PERMA FIX ENVIRONMENTAL SERVICES INC - Quarter Report: 2016 September (Form 10-Q)

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		September 30,				December 31,
		2016				2015
(Amounts in Thousands, Except for Share and per Share Amounts)		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash		$	145			$	1,435
Restricted cash			—				99
Accounts receivable, net of allowance for doubtful accounts of $252 and $1,474, respectively			9,824				9,673
Unbilled receivables - current			3,337				4,569
Inventories			332				377
Prepaid and other assets			3,009				3,929
Current assets related to discontinued operations			86				34
Total current assets			16,733				20,116
Property and equipment:
Buildings and land			22,545				20,209
Equipment			33,296				35,191
Vehicles			413				422
Leasehold improvements			11,626				11,626
Office furniture and equipment			1,755				1,755
Construction-in-progress			565				497
			70,200				69,700
Less accumulated depreciation			(52,276	)			(49,707	)
Net property and equipment			17,924				19,993
Property and equipment related to discontinued operations			81				531
Intangibles and other long term assets:
Permits			8,488				16,761
Other intangible assets - net			1,798				2,066
Accounts receivable - non-current			324				—
Unbilled receivables – non-current			131				707
Finite risk sinking fund			21,456				21,380
Other assets			1,232				1,359
Other assets related to discontinued operations			286				—
Total assets		$	68,453			$	82,913

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		September 30,				December 31,
		2016				2015
(Amounts in Thousands, Except for Share and per Share Amounts)		(Unaudited)				(Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	4,789			$	6,109
Accrued expenses			4,987				4,341
Disposal/transportation accrual			1,354				1,107
Deferred revenue			2,459				2,631
Current portion of long-term debt			1,194				1,481
Current portion of long-term debt - related party			—				950
Current liabilities related to discontinued operations			477				531
Total current liabilities			15,260				17,150
Accrued closure costs			7,547				5,301
Other long-term liabilities			915				867
Deferred tax liabilities			2,329				5,424
Long-term debt, less current portion			9,425				7,405
Long-term liabilities related to discontinued operations			986				1,064
Total long-term liabilities			21,202				20,061
Total liabilities			36,462				37,211
Commitments and Contingencies (Note 8)
Series B Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share plus accrued and unpaid dividends of $915 and $867, respectively			1,285				1,285
Stockholders' Equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding			—				—
Common Stock, $.001 par value; 30,000,000 shares authorized; 11,664,404 and 11,551,232 shares issued, respectively; 11,656,762 and 11,543,590 shares outstanding, respectively			11				11
Additional paid-in capital			105,959				105,556
Accumulated deficit			(74,438	)			(60,808	)
Accumulated other comprehensive loss			(129	)			(117	)
Less Common Stock in treasury, at cost; 7,642 shares			(88	)			(88	)
Total Perma-Fix Environmental Services, Inc. stockholders' equity			31,315				44,554
Non-controlling interest in subsidiary			(609	)			(137	)
Total stockholders' equity			30,706				44,417
Total liabilities and stockholders' equity		$	68,453			$	82,913

