2015
A NNUA L
REP ORT
N U C L E A R
WA S T E
T E C H N I C A L
A Nuclear Services and Waste Management Company T O O U R VA L U E D
S H A R E H O L D E R S ,
I am pleased to report we achieved $7 million of adjusted EBITDA* in
2015, which was almost double what we reported last year, and after
a slow start, expect another solid year in 2016. For 2016, we anticipate
continued improvement in our Treatment and Services Segments. We
also see emerging opportunities in the high-level waste arena, which
we believe represents an even larger potential market opportunity.
In our Services Segment, revenue increased 43% to $21.1
million from $14.7 million for the same period last year. We
see continued growth in our Services Segment, which can
provide for a more predictable revenue stream. With our
vast waste characterization and treatment knowledge and
experience, we strive to provide comprehensive solutions
for site and environmental reme diation projects, including
turn-key radiological services, from characterization through
facility decommissioning and decontamination and final
status surveys.
Within our Treatment Segment, we experienced some
weakness in the fourth quarter of 2015 and the first quarter of
2016. This was due in large part to the timing of certain large
waste treatment projects that were pushed out to later this
year. We expect to receive these shipments late in the second
quarter and into the second half of 2016. As a result, we expect
a strong second half of 2016 in our Treatment Segment.
I am also extremely pleased to report Perma-Fix has
formed a team and has been awarded an Indefinite Delivery/
Indefinite Quantity (“IDIQ”) contract by the U.S. Department
of Energy (“DOE”) for up to $8.6 million to demonstrate the
treatment of high-level waste by the end of the year. Follow-
ing completion of this demonstration contract, we believe
Perma-Fix will be well positioned to offer treatment services
in a new market.
We are also encouraged by opportunities outside the DOE,
as we continue to focus on commercial and international busi-
ness that will help diversify our revenue.
Turning to our medical isotope technology, we continue to
make progress on the regulatory front. We are also con-
sidering a variety of options that will bolster the strength of
our majority-owned subsidiary including both strategic and
capital markets options. We believe we now have the requisite
management and regulatory expertise in place, and the feed-
back from within the industry, from both distributors and
end-users, has been extremely positive.
We believe we are in a position to be a key player in this
market as its process is lower cost, does not use government-
subsidized, weapons-grade materials, and can be easily
deployed in standard research and commercial reactors
worldwide. We are in active discussions with a number of
potential investors, strategic partners, distributors and cus-
tomers, and look forward to providing additional updates in
the very near future.
As we look ahead, we remain positive in the outlook for
2016. In 2015 we saw our adjusted EBITDA nearly double.
For 2016, we have improved visibility, primarily as it relates
to the government spending, and anticipate solid growth in
both our segments. We are pursuing several large contracts
in the Services Segment and see a growing number of oppor-
tunities within the Treatment Segment, including high-level
waste, which represents a significant growth opportunity for
Perma-Fix. Importantly, we believe we have the technology,
permits and facilities in place to treat a variety of high-level
waste streams.
We would like to thank our shareholders, employees and
Board of Directors for their ongoing support. We will keep
you apprised of our progress as developments unfold at
the Company.
Sincerely,
Dr. Louis F. Centofanti
President and Chief Executive Officer
*See definition of adjusted EBITDA in “Corporate Information” section.
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, 2015
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, 2015), was approximately $40,332,000. For the purposes of this calculation, all directors of the Registrant (as indicated in Item 12) are deemed
to be affiliates. Such determination should not be deemed an admission that such directors, are, in fact, affiliates of the Registrant. The Company's
Common Stock is listed on the NASDAQ Capital Markets.
As of March 6, 2016, there were 11,557,944 shares of the registrant's Common Stock, $.001 par value, outstanding.
Documents incorporated by reference: None
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I
Item 1.
Business ................................................................................................................................... 1
Item 1A.
Risk Factors ............................................................................................................................. 8
Item 1B.
Unresolved Staff Comments .................................................................................................... 17
Item 2.
Properties ................................................................................................................................. 18
Item 3.
Legal Proceedings .................................................................................................................... 18
Item 4.
Mine Safety Disclosure ............................................................................................................ 18
PART II
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters .......................... 18
Item 6.
Selected Financial Data .......................................................................................................... 19
Item 7.
Management's Discussion and Analysis of Financial Condition
And Results of Operations ..................................................................................................... 19
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ................................................ 36
Special Note Regarding Forward-Looking Statements........................................................... 36
Item 8.
Financial Statements and Supplementary Data ....................................................................... 38
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................................................................................... 75
Item 9A.
Controls and Procedures ........................................................................................................ 75
Item 9B.
Other Information .................................................................................................................. 76
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ...................................................... 76
Item 11.
Executive Compensation ........................................................................................................ 84
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ................................................................................................................ 104
Item 13.
Certain Relationships and Related Transactions, and Director Independence ........................ 107
Item 14.
Principal Accountant Fees and Services ................................................................................. 108
PART IV
Item 15.
Exhibits and Financial Statement Schedules ...................................................................... …109
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 environmental
technology know-how company, which provides services through our three reporting segments as discussed
below, Treatment, Services, and Medical.
On April 4, 2014, the Company completed the acquisition of a controlling interest in a Polish Company, a
publicly traded shell company on the NewConnect (alternative share market run by the Warsaw Stock
Exchange) in Poland and sold to the Polish shell all of the shares of Perma-Fix Medical Corporation, a
Delaware corporation organized by the Company (incorporated in January 2014). Perma-Fix Medical
Corporation’s only asset was a worldwide license granted by the Company to use, develop and market the
new process and technology developed by the Company in the production of Technetium-99 (“Tc-99m”) for
medical diagnostic applications. Tc-99m is the most widely used medical isotope in the world. Since the
acquired shell company (now named Perma-Fix Medical S.A. or “PF Medical”) did not meet the definition
of a business under Accounting Standards Codification (“ASC”) 805, “Business Combinations”, the
transaction was accounted for as a capital transaction. PF Medical, our majority-owned Polish subsidiary
(of which we own approximately 60.5%), continues to perform research and development (“R&D”) of its
new medical isotope production technology. Currently, nearly all of the world’s supply of Tc-99m is
generated using highly enriched uranium at a small number of highly specialized reactors. Maintenance and
unexpected shutdown of these reactors have in the past, created supply shortages throughout the world and
the supply shortages are expected to continue as one of the specialized reactors is expected to cease
production of and go off-line in the near future. PF Medical’s new medical isotope production technology
does not require the use of uranium which is expected to improve safety and can use standard research and
commercial reactors, thereby eliminating the need for special purpose reactors, thus improving the
reliability of supply. As of December 31, 2015, PF Medical has not generated any revenue as it is primarily
in the R&D stage. In accordance with ASC 280, “Segment Reporting,” the Company has determined that
the operations of PF Medical meet the definition of a reportable segment. Accordingly, all of the historical
numbers presented in the consolidated financial statements have been recast to include the operations of PF
Medical as a separate reportable segment (“Medical Segment”).
