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. Our Treatment Segment’s revenue has been negatively impacted by continued waste shipment delays from
certain customers since the latter part of the first quarter of 2020 at the start of the pandemic. Within our Services Segment, we experienced
delays in procurement actions and contract awards in the first half of 2021 and work under certain new projects won in the second half
of 2021 was curtailed/delayed from the impact of COVID-19, among other things. At this time, we expect waste shipment receipts to improve
starting in the second quarter of 2022 as certain of our customers reinstates return-to-work schedules and activities under project to
start ramping up as the impact of COVID-19 starts to ease up. However, the severity of the impact the COVID-19 pandemic on our business
will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, impact from emergence of
potential new variants of the virus, the extent and severity of the impact on our customers, the impact on governmental programs and
budgets, and how quickly and to what extent normal economic and operating conditions resume, all of which are uncertain and cannot be
predicted with any accuracy or confidence at this time. Our future results of operations and liquidity could be adversely impacted from
the continued impact of COVID-19, including continued delays in waste shipments and contract awards, and/or occurrence of project work
shut downs by our customers or us.
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.
Further
supply chain constraints may negatively impact our operations and our financial results.
We
use various commercially available materials and supplies which include among other things chemicals, containers/drums and personal protection
equipment (“PPE”) in our operations. We generally source these items from various suppliers in order to take advantage of
competitive pricing.
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We
also utilize various types of equipment, which include among other things trucks, flatbeds, lab equipment, heavy machineries, in carrying
out our business operations. Our equipment may be obtained through direct purchase, rental option or leases. Within our Services Segment,
equipment required for projects are often provided by our subcontractors as part of our contract agreement with the subcontractor. Due
to some of our specialized waste treatment processes, certain equipment that we utilize are designed and built to our specifications.
We rely on various commercial equipment suppliers for the construction of these equipment. Due to recent supply chain constraints, we
experienced a delay in the delivery of a new waste processing unit to us by our supplier due to shortage of parts required for the construction
of the unit, among other things. Delivery of this unit was expected during the third quarter of 2021 but did not occur until the first
quarter of 2022. The supply chain interruption delayed deployment of our new technology which negatively impacted our revenue for 2021
as associated revenue was not able to be generated. Continued increases in pricing and/or potential delays in procurements of material
and supplies and equipment required for our operations resulting from further tightening supply chain could further adversely affect
our operations and profitability.
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 $60,812,000, or 84.2%, and $96,582,000, or 91.6%, of our consolidated revenues for
2021 and 2020, respectively. Project work under contracts/task order agreements with Canadian government authorities has substantially
been completed. 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. Contracts with,
or subcontracts involving, the U.S federal government are generally terminable for convenience at any time at the option of the governmental
agency. The contracts/TOAs that we are a party to with Canadian governmental authorities also generally provide that the government authorities
may terminate the contracts/TOAs at any time for any reason for convenience. 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.
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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.
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 our nuclear waste. Currently, there are only four commercial disposal
sites for our low-level radioactive waste and four commercial disposal sites for our very low-level activity waste we receive from non-governmental
sites, allowing us to take advantage of the pricing competition between these sites. If one or more of these commercial 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.
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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, regional firms and some international 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,
continued supply chain interruptions, 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 COVID-19, 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.
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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.
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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 could 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 could 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.
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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.
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. We failed to meet our quarterly fixed charge coverage ratio (“FCCR”) requirement for
the second and fourth quarters of 2021; however, our lender waived these instances of non-compliance. We were not required to perform
testing of our FCCR in the third quarter of 2021. As a result of a recent amendment to our credit facility, our lender has removed the
FCCR testing requirement for the first quarter of 2022 and revised the methodology to be used in calculating the FCCR for the second
to the fourth quarters of 2022. Additionally, in the past, when we also failed to meet our minimum 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 approved that testing of the FCCR is not required in certain quarters. 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 and/or operate our business.
