. The fair value of the options granted during 2020 and 2019 and the related assumptions used in the Black-Scholes
option model used to value the options granted were as follows. No options were granted to employees in 2020:
Employee
Stock
Option
Granted
2019
Weighted-average
fair value per share
$ 1.46
Risk
-free interest rate (1)
1.40%-2.58 %
Expected
volatility of stock (2)
48.67%-51.38 %
Dividend
yield
None
Expected
option life (3)
5.0
years
59
Outside
Director Stock Options Granted
2020
2019
Weighted-average
fair value per share
$ 4.66
$ 2.27
Risk
-free interest rate (1)
0.59%-1.61 %
2.08 %
Expected
volatility of stock (2)
55.83%-56.68 %
54.28 %
Dividend
yield
None
None
Expected
option life (3)
10.0
years
10.0
years
(1)
The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the
option.
(2)
The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
(3)
The expected option life is based on historical exercises and post-vesting data.
The
following table summarizes stock-based compensation recognized for fiscal years 2020 and 2019.
Year
Ended
2020
2019
Employee
Stock Options
$ 132,000
$ 150,000
Director
Stock Options
104,000
29,000
Total
$ 236,000
$ 179,000
At
December 31, 2020, the Company has approximately $274,000 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 2.1 years.
Stock
Options to Consultant
The
Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Plan for the purchase of up to 100,000
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 PFNWR facility at an exercise price of $3.65 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. On January 17, 2019, the Company’s Compensation and Board approved an amendment to the Ferguson Stock
Option whereby the vesting date for the second milestone for the purchase of up to 30,000 shares of the Company’s Common
Stock was extended to March 31, 2020 from January 27, 2019. On March 27, 2020, the Compensation Committee and the Board approved
another amendment to the Ferguson Stock Option whereby the vesting date for the second milestone was further extended to December
31, 2021 from March 31, 2020 and the vesting date for the third milestone for the purchase of up to 60,000 shares of the Company’s
Common Stock was extended to December 31, 2022 from January 27, 2021. The 10,000 options under the first milestone were exercised
by Robert Ferguson in May 2018. The Company has not recognized compensation costs (fair value of approximately $262,000 at December
31, 2020) for the remaining 90,000 Ferguson Stock Option under the remaining two milestones since achievement of the performance
obligation under each of the two remaining milestones is uncertain at December 31, 2020. All other terms of the Ferguson Stock
Option remain unchanged.
60
Summary
of Stock Option Plans
The
summary of the Company’s total plans as of December 31, 2020 and 2019, and changes during the period then ended are presented
as follows:
Shares
Weighted
Average
Exercise
Price
Weighted
Average Remaining Contractual Term (years)
Aggregate
Intrinsic
Value
(4)
Options
outstanding January 1, 2020
681,300
$ 3.84
Granted
24,000
$ 6.92
Exercised
(12,500 )
$ 3.47
$ 16,060
Forfeited/expired
(34,400 )
$ 5.52
Options
outstanding end of period (1)
658,400
$ 3.87
3.5
$ 1,426,143
Options
exercisable at December 31, 2020 (2)
356,400
$ 3.99
3.3
$ 732,163
Shares
Weighted
Average Exercise Price
Weighted
Average Remaining Contractual Term (years)
Aggregate
Intrinsic
Value
(4)
Options
outstanding January 1, 2019
616,000
$ 4.23
Granted
129,500
3.24
Exercised
(32,400 )
4.10
$ 93,000
Forfeited/expired
(31,800 )
8.68
Options
outstanding end of period (3)
681,300
$ 3.84
4.2
$ 3,587,000
Options
exercisable as of December 31, 2019 (3)
286,800
$ 4.28
3.8
$ 1,383,000
(1)
Options with exercise prices ranging from $2.79 to $7.29
(2)
Options with exercise prices ranging from $2.79 to $7.05
(3)
Options with exercise prices ranging from $2.79 to $8.40
(4)
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the
exercise
price
The
summary of the Company’s nonvested options as of December 31, 2020 and changes during the period then ended are presented
as follows:
Weighted
Average
Grant-Date
Shares
Fair
Value
Non-vested
options January 1, 2020
394,500
$ 1.77
Granted
24,000
4.66
Vested
(96,500 )
2.00
Forfeited
(20,000 )
1.62
Non-vested
options at December 31, 2020
302,000
$ 1.94
Warrant
In
connection with a $2,500,000 loan that the Company executed April 1, 2019 with Mr. Robert Ferguson, the Company issued a Warrant
to Mr. Ferguson for the purchase of up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share. The Warrant
is exercisable six months from April 1, 2019 and expires on April 1, 2024 and remains outstanding at December 31, 2020 (see “Note
10 – Long Term Debt” for further information of this Warrant).
Common
Stock Issued for Services
The
Company issued a total of 34,135 and 71,905 shares of our Common Stock in 2020 and 2019, respectively, under our 2003 Plan to
our outside directors as compensation for serving on our Board. As a member of the Board, each director elects to receive either
65% or 100% of the director’s fee in shares of our Common Stock. The number of shares received is calculated based on 75%
of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly
fee is due. The balance of each director’s fee, if any, is payable in cash. The Company recorded approximately $250,000
and $232,000 in compensation expense (included in SG&A expenses) for the twelve months ended December 31, 2020 and 2019, respectively,
for the portion of director fees earned in the Company’s Common Stock.
Shares
Reserved
At
December 31, 2020, the Company has reserved approximately 658,400 shares of our Common Stock for future issuance under all of
the option arrangements.
61
NOTE
8
INCOME
(LOSS) PER SHARE
The
following table reconciles the income (loss) and average share amounts used to compute both basic and diluted loss per share:
Years
Ended
December
31,
(Amounts
in Thousands, Except for Per Share Amounts)
2020
2019
Net
income attributable to Perma-Fix Environmental Services, Inc., common stockholders:
Income
from continuing operations, net of taxes
$ 3,149
$ 2,732
Net
loss attributable to non-controlling interest
(123 )
(124 )
Income
from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
$ 3,272
$ 2,856
Loss
from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
(412 )
(541 )
Net
income attributable to Perma-Fix Environmental Services, Inc. common stockholders
$ 2,860
$ 2,315
Basic
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
$ .24
$ .19
Diluted
income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders
$ .23
$ .19
Weighted average
shares outstanding:
Basic weighted
average shares outstanding
12,139
12,046
Add:
dilutive effect of stock options
184
14
Add:
dilutive effect of warrants
24
—
Diluted
weighted average shares outstanding
12,347
12,060
Potential
shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
Stock
options
42
482
Warrant
—
60
62
NOTE
9
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 incurred losses from discontinued operations of $412,000 and $541,000 for the years ended December 31, 2020 and 2019 (net
of taxes of $0 for each period), respectively. The loss for the year ended 2019 included an increase of approximately $50,000
in remediation reserve for our PFM subsidiary due to reassessment of the remediation reserve. The remaining loss for each of the
periods noted above was primarily due to costs incurred in the administration and continued monitoring of our discontinued operations.
The
following table presents the major class of assets of discontinued operations at December 31, 2020 and December 31, 2019. No assets
and liabilities were held for sale at each of the periods noted.
December
31,
December
31,
(Amounts
in Thousands)
2020
2019
Current
assets
Other
assets
$ 22
$ 104
Total
current assets
22
104
Long-term
assets
Property,
plant and equipment, net (1)
81
81
Other
assets
—
36
Total
long-term assets
81
117
Total
assets
$ 103
$ 221
Current
liabilities
Accounts
payable
$ 4
$ 8
Accrued
expenses and other liabilities
150
169
Environmental
liabilities
744
817
Total
current liabilities
898
994
Long-term
liabilities
Closure
liabilities
142
134
Environmental
liabilities
110
110
Total
long-term liabilities
252
244
Total
liabilities
$ 1,150
$ 1,238
(1)
net of accumulated depreciation of $10,000 for each period presented.
The
Company’s discontinued operations included a note receivable in the original amount of approximately $375,000 recorded in
May 2016 resulting from the sale of property at our Perma-Fix of Michigan, Inc. (“PFMI”) subsidiary. This note required
60 equal monthly installment payments by the buyer of approximately $7,250 (which includes interest). On July 24, 2020, the purchaser
of the property paid off the outstanding note receivable balance of approximately $105,000.
Environmental
Liabilities
The
Company has three remediation projects, which are currently in progress relating to our PFD, PFM and PFSG (closed locations) subsidiaries.
The Company divested PFD in 2008; however, the environmental liability of PFD was retained by the Company upon the divestiture
of PFD. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation
of surrounding ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators.
At
December 31, 2020, we had total accrued environmental remediation liabilities of $854,000, a decrease of $73,000 from the December
31, 2019 balance of $927,000. The decrease represents payments made on remediation projects for our PFSG and PFD subsidiaries.
At December 31, 2020, $744,000 of the total accrued environmental liabilities was recorded as current.
The
current and long-term accrued environmental liabilities at December 31, 2020 are summarized as follows (in thousands).
Current
Long-term
Accrual
Accrual
Total
PFD
$ 17
$ 60
$ 77
PFM
$ 50
15
65
PFSG
$ 677
35
712
Total
liability
$ 744
$ 110
$ 854
63
NOTE
10
LONG-TERM
DEBT
Long-term
debt consists of the following at December 31, 2020 and December 31, 2019:
(Amounts
in Thousands)
December
31,
2020
December
31,
2019
Revolving
Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base
calculation, balance due on May 15, 2024.
Effective
interest rate for 2020 and 2019 was 6.1% and 6.6%, respectively. (1)
$ —
$ 321
Term
Loan dated May 8, 2020, payable in equal monthly installments of principal, balance due on May 15, 2024. Effective interest
rate for 2020 and 2019 was 5.2% and 6.9%, respectively. (1)
1,388 (2)
1,827 (2)
Promissory
Note dated April 1, 2019, payable in twelve monthly installments of interest only, starting May 1, 2019 followed with
twelve monthly installments of approximately $208 in principal plus accrued interest. Interest accrues at annual rate of
4.0%. (3)
— (4)
1,732 (4)
Promissory
Note dated April 14, 2020, balance subject to loan forgiveness. Interest accrues at annual rate of 1.0%. (3)
5,318 (5)
—
Note
Payable dated June 10, 2020, payable in 36 monthly installments, starting in July 2020 at annual interest rate of $5.64%.
23
—
Total
debt
6,729
3,880
Less
current portion of long-term debt
3,595 (4)
1,300 (4)
Long-term
debt
$ 3,134
$ 2,580
(1)
Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our property,
plant, and equipment. Effective July 1, 2019, monthly installment principal payment on the Term Loan was amended to approximately
$35,500 from approximately $101,600. See “Revolving Credit and Term Loan Agreement” below for terms of the Company’s
credit facility prior to the New Loan Agreement dated May 8, 2020.
(2)
Net of debt issuance costs of ($105,000) and ($92,000) at December 31, 2020 and December 31, 2019, respectively.
(3)
Uncollateralized note.
(4)
Net of debt discount/debt issuance costs of ($0) and ($248,000) at December 31, 2020 and December 31, 2019, respectively.
The Promissory Note provided for prepayment of principal over the term of the Note without penalty. In 2019, the Company made
total prepayment of principal of $520,000 which was reflected in the current portion of the debt. In 2020, the outstanding principal
balance of $1,980,000 was paid-in-full of which of which $416,000 was prepaid.
(5)
Entered into with the Company’s credit facility lender under the PPP under the CARES Act (see “PPP Loan”
below for further information on this loan and its terms).
Revolving
Credit and Term Loan Agreement
The
Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended
Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Amended Loan Agreement
had been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently
amended (“Revised Loan Agreement”), provided the Company with the following credit facility with a maturity date of
March 24, 2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”)
of approximately $6,100,000. The maximum that the Company can borrow under the revolving credit was 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.
Payment
of annual rate of interest due on the revolving credit under the Revised Loan Agreement was at prime (3.25% at December 31, 2020)
plus 2% and the term loan at prime plus 2.5%.
On
May 8, 2020, the Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “New
Loan Agreement”) with PNC, replacing our previous Revised Loan Agreement with PNC. The New Loan Agreement provides the Company
with the following credit facility:
●
up
to $18,000,000 revolving credit facility, subject to the amount of borrowings based on a percentage of eligible receivables
and subject to certain reserves; and
●
a
term loan of $1,741,818, which requires monthly installments of $35,547.
The
New Loan Agreement terminates as of May 15, 2024, unless sooner terminated.
Similar
to our Revised Loan Agreement, the New Loan Agreement requires the Company to meet certain customary financial covenants, including,
among other things, a minimum Tangible Adjusted Net Worth requirement of $27,000,000 at all times; maximum capital spending of
$6,000,000 annually; and a minimum FCCR requirement of 1.15:1.
64
Under
the New Loan Agreement, payment of annual rate of interest due on the credit facility is as follows:
●
revolving
credit at prime plus 2.50% or LIBOR plus 3.50% and the term loan at prime plus 3.00% or LIBOR plus 4.00%. The Company can
only elect to use the LIBOR interest payment option after it becomes compliant with meeting the minimum FCCR of 1.15:1; and
●
Upon
the achievement of a FCCR of greater than 1.25:1, the Company has the option of paying an annual rate of interest due on the
revolving credit at prime plus 2.00% or LIBOR plus 3.00% and the term loan at prime plus 2.50% or LIBOR plus 3.50%. The Company
met this FCCR in each of the quarters in 2020. Upon meeting the FCCR of 1.25:1, this interest payment option will remain in
place in the event that the Company’s future FCCR falls below 1.25:1.
Under
the LIBOR option of interest payment noted above, a LIBOR floor of 0.75% shall apply in the event that LIBOR falls below 0.75%
at any point in time.
Pursuant
to the New Loan Agreement, the Company may terminate the New Loan Agreement upon 90 days’ prior written notice upon payment
in full of our obligations under the New Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the
event we pay off our obligations on or before May 7, 2021 and 0.5% of the total financing if we pay off our obligations after
May 7, 2021 but prior to or on May 7, 2022. No early termination fee shall apply if we pay off our obligations under the New Loan
Agreement after May 7, 2022.
In
connection with New Loan Agreement, the Company paid its lender a fee of $50,000 and incurred other direct costs of approximately
$35,000, which are being amortized over the term of the New Loan Agreement as interest expense-financing fees. As a result of
the termination of the Revised Loan Agreement, the Company recorded approximately $27,000 in loss on extinguishment of debt in
accordance with ASC 470-50, “Debt – Modifications and Extinguishment.”
At
December 31, 2020, the borrowing availability under our revolving credit was approximately $14,220,000, based on our eligible
receivables and includes a reduction in borrowing availability of approximately $3,026,000 from outstanding standby letters of
credit.
The
Company’s credit facility under its Revised and New 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 met its financial covenant requirements
in 2020, including its quarterly FCCR requirements.
