10-K 1 form10-k.htm

  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File No. 1-11596

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   58-1954497

State or other jurisdiction of

incorporation or organization

 

(IRS Employer

Identification Number)

 

8302 Dunwoody Place, #250, Atlanta, GA   30350
(Address of principal executive offices)   (Zip Code)

 

(770) 587-9898

(Registrant’s telephone number)

  

Securities registered pursuant to Section 12(b) of the Act:    

 

Title of each class   Trading Symbol   Name of each exchange on which registered
         
Common Stock, $.001 Par Value   PESI   NASDAQ Capital Markets
Preferred Stock Purchase Rights      

NASDAQ Capital Markets 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[  ] Yes [X] No

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[  ] Yes [X] No

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

[X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated Filer [  ] Non-accelerated Filer [X] Smaller reporting company [X] Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act [  ]

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [  ]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes [X] No

 

The aggregate market value of the Registrant’s voting and non-voting common equity held by nonaffiliates of the Registrant computed by reference to the closing sale price of such stock as reported by NASDAQ as of the last business day of the most recently completed second fiscal quarter (June 30, 2020), was approximately $72,649,482). For the purposes of this calculation, all directors and executive officers of the Registrant (as indicated in Item 12) have been deemed to be affiliates. Such determination should not be deemed an admission that such directors and executive officers, are, in fact, affiliates of the Registrant. The Company’s Common Stock is listed on the NASDAQ Capital Markets.

 

As of February 18, 2021, there were 12,165,734 shares of the registrant’s Common Stock, $.001 par value, outstanding.

 

Documents incorporated by reference: None

 

 

 

 

 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

 

INDEX

  

    Page No.
     
PART I  

     
Item 1. Business 1
     
Item 1A. Risk Factors 7
     
Item 1B. Unresolved Staff Comments 17
     
Item 2. Properties 18
     
Item 3. Legal Proceedings 18
     
Item 4. Mine Safety Disclosure 18
     
PART II    
     
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 18
     
Item 6. Selected Financial Data 19
     
Item 7.

Management’s Discussion and Analysis of Financial Condition And Results of Operations

19
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 34
     
  Special Note Regarding Forward-Looking Statements 34
     
Item 8. Financial Statements and Supplementary Data 36
     
Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

76
     
Item 9A. Controls and Procedures 76
     
Item 9B. Other Information 76
     
PART III    
     
Item 10. Directors, Executive Officers and Corporate Governance 77
     
Item 11. Executive Compensation 87
     
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

112
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 115
     
Item 14. Principal Accountant Fees and Services 117
     
PART IV    
     
Item 15. Exhibits and Financial Statement Schedules 118

 

 

 

 

PART I

 

ITEM 1. BUSINESS

 

Company Overview and Principal Products and Services

 

Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), a Delaware corporation incorporated in December 1990, is an environmental and environmental technology know-how company.

 

The principal element of our business strategy consists of upgrading our facilities within our Treatment Segment to increase efficiency and modernize and expand treatment capabilities to meet the changing markets associated with the waste management industry. Within our Services Segment, we continue to revitalize and expand our business development programs to further increase competitive procurement effectiveness and broaden the market penetration within both the commercial and government sectors. The Company remains focused on expansion into both commercial and international markets to supplement government spending in the United States of America (“USA”), from which a significant portion of the Company’s revenue is derived. This includes new services, new customers and increased market share in our current markets.

 

Our majority-owned subsidiary, Perma-Fix Medical S.A. and its wholly-owned subsidiary, Perma-Fix Medical Corporation (“PFM Corporation” – a Delaware corporation) (together known as “PF Medical” or our “Medical Segment”) which is currently involved on a limited basis in the research and development (“R&D”) of the Company’s medical isotope production technology, has not generated any revenue and has substantially reduced R&D costs and activities due to the need for capital to fund these activities. The Company anticipates that the Medical Segment will not resume full R&D activities until the necessary capital is obtained through its own credit facility or additional equity raise, or obtains partners willing to provide funding for its R&D.

 

COVID-19 Pandemic

 

The spread of COVID-19 in early 2020 continues to result in significant volatility in the U.S. and international markets. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. Since the start of the pandemic, we have experienced delays in waste shipment from certain customers within our Treatment Segment directly related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However, we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations. Within our Services Segment, all of the projects that were previously shutdown in late March 2020 due to the pandemic recommenced starting in late June 2020 as stay-at-home orders and certain other restrictions resulting from the pandemic were lifted.

 

Since the outbreak of COVID-19, we have remained focused on keeping our employees working and, at the same time, focusing on protecting the health and wellbeing of our employees and the communities in which we operate while assuring the continuity of our business operations.

 

Our management team has proactively implemented our business continuity and safety plans and has taken a variety of measures to ensure the ongoing availability of our waste treatment and remediation services, while taking health and safety measures, including separating employee and customer contact, social distancing between employees, implementing enhanced cleaning and hygiene protocols in all of our facilities, and implementing remote work policies, when necessary.

 

The situation surrounding COVID-19 continues to remain fluid and volatile. The potential for a material impact on our business increases the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may further continue to delay waste shipments and projects may shut down again. For this reason, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity during the next twelve months.

 

1
 

 

For a more detailed discussion of the impact of COVID-19 on the Company’s results of operations, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Results of Operations” and “Liquidity and Capital Resources.”

 

Segment Information and Foreign and Domestic Operations and Sales

 

The Company has three reportable segments. In accordance with Financial Accounting Standards Board (“FASB”) ASC 280, “Segment Reporting”, we define an operating segment as:

 

a business activity from which we may earn revenue and incur expenses;
whose operating results are regularly reviewed by the chief operating decision maker “(CODM”) to make decisions about resources to be allocated and assess its performance; and
for which discrete financial information is available.

 

TREATMENT SEGMENT reporting includes:

 

  - nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive waste), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed (Nuclear Regulatory Commission or state equivalent) and permitted (U.S. Environmental Protection Agency (“EPA”) or state equivalent) treatment and storage facilities as follow: Perma-Fix of Florida, Inc. (“PFF”), Diversified Scientific Services, Inc., (“DSSI”), Perma-Fix Northwest Richland, Inc. (“PFNWR”) and Oak Ridge Environmental Waste Operations Center (“EWOC” – See below for further information of this facility); and
  - R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

 

In 2020, we expanded our low-level radioactive waste processing and treatment capability within our Treatment Segment through the addition of our EWOC facility. The EWOC facility serves primarily as a multi-disciplinary equipment and component processing center for large component, size/volume reduction, sort/segregation, waste transload, and system operability testing. The ultimate objective of the facility will be receipt, preparation, packaging, and transportation of low-level radioactive waste to final disposal facilities (landfills, approved radiological waste repositories). Operations at the facility have been limited to date as we continue to complete transition of the site. No revenue was generated at EWOC in 2020.

 

For 2020, the Treatment Segment accounted for $30,143,000, or 28.6%, of total revenue, as compared to $40,364,000, or 54.9%, of total revenue for 2019. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’ contracts with government clients (domestic and foreign) or with others as a subcontractor to government clients.

 

SERVICES SEGMENT, which includes:

 

  - Technical services, which include:

  

  professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering;
  health physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support to government and private radioactive materials licensees;
  integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
  global technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental), project management, waste management, environmental, and decontamination and decommissioning (“D&D”) field, technical, and management personnel and services to commercial and government customers; and
  waste management services to commercial and governmental customers.

 

2
 

  

  - Nuclear services, which include:

 

  D&D of government and commercial facilities impacted with radioactive material and hazardous constituents including engineering, technology applications, specialty services, logistics, transportation, processing and disposal; and
  license termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process: project management, planning, characterization, waste stream identification and delineation, remediation/demolition, final status survey, compliance demonstration, reporting, transportation, disposal and emergency response.

 

  - A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
  - A company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.

 

For 2020, the Services Segment accounted for $75,283,000, or 71.4%, of total revenue, as compared to $33,095,000, or 45.1%, of total revenue for 2019. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’ contracts with government clients (domestic and foreign) or with others as a subcontractor to government clients.

 

MEDICAL SEGMENT (see a discussion of our Medical Segment above under “Company Overview and Principal Products and Services”).

 

Our Treatment and Services Segments provide services to research institutions, commercial companies, public utilities, and governmental agencies (domestic and foreign), including the U.S. Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”). The distribution channels for our services are through direct sales to customers or via intermediaries.

 

Our corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.

 

Foreign Revenue

 

Our consolidated revenue for 2020 and 2019 included approximately $5,550,000, or 5.3%, and $5,488,000, or 7.5%, respectively, from Canadian customers (including revenues generated by our Perma-Fix of Canada, Inc. (“PF Canada”) subsidiary).

 

Permits and Licenses

 

Waste management service companies are subject to extensive, evolving and increasingly stringent federal, state, and local environmental laws and regulations. Such federal, state and local environmental laws and regulations govern our activities regarding the treatment, storage, processing, disposal and transportation of hazardous, non-hazardous and radioactive wastes, and require us to obtain and maintain permits, licenses and/or approvals in order to conduct our waste activities. We are dependent on our permits and licenses discussed below in order to operate our businesses. Failure to obtain and maintain our permits or approvals would have a material adverse effect on us, our operations, and financial condition. The permits and licenses have terms ranging from one to ten years, and provided that we maintain a reasonable level of compliance, renew with minimal effort, and cost. We believe that these permit and license requirements represent a potential barrier to entry for possible competitors.

 

PFF, located in Gainesville, Florida, operates its hazardous, mixed and low-level radioactive waste activities under a Resource Conservation and Recovery Act (“RCRA”) Part B permit, Toxic Substances Control Act (“TSCA”) authorization, Restricted RX Drug Distributor-Destruction license, biomedical, and a radioactive materials license issued by the State of Florida.

 

DSSI, located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and treatment activities under RCRA Part B permits and a radioactive materials license issued by the State of Tennessee Department of Environment and Conservation. Co-regulated TSCA Polychlorinated Biphenyl (“PCB”) wastes are also managed for PCB destruction under EPA Approval.

 

3
 

 

PFNWR, located in Richland, Washington, operates a low-level radioactive waste processing facility as well as a mixed waste processing facility. Radioactive material processing is authorized under radioactive materials licenses issued by the State of Washington and mixed waste processing is additionally authorized under a RCRA Part B permit with TSCA authorization issued jointly by the State of Washington and the EPA.

 

EWOC, located in Oak Ridge, Tennessee, operates a low-level radioactive waste material processing facility. Radioactive material processing is authorized under radioactive material licenses issued by the State of Tennessee Department of Environmental and Conservation, Division of radiological health.

 

The combination of RCRA Part B hazardous waste permits, TSCA authorizations, and radioactive material licenses held by the Company and its subsidiaries comprising our Treatment Segment is very difficult to obtain for a single facility and make this Segment unique.

 

We believe that the permitting and licensing requirements, and the cost to obtain such permits, are barriers to the entry of hazardous waste and radioactive and mixed waste activities as presently operated by our waste treatment subsidiaries. If the permit requirements for hazardous waste treatment, storage, and disposal (“TSD”) activities and/or the licensing requirements for the handling of low-level radioactive matters are eliminated or if such licenses or permits were made less rigorous to obtain, we believe such would allow companies to enter into these markets and provide greater competition.

 

Backlog

 

Our Treatment Segment maintains a backlog of stored waste, which represents waste that has not been processed. The backlog is principally a result of the timing and complexity of the waste being brought into the facilities and the selling price per container. At December 31, 2020, our Treatment Segment had a backlog of approximately $7,631,000, as compared to approximately $8,506,000 at December 31, 2019. Additionally, the time it takes to process waste from the time it arrives may increase due to the types and complexities of the waste we are currently receiving. We typically process our backlog during periods of low waste receipts, which historically has been in the first or fourth quarters.

 

Dependence Upon a Single or Few Customers

 

Our Treatment and Services Segments have significant relationships with the U.S and Canadian governmental authorities. A significant amount of our revenues from our Treatment and Services Segments are generated indirectly as subcontractors for others who are prime contractors to government authorities, particularly the U.S Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”) or directly as the prime contractor to government authorities. The contracts that we are a party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that the government may terminate or renegotiate the contracts on 30 days’ notice, at the government’s election. The contracts/task order agreements that we are a party to with Canadian governmental authorities generally provide that the government authorities may terminate the contracts/task order agreements at any time for any reason for convenience. Our inability to continue under existing contracts that we have with the U.S federal government and Canadian government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.

 

We performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either indirectly for others as a subcontractor to government entities or directly as a prime contractor to government entities, representing approximately $96,582,000, or 91.6%, of our total revenue during 2020, as compared to $59,985,000, or 81.7%, of our total revenue during 2019.

 

Revenue generated by us as a subcontractor to a customer for a remediation project performed for a government entity (the “DOE”) within our Services Segment in 2020 and 2019 accounted for approximately $41,011,000 or 38.9% and $8,529,000 or 11.6% (included in revenues generated relating to government clients above) of our total revenue for 2020 and 2019, respectively. This remediation project included among other things, decontamination support of a building. As work progressed throughout stages of this project in 2020, additional contaminations were regularly discovered which resulted in approvals for additional work to be performed under this project. This project is expected to be completed by the first half of 2021.

 

4
 

 

As our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with a different customer from year to year, we do not believe the loss of one specific customer from one year to the next will generally have a material adverse effect on our operations and financial condition.

 

Competitive Conditions

 

The Treatment Segment’s largest competitor is EnergySolutions (“ES”) which operates treatment facilities in Oak Ridge, TN and Erwin, TN and disposal facilities for low level radioactive waste in Clive, UT and Barnwell, SC. Waste Control Specialists (“WCS”), which has licensed disposal capabilities for low level radioactive waste in Andrews, TX, is also a competitor in the treatment market with increasing market share. These two competitors also provide us with options for disposal of our treated nuclear waste. The Treatment Segment treats and disposes of DOE generated waste largely at DOE owned sites. Our Treatment Segment currently solicits business primarily on a North America basis with both government and commercial clients; however, we continue to focus on emerging international markets for additional work.