We have grown through acquisitions and internal growth. Our goal is to continue to focus on the efficient
operation of our facilities and on-site activities, to continue to evaluate strategic acquisitions, to continue the
R&D of innovative technologies to expand company service offering and to treat nuclear waste, mixed
waste, and industrial waste. In addition, our majority-owned subsidiary, PF Medical, continues to dedicate
resources to the R&D of its new medical isotope production technology and to take the necessary steps for
eventual submittal of this technology for U.S. Food and Drug Administration (“FDA”) and other regulatory
approval and commercialization of this technology. The Company continues to focus on expansion into both
commercial and international markets to help offset the uncertainties of government spending in the USA,
from which a significant portion of the Company’s revenue is derived. This includes new services, new
customers and increased market share in our current markets.
Segment Information and Foreign and Domestic Operations and Sales
The Company has three reportable segments. In accordance with Financial Accounting Standards Board
(“FASB”) ASC 280, “Segment Reporting”, we define an operating segment as:
a business activity from which we may earn revenue and incur expenses;
•
• whose operating results are regularly reviewed by the chief operating decision maker “(CODM”) to
make decisions about resources to be allocated and assess its performance; and
for which discrete financial information is available
•
1
TREATMENT SEGMENT reporting includes:
-
nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive
waste), hazardous and non-hazardous waste treatment, processing and disposal services primarily
through four uniquely licensed (Nuclear Regulatory Commission or state equivalent) and permitted
(U.S. Environmental Protection Agency (“EPA”) or state equivalent) treatment and storage facilities
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 2015, the Treatment Segment accounted for $41,318,000 or 66.2% of total revenue from continuing
operations, as compared to $42,343,000 or 74.2% of total revenue from continuing operations for 2014. See
“– Dependence Upon a Single or Few Customers” 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
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;
and
o global technical services providing consulting, engineering, project management, waste
management, environmental, decontamination and decommissioning (“D&D”) field,
technical, and management personnel and services to commercial and government
customers;
- Nuclear services, which include:
technology-based services including engineering, D&D, specialty services and construction,
logistics, transportation, processing and disposal;
remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear
legacy sites. Such services capability
includes: project investigation; radiological
engineering; partial and total plant D&D; facility decontamination, dismantling, demolition,
and planning; site restoration; 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;
o
o
o
For 2015, the Services Segment accounted for $21,065,000 or 33.8% of total revenue from continuing
operations, as compared to $14,722,000 or 25.8% of total revenue from continuing operations for 2014. See
“ – Dependence Upon a Single or Few Customers” 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
MEDICAL SEGMENT reporting includes: R&D costs for the new medical isotope production technology
from our majority-owned Polish subsidiary, PF Medical. The Medical Segment has not generated any
revenue as it continues to be primarily in the R&D stage. R&D costs consist primarily of employee salaries
and benefits, laboratory costs, third party fees, and other related costs associated with the development of
new technology.
2
Our Treatment and Services Segments provide services to 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 corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Foreign Revenue
Our consolidated revenue from continuing operations for 2015 and 2014 included approximately $199,000
or 0.3% and $147,000 or 0.3%, respectively, from our United Kingdom operation, Perma-Fix UK Limited
(“PF UK Limited”).
Our consolidated revenue from continuing operations for 2015 and 2014 included approximately $279,000
or 0.4% and $1,855,000 or 3.3%, respectively, from customers 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 three service marks for our Safety & Ecology Holdings Corporation and its subsidiaries
(collectively known as “Safety and Ecology Corporation” or “SEC”) to periods ranging from 2016 to 2017.
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 thirteen active patents and the filing of
several applications for which patents are pending. These thirteen active patents have remaining lives
ranging from approximately three to sixteen years. These active patents granted to the Company include a
patent for the new technology for the production of Tc-99m for certain types of medical applications, which
we have granted a worldwide exclusive license to a U.S. subsidiary of PF Medical. This patent is effective
through March 2032.
PF Medical has completed successful scale-up of its technology in producing Tc-99m. These tests have
confirmed that its proprietary technology has produced clinically useful doses of Tc-99m. PF Medical plans
to conduct additional tests in the near future as part of its multi-step validation and fine tuning of its Tc-99m
technology.
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. We are dependent on our permits and
licenses discussed below in order to operate our businesses. Failure to obtain and maintain our permits or
approvals would have a material adverse effect on us, our operations, and financial condition. The permits
and licenses have terms ranging from one to ten years, and provided that we maintain a reasonable level of
compliance, renew with minimal effort, and cost. 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
3
Tennessee Department of Environment and Conservation. Co-regulated TSCA Polychlorinated Biphenyl
(“PCB”) wastes are also managed for PCB destruction under the 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.
PF Medical, our majority-owned Polish subsidiary, owns 100% of a U.S. subsidiary, Perma-Fix Medical
Corporation (“PFMC”). PFMC holds a license granted to it by the Company to use, develop and market a
new process and technology in the production of Tc-99m for medical diagnostic applications. PFMC’s only
asset was this license granted to PFMC by the Company. PF Medical must complete development of its Tc-
99m medical diagnostic technology and obtain approvals as to its Tc-99m medical diagnostic application
from a certain U.S. governmental agency before it can market its process in the U.S. and may be required to
obtain approvals from certain foreign governmental authorities before it can market its process in those
respective foreign countries.