Loan
and Securities Purchase Agreement, Promissory Note and Subordination Agreement
On
April 1, 2019, the Company completed a lending transaction with Robert Ferguson (the “Lender”), whereby the Company
borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory
note (the “Loan”). The Lender is a shareholder of the Company and also serves as a consultant to the Company in connection
with the Company’s TBI at its PFNWR subsidiary. Proceeds from the Loan were used for general working capital purposes. The
Loan is unsecured, with a term of two years with interest payable at a fixed interest rate of 4.00% per annum. The Loan provides
for monthly payments of accrued interest only during the first year of the Loan, with the first interest payment due May 1, 2019
and monthly payments of approximately $208,333 in principal plus accrued interest starting in the second year of the Loan. The
Loan also allows for prepayment of principal payments over the term of the Loan without penalty with such prepayment of principal
payments to be applied to the second year of the loan payments at the Company’s discretion. In December 2020, the Loan was
paid-in-full. In connection with this capital raise transaction described above and consideration for us receiving the Loan, the
Company issued a Warrant (the “Warrant”) to the Lender to purchase up to 60,000 shares of our Common Stock at an exercise
price of $3.51 per share, which was the closing bid price for a share of our Common Stock on NASDAQ.com immediately preceding
the execution of the Loan and Warrant. The Warrant expires on April 1, 2024 and remains outstanding at December 31, 2020. As further
consideration for this capital raise transaction relating to the Loan, the Company also issued 75,000 shares of its Common Stock
to the Lender. The fair value of the Warrant and Common Stock and the related closing fees incurred from the transaction totaled
approximately $398,000 and was recorded as debt discount/debt issuance costs which has been fully amortized as interest expense
– financing fees. The 75,000 shares of Common Stock, the Warrant and the 60,000 shares of Common Stock that may be purchased
under the Warrant were and will be issued in a private placement that was and will be exempt from registration under Rule 506
and/or Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933, as amended (the “Act”) and bear a restrictive legend
against resale except in a transaction registered under the Act or in a transaction exempt from registration thereunder.
PPP
Loan
On
April 14, 2020, the Company entered into a promissory note with PNC, our credit facility lender, in the amount of approximately
$5,666,000 (“PPP Loan”) under the PPP. The PPP was established under the CARES Act and is administered by the SBA.
On June 5, 2020, the Flexibility Act was signed into law which amended the CARES Act. The note evidencing the PPP Loan contains
events of default relating to, among other things, payment defaults, breach of representations and warranties, and provisions
of the promissory note. During the third quarter of 2020, the Company repaid approximately $348,000 of the PPP Loan to PNC resulting
from clarification made in the loan calculation at the time of the loan origination.
65
Under
the terms of the Flexibility Act, the Company can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such
forgiveness will be determined, subject to limitations, based on the use of loan proceeds by the Company for eligible payroll
costs, mortgage interest, rent and utility costs and the maintenance of employee and compensation levels for the covered period
(which is defined as a 24 week period, beginning April 14, 2020, the date in which proceeds from the PPP Loan was disbursed to
the Company by PNC). At least 60% of such forgiven amount must be used for eligible payroll costs. On October 5, 2020, the Company
applied for forgiveness on repayment of the loan balance as permitted under the program, which is subject to the review and approval
of our lender and the SBA. If all or a portion of the PPP Loan is not forgiven, all or the remaining portion of the loan will
be for a term of two years but can be prepaid at any time prior to maturity without any prepayment penalties. The annual interest
rate on the PPP Loan is 1.0% and no payments of principal or interest are due until SBA remits the loan forgiveness amount to
our lender. While the Company’s PPP Loan currently has a two year maturity, the Flexibility Act permits the Company to request
a five year maturity with our lender. At December 31, 2020, the Company has not received a determination on potential forgiveness
on any portion of the PPP Loan balance; therefore, the Company has classified approximately $3,191,000 of the PPP Loan balance
as “Current portion of long-term debt,” on its Consolidated Balance Sheets, which was based on payment of the PPP
Loan starting in July 2021 (10 months from end of our covered period) in accordance with the terms of our PPP Loan agreement.
The
following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2020 (excludes
debt issuance costs of $105,000).
Year ending
December 31:
(In
thousands)
2021
3,627
2022
2,562
2023
431
2024
214
Total
$ 6,834
NOTE
11
ACCRUED
EXPENSES
Accrued
expenses include the following (in thousands) at December 31:
2020
2019
Salaries
and employee benefits
$ 4,203
$ 3,908
Accrued
sales, property and other tax
589
793
Interest
payable
50
17
Insurance
payable
1,145
935
Other
394
465
Total
accrued expenses
$ 6,381
$ 6,118
Accrued
expenses for 2020 included a total of approximately $419,000 in compensation expenses accrued under the 2020 Management Incentive
Plans (“MIPs”) for our executives (see “Note 16 – Related Party Transactions – MIPs” for further
discussion of the 2020 MIPs) in addition to a 2020 discretionary bonus of approximately $27,000 payable to the Company’s
EVP of Nuclear and Technical Services approved by the Company’s Compensation Committee. Accrued expenses for 2019 included
an aggregate of approximately $360,000 in compensation expenses accrued under 2019 MIPs for our executive officers and our SVP
of Nuclear and Technical Services, which total amount was paid at the end of May 2020.
66
NOTE
12
ACCRUED
CLOSURE COSTS AND ARO
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. Changes to reported closure liabilities (current and long-term) for the years ended December
31, 2020 and 2019, were as follows:
Amounts
in thousands
Balance
as of December 31, 2018
6,750
Accretion
expense
320
Spending
(1,359 )
Adjustment
to closure liability
330
Balance
as of December 31, 2019
$ 6,041
Accretion
expense
335
Spending
(11 )
Balance
as of December 31, 2020
$ 6,365
The
Company recorded an additional $330,000 of closure costs and current closure liabilities in 2019 due to finalization of closure
requirements for the Company’s M&EC facility. In 2019, the Company completed the closure and decommissioning activities
of its M&EC facility in accordance with M&EC’s license and permit requirements.
The
spending of approximately $11,000 and $1,359,000 in 2020 and 2019, respectively, was primarily for the closure of the Company’s
M&EC facility. Closure liabilities of M&EC are classified as current in the Consolidated Balance Sheets for 2020 and 2019.
The
reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance
Sheets at December 31, 2020 and 2019 with the following activity for the years ended December 31, 2020 and 2019:
Amounts
in thousands
Balance
as of December 31, 2018
3,730
Amortization
of closure and post-closure asset
(191 )
Balance
as of December 31, 2019
$ 3,539
Amortization
of closure and post-closure asset
(191 )
Balance
as of December 31, 2020
$ 3,348
NOTE
13
INCOME
TAXES
The
components of income (loss) before income tax (benefit) expense by jurisdiction for continuing operations for the years ended
December 31, consisted of the following (in thousands):
2020
2019
United
States
4,778
4,120
Canada
(1,391 )
(735 )
United
Kingdom
(121 )
(184 )
Poland
(306 )
(312 )
Total
income before tax (benefit) expense
$ 2,960
$ 2,889
The
components of current and deferred federal and state income tax (benefit) expense for continuing operations for the years ended
December 31, consisted of the following (in thousands):
2020
2019
Federal
income tax expense - deferred
4
5
State
income tax (benefit) expense - current
(70 )
153
State
income tax (benefit) expense - deferred
(123 )
(1 )
Total
income tax (benefit) expense
$ (189 )
$ 157
67
An
overall reconciliation between the expected tax (benefit) expense using the federal statutory rate of 21% for each of the years
ended 2020 and 2019 and the (benefit) expense for income taxes from continuing operations as reported in the accompanying Consolidated
Statement of Operations is provided below (in thousands).
2020
2019
Federal
tax expense at statutory rate
$ 622
$ 607
State
tax (benefit) expense, net of federal benefit
(192 )
152
Change
in deferred tax rates
(71 )
106
Permanent
items
126
54
Difference
in foreign rate
(68 )
(27 )
Change
in deferred tax liabilities
(256 )
835
Other
117
(218 )
Decrease
in valuation allowance
(467 )
(1,352 )
Income
tax (benefit) expense
$ (189 )
$ 157
The
global intangible low-taxed income (“GILTI”) provisions under the Tax Cuts and Jobs Act of 2017 (the “TCJA”)
require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the
foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred,
and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended
December 31, 2020 and 2019. As the foreign subsidiaries are all in loss positions for 2020, there is no GILTI inclusion for the
current year.
On
March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act included a number of income tax law changes, including
modifications to the interest limitation under Internal Revenue Code (“IRC”) §163(j) and reinstatement of the
ability to carry back net operating losses. The income tax items in the CARES Act did not have a material impact on the
Company’s 2020 income tax provision.
The
Company had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations,
which gave rise to deferred tax assets and liabilities at December 31, 2020 and 2019 as follows (in thousands):
2020
2019
Deferred
tax assets:
Net
operating losses
$ 8,662
$ 9,391
Environmental
and closure reserves
1,839
1,977
Lease
liability
642
742
Other
1,734
1,295
Deferred
tax liabilities:
Depreciation
and amortization
(3,447 )
(3,211 )
Goodwill
and indefinite lived intangible assets
(471 )
(590 )
Right-of-use
lease asset
(627 )
(730 )
481(a)
adjustment
(209 )
(336 )
Prepaid
expenses
(22 )
(22 )
8,101
8,516
Valuation
allowance
(8,572 )
(9,106 )
Net
deferred income tax liabilities
(471 )
(590 )
In
2020 and 2019, the Company concluded that it was more likely than not that $8,572,000 and $9,106,000 of our deferred income tax
assets would not be realized, and as such, a full valuation allowance was applied against those deferred income tax assets.
The
Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately
$14,264,000 and $71,316,000, respectively, as of December 31, 2020. The estimated consolidated federal and state NOLs include
approximately $2,455,000 and $3,774,000, respectively, of our majority-owned subsidiary, PF Medical, which is not part of our
consolidated group for tax purposes. These net operating losses can be carried forward and applied against future taxable income,
if any, and expire in various amounts starting in 2021. Approximately $12,199,000 of our federal NOLs were generated after December
31, 2017 and thus do not expire. However, as a result of various stock offerings and certain acquisitions, which in the aggregate
constitute a change in control, the use of these NOLs will be limited under the provisions of Section 382 of the Internal Revenue
Code of 1986, as amended. Additionally, NOLs may be further limited under the provisions of Treasury Regulation 1.1502-21 regarding
Separate Return Limitation Years.
The
tax years 2017 through 2020 remain open to examination by taxing authorities in the jurisdictions in which the Company
operates.
No
uncertain tax positions were identified by the Company for the years currently open under statute of limitations.
The
Company had no federal income tax payable for the years ended December 31, 2020 and 2019.
68
NOTE
14
COMMITMENTS
AND CONTINGENCIES
Hazardous
Waste
In
connection with our waste management services, the Company processes both hazardous and non-hazardous waste, which we transport
to our own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any
cleanup is required at the disposal site, the Company could be a potentially responsible party for the costs of the cleanup notwithstanding
any absence of fault on our part.
Legal
Matters
In
the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental
proceeding which our management believes could result in any judgments or fines against us that could would have a material adverse
effect on our financial position, liquidity or results of future operations.
During
July 2020, Tetra Tech EC, Inc. (“Tetra Tech”) filed a complaint in the United States District Court for the Northern
District of California against CH2M Hill, Inc. (“CH2M”) and four subcontractors of CH2M, including the Company (“Defendants”).
The complaint alleges claims for negligence, negligent misrepresentation and equitable indemnification against all defendants
related to alleged damages suffered by Tetra Tech in respect of certain draft reports prepared by defendants at the request of
the U.S. Navy as part of an investigation and review of certain whistleblower complaints about Tetra Tech’s environmental
restoration at the Hunter’s Point Naval Shipyard in San Francisco.
CH2M
was hired by the Navy in 2016 to review Tetra Tech’s work. CH2M subcontracted with environmental consulting and cleanup
firms Battelle Memorial Institute, Cabrera Services, Inc., SC&A, Inc. and the Company to assist with the review, according
to the complaint.
The
complaint alleges that the subject draft reports were prepared negligently and in a biased manner, made public, and
caused damage to Tetra Tech’s reputation; triggering related lawsuits and costing it opportunities for both government
and commercial contracts.
The
Company has provided notice of this lawsuit to our insurance carrier. Our insurance carrier is providing a defense on our behalf
in connection with this lawsuit, subject to a $100,000 self-insured retention and the terms and limitations contained in the insurance
policy.
On
January 7, 2021 Defendants’ motion to dismiss the complaint in its entirety was granted without prejudice, with leave to
amend. Tetra Tech subsequently filed a First Amended Complaint (“FAC”) and Defendants filed a motion to dismiss Tetra
Tech’s FAC. At this time, the Company continues to believe it does not have any liability to Tetra Tech.
Insurance
The
Company has a 25-year finite risk insurance policy entered into in June 2003 (“2003 Closure Policy”) with AIG which
provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The 2003
Closure Policy, as amended, provides for a maximum allowable coverage of $28,177,000 which includes available capacity to allow
for annual inflation and other performance and surety bond requirements. Total coverage under the 2003 Closure Policy, as amended,
was $19,651,000 at December 31, 2020. At December 31, 2020 and December 31, 2019, finite risk sinking funds contributed by the
Company related to the 2003 Closure Policy which is included in other long term assets on the accompanying Consolidated Balance
Sheets totaled $11,446,000 and $11,307,000, respectively, which included interest earned of $1,975,000 and $1,836,000 on the finite
risk sinking funds as of December 31, 2020 and December 31, 2019, respectively. Interest income for the year ended 2020 and 2019
was approximately $139,000 and $337,000, respectively. If the Company so elects, AIG is obligated to pay us an amount equal to
100% of the finite risk sinking fund account balance in return for complete release of liability from both us and any applicable
regulatory agency using this policy as an instrument to comply with financial assurance requirements.
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 December 31, 2020, the total amount of standby letters of credit
outstanding was approximately $3,026,000 and the total amount of bonds outstanding was approximately $46,388,000.
NOTE
15
PROFIT
SHARING PLAN
The
Company adopted a 401(k) Plan in 1992, which is intended to comply with Section 401 of the Internal Revenue Code and the provisions
of the Employee Retirement Income Security Act of 1974. All full-time employees who have attained the age of 18 are eligible to
participate in the 401(k) Plan. Eligibility is immediate upon employment but enrollment is only allowed during four quarterly
open periods of January 1, April 1, July 1, and October 1. Participating employees may make annual pretax contributions to their
accounts up to 100% of their compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make
matching contributions of 25% based on the employee’s elective contributions. Company contributions vest over a period of
five years. In 2020 and 2019, the Company contributed approximately $594,000 and $395,000 in 401(k) matching funds, respectively.
69
NOTE
16
RELATED
PARTY TRANSACTIONS
David
Centofanti
David
Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $181,000
and $177,000 for 2020 and 2019, respectively. David Centofanti is the son of our EVP of Strategic Initiatives and a Board member.
Employment
Agreements
The
Company entered into an employment agreement with each of Mark Duff, President and CEO, Dr. Louis Centofanti, EVP of Strategic
Initiatives, Ben Naccarato, EVP and CFO, Andrew Lombardo, EVP of Nuclear and Technical Services, and Richard Grondin, EVP of Waste
Treatment Operations, with each employment agreement dated July 22, 2020 (each employment agreement referred to as the “New
Employment Agreement”). The Company had entered into an employment agreement with each of Mark Duff, Dr. Louis Centofanti
and Ben Naccarato on September 8, 2017 which each of the employment agreement was terminated effective July, 22, 2020 upon the
execution of the New Employment Agreement with Mark Duff, Dr. Louis Centofanti and Ben Naccarato.