Our
debt and borrowing availability under our credit facility could adversely affect our operations.
At
December 31, 2021, our aggregate consolidated debt was approximately $993,000. 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 has or may impose from time to time. At December 31,
2021, we had no borrowing under the revolving part of our credit facility and borrowing availability of up to an additional $8,692,000.
As a result of a recent amendment to our credit facility, we are required to maintain a minimum of $3,000,000 in borrowing availability
under the revolving credit until the minimum FCCR requirement for the quarter ended June 30, 2022 has been met and certified to our lender.
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, including the impact of COVID-19.
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;
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● 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.
We
may be unable to utilize loss carryforwards in the future.
We
have approximately $19,920,000 and $72,767,000 in net operating loss carryforwards for federal and state income tax purposes,
respectively and expires in various amounts starting in 2021 if not used against future federal and state income tax liabilities, respectively.
Approximately $19,725,000 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.
Risks
Relating to our Common Stock
Issuance
of substantial amounts of our Common Stock could depress our stock price or dilute the percentage ownership of our Common Stockholders.
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, 2021, we had 13,214,910 shares of Common Stock outstanding. In addition, at December 31, 2021, we had outstanding options to purchase
1,019,400 shares of our Common Stock at exercise prices ranging from $2.79 to $7.50 per share and an outstanding warrant to purchase
60,000 shares of our Common Stock at exercise price of $3.51 per share. 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.
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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
(especially in the current labor market environment) 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.
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, legislators and the public. 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.
15
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. As a result
of this assessment for the year ending December 31, 2021, management concluded that a material weakness existed in internal control over financial reporting related to the application of ASC 606, “Revenue from Contracts with Customers,”
specifically to contracts that contain nonstandard terms and conditions (see “Item 9A – Controls and Procedures” for
a discussion of this material weakness and our remediation plan). If we fail to remediate this material weakness, 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 15,698,048 (which include shares issuable under outstanding options to purchase 1,019,400 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, 2021. 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.
16
Third
party expectations relating to Environment, Social and Governance (“ESG”) factors may impose additional costs and expose
us and our clients to new risks.
We
have renewed our commitment and focus on sustainability and ESG efforts. There is an increasing focus from certain investors and certain
of our customers, and other stakeholders concerning corporate responsibility, specifically related to ESG factors. Some investors may
use these factors to guide their investment strategies and, in some cases, may choose not to invest in us, or otherwise do business with
us, if they believe our policies relating to corporate responsibility are inadequate or do not align with theirs. Third party providers
of corporate responsibility ratings and reports on companies have increased in number, resulting in varied standards. In addition, the
criteria by which companies’ corporate responsibility practices are assessed are evolving, which could result in greater expectations
of us and cause us to undertake costly initiatives to satisfy such new criteria. Alternatively, if we elect not to or are unable to satisfy
such new criteria or do not meet the criteria of a specific third party provider, some investors may conclude that our policies with
respect to corporate responsibility are inadequate. We may face reputational damage in the event that our corporate responsibility procedures
or standards do not meet the standards set by various constituencies. If we fail to satisfy the expectations of investors, our customers
and other stakeholders or our initiatives are not executed as planned, our reputation and financial results could be adversely affected
and our revenues, results of operations and ability to grow our business may be negatively impacted. Additionally, new legislative or
regulatory initiatives related to ESG could adversely affect our business.
Our
profitability is vulnerable to inflation and cost increases.
Increases
in any of our operating costs, including changes in fuel prices (which impacts our transportation cost), wage rates, supplies, and utility
costs, may increase our overall cost of goods sold or operating expenses. These cost increases may be the result of inflationary pressures
that could further reduce profitability. Competitive pressures in our industry may have the effect of inhibiting our ability to reflect
these increased costs in the prices of our services provided to our customers and therefore reduce our profitability.
ITEM
1B.
UNRESOLVED
STAFF COMMENTS
Not
Applicable.