n u c l e a r
t e c h n i c a l
wa s t e
A Nuclear Services and Waste Management Company
D e a r Fe l l o w s h a r e h o l D e r s ,
2013 was a challenging year due to tight
We are working to commercialize our tech-
government spending and the Department of
nology, and believe this represents a significant
Energy’s (DOE) priorities. In response to these
market opportunity, since the process does not
challenges, we focused on “right-sizing” the
utilize any form of uranium, is cost-effective and
Company and increased our emphasis on diversi-
should help create a more reliable supply chain
fying revenue streams by expanding our commer-
for Tc-99m around the world. Our process will
cial and international business. Although we still
also help reduce environmental concerns asso-
felt the effects of delayed government spending in
ciated with the current production methodology,
the first half of 2014, we are beginning to see
including issues around reprocessing of materials
improvement in the business.
and production of high-level waste requiring
In January 2014, the fiscal year 2014 Omnibus
permanent disposal.
spending bill was approved by Congress and the
Overall, we remain quite encouraged by the
President. This budget, the first approved in
outlook for the business. We are actively bidding
several years, restores federal government
on a number of sizable DOE projects, and have
funding cuts instituted in 2013 from sequestration
begun to see these contracts awarded in 2014.
and allows for new spending on projects that was
At the same time, we continue to diversify our
not allowed under continuing resolution.
revenue on both the commercial and international
We have seen marked improvement in our
fronts. We have also right-sized the Company and
business with a number of sizable projects being
cut overhead expenses out of the business. As a
awarded in our Services Segment and higher
result, we anticipate improved profitability and
waste streams received in our Treatment Segment.
cash flow in 2014. Given the inherent leverage,
One of our more exciting developments has
scalability and earnings potential for the business,
been on medical isotope production. We have
which we have demonstrated in past years, we
made significant progress in further validating our
believe we are capable of achieving and exceeding
technology to produce technetium-99 (Tc-99) from
these levels as we further establish our position
natural molybdenum. We recently formed Perma-
as an industry leader.
Fix Medical Corpora tion to accelerate the commer-
We appreciate the support of our shareholders
cialization of this technology. We have witnessed
during this challenging market environment and
a growing interest in our technology from within
look forward to keeping shareholders apprised of
the industry and we are working closely with the
our progress throughout the year.
leading nuclear research institutions in the U.S.
and Europe.
Tests at POLATOM, in Warsaw, Poland and
the MURR reactor in the United States, have
demonstrated that our system is able to produce
Tc-99 in commercial quantities, while meeting
existing purity standards.
Dr. Louis F. Centofanti
Chairman, President and Chief Executive Officer
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, 2013
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
State or other jurisdiction
of incorporation or organization
8302 Dunwoody Place, #250, Atlanta, GA
(Address of principal executive offices)
58-1954497
(IRS Employer Identification Number)
30350
(Zip Code)
(770) 587-9898
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $.001 Par Value
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 No X
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 No X
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.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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).
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:1) Accelerated Filer (cid:1) Non-accelerated Filer (cid:1) Smaller reporting company (cid:2)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No X
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, 2013), was approximately $18,613,733. For the purposes of this calculation, all executive officers and directors of the Registrant (as indicated in
Item 12) are deemed to be affiliates. As of October 15, 2013, the Registrant’s outstanding voting and non-voting common equity was subject to a 1-
for-5 reverse stock split. As of the effective date of the reverse stock split, the aggregate market value (as computed by reference to the closing sales
price as reported by NASDAQ on the effective date of such reverse stock split) of the Registrant’s voting and non-voting common equity held by
non-affiliates was approximately $34,541,837. Such determination should not be deemed an admission that such directors or officers, are, in fact,
affiliates of the Registrant. The Company's Common Stock is listed on the NASDAQ Capital Markets.
As of March 17, 2014, there were 11,419,650 shares of the registrant's Common Stock, $.001 par value, outstanding.
Documents incorporated by reference: None
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
PART I
Page No.
Item 1.
Business ................................................................................................................................... 1
Item 1A.
Risk Factors ............................................................................................................................. 8
Item 1B.
Unresolved Staff Comments .................................................................................................... 18
Item 2.
Properties ................................................................................................................................. 18
Item 3.
Legal Proceedings .................................................................................................................... 19
Item 4.
Mine Safety Disclosure ............................................................................................................ 19
Item 4A.
Executive Officers of the Registrant ........................................................................................ 19
PART II
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters .......................... 20
Item 6.
Selected Financial Data .......................................................................................................... 21
Item 7.
Management's Discussion and Analysis of Financial Condition
And Results of Operations ..................................................................................................... 21
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ................................................ 40
Special Note Regarding Forward-Looking Statements........................................................... 40
Item 8.
Financial Statements and Supplementary Data ....................................................................... 43
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................................................................................... 82
Item 9A.
Controls and Procedures ........................................................................................................ 82
Item 9B.
Other Information .................................................................................................................. 84
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ...................................................... 84
Item 11.
Executive Compensation ........................................................................................................ 90
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ................................................................................................................ 108
Item 13.
Certain Relationships and Related Transactions, and Director Independence ........................ 111
Item 14.
Principal Accountant Fees and Services ................................................................................. 113
PART IV
Item 15.
Exhibits and Financial Statement Schedules ...................................................................... 114
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 of 1990, is an environmental and technology know-how
company, which provides:
o Treatment, storage, processing and disposal of mixed waste (which is waste that contains both low-
level radioactive and hazardous waste), non-nuclear hazardous waste, nuclear low level, and higher
activity radioactive wastes;
o Research and development (“R&D”) activities to identify, develop and implement innovative waste
processing techniques for problematic waste streams;
o On-site waste management services to commercial and government customers;
o Technical services which includes: (a) health physics and radiological control technician services;
(b) safety and industrial hygiene services; (c) staff augmentation services providing consulting,
engineering, project management, waste management, environmental, and decontamination and
decommissioning field personal, technical personnel, and management and services to commercial
and government customers; and (d) consulting engineering services including air, water, and
hazardous waste permitting, air, soil, and water sampling, compliance reporting, emission reduction
strategies, compliance auditing, and various compliance and training activities;
o Nuclear services which
includes:
including engineering,
decontamination and decommissioning (“D&D”), specialty services and construction, logistics,
transportation, processing and disposal and (b) remediation of nuclear licensed and federal facilities
and the remediation cleanup of nuclear legacy sites; and
Instrumentation and measurement technologies.
technology-based services
(a)
o
We have grown through acquisitions and internal growth. Our goal is to continue focus on the efficient
operation of our facilities and on-site activities, continue to evaluate strategic acquisitions, and to continue
the R&D of innovative technologies to expand company service offering and to treat nuclear waste, mixed
waste, and industrial waste. The Company is focusing on expansion into both commercial and international
markets to help offset the uncertainties of government spending in the USA, which a significant portion of
the Company’s revenue is derived from. This includes new services, new customers and increased market
share in our current markets.
Our business includes services provided by our two segments, Treatment and Services, as described below.
We service research institutions, commercial companies, public utilities, and governmental agencies
nationwide, 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 executive offices are located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Segment Information and Foreign and Domestic Operations and Export Sales
The Company has two reportable segments. In accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“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 Officer to make decisions
about resources to be allocated and assess its performance; and
for which discrete financial information is available.
•
1
TREATMENT SEGMENT reporting includes:
-
nuclear, low-level radioactive, mixed, hazardous and non-hazardous waste treatment, processing
and disposal services primarily through four uniquely licensed (Nuclear Regulatory Commission or
state equivalent) and permitted (Environmental Protection Agency (“EPA”) or state equivalent)
treatment and storage facilities held by the following subsidiaries: Perma-Fix of Florida, Inc.
(“PFF”), Diversified Scientific Services, Inc., (“DSSI”), Perma-Fix Northwest Richland, Inc.
(“PFNWR”), and East Tennessee Materials & Energy Corporation (“M&EC”). The presence of
nuclear and low-level radioactive constituents within the waste streams processed by this segment
creates different and unique operational, processing and permitting/licensing requirements; and
- R&D activities to identify, develop and implement innovative waste processing techniques for
problematic waste streams.
For 2013, the Treatment Segment accounted for $35,540,000 or 47.8% of total revenue from continuing
operations, as compared to $45,882,000 or 36.0% of total revenue from continuing operations for 2012. See
“ – Dependence Upon a Single or Few Customers” and “Financial Statements and Supplementary Data” for
further details and a discussion as to our Segments’ contracts with the federal government or with others as
a subcontractor to the federal government.
SERVICES SEGMENT reporting includes:
- On-site waste management services to commercial and government customers;
- Technical services, which include:
o professional radiological measurement and site survey of large government and commercial
o
installations using advanced methods, technology and engineering;
integrated Occupational Safety and Health services including industrial hygiene (“IH”)
assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos
management/abatement oversight; indoor air quality evaluations; health risk and exposure
assessments; health & safety plan/program development, compliance auditing and training
services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
o global technical services providing consulting, engineering, project management, waste
management, environmental, and D&D field, technical, and management personnel and
services to commercial and government customers; and
o augmented engineering services (through our Schreiber, Yonley & Associates subsidiary –
“SYA”) providing consulting environmental services to industrial and government
customers:
(cid:1)
including air, water, and hazardous waste permitting, air, soil and water sampling,
compliance reporting, emission reduction strategies, compliance auditing, and
various compliance and training activities; and
engineering and compliance support to other segments;
(cid:1)
- Nuclear services, which include:
o
o
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; site construction; logistics; transportation; and emergency
response; and
- A company owned equipment calibration and maintenance laboratory that services, maintains,
calibrates, and sources (i.e., rental) of health physics, IH and customized nuclear, environmental,
and occupational safety and health (“NEOSH”) instrumentation;
For 2013, the Services Segment accounted for $38,873,000 or 52.2% of total revenue from continuing
operations, as compared to $81,627,000 or 64.0% of total revenue from continuing operations for 2012. See
“ – Dependence Upon a Single or Few Customers” and “Financial Statements and Supplementary Data” for
2
further details and a discussion as to our Segments’ contracts with the federal government or with others as
a subcontractor to the federal government.
Our segments exclude the Corporate and Business Center (formerly known as our Operations
Headquarters), which do not generate revenue. Our discontinued operations encompass the following:
Perma-Fix of South Georgia, Inc. (“PFSG”) facility which met the held for sale criteria under ASC 360,
“Property, Plant, and Equipment” on October 6, 2010; Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-
Fix of Orlando, Inc. (“PFO”), Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”),
and Perma-Fix Treatment Services, Inc. (“PFTS”) facilities, which were divested in 2011 and prior; and
Perma-Fix of Michigan, Inc. (“PFMI”) and Perma-Fix of Memphis, Inc. (“PFM”), two previously closed
locations, approved as discontinued operations by our Board of Directors effective October 4, 2004, and
March 12, 1998, respectively.
On August 14, 2013, our PFSG facility incurred fire damage which has left it non-operational at this time.
Certain equipment and portions of the building structures were damaged. We carry general liability,
pollution, property and business interruption, and workers compensation insurance with a maximum
deductible of approximately $300,000 (consisting of $100,000 deductible for each workers compensation,
pollution, and property insurance policy). We are continuing to work with our insurance company in
receiving insurance recoveries related to this fire. We are currently evaluating options regarding the future
operation of this facility as we undergo the rebuilding process on the part of the facility damaged by the fire.
We continue to market our PFSG facility for sale.
Foreign Operations
Our operations includes Perma-Fix UK Limited (within our Services Segment), located in Blaydon On
Tyne, England. Revenue generated from this operation was approximately $144,000 or 0.2% and $158,000
or 0.1% of our consolidated revenue from continuing operations during 2013 and 2012, respectively.
Our consolidated revenue from continuing operations for 2013 and 2012 included approximately
$4,409,000 or 5.9% and $2,433,000 or 1.9%, respectively, from an external customer located in Canada.
Importance of Patents, Trademarks and Proprietary Technology
We do not believe we are dependent on any particular trademark in order to operate our business or any
significant segment thereof. We have received registration to May 2022 and December 2020, for the
service marks “Perma-Fix Environmental Services” and “Perma-Fix”, respectively. In addition, we have
received registration for six service marks for our Safety & Ecology Holdings Corporation and its
subsidiaries (collectively known as “Safety and Ecology Corporation” or “SEC”) to periods ranging from
2014 to 2018.
We are dependent on our permits and licenses discussed below in order to operate our businesses (See “-
Permits and Licenses”).
We are active in the R&D of technologies that allow us to address certain of our customers' environmental
needs. To date, our R&D efforts have resulted in the granting of twelve active patents and the filing of
several applications for which patents are pending. These twelve active patents have remaining lives ranging
from approximately six to fourteen years. We have filed a patent application in connection with our new
technology to produce Technetium-99 (“Tc-99m”) for certain types of medical applications and have
formed a new subsidiary to develop and market this new technology.
Our flagship technology, the Perma-Fix Process, is a proprietary, cost effective, treatment technology that
converts hazardous waste into non-hazardous material. We have also developed the Perma-Fix II process, a
multi-step treatment process that converts hazardous organic components into non-hazardous material. The
Perma-Fix II process is particularly important to our mixed waste strategy. The Perma-Fix II process is
designed to remove certain types of organic hazardous constituents from soils or other solids and sludges
(“Solids”) through a water-based system. Until development of this Perma-Fix II process, we were not
aware of a relatively simple and inexpensive process that would remove the organic hazardous constituents
from Solids without elaborate and expensive equipment or expensive treating agents. Due to the organic
3
hazardous constituents involved, the disposal options for such materials are limited, resulting in high
disposal cost when there is a disposal option available. By reducing the organic hazardous waste
constituents in the Solids to a level where the Solids meet Land Disposal Requirements, the generator's
disposal options for such waste are substantially increased, allowing the generator to dispose of such waste
at substantially less cost. We began commercial use of the Perma-Fix II process in 2000. However, changes
to current environmental laws and regulations could limit the use of the Perma-Fix II process or the disposal
options available to the generator. See “—Permits and Licenses” and “—Research and Development.”
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 certain of our waste activities. 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. Historically, there have been no
compelling challenges to the permit and license renewals. 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 RCRA (“Resource Conservation and Recovery Act”) Part B permit, Toxic Substances Control Act
(“TSCA”) authorization, Restricted RX Drug Distributor-Destruction license, 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 the U.S. Environmental Protection Agency
(“EPA”) Approval effective June 2008.
M&EC, located in Oak Ridge, Tennessee, performs hazardous, low-level radioactive and mixed waste
storage and treatment operations under a RCRA Part B permit and a radioactive materials license issued by
the State of Tennessee Department of Environment and Conservation. Co-regulated TSCA PCB wastes are
also managed under EPA Approvals applicable to site-specific treatment units.
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.
The combination of a RCRA Part B hazardous waste permit, TSCA authorization, and a radioactive
materials license, as held by PFF, DSSI M&EC, and PFNWR are very difficult to obtain for a single facility
and make these facilities unique.
PFSG (discontinued operations) operates a hazardous waste treatment and storage facility under various
permits, including a RCRA Part B permit, issued by the State of Georgia. On August 14, 2013, our PFSG
facility incurred fire damage which has left it non-operational at this time. A certain storage and processing
area of the facility affected by the fire is currently undergoing RCRA closure and is planned to be
reconstructed and repermitted. We are permitted to commence operations in another certain processing and
storage area of the facility upon the Company’s decision to recommence operations.
4
Backlog
The Treatment Segment of our Company 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. As of December 31, 2013, our Treatment
Segment had a backlog of approximately $7,695,000, as compared to approximately $8,668,000 as of
December 31, 2012. 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 quarter.
Dependence Upon a Single or Few Customers
Our segments have significant relationships with the federal government, and continue to enter into
contracts, directly as the prime contractor or indirectly as a subcontractor, with the federal government. The
contracts that we are a party to with the federal government or with others as a subcontractor to the federal
government generally provide that the government may terminate or renegotiate the contracts on 30 days
notice, at the government's election. Our inability to continue under existing contracts that we have with the
federal government (directly or indirectly as a subcontractor) could have a material adverse effect on our
operations and financial condition.
We performed services relating to waste generated by the federal government, either directly as a prime
contractor or indirectly as a subcontractor (including the CH Plateau Remediation Company (“CHPRC”) as
discussed below) to the federal government, representing approximately $47,557,000 or 63.9% of our total
revenue from continuing operations during 2013, as compared to $101,533,000 or 79.6% of our total
revenue from continuing operations during 2012.
The following customer accounted for 10% or more of the total revenues generated from continuing
operations for twelve months ended December 31, 2013 and 2012:
Customer
CHPRC
Year
2013
2012
Total
Revenue
$19,922,000
$24,652,000
% of Total
Revenue
26.8%
19.3%
Revenue generated from CHPRC includes revenue generated from the CHPRC subcontract at our Services
Segment and various waste processing contracts at our Treatment Segment. The CHPRC subcontract was a
cost plus award fee subcontract awarded to us during the second quarter of 2008 to participate in the cleanup
of the central portion of the Hanford Site located in the state of Washington. This subcontract expired on
September 30, 2013. See further discussion as to the effect on us of the ending of this subcontract under
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Review.”
Competitive Conditions
The Treatment Segment’s largest competitor is EnergySolutions that operates treatment and disposal
facilities in Oak Ridge, TN and Clive, UT. Waste Control Specialists (“WCS”), which has newly licensed
disposal capabilities in Andrews, TX, has recently emerged as a competitor in the treatment market and is
gaining market share. Perma-Fix now has two options for disposal of treated nuclear waste and thus
mitigates the prior risk of EnergySolutions providing the only outlet for disposal. The Treatment Segment
treats and disposes of DOE generated wastes largely at DOE owned sites. Smaller competitors are also
present in the market place; however, they do not present a significant challenge at this time. Our Treatment
Segment currently solicits business primarily on a North American basis with both government and
commercial clients; however, we are focusing on emerging international markets for future additional work.
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, such would allow companies to enter into
these markets and provide greater competition.
5
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 type of projects for which our Services Segment competes, especially projects subject to
the governmental bid process. In November 2013, Perma-Fix regained the ability to certify and bid
government contracts as a small business, which allows us to bid for prime contracts for small businesses
that are set aside for procurements. Large businesses are more willing to team with small businesses and
thus this recent change in size status will be an advantage for future work. 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 four remediation projects, which are currently in progress at certain of our discontinued facilities
(PFD, PFM, PFSG, and PFMI). These remediation projects principally entail the removal/remediation of
contaminated soil and, in most cases, the remediation of surrounding ground water. All of the remedial
clean-up projects were an issue for that facility for years prior to our acquisition of the facility and were
recognized pursuant to a business combination and recorded as part of the purchase price allocation to assets
acquired and liabilities assumed. Three of the facilities (PFD, PFM, and PFSG) are RCRA permitted
facilities, and as a result, the remediation activities are closely reviewed and monitored by the applicable
state regulators. We recognized our best estimate of such environmental liabilities upon the acquisition of
our facilities, as part of the acquisition cost.
At December 31, 2013, we had total accrued environmental remediation liabilities of $1,031,000, of which
$649,000 is recorded as a current liability, which reflects a decrease of $583,000 from the December 31,
2012 balance of $1,614,000. The net decrease represents payments of approximately $50,000 on
remediation projects at the four locations and a reduction in reserve of approximately $533,000 at PFSG
based on reassessment of the remediation reserve.
No insurance or third party recovery was taken into account in determining our cost estimates or reserves,
nor do our cost estimates or reserves reflect any discount for present value purposes.
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 any property, 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.
Research and Development
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.
We feel that our investments in research have been rewarded by the discovery of the Perma-Fix Process and
the Perma-Fix II process. Our competitors also devote resources to research and development and many
such competitors have greater resources at their disposal than we do. We have estimated that during 2013
6
and 2012, we spent approximately $1,764,000 and $1,823,000, respectively, in Company-sponsored
research and development activities.
Number of Employees
In our service-driven business, our employees are vital to our success. We believe we have good
relationships with our employees. As of December 31, 2013, we employed approximately 300 employees.
We have no union employees at any of our Segments.
Governmental Regulation
Environmental companies and their customers are subject to extensive and evolving environmental laws and
regulations by a number of national, 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 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 Occupational Safety and
Health Act (“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 (with the USNRC oversight), Office of
Radiation Control, regulates the radiological program of the PFF facility, and the State of Tennessee (with
the USNRC oversight), Tennessee Department of Radiological Health, regulates the radiological program of
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the DSSI and M&EC facilities. The State of Washington (with the USNRC oversight) Department of
Health, regulates the radiological operations of the PFNWR facility.
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
Toxic Substances Control Act. 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”).
Risks Relating to our 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.
American International Group (“AIG”) provides our finite risk insurance policies 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. Our initial
policy provides a maximum of $39,000,000 of financial assurance coverage. We also maintain a financial
assurance policy for our PFNWR facility, which provides a maximum coverage of $8,200,000. 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.
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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 segments’ revenues are generated through various U.S. government contracts or
subcontracts involving the U.S. government. Our revenues from governmental contracts and subcontracts
relating to governmental facilities within our segments were approximately $47,557,000 or 63.9% and
$101,533,000 or 79.6%, of our consolidated operating revenues from continuing operations for 2013 and
2012, 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 federal government are terminable, or subject to renegotiation, by the
applicable governmental agency on 30 days notice, at the option of the governmental agency. 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 nuclear services with outside
vendors, including us.
A variety of factors may cause our existing or future customers (including the federal government) to reduce
or halt their spending on 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 the federal government to approve necessary budgets, or to reduce the amount of the
budget necessary, to fund remediation of DOE and DOD sites;
civic opposition to or changes in government policies regarding nuclear operations; or
a reduction in demand for nuclear generating capacity; or
failure to perform under existing contracts, directly or indirectly, with the federal government.
These events could result in or cause the federal government to terminate or cancel its existing contracts
involving us to treat, store or dispose of contaminated waste and/or to perform remediation projects, at one
or more of the federal sites since all contracts with, or subcontracts involving, the federal government are
terminable upon or subject to renegotiation at the option of the government on 30 days notice. These events
also could adversely affect us to the extent that they result in the reduction or elimination of contractual
requirements, lower demand for nuclear services, burdensome regulation, disruptions of shipments or
production, increased operational costs or difficulties or increased liability for actual or threatened property
damage or personal injury.
Economic downturns and/or reductions in government funding 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 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. During economic downturns
and large budget deficits that the federal government and many states are experiencing, the ability of private
and government entities to spend on nuclear services may decline significantly. Our operations depend, in
large part, upon governmental funding, particularly funding levels at the DOE. Significant reductions in the
level of 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 flows.
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
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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 projects could have an adverse effect on our business and results of operations.
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, which are primarily with the DOE 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.
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 auditors have expressed doubt about our ability to continue as a going concern.
Our financial statements have been prepared assuming that we will continue as a going concern. During the
years ended December 31, 2013 and 2012, the Company incurred net losses of $36,039,000 and $3,179,000,
respectively, and net cash used in operating activities was $2,716,000 and $3,409,000, respectively. Our net
loss for 2013 included approximately $27,856,000 in goodwill impairment charges recorded for three of our
four reporting units and a charge to tax expense of approximately $4,760,000 ($3,596,000 for our
continuing operations and $1,164,000 for our discontinued operations) to provide a full valuation allowance
on our net deferred tax assets. As of December 31, 2013, we have a deficit in working capital of
$2,958,000, an accumulated deficit of $55,078,000 and cash on hand of $333,000. We did not meet the
minimum quarterly fixed charge coverage ratio requirement under our credit facility for the first and fourth
quarters of 2013; however, we obtained a waiver from our lender for each of these quarters for the non-
compliance (See “Breach of financial covenants in existing credit facility could result in a default, triggering
repayment of outstanding debt under the credit facility” in this “Risk Factors” section for further potential
risk factor related to our financial covenants). Revenues for our fiscal years 2013 and 2012 were below our
expectations and internal forecasts as a result, in large part, of the government sequestration, federal
governmental clients operating under reduced budgets, the government shutdown of approximately 16 days
in October 2013, ending of contracts, and general adverse economic conditions. The reduction in our
revenue has resulted in our inability to attain profitable operations and have generated negative operating
cash flow from operations. These factors raise substantial doubt about our ability to continue as a going
concern. As a result, our independent registered public accounting firm has included an explanatory
paragraph regarding our ability to continue as a going concern in their report on our consolidated financial
statements for the year ended December 31, 2013. We obtained a waiver from our lender waiving the
requirement that the Company’s consolidated financial statements for the year ended December 31, 2013,
be issued without a going concern qualification. Our ability to continue our operations depends on our
ability to generate profitable operations or complete equity or debt financings to increase our capital. There
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are no assurances that we will be able to increase our revenue and cash flow to a level which supports
profitable operations and provides sufficient funds to pay our obligations.
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, especially Dr. Louis F. Centofanti, Chairman, President, and Chief Executive Officer. The loss
of Dr. Centofanti could have a material adverse effect on our operations, revenues, prospects, and our ability
to raise additional funds. 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.
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 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 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 waste. Currently, there are only two
disposal sites for our low level radioactive waste we receive from non-governmental sites. If either 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 be limited to only the one remaining site to dispose of our nuclear
waste. With only one 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 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; and
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.
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
11
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.
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.
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.
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 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.
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 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 Price-Anderson Act was extended through 2025 by the
Energy Policy Act of 2005.
Under certain conditions, the Price-Anderson Act’s indemnification provisions may not apply to our
processing of radioactive waste at governmental facilities, and do 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 Price-Anderson Act 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.
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 and
regional firms with nuclear 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
underrepresented minority contractors. Although the Company has regained 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. Competition places downward pressure on our contract prices and profit
margins. Intense competition is expected to continue for nuclear service contracts. If we are unable to meet
these competitive challenges, we could lose market share and experience on overall reduction in our profits.
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.
We may be unable to utilize loss carryforwards in the future.
We have approximately $9,715,000 and $53,035,000 in net operating loss carryforwards which will expire
in various amounts starting in 2021 if not used against future federal and state income tax liabilities,
respectively. 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.
13
If our goodwill, permit, or other intangible assets become further impaired, we may be required to
record additional significant charge to earnings.
Under accounting principles generally accepted in the United States (“U.S. GAAP”), we review our
intangible assets for impairment when events or changes in circumstances indicate the carrying value may
not be recoverable. Goodwill and permits are tested for impairment at least annually. Factors that may be
considered a change in circumstances, indicating that the carrying value of our goodwill, permit or other
intangible 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. During 2013, we recorded a total of
$27,856,000 in goodwill impairment charges, which represented the total goodwill for three of our four
reporting units. We may be required, in the future, to record additional impairment charges in our financial
statements, in which any impairment of our goodwill, permit, or other intangible assets is determined,
negatively impacting our results of operations.
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.
A percentage of our revenues are earned under contracts that are fixed-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 local laws or labor conditions, weather delays, cost of raw materials or our suppliers’
or subcontractors’ inability to perform, 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.
We are often required to provide performance bonds or other financial assurances to customers under fixed-
price 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.
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.
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, our management to assess annually the effectiveness of our internal control over
financial reporting. In connection with the restatement to our consolidated financial statements in our 2012
Form 10-K/A – Amendment No. 1, filed with the Commission on December 12, 2013, management,
including our Chief Executive Officer, and Chief Financial Officer, reassessed the effectiveness of our
internal control over financial reporting as of December 31, 2012 and concluded that the Company did not
maintain adequate control of its accounting for deferred tax accounts in preparation of its provision for
income taxes. As result of the restatement, we also concluded that a material weakness in internal control
over financial reporting existed as of September 30, 2013. Although the Company has remediated this
material weakness and based on our assessment, have concluded that our disclosure controls and procedures
and internal controls over financial reporting were effective as of December 31, 2013, failure to remediate
any future deficiencies or to implement required new or improved controls, or difficulties encountered in
14
their implementation, could cause us to fail to meet our reporting obligations or result in material
misstatement in our financial statements.
Risks Relating to our Intellectual Property
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.
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.
Risks Relating to our Financial Position and Need for Financing
Breach of financial covenants in existing credit facility could result in a default, triggering repayment
of outstanding debt under the 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. Our fixed
charge coverage ratio fell below the minimum quarterly requirement under our credit facility in the first and
fourth quarters of 2013; however, we have obtained a waiver for the non-compliance from our lender for
each of these quarters. Our lender has waived the quarterly fixed charge coverage testing requirement for
the first quarter of 2014. In addition, our lender has amended the methodology in calculating the fixed
charge coverage ratio in each of the subsequent quarters of 2014 and changed the minimum quarterly fixed
charge coverage ratio requirement of 1:25 to 1:00 to 1:15 to 1:00 for each of the subsequent quarters of
2014. As a result of these revisions, we expect to meet our quarterly fixed charge coverage ratio requirement
in each of the second to fourth quarters of 2014. If we fail to meet the minimum quarterly fixed charge
coverage ratio requirement in any of the quarters as discussed above for 2014 and our lender does not waive
the non-compliance or further revise our covenant so that we are in compliance, our lender could accelerate
the repayment of borrowings under our credit facility. In the event that our lender accelerates the payment
of our borrowings, we may not have sufficient liquidity to repay our debt under our credit facility and other
indebtedness.
Our amount of debt could adversely affect our operations.
At December 31, 2013, our aggregate consolidated debt was approximately $14,283,000 (includes debt
discount of $223,000). Our Amended and Restated Revolving Credit, Term Loan and Security Agreement,
dated October 31, 2011, as amended (“Amended Loan Agreement”) provides for an aggregate commitment
of $34,000,000, consisting of a $18,000,000 revolving line of credit and a term loan of $16,000,000.
Effective April 14, 2014, our revolving line of credit was reduced to $12,000,000. 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. As of December 31, 2013, we had no borrowings under the
revolving part of our Credit Facility and borrowing availability of up to an additional $6,642,000 based on
our outstanding eligible receivables. A lack of positive operating results could have material adverse
15
consequences on our ability to operate our business. Our ability to make principal and interest payments, or
to refinance indebtedness, 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 substantial level of indebtedness could limit our financial and operating activities, and
adversely affect our ability to incur additional debt to fund future needs.
We currently have a substantial amount of indebtedness. As a result, this level of indebtedness could,
among other things:
•
require us 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
financial statements have been prepared assuming that we will continue as a going concern. Our ability to
continue our operations depends on our ability to generate profitable operations or complete equity or debt
financings to increase our capital.
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. Given effect of the reverse
stock split, as of December 31, 2013, we had 11,398,931 shares of Common Stock outstanding (which
excludes 7,642 treasury shares).
In addition, given the effect of the reverse stock split, as of December 31, 2013, we had outstanding options
to purchase 362,800 shares of Common Stock at exercise prices from $2.79 to $14.75 per share and two
outstanding warrants to purchase up to an aggregate 70,000 shares of Common Stock at exercise price of
$2.23 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.
16
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 Common Stock or the
availability of shares of 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.
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 63,160,627 (which excludes shares issuable under outstanding options to
purchase 362,800 shares of our Common Stock and two warrants to purchase 70,000 shares of our Common
Stock) shares of Common Stock and 2,000,000 shares of Preferred Stock as of December 31, 2013 (which
includes 600,000 shares of our Preferred Stock reserved for issuance under our preferred share rights plan).
These unissued shares could be used by our management to make it more difficult, and thereby discourage
an attempt to acquire control of us.
Our Preferred Share Rights Plan may adversely affect our stockholders.
In May 2008, we adopted a preferred share rights plan (the “Rights Plan”), designed to ensure that all of our
stockholders receive fair and equal treatment in the event of a proposed takeover or abusive tender offer.
However, the Rights Plan may also have the effect of deterring, delaying, or preventing a change in control
that might otherwise be in the best interests of our stockholders.
In general, under the terms of the Rights Plan, subject to certain limited exceptions, if a person or group
acquires 20% or more of our Common Stock or a tender offer or exchange offer for 20% or more of our
Common Stock is announced or commenced, our other stockholders may receive upon exercise of the rights
(the “Rights”) issued under the Rights Plan the number of shares our Common Stock or of one-one
hundredths of a share of our Series A Junior Participating Preferred Stock, par value $.001 per share, having
a value equal to two times the purchase price of the Right. In addition, if we are acquired in a merger or
other business combination transaction in which we are not the survivor or more than 50% of our assets or
earning power is sold or transferred, then each holder of a Right (other than the acquirer) will thereafter
have the right to receive, upon exercise, common stock of the acquiring company having a value equal to
17
two times the purchase price of the Right. The initial purchase price of each Right was $13, subject to
adjustment and adjustment for the reverse stock split.
The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not
approved by our board of directors. The Rights may be redeemed by us at $0.001 per Right at any time
before any person or group acquires 20% or more of our outstanding common stock. The rights should not
interfere with any merger or other business combination approved by our board of directors. The Rights
expire on May 2, 2018.
Our Common Stock could be delisted from NASDAQ Stock Market LLC (“NASDAQ”) if we do not
satisfy continued listing requirements of NASDAQ.
On December 4, 2012, we were notified by NASDAQ that, based upon the closing bid price of our
Common Stock for the last 30 consecutive business days, our Common Stock did not meet the minimum bid
price of $1.00 per share required for continued listing on NASDAQ pursuant to NASDAQ Marketplace
Rule 5550(a)(2) (the “Minimum Bid Price Rule”). During October 2013, we had a 1-for-5 reverse stock
split as to our outstanding Common Stock and Common Stock subject to existing and outstanding option
and warrants that resulted in the price of our Common Stock exceeding the Minimum Bid Price Rule,
allowing us to regain compliance with the NASDAQ’S Minimum Bid Price Rule. If we are unable to
continue compliance with the Minimum Bid Price Rule, the NASDAQ could again take action to delist our
Common Stock from the NASDAQ, which could have an adverse effect on the liquidity and share price of
our Common Stock. Any impact on our ability to raise equity capital could adversely affect our ability to
execute our long-term business strategy, including any efforts to use equity capital to reduce our
indebtedness or fund our operations.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2.
PROPERTIES
Our principal executive office is in Atlanta, Georgia. Our Business Center is located in Knoxville,
Tennessee. Our Treatment Segment facilities are located in Gainesville, Florida; Kingston, Tennessee; Oak
Ridge, Tennessee, and Richland, Washington. Our Services Segment operates subsidiaries located in
Ellisville, Missouri; Knoxville, Tennessee; and Blaydon On Tyne, England, of which we lease all of the
properties. We have a facility located in Valdosta, Georgia, which is included within our discontinued
operations. On August 14, 2013, our Valdosta, Georgia facility incurred fire damage which has left it non-
operational at this time, but is undergoing the rebuilding process. We also maintain properties in
Brownstown, Michigan and Memphis, Tennessee, which are all non-operational and are included within our
discontinued operations.
Three of our facilities are subject to mortgages as granted to our senior lender (Kingston, Tennessee;
Gainesville, Florida; and Richland, Washington).
The Company currently leases properties in the following locations:
Location
Knoxville, TN (Safety and Ecology Corporation or "SEC")
Knoxville, TN (SEC)
Blaydon On Tyne, England (Perma-Fix UK Limited)
Pittsburgh, PA (SEC)
Newport, KY (SEC)
Oak Ridge, TN (M&EC)
Ellisville, MO (SYA)
Atlanta, GA (Corporate)
Square Footage
20,850
11,000
1,000
640
1,566
150,000
12,000
7,672
Expiration of Lease
May 31, 2018
September 30, 2014
Monthly
Monthly
Monthly
February 28, 2018
May 31, 2016
May 31, 2015
18
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
Perma-Fix of Northwest Richland, Inc. (“PFNWR”)
PFNWR filed suit (PFNWR vs. Philotechnics, Ltd.) in the U.S. District Court, Eastern District of
Tennessee, asserting contract breach and seeking specific performance of the “return-of-waste clause” in the
brokerage contract between a prior facility owner (now owned by PFNWR) and Philotechnics, Ltd.
(“Philo”), as to certain non-conforming waste Philo delivered for treatment from Philo’s customer, El du
Pont de Nemours and Company (“DuPont”), to the PFNWR facility, before PFNWR acquired the facility.
Our complaint seeks an order that Philo: (A) specifically perform its obligations under the contract’s
“return-of-waste” clause by physically taking custody of and by removing the nonconforming waste, (B)
pay PFNWR all additional costs of maintaining and managing the waste, and (C) pay PFNWR the cost to
treat and dispose of the nonconforming waste so as to allow PFNWR to compliantly dispose of that waste
offsite. Presently, under the supervision of the Court, PFNWR and Philo have agreed to temporarily suspend
formal legal proceedings and, instead, to work together to process, package, transport from the facility, and
dispose of the nonconforming waste. PFNWR anticipates that these activities will be completed in 2014.
This matter is currently set to proceed to trial on November 3, 2014 to adjudicate any issues that remain.
ITEM 4
MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of the date hereof, information concerning our executive officers:
NAME
Dr. Louis F. Centofanti
Mr. Ben Naccarato
Mr. Robert Schreiber, Jr.
Mr. John Lash
AGE
70
51
63
51
POSITION
Chairman of the Board, President and Chief Executive Officer
Chief Financial Officer, Vice President, and Secretary
President of Schreiber, Yonley & Associates (“SYA”), a subsidiary of
the Company, and Principal Engineer
Chief Operating Officer
Dr. Louis F. Centofanti
Dr. Centofanti has served as Board Chairman since joining the Company in February 1991. Dr. Centofanti
also served as Company President and Chief Executive Officer (February 1991 to September 1995) and
again in March 1996 was elected Company President and Chief Executive Officer. From 1985 until joining
the Company, Dr. Centofanti served as Senior Vice President of USPCI, Inc., a large hazardous waste
management company, where he was responsible for managing the treatment, reclamation and technical
groups within USPCI. In 1981 he founded PPM, Inc. (later sold to USPCI), a hazardous waste management
company specializing in treating PCB contaminated oils. From 1978 to 1981, Dr. Centofanti served as
Regional Administrator of the U.S. Department of Energy for the southeastern region of the United States.
Dr. Centofanti has a Ph.D. and a M.S. in Chemistry from the University of Michigan, and a B.S. in
Chemistry from Youngstown State University.
Mr. Ben Naccarato
Mr. Naccarato has served as the Chief Financial Officer since February 26, 2009. Mr. Naccarato joined the
Company in September 2004 and served as Vice President, Finance of the Company’s Industrial Segment
until May 2006, when he was named Vice President, Corporate Controller/Treasurer. Prior to joining the
Company in September 2004, Mr. Naccarato was the Chief Financial Officer of Culp Petroleum Company,
Inc., a privately held company in the fuel distribution and used waste oil industry from December 2002 to
September 2004. Mr. Naccarato is a graduate of University of Toronto having received a Bachelor of
Commerce and Finance Degree and is a Certified Management Accountant.
19
Mr. Robert Schreiber, Jr.
Mr. Schreiber has served as President of SYA since the Company acquired the environmental engineering
firm in 1992. Mr. Schreiber co-founded the predecessor of SYA, Lafser & Schreiber in 1985, and held
several executive roles in the firm until our acquisition of SYA. From 1978 to 1985, Mr. Schreiber was the
Director of Air programs and all environmental programs for the Missouri Department of Natural
Resources. Mr. Schreiber provides technical expertise in wide range of areas including the cement industry,
environmental regulations and air pollution control. Mr. Schreiber has a B.S. in Chemical Engineering from
the University of Missouri – Columbia.
Mr. John Lash
On April 3, 2014, the Company’s Board of Directors approved the appointment by the Company on March
20, 2014 of Mr. John Lash as the Chief Operating Officer. Mr. Lash previously served as Senior Vice
President of Operations of the Company’s Treatment Segment for over ten years. Mr. Lash has over 20
years of experience in the nuclear industry, with specific experience in managing remedial activities, as well
as decontamination and disposal of radioactive materials from commercial and government operating
facilities. As Senior Vice President of Operations, Mr. Lash was responsible for all treatment and
remediation activities. Prior to joining Perma-Fix in 2001, Mr. Lash served as Broad Spectrum Manager for
Waste Control Specialists in Dallas, TX where his responsibilities included contract management of DOE
nationwide procurement for mixed waste treatment services, business development activities, and
technology development. Prior to that, he worked for ten years at Chem-Nuclear Systems where he held
various managerial positions including manager of the Chem-Nuclear Consolidation Facility. Mr. Lash
received his education and qualification from the U.S. Navy Nuclear Power Program, where he served for 8
years prior to working in the commercial and nuclear industry.