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Amounts in Thousands, Except for Per Share Amounts)		2016				2015				2016				2015
Net revenues		$	12,921			$	17,309			$	37,768			$	47,264
Cost of goods sold			11,114				12,363				34,111				36,809
Gross profit			1,807				4,946				3,657				10,455
Selling, general and administrative expenses			2,732				2,887				8,162				8,663
Research and development			441				583				1,570				1,500
Loss (gain) on disposal of property and equipment			12				(23	)			16				(23	)
Impairment loss on tangible assets			—				—				1,816				—
Impairment loss on intangible assets			—				—				8,288				—
(Loss) income from operations			(1,378	)			1,499				(16,195	)			315
Other income (expense):
Interest income			31				16				78				36
Interest expense			(101	)			(124	)			(377	)			(390	)
Interest expense-financing fees			(14	)			(56	)			(99	)			(171	)
Other			(1	)			2				20				12
(Loss) income from continuing operations before taxes			(1,463	)			1,337				(16,573	)			(198	)
Income tax expense (benefit)			37				53				(3,093	)			124
(Loss) income from continuing operations, net of taxes			(1,500	)			1,284				(13,480	)			(322	)
Loss from discontinued operations, net of taxes			(191	)			(377	)			(622	)			(1,313	)
Net (loss) income			(1,691	)			907				(14,102	)			(1,635	)
Net loss attributable to non-controlling interest			(135	)			(163	)			(472	)			(487	)
Net (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders		$	(1,556	)		$	1,070			$	(13,630	)		$	(1,148	)
Net (loss) income per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic and diluted:
Continuing operations		$	(.12	)		$	.12			$	(1.12	)		$	.01
Discontinued operations			(.01	)			(.03	)			(.06	)			(.11	)
Net (loss) income per common share		$	(.13	)		$	.09			$	(1.18	)		$	(.10	)
Number of common shares used in computing net (loss) income per share:
Basic			11,632				11,526				11,588				11,506
Diluted			11,632				11,561				11,588				11,542

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		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Amounts in Thousands)		2016				2015				2016				2015
Net (loss) income		$	(1,691	)		$	907			$	(14,102	)		$	(1,635	)
Other comprehensive income (loss):
Foreign currency translation income (loss)			5				(17	)			(12	)			(92	)
Comprehensive (loss) income			(1,686	)			890				(14,114	)			(1,727	)
Comprehensive loss attributable to non-controlling interest			(135	)			(163	)			(472	)			(487	)
Comprehensive (loss) income attributable to Perma-Fix Environmental Services, Inc. stockholders		$	(1,551	)		$	1,053			$	(13,642	)		$	(1,240	)

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(Amounts in thousands,		Common Stock								Additional Paid-In				Common Stock Stock Held In				Accumulated Other Comprehensive				Non- controlling Interest in				Accumulated				Total  Stockholders'
except for share amounts)		Shares				Amount				Capital				Treasury				Loss				Subsidiary				Deficit				Equity
Balance at December 31, 2015			11,551,232			$	11			$	105,556			$	(88	)		$	(117	)		$	(137	)		$	(60,808	)		$	44,417
Net loss			—				—				—				—				—				(472	)			(13,630	)			(14,102	)
Foreign currency translation			—				—				—				—				(12	)			—				—				(12	)
Issuance of Common Stock for services			43,172				—				178				—				—				—				—				178
Issuance of Common Stock upon exercise of Warrants			70,000				—				156				—				—				—				—				156
Stock-based compensation			—				—				69				—				—				—				—				69
Balance at September 30, 2016			11,664,404			$	11			$	105,959			$	(88	)		$	(129	)		$	(609	)		$	(74,438	)		$	30,706