 

Our Services Segment is engaged in highly competitive businesses in which a number of our government contracts and some of our commercial contracts are awarded through competitive bidding processes. The extent of such competition varies according to the industries and markets in which our customers operate as well as the geographic areas in which we operate. The degree and type of competition we face is also often influenced by the project specification being bid on and the different specialty skill sets of each bidder for which our Services Segment competes, especially projects subject to the governmental bid process. We also have the ability to prime federal government small business procurements (small business set asides). Based on past experience, we believe that large businesses are more willing to team with small businesses in order to be part of these often-substantial procurements. There are a number of qualified small businesses in our market that will provide intense competition that may provide a challenge to our ability to maintain strong growth rates and acceptable profit margins. For international business there are additional competitors, many from within the country the work is to be performed, making winning work in foreign countries more challenging. If our Services Segment is unable to meet these competitive challenges, it could lose market share and experience an overall reduction in its profits.

 

Certain Environmental Expenditures and Potential Environmental Liabilities

 

Environmental Liabilities

 

We have three remediation projects, which are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”), Perma-Fix of Memphis, Inc. (“PFM”), and Perma-Fix South Georgia, Inc. (“PFSG”) subsidiaries, which are all included within our discontinued operations. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored by the applicable state regulators.

 

At December 31, 2020, we had total accrued environmental remediation liabilities of $854,000. At December 31, 2020, $744,000 of the total accrued environmental liabilities was recorded as current.

 

The nature of our business exposes us to significant cost to comply with governmental environmental laws, rules and regulations and risk of liability for damages. Such potential liability could involve, for example, claims for cleanup costs, personal injury or damage to the environment in cases where we are held responsible for the release of hazardous materials; claims of employees, customers or third parties for personal injury or property damage occurring in the course of our operations; and claims alleging negligence or professional errors or omissions in the planning or performance of our services. In addition, we could be deemed a responsible party for the costs of required cleanup of properties, which may be contaminated by hazardous substances generated or transported by us to a site we selected, including properties owned or leased by us. We could also be subject to fines and civil penalties in connection with violations of regulatory requirements.

 

5
 

 

Research and Development (“R&D”)

 

Innovation and technical know-how by our operations is very important to the success of our business. Our goal is to discover, develop and bring to market innovative ways to process waste that address unmet environmental needs. We conduct research internally, and also through collaborations with other third parties. The majority of our research activities are performed as we receive new and unique waste to treat. Our competitors also devote resources to R&D and many such competitors have greater resources at their disposal than we do.

 

Governmental Regulation

 

Environmental companies, such as us, and their customers are subject to extensive and evolving environmental laws and regulations by a number of federal, state and local environmental, safety and health agencies, the principal of which being the EPA. These laws and regulations largely contribute to the demand for our services. Although our customers remain responsible by law for their environmental problems, we must also comply with the requirements of those laws applicable to our services. We cannot predict the extent to which our operations may be affected by future enforcement policies as applied to existing laws or by the enactment of new environmental laws and regulations. Moreover, any predictions regarding possible liability are further complicated by the fact that under current environmental laws we could be jointly and severally liable for certain activities of third parties over whom we have little or no control. Although we believe that we are currently in substantial compliance with applicable laws and regulations, we could be subject to fines, penalties or other liabilities or could be adversely affected by existing or subsequently enacted laws or regulations. The principal environmental laws affecting our customers and us are briefly discussed below.

 

The Resource Conservation and Recovery Act of 1976, as amended (“RCRA”)

 

RCRA and its associated regulations establish a strict and comprehensive permitting and regulatory program applicable to companies, such as us, that treat, store or dispose of hazardous waste. The EPA has promulgated regulations under RCRA for new and existing treatment, storage and disposal facilities including incinerators, storage and treatment tanks, storage containers, storage and treatment surface impoundments, waste piles and landfills. Every facility that treats, stores or disposes of hazardous waste must obtain a RCRA permit or must obtain interim status from the EPA, or a state agency, which has been authorized by the EPA to administer its program, and must comply with certain operating, financial responsibility and closure requirements.

 

The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA,” also referred to as the “Superfund Act”)

 

CERCLA governs the cleanup of sites at which hazardous substances are located or at which hazardous substances have been released or are threatened to be released into the environment. CERCLA authorizes the EPA to compel responsible parties to clean up sites and provides for punitive damages for noncompliance. CERCLA imposes joint and several liabilities for the costs of clean up and damages to natural resources.

 

Health and Safety Regulations

 

The operation of our environmental activities is subject to the requirements of the OSHA and comparable state laws. Regulations promulgated under OSHA by the Department of Labor require employers of persons in the transportation and environmental industries, including independent contractors, to implement hazard communications, work practices and personnel protection programs in order to protect employees from equipment safety hazards and exposure to hazardous chemicals.

 

Atomic Energy Act

 

The Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and Byproduct materials in the U.S. and its territories. This act authorized the Atomic Energy Commission (now the Nuclear Regulatory Commission “USNRC”) to enter into “Agreements with states to carry out those regulatory functions in those respective states except for Nuclear Power Plants and federal facilities like the VA hospitals and the DOE operations.” The State of Florida Department of Health (with the USNRC oversight), Office of Radiation Control, regulates the licensing and radiological program of the PFF facility; the State of Tennessee (with the USNRC oversight), Tennessee Division of Radiological Health, regulates licensing and the radiological program of the DSSI facility and the EWOC facility; and the State of Washington (with the USNRC oversight) Department of Health, regulates licensing and the radiological operations of the PFNWR facility.

 

6
 

 

Other Laws

 

Our activities are subject to other federal environmental protection and similar laws, including, without limitation, the Clean Water Act, the Clean Air Act, the Hazardous Materials Transportation Act and the TSCA. Many states have also adopted laws for the protection of the environment which may affect us, including laws governing the generation, handling, transportation and disposition of hazardous substances and laws governing the investigation and cleanup of, and liability for, contaminated sites. Some of these state provisions are broader and more stringent than existing federal law and regulations. Our failure to conform our services to the requirements of any of these other applicable federal or state laws could subject us to substantial liabilities which could have a material adverse effect on us, our operations and financial condition. In addition to various federal, state and local environmental regulations, our hazardous waste transportation activities are regulated by the U.S. Department of Transportation, the Interstate Commerce Commission and transportation regulatory bodies in the states in which we operate. We cannot predict the extent to which we may be affected by any law or rule that may be enacted or enforced in the future, or any new or different interpretations of existing laws or rules.

 

ITEM 1A. RISK FACTORS

 

The following are certain risk factors that could affect our business, financial performance, and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Form 10-K, as the forward-looking statements are based on current expectations, and actual results and conditions could differ materially from the current expectations. Investing in our securities involves a high degree of risk, and before making an investment decision, you should carefully consider these risk factors as well as other information we include or incorporate by reference in the other reports we file with the Securities and Exchange Commission (the “Commission”).

 

Risk Related to COVID-19

 

COVID-19 could result in material adverse effects on our business, financial position, results of operations and cash flows.

 

The extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the responses to the pandemic continue to evolve rapidly. Since the latter part of the second quarter of 2020, all of the projects within our Services Segment that were previously shutdown have restarted as stay-at-home orders and certain other restrictions resulting from the pandemic were lifted. Within our Treatment Segment, we continue to experience delays in waste shipment from certain customers directly related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However, we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations. COVID-19 disruption could have a material adverse effect on our business as our customers could curtail and reduce capital and overall spending.

 

The severity of the impact the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the extent and severity of the impact on our customers, the impact on governmental programs and budgets, distribution of COVID-19 vaccines, the rate at which people are inoculated with the vaccines, and how quickly and to what extent normal economic and operating conditions resume, all of which are uncertain and cannot be predicted with any accuracy or confidence at this time. Our future results of operations and liquidity could be adversely impacted by continued delays in waste shipments and/or the recurrence of project work shut downs as well as potential partial/full shutdown of any of our facilities due to COVID-19.

 

7
 

 

Risks Relating to our Business and Operations

 

Failure to maintain our financial assurance coverage that we are required to have in order to operate our permitted treatment, storage and disposal facilities could have a material adverse effect on us.

 

We maintain finite risk insurance policies and bonding mechanisms which provide financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure of those facilities. We are required to provide and to maintain financial assurance that guarantees to the state that in the event of closure, our permitted facilities will be closed in accordance with the regulations. In the event that we are unable to obtain or maintain our financial assurance coverage for any reason, this could materially impact our operations and our permits which we are required to have in order to operate our treatment, storage, and disposal facilities.

 

If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.

 

Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial. We believe that our insurance coverage is presently adequate and similar to, or greater than, the coverage maintained by other companies in the industry of our size. If we are unable to obtain adequate or required insurance coverage in the future, or if our insurance is not available at affordable rates, we would violate our permit conditions and other requirements of the environmental laws, rules, and regulations under which we operate. Such violations would render us unable to continue certain of our operations. These events would have a material adverse effect on our financial condition.

 

The inability to maintain existing government contracts or win new government contracts over an extended period could have a material adverse effect on our operations and adversely affect our future revenues.

 

A material amount of our Treatment and Services Segments’ revenues are generated through various government contracts or subcontracts (domestic and foreign (primarily Canadian)). Our revenues from governmental contracts and subcontracts relating to governmental facilities within our segments were approximately $96,582,000, or 91.6%, and $59,985,000, or 81.7%, of our consolidated revenues for 2020 and 2019, respectively. Most of our government contracts or our subcontracts granted under government contracts are awarded through a regulated competitive bidding process. Some government contracts are awarded to multiple competitors, which increase overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these government contracts. All contracts with, or subcontracts involving, the U.S federal government are terminable, or subject to renegotiation, by the applicable governmental agency on 30 days notice, at the option of the governmental agency. The contracts/task order agreements that we are a party to with Canadian governmental authorities generally provide that the government authorities may terminate the contracts/task order agreements at any time for any reason for convenience. If we fail to maintain or replace these relationships, or if a material contract is terminated or renegotiated in a manner that is materially adverse to us, our revenues and future operations could be materially adversely affected.

 

Our existing and future customers may reduce or halt their spending on hazardous waste and nuclear services with outside vendors, including us.

 

A variety of factors may cause our existing or future customers (including government clients) to reduce or halt their spending on hazardous waste and nuclear services from outside vendors, including us. These factors include, but are not limited to:

 

  accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities or involving shipments of nuclear materials;
  failure of government to approve necessary budgets, or to reduce the amount of the budget necessary, to fund remediation sites, including DOE and DOD sites;
  civic opposition to or changes in government policies regarding nuclear operations;
  a reduction in demand for nuclear generating capacity; or
  failure to perform under existing contracts, directly or indirectly, with the government.

 

These events could result in or cause government clients to terminate or cancel existing contracts involving us to treat, store or dispose of contaminated waste and/or to perform remediation projects, at one or more of government sites. These events also could adversely affect us to the extent that they result in the reduction or elimination of contractual requirements, lower demand for nuclear services, burdensome regulation, disruptions of shipments or production, increased operational costs or difficulties or increased liability for actual or threatened property damage or personal injury.

 

8
 

 

Economic downturns, reductions in government funding or other events beyond our control (such as the continued impact of COVID-19) could have a material negative impact on our businesses.

 

Demand for our services has been, and we expect that demand will continue to be, subject to significant fluctuations due to a variety of factors beyond our control, including, without limitation, economic conditions, reductions in the budget for spending to remediate federal sites due to numerous reasons including, without limitation, the substantial deficits that the federal government has and is continuing to incur, and/or the continued impact resulting from COVID-19. During economic downturns, large budget deficits that the federal government and many states are experiencing, and other events beyond our control, including, but not limited to the impact from COVID-19, the ability of private and government entities to spend on waste services, including nuclear services, may decline significantly. Our operations depend, in large part, upon governmental funding (for example, the annual budget of the DOE) or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flow.

 

The loss of one or a few customers could have an adverse effect on us.

 

One or a few governmental customers or governmental related customers have in the past, and may in the future, account for a significant portion of our revenue in any one year or over a period of several consecutive years. Because customers generally contract with us for specific projects, we may lose these significant customers from year to year as their projects with us are completed. Our inability to replace the business with other similar significant projects could have an adverse effect on our business and results of operations.

 

We are a holding company and depend, in large part, on receiving funds from our subsidiaries to fund our indebtedness.

 

Because we are a holding company and operations are conducted through our subsidiaries, our ability to meet our obligations depends, in large part, on the operating performance and cash flows of our subsidiaries.

 

Our Treatment Segment has limited end disposal sites to utilize to dispose of its waste which could significantly impact our results of operations.

 

Our Treatment Segment has limited options available for disposal of its nuclear waste. Currently, there are only three disposal sites, each site having different owners, for our low-level radioactive waste we receive from non-governmental sites, allowing us to take advantage of the pricing competition between the three sites. If any of these disposal sites ceases to accept waste or closes for any reason or refuses to accept the waste of our Treatment Segment, for any reason, we would have limited remaining site to dispose of our nuclear waste. With limited end disposal site to dispose of our waste, we could be subject to significantly increased costs which could negatively impact our results of operations.

 

Our operations are subject to seasonal factors, which cause our revenues to fluctuate.

 

We have historically experienced reduced revenues and losses during the first and fourth quarters of our fiscal years due to a seasonal slowdown in operations from poor weather conditions, overall reduced activities during these periods resulting from holiday periods, and finalization of government budgets during the fourth quarter of each year. During our second and third fiscal quarters there has historically been an increase in revenues and operating profits. If we do not continue to have increased revenues and profitability during the second and third fiscal quarters, this could have a material adverse effect on our results of operations and liquidity.

 

9
 

 

We are engaged in highly competitive businesses and typically must bid against other competitors to obtain major contracts.

 

We are engaged in highly competitive business in which most of our government contracts and some of our commercial contracts are awarded through competitive bidding processes. We compete with national, international (primarily Canada currently) and regional firms with nuclear and/or hazardous waste services practices, as well as small or local contractors. Some of our competitors have greater financial and other resources than we do, which can give them a competitive advantage. In addition, even if we are qualified to work on a new government contract, we might not be awarded the contract because of existing government policies designed to protect certain types of businesses and under-represented minority contractors. Although we believe we have the ability to certify and bid government contract as a small business, there are a number of qualified small businesses in our market that will provide intense competition. For international business, which we continue to focus on, there are additional competitors, many from within the country the work is to be performed, making winning work in foreign countries more challenging. Competition places downward pressure on our contract prices and profit margins. If we are unable to meet these competitive challenges, we could lose market share and experience on overall reduction in our profits.