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, 2015, our Treatment
Segment had a backlog of approximately $4,698,000, as compared to approximately $9,228,000 as of
December 31, 2014. 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 Treatment and Services Segments have significant relationships with the federal government, and
continue to enter into contracts, directly as the prime contractor or indirectly for others 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 representing approximately
$36,105,000 or 57.9% of our total revenue from continuing operations during 2015, as compared to
$34,780,000 or 60.9% of our total revenue from continuing operations during 2014.
Revenue generated by one of the customers (non-government related and excluded from above) in the
Services Segment accounted for 10% or more of the total revenues generated from continuing operations for
the twelve months ended December 31, 2015:
Customer
Prologis Teterboro, LLC
Revenue
$10,686,000
Revenue
17.1%
Year
2015
4
As our revenues are project/event based where the completion of one contract with a specific customer may
be replaced by another contract with a different customer from year to year, we do not believe the loss of one
specific customer from one year to the next will generally have a material adverse effect on our operations
and financial condition.
Competitive Conditions
The Treatment Segment’s largest competitor is EnergySolutions (“ES”) which operates treatment and
disposal facilities in Oak Ridge, TN and Clive, UT. Waste Control Specialists (“WCS”), which has licensed
disposal capabilities in Andrews, TX, has also emerged as a competitor in the treatment market with
increasing market share. Perma-Fix now has two options for disposal of treated nuclear waste and thus
mitigates prior risk of EnergySolutions providing the only outlet for disposal. Recently, ES signed a
definitive agreement to acquire WCS. In the event that this acquisition of WCS by ES is completed, ES will
again become the owner of the only privately owned disposal sites for treated commercially generated
nuclear waste. In such event, if ES should refuse to accept our nuclear and mixed waste or make demands
on us that are unreasonable or cease operations at its sites, such may have a material adverse effect on us for
commercial wastes. The Treatment Segment treats and disposes of DOE generated wastes largely at DOE
owned sites and thus this potential acquisition should not have any significant adverse impact on our
Treatment Segment. Smaller competitors are also present in the market place; however, we believe 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 also focusing on
emerging international markets for additional work.
We believe that the permitting and licensing requirements, and the cost to obtain such permits, are barriers
to the entry of hazardous waste and radioactive and mixed waste activities as presently operated by our
waste treatment subsidiaries. If the permit requirements for hazardous waste treatment, storage, and
disposal (“TSD”) activities and/or the licensing requirements for the handling of low level radioactive
matters are eliminated or if such licenses or permits were made less rigorous to obtain, we believe such
would allow companies to enter into these markets and provide greater competition.
Our Services Segment is engaged in highly competitive businesses in which a number of our government
contracts and some of our commercial contracts are awarded through competitive bidding processes. The
extent of such competition varies according to the industries and markets in which our customers operate as
well as the geographic areas in which we operate. The degree and type of competition we face is also often
influenced by the project specification being bid on and the different specialty skill sets of each bidder for
which our Services Segment competes, especially projects subject to the governmental bid process. We also
have the ability to prime federal government small business procurements (small business set asides). Large
businesses are more willing to team with small businesses in order to be part of these often substantial
procurements. There are a number of qualified small businesses in our market that will provide intense
competition that may provide a challenge to our ability to maintain strong growth rates and acceptable profit
margins. For international business there are additional competitors, many from within the country the work
is to be performed, making winning work in foreign countries more challenging. If our Services Segment is
unable to meet these competitive challenges, it could lose market share and experience an overall reduction
in its profits.
Our Medical Segment operation consists of R&D activities for a new medical isotope production
technology at our PF Medical, our majority-owned Polish subsidiary. Due to the world-wide shortage of Tc-
99m resulting from limited special purpose reactors and the safety and environmental concerns associated
with the current production methodology, a number of companies are also pioneering new methods in the
production of medical isotope technology. The path to commercialization of a new medical isotope
production technology is tedious, expensive, and is subject to extensive government regulations. Some of
these companies, including NorthStar Medical Radioisotopes and Shine Medical Technologies, have entered
into this potential market earlier than us, and may be further along in the developmental and
commercialization stages. In addition, some companies have greater resources, including funding from
government programs and collaboration with others, in the development of medical isotope production
technology. If PF Medical is not able to successfully commercialize its new medical isotope technology in
order to generate revenues, such may have a material impact to our financial results. See “Business—
5
Importance of Patents, Trademarks and Proprietary Technology” for discussion of current status of
development of technology for the production of Tc-99m.
Certain Environmental Expenditures and Potential Environmental Liabilities
Environmental Liabilities
We have three remediation projects, which are currently in progress at our Perma-Fix of Dayton, Inc.
(“PFD”), Perma-Fix of Memphis, Inc. (“PFM”), and Perma-Fix South Georgia, Inc. (“PFSG”) subsidiaries,
which are all included within our discontinued operations. These remediation projects principally entail the
removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water.
Remediation activities at our Perma-Fix of Michigan, Inc. subsidiary (“PFMI”) in Brownstown, Michigan,
were completed in 2015. These remediation activities are closely reviewed and monitored by the applicable
state regulators.
At December 31, 2015, we had total accrued environmental remediation liabilities of $900,000, of which
$9,000 is recorded as a current liability, which reflects a decrease of $116,000 from the December 31, 2014
balance of $1,016,000. The net decrease of $116,000 represents payments on remediation projects at PFSG
and PFM totaling approximately $78,000 and a reduction in reserve of $38,000 due to completion of
remediation activities at our PFMI location.
No insurance or third party recovery was taken into account in determining our cost estimates or reserves.
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.
Our competitors also devote resources to research and development and many such competitors have greater
resources at their disposal than we do. PF Medical continues to commit significant resources to the R&D of
its medical isotope production technology and to take the necessary steps for eventual submittal of this
technology for FDA and other regulatory approval and commercialization of this technology. We have
estimated that during 2015 and 2014, we spent approximately $2,302,000 and $1,315,000, respectively, in
research and development activities, of which approximately $2,114,000 and $759,000, respectively, were
spent by our Medical Segment for the R&D of its medical isotope production technology.
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, 2015, we employed approximately 262 employees,
of whom 258 are full-time employees and four are part-time/temporary employees.