Resignation of Chief Operating Officer
On March 20, 2014, the Company accepted the resignation of Mr. James A. Blankenhorn, as Vice President
and Chief Operating Officer of the Company. The resignation was effective March 28, 2014. Mr.
Blankenhorn’s resignation was not due to a disagreement with the Company.
Certain Relationships
There are no family relationships between any of our executive officers.
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. The trade prices noted below have been adjusted for the 1-for-5 reverse stock split.
2013
2012
Common Stock 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Low High Low
High
$ 3.14 $ 5.25 $ 7.32 $ 9.50
8.40
1.80
5.95
1.96
5.35
2.85
5.30
4.25
3.40
4.30
4.00
4.28
As of March 13, 2014, there were approximately 236 stockholders of record of our Common Stock,
including brokerage firms and/or clearing houses holding shares of our Common Stock for their clientele
(with each brokerage house and/or clearing house being considered as one holder). However, the total
number of beneficial stockholders as of March 13, 2014, was approximately 3,259.
20
Since our inception, we have not paid any cash dividends on our Common Stock and have no dividend
policy. Our Amended Loan Agreement prohibits us from paying any cash dividends on our Common Stock
without prior approval from the lender. We do not anticipate paying cash dividends on our outstanding
Common Stock in the foreseeable future.
No sales of unregistered securities occurred during 2013. 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 2013.
We have adopted a preferred share rights plan, which is designed to protect us against certain creeping
acquisitions, open market purchases, and certain mergers and other combinations with acquiring companies.
See “Item 1A. - Risk Factors – Our Preferred Share Rights Plan” as to further discussion relating to the
terms of our preferred share rights plan.
Reverse Stock Split
The Company effected a reverse stock split at a ratio of 1-for-5 of the Company’s Common Stock, effective
as of 12:01 a.m. on October 15, 2013. As a result of the reverse stock split, each five shares of the
outstanding Common Stock and shares held in treasury were combined into one share of Common Stock
without any change to the par value per share. Further, the number of shares of Common Stock issuable
upon exercise of outstanding stock options and warrants as of October 15, 2013, and the exercise price
thereof, were also adjusted as a result of the reverse stock split. The reverse stock split did not affect the
number of authorized shares of Common Stock which remained at 75,000,000. No fractional shares of
Common Stock will be issued as a result of the reverse stock split. Instead, stockholders who otherwise
would be entitled to receive a fractional share of Common Stock as a consequence of the reverse stock split
will be entitled to receive cash in lieu of all such fractional shares.
The primary reason for implementing this reverse stock split was to increase the market price per share of
our Common Stock in order to regain compliance with the NASDAQ’s continued listing criteria related to
Minimum Bid Price Rule. On October 29, 2013, we received a letter from the NASDAQ Stock Market
indicating that we had regained compliance with the minimum bid price requirement under NASDAQ
Listing Rule 5550(a)(2) for continued listing on the NASDAQ Capital Market. The Company’s Common
Stock continues to be listed on the NASDAQ Capital Market.
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” 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”). 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 and the accounts of our wholly-owned subsidiaries, 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.
Reverse Stock Split
The Company has effected a reverse stock split at a ratio of 1-for-5 of the Company’s Common Stock,
effective as of 12:01 a.m. on October 15, 2013. As a result of this reverse stock split, all references in this
Management’s Discussion and Analysis of Financial Condition and Results of Operations, as to the number
21
of shares outstanding, per share amounts, and outstanding stock option and warrant data of the Company’s
Common Stock have been restated to reflect the effect of the stock split for all periods presented.
Review
This year was a challenging year for the Company. Revenues for fiscal year 2013 were below our
expectations and internal forecasts as a result, in large part, of the government sequestration, federal and
state governmental clients operating under reduced budgets, including short term budget Continuing
Resolutions (“CR”), the government shutdown of approximately 16 days in October 2013, ending of
contracts, and general adverse economic conditions.
Revenue decreased $53,096,000 or 41.6% to $74,413,000 for the twelve months ended December 31, 2013
from $127,509,000 for the corresponding period of 2012. We saw a revenue decrease of approximately
$42,754,000 or 52.4% within our Services Segment primarily resulting from completion/near completion of
certain large contracts with the U.S. Department of Energy (“DOE”) within the nuclear services area and a
large contract in the technical services area. In addition, effective September 30, 2013, the CH Plateau
Remediation Company (“CHPRC”) subcontract (under the nuclear services area), which became effective
June 19, 2008, expired. This subcontract was awarded to our East Tennessee Materials & Energy
Corporation (“M&EC”) subsidiary in connection with CH2M Hill Plateau Remediation Company’s
(“CH2M Hill”) prime contract with the DOE, relating to waste management and facility operations at the
DOE’s Hanford, Washington site. The CHPRC subcontract provided for a base contract period from
October 1, 2008 through September 30, 2013, with an option of renewal for an additional five years.
Revenue generated under this subcontract was approximately $17,150,000 and $23,462,000 for the nine
months ended September 30, 2013 and twelve months ended December 31, 2012, respectively. Revenue
from our Treatment Segment was lower by $10,342,000 or 22.5% primarily due to lower waste volume
from government clients. Gross profit decreased $5,988,000 or 37.9%, primarily due to reduced revenue.
Selling, General, and Administrative (SG&A) expenses decreased $4,014,000 or 21.8% for the twelve
months ended December 31, 2013 as compared to the corresponding period of 2012. We had a net loss of
$36,039,000 for fiscal year 2013 as compared to a net loss of $3,179,000 for the corresponding period of
2012. Our net loss for 2013 included approximately $27,856,000 in goodwill impairment charges recorded
for three of our four reporting units and a charge to tax expense of approximately $4,760,000 ($3,596,000
for our continuing operations and $1,164,000 for our discontinued operations) to provide a full valuation
allowance on our net deferred tax assets.
We had a working capital deficit of $2,958,000 at December 31, 2013, as compared to a working capital of
$2,652,000 at December 31, 2012, a decrease of $5,610,000.
Business Environment, Outlook and Liquidity
During the years ended December 31, 2013 and 2012, the Company incurred net losses of $36,039,000 and
$3,179,000, respectively, and net cash used in operating activities was $2,716,000 and $3,409,000,
respectively. Our net loss for 2013 included approximately $27,856,000 in goodwill impairment charges
recorded for three of our four reporting units and a charge to tax expense of approximately $4,760,000
($3,596,000 for our continuing operations and $1,164,000 for our discontinued operations) to provide a full
valuation allowance on our net deferred tax assets. As of December 31, 2013, we have a deficit in working
capital of $2,958,000, an accumulated deficit of $55,078,000 and cash on hand of $333,000. Revenues for
fiscal years 2013 and 2012 were $74,413,000 and $127,509,000, respectively, and were below our
expectations and internal forecasts as a result, in large part, of the government sequestration, federal
governmental clients operating under reduced budgets, the government shutdown of approximately 16 days
in October 2013, ending of contracts, and general adverse economic conditions. Our revenue during the
year ended December 31, 2013 was insufficient to attain profitable operations and generated negative
operating cash flow from operations. We did not meet the minimum quarterly fixed charge coverage ratio
requirement under our credit facility for the first and fourth quarters of 2013; however, we obtained a
waiver from our lender for each of these quarters for the non-compliance. Our lender also has waived the
fixed charge coverage ratio testing requirement for the first quarter of 2014 and amended the
and
the quarterly minimum ratio requirement to be used in calculating our quarterly fixed charge ratio for the
subsequent quarters of 2014 (See “Liquidity and Capital Resources – Financing Activities” in this
methodology
22
Management’s Discussion and Analysis of Financial Conditions and Results of Operations” for further
information of these waivers and this amendment and other matters).
The Company’s cash flow requirements during 2013 have been financed by cash on hand, operations, our
credit facility, and debt financing. The Company is continually reviewing operating costs and is committed
to further reducing operating costs to bring them in line with revenue levels.
Our ability to achieve and maintain profitability is dependent upon our ability to successfully raise
additional capital and develop our business plans that will generate profitable revenues. The Company
continues to explore all sources of increasing revenue. If the Company is unable in the near term to raise
capital on commercially reasonable terms or increase revenue, it may not have sufficient cash to sustain its
operations for the next twelve months. As a result, the Company may be forced to further reduce or even
curtail its operations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern. As a result, our independent registered public accounting firm has included an explanatory
paragraph regarding our ability to continue as a going concern in their report on our consolidated financial
statements for the year ended December 31, 2013. We have obtained a waiver from our lender waiving the
requirement that our consolidated financial statements for the year ended December 31, 2013, be issued
without a going concern qualification (see “Liquidity and Capital Resources – Financing Activities for
further information of this waiver). The accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
The Company continues to focus on expansion into both commercial and international markets to help
offset the uncertainties of government spending in the USA. This includes new services, new customers
and increased market share in our current markets. Although no assurances can be given, we believe we
will be able to successfully implement this plan. In January 2014, the fiscal year 2014 Omnibus spending
bill was approved by Congress and the President. This budget, the first approved in several years, restores
federal government funding cuts instituted in 2013 from sequestration and allows for new spending on
projects that was not allowed under CR. The 2014 budget provides approximately $5.83 billion for the
DOE’s Office of Environmental Management (“EM”), which is an effective increase in funding availability
of $300,000,000 to $600,000,000. The increase in funding allows government agencies to spend on
discretionary clean-up and waste treatment projects that represents over half of Perma-Fix’s business base.
Although no assurances can be given, we believe these factors provide potential increased revenues and
generate positive cash flows in 2014.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The
Treatment Segment (“Treatment”) and the Services Segment (“Services”):
Below are the results of continuing operations for our years ended December 31, 2013 and 2012 (amounts
in thousands):
23
(Consolidated)
Net revenues
Cost of goods sold
Gross Profit
Selling, general and administrative
Impairment of goodwill
Research and development
Loss on disposal of property
and equipment
Loss from operations
Interest income
Interest expense
Interest expense – financing fees
Other
Loss from continuing operations before taxes
Income tax benefit
Loss from continuing operations
$
2013
74,413
64,597
9,816
14,376
27,856
1,764
49
(34,229)
35
(762)
(132)
(8)
(35,096)
(625)
%
100.0
86.8
13.2
19.3
37.4
2.4
(45.9)
(1.0)
(.2)
(47.1)
(.8)
$
2012
127,509
111,705
15,804
18,390
1,823
15
(4,424)
41
(818)
(107)
8
(5,300)
(2,151)
$
(34,471)
(46.3)
$
(3,149)
%
100.0
87.6
12.4
14.4
1.4
(3.4)
(.6)
(.1)
(4.1)
(1.6)
(2.5)
Summary - Years Ended December 31, 2013 and 2012
Net Revenue
Consolidated revenues from continuing operations decreased $53,096,000 for the year ended December 31,
2013, compared to the year ended December 31, 2012, as follows:
(In thousands)
Treatment
Government waste
Hazardous/non-hazardous
Other nuclear waste
Total
Services
Nuclear
Technical
Total
Total
2013
%
Revenue
%
2012
Revenue Change
%
Change
$
20,188
4,439
10,913
35,540
32,067
6,806
38,873
27.1
6.0
14.7
47.8
43.1
9.1
52.2
$
30,501
3,230
12,151
45,882
62,043
19,584
81,627
23.9
2.6
9.5
36.0
48.6
15.4
64.0
$
(10,313)
1,209
(1,238)
(10,342)
(29,976)
(12,778)
(42,754)
(33.8)
37.4
(10.2)
(22.5)
(48.3)
(65.2)
(52.4)
$
74,413
100.0
$
127,509
100.0
$
(53,096)
(41.6)
Net Revenue
Treatment Segment revenue decreased $10,342,000 or 22.5% for the twelve months ended December 31,
2013 over the same period in 2012. The decrease was primarily due to lower revenue from government
clients of approximately $10,313,000 or 33.8%, resulting from lower waste volume. Revenue from
hazardous and non-hazardous waste was up $1,209,000 or 37.4%, primarily due to higher remediation
projects. Other nuclear waste revenue decreased approximately $1,238,000 or 10.2%, primarily due to
lower waste volume. Services Segment revenue decreased $42,754,000 or 52.4% in the twelve months
ended December 31, 2013 from the corresponding period of 2012, primarily as a result of the
completion/near completion of certain large contracts with the DOE and the completion of the CHPRC
subcontract effective September 30, 2013, within the nuclear services area. In addition, the decrease in
revenue was also attributed to the completion of a large contract in the technical services area in the third
quarter of 2012. The decrease in our revenue was impacted by a reduction in spending by our governmental
and commercial clients in connection with the treatment of waste and new remediation projects as discussed
above.
24
Cost of Goods Sold
Cost of goods sold decreased $47,108,000 for the year ended December 31, 2013, as compared to the year
ended December 31, 2012, as follows:
(In thousands)
Treatment
Services
Total
2013
$ 29,966
34,631
$ 64,597
%
Revenue
84.3
89.1
86.8
2012
$ 36,614
75,091
$ 111,705
%
Revenue
79.8
92.0
87.6
Change
$ (6,648)
(40,460)
(47,108)
$
Cost of goods sold for the Treatment Segment decreased $6,648,000 or 18.2%, primarily due to reduced
revenue from lower waste volume and our continued effort in reducing our cost structure. We incurred
lower costs throughout most categories within cost of goods sold. We incurred significant reduction in
salaries and payroll/healthcare related expenses ($2,600,000) resulting from reductions in workforce which
occurred in February 2013, December 2012, and June 2012, as we continue to manage headcount and
streamline our operations. The lower costs discussed above were partially offset by approximately $113,000
increase in severance expense. In addition, our costs for the twelve months ended December 31, 2013
included $188,000 of penalty recorded in final settlement on July 16, 2013 by our PFNWR subsidiary with
the U.S. Environmental Protection Agency, regarding certain alleged violations that our PFNWR
subsidiaries had improperly stored certain mixed waste. Treatment cost of goods sold included a reduction
of approximately $1,007,000 in depreciation expense and an increase of approximately $559,000 in closure
expense due to adjustments to our asset retirement obligations for our M&EC, DSSI, PFF, and PFNWR
facilities. The adjustment was made principally to record the obligation using appropriate discount rates.
The closure obligations were previously based on undiscounted values. The associated assets were also
adjusted to reflect this change. Services Segment cost of goods sold decreased $40,460,000 or 53.9%
primarily due to reduced revenue as discussed above. We incurred lower costs throughout most categories
within cost of goods sold. Salaries and payroll related expenses were significantly lower ($22,000,000)
resulting from reduced revenue and a reduction in workforce which occurred in February 2013. In addition,
we incurred significantly lower outside services/subcontract costs ($14,000,000). Included within cost of
goods sold is depreciation and amortization expense of $3,486,000 and $5,146,000 for the twelve months
ended December 31, 2013, and 2012, respectively.
Gross Profit
Gross profit for the year ended December 31, 2013, was $5,988,000 lower than 2012, as follows:
(In thousands)
Treatment
Services
Total
2013
$ 5,574
4,242
$ 9,816
%
Revenue
15.7
10.9
13.2
2012
$ 9,268
6,536
$ 15,804
%
Revenue
20.2
8.0
12.4
Change
$ (3,694)
(2,294)
(5,988)
$
The Treatment Segment gross profit decreased $3,694,000 or 39.9% and gross margin decreased to 15.7%
from 20.2% primarily due to decreased revenue from lower waste volume and the impact of our fixed costs.
We continue to streamline our cost structure as evidenced in the significant reduction in salaries and
payroll/healthcare related costs as noted in our discussion above. In the Services Segment, gross profit
decreased $2,294,000 or 35.1% due to reduced revenue as discussed in the revenue section above; however,
the increase in margin was attributed to our continued efforts in reducing our costs.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses decreased $4,014,000 for the year ended December
31, 2013, as compared to the corresponding period for 2012, as follows:
25
(In thousands)
Administrative
Treatment
Services
Total
2013
$
5,215
4,253
4,908
14,376
$
%
Revenue
12.0
12.6
19.3
2012
$
6,536
4,051
7,803
18,390
$
%
Revenue
8.8
9.6
14.4
Change
$
(1,321)
202
(2,895)
(4,014)
$
The decrease in administrative SG&A was primarily the result of lower outside services expenses resulting
from fewer corporate legal, consulting and business matters ($540,000), lower payroll and healthcare costs
($486,000), lower travel expenses and lower public company expense. During the second quarter of 2012,
we wrote off approximately $117,000 in costs related to our shelf registration statement on Form S-3 which
expired on June 26, 2012. In addition, general expenses were lower throughout all categories. Treatment
SG&A was higher primarily due to higher payroll related expenses and higher allocations. With the
completion of the CHPRC subcontract effective September 30, 2013, the Treatment and Services segments
are each allocated a higher share of the Business Center overhead costs. The higher Treatment SG&A cost
was also attributed to higher bad debt expense ($43,000). Services SG&A was lower in most categories.
We incurred lower salaries and payroll related expenses ($1,400,000) resulting from reduced headcount due
to completion of integration of administrative functions and the completion of the CHPRC subcontract
effective September 30, 2013, lower travel expenses ($114,000), lower outside services ($100,000) from
reduced consulting and subcontract matters, and lower general expenses ($600,000). Bad debt expense was
significantly lower ($450,000) primarily resulting from collection of accounts receivable previously
reserved in our allowance for doubtful account for a certain fixed price contract. The lower cost was
partially offset by higher legal expenses incurred in settlement and collection of the accounts receivable
mentioned above and other legal matters. Included in SG&A expenses is depreciation and amortization
expense of $425,000 and $305,000 for the twelve months ended December 31, 2013 and 2012, respectively.
Research and Development
Research and development costs decreased $59,000 for the year ended December 31, 2013, as compared to
the corresponding period of 2012. 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 to increase company offerings and technological enhancement of new potential waste
treatment processes. The decrease was primarily due to lower payroll costs. Included in research and
development expense is depreciation expense of $215,000 and $19,000 for the twelve months ended
December 31, 2013 and 2012, respectively.
Goodwill Impairment
During the second quarter of 2013, we determined that the estimated fair value of our CHPRC reporting unit
was less than the net book value indicating that its allocated goodwill was impaired; accordingly, we
recorded a goodwill impairment charge of $1,149,000, which represented the total goodwill for our CHPRC
reporting unit – our operations under the CHPRC subcontract. During the second quarter of 2013, our
M&EC subsidiary was notified by CH2M Hill that the CHPRC subcontract, which expired on September
30, 2013, would not be renewed.
The Company performed its annual goodwill testing as of October 1, for its remaining three reporting units:
(1) Schreiber, Yonley & Associates (“SYA”) reporting unit - our SYA subsidiary operations; (2) Safety and
Ecology (“SEC”) reporting unit - our SEC operations; and (3) Treatment reporting unit – our treatment
operations. We elected to bypass the qualitative assessment aspect of this test in determining whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount as we identified
indicators of potential impairment (market capitalization in relation to net book value, negative industry and
economic trends, and lower than anticipated results of operations). In determining the estimated fair values
of the reporting units, the Company generally employed a discounted cash flows analysis (“DCF”) and, in
certain cases, used a combination of a DCF analysis and a market-based approach. As noted in the “Critical
Accounting Estimates” in this section, determining estimated fair values requires the application of
significant judgment. As a result of the financial downturn suffered by the Company in 2013, and
26
uncertainties with regards to federal government spending, determining the fair value of the Company’s
reporting units was even more judgmental than it has been in the past. These factors reduced the Company’s
visibility into long-term trends and dampened the Company’s expectations of future business performance.
Consequently, estimates of future cash flows used in the fourth quarter 2013 DCF analyses were moderated,
in some cases significantly, relative to the estimates used in the fourth quarter of 2012. The discount rates
utilized in these DCF analyses reflect market-based estimates of the risks associated with the projected cash
flows of individual reporting units. The discount rates utilized in the DCF analyses were increased to reflect
increased risk due to current economic volatility to a range of 21% to 35% in 2013 from 15% in 2012. In
addition, the terminal growth rates used in the DCF analyses were decreased to 3% in 2013 from 4% in
2012. The results of the DCF analyses were corroborated with other value indicators where available, such
as comparable company earnings multiples and research analyst estimates. The results of this Step 1 process
indicated that there was a potential impairment of goodwill in the Treatment and SEC reporting units, as the
book values of the reporting units exceeded their respective estimated fair values. As a result, the Company
performed step 2 of the impairment analysis for the two reporting units discussed above. In step 2, the
implied fair value is compared to the carrying amount of the goodwill. If the implied fair value of goodwill
is less than the carrying value of goodwill, we would recognize an impairment loss equal to the difference.
The implied fair value is calculated by assigning the fair value of the reporting unit (as determined in step 1)
to all of its assets and liabilities (including unrecognized intangible assets) and any excess in fair value that
is not assigned to the asset and liabilities is the implied fair value of goodwill. Based on the result of the
step 2 analysis, we determined that the goodwill for each of our Treatment and SEC reporting units was
fully impaired, and therefore, we recorded a goodwill impairment loss of $13,691,000 and $13,016,000, for
our Treatment and SEC reporting unit, respectively.
The impairment charges are noncash in nature and did not affect our liquidity or cash flows from operating
activities. Additionally, the goodwill impairment had no effect on our borrowing availability or covenants
under our credit facility agreement.
Interest Expense
Interest expense decreased $56,000 for the year ended December 31, 2013, as compared to the
corresponding period of 2012.
(In thousands)
PNC interest
Other
Total
2013
$
2012
$
Change
$
605
157
762
616
202
818
$
$
$
(11)
(45)
(56)
%
(1.8)
(22.3)
(6.8)
The decrease in interest expense was primarily due to reducing Term Loan balance from monthly payments.
In addition, interest expense was lower from a reduced loan balance and termination of the $2,500,000 note
we entered into with Timios National Corporation (“TNC” and formerly known as Homeland Capital
Security Corporation) from the acquisition of Safety and Ecology Holdings Corporation and its subsidiaries
(collectively known as Safety and Ecology Corporation or “SEC”) on October 31, 2011 and a reducing loan
balance of the $1,322,000 earn-out note dated September 28, 2010, which was paid in full in September
2013. The lower interest expense was partially offset by higher interest expense resulting from a $3,000,000
loan the Company entered into with Messrs. Ferguson and Lampson on August 2, 2013. In addition, our
interest expense for 2013 included approximately $65,000 in loss on debt modification (recorded in
accordance with ASC 470-50, “Debt – Modification and Extinguishment”) which we incurred as a result of
an amendment that we entered into with our lender on August 2, 2013, which amended certain provisions
of our amended loan agreement.” See “Liquidity and Capital Resources – Financing Activities” below for
further details of these notes and the August 2, 2013 amendment.
Interest Expense- Financing Fees
Interest expense-financing fees increased approximately $25,000 for the twelve months ended December
31, 2013, as compared to the corresponding period of 2012. The increase was primarily due to the debt
discount amortized as financing fees in connection with the issuance of our Common Stock and two
27
purchase Warrants as consideration for the Company receiving a $3,000,000 loan from Messrs. Ferguson
and Lampson on August 2, 2013 as discussed above.
Income Taxes
We had income tax benefits of $625,000 and $2,151,000 for continuing operations for the years ended
December 31, 2013 and 2012, respectively. The Company’s effective tax rates were approximately 8.7%
and 39.3% for the twelve months ended December 31, 2013 and 2012, respectively. The lower tax rate for
2013 was primarily the result of the Company providing a full valuation allowance on its deferred tax
assets. We have treated the total goodwill impairment loss of approximately $27,856,000 recorded in 2013
for our CHPRC, Treatment, and SEC reporting units as a discrete item and have not included the impact of
the impairment in our estimated effective tax rates for 2013, in accordance with ASC 740-270-30-8. We
estimate our tax liability based on our estimated annual effective tax rate, which is based on our expected
annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in
which we operate.
Discontinued Operations and Divestitures
Our discontinued operations consist of our Perma-Fix of South Georgia, Inc. (“PFSG”) facility which met
the held for sale criteria under ASC 360, “Property, Plant, and Equipment” on October 6, 2010. Our
discontinued operations also encompass our Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of
Orlando, Inc. (“PFO”), Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”), and
Perma-Fix Treatment Services, Inc. (“PFTS”) facilities, which were divested on August 12, 2011, October
14, 2011, January 8, 2008, March 14, 2008, and May 30, 2008, respectively. Our discontinued operations
also includes two previously closed locations, Perma-Fix of Michigan, Inc. (“PFMI”) and Perma-Fix of
Memphis, Inc. (“PFM”), which were approved as discontinued operations by our Board of Directors
effective October 4, 2004, and March 12, 1998, respectively.
On August 14, 2013, our PFSG facility incurred fire damage which has left it non-operational. Certain
equipment and portions of the building structures were damaged. We carry general liability, pollution,
property and business interruption, and workers compensation insurance with a maximum deductible of
approximately $300,000 (consisting of $100,000 deductible for each workers compensation, pollution, and
property insurance policy), which was accrued and included within our “loss from discontinued operations.”
As of December 31, 2013, we have recorded $130,000 for impairment of fixed assets related to the fire, and
has incurred approximately $6,729,000 of other costs related to the fire. As of December 31, 2013,
approximately $3,664,000 in insurance proceed reimbursements have been paid by our insurers, of which
$1,750,000 was paid to us, with the remaining paid directly to the vendor performing the clean-up of the
facility. We have recorded a receivable of approximately $2,995,000 as we have determined that the receipt
of reimbursement of these expenses from our insurer is probable in accordance with its insurance policies.
The table below details the nature of expense as well as insurance receivables and insurance recoveries
related to the fire:
Clean up costs
Impairment of fixed assets
Incremental payroll costs
Other incremental costs
Total incurred costs through December 31, 2013
Insurance recovery receivable
Insurance recoveries already received
$
$
$
$
6,293,000
130,000
244,000
192,000
6,859,000
2,995,000
3,664,000
.
The insurance receivable recorded is net of $200,000 of deductible on our property and pollution insurance
policies and the insurance recoveries already received. The receivables and the related payables in
connection with this claim are included within our current assets and current liabilities related to
discontinued operations in our consolidated balance sheet.
28
Subsequent to December 31, 2013, our insurers paid approximately $3,510,000 of insurance recoveries, of
which approximately $2,000,000 was paid to us, with the remaining paid directly to the vendor working on
the clean-up of the facility. We continue to gather information related to insurance claims on this fire.
We are currently evaluating options regarding the future operation of this facility as we undergo the
rebuilding process on the part of the facility damaged by the fire. As required by ASC 360, based on our
internal financial valuations, we concluded that no tangible asset impairments existed for PFSG as of
December 31, 2013, other than the write-off of the equipment damaged in the fire as discussed above. No
intangible assets exist at PFSG.
Our discontinued operations had net revenue of $1,789,000 for the twelve months ended December 31,
2013, as compared to $2,204,000 for the corresponding period of 2012. We had net losses of $1,568,000
and $30,000 for our discontinued operations for the twelve months ended December 31, 2013 and 2012,
respectively. Our net loss for 2013 included a charge to income tax expense of approximately $1,164,000 to
provide a full valuation allowance on our net deferred tax assets.
Assets related to discontinued operations totaled $4,481,000 and $2,113,000 as of December 31, 2013, and
December 31, 2012, respectively, and liabilities related to discontinued operations totaled $4,596,000 and
$3,341,000 as of December 31, 2013, and December 31, 2012, respectively.
Liquidity and Capital Resources
During the twelve months ended December 31, 2013 and for the year ended December 31, 2012, the
Company incurred net losses of $36,039,000 and $3,179,000, respectively. Our net loss for 2013 included
approximately $27,856,000 in goodwill impairment charges recorded for three of our four reporting units
and a charge to tax expense of approximately $4,760,000 ($3,596,000 for our continuing operations and
$1,164,000 for our discontinued operations) to provide a full valuation allowance on our net deferred tax
assets. Revenues for fiscal years 2013 and 2012, were $74,413,000 and $127,509,000, respectively, and
were below our expectations and internal forecasts as a result, in large part, of the government sequestration,
federal and state governmental clients operating under reduced budgets, the government shutdown of
approximately 16 days in October 2013, ending of contracts, and general adverse economic conditions. Our
revenue during twelve months ended December 31, 2013 was insufficient to attain profitable operations and
generated negative operating cash flow from operations.
The Company’s cash flow requirements during 2013 have been financed by cash on hand, operations, our
credit facility, and debt financing. The Company is continually reviewing operating costs and is committed
to further reducing operating costs to bring them in line with revenue levels.
Our capital requirements consist of general working capital needs, scheduled principal payments on our debt
obligations and capital leases, remediation projects and planned capital expenditures. Our capital resources
consist primarily of cash generated from operations, funds available under our revolving credit facility and
proceeds from issuance of our Common Stock. Our capital resources are impacted by changes in accounts
receivable as a result of revenue fluctuation, economic trends, collection activities, and the profitability of
the segments.
Our ability to achieve and maintain profitability is dependent upon our ability to successfully raise
additional capital and develop our business plans that will generate profitable revenues. The Company
continues to explore all sources of increasing revenue. If the Company is unable in the near term to raise
capital on commercially reasonable terms or increase revenue, it may not have sufficient cash to sustain its
operations for the next twelve months. As a result, the Company may be forced to further reduce or even
curtail its operations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern. As a result, our independent registered public accounting firm has included an explanatory
paragraph regarding our ability to continue as a going concern in their report on our consolidated financial
statements for the year ended December 31, 2013 (see “Financing Activities” in this section for a discussion
as to the waiver issued by lender waiving the requirement that our consolidated financial statements for the
year ended December 31, 2013, be issued without a going concern qualification). The accompanying
29
financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
At December 31, 2013, we had cash of $333,000. The following table reflects the cash flow activities
during the twelve months of 2013:
(In thousands)
Cash used in operating activities of continuing operations
Cash used in operating activities of discontinued operations
Cash used in investing activities of continuing operations
Cash provided by financing activities of continuing operations
Principal repayment of long-term debt for discontinued operations
Decrease in cash
$
2013
(1,696)
(1,020)
(1,487)
204
(36)
(4,035)
$
As of December 31, 2013, we were in a positive cash position. We attempt to move all excess cash into a
Money Market Sweep account in order to maximize the interest earned. When we are in a net borrowing
position, we attempt to move all excess cash balances immediately to the revolving credit, so as to reduce
debt and interest expense. We utilize a centralized cash management system, which includes a remittance
lock box and is structured to accelerate collection activities and reduce cash balances, as idle cash is moved
without delay to the revolving credit facility or the Money Market account, if applicable. The cash balance
at December 31, 2013, primarily represents cash provided by operations and minor petty cash and local
account balances used for miscellaneous services and supplies.
Operating Activities
Accounts Receivable, net of allowances for doubtful accounts, totaled $8,106,000 at December 31, 2013, a
decrease of $3,289,000 from the December 31, 2012 balance of $11,395,000. The decrease was primarily
due to reduction in invoicing resulting from decreased revenue.
As of December 31, 2013, unbilled receivables totaled $5,219,000, a decrease of $3,448,000 from the
December 31, 2012 balance of $8,667,000. Treatment unbilled receivables decreased $949,000 from
$5,147,000 as of December 31, 2012 to $4,198,000 as of December 31, 2013. Services Segment unbilled
receivables (which are all current) decreased $2,499,000 from a balance of $3,520,000 as of December 31,
2012 to $1,021,000 as of December 31, 2013. The delays in processing invoices usually take several
months to complete and the related receivables are normally considered collectible within twelve months.
However, as we have historical data in our Treatment Segment to review the timing of these delays, we
realize that certain issues including, but not limited, to delays at our third party disposal site, can extend
collection of some of these receivables greater than twelve months. Therefore, we have segregated the
unbilled receivables between current and long term. The current portion of the unbilled receivables as of
December 31, 2013 was $4,917,000, a decrease of $3,613,000 from the balance of $8,530,000 as of
December 31, 2012. The long term portion as of December 31, 2013 was $302,000, an increase of $165,000
from the balance of $137,000 as of December 31, 2012.
Disposal/transportation accrual as of December 31, 2013, totaled $1,385,000, a decrease of $909,000 over
the December 31, 2012 balance of $2,294,000. Our disposal accrual can vary based on revenue mix and the
timing of waste shipment for final disposal. As the majority of disposal accrual is impacted by on-site waste
inventory, during 2013, we shipped more waste for disposal which is reflected in a lower inventory on-site
at year end 2013 as compared to year end 2012.
We had a working capital deficit of $2,958,000 (which included working capital of our discontinued
operations) as of December 31, 2013, as compared to a working capital of $2,652,000 as of December 31,
2012. Our working capital was negatively impacted primarily by the decreases in our trade and unbilled
receivables and cash from operations resulting from reduced revenue. See further discussion of our liquidity
in “Business Environment, Outlook and Liquidity” in this “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
30
Investing Activities
During 2013, our purchase of capital equipment totaled approximately $944,000. These expenditures were
primarily for improvements to our Segments. These capital expenditures were funded by the cash provided
by operating activities. We have budgeted approximately $600,000 for 2014 capital expenditures for our
Segments to maintain operations and regulatory compliance requirements. Certain of these budgeted
projects may either be delayed until later in the year or deferred altogether. We have traditionally incurred
actual capital spending totals for a given year less than the initial budget amount. 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
The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security
Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC Bank, National Association
(“PNC”), acting as agent and lender, replacing our previous Loan Agreement with PNC. The Amended
Loan Agreement provides us with the following credit facilities: (a) up to $25,000,000 revolving credit
facility (“Revolving Credit”), subject to the amount of borrowings based on a percentage of eligible
receivables (as defined); (b) a term loan (“Term Loan”) of $16,000,000, which requires monthly
installments of approximately $190,000 (based on a seven-year amortization); and (c) equipment line of
credit up to $2,500,000, subject to certain limitations. The Amended Loan Agreement terminates as of
October 31, 2016, unless sooner terminated. We may terminate the Amended Loan Agreement upon 90
days’ prior written notice and upon payment in full of our obligations under the Amended Loan Agreement.
We have the option of paying an annual rate of interest due on the revolving credit facility at prime plus 2%
or London Interbank Offer Rate (“LIBOR”) plus 3% and the term loan and equipment credit facilities at
prime plus 2.5% or LIBOR plus 3.5%.
On August 2, 2013, the Company entered into an Amendment to our Amended Loan Agreement. This
Amendment reduced our Revolving Credit facility from $25,000,000 to $18,000,000 and removed the
equipment line credit of up to $2,500,000. All other terms of the Amended Loan Agreement remain
principally unchanged. As a result of this amendment, we recorded approximately $65,000 in loss on debt
modification (included in our interest expense) in accordance with ASC 470-50, “Debt – Modification and
Extinguishment.” As of December 31, 2013, the excess availability under our revolving credit was
approximately $6,642,000, based on our eligible receivables.
Our credit facility with PNC Bank contains certain financial covenants, along with customary
representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could
result in a default under our credit facility allowing our lender to immediately require the repayment of all
outstanding debt under our credit facility and terminate all commitments to extend further credit. On May
9, 2013, we entered into an Amendment to our Amended Loan Agreement. This Amendment waived our
fixed charge coverage ratio non-compliance for the first quarter of 2013. This Amendment also changed the
methodology in calculating our fixed charge coverage ratio in each subsequent quarter of 2013. The
minimum fixed charge coverage ratio requirement of 1:25 to 1:00 for each subsequent quarter of 2013
remains unchanged. As a condition of this Amendment, we paid PNC a fee of $20,000, which is being
amortized over the term of the Amended Loan Agreement. All other terms of the Amended Loan
Agreement remain principally unchanged.
n
As discussed above, our fixed charge coverage ratio non-compliance for the first quarter of 2013 was
waived by PNC. We met our fixed charge coverage ratio in the second and third quarters of 2013. We did
not meet our mi
imum fixed charge coverage ratio for the fourth quarter of 2013. On April 14, 2014, we
entered into an Amendment to our Amended Loan Agreement whereby our lender waived our non-
compliance for failing to meet the minimum fixed charge coverage ratio in the fourth quarter of 2013 as
discussed above. This Amendment also waived the quarterly fixed charge coverage testing requirement for
the first quarter of 2014, revises the methodology in calculating the fixed charge coverage ratio in each of
the subsequent quarters of 2014 and changes the minimum quarterly fixed charge coverage ratio
requirement of 1:25 to 1:00 to 1:15 to 1:00 for each of the subsequent quarters of 2014. As a result of this
Amendment, we expect to meet our quarterly fixed charge coverage ratio requirement in each of the second
31
to fourth quarters of 2014. If we fail to meet the minimum quarterly fixed charge coverage ratio requirement
in any of the quarters noted above in 2014 and PNC does not waive the non-compliance or further revise our
covenant so that we are in compliance, PNC could accelerate the repayment of borrowings under our credit
facility. In the event that PNC accelerates the payment of our borrowings, we may not have sufficient
liquidity to repay our debt under our credit facility and other indebtedness. The following table illustrates
the most significant financial covenants under our credit facility and reflects the quarterly compliance
required by the terms of our senior credit facility as of December 31, 2013:
(Dollars in thousands)
Senior Credit Facility
Quarterly
Requirement
1st Quarter
Actual
2nd Quarter
Actual
3rd Quarter
Actual
4th Quarter
Actual
Fixed charge coverage ratio
Minimum tangible adjusted net worth
1.25:1
$30,000
0.63:1
$55,349
2.21:1
$55,106
1.30:1
$51,537
0.53:1
$46,971
In addition to the waivers and revisions discussed above, our lender also waived the requirement that our
consolidated financial statements for the year ended December 31, 2013, be issued without a going concern
concern qualification, a violation, if any, of our purchase of 80% of CEE Opportunity Partners Poland S.A.
on April 4, 2014 (or “Polish subsidiary”) a subsidiary in Poland and the formation of Perma-Fix Medical
Corporation (“PFMedical” which was incorporated in January 2014), neither of which shall be a credit party
under our Amended Loan Agreement. We intend to license PFMedical to produce and market the new
technology relating to technetium-99 (“Tc-99m”) that we have developed.
This Amendment also reduced our Revolving Credit facility from $18,000,000 to $12,000,000. As a
condition of this Amendment, we agreed to pay PNC a fee of $30,000.
On February 12, 2013, the Company entered into an unsecured promissory note (“New Note”) with TNC in
the principal amount of approximately $230,000 as a result of a settlement with TNC in connection with
certain claims that we asserted against TNC for breach of certain representations and covenant subsequent
to our acquisition of SEC from TNC on October 31, 2011. In connection with the acquisition of SEC on
October 31, 2011, as partial consideration of the purchase price, we entered into a $2,500,000 unsecured,
non-negotiable promissory note (the “October Note”), bearing an annual rate of interest of 6%, payable in
36 monthly installments, with TNC. As part of the settlement with TNC regarding the aforementioned
claims, the October Note, with balance of approximately $1,460,000, was cancelled and terminated and the
New Note was issued in replacement of the October Note. The New Note bears an annual interest rate of
6%, payable in 24 monthly installments of principal and interest of approximately $10,000, with the first
payment due February 28, 2013, as agreed by us and TNC after entering into the promissory note, with
subsequent payments due on the last day of each month thereafter. The New Note provides us the right to
prepay such at any time without interest or penalty.
In connection with the acquisition of Perma-Fix Northwest, Inc. (“PFNW”) and Perma-Fix Northwest
Richland, Inc. (“PFNWR”) in June 2007, we issued a promissory note, dated September 28, 2010, in the
principal amount of $1,322,000 to the former shareholders of Nuvotec (now known as PFNW) in
connection with an earn-out amount that we were required to pay upon meeting certain conditions for each
measurement year ended June 30, 2008 to June 2011. The note provides for 36 equal monthly payments of
$40,000, consisting of interest (annual interest rate of 6%) and principal, starting October 15, 2010. We
made the final note payment in September 2013.