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		Nine Months Ended
		September 30,
(Amounts in Thousands)		2016				2015
Cash flows from operating activities:
Net loss		$	(14,102	)		$	(1,635	)
Less: loss from discontinued operations, net of taxes of $0			(622	)			(1,313	)
Loss from continuing operations, net of taxes			(13,480	)			(322	)
Adjustments to reconcile loss from continuing operations to cash (used in) provided by operating activities:
Depreciation and amortization			2,986				2,821
Amortization of debt issuance costs			164				166
Deferred tax (benefit) expense			(3,095	)			107
Recovery of bad debt reserves			(336	)			(27	)
Loss (gain) on disposal of property and equipment			16				(23	)
Impairment loss on tangible assets			1,816				―
Impairment loss on intangible assets			8,288				―
Issuance of common stock for services			178				220
Stock-based compensation			69				62
Changes in operating assets and liabilities of continuing operations
Restricted cash			35				―
Accounts receivable			(140	)			(164	)
Unbilled receivables			1,808				1,354
Prepaid expenses, inventories and other assets			2,247				707
Accounts payable, accrued expenses and unearned revenue			(1,869	)			(3,404	)
Cash (used in) provided by continuing operations			(1,313	)			1,497
Cash used in discontinued operations			(710	)			(1,233	)
Cash (used in) provided by operating activities			(2,023	)			264
Cash flows from investing activities:
Purchases of property and equipment			(104	)			(338	)
Proceeds from sale of property and equipment			30				27
Proceeds from sale of SYA subsidiary			―				50
Payment to finite risk sinking fund			(76	)			(30	)
Cash used in investing activities of continuing operations			(150	)			(291	)
Proceeds from sale of property of discontinued operations			46				―
Cash used in investing activities			(104	)			(291	)
Cash flows from financing activities:
Repayments of revolving credit facility borrowings			(41,223	)			(49,476	)
Borrowing on revolving credit facility			44,137				49,783
Proceeds from issuance of common stock upon exercise of warrants/options			156				10
Proceeds from stock subscription - Perma-Fix Medical S.A.			64				971
Payment of debt issuance costs			(97	)			(13	)
Principal repayments of long term debt			(1,199	)			(1,742	)
Principal repayments of long term debt-related party			(1,000	)			(1,125	)
Cash provided by (used in) financing activities of continuing operations			838				(1,592	)
Effect of exchange rate changes on cash			(1	)			(63	)
Decrease in cash			(1,290	)			(1,682	)
Cash at beginning of period			1,435				3,680
Cash at end of period		$	145			$	1,998
Supplemental disclosure:
Interest paid		$	309			$	404
Income taxes paid			41				116
Proceeds from stock subscription for Perma-Fix Medical S.A. held in escrow			―				67

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1.	Basis of Presentation

 

The consolidated condensed financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the consolidated condensed financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2016.

 

The Company suggests that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company determined that the operations of its majority-owned Polish subsidiary, Perma-Fix Medical S.A. (“PF Medical”), which has not generated any revenues as it continues to be primarily in the research and development (“R&D”) stage, meets the definition of a reportable segment in accordance with Accounting Standards Codification (“ASC”) 280, “Segment Reporting.” Accordingly, as detailed on Note 10 – “Operating Segments,” all of the historical numbers presented in the consolidated financial statements have been recast to include the operations of PF Medical as a separate reportable segment (“Medical Segment”).

 

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

 

2.	Summary of Significant Accounting Policies

 

Our accounting policies are as set forth in the notes to the December 31, 2015 consolidated financial statements referred to above. During the first quarter of 2016, all of the restricted cash previously held in escrow at December 31, 2015 was released. Such amount represented $35,000 held in escrow for our worker’s compensation policy with the remaining representing proceeds held in escrow resulting from stock subscription agreements executed in connection with the sale of common stock by PF Medical in previous years.

 

Recently Adopted Accounting Standards

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge asset. It is effective for annual reporting periods beginning after December 15, 2015 (including interim reporting periods), but early adoption is permitted. The Company adopted ASU 2015-03 retroactively in the first quarter of 2016. The adoption of ASU 2015-03 did not have a material impact to the Company’s results of operations, cash flows or financial position. The adoption of ASU 2015-03 resulted in a decrease in prepaid and other assets of approximately $152,000, a decrease in current portion of long-term debt of $27,000, and a decrease in long-term debt, less current portion of $125,000 for the balances as of December 31, 2015 in the accompanying Consolidated Balance Sheets.

 

 

Recently Issued Accounting Standards – Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. The amendments in ASU 2014-09 require a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Subsequently, in August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date," that deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customer (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition. Early adoption is permitted for ASU 2014-09 and the related amendment to the original effective date of period beginning after December 15, 2016 (including interim reporting periods within those periods). The ASUs may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” ASU 2015-11 requires that inventory within the scope of this update be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update do not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2015-11 to have a material impact on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

 

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual periods beginning after December 15, 2016. The Company does not expect the adoption of ASU 2015-11 to have a material impact on our financial statements.