Each
New Employment Agreement is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier terminated
by the Company or by the executive officer. At the end of the Initial Term of each New Employment Agreement, each New Employment
Agreement will automatically be extended for one additional year, unless at least six months prior to the expiration of the Initial
Term, we or the executive officer provides written notice not to extend the terms of the New Employment Agreement. Each New Employment
Agreement provides for annual base salary, performance bonuses (as provided in the MIP as approved by our Compensation Committee
and Board) and other benefits commonly found in such agreement.
Pursuant
to each New Employment Agreement, if the executive officer’s employment is terminated due to death/disability or for cause
(as defined in the agreements), the Company will pay to the executive officer or to his estate an amount equal to the sum of any
unpaid base salary and accrued unused vacation time through the date of termination and any benefits due to the executive officer
under any employee benefit plan (the “Accrued Amounts”) plus any performance compensation payable pursuant to the
MIP with respect to the fiscal year immediately preceding the date of termination.
If
the executive officer terminates his employment for “good reason” (as defined in the agreements) or is terminated
by us without cause (including any such termination for “good reason” or without cause within 24 months after a Change
in Control (as defined in the agreement)), the Company will pay the executive officer the Accrued Amounts, two years of full base
salary, and two times the performance compensation (under the MIP) earned with respect to the fiscal year immediately preceding
the date of termination provided the performance compensation earned with respect to the fiscal year immediately preceding the
date of termination has not been paid. If performance compensation earned with respect to the fiscal year immediately preceding
the date of termination has been made to the executive officer, the executive officer will be paid an additional year of the performance
compensation earned with respect to the fiscal year immediately preceding the date of termination. If the executive terminates
his employment for a reason other than for good reason, the Company will pay to the executive an amount equal to the Accrued Amounts
plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of
termination.
If
there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase common stock held by the
executive officer will immediately become exercisable in full commencing on the date of termination through the original term
of the options. In the event of the death of an executive officer, all outstanding stock options to purchase common stock held
by the executive officer will immediately become exercisable in full commencing on the date of death, with such options exercisable
for the lesser of the original option term or twelve months from the date of the executive officer’s death. In the event
an executive officer terminates his employment for “good reason” or is terminated by the Company without cause, all
outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing
on the date of termination, with such options exercisable for the lesser of the original option term or within 60 days from the
date of the executive’s date of termination. Severance benefits payable with respect to a termination (other than Accrued
Amounts) shall not be payable until the termination constitutes a “separation from service” (as defined under Treasury
Regulation Section 1.409A-1(h)).
70
MIPs
On
January 16, 2020, the Company’s Board and the Compensation Committee approved individual MIP for each Mark Duff, CEO and
President, Ben Naccarato, EVP and CFO, Dr. Louis Centofanti, EVP of Strategic Initiatives and Andy Lombardo, who was appointed
by our Board to the position of EVP of Nuclear and Technical Services and an executive officer of the Company on January 16, 2020.
Mr. Lombardo previously held the position of SVP of Nuclear and Technical Services. Additionally, on July 22, 2020, the Company’s
Board and the Compensation Committee approved a MIP for Richard Grondin who was appointed by the Board to the position of EVP
of Waste Treatment Operations and an executive officer of the Company. Mr. Grondin previously held the position of Vice President
of Western Operations within our Treatment Segment. Each of the MIPs is effective January 1, 2020 and applicable for year ended
December 31, 2020. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to Compensation
Committee oversight and modification. Each MIP awards cash compensation based on achievement of performance thresholds, with the
amount of such compensation established as a percentage of the executive’s 2020 annual base salary. The potential target
performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary
for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5%
to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000)
of the base salary for the EVP of Waste Treatment Operations.
Each
of the three executives in 2019 (Mark Duff, Ben Naccarato, Dr. Louis Centofanti) also had a MIP for 2019 which also provided guidelines
for the calculation of annual cash incentive-based compensation, similar to the 2020 MIPs discussed above. An aggregate of approximately
$271,000 in compensation expenses was earned under the MIPs for the Company’s three executives for 2019 which was paid to
the executives at the end of May 2020. Prior to being named an executive officer of the Company on January 16, 2020, Andy Lombardo
had a MIP for 2019 as the SVP of Nuclear and Technical Services. Andy Lombardo earned approximately $89,000 under the 2019 MIP
which was also paid by the Company to him at the end of May 2020.
Salary
On
January 16, 2020, the Board, with the approval of the Compensation Committee approved the following salary increase for the Company’s
NEO effective January 1, 2020:
● Annual
base salary for Mark Duff, CEO and President, was increased to $344,400 from $287,000.
● Annual
base salary for Ben Naccarato, who was promoted to EVP and CFO from VP and CFO, was increased
to $280,000 from $235,231; and
● Annual
base salary for Andy Lombardo, who was appointed to the position of EVP of Nuclear and
Technical Services as discussed above, was increased to $280,000 from $258,662, which
was the annual base salary that Mr. Lombardo earned as SVP of Nuclear and Technical Services
and prior to his appointment as an executive officer of the Company by the Board.
Additionally,
as a result of Mr. Grondin’s appointment by the Board to the position of EVP of Waste Treatment and an executive officer
on July 22, 2020, his annual salary was increased from $208,000 as Vice President of Western Operations within our Treatment Segment
to $240,000, effective July 22, 2020.
71
NOTE
17
SEGMENT
REPORTING
In
accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
●
from
which we may earn revenue and incur expenses;
●
whose
operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about
resources to be allocated to the segment and assess its performance; and
●
for
which discrete financial information is available.
We
currently have three reporting segments, which include Treatment and Services Segments, which are based on a service offering
approach; and Medical, whose primary purpose is the R&D of a medical isotope production technology. The Medical Segment has
not generated any revenues and all costs incurred are reflected within R&D in the accompanying consolidated financial statements.
As previously disclosed, the Medical Segment has substantially reduced its R&D costs and activities due to the need for capital
to fund these activities. The Company anticipates that the Medical Segment will not resume full R&D activities until the necessary
capital is obtained through its own credit facility or additional equity raise, or obtains partners willing to provide funding
for its R&D. Our reporting segments exclude our corporate headquarter, business center and our discontinued operations (see
“Note 9 – Discontinued Operations”) which do not generate revenues.
The
table below shows certain financial information of our reporting segments as of and for the years ended December 31, 2020 and
2019 (in thousands).
Segment
Reporting as of and for the year ended December 31, 2020
Treatment
Services
Medical
Segments
Total
Corporate (2)
Consolidated
Total
Revenue
from external customers
$ 30,143
$ 75,283
—
$ 105,426 (3)(4)
$ —
$ 105,426
Intercompany
revenues
1,493
25
—
1,518
—
—
Gross
profit
5,491
10,402
—
15,893
—
15,893
Research
and development
243
132
311
686
76
762
Interest
income
1
—
—
1
139
140
Interest
expense
(115 )
(27 )
—
(142 )
(256 )
(398 )
Interest
expense-financing fees
—
—
—
—
(294 )
(294 )
Depreciation
and amortization
1,204
354
—
1,558
38
1,596
Segment
income (loss) before income taxes
1,494
7,826
(311 )
9,009
(6,049 )
2,960
Income
tax (benefit) expense
(264 )
6
—
(258 )
69
(189 )
Segment
income (loss)
1,758
7,820
(311 )
9,267
(6,118 )
3,149
Segment
assets (1)
32,324
22,368 (8)
17
54,709
24,210 (5)
78,919
Expenditures
for segment assets (net)
1,264
451
—
1,715
—
1,715 (7)
Total
debt
—
23
—
23
6,706
6,729 (6)
Segment
Reporting as of and for the year ended December 31, 2019
Treatment
Services
Medical
Segments
Total
Corporate
(2)
Consolidated
Total
Revenue
from external customers
$ 40,364
$ 33,095
—
$ 73,459 (3)(4)
$ —
$ 73,459
Intercompany
revenues
329
38
—
367
—
—
Gross
profit
12,248
3,336
—
15,584
—
15,584
Research
and development
401
12
314
727
23
750
Interest
income
—
—
—
—
337
337
Interest
expense
(129 )
(23 )
—
(152 )
(280 )
(432 )
Interest
expense-financing fees
—
—
—
—
(208 )
(208 )
Depreciation
and amortization
999
318
—
1,317
25
1,342
Segment
income (loss) before income taxes
7,973
795
(314 )
8,454
(5,565 )
2,889
Income
tax expense
153
—
—
153
4
157
Segment
income (loss)
7,820
795
(314 )
8,301
(5,569 )
2,732
Segment
assets (1)
34,260
15,410 (8)
16
49,686
16,829 (5)
66,515
Expenditures
for segment assets (net)
1,366
169
—
1,535
—
1,535 (7)
Total
debt
—
—
—
—
3,880
3,880 (6)
(1) Segment
assets have been adjusted for intercompany accounts to reflect actual assets for each
segment.
(2) Amounts
reflect the activity for corporate headquarters not included in the segment information.
72
(3) The
Company 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 96,582,000
or 91.6% of total revenue for 2020 and $59,985,000 or 81.7% of total revenue for 2019.
The following reflects such revenue generated by our two segments:
2020
2019
Treatment
Services
Total
Treatment
Services
Total
Domestic
government
$ 22,795
$ 68,237
$ 91,032
$ 29,420
$ 25,077
$ 54,497
Foreign
government
415
5,135
5,550
279
5,209
5,488
Total
$ 23,210
$ 73,372
$ 96,582
$ 29,699
$ 30,286
$ 59,985
(4) The
following table reflects revenue based on customer location:
2020
2019
United
States
$ 99,790
$ 67,822
Canada
5,550
5,488
United
Kingdom
86
149
Total
$ 105,426
$ 73,459
(5) Amount
includes assets from our discontinued operations of $103,000 and $221,000 at December
31, 2020 and 2019, respectively.
(6) Net
of debt discount/debt issuance costs of ($105,000) and ($340,000) for 2020 and 2019,
respectively (see “Note 10 – “Long-Term Debt” for additional
information).
(7) Net
of financed amount of $883,000 and $393,000 for the year ended December 31, 2020 and
2019, respectively.
(8) Includes
long-lived asset (net) for our PF Canada, Inc. subsidiary of $33,000 and $41,000 for
the year ended December 31, 2020 and 2019, respectively.
73
NOTE
18
DEFERRAL
OF EMPLOYMENT TAX DEPOSITS
The
CARES Act, as amended by the Flexibility Act which was signed into law on June 5, 2020, provides employers the option to defer
the payment of an employer’s share of social security taxes beginning on March 27, 2020 through December 31, 2020 with 50%
of the amount of social security taxes deferred to become due on December 31, 2021 with the remaining 50% due on December 31,
2022. The Company elected to defer such taxes starting in mid-April 2020. At December 31, 2020, the Company has deferred payment
of approximately $1,252,000 in its share of social security taxes, of which approximately $626,000 is included in “Other
long-term liabilities,” with the remaining balance included in “Accrued expenses” within current liabilities
in the Company’s Consolidated Balance Sheets.
NOTE
19
VARIABLE
INTEREST ENTITIES (“VIE”)
On
May 24, 2019, the Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) entered into an unpopulated joint
venture agreement for project work bids within the Company’s Services Segment. The joint venture is doing business as Perma-Fix
ERRG, a general partnership. The Company has a 51% partnership interest in the joint venture and ERRG has a 49% partnership interest
in the joint venture. Activities under Perma-Fix ERRG did not commence until the first quarter of 2020.
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 is a VIE in which we are the primary beneficiary. At December 31, 2020, Perma-Fix ERRG had total assets of $2,723,000 and
total liabilities of $2,723,000 which are all recorded as current.
74
NOTE
20
SUBSEQUENT
EVENTS
Management
evaluated events occurring subsequent to December 31, 2020 through March 29, 2021, the date these consolidated financial
statements were available for issuance, and other than as noted below determined that no material recognizable subsequent events
occurred.
MIPs
On
January 21, 2021, the Company’s Compensation Committee and the Board approved individual MIP for the calendar year 2021
for each CEO, EVP and CFO, EVP of Strategic Initiatives, EVP of Nuclear and Technical Services and EVP of Waste Treatment Operations.
Each of the MIPs is effective January 1, 2021 and applicable for year 2021. Each MIP provides guidelines for the calculation of
annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash compensation
based on achievement of performance thresholds, with the amount of such compensation established as a percentage of the executive’s
2021 annual base salary at the time of the approval of the MIP. The potential target performance compensation ranges from 5% to
150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000), 5%
to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP
of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of
Waste Treatment Operations.
Executive
Officer Salary
In
February 2021, the Company’s Compensation Committee approved an annual salary cost of living adjustment of approximately
2.3% to take into effect April 1, 2021 for each of our executive officers.
Board
Compensation
On
January 21, 2021, the Company’s Compensation Committee and the Board approved the following revision to the compensation
of each non-employee Board member and the Board Committee(s) for which the Board member serves, effective January 1, 2021.
● each
director is to be paid a quarterly fee of $11,500 from $8,000;
● the
Chairman of the Board is to be paid an additional quarterly fee of $8,750 from $7,500;
● the
Chairman of the Audit Committee is to be paid an additional quarterly fee of $6,250 from
$5,500;
● the
Chairman of each of the Compensation Committee, the Corporate Governance and Nominating
Committee (the “Nominating Committee”), and the Strategic Advisory Committee
(the “Strategic Committee”) is to receive $3,125 in quarterly fee. No such
quarterly fee was previously paid. The Chairman of the Board is not eligible to receive
a quarterly fee for serving as the Chairman of any the aforementioned Committees ;
● each
Audit Committee member (excluding the Chairman of the Audit Committee) is to receive
$1,250 in quarterly fee; and
● each
member of the Compensation Committee, the Nominating Committee, and the Strategic Committee
is to receive a quarterly fee of $500. Such fee is payable only if the member does not
serve as the Chairman of the Audit Committee, the Nominating Committee, the Strategic
Committee or as the Chairman of the Board.
Each
non-employee Board member will continue to receive $1,000 for each board meeting attendance and a $500 fee for meeting attendance
via conference call.
Each non-employee director may continue to elect to have either 65% or
100% of such fees payable in Common Stock under the 2003 Plan, with the balance, if any, payable in cash (see “Note 7 – Capital
Stock, Stock Plans, Warrants, and Stock Based Compensation – Stock Option Plans” for a discussion of the 2003 Plan).
75
ITEM
9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A.
CONTROLS
AND PROCEDURES
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 (the “Commission”) is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and
communicated to our management, including the Chief Executive Officer (“CEO”) (Principal Executive Officer), and Chief
Financial Officer (“CFO”) (Principal Financial Officer), as appropriate to allow timely decisions regarding the required
disclosure. In designing and assessing our disclosure controls and procedures, our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their stated control
objectives and are subject to certain limitations, including the exercise of judgment by individuals, the difficulty in identifying
unlikely future events, and the difficulty in eliminating misconduct completely. Our management, with the participation of our
CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934, as amended. Based upon this assessment, our CEO and CFO have concluded that our disclosure
controls and procedures were effective as of December 31, 2020.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. Internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or fraudulent acts.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control
system, no matter how well designed, can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit the preparation of the consolidated financial statements
in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures
of the Company are being made only in accordance with appropriate authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the consolidated financial statements.