 

We bear the risk of cost overruns in fixed-price contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates.

 

Our revenues may be earned under contracts that are fixed-price or maximum price in nature. Fixed-price contracts expose us to a number of risks not inherent in cost-reimbursable contracts. Under fixed price and guaranteed maximum-price contracts, contract prices are established in part on cost and scheduling estimates which are based on a number of assumptions, including assumptions about future economic conditions, prices and availability of labor, equipment and materials, and other exigencies. If these estimates prove inaccurate, or if circumstances change such as unanticipated technical problems, difficulties in obtaining permits or approvals, changes in laws or labor conditions, weather delays, cost of raw materials, our suppliers’ or subcontractors’ inability to perform, and/or other events beyond our control, such as the impact of the Coronavirus, cost overruns may occur and we could experience reduced profits or, in some cases, a loss for that project. Errors or ambiguities as to contract specifications can also lead to cost-overruns.

 

Adequate bonding is necessary for us to win certain types of new work and support facility closure requirements.

 

We are often required to provide performance bonds to customers under certain of our contracts, primarily within our Services Segment. These surety instruments indemnify the customer if we fail to perform our obligations under the contract. If a bond is required for a particular project and we are unable to obtain it due to insufficient liquidity or other reasons, we may not be able to pursue that project. In addition, we provide bonds to support financial assurance in the event of facility closure pursuant to state requirements. We currently have a bonding facility but, the issuance of bonds under that facility is at the surety’s sole discretion. Moreover, due to events that affect the insurance and bonding markets generally, bonding may be more difficult to obtain in the future or may only be available at significant additional cost. There can be no assurance that bonds will continue to be available to us on reasonable terms. Our inability to obtain adequate bonding and, as a result, to bid on new work could have a material adverse effect on our business, financial condition and results of operations.

 

If we cannot maintain our governmental permits or cannot obtain required permits, we may not be able to continue or expand our operations.

 

We are a nuclear services and waste management company. Our business is subject to extensive, evolving, and increasingly stringent federal, state, and local environmental laws and regulations. Such federal, state, and local environmental laws and regulations govern our activities regarding the treatment, storage, recycling, disposal, and transportation of hazardous and non-hazardous waste and low-level radioactive waste. We must obtain and maintain permits or licenses to conduct these activities in compliance with such laws and regulations. Failure to obtain and maintain the required permits or licenses would have a material adverse effect on our operations and financial condition. If any of our facilities are unable to maintain currently held permits or licenses or obtain any additional permits or licenses which may be required to conduct its operations, we may not be able to continue those operations at these facilities, which could have a material adverse effect on us.

 

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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.

 

11
 

 

As our operations expand, we may be subject to increased litigation, which could have a negative impact on our future financial results.

 

Our operations are highly regulated and we are subject to numerous laws and regulations regarding procedures for waste treatment, storage, recycling, transportation, and disposal activities, all of which may provide the basis for litigation against us. In recent years, the waste treatment industry has experienced a significant increase in so-called “toxic-tort” litigation as those injured by contamination seek to recover for personal injuries or property damage. We believe that, as our operations and activities expand, there will be a similar increase in the potential for litigation alleging that we have violated environmental laws or regulations or are responsible for contamination or pollution caused by our normal operations, negligence or other misconduct, or for accidents, which occur in the course of our business activities. Such litigation, if significant and not adequately insured against, could adversely affect our financial condition and our ability to fund our operations. Protracted litigation would likely cause us to spend significant amounts of our time, effort, and money. This could prevent our management from focusing on our operations and expansion.

 

If environmental regulation or enforcement is relaxed, the demand for our services will decrease.

 

The demand for our services is substantially dependent upon the public’s concern with, and the continuation and proliferation of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous, non-hazardous, and low-level radioactive waste. A decrease in the level of public concern, the repeal or modification of these laws, or any significant relaxation of regulations relating to the treatment, storage, recycling, and disposal of hazardous waste and low-level radioactive waste would significantly reduce the demand for our services and could have a material adverse effect on our operations and financial condition. We are not aware of any current federal or state government or agency efforts in which a moratorium or limitation has been, or will be, placed upon the creation of new hazardous or radioactive waste regulations that would have a material adverse effect on us; however, no assurance can be made that such a moratorium or limitation will not be implemented in the future.

 

We and our customers operate in a politically sensitive environment, and the public perception of nuclear power and radioactive materials can affect our customers and us.

 

We and our customers operate in a politically sensitive environment. Opposition by third parties to particular projects can limit the handling and disposal of radioactive materials. Adverse public reaction to developments in the disposal of radioactive materials, including any high-profile incident involving the discharge of radioactive materials, could directly affect our customers and indirectly affect our business. Adverse public reaction also could lead to increased regulation or outright prohibition, limitations on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse impact on our customers’ and our business.

 

The elimination or any modification of the Price-Anderson Acts indemnification authority could have adverse consequences for our business.

 

The Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the manufacture, use, and storage of radioactive materials. The Price-Anderson Act (“PAA”) supports the nuclear services industry by offering broad indemnification to DOE contractors for liabilities arising out of nuclear incidents at DOE nuclear facilities. That indemnification protects DOE prime contractor, but also similar companies that work under contract or subcontract for a DOE prime contract or transporting radioactive material to or from a site. The indemnification authority of the DOE under the PAA was extended through 2025 by the Energy Policy Act of 2005.

 

Under certain conditions, the PAA’s indemnification provisions may not apply to our processing of radioactive waste at governmental facilities, and may not apply to liabilities that we might incur while performing services as a contractor for the DOE and the nuclear energy industry. If an incident or evacuation is not covered under PAA indemnification, we could be held liable for damages, regardless of fault, which could have an adverse effect on our results of operations and financial condition. If such indemnification authority is not applicable in the future, our business could be adversely affected if the owners and operators of new facilities fail to retain our services in the absence of commercial adequate insurance and indemnification.

 

Risks Relating to our Financial Performance and Position and Need for Financing

 

If any of our permits, other intangible assets, and tangible assets becomes impaired, we may be required to record significant charges to earnings.

 

Under accounting principles generally accepted in the United States (“U.S. GAAP”), we review our intangible and tangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Our permits are tested for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of our permit, other intangible assets, and tangible assets may not be recoverable, include a decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry. We may be required, in the future, to record impairment charges in our financial statements, in which any impairment of our permit, other intangible assets, and tangible assets is determined. Such impairment charges could negatively impact our results of operations.

 

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Breach of any of the covenants in our credit facility could result in a default, triggering repayment of outstanding debt under the credit facility and the termination of our credit facility.

 

Our credit facility with our bank contains financial covenants. A breach of any of these covenants could result in a default under our credit facility triggering our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. In the past, when we failed to meet our minimum quarterly fixed charge coverage ratio (“FCCR”) requirement, our lender has either waived these instances of non-compliance or provided certain amendments to our FCCR requirements which enabled us to meet our quarterly FCCR requirements. Additionally, our lender has in the past waived our quarterly FCCR testing requirements. If we fail to meet any of our financial covenants going forward, including the minimum quarterly FCCR requirement, and our lender does not further waive the non-compliance or further revise our covenant requirement so that we are in compliance, our lender could accelerate the payment of our borrowings under our credit facility and terminate our credit facility. In such event, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness.

 

Our debt and borrowing availability under our credit facility could adversely affect our operations.

 

At December 31, 2020, our aggregate consolidated debt was approximately $6,729,000, which included our PPP Loan balance of approximately $5,318,000. We have applied for loan forgiveness on the entire PPP Loan balance which is subject to the review and approval of our lender and the SBA. Our Second Amended and Restated Revolving Credit, Term Loan and Security Agreement dated May 8, 2020 provides for a total credit facility commitment of approximately $19,742,000, consisting of a $18,000,000 revolving line of credit and a term loan balance of approximately $1,742,000. The maximum we can borrow under the revolving part of the credit facility is based on a percentage of the amount of our eligible receivables outstanding at any one time reduced by outstanding standby letters of credit and any borrowing reduction that our lender may impose from time to time. At December 31, 2020, we had no borrowing under the revolving part of our credit facility and borrowing availability of up to an additional $14,220,000. A lack of positive operating results could have material adverse consequences on our ability to operate our business. Our ability to make principal and interest payments, to refinance indebtedness, and borrow under our credit facility will depend on both our and our subsidiaries’ future operating performance and cash flow. Prevailing economic conditions, interest rate levels, and financial, competitive, business, and other factors affect us. Many of these factors are beyond our control.

 

Our indebtedness could limit our financial and operating activities, and adversely affect our ability to incur additional debt to fund future needs.

 

As a result of our indebtedness, we could, among other things, be:

 

  required to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available for operations and future business opportunities;
  make it more difficult for us to satisfy our obligations;
  limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all;
  limit our ability to adjust to changing economic, business and competitive conditions;
  place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing;
  make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic conditions; and
  make us more susceptible to changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing.

 

Any of the foregoing could adversely impact our operating results, financial condition, and liquidity. Our ability to continue our operations depends on our ability to generate profitable operations or complete equity or debt financings to increase our capital.

 

13
 

 

We may be unable to utilize loss carryforwards in the future.

 

We have approximately $14,264,000 and $71,316,000 in net operating loss carryforwards for federal and state income tax purposes, respectively, which will expire in various amounts starting in 2021 if not used against future federal and state income tax liabilities, respectively. Approximately $12,199,000 of our federal net operating loss carryforwards were generated after December 31, 2017 and thus do not expire. Our net loss carryforwards are subject to various limitations. Our ability to use the net loss carryforwards depends on whether we are able to generate sufficient income in the future years. Further, our net loss carryforwards have not been audited or approved by the Internal Revenue Service.

 

Our Paycheck Protection Loan (“PPP Loan”) may be audited

 

In April 2020, we received a PPP Loan under the CARES Act in the amount of approximately $5,666,000 which had a principal balance of approximately $5,318,000 at December 31, 2020. We are aware that PPP loans in excess of $2,000,000 may be subject to being audited by the appropriate governmental authority. If our PPP Loan is audited, it is currently unknown how our PPP Loan could be affected by an audit. An audit could result, among other things, in us being required to return all or a portion of our PPP Loan.

 

Risks Relating to our Common Stock

 

Issuance of substantial amounts of our Common Stock could depress our stock price.

 

Any sales of substantial amounts of our Common Stock in the public market could cause an adverse effect on the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. The issuance of our Common Stock will result in the dilution in the percentage membership interest of our stockholders and the dilution in ownership value. At December 31, 2020, we had 12,153,897 shares of Common Stock outstanding.

 

In addition, at December 31, 2020, we had outstanding options to purchase 658,400 shares of our Common Stock at exercise prices ranging from $2.79 to $7.29 per share. Further, our preferred share rights plan, if triggered, could result in the issuance of a substantial amount of our Common Stock. The existence of this quantity of rights to purchase our Common Stock under the preferred share rights plan could result in a significant dilution in the percentage ownership interest of our stockholders and the dilution in ownership value. Future sales of the shares issuable could also depress the market price of our Common Stock.

 

We do not intend to pay dividends on our Common Stock in the foreseeable future.

 

Since our inception, we have not paid cash dividends on our Common Stock, and we do not anticipate paying any cash dividends in the foreseeable future. Our credit facility prohibits us from paying cash dividends on our Common Stock without prior approval from our lender.

 

The price of our Common Stock may fluctuate significantly, which may make it difficult for our stockholders to resell our Common Stock when a stockholder wants or at prices a stockholder finds attractive.

 

The price of our Common Stock on the NASDAQ Capital Markets constantly changes. We expect that the market price of our Common Stock will continue to fluctuate. This may make it difficult for our stockholders to resell the Common Stock when a stockholder wants or at prices a stockholder finds attractive.

 

Future issuance of our Common Stock could adversely affect the price of our Common Stock, our ability to raise funds in new stock offerings and could dilute the percentage ownership of our common stockholders.

 

Future sales of substantial amounts of our Common Stock or equity-related securities in the public market, or the perception that such sales or conversions could occur, could adversely affect prevailing trading prices of our Common Stock and could dilute the value of Common Stock held by our existing stockholders. No prediction can be made as to the effect, if any, that future sales of shares of our Common Stock or the availability of shares of our Common Stock for future sale will have on the trading price of our Common Stock. Such future sales or conversions could also significantly reduce the percentage ownership of our common stockholders.

 

14
 

 

Our Preferred Share Rights Plan may adversely affect our stockholders.

 

The Company adopted a Preferred Share Purchase Rights Plan (“Rights Plan”) dated May 2018. As part of the Rights Plan, the Company’s Board of Directors (“Board”) declared a dividend distribution of one Preferred Share Purchase Right (“Right”) on each outstanding share of the Company’s Common Stock to stockholders of record on May 12, 2018. The Rights Plan is designed to assure that all of the Company’s shareholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender abusive tactics to gain control of the Company. The Rights Plan, as amended, is to terminate the earliest of (1) close of business on May 2, 2021, (2) the time at which the Rights are redeemed, (3) the time at which the Rights are exchange, or (4) closing of any merger or acquisition of the Company which has been approved by the Board prior to any person becoming such an acquiring person.

 

In general, the Rights under the Rights Plan will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company’s Common Stock or announces a tender or exchange offer, the consummation of which would result in ownership by a person or group of 15% or more of the Common Stock (with certain exceptions). Each Right under the Rights Plan (other than the Rights owned by such acquiring person or members of such group which are void) will entitle shareholders to buy one one-thousandth of a share of a new series of participating preferred stock at an exercise price of $20.00. Each one one-thousandth of a share of such new preferred stock purchasable upon exercise of a Right has economic terms designed to approximate the value of one share of Common Stock. Shareholders who have beneficial ownership of 15% or more at the adoption of the new Rights Plan are grandfathered in, but may not acquire additional shares without triggering the new Rights Plan.