 

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provides clarification regarding how certain cash receipts and cash payment are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for years beginning after December 15, 2017, including interim periods, and will require adoption on a retrospective basis. Early adoption is permitted. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

3. East Tennessee Materials and Energy Corporation (“M&EC”) Facility

 

During the second quarter of 2016, the Company’s M&EC subsidiary was notified by the lessor that the lease agreement which M&EC currently operates its Oak Ridge, Tennessee facility would not be renewed at the end of the current lease term ending January 21, 2018. In light of this event and our strategic review of operations within our Treatment Segment, the Company is proceeding with a plan to shut down its M&EC facility located in Oak Ridge, Tennessee at the end of the lease term. Operations at the M&EC facility are continuing during the remaining term of the lease and the facility has begun the process of transitioning waste shipments and operational capabilities to our other Treatment Segment facilities, subject to customer requirements and regulatory approvals. Simultaneously, the Company has begun required clean-up/maintenance procedures at M&EC’s Oak Ridge, Tennessee facility in accordance with M&EC’s Resource Conservation and Recovery Act (“RCRA”) permit requirements. As a result of the Company’s decision to shut down its M&EC facility, the Company’s financial results were impacted by certain non-cash impairment losses, write-offs and accruals as described below.

 

The Company performs its annual intangible test as of October 1 of each year. As permitted by ASC 350, “Intangibles-Goodwill and Other,” when an impairment indicator arises during an interim reporting period, the Company may recognize its best estimates of that impairment loss. The Company performed a discounted cash flow analysis prepared as of June 30, 2016 for M&EC’s intangible assets (permits), utilizing our best estimates of projected future cash flows. Based on this analysis, the Company concluded that potential impairment existed and subsequently determined that the permits for our M&EC subsidiary were fully impaired, resulting in an intangible impairment loss of approximately $8,288,000 which was recorded in the second quarter of 2016.

 

M&EC is required to complete certain clean-up/maintenance activities at its Oak Ridge, Tennessee facility pursuant to its RCRA permit. The extent and cost of these activities are determined by federal/state mandate requirements. The Company performed an analysis and related estimate of the cost to complete the RCRA portion of these activities and based on this analysis, the Company recorded an additional $1,626,000 in closure liabilities during the second quarter of 2016 with the offset to capitalized asset retirement costs, as reported as a component of “Net Property and equipment” in the Consolidated Balance Sheet.

 

 

In accordance with ASC 360, “Property, Plant, and Equipment,” the Company also performed an updated financial valuation of M&EC’s long-lived tangible assets, inclusive of the capitalized asset retirement costs, for potential impairment. Based on our analysis using an undiscounted cash flow approach, the Company concluded that the carrying value of certain tangible assets (property and equipment) for M&EC was not recoverable and exceeded its fair value. Consequently, the Company recorded $1,816,000 in tangible asset impairment loss in the second quarter of 2016. The Company reevaluated the estimated useful lives of the remaining tangible assets and as a result of this analysis, reduced the current estimated useful lives of these assets ranging from 2 to 28 years at June 30, 2016 to 1.6 years. Accordingly, the Company is depreciating the carrying value of M&EC’s remaining tangible assets of approximately $4,728,000 at June 30, 2016 over a period of approximately 1.6 years to the lease expiration date.

 

In the second quarter of 2016, the Company also wrote-off approximately $587,000 in fees previously incurred relating to emission performance testing certification requirement in order to meet state compliance mandate in connection with certain M&EC equipment which was impaired (see above for discussion of impairment loss recorded for M&EC’s tangible assets). Such amount had been previously included in “Prepaid and other assets” on the Consolidated Balance Sheets.