Management,
with the participation of our CEO and CFO, conducted an assessment of the effectiveness of internal control over financial reporting
as of December 31, 2020 based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, with the participation
of our CEO and CFO, concluded that the Company’s internal control over financial reporting was effective as of December
31, 2020.
This
Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Since the Company is not a large accelerated filer or an accelerated filer, management’s
report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules
of the Commission that permit the Company to provide only management’s report in this Form 10-K.
Changes
in Internal Control over Financial Reporting
There
was no other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
ITEM
9B.
OTHER
INFORMATION
None.
76
PART
III
ITEM
10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS
The
following table sets forth, as of the date of this Report, information concerning our Board of Directors (“Board”):
NAME
(1)
AGE
POSITION
Dr.
Louis F. Centofanti
76
Director;
Executive Vice President (“EVP”) of Strategic Initiatives; President of Perma-Fix
Medical (“PF Medical”)
Mr.
Thomas P. Bostick (1)
64
Director
Mr.
Joseph T. Grumski (2)
59
Director
The
Honorable Joe R. Reeder
73
Director
Mr.
Larry M. Shelton
67
Chairman
of the Board
The
Honorable Zach P. Wamp
63
Director
Mr.
Mark A. Zwecker
70
Director
Each
director is elected to serve until the next annual meeting of stockholders.
(1)
Mr.
Bostick was unanimously elected by the Board effective August 10, 2020 to fill a Board vacancy.
(2)
Mr.
Grumski was unanimously elected by the Board effective February 4, 2020 to fill a Board vacancy.
Director
Information
Our
directors and executive officers, their ages, the positions with us held by each of them, the periods during which they have served
in such positions and a summary of their recent business experience are set forth below. Each of the biographies of the current
directors listed below also contains information regarding such person’s service as a director, business experience, director
positions with other public companies held currently or at any time during the past five years, and the experience, qualifications,
attributes and skills that our Board considered in nominating or appointing each of them to serve as one of our directors.
Dr.
Louis F. Centofanti
Dr.
Centofanti, the founder of the Company and a director of the Company since its inception in 1991, currently holds the position
of EVP of Strategic Initiatives. Effective January 26, 2018, Dr. Centofanti was appointed to the position of President of PF Medical
and no longer a member of the Supervisory Board of PF Medical (a position he had held since June 2, 2015). From March 1996 to
September 8, 2017 and from February 1991 to September 1995, Dr. Centofanti held the position of President and Chief Executive
Officer (“CEO”) of the Company. Dr. Centofanti served as Chairman of the Board from the Company’s inception
in February 1991 until December 16, 2014. In January 2015, Dr. Centofanti was appointed by the U.S Secretary of Commerce Penny
Prizker to serve on the U.S. Department of Commerce’s Civil Nuclear Trade Advisory Committee (“CINTAC”). The
CINTAC is composed of industry representatives from the civil nuclear industry and meets periodically throughout the year to discuss
the critical trade issues facing the U.S. civil nuclear sector. From 1985 until joining the Company, Dr. Centofanti served as
Senior Vice President (“SVP”) of USPCI, Inc., a large publicly-held hazardous waste management company, where he was
responsible for managing the treatment, reclamation and technical groups within USPCI. In 1981, he and Mark Zwecker, a current
Board member of the Company, founded PPM, Inc. (later sold to USPCI), a hazardous waste management company specializing in treating
PCB-contaminated oil. From 1978 to 1981, Dr. Centofanti served as Regional Administrator of the U.S. Department of Energy for
the southeastern region of the United States. Dr. Centofanti has a Ph.D. and a M.S. in Chemistry from the University of Michigan,
and a B.S. in Chemistry from Youngstown State University.
77
As
founder of Perma-Fix and PPM, Inc., and as a senior executive at USPCI, Dr. Centofanti combines extensive business experience
in the waste management industry with a drive for innovative technology which is critical for a waste management company. In addition,
his service in the government sector provides a solid foundation for the continuing growth of the Company, particularly within
the Company’s Nuclear business. Dr. Centofanti’s comprehensive understanding of the Company’s operations and
his extensive knowledge of its history, coupled with his drive for innovation and excellence, positions Dr. Centofanti to optimize
our role in this competitive, evolving market, and led the Board to conclude that he should serve as a director.
Mr.
Thomas P. Bostick
Effective
August 10, 2020, Mr. Bostick was unanimously elected by the Board to serve as a member of the Company’s Board of Directors.
Mr. Bostick is currently the CEO of Bostick Global Strategies, LLC, a position he has held since July 2016. Bostick Global Strategies,
LLC provides strategic advisory support in the areas of Engineering, Environmental Sustainability, Human Resources, Biotechnology,
Education, Executive Coaching, and Agile Project Management. In February 2021, Mr. Bostick was selected by U. S. Senator Jack
Reed, Chairman of the Senate Armed Services Committee, to serve as a member of a new commission consisting of eight appointed
individuals, tasked with renaming Confederate-named military bases and property. Mr. Bostick previously served as the Chief Operating
Officer (“COO”) and President of Intrexon Bioengineering from November 2017 to February 2020, a division of Intrexon
Corporation (formerly NASDAQ: XON; now NASDAQ: PGEN). Intrexon Bioengineering addresses
global challenges across food, agriculture, environmental, energy, and industrial fields by advancing biologically engineered
solutions to improve sustainability and efficiency. As the COO and President of Intrexon Bioengineering, Mr. Bostick oversaw
operations across the company’s multiple technology divisions, driving efficiency and effectiveness in the application of
the company’s assets toward its development projects, and led a major restructuring of Intrexon Corporation. Mr. Bostick
is a member of the board of HireVue, Inc., a privately-held company specializing in online video interviewing services for employers,
and Streamside Systems, Inc., a privately-held, veteran-led company that provides
services and solutions for global water resource problems . In October 2020, Mr. Bostick
was appointed to the board of CSX Corporation (NASDAQ: CSX), a publicly-held rail transportation company, where in December 2020
he was appointed to serve as a member of both the Finance Committee and the Governance Committee. In addition to Mr. Bostick’s
service on the boards of for profit companies, he has since November 2016 also served on the board of American Corporate Partners,
a 501(c)(3) nonprofit organization dedicated to assisting U.S. veterans in their transition from the armed services to the civilian
workforce.
Mr.
Bostick has also had a distinguished career in the U.S. military, retiring from the US Army in July 2016 with the rank of Lieutenant
General. During his distinguished military career, he served
as the 53rd U.S. Army Chief of Engineers and the Commanding General of the U.S. Army Corps of Engineers (USACE). As the senior
military officer of the Army Corps of Engineers, General Bostick was responsible for overseeing and supervising most of the Nation’s
civil works infrastructure and military construction, hundreds of environmental protection projects, as well as managing 34,000
civilian employees and military personnel in over 110 countries around the world with a $25 billion annual budget. As the Chief
of Engineers, General Bostick
led a $5 billion recovery
program after Superstorm Sandy.
Before
his command of USACE, General
Bostick served in a variety
of command and staff assignments with the U.S. Army both in the U.S. and abroad, including as Deputy Chief of Staff, G-1, Personnel,
U.S. Army; Commanding General, U.S. Army Recruiting Command; Assistant Division Commander, 1st Cavalry Division; Executive Officer
to the Chief of Engineers; Executive Officer to the Army Chief of Staff; and Deputy Director of Operations for the National Military
Command Center, J-3, the Joint Staff in the Pentagon.
78
General
Bostick’s military honors and decorations
include the Distinguished Service Medal, the Defense Superior Service Medal, the Bronze Star, the Legion of Merit with two oak
leaf clusters, the Defense Meritorious Service Medal, the Meritorious Service Medal with four oak leaf clusters, the Joint Service
Commendation Medal, the Army Commendation Medal, the Army Achievement Medal with one oak leaf cluster, the Combat Action Badge,
the U.S Parachutist badge, the Army Recruiter Badge, and the Ranger Tab.
As
a White House Fellow, one of America’s most prestigious programs for leadership and public service, General Bostick was
a special assistant to the Secretary of Veterans Affairs .
He graduated with a Bachelor of Science degree from the U.S. Military Academy at West Point and later returned to the Academy
to serve as an Associate Professor of Mechanical Engineering. He holds Master’s degrees in Civil Engineering and Mechanical
Engineering from Stanford University and a Doctorate in Systems Engineering from George Washington University. He is a Member
of the National Academy of Engineering and the National Academy of Construction.
Mr.
Bostick’s distinguished career in both the government and private sectors brings valuable experience and insight into solving
complex issues domestically and globally. His
extensive knowledge and problem-solving experiences enhance the Board’s ability to address significant challenges in the
nuclear market and led the Board to conclude that he should serve as a director.
Mr.
Joseph T. Grumski
Effective
February 4, 2020, Mr. Grumski was unanimously elected by the Board as a director to fill a vacancy on the Board. From May 2013
through March 2020, Mr. Grumski served as President and CEO and a board member of TAS Energy Inc. (“TAS”), a privately-held
company that delivers efficient modular systems manufactured offsite and utilized in power, data centers, industrial and commercial
applications. TAS has successfully managed over 400 projects in over 32 countries. In April 2020, TAS was acquired by Comfort
Systems USA, Inc. (NYSE: FIX), and now operates as a wholly-owned subsidiary of that company. Comfort Systems USA. Inc. is a publicly-held
company that provides mechanical and electrical contracting services in 139 locations in 114 cities throughout the United States.
Mr. Grumki continues to serve as the President and CEO of TAS. From 1997 to February 2013, Mr. Grumski was employed with Science
Applications International Corporation (“SAIC”) (NYSE: SAIC), a publicly-held company that provides government services
and information technology support. During his employment with SAIC, Mr. Grumski held various senior management positions, including
the positions of President of SAIC’s Energy, Environment & Infrastructure (“E2I”) commercial subsidiary
and General Manager of the E2I Business Unit. SAIC’s E2I commercial subsidiary and Business Unit is comprised of approximately
5,200 employees performing over $1.1 billion of services for federal, commercial, utility and state customers. Mr. Grumski’s
many accomplishments with SAIC included growing SAIC’s $300 million federal environmental business to a top ranked, $1.1
billion business; receiving the National Safety Council “Industry Leader” award in 2009; and receiving highest senior
executive performance rating three years in a row. Mr. Grumski began his career with Gulf Oil Company and has progressed through
senior level engineering, operations management, and program management positions with various companies, including Westinghouse
Electric Corporation and Lockheed Martin, Inc. Mr. Grumski received a B.S. in Mechanical Engineering from The University of Pittsburgh
and a M.S in Mechanical Engineering from West Virginia University.
Mr.
Grumski has had an extensive career in solving and overseeing solutions to complex issues involving both domestic and international
concerns. In addition, his extensive experience in companies that provide services to the government sector as well as his experience
in the commercial sector provide solid experience for the continuing growth of the Company’s Treatment and Services Segment.
Mr. Grumski’s extensive knowledge and problem-solving experiences, executive operational leadership experience and governance
experience enhance the Board’s ability to address significant challenges in the nuclear market, and led the Board to conclude
that he should serve as a director.
79
The
Honorable Joe R. Reeder
Mr.
Reeder, a director since 2003, is a principal shareholder in the law firm of Greenberg Traurig LLP, one of the nation’s
largest U.S.-based law firms, with 41 offices and 2,200 attorneys worldwide, for which Mr. Reeder served as Shareholder-in-Charge
of the law firm’s Mid-Atlantic Region (1999-2008). His clientele includes celebrities, heads of state, sovereign nations,
international corporations, and law firms. As the 14th Undersecretary of the U.S. Army (1993-97), Mr. Reeder also served three
years as Chairman of the Panama Canal Commission’s Board, overseeing a multibillion-dollar infrastructure program. For the
past 18 years, he has served on the Canal’s International Advisory Board. He has served on the boards of the National Defense
Industry Association (“NDIA”), chairing NDIA’s Ethics Committee, the Armed Services YMCA, the Marshall Legacy
Institute, and many other private companies and charitable organizations. After successive 4-year appointments by Virginia Governors
Mark Warner and Tim Kaine, Mr. Reeder served seven years as Chairman of two Commonwealth of Virginia military boards, and 10 years
on the USO Board of Governors. Mr. Reeder was appointed by Governor Terry McAuliffe to the Virginia Military Institute’s
Board of Visitors (2014), and reappointed in 2018 by current Virginia Governor Ralph Northam. Mr. Reeder, who has been a television
commentator on legal and national security issues, has consistently been named a Super Lawyer for Washington, D.C., most recently
in 2020. Among other corporate positions, he’s been a director since September 2005 for ELBIT Systems of America, LLC, a
subsidiary of Elbit Systems Ltd. (NASDAQ: ESLT), a publicly-held company that provides product and system solutions focusing on
defense, homeland security, and commercial aviation. Mr. Reeder served on the Washington First Bank (“WFB”) board
from 2004 to 2017, and, since January 2018, has served on the board of Sandy Spring Bancorp, Inc. (NASDAQ: SASR), which acquired
WFB in January 2018. Since April 2018, Mr. Reeder has served on the Audit Committee of Sandy Spring Bancorp, Inc.
In
May 2018 Mr. Reeder was appointed to the Advisory Council Bid Protest Committee to the United States Court of Federal Claims.
A
West Point graduate who served in the 82nd Airborne Division after Ranger School, Mr. Reeder earned his J.D. from the University
of Texas, and L.L.M. from Georgetown University.
Mr.
Reeder’s career has focused on solving and overseeing solutions to complex domestic and international issues. This experience
has enhanced the Board’s ability to address major challenges in the nuclear market, as well as day-to-day corporate challenges,
which is why the Board values his service as a director.
Mr.
Larry M. Shelton
Mr.
Shelton, a director since July 2006, has also held the position of Chairman of the Board of the Company since December 16, 2014.
Mr. Shelton served as the Chief Financial Officer (“CFO”) of S K Hart Management, LLC, a private investment management
company (“S K Hart Management”), from 1999 until August 2018. Mr. Shelton served as President of Pony Express Land
Development, Inc. (an affiliate of SK Hart Management), a privately held land development company, from January 2013 until August
2017, and has served on its board since December 2005. Mr. Shelton served as Director and CFO of S K Hart Ranches (PTY) Ltd, a
private South African Company involved in agriculture, from March 2012 to March 2020. Mr. Shelton continues to provide advisory
services to S K Hart Ranches (PTY) Ltd. Mr. Shelton served as a member of the Supervisory Board of PF Medical from April 2014
to December 2016. Mr. Shelton has over 20 years of experience as an executive financial officer for several waste management companies,
including as CFO of Envirocare of Utah, Inc. (now EnergySolutions, Inc. (1995–1999)), a privately held nuclear waste services
company, and as CFO of USPCI, Inc. (1982–1987), then a NYSE- listed public company engaged in the hazardous waste business.