 

If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder (other than Rights owned by such acquiring person or members of such group which are void) to purchase, at the Right’s then current exercise price, a number of the acquiring company’s common shares having a market value at the time of twice the Right’s exercise price.

 

In addition, if a person or group (with certain exceptions) acquires 15% or more of the Company’s outstanding Common Stock, each Right will entitle its holder (other than the Rights owned by such acquiring person or members of such group which are void) to purchase, in lieu of preferred stock, at the Right’s then current exercise price, a number of shares of the Company’s Common Stock having a market value of twice the Right’s exercise price.

 

Following the acquisition by a person or group of beneficial ownership of 15% or more of the Company’s outstanding Common Stock (with certain exceptions), and prior to an acquisition of 50% or more of the Company’s Common Stock by such person or group, the Company’s Board may, at its option, exchange the Rights (other than Rights owned by such acquiring person or members of such group) in whole or in part, for shares of the Company’s Common Stock at an exchange ratio of one share of Common Stock (or one one-thousandth of a share of the new series of participating preferred stock) per Right.

 

Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company’s Common Stock (with certain exceptions), the Rights are redeemable for $0.001 per Right at the option of the Board of Directors.

 

The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board. The Rights should not interfere with any merger or other business combination approved by our Board.

 

General Risk Factors

 

Loss of certain key personnel could have a material adverse effect on us.

 

Our success depends on the contributions of our key management, environmental and engineering personnel. Our future success depends on our ability to retain and expand our staff of qualified personnel, including environmental specialists and technicians, sales personnel, and engineers. Without qualified personnel, we may incur delays in rendering our services or be unable to render certain services. We cannot be certain that we will be successful in our efforts to attract and retain qualified personnel as their availability is limited due to the demand for hazardous waste management services and the highly competitive nature of the hazardous waste management industry. We do not maintain key person insurance on any of our employees, officers, or directors.

 

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We may not be successful in winning new business mandates from our government and commercial customers or international customers.

 

We must be successful in winning mandates from our government, commercial customers and international customers to replace revenues from projects that we have completed or that are nearing completion and to increase our revenues. Our business and operating results can be adversely affected by the size and timing of a single material contract.

 

Our failure to maintain our safety record could have an adverse effect on our business.

 

Our safety record is critical to our reputation. In addition, many of our government and commercial customers require that we maintain certain specified safety record guidelines to be eligible to bid for contracts with these customers. Furthermore, contract terms may provide for automatic termination in the event that our safety record fails to adhere to agreed-upon guidelines during performance of the contract. As a result, our failure to maintain our safety record could have a material adverse effect on our business, financial condition and results of operations.

 

Systems failures, interruptions or breaches of security and other cyber security risks could have an adverse effect on our financial condition and results of operations.

 

We are subject to certain operational risks to our information systems. Because of efforts on the part of computer hackers and cyberterrorists to breach data security of companies, we face risk associated with potential failures to adequately protect critical corporate, customer and employee data. As part of our business, we develop and retain confidential data about us and our customers, including the U.S. government. We also rely on the services of a variety of vendors to meet our data processing and communications needs.

 

Despite our implemented security measures and established policies, we cannot be certain that all of our systems are entirely free from vulnerability to attack or other technological difficulties or failures or failures on the part of our employees to follow our established security measures and policies. Information security risks have increased significantly. Our technologies, systems, and networks may become the target of cyber-attacks, computer viruses, malicious code, or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information and the disruption of our business operations. A security breach could adversely impact our customer relationships, reputation and operation and result in violations of applicable privacy and other laws, financial loss to us or to our customers or to our employees, and litigation exposure. While we maintain a system of internal controls and procedures, any breach, attack, or failure as discussed above could have a material adverse impact on our business, financial condition, and results of operations or liquidity.

 

There is also an increasing attention on the importance of cybersecurity relating to infrastructure. This creates the potential for future developments in regulations relating to cybersecurity that may adversely impact us, our customers and how we offer our services to our customers.

 

We may be exposed to certain regulatory and financial risks related to climate change.

 

Climate change is receiving ever increasing attention from scientists and legislators alike. The debate is ongoing as to the extent to which our climate is changing, the potential causes of this change and its potential impacts. Some attribute global warming to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. Presently there are no federally mandated greenhouse gas reduction requirements in the United States. However, there are a number of legislative and regulatory proposals to address greenhouse gas emissions, which are in various phases of discussion or implementation. The outcome of federal and state actions to address global climate change could result in a variety of regulatory programs including potential new regulations. Any adoption by federal or state governments mandating a substantial reduction in greenhouse gas emissions could increase costs associated with our operations. Until the timing, scope and extent of any future regulation becomes known, we cannot predict the effect on our financial position, operating results and cash flows.

 

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We believe our proprietary technology is important to us.

 

We believe that it is important that we maintain our proprietary technologies. There can be no assurance that the steps taken by us to protect our proprietary technologies will be adequate to prevent misappropriation of these technologies by third parties. Misappropriation of our proprietary technology could have an adverse effect on our operations and financial condition. Changes to current environmental laws and regulations also could limit the use of our proprietary technology.

 

Failure to maintain effective internal control over financial reporting or failure to remediate a material weakness in internal control over financial reporting could have a material adverse effect on our business, operating results, and stock price.

 

Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. We are required to satisfy the requirements of Section 404 of Sarbanes Oxley and the related rules of the Commission, which require, among other things, management to assess annually the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting or effectively remediate any material weakness identified in internal control over financial reporting, there is a reasonable possibility that a misstatement of our annual or interim financial statements will not be prevented or detected in a timely manner. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly, and our business, financial condition, and reputation could be harmed.

 

Delaware law, certain of our charter provisions, our stock option plans, outstanding warrants and our Preferred Stock may inhibit a change of control under circumstances that could give you an opportunity to realize a premium over prevailing market prices.

 

We are a Delaware corporation governed, in part, by the provisions of Section 203 of the General Corporation Law of Delaware, an anti-takeover law. In general, Section 203 prohibits a Delaware public corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. As a result of Section 203, potential acquirers may be discouraged from attempting to effect acquisition transactions with us, thereby possibly depriving our security holders of certain opportunities to sell, or otherwise dispose of, such securities at above-market prices pursuant to such transactions. Further, certain of our option plans provide for the immediate acceleration of, and removal of restrictions from, options and other awards under such plans upon a “change of control” (as defined in the respective plans). Such provisions may also have the result of discouraging acquisition of us.

 

We have authorized and unissued 17,120,061 (which include shares issuable under outstanding options to purchase 658,400 shares of our Common Stock and shares issuable under an outstanding warrant to purchase 60,000 shares of our Common Stock) shares of our Common Stock and 2,000,000 shares of our Preferred Stock as of December 31, 2020 (which includes 50,000 shares of our Preferred Stock reserved for issuance under our new preferred share rights plan discussed below). These unissued shares could be used by our management to make it more difficult for, and thereby discourage an attempt to acquire control of us.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not Applicable.

 

17
 

 

ITEM 2. PROPERTIES

 

Our principal executive office is in Atlanta, Georgia. Our Business Center is located in Oak Ridge, Tennessee. Our Treatment Segment facilities are located in Gainesville, Florida; Kingston, Tennessee; Richland, Washington; and Oak Ridge, Tennessee. All of the properties where these facilities operate on are held by our senior lender as collateral for our credit facility with the exception of the property at Oak Ridge, Tennessee which is leased which an option to purchase. Our Services Segment maintains offices, which are all leased properties. We maintain properties in Valdosta, Georgia and Memphis, Tennessee, which are all non-operational and are included within our discontinued operations.

 

The Company currently leases properties in the following locations for operations and administrative functions within our Treatment and Services Segments, including our corporate office and Business Center:

 

   Square Footage (SF)/     
Location  Acreage (AC)   Expiration of Lease 
Oak Ridge, TN (Business Center)  14,932 SF   May 1, 2022 
Oak Ridge, TN (Services)  5,000 SF   September 30, 2021 
Blaydon On Tyne, England (Services)  1,000 SF   Monthly 
New Brighton, PA (Services)  3,558 SF   June 30, 2022 
Newport, KY (Services)  1,566 SF   Monthly 
Pembroke, Ontario, Canada (Services)  800 SF   Monthly 
Atlanta, GA (Corporate)  6,499 SF   July 31, 2024 
Oak Ridge, TN (Treatment)  8.7 AC, including 17,400 SF   October 1, 2021 

 

We believe that the above facilities currently provide adequate capacity for our operations and that additional facilities are readily available in the regions in which we operate, which could support and supplement our existing facilities.

 

ITEM 3. LEGAL PROCEEDINGS

 

See “Part II” – “Item 8 - Financial Statements and Supplementary Data” – “Notes to Consolidated Financial Statements” – “Note 14 – Commitments and Contingencies” – “Legal Matters” for a discussion of our legal proceedings.

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Our Common Stock is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol “PESI.” The following table sets forth the high and low market trade prices quoted for the Common Stock during the periods shown. The source of such quotations and information is the NASDAQ online trading history reports.

 

   2020   2019 
   Low   High   Low   High 
Common Stock   1st Quarter   $3.82   $9.50   $2.50   $3.94 
    2nd Quarter    4.76    6.54    3.40    

4.46

 
    3rd Quarter    5.94    7.40    3.10    4.77 
    4th Quarter    5.80    7.13    4.30    9.98 

 

At February 12, 2021, there were approximately 137 stockholders of record of our Common Stock. The actual number of our stockholders is greater than this number, and includes beneficial owners whose shares are held in “street name” by banks, brokers, and other nominees.

 

18
 

 

Since our inception, we have not paid any cash dividends on our Common Stock and have no dividend policy. Our loan agreement dated May 8, 2020 prohibits us from paying any cash dividends on our Common Stock without prior approval from our lender. We do not anticipate paying cash dividends on our outstanding Common Stock in the foreseeable future.

 

There were no purchases made by us or on behalf of us or any of our affiliated members of shares of our Common Stock during 2020.

 

We adopted a preferred share rights plan (the “Rights Plan”), as amended, which is designed to protect us against certain creeping acquisitions, open market purchases, and certain mergers and other combinations with acquiring companies. The Rights Plan is to terminate at the earliest of (1) close of business on May 2, 2021 (the “Final Expiration Date”), (2) the time at which the Rights are redeemed, (3) the time at which the Rights are exchange, or (4) closing of any merger or acquisition of the Company approved by the Board prior to any person becoming acquiring person.

 

See Item 1A. - Risk Factors – “Our Preferred Share Rights Plan may adversely affect our stockholders” as to further discussion relating to the terms of our Rights Plan in addition to its termination date.

 

See Note 7 “Capital Stock, Stock Plans, Warrants, and Stock Based Compensation” in Part II, Item 8, “Financial Statements and Supplementary Data” and “Equity Compensation Plans” in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matter” for securities authorized for issuance under equity compensation plans which are incorporated herein by reference.

 

ITEM 6.

SELECTED FINANCIAL DATA

 

Not required under Regulation S-K for smaller reporting companies.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements contained within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) may be deemed “forward-looking statements” within the meaning of Section 27A of the Act, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the “Private Securities Litigation Reform Act of 1995”). See “Special Note regarding Forward-Looking Statements” contained in this report.

 

Management’s discussion and analysis is based, among other things, upon our audited consolidated financial statements and includes our accounts, the accounts of our wholly-owned subsidiaries, the accounts of our majority-owned Polish subsidiary, and the account of a variable interest entity for which we are the primary beneficiary, after elimination of all significant intercompany balances and transactions.

 

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report.

 

COVID-19 Impact

 

Since the outbreak of COVID-19 in early part of 2020, we have remained focused on keeping our employees working and, at the same time, focusing on protecting the health and wellbeing of our employees and the communities in which we operate while assuring the continuity of our business operations.

 

Our management team has proactively implemented our business continuity and safety plans and has taken a variety of measures to ensure the ongoing availability of our waste treatment and remediation services, while taking health and safety measures, including separating employee and customer contact, social distancing between employees, implementing enhanced cleaning and hygiene protocols in all of our facilities, and implementing remote work policies, when necessary.

 

19
 

 

The COVID-19 pandemic presents potential new risks to our business and results in significant volatility in the U.S. and international markets. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. Starting in late March 2020, our operations were impacted by the shutdown of a number of projects and the delays of certain waste shipments. Since the latter part of the second quarter of 2020, all of the projects that were previously shutdown within our Services Segment restarted as stay-at-home orders and certain other restrictions resulting from the pandemic were lifted. Despite the shutdown of certain projects for part of 2020, revenues generated within our Services Segment in 2020 exceeded our revenue generated in 2019 by approximately $42,188,000. We continue to experience delays in waste shipments from certain customers within our Treatment Segment directly related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However, we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations. As the impact of COVID-19 remains fluid, the uncertainty in waste receipt shipments may impact our results of operations for the first quarter of 2021 and potentially the second quarter of 2021. The potential for a material impact on our business increases the longer COVID-19 impacts the level of economic activities in the United States and globally as our customers may continue to delay waste shipments and project work may shut down again. For this reason, we cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on our results of operations, financial position, and liquidity during the next twelve months.

 

At this time, we believe we have sufficient liquidity on hand to continue business operations during the next twelve months. At December 31, 2020, our borrowing availability under our revolving credit facility was approximately $14,220,000 which was based on a percentage of eligible receivables and subject to certain reserves and included our cash on hand of approximately $7,924,000. In April 2020, we entered into a promissory note (“PPP Loan”) with our credit facility lender in the amount of approximately $5,666,000 under the Paycheck Protection Program (“PPP”) that was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” - see “CARES Act – PPP Loan” under “Liquidity and Capital Resources” below for a discussion of the PPP Loan). During the third quarter of 2020, we repaid approximately $348,000 of the PPP Loan resulting from clarification in the loan calculation at the time of the loan origination. On October 5, 2020, we applied for forgiveness on the entire PPP Loan balance as permitted under the program, which is subject to the review and approval of our lender and Small Business Administration (“SBA”). Proceeds from the PPP Loan have allowed us to avoid having to furlough or layoff certain eligible employees as a result of the COVID-19 pandemic, although there are no assurances that such will not be required going forward. We continue to assess reducing operating costs during this volatile time, which include curtailing capital expenditures, eliminating non-essential expenditures and implementing a hiring freeze as needed. We elected to defer payment of our share of social security taxes as permitted under the CARES Act, as amended (see “CARES Act – Deferral of Employment Tax Deposits” within this MD&A for a discussion of this deferral). Based on our current projection, we believe that we will be able to meet the current covenant requirements under our loan agreement for the next twelve months despite the impact of COVID-19.