On August 2, 2013, the Company completed a lending transaction with Messrs. Robert Ferguson and
William Lampson (“collectively, the “Lenders”), whereby the Company borrowed from the Lenders the
sum of $3,000,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory note
(the “Loan”). The Lenders were formerly shareholders of PFNW prior to our acquisition of PFNW and
PFNWR and are also stockholders of the Company, having received shares of our Common Stock in
connection with the acquisition of PFNW and PFNWR in June 2007. Mr. Ferguson also served as a
Company Board member from August 2007 to February 2010 and from August 2011 to September 2012.
The proceeds from the Loan were used for general working capital purposes. The promissory note is
unsecured, with a term of three years with interest payable at a fixed interest rate of 2.99% per annum. The
32
promissory note provides for monthly payments of accrued interest only during the first year of the Loan
with the first interest payment due September 1, 2013 and monthly payments of $125,000 in principal plus
accrued interest for the second and third year of the Loan. In connection with the above Loan, the Lenders
entered into a Subordination Agreement dated August 2, 2013, with the Company’s credit facility lender,
whereby the Lenders agreed to subordinate payment under the Loan, and agreed that the Loan will be junior
in right of payment to the credit facility in the event of default or bankruptcy or other insolvency proceeding
by the Company. As consideration for the Company receiving the Loan, we issued a Warrant to each
Lender to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price based on the
closing price of the Company’s Common Stock at the closing of the transaction which was determined to be
$2.23. The Warrants are exercisable six months from August 2, 2013 and expire on August 2, 2016. We
estimated the fair value of the Warrants to be approximately $59,000 using the Black-Scholes option pricing
model with the following assumptions: 55.54% volatility, risk free interest rate of .59%, an expected life of
three years and no dividends. As further consideration for the Loan, the Company issued an aggregate
90,000 shares of the Company’s Common Stock, with each Lender receiving 45,000 shares. The 90,000
shares of Common Stock and 70,000 Common Stock purchase warrants were issued in a private placement
and bear a restrictive legend against resale except in a transaction registered under the Securities Act or in a
transaction exempt from registration thereunder. We determined the fair value of the 90,000 shares of
Common Stock to be approximately $200,000 which was based on the closing price of the stock of $2.23
per share on August 2, 2013. The fair value of the Warrants and Common Stock and the related closing fees
incurred from the transaction (approximately $13,000) were recorded as a debt discount, which is being
amortized over the term of the loan as interest expense – financing fees. The number of shares of Common
Stock issued to the Lenders has been adjusted to reflect the reverse stock split. The number of shares
subject to the Warrants and the exercise price under the Warrants were also adjusted to reflect the reverse
stock split.
We intend to have the Polish subsidiary, or its successor, subject to market and other conditions, to offer up
to $3,000,000 of its Common Stock for sale in a private placement to non-U.S. persons outside the United
States pursuant to Regulation S under the Securities Act of 1933, as amended (“the Securities Act”). The
Polish subsidiary intends to use the proceeds, if any, of this private placement, to produce and market the
technology relating to Tc-99m which we licensed to PFMedical and for general working capital needs. The
Company may also offer, subject to market and other conditions and final approval of our Board of
Directors, up to $3,000,000 in aggregate amount of our Common Stock for sale in a private placement to
non-U.S. persons outside the United States pursuant to Regulation S under the Securities Act. If the
Company completes such an offering of its Common Stock, we intend to use the proceeds, if any, of this
private placement for working capital purposes. This paragraph is neither an offer to sell nor a solicitation of
an offer to buy our Common Stock or the Polish subsidiary’s Common Stock or any other securities and
shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is
unlawful. Neither our Common Stock nor the Polish subsidiary’s Common Stock have been registered
under the Securities Act or any state securities laws and may not be offered or sold in the United States
absent registration or applicable exemption from registration from the registration requirements under the
Securities Act and applicable state securities laws. Our Common Stock and the Polish subsidiary’s
Common Stock are expected to be offered and sold only to non-U.S. persons outside the United States
pursuant to Regulation S under the Securities Act.
In summary, our financial results for fiscal year 2013 were below our expectations and were negatively
impacted as a result, in large part, due to the government sequestration, federal and state governmental
clients operating under reduced budgets, including short term budget Continuing Resolutions, the
government shutdown of approximately 16 days in October 2013, ending of contracts, and general adverse
economic conditions. However, we continue to take steps to improve our operations and liquidity and to
invest working capital into our facilities to fund capital additions in our Segments. Although there are no
assurances, we believe that our cash flows from operations and our available liquidity from the amended
and restated line of credit are sufficient to service the Company’s current obligations.
Off Balance Sheet Arrangements
We have a number of routine operating leases, primarily related to office space rental, office equipment
rental and equipment rental for contract projects as of December 31, 2013, which total approximately
33
$2,830,000, payable as follows: $809,000 in 2014; $728,000 in 2015; $590,000 in 2016; $529,000 in 2017;
with the remaining $174,000 in 2018.
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. As of December 31, 2013, the total amount of these bonds
and letters of credit outstanding was approximately $1,453,000, of which the majority of the amount relates
to various bonds. Our Treatment Segment facilities operate under licenses and permits that require financial
assurance for closure and post-closure costs. We provide for these requirements through financial assurance
policies. As of December 31, 2013, the closure and post-closure requirements for our facilities were
approximately $46,361,000. We have recorded approximately $21,307,000 in a sinking fund related to these
policies in other long term assets within our balance sheets.
Critical Accounting Policies
In preparing the consolidated financial statements in conformity with generally accepted accounting
principles in the United States of America, management makes estimates 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.
We believe the following critical accounting policies affect the more significant estimates used in
preparation of the consolidated financial statements:
Revenue Recognition Estimates. We utilize a performance based methodology for purposes of revenue
recognition in our Treatment Segment. As we accept more complex waste streams in this segment, the
treatment of those waste streams become more complicated and time consuming. We have continued to
enhance our waste tracking capabilities and systems, which has enabled us to better match the revenue
earned to the processing phases achieved using a proportional performance method. The major processing
phases are receipt, treatment/processing and shipment/final disposition. Upon receiving various wastes we
recognize a certain percentage (ranging from 9.0% to 33%) of revenue as we incur costs for transportation,
analytical and labor associated with the receipt of mixed waste. As the waste is processed, shipped and
disposed of we recognize the remaining revenue and the associated costs of transportation and burial. We
review and evaluate our revenue recognition estimates and policies on an annual basis.
For our Services Segment, revenues on services are performed under time and material, fixed price, and
cost-reimbursement contracts. Revenues and costs associated with fixed price contracts are recognized using
the percentage of completion (efforts expended) method. We estimate our percentage of completion based
on attainment of project milestones. Revenues and costs associated with time and material contracts are
recognized as revenue when earned and costs are incurred.
Under cost-reimbursement contracts, we are reimbursed for costs incurred plus a certain percentage markup
for indirect costs, in accordance with contract provision. Costs incurred in excess of contract funding may
be renegotiated for reimbursement. We also earn a fee based on the approved costs to complete the
contract. We recognize this fee using the proportion of costs incurred to total estimated contract costs.
Contract costs include all direct labor, material and other non-labor costs and those indirect costs related to
contract support, such as depreciation, fringe benefits, overhead labor, supplies, tools, repairs and equipment
rental. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions and estimated profitability, including those
arising from contract penalty provisions and final contract settlements, may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Consulting revenues are recognized as services are rendered. The services provided are based on billable
hours and revenues are recognized in relation to incurred labor and consulting costs. Out of pocket costs
reimbursed by customers are also included in revenues.
The liability, “billings in excess of costs and estimated earnings”, represents billings in excess of revenues
recognized and accrued costs to jobs.
34
Allowance for Doubtful Accounts. 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 are uncollectible. We regularly review all accounts receivable balances that exceed 60 days
from the invoice date and, based on an assessment of current credit worthiness, estimate the portion, if any,
of the balances that are uncollectible. 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 (5% for balances 61-90 days, 20% for balances 91-120 days and 40% for balances over 120
days aged), based on a historical valuation, that allows us to calculate the total reserve required. This
allowance was approximately 2.6% of revenue for 2013 and 19.5%, of accounts receivable as of December
31, 2013. Additionally, this allowance was approximately 2.0% of revenue for 2012 and 18.0% of accounts
receivable as of December 31, 2012.
Intangible Assets. Intangible assets relating to acquired businesses consist primarily of the cost of
purchased businesses in excess of the estimated fair value of net identifiable assets acquired, or goodwill,
and the recognized value of the permits required to operate the business. We continually reevaluate the
propriety of the carrying amount of goodwill and permits to determine whether current events and
circumstances warrant adjustments to the carrying value. We test each Reporting Unit’s goodwill and
permits, separately, for impairment, annually as of October 1 and also if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
In estimating the fair value of the reporting units, the Company makes estimates and judgments about its
future cash flows using an income approach. The income approach, specifically a discounted cash flow
analysis, includes assumptions for, among others, forecasted revenue, gross margin, operating income,
working capital cash flow, perpetual growth rates and long-term discount rates (reflects a weighted average
cost of capital rate), all of which require significant judgment by management. The sum of the fair values of
the Company's reporting units are also compared to its external market capitalization to determine the
appropriateness of its assumptions. These assumptions take into account the current environment and
industry trends (with significant focus on government spending trends) and their impact on the Company's
business.
We have three reporting units as of October 1, 2013: (1) SYA reporting unit - our SYA subsidiary
operations; (2) SEC reporting unit - our SEC operations; and (3) Treatment reporting unit – our treatment
operations (See “Goodwill Impairment” above for impairment losses recorded in 2013).
Intangible assets that have definite useful lives are amortized using the straight-line method over the
estimated useful lives. We amortize intangible asset of customer relationships using an accelerated method.
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.
Property and Equipment
Property and equipment expenditures are capitalized and depreciated using the straight-line method over the
estimated useful lives of the assets for financial statement purposes, while accelerated depreciation methods
are principally used for income tax purposes. Generally, annual depreciation rates range from ten to forty
years for buildings (including improvements and asset retirement costs) and three to seven years for office
furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold
improvements are capitalized and amortized over the lesser of the term of the lease or the life of the asset.
Maintenance and repairs are charged directly to expense as incurred. The cost and accumulated depreciation
of assets sold or retired are removed from the respective accounts, and any gain or loss from sale or
retirement is recognized in the accompanying consolidated statements of operations. Renewals and
improvement, which extend the useful lives of the assets, are capitalized.
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
35
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. AROs are included within buildings as part of property
and equipment and are depreciated over the estimated useful life of the property. In periods subsequent to
initial measurement of the ARO, the Company must recognize period-to-period changes in the liability
resulting from the passage of time and revisions to either the timing or the amount of the original estimate of
undiscounted cash flow. Increases in the ARO liability due to passage of time impact net income as
accretion expense. 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 in the
aforementioned method, and are capitalized and charged as depreciation expense, in accordance with the
Company’s depreciation policy.
Accrued Environmental Liabilities. We have four remediation projects currently in progress. The current
and long-term accrual amounts for the projects are our best estimates based on proposed or approved
processes for clean-up. The circumstances that could affect the outcome range from new technologies that
are being developed every day to reduce our overall costs, to increased contamination levels that could arise
as we complete remediation which could increase our costs, neither of which we anticipate at this time. In
addition, significant changes in regulations could adversely or favorably affect our costs to remediate
existing sites or potential future sites, which cannot be reasonably quantified. The environmental liabilities
of PFM, PFMI, and PFD remain the financial obligations of the Company. The environmental liabilities of
PFSG are classified as held for sale within our discontinued operations.
Disposal/Transportation Costs. We accrue for waste disposal based upon a physical count of the waste at
each facility at the end of each accounting period. Current market prices for transportation and disposal
costs are applied to the end of period waste inventories to calculate the disposal accrual. Costs are
calculated using current costs for disposal, but economic trends could materially affect our actual costs for
disposal. As there are limited disposal sites available to us, a change in the number of available sites or an
increase or decrease in demand for the existing disposal areas could significantly affect the actual disposal
costs either positively or negatively.
Stock-Based Compensation. We account for stock-based compensation in accordance with ASC 718,
“Compensation – Stock Compensation”. ASC 718 requires all stock-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their fair
values. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-
based awards which requires subjective assumptions. Assumptions used to estimate the fair value of stock
options granted include the exercise price of the award, the expected term, the expected volatility of the
Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term,
and the expected annual dividend yield. In addition, judgment is also required in estimating the amount of
stock-based awards that are expected to be forfeited.
Income Taxes. The provision for income tax is determined in accordance with ASC 740, “Income Taxes.”
As part of the process of preparing our consolidated financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. We record this amount as a provision or
benefit for taxes. This process involves estimating our actual current tax exposure, including assessing the
risks associated with tax audits, and assessing temporary differences resulting from different treatment of
items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We
assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the
extent that we believe recovery is not likely, we establish a valuation allowance. As of December 31, 2013,
we had net deferred tax assets of approximately $8,182,000 (which excludes a deferred tax liability relating
to goodwill and indefinite lived intangible assets), which were primarily related to federal and state net
operating loss (“NOL”) carryforwards, impairment charges, and closure costs. As of December 31, 2013
and 2012, we concluded that it was more likely than not that $8,182,000 and $5,729,000 of our deferred
income tax assets would not be realized, and as such, a full valuation allowance was applied against those
deferred income tax assets. Our net operating losses are subject to audit by the Internal Revenue Services,
and, as a result, the amounts could be reduced.
36
Known Trends and Uncertainties
Economic Conditions:
The DOE and U.S. Department of Defense (“DOD”) represent major customers for our Treatment Segment
and Services Segment. Federal clients have operated under reduced budgets due to CR and sequestration
which have negatively impacted the amount of waste shipped to our treatment facilities and remediation of
contaminated federal sites. In addition, our government 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. Significant reductions in the level of governmental funding could have a material
adverse impact on our business, financial position, results of operations and cash flows. See discussion as to
budgeted amounts of the 2014 Omnibus spending bill approved by Congress and the President discussed
previously in this “Management’s Discussion and Analysis – Business Environment, Outlook and
Liquidity.”
Legal Matters:
Perma-Fix of Northwest Richland, Inc. (“PFNWR”)
PFNWR filed suit (PFNWR vs. Philotechnics, Ltd.) in the U.S. District Court, Eastern District of
Tennessee, asserting contract breach and seeking specific performance of the “return-of-waste clause” in the
brokerage contract between a prior facility owner (now owned by PFNWR) and Philotechnics, Ltd.
(“Philo”), as to certain non-conforming waste Philo delivered for treatment from Philo’s customer, El du
Pont de Nemours and Company (“DuPont”), to the PFNWR facility, before PFNWR acquired the facility.
Our complaint seeks an order that Philo: (A) specifically perform its obligations under the contract’s
“return-of-waste” clause by physically taking custody of and by removing the nonconforming waste, (B)
pay PFNWR all additional costs of maintaining and managing the waste, and (C) pay PFNWR the cost to
treat and dispose of the nonconforming waste so as to allow PFNWR to compliantly dispose of that waste
offsite. “Presently, under the supervision of the Court, PFNWR and Philo have agreed to temporarily
suspend formal legal proceedings and, instead, to work together to process, package, transport from the
facility, and dispose of the nonconforming waste. PFNWR anticipates that these activities will be completed
in 2014. This matter is currently set to proceed to trial on November 3, 2014 to adjudicate any issues that
remain.
Significant Customers. Our segments have significant relationships with the federal government, and
continue to enter into contracts, directly as the prime contractor or indirectly as a subcontractor, with the
federal government. The contracts that we are a party to with the federal government or with others as a
subcontractor to the federal government generally provide that the government may terminate or renegotiate
the contracts on 30 days notice, at the government's election. Our inability to continue under existing
contracts that we have with the federal government (directly or indirectly as a subcontractor) could have a
material adverse effect on our operations and financial condition.
We performed services relating to waste generated by the federal government, either directly as a prime
contractor or indirectly as a subcontractor (including the CH Plateau Remediation Company (“CHPRC”) as
discussed below) to the federal government, representing approximately $47,557,000 or 63.9% of our total
revenue from continuing operations during 2013, as compared to $101,533,000 or 79.6% of our total
revenue from continuing operations during 2012.
The following customer accounted for 10% or more of the total revenues generated from continuing
operations for twelve months ended December 31, 2013 and 2012:
Customer
CHPRC
Year
2013
2012
Total
Revenue
$19,922,000
$24,652,000
% of Total
Revenue
26.8%
19.3%
Revenue generated from CHPRC includes revenue generated from the CHPRC subcontract at our Services
Segment and various waste processing contracts at our Treatment Segment. The CHPRC subcontract was a
cost plus award fee subcontract awarded to us during the second quarter of 2008 to participate in the cleanup
37
of the central portion of the Hanford Site located in the state of Washington. This subcontract expired on
September 30, 2013.
Insurance. We maintain insurance coverage similar to, or greater than, the coverage maintained by other
companies of the same size and industry, which complies with the requirements under applicable
environmental laws. We evaluate our insurance policies annually to determine adequacy, cost effectiveness,
and desired deductible levels. Due to the continued uncertainty in the economy and changes within the
environmental insurance market, we have no guarantees that if American International Group, Inc. (“AIG”)
does not provide insurance coverage that we will be able to obtain similar insurance in future years, or that
the cost of such insurance will not increase materially.
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.
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.
Our facilities where the remediation expenditures will be made are the Leased Property in Dayton, Ohio
(EPS), a former RCRA storage facility as operated by the former owners of PFD, PFM's facility in
Memphis, Tennessee, PFSG's facility in Valdosta, Georgia, and PFMI's facility in Brownstown, Michigan.
The environmental liability of PFD (as it relates to the remediation of the EPS site assumed by the Company
as a result of the original acquisition of the PFD facility) was retained by the Company upon the sale of PFD
in March 2008. All of the reserves are within our discontinued operations. 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, 2013, we had total accrued environmental remediation liabilities of $1,031,000, of which
$649,000 is recorded as a current liability, which reflects a decrease of $583,000 from the December 31,
2012 balance of $1,614,000. The net decrease represents payments of approximately $50,000 on
remediation projects and a reduction in reserve of approximately $533,000 at PFSG based on reassessment
38
of the remediation reserve. The December 31, 2013 current and long-term accrued environmental balance is
recorded as follows (in thousands):
Current
Accrual
$ 11
34
604
-
$ 649
Long-term
Accrual
$ 58
11
236
77
$ 382
Total
$ 69
45
840
77
$ 1,031
PFD
PFM
PFSG
PFMI
Total Liability
Related Party Transactions
Mr. Robert Schreiber, Jr.
During March 2011, we entered into a lease with Lawrence Properties LLC, a company jointly owned by
Robert Schreiber, Jr., the President of Schreiber, Yonley and Associates, and Mr. Schreiber’s spouse. Mr.
Schreiber is a member of our executive management team. The lease is for a term of five years starting
June 1, 2011. Under the lease, we pay monthly rent of approximately $11,400, which we believe is lower
than costs charged by unrelated third party landlords. Additional rent will be assessed for any increases
over the new lease commencement year for property taxes or assessments and property and casualty
insurance premiums.
Mr. David Centofanti
Mr. David Centofanti serves as our Director of Information Services. For such services, he received total
compensation in 2013 of approximately $163,000. Mr. David Centofanti is the son of our Chief Executive
Officer and Chairman of our Board, Dr. Louis F. Centofanti. We believe the compensation received by Mr.
Centofanti for his technical expertise which he provides to the Company is competitive and comparable to
compensation we would have to pay to an unaffiliated third party with the same technical expertise.
Christopher Leichtweis
The Company is obligated to make lease payments of approximately $29,000 per month through June 2018,
pursuant to a Lease Agreement, dated June 1, 2008 (the “Lease”), between Leichtweis Enterprises, LLC, as
lessor, and Safety and Ecology Holdings Corporation (“SEHC”), as lessee. Leichtweis Enterprises, LLC, is
owned by Mr. Christopher Leichtweis (“Leichtweis”), who was a Senior Vice President of the Company
and President of SEC, prior to his voluntary termination and retirement from the Company effective May
24, 2013. The Lease covers SEC’s principal offices in Knoxville, Tennessee.
Under an agreement of indemnity (“Indemnification Agreement”), SEC, Leichtweis and his spouse
(“Leichtweis Parties”), jointly and severally, agreed to indemnify the individual surety with respect to
contingent liabilities that may be incurred by the individual surety under certain of SEC’s bonded projects.
In addition, SEC agreed to indemnify Leichtweis Parties against judgments, penalties, fines, and expense
associated with those SEC performance bonds that Leichtweis Parties have agreed to indemnify in the event
SEC cannot perform, which has an aggregate bonded amount of approximately $10,900,000 (which has
been released/expired). The Indemnification Agreement provided by SEC to the Leichtweis Parties also
provides for compensating the Leichtweis Parties at a rate of 0.75% of the value of bonds (60% having been
paid previously and the balance at substantial completion of the contract). On February 14, 2013, the
Company entered into a Settlement and Release Agreement and Amendment to Employment Agreement
(the “Leichtweis Settlement”), in final settlement of certain claims made by us against Leichtweis in
connection with the certain claims asserted by the Company against TNC subsequent to our acquisition of
SEC on October 31, 2011. The Leichtweis Settlement terminated our obligation to pay the Leichtweis
Parties a fee under the Indemnification Agreement.
39
Employment Agreements
We have an employment agreement with each of Dr. Centofanti (our President and Chief Executive Officer
or “CEO”), Ben Naccarato (our Chief Financial Officer or “CFO”), and James Blankenhorn (our Chief
Operating Officer or “COO”). Each employment agreement provides for annual base salaries, bonuses, and
other benefits commonly found in such agreements. In addition, each employment agreement provides that
in the event of termination of such officer without cause or termination by the officer for good reason (as
such terms are defined in the employment agreement), the terminated officer shall receive payments of an
amount equal to benefits that have accrued as of the termination but not yet paid, plus an amount equal to
one year’s base salary at the time of termination. In addition, the employment agreements provide that in
the event of a change in control (as defined in the employment agreements), all outstanding stock options to
purchase our Common Stock granted to, and held by, the officer covered by the employment agreement to
be immediately vested and exercisable. On March 20, 2014, the Company accepted the resignation of Mr.
James A. Blankenhorn, as Vice President and COO of the Company. The resignation was effective March
28, 2014. When Mr. Blankenhorn’s resignation as the COO became effective, his employment agreement
also terminated.
The Company also had an employment agreement with Christopher Leichtweis (the “Leichtweis
Employment Agreement”), containing substantially the terms described above with respect to the
employment agreements of Messrs. Centofanti, Naccarato and Blankenhorn. On May 14, 2013, the
Company entered into a Separation and Release Agreement (“Agreement”) with Mr. Leichtweis, which
terminated Mr. Leichtweis’ employment with the Company and his position as an officer of the Company
effective May 24, 2013, and voided the Leichtweis Employment Agreement (except for the “Confidentiality
of Trade Secrets and Business Information (“Section 7”) clause). Leichtweis’ termination was not “for
cause” by the Company nor “for good reason” by Mr. Leichtweis (as defined in the Leichtweis Employment
Agreement). Mr. Leichtweis was paid only his accrued salary, vacation and any benefits under the
employee’s benefit plan, upon his separation date of May 24, 2013. In connection with the Agreement, the
Company also entered into a Consulting Services Agreement (“Consulting Agreement”) with Leichtweis,
dated May 24, 2013 and terminating on July 23, 2014, unless sooner terminated by either party with prior
30 days’ written notice. The Consulting Agreement provides for compensation at an hourly rate of $135 and
reasonable travel and other expenses. Pursuant to the Consulting Agreement, Leichtweis will be subject to a
fourteen months confidentiality and non-compete agreement (as defined) from date of execution of the
Consulting Agreement. On June 1, 2013, Leichtweis provided the Company with written notice of
termination of the Consulting Agreement.
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 subject to fluctuations due to variety of factors;
• significant reductions in the level of government funding could have a material adverse impact on our
business, financial position, results of operations and cash flows;
• expect to meet our quarterly financial covenants in 2014;
• ability to successfully raise additional capital and develop business plan that will generate profitable
40
revenues;
• ability to improve operations and liquidity;
• ability to close and remediate certain contaminated sites for projected amounts over the projected
periods;
• permit and license requirements represent a potential barrier to entry for possible competitors;
• failure to obtain and maintain our permit or approvals would have a material adverse effect on us, our
operations, and financial condition;
• potential large fluctuations in revenue in each of our quarters in the near future;
• ability to fund expenses to remediate sites from funds generated internally;
• expansion into both commercial and international markets to help offset the uncertainties of government
spending in the USA;
• potential effect on our operations with the adoption of programs by federal or state government
mandating a substantial reduction in greenhouse gas emissions;
• ability to fund budgeted capital expenditures during 2014 through our operations and lease financing;
• continue focus on efficient operations of facilities and on-site activities, continue to evaluating strategic
acquisition, and to continue the R&D of innovative technologies to expand company service offering
and to treat nuclear waste, mixed waste, and industrial waste;
• our cash flows from operations and our available liquidity from our amended and restated line of credit
are sufficient to service the Company’s current obligations;
• continue to take steps to improve our operations and liquidity and to invest working capital into our
facilities to fund capital additions to our segments;
• as our operations and activities expand, there could be an increase in potential litigation;
• ability to continue under existing contracts that we have with the federal government (directly or
indirectly as a subcontractor);
• we believe the 2014 Omnibus spending bill will provide potential increased revenues and generate
positive cash flow in 2014;
• process our backlog during periods of low waste receipts, which historically has been in the first or
fourth quarter;
• future enforcement policies as applied to existing laws or by the enactment of new environmental laws
and regulations;
• 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;
• despite our aggressive compliance and auditing procedure for disposal of wastes, we could further be
notified, in the future, that we are a PRP at a remedial action site, which could have a material adverse
effect; and
• we could be deemed responsible for part for the cleanup of certain properties and be subject to fines and
civil penalties in connection with violations of regulatory requirements.
While the Company believes the expectations reflected in such forward-looking statements are reasonable,
it can give no assurance such expectations will prove to have been 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;
material reduction in revenues;
ability to meet PNC covenant requirements;
inability to collect in a timely manner a material amount of receivables;
increased competitive pressures;
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;
41
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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 federal agencies or subcontracts involving federal agencies, or
reduction in amount of waste delivered to the Company under the contracts or subcontracts;
renegotiation of contracts involving the federal government;
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;
lender refuses to waive non-compliance or revises our covenant so that we are in compliance; and
Risk factors contained in Item 1A of this report.
42
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Operations for the years ended
December 31, 2013 and 2012
Consolidated Statements of Comprehensive Loss for the
Years ended December 31, 2013 and 2012
Consolidated Statements of Stockholders’ Equity for the years
December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years
ended December 31, 2013 and 2012
Notes to Consolidated Financial Statements
Page No.
44
45
47
48
49
50
51
Financial Statement Schedules
In accordance with the rules of Regulation S-X, schedules are not submitted because (a) they are not
applicable to or required by the Company, or (b) the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.
43
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Perma-Fix Environmental Services, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc.
and subsidiaries as of December 31, 2013 and 2012 and the related consolidated statements of operations,
comprehensive loss, stockholders’ equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, 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. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Perma-Fix Environmental Services, Inc. and subsidiaries at December 31, 2013 and
2012, 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.
The accompanying financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered
declining revenues, recurring losses from operations and has a net working capital deficiency that raise
substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/BDO USA, LLP
Atlanta, Georgia
April 15, 2014
44
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Amounts in Thousands, Except for Share and per Share Amounts)
2013
2012
ASSETS
Current assets:
Cash
Restricted cash
Accounts receivable, net of allowance for doubtful
accounts of $1,932 and $2,507, respectively
Unbilled receivables - current
Retainage receivable
Inventories
Prepaid and other assets
Deferred tax assets - current
Current assets related to discontinued operations
Total current assets
Property and equipment:
Buildings and land
Equipment
Vehicles
Leasehold improvements
Office furniture and equipment
Construction-in-progress
Less accumulated depreciation and amortization
Net property and equipment
Property and equipment related to discontinued operations
Intangibles and other long term assets:
Permits
Goodwill
Other intangible assets - net
Unbilled receivables – non-current
Finite risk sinking fund
Other assets
Total assets
$
333
35
$
4,368
35
8,106
4,917
135
520
2,949
3,114
20,109
19,486
35,279
610
11,625
2,046
630
69,676
(43,616)
26,060
1,367
11,395
8,530
312
473
3,282
1,316
499
30,210
26,297
34,657
661
11,625
2,116
334
75,690
(40,376)
35,314
1,614
16,744
1,330
2,980
302
21,307
1,401
91,600
$
16,799
29,186
3,610
137
21,272
1,549
139,691
$
The accompanying notes are an integral part of these consolidated financial statements.
45
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31,
(Amounts in Thousands, Except for Share and per Share Amounts)
2013
2012
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Disposal/transportation accrual
Unearned revenue
Billings in excess of costs and estimated earnings
Current liabilities related to discontinued operations
Current portion of long-term debt
Total current liabilities
Accrued closure costs
Other long-term liabilities
Deferred tax liabilities
Long-term liabilities related to discontinued operations
Long-term debt, less current portion
Total long-term liabilities
Total liabilities
Commitments and Contingencies
$
5,462
4,933
1,385
4,149
268
3,994
2,876
23,067
$
8,657
6,672
2,294
3,695
1,934
1,512
2,794
27,558
5,222
739
1,012
602
11,372
18,947
42,014
11,349
674
1,340
1,829
11,402
26,594
54,152
Series B Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares
authorized, 1,284,730 shares issued and outstanding, liquidation
value $1.00 per share plus accrued and unpaid dividends of $738
and $674, respectively
Stockholders' Equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $.001 par value; 75,000,000 shares authorized,
11,406,573 and 11,247,642 shares issued, respectively; 11,398,931
and 11,240,000 shares outstanding, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Less Common Stock in treasury, at cost; 7,642 shares
Total Perma-Fix Environmental Services, Inc. stockholders' equity
Non-controlling interest
Total stockholders' equity
1,285
1,285
11
103,454
(55,078)
2
(88)
48,301
48,301
11
102,864
(19,103)
(2)
(88)
83,682
572
84,254
Total liabilities and stockholders' equity
$
91,600
$
139,691
The accompanying notes are an integral part of these consolidated financial statements.
46
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(Amounts in Thousands, Except for per Share Amounts)
Net revenues
Cost of goods sold
Gross profit
$
Selling, general and administrative expenses
Research and development
Impairment of goodwill
Loss on disposal of property and equipment
Loss from operations
Other income (expense):
Interest income
Interest expense
Interest expense – financing fees
Other
Loss from continuing operations before income taxes
Income tax benefit
Loss from continuing operations
Loss from discontinued operations, net of taxes
Net loss
Less: net (loss) income attributable to non-controlling interest
2013
74,413
64,597
9,816
14,376
1,764
27,856
49
(34,229)
35
(762)
(132)
(8)
(35,096)
(625)
(34,471)
(1,568)
(36,039)
(64)
$
2012
127,509
111,705
15,804
18,390
1,823
—
15
(4,424)
41
(818)
(107)
8
(5,300)
(2,151)
(3,149)
(30)
(3,179)
180
Net loss attributable to Perma-Fix Environmental Services,
Inc. common stockholders
$
(35,975)
$
(3,359)
Net loss per common share attributable to Perma-Fix
Environmental Services, Inc. stockholders - basic and diluted:
Continuing operations
Discontinued operations
Net loss per common share
Number of common shares used in computing
net loss per share:
Basic
Diluted
$
$
$
(3.04)
(.14)
(3.18)
$
(.30)
$ —
(.30)
$
11,319
11,319
11,225
11,225
The accompanying notes are an integral part of these consolidated financial statements.
47
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
For the years ended December 31,
(Amounts in Thousands)
2013
2012
Net loss
Other comprehensive income:
Foreign currency translation gain
Total other comprehensive income
Comprehensive loss
Comprehensive (loss) income attributable to non-controlling
interest
Comprehensive loss attributable to Perma-Fix
Environmental Services, Inc. common stockholders
$
(36,039)
$
(3,179)
4
4
1
1
(36,035)
(3,178)
(64)
180
$
(35,971)
$
(3,358)
The accompanying notes are an integral part of these consolidated financial statements.
48
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
Shares
Amount
Additional
Paid-In
Capital
Common
Stock Held
In Treasury
Accumulated Other
Comprehensive
(Loss) Income
r
Non-cont olling
Interest in
Subsidiary
Accumulated
Deficit
Total
Stockholders'
Equity
$
102,456
$
(88)
$
(3)
$
392
$
(15,744)
$
Balance at December 31, 2011
11,213,587 $
Net income (loss)
Foreign currency translation
Issuance of Common Stock for
services
Stock-Based Compensation
Balance at December 31, 2012
Net loss
Foreign currency translation
Distribution to non-controlling
interest
Redemption of non-controlling
interest
Issuance of Common Stock for
services
Issuance of Common Stock for
debt
Issuance of warrants for debt
Cash in lieu - reverse stock split
Stock-Based Compensation
Balance at December 31, 2013
34,055
11,247,642 $
69,041
90,000
(110)
11,406,573 $
11
11
11
217
191
102,864
$
$
206
200
59
(88)
$
125
103,454
$
$
(88)
$
1
(2)
4
2
$
$
$
180
572
(64)
(490)
(18)
(3,359)
(19,103)
(35,975)
$
87,024
(3,179)
1
217
191
84,254
(36,039)
4
(490)
(18)
206
200
59
$
(55,078)
$
125
48,301
The accompanying notes are an integral part of these consolidated financial statements.
49
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(Amounts in Thousands)
Cash flows from operating activities:
Net loss
Less: loss on discontinued operations
Loss from continuing operations
Adjustments to reconcile net income from continuing operations to cash provided by operations:
Depreciation and amortization
Amortization of debt discount
Amortization of fair value of customer contracts
Deferred tax benefit
(Benefit) provision for bad debt and other reserves
Foreign exchange translation gain
Impairment of goodwill
Loss on disposal of plant, property and equipment
Issuance of common stock for services
Stock-based compensation
Changes in operating assets and liabilities of continuing operations
Accounts receivable
Unbilled receivables
Prepaid expenses, inventories and other assets
Accounts payable, accrued expenses and unearned revenue
Cash used in continuing operations
Cash used in discontinued operations
Cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment, net
Proceeds from sale of plant, property and equipment
Change in restricted cash, net
Payments to finite risk sinking fund
Non-controlling interest distribution/redemption
Cash used in investing activities of continuing operations
Cash used in investing activities of discontinued operations
Net cash used in investing activities
Cash flows from financing activities:
Net repayments of revolving credit
Principal repayments of long term debt
Proceeds from issuance of long-term debt
Cash provided by (used in) financing activities of continuing operations
Principal repayment of long-term debt for discontinued operations
Cash provided by (used in) financing activities
Decrease in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosure:
Interest paid
Income taxes paid
Issuance of Common Stock for debt
Issuance of Warrants for debt
Purchase of equipment through capital lease obligation
2013
2012
$
(36,039)
(1,568)
$
(3,179)
(30)
(34,471)
(3,149)
4,126
36
(1,298)
(639)
(304)
4
27,856
49
206
125
3,769
3,448
1,828
(6,431)
(1,696)
(1,020)
(2,716)
(944)
──
──
(35)
(508)
(1,487)
──
(1,487)
──
(2,796)
3,000
204
(36)
168
5,470
12
(3,667)
(234)
124
1
──
15
217
191
5,929
1,390
2,845
(11,631)
(2,487)
(922)
(3,409)
(412)
121
1,500
(1,918)
──
(709)
(2)
(711)
──
(3,532)
──
(3,532)
(35)
(3,567)
(4,035)
4,368
333
$
(7,687)
12,055
4,368
$
$
714
110
200
59
71
$
922
479
──
──
──
The accompanying notes are an integral part of these consolidated financial statements.
50
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
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 two 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
research and development activities to identify, develop and implement innovative waste processing
techniques for problematic waste streams.
SERVICES SEGMENT, which includes:
- On-site waste management services to commercial and government customers;
- Technical services, which include:
o professional radiological measurement and site survey of large government and commercial
o
installations using advanced methods, technology and engineering;
integrated Occupational Safety and Health services including industrial hygiene (“IH”)
assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos
management/abatement oversight; indoor air quality evaluations; health risk and exposure
assessments; health & safety plan/program development, compliance auditing and training
services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
o global technical services providing consulting, engineering, project management, waste
management, environmental, and decontamination and decommissioning field, technical,
and management personnel and services to commercial and government customers; and
o augmented engineering services (through our Schreiber, Yonley & Associates subsidiary –
“SYA”) providing consulting environmental services to industrial and government
customers:
(cid:1)
including air, water, and hazardous waste permitting, air, soil and water sampling,
compliance reporting, emission reduction strategies, compliance auditing, and
various compliance and training activities; and
engineering and compliance support to other segments;
(cid:1)
- Nuclear services, which include:
o
o
technology-based services including engineering, decontamination and decommissioning
(“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; site construction; logistics; transportation; and emergency
response; and
- A company owned equipment calibration and maintenance laboratory that services, maintains,
calibrates, and sources (i.e., rental) of health physics, IH and customized nuclear, environmental,
and occupational safety and health (“NEOSH”) instrumentation.
Our consolidated financial statements include our accounts and the accounts of our wholly-owned
subsidiaries as follows:
51
Continuing Operations: Diversified Scientific Services, Inc. (“DSSI”), East Tennessee Materials & Energy
Corporation (“M&EC”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc.
(“PFNWR”), Schreiber, Yonley & Associates (“SYA”), Safety & Ecology Corporation (“SEC”), Perma-Fix
Environmental Services UK Limited (“Perma-Fix UK Limited” - a United Kingdom facility), Perma-Fix of
Canada, and SEC Radcon Alliance, LLC (“SECRA”).
Discontinued Operations (See “Note 7”): Perma-Fix of Fort Lauderdale, Inc. (“PFFL” – divested in
August 2011), Perma-Fix of South Georgia, Inc. (“PFSG” – held for sale), Perma-Fix of Orlando (“PFO” –
divested in October 2011), Perma-Fix of Maryland (“PFMD” – divested in January 2008), Perma-Fix of
Dayton, Inc. (“PFD” - divested in March 2008), and Perma-Fix Treatment Services, Inc. (“PFTS” – divested
in May 2008). Our discontinued operations also include Perma-Fix of Michigan, Inc. (“PFMI”) and Perma-
Fix of Memphis, Inc. (“PFM”), two non-operational facilities.
Reverse Stock Split
The Company effected a reverse stock split at a ratio of 1-for-5 of the Company’s then outstanding
Common Stock (“Common Stock”), and shares of Common Stock issuable upon exercise of the then
outstanding stock options and warrants, effective as of 12:01 a.m. on October 15, 2013. As a result of the
reverse stock split, each five shares of the outstanding Common Stock and shares held in treasury were
combined into one share of Common Stock without any change to the par value per share. The reverse
stock split did not affect the number of authorized shares of Common Stock which remains at 75,000,000.
As a result of this reverse stock split, all references in the financial statements and notes thereto to the
number of shares outstanding, per share amounts, and outstanding stock option and warrant data of the
Company’s Common Stock have been restated to reflect the effect of the stock split for all periods
presented.
The primary reason for implementing this reverse stock split was to increase the market price per share of
our Common Stock in order to regain compliance with the NASDAQ’s continued listing criteria related to
Minimum Bid Price Rule. On October 29, 2013, we received a letter from the NASDAQ Stock Market
indicating that we had regained compliance with the minimum bid price requirement under NASDAQ
Listing Rule 5550(a)(2) for continued listing on the NASDAQ Capital Market. The Company’s Common
Stock continues to be listed on the NASDAQ Capital Market.