Since July 1989, Mr. Shelton has served on the board of Subsurface Technologies, Inc., a privately held company specializing in
providing environmentally sound innovative solutions for water well rehabilitation and development. Mr. Shelton has a B.A. in
accounting from the University of Oklahoma.
With
his years of accounting experience as CFO for various companies, including a number of waste management companies, Mr. Shelton
combines extensive industry knowledge and understanding of accounting principles, financial reporting requirements, evaluating
and overseeing financial reporting processes and business matters. These factors led the Board to conclude that he should serve
as a director.
80
The
Honorable Zach P. Wamp
Mr.
Wamp, a director since January 2018, is currently the President of Zach Wamp Consulting, a position he has held since 2011. As
the President and owner of Zach Wamp Consulting, he has served some of the most prominent companies from Silicon Valley to Wall
Street as a business development consultant and advisor. From September 2013 to November 2017, Mr. Wamp chaired the Board of Directors
for Chicago Bridge and Iron Federal Services, LLC (a subsidiary of Chicago Bridge & Iron Company, NYSE: CBI, which provides
critical services primarily to the U.S. government). From January 1995 to January 2011, Mr. Wamp served as a member of the U.S.
House of Representatives from Tennessee’s 3 rd Congressional District. His district included the Oak Ridge National
Laboratory, with strong science and research missions from energy to homeland security. Among his many accomplishments, which
included various leadership roles in the advancement of education and science, Mr. Wamp was instrumental in the formation and
success of the Tennessee Valley Technology Corridor, which created thousands of jobs for Tennesseans in the areas of high-tech
research, development, and manufacturing. During his career in the political arena, Mr. Wamp served on several prominent subcommittees
during his 14 years on the House Appropriations Committee, including serving as a “ranking member” of the Subcommittee
on Military Construction and Veterans Affairs and Related Agencies. Mr. Wamp has been a regular panelist on numerous media outlets
and has been featured in a number of national publications effectively articulating sound social and economic policy. Mr. Wamp’s
business career has also included work in the real estate sector for a number of years as a licensed industrial-commercial real
estate broker, for which he was named Chattanooga’s Small Business Person of the Year. He is a founder and Board Chair of
Learning Blade, the nation’s premiere STEM education platform, which is now operating statewide in six states with deployment
in another 10 states. Learning Blade is owned and operated by SAI Interactive, Inc., d/b/a Thinking Media, a privately-held educational
products and services company.
Mr.
Wamp has an extensive career in solving and overseeing solutions to complex issues involving domestic concerns. In addition, his
wide-ranging career, particularly with respect to his government-related work, provides solid experience for the continuing growth
of the Company’s Treatment and Services Segments. His extensive knowledge and problem-solving expertise enhance the Board’s
ability to address significant challenges in the nuclear market, and led the Board to conclude that he should serve as a director.
Mr.
Mark A. Zwecker
Mr.
Zwecker, a director since the Company’s inception in January 1991, previously served as the CFO and a board member for JCI
US Inc. from 2013 to 2019. JCI US Inc. is a telecommunications company and wholly-owned subsidiary of Japan Communications, Inc.
(Tokyo Stock Exchange (Securities Code: 9424)), which provides cellular service for M2M (machine to machine) applications. From
2006 to 2013, Mr. Zwecker served as Director of Finance for Communications Security and Compliance Technologies, Inc., a wholly-owned
subsidiary of JCI US Inc. that develops security software products for the mobile workforce. From 1997 to 2006, Mr. Zwecker served
as President of ACI Technology, LLC, a privately-held IT services provider, and from 1986 to 1998, he served as Vice President
of Finance and Administration for American Combustion, Inc., a privately-held combustion technology solutions provider. In 1981,
with Dr. Centofanti, Mr. Zwecker co-founded a start-up, PPM, Inc., a hazardous waste management company. He remained with PPM,
Inc. until its acquisition in 1985 by USPCI. Mr. Zwecker has a B.S. in Industrial and Systems Engineering from the Georgia Institute
of Technology and an M.B.A. from Harvard University.
As
a director since our inception, Mr. Zwecker’s understanding of our business provides valuable insight to the Board. With
years of experience in operations and finance for various companies, including a number of waste management companies, Mr. Zwecker
combines extensive knowledge of accounting principles, financial reporting rules and regulations, the ability to evaluate financial
results, and understanding of financial reporting processes. He has an extensive background in operating complex organizations.
Mr. Zwecker’s experience and background position him well to serve as a member of our Board. These factors led the Board
to conclude that he should serve as a director.
BOARD
LEADERSHIP STRUCTURE
We
currently separate the roles of Chairman of the Board and CEO. The Board believes that this leadership structure promotes balance
between the Board’s independent authority to oversee our business, and the CEO and his management team, who manage the business
on a day-to-day basis.
81
The
Company does not have a written policy with respect to the separation of the positions of Chairman of the Board and CEO. The Company
believes it is important to retain its flexibility to allocate the responsibilities of the offices of the Chairman and CEO in
any way that is in the best interests of the Company at a given point in time; therefore, the Company’s leadership structure
may change in the future as circumstances may dictate.
Mr.
Mark Zwecker, a current member of our Board, continues to serve as the Independent Lead Director, a position he has held since
February 2010. The Lead Director’s role includes:
●
convening
and chairing meetings of the non-employee directors as necessary from time to time and Board meetings in the absence of the
Chairman of the Board;
●
acting
as liaison between directors, committee chairs and management;
●
serving
as information sources for directors and management; and
●
carrying
out such responsibilities as the Board may delegate from time to time.
AUDIT
COMMITTEE
We
have a separately designated standing Audit Committee of our Board established in accordance with Section 3(a)(58)(A) of the Exchange
Act. Members of the Audit Committee are Mark A. Zwecker (Chairperson), Larry M. Shelton, and Joseph T. Grumski, who replaced Zach
Wamp as a member of the Audit Committee effective April 16, 2020.
Our
Board has determined that each of our Audit Committee members is and was independent within the meaning of the rules of the NASDAQ
and is an “audit committee financial expert” as defined by Item 407(d)(5)(ii) of Regulation S-K of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).
The
Audit Committee has also discussed with Grant Thornton, LLP, the Company’s independent registered accounting firm, the matters
required to be discussed by Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 16 (Communications
with Audit Committee).
BOARD
OF DIRECTOR INDEPENDENCE
The
Board has determined that each director, other than Dr. Centofanti, is “independent” within the meaning of the applicable
NASDAQ rules. Dr. Centofanti is not deemed to be an “independent director” because of his employment as an executive
officer of the Company.
COMPENSATION
AND STOCK OPTION COMMITTEE
The
Compensation and Stock Option Committee (the “Compensation Committee”) reviews and recommends to the Board the compensation
and benefits of all of the Company’s officers and reviews general policy matters relating to compensation and benefits of
the Company’s employees. The Compensation Committee also administers the Company’s stock option plans. The Compensation
Committee has the sole authority to retain and terminate a compensation consultant, as well as to approve the consultant’s
fees and other terms of engagement. It also has the authority to obtain advice and assistance from internal or external legal,
accounting or other advisors. No compensation consultant was employed during 2020. Members of the Compensation Committee during
2020 were Larry M. Shelton (Chairperson), Joe R. Reeder, and Mark A. Zwecker. Effective January 21, 2021, Joseph T. Grumski replaced
Larry M. Shelton as the Chairperson and a member of the Compensation Committee and Zach P. Wamp replaced Joe R. Reeder as a member
of the Compensation Committee. None of the members of the Compensation Committee has been or is an officer or employee of the
Company or has had or has any relationship with the Company requiring disclosure under applicable Commission regulations.
CORPORATE
GOVERNANCE AND NOMINATING COMMITTEE
We
have a separately-designated standing Corporate Governance and Nominating Committee (the “Nominating Committee”).
Members of the Nominating Committee during 2020 were Joe R. Reeder (Chairperson), Zach P. Wamp, and Larry M. Shelton. Effective
January 21, 2021, Mr. Bostick replaced Larry M. Shelton as a member of the Nominating Committee. All members of the Nominating
Committee are and were “independent” as that term is defined by current NASDAQ listing standards.
82
The
Nominating Committee recommends to the Board of Directors candidates to fill vacancies on the Board and the nominees for election
as directors at each annual meeting of stockholders. In making such recommendation, the Nominating Committee takes into account
information provided to them from the candidate, as well as the Nominating Committee’s own knowledge and information obtained
through inquiries to third parties to the extent the Nominating Committee deems appropriate. The Company’s Bylaws sets forth
certain minimum director qualifications to qualify for nomination for election as a director. To qualify for nomination or for
election as a director, an individual must:
●
be
an individual at least 21 years of age who is not under legal disability;
●
have
the ability to be present, in person, at all regular and special meetings of the Board of Directors;
●
not
serve on the boards of more than three other publicly-held companies;
●
satisfy
the director qualification requirements of all environmental and nuclear commissions, boards or similar regulatory or law
enforcement authorities to which the Company is subject so as not to cause the Company to fail to satisfy any of the licensing
requirements imposed by any such authority;
●
not
be affiliated with, employed by or a representative of, or have or acquire a material personal involvement with, or material
financial interest in, any “Business Competitor” (as defined in the Bylaws);
●
not
have been convicted of a felony or of any misdemeanor involving moral turpitude; and
●
have
been nominated for election to the Board of Directors in accordance with the terms of the Bylaws.
In
addition to the minimum director qualifications as mentioned above, in order for any proposed nominee to be eligible to be a candidate
for election to the Board, such candidate must deliver to the Nominating Committee a completed questionnaire with respect to the
background, qualifications, stock ownership and independence of such proposed nominee. The Nominating Committee reviews each candidate’s
qualifications to include considerations of:
●
standards
of integrity, personal ethics and values, commitment, and independence of thought and judgment;
●
ability
to represent the interests of the Company’s stockholders;
●
ability
to dedicate sufficient time, energy and attention to fulfill the requirements of the position; and
●
diversity
of skills and experience with respect to accounting and finance, management and leadership, business acumen, vision and strategy,
charitable causes, business operations, and industry knowledge.
The
Nominating Committee does not assign specific weight to any particular criteria and no particular criterion is necessarily applicable
to all prospective nominees. The Nominating Committee does not have a formal policy for the consideration of diversity in identifying
nominees for directors. However, d iversity is one of the many factors taken into account
when considering potential candidates to serve on the Board of Directors. The Company generally views and values diversity from
the perspective of professional and life experiences, as well as geographic location, representative of the markets in which we
do business. The Company recognizes that diversity in professional and life experiences may include consideration of gender, race,
cultural background or national origin, in identifying individuals who possess the qualifications that the Nominating Committee
believes are important to be represented on the Board. The Company believes that the inclusion of diversity as one of many factors
considered in selecting director nominees is consistent with the Company’s goal of creating a board of directors that best
serves our needs and those of our shareholders.
Stockholder
Nominees
There
have been no changes to the stockholder nomination process since the Company’s last proxy statement. The procedure for stockholder
nominees to the Board of Directors is set out below.
83
The
Nominating Committee will consider properly submitted stockholder nominations for candidates for membership on the Board of Directors
from stockholders who meet each of the requirements set forth in the Bylaws, including, but not limited to, the requirements that
any such stockholder own at least 1% of the Company’s shares of the Common Stock entitled to vote at the meeting on such
election, has held such shares continuously for at least one full year, and continuously holds such shares through and including
the time of the annual or special meeting. Nominations of persons for election to the Board of Directors may be made at any Annual
Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors. Any stockholder
nomination (“Proposed Nominee”) must comply with the requirements of the Company’s Bylaws and the Proposed Nominee
must meet the minimum qualification requirements as discussed above. For a nomination to be made by a stockholder, such stockholder
must provide advance written notice to the Nominating Committee, delivered to the Company’s principal executive office address
(i) in the case of an Annual Meeting of Stockholders, no later than the 90 th day nor earlier than the 120 th
day prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; and (ii) in the case of a Special
Meeting of Stockholders called for the purpose of electing directors, not later than the 10 th day following the day
on which public disclosure of the date of the Special Meeting of Stockholders is made.
The
Nominating Committee will evaluate the qualification of the Proposed Nominee and the Proposed Nominee’s disclosure and compliance
requirements in accordance with the Company’s Bylaws. If the Board of Directors, upon the recommendation of the Nominating
Committee, determines that a nomination was not made in accordance with the Company’s Bylaws, the Chairman of the Meeting
shall declare the nomination defective and it will be disregarded.
STRATEGIC
ADVISORY COMMITTEE
We
have a separately designated Strategic Advisory Committee (the “Strategic Committee”). The primary functions of the
Strategic Committee are to investigate and evaluate strategic alternatives available to the Company and to work with management
on long-range strategic planning and identification of potential new business opportunities. The members of the Strategic Advisory
Committee are Dr. Louis Centofanti (Chairperson), Joe R. Reeder, Mark A. Zwecker, and Larry M. Shelton. The Strategic Advisory
Committee does not have a charter.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The
following table sets forth, as of the date hereof, information concerning our executive officers:
NAME
AGE
POSITION
Mr.
Mark Duff
58
President
and CEO
Mr.
Ben Naccarato
58
CFO,
EVP, and Secretary; CFO and member of the Management Board of PF Medical
Dr.
Louis Centofanti
76
EVP
of Strategic Initiatives; President of PF Medical
Mr.
Andrew Lombardo
61
EVP
of Nuclear and Technical Services; Member of the Supervisory Board of PF Medical
Mr.
Richard Grondin
62
EVP
of Waste Treatment Operations; Member of the Supervisory Board of PF Medical
Mr.
Mark Duff
Mr.
Mark Duff has held the position of President and CEO of the Company since September 2017. Since joining the Company in June 2016
and prior to being named the President and CEO, Mr. Duff held the positions of Chief Operating Officer and Executive Vice President
of the Company. Since joining Perma-Fix, Mr. Duff has developed and implemented strategies to meet aggressive growth objectives
in both the Treatment and Services Segments. In the Treatment Segment, he has upgraded each facility to increase efficiency and
modernize treatment capabilities to meet the changing markets associated with the waste management industry. In the Services Segment,
which encompasses all field operations, he has completed the revitalization of business development programs which has resulted
in increased competitive procurement effectiveness and broadened the market penetration within both the commercial and government
sectors. Both of these implemented strategies have contributed to continuous growth in revenues and profitability. Mr. Duff has
over 30 years of management and technical experience in the U.S Department of Energy (“DOE”) and U.S. Department of
Defense (“DOD”) environmental and construction markets as a corporate officer, senior project manager, co-founder
of a consulting firm, and federal employee. Mr. Duff has an MBA from the University of Phoenix and received his B.S. from the
University of Alabama.
84
Mr.
Ben Naccarato
Mr.