 

We are closely monitoring our customers’ payment performance. However, since a significant portion of our revenues is derived from government related contracts, we do not expect our accounts receivable collections to be materially impacted due to COVID-19.

 

Review

 

Revenue increased $31,967,000 or 43.5% to $105,426,000 for the twelve months ended December 31, 2020 from $73,459,000 for the corresponding period of 2019. The increase was entirely within our Services Segment where revenue increased $42,188,000 or 127.5% from increased projects and the sizable value of certain projects. Our Treatment Services revenue decreased by $10,221,000 or 25.3% primarily due to delays in waste shipments from certain customers resulting from the impact of COVID-19 as discussed above. The delays in waste shipments were also partly attributed to the transition of new prime contractors at certain DOE sites which resulted in delays in waste shipments to us as subcontractors under certain contracts. Additionally, lower averaged price waste from revenue mix contributed to the decrease in revenue within the Treatment Segment. Gross profit increased $309,000 or 2.0% due to the increase in revenues in the Services Segment. Selling, General, and Administrative (“SG&A”) expenses decreased by approximately $88,000 or 0.7% for the twelve months ended December 31, 2020 as compared to the corresponding period of 2019. At December 31, 2020, we had working capital of approximately $3,672,000 as compared to working capital of $26,000 at December 31, 2019. Our working capital at December 31, 2020 included the classification of approximately $3,191,000 of the outstanding PPP Loan balance of $5,318,000 as “Current portion of long-term debt” on our Consolidated Balance Sheets. As previously discussed, we have applied for forgiveness on repayment of the entire PPP Loan balance which is subject to the review and approval of our lender and the SBA.

 

20
 

 

Business Environment and Outlook

 

Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients directly as the contractor or indirectly as a subcontractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various sites, and/or the impact resulting from COVID-19 as discussed above. In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination or renegotiation on 30 days’ notice at the government’s option, and our governmental contracts/task orders with the Canadian government authorities allow the authorities to terminate the contract/task orders at any time for convenience. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows. As previously disclosed, our Medical Segment has substantially reduced its R&D costs and activities due to the need for capital to fund such activities. We anticipate that our Medical Segment will not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable to raise the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.

 

We are continually reviewing methods to raise additional capital to supplement our liquidity requirements, when needed, and reducing our operating costs. We continue to aggressively bid on various contracts, including potential contracts within the international markets.

 

Results of Operations

 

The reporting of financial results and pertinent discussions are tailored to our three reportable segments: The Treatment Segment (“Treatment”), the Services Segment (“Services”), and the Medical Segment (“Medical”). Our Medical Segment has not generated any revenue and all costs incurred are included within R&D.

 

Summary - Years Ended December 31, 2020 and 2019

 

Below are the results of continuing operations for years ended December 31, 2020 and 2019 (amounts in thousands):

 

(Consolidated)  2020   %   2019   % 
Net revenues  $105,426    100.0   $73,459    69.7 
Cost of goods sold   89,533    84.9    57,875    78.8 
Gross profit   15,893    15.1    15,584    21.2 
Selling, general and administrative   11,774    11.2    11,862    16.1 
Research and development   762    .7    750    1.0 
Loss on disposal of property and equipment   29        3     
Income from operations   3,328    3.2    2,969    4.0 
Interest income   140    .1    337    .5 
Interest expense   (398)   (.4)   (432)   (.6)
Interest expense – financing fees   (294)   (.3)   (208)   (.3)
Other   211    .2    223    .3 
Loss on extinguishment of debt   (27)            
Income from continuing operations before taxes   2,960    2.8    2,889    3.9 
Income tax (benefit) expense   (189)   (.2)   157    .2 
Income from continuing operations  $3,149    3.0   $2,732    3.7 

   

21
 

 

Revenue

 

Consolidated revenues increased $31,967,000 for the year ended December 31, 2020 compared to the year ended December 31, 2019, as follows:

 

(In thousands)  2020   % Revenue   2019   % Revenue   Change   % Change 
Treatment                              
Government waste  $21,234    20.1   $27,277    37.1   $(6,043)   (22.2)
Hazardous/non-hazardous (1)   5,072    4.8    6,376    8.7    (1,304)   (20.5)
Other nuclear waste   3,837    3.6    6,711    9.1    (2,874)   (42.8)
Total   30,143    28.6    40,364    54.9    (10,221)   (25.3)
                               
Services                              
Nuclear   73,458    69.7    30,371    41.4    43,087    141.9 
Technical   1,825    1.7    2,724    3.7    (899)   (33.0)
Total   75,283    71.4    33,095    45.1    42,188    127.5 
                               
Total  $105,426    100.0   $73,459    100.0   $31,967    43.5 

 

1) Includes wastes generated by government clients of $1,976,000 and $2,422,000 for the twelve months ended December 31, 2020 and 2019, respectively.

 

Treatment Segment revenue decreased $10,221,000 or 25.3 % for the twelve months ended December 31, 2020 over the same period in 2019. The revenue decrease was primarily due to lower revenue generated from lower waste volume resulting from waste shipment delays since late March 2020 from certain of our customers due to the impact of COVID-19 including generator shutdowns and limited sustained operations. The delays in waste shipments were also partly attributed to the transition of new prime contractors at certain DOE sites which resulted in delays in waste shipments to us as subcontractors under certain contracts. Additionally, lower averaged price waste from revenue mix contributed to the decrease in revenue. Our Services Segment revenue increased $42,188,000 or 127.1% due to the increase in number of projects and the sizeable value of certain projects. Our Services Segment experienced this increase in revenue despite a number of our projects being shut down starting in late March 2020 due to COVID-19. These projects did not restart until the latter part of the second quarter of 2020. Our Services Segment revenues are project based; as such, the scope, duration and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value.

 

Cost of Goods Sold

 

Cost of goods sold increased $31,658,000 for the year ended December 31, 2020, as compared to the year ended December 31, 2019, as follows:

 

(In thousands)  2020  

%

Revenue

   2019  

%

Revenue

   Change 
Treatment  $24,652    81.8   $28,116    69.7   $(3,464)
Services   64,881    86.2    29,759    89.9    35,122 
Total  $89,533    84.9   $57,875    78.8   $31,658 

 

Cost of goods sold for the Treatment Segment decreased approximately $3,464,000 or 12.3%. Treatment Segment costs of goods sold for the twelve months ended December 31, 2019 included additional closure costs recorded in the amount of $330,000 for our East Tennessee Materials and Energy Corporation (“M&EC”) facility due to finalization of closure requirements in connection with the closure of the facility. Excluding the closure costs recorded in 2019, Treatment Segment cost of goods sold decreased $3,134,000 or 11.3% primarily due to the decrease in revenue. Excluding the closure costs recorded in 2019, Treatment Segment variable costs decreased by approximately $3,516,000 primarily due to lower disposal, transportation, material and supplies and outside services costs. Our overall fixed costs were higher by approximately $382,000 resulting from the following: maintenance expenses were higher by $280,000; regulatory expenses were higher by approximately $190,000; depreciation expenses were higher by approximately $219,000 primarily due to more financed leases; general expenses were lower by approximately $61,000 in various categories; salaries and payroll costs were lower by approximately $175,000; and travel expenses were lower by approximately $71,000 due to restrictions implemented resulting from COVID-19. Services Segment cost of goods sold increased $35,122,000 or 118.0% primarily due to increased revenue as discussed above. The increase in cost of goods sold within our Services Segment was primarily due to higher salaries and payroll costs, travel, and outside services expenses totaling approximately $31,068,000, higher material and supplies, regulatory and disposal costs totaling approximately $3,312,000, and higher general expenses of $742,000 in various categories. Payroll costs within our Services Segment included higher expenses for project related incentives. Included within cost of goods sold is depreciation and amortization expense of $1,555,000 and $1,301,000 for the twelve months ended December 31, 2020, and 2019, respectively.

 

22
 

 

Gross Profit

 

Gross profit for the year ended December 31, 2020 was $309,000 higher than 2019 as follows:

 

(In thousands)  2020  

%

Revenue

   2019  

%

Revenue

   Change 
Treatment  $5,491    18.2   $12,248    30.3   $(6,757)
Services   10,402    13.8    3,336    10.1    7,066 
Total  $15,893    15.1   $15,584    21.2   $309 

 

Treatment Segment gross profit decreased $6,757,000 or 55.2% and gross margin decreased to 18.2% from 30.3%. Excluding the additional closure costs of $330,000 recorded in the twelve months ended December 31, 2019 in connection with the closure of our M&EC facility as discussed above, gross profit decreased $7,087,000 or 56.3% and gross margin decreased to 18.2% from 31.2% primarily due to lower revenue from lower waste volume and lower averaged price waste from revenue mix. In the Services Segment, gross profit increased $7,066,000 or 211.8% and gross margin increased from 10.1% to 13.8% primarily due to the increase in revenue. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.

 

SG&A

 

SG&A expenses decreased $88,000 for the year ended December 31, 2020 as compared to the corresponding period for 2019 as follows:

 

(In thousands)  2020  

%

Revenue

   2019  

%

Revenue

   Change 
Administrative  $5,537       $5,395       $142 
Treatment   3,819    12.7    3,955    9.8    (136)
Services   2,418    3.2    2,512    7.6    (94)
Total  $11,774    11.2   $11,862    16.1   $(88)

 

The increase in Administrative SG&A was primarily due to the following: general expenses were higher by approximately $84,000 in various categories; director stock option expenses were higher by approximately $75,000 due to options granted to new directors in addition to higher fair value of options granted to re-elected directors; outside services expenses were higher by approximately $16,000 resulting from more consulting/subcontract matters; depreciation expenses were higher by approximately $14,000; salaries and payroll costs were higher by approximately $13,000; and travel expenses were lower by approximately $60,000 due to restrictions implemented resulting from the impact of COVID-19. Treatment SG&A was lower primarily due to the following: travel expenses were lower by approximately $109,000 due to restrictions implemented resulting from the impact of COVID-19; general expenses were lower by $123,000 in various categories which included lower trade show expenses of $122,000 resulting from the cancellation of certain trade shows due to impact of COVID-19; and salaries and payroll costs were higher by approximately $96,000. Services Segment SG&A was lower primarily due to the following: travel expenses were lower by approximately $119,000 due to restrictions implemented resulting from the impact of COVID-19; bad debt expenses were lower by approximately $432,000 as certain customer accounts which we had previously reserved for were collected in 2020 and additional bad debt expenses were recorded in 2019 for a certain account receivable which was determined not to be collectible at December 31, 2019; and salaries and payroll costs were higher by approximately $457,000. Included in SG&A expenses is depreciation and amortization expense of $41,000 and $41,000 for the twelve months ended December 31, 2020 and 2019, respectively.

 

23
 

 

R&D

 

R&D expenses increased $12,000 for the year ended December 31, 2020 as compared to the corresponding period of 2019 as follows:

 

(In thousands)  2020   2019   Change 
Administrative  $76   $23   $53 
Treatment   243    401    (158)
Services   132    12    132 
PF Medical   311    314    (3)
Total  $762   $750   $12 

 

Research and development costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development of new technologies and technological enhancement of new potential waste treatment processes.

 

Interest Income

 

Interest income decreased by approximately $197,000 for the twelve months ended December 31, 2020 as compared to the corresponding period of 2019. The decrease was primarily due to lower interest earned on the finite risk sinking funds from lower interest rate. The decrease in interest income was also attributed to lower interest earned from lower finite risk sinking fund balance resulting from the release of $5,000,000 in finite risk sinking funds by AIG Specialty Insurance Company (“AIG”) to us at the end of July 2019 in connection with the closure of our M&EC facility. The $5,000,000 in finite sinking funds represented a partial release of the total collateral held under our finite risk insurance policy.

 

Interest Expense

 

Interest expense decreased by approximately $34,000 for the twelve months ended December 31, 2020 as compared to the corresponding period of 2019 primarily due to lower interest expense from our declining term loan balance outstanding and lower interest rate. Also, interest expense was lower from accelerated declining loan balance outstanding resulting from payments of principal on the $2,500,000 loan that we entered into with Robert Ferguson on April 1, 2019. This loan was paid-in-full by us by the end December 2020. The overall decrease in interest expense was partially offset by higher interest expense from more finance leases and interest accrued for the PPP Loan (see “Liquidity and Capital Resources – Financing Activities” and “The CARES Act – PPP Loan” for further information of these loans).

 

Interest Expense- Financing Fees

 

Interest expense-financing fees increased approximately $86,000 for the twelve months ended December 31, 2020 as compared to the corresponding period of 2019. The increase was primarily due to debt discount/debt issuance costs amortized as financing fees in connection with the issuance of our Common Stock and a purchase Warrant as consideration for us receiving the $2,500,000 loan from Robert Ferguson which was paid off early by us at the end of December 2020.

 

Income Taxes

 

We had income tax benefit of $189,000 and income tax expense of $157,000 for continuing operations for the years ended December 31, 2020 and 2019, respectively. The Company’s effective tax rates were approximately 6.4% and 5.4% for the twelve months ended December 31, 2020 and 2019, respectively. The tax benefit for the year ended December 31, 2020 resulted primarily from state tax true-ups related to our amended tax returns and a reduction in the naked credit deferred tax liabilities (“DTL”) resulting from a reduction in estimated state apportionment percentage.

 

24
 

 

Discontinued Operations

 

Our discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.