 

During the first nine months of 2016 and the corresponding period of 2015, M&EC’s revenues were approximately $3,458,000 and $5,225,000, respectively

 

4.	Intangible Assets

 

The following table summarizes information relating to the Company’s definite-lived intangible assets:

 

 

 

The intangible assets noted above are amortized on a straight-line basis over their useful lives with the exception of customer relationships which are being amortized using an accelerated method. The Company has only one definite-lived permit that is subject to amortization.

 

The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets (including the permit as noted above):

 

 

 

Amortization expenses relating to the definite-lived intangible assets as discussed above were $101,000 and $340,000 for the three and nine months ended September 30, 2016, respectively, and $108,000 and $360,000 for the three and nine months ended September 30, 2015, respectively.

 

5.	Capital Stock, Stock Plans and Stock-Based Compensation

 

The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors.

 

 

On May 15, 2016, the Company granted 50,000 incentive stock options (“ISOs”) from the Company’s 2010 Stock Option Plan to our newly named Executive Vice President. The ISOs granted were for a contractual term of six years with one-third vesting annually over a three year period. The exercise price of the ISOs was $3.97 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

 

On July 28, 2016, the Company granted an aggregate of 12,000 non-qualified stock options (“NQSOs”) from the Company’s 2003 Outside Directors Stock Plan (“2003 Stock Plan”) to five of the seven re-elected directors at our Annual Meeting of Stockholders held on July 28, 2016. Two of the directors are not eligible to receive options under the 2003 Stock Plan as they are employees of the Company or its subsidiaries. The NQSOs granted were for a contractual term of ten years with a vesting period of six months. The exercise price of the NQSOs was $4.60 per share, which was equal to the Company’s closing stock price the day preceding the grant date, pursuant to the 2003 Stock Plan.

 

The summary of the Company’s total Stock Option Plans as of September 30, 2016, and 2015, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2010 Stock Option Plan and the 2003 Stock Plan:

 

 

 

 

⁽¹⁾ Options with exercise prices ranging from $2.79 to $14.75

⁽²⁾ The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

 

 

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted during the nine months ended September 30, 2016 and 2015 and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows (No options were granted to employees during the nine months ended September 30, 2015):

 

 

 

 

⁽¹⁾ The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.

 

⁽²⁾ The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.

 

⁽³⁾ The expected option life is based on historical exercises and post-vesting data.

 

The following table summarizes stock-based compensation recognized for the three and nine months ended September 30, 2016 and 2015 for our employee and director stock options.

 

 

As of September 30, 2016, the Company has approximately $103,000 of total unrecognized compensation cost related to unvested options, of which $29,000 is expected to be recognized in remaining 2016, $43,000 in 2017, $30,000 in 2018, with the remaining $1,000 in 2019.

 

During the nine months ended September 30, 2016, the Company issued a total of 43,172 shares of our Common Stock under the 2003 Stock Plan to our outside directors as compensation for serving on our Board of Directors. The Company has recorded approximately $181,000 in compensation expenses (included in selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares of our Common Stock to our outside directors.

 

The Company also issued 70,000 shares of our Common Stock on August 2, 2016 resulting from the exercise of two Warrants issued in connection with a loan dated August 2, 2013 (see Note 7 – “Long Term Debt – Promissory Note” for further detail of this transaction and the total proceeds received).

 

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6.	(Loss) Income Per Share

 

Basic (loss) Income per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted (loss) income per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share. The following table reconciles the (loss) income and average share amounts used to compute both basic and diluted (loss) income per share:

 

 

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7.	Long Term Debt

 

Long-term debt consists of the following at September 30, 2016 and December 31, 2015:

 

 

 ⁽¹⁾ Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.

 

⁽²⁾ See below “Revolving Credit and Term Loan Agreement” for monthly payment interest options. Prior to April 1, 2016, the monthly installment payment under the Term Loan was approximately $190,000.

 

⁽³⁾ Uncollateralized note.