Naccarato has served as the Company’s CFO since February 26, 2009. On January 16, 2020, the Company’s Board, with
the approval of the Compensation Committee, promoted Mr. Naccarato to EVP and CFO from Vice President and CFO. Mr. Naccarato joined
the Company in September 2004 and served as Vice President, Finance of the Company’s Industrial Segment until May 2006,
when he was named Vice President, Corporate Controller/Treasurer. Since July 2015 and December 2015, Mr. Naccarato has served
as the CFO of PF Medical and a member of the Management Board of PF Medical, respectively. Mr. Naccarato has over 30 years of
experience in senior financial positions in the waste management and used oil industries. From December 2002 to September 2004,
Mr. Naccarato was the CFO of a privately held company in the fuel distribution and used waste oil industry. Mr. Naccarato is a
graduate of University of Toronto with a Bachelor of Commerce and Finance Degree and is a Chartered Professional Accountant, Certified
Management Accountant (CPA, CMA).
On
March 3, 2021, Mr. Naccarato was appointed to serve as an independent director of PyroGenesis Canada, Inc., a high-tech company
involved in the design, development, manufacture and commercialization of advanced plasma processes and products and whose stock
is listed for trading on the Toronto (PYR) and NASDAQ (PYR) Stock Exchange. Effective March 11, 2021, Mr. Naccarato was appointed
to serve as a member of both the Audit and Compensation Committee of PyroGenesis.
Dr.
Louis Centofanti
See
“Director – Dr. Louis F. Centofanti” in this section for information on Dr. Centofanti.
Mr.
Andrew (“Andy”) Lombardo
On
January 16, 2020, the Company’s Board appointed Mr. Lombardo to the position of EVP of Nuclear and Technical Services and
an executive officer of the Company. Since joining the Company in 2011, Mr. Lombardo has held various positions within the Company’s
Services Segment, including SVP of Nuclear and Technical Services. Since May 2019, Mr. Lombardo has served as a member of the
Supervisory Board of PF Medical.
Mr.
Lombardo, a Certified Health Physicist (“CHP”), has over 35 years of management and technical experience in the commercial
nuclear reactor market, and the DOE and DOD environmental and construction markets as a senior director, senior project manager,
senior CHP and chemist. Prior to joining the Company, Mr. Lombardo held the position of Vice President of Technical Services for
Safety and Ecology Corporation (“SEC”), a subsidiary of Homeland Security Capital Corporation, a publicly traded environmental
services company, prior to the acquisition of SEC by the Company in 2011. In his positions with both the Company and SEC, Mr.
Lombardo procured and performed greater than $20 million a year in health physics and radioactive material management projects
across the DOE and DOD complex while managing a professional staff of engineers and health physicists and an instrumentation laboratory.
Prior to his employment with the Company and SEC, he managed decommissioning projects for two engineering firms which included
the successful deployment of soil segregation technology, resulting in client savings of more than $100 million in transportation
and disposal costs. During this time, he developed an expertise characterizing and managing naturally occurring radioactive material
(“NORM”) and technologically enhanced NORM (“TENORM”) waste streams across multiple industries including
oil and gas exploration and production. As a result of his expertise, he was recently appointed to the National Council on Radiation
Protection and Measurement Committee to provide a commentary on the generation and disposal of TENORM waste. Mr. Lombardo began
his career as a chemist and health physicist for the Duquesne Light Company at two commercial reactor sites and one joint DOE/Naval
Reactors Duquesne Light test reactor in Shippingport, PA. Mr. Lombardo is certified in comprehensive practice of health physics,
and has a M.S. degree in Health Physics from the University of Pittsburgh and a B.S. in Natural Sciences from Indiana University
of Pennsylvania.
85
Mr.
Richard Grondin
On
July 22, 2020, the Company’s Board appointed Mr. Richard Grondin to the position of EVP of Waste Treatment Operations and
an executive officer of the Company. Effective January 21, 2021, Mr. Grondin was elected to serve as a member of the Supervisory
Board of PF Medical. Since joining the Company in 2002, Mr. Grondin has held various positions within the Company’s Treatment
Segment, including Vice President of Technical Services, Vice President/General Manager of the Perma-Fix Northwest Richland, Inc.
(“PFNWR”) Facility and Vice President of Western Operations. Mr. Grondin, a Project Management Professional (“PMP”),
has over 35 years of management and technical experience in the highly regulated and specialized radioactive/hazardous waste management
industry with the majority of his experience concentrated on managing start-up waste management processing and disposal facilities
for four different organizations in the commercial and government sectors. Prior to joining the Company, Mr. Grondin held the
position of Vice President of Mixed Waste Operations for Allied Technology Group (“ATG”) in Richland, Washington;
Vice President of Operations for Waste Control Specialists (“WCS”) in Andrews Texas; and Technical Manager/Director
of Operations for Rollins Environmental Services Facility in Deer Trail, Colorado. In his positions with the Company, Mr. Grondin,
together with others, transformed the PFNWR facility to a profitable subsidiary after its acquisition by the Company. Mr. Grondin
is recognized in the United States and Canada as an authority in hazardous and mixed waste treatment. He has been involved in
the treatment of several hundred thousand tons of waste in the last 35 years. Mr. Grondin has a Diploma of Collegial Studies in
Pure and Applied Sciences from CEGEP of Amiante (Thetford-Mines, Canada) and Analytical Chemistry Techniques from CEGEP of Ahuntsic
(Montreal, Canada), a Geography minor from Montreal University (Montreal, Canada) and a Certificate of Business Management from
the School of Higher Commercial Studies from Montreal University (Montreal, Canada).
Certain
Relationships
There
are no family relationships between any of the directors or executive officers.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act, and the regulations promulgated thereunder require our executive officers and directors and beneficial
owners of more than 10% of our Common Stock to file reports of ownership and changes of ownership of our Common Stock with the
Commission, and to furnish us with copies of all such reports. Based solely on a review of the copies of such reports furnished
to us and written information provided to us, we believe that during 2020 none of our executive officers, directors, or beneficial
owners of more than 10% of our Common Stock failed to timely file reports under Section 16(a).
Capital
Bank–Grawe Gruppe AG (“Capital Bank”) has advised us that it is a banking institution regulated by the banking
regulations of Austria, which holds shares of our Common Stock as agent on behalf of numerous investors. Capital Bank has represented
that all of such investors are accredited investors under Rule 501 of Regulation D promulgated under the Act. In addition, Capital
Bank has advised us that none of such investors, individually or as a group, beneficially own more than 4.9% of our Common Stock
as calculated in accordance with Rule 13d-3 of the Exchange Act. Capital Bank has further informed us that its clients (and not
Capital Bank) maintain full voting and dispositive power over such shares. Consequently, Capital Bank has advised us that it believes
it is not the beneficial owner, as such term is defined in Rule 13d-3 of the Exchange Act, of the shares of our Common Stock registered
in the name of Capital Bank because it has neither voting nor investment power, as such terms are defined in Rule 13d-3, over
such shares. Capital Bank has informed us that it does not believe that it is required to file, and has not filed, (a) reports
under Section 16(a) of the Exchange Act or (b) either Schedule 13D or Schedule 13G in connection with the shares of our Common
Stock registered in the name of Capital Bank.
If
the representations of, or information provided by Capital Bank, are incorrect or Capital Bank was historically acting on behalf
of its investors as a group, rather than on behalf of each investor independent of other investors, then Capital Bank and/or the
investor group would have become a beneficial owner of more than 10% of our Common Stock on February 9, 1996, as a result of the
acquisition of 1,100 shares of our Preferred Stock that were convertible into a maximum of 256,560 shares of our Common Stock.
If either Capital Bank or a group of Capital Bank’s investors became a beneficial owner of more than 10% of our Common Stock
on February 9, 1996, or at any time thereafter, and thereby required to file reports under Section 16(a) of the Exchange Act,
then Capital Bank has failed to file a Form 3 or any Forms 4 or 5 since February 9, 1996. (See “Item 12 - Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matter – Security Ownership of Certain Beneficial Owners”
for a discussion of Capital Bank’s current record ownership of our securities).
86
Code
of Ethics
Our
Code of Ethics applies to all our executive officers and is available on our website at www.perma-fix.com . If any amendments
are made to the Code of Ethics or any grants of waivers are made to any provision of the Code of Ethics to any of our executive
officers, we will promptly disclose the amendment or waiver and nature of such amendment or waiver on our website at the same
web address.
ITEM
11.
EXECUTIVE
COMPENSATION
Summary
Compensation
The
following table summarizes the total compensation paid or earned by each of the named executive officers (“NEOs”)
for the fiscal years ended December 31, 2020 and 2019.
Name
and Principal Position
Year
Salary
Bonus
Option
Awards
Non-Equity
Incentive Plan Compensation
All
other Compensation
Total
Compensation
($)
($)
($)
(5)
($)
($)
(8)
($)
Mark
Duff
2020
344,400
—
—
107,010 (6)
29,930
481,340
President
and CEO
2019
287,000
—
35,564
110,699 (7)
29,680
462,943
Ben
Naccarato
2020
280,000
—
—
86,000 (6)
41,594
407,594
EVP
and CFO
2019
235,231
—
21,338
81,070 (7)
40,861
378,500
Dr.
Louis Centofanti
2020
233,336
—
—
71,668 (6)
33,780
338,784
EVP
of Strategic Initiatives
2019
228,985
—
21,338
78,918 (7)
32,264
361,505
Andy
Lombardo (1)
2020
280,000
27,000 (3)
—
83,000 (6)
12,385
402,385
EVP
of Nuclear & Technical Services
2019
258,662
—
14,225
89,147 (7)
5,168
367,202
Richard
Grondin (2)
2020
223,151
—
—
71,143 (6)
29,216
323,510
EVP
of Waste Treatment Operations
2019
183,904
30,341 (4)
14,225
— (7)
29,137
257,607
(1)
On
January 16, 2020, the Board appointed Mr. Lombardo to the position of EVP of Nuclear and Technical Services and an executive
officer of the Company. Previously, Mr. Lombardo held the position of SVP of Nuclear and Technical Services (within the Services
Segment). As the EVP of Nuclear and Technical Services, Mr. Lombardo’s annual base salary was increased to $280,000,
effective January 1, 2020.
(2)
On
July 22, 2020, the Board appointed Mr. Grondin to the position of EVP of Waste Treatment Operations and an executive officer
of the Company. Previously, Mr. Grondin held the position of Vice President of Western Operations. As the EVP of Waste Treatment
Operations, Mr. Grondin’s annual base salary was increased to $240,000, effective July 22, 2020.
(3)
Reflects
a discretionary bonus earned by Mr. Lombardo which was approved by the Company’s Compensation Committee and which is
to be paid upon payment of the compensation earned under Mr. Lombardo’s 2020 MIP as described in footnote (6) below.
87
(4)
Reflects
a discretionary bonus earned by Mr. Grondin which was approved by the Company’s CEO and paid in May 2020. See also footnote
(7) below.
(5)
Reflects
the aggregate grant date fair value of awards computed in accordance with ASC 718, “Compensation – Stock Compensation.”
Assumptions used in the calculation of this amount are included in “Note 7 – Capital Stock, Stock Plans, Warrants
and Stock Based Compensation” to “Notes to Consolidated Financial Statement.”
(6)
Represents
performance compensation earned under the Company’s Management Incentive Plan (“MIP”). The MIP for each
individual in the table is described under the heading “2020 MIPs.” Compensation earned under the 2020 MIPs is
to be paid on or about 90 days after year-end, or sooner based on final Form 10-K filing.
(7)
Represents
performance compensation earned under the Company’s 2019 MIP. As discussed above, Mr. Lombardo was named an executive
officer of the Company effective January 16, 2020. Mr. Lombardo had a MIP for 2019 as the SVP of Nuclear and Technical Services,
prior to his election as an executive officer by the Board on January 16, 2020. Mr. Lombardo’s MIP as SVP of Nuclear
and Technical Services was subject to the approval of the CEO. Mr. Grondin did not have a MIP for 2019 but earned a bonus
which is described in footnote (4) above. Compensation earned under the MIPs for 2019 was paid by the Company at the end of
May 2020.
(8)
The
amount shown includes a monthly automobile allowance, insurance premiums (health, disability and life) paid by the Company
on behalf of the NEO, and 401(k) matching contributions.
Insurance
401(k)
Name
Premium
Auto
Allowance
match
Total
Mark
Duff
$ 14,430
$ 9,000
$ 6,500
$ 29,930
Ben
Naccarato
$ 26,853
$ 9,000
$ 5,741
$ 41,594
Dr.
Louis Centofanti
$ 18,516
$ 9,000
$ 6,264
$ 33,780
Andy
Lombardo
$ —
$ 5,885
$ 6,500
$ 12,385
Richard
Grondin
$ 18,516
$ 4,200
$ 6,500
$ 29,216
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth unexercised options held by the NEOs as of the fiscal year-end.
Outstanding
Equity Awards at December 31, 2020
Name
Number
of Securities Underlying Unexercised Options (#) Exercisable
Number
of Securities Underlying Unexercised Options (#) (1) Unexercisable
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
Option
Exercise Price ($)
Option
Expiration Date
Mark
Duff
50,000 (2)
— (2)
—
3.97
5/15/2022
60,000 (3)
40,000
(3)
—
3.65
7/27/2023
5,000 (4)
20,000 (4)
3.15
1/17/2025
Ben
Naccarato
30,000 (3)
20,000 (3)
—
3.65
7/27/2023
3,000 (4)
12,000 (4)
3.15
1/17/2025
Dr.
Louis Centofanti
30,000 (3)
20,000 (3)
—
3.65
7/27/2023
3,000 (4)
12,000
(4)
3.15
1/17/2025
Andy
Lombardo
4,000 (5)
8,000 (5)
—
3.60
10/19/2023
— (4)
8,000 (4)
3.15
1/17/2025
Richard
Grondin
12,000 (5)
8,000 (5)
—
3.60
10/19/2023
2,000 (4)
8,000 (4)
3.15
1/17/2025
(1)
Pursuant
to each of the employment agreements between the Company and, respectively, Mark Duff, Ben Naccarato, Dr. Lou Centofanti,
Andy Lombardo, and Richard Grondin, each dated July 22, 2020, in the event of a change in control, death of the executive
officer, the executive officer terminates his employment for “good reason” or the executive officer is terminated
by the Company without cause, each outstanding option and award shall immediately become exercisable in full (see “Employment
Agreements” below for further discussion of the event pursuant to which accelerated exercise of the respective NEO’s
outstanding options can arise).
(2)
Incentive
stock option granted on May 15, 2016 under the Company’s 2010 Stock Option Plan. The option has a contractual term of
six years with one-third yearly vesting over a three-year period.
88
(3)
Incentive
stock option granted on July 27, 2017 under the Company’s 2017 Stock Option Plan. The option has a contractual term
of six years with one-fifth yearly vesting over a five-year period.
(4)
Incentive
stock option granted on January 17, 2019 under the Company’s 2017 Stock Option Plan. The option has a contractual term
of six years with one-fifth yearly vesting over a five-year period.
(5)
Incentive
stock option granted on October 19, 2017 under the Company’s 2017 Stock Option Plan. The option has a contractual term
of six years with one-fifth yearly vesting over a five-year period.
Option
Exercises
The
table below reflects options exercised by our NEO’s in 2020.