Financial Position and Liquidity
During the years ended December 31, 2013 and 2012, the Company incurred net losses of $36,039,000 and
$3,179,000, respectively, and net cash used in operating activities was $2,716,000 and $3,409,000,
respectively. Our net loss for 2013 included approximately $27,856,000 in goodwill impairment charges
recorded for three of our four reporting units and a charge to tax expense of approximately $4,760,000
($3,596,000 for our continuing operations and $1,164,000 for our discontinued operations) to provide a full
valuation allowance on our net deferred tax assets. As of December 31, 2013, we have a deficit in working
capital of $2,958,000, an accumulated deficit of $55,078,000 and cash on hand of $333,000. Revenues for
fiscal years 2013 and 2012 were $74,413,000 and $127,509,000, respectively, and were below our
expectations and internal forecasts as a result, in large part, of the government sequestration, federal
governmental clients operating under reduced budgets, the government shutdown of approximately 16 days
in October 2013, ending of contracts, and general adverse economic conditions. Our revenue during the
year ended December 31, 2013 was insufficient to attain profitable operations and generated negative
operating cash flow from operations. We did not meet the minimum quarterly fixed charge coverage ratio
requirement under our credit facility for the first and fourth quarters of 2013; however, we obtained a
waiver from our lender for each of these quarters for the non-compliance. Our lender has waived our fixed
charge coverage ratio testing requirement for the first quarter of 2014 and made certain revisions to our
quarterly fixed charge coverage ratio testing requirements for the remaining quarters of 2014 (See “Note 8 –
Long Term Debt” and “Note 18 – Subsequent Events – Waivers and Revisions from PNC Bank, National
Association” for waivers received and revisions made to our fixed charge coverage ratio for 2014 and other
matters). Based on these revisions above, we expect to meet our quarterly fixed charge coverage ratio
requirement in each of the second to fourth quarters of 2014. If we fail to meet the minimum quarterly fixed
charge coverage ratio requirement in any of the quarters starting with the second quarter in 2014 and PNC
does not waive the non-compliance or further revise our covenant so that we are in compliance, our lender
52
could accelerate the repayment of borrowings under our credit facility. In the event that our lender
accelerates the payment of our borrowings, we may not have sufficient liquidity to repay our debt under our
credit facility and other indebtedness.
The Company’s cash flow requirements during 2013 have been financed by cash on hand, operations, our
credit facility, and debt financing. The Company is continually reviewing operating costs and is committed
to further reducing operating costs to bring them in line with revenue levels.
Our ability to achieve and maintain profitability is dependent upon our ability to successfully raise
additional capital and develop our business plans that will generate profitable revenues. The Company
continues to explore all sources of increasing revenue. If the Company is unable in the near term to raise
capital on commercially reasonable terms or increase revenue, it may not have sufficient cash to sustain its
operations for the next twelve months. As a result, the Company may be forced to further reduce or even
curtail its operations. These factors raise substantial doubt about the Company’s ability to continue as a
going concern. We obtained a waiver from the Company’s lender which waived the requirement by our
lender that the Company’s consolidated financial statements for the year ended December 31, 2013, be
issued without a going concern qualification. (See “Note 18 – Subsequent Events – Waivers and Revisions
from PNC Bank, National Association” for further information of this waiver, along with other matters).
The accompanying financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
The Company continues to focus on expansion into both commercial and international markets to help
offset the uncertainties of government spending in the USA. This includes new services, new customers
and increased market share in our current markets. Although no assurances can be given, we believe we
will be able to successfully implement this plan. In January 2014, the fiscal year 2014 Omnibus spending
bill was approved by Congress and the President. This budget, the first approved in several years, restores
federal government funding cuts instituted in 2013 from sequestration and allows for new spending on
projects that was not allowed under Continuing Resolutions (“CR”).
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries after
elimination of all significant intercompany accounts and transactions.
Use of Estimates
When we prepare financial statements in conformity with generally accepted accounting principles
(“GAAP”) in the United States of America, we make estimates 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.
Actual results could differ from those estimates. See Notes 7, 10, 11 and 12 for estimates of discontinued
operations and environmental liabilities, closure costs, income taxes and contingencies for details on
significant estimates.
Restricted Cash
Restricted cash reflects $35,000 held in escrow for our worker’s compensation policy.
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. We
regularly review all accounts receivable balances that exceed 60 days from the invoice date and based on an
assessment of current credit worthiness, estimate 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
53
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 a historical valuation that allows us to calculate the total reserve required. Once we have
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, based on dollar
amount, from senior management.
Retainage receivables represent amounts that are billed or billable to our customers, but are retained by the
customer until completion of the project or as otherwise specified in the contract. Our retainage receivable
balances are all current.
Unbilled Receivables
Unbilled receivables are generated by differences between invoicing timing and our performance based
methodology used for revenue recognition purposes. As major processing and contract completion phases
are completed and the costs incurred, we recognize the corresponding percentage of revenue. Within our
Treatment Segment, we experience delays in processing invoices due to the complexity of the
documentation that is required for invoicing, as well as the difference between completion of revenue
recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing
differences occur for several reasons: partially from delays in the final processing of all wastes associated
with certain work orders and partially from delays for analytical testing that is required after we have
processed waste but prior to our release of waste for disposal. The tasks relating to these delays usually take
several months to complete. As we now have historical data to review the timing of these delays, we realize
that certain issues, including, but not limited to, delays at our third party disposal site, can extend collection
of some of these receivables greater than twelve months. However, our historical experience suggests that a
significant part of unbilled receivables are ultimately collectible with minimal concession on our part. We,
therefore, segregate the unbilled receivables between current and long term.
Unbilled receivables within our Services Segment can result from: (1) revenue recognized by our Earned
Value Management program (a program which integrates project scope, schedule, and cost to provide an
objective measure of project progress) but invoice milestones have not yet been met and/or (2) contract
claims and pending change orders, including Requests for Equitable Adjustments (“REAs”) when work has
been performed and collection of revenue is reasonably assured.
Inventories
Inventories consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, we have
replacement parts in inventory, which are deemed critical to the operating equipment and may also have
extended lead times should the part fail and need to be replaced. Inventories are valued at the lower of cost
or market with cost determined by the first-in, first-out method.
Property and Equipment
Property and equipment expenditures are capitalized and depreciated using the straight-line method over the
estimated useful lives of the assets for financial statement purposes, while accelerated depreciation methods
are principally used for income tax purposes. Generally, asset lives range from ten to forty years for
buildings (including improvements and asset retirement costs) and three to seven years for office furniture
and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements are
capitalized and amortized over the lesser of the term of the lease or the life of the asset. Maintenance and
repairs are charged directly to expense as incurred. The cost and accumulated depreciation of assets sold or
retired are removed from the respective accounts, and any gain or loss from sale or retirement is recognized
in the accompanying consolidated statements of operations. Renewals and improvement, which extend the
useful lives of the assets, are capitalized.
In accordance with ASC 360, “Property, Plant, and Equipment”, long-lived assets, such as property, plant
and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
54
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in
the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group
classified as held for sale would be presented separately in the appropriate asset and liability sections of the
balance sheet.
Our PFSG subsidiary is within our discontinued operations and is held for sale. On August 14, 2013, our
PFSG facility incurred fire damage which has left it non-operational. As of December 31, 2013, we have
recorded $130,000 for impairment of fixed assets related to the fire. We performed updated financial
valuation on the tangible assets of PFSG and concluded that no further tangible asset impairment existed as
of December 31, 2013.
Our depreciation expense totaled approximately $3,381,000 and $4,795,000 in 2013 and 2012, respectively.
Goodwill and Other Intangible Assets
Intangible assets relating to acquired businesses consist primarily of the cost of purchased businesses in
excess of the estimated fair value of net identifiable assets acquired, or goodwill, and the recognized value
of the permits required to operate the business. We continually reevaluate the propriety of the carrying
amount of goodwill and permits to determine whether current events and circumstances warrant adjustments
to the carrying value. We test each Reporting Unit’s goodwill and permits, separately, for impairment,
annually as of October 1 and also if an event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying amount.
We can assess qualitative factors in determining whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount; however, we elected to bypass the qualitative assessment
aspect of the test in 2013 as we identified indicators of potential impairment (market capitalization in
relation to net book value, negative industry and economic trends, and lower than anticipated results of
operations). We follow a two-step quantitative process. In the first step, we compare the fair value of each
reporting unit, as computed primarily by present value cash flow calculation, to its book carrying value. If
the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized.
If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and we
would then complete step 2 in order to measure the impairment loss. In step 2, the implied fair value is
compared to the carrying amount of the goodwill. If the implied fair value of goodwill is less than the
carrying value of goodwill, we would recognize an impairment loss equal to the difference. The implied
fair value is calculated by assigning the fair value of the reporting unit (as determined in step 1) to all of its
assets and liabilities (including unrecognized intangible assets) and any excess in fair value that is not
assigned to the asset and liabilities is the implied fair value of goodwill.
In estimating the fair value of the reporting units, the Company makes estimates and judgments about its
future cash flows using an income approach. The income approach, specifically a discounted cash flow
analysis, includes assumptions for, among others, forecasted revenue, gross margin, operating income,
working capital cash flow, perpetual growth rates and long-term discount rates (reflects a weighted average
cost of capital rate), all of which require significant judgment by management. The sum of the fair values of
the Company's reporting units are also compared to its external market capitalization to determine the
appropriateness of its assumptions. These assumptions take into account the current industry environment
(with significant focus on government spending trends), and its impact on the Company's business.
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 conducted as of
October 1. The Company also has one definite-lived permit which was excluded from our annual
impairment review as noted above.
55
Definite-lived intangible assets are tested for impairment whenever events or changes in circumstances
suggest impairment might exist (see Note 3 – “Goodwill and Other Intangible Assets” for further
discussion on goodwill and other intangible assets).
Research and Development
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 and to develop new company service offerings. We conduct research internally and
also through collaborations with other third parties. Research and development costs consist primarily of
employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the
development and enhancement of new potential waste treatment processes and are charged to expense when
incurred in accordance with Accounting Standards Codification (“ASC”) Topic 730, “Research and
Development.”
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. AROs are included within
buildings as part of property and equipment and are depreciated over the estimated useful life of the
property. In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-
period changes in the liability resulting from the passage of time and revisions to either the timing or the
amount of the original estimate of undiscounted cash flow. Increases in the ARO liability due to passage of
time impact net income as accretion expense. Changes in costs resulting from changes or expansion at the
facilities require adjustment to the ARO liability calculated in the aforementioned method, and are
capitalized and charged as depreciation expense, in accordance with the Company’s depreciation policy.
(See Note 10 – “Accrued Closure Costs and Asset Retirement Obligations (“ARO”)” for further
information of our closure liabilities and AROs).
Income Taxes
Income taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the
provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to
the temporary differences between financial reporting carrying values and tax bases of assets and liabilities.
Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. Any
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
ASC 740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely
than not that some portion or all of the deferred income tax assets will not be realized. We evaluate the
realizability of our deferred income tax assets, primarily resulting from impairment loss and net operating
loss carryforwards, and adjust our valuation allowance, if necessary. Once we utilize our net operating loss
carryforwards or reverse the related valuation allowance we have recorded on these deferred tax assets, we
would expect our provision for income tax expense in future periods to reflect an effective tax rate that will
be significantly higher than past periods.
ASC 740 sets out a consistent framework for preparers to use to determine the appropriate recognition and
measurement of uncertain tax positions. ASC 740 uses a two-step approach wherein a tax benefit is
recognized if a position is more-likely-than-not to be sustained. The amount of the benefit is then measured
to be the highest tax benefit which is greater than 50% likely to be realized. ASC 740 also sets out
disclosure requirements to enhance transparency of an entity’s tax reserves. The Company recognizes
56
accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax
expense.
We reassess the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to
determine if facts or circumstances have arisen that might cause us to change our judgment regarding the
likelihood of a tax position’s sustainability under audit.
Foreign Operation
Our Services Segment includes a foreign operation, Perma-Fix Environmental Services UK Limited
(“Perma-Fix UK Limited”). We also have a Canadian subsidiary, Perma-Fix of Canada. The financial
results of Perma-Fix UK Limited and Perma-Fix of Canada (immaterial at this time) are included in the
consolidated financial statements of the Company within the Services Segment. The financial results of
Perma-Fix UK Limited and Perma-Fix of Canada are translated into U.S. dollars using exchange rates in
effect at period-end for assets and liabilities and average exchange rates during the period for results of
operations. The related translation adjustments are reported as a separate component of stockholders’ equity.
Concentration Risk
We performed services relating to waste generated by the federal government, either directly as a prime
contractor or indirectly as a subcontractor (including the CH Plateau Remediation Company (“CHPRC”)) to
the federal government, representing approximately $47,557,000 or 63.9% of our total revenue from
continuing operations during 2013, as compared to $101,533,000 or 79.6% of our total revenue from
continuing operations during 2012.
The following customer accounted for 10% or more of the total revenues generated from continuing
operations for twelve months ended December 31, 2013 and 2012:
Customer
CHPRC
Year
2013
2012
Total
Revenue
$19,922,000
$24,652,000
% of Total
Revenue
26.8%
19.3%
Revenue generated from CHPRC includes revenue generated from the CHPRC subcontract at our Services
Segment and various waste processing contracts at our Treatment Segment. The CHPRC subcontract was a
cost plus award fee subcontract awarded to us during the second quarter of 2008 to participate in the
cleanup of the central portion of the Hanford Site located in the state of Washington. This subcontract
expired on September 30, 2013.
The outstanding net receivable balance for the customer representing more than 10% of consolidated net
accounts receivable is (“AR”) as follows:
Customer
Clauss Construction
Year
2013
2012
AR
$1,145,000
$1,486,000
AR
14.2%
13.0%
Gross Receipts Taxes and Other Charges
ASC 605-45, “Revenue Recognition – Principal Agent Consideration” provides guidance regarding the
accounting and financial statement presentation for certain taxes assessed by a governmental authority.
These taxes and surcharges include, among others, universal service fund charges, sales, use, waste, and
some excise taxes. In determining whether to include such taxes in our revenue and expenses, we assess,
among other things, whether we are the primary obligor or principal taxpayer for the taxes assessed in each
jurisdiction where we do business. As we are merely a collection agent for the government authority in
certain of our facilities, we record the taxes on a net method and do not include them in our revenue and
cost of services.
Revenue Recognition
Treatment Segment revenues. The processing of mixed waste is complex and may take several months or
57
more to complete; as such, we recognize revenues using a performance based methodology with our
measure of progress towards completion determined based on output measures consisting of milestones
achieved and completed. We have waste tracking capabilities, which we continue to enhance, to allow us to
better match the revenues earned to the processing phases achieved. The revenues are recognized as each of
the following three processing phases are completed: receipt, treatment/processing and shipment/final
disposal. However, based on the processing of certain waste streams, the treatment/processing and
shipment/final disposal phases may be combined as sometimes they are completed concurrently. As major
processing phases are completed and the costs incurred, we recognize the corresponding percentage of
revenue utilizing a proportional performance model. We experience delays in processing invoices due to the
complexity of the documentation that is required for invoicing, as well as the difference between completion
of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables.
The timing differences occur for several reasons, partially from delays in the final processing of all wastes
associated with certain work orders and partially from delays for analytical testing that is required after we
have processed waste but prior to our release of waste for disposal. As the waste moves through these
processing phases and revenues are recognized, the correlating costs are expensed as incurred. Although we
use our best estimates and all available information to accurately determine these disposal expenses, the risk
does exist that these estimates could prove to be inadequate in the event the waste requires retreatment.
Furthermore, should the waste be returned to the generator, the related receivables could be uncollectible;
however, historical experience has not indicated this to be a material uncertainty.
Services Segment revenues. Revenue includes services performed under time and material, fixed price, and
cost-reimbursement contracts. Revenues and costs associated with fixed price contracts are recognized using
the percentage of completion (efforts expended) method. We estimate our percentage of completion based
on attainment of project milestones. Revenues and costs associated with time and material contracts are
recognized as revenue when earned and costs are incurred.
Under cost reimbursement contracts, we are reimbursed for costs incurred plus a certain percentage markup
for indirect costs, in accordance with contract provision. Costs incurred in excess of contract funding may
be renegotiated for reimbursement. We also earn a fee based on the approved costs to complete the
contract. We recognize this fee using the proportion of costs incurred to total estimated contract costs.
Contract costs include all direct labor, material and other non-labor costs and those indirect costs related to
contract support, such as depreciation, fringe benefits, overhead labor, supplies, tools, repairs and equipment
rental. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses
are determined. Changes in job performance, job conditions and estimated profitability, including those
arising from contract penalty provisions and final contract settlements, may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Consulting revenues are recognized as services are rendered. The services provided are based on billable
hours and revenues are recognized in relation to incurred labor and consulting costs. Out of pocket costs
reimbursed by customers are also included in revenues.
The liability, “billings in excess of costs and estimated earnings”, represents billings in excess of revenues
recognized and accrued costs to jobs.
Self-Insurance
We are self-insured for a significant portion of our group health. The Company estimates expected losses
based on statistical analyses of historical industry data, as well as our own estimates based on the
Company’s actual historical data to determine required self-insurance reserves. The assumptions are closely
reviewed, monitored, and adjusted when warranted by changing circumstances. The estimated accruals for
these liabilities could be affected if actual experience related to the number of claims and cost per claim
differs from these assumptions and historical trends. Based on the information known on December 31,
2013, we believe we have provided adequate reserves for our self-insurance exposure. As of December 31,
2013 and 2012, self-insurance reserves were $473,000 and $644,000, respectively, and were included in
accrued expenses in the accompanying consolidated balance sheets. The total amounts expensed for self-
58
insurance during 2013 and 2012 were $2,906,000, and $4,388,000, respectively, for our continuing
operations, and $160,000 and $171,000, for our discontinued operations, respectively.
Stock-Based Compensation
Stock-Based Compensation. We account for stock-based compensation in accordance with ASC 718,
“Compensation – Stock Compensation”. ASC 718 requires all stock-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their fair
values. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-
based awards which requires subjective assumptions. Assumptions used to estimate the fair value of stock
options granted include the exercise price of the award, the expected term, the expected volatility of the
Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term,
and the expected annual dividend yield.
We recognize stock-based compensation expense using a straight-line amortization method over the
requisite period, which is the vesting period of the stock option grant. As ASC 718 requires that stock-
based compensation expense be based on options that are ultimately expected to vest, our stock-based
compensation expense is reduced at an estimated forfeiture rate. Our estimated forfeiture rate is generally
based on historical trends of actual forfeitures. Forfeiture rates are evaluated, and revised as necessary.
Comprehensive Income
The components of comprehensive income are net income and the effects of foreign currency translation
adjustments.
Net Income (Loss) Per Share
Basic earnings (loss) per share excludes any dilutive effects of stock options, warrants, and convertible
preferred stock. In periods where they are anti-dilutive, such amounts are excluded from the calculations of
dilutive earnings per share. Net income (loss) attributable to non-controlling interests are excluded from
(loss) income from continuing operations in the below calculation in accordance with ASC 260, “Earnings
Per Share.”
The diluted loss per share calculations exclude options to purchase approximately 339,000 and 517,000
shares of common stock for the years ended December 31, 2013 and 2012, respectively, because their effect
would have been antidilutive as a result of the net losses recorded in these periods.
Fair Value of Financial Instruments
Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets
and liabilities are recorded at fair value on a nonrecurring basis. Fair value is determined based on the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market
participants. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies,
is:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as
quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting the Company’s own assumptions,
consistent with reasonably available assumptions made by other market participants.
Financial instruments include cash and restricted cash (Level 1), accounts receivable, accounts payable, and
debt obligations (Level 3). At December 31, 2013 and December 31, 2012, the fair value of the Company’s
financial instruments approximated their carrying values. The fair value of the Company’s revolving credit
facility approximates its carrying value due to the variable interest rate. The carrying value of our
subsidiary's preferred stock is not significantly different than its fair value.
59
Recent Accounting Standards
There have been no recently issued accounting standards that are expected to have a material impact on the
Company’s financial condition or results of operations.
NOTE 3
GOODWILL AND OTHER INTANGIBLE ASSETS
The following summarizes changes in the carrying amount of goodwill by reporting segments:
Goodwill (amounts in thousands)
Balance as of December 31, 2011
Balance as of December 31, 2012
Goodwill impairment
Balance as of December 31, 2013
Treatment
13,691
13,691
(13,691)
$
$
$
$
$
$
Services
15,495
15,495
(14,165)
1,330
Total
$
29,186
29,186
$
(27,856)
$
1,330
$
$
$
Our M&EC subsidiary was awarded the CH Plateau Remediation Company (“CHPRC”) subcontract by
CH2M Hill Plateau Remediation Company (“CH2M Hill”), effective June 19, 2008, in connection with
CH2M Hill’s prime contract with the U.S. Department of Energy (“DOE”), relating to waste management
and facility operations at the DOE’s Hanford, Washington site. The CHPRC subcontract provided for a base
contract period from October 1, 2008 through September 30, 2013, with an option of renewal for an
additional five years. During the second quarter of 2013, our M&EC subsidiary was notified by CH2M Hill
that the subcontract, which expired on September 30, 2013, would not be renewed. As permitted by ASC
Topic 350 “Intangibles – Goodwill and Other,” when an impairment indicator arises toward the end of an
interim reporting period, the Company may recognize its best estimate of that impairment loss; accordingly,
based on the Company’s analysis prepared as of June 30, 2013, we recorded a goodwill impairment charge
of $1,149,000 during the three months ended June 30, 2013. Upon finalization, the Company determined
there was no change in the estimated impairment charge recorded in the second quarter. This amount
represented the total goodwill for our CHPRC reporting unit – our operations under the CHPRC
subcontract.
The Company performed its annual goodwill testing as of October 1, for its remaining three reporting units:
(1) SYA reporting unit (Services Segment); (2) SEC reporting unit (Services Segment); and (3) Treatment
reporting unit (Treatment Segment). The Company identified indicators of potential impairment (market
capitalization in relation to net book value, negative industry and economic trends, and lower than
anticipated results of operations), which resulted in performance of step 1 of the impairment test. In
determining the estimated fair values of the reporting units, the Company generally employed a discounted
cash flows analysis (“DCF”) and, in certain cases, used a combination of a DCF analysis and a market-
based approach. As noted in the summary of the Company’s significant accounting policies, determining
estimated fair values requires the application of significant judgment. As a result of the financial downturn
suffered by the Company in 2013, and uncertainties with regards to federal government spending,
determining the fair value of the Company’s reporting units was even more judgmental than it has been in
the past. These factors reduced the Company’s visibility into long-term trends and dampened the
Company’s expectations of future business performance. Consequently, estimates of future cash flows used
in the fourth quarter 2013 DCF analyses were moderated, in some cases significantly, relative to the
estimates used in the fourth quarter of 2012. The discount rates utilized in these DCF analyses reflect
market-based estimates of the risks associated with the projected cash flows of individual reporting units.
The discount rates utilized in the DCF analyses were increased to reflect increased risk due to current
economic volatility to a range of 21% to 35% in 2013 from 15% in 2012. In addition, the terminal growth
rates used in the DCF analyses were decreased to 3% in 2013 from 4% in 2012. The results of the DCF
analyses were corroborated with other value indicators where available, such as comparable company
earnings multiples and research analyst estimates. The results of this Step 1 process indicated that there was
a potential impairment of goodwill in the Treatment and SEC reporting units, as the book values of the
reporting units exceeded their respective estimated fair values. As a result, the Company performed step 2
of the impairment analysis for the two reporting units discussed above. In step 2, the implied fair value is
compared to the carrying amount of the goodwill. If the implied fair value of goodwill is less than the
60
carrying value of goodwill, we would recognize an impairment loss equal to the difference. The implied fair
value is calculated by assigning the fair value of the reporting unit (as determined in step 1) to all of its
assets and liabilities (including unrecognized intangible assets) and any excess in fair value that is not
assigned to the asset and liabilities is the implied fair value of goodwill. Based on the result of our step 2
analysis, we determined that the goodwill for each of our Treatment and SEC reporting units was fully
impaired, and therefore, we recorded a goodwill impairment loss of $13,691,000 and $13,016,000, for our
Treatment and SEC reporting unit, respectively.
The following table summarizes changes in the carrying amount of permits. No permit exists at our
Services Segment.
Permit (amount in thousands)
Balance as of December 31, 2011
PCB permit amortized (1)
Balance as of December 31, 2012
PCB permit amortized (1)
Balance as of December 31, 2013
Treatment
$
16,854
(55)
16,799
(55)
16,744
$
(1) Amortization for the one definite-lived permit capitalized in 2009 in connection with the authorization issued by the U.S. EPA to
our DSSI facility to commercially store and dispose of radioactive PCBs. This permit is being amortized over a ten year period in
accordance with its estimated useful life.
The following table summarizes information relating to the Company’s other intangible assets:
Intangibles (amount in thousands)
Patent
Software
Non-compete agreement
Customer contracts
Customer relationships
Total
Useful
Lives
(Years)
8-18
3
1.2
0.5
12
December 31, 2013
December 31, 2012
Gross
Carrying Accumulated
Amortization
Amount
Net
Carrying
Amount
Gross
Carrying Accumulated
Amortization
Amount
Net
Carrying
Amount
$
$
514
379
265
790
3,370
5,318
$
$
(155)
(258)
(174)
(790)
(961)
(2,338)
$
$
359
121
91
2,409
2,980
$
$
453
380
265
790
3,370
5,258
$
$
(105)
(145)
(62)
(790)
(546)
(1,648)
$
$
348
235
203
2,824
3,610
The intangible assets are amortized on a straight-line basis over their useful lives with the exception of
customer relationships which are being amortized using an accelerated method.
The following table summarizes the expected amortization over the next five years for our definite-lived
intangible assets (including the one definite-lived permit) discussed above:
Year
2014
2015
2016
2017
2018
Amount
(In thousands)
$
527
563
398
385
355
2,228
$
Amortization expense relating to intangible assets for the Company was approximately $745,000 and
$675,000, for the years ended December 31, 2013 and 2012, respectively.
61
NOTE 4
STOCK-BASED COMPENSATION
We follow FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) to account for stock-
based compensation. ASC 718 requires all stock-based payments to employees, including grants of
employee stock options, to be recognized in the statement of operations based on their fair values.
The Company has certain stock option plans under which it awards incentive and non-qualified stock
options to employees, officers, and outside directors. Stock options granted to employees have either a ten
year contractual term with one-fifth yearly vesting over a five year period or a six year contractual term with
one-third yearly vesting over a three year period. Stock options granted to outside directors have a ten year
contractual term with vesting period of six months.
On September 12, 2013, we granted an aggregate of 18,000 options from the Company’s 2003 Outside
Directors Stock Plan to our five re-elected directors and one new director at our Annual Meeting of
Stockholders. The options granted were for a contractual term of ten years with vesting period of six
months. The exercise price of the options was $2.79 per share, which was equal to our closing stock price
the day preceding the grant date, pursuant to the 2003 Outside Directors Stock Plan.
On October 4, 2013, we granted 6,000 options from the Company’s Outside Directors Stock Plan to a new
director elected by the Company’s Board of Directors to fill a newly created directorship. The options
granted were for a contractual term of ten years with vesting period of six months. The exercise price of the
options was $3.20 per share, which was equal to our closing stock price the day preceding the grant date,
pursuant to the 2003 Outside Directors Stock Plan.
The Company estimates fair value of stock options using the Black-Scholes valuation model. The fair value
of the director stock options granted (no employees were granted options in 2013 and 2012) and the related
assumptions used in the Black-Scholes option pricing model used to value the options granted for fiscal
year 2013 and 2012 were as follows after giving effect to the reverse stock split:
Weighted-average fair value per share
Risk -free interest rate (1)
Expected volatility of stock (2)
Dividend yield
Expected option life (in years) (3)
Outside Director Stock Options Granted
For Year Ended
$
2013
2.06
$
2.66% - 2.92%
58.88% - 59.76%
None
10.0
2012
3.55
1.75%
56.74%
None
10.0
(1) The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.
(2) The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.
(3) The expected option life is based on historical exercises and post-vesting data.
As of December 31, 2013, we had an aggregate of 193,600 employee stock options outstanding (from the
2004 and 2010 Stock Option Plans), of which 173,600 are vested. The weighted average exercise price of
the 173,600 outstanding and fully vested employee stock options is $10.07 with a remaining weighted
contractual life of 1.3 years. Additionally, we had an aggregate of 169,200 outstanding director stock
options (from the 2003 Outside Directors Stock Plans), of which 145,200 are vested. The weighted average
exercise price of the 145,200 outstanding and fully vested director stock options is $10.22 with a remaining
weighted contractual life of 4.5 years.
The following table summarizes stock-based compensation recognized for the fiscal year 2013 and 2012.
62
Employee Stock Options
Director Stock Options
Total
$
$
Year Ended
2013
80,000
45,000
125,000
$
$
2012
140,000
51,000
191,000
We recognized stock-based compensation expense using a straight-line amortization method over the
requisite service period, which is the vesting period of the stock option grant. ASC 718 requires that stock-
based compensation expense be based on options that are ultimately expected to vest and requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. We have generally estimated forfeiture rates based on historical
trends of actual forfeitures. When actual forfeitures vary from our estimates, we recognize the difference in
stock-based compensation expense in the period the actual forfeitures occur or when options vest. Our
stock-based compensation expense for 2013 included a reduction of approximately $23,000 resulting from
the forfeiture of a non-qualified stock option (the “Option”) due to the voluntary termination of our SEC
President from the Company which became effective May 24, 2013 (see Note 15 – “Related Party
Transactions” for further information regarding the SEC President’s voluntary termination from the
Company). The Option was granted on October 31, 2011, with a term of 10 years from grant date and
provided for the purchase of up to 50,000 shares of our Common Stock at $6.75 per share, with 25% yearly
vesting over a four-year period (in accordance with a Non-Qualified Option Agreement). As of December
31, 2013, we have approximately $71,000 of total unrecognized compensation cost related to unvested
options, which is expected to be recognized in 2013.
NOTE 5
CAPITAL STOCK, STOCK PLANS, WARRANTS, AND INCENTIVE COMPENSATION
Stock Option Plans
Effective July 29, 2003, we adopted the 2003 Outside Directors Stock Plan, which was approved by our
stockholders at the Annual Meeting of Stockholders on such date. The plan provides for the grant of an
option to purchase up to 30,000 shares of Common Stock for each outside director upon initial election to
the Board of Directors, and the grant of an option to purchase up to 12,000 shares of Common Stock upon
each re-election. The options granted generally have a vesting period of six months from the date of grant,
with an exercise price equal to the closing trade price on the date prior to grant date. The plan also provides
for the issuance to each outside director a number of shares of Common Stock in lieu of 65% or 100% of the
fee payable to the eligible director for services rendered as a member of the Board of Directors. The
number of shares issued is determined at 75% of the market value as defined in the plan. A maximum of
600,000 shares of our Common Stock are authorized for issuance under this plan, as amended.
Effective July 28, 2004, we adopted the 2004 Stock Option Plan, which was approved by our stockholders
at the Annual Meeting of Stockholders on such date. The plan provides for the grants of options to selected
officers and employees, including any employee who is also a member of the Board of Directors of the
Company. A maximum of 400,000 shares of our Common Stock are authorized for issuance under this plan
in the form of either Incentive or Non-Qualified Stock Options. The option grants under the plan are
exercisable for a period of up to 10 years from the date of grant at an exercise price of not less than market
price of the Common Stock at grant date.
200,000
non-qualified and incentive stock options
On April 28, 2010, we adopted the 2010 Stock Option Plan, which was approved by our stockholders at the
Company’s Annual Meeting of Stockholders on September 29, 2010. The Plan authorizes an aggregate
an
grant of
employee who is a member of the Board of Directors) of the Company for the purchase of up to 200,000
shares of the Company’s Common Stock. The term of each stock option granted will be fixed by the
Compensation Committee, but no stock option will be exercisable more than ten years after the grant date,
or in the case of an incentive stock option granted to a 10% stockholder, five years after the grant date. The
exercise price of any incentive stock option granted under the Plan to an individual who is not a 10%
stockholder at the time of the grant will not be less than the fair market value of the shares at the time of the
to officers and employees
(including
63
grant, and the exercise price of any incentive stock option granted to a 10% stockholder shall not be less
than 110% of the fair market value at the time of grant. The exercise price of any non-qualified stock
options granted under Plan will not be less than the fair market value of the shares at the time of grant.
We follow FASB ASC 718 to account for employee and director stock options. See Note 4 – “Stock-Based
Compensation” for further discussion on ASC 718.
No employees exercised options during 2013 and 2012.
We issued, after giving effect to the reverse stock split, a total of 69,041 and 34,055 shares of our Common
Stock in 2013 and 2012, respectively, under our 2003 Outside Directors Stock Plan to our outside directors
as compensation for serving on our Board of Directors. Each member of our outside directors is paid a
quarterly fee of $8,000 for serving as a member of our Board of Directors. The Audit Committee Chairman
receives an additional quarterly fee of $5,500 due to the position’s additional responsibility. Each board
member is also paid $1,000 for each board meeting attendance as well as $500 for each telephonic
conference call. As a member of the Board of Directors, each director elects to receive either 65% or 100%
of the director’s fee in shares of our Common Stock. The number of shares received is calculated based on
75% of the fair market value of our Common Stock determined on the business day immediately preceding
the date that the quarterly fee is due. The balance of each director’s fee, if any, is payable in cash.
Summary of the status of options under the Company’s total Plans and a Non-Qualified Stock Option
Agreement (which was forfeited in the second quarter of 2013), as of December 31, 2013 and 2012, and
changes during the years ending on those dates is presented below, giving the effect to the reverse stock
split:
64
1993 Non-qualified Stock Option Plan
Balance at beginning of year
Exercised
Forfeited
Balance at end of year
Options exercisable at year end
1992 Outside Directors Stock Plan
Balance at beginning of year
Forfeited
Balance at end of year
Shares
70,500
(70,500)
3,000
(3,000)
2013
Weighted
Average
Exercise
Price
$
10.95
Intrinsic
(a)
Value
Shares
$ —
10.95
$ —
$ —
71,600
(1,100)
70,500
70,500
2012
Weighted
Average
Exercise
Price
$
10.95
Intrinsic
(a)
Value
$ —
10.95
10.95
$ —
10.95
$ —
$
10.10
10.10
$ —
11,000
(8,000)
3,000
$
12.23
13.65
10.10
$ —
Options exercisable at year end
$ —
3,000
10.10
$ —
2003 Outside Directors Stock Plan
Balance at beginning of year
Granted
Forfeited
Balance at end of year
163,200
24,000
(18,000)
169,200
$
10.19
2.89
9.95
9.18
$
5,850
151,200
12,000
163,200
$
10.56
5.50
10.19
$ —
Options exercisable at year end
145,200
10.22
$ —
151,200
10.56
$ —
2004 Stock Option Plan
Balance at beginning of year
Forfeited
Balance at end of year
182,100
(48,500)
133,600
$
10.55
10.05
10.73
$ —
264,167
(82,067)
182,100
$
10.17
9.33
10.55
$ —
Options exercisable at year end
133,600
10.73
$ —
182,100
10.55
$ —
2010 Stock Option Plan
Balance at beginning of year
Granted
Balance at end of year
Options exercisable at year end
60,000
60,000
40,000
$
7.85
7.85
$ —
7.85
$ —
Non-Qualified Stock Option Agreement
Balance at beginning of year
Forfeited
Balance at end of year
50,000
(50,000)
$
$
6.75
6.75
$ —
Options exercisable at year end
$ —
60,000
60,000
20,000
50,000
50,000
12,500
$
7.85
7.85
$ —
7.85
$ —
$
6.75
6.75
$ —
6.75
$ —
(a) Represents the difference between the market price at the date of exercise or the end of the year, as applicable, and the
exercise price.
65
The summary of the Company’s total Plans (as noted above) as of December 31, 2013, and changes during
the period then ended are presented as follows (giving effect of the reverse stock split):
Weighted
Average
Exercise
Price
$
9.82
2.89
─
9.51
Shares
528,800
24,000
─
(190,000)
362,800
$
9.53
318,800
362,800
$
$
10.14
9.53
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
$
$
$
3.3
2.8
3.3
─
5,850
─
5,850
Options outstanding January 1, 2013
Granted
Exercised
Forfeited/Expired
Options outstanding End of Period (1)
Options Exercisable at December 31, 2013(2)
Options Vested and expected to be vested at December 31, 2013
(1) Options with exercise prices ranging from $2.79 to $14.75
(2) Options with exercise prices ranging from $5.50 to $14.75
Warrants and Capital Stock Issuance for Debt
As of December 31, 2013, we have two Warrants outstanding which provide for the purchase of up to an
aggregate of 70,000 shares of the Company’s Common Stock at $2.23 per share. The two Warrants were
issued on August 2, 2013, as consideration of a $3,000,000 loan received by the Company from Messrs.
William N. Lampson and Robert L. Ferguson (the “Lenders”). Each Warrant provides for the Lender to
purchase up to 35,000 shares of the Company’s Common Stock at an exercise price based on the closing
price of the Company’s Common Stock at the closing of the transaction which was determined to be $2.23.
The Warrants are exercisable six months from August 2, 2013 and expire on August 2, 2016. We estimated
the fair value of the Warrants to be approximately $59,000 using the Black-Scholes option pricing model
with the following assumptions: 55.54% volatility, risk free interest rate of .59%, an expected life of three
years and no dividends. We also issued 90,000 shares of the Company’s Common Stock to the Lenders.
See Note 8 – “Long-Term Debt – Promissory Note and Installment Agreement” for further information
regarding the Warrants and Common Stock.
Shares Reserved
At December 31, 2013, we have reserved approximately 432,800 shares of Common Stock for future
issuance under all of the option and warrant arrangements.
NOTE 6
PREFERRED STOCK ISSUANCE AND CONVERSION
Series B Preferred Stock
The Series B Preferred Stock is non-voting and non-convertible, has a $1.00 liquidation preference per share
and may be redeemed at the option of the former stockholders of M&EC at any time for the per share price
of $1.00. The holders of the Series B Preferred Stock will be entitled to receive when, as, and if declared by
the Board of Directors of M&EC out of legally available funds, dividends at the rate of 5% per year per
share applied to the amount of $1.00 per share, which shall be fully cumulative. We began accruing
dividends for the Series B Preferred Stock in July 2002, and have accrued a total of approximately $738,000
since July 2002, of which $64,000 was accrued in each of the years ended December 31, 2003 to 2013.
NOTE 7
DISCONTINUED OPERATIONS AND DIVESTITURES
Our discontinued operations consist of our PFSG facility, which met the held for sale criteria under ASC
360, “Property, Plant, and Equipment” on October 6, 2010. Our discontinued operations also encompass
our PFFL, PFO, PFMD, PFD, and PFTS facilities, which were divested on August 12, 2011, October 14,
2011, January 8, 2008, March 14, 2008, and May 30, 2008, respectively. Our discontinued operations also
include two previously shut down locations, PFMI, and PFM.
66
On August 14, 2013, our PFSG facility incurred fire damage which has left it non-operational. Certain
equipment and portions of the building structures were damaged. We carry general liability, pollution,
property and business interruption, and workers compensation insurance with a maximum deductible of
approximately $300,000 (consisting of $100,000 deductible for each workers compensation, pollution, and
property insurance policy), which was accrued and included within our “loss from discontinued operations.”
As of December 31, 2013, we have recorded $130,000 for impairment of fixed assets related to the fire, and
have incurred approximately $6,729,000 of other costs related to the fire. As of December 31, 2013,
approximately $3,664,000 in insurance proceed reimbursements have been paid by our insurers, of which
$1,750,000 was paid to us, with the remaining paid directly to the vendor performing the clean-up of the
facility. We have recorded a receivable of approximately $2,995,000 as of December 31, 2013 as we have
determined that the receipt of reimbursement of these expenses from our insurer is probable in accordance
with its insurance policies. The table below details the nature of expense as well as insurance receivables
and insurance recoveries related to the fire:
Clean up costs
Impairment of fixed assets
Incremental payroll costs
Other incremental costs
Total incurred costs through December 31, 2013
Insurance recovery receivable
Insurance recoveries already received
$
$
$
$
6,293,000
130,000
244,000
192,000
6,859,000
2,995,000
3,664,000
.