 

Our discontinued operations had no revenue for the twelve months ended December 31, 2020 and 2019. We incurred net losses of $412,000 and $547,000 for our discontinued operations for the twelve months ended December 31, 2020 and 2019, respectively (net of taxes of $0 for each period). The losses incurred for each period were primarily due to the administration and continued monitoring of our discontinued operations. Our net loss for the year ended December 31, 2019 also included an increase of approximately $50,000 in remediation reserve for our Perma-Fix of Memphis (“PFM”) subsidiary due to reassessment of the remediation reserve.

 

Liquidity and Capital Resources

 

Our cash flow requirements during 2020 were primarily financed by our operations, credit facility availability, and the PPP Loan that we received under the CARES Act as discussed below (see “CARES Act – PPP Loan”). We generated approximately $7,867,000 of cash from our continuing operations. Subject to the impact of COVID-19 as discussed above, our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility availability, and cash on hand which was approximately $7,924,000 at December 31, 2020. We continue to explore all sources of increasing our capital to supplement our liquidity requirements, when needed, and to improve our revenue and working capital. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. At this time, we believe that our cash flows from operations, our available liquidity from our credit facility, and our cash on hand should be sufficient to fund our operations for the next twelve months. However, due to the uncertainty of COVID-19, there are no assurances such will be the case in the events that certain of our customers continue to delay waste shipments and/or elect to shut down projects again due to COVID-19. As previously disclosed, our Medical Segment substantially reduced its R&D costs and activities due to the need for capital to fund such activities. We continue to seek various sources of potential funding for our Medical Segment. We anticipate that our Medical Segment will not resume full R&D activities until it obtains the necessary funding through obtaining its own credit facility or additional equity raise or obtaining new partners willing to fund its R&D activities. If the Medical Segment is unable to raise the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D program.

 

The following table reflects the cash flow activity for the year ended December 31, 2020 and the corresponding period of 2019:

 

(In thousands)  2020   2019 
Cash provided by (used in) operating activities of continuing operations  $7,867   $(4,023)
Cash used in operating activities of discontinued operations   (499)   (660)
Cash used in investing activities of continuing operations   (1,711)   (1,533)
Cash provided by investing activities of discontinued operations   118    121 
Cash provided by financing activities of continuing operations   1,892    992 
Effect of exchange rate changes on cash   6    19 
Increase (decrease) in cash and finite risk sinking fund (restricted cash)  $7,673   $(5,084)

 

At December 31, 2020, we were in a positive cash position with no revolving credit balance. At December 31, 2020, we had cash on hand of approximately $7,924,000, which included account balances of our foreign subsidiaries totaling approximately $377,000. At December 31, 2020, we had finite risk sinking funds (restricted cash) of approximately $11,446,000, which represents cash held as collateral under our financial assurance policy.

 

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Operating Activities

 

Accounts receivable, net of allowances for doubtful accounts, totaled $9,659,000 at December 31, 2020, a decrease of $3,519,000 from the December 31, 2019 balance of $13,178,000. The decrease was primarily due to timing of invoicing which was reflective of the increase in our unbilled receivables and timing of our accounts receivable collection. We provide a variety of payment terms to our customers; therefore, our accounts receivable are impacted by these terms and the related timing of accounts receivable collections. The amount of our accounts receivables and collection could be materially impacted the longer COVID-19 persists.

 

Accounts payable, totaled $15,382,000 at December 31, 2020, an increase of $6,105,000 from the December 31, 2019 balance of $9,277,000. The increase in accounts payable was attributed to an increase in costs within our Services Segment resulting from the significant increase in revenue. Additionally, our accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout all segments.

 

We had working capital of $3,672,000 (which included working capital of our discontinued operations) at December 31, 2020, as compared to working capital of $26,000 at December 31, 2019. The improvement in our working capital was primarily due to the proceeds that we received from the PPP Loan under the Paycheck Protection Program (see “PPP Loan” under “CARES Act” below for a discussion of this loan) and the increase in our unbilled receivables from the significant increase in revenues within our Services Segment. The improvement in our working capital was partially offset by the increase in our accounts payable. Additionally, at December 31, 2020, we classified approximately $3,191,000 of the outstanding PPP Loan balance of $5,318,000 as “Current portion of long-term debt” on our Consolidated Balance Sheets. We have applied for forgiveness on repayment of the entire PPP Loan balance which is subject to the review and approval of our lender and the SBA.

 

Investing Activities

 

During 2020, our purchases of capital equipment totaled approximately $2,598,000, of which $883,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2021 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.

 

Financing Activities

 

We entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Amended Loan Agreement had been amended from time to time since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently amended (“Revised Loan Agreement”), provided us with the following credit facility with a maturity date of March 24, 2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term loan (“term loan”) of approximately $6,100,000. The maximum that we can borrow under the revolving credit was based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender may impose from time to time.

 

Payment of annual rate of interest due on the revolving credit under the Revised Loan Agreement was at prime (3.25% at December 31, 2020) plus 2% and the term loan at prime plus 2.5%.

 

On May 8, 2020, we entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement (the “New Loan Agreement”) with PNC, replacing our previous Revised Loan Agreement with PNC. The New Loan Agreement provides us with the following credit facility:

 

  up to $18,000,000 revolving credit facility, subject to the amount of borrowings based on a percentage of eligible receivables and subject to certain reserves; and

 

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  a term loan of $1,741,818, which requires monthly installments of $35,547.

 

The New Loan Agreement terminates as of May 15, 2024, unless sooner terminated.

 

Similar to our Revised Loan Agreement, the New Loan Agreement requires us to meet certain customary financial covenants, including, among other things, a minimum Tangible Adjusted Net Worth requirement of $27,000,000 at all times; maximum capital spending of $6,000,000 annually; and a minimum fixed charge coverage ratio (“FCCR”) requirement of 1.15:1.

 

Under the New Loan Agreement, payment of annual rate of interest due on the credit facility is as follows:

 

revolving credit at prime plus 2.50% or London InterBank Offer Rate (“LIBOR”) plus 3.50% and the term loan at prime plus 3.00% or LIBOR plus 4.00%. We can only elect to use the LIBOR interest payment option after we become compliant with meeting the minimum FCCR of 1.15:1; and
   
Upon the achievement of a FCCR of greater than 1.25:1, we have the option of paying an annual rate of interest due on the revolving credit at prime plus 2.00% or LIBOR plus 3.00% and the term loan at prime plus 2.50% or LIBOR plus 3.50%. We met this FCCR in each of the quarters of 2020. Upon meeting the FCCR of 1.25:1, this interest payment option will remain in place in the event that our future FCCR falls below 1.25:1.

 

Under the LIBOR option of interest payment noted above, a LIBOR floor of 0.75% shall apply in the event that LIBOR falls below 0.75% at any point in time.

 

Pursuant to the New Loan Agreement, we may terminate the New Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the New Loan Agreement. We have agreed to pay PNC 1.0% of the total financing in the event we pay off our obligations on or before May 7, 2021 and 0.5% of the total financing if we pays off our obligations after May 7, 2021 but prior to or on May 7, 2022. No early termination fee shall apply if we pay off our obligations under the New Loan Agreement after May 7, 2022.

 

At December 31, 2020, the borrowing availability under our revolving credit was approximately $14,220,000, based on our eligible receivables and includes a reduction in borrowing availability of approximately $3,026,000 from outstanding standby letters of credit.

 

Our credit facility under our Revised and New Loan Agreement with PNC contains certain financial covenant requirements, along with customary representations and warranties. A breach of any of these financial covenant requirements, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. We met our financial covenant requirements in 2020, including our quarterly FCCR requirements. We expect to meet our financial covenant requirements in the next twelve months; however, if we fail to meet any of our financial covenant requirements and our lender does not waive the non-compliance or revise our covenant so that we are in compliance, our lender could accelerate the repayment of borrowings under our credit facility and terminate our credit facility. In the event that our lender accelerates the payment of our borrowings and terminate our credit facility, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness.

 

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As previously disclosed, on April 1, 2019, we completed a lending transaction with Robert Ferguson (the “Lender”), whereby we borrowed from the Lender the sum of $2,500,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory note (the “Loan”). The Lender is a shareholder of ours and also serves as a consultant to us in connection with our Test Bed Initiative (“TBI”) at our Perma-Fix Northwest Richland, Inc. (“PFNWR”) subsidiary. The proceeds from the Loan were used for general working capital purposes. The Loan is unsecured, with a term of two years with interest payable at a fixed interest rate of 4.00% per annum. The Loan provides for monthly payments of accrued interest only during the first year of the Loan, with the first interest payment due May 1, 2019 and monthly payments of approximately $208,333 in principal plus accrued interest starting in the second year of the Loan. The Loan also allows for prepayment of principal payments over the term of the Loan without penalty with such prepayment of principal payments to be applied to the second year of the loan payments at our discretion. In December 2020, the Loan was paid-in-full. In connection with this capital raise transaction described above and consideration for us receiving the Loan, we issued a Warrant (the “Warrant”) to the Lender to purchase up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share, which was the closing bid price for a share of our Common Stock on NASDAQ.com immediately preceding the execution of the Loan and Warrant. The Warrant expires on April 1, 2024 and remains outstanding at December 31, 2020. As further consideration for this capital raise transaction relating to the Loan, we also issued 75,000 shares of its Common Stock to the Lender. The fair value of the Warrant and Common Stock and the related closing fees incurred from the transaction totaled approximately $398,000 and was recorded as debt discount/debt issuance costs which has been fully amortized as interest expense – financing fees. The 75,000 shares of Common Stock, the Warrant and the 60,000 shares of Common Stock that may be purchased under the Warrant were and will be issued in a private placement that was and will be exempt from registration under Rule 506 and/or Sections 4(a)(2) and 4(a)(5) of the Securities Act of 1933, as amended (the “Act”) and bear a restrictive legend against resale except in a transaction registered under the Act or in a transaction exempt from registration thereunder.

 

The CARES Act

 

PPP Loan

 

On April 14, 2020, we entered into a promissory note with PNC, our credit facility lender, in the amount of approximately $5,666,000 under the PPP (the “PPP Loan”). The PPP was established under the CARES Act and is administered by the SBA. On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”) was signed into law which amended the CARES Act. The note evidencing the PPP Loan contains events of default relating to, among other things, payment defaults, breach of representations and warranties, and provisions of the promissory note. During the third quarter of 2020, we repaid approximately $348,000 of the PPP Loan to PNC resulting from clarification in the loan calculation at the time of the loan origination.

 

Under the terms of the Flexibility Act, we can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds by us for eligible payroll costs, mortgage interest, rent and utility costs and the maintenance of employee and compensation levels for the covered period (which is defined as a 24 week period, beginning April 14, 2020, the date in which proceeds from the PPP Loan was disbursed to us by PNC). At least 60% of such forgiven amount must be used for eligible payroll costs. On October 5, 2020, we applied for forgiveness on repayment of the loan balance as permitted under the program, which is subject to the review and approval of our lender and the SBA. If all or a portion of the PPP Loan is not forgiven, all or the remaining portion of the loan will be for a term of two years but can be prepaid at any time prior to maturity without any prepayment penalties. The annual interest rate on the PPP Loan is 1.0% and no payments of principal or interest are due until the date that the SBA remits the loan forgiveness amount to our lender. While our PPP Loan currently has a two year maturity, the Flexibility Act permits us to request a five year maturity with our lender. At December 31, 2020, we have not received a determination on potential forgiveness on any portion of the PPP Loan balance; therefore, we have classified approximately $3,191,000 of the PPP Loan balance as “Current portion of long-term debt,” on our Consolidated Balance Sheets, which was based on payment of the PPP Loan starting in July 2021 (10 months from end of our covered period) in accordance with the terms of our PPP Loan agreement.

 

Deferral of Employment Tax Deposits

 

The CARES Act, as amended by the Flexibility Act, provides employers the option to defer the payment of an employer’s share of social security taxes beginning on March 27, 2020 through December 31, 2020, with 50% of the amount of social security taxes deferred to become due on December 31, 2021 with the remaining 50% due on December 31, 2022. We elected to defer such taxes starting in mid-April 2020. At December 31, 2020, we deferred payment of approximately $1,252,000 in our share of social security taxes, of which approximately $626,000 is included in “Other long-term liabilities,” with the remaining balance included in “Accrued expenses” within current liabilities in the Company’s Consolidated Balance Sheets.

 

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Off Balance Sheet Arrangements

 

From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. At December 31, 2020, the total amount of standby letters of credit outstanding totaled approximately $3,026,000 and the total amount of bonds outstanding totaled approximately $46,388,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At December 31, 2020, the closure and post-closure requirements for these facilities were approximately $19,651,000.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are prepared based upon the selection and application of accounting principles generally accepted in the United States of America (“US GAAP”), which may require us to make estimates, judgments and assumptions that affect amounts reported in our financial statements and accompanying notes. The accounting policies below are those we believe affect the more significant estimates and judgments used in preparation of our financial statements. Our other accounting policies are described in the accompanying notes to our consolidated financial statements of this Form 10-K (see “Item 8 – Financial Statements and Supplementary Data” – “Notes to Consolidated Financial Statements” – “Note 2 – Summary of Significant Accounting Policies”):

 

Intangible Assets. Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying value.

 

Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying amount, we perform a quantitative test to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair value. Significant judgments are inherent in these analyses and include assumptions for, among other factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows, and the determination of appropriate long-term discount rates.

 

Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2020 and 2019 resulted in no impairment charges.

 

Intangible assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible asset valuation review as of October 1. Intangible assets with definite useful lives are also tested for impairment whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable.

 

Accrued Closure Costs and Asset Retirement Obligations (“ARO”). Accrued closure costs represent our estimated environmental liability to clean up our facilities as required by our permits, in the event of closure. Accounting Standards Codification (“ASC”) 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations, and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property. In periods subsequent to initial measurement of the ARO, we must recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flow. Increases in the ARO liability due to passage of time impact net income as accretion expense and are included in cost of goods sold in the Consolidated Statements of Operations. Changes in the estimated future cash flows costs underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with our depreciation policy.

 

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Recent Accounting Pronouncements

 

See “Item 8 – Financial Statements and Supplementary Data” – “Notes to Consolidated Financial Statements” – “Note 2 – Summary of Significant Accounting Policies” for the recent accounting pronouncements that have been adopted during the year ended December 31, 2020, or will be adopted in future periods.