 

⁽⁴⁾ Net of debt discount of ($0) and ($50,000) at September 30, 2016 and December 31, 2015, respectively. See “Promissory Notes and Installment Agreements” below for additional information.

 

⁽⁵⁾ Net of debt issuance costs of ($134,000) and ($152,000) at September 30, 2016 and December 31, 2015, respectively.

 

Revolving Credit and Term Loan Agreement

The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement, as subsequently amended prior to the March 24, 2016 amendment discussed below (“Amended Loan Agreement”), provided the Company with the following credit facility: (a) up to $12,000,000 revolving line of credit (“Revolving Credit”), subject to the amount of borrowings based on a percentage of eligible receivables (as defined) and (b) a term loan (“Term Loan”) of $16,000,000, which required monthly installments of approximately $190,000 (based on a seven-year amortization).

 

Under the Amended Loan Agreement, the Company had the option of paying an annual rate of interest due on the Revolving Credit at prime plus 2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the Term Loan at prime plus 2.5% or LIBOR plus 3.5%.

 

On March 24, 2016, the Company entered into an amendment to the Amended Loan Agreement with PNC which provided, among other things, the following (the amendment, together with the Amended Loan Agreement is collectively known as the “Revised Loan Agreement”):

 

●

extended the due date of our credit facility from October 31, 2016 to March 24, 2021 (“maturity date”);

 

●

amended the Term Loan to approximately $6,100,000, which requires monthly payments of $101,600 (based on a five-year amortization) and which approximated the Term Loan balance under the existing credit facility at the date of the amendment. The Revolving Credit remains at up to $12,000,000 (subject to the amount of borrowings based on a percentage of eligible receivables as previously defined under the Amended Loan Agreement);

 

●

released $1,000,000 of the $1,500,000 borrowing availability restriction that the lender had previously placed on the Company in connection with the insurance settlement proceeds received on July 28, 2014 by our Perma-Fix of South Georgia, Inc. (“PFSG”) facility. The Company’s lender had authorized the Company to use such proceeds for working capital purposes but had placed an indefinite reduction on our borrowing availability of $1,500,000;

 

●

revised the interest payment options to paying an annual rate of interest due on the Revolving Credit at prime plus 1.75% or LIBOR plus 2.75% and the Term Loan at prime (3.50% at September 30, 2016) plus 2.25% or LIBOR plus 3.25%; and

 

●

revised our annual capital spending maximum limit from $6,000,000 to $3,000,000.

 

In connection with the amendment of March 24, 2016, the Company paid PNC total closing fees of approximately $72,000. As a result of the amendment dated March 24, 2016, the Company recorded approximately $68,000 in loss on extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishments,” which was included in interest expense in the accompanying Consolidated Statements of Operations.

 

Pursuant to the Revised Loan Agreement, the Company may terminate the Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of its obligations under the Revised Loan Agreement. The Company has agreed to pay PNC 1.0% of the total financing in the event the Company pays off its obligations on or before March 23, 2017, .50% of the total financing if the Company pays off its obligations after March 23, 2017 but prior to or on March 23, 2018, and .25% of the total financing if the Company pays off its obligations after March 23, 2018 but prior to or on March 23, 2019. No early termination fee shall apply if the Company pays off its obligations after March 23, 2019.

 