The insurance receivable recorded is net of $200,000 of deductible on our property and pollution insurance
policies and the insurance recoveries already received. The receivables and the related payables in
connection with this claim are included within our current assets and current liabilities related to
discontinued operations in our consolidated balance sheet.
Subsequent to December 31, 2013, our insurers paid approximately $3,510,000 of insurance recoveries, of
which approximately $2,000,000 was paid to us, with the remaining paid directly to the vendor working on
the clean-up of the facility. We continue to gather information related to insurance claims on this fire.
We are currently evaluating options regarding the future operation of this facility as we undergo the
rebuilding process on the part of the facility damaged by the fire. We continue to market our PFSG facility
for sale. As required by ASC 360, based on our internal financial valuations, we concluded that no tangible
asset impairments existed for PFSG as of December 31, 2013, other than the write-off of the equipment
damaged in the fire as discussed above. No intangible assets exist at PFSG.
The following table summarizes the results of discontinued operations for the years ended December 31,
2013 and 2012. The operating results of discontinued operations are included in our Consolidated
Statements of Operations as part of our “Loss from discontinued operations, net of taxes.” Our income tax
expense included a charge to tax expense of approximately $1,164,000 to provide a full valuation allowance
on our net deferred tax assets.
67
Amount in Thousands
For The Year Ended December 31,
2013
2012
Net revenue
Interest Expense
Operating income (loss) from discontinued operations
$
1,789
(27)
59
$
2,204
(34)
(560)
Income tax expense (benefit)
Loss from discontinued operations
1,627
(1,568)
(530)
(30)
Assets related to discontinued operations totaled $4,481,000 and $2,113,000 as of December 31, 2013, and
2012, respectively, and liabilities related to discontinued operations totaled $4,596,000 and $3,341,000 as of
December 31, 2013 and 2012, respectively.
The following table presents the major classes of assets and liabilities of discontinued operations that are
classified as held for sale as of December 31, 2013 and December 31, 2012. The held for sale assets and
liabilities may differ at the closing of a sale transaction from the reported balances as of December 31, 2013:
(Amounts in Thousands)
Accounts receivable, net (1)
Inventories
Other assets
Property, plant and equipment, net (2)
Total assets held for sale
Accounts payable
Accrued expenses and other liabilities
Note payable
Environmental liabilities
Total liabilities held for sale
December 31,
2013
December 31,
2012
$
$
$
$
20
37
3,018
1,367
4,442
2,716
363
35
840
3,954
$
$
$
$
391
32
16
1,614
2,053
229
528
71
1,373
2,201
(1) net of allowance for doubtful accounts of $13,000 and $45,000 as of December 31, 2013 and December 31, 2012,
respectively.
(2) net of accumulated depreciation of $55,000 and $60,000 as of December 31, 2013 and 2012, respectively.
The following table presents the major classes of assets and liabilities of discontinued operations that are not
held for sale as of December 31, 2013 and December 31, 2012:
(Amounts in Thousands)
December 31,
2013
December 31,
2012
Other assets
Total assets of discontinued operations
Accrued expenses and other liabilities
Accounts payable
Environmental liabilities
$
$
$
Total liabilities of discontinued operations $
39
39
436
15
191
642
$
$
$
$
60
60
884
15
241
1,140
68
Environmental Liabilities
We have four remediation projects, which are currently in progress at certain of our discontinued facilities.
These remediation projects principally entail the removal/remediation of contaminated soil and, in most
cases, the remediation of surrounding ground water. All of the remedial clean-up projects in question were
an issue for that facility for years prior to our acquisition of the facility and were recognized pursuant to a
business combination and recorded as part of the purchase price allocation to assets acquired and liabilities
assumed. Three of the facilities (PFD, PFM, and PFSG) are RCRA permitted facilities, and as a result, the
remediation activities are closely reviewed and monitored by the applicable state regulators. We recognized
our best estimate of such environmental liabilities upon the acquisition of our facilities, as part of the
acquisition cost.
At December 31, 2013, we had total accrued environmental remediation liabilities of $1,031,000, of which
$649,000 is recorded as a current liability, which reflects a decrease of $583,000 from the December 31,
2012 balance of $1,614,000. The net decrease represents payments of approximately $50,000 on
remediation projects and a reduction in reserve of approximately $533,000 at PFSG based on reassessment
of the remediation reserve. The December 31, 2013 current and long-term accrued environmental balance is
recorded as follows (in thousands):
Current
Accrual
$ 11
34
604
—
$ 649
Long-term
Accrual
$ 58
11
236
77
$ 382
Total
$ 69
45
840
77
$ 1,031
PFD
PFM
PFSG
PFMI
Total Liability
69
NOTE 8
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2013 and December 31, 2012:
(Amounts in Thousands)
Revolving Credit facility dated October 31, 2011, borrowings based
upon eligible accounts receivable, subject to monthly borrowing base
calculation, variable interest paid monthly at our option of prime rate
(3.25% at December 31, 2013) plus 2.0% or London Interbank Offer
Rate ("LIBOR") plus 3.0%, balance due October 31, 2016. Effective interest
rate for 2013 and 2012 was 3.7% and 3.8%, respectively. (1)
Term Loan dated October 31, 2011, payable in equal monthly installments
of principal of $190, balance due in October 31, 2016, variable interest paid
monthly at option of prime rate plus 2.5% or LIBOR plus 3.5%. Effective
interest rate for 2013 and 2012 was 3.9% and 3.9%, respectively. (1)
Promissory Note dated September 28, 2010, payable in 36 monthly equal
installments of $40, which includes interest and principal, beginning October
15, 2010, interest accrues at annual rate of 6.0%. (2)
Promissory Note dated February 12, 2013, payable in monthly installments of
$10, which includes interest and principal, starting February 28, 2013,
interest accrues at annual rate of 6.0%, balance due January 31, 2015. (2)
Promissory Note dated August 2, 2013, payable in twelve monthly installments of
interest only, starting September 1, 2013 and twenty-four monthly installments
of $125 in principal plus accrued interest. Interest accrues at annual rate
of 2.99%. (2) (3)
Various capital lease and promissory note obligations, payable 2014 to
2014, interest at rates ranging from 5.3% to 7.1%.
Less current portion of long-term debt
Less long-term debt related to assets held for sale
December 31,
2013
December 31,
2012
$
—
$
—
11,238
13,524
—
352
127
—
2,777
—
141
14,283
2,876
35
11,372
$
391
14,267
2,794
71
11,402
$
(1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by
our property, plant, and equipment.
(2) Uncollateralized note.
(3) Net of debt discount of ($223,000) for December 31, 2013. See “Promissory Note and Installment Agreement”
below for additional information.
Revolving Credit and Term Loan Agreement
The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security
Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC Bank, National Association
(“PNC”), acting as agent and lender, replacing our previous Loan Agreement with PNC. The Amended
Loan Agreement provides us with the following credit facilities:
• up to $25,000,000 revolving credit facility (“Revolving Credit”), subject to the amount of
borrowings based on a percentage of eligible receivables. The revolving credit advances are subject
to limitations of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days
or less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days
from invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up to 150
days from invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less
(e) reserves the Agent reasonably deems proper and necessary;
70
•
•
a term loan (“Term Loan”) of $16,000,000, which requires monthly installments of approximately
$190,000 (based on a seven-year amortization); and
equipment line of credit up to $2,500,000, subject to certain limitations.
The Amended Loan Agreement terminates as of October 31, 2016, unless sooner terminated. We may
terminate the Amended Loan Agreement upon 90 days’ prior written notice and upon payment in full of our
obligations under the Amended Loan Agreement. No early termination fee shall apply if we pay off our
obligations under the Amended Loan Agreement after October 31, 2013.
As of December 31, 2013, the excess availability under our revolving credit was $6,642,000, based on our
eligible receivables.
On May 9, 2013, we entered into an amendment to our Amended Loan Agreement. This amendment
waived our fixed charge coverage ratio non-compliance for the first quarter of 2013. This amendment also
changed the methodology in calculating the fixed charge coverage ratio in each subsequent quarter of 2013.
The minimum fixed charge coverage ratio requirement of 1:25 to 1:00 for each subsequent quarter of 2013
remains unchanged. As a condition of this amendment, we paid PNC a fee of $20,000, which is being
amortized over the term of the Amended Loan Agreement. All other terms of the Amended Loan
Agreement remain principally unchanged. We met our fixed charge coverage ratio covenant for the second
and third quarters of 2013.
On August 2, 2013, the Company entered into another amendment to our Amended Loan Agreement. This
amendment reduced our Revolving Credit facility from $25,000,000 to $18,000,000 and removed the
equipment line credit of up to $2,500,000. All other terms of the Amended Loan Agreement remain
principally unchanged. As a result of this amendment, we recorded approximately $65,000 in loss on debt
modification (included in interest expense) in accordance with ASC 470-50, “Debt – Modification and
Extinguishment.”
The Company did not meet its fixed charge coverage ratio requirement for the fourth quarter of 2013;
however, during April 2014, we received a waiver from the Company’s lender which waived this non-
compliance. Our lender has waived our fixed charge coverage ratio testing requirement for the first quarter
of 2014 and made certain revisions to our quarterly fixed charge coverage ratio testing requirements for the
remaining quarters of 2014 (See “Note 18 – Subsequent Events – Waivers and Revisions from PNC Bank,
National Association” for waivers received and revisions made to our fixed charge coverage ratio for 2014
and other matters). Based on these revisions above, we expect to meet our quarterly fixed charge coverage
ratio requirement in each of the second to fourth quarters of 2014. If we fail to meet the minimum quarterly
fixed charge coverage ratio requirement in any of the quarters starting with the second quarter in 2014 and
PNC does not waive the non-compliance or further revise our covenant so that we are in compliance, our
lender could accelerate the repayment of borrowings under our credit facility. In the event that our lender
accelerates the payment of our borrowings, we may not have sufficient liquidity to repay our debt under our
credit facility and other indebtedness.
Promissory Notes and Installment Agreements
On February 12, 2013, the Company entered into an unsecured promissory note with Timios National
Corporation (“TNC” and formerly known as Homeland Capital Security Corporation) in the principal
amount of approximately $230,000 as a result of a settlement with TNC in connection with certain claims
that we asserted against TNC for breach of certain representations and covenant subsequent to our
acquisition of Safety & Ecology Holdings Corporation and its subsidiaries (collectively known as Safety
and Ecology Corporation or “SEC”) from TNC on October 31, 2011 (See Note 14 – “Business Acquisition
(Settlement and Release Agreement)” for further information of this note). The promissory note bears an
annual interest rate of 6%, payable in 24 monthly installments of principal and interest of approximately
$10,000, with the first payment due February 28, 2013, as agreed by us and TNC after entering into the
promissory note, with subsequent payments due on the last day of each month thereafter. The promissory
note provides us the right to prepay such at any time without interest or penalty.
71
The promissory note payable to TNC included an embedded conversion option (“Conversion Option”) that
can be exercised upon default, whereby TNC has the option to convert the unpaid portion of the Note into a
number of whole shares of our restricted Common Stock. The number of shares of our restricted Common
Stock to be issuable under the Conversion Option is determined by the principal amount owing under the
new Note at the time of default plus all accrued and unpaid interest and expenses (as defined) divided by the
average of the closing price per share of our Common Stock as reported by the primary national securities
exchange on which our Common Stock is traded during the 30 consecutive trading day period ending on the
trading day immediately prior to receipt by us of TNC’s written notice of its election to receive our
restricted Common Stock as a result of the event of default by us, with the number of shares of our Common
Stock issuable upon such default subject to certain limitations. We concluded that the Conversion Option
had and continues to have nominal value as of December 31, 2013. We will continue to monitor the fair
value of the Conversion Option on a regular basis.
On September 28, 2010, the Company entered into a promissory note in the principal amount of $1,322,000,
with the former shareholders of Nuvotec (now known as Perma-Fix Northwest, Inc. or “PFNW”) in
connection with an earn-out amount that we are required to pay upon meeting certain conditions for each
earn-out measurement year ended June 30, 2008 to June 30, 2011, as a result of our acquisition of PFNW
and Perma-Fix Northwest Richland, Inc. (“PFNWR”) in June 2007. Interest is accrued at an annual interest
rate of 6%. The promissory note provides for 36 equal monthly payments of approximately $40,000,
consisting of interest and principal, starting October 15, 2010. The promissory note was paid in full in
September 2013. See further details of the earn-out amount in Note 12 – “Commitments and Contingencies
- Earn-Out Amount.”
On August 2, 2013, the Company completed a lending transaction with Messrs. Robert Ferguson and
William Lampson (“collectively, the “Lenders”), whereby the Company borrowed from the Lenders the
sum of $3,000,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory note
(the “Loan”). The Lenders were formerly shareholders of PFNW prior to our acquisition of PFNW and
PFNWR and are also stockholders of the Company, having received shares of our Common Stock in
connection with the acquisition of PFNW and PFNWR in June 2007. Mr. Ferguson also served as a
Company Board member from August 2007 to February 2010 and from August 2011 to September 2012.
The proceeds from the Loan were used for general working capital purposes. The promissory note is
unsecured, with a term of three years with interest payable at a fixed interest rate of 2.99% per annum. The
promissory note provides for monthly payments of accrued interest only during the first year of the Loan
with the first interest payment due September 1, 2013 and monthly payments of $125,000 in principal plus
accrued interest for the second and third year of the Loan. In connection with the above Loan, the Lenders
entered into a Subordination Agreement dated August 2, 2013, with the Company’s credit facility lender,
whereby the Lenders agreed to subordinate payment under the Loan, and agreed that the Loan will be junior
in right of payment to the credit facility in the event of default or bankruptcy or other insolvency proceeding
by the Company. As consideration for the Company receiving the Loan, we issued a Warrant to each
Lender to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price based on the
closing price of the Company’s Common Stock at the closing of the transaction which was determined to be
$2.23. The Warrants are exercisable six months from August 2, 2013 and expire on August 2, 2016. We
estimated the fair value of the Warrants to be approximately $59,000 using the Black-Scholes option pricing
model with the following assumptions: 55.54% volatility, risk free interest rate of .59%, an expected life of
three years and no dividends. As further consideration for the Loan, the Company issued an aggregate
90,000 shares of the Company’s Common Stock, with each Lender receiving 45,000 shares. The 90,000
shares of Common Stock and 70,000 Common Stock purchase warrants were issued in a private placement
and bear a restrictive legend against resale except in a transaction registered under the Securities Act or in a
transaction exempt from registration thereunder. We determined the fair value of the 90,000 shares of
Common Stock to be approximately $200,000 which was based on the closing price of the stock of $2.23
per share on August 2, 2013. The fair value of the Warrants and Common Stock and the related closing fees
incurred from the transaction (approximately $13,000) were recorded as a debt discount, which is being
amortized over the term of the loan as interest expense – financing fees.
The promissory note includes an embedded Put Option (“Put”) that can be exercised upon default, whereby
the lender has the option to receive a cash payment equal to the amount of the unpaid principal balance plus
72
all accrued and unpaid interest (“Payoff Amount”), or the number of whole shares of our Common Stock
equal to the Payoff Amount divided by the closing bid price of our Common Stock on the date immediately
prior to the date of default of the promissory note, as reported by the primary national securities exchange
on which our Common Stock is traded. The maximum number of payoff shares is restricted to less than
20% of the outstanding equity. We concluded that the Put should have been bifurcated at inception and
recorded at fair value; however, the Put Option had and continues to have nominal value as of December 31,
2013. We will continue to monitor the fair value of the Put on a regular basis.
The following table approximates amount of the maturities of long-term debt maturing in future years as of
December 31, 2013 of our continuing operations (excludes debt discount of $223,000) (in thousands):
Year ending December 31:
2014
2015
2016
Total
$
$
2,962
3,819
7,690
14,471
Debt related to assets held for sale totals $35,000 at December 31, 2013, and is due in 2014.
NOTE 9
ACCRUED EXPENSES
Accrued expenses at December 31 include the following (in thousands):
Salaries and employee benefits
Accrued sales, property and other tax
Interest payable
Insurance payable
Other
Total accrued expenses
$
$
2013
3,473
370
27
726
337
4,933
2012
4,430
793
29
978
442
6,672
$
$
The Company has an individual Management Incentive Plan (“MIP”) for each of our CEO, CFO, and COO
which awards cash compensation based on achievement of certain performance targets for fiscal year 2013.
No compensation was accrued for in 2013 under each MIP as none of the performance targets were met.
No cash compensation was paid to the President of SEC under his MIP upon his voluntary termination and
retirement from the Company effective May 24, 2013 (See Note 15 – “Related Party Transactions –
Christopher Leichtweis” for further information regarding his voluntary termination and retirement). In
addition, no performance incentive payments were made under each of the 2012 MIP plans in 2012.
NOTE 10
ACCRUED CLOSURE COSTS AND ASSET RETIREMENT OBLIGATIONS (“ARO”)
Accrued closure costs represent our estimated environmental liability to clean up our fixed-based regulated
facilities as required by our permits, in the event of closure. 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 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. AROs are included within buildings as part of property and equipment and are
depreciated over the estimated useful life of the property. In periods subsequent to initial measurement of
the ARO, the ARO is adjusted at the end of each period to reflect the passage of time (as accretion expense)
and changes in the estimated future cash flows underlying the obligations (capitalized to the associated
ARO and depreciated in accordance with the Company’s deprecation policy).
73
Changes to reported closure liabilities for the years ended December 31, 2013 and 2012, were as follows:
Amounts in thousands
Balance as of December 31, 2011
Accretion expense
Payments
Adjustment to closure liability
Balance as of December 31, 2012
Accretion expense
Adjustment to closure liability
Balance as of December 31, 2013
$
$
11,937
185
(773)
―
11,349
272
(6,399)
5,222
The adjustment in 2013 was made principally to record the obligation using appropriate discount rates. The
obligations were previously based on undiscounted values. The associated assets were also adjusted to
reflect this change. The net impact of the adjustment to pre-tax loss from operations was approximately
($448,000) in 2013. The decrease in closure accrual in 2012 included approximately $773,000 of costs
incurred in connection with the closure of a processing unit at our PFNWR facility.
The reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the
Consolidated Balance Sheet for the years ended December 31, 2013 and 2012 as follows:
Amounts in thousands
Balance as of December 31, 2011
Adjustment to closure and post-closure asset
Amortization of closure and post-closure asset
Balance as of December 31, 2012
Adjustment to closure and post-closure asset
Amortization of closure and post-closure asset
Balance as of December 31, 2013
$
$
9,370
―
(290)
9,080
(5,830)
(289)
2,961
The adjustment to the ARO for 2013 was due to the adjustment made to our closure accrual as discussed
above.
NOTE 11
INCOME TAXES
The components of current and deferred federal and state income tax (benefit) expense for continuing
operations for the years ended December 31, consisted of the following (in thousands):
Federal income tax benefit - current
Federal income tax (benefit) expense - deferred
State income tax expense - current
State income tax expense (benefit) - deferred
Total income tax benefit
2013
(144)
(1,989)
158
1,350
(625)
$
$
2012
(2,107)
11
191
(246)
(2,151)
$
$
We had temporary differences and net operating loss carry forwards from both our continuing and
discontinued operations, which gave rise to deferred tax assets and liabilities at December 31, as follows (in
thousands):
74
Deferred tax assets:
Net operating losses
Environmental and closure reserves
Impairment of assets
Investment
Other
Deferred tax liabilities:
Depreciation and amortization
Goodwill and indefinite lived intangible assets
Prepaid expenses
Valuation allowance
Net deferred income tax liabilities
$
2013
6,001
2,387
―
(50)
3,626
(3,762)
(1,012)
(20)
7,170
(8,182)
(1,012)
$
2012
4,612
4,740
505
(59)
3,798
(6,973)
(902)
(16)
5,705
(5,729)
(24)
An overall reconciliation between the expected tax benefit using the federal statutory rate of 34% and the
benefit for income taxes from continuing operations as reported in the accompanying consolidated statement
of operations is provided below (in thousands).
Tax benefit at statutory rate
State tax benefit, net of federal benefit
Permanent items
Non-deductible Goodwill
Other
Reserve for uncertain tax positions
Increase (decrease) in valuation allowance
Income tax benefit
2013
(11,880)
(102)
166
9,471
125
180
1,415
(625)
$
$
$
$
2012
(1,847)
(131)
110
―
(100)
―
(183)
(2,151)
The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. Deferred
income tax assets and liabilities are recognized for future tax consequences attributed to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled.
Any effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future
taxable income. The Company considers projected future taxable income and ongoing tax planning
strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes
to an amount that is more likely than not to be realized. In 2013 and 2012, we determined that it was more
likely than not that approximately $8,182,000 and $5,729,000, respectively, of deferred income tax assets
would not be realized, and as such, a full valuation allowance was applied against those deferred income tax
assets. Our valuation allowance increased by $1,415,000 and decreased by approximately $183,000 for the
years ended December 31, 2013 and 2012, respectively.
We have estimated net operating loss carryforwards (NOLs) for federal and state income tax purposes of
approximately $9,715,000 and $53,035,000, respectively, as of December 31, 2013. These net operating
losses can be carried forward and applied against future taxable income, if any, and expire in various
amounts starting in 2021. However, as a result of various stock offerings and certain acquisitions, which in
the aggregate constitute a change in control, the use of these NOLs will be limited under the provisions of
Section 382 of the Internal Revenue Code of 1986, as amended. Additionally, NOLs may be further limited
under the provisions of Treasury Regulation 1.1502-21 regarding Separate Return Limitation Years.
75
The Company accounts for uncertainties in income taxes pursuant to ASC 740 (formerly FASB
interpretation No. 48, “Accounting for Uncertainties in Income Taxes – an Interpretation of FASB
Statement No, 109”) (“FIN 48”). A reconciliation of the beginning and ending amount of our unrecognized
tax expense is summarized as follows (in thousands):
Balances at beginning of year
Addition related to prior year tax position
Balances at end of the year
2013
2012
$
$
― $
180
180
$
―
―
―
Included in the unrecognized tax expense is approximately $26,000 in interest and penalties.
NOTE 12
COMMITMENTS AND CONTINGENCIES
Hazardous Waste
In connection with our waste management services, we handle both hazardous and non-hazardous waste,
which we transport to our own, or other, facilities for destruction or disposal. As a result of disposing of
hazardous substances, in the event any cleanup is required, we could be a potentially responsible party for
the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, we are involved in various litigations. We are not a party
to any litigation or governmental proceeding which our management believes could result in any judgments
or fines against us that would have a material adverse affect on our financial position, liquidity or results of
future operations.
Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with American
International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our
permitted facilities in the event of unforeseen closure. The policy, as amended, provides for a maximum
allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other
performance and surety bond requirements. We have made all of the required payments totaling
$18,305,000, for this finite risk insurance policy, as amended, of which $14,472,000 has been deposited into
a sinking fund account which represents a restricted cash account; $2,883,000 represented full/terrorism
premium; and $950,000 represented fee payable to AIG. As of December 31, 2013, our financial assurance
coverage amount under this policy totaled approximately $38,161,000. We have recorded $15,409,000 in
our sinking fund related to the policy noted above in other long term assets on the accompanying balance
sheets, which includes interest earned of $938,000 on the sinking fund as of December 31, 2013. Interest
income for twelve months ended December 31, 2013, was approximately $27,000. On the fourth and
subsequent anniversaries of the contract inception, we may elect to terminate this contract. If we so elect,
AIG is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for
complete releases of liability from both us and any applicable regulatory agency using this policy as an
instrument to comply with financial assurance requirements.
In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility with AIG.
The policy provided an initial $7,800,000 of financial assurance coverage with an annual growth rate of
1.5%, which at the end of the four year term policy, provides maximum coverage of $8,200,000. We have
made all of the required payments on this policy, totaling $7,158,000, of which $5,700,000 has been
deposited into a sinking fund account and $1,458,000 represented premium. As of December 31, 2013, we
have recorded $5,898,000 in our sinking fund related to this policy in other long term assets on the
accompanying balance sheets, which includes interest earned of $198,000 on the sinking fund as of
December 31, 2013. Interest income for the twelve months ended December 31, 2013 totaled
approximately $8,000. This policy is renewed annually at the end of the four year term with a nominal fee
for the variance between the policy and coverage requirement. We have renewed this policy annually from
2011 to 2013 with an annual fee of $46,000. All other terms of the policy remain substantially unchanged.
76
Operating Leases
We lease certain facilities and equipment under operating leases. The following table lists future minimum
rental payments as of December 31, 2013 under these leases for our continuing operations (in thousands):
Year ending December 31:
2014
2015
2016
2017
2018
beyond 2018
Total
$
809
728
590
529
174
―
2,830
$
We have no future minimum rental payment requirement for our discontinued operations as of December
31, 2013.
Total rent expense was $1,381,000, and $1,569,000, for 2013 and 2012, respectively for our continuing
operations. These amounts included payments on non-cancelable operating leases of approximately
$913,000 and $972,000 for 2013 and 2012, respectively. The remaining rent expense was for non-
contractual monthly and daily rentals of specific use vehicles, machinery and equipment.
Total rent expense was $27,000 and $42,000 for 2013 and 2012, respectively for our discontinued
operations. These amounts included payments on non-cancelable operating leases of approximately $0, and
$5,000, respectively. The remaining rent expense was for non-contractual monthly and daily rentals of
specific use vehicles, machinery and equipment.
NOTE 13
PROFIT SHARING PLAN
We adopted a 401(k) Plan in 1992, which is intended to comply with Section 401 of the Internal Revenue
Code and the provisions of the Employee Retirement Income Security Act of 1974. All full-time employees
who have attained the age of 18 are eligible to participate in the 401(k) Plan. Eligibility is immediate upon
employment but enrollment is only allowed during four quarterly open periods of January 1, April 1, July 1,
and October 1. Participating employees may make annual pretax contributions to their accounts up to 100%
of their compensation, up to a maximum amount as limited by law. We, at our discretion, may make
matching contributions of 25% based on the employee’s elective contributions. Our contributions vest over
a period of five years. We contributed $0 and $348,000, in matching funds during 2013 and 2012,
respectively. Effective June 15, 2012, we suspended our matching contribution in an effort to reduce costs
in light of the recent economic environment. We will evaluate the reversal of this suspension as the
economic environment improves.
NOTE 14
BUSINESS ACQUISITION (SETTLEMENT AND RELEASE AGREEMENT)
On February 12, 2013, the Company entered into a Settlement and Release Agreement (“Settlement
Agreement”) with Timios National Corporation (“TNC” – formerly known as Homeland Security Capital
Corporation) (the Company and TNC are collectively known as the “Parties”), in connection with the
settlement of certain claims the Company made against TNC, subsequent to the acquisition of Safety and
Ecology Holdings Corporation (“SEHC”) and its subsidiaries (collectively known as Safety and Ecology
Corporation or “SEC”) on October 31, 2011 from TNC. The Settlement Agreement resolved (collectively,
the “Subject Claims”): (a) the Disputed Claims, and (b) any other claim arising under the Stock Purchase
Agreement, dated July 15, 2011 (“Purchase Agreement”) with respect to a breach of (i) the representations
77
and warranties of the Parties contained in the Purchase Agreement, and (ii) certain covenants contained in
the Purchase Agreement. Pursuant to the Settlement Agreement, the Parties agreed as follows:
•
•
•
•
•
•
a promissory note (“October Note” - with original principal balance of $2,500,000 which was part
consideration of the acquisition), with an principal balance of approximately $1,460,000, was
cancelled, terminated and rendered null and void;
the Company issued to TNC a new, two-year, non-negotiable, unsecured promissory note in the
principal amount of approximately $230,000 (the “New Note”) in replacement of the October Note.
The New Note bears an annual interest rate of 6%, payable in 24 monthly installments of principal
and interest of approximately $10,000, with first payment due February 28, 2013;
the remaining escrow balance of $500,000 was released to TNC. $2,000,000 was deposited into an
escrow account as partial consideration of the purchase price and was established to satisfy any
claims that we may have against TNC for indemnification pursuant to the Purchase Agreement.
TNC and SEHC further agreed that if certain conditions were not met by December 31, 2011,
relating to a certain contract, then the Company could withdraw $1,500,000 from the amount
deposited into the escrow. On January 10, 2012, we received $1,500,000 from the escrow as certain
conditions were not met under this certain contract as of December 31, 2011;
the Parties terminated all of their rights and obligations to indemnification under the Purchase
Agreement, except with respect to TNC’s covenants relating to non-complete, non-solicitation of
customers and employees, confidentiality, and related remedies which will continue in full force
and effect in accordance with the terms of the Purchase Agreement (the “Continuing Covenants”);
the Parties terminated their rights and obligations with respect to (i) the representations, warranties,
and covenants contained in the Purchase Agreement, except for the Continuing Covenants; and
the Company terminated its contractual right to offset amounts owing to TNC under the Purchase
Agreement to satisfy claims against TNC.
In connection with the resolution of the Disputed Claims, we also entered into a Settlement and Release
Agreement and Amendment to Employment Agreement (“Leichtweis Settlement”) with Christopher
Leichtweis, our President of SEC, who voluntarily terminated and retired from all positions of the
Company, effective May 24, 2013 (see discussion under Note 15 – “Related Party Transactions –
Christopher Leichtweis” for a discussion of the Leichtweis Settlement and his voluntary termination and
retirement).
NOTE 15
RELATED PARTY TRANSACTIONS
Mr. Robert Schreiber, Jr.
During March 2011, we entered into a lease with Lawrence Properties LLC, a company jointly owned by
Robert Schreiber, Jr., the President of Schreiber, Yonley and Associates, and Mr. Schreiber’s spouse. Mr.
Schreiber is a member of our executive management team. The lease is for a term of five years starting
June 1, 2011. Under the lease, we pay monthly rent of approximately $11,400, which we believe is lower
than costs charged by unrelated third party landlords. Additional rent will be assessed for any increases
over the new lease commencement year for property taxes or assessments and property and casualty
insurance premiums.
Mr. David Centofanti
Mr. David Centofanti serves as our Director of Information Services. For such services, he received total
compensation in 2013 of approximately $163,000. Mr. David Centofanti is the son of our Chief Executive
Officer and Chairman of our Board, Dr. Louis F. Centofanti. We believe the compensation received by Mr.
Centofanti for his technical expertise which he provides to the Company is competitive and comparable to
compensation we would have to pay to an unaffiliated third party with the same technical expertise.
78
Christopher Leichtweis
The Company is obligated to make lease payments of approximately $29,000 per month through June 2018,
pursuant to a Lease Agreement, dated June 1, 2008 (the “Lease”), between Leichtweis Enterprises, LLC, as
lessor, and Safety and Ecology Holdings Corporation (“SEHC”), as lessee. Leichtweis Enterprises, LLC, is
owned by Mr. Christopher Leichtweis (“Leichtweis”), who was a Senior Vice President of the Company
and President of SEC, prior to his voluntary termination and retirement from the Company effective May
24, 2013. The Lease covers SEC’s principal offices in Knoxville, Tennessee.
Under an agreement of indemnity (“Indemnification Agreement”), SEC, Leichtweis and his spouse
(“Leichtweis Parties”), jointly and severally, agreed to indemnify the individual surety with respect to
contingent liabilities that may be incurred by the individual surety under certain of SEC’s bonded projects.
In addition, SEC agreed to indemnify Leichtweis Parties against judgments, penalties, fines, and expense
associated with those SEC performance bonds that Leichtweis Parties have agreed to indemnify in the event
SEC cannot perform, which has an aggregate bonded amount of approximately $10,900,000 (which has
been released/expired). The Indemnification Agreement provided by SEC to the Leichtweis Parties also
provides for compensating the Leichtweis Parties at a rate of 0.75% of the value of bonds (60% having been
paid previously and the balance at substantial completion of the contract). On February 14, 2013, the
Company entered into a Settlement and Release Agreement and Amendment to Employment Agreement
(the “Leichtweis Settlement”), in final settlement of certain claims made by us against Leichtweis in
connection with the certain claims asserted by the Company against TNC subsequent to our acquisition of
SEC on October 31, 2011. The Leichtweis Settlement terminated our obligation to pay the Leichtweis
Parties a fee under the Indemnification Agreement.
Employment Agreements
We have an employment agreement with each of Dr. Centofanti (our President and Chief Executive Officer
or “CEO”), Ben Naccarato (our Chief Financial Officer or “CFO”), and James Blankenhorn (our Chief
Operating Officer or “COO”). Each employment agreement provides for annual base salaries, bonuses, and
other benefits commonly found in such agreements. In addition, each employment agreement provides that
in the event of termination of such officer without cause or termination by the officer for good reason (as
such terms are defined in the employment agreement), the terminated officer shall receive payments of an
amount equal to benefits that have accrued as of the termination but not yet paid, plus an amount equal to
one year’s base salary at the time of termination. In addition, the employment agreements provide that in
the event of a change in control (as defined in the employment agreements), all outstanding stock options to
purchase our Common Stock granted to, and held by, the officer covered by the employment agreement to
be immediately vested and exercisable. See “Note 18 – Subsequent Events – Resignation of Chief
Operating Officer” for information regarding resignation of COO in March 2014 and the termination of his
employment agreement.
The Company also had an employment agreement with Christopher Leichtweis (the “Leichtweis
Employment Agreement”), containing substantially the terms described above with respect to the
employment agreements of Messrs. Centofanti, Naccarato and Blankenhorn. On May 14, 2013, the
Company entered into a Separation and Release Agreement (“Agreement”) with Mr. Leichtweis, which
terminated Mr. Leichtweis’ employment with the Company and his position as an officer of the Company
effective May 24, 2013, and voided the Leichtweis Employment Agreement (except for the “Confidentiality
of Trade Secrets and Business Information (“Section 7”) clause). Leichtweis’ termination was not “for
cause” by the Company nor “for good reason” by Mr. Leichtweis (as defined in the Leichtweis Employment
Agreement). Mr. Leichtweis was paid only his accrued salary, vacation and any benefits under the
employee’s benefit plan, upon his separation date of May 24, 2013. In connection with the Agreement, the
Company also entered into a Consulting Services Agreement (“Consulting Agreement”) with Leichtweis,
dated May 24, 2013 and terminating on July 23, 2014, unless sooner terminated by either party with prior
30 days’ written notice. The Consulting Agreement provides for compensation at an hourly rate of $135 and
reasonable travel and other expenses. Pursuant to the Consulting Agreement, Leichtweis will be subject to a
fourteen months confidentiality and non-compete agreement (as defined) from date of execution of the
Consulting Agreement. On June 1, 2013, Leichtweis provided the Company with written notice of
termination of the Consulting Agreement.
79
NOTE 16
SEGMENT REPORTING
In accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
• from which we may earn revenue and incur expenses;
• whose operating results are regularly reviewed by the Chief Operating Officer (our Chief
Operating Decision Maker) to make decisions about resources to be allocated to the segment
and assess its performance; and
• for which discrete financial information is available.
We currently have two reporting segments, Treatment and Services Segments, which are based on a service
offering approach. This, however, excludes corporate headquarters, which does not generate revenue, and
our discontinued operations, which includes all facilities as discussed in “Note 7 – Discontinued Operations
and Divestitures.”
The table below shows certain financial information of our reporting segments for 2013 and 2012 (in
thousands).
Segment Reporting as of and for the year ended December 31, 2013
Segments
Total
Treatment
Services
Corporate
And Other
Consolidated
Total
(2)
Revenue from external customers
Intercompany revenues
Gross profit
Interest income
Interest expense
Interest expense-financing fees
Depreciation and amortization
Segment loss
Segment assets(1)
Expenditures for segment assets
Total debt
$ 35,540
1,179
5,574
42
$ 38,873
77
4,242
(3)
3,045
(8,198) (6)
49,978
477
106
990
(20,042) (6)
11,951
466
$ 74,413 (3)
1,256
9,816
$ —
39
4,035
(28,240)
61,929
943
106
35
723
132
91
(6,231)
29,671
1
14,142
(4)
(5)
$ 74,413
9,816
35
762
132
4,126
(34,471)
91,600
944
14,248
Segment Reporting as of and for the year ended December 31, 2012
Segments
Total
Treatment
Services
Corporate
And Other
Consolidated
Total
(2)
Revenue from external customers
Intercompany revenues
Gross profit
Interest income
Interest expense
Interest expense-financing fees
Depreciation and amortization
Segment profit (loss)
Segment assets(1)
Expenditures for segment assets
Total debt
$ 45,882
1,785
9,268
$ 81,627
845
6,536
$ 127,509 (3)
2,630
15,804
$ —
9
12
21
4,448
2,951
75,405
263
85
949
1,474
36,120
145
5
5,397
4,425
111,525
408
90
41
797
107
73
(7,574)
28,166
4
14,106
(4)
$ 127,509
15,804
41
818
107
5,470
(3,149)
139,691
412
14,196
(1) Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
(2) Amounts reflect the activity for corporate headquarters, not included in the segment information.
(3) The consolidated revenues included the CH Plateau Remediation Company (“CHPRC”) revenue of $19,922,000 or 26.8%
and $24,652,000 or 19.3%, for 2013 and 2012, respectively, of our total consolidated revenue from continuing operations.
80
(4) Amount includes assets from our discontinued operations of $4,481,000 and $2,113,000, as of December 31, 2013 and
2012, respectively.
(5) Net of debt discount of ($223,000) based on the estimated fair value at issuance of two Warrants and 90,000 shares of the
Company’s Common Stock issued on August 2, 2013 in connection with a $3,000,000 promissory note entered into by the
Company and Messrs. William Lampson and Robert L. Ferguson. See Note 8 – “Long-Term Debt – Promissory Note and
Installment Agreement” for additional information.”
Includes goodwill impairment charge of $13,691,000 for the Treatment Segment and $14,165,000 for the Services
(6)
Segment.
NOTE 17
QUARTERLY OPERATING RESULTS (UNAUDITED)
Unaudited quarterly operating results are summarized as follows (in thousands, except per share data). Net
income attributable to non-controlling interests are excluded from (loss) income from continuing operations
in the below earning (loss) per share calculation in accordance with ASC 260, “Earnings Per Share:”
2013
Net revenues
Gross profit
Loss from continuing operations
(Loss) income from discontinued operations, net of taxes
Net loss
Net loss attributable to noncontrolling interest
Net loss attributable to Perma-Fix Environmental
Services, Inc. common stockholders
Basic and diluted net loss per common share attributable to
Perma-Fix Environmental Services, Inc. stockholders:
Continuing operations
Discontinued operations
Net loss per common share
2012
Net revenues
Gross profit
Loss from continuing operations
(Loss) income from discontinued operations, net of taxes
Net loss
Net income attributable to noncontrolling interest
Net loss attributable to Perma-Fix Environmental
Services, Inc. common stockholders
Basic and diluted net (loss) income per common share attributable to
Perma-Fix Environmental Services, Inc. stockholders:
Continuing operations
Discontinued operations
Net loss per common share
March 31
June 30
Sept 30
Dec. 31
$
19,829
537
(2,888)
(27)
(2,915)
(3)
$
22,784
4,023
(980)
43
(937)
(61)
$
19,072
3,129
(568)
(240)
(808)
—
12,728
2,127
(30,035)
(1,344)
(31,379)
—
(2,912)
$
(876)
$
(808)
$
(31,379)
$
$
$
(.26)
—
(.26)
March 31
37,936
4,369
(807)
(138)
(945)
56
$
$
$
(.08)
—
(.08)
June 30
33,698
3,930
(1,009)
(60)
(1,069)
102
$
$
$
(.05)
(.02)
(.07)
Sept 30
29,190
4,226
(472)
(61)
(533)
21
(2.63)
(.12)
(2.75)
Dec. 31
26,684
3,279
(861)
229
(632)
1
(1,001)
$
(1,171)
$
(554)
$
(633)
(.08)
(.01)
(.09)
$
$
(.10)
—
(.10)
$
$
(.04)
(.01)
(.05)
$
$
(.08)
.02
(.06)
$
$
$
$
$
$
$
$
Net loss for the second and fourth quarters of 2013 included goodwill impairment charges of $1,149,000 and $26,707,000,
respectively, recorded within our continuing operations (See “Note 3 - Goodwill and Other Intangible Assets” for further
information). Net loss for the fourth quarters of 2013 included a charge of approximately $4,760,000 to tax expense ($3,596,000
within continuing operations and $1,164,000 within discontinued operations) to provide a full valuation allowance on the Company’s
net deferred tax assets.