 

Known Trends and Uncertainties

 

Economic Conditions. Our business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government authorities (particularly the U.S Department of Energy and U.S. Department of Defense) or directly as the prime contractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including the economic conditions and the manner in which the government entity will be required to spend funding to remediate various sites. In addition, our U.S. governmental contracts and subcontracts relating to activities at governmental sites are generally subject to termination or renegotiation on 30 days notice at the government’s option. The TOAs with the Canadian government generally provide that the government may terminate a TOA at any time for convenience. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows.

 

Significant Customers. Our Treatment and Services Segments have significant relationships with the U.S and Canadian governmental authorities through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to government authorities. Our inability to continue under existing contracts that we have with the U.S government and Canadian government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.

 

We performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately $96,582,000, or 91.6%, of our total revenue during 2020, as compared to $59,985,000, or 81.7%, of our total revenue during 2019.

 

Revenue generated by us as a subcontractor to a customer for a remediation project performed for a government entity (the “DOE”) within our Services Segment in 2020 and 2019 accounted for approximately $41,011,000 or 38.9% and $8,529,000 or 11.6% (included in revenue generated relating to government clients above) of our total revenue for 2020 and 2019, respectively. This remediation project included among other things, decontamination support of a building. As work progressed throughout stages of this project in 2020, additional contaminations were regularly discovered which resulted in approval for additional work to be performed under this project. This project is expected to be completed by the first half of 2021.

 

As our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with a different customer from year to year, we do not believe the loss of one specific customer from one year to the next will generally have a material adverse effect on our operations and financial condition.

 

COVID-19 Impact. The extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the responses to the pandemic continue to evolve rapidly. Since the latter part of the second quarter of 2020, all of the projects within our Services Segment that were previously shutdown have restarted as stay-at-home orders and certain other restrictions resulting from the pandemic were lifted. Within our Treatment Segment, we continue to experience delays in waste shipment from certain customers directly related to the impact of COVID-19 including generator shutdowns and limited sustained operations, along with other factors. However, we expect to see a gradual return in waste receipts from these customers starting in the first half of 2021 as they accelerate operations. COVID-19 disruption could have a material adverse effect on our business as our customers could curtail and reduce capital and overall spending.

 

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The severity of the impact the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the extent and severity of the impact on our customers, the impact on governmental programs and budgets, distribution of COVID-19 vaccines, the rate at which people are inoculated with the vaccines, and how quickly and to what extent normal economic and operating conditions resume, all of which are uncertain and cannot be predicted with any accuracy or confidence at this time. Our future results of operations and liquidity could be adversely impacted by continued delays in waste shipments and/or the recurrence of project work shut downs as well as potential partial/full shutdown of any of our facilities due to COVID-19.

 

Environmental Contingencies

 

We are engaged in the waste management services segment of the pollution control industry. As a participant in the on-site treatment, storage and disposal market and the off-site treatment and services market, we are subject to rigorous federal, state and local regulations. These regulations mandate strict compliance and therefore are a cost and concern to us. Because of their integral role in providing quality environmental services, we make every reasonable attempt to maintain complete compliance with these regulations; however, even with a diligent commitment, we, along with many of our competitors, may be required to pay fines for violations or investigate and potentially remediate our waste management facilities.

 

We routinely use third party disposal companies, who ultimately destroy or secure landfill residual materials generated at our facilities or at a client’s site. In the past, numerous third-party disposal sites have improperly managed waste and consequently require remedial action; consequently, any party utilizing these sites may be liable for some or all of the remedial costs. Despite our aggressive compliance and auditing procedures for disposal of wastes, we could further be notified, in the future, that we are a potentially responsible party (“PRP”) at a remedial action site, which could have a material adverse effect.

 

We have three remediation projects, which are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”), PFM and Perma-Fix of South Georgia, Inc. (“PFSG”) subsidiaries, all within our discontinued operations. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators. While no assurances can be made that we will be able to do so, we expect to fund the expenses to remediate these sites from funds generated internally.

 

At December 31, 2020, we had total accrued environmental remediation liabilities of $854,000, a decrease of $73,000 from the December 31, 2019 balance of $927,000. The decrease represents payments made on remediation projects for our PFSG and PFD subsidiaries. At December 31, 2020, $744,000 of the total accrued environmental liabilities was recorded as current.

 

Related Party Transactions

 

David Centofanti

 

David Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $181,000 and $177,000 for 2020 and 2019, respectively. David Centofanti is the son of Dr. Louis Centofanti, our Executive Vice President (“EVP”) of Strategic Initiatives and a member of our Board of Directors (“Board”). We believe the compensation received by David Centofanti for his technical expertise which he provides to us is competitive and comparable to compensation we would have to pay to an unaffiliated third party with the same technical expertise.

 

Employment Agreements

 

We entered into an employment agreement with each of Mark Duff, President and Chief Executive Officer (“CEO”), Dr. Louis Centofanti, EVP of Strategic Initiatives, Ben Naccarato, Chief Financial Officer (“CFO”), Andrew Lombardo, EVP of Nuclear and Technical Services, and Richard Grondin, EVP of Waste Treatment Operations, with each employment agreement dated July 22, 2020 (each employment agreement referred to as the “New Employment Agreement”). We had entered into an employment agreement with each of Mark Duff, Dr. Louis Centofanti and Ben Naccarato on September 8, 2017 which each of the employment agreement was terminated effective July, 22, 2020 upon the execution of the New Employment Agreement with Mark Duff, Dr. Louis Centofanti and Ben Naccarato.

 

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Each New Employment Agreement is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier terminated by the Company or by the executive officer. At the end of the Initial Term of each New Employment Agreement, each New Employment Agreement will automatically be extended for one additional year, unless at least six months prior to the expiration of the Initial Term, we or the executive officer provides written notice not to extend the terms of the New Employment Agreement. Each New Employment Agreement provides for annual base salary, performance bonuses (as provided in the Management Incentive Plan (“MIP”) as approved by our Compensation and Stock Option Committee (the “Compensation Committee”) and Board) and other benefits commonly found in such agreement.

 

Pursuant to each New Employment Agreement, if the executive officer’s employment is terminated due to death/disability or for cause (as defined in the agreements), we will pay to the executive officer or to his estate an amount equal to the sum of any unpaid base salary and accrued unused vacation time through the date of termination and any benefits due to the executive officer under any employee benefit plan (the “Accrued Amounts”) plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of termination.

 

If the executive officer terminates his employment for “good reason” (as defined in the agreements) or is terminated by us without cause (including any such termination for “good reason” or without cause within 24 months after a Change in Control (as defined in the agreement)), we will pay the executive officer the Accrued Amounts, two years of full base salary, and two times the performance compensation (under the MIP) earned with respect to the fiscal year immediately preceding the date of termination provided the performance compensation earned with respect to the fiscal year immediately preceding the date of termination has not been paid. If performance compensation earned with respect to the fiscal year immediately preceding the date of termination has been made to the executive officer, the executive officer will be paid an additional year of the performance compensation earned with respect to the fiscal year immediately preceding the date of termination. If the executive terminates his employment for a reason other than for good reason, we will pay to the executive an amount equal to the Accrued Amounts plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of termination.

 

If there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on the date of termination through the original term of the options. In the event of the death of an executive officer, all outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on the date of death, with such options exercisable for the lesser of the original option term or twelve months from the date of the executive officer’s death. In the event an executive officer terminates his employment for “good reason” or is terminated by the Company without cause, all outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on the date of termination, with such options exercisable for the lesser of the original option term or within 60 days from the date of the executive’s date of termination. Severance benefits payable with respect to a termination (other than Accrued Amounts) shall not be payable until the termination constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)).

 

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MIPs

 

On January 16, 2020, our Board and the Compensation Committee approved individual MIP for each Mark Duff, CEO and President, Ben Naccarato, EVP and CFO, Dr. Louis Centofanti, EVP of Strategic Initiatives and Andy Lombardo, who was appointed by our Board to the position of EVP of Nuclear and Technical Services and an executive officer of the Company on January 16, 2020. Mr. Lombardo previously held the position of Senior Vice President (“SVP”) of Nuclear and Technical Services. Additionally, on July 22, 2020, our Board and our Compensation Committee approved a MIP for Richard Grondin who was appointed by our Board to the position of EVP of Waste Treatment Operations and an executive officer of the Company. Mr. Grondin previously held the position of Vice President of Western Operations within our Treatment Segment. Each of the MIPs is effective January 1, 2020 and applicable for year ended December 31, 2020. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash compensation based on achievement of performance thresholds, with the amount of such compensation established as a percentage of the executive’s 2020 annual base salary. The potential target performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of Waste Treatment Operations. The total incentive compensation earned under the 2020 MIPs for the executive officers was approximately $419,000 and is payable on or about 90 days after year-end, or sooner, based on finalization of our audited financial statements for 2020 in accordance to the MIPs.

 

On January 21, 2021, our Board and the Company Compensation Committee approved individual MIP for the calendar year 2021 for each CEO, EVP and CFO, EVP of Strategic Initiatives, EVP of Nuclear and Technical Services and EVP of Waste Treatment Operations. Each of the MIPs is effective January 1, 2021 and applicable for year 2021. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash compensation based on achievement of performance thresholds, with the amount of such compensation established as a percentage of the executive’s 2021 annual base salary at the time of the approval of the MIP. The potential target performance compensation ranges from 5% to 150% of the base salary for the CEO ($17,220 to $516,600), 5% to 100% of the base salary for the CFO ($14,000 to $280,000), 5% to 100% of the base salary for the EVP of Strategic Initiatives ($11,667 to $233,336), 5% to 100% of the base salary for the EVP of Nuclear and Technical Services ($14,000 to $280,000) and 5% to 100% ($12,000 to $240,000) of the base salary for the EVP of Waste Treatment Operations.

 

Salary

 

On January 16, 2020, the Board, with the approval of the Compensation Committee approved the following salary increase for the Company’s executive officers effective January 1, 2020:

 

  Annual base salary for Mark Duff, CEO and President, was increased to $344,400 from $287,000.
  Annual base salary for Ben Naccarato, who was promoted to EVP and CFO from VP and CFO, was increased to $280,000 from $235,231; and
  Annual base salary for Andy Lombardo, who was appointed to the position of EVP of Nuclear and Technical Services as discussed above, was increased to $280,000 from $258,662, which was the annual base salary that Mr. Lombardo earned as SVP of Nuclear and Technical Services and prior to his appointment as an executive officer of the Company by the Board.

 

Additionally, as a result of Richard Grondin’s appointment by the Board to the position of EVP of Waste Treatment and an executive officer on July 22, 2020, his annual salary was increased from $208,000 as Vice President of Western Operations within our Treatment Segment to $240,000, effective July 22, 2020.

 

In February 2021, the Compensation Committee approved an annual salary cost of living adjustment of approximately 2.3% to take into effect April 1, 2021 for each of our executive officers.

 

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required under Regulation S-K for smaller reporting companies.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Forward-looking Statements

 

Certain statements contained within this report may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the “Private Securities Litigation Reform Act of 1995”). All statements in this report other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “intend,” “will,” and similar expressions identify forward-looking statements. Forward-looking statements contained herein relate to, among other things,

 

demand for our services;
reductions in the level of government funding in future years;
R&D activity and necessary capital of our Medical Segment;
business strategy;
reducing operating costs and non-essential expenditures;
ability to meet loan agreement covenant requirements;
cash flow requirements;
accounts receivable impact;
sufficient liquidity to continue business;
PPP Loan forgiveness;
furlough or layoff eligible employees;
future results of operations and liquidity;
effect of economic disruptions on our business;
curtail capital expenditures;
government funding for our services;
may not have liquidity to repay debt if our lender accelerates payment of our borrowings;
manner in which the applicable government will be required to spend funding to remediate various sites;
funding operations;
fund capital expenditures from cash from operations and/or financing;
impact from COVID-19;
completion of material contract;
gradual return in waste shipments;
fund remediation expenditures for sites from funds generated internally;
collection of accounts receivables;
compliance with environmental regulations;
potential effect of being a PRP;
potential sites for violations of environmental laws and remediation of our facilities;
continuation of contracts with federal government;
loss of contracts;
permitting and licensing requirements;
partial or full shutdown of any of our facilities;
liability from Tetra Tech claims;
shutdown of projects and continued waste shipments delays by clients; and
R&D costs.

 

While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to be correct. There are a variety of factors, which could cause future outcomes to differ materially from those described in this report, including, but not limited to:

 

general economic conditions;
contract bids, including international markets;
material reduction in revenues;
inability to meet PNC covenant requirements;
inability to collect in a timely manner a material amount of receivables;
increased competitive pressures;

 

34
 

 

inability to maintain and obtain required permits and approvals to conduct operations;
public not accepting our new technology;
inability to develop new and existing technologies in the conduct of operations;
inability to maintain and obtain closure and operating insurance requirements;
inability to retain or renew certain required permits;
discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures;
delays at our third-party disposal site can extend collection of our receivables greater than twelve months;
refusal of third-party disposal sites to accept our waste;
changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
requirements to obtain permits for TSD activities or licensing requirements to handle low level radioactive materials are limited or lessened;
potential increases in equipment, maintenance, operating or labor costs;
management retention and development;
financial valuation of intangible assets is substantially more/less than expected;
the requirement to use internally generated funds for purposes not presently anticipated;
inability to continue to be profitable on an annualized basis;
inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
terminations of contracts with government agencies (domestic and foreign) or subcontracts involving government agencies (domestic or foreign), or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
renegotiation of contracts involving government agencies (domestic and foreign);
federal government’s inability or failure to provide necessary funding to remediate contaminated federal sites;
disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment;
inability to raise capital on commercially reasonable terms;
inability to increase profitable revenue;
impact of the COVID-19;
audit of our PPP Loan;
new governmental regulations;
lender refuses to waive non-compliance or revise our covenant so that we are in compliance; and
risk factors contained in Item 1A of this report.

 

35
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Index to Consolidated Financial Statements

 

Consolidated Financial Statements   Page No.
     