Number
of Shares
Value
Realized
Name
Acquired
on Exercise (#)
on
Exercise ($) (1)
Andy
Lombardo
2,000
$ 7,700
(1)
Realized
value determined based on the difference between (a) the total proceeds received by the Company from the exercise of options
for the purchase of 2,000 shares of the Company’s Common Stock at $3.15 per share, and (b) the market value ($7.00 per
share) of the 2,000 shares of the Company’s Common Stock acquired by Mr. Lombardo on the date of the exercise of the
options.
Employment
Agreements
Effective
July 22, 2020, each of the NEOs entered into an employment agreement with the Company (each, an “Employment Agreement”
and, collectively, the “Employment Agreements”). Each of the Employment Agreements, which are substantially identical,
provides for a specified annual base salary, which annual salary may be increased from time to time, but not reduced, as determined
by the Compensation Committee. In addition, each of the NEOs is entitled to participate in the Company’s broad-based benefits
plans and to certain performance compensation payable under separate MIPs as approved by the Company’s Compensation Committee
and Board. The Company’s Compensation Committee and the Board approved individual 2020 MIPs on January 16, 2020 (which were
effective January 1, 2020 and applicable for the 2020 fiscal year) for each of Mark Duff, Ben Naccarato, Dr. Louis Centofanti,
and Andy Lombardo. Additionally, the Compensation Committee and the Board approved a 2020 MIP for Richard Grondin on July 22,
2020 (which was effective January 1, 2020 and applicable for the 2020 fiscal year) (see discussion of each of the 2020 MIPs below
under “2020 MIPs”). The Employment Agreements for each of Mark Duff, Dr. Louis Centofanti, and Ben Naccarato replaced
existing employment agreements between the Company and each such individual originally entered into on September 8, 2017.
Each
of the Employment Agreements is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier terminated
by the Company or by the respective NEO. At the end of the Initial Term of each Employment Agreement, each Employment Agreement
will automatically be extended for one additional year, unless at least six months prior to the expiration of the Initial Term,
the Company or the respective NEO provides written notice not to extend the terms of the Employment Agreement.
Each
of the Employment Agreements provides that, if an NEO’s employment is terminated due to death/disability or for cause (as
defined in the agreements), the Company will pay to the NEO or to his estate an amount equal to the sum of any unpaid base salary,
accrued unused vacation time through the date of termination, any benefits due to the NEO under any employee benefit plan (the
“Accrued Amounts”) and any performance compensation payable pursuant to the MIP applicable to such NEO.
If
the NEO terminates his employment for “good reason” (as defined in the agreements) or is terminated by the Company
without cause (including any such termination for “good reason” or without cause within 24 months after a Change in
Control (as defined in the agreements), the Company will pay the NEO the Accrued Amounts, two years of full base salary, and two
times the performance compensation (under the NEO’s MIP) earned with respect to the fiscal year immediately preceding the
date of termination provided the performance compensation earned with respect to the fiscal year immediately preceding the date
of termination has not yet been paid. If performance compensation earned with respect to the fiscal year immediately preceding
the date of termination has been paid to the NEO, the NEO will be paid an additional year of the performance compensation earned
with respect to the fiscal year immediately preceding the date of termination. If the NEO terminates his employment for a reason
other than for good reason, the Company will pay to the executive an amount equal to the Accrued Amounts plus any performance
compensation payable pursuant to the MIP applicable to such NEO.
89
If
there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase the common stock held by
the NEO will immediately become exercisable in full commencing on the date of termination through the original term of the options.
In the event of the death of an NEO, all outstanding stock options to purchase common stock held by the NEO will immediately become
exercisable in full commencing on the date of death, with such options exercisable for the lesser of the original option term
or twelve months from the date of the NEO’s death. In the event an NEO terminates his employment for “good reason”
or is terminated by the Company without cause, all outstanding stock options to purchase common stock held by the NEO will immediately
become exercisable in full commencing on the date of termination, with such options exercisable for the lesser of the original
option term or within 60 days from the date of the NEO’s date of termination. Severance benefits payable with respect to
a termination (other than Accrued Amounts) shall not be payable until the termination constitutes a “separation from service”
(as defined under Treasury Regulation Section 1.409A-1(h)).
Potential
Payments
The
following table sets forth the potential (estimated) payments and benefits to which each NEO would be entitled upon termination
of employment or following a Change in Control of the Company, as specified under each of their respective Employment Agreements
with the Company, assuming each circumstance described below occurred on December 31, 2020, the last day of our most recent fiscal
year.
Name
and Principal Position
Potential
Payment/Benefit
Disability/
Retirement
For
Cause
Death
By
Executive for
Good
Reason or by
Company
Without
Cause
Change
in Control
of
the Company
Mark
Duff
President
and CEO
Accrued
Amounts
$ 24,163 (6)
$ 24,163 (6)
$ 24,163 (6)
$ 712,963 (1)
$ 712,963 (1)
Performance
compensation
$ 107,010 (2)
$ 107,010 (2)
$ 107,010 (2)
$ 214,020 (3)
$ 214,020 (3)
Stock
Options
$ 253,300 (5)
$ 253,300 (5)
$ 402,500 (4)
$ 402,500 (4)
$ 402,500 (4)
Ben
Naccarato
EVP
and CFO
Accrued
Amounts
$ 54,762 (6)
$ 54,762 (6)
$ 54,762 (6)
$ 614,762 (1)
$ 614,762 (1)
Performance
compensation
$ 86,000 (2)
$ 86,000 (2)
$ 86,000 (2)
$ 172,000 (3)
$ 172,000 (3)
Stock
Options
$ 78,060 (5)
$ 78,060 (5)
$ 158,300 (4)
$ 158,300 (4)
$ 158,300 (4)
Dr.
Louis Centofanti
EVP
of Strategic Initiatives
Accrued
Amounts
$ 166,967 (6)
$ 166,967 (6)
$ 166,967 (6)
$ 633,639 (1)
$ 633,639 (1)
Performance
compensation
$ 71,668 (2)
$ 71,668 (2)
$ 71,668 (2)
$ 143,336 (3)
$ 143,336 (3)
Stock
Options
$ 78,060 (5)
$ 78,060 (5)
$ 158,300 (4)
$ 158,300 (4)
$ 158,300 (4)
Andy
Lombardo
EVP
of Nuclear and Technical Services
Accrued
Amounts
$ 19,276 (6)
$ 19,276 (6)
$ 19,276 (6)
$ 579,276 (1)
$ 579,276 (1)
Performance
compensation
$ 83,000 (2)
$ 83,000 (2)
$ 83,000 (2)
$ 166,000 (3)
$ 166,000 (3)
Stock
Options
$ 9,480 (5)
$ 9,480 (5)
$ 51,000 (4)
$ 51,000 (4)
$ 51,000 (4)
Richard
Grondin
EVP
of Waste Treatment Operations
Accrued
Amounts
$ 91,201 (6)
$ 91,201 (6)
$ 91,201 (6)
$ 571,201 (1)
$ 571,201 (1)
Performance
compensation
$ 71,143 (2)
$ 71,143 (2)
$ 71,143 (2)
$ 142,286 (3)
$ 142,286 (3)
Stock
Options
$ 34,080 (5)
$ 34,080 (5)
$ 75,600 (4)
$ 75,600 (4)
$ 75,600 (4)
(1)
Represents
two times the base salary of the NEO at December 31, 2020 plus “Accrued Amounts” noted in footnote (6) below.
(2)
Represents
performance compensation earned for fiscal year 2020 (see “2020 MIPs” below). Pursuant to each MIP, performance
compensation is to be paid about 90 days after year-end, or sooner based on final Form 10-K filing.
(3)
Represents
two times the performance compensation earned for fiscal year 2020 (see “2020 MIPs” below). Pursuant to the MIP,
performance compensation is to be paid about 90 days after fiscal year-end, or sooner based on final Form 10-K filing.
(4)
Benefit
is calculated based on the difference between the exercise price of each option and the market value of the Company’s
Common Stock per share (as reported on the NASDAQ) at December 31, 2020 times the number of options outstanding at December
31, 2020.
90
(5)
Benefit
is calculated based on the difference between the exercise price of each option and the market value of the Company’s
Common Stock per share (as reported on the NASDAQ) at December 31, 2020 times the number of options vested at December 31,
2020.
(6)
Represents
accrued base salary earned for 2020 but paid in 2021, as well as accrued unused vacation/sick time and benefits (defined as
“Accrued Amounts” in each of the respective per the Employment Agreement).
2020
Executive Compensation Components
For
the fiscal year ended December 31, 2020, the principal components of compensation for executive officers were:
●
base
salary;
●
performance-based
incentive compensation;
●
long
term incentive compensation;
●
retirement
and other benefits; and
●
perquisites.
Based
on the amounts set forth in the Summary Compensation table, during 2020, salary accounted for approximately 69.7% of the total
compensation of our NEOs, while equity option awards, MIP compensation, and other compensation accounted for approximately 30.3%
of the total compensation of the NEOs.
Base
Salary
The
NEOs, other officers, and other employees of the Company receive a base annual salary. Base salary ranges for executive officers
are determined for each executive based on his or her position and responsibility by using market data and comparisons to companies
in similar industry.
During
its review of base salaries for executives, the Compensation Committee primarily considers:
●
market
data and comparisons to companies in similar industry;
●
internal
review of the executive’s compensation, both individually and relative to other officers; and
●
individual
performance of the executive.
Salary
levels are typically considered annually as part of the performance review process as well as upon a promotion or other change
in job responsibility. Merit-based salary increases for executives are based on the Compensation Committee’s assessment
of the individual’s performance. The base salary and potential annual base salary adjustments for the NEOs are set forth
in their respective employment agreements. On January 16, 2020, the Compensation Committee and the Board approved a base salary
increase for each of the following individuals, which became effective January 1, 2020: (a) approximately $57,400 increase from
$287,000 to $344,400 for Mark Duff, CEO and President; (b) approximately $44,769 increase from $235,231 to $280,000 for Ben Naccarato
who was named EVP and CFO from VP and CFO; and (c) approximately $21,338 increase from $258,662 to $280,000 for Andy Lombardo,
who was named an executive officer of the Company effective January 16, 2020 and appointed to the position of EVP of Nuclear and
Technical Services from SVP of Nuclear and Technical Services. Lou Centofanti, EVP of Strategic Initiatives, was approved a base
salary increase of 1.9%, effective January 1, 2020 (from $228,985 to $233,336). As a result of Richard Grondin’s promotion
to EVP of Waste Treatment and being named an executive officer of the Company, his annual salary was increased from $208,000 as
the Vice President of Western Operations to $240,000, effective July 22, 2020. In February 2021, the Compensation Committee approved
a cost of living adjustment of approximately 2.3% of each NEO’s base salary, effective April 1, 2021.
Performance-Based
Incentive Compensation
The
Compensation Committee has the latitude to design cash and equity-based incentive compensation programs to promote high performance
and achievement of our corporate objectives by directors and the NEOs, encourage the growth of stockholder value and enable employees
to participate in our long-term growth and profitability. The Compensation Committee may grant stock options and/or performance
bonuses. In granting these awards, the Compensation Committee may establish any conditions or restrictions it deems appropriate.
In addition, the CEO has discretionary authority to grant stock options to certain high-performing executives or officers, subject
to the approval of the Compensation Committee. The exercise price for each stock option granted is at or above the market price
of our Common Stock on the date of grant. Stock options may be awarded to newly hired or promoted executives at the discretion
of the Compensation Committee. Grants of stock options to eligible newly hired executive officers are generally made at the next
regularly scheduled Compensation Committee meeting following the hire date.
91
2020
MIPs
On
January 16, 2020, the Board and the Compensation Committee approved individual MIPs for the CEO, CFO, EVP of Strategic Initiatives
and EVP of Nuclear and Technical Services. Additionally, on July 22, 2020, the Board and the Compensation Committee approved a
MIP for the EVP of Treatment Waste Operations in connection with his appointment to such position on that date. The MIPs were
effective January 1, 2020 and applicable for the 2020 fiscal year. Each MIP provides guidelines for the calculation of annual
cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awarded cash compensation
based on achievement of performance thresholds, with the amount of such compensation established as a percentage of the executive’s
2020 annual base salary. The potential target performance compensation ranged from 5% to 150% of the base salary for the CEO ($17,220
to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic
Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000)
and 5% to 100% of the base salary for the EVP of Waste Treatment Operations ($12,000 to $240,000).
Performance
compensation, if any, is to be paid on or about 90 days after year-end, or sooner, based on final Form 10-K filing. The Compensation
Committee retains the right to modify, change or terminate each MIP and may adjust the various target amounts described below,
at any time and for any reason.
The
total performance compensation paid to the CEO, CFO, EVP of Strategic Initiatives, EVP of Nuclear and Technical Services and EVP
of Waste Treatment Operations as a group is not to exceed 50% of the Company’s pre-tax net income computed prior to the
calculation of performance compensation.
The
following describes the principal terms of the respective 2020 MIP applicable to each NEO:
CEO
MIP:
CEO
performance compensation for fiscal 2020 was based upon meeting corporate revenue, EBITDA, health and safety, and environmental
compliance (permit and license violations) objectives for fiscal 2020, all with respect to the Company’s operations. The
Compensation Committee believes performance compensation payable under each of the 2020 MIPs as discussed herein and below should
be based on achievement of an EBITDA target, which excludes certain non-cash items, as this target provides a better indicator
of operating performance. However, EBITDA has certain limitations as it does not reflect all items of income or cash flows that
affect the Company’s financial performance under GAAP. At achievement of 60% to 110% of each of the revenue and EBITDA targets,
the potential performance compensation was payable at 5% to 50% of the 2020 base salary, weighted 60% based on the EBITDA goal,
10% on the revenue goal, and 15% on the number of health and safety claim incidents that occurred during fiscal 2020, with the
remaining 15% on the number of notices alleging environmental, health or safety violations under our permits or licenses that
occurred during the fiscal 2020. Upon achievement of 111% to 150%+ of each of the revenue and EBITDA targets, the potential performance
compensation was payable at 75% to 150% of the CEO’s 2020 base salary, based on the four objectives noted above, with the
payment of such performance compensation weighted more heavily toward the EBITDA objective. Each of the revenue and EBITDA components
was based on the Board-approved revenue target and EBITDA target. The 2020 target performance incentive compensation for the CEO
was as follows:
Annualized
Base Pay:
$ 344,400
Performance
Incentive Compensation Target (at 100% of Plan):
$ 172,200
Total
Annual Target Compensation (at 100% of Plan):
$ 516,600
92
Perma-Fix
Environmental Serivces, Inc.