Governmental Regulation
Environmental companies, such as us, 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
6
predict the extent to which our operations may be affected by future enforcement policies as applied to
existing laws or by the enactment of new environmental laws and regulations. Moreover, any predictions
regarding possible liability are further complicated by the fact that under current environmental laws we
could be jointly and severally liable for certain activities of third parties over whom we have little or no
control. Although we believe that we are currently in substantial compliance with applicable laws and
regulations, we could be subject to fines, penalties or other liabilities or could be adversely affected by
existing or subsequently enacted laws or regulations. The principal environmental laws affecting our
customers and us are briefly discussed below.
The Resource Conservation and Recovery Act of 1976, as amended (“RCRA”)
RCRA and its associated regulations establish a strict and comprehensive permitting and regulatory program
applicable to companies, such as us, that treat, store or dispose of hazardous waste. The EPA has
promulgated regulations under RCRA for new and existing treatment, storage and disposal facilities
including incinerators, storage and treatment tanks, storage containers, storage and treatment surface
impoundments, waste piles and landfills. Every facility that treats, stores or disposes of hazardous waste
must obtain a RCRA permit or must obtain interim status from the EPA, or a state agency, which has been
authorized by the EPA to administer its program, and must comply with certain operating, financial
responsibility and closure requirements.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA,”
also referred to as the “Superfund Act”)
CERCLA governs the cleanup of sites at which hazardous substances are located or at which hazardous
substances have been released or are threatened to be released into the environment. CERCLA authorizes
the EPA to compel responsible parties to clean up sites and provides for punitive damages for
noncompliance. CERCLA imposes joint and several liabilities for the costs of clean up and damages to
natural resources.
Health and Safety Regulations
The operation of our environmental activities is subject to the requirements of the OSHA and comparable
state laws. Regulations promulgated under OSHA by the Department of Labor require employers of persons
in the transportation and environmental industries, including independent contractors, to implement hazard
communications, work practices and personnel protection programs in order to protect employees from
equipment safety hazards and exposure to hazardous chemicals.
Atomic Energy Act
The Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and
Byproduct materials in the U.S. and its territories. This act authorized the Atomic Energy Commission (now
the Nuclear Regulatory Commission “USNRC”) to enter into “Agreements with States to carry out those
regulatory functions in those respective states except for Nuclear Power Plants and federal facilities like the
VA hospitals and the DOE operations.” The State of Florida (with the USNRC oversight), Office of
Radiation Control, regulates the permitting and radiological program of the PFF facility, and the State of
Tennessee (with the USNRC oversight), Tennessee Department of Radiological Health, regulates permitting
and the radiological program of the DSSI and M&EC facilities. The State of Washington (with the USNRC
oversight) Department of Health, regulates permitting and 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
TSCA. Many states have also adopted laws for the protection of the environment which may affect us,
including laws governing the generation, handling, transportation and disposition of hazardous substances
and laws governing the investigation and cleanup of, and liability for, contaminated sites. Some of these
state provisions are broader and more stringent than existing federal law and regulations. Our failure to
conform our services to the requirements of any of these other applicable federal or state laws could subject
us to substantial liabilities which could have a material adverse effect on us, our operations and financial
condition. In addition to various federal, state and local environmental regulations, our hazardous waste
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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.
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 $36,105,000 or 57.9% and
$34,780,000 or 60.9%, of our consolidated operating revenues from continuing operations for 2015 and
2014, 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.
8
Our existing and future customers may reduce or halt their spending on hazardous waste and nuclear
services with outside vendors, including us.
A variety of factors may cause our existing or future customers (including the federal government) to reduce
or halt their spending on hazardous waste and nuclear services from outside vendors, including us. These
factors include, but are not limited to:
•
•
•
•
•
accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities or involving
shipments of nuclear materials;
failure of 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;
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 waste services, including 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
consecutive years. Because customers generally contract with us for specific projects, we may lose these
significant customers from year to year as their projects with us are completed. Our inability to replace the
business with other similar significant projects could have an adverse effect on our business and results of
operations.
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,
9
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.
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, 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 nuclear waste. Currently, there are
only two disposal sites, each site having different owners, for our low level radioactive waste we receive
from non-governmental sites, allowing us to take advantage of the pricing competition between the two
sites. There is currently an agreement whereby the owner of one site has agreed to buy the other site. If this
transaction is consummated, we could become subject to the unreasonable demands as to pricing and other
terms of the acquiring party that owns both disposal sites, which could significantly increase our cost of
disposal and negatively impact our results of operations. Further, if such acquisition is completed, and the
owner refuses to accept our waste or demands terms that we deem to be unreasonable, such could have a
material adverse effect on us.
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;
10
•
•
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
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.
11
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.
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 (“PAA”) supports the nuclear services
industry by offering broad indemnification to DOE contractors for liabilities arising out of nuclear incidents
at DOE nuclear facilities. That indemnification protects DOE prime contractor, but also similar companies
that work under contract or subcontract for a DOE prime contract or transporting radioactive material to or
from a site. The indemnification authority of the DOE under the PAA was extended through 2025 by the
Energy Policy Act of 2005.
Under certain conditions, the PAA’s indemnification provisions may not apply to our processing of
radioactive waste at governmental facilities, and 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 PAA indemnification, we could be held liable for damages, regardless of
fault, which could have an adverse effect on our results of operations and financial condition. If such
indemnification authority is not applicable in the future, our business could be adversely affected if the
owners and operators of new facilities fail to retain our services in the absence of commercial adequate
insurance and indemnification.
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 and/or hazardous waste services practices, as well as small or local contractors.
Some of our competitors have greater financial and other resources than we do, which can give them a
competitive advantage. In addition, even if we are qualified to work on a new government contract, we
might not be awarded the contract because of existing government policies designed to protect certain types
of businesses and under-represented minority contractors. Although the Company has the ability to certify
and bid government contract as a small business, there are a number of qualified small businesses in our
market that will provide intense competition. For international business, which we continue to focus on,
there are additional competitors, many from within the country the work is to be performed, making
winning work in foreign countries more challenging. Competition places downward pressure on our
contract prices and profit margins. If we are unable to meet these competitive challenges, we could lose
market share and experience on overall reduction in our profits.
12
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 $4,651,000 and $52,784,000 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.