The Company’s credit facility with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. The Company failed to meet its minimum quarterly fixed charge coverage ratio (“FCCR”) requirement of 1.15:1 in the first quarter of 2016. On May 23, 2016, the Company’s lender waived this non-compliance. In connection with this waiver, the Company paid PNC a fee of $5,000 which was included in SG&A expenses. The Company met its financial covenant requirements in the second quarter of 2016 except for its quarterly FCCR requirement. On August 22, 2016, the Company entered into an amendment to its Revised Loan Agreement with its lender which waived the Company’s non-compliance with its minimum quarterly FCCR for the second quarter of 2016. In addition, the amendment revised the methodology used in calculating the FCCR in the third quarter of 2016 and to be used in the fourth quarter of 2016 and the first quarter of 2017. This amendment also revised the Company’s minimum Tangible Adjusted Net Worth (as defined in the Revised Loan Agreement) requirement from $30,000,000 to $26,000,000. In connection with the amendment, the Company paid PNC a fee of $25,000, which is being amortized over the remaining term of the loan as interest expense – financing fees. The Company failed to meet its FCCR in the third quarter of 2016. The Company has obtained a waiver from its lender for this non-compliance. The Company expects to meet its quarterly financial covenants for the remainder quarter of 2016 as the Company’s lender has further revised the methodology to be used in calculating the FCCR (see Note 12 – “Subsequent Events – Credit Facility” for this waiver and the further revision made to the methodology in calculating the FCCR in subsequent quarters, among other things).

 

As of September 30, 2016, the availability under our revolving credit was $2,294,000, based on our eligible receivables and includes the remaining indefinite reduction of borrowing availability of $500,000 as discussed above.

 

 

Promissory Note

The Company entered into a $3,000,000 loan dated August 2, 2013 with Messrs. Robert Ferguson and William Lampson (each known as the “Lender”). As consideration for the Company receiving the loan, the Company issued to each Lender a Warrant to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price of $2.23 per share. On August 2, 2016, each Lender exercised his Warrant for the purchase of 35,000 shares of our Common Stock, resulting in total proceeds paid to the Company of approximately $156,000. As further consideration for the loan, the Company had also issued to each Lender 45,000 shares of the Company’s Common Stock. The fair value of the Warrants and Common Stock and the related closing fees incurred from this transaction were recorded as a debt discount, which has been fully amortized using the effective interest method over the term of the loan as interest expense – financing fees. The loan was repaid in full by the Company in August 2016.

 

8.	Commitments and Contingencies

 

Hazardous Waste

In connection with our waste management services, we process both hazardous and non-hazardous waste, which we transport to our own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required, we could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.

 

Legal Matters

In the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.

 

Insurance

The Company has a 25-year finite risk insurance policy entered into in June 2003 with American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other performance and surety bond requirements. All of the required payments for this finite risk insurance policy, as amended, were made by 2012. As of September 30, 2016, our financial assurance coverage amount under this policy totaled approximately $38,874,000. The Company has recorded $15,522,000 in sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance Sheets, which includes interest earned of $1,051,000 on the sinking fund as of September 30, 2016. Interest income for the three and nine months ended September 30, 2016 was approximately $24,000 and $62,000, respectively. Interest income for the three and nine month periods ended September 30, 2015, was approximately $9,000 and $23,000, respectively. If the Company so elects, AIG is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for complete release of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.

 

In August 2007, the Company entered into a second finite risk insurance policy for a term of four years for our Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility with AIG. The policy provided an initial $7,800,000 of financial assurance coverage with an annual growth rate of 1.5%, which at the end of the four year term policy, provides maximum coverage of $8,200,000. The Company has made all of the required payments on this policy. As of September 30, 2016, the Company has recorded $5,934,000 in our sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance Sheets, which includes interest earned of $234,000 on the sinking fund as of September 30, 2016. Interest income for the three and nine months ended September 30, 2016 was approximately $7,000 and $14,000, respectively. Interest income for the three and nine month periods ended September 30, 2015, was approximately $4,000 and $7,000, respectively. This policy is renewed annually at the end of the four year term with a nominal fee for the variance between the coverage requirement and the sinking fund balance. The Company has renewed this policy annually from 2011 to 2016 (with fees ranging from $41,000 to $46,000 annually). All other terms of the policy remain substantially unchanged.

 

 

Letter of Credits and Bonding Requirements

From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of September 30, 2016, the total amount of these bonds and letters of credit outstanding was approximately $1,514,000, of which the majority of the amount relates to various bonding requirements.