2020
Management Incentive Plan
CEO
MIP MATRIX
Performance
Target Achieved
<60%
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
Revenue
(1) (5)
$ -
$ 1,722
$ 8,610
$ 17,220
$ 29,520
$ 41,820
$ 66,420
EBITDA
(2)
-
10,332
51,660
103,320
177,120
250,920
398,520
Health
& Safety (3) (5)
-
2,583
12,915
25,830
25,830
25,830
25,830
Permit
& License Violations (4) (5)
-
2,583
12,915
25,830
25,830
25,830
25,830
$ -
$ 17,220
$ 86,100
$ 172,200
$ 258,300
$ 344,400
$ 516,600
1)
Revenue
was defined as the total consolidated third-party top line revenue as publicly reported in the Company’s 2020 financial
statements. The percentage achieved was determined by comparing the actual consolidated revenue for 2020 to the Board approved
Revenue Target for 2020, which was $86,201,000. The Board reserved the right to modify or change the Revenue Targets as defined
herein in the event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
2)
EBITDA
was defined as earnings before interest, taxes, depreciation, and amortization from continuing and discontinued operations,
including PF Medical. The percentage achieved was determined by comparing the actual EBITDA to the Board approved EBITDA Target
for 2020, which was $6,913,000. The Board reserved the right to modify or change the EBITDA Targets as defined herein in the
event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
3)
The
Health and Safety Incentive Target was based upon the actual number of Worker’s Compensation Lost Time Accidents, as
provided by the Company’s Worker’s Compensation carrier. The Corporate Controller submitted a report on a quarterly
basis documenting and confirming the number of Worker’s Compensation Lost Time Accidents, supported by the Worker’s
Compensation Loss Report provided by the company’s carrier or broker. Such claims were identified on the loss report
as “indemnity claims.” The following number of Worker’s Compensation Lost Time Accidents and corresponding
Performance Target Thresholds was established for the annual Incentive Compensation Plan calculation for 2020.
Work
Comp.
Claim Number
Performance
Target Achieved
4
60%-74 %
3
75%-89 %
2
90%-110 %
1
111%-129 %
1
130%-150 %
1
>150 %
4)
Permits
or License Violations incentive was earned/determined according to the scale set forth below: An “official notice of
non-compliance” was defined as an official communication during 2020 from a local, state, or federal regulatory authority
alleging one or more violations of an otherwise applicable Environmental, Health or Safety requirement or permit provision,
which resulted in a facility’s implementation of corrective action(s).
93
Permit
and
License Violations
Performance
Target Achieved
4
60%-74 %
3
75%-89
%
2
90%-110 %
1
111%-129 %
1
130%-150 %
1
>150 %
5)
No
performance incentive compensation was payable for achieving the health and safety, permit and license violation, and revenue
targets unless a minimum of 60% of the EBITDA Target was achieved.
CFO
MIP:
CFO
performance compensation for fiscal 2020 was based upon meeting corporate revenue, EBITDA, health and safety, and environmental
compliance (permit and license violations) objectives for fiscal 2020, all with respect to the Company’s operations. At
achievement of 60% to 110% of each of the revenue and EBITDA targets, the potential performance compensation was payable at 5%
to 50% of the 2020 base salary, weighted 75% based on EBITDA goal, 10% on the revenue goal, and 7.5% on the number of health and
safety claim incidents that occurred during fiscal 2020, with the remaining 7.5% on the number of notices alleging environmental,
health or safety violations under our permits or licenses that occurred during the fiscal 2020. Upon achievement of 111% to 150%+
of each of the revenue and EBITDA targets, the potential performance compensation was payable at 65% to 100% of the CFO’s
2020 base salary, based on the four objectives noted above, with the payment of such performance compensation weighted more heavily
toward the EBITDA objective. Each of the revenue and EBITDA components was based on the Board-approved revenue target and EBITDA
target. The 2020 target performance incentive compensation for the CEO was as follows:
Annualized
Base Pay:
$ 280,000
Performance
Incentive Compensation Target (at 100% of Plan):
$ 140,000
Total
Annual Target Compensation (at 100% of Plan):
$ 420,000
94
Perma-Fix
Environmental Serivces, Inc.
2020
Management Incentive Plan
CFO
MIP MATRIX
Performance
Target Achieved
<60%
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
Revenue
(1) (5)
$ -
$ 1,400
$ 7,000
$ 14,000
$ 23,000
$ 31,000
$ 37,000
EBITDA
(2)
-
10,500
52,500
105,000
138,000
186,000
222,000
Health
& Safety (3) (5)
-
1,050
5,250
10,500
10,500
10,500
10,500
Permit
& License Violations (4) (5)
-
1,050
5,250
10,500
10,500
10,500
10,500
$ -
$ 14,000
$ 70,000
$ 140,000
$ 182,000
$ 238,000
$ 280,000
1)
Revenue
was defined as the total consolidated third-party top line revenue as publicly reported in the Company’s 2020 financial
statements. The percentage achieved was determined by comparing the actual consolidated revenue for 2020 to the Board approved
Revenue Target for 2020, which was $86,201,000. The Board reserved the right to modify or change the Revenue Targets as defined
herein in the event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
2)
EBITDA
was defined as earnings before interest, taxes, depreciation, and amortization from continuing and discontinued operations,
including PF Medical. The percentage achieved was determined by comparing the actual EBITDA to the Board approved EBITDA Target
for 2020, which was $6,913,000. The Board reserved the right to modify or change the EBITDA Targets as defined herein in the
event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
3)
The
Health and Safety Incentive Target was based upon the actual number of Worker’s Compensation Lost Time Accidents, as
provided by the Company’s Worker’s Compensation carrier. The Corporate Controller submitted a report on a quarterly
basis documenting and confirming the number of Worker’s Compensation Lost Time Accidents, supported by the Worker’s
Compensation Loss Report provided by the company’s carrier or broker. Such claims were identified on the loss report
as “indemnity claims.” The following number of Worker’s Compensation Lost Time Accidents and corresponding
Performance Target Thresholds was established for the annual Incentive Compensation Plan calculation for 2020.
Work
Comp.
Claim
Number
Performance
Target
Achieved
4
60%-74 %
3
75%-89 %
2
90%-110 %
1
111%-129 %
1
130%-150 %
1
>150 %
4)
Permits
or License Violations incentive was earned/determined according to the scale set forth below: An “official notice of
non-compliance” was defined as an official communication during 2020 from a local, state, or federal regulatory authority
alleging one or more violations of an otherwise applicable Environmental, Health or Safety requirement or permit provision,
which resulted in a facility’s implementation of corrective action(s).
Permit
and
License Violations
Performance
Target Achieved
4
60%-74 %
3
75%-89
%
2
90%-110 %
1
111%-129
%
1
130%-150
%
1
>150 %
5)
No
performance incentive compensation was payable for achieving the health and safety, permit and license violation, and revenue
targets unless a minimum of 60% of the EBITDA Target was achieved.
EVP
of Strategic Initiatives MIP:
The
2020 performance compensation plan for the EVP of Strategic Initiative was based upon meeting corporate revenue, EBITDA, health
and safety, and environmental compliance (permit and license violations) objectives for fiscal 2020, all with respect to the Company’s
operations. At achievement of 60% to 110% of each of the revenue and EBITDA targets, the potential performance compensation was
payable at 5% to 50% of the 2020 base salary, weighted 75% based on EBITDA goal, 10% on revenue goal, and 7.5% on the number of
health and safety claim incidents that occurred during fiscal 2020, with the remaining 7.5% on the number of notices alleging
environmental, health or safety violations under our permits or licenses that occurred during fiscal 2020. Upon achievement of
111% to 150%+ of each of the revenue and EBITDA targets, the potential performance compensation was payable at 65% to 100% of
the EVP of Strategic Initiative’s 2020 base salary, based on the four objectives noted above, with the payment of such performance
compensation weighted more heavily toward the EBITDA objective. Each of the revenue and EBITDA components was based on the Board-approved
revenue target and EBITDA target. The 2020 target performance incentive compensation for the EVP of Strategic Initiatives was
as follows:
Annualized
Base Pay:
$ 233,336
Performance
Incentive Compensation Target (at 100% of Plan):
$ 116,668
Total
Annual Target Compensation (at 100% of Plan):
$ 350,004
95
Perma-Fix
Environmental Serivces, Inc.
2020
Management Incentive Plan
EVP
OF STRATEGIC INITIATIVES MIP MATRIX
Performance
Target Achieved
<60%
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
Revenue
(1) (5)
$ -
$ 1,167
$ 5,833
$ 11,667
$ 19,167
$ 25,834
$ 30,834
EBITDA
(2)
-
8,750
43,751
87,501
115,001
155,002
185,002
Health
& Safety (3) (5)
-
875
4,375
8,750
8,750
8,750
8,750
Permit
& License Violations (4) (5)
-
875
4,375
8,750
8,750
8,750
8,750
$ -
$ 11,667
$ 58,334
$ 116,668
$ 151,668
$ 198,336
$ 233,336
1)
Revenue
was defined as the total consolidated third-party top line revenue as publicly reported in the Company’s 2020 financial
statements. The percentage achieved was determined by comparing the actual consolidated revenue for 2020 to the Board approved
Revenue Target for 2020, which was $86,201,000. The Board reserved the right to modify or change the Revenue Targets as defined
herein in the event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
2)
EBITDA
was defined as earnings before interest, taxes, depreciation, and amortization from continuing and discontinued operations,
including PF Medical. The percentage achieved was determined by comparing the actual EBITDA to the Board approved EBITDA Target
for 2020, which was $6,913,000. The Board reserved the right to modify or change the EBITDA Targets as defined herein in the
event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
3)
The
Health and Safety Incentive Target was based upon the actual number of Worker’s Compensation Lost Time Accidents, as
provided by the Company’s Worker’s Compensation carrier. The Corporate Controller submitted a report on a quarterly
basis documenting and confirming the number of Worker’s Compensation Lost Time Accidents, supported by the Worker’s
Compensation Loss Report provided by the company’s carrier or broker. Such claims were identified on the loss report
as “indemnity claims.” The following number of Worker’s Compensation Lost Time Accidents and corresponding
Performance Target Thresholds was established for the annual Incentive Compensation Plan calculation for 2020.
Work
Comp.
Claim
Number
Performance
Target
Achieved
4
60%-74 %
3
75%-89 %
2
90%-110 %
1
111%-129 %
1
130%-150 %
1
>150 %
96
4)
Permits
or License Violations incentive was earned/determined according to the scale set forth below: An “official notice of
non-compliance” was defined as an official communication during 2020 from a local, state, or federal regulatory authority
alleging one or more violations of an otherwise applicable Environmental, Health or Safety requirement or permit provision,
which resulted in a facility’s implementation of corrective action(s).
Permit
and
License Violations
Performance
Target Achieved
4
60%-74 %
3
75%-89
%
2
90%-110 %
1
111%-129 %
1
130%-150 %
1
>150 %
5)
No
performance incentive compensation was payable for achieving the health and safety, permit and license violation, and revenue
targets unless a minimum of 60% of the EBITDA Target was achieved.
EVP
of Nuclear and Technical Services MIP:
The
2020 performance compensation plan for the EVP of Nuclear and Technical Services was based upon meeting corporate revenue, EBITDA,
health and safety compliance, and Cost Performance Index (“CPI”) (a metric used in measuring project performance)
objectives for fiscal 2020, all with respect to the Company’s operations. At achievement of 60% to 110% of each of the revenue
and EBITDA targets, the potential performance compensation was payable at 5% to 50% of the 2020 base salary, weighted 60% based
on the EBITDA goal, 10% on the revenue goal, and 15% on the number of health and safety claim incidents that occur during fiscal
2020, with the remaining 15% on CPI metric goals. Upon achievement of 111% to 150%+ of each of the revenue and EBITDA targets,
the potential performance compensation was payable at 65% to 100% of the SVP of Nuclear and Technical Services’ 2020 base
salary, based on the four objectives noted above, with the payment of such performance compensation weighted more heavily toward
the EBITDA objective. Each of the revenue and EBITDA components was based on the Board-approved revenue target and the EBITDA
target. The 2020 target performance incentive compensation for the EVP of Nuclear and Technical Services was as follows:
Annualized
Base Pay:
$ 280,000
Performance
Incentive Compensation Target (at 100% of Plan):
$ 140,000
Total
Annual Target Compensation (at 100% of Plan):
$ 420,000
97
Perma-Fix
Environmental Serivces, Inc.
2020
Management Incentive Plan
EVP
OF NUCLEAR & TECHNICAL SERVICES MIP MATRIX
Performance
Target Achieved
<60%
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
Revenue
(1) (5)
$ -
$ 1,400
$ 7,000
$ 14,000
$ 20,000
$ 28,000
$ 34,000
EBITDA
(2)
-
8,400
42,000
84,000
120,000
168,000
204,000
Health
& Safety (3) (5)
-
2,100
10,500
21,000
21,000
21,000
21,000
CPI
(4) (5)
-
2,100
10,500
21,000
21,000
21,000
21,000
$ -
$ 14,000
$ 70,000
$ 140,000
$ 182,000
$ 238,000
$ 280,000
1)
Revenue
was defined as the total consolidated third-party top line revenue as publicly reported in the Company’s 2020 financial
statements. The percentage achieved was determined by comparing the actual consolidated revenue for 2020 to the Board approved
Revenue Target for 2020, which was $86,201,000. The Board reserved the right to modify or change the Revenue Targets as defined
herein in the event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
2)
EBITDA
was defined as earnings before interest, taxes, depreciation, and amortization from continuing and discontinued operations,
including PF Medical. The percentage achieved was determined by comparing the actual EBITDA to the Board approved EBITDA Target
for 2020, which was $6,913,000. The Board reserved the right to modify or change the EBITDA Targets as defined herein in the
event of the sale or disposition of any of the assets of the Company or in the event of an acquisition.
3)
The
Health and Safety Incentive target was based upon the actual number of Worker’s Compensation Lost Time Accidents in
the Company’s Services Segment, as provided by the Company’s Worker’s Compensation carrier. The Corporate
Controller submitted a report on a quarterly basis documenting and confirming the number of Worker’s Compensation Lost
Time Accidents, supported by the Worker’s Compensation Loss Report provided by the company’s carrier or broker.
Such claims were identified on the loss report as “indemnity claims.” The following number of Worker’s Compensation
Lost Time Accidents and corresponding Performance Target Thresholds was established for the annual Incentive Compensation
Plan calculation for 2020.
Work
Comp.
Claim Number
Performance
Target Achieved
4
60%-74 %
3
75%-89 %
2
90%-110 %
1
111%-129 %
1
130%-150 %
1
>150 )%
98
4)
CPI
incentive was earned/determined by maintaining project performance metrics for all Firm Fixed Price task orders and projects
to include monitoring CPI based on recognized earned value calculations. As defined through monthly project reviews, all CPI
metrics should exceed 1.0 for Nuclear Services Projects. A cumulative CPI (CCPI) was calculated from all fixed cost contracts.
The following CCPI and corresponding Performance Target Thresholds were established for annual incentive compensation plan
calculation for 2020.
CPI
(if CCPI is)
Performance
Target
Achieved
<.0.60
(n/a)
0.60-0.74
60%-74 %
0.75-0.89
75%-89 %
0.90-1.10
90%-110 %
1.11-1.29
111%-129 %
1.30-1.50
130%-150 %
>1.50
>150 %
5)
No
performance incentive compensation was payable for achieving the health and safety, and CPI, and revenue targets unless a
minimum of 60% of the EBITDA Target was achieved.
EVP
of Waste Treatment Operations:
The
2020 performance compensation plan for the EVP of Waste Treatment Operations was based upon meeting corporate revenue, EBITDA,
health and safety, and environmental compliance (permit and license violations) objectives for fiscal 2020, all with respect to
the Company’s operations. At achievement of 60% to 110% of each of the revenue and EBITDA targets, the potential performance
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