Item 1A. Risk Factors
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.
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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.
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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.
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