81
The sum of the quarterly earnings per common share amounts may not equal the annual amount reported
because per share amounts are computed independently for each quarter and for the full year based on
respective weighted-average common shares outstanding and other dilutive potential common shares.
NOTE 18
SUBSEQUENT EVENTS
Waivers and Revisions from PNC Bank, National Association
On April 14, 2014, the Company entered into an Amendment to the Company’s Amended Loan Agreement
with PNC Bank, our lender under the credit facility. Pursuant to the Amendment, our lender waived and/or
amended the following:
•
the Company’s failure to meet the minimum quarterly fixed charge coverage ratio requirement for the
fourth quarter of 2013 (see “Note 8 – Long Term Debt” for further information of this non-compliance;
the quarterly fixed charge coverage ratio testing requirement for the first quarter of 2014;
the requirement that the Company’s consolidated financial statements for the year ended December 31,
2013 be issued without a going concern qualification;
•
•
• violation, if any, for the purchase of 80% of a subsidiary in Poland (“CEE Opportunity Partners Poland
S.A on April 4, 2014) and the formation of Perma-Fix Medical Corporation (“PFMedical” which was
incorporated on January 21, 2014), neither of which shall be a credit party under our Amended Loan
Agreement;
revised the methodology to be used in calculating the fixed charge coverage ratio in each of the
subsequent quarters of 2014 and changed the minimum quarterly fixed charge coverage ratio
requirement of 1:25 to 1:00 to 1:15 to 1:00 for each of the subsequent quarters of 2014; and
reduced our Revolving Credit facility from $18,000,000 to $12,000,000.
•
•
As a condition of this Amendment, we agreed to pay PNC a fee of $30,000.
Based on these revisions above, we expect to meet our quarterly fixed charge coverage ratio requirement in
each of the second to fourth quarters of 2014. If we fail to meet the minimum quarterly fixed charge
coverage ratio requirement in any of the quarters starting with the second quarter in 2014 and PNC does not
waive the non-compliance or further revise our covenant so that we are in compliance, our lender could
accelerate the repayment of borrowings under our credit facility. In the event that our lender accelerates the
payment of our borrowings, we may not have sufficient liquidity to repay our debt under our credit facility
and other indebtedness.
Resignation of Chief Operating Officer
On April 3, 2014, the Company’s Board of Directors approved the appointment by the Company on March
20, 2014 of Mr. John Lash as the Chief Operating Officer (“COO”), upon the Company’s acceptance of Mr.
James A. Blankenhorn’s resignation on March 20, 2014 as the COO. Mr. Blakenhorn’s resignation was
effective March 28, 2014. Mr. Blankenhorn’s resignation was not due to a disagreement with the Company.
Upon Mr. Blankenhorn’s resignation, his employment agreement also terminated. Mr. Lash previously
served as Senior Vice President of Operations of the Company’s Treatment Segment for over ten years and
has been employed by the Company since 2001 in various management positions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure, controls, and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our periodic reports filed with the Securities and Exchange
Commission (the “Commission”) is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Commission and that such information is
accumulated and communicated to our management, including the Chief Executive Officer
82
(“CEO”) (Principal Executive Officer), and Chief Financial Officer (“CFO”) (Principal
Financial Officer), as appropriate to allow timely decisions regarding the required disclosure.
In designing and assessing our disclosure controls and procedures, our management
recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their stated control objectives and are subject
to certain limitations, including the exercise of judgment by individuals, the difficulty in
identifying unlikely future events, and the difficulty in eliminating misconduct completely.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of
our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities
Exchange Act of 1934, as amended. Based upon this assessment, our CEO and CFO have
concluded that our disclosure controls and procedures were effective as of December 31,
2013.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Rules 13a-15(f) of the Securities Exchange
Act of 1934. Internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles
in the United States of America. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements or fraudulent acts. A control
system, no matter how well designed, can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit the preparation of the consolidated
financial statements in accordance with generally accepted accounting principles in the United
States of America, and that receipts and expenditures of the Company are being made only in
accordance with appropriate authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements or fraudulent acts. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation of our CEO and CFO, conducted an assessment of the
effectiveness of internal control over financial reporting based on the framework in Internal
Control – Integrated Framework (1992)
the Committee of Sponsoring
Based on this assessment,
Organizations of the Treadway Commission (COSO).
management, with the participation of our CEO and CFO, concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2013.
issued by
public
This annual report does not include an attestation report of the Company's independent
registered
financial
reporting. Management's report was not subject to attestation by the Company's independent
registered public accounting firm pursuant to the rules of the Commission that permit the
Company to provide only the management's report in this annual report.
accounting
regarding
internal
control
over
firm
Changes in Internal Control over Financial Reporting
There was one change in our internal controls over financial reporting (as defined in Rule 13a-
15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended
83
December 31, 2013, that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting:
Management has implemented an increase in the level of review and validation of the
Company’s accounting for its deferred tax accounting in preparation of the Company’s
provision for income taxes.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS
The following table sets forth, as of the date hereof, information concerning our Directors:
NAME
Dr. Louis F. Centofanti
Mr. Jack Lahav
Honorable Joe R. Reeder
Mr. Larry M. Shelton
Dr. Charles E. Young
Mr. Mark A. Zwecker
Dr. Gary Kugler
John M. Climaco (1)
AGE POSITION
70 Chairman of the Board, President and Chief Executive Officer
65 Director
66 Director
60 Director
82 Director
63 Director
73 Director
45 Director
Each director is elected to serve until the next annual meeting of stockholders.
(1) Mr. Climaco was elected as a director on October 4, 2013, to fill a newly created directorship.
Director Information
Dr. Louis F. Centofanti
Dr. Centofanti has served as Board Chairman since joining the Company in February 1991. Dr. Centofanti
also served as Company President and Chief Executive Officer (February 1991 to September 1995) and
again in March 1996 was elected Company President and Chief Executive Officer. From 1985 until joining
the Company, Dr. Centofanti served as Senior Vice President of USPCI, Inc., a large hazardous waste
management company, where he was responsible for managing the treatment, reclamation and technical
groups within USPCI. In 1981 he founded PPM, Inc. (later sold to USPCI), a hazardous waste management
company specializing in treating PCB contaminated oils. From 1978 to 1981, Dr. Centofanti served as
Regional Administrator of the U.S. Department of Energy for the southeastern region of the United States.
Dr. Centofanti has a Ph.D. and a M.S. in Chemistry from the University of Michigan, and a B.S. in
Chemistry from Youngstown State University.
As founder of Perma-Fix, PPM, Inc., and senior executive leader at USPCI, Dr. Centofanti combines
extensive business experience in the waste management industry with a drive for innovative technology
which is critical for a waste management company. In addition, his service in the government sector
provides a solid foundation for the continuing growth of the Company, particularly within the Company’s
Nuclear business. Dr. Centofanti’s comprehensive understanding of the Company and his extensive
knowledge of its history, coupled with his drive for innovation and excellence, positions our Board
Chairman, President and Chief Executive Officer, to optimize our role in this competitive, evolving market.
84
Mr. Jack Lahav
Jack Lahav, a director since September 2001, is a private investor, specializing in launching and growing
businesses. Mr. Lahav devotes much of his time to charitable activities, serving as president as well as board
member of several charities. Previously, Mr. Lahav founded Remarkable Products Inc. and served as its
president from 1980 to 1993. Mr. Lahav co-founded Lamar Signal Processing, Inc., a digital signal
processing company, was president of Advanced Technologies, Inc., a robotics company, and director of
Vocaltec Communications, Ltd., a publicly-traded telecom equipment provider. From 2001 to 2004, Mr.
Lahav served as Chairman of Quigo Technologies, Inc., a private search-engine marketing company
acquired by AOL in December 2007. Mr. Lahav currently serves as Chairman of Phoenix Audio
Technologies, a private company that provides audio communication solutions for VoIP and other internet
applications.
Having launched a number of successful businesses, Mr. Lahav has established a record of success in
developing and growing a business. His “know how” enables him to provide important perspectives to the
Board relating to a variety of business challenges. His commitment to charitable organizations provides a
unique component of a well-rounded Board.
Honorable Joe R. Reeder
Mr. Reeder, a director since April 2003, served as the Shareholder-in-Charge of the Mid-Atlantic Region
(1999-2008) for Greenberg Traurig LLP, one of the nation's largest law firms, with 29 offices and over
1,800 attorneys worldwide. Currently, a principal shareholder in the law firm, his clientele includes
sovereign nations, international corporations, and law firms throughout the U.S. As the 14th Undersecretary
of the U.S. Army (1993-97), Mr. Reeder also served for three years as Chairman of the Panama Canal
Commission's Board of Directors where he oversaw a multibillion-dollar infrastructure program. He serves
on the boards of the National Defense Industry Association (NDIA) (and chairs NDIA’s Ethics Committee),
the Armed Services YMCA, and many other private companies and charitable organizations. Following
successive appointments by Governors Mark Warner and Tim Kaine, Mr. Reeder served seven years as
Chairman of two Commonwealth of Virginia military boards and served ten years on the National USO
board. Mr. Reeder is also a frequent television commentator on legal and national security issues. Among
other corporate positions, he has been a director since September 2005 for ELBIT Systems of America,
LLC, a NASDAQ company that provides product and system solutions focusing on defense, homeland
security, and commercial aviation. Mr. Reeder also serves as a board member for Washington First Bank
(since April 2004). Mr. Reeder was a member of the Corporate Advisory Board for ICX Technologies, a
publicly traded company specializing in development and integration of advanced sensor technologies for
homeland security and commercial applications, from April 2007 to July 2008. A graduate of West Point
who served in the 82nd Airborne Division following Ranger School, Mr. Reeder earned his J.D. from the
University of Texas and his L.L.M. from Georgetown University.
Mr. Reeder has a distinguished career in providing solutions to complex issues involving substantial
domestic and international concerns. He has demonstrated extensive knowledge and problem-solving
background, which skills enhance the Board’s ability to address challenging issues in the nuclear market.
Mr. Larry M. Shelton
Mr. Shelton, a director since July 2006, currently is the Chief Financial Officer (since 1999) of S K Hart
Management, LC, an investment holding company. In March 2012, he was appointed Director and Chief
Financial Officer of SK Hart Ranches (PTY) Ltd, a private South African Company involved in agriculture
business. Mr. Shelton has over 18 years of experience as financial executive officer for several waste
management companies. He was Chief Financial Officer of Envirocare of Utah, Inc. (1995–1999), and
Chief Financial Officer of USPCI, Inc. (1982–1987). Mr. Shelton has served on the Board of Directors of
Subsurface Technologies, Inc., a privately-held company specializing in providing environmentally sound
innovative solutions for water well rehabilitation and development, since July 1989, and Pony Express Land
Development, Inc., a privately-held land development company, since December 2005. Mr. Shelton has a
B.A. in accounting from the University of Oklahoma.
With his years of accounting experience as Chief Financial Officer for various companies, including a
number of waste management companies, Mr. Shelton combines extensive knowledge and understanding of
85
accounting principles, financial reporting requirements, evaluating and overseeing financial reporting
processes and business savvy.
Dr. Charles E. Young
Dr. Charles E. Young, a director since July 2003, currently serves as a director (since September 2011) of
SteriMed, Inc., a privately held company in the medical waste business. He was president of the University
of Florida from November 1999 to January 2004 and chancellor of the University of California, Los
Angeles (UCLA) for 29 years until his retirement in 1997. He also was the President of Qatar Foundation
from 2004 to November 2005. In addition, from December 2009 to June 2010, he served as the Chief
Executive Officer of the Los Angeles Museum of Contemporary Art. Dr. Young has chaired the
Association of American Universities, and served on numerous commissions, including the American
Council on Education, the National Association of State Universities and Land-Grant Colleges, and the
Business-Higher Education Forum. Dr. Young served on the Board of Directors of I-MARK, Inc., a
privately held software and professional services company from 1997 to 2012. He previously served on the
Board of Directors of Intel Corp. and Nicholas-Applegate Growth Equity Fund, Inc., as well as Fiberspace,
Inc., a privately-held company that designs and manufacturers stabilized laser products, Student Advantage,
Inc., an integrated media and commerce company, and AAFL Enterprises, a sports development company.
Dr. Young has a Ph.D. and M.A. in political science from UCLA and a B.A. from the University of
California at Riverside.
n
Having presided over two major universities with multi-billion budgets, a major educational foundation, a
world-renow ed museum, and as a board member for a publicly-held multi-billion dollar corporation, Dr.
Young brings unique perspectives and extensive experience to our Board. His savvy in the process of
policy making and long-term leadership development provides a valuable component of a well-rounded
Board.
Mr. Mark A. Zwecker
Mark Zwecker, a director since the Company's inception in January 1991, currently serves as the Chief
Financial Officer and a board member for JCI US Inc., a telecommunication company providing cellular
service for machine to machine applications. From 2006 to 2013, Mr. Zwecker served as Director of
Finance for Communications Security and Compliance Technologies, Inc., a software company developing
security products for the mobile workforce. From 1997 to 2006, Mr. Zwecker served as president of ACI
Technology, LLC, an IT services provider, and from 1986 to 1998, he served as vice president of finance
and administration for American Combustion, Inc., a combustion technology solution provider. In 1983,
with Dr. Centofanti, Mr. Zwecker co-founded a start-up, PPM, Inc., a hazardous waste management
company. He remained with PPM, Inc. until its acquisition in 1985 by USPCI. Mr. Zwecker has a B.S. in
Industrial and Systems Engineering from the Georgia Institute of Technology and an M.B.A. from Harvard
University.
As a director since our inception, Mr. Zwecker’s understanding of our business provides valuable insight to
the Board. With years of experience in operations and finance for various companies, including a number
of waste management companies, Mr. Zwecker combines extensive knowledge of accounting principles,
financial reporting rules and regulations, the ability to evaluate financial results, and understanding of
financial reporting processes. He has an extensive background in operating complex organizations. Mr.
Zwecker’s experience and background positions him well to serve as a member of our Audit Committee.
Dr. Gary G. Kugler
Dr. Gary Kugler was elected as a director at the Company’s Annual Meeting of Stockholders held on
September 12, 2013. Dr. Kugler currently serves as the Chairman of the Board of Director of Nuclear
Waste Management Organization (“NWMO”), a position he has held since 2006. NWMO was established
under the Nuclear Fuel Waste Act (2002) to investigate and implement approaches for managing Canada’s
used nuclear fuel. Dr. Kugler is also a current board member of Ontario Power Generation, Inc. (“OPG”), a
position he has held since 2004. OPG is one of Canada’s largest electricity generation companies. Dr.
Kugler has had an extensive career in the nuclear industry, both nationally and internationally. He retired
from Atomic Energy of Canada Limited (“AECL”) as Senior Vice President, Nuclear Products & Services,
in 2004, where he was responsible for all of AECL’s commercial operations, including nuclear power plant
86
sales and services world-wide. During his 34 years with AECL, he held various technical, project
management, business development, and executive positions. Prior to joining AECL, Dr. Kugler served as
a pilot in the Canadian air force. He holds a PH.D. in nuclear physics from McMaster University and is a
graduate of the Directors Education Program of the Institute of Corporate Directors.
Dr. Kugler’s extensive career in the nuclear industry, both nationally and internationally, brings valuable
insight and knowledge to the Company as it expands its business internationally.
John M. Climaco
John Climaco was elected by the Company’s Board of Directors, on October 4, 2013, to fill a newly created
directorship. From 2003 to 2012, Mr. John Climaco served as President and Chief Executive Officer, as well
as a member of the board of directors of Axial Biotech, Inc., a venture-backed molecular diagnostics
company specializing in spine disorders, which he cofounded in 2003. From 2001 to 2007, he practiced law
for the firm of Fabian and Clendenin, specializing in corporate and tax legal strategies for diverse clients
across the U.S. and Europe, as well as joint venture, corporate and securities transactions. Mr. Climaco
currently serves as a member of the Board of Directors for Digirad Corporation, a position he has held since
2012. Digirad manufactures cameras for nuclear imaging applications and provides for in-office nuclear
cardiology imaging. Mr. Climaco is also a Board member for PDI, Inc. (since October 2013), a provider of
outsourced commercial services to pharmaceutical, biotechnology, and healthcare companies. Mr. Climaco
also served as a board member of InfuSystem Holdings, Inc., a leading supplier of infusion services to
oncologists and other out-patient treatment settings. Mr. Climaco earned his B.A. in Philosophy from
Middlebury College and holds a J.D. from the University of California Hastings College of the Law.
Mr. Climaco’s extensive legal and operational experience, including strategic planning and business
development provide valuable asset to the Company’s immediate and future growth in our industry.
BOARD LEADERSHIP STRUCTURE
Dr. Louis Centofanti, the Company’s President and Chief Executive Officer, also holds the position of the
Chairman of the Board. The Company believes such structure currently promotes the best interests of our
stockholders. Dr. Centofanti’s extensive knowledge of the history of the Company, its customers, and his
background in our complex and unique nuclear business, enables him to provide guidance to our Board with
day to day and long-term strategic business recommendations and decisions which ultimately enhance
shareholder value.
Although the Company’s Amended and Restated Bylaws do not formally require the designation of an
independent Lead Director, because the positions of Chairman and Chief Executive Officer are held by the
same person, Mr. Mark Zwecker was appointed by our Board of Directors and has served as the
independent Lead Director since February 2010. The Board believes that the Lead Director enhances the
Board’s ability to fulfill its responsibilities independently in the best interests of the Company’s
stockholders. The Lead Director’s role includes:
•
•
•
•
convening and chairing meetings of the non-employee directors as necessary from time to time and
Board meetings in the absence of the Chairman of the Board;
acting as liaison between directors, committee chairs and management;
serving as information sources for directors and management; and
carrying out responsibilities as the Board may delegate from time to time.
AUDIT COMMITTEE
We have a separately designated standing Audit Committee of our Board of Directors established in
accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Mark
A. Zwecker (Chairperson), Larry M. Shelton, and John Climaco. Effective December 13, 2013, Dr. Charles
E. Young was no longer a member of the Audit Committee.
Our Board of Directors has determined that each of our Audit Committee members is independent within
the meaning of the rules of NASDAQ and was an “audit committee financial expert” as defined by Item
407(d)(5)(ii) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
87
The Audit Committee has also received from, and discussed with, BDO, the Company’s independent
registered accounting firm, the matters required to be discussed by Public Company Accounting Oversight
Board (“PCAOB”) Auditing Standard No. 16 (Communications with Audit Committee).
BOARD INDEPENDENCE
The Board has determined that each director, other than Dr. Centofanti, is “independent” within the
meaning of the applicable rules of the NASDAQ Stock Market, Inc. (“NASDAQ”) on which the Company’s
Common Stock is listed. Dr. Centofanti is not deemed to be an “independent director” because of his
employment as a senior executive of the Company. The Board considered the independence of the
Company’s use of Mr. Reeder’s law firm from time to time in considering his independence, and
determined that he should be deemed an independent director since the amount paid to Mr. Reeder’s law
firm was a nominal amount.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
We have a separately-designated standing Corporate Governance and Nominating Committee (the
“Nominating Committee”). Members of the Nominating Committee are Joe R. Reeder (Chairperson), Jack
Lahav, Dr. Gary G. Kugler and Dr. Charles E. Young. Effective December 13, 2013, Larry Shelton was no
longer a member of the Nominating Committee and Dr. Gary Kugler was added as a member of the
Nominating Committee. All members of the Corporate Governance and Nominating Committee are and
were “independent” as that term is defined by current NASDAQ listing standards.
The Nominating Committee recommends to the Board of Directors candidates to fill vacancies on the Board
and the nominees for election as the directors at each annual meeting of stockholders. In making such
recommendation, the Nominating Committee takes into account information provided to them from the
candidate, as well as the Nominating Committee’s own knowledge and information obtained through
inquiries to third parties to the extent the Nominating Committee deems appropriate. The Company’s
Amended and Restated Bylaws sets forth certain minimum director qualifications to qualify for nomination
for elections as a Director. To qualify for nomination or election as a director, an individual must:
• be an individual at least 21 years of age who is not under legal disability;
• have the ability to be present, in person, at all regular and special meetings of the Board of
Directors;
• not serve on the boards of more than three other publicly held companies;
•
satisfy the director qualification requirements of all environmental and nuclear commissions, boards
or similar regulatory or law enforcement authorities to which the Corporation is subject so as not to
cause the Corporation to fail to satisfy any of the licensing requirements imposed by any such
authority;
• not be affiliated with, employed by or a representative of, or have or acquire a material personal
involvement with, or material financial interest in, any “Business Competitor” (as defined);
• not have been convicted of a felony or of any misdemeanor involving moral turpitude; and
• have been nominated for election to the Board of Directors in accordance with the terms of the
Amended and Restated Bylaws.
In addition to the minimum director qualifications as mentioned above, each candidate’s qualifications are
also reviewed to include:
•
•
•
standards of integrity, personal ethics and value, commitment, and independence of thought and
judgment;
ability to represent the interests of the Company’s stockholders;
ability to dedicate sufficient time, energy and attention to fulfill the requirements of the position;
and
• diversity of skills and experience with respect to accounting and finance, management and
leadership, business acumen, vision and strategy, charitable causes, business operations, and
industry knowledge.
88
The Nominating Committee does not assign specific weight to any particular criteria and no particular
criterion is necessarily applicable to all prospective nominees. The Nominating Committee does not have a
formal policy for the consideration of diversity in identifying nominees for directors. However, the
Company believes that the backgrounds and qualifications of the directors, considered as a group, should
provide a significant composite mix of experience, knowledge, and abilities that will allow the Board to
fulfill its responsibilities.
Stockholder Nominees
The Nominating Committee will consider properly submitted stockholder nominations for candidates for
membership on the Board of Directors from stockholders who meet each of the requirements set forth in the
Amended and Restated Bylaws, including, but not limited to, the requirements that any such stockholder
own at least 1% of the Company's shares of the Common Stock entitled to vote at the meeting on such
election, has held such shares continuously for at least one full year, and continuously holds such shares
through and including the time of the annual or special meeting. Nominations of persons for election to the
Board of Directors may be made at any Annual Meeting of Stockholders, or at any Special Meeting of
Stockholders called for the purpose of electing directors. Any stockholder nomination (“Proposed
Nominee”) must comply with the requirements of the Company’s Amended and Restated Bylaws and the
Proposed Nominee must meet the minimum qualification requirements as discussed above. For a
nomination to be made by a stockholder, such stockholder must provide advance written notice to the
Corporate Governance and Nominating Committee, delivered to the Company's principal executive office
address (i) in the case of an Annual Meeting of Stockholders, no later than the 90th day nor earlier than the
120th day prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; and
(ii) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later
than the 10th day following the day on which public disclosure of the date of the Special Meeting of
Stockholders was made.
The Nominating Committee will evaluate the qualification of the Proposed Nominee and the Proposed
Nominee’s disclosure and compliance requirements in accordance with the Company's Amended and
Restated Bylaws. If the Board of Directors, upon the recommendation of the Nominating Committee,
determines that a nomination was not made in accordance with the Amended and Restated Bylaws, the
Chairman of the Meeting shall declare the nomination defective and it will be disregarded.
RESEARCH AND DEVELOPMENT COMMITTEE
Effective December 13, 2013, we re-established the separately-designated standing Research and
Development Committee (the “R&D Committee”). Members of the R&D Committee include Dr. Gary G.
Kugler and Dr. Louis Centofanti.
The R&D Committee outlines the structures and functions of the Company’s research and development
strategies, the acquisition and protection of the Company’s intellectual property rights and assets, and
provides its perspective on such matter to the Board of Directors. The R&D Committee does not have a
charter.
The R&D Committee was disbanded effective September 13, 2012, upon Mr. Ferguson’s election not to
stand for re-election at the Company’s 2012 Annual Meeting of Stockholders held on September 13, 2012.
However, Dr. Louis Centofanti, Board Chairman and Chief Executive Officer, led a R&D management
team in carrying out our R&D functions as noted above during the disbandment period.
STRATEGIC ADVISORY COMMITTEE
On December 13, 2013, the Company Board of Directors formed a new Strategic Advisory Committee
(“Strategic Committee”). The primary functions of the Strategic Committee are to investigate and
evaluate strategic alternatives available to the Company and to work with management on long-
range strategic planning and identifying potential new business opportunities. The members of the
Strategic Advisory Committee are John M. Climaco (Chairperson), Joe R. Reeder, Mark A. Zwecker, and
Larry M. Shelton. The Strategic Advisory Committee does not have a charter.
89
EXECUTIVE OFFICERS
See Item 4A – “Executive Officers of the Registrant” in Part I of this report for information concerning our
executive officers, as of the date hereof.
There are no family relationships between any of the directors or executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, and the regulations promulgated thereunder require our executive
officers and directors and beneficial owners of more than 10% of our Common Stock to file reports of
ownership and changes of ownership of our Common Stock with the Securities and Exchange Commission,
and to furnish us with copies of all such reports. Based solely on a review of the copies of such reports
furnished to us and written information provided to us, we believe that during 2013 none of our executive
officers, directors, or beneficial owners of more than 10% of our Common Stock failed to timely file reports
under Section 16(a).
Capital Bank–Grawe Gruppe AG (“Capital Bank”) has advised us that it is a banking institution regulated
by the banking regulations of Austria, which holds shares of our Common Stock as agent on behalf of
numerous investors. Capital Bank has represented that all of its investors are accredited investors under
Rule 501 of Regulation D promulgated under the Act. In addition, Capital Bank has advised us that none of
its investors, individually or as a group, beneficially own more than 4.9% of our Common Stock. Capital
Bank has further informed us that its clients (and not Capital Bank) maintain full voting and dispositive
power over such shares. Consequently, Capital Bank has advised us that it believes it is not the beneficial
owner, as such term is defined in Rule 13d-3 of the Exchange Act, of the shares of our Common Stock
registered in the name of Capital Bank because it has neither voting nor investment power, as such terms are
defined in Rule 13d-3, over such shares. Capital Bank has informed us that it does not believe that it is
required (a) to file, and has not filed, reports under Section 16(a) of the Exchange Act or (b) to file either
Schedule 13D or Schedule 13G in connection with the shares of our Common Stock registered in the name
of Capital Bank.
If the representations of, or information provided by Capital Bank are incorrect or Capital Bank was
historically acting on behalf of its investors as a group, rather than on behalf of each investor independent of
other investors, then Capital Bank and/or the investor group would have become a beneficial owner of more
than 10% of our Common Stock on February 9, 1996, as a result of the acquisition of 1,100 shares of our
Preferred Stock that were convertible into a maximum of 256,560 shares (after giving effect to the reverse
stock split) of our Common Stock. If either Capital Bank or a group of Capital Bank’s investors became a
beneficial owner of more than 10% of our Common Stock on February 9, 1996, or at any time thereafter,
and thereby required to file reports under Section 16(a) of the Exchange Act, then Capital Bank has failed to
file a Form 3 or any Forms 4 or 5 since February 9, 1996. (See “Item 12 - Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matter – Security Ownership of Certain
Beneficial Owners” for a discussion of Capital Bank’s current record ownership of our securities).
Code of Ethics
Our Code of Ethics applies to all our executive officers and is available on our website at www.perma-
fix.com. If any amendments are made to the Code of Ethics or any grants of waivers are made to any
provision of the Code of Ethics to any of our executive officers, we will promptly disclose the amendment
or waiver and nature of such amendment or waiver on our website.
ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Our long-term success depends on our ability to efficiently operate our facilities, increase the profitability of
our business, evaluate strategic acquisitions, and to continue to research and develop innovative
technologies in the treatment of nuclear waste, mixed waste, and industrial waste. To achieve these goals, it
is important that we be able to attract, motivate, and retain highly talented individuals who are committed to
our values and goals.
90
The Compensation and Stock Option Committee (for purposes of this analysis, the “Compensation
Committee”) of the Board has responsibility for establishing, implementing and continually monitoring
adherence with our compensation philosophy. The Compensation Committee ensures that the total
compensation paid to Dr. Louis F. Centofanti, our Chief Executive Officer or “CEO,” Ben Naccarato, our
Chief Financial Officer or “CFO,” Jim Blankenhorn, our Chief Operating Officer or “COO,” Robert
Schreiber, President of SYA or “SYA President,” and Christopher Leichtweis, Senior Vice President and
President of Safety and Ecology Corporation (“SEC”) or “SEC President” (who voluntarily terminated and
retired from all positions with the Company and its subsidiaries effective May 24, 2013) (together, our
named executive officers or “NEOs”) is fair, reasonable and competitive. Generally, the types of
compensation and benefits provided to the NEOs are similar to those provided to other executive officers at
similar sized companies and industries. On March 20, 2014, the Company accepted the resignation of Mr.
James A. Blankenhorn, as Vice President and Chief Operating Officer of the Company. The resignation
was effective March 28, 2014.
Compensation Philosophy and Objectives
The Compensation Committee bases its executive compensation program on our performance objectives.
The Compensation Committee evaluates both executive performance and compensation to ensure that we
maintain our ability to attract superior employees in key positions and to remain competitive relative to the
compensation paid to similarly situated executives of our peer companies. The Compensation Committee
believes executive compensation packages provided to our executives, including the NEOs, should include
both cash and equity-based compensation that provide rewards for performance. The Compensation
Committee bases it executive compensation program on the following philosophy:
• Compensation should be based on the level of job responsibility, executive performance, and
company performance.
• Executive officers’ pay should be more closely linked to company performance than that of other
employees because the executive officers have a greater ability to affect our results.
• Compensation should be competitive with compensation offered by other companies (subject to
size and revenues) that compete with us for talented individuals.
• Compensation should reward performance.
• Compensation should motivate executives to achieve our strategic and operational goals.
Role of Executive Officers in Compensation Decisions
The Compensation Committee makes all compensation decisions for the NEOs and equity awards to all of
our officers. Decisions regarding the non-equity compensation of other officers are made by the
Compensation Committee, based on the recommendations of the CEO.
The CEO annually reviews the performance of each of the NEOs (other than the CEO whose performance is
reviewed by the Compensation Committee). Based on such reviews, the CEO presents a recommendation
to the Compensation Committee, which may include salary adjustments, bonus and equity-based awards.
The Compensation Committee considers such recommendation in light of the compensation philosophy and
objectives described above and the processes described below. Based on its analysis, the Compensation
Committee exercises its discretion in accepting or modifying all such recommendations. The CEO is not
present during the voting or deliberations of the Compensation Committee with respect to the CEO’s
compensation.
The Compensation Committee’s Processes
The Compensation Committee has established certain processes designed to achieve our annual executive
compensation objectives. These processes include the following:
91
• Company Performance Assessment; MIP. The Compensation Committee assesses our performance
in order to establish compensation ranges and, as described below, to establish specific performance
measures that determine incentive compensation under the Management Incentive Plan (“MIP”)
established for each of our NEOs. For this purpose, the Compensation Committee considers
numerous measures of performance of both us and industries with which we compete, including,
but not limited to, revenue, gross profit, net income, administrative expenses, and earnings before
interests, taxes and depreciation (“EBITDA”).
•
Individual Performance Assessment. Because the Compensation Committee believes that an
individual’s performance should effect an individual’s compensation, the Compensation Committee
seeks to encourage and reward each NEO based on achievement of individual performance goals, in
addition to overall company performance measures mentioned above. With respect to the CEO and
COO, compensation is also awarded based on qualitative measures such as maintaining the safety of
our facilities as well maintaining permit compliance. With respect to the CFO, the Compensation
Committee takes into account improvements made in accounting and financial processes such as
maintaining Sarbanes-Oxley Act of 2002 (“SOX”) and Securities and Exchange Commission
compliance, improving accounts receivable (“AR”) targets, system integration, and centralization of
the Company’s systems. In designing the compensation plan for the NEO, the Compensation
Committee believes individual measures result in short and long term value to stockholders. The
Compensation Committee also considers input of, and the performance analysis provided by, the
CEO when designing the compensation plan for the other NEOs. The Compensation Committee
believes that the CEO’s daily interactions with the other NEOs provide valuable insight regarding
the contributions made by the other NEOs. With respect to all NEOs, the Compensation Committee
also exercises its judgment based on its interactions with the particular NEO, such officer’s
contribution to our performance and other leadership achievements.
• Peer Group Assessment. The Compensation Committee compares our compensation program with
a group of companies against which the Compensation Committee believes we compete for talented
individuals (the “Peer Group”). The composition of the Peer Group is periodically reviewed and
updated by the Compensation Committee. The companies currently comprising the Peer Group are
Clean Harbors, Inc., American Ecology Corporation, and EnergySolutions, Inc., each of which is a
waste disposal/management company. The Compensation Committee considers the Peer Group’s
executive compensation programs as a whole and the compensation of individual officers in the
Peer Group, if job responsibilities are meaningfully similar. When comparing the Peer Group’s
executive compensation programs to our programs, the Compensation Committee considers that the
companies within this Peer Group have substantially greater revenues than our Company, as well as
subjective factors with respect to each of our NEOs. These individual subjective factors include the
relative level of experience of each executive officer, the general responsibilities of each executive
officer, and the relative capitalization and revenues of the Peer Group members.
The Compensation Committee believes that the Peer Group comparison assists it in attempting to
structure an executive compensation program that is competitive with other companies in the
industry, subject to size and revenues of companies within the Peer Group. Although our
Compensation Committee makes a comparison to the Peer Group compensation, the Compensation
Committee does not use the Peer Group as a benchmark for compensation of the NEOs. Instead,
the Peer Group
the Compensation Committee considers the following when reviewing
compensation information:
• The Compensation Committee understands that our competitors generally have greater
capital resources than we do and are larger businesses than we are; as a result, the
Compensation Committee does not attempt to match the compensation packages offered by
the Peer Group or to set our compensation packages at a certain percentage or other
objective target level as compared to members of the Peer Group;
92
• The Compensation Committee considers what compensation package is expected to enable
us to compete for talented individuals given the opportunities and compensation offered by
us; and
• Our executive compensation will necessarily fall below (and sometimes significantly below)
the compensation offered by members of the Peer Group due to our limited resources as
compared to the resources of members of the Peer Group.
As described above, the Compensation Committee (along with our CEO) reviews the publicly
available compensation disclosures of the Peer Group. However, when making its own annual
compensation decisions, the Compensation Committee currently has no policy for setting our
compensation levels based on or as compared to the compensation practices of such Peer Group
members. Accordingly, the Company does not believe that benchmarking is currently material to
the Company's compensation policies and decisions.
The executive compensation program for our SEC President was negotiated as part of our
acquisition of SEC in October 2011. On May 14, 2013, the Company entered into a Separation and
Release Agreement with the SEC President which terminated and voided the Leichtweis
Employment Agreement and MIP (see “Employment Agreement” and “MIPs” below regarding
termination of these agreements and payments made to the SEC President upon his voluntary
termination and retirement from the Company effective May 24, 2013).
Employment Agreements
The Company entered into employment agreements on August 24, 2011 with our CEO, COO, and CFO,
which were approved by the Compensation Committee and Board. These agreements provided that (a) Dr.
Centofanti, CEO, was entitled to receive an annual base salary of $263,218; (b) Mr. Blankenhorn, COO,
was entitled to receive an annual base salary of $245,000; and (c) Mr. Naccarato, CFO, was entitled to
receive an annual base salary of $208,000. The base salary is subject to adjustment as determined by the
Compensation Committee (no change in base salary was made for each CEO, COO, and CFO in 2013 from
the 2012 base salary). In connection with the closing of our acquisition of SEC, on October 31, 2011, we
entered into an employment agreement with Mr. Christopher Leichtweis, which was approved by the
Compensation Committee and Board. Mr. Leichtweis, who prior to the acquisition was an officer and
director of SEC’s former parent company (Homeland Security Capital Corporation now known as Timios
National Corporation or “TNC”), was appointed as the SEC President and a senior vice president. Mr.
Leichtweis’ employment agreement provided that he is entitled to receive an annual base salary of
$324,480. The base salary is subject to adjustment as determined by the Compensation Committee. The
employment agreements with our CEO, COO, CFO and SEC President are collectively referred to as the
“Employment Agreements.”
In addition to base salary, each of these executive officers is entitled to participate in the Company's benefits
plans and to any performance compensation payable under an individual Management Incentive Plan
(“MIP”) for the CEO, CFO, COO, and SVP (see “Management Incentive Plans,” below).
Each of the Employment Agreements is effective for three years, except the term for the SEC President is
four years. Each Employment Agreement may be terminated prior to its expiration by the Company with or
without “cause” (as defined below) or by the executive officer for “good reason” (as defined below) or any
other reason. If the NEO’s employment is terminated due to death, disability or for cause, we will pay to
the NEO or to his estate a lump sum equal to the sum of any unpaid base salary through the date of
termination and any benefits otherwise due at that time under any employee benefit plan, excluding any
severance program or policy (the “Accrued Amounts”).
If the NEO terminates his employment for “good reason” or is terminated without cause, we will pay the
NEO a sum equal to the total Accrued Amounts, plus one year of full base salary. If the NEO terminates his
employment for a reason other than for good reason, we will pay to him the amount equal to the Accrued
Amounts. If there is a Change in Control (as defined below), all outstanding stock options to purchase
common stock held by the NEO will immediately become vested and exercisable in full. The amounts
93
payable with respect to a termination (other than base salary and amounts otherwise payable under any
Company employee benefit plan) are payable only if the termination constitutes a “separation from service”
(as defined under Treasury Regulation Section 1.409A-1(h)).
“Cause” is generally defined in each of the Employment Agreements as follows:
•
the ultimate conviction (after all appeals have been decided) of the executive by a court of
competent jurisdiction, or a plea of nolo contendrere or a plea of guilty by the executive, to a felony
involving a moral practice or act;
• willful or gross misconduct or gross neglect of duties by the executive, which is injurious to the
Company. Failure of the executive to perform his duties due to disability shall not be considered
gross misconduct or gross neglect of duties;
•
act of fraud or embezzlement against the Company; and
• willful breach of any material provision of the employment agreement.
“Good reason” is generally defined in each of the Employment Agreements as follows:
•
•
•
•
•
assignment to the executive of duties inconsistent with his responsibilities as they existed during the
90-day period preceding the date of the employment agreement, including status, office, title, and
reporting requirement;
any other action by the Company which results in a reduction in (i) the compensation payable to the
executive, or (ii) the executive’s position, authority, duties, or other responsibilities without the
executive’s prior approval;
the relocation of the executive from his base location on the date of the employment agreement,
excluding travel required in order to perform the executive’s job responsibilities;
any purported termination by the Company of the executive’s employment otherwise than as
permitted by the agreement; and
any material breach by the Company of any provision of the employment agreement, except that an
insubstantial or inadvertent breach by the Company which is promptly remedied by the Company
after receipt of notice by the executive is not considered a material breach.