 

9.	Discontinued Operations

 

The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment: (1) subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility which is currently undergoing closure, subject to regulatory approval.

 

The following table presents the major class of assets of discontinued operations as of September 30, 2016 and December 31, 2015. On May 2, 2016, Perma-Fix of Michigan, Inc. (“PFMI” – a closed location) entered into an Agreement for the sale of the property (which was held for sale as of December 31, 2015) for a price of $450,000. The Agreement provides for a down payment of approximately $75,000. After certain closing and settlement costs, PFMI received approximately $46,000. The Agreement also provides for, among other things, the balance of the purchase price of $375,000 to be paid by the buyer in 60 equal monthly installments of approximately $7,250, with the first payment due June 15, 2016. No assets and liabilities are held for sale as of September 30, 2016.

 

 

⁽¹⁾ net of accumulated depreciation of $10,000 for each period presented.

 

The Company’s discontinued operations incurred losses of $191,000 and $377,000 for the three months ended September 30, 2016 and 2015, respectively (net of taxes of $0 for each period) and losses of $622,000 and $1,313,000 for the nine months ended September 30, 2016 and 2015, respectively (net of taxes of $0 for each period). Losses for the nine months ended September 30, 2015 included a penalty in the amount of approximately $201,000 recorded for PFSG in the second quarter of 2015 in connection with a certain Consent Order from the Georgia Department of Natural Resources Environmental Protection Division and an asset impairment charge of $150,000 recorded for PFMI in the second quarter of 2015 in connection with the sale of property as discussed above. Remaining losses for the periods discussed above were primarily due to costs incurred in the administration and continued monitoring of our discontinued operations. The Company’s discontinued operations had no revenues for each of the periods noted above.

 

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10.	Operating Segments

 

In accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (a) from which we may earn revenue and incur expenses; (2) whose operating results are regularly reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.

 

Our reporting segments are defined as below:

 

TREATMENT SEGMENT reporting includes:

-

nuclear, low-level radioactive, mixed, hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and

-

R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

 

SERVICES SEGMENT, which includes:

-

On-site waste management services to commercial and government customers;

-

Technical services, which include:

o

professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering;

o

integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;

o

global technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers;

-

Nuclear services, which include:

o

technology-based services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction, logistics, transportation, processing and disposal;

o

remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; site construction; logistics; transportation; and emergency response; and

-

A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) of health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.

 

MEDICAL SEGMENT reporting includes: R&D costs for the new medical isotope production technology from our majority-owned Polish subsidiary, PF Medical. The Medical Segment has not generated any revenue as it continues to be primarily in the R&D stage. All costs incurred for the Medical Segment are reflected within R&D in the accompanying Consolidated Statements of Operations and consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development of this new technology.

 

Our reporting segments exclude our corporate headquarters and our discontinued operations (see Note 9 – “Discontinued Operations”) which do not generate revenues. 

 

 

The table below presents certain financial information of our operating segments for the three and nine months ended September 30, 2016 and 2015 (in thousands).

 

Segment Reporting for the Quarter Ended September 30, 2016                        

 

 

Segment Reporting for the Quarter Ended September 30, 2015                        

 

 

Segment Reporting for the Nine Months Ended September 30, 2016                            

 

 

Segment Reporting for the Nine Months Ended September 30, 2015                            

 

 

 

 

⁽¹⁾ Amounts reflect the activity for corporate headquarters not included in the segment information.

 

⁽²⁾ Amounts include tangible and intangible asset impairment losses of $1,816,000 and $8,288,000, respectively for the Company’s M&EC subsidiary recorded in the second quarter of 2016 (see Note 3 – “East Tennessee Materials and Energy Corporation (“M&EC”)”). Also includes a tax benefit of approximately $3,203,000 recorded resulting from the intangible impairment loss recorded for our M&EC subsidiary (see Note 11 – “Income Taxes” below).