If our permit or other intangible assets become impaired, we may be required to record 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. Our permits are tested for impairment at least annually (the Company has no goodwill as
of December 31, 2015). Factors that may be considered a change in circumstances, indicating that the
carrying value of our 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.
We may be required, in the future, to record additional impairment charges in our financial statements, in
which any impairment of our permit or other intangible assets is determined. Such impairment charges
could negatively impact 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.
Our revenues may be 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.
PF Medical’s inability to commercialize its medical isotope production technology may have a
material impact on our financial results.
Our majority-owned subsidiary, PF Medical, continues to dedicate significant resources to the R&D of its
new medical isotope production technology. The ability to successfully commercialize this new technology
13
is complex and an uncertain process requiring high levels of innovation and investment. As a majority
owner of PF Medical, if PF Medical is unable to successfully commercialize this new technology and
generate revenue, our financial result may be impacted materially resulting from the amount of costs to be
incurred. Further, PF Medical must complete the development of the new medical isotope technology and
obtain approvals as to its Tc-99m medical diagnostic application from a certain U.S. governmental agency
before it can market its process in the U.S. and may be required to obtain approvals from certain foreign
governmental authorities before it can market its process in those respective countries. We are prohibited
from financing PF Medical with proceeds obtained under our Loan Agreement with PNC. In order to raise
the necessary capital for PF Medical to complete its development of its new medical isotope technology and
to obtain approvals required to market its technology, PF Medical may be required to obtain its own credit
facility, which could restrict our rights as majority owner of PF Medical, or raise additional equity capital
which, if successful, could result in a dilution of our ownership in PF Medical.
Failure to maintain effective internal control over financial reporting or failure to remediate a
material weakness in internal control over financial reporting could have a material adverse effect on
our business, operating results, and stock price.
Maintaining effective internal control over financial reporting is necessary for us to produce reliable
financial reports and is important in helping to prevent financial fraud. If we are unable to maintain
adequate internal controls, our business and operating results could be harmed. We are required to satisfy
the requirements of Section 404 of Sarbanes Oxley and the related rules of the Commission, which require,
among other things, management to assess annually the effectiveness of our internal control over financial
reporting. If we are unable to maintain adequate internal control over financial reporting or effectively
remediate any material weakness identified in internal control over financial reporting, there is a reasonable
possibility that a misstatement of our annual or interim financial statements will not be prevented or
detected in a timely manner. If we cannot produce reliable financial reports, investors could lose confidence
in our reported financial information, the market price of our common stock could decline significantly, and
our business, financial condition, and reputation could be harmed.
Systems failures, interruptions or breaches of security and other cyber security risks could have an
adverse effect on our financial condition and results of operations.
We are subject to certain operational risks, including, but not limited to, data processing system failures and
errors, cyber security breaches, inadequate or failed internal processes, customer or employee fraud and
catastrophic failures resulting from terrorist acts or natural disasters. We depend upon data processing,
software, communication, and information exchange on a variety of computing platforms and networks and
over the internet. We also rely on the services of a variety of vendors to meet our data processing and
communication needs. Despite our implemented security measures, we cannot be certain that all of our
systems are entirely free from vulnerability to attack or other technological difficulties or failures.
Information security risks have increased significantly due to the use of online banking channels and the
increased sophistication and activities of organized crime, hackers, terrorists and other external parties. Our
technologies, systems, and networks may become the target of cyber-attacks, computer viruses, malicious
code, phishing attacks or information security breaches that could result in the unauthorized release,
gathering, monitoring, misuse, loss or destruction of our or our clients’ confidential, proprietary and other
information and the disruption of our business operations. A security breach could result in violations of
applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security
measures, litigation exposure, and harm to our reputation. While we maintain a system of internal controls
and procedures, any of these results could have a material adverse effect on our business, financial
condition, results of operations or liquidity.
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
14
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 our 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. In the
past, we had instances in which we failed to meet our quarterly fixed charge coverage ratio; however, these
instances of non-compliance were waived by our lender. In the past, our lender also has amended the
methodology in calculating the quarterly fixed charge coverage ratio and changed the minimum quarterly
fixed charge coverage ratio requirement so we can meet our quarterly fixed charge coverage ratio. We met
each of our quarterly fixed charge coverage ratio requirements in 2015. If we fail to meet the minimum
quarterly fixed charge coverage ratio requirement in the future and our lender does not waive the non-
compliance or revise our covenant so that we are in compliance, our lender could accelerates the payment of
our borrowings under our credit facility. In such event, 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, 2015, our aggregate consolidated debt was approximately $9,988,000 (net of debt discount
of $50,000). Our Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated
October 31, 2011, as amended (“Amended Loan Agreement”) provides for a total Credit Facility
commitment of $28,000,000, consisting of a $12,000,000 revolving line of credit and a term loan of
$16,000,000. 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, 2015,
we had borrowings under the revolving part of our Credit Facility of approximately $2,349,000 and
borrowing availability of up to an additional $2,687,000 based on our outstanding eligible receivables. A
lack of positive operating results could have material adverse consequences on our ability to operate our
business. Our ability to make principal and interest payments, 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. On March 24, 2016, we entered into an amendment to the Amended Loan
Agreement with our lender which, among other things, extended the due date of our current Credit Facility
to March 24, 2021. Pursuant to the amendment, the revolving line of credit is to remain at $12,000,000 with
the term loan revised to approximately $6,100,000, which approximates our term loan balance under our
existing Credit Facility at the date of the amendment.
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
15
interest, thereby reducing the funds available for operations and future business opportunities;
• make it more difficult for us to satisfy our obligations;
•
limit our ability to borrow additional money if needed for other purposes, including working
capital, capital expenditures, debt service requirements, acquisitions and general corporate or
other purposes, on satisfactory terms or at all;
limit our ability to adjust to changing economic, business and competitive conditions;
•
• place us at a competitive disadvantage with competitors who may have less indebtedness or
greater access to financing;
• make us more vulnerable to an increase in interest rates, a downturn in our operating
performance or a decline in general economic conditions; and
• make us more susceptible to changes in credit ratings, which could impact our ability to obtain
financing in the future and increase the cost of such financing.