“Change in Control” is generally defined in each of the Employment Agreements as follows:
• a transaction in which any person, entity, corporation, or group (as such terms are defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange (other than the Company, or a profit sharing,
employee ownership or other employee benefit plan sponsored by the Company or any subsidiary
of the Company): (i) will purchase any of the Company’s voting securities (or securities
convertible into such voting securities) for cash, securities or other consideration pursuant to a
tender offer, or (ii) will become the “beneficial owner” (as such term is defined in Rule 13d-3
under the Exchange Act, directly or indirectly (in one transaction or a series of transactions), of
securities of the Company representing 50% or more of the total voting power of the then
outstanding securities of the Company ordinarily having the right to vote in the election of
directors; or
• a change, without the approval of at least two-thirds of the Board of Directors then in office, of a
majority of the Company’s Board of Directors; or
94
•
•
•
•
the Company’s execution of an agreement for the sale of all or substantially all of the Company’s
assets to a purchaser which is not a subsidiary of the Company; or
the Company’s adoption of a plan of dissolution or liquidation; or
the Company’s closure of the facility where the executive works; or
the Company’s execution of an agreement for a merger or consolidation or other business
combination involving the Company in which the Company is not the surviving corporation, or, if
immediately following such merger or consolidation or other business combination, less than fifty
percent (50%) of the surviving corporation’s outstanding voting stock is held by persons who are
stockholders of the Company immediately prior to such merger or consolidation or other business
combination; or
• such event that is of a nature that is required to be reported in response to Item 5.01 of Form 8-K.
On February 14, 2013, the Company entered into a Settlement and Release Agreement and Amendment to
Employment Agreement (the “Leichtweis Settlement), in final settlement of certain claims made by us
against Mr. Leichtweis in connection with Disputed Claims asserted by us against TNC subsequent to the
acquisition of SEC. The Leichtweis Settlement amended Mr. Leichtweis Employment Agreement which
reduced the base salary of Mr. Leichtweis by $30,000 per year commencing the earlier occurrence of (i) the
date the Company files its 2012 Form 10-K with the Securities and Exchange Commission, or (ii) April 1,
2013, and continuing for a period of three years from such date (or, if the Mr. Leichtweis’s Employment
Agreement is earlier terminated, through the date of such earlier termination). The Company filed its Form
10-K on March 22, 2013.
On May 14, 2013, the Company entered into a Separation and Release Agreement (“Agreement”) with
Leichtweis. Pursuant to the Agreement:
(i) effective May 24, 2013 (“Separation Date”), Leichtweis voluntarily terminated and retired
as an employee of the Company, Senior Vice President of the Company and President of
SEC;
(ii) the Leichtweis Employment Agreement dated October 31, 2011 between the Company and
Leichtweis was terminated in all respects, except for the “Confidentiality of Trade Secrets
and Business Information” (“Section 7”) clause of the Leichtweis Employment Agreement.
No severance and Special Bonus (as defined in the Leichtweis Employment Agreement)
were payable to Leichtweis under the Leichtweis Employment Agreement. Leichtweis was
paid all accrued salary, vacation and any benefit under the employee’s benefit plan to
Separation Date. Leichtweis’ voluntary termination of employment with the Company was
for reasons other than for “Good Reason” (as defined by Leichtweis Employment
Agreement) and is within the meaning of Treasury Regulation § 1.409A-1(h)(1) as of the
Separation Date;
(iii) the Management Incentive Plan (“MIP”) effective as of November 1, 2011, as amended on
July 12, 2012, for the benefit of Leichtweis was forfeited and cancelled. No payment was
payable under the MIP as of the Separation Date;
(iv) After given the effect of the reverse stock split, a nonqualified stock option (the “Option”)
granted to Leichtweis on October 31, 2011, which provided for the purchase of up to
50,000 shares of the Company’s Common Stock at $6.75 per share pursuant to the
Leichtweis Employment Agreement, was forfeited. Within 30 days after Separation Date,
Leichtweis had the option to exercise 12,500 options (amount vested) to purchase 12,500
shares of the Company’s common stock, which he elected not to exercise;
95
(v) the Company generally released Leichtweis from and against all claims against Leichtweis
under the Leichtweis Employment Agreement except for claims against Leichtweis under
“Section 7” of the Employment Agreement; and
(vi) Leichtweis released the Company and its subsidiaries and all of their representatives,
officers, directors, employees and affiliates from and against any and all Claims (as defined
in the Agreement).
In connection with the Agreement, the Company also entered into a Consulting Services Agreement
(“Consulting Agreement”) with Leichtweis, dated May 24, 2013 and terminating on July 23, 2014, unless
sooner terminated by either party with prior 30 days’ written notice. The Consulting Agreement provides
for compensation at an hourly rate of $135 and reasonable travel and other expenses. Pursuant to the
Consulting Agreement, Leichtweis will be subject to a fourteen months confidentiality and non-compete
agreement (as defined) from date of execution of the Consulting Agreement. On June 1, 2013, Leichtweis
provided the Company with written notice of termination of the Consulting Agreement.
On March 20, 2014, the Company accepted the resignation of Mr. James A. Blankenhorn, as Vice President
and COO of the Company. The resignation was effective March 28, 2014. When Mr. Blankenhorn’s
resignation as the COO became effective, his employment agreement also terminated.
Potential Payments
The following table sets forth the potential (estimated) payments and benefits to which our NEOs would be
entitled under the Employment Agreements upon termination of employment or following a Change in
Control, assuming each circumstance described below occurred on December 31, 2013.
The following table sets forth the potential (estimated) payments and benefits to which Dr. Centofanti, Mr.
Jim Blankenhorn, and Mr. Naccarato would be entitled upon termination of employment or following a
Change in Control of the Company, as specified under each employment agreement with the Company,
assuming each circumstance described below occurred on December 31, 2013, the last day of our fiscal
year.
Name and Principal Position
Potential Payment/Benefit
Dr. Louis Centofanti
Chairman of the Board,
President and Chief Executive
Officer
Severance
Stock Options
Ben Naccarato
Chief Financial Officer
Severance
Stock Options
Jim Blankenhorn (3)
Chief Operating Officer
Severance
Stock Options
Disability,
Death,
or For Cause
Executive for Good
Reason or by
Company Without
Cause
Change in Control
of the Company
$
$
$
$
$
$
──
──
──
──
──
──
(1)
(1)
(1)
$
$
$
$
$
$
271,115
──
214,240
──
252,350
──
$
$
$
$
$
$
(1)
(1)
(1)
──
──
──
──
──
──
(2)
(2)
(2)
(1)
Benefit is estimated to be zero since the number of stock options vested that were in-the-money as of December 31, 2013 (as
reported on NASDAQ) was zero.
96
(2)
Benefit is estimated to be zero since the number of stock options outstanding that were in-the-money as of December 31,
2013 (as reported on NASDAQ) was zero.
On March 20, 2014, resigned as Vice President and COO, effective March 28, 2014.
(3)
No performance compensation under the NEO’s MIP would have been payable at December 31, 2013 under
any of the circumstances described in the table above. Pursuant to each MIP, if the participant’s
employment with the Company is voluntarily or involuntarily terminated prior to the annual payment of the
MIP compensation payment period, no MIP payment is payable. The payment is otherwise payable under
each MIP on or about 90 days after year-end, or sooner, based on finalization of our financial statements for
year-end. See “2013 Management Incentive Plans,” below.
The amounts payable with respect to a termination (other than base salary and amounts otherwise payable
under any Company employee benefit plan) are payable only if the termination constitutes a “separation
from service” (as defined under Treasury Regulation Section 1.409A-1(h)).
2013 Executive Compensation Components
For the fiscal year ended December 31, 2013, the principal components of compensation for executive
officers were:
• base salary;
• performance-based incentive compensation;
•
•
• perquisites.
long term incentive compensation;
retirement and other benefits; and
Based on the amounts set forth in the Summary Compensation Table, during 2013, salary accounted for
89.4% of the total compensation of our NEOs, while equity option awards, bonus, MIP compensation, and
other compensation accounted for approximately 10.6% of the total compensation of the NEOs.
Base Salary
The NEOs, other executive officers, and other employees of the Company receive a base salary during the
fiscal year. Base salary ranges for executive officers are determined for each executive based on his or her
position and responsibility by using market data and comparisons to the Peer Group.
During its review of base salaries for executives, the Compensation Committee primarily considers:
• market data and Peer Group comparisons;
•
•
internal review of the executive’s compensation, both individually and relative to other officers; and
individual performance of the executive.
Salary levels are typically considered annually as part of the performance review process as well as upon a
promotion or other change in job responsibility. Merit based salary increases for executives are based on
the Committee’s assessment of the individual’s performance. The base salary and potential annual base
salary adjustments for the CEO, COO, CFO, and the SEC President for are set forth in their respective
Employment Agreements.
Performance-Based Incentive Compensation
The Compensation Committee has the latitude to design cash and equity-based incentive compensation
programs to promote high performance and achievement of our corporate objectives by directors and the
NEOs, encourage the growth of stockholder value and enable employees to participate in our long-term
growth and profitability. The Compensation Committee may grant stock options and/or performance
bonuses. In granting these awards, the Compensation Committee may establish any conditions or
restrictions it deems appropriate. In addition, the CEO has discretionary authority to grant stock options to
certain high-performing executives or officers, subject to the approval of the Compensation Committee.
97
The exercise price for each stock options granted is at or above the market price of our common stock on
the date of grant. Stock options may be awarded to newly hired or promoted executives at the discretion of
the Compensation Committee. Grants of stock options to eligible newly hired executive officers are
generally made at the next regularly scheduled Compensation Committee meeting following the hire date.
2013 Management Incentive Plans (“MIPs”)
On June 6, 2013, the Compensation Committee approved individual MIPs for our CEO, COO, and CFO.
The MIPs is effective as of January 1, 2013. Each MIP provided 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 base salary. The potential target performance compensation
ranges from 50% to 87% or $135,558 to $237,224 of the 2013 base salary for the CEO, 50% to 87% or
$126,175 to $220,808 of the 2013 base salary for the COO, and 25% to 44% or $53,560 to $93,731 of the
2013 base salary for the CFO.
Performance compensation is to be paid on or about 90 days after year-end, or sooner, based on finalization
of our audited financial statements for 2013. If the MIP participant’s employment with the Company is
voluntarily or involuntarily terminated prior to a regularly scheduled MIP compensation payment date, no
MIP payment will be payable for and after such period.
The Compensation Committee retains the right to modify, change or terminate each MIP and may adjust the
various target amounts described below, at any time and for any reason.
The following describes the principal terms of each MIP:
CEO:
2013 CEO performance compensation is based upon meeting corporate revenue, earnings before interest,
taxes, depreciation and amortization (“EBITDA”), health, safety, and environmental compliance objectives
during fiscal year 2013 from our continuing operations. Of the total potential performance compensation,
55% is based on EBITDA goal, 15% on revenue goal, 15% on the number of health and safety claim
incidents that occur during fiscal year 2013, and the remaining 15% on the number of notices alleging
environmental, health or safety violations under our permits or licenses that occur during the fiscal year
2013. Each of the revenue and EBITDA components is based on our board approved Revenue Target and
EBITDA Target. The 2013 target compensation for our CEO is as follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of MIP):
Total Annual Target Compensation (at 100% of MIP):
$ 271,115
$ 135,558
$ 406,673
The Performance Incentive Compensation Target is based on the schedule below.
Target Objectives
Weights
85-100%
101-120%
121-130%
131-140%
141-150%
151-160%
161%+
Performance Target Thresholds
Revenue
EBITDA
Health & Safety
Permit & License Violations
15%
55%
15%
15%
$
20,334
$
24,400
$
26,434
$
28,467
$
30,500
$
32,534
$
35,584
74,556
20,334
20,334
89,467
24,400
24,400
96,922
104,378
111,833
119,289
130,472
26,434
28,467
30,500
32,534
26,434
28,467
30,500
32,534
35,584
35,584
$
135,558
$
162,667
$
176,224
$
189,779
$
203,333
$
216,891
$
237,224
1) Revenue is defined as the total consolidated third party top line revenue from continuing operations as
publicly reported in the Company’s financial statements. The percentage achieved is determined by
comparing the actual consolidated revenue from continuing operations to the Board approved Revenue
Target from continuing operations, which is $126,190,000. The Board reserves the right to modify or
98
change the Revenue Targets as defined herein in the event of the sale or disposition of any of the assets
of the Company or in the event of an acquisition.
2) EBITDA is defined as earnings before interest, taxes, depreciation, and amortization from continuing
operations. The percentage achieved is determined by comparing the actual EBITDA to the Board
approved EBITDA Target, which is $9,567,000. The Board reserves the right to make adjustments to
the EBITDA Target to account for the unique accounting treatment of fair market value of percentage of
completion contracts resulting from the acquisition of Safety and Ecology Holdings Corporation
(“SEHC”) and its subsidiaries (collectively, known as Safety and Ecology Corporation or “SEC”).
3) The Health and Safety Incentive Target is based upon the actual number of Worker’s Compensation
Lost Time Accidents, as provided by the Company’s Worker’s Compensation carrier. The Corporate
Treasurer will submit a report on a quarterly basis documenting and confirming the number of Worker’s
Compensation Lost Time Accidents, supported by the AIG Worker’s Compensation Loss Report. Such
claims will be identified on the loss report as “indemnity claims.” The following number of Worker’s
Compensation Lost Time Accidents and corresponding Performance Target Thresholds has been
established for the annual Incentive Compensation Plan calculation for 2013.
Worker's Compensation
Claim Number
7
6
5
4
3
2
1
Performance
Target
85%-100%
101%-120%
121%-130%
131%-140%
141%-150%
151%-160%
161% Plus
4) Permits or License Violations incentive is earned/determined according to the scale set forth below: An
“official notice of non-compliance” is defined as an official communication from a local, state, or
federal regulatory authority alleging one or more violations of an otherwise applicable Environmental,
Health or Safety requirement or permit provision, which results in a facility’s implementation of
corrective action(s).
Permit and
License Violations
7
6
5
4
3
2
1
Performance
Target
85%-100%
101%-120%
121%-130%
131%-140%
141%-150%
151%-160%
161% Plus
5) No performance incentive compensation will be payable for achieving the health and safety, permit and
license violation, and revenue targets unless a minimum of 70% of the EBITDA Target is achieved.
COO:
2013 COO performance compensation is based upon meeting corporate revenue, EBITDA, health, safety,
and environmental compliance objectives during fiscal year 2013 from our continuing operations. Of the
total potential performance compensation, 55% is based on EBITDA goal, 15% on revenue goal, 15% on
the number of health and safety claim incidents that occur during fiscal year 2013, and the remaining 15%
on the number of notices alleging environmental, health or safety violations under our permits or licenses
that occur during the fiscal year 2013. Each of the revenue and EBITDA components is based on our board
approved Revenue Target and EBITDA Target. The 2013 target compensation for our COO is as follows:
99
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$ 252,350
$ 126,175
$ 378,525
The Performance Incentive Compensation Target is based on the schedule below.
Target Objectives
Revenue
EBITDA
Health & Safety
Permit & License Violations
Weights
85-100%
101-120%
Performance Target Thresholds
131-140%
121-130%
141-150%
151-160%
161%+
15%
55%
15%
15%
$
18,926
$
22,712
$
24,604
$
26,497
$
28,389
$
30,282
$
33,121
69,397
83,277
90,216
97,156
104,096
111,036
121,445
18,926
22,712
24,604
26,497
28,389
30,282
18,926
22,712
24,604
26,497
28,389
30,282
33,121
33,121
$
126,175
$
151,413
$
164,028
$
176,647
$
189,263
$
201,882
$
220,808
1) Revenue is defined as the total consolidated third party top line revenue from continuing operations as
publicly reported in the Company’s financial statements. The percentage achieved is determined by
comparing the actual consolidated revenue from continuing operations to the Board approved Revenue
Target from continuing operations, which is $126,190,000. The Board reserves the right to modify or
change the Revenue Targets as defined herein in the event of the sale or disposition of any of the assets
of the Company or in the event of an acquisition.
2) EBITDA is defined as earnings before interest, taxes, depreciation, and amortization from continuing
operations. The percentage achieved is determined by comparing the actual EBITDA to the Board
approved EBITDA Target, which is $9,567,000. The Board reserves the right to make adjustments to
the EBITDA Target to account for the unique accounting treatment of fair market value of percentage of
completion contracts resulting from the acquisition of SEC.
3) The Health and Safety Incentive target is based upon the actual number of Worker’s Compensation Lost
Time Accidents, as provided by the Company’s Worker’s Compensation carrier. The Corporate
Treasurer will submit a report on a quarterly basis documenting and confirming the number of Worker’s
Compensation Lost Time Accidents, supported by the AIG Worker’s Compensation Loss Report. Such
claims will be identified on the loss report as “indemnity claims.” The following number of Worker’s
Compensation Lost Time Accidents and corresponding Performance Target Thresholds has been
established for the annual Incentive Compensation Plan calculation for 2013.
Worker's Compensation
Claim Number
7
6
5
4
3
2
1
Performance
Target
85%-100%
101%-120%
121%-130%
131%-140%
141%-150%
151%-160%
161% Plus
4) Permits or License Violations incentive is earned/determined according to the scale set forth below: An
“official notice of non-compliance” is defined as an official communication from a local, state, or
federal regulatory authority alleging one or more violations of an otherwise applicable Environmental,
Health or Safety requirement or permit provision, which results in a facility’s implementation of
corrective action(s).
100
Permit and
License Violations
7
6
5
4
3
2
1
Performance
Target
85%-100%
101%-120%
121%-130%
131%-140%
141%-150%
151%-160%
161% Plus
5) No performance incentive compensation will be payable for achieving the health and safety, permit and
license violation, and revenue targets unless a minimum of 70% of the EBITDA Target is achieved.
CFO:
The CFO’s 2013 performance compensation is based upon achievement of EBITDA and administrative
expense objectives. The performance compensation also provides for a discretionary incentive payment
component, subject to approval by the Company’s Compensation Committee. Of the total potential
performance compensation, 25% is based on maintaining or reducing our targeted administrative expense,
50% is based on EBITDA goal, with the remaining 25% subject to approval by the Compensation
Committee. Each of the EBITDA and administrative expense component is based on our board approved
2013 EBITDA Target and Administrative Expense Target. The 2013 target compensation for our CFO is as
follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$214,240
$ 53,560
$267,800
The Performance Incentive Compensation Target is based on the schedule below.
Target Objectives
Weights
100%+
98-99%
96-97%
94-95%
92-93%
90-91%
88-89%
Performance Target Thresholds
Administrative
25%
$
13,390
$
16,068
$
17,407
$
18,746
$
20,085
$
21,424
$
23,433
Weights
85-100%
101-120%
121-130%
131-140%
141-150%
151-160%
161%+
Performance Target Thresholds
EBITDA
Discretionary
50%
25%
$
26,780
$
32,136
$
34,814
$
37,492
$
40,170
$
42,848
$
46,865
13,390
16,068
17,407
18,746
20,085
21,424
23,433
$
53,560
$
64,272
$
69,628
$
74,984
$
80,340
$
85,696
$
93,731
1) Administrative Expense is defined as the total consolidated administrative expenses from continuing
operations as publicly reported in the Company’s financial statements. Administrative expenses will be
inclusive of all subsidiaries from continuing operations, and will exclude Marketing Expenses and
Interest Expense. The Board reserves the right to make adjustments to Administrative expense Target so
as not to penalize the employee for material unforeseen events outside of the employees responsibility
and it reserves the right to modify or change the Administrative Expense Targets as defined herein,
which is $13,390,000 in the event of the sale or disposition of any of the assets of the Company or in the
event of an acquisition. The Board further reserves the right to adjust Administrative Expenses Target
to reflect charges resulting from the vesting of incentive stock options.
2) EBITDA is defined as earnings before interest, taxes, depreciation, and amortization from continuing
operations. The percentage achieved is determined by comparing the actual EBITDA to the Board
approved EBITDA Target, which is $9,567,000. The Board reserves the right to make adjustments to
101
the EBITDA Target to account for the unique accounting treatment of fair market value of percentage of
completion contracts resulting from the acquisition of SEC.
3) Discretionary incentive payment is to be approved by the Compensation Committee based on
achievement of accounting, financial, and accounting centralization and information technology
oversight objectives, including but not limited to:
• Compliance with the requirement of the Sarbanes-Oxley Act of 2002 (“SOX”);
• Meeting public filing deadlines such as Form 10-K, Form 10-Qs, Form 8-Ks, and press
releases;
• Automation and centralization of accounting processes, including but not limited to: (a) install
multi-company software at corporate office; (b) improve forecasting model from facilities
including new software, if cost effective; (c) sales and opportunity tracking system; (d)
complete improvement to time management system; and (e) improve project tracking system;
and
• Collection of problem accounts receivable.
4) No discretionary performance incentive compensation will be payable unless a minimum of 70% of the
EBITDA Target is achieved. In addition, no performance incentive compensation will be payable for
achieving the Administrative Expense Target unless a minimum of 70% of the EBITDA Target is
achieved.
2013 MIP Targets
As discussed above, 2013 MIPs approved for the CEO, COO, and CFO by the Compensation Committee
awards cash compensation based on achievement of performance targets which includes Revenue,
EBITDA, and Administrative Expenses as approved by our Board. The Revenue Target of $126,190,000,
EBITDA Target of $9,567,000, and the Administrative Expense Target of $13,390,000 set forth in the 2013
MIPs are based on our board approved 2013 budget. In formulating the Revenue Target of $126,190,000,
the Board considered 2012 results, current economic conditions, and forecasts for 2013 government
(Department of Energy or DOE) spending under continuing resolution and the sequestration.
No performance incentive compensation was earned under each of the MIPs for the CEO, COO, and CFO
for 2013.
Mr. Robert Schreiber-Schreiber, Yonley, & Associates (“SYA”) - Bonus Plan
Mr. Robert Schreiber, Jr., the President of our environmental engineering and regulatory compliance
consulting services firm, SYA, is eligible to be awarded a bonus based on an allocation of a portion of a
bonus pool applicable only to SYA employees. The amount of the bonus pool is equal to 40% of the net
income of SYA, minus 5% of SYA’s total revenues for 2013. In 2013, the bonus pool was determined to be
$0. The Compensation Committee believes that this formula ties any bonus awarded to employees of SYA
directly to SYA’s performance, rewards performance, and motivates the SYA employees to achieve our
operational goals (although such formula is not linked to specific targets or benchmarks). The Board
delegated to our CEO the authority to determine what portion, if any, of the SYA bonus pool is allocated to
Mr. Schreiber for his performance. Our CEO considered the following factors when reviewing Mr.
Schreiber’s performance for the purpose of determining Mr. Schreiber’s bonus compensation as a portion of
the SYA bonus pool:
• SYA’s performance as a segment of our Company;
• Effectiveness of Mr. Schreiber’s leadership;
• Mr. Schreiber’s role and participation as a member of our executive management team; and
• Our overall performance, based on a subjective analysis of our revenues and net income in the
applicable business environment.
102
The determination of Mr. Schreiber’s bonus is a subjective determination, with the maximum amount of
such bonus being 100% of the SYA bonus pool. In 2012, Mr. Schreiber’s bonus represented 0% of the
SYA bonus pool. Accordingly, Mr. Schreiber’s compensation is not based on objective metrics, but a
subjective assessment of his performance, with the maximum amount of such bonus compensation defined
by the Compensation Committee’s formula.
Long-Term Incentive Compensation
Employee Stock Option Plans
The 2004 Stock Option Plan (the “2004 Option Plan”) and 2010 Stock Option Plan (the “2010 Option
Plan”) encourage participants to focus on long-term performance and provides an opportunity for executive
officers and certain designated key employees to increase their stake in the Company. Stock options succeed
by delivering value to the executive only when the value of our stock increases. Both plans authorize the
grant of Non-Qualified Stock Options (“NQSOs”) and Incentive Stock Options (“ISOs”) for the purchase of
Common Stock.
The 2004 Option Plan and 2010 Option Plan assist the Company to:
•
enhance the link between the creation of stockholder value and long-term executive incentive
compensation;
• provide an opportunity for increased equity ownership by executives; and
• maintain competitive levels of total compensation.
Stock option award levels are determined based on market data, vary among participants based on their
positions with us and are granted generally at the Compensation Committee’s regularly scheduled August or
September meeting. Newly hired or promoted executive officers who are eligible to receive options are
generally awarded such options at the next regularly scheduled Compensation Committee meeting
following their hire or promotion date.
Options are awarded with an exercise price equal to or not less than the closing price of the Company’s
Common Stock on the date of the grant as reported on the NASDAQ. In certain limited circumstances, the
Compensation Committee may grant options to an executive at an exercise price in excess of the closing
price of the Company’s Common Stock on the grant date.
The Company did not grant any options to any of its employees, including the NEOs in 2013. The
Compensation Committee is reviewing the effectiveness of granting options under our option plans.
Pursuant to the 2004 Stock Option Plan and the 2010 Stock Option plan, vesting of option awards ceases
upon termination of employment and exercise right of the vested option amount ceases upon three months
from termination of employment except in the case of death or retirement (subject to a six month
limitation), or disability (subject to a one year limitation). Prior to the exercise of an option, the holder has
no rights as a stockholder with respect to the shares subject to such option.
In the event of a “change of control” (as defined in the 2004 Stock Option Plan and the 2010 Stock Option
Plan) of the Company, each outstanding option and award granted under the plans shall immediately
become exercisable in full notwithstanding the vesting or exercise provisions contained in the stock option
agreement.
Accounting for Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, “Compensation – Stock
Compensation.” ASC 718 establishes accounting standards for entity exchanges of equity instruments for
goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods
or services that are based on the fair value of the entity’s equity instruments or that may be settled by the
issuance of those equity instruments. ASC 718 requires all stock-based payments to employees, including
103
grants of employee stock options, to be recognized in the income statement based on their fair values. The
Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards
which requires subjective assumptions. Assumptions used to estimate the fair value of stock options granted
include the exercise price of the award, the expected term, the expected volatility of the Company’s stock
over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected
annual dividend yield.
We recognize stock-based compensation expense using a straight-line amortization method over the
requisite period, which is the vesting period of the stock option grant. As ASC 718 requires that stock-based
compensation expense be based on options that are ultimately expected to vest, our stock-based
compensation expense is reduced at an estimated forfeiture rate. Our estimated forfeiture rate is generally
based on historical trends of actual forfeitures. Forfeiture rates are evaluated, and revised as necessary.
Retirement and Other Benefits
401(k) Plan
We adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the “401(k) Plan”) in 1992, which is
intended to comply with Section 401 of the Internal Revenue Code and the provisions of the Employee
Retirement Income Security Act of 1974. All full-time employees who have attained the age of 18 are
eligible to participate in the 401(k) Plan. Eligibility is immediate upon employment but enrollment is only
allowed during four quarterly open periods of January 1, Apri 1, July 1, and October 1. Participating
employees may make annual pretax contributions to their accounts up to 100% of their compensation, up to
a maximum amount as limited by law. We, at our discretion, may make matching contributions based on the
employee’s elective contributions. Company contributions vest over a period of five years. We have
matched 25% of our employees’ contributions since inception of the Plan. The Company did not contribute
any matching fund in 2013. Effective June 15, 2012, we suspended our matching contribution in an effort
to reduce costs in light of the economic environment. We will periodically evaluate whether to resume a
matching contribution program.
l
Perquisites and Other Personal Benefits
The Company provides executive officers with limited perquisites and other personal benefits that the
Company and the Compensation Committee believe are reasonable and consistent with its overall
compensation program to better enable the Company to attract and retain superior employees for key
positions. The Compensation Committee periodically reviews the levels of perquisites and other personal
benefits provided to executive officers. The executive officers are provided an auto allowance.
Consideration of Stockholder Say-On-Pay Advisory Vote.
At our annual meeting of stockholders held in September 2013, our stockholders voted, on a non-binding,
advisory basis, on the compensation of our named executive officers for 2012. A substantial majority
(approximately 95%) of the total votes cast on our say-on-pay proposal at that meeting approved the
compensation of our named officers for 2012 on a non-binding, advisory basis. The Compensation
Committee and the Board believes that this affirms our stockholders’ support of our approach to executive
compensation. The Compensation Committee expects to continue to consider the results of future
stockholder say-on-pay advisory votes when making future compensation decisions for our named
executive officers. We will hold an advisory vote on the compensation of named executive officers at our
2014 annual meeting of stockholders.
Summary Compensation
The following table summarizes the total compensation paid or earned by each of the executive officers for
the fiscal years ended December 31, 2013 and 2012.
104
Name and Principal Position
Year
Salary
($)
Dr. Louis Centofanti
Chairman of the Board,
2013
2012
271,115
271,115
President and Chief
Executive Officer
Ben Naccarato
Vice President and Chief
Financial Officer
Jim Blankenhorn (4)
Vice President and Chief
Operating Officer
Robert Schreiber, Jr.
President of SYA
Christopher Leichtweis (1)
Senior Vice President and
SEC President
2013
2012
214,240
214,240
2013
2012
252,350
252,350
2013
2012
2013
2012
203,821
203,821
157,894
324,480
Bonus
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($) (2)
All other
Compensation
($) (3)
Total
Compensation
($)
26,141
25,893
297,256
297,008
33,135
31,918
247,375
246,158
33,135
31,918
31,488
31,694
6,484
15,547
285,485
284,268
235,309
235,515
164,378
340,027
(1) Named as Senior Vice President of the Company and President of SEC on October 31, 2011 upon the Company’s acquisition
of SEHC and its subsidiaries on October 31, 2011 from Homeland Security Capital Corporation (now known as Timios
National Corporation or “TNC”). Mr. Leichtweis was a former officer and director of TNC. Mr. Leichtweis voluntarily
terminated and retired from all positions with the Company and its subsidiaries effective May 24, 2013. Mr. Leichtweis was
paid his accrued salary and the Company paid his insurance benefit up to his voluntary termination date upon his separation
from the Company. (see “Employment Agreement for a discussion of Mr. Leichtweis’s Separation and Release Agreement).”
(2)
Represents performance compensation earned under the Company’s MIP. The MIP is described under the heading “2013
Management Incentive Plan.”
(3) The amount shown includes a monthly automobile allowance of $750 or the use of a company car, our 401(k) matching
contribution (not applicable for 2013), and insurance premiums (health, disability and life) paid by the Company, on behalf of
the executive.
Name
Dr. Louis Centofanti
Ben Naccarato
Jim Blankenhorn
Robert Schreiber, Jr.
Christopher Leichtweis
$
$
$
$
$
Insurance
Premium
Auto Allowance or
Company Car
17,141
24,135
24,135
24,135
6,484
$
$
$
$
$
9,000
9,000
9,000
7,353
$
$
$
$
$
$
$
$
$
$
Total
26,141
33,135
33,135
31,488
6,484
(4) On March 20, 2014, resigned as Vice President and COO, effective March 28, 2014.
105
Outstanding Equity Awards at Fiscal Year
The following table sets forth unexercised options held by the NEOs as of the fiscal year-end.
Outstanding Equity Awards at December 31, 2013
Option Awards (3)
Number of
Securities
Underlying
Unexercised
Number of
Securities
Underlying
Unexercised
Options
Options
(#) (1)
Unexercisable
Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised Unearned
Option
Exercise
Options
Name
(#)
Exercisable
Dr. Louis Centofanti
30,000
Ben Naccarato
4,000
8,000
15,000
—
—
—
—
Jim Blankenhorn (4)
40,000
20,000
(2)
Robert Schreiber, Jr.
5,000
—
(#)
—
—
—
—
—
Price
($)
Option
Expiration
Date
11.40
8/5/2014
7.20
11.40
7.10
10/28/2014
8/5/2014
2/26/2015
7.85
7/25/2017
11.40
8/5/2014
(1) In the event of a change in control (as defined in the Option Plan) of the Company, each outstanding option and award shall
immediately become exercisable in full notwithstanding the vesting or exercise provisions contained in the stock option
agreement.
(2) Incentive stock option granted on July 25, 2011 under the Company’s 2010 Stock Option Plan. The option is for a six year term
and vests over a three year period, at one third increments per year.
(3) After giving effect to the reverse stock split.
(4) On March 20, 2014, resigned as Vice President and COO, effective March 28, 2014. Pursuant to the 2010 Stock Option Plan,
employee has 90 days from effective date of resignation to exercise vested option, which is 40,000 options to purchase up to
40,000 shares of the Company’s Common Stock..
None of the Company’s NEOs exercised options during 2013.
Compensation of Directors
Directors who are employees receive no additional compensation for serving on the Board of Directors or
its committees. In 2013, we provided the following annual compensation to directors who are not
employees:
•
•
•
•
each of our five continuing non-employee directors and each of the two new directors was awarded
options to purchase 2,400 and 6,000, respectively, shares of our Common Stock;
a quarterly director fee of $8,000;
an additional quarterly fee of $5,500 to the chairman of our Audit Committee; and
a fee of $1,000 for each board meeting attendance and a $500 fee for each telephonic conference
call attendance.
Each director may elect to have either 65% or 100% of such fees payable in Common Stock under the 2003
Outside Director Plan, with the balance payable in cash.
The table below summarizes the director compensation expenses recognized by the Company for the
director option and stock (resulting from fees earned) awards for the year ended December 31, 2013. The
terms of the 2003 Outside Directors Plan are further described below under “2003 Outside Directors Plan.”
106
Director Compensation
Fees
Earned or
Name
John M. Climaco (6)
Dr. Gary G. Kugler (5)
Jack Lahav
Joe R. Reeder
Larry M. Shelton
Dr. Charles E. Young
Mark A. Zwecker
In Cash
($) (1)
3,059
4,266
—
12,950
13,475
12,950
21,175
Paid
Stock
Awards
($) (2)
Option
Awards
($) (3)
7,573
10,564
49,999
32,067
33,367
32,065
52,430
14,220
11,760
4,704
4,704
4,704
4,704
4,704
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
Non-Equity
Incentive Plan
Compensation
($)
—
—
—
—
—
—
—
($)
—
—
—
—
—
—
—
All Other
Compensation
Total
($)
—
—
—
—
—
—
—
($)
24,852
26,590
54,703
49,721
51,546
49,719
78,309
(1) Under the 2003 Outside Directors Plan, each director elects to receive 65% or 100% of the director’s fees in shares of our
Common Stock. The amounts set forth above represent the portion of the director’s fees paid in cash and excludes the value
of the director’s fee elected to be paid in Common Stock under the 2003 Outside Director Plan, which value is included under
“Stock Awards.”
(2)
The number of shares of Common Stock comprising stock awards granted under the 2003 Outside Directors Plan is calculated
based on 75% of the closing market value of the Common Stock as reported on the NASDAQ on the business day
immediately preceding the date that the quarterly fee is due. Such shares are fully vested on the date of grant. The value of
the stock award is based on the market value of our Common Stock at each quarter end times the number of shares issuable
under the award. The amount shown is the fair value of the Common Stock on the date of the award.
(3) Options granted under the Company’s 2003 Outside Director Plan resulting from re-election and election to the Board of
Directors. Options are for a 10 year period and are fully vested in six months from grant date. The value of the option award
for each outside director is calculated based on the fair value of the option per share ($1.96 per share for each director with the
exception of $2.37 per share for John Climaco) on the date of grant times the number of options granted, which was 2,400 for
all directors noted with the exception of 6,000 each for John Climaco and Dr. Gary Kugler (after giving effect to the reverse
stock split) for each director, pursuant to ASC 718, “Compensation – Stock Compensation.” The exercise price of the option
for each director is $2.79 per share with the exception of $3.20 per share for John Climaco. The following is the aggregate
number of outstanding non-qualified stock options held by non-employee directors at December 31, 2013:
Name
John M. Climaco
Dr. Gary G. Kugler
Jack Lahav
Joe R. Reeder
Larry M. Shelton
Dr. Charles E. Young
Mark A. Zwecker
December 31, 2013 (4)
6,000
6,000
27,000
24,000
22,800
24,000
24,000
(4) Giving effect to the reverse stock split.
(5) Newly elected as a Board member at the Company’s 2013 Annual Meeting of Stockholders held on September 12, 2013.
(6)
Elected by the Company’s Board of Directors on October 4, 2013, to fill a newly created directorship.
2003 Outside Directors Plan
We believe that it is important for our directors to have a personal interest in our success and growth and for
their interests to be aligned with those of our stockholders. Therefore, under our 2003 Outside Directors
Stock Plan (“2003 Directors Plan”), each outside director is granted a 10 year option to purchase up to
30,000 shares of Common Stock on the date such director is initially elected to the Board of Directors, and
receives on each re-election date an option to purchase up to another 12,000 shares of Common Stock, with
the exercise price being the fair market value of the Common Stock preceding the option grant date. No
option granted under the 2003 Directors Plan is exercisable until after the expiration of six months from the
107
date the option is granted and no option shall be exercisable after the expiration of ten years from the date
the option is granted. Options to purchase 169,200 shares of Common Stock have been granted and are
outstanding under the 2003 Directors Plan, of which 145,200 were vested as of December 31, 2013, after
giving effect to the reverse stock split.
We periodically review compensation paid to our outside directors against compensation paid by our Peer
Group (see companies comprising the Peer Group in “Item 11 – Executive Compensation – The
Committee’s Process – Peer Group Assessment”) to their outside directors to insure that our outside
directors are adequately compensated. As a member of the Board of Directors, each director elects to
receive either 65% or 100% of the director's fee in shares of our Common Stock. The number of shares
received by each director is calculated based on 75% of the fair market value of the Common Stock
determined on the business day immediately preceding the date that the quarterly fee is due. The balance of
each director’s fee, if any, is payable in cash. In 2013, the fees earned by our outside directors totaled
approximately $286,000. Reimbursements of expenses for attending meetings of the Board are paid in cash
at the time of the applicable Board meeting. As a management director, Dr. Centofanti is not eligible to
participate in the 2003 Directors Plan. Although Dr. Centofanti is not compensated for his services provided
as a director, Dr. Centofanti is compensated for his services rendered as an officer of the Company. See
“EXECUTIVE COMPENSATION — Summary Compensation Table.”
As of December 31, 2013, we have issued 291,935 shares of our Common Stock in payment of director fees
since the inception of the 2003 Directors Plan.
In the event of a “change of control” (as defined in the 2003 Outside Directors Stock Plan), each
outstanding stock option and stock award shall immediately become exercisable in full notwithstanding the
vesting or exercise provisions contained in the stock option agreement.
Compensation Committee Interlocks and Insider Participation
The Compensation and Stock Option Committee of our Board of Directors is composed of Larry Shelton
(Chairperson), Joe Reeder, Dr. Charles E. Young, and Mark Zwecker. Prior to December 13, 2013, Jack
Lahav was the Chairperson of the Compensation and Stock Option Committee and Mark Zwecker was not a
member of this Committee. None of the members of the Compensation and Stock Option Committee has
been an officer or employee of the Company or has had any relationship with the Company requiring
disclosure under applicable Securities and Exchange Commission regulations.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The table below sets forth information as to the shares of Common Stock beneficially owned as of March
13, 2014, by each person known by us to be the beneficial owners of more than 5% of any class of our
voting securities.
Name of Beneficial Owner
Heartland Advisors, Inc. (2)
Title
Of Class
Common
Amount and
Nature of
Ownership
1,786,252
Percent
Of
Class (1)
15.64%
(1) The number of shares and the percentage of outstanding Common Stock shown as beneficially owned by
a person are based upon 11,419,650 shares of Common Stock outstanding (excludes 7,642 shares held in
treasury) on March 13, 2014, and the number of shares of Common Stock which such person has the right to
acquire beneficial ownership of within 60 days. Beneficial ownership by our stockholders has been
determined in accordance with the rules promulgated under Section 13(d) of the Exchange Act.
(2) This information is based on the Schedule 13G/A, filed with the Securities and Exchange Commission
(the “Commission”) on February 6, 2014, which provides that Heartland Advisors, Inc., an investment
advisor, shares voting power over 1,620,592 of such shares and shares dispositive power over all of the
108
shares, and no sole voting or sole dispositive power over any of the shares. The address of Heartland
Advisors, Inc. is 789 North Water Street, Milwaukee, WI 53202.