Report of Independent Registered Public Accounting Firm   37
     
Consolidated Balance Sheets as of December 31, 2020 and 2019   38
     
Consolidated Statements of Operations for the years ended December 31, 2020 and 2019   40
     
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020 and 2019   41
     
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019   42
     
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019   43
     
Notes to Consolidated Financial Statements   44

 

Financial Statement Schedules

 

In accordance with the rules of Regulation S-X, schedules are not submitted because they are not applicable to or required by the Company.

 

36
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

Perma-Fix Environmental Services, Inc.

 

Opinion on the financial statements

 

We have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

  

Basis for opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical audit matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

  

/s/ GRANT THORNTON LLP  
   
We have served as the Company’s auditor since 2014.  
   
Atlanta, Georgia  
March 29, 2021  

 

37
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31,

 

(Amounts in Thousands, Except for Share and Per Share Amounts)  2020   2019 
         
ASSETS          
Current assets:          
Cash  $7,924   $390 
Accounts receivable, net of allowance for doubtful accounts of $404 and $487, respectively   9,659    13,178 
Unbilled receivables   14,453    7,984 
Inventories   610    487 
Prepaid and other assets   3,967    2,983 
Current assets related to discontinued operations   22    104 
Total current assets   36,635    25,126 
           
Property and equipment:          
Buildings and land   20,139    19,967 
Equipment   22,090    20,068 
Vehicles   457    410 
Leasehold improvements   23    23 
Office furniture and equipment   1,413    1,418 
Construction-in-progress   1,569    1,609 
Total property and equipment   45,691    43,495 
Less accumulated depreciation   (27,908)   (26,919)
Net property and equipment   17,783    16,576 
           
Property and equipment related to discontinued operations   81    81 
           
Operating lease right-of-use assets   2,287    2,545 
           
Intangibles and other long term assets:          
Permits   8,922    8,790 
Other intangible assets - net   875    1,065 
Finite risk sinking fund (restricted cash)   11,446    11,307 
Other assets   890    989 
Other assets related to discontinued operations       36 
Total assets  $78,919   $66,515 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

38
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS, CONTINUED

As of December 31,

 

(Amounts in Thousands, Except for Share and per Share Amounts)  2020   2019 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $15,382   $9,277 
Accrued expenses   6,381    6,118 
Disposal/transportation accrual   1,220    1,156 
Deferred revenue   4,614    5,456 
Accrued closure costs - current   75    84 
Current portion of long-term debt   3,595    1,300 
Current portion of operating lease liabilities   273    244 
Current portion of finance lease liabilities   525    471 
Current liabilities related to discontinued operations   898    994 
Total current liabilities   32,963    25,100 
           
Accrued closure costs   6,290    5,957 
Deferred tax liabilities   471    590 
Long-term debt, less current portion   3,134    2,580 
Long-term operating lease liabilities, less current portion   2,070    2,342 
Long-term finance lease liabilities, less current portion   662    466 
Other long-term liabilities   626     
Long-term liabilities related to discontinued operations   252    244 
Total long-term liabilities   13,505    12,179 
           
Total liabilities   46,468    37,279 
           
Commitments and Contingencies (Note 14)          
           
Stockholders’ Equity:          
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding   -    - 
Common Stock, $.001 par value; 30,000,000 shares authorized; 12,161,539 and 12.123,520 shares issued, respectively; 12,153,897 and 12,115,878 shares outstanding, respectively   12    12 
Additional paid-in capital   108,931    108,457 
Accumulated deficit   (74,455)   (77,315)
Accumulated other comprehensive loss   (207)   (211)
Less Common Stock in treasury, at cost; 7,642 shares   (88)   (88)
Total Perma-Fix Environmental Services, Inc. stockholders’ equity   34,193    30,855 
Non-controlling interest   (1,742)   (1,619)
Total stockholders’ equity   32,451    29,236 
           
Total liabilities and stockholders’ equity  $78,919   $66,515 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

39
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended December 31,

 

(Amounts in Thousands, Except for Per Share Amounts)  2020   2019 
         
Net revenues  $105,426   $73,459 
Cost of goods sold   89,533    57,875 
Gross profit   15,893    15,584 
           
Selling, general and administrative expenses   11,774    11,862 
Research and development   762    750 
Loss on disposal of property and equipment   29    3 
Income from operations   3,328    2,969 
           
Other income (expense):          
Interest income   140    337 
Interest expense   (398)   (432)
Interest expense-financing fees   (294)   (208)
Other   211    223 
Loss on debt extinguishment of debt   (27)   - 
Income from continuing operations before taxes   2,960    2,889 
Income tax (benefit) expense   (189)   157 
Income from continuing operations, net of taxes   3,149    2,732 
           
Loss from discontinued operations, net of taxes of $0   (412)   (541)
Net income   2,737    2,191 
           
Net loss attributable to non-controlling interest   (123)   (124)
           
Net income attributable to Perma-Fix Environmental Services, Inc. common stockholders  $2,860   $2,315 
           
Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic:          
Continuing operations  $.27   $.24 
Discontinued operations   (.03)   (.05)
Net income per common share  $.24   $.19 
           
Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - diluted:          
Continuing operations  $.26   $.24 
Discontinued operations   (.03)   (.05)
Net income per common share  $.23   $.19 
           
Number of common shares used in computing net income (loss) per share:          
Basic   12,139    12,046 
Diluted   12,347    12,060 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

40
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31,

 

(Amounts in Thousands)  2020   2019 
         
Net Income  $2,737   $2,191 
Other comprehensive income:          
Foreign currency translation adjustments   4    3 
Total other comprehensive income   4    3 
           
Comprehensive income   2,741    2,194 
Comprehensive loss attributable to non-controlling interest   (123)   (124)
Comprehensive income attributable to Perma-Fix Environmental Services, Inc. common stockholders  $2,864   $2,318 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

41
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31,

(Amounts in Thousands, Except for Share Amounts)

 

               Common                 
               Stock   Accumulated   Non-         
           Additional   Held   Other   controlling       Total 
   Common Stock   Paid-In   In   Comprehensive   Interest in   Accumulated   Stockholders' 
   Shares   Amount   Capital   Treasury   Loss   Subsidiary   Deficit   Equity 
Balance at December 31, 2018     11,944,215   $12   $107,548   $(88)  $(214)  $(1,495)  $(79,630)  $26,133 
Net income (loss)                            (124)   2,315    2,191 
Foreign currency translation                   3            3 
Issuance of Common Stock for services   71,905        241                    241 
Stock-Based Compensation           179                    179 
Issuance of Common Stock with debt   75,000        263                    263 
Issuance of warrant with debt           93                    93 
Issuance of Common Stock upon exercise of options   32,400        133                    133 
Balance at December 31, 2019   12,123,520   $12   $108,457   $(88)  $(211)  $(1,619)  $(77,315)  $29,236 
Net income (loss)                       (123)   2,860    2,737 
Foreign currency translation                   4            4 
Issuance of Common Stock for services   34,135        232                    232 
Stock-Based Compensation           236                    236 
Issuance of Common Stock upon exercise of options   3,884        6                    6 
Balance at December 31, 2020   12,161,539   $12   $108,931   $(88)  $(207)  $(1,742)  $(74,455)  $32,451 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

42
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31,

 

(Amounts in Thousands)  2020   2019 
Cash flows from operating activities:          
Net income  $2,737   $2,191 
Less: loss on discontinued operations, net of taxes of $0 (Note 9)   (412)   (541)
           
Income from continuing operations   3,149    2,732 
Adjustments to reconcile net income from continuing operations to cash provided by (used in) operating activities:          
Depreciation and amortization   1,596    1,342 
Interest on finance lease with purchase option   9    3 
Loss on extinguishment of debt   27     
Amortization of debt issuance/debt discount costs   294    208 
Deferred tax (benefit) expense   (119)   4 
(Recovery of) provision for bad debt reserves   (101)   386 
Loss on disposal of property and equipment   29    3 
Issuance of common stock for services   232    241 
Stock-based compensation   236    179 
Changes in operating assets and liabilities of continuing operations:          
Accounts receivable   3,620    (5,829)
Unbilled receivables   (6,469)   (4,879)
Prepaid expenses, inventories and other assets   1,147    923 
Accounts payable, accrued expenses and unearned revenue   4,217    664 
Cash provided by (used in) continuing operations   7,867    (4,023)
Cash used in discontinued operations   (499)   (660)
Cash provided by (used in) operating activities   7,368    (4,683)
           
Cash flows from investing activities:          
Purchases of property and equipment (net)   (1,715)   (1,535)
Proceeds from sale of property and equipment   4    2 
Cash used in investing activities of continuing operations   (1,711)   (1,533)
Cash provided by investing activities of discontinued operations   118    121 
Cash used in investing activities   (1,593)   (1,412)
           
Cash flows from financing activities:          
Borrowing on revolving credit   102,788    59,333 
Repayments of revolving credit borrowings   (103,109)   (59,651)
Proceeds from issuance of long-term debt   5,666    2,500 
Proceeds from finance leases       405 
Principal repayment of finance lease liabilities   (615)   (272)
Principal repayments of long term debt   (2,759)   (1,344)
Payment of debt issuance costs   (85)   (112)
Proceeds from issuance of common stock upon exercise of options   6    133 
Cash provided by financing activities of continuing operations   1,892    992 
           
Effect of exchange rate changes on cash   6    19 
           
Increase (decrease) in cash and finite risk sinking fund (restricted cash) (Note 2)   7,673    (5,084)
Cash and finite risk sinking fund (restricted cash) at beginning of period (Note 2)   11,697    16,781 
Cash and finite risk sinking fund (restricted cash) at end of period (Note 2)  $19,370   $11,697 
           
Supplemental disclosure:          
Interest paid  $366   $422 
Income taxes paid   70    245 
Non-cash investing and financing activities:          
Equipment purchase subject to finance lease   856    393 
Equipment purchase subject to financing   27     
Issuance of Common Stock with debt       263 
Issuance of Warrant with debt       93 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

43
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Notes to Consolidated Financial Statements

December 31, 2020 and 2019

 

 

 

NOTE 1

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how company, is a Delaware corporation, engaged through its subsidiaries, in three reportable segments:

 

TREATMENT SEGMENT, which includes:

 

  - nuclear, low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and
  - R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

 

In 2020, we expanded our low-level radioactive waste processing and treatment capability within our Treatment Segment through the addition of our Oak Ridge Environmental Waste Operations Center (“EWOC”) facility. The EWOC facility serves primarily as a multi-disciplinary equipment and component processing center for large component, size/volume reduction, sort/segregation, waste transload, and system operability testing. The ultimate objective will be receipt, preparation, packaging, and transportation of low-level radioactive waste to final disposal facilities (landfills, approved radiological waste repositories). Operations at the facility have been limited to date as we continue to complete transition of the site. No revenue was generated at EWOC in 2020.

 

SERVICES SEGMENT, which includes:

 

  - Technical services, which include:

 

  professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering;
  integrated Occupational Safety and Health services including IH assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and OSHA citation assistance;
  global technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers; and
  on-site waste management services to commercial and governmental customers.

 

  - Nuclear services, which include:

 

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

 

  - A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized NEOSH instrumentation.
  - A company owned gamma spectroscopy laboratory for the analysis of oil and gas industry solids and liquids.

 

MEDICAL SEGMENT, which includes: R&D of the Company’s medical isotope production technology by our majority-owned Polish subsidiary, Perma-Fix Medical (“PF Medical” or the “Medical Segment”). The Company’s Medical Segment has not generated any revenue as it remains in the R&D stage and has substantially reduced its R&D costs and activities due to the need for capital to fund these activities. All costs incurred by the Medical Segment are reflected within R&D in the accompanying consolidated financial statements.

 

The Company’s continuing operations consist of the operations of our subsidiaries/facilities as follow: Diversified Scientific Services, Inc. (“DSSI”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”), Perma-Fix of Canada, Inc. (“PF Canada”), PF Medical, East Tennessee Materials & Energy Corporation (“M&EC”) (facility closure completed in 2019), EWOC and Perma-Fix ERRG, a variable interest entity (“VIE”) for which we are the primary beneficiary (See “Note 19 - Variable Interest Entities (“VIE”) for a discussion of this VIE).

 

The Company’s discontinued operations (see Note 9) consist of operations of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.

 

44
 

 

 

 

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The Company’s consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, our majority-owned Polish subsidiary, Perma-Fix Medical and Perma-Fix ERRG, a VIE for which we are the primary beneficiary as discussed above, after elimination of all significant intercompany accounts and transactions.

 

Use of Estimates

 

The Company prepares financial statements in conformity with accounting standards generally accepted in U.S. GAAP, which may require estimates of future cash flows and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates.

 

Cash and Finite Risk Sinking Fund (Restricted Cash)

 

At December 31, 2020, the Company had cash on hand of approximately $7,924,000, which included account balances of our foreign subsidiaries totaling approximately $377,000. At December 31, 2019, the Company had cash on hand of approximately $390,000, which reflected primarily account balances of our foreign subsidiaries totaling approximately $388,000. At December 31, 2020 and 2019, the Company had finite risk sinking funds of approximately $11,446,000 and $11,307,000, respectively, which represented cash held as collateral under the Company’s financial assurance policy (see “Note 14 – Commitment and Contingencies – Insurance” for a discussion of this fund).

 

Accounts Receivable

 

Accounts receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date based on the customer type (government, broker, or commercial). The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts, which is a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. The Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will not be collected. This analysis excludes government related receivables due to our past successful experience in their collectability. Specific accounts that are deemed to be uncollectible are reserved at 100% of their outstanding balance. The remaining balances aged over 60 days have a percentage applied by aging category, based on historical experience that allows us to calculate the total allowance required. Once the Company has exhausted all options in the collection of a delinquent accounts receivable balance, which includes collection letters, demands for payment, collection agencies and attorneys, the account is deemed uncollectible and subsequently written off. The write off process involves approvals from senior management based on required approval thresholds.

 

The following table sets forth the activity in the allowance for doubtful accounts for the years ended December 31, 2020 and 2019 (in thousands):

 

   Year Ended December 31,