Any of the foregoing could adversely impact our operating results, financial condition, and liquidity. Our
ability to continue our operations depends on our ability to generate profitable operations or complete equity
or debt financings to increase our capital.
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. As of December 31, 2015, we
had 11,543,590 shares of Common Stock outstanding.
In addition, as of December 31, 2015, we had outstanding options to purchase 218,200 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.
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.
16
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 18,160,568 (which includes shares issuable under outstanding options to
purchase 218,200 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, 2015 (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 (the “Rights Plan”) may adversely affect our stockholders.
In May 2008, we adopted a 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
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.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not Applicable.
17
ITEM 2.
PROPERTIES
Our principal executive office is in Atlanta, Georgia. Our Business Center is located in Knoxville,
Tennessee. Our Treatment Segment facilities are located in Gainesville, Florida; Kingston, Tennessee; Oak
Ridge, Tennessee, and Richland, Washington. Our Services Segment maintains operations located in
Knoxville, Tennessee and Blaydon On Tyne, England, of which we lease all of the properties. PF Medical
maintains a leased administrative office in Mobile, Alabama. We maintain properties in Valdosta, Georgia;
Brownstown, Michigan; and Memphis, Tennessee, which are all non-operational and are included within
our discontinued operations.
The properties where three of our facilities operate on (Kingston, Tennessee; Gainesville, Florida; and
Richland, Washington) are held by our senior lender as collateral for our credit facility. 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)
Atlanta, GA (Corporate)
Mobile, AL (PF Medical)
Square Footage
20,850
5,000
1,000
640
1,566
150,000
6,499
1,200
Expiration of Lease
May 31, 2018
September 30, 2017
Monthly
Monthly
Monthly
January 31, 2018
February 28, 2018
August 31, 2017
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 South Georgia, Inc. (“PFSG”)
During the fourth quarter of 2015, an arbitrator ordered the Company to pay approximately $1,278,000 to a
contractor hired by the Company to perform emergency response services at the Company’s PFSG
subsidiary located in Valdosta, Georgia, which suffered an explosion and fire on August 14, 2013. The
PFSG facility site is undergoing regulatory closure, subject to state and federal environmental permitting
requirements and is included in the Company’s discontinued operations. In arbitration, the contractor had
sought payment of unpaid invoices totaling approximately $1,400,000 (which included interest of
approximately $600,000) and contract penalties totaling approximately $800,000. In addition, the contractor
claimed approximately $500,000 in attorney’s fees. On December 7, 2015, the Company was notified of
the following Arbitrator’s award totaling approximately $1,278,000, which was paid on December 31, 2015:
(a) $747,000 for unpaid invoices; (b) interest of $400,000; (c) attorney fees of $125,000; and (d) $6,000 in
certain administrative fees in connection with the arbitration. The Company had previously accrued
approximately $871,000 for this matter. The remaining charge of approximately $407,000 was recorded by
the Company in 2015 (in the fourth quarter of 2015), with $400,000 recorded as interest expense.
ITEM 4.
MINE SAFETY DISCLOSURE
Not Applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our Common Stock is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol “PESI”.
The following table sets forth the high and low market trade prices quoted for the Common Stock during the
18
periods shown. The source of such quotations and information is the NASDAQ online trading history
reports.
2015
2014
Common Stock 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Low High Low
High
$ 3.78 $ 4.69 $ 2.81 $ 5.15
5.86
3.32
5.19
3.45
5.01
3.65
3.74
3.56
3.65
4.01
4.34
4.37
As of February 29, 2016, there were approximately 212 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 February 29, 2016 was approximately 2,688.
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 2015. 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 2015.
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 (the “Rights Plan”) may adversely affect
our stockholders” as to further discussion relating to the terms of our Rights Plan.
See “Equity Compensation Plan” in Part III, Item 12, “Security Ownership of Certain Beneficial Owners
and Management and Related Stockholders Matter” for securities authorized for issuance under equity
compensation plans which is incorporated herein by reference.
Reduction in Authorized Shares
On September 18, 2014 at the Company’s 2014 Annual Meeting of Stockholders, the Company’s
stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to reduce the
number of shares of Common Stock the Company is authorized to issue from 75,000,000 to 30,000,000.
This amendment became effective on September 19, 2014.
ITEM 6.
SELECTED FINANCIAL DATA
Not required under Regulation S-K for smaller reporting companies.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements contained within this “Management's Discussion and Analysis of Financial Condition
and Results of Operations” (“MD&A”) may be deemed “forward-looking statements” within the meaning of
Section 27A of the 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.
On April 4, 2014, the Company completed the acquisition of a controlling interest in a Polish Company, a
publicly traded shell company on the NewConnect (alternative share market run by the Warsaw Stock
Exchange) in Poland and sold to the Polish shell all of the shares of Perma-Fix Medical Corporation, a
Delaware corporation organized by the Company (incorporated in January 2014). Perma-Fix Medical
19
Corporation’s only asset was a worldwide license granted by the Company to use, develop and market the
new process and technology developed by the Company in the production of Technetium-99 (“Tc-99m”) for
medical diagnostic applications. Tc-99m is the most widely used medical isotope in the world. Since the
acquired shell company (now named Perma-Fix Medical S.A. or “PF Medical”) did not meet the definition
of a business under Accounting Standards Codification (“ASC”) 805, “Business Combinations”, the
transaction was accounted for as a capital transaction. PF Medical, our majority-owned Polish subsidiary,
continues to perform research and development (“R&D”) of its new medical isotope production technology.
As of December 31, 2015, PF Medical has not generated any revenue as it is primarily in the R&D stage. In
accordance with ASC 280, “Segment Reporting,” the Company has determined that the operations of PF
Medical meet the definition of a reportable segment. Accordingly, all of the historical numbers presented in
the consolidated financial statements have been recast to include the operations of PF Medical as a separate
reportable segment (“Medical Segment”).
Management's discussion and analysis is based, among other things, upon our audited consolidated financial
statements and includes our accounts, the accounts of our wholly-owned subsidiaries and the accounts of
our majority-owned Polish subsidiary, 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.