Capital Bank represented to us that:
• As of March 13, 2014, Capital Bank holds of record as a nominee for, and as an agent of, certain
accredited investors, 1,404,004 shares of our Common Stock, after giving effect to the reverse stock
split.;
• All of our shares of Common Stock held in the name of Capital Bank, as agent of and nominee for
its investors, that were acquired directly from us in private placement transactions, or as a result of
conversions of our preferred stock or exercise of our warrants (collectively, “Private Placement
Transactions”), and all of our shares acquired in Private Placement Transactions by Capital Bank
were acquired for and on behalf of accredited investors;
• During 2013 and the first two months of 2014, it acquired, as agent for and nominee of, certain of
its investors, shares of our Common Stock in open market transactions (“Open Market
Transactions”);
• None of Capital Bank's investors beneficially own more than 4.9% of our Common Stock and to its
best knowledge, as far as stocks held in accounts with Capital Bank, none of Capital Bank’s
investors act together as a group or otherwise act in concert for the purpose of voting on matters
subject to the vote of our stockholders or for purpose of dispositive or investment of such stock;
• Capital Bank's investors maintain full voting and dispositive power over the Common Stock
beneficially owned by such investors;
• Capital Bank has neither voting nor investment power over the shares of Common Stock owned by
Capital Bank, as agent for its investors;
• Capital Bank believes that it is not required to file reports under Section 16(a) of the Exchange Act
or to file either Schedule 13D or Schedule 13G in connection with the shares of our Common Stock
registered in the name of Capital Bank; and
• Capital Bank is not the beneficial owner, as such term is defined in Rule 13d-3 of the Exchange
Act, of the shares of Common Stock registered in Capital Bank’s name because (a) Capital Bank
holds the Common Stock as a nominee only, (b) Capital Bank has neither voting nor investment
power over such shares, and (c) Capital Bank has not nominated or sought to nominate, and does
not intend to nominate in the future, any person to serve as a member of our Board of Directors.
Notwithstanding the previous paragraph, if Capital Bank's representations to us described above are
incorrect or if Capital Bank's investors are acting as a group, then Capital Bank or a group of Capital Bank's
investors could be a beneficial owner of more than 5% of our voting securities. If Capital Bank is deemed
the beneficial owner of such shares, the following table sets forth information as to the shares of voting
securities that Capital Bank may be considered to beneficially own on March 13, 2014.
Name of
Record Owner
Capital Bank Grawe Gruppe
Title
Of Class
Common
Amount and
Nature of
Ownership
1,404,004(+)
Percent
Of
Class (*)
12.29%
(*) This calculation is based upon 11,419,650 shares of Common Stock outstanding on March 13, 2014, plus
the number of shares of Common Stock which Capital Bank, as agent for certain accredited investors has
the right to acquire within 60 days, which is none.
(+) This amount is the number of shares that Capital Bank has represented to us that it holds of record as
nominee for, and as an agent of, certain of its accredited investors. As of the date of this report, Capital
Bank has no warrants or options to acquire, as agent for certain investors, additional shares of our Common
Stocks. Although Capital Bank is the record holder of the shares of Common Stock described in this note,
Capital Bank has advised us that it does not believe it is a beneficial owner of the Common Stock or that it
is required to file reports under Section 16(a) or Section 13(d) of the Exchange Act. Because Capital Bank
(a) has advised us that it holds the Common Stock as a nominee only and that it does not exercise voting or
investment power over the Common Stock held in its name and that no one investor of Capital Bank for
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which it holds our Common Stock holds more than 4.9% of our issued and outstanding Common Stock and
(b) has not nominated, and has not sought to nominate, and does not intend to nominate in the future, any
person to serve as a member of our Board of Directors, we do not believe that Capital Bank is our affiliate.
Capital Bank's address is Burgring 16, A-8010 Graz, Austria. The amount has been amended given the
effect of the reverse stock split.
Security Ownership of Management
The following table sets forth information as to the shares of voting securities beneficially owned as of
March 13, 2014, by each of our Directors and NEOs and by all of our directors and executive officers as a
group. Beneficial ownership has been determined in accordance with the rules promulgated under Section
13(d) of the Exchange Act. A person is deemed to be a beneficial owner of any voting securities for which
that person has the right to acquire beneficial ownership within 60 days.
Name of Beneficial Owner (2)
Dr. Louis F. Centofanti (3)
John M. Climaco (4)
Dr. Gary G. Kugler (5)
Jack Lahav (6)
Joe R. Reeder (7)
Larry M. Shelton (8)
Dr. Charles E. Young (9)
Mark A. Zwecker (10)
Robert Schreiber, Jr. (11)
Ben Naccarato (12)
James Blankenhorn (13)
Directors and Executive Officers as a Group (10 persons)
*Indicates beneficial ownership of less than one percent (1%).
Amount and Nature
of Beneficial Owner (1)
234,625
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Percent of Class (1)
2.05%
*
1.29%
1.87%
1.29%
*
*
*
*
*
*
8.15%
8,435
9,282
213,952
147,594
57,836
56,183
128,192
26,058
27,000
(13)
40,000
949,157 (14)
(1) See footnote (1) of the table under “Security Ownership of Certain Beneficial Owners.”
(2) The business address of each person, for the purposes hereof, is c/o Perma-Fix Environmental Services,
Inc., 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
(3) These shares include (i) 141,825 shares held of record by Dr. Centofanti, (ii) options to purchase 30,000
shares, which are immediately exercisable, and (iii) 62,800 shares held by Dr. Centofanti's wife. Dr.
Centofanti has sole voting and investment power of these shares, except for the shares held by Dr.
Centofanti's wife, over which Dr. Centofanti shares voting and investment power.
(4) Mr. Climaco has sole voting and investment power over these shares which include: (i) 2,435 shares of
Common Stock held of record by Mr. Climaco, and (ii) options to purchase 6,000 shares, which are
exercisable on April 4, 2014.
(5) Dr. Kugler has sole voting and investment power over these shares which include: (i) 3,282 shares of
Common Stock held of record by Dr. Kugler, and (ii) options to purchase 6,000 shares, which are
immediately exercisable.
(6) Mr. Lahav has sole voting and investment power over these shares which include: (i) 189,952 shares of
Common Stock held of record by Mr. Lahav, and (ii) options to purchase 24,000 shares, which are
immediately exercisable.
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(7) Mr. Reeder has sole voting and investment power over these shares which include: (i) 100,773 shares of
Common Stock held of record by Mr. Reeder, and (ii) options to purchase 24,000 shares, which are
immediately exercisable, and (iii) 22,821 shares held in a custodian account for Mr. Reeder’s grandchildren.
(8) Mr. Shelton has sole voting and investment power over these shares which include: (i) 35,036 shares of
Common Stock held of record by Mr. Shelton, and (ii) options to purchase 22,800 shares, which are
immediately exercisable.
(9) Dr. Young has sole voting and investment power over these shares which include: (i) 32,183 shares held
of record by Dr. Young; and (ii) options to purchase 24,000 shares, which are immediately exercisable.
(10) Mr. Zwecker has sole voting and investment power over these shares which include: (i) 104,192 shares
of Common Stock held of record by Mr. Zwecker, and (ii) options to purchase 24,000 shares, which are
immediately exercisable.
(11) Mr. Schreiber shares voting and investment power, with his spouse, over 21,058 shares of Common
Stock beneficially held and sole voting and investment power over options to purchase 5,000 shares, which
are immediately exercisable.
(12) Mr. Naccarato has sole voting and investment power over these shares which include: options to
purchase 27,000 shares that are immediately exercisable.
(13) Mr. Blankenhorn has sole voting and investment power over these shares which include: options to
purchase 40,000 shares that are immediately exercisable. On March 20, 2014, Mr. Blankenhorn resigned as
Vice President and COO, effective March 28, 2014. Pursuant to the 2010 Stock Option Plan, Mr.
Blankenhorn has 90 days from the effective date of resignation to exercise the vested options.
(14)Amount includes 226,800 options (includes the 40,000 options for Mr. Blankenhorn), which are
immediately exercisable to purchase 226,800 shares of Common Stock, and 6,000 options which are
exercisable on April 4, 2014, to purchase up to 6,000 shares of Common Stock.
Equity Compensation Plans
The following table sets forth information as of December 31, 2013, with respect to our equity
compensation plans.
Equity Compensation Plan
Number of securities to
be issued upon exercise
of outstanding options
warrants and rights
(a)
Weighted average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
(c)
362,800
—
362,800
$9.53
—
$9.53
460,298
—
460,298
Plan Category
Equity compensation plans
Approved by stockholders
Equity compensation plans not
Approved by stockholders
Total
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Review of Related Party Transactions
Our Audit Committee Charter provides for the review by our Audit Committee of any related party
transactions, other than transactions involving an employment relationship with the Company, which are
111
reviewed by the Compensation and Stock Option Committee. Although the Company does not have written
policies for the review of related party transactions, the Audit Committee reviews transactions between the
Company and its directors, executive officers, and their respective immediate family members. In
approving or rejecting a proposed transaction, the Audit Committee takes into account, among other factors
it deems appropriate: (1) the extent of the related person’s interest in the transaction; (2) whether the
transaction is on terms generally available to an unaffiliated third-party under the same or similar
circumstances; (3) the cost and benefit to the Company; (4) the impact or potential impact on a director’s
independence in the event the related party is a director, an immediate family member of a director or an
entity in which a director is a partner, stockholder or executive officer; (5) the availability of other sources
for comparable products or services; (5) the terms of the transaction; and (6) the risks to the Company.
Related party transactions are reviewed at Audit Committee Meetings (which is held at least quarterly) prior
to the consummation of the transaction. With respect to a related party transaction arising between Audit
Committee meetings, the Chief Financial Officer may present it to the Audit Committee Chairman, who will
review and may approve the related party transaction subject to ratification by the Audit Committee at the
next scheduled meeting. Our Audit Committee shall approve only those transactions that, in light of known
circumstances, are not inconsistent with the Company’s best interest.
Related Party Transactions
Mr. Robert Schreiber, Jr.
During March 2011, we entered into a lease with Lawrence Properties LLC, a company jointly owned by
Robert Schreiber, Jr., the President of Schreiber, Yonley and Associates, and Mr. Schreiber’s spouse. Mr.
Schreiber is a member of our executive management team. The lease is for a term of five years starting
June 1, 2011. Under the lease, we pay monthly rent of approximately $11,400, which we believe is lower
than costs charged by unrelated third party landlords. Additional rent will be assessed for any increases
over the new lease commencement year for property taxes or assessments and property and casualty
insurance premiums.
Mr. David Centofanti
Mr. David Centofanti serves as our Director of Information Services. For such services, he received total
compensation in 2013 and 2012 of approximately $163,000 and $165,000, respectively. Mr. David
Centofanti is the son of our Chief Executive Officer and Chairman of our Board, Dr. Louis F. Centofanti.
We believe the compensation received by Mr. Centofanti for his technical expertise which he provides to
the Company is competitive and comparable to compensation we would have to pay to an unaffiliated third
party with the same technical expertise.
Christopher Leichtweis
The Company is obligated to make lease payments of approximately $29,000 per month through June 2018,
pursuant to a Lease Agreement, dated June 1, 2008 (the “Lease”), between Leichtweis Enterprises, LLC, as
lessor, and Safety and Ecology Holdings Corporation (“SEHC”), as lessee. Leichtweis Enterprises, LLC, is
owned by Mr. Christopher Leichtweis (“Leichtweis”), who was a Senior Vice President of the Company
and President of SEC, prior to his voluntary termination and retirement from the Company effective May
24, 2013. The Lease covers SEC’s principal offices in Knoxville, Tennessee.
Under an agreement of indemnity (“Indemnification Agreement”), SEC, Leichtweis and his spouse
(“Leichtweis Parties”), jointly and severally, agreed to indemnify the individual surety with respect to
contingent liabilities that may be incurred by the individual surety under certain of SEC’s bonded projects.
In addition, SEC agreed to indemnify Leichtweis Parties against judgments, penalties, fines, and expense
associated with those SEC performance bonds that Leichtweis Parties have agreed to indemnify in the event
SEC cannot perform, which has an aggregate bonded amount of approximately $10,900,000 (which has
been released/expired). The Indemnification Agreement provided by SEC to the Leichtweis Parties also
provides for compensating the Leichtweis Parties at a rate of 0.75% of the value of bonds (60% having been
paid previously and the balance at substantial completion of the contract). On February 14, 2013, the
Company entered into a Settlement and Release Agreement and Amendment to Employment Agreement
(the “Leichtweis Settlement”), in final settlement of certain claims made by us against Leichtweis in
connection with the certain claims asserted by the Company against TNC subsequent to our acquisition of
112
SEC on October 31, 2011. The Leichtweis Settlement terminated our obligation to pay the Leichtweis
Parties a fee under the Indemnification Agreement.
Employment Agreements
We have an employment agreement with each of Dr. Centofanti (our President and Chief Executive
Officer), Ben Naccarato (our Chief Financial Officer), and James Blankenhorn (our Chief Operating
Officer). Each employment agreement provides for annual base salaries, bonuses, and other benefits
commonly found in such agreements. In addition, each employment agreement provides that in the event of
termination of such officer without cause or termination by the officer for good reason (as such terms are
defined in the employment agreement), the terminated officer shall receive payments of an amount equal to
benefits that have accrued as of the termination but not yet paid, plus an amount equal to one year’s base
salary at the time of termination. In addition, the employment agreements provide that in the event of a
change in control (as defined in the employment agreements), all outstanding stock options to purchase our
Common Stock granted to, and held by, the officer covered by the employment agreement to be
immediately vested and exercisable. On March 20, 2014, the Company accepted the resignation of Mr.
James A. Blankenhorn, as Vice President and COO of the Company. The resignation was effective March
28, 2014. When Mr. Blankenhorn’s resignation as the COO became effective, his employment agreement
also terminated.
The Company also had an employment agreement with Christopher Leichtweis (the “Leichtweis
Employment Agreement”), containing substantially the terms described above with respect to the
employment agreements of Messrs. Centofanti, Naccarato and Blankenhorn. On May 14, 2013, the
Company entered into a Separation and Release Agreement with Mr. Leichtweis, which terminated Mr.
Leichtweis’ employment with the Company and his position as an officer of the Company effective May 24,
2013, and voided the Leichtweis Employment Agreement (except for the “Confidentiality of Trade Secrets
and Business Information (“Section 7”) clause). Leichtweis’ termination was not “for cause” by the
Company nor “for good reason” by Mr. Leichtweis (as defined in the Leichtweis Employment Agreement).
See “EXECUTIVE COMPENSATION--Employment Agreements” elsewhere in this Form 10-K for further
information on termination of the Leichtweis Employment Agreement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees and expenses billed by BDO USA, LLP (“BDO”), our independent registered public
accounting firm, for professional services rendered for the audit of the Company's annual financial
statements for the fiscal years ended December 31, 2013 and 2012, for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for those fiscal years, and for review
of documents filed with the Securities and Exchange Commission for those fiscal years were approximately
$399,000 and $746,000, respectively. Audit fees for 2012 included approximately $110,000 in fees and
expenses incurred in connection with the restatement to the financial statements included in our 2012 Form
10-K/A filed with the Securities and Exchange Commission on December 12, 2013. Audit fees for 2013 and
2012 also include approximately $0 and $140,000, respectively, in fees related to the audits of internal
control over financial reporting.
Audit-Related Fees
The aggregate fees and expenses billed by BDO for audit-related services for the fiscal years ended
December 31, 2013 and 2012 totaled approximately $28,000 and $18,000, respectively. Fees for 2013 and
2012 were for the audits of the Company’s 401(k) Plan.
Tax Fees
BDO was not engaged to provide tax services to the Company for the fiscal years ended December 31, 2013
and 2012.
113
All Other Fees
The aggregate fees billed by BDO for all other services totaled approximately $69,000 and $25,000 for the
fiscal years ended December 31, 2013 and 2012, respectively. The fee for 2013 was for business
interruption consulting services related to insurance claims for our Perma-Fix of South Georgia, Inc. facility
which suffered a fire in August 2013. The fee for 2012 was for consulting services related to the Company’s
compensation plans.
The Audit Committee of the Company's Board of Directors has considered whether BDO’s provision of the
services described above for the fiscal years ended December 31, 2013 and 2012 is compatible with
maintaining its independence.
Engagement of the Independent Auditor
The Audit Committee approves in advance all engagements with BDO and any members of the BDO
Seidman Alliance network of firms to perform audit or non-audit services for us. All services under the
headings Audit Fees, Audit Related Fees, Tax Fees, and All Other Fees were approved by the Audit
Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X of the Exchange Act. The
Audit Committee's pre-approval policy provides as follows:
•
•
•
The Audit Committee will review and pre-approve on an annual basis all audits, audit-related,
tax and other services, along with acceptable cost levels, to be performed by BDO and any
member of the BDO Seidman Alliance network of firms, and may revise the pre-approved
services during the period based on later determinations. Pre-approved services typically
include: Audits, quarterly reviews, regulatory filing requirements, consultation on new
accounting and disclosure standards, employee benefit plan audits, reviews and reporting on
management's internal controls and specified tax matters.
Any proposed service that is not pre-approved on the annual basis requires a specific pre-
approval by the Audit Committee, including cost level approval.
The Audit Committee may delegate pre-approval authority to one or more of the Audit
Committee members. The delegated member must report to the Audit Committee, at the next
Audit Committee meeting, any pre-approval decisions made.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
PART IV
The following documents are filed as a part of this report:
(a)(1)
Consolidated Financial Statements
See Item 8 for the Index to Consolidated Financial Statements.
(a)(2)
Financial Statement Schedule
Schedules are not required, are not applicable or the information is set forth in the consolidated
financial statements or notes thereto.
(a)(3)
Exhibits
The Exhibits listed in the Exhibit Index are filed or incorporated by reference as a part of this
report.
114
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Perma-Fix Environmental Services, Inc.
By /s/ Dr. Louis F. Centofanti
Dr. Louis F. Centofanti
Chairman of the Board
Chief Executive Officer
By /s/ Ben Naccarato
Ben Naccarato
Chief Financial Officer and
Chief Accounting Officer
Date April 15, 2014
Date April 15, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in capacities and on the dates indicated.
By /s/ Dr. Louis F. Centofanti
Dr. Louis F. Centofanti, Director
Date April 15, 2014
By /s/ John M. Climaco
John M. Climaco, Director
By /s/ Dr. Gary Kugler
Dr. Gary Kugler, Director
By /s/ Jack Lahav
Jack Lahav, Director
By /s/ Joe R. Reeder
Joe R. Reeder, Director
By /s/ Larry M. Shelton
Larry M. Shelton, Director
By /s/ Charles E. Young
Charles E. Young, Director
By /s/ Mark A. Zwecker
Mark A. Zwecker, Director
Date April 15, 2014
Date April 15, 2014
Date April 15, 2014
Date April 15, 2014
Date April 15, 2014
Date April 15, 2014
Date April 15, 2014
115
Exhibit
No.
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3(i)
3(ii)
4.1
4.2
4.3
4.4
EXHIBIT INDEX
Description
Agreement and Plan of Merger dated April 27, 2007, by and among Perma-Fix
Environmental Services, Inc., Nuvotec USA, Inc., Pacific EcoSolutions, Inc. and PESI
Transitory, Inc., which is incorporated by reference from Exhibit 2.1 to the Company’s
Form 8-K, filed May 3, 2007. The Company will furnish supplementally a copy of any
omitted exhibits or schedule to the Commission upon request.
First Amendment to Agreement and Plan of Merger, dated June 13, 2007, by and among
Perma-Fix Environmental Services, Inc., Nuvotec USA, Inc., Pacific EcoSolutions, Inc.,
and PESI Transitory, Inc., which is incorporated by reference from Exhibit 2.2 to the
Company’s Form 8-K, filed June 19, 2007. The Company will furnish supplementally a
copy of any omitted exhibits or schedule to the Commission upon request.
Stock Purchase Agreement by and between Triumvirate Environmental, Inc., and Perma-Fix
Environmental Services, Inc., dated June 13, 2011, which is incorporated by reference from
Exhibit 2.1 to the Company’s Form 10-Q for the quarter ended June 30, 2011. The
Company will furnish supplementally a copy of any omitted exhibits or schedule to the
Commission upon request.
Stock Purchase Agreement dated July 15, 2011, by and among Perma-Fix Environmental
Services, Inc., Homeland Security Capital Corporation (now known as Timios National
Corporation or “TNC”), and Safety and Ecology Holdings Corporation, which is
incorporated by references from Exhibit 2.1 to the Company’s Form 8-K filed on July 20,
Asset Purchase Agreement by and among Triumvirate Environmental, Inc., Triumvirate
Environmental (Florida), Inc. and Perma-Fix Environmental Services, Inc., and Perma-Fix
of Orlando, Inc., dated August 12, 2011 which was filed as Exhibit 99.1 to the Company’s
8-K filed on August 17, 2011 and incorporated herein by reference..
Escrow Agreement, dated October 31, 2011, between the Company, Homeland Security
Capital Corporation, and Suntrust Bank, which was filed as Exhibit 2.3 to the Company’s 8-
K filed on November 4, 2011 and incorporated herein by reference.
Letter Agreement (Net Working Capital Adjustments), dated October 31, 2011, between the
Company, Safety & Ecology Holdings Corporation and Homeland Security Capital
Corporation, which was filed as Exhibit 2.4 to the Company’s 8-K filed on November 4,
2011 and incorporated herein by reference.
Letter Agreement (Escrow), dated October 31, 2011, between the Company, Safety &
Ecology Holdings Corporation and Homeland Security Capital Corporation, which was
filed as Exhibit 2.5 to the Company’s 8-K filed on November 4, 2011 and incorporated
herein by reference.
Letter Agreement (Note Prepayment), dated October 31, 2011, between the Company,
Safety & Ecology Holdings Corporation and Homeland Security Capital Corporation, which
was filed as Exhibit 2.6 to the Company’s 8-K filed on November 4, 2011 and incorporated
herein by reference.
Restated Certificate of Incorporation, as amended, of Perma-Fix Environmental Services,
Inc., as incorporated by reference from Exhibit 3(i) to the Company’s 2012 Form 10-K/A
filed on December 12, 2013.
Amended and Restated Bylaws, as amended, of Perma-Fix Environmental Services, Inc., as
incorporated by reference from Exhibit 3(ii) to the Company’s 2012 Form 10-K/A filed on
December 12, 2013.
Specimen Common Stock Certificate as incorporated by reference from Exhibit 4.3 to the
Company's Registration Statement, No. 33-51874.
Rights Agreement dated as of May 2, 2008 between the Company and Continental Stock
Transfer & Trust Company, as Rights Agent, as incorporated by reference from Exhibit 4.1
to the Company’s Form 8-K filed on May 8, 2008.
Letter Agreement dated September 29, 2008, between the Company and Continental Stock
Transfer & Trust Company, as incorporated by reference from Exhibit 4.3 to the Company’s
Form 8-A/A filed on October 2, 2008.
Loan and Securities Purchase Agreement, dated August 2, 2013 between William N.
116
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
10.1
10.2
10.3
10.4
Lampson, Robert L. Ferguson, and Perma-Fix Environmental Services, Inc. as incorporated
by reference from Exhibit 4.4 to the Company Form 10-Q for quarter ended June 30, 2013,
filed on August 8, 2013.
Promissory Note dated August 2, 2013, between William N. Lampson, Robert L. Ferguson,
and Perma-Fix Environmental Services, Inc. as incorporated by reference from Exhibit 4.5
to the Company Form 10-Q for quarter ended June 30, 2013, filed on August 8, 2013.
Common Stock Purchase Warrant, dated August 2, 2013, for William N. Lampson, as
incorporated by reference from Exhibit 4.6 to the Company Form 10-Q for quarter ended
June 30, 2013, filed on August 8, 2013.
Common Stock Purchase Warrant, dated August 2, 2013, for Robert L. Ferguson, as
incorporated by reference from Exhibit 4.7 to the Company Form 10-Q for quarter ended
June 30, 2013, filed on August 8, 2013.
Non-negotiable Promissory Note issued by Perma-Fix Environmental Services, Inc., to
Homeland Security Capital Corporation, dated October 31, 2011, which was filed as Exhibit
2.2 to the Company’s 8-K filed on November 4, 2011 and incorporated herein by reference.
Amended and Restated Revolving Credit, Term Loan and Security Agreement between
Perma-Fix Environmental Services, Inc. and PNC Bank, National Association (as Lender
and as Agent), dated October 31, 2011, which was filed as Exhibit 99.4 to the Company’s 8-
K filed on November 4, 2011.
First Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement, dated November 7, 2012, between the Company and PNC Bank, National
Association, as incorporated by reference from exhibit 4.1 to the Company’s Form 10-Q for
the quarter ended September 30, 2012, filed on November 8, 2012.
Second Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement and Waiver, dated May 9, 2013, between the Company and PNC Bank, National
Association, as incorporated by reference from Exhibit 4.1 to the Company’s Form 10-Q for
the quarter ended March 31, 2013, filed on May 10, 2013.
Third Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement between PNC Bank, National Association and Perma-Fix Environmental
Services, Inc., dated August 2, 2013, as incorporated by reference from Exhibit 4.1 to the
Company’s Form 10-Q for the quarter ended June 30, 2013, filed on August 8, 2013.
Third Amended, Restated and Substituted Revolving Credit Note between PNC Bank,
National Association and Perma-Fix Environmental Services, Inc., dated August 2, 2013,
as incorporated by reference from Exhibit 4.2 to the Company’s Form 10-Q for the quarter
ended June 30, 2013, filed on August 8, 2013.
Subordination Agreement dated August 2, 2013 by and among William Lampson and
Robert Ferguson and PNC Bank, National Association, as incorporated by reference from
Exhibit 4.3 to the Company’s Form 10-Q for the quarter ended June 30, 2013, filed on
August 8, 2013.
Letter, dated October 29, 2013, from NASDAQ Stock Market, regain compliance with
Listing Rule 5550(a)(2), as incorporated by reference from Exhibit 4.15 to the Company’s
2012 Form 10-K/A filed on December 12, 2013.
Letter, dated November 14, 2013, from NASDAQ Stock Market, non-compliance with
Listing Rule 5250(c)(1), as incorporated by reference from Exhibit 4.16 to the Company’s
2012 Form 10-K/A filed on December 12, 2013.
Fourth Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement and Waiver between PNC Bank, National Association and Perma-Fix
Environmental Services, Inc., dated April 14, 2014.
1993 Non-qualified Stock Option Plan as incorporated by reference from Exhibit 10.3 to the
Company's Form 10-Q for the quarter ended June 30, 2010, filed on August 6, 2010.
401(K) Profit Sharing Plan and Trust of the Company as incorporated by reference from
Exhibit 10.5 to the Company's Registration Statement, No. 33-51874.
2003 Outside Directors' Stock Plan of the Company as incorporated by reference from
“Exhibit B” to the Company’s Proxy Statement dated June 20, 2003.
First Amendment to 2003 Outside Directors Stock Plan, as incorporated by reference from
Appendix “A” to the Company’s 2008 Proxy Statement dated July 3, 2008.
117
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Second Amendment to 2003 Outside Directors Stock Plan, as incorporated by reference
from Appendix “A” to the Company’ 2012 Proxy Statement dated August 6, 2012.
2004 Stock Option Plan of the Company as incorporated by reference from “Exhibit A” to
the Company’s Proxy Statement dated June 21, 2004.
Consent Decree, dated December 12, 2007, between United States of America and Perma-
Fix of Dayton, Inc., as incorporated by reference from Exhibit 10.29 to the Company’s
Form 10-K for the year ended December 31, 2007 filed with the SEC on April 1, 2008.
Subcontract between CH2M Hill Plateau Remediation Company, Inc. (“CHPRC”) and East
Tennessee Materials & Energy Corporation, dated May 27, 2008., as incorporated by
reference from Exhibit 10.4 to the company’s Form 10-Q for the quarter ended June 30,
2010 filed on August 6, 2010.
Consent Agreement dated September 26, 2008 between Perma-Fix Northwest Richland, Inc.
and the U.S. Environmental Protection Agency, as incorporated by reference from Exhibit
10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2008 filed on
November 10, 2008.
Second Amendment to Agreement and Plan of Merger, dated November 18, 2008 by and
among Perma-Fix Northwest, Inc., Perma-Fix Northwest Richland, Inc., Perma-Fix
Environmental Services, Inc., and Robert L. Ferguson, an individual, and William N.
Lampson, an individual, as Representatives, as incorporated by reference from Exhibit 10.1
to the Company’s Form 8-K filed with the SEC on November 21, 2008.
Third Amendment to Agreement and Plan of Merger; Second Amendment to Paying Agent
Agreement, and Termination of Escrow Agreement, dated September 29, 2009 by and
among Perma-Fix Northwest, Inc. (f/k/a Nuvotec USA, Inc.); Perma-Fix Northwest
Richland, Inc. (f/n/a Pacific EcoSolutions, Inc.); Perma-Fix Environmental Services, Inc.;
Nuvotrust Liquidation Trust; Nuvotrust Trustee, LLC; Robert L. Ferguson, William N.
Lampson; Rettig Osborne Forgette, LLP; and The Bank of New York Company, Inc., which
is incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K filed on October
5, 2009.
Earn-Out Promissory Note, dated September 28, 2010, between the Company and
Nuvotrust Northwest Liquidation Trust, as incorporated by reference from Exhibit 10.1 to
the Company’s Form 10-Q for quarter ended September 30, 2010, filed on November 5,
2010.
2010 Stock Option Plan of the Company as incorporated by reference from “Appendix A”
to the Company's 2010 Proxy Statement dated August 20, 2010.
Employment Agreement dated August 24, 2011 between Louis Centofanti, Chief Executive
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 99.1 to the Company’s Form 8-K filed on August 30, 2011.
Employment Agreement dated August 24, 2011 between Ben Naccarato, Chief Financial
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 99.2 to the Company’s Form 8-K filed on August 30, 2011.
Employment Agreement dated August 24, 2011 between Jim Blankenhorn, Chief Operating
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 99.3 to the Company’s Form 8-K filed on August 30, 2011
Employment Agreement between Perma-Fix Environmental Services, Inc. and Christopher
Leichtweis, dated October 31, 2011, which was filed as Exhibit 99.1 to the Company’s 8-K
filed on November 4, 2011 and incorporated herein by reference.
10.19
10.18 Management Incentive Plan for Christopher Leichtweis, dated November 1, 2011, which
was filed as Exhibit 99.3 to the Company’s 8-K filed on November 4, 2011 and
incorporated herein by reference.
Non-Qualified Stock Option Agreement between Perma-Fix Environmental Services, Inc.
and Christopher Leichtweis, dated October 31, 2011, which was filed as Exhibit 99.2 to the
Company’s 8-K filed on November 4, 2011 and incorporated herein by reference.
Indemnification Agreement, dated February 21,2011, between Safety and Ecology Holdings
Corporation, Safety and Ecology Corporation, Inc., and Christopher P. Leichtweis and Myra
Leichtweis, which was filed as Exhibit 99.5 to the Company’s 8-K filed on November 4,
2011 and incorporated herein by reference.
10.20
118
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Incentive Stock Option Agreement between Perma-Fix Environmental Services, Inc., and
Mr. Jim Blankenhorn, which was filed as Exhibit 10.1 to the Company Form 10-Q for the
quarter ended June 30, 2011 and incorporated herein by reference.
Contract and Amendments entered into between Safety and Ecology Corporation and U.S.
Department of Energy (Oak Ridge) dated March 30, 2010, incorporated by reference from
Exhibit 10.38 to the Company’s Form 10-K for the year ended December 31, 2011.
CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT
IS SUBJECT TO COMMISSION ORDER CF #28139 FOR WHICH A REQUEST
BY THE COMPANY FOR AN EXTENSION FOR CONFIDENTIAL TREATMENT
BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
FREEDOM OF INFORMATION ACT HAS BEEN FILED SEPARATELY WITH
THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION.
2012 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2012,
as incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on July
18, 2012.
2012 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2012, as
incorporated by reference from Exhibit 10.2 to the Company’s Form 8-K filed on July 18,
2012.
2012 Incentive Compensation Plan for Chief Operating Officer, effective January 1, 2012,
as incorporated by reference from Exhibit 10.3 to the Company’s Form 8-K filed on July
18, 2012.
Amended Management Incentive Plan for Christopher Leichtweis, Senior Vice President,
dated July 12, 2012, as incorporated by reference from Exhibit 10.4 to the Company’s Form
8-K filed on July 18, 2012.
Settlement and Release Agreement dated as of February 12, 2013, by and between Perma-
Fix Environmental Services, Inc. and Safety & Ecology Holdings Corporation, on the one
hand, and Timios National Corporation, on the other hand, as incorporated by reference
from Exhibit 99.1 to the Company’s 8-K filed on February 15, 2013.
Settlement and Release Agreement and Amendment to Employment Agreement dated as of
February 14, 2013, by and between Perma-Fix Environmental Services, Inc., Safety &
Ecology Holdings Corporation and Safety and Ecology Corporation, on the one hand, and
Christopher P. Leichtweis and Myra Leichtweis, on the other hand, as incorporated by
reference from Exhibit 99.2 to the Company’s 8-K filed on February 15, 2013.
Separation and Release Agreement dated May 14, 2013 by and between Christopher
Leichtweis and Perma-Fix Environmental Services, Inc., incorporated by reference from
Exhibit 99.1 to the Company’s Form 8-K filed on May 17, 2013.
Consulting Services Agreement dated May 14, 2013 by and between Christopher
Leichtweis and Perma-Fix Environmental Services, Inc. incorporated by reference from
Exhibit 99.2 to the Company’s Form 8-K filed on May 17, 2013.
Settlement and Release Agreement dated as of February 12, 2013, by and between Perma-
Fix Environmental Services, Inc. and Safety & Ecology Holdings Corporation, on the one
hand, and Timios National Corporation, on the other hand, as incorporated by reference
from Exhibit 99.1 to the Company’s 8-K filed on February 15, 2013.
Settlement and Release Agreement and Amendment to Employment Agreement dated as of
February 14, 2013, by and between Perma-Fix Environmental Services, Inc., Safety &
Ecology Holdings Corporation and Safety and Ecology Corporation, on the one hand, and
Christopher P. Leichtweis and Myra Leichtweis, on the other hand, as incorporated by
reference from Exhibit 99.2 to the Company’s 8-K filed on February 15, 2013.
Separation and Release Agreement dated May 14, 2013 by and between Christopher
Leichtweis and Perma-Fix Environmental Services, Inc., as incorporated by reference from
Exhibit 99.1 to the Company’s Form 8-K filed on May 17, 2013.
Consulting Services Agreement dated May 14, 2013 by and between Christopher
Leichtweis and Perma-Fix Environmental Services, Inc., as incorporated by reference from
Exhibit 99.2 to the Company’s Form 8-K Filed on May 17, 2013.
2013 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2013,
as incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed on June
12, 2013.
119
10.36
10.37
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
2013 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2013, as
incorporated by reference from Exhibit 10.2 to the Company’s Form 8-K filed on June 12,
2013.
2013 Incentive Compensation Plan for Chief Operating Officer, effective January 1, 2013,
as incorporated by reference from Exhibit 10.3 to the Company’s Form 8-K filed on June
List of Subsidiaries
Consent of BDO USA, LLP
Certification by Dr. Louis F. Centofanti, Chief Executive Officer of the Company pursuant
to Rule 13a-14(a) or 15d-14(a).
Certification by Ben Naccarato, Chief Financial Officer and Chief Accounting Officer of
the Company pursuant to Rule 13a-14(a) or 15d-14(a).
Certification by Dr. Louis F. Centofanti, Chief Executive Officer of the Company furnished
pursuant to 18 U.S.C. Section 1350.
Certification by Ben Naccarato, Chief Financial Officer and Chief Accounting Officer of
the Company furnished pursuant to 18 U.S.C. Section 1350.
XBRL Instance Document*
XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Extension Calculation Linkbase Document*
XBRL Taxonomy Extension Definition Linkbase Document*
XBRL Taxonomy Extension Labels Linkbase Document*
XBRL Taxonomy Extension Presentation Linkbase Document*
*Pursuant to Rule 406T of Regulation S-T, the Interactive Data File in Exhibit 101 hereto are deemed not
filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of
1933, as amended, are deemed not filed for purpose of Section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise are not subject to liability under those sections.
120
c o r p o r at e i n F o r m at i o n
Board of Directors
Dr. Louis F. Centofanti
Chairman, President, and
Chief Executive Officer
(Director since 1991)(4)
John M. Climaco
Director(1)(5)
Former President and
Chief Executive Officer of
Axial Biotech, Inc.
(Director since October 2013)
Dr. Gary Kugler
Director(2)(4)
Former Senior Vice President of
Atomic Energy of Canada Limited
(Director since September 2013)
Jack Lahav
Director (2)
Private Investor
(Director since 2001)
Management Team
Dr. Louis F. Centofanti
President and
Chief Executive Officer
Ben Naccarato
Chief Financial Officer
Corporate Information
Joe R. Reeder
Director (2)(3)(5)
Shareholder of
Greenburg Traurig, LLP;
Former Army Undersecretary
(Director since 2003)
Larry M. Shelton
Director (1)(3)(5)
Chief Financial Officer of
S K Hart Management, LC
(Director since 2006)
Charles E. Young
Director (2)(3)
Former Chief Executive Officer
of the Los Angeles Museum of
Contemporary Art
(Director since 2003)
Mark A. Zwecker
Director (1)(3)(5)
Chief Financial Officer
of JCI US Inc.
(Director since 1991)
(1) Member of Audit Committee
(2) Member of Nominating and
Corporate Governance Committee
(3) Member of Compensation and
Stock Option Committee
(4) Member of Research and
Development Committee
(5) Member of Strategic Advisory
Committee
Robert Schreiber, Jr.
President of SYA
John Lash
Chief Operating Officer
(Effective March 2014)
Executive Offices
8302 Dunwoody Place, Suite 250
Atlanta, Georgia 30350
Telephone: 770-587-9898
Fax: 770-587-9937
Independent Registered
Public Accounting Firm
BDO USA, LLP
1100 Peachtree Street, Suite 700
Atlanta, Georgia 30309
Stock Listing
The common stock of Perma-Fix
Environmental Services, Inc. is
listed on Nasdaq where it is traded
under the ticker symbol PESI.
Transfer Agent and Registrar
Continental Stock Transfer &
Trust Company
17 Battery Place
New York, New York 10004
Stockholder Inquiries
Inquiries concerning stockholder
records should be addressed to
the Transfer Agent listed to the
left. Comments or questions
concern ing the operations of the
Company should be addressed
to the Secretary, Perma-Fix
Environmental Services, Inc.,
8302 Dunwoody Place, Suite 250,
Atlanta, Georgia 30350.
Included within this Annual Report is a list briefly describing all exhibits listed in the Company’s Form 10-K. We will furnish any exhibit to a
shareholder upon receipt of a written request and payment of a specified reasonable fee, which fee shall be limited to the registrant’s reasonable
expenses in furnishing such exhibit. Each request must set forth a good-faith representation that, as of the record date for the solicitation of
proxies, the person making the request was a beneficial owner of securities of the Company entitled to vote.
Certain statements contained in the Shareholders’ letter, which have been added to this Annual Report on Form 10-K, may be deemed additional
forward-looking statements. All estimates, projections, and other statements generally identifiable by the use of the words “believe,” “expect,”
“intend,” “anticipate,” “plans to” and similar expressions (except statements of historical facts) contained therein are forward-looking statements,
including but not limited to statements that we believe this represents a significant market opportunity; that our process will help reduce environ-
mental concerns; that we anticipate improved profitability and cash flow in 2014; and that we are capable of achieving and exceeding past levels as
we further establish our position as an industry leader. See “Special Note Regarding Forward-Looking Statements” contained in the Form 10-K that
is part of the Annual Report for discussion of factors which could cause future outcomes to differ materially from those described herein.
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A Nuclear Services and Waste Management Company
8302 Dunwoody Place, Suite 250 / Atlanta, Georgia 30350
P 770-587-9898 / F 770-587-9937
w w w . p e r m a - f i x . c o m