Review
Revenue increased $5,318,000 or 9.3% to $62,383,000 for the twelve months ended December 31, 2015
from $57,065,000 for the corresponding period of 2014. The revenue increase was primarily in the Services
Segment where we saw an increase in revenue of $6,343,000 or 43.1%. Revenue from our Treatment
Segment decreased $1,025,000 or 2.4% primarily from lower waste volume. Gross profit increased
$2,443,000 or 20.5% primarily due to the increase in revenue in the Services Segment and our continued
cost reduction efforts throughout all segments. Selling, General, and Administrative (“SG&A”) expenses
decreased $977,000 or 8.2% for the twelve months ended December 31, 2015 as compared to the
corresponding period of 2014. R&D costs increased $987,000 or 75.0% primarily due to R&D costs
incurred for the new medical isotope production technology for our Medical Segment.
We had working capital of $3,091,000 at December 31, 2015, as compared to working capital of $372,000
at December 31, 2014, an increase of $2,719,000.
Business Environment, Outlook and Liquidity
The Company’s Treatment and Services Segments’ business continues to be heavily dependent on services
that we provide to governmental clients directly as the contractor or indirectly as a subcontractor. We
believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond
our control, including the current economic conditions and the manner in which the government will be
required to spend funding to remediate federal sites. In addition, our governmental contracts and
subcontracts relating to activities at governmental sites are generally subject to termination or renegotiation
on 30 days notice at the government’s option. Significant reductions in the level of governmental funding or
specifically mandated levels for different programs that are important to our business could have a material
adverse impact on our business, financial position, results of operations and cash flows.
Our majority-owned Polish subsidiary, PF Medical, continues to dedicate resources to the R&D of the new
medical isotope production technology and to take the necessary steps for eventual submittal of this
technology for U.S. Food and Drug Administration (“FDA”) and other regulatory approval and
commercialization of this technology. The need for capital by PF Medical may require PF Medical to obtain
such capital requirements through obtaining its own credit facility or additional equity raise. A capital raise
by PF Medical, if required and successful, could limit our ownership rights if accomplished by PF Medical
entering into a new credit facility or could dilute our ownership if accomplished by raising additional equity
capital.
20
The Company’s cash flow requirements during 2015 were primarily financed by our operations, Credit
Facility availability, and an equity raise by PF Medical (“see “Financing Activities” in “Liquidity and
Capital Resources” in this MD&A for further information regarding the equity raise). The Company is
continually reviewing operating costs and is committed to further reducing operating costs to bring them in
line with revenue levels, when needed.
The Company continues to focus on expansion into both commercial and international markets to increase
revenues in our Treatment and Services Segments to offset the uncertainties of government spending in the
United States of America. This focus has resulted in an increase in revenue from commercial sources in
2015 which is expected to continue into 2016. In addition, the Company remains focused on increasing its
international market share.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to our three reportable segments:
The Treatment Segment (“Treatment”), the Services Segment (“Services”), and the Medical Segment
(“Medical”). Our Medical Segment has not generated any revenue and all costs incurred are included within
R&D:
Below are the results of continuing operations for our years ended December 31, 2015 and 2014 (amounts
in thousands):
(Consolidated)
Net revenues
Cost of goods sold
Gross Profit
Selling, general and administrative
Research and development
Impairment of goodwill
Gain on disposal of property and equipment
Income (loss) from operations
Interest income
Interest expense
Interest expense – financing fees
Foreign exchange loss
Other
Income (loss) from continuing operations before taxes
Income tax expense
Loss from continuing operations
$
2015
62,383
48,032
14,351
10,996
2,302
(80)
1,133
53
(489)
(228)
(10)
21
480
543
%
100.0
77.0
23.0
17.6
3.7
(.1)
1.8
.1
(.8)
(.3)
.8
.9
$
2014
57,065
45,157
11,908
11,973
1,315
380
(41)
(1,719)
27
(616)
(192)
(24)
(51)
(2,575)
417
$
(63)
(.1)
$
(2,992)
%
91.5
79.1
20.9
21.0
2.2
.7
(3.0)
(1.1)
(.3)
(.1)
(4.5)
.7
(5.2)
Summary - Years Ended December 31, 2015 and 2014
Net Revenue
Consolidated revenues from continuing operations increased $5,318,000 for the year ended December 31,
2015, compared to the year ended December 31, 2014, as follows:
21
(In thousands)
Treatment
Government waste
Hazardous/non-hazardous
Other nuclear waste
Total
Services
Nuclear
Technical
Total
Total
2015
%
Revenue
%
2014
Revenue Change
%
Change
$
30,130
4,344
6,844
41,318
18,743
2,322
21,065
48.2
7.0
11.0
66.2
30.0
3.8
33.8
$
29,787
4,498
8,058
42,343
9,917
4,805
14,722
52.2
7.9
14.1
74.2
17.4
8.4
25.8
$
343
(154)
(1,214)
(1,025)
8,826
(2,483)
6,343
1.2
(3.4)
(15.1)
(2.4)
89.0
(51.7)
43.1
$
62,383
100.0
$
57,065
100.0
$
5,318
9.3
Net Revenue
Treatment Segment revenue decreased $1,025,000 or 2.4% for the year ended December 31, 2015 over the
same period in 2014. The decrease in revenue was primarily due to lower other nuclear waste revenue of
approximately $1,214,000 or 15.1% resulting from lower waste volume. Hazardous/non-hazardous revenue
decreased approximately $154,000 or 3.4% primarily due to lower averaged price waste. Revenue generated
from government clients increased approximately $343,000 or 1.2% primarily due to higher waste volume.
Services Segment revenue increased $6,343,000 or 43.1% in the twelve months ended December 31, 2015
as compared to the corresponding period of 2014 primarily as a result of increased revenue generated from a
certain contract awarded to us in the second half of 2014 in the nuclear services area. Revenue generated
from this contract was approximately $10,686,000 in 2015 as compared to approximately $3,591,000 for the
corresponding period of 2014. The decrease in revenue in the technical services area was primarily due to
the divestiture of our Schreiber, Yonley, and Associates subsidiary (“SYA”) in July 2014, which generated
revenues of approximately $1,888,000 in 2014.
Cost of Goods Sold
Cost of goods sold increased $2,875,000 for the year ended December 31, 2015, as compared to the year
ended December 31, 2014, as follows:
(In thousands)
Treatment
Services
Total
2015
$ 30,408
17,624
$ 48,032
%
Revenue
73.6
83.7
77.0
2014
$ 31,863
13,294
$ 45,157
%
Revenue
75.2
90.3
79.1
Change
$ (1,455)
4,330
2,875
$
Cost of goods sold for the Treatment Segment decreased by $1,455,000 or 4.6% primarily due to lower
revenue. We incurred lower transportation, disposal, material and supplies, lab, and outside services costs
totaling approximately $850,000. Our overall fixed costs were lower by approximately $636,000. We
incurred a significant reduction in depreciation expense of approximately $235,000 as certain fixed assets
became fully depreciated in June 2014. Salaries and payroll-related expenses were lower by approximately
$715,000 due to lower headcount/healthcare/worker compensation costs which were partially offset by
higher 401(k) matching expenses in the amount of approximately $127,000 as we re-established our
matching program effective January 1, 2015. In addition, general costs were lower by approximately
$83,000 over various categories as we continue to streamline our costs. These lower fixed costs were offset
by higher maintenance costs of approximately $270,000 resulting from maintenance of certain buildings and
equipment. Services Segment cost of goods sold increased $4,330,000 or 32.6% primarily due to the
increase in revenue as discussed above, with increases primarily in labor, payroll related and travel expenses
totaling approximately $2,300,000, with the remaining increases in material and supplies of $590,000 and
disposal/transportation/lab costs totaling approximately $1,500,000 resulting from waste shipped off-site in
22
connection with certain projects. Included within cost of goods sold is depreciation and amortization
expense of $3,548,000 and $3,826,000 for the twelve months ended December 31, 2015, and 2014,
respectively.
Gross Profit
Gross profit for the year ended December 31, 2015, was $2,443,000 higher than 2014, as follows:
(In thousands)
Treatment
Services
Total
2015
$ 10,910
3,441
$ 14,351
%
Revenue
26.4
16.3
23.0
2014
$ 10,480
1,428
$ 11,908
%
Revenue
24.8
9.7
20.9
Change
$ 430
2,013
2,443
$
Treatment Segment gross profit increased $430,000 or 4.1% and gross margin increased to 26.4% from
24.8% primarily due to the reduction in certain of our fixed costs as discussed above and revenue mix. In
the Services Segment, the increases in gross profit of $2,013,000 and gross margin from 9.7% in 2014 to
16.3% in 2015 were primarily due to the increase in revenue as discussed above. In addition, in the second
quarter of 2014, we completed a reduction in work force which reduced headcount in our effort to bring our
cost structure in line with our revenue.
SG&A
SG&A expenses decreased $977,000 for the year ended December 31, 2015, as compared to the
corresponding period for 2014, as follows:
(In thousands)
Administrative
Treatment
Services
Total
2015
$
5,045
3,721
2,230
10,996
$
%
Revenue
9.0
10.6
17.6
2014
$
5,017
3,849
3,107
11,973
$
%
Revenue
9.1
21.1
21.0
Change
$
28
(128)
(877)
(977)
$
The decrease in SG&A was primarily within the Services Segment. Services SG&A was lower due to
lower salaries and payroll related expenses of approximately $345,000 from lower headcount which was
attributed to a reduction in workforce which occurred in May 2014. Bad debt expense was lower by
approximately $690,000 resulting from a reduction in our allowance for doubtful account as a previously
reserved amount for an uncertain account receivable was determined to be collectible at December 31, 2015.
In 2014, we reserved approximately $260,000 for a different uncertain account receivable. Amortization
expense was lower by approximately $140,000 due to certain amortizable intangible assets which became
fully amortized in July 2014. The lower costs were partially offset by higher legal/business consulting
expenses totaling approximately $150,000 and higher travel costs of approximately $70,000. The increase in
administrative SG&A was primarily due to Management Incentive Plan (“MIP”) compensation earned by
our executives totaling approximately $214,000 based on fiscal year 2015 financial results and higher
outside services expenses of approximately $70,000 resulting from more consulting/business/legal matters.
These higher costs were partially offset by lower salaries and payroll related expenses totaling
approximately $110,000 and lower general expenses of approximately $116,000 in various categories as we
continue to streamline costs. Treatment SG&A was lower primarily due to lower salaries and payroll
related expenses totaling approximately $210,000 and lower outside services expenses of approximately
$58,000 resulting from fewer consulting/business/legal matters. These lower costs were mostly offset by
higher travel expenses of approximately $36,000 and higher trade show costs by approximately $113,000.
Included in SG&A expenses is depreciation and amortization expense of $169,000 and $324,000 for the
twelve months ended December 31, 2015 and 2014, respectively.
23
R&D
(In thousands)
Administrative
Treatment
Services
PF Medical
Total
2015
9
$
179
2,114
2,302
$
2014
$
Change
$
20
437
99
759
1,315
(11)
(258)
(99)
1,355
987
$
$
R&D costs increased $987,000 for the year ended December 31, 2015, as compared to the corresponding
period of 2014. The increase in R&D costs was primarily due to increased costs incurred by our Medical
Segment in connection with the development of the new medical isotope technology. Research and
development costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and
other related costs associated with the development of new technologies and technological enhancement of
new potential waste treatment processes. Included in research and development expense is depreciation
expense of $0 and $90,000 for the twelve months ended December 31, 2015 and 2014, respectively.
Interest Expense
Interest expense decreased $127,000 for the twelve months ended December 31, 2015, as compared to the
corresponding periods of 2014 primarily due to lower interest on our declining Term Loan balance and
lower interest from the declining $3,000,000 loan dated August 2, 2013. In addition, interest expense was
lower in 2015 as compared to 2014 as interest expense for the twelve months ended December 31, 2014
included approximately $37,000 in loss on debt modification (recorded in accordance with ASC 470-50,
“Debt – Modification and Extinguishment”) incurred as a result of an amended loan agreement that we
entered into with our lender on April 14, 2014, which reduced our Revolving Credit line from $18,000,000
to $12,000,000. The lower interest expense was partially offset by higher interest expense resulting from
higher average revolver loan balance over the period.
Interest Expense- Financing Fees
Interest expense-financing fees increased $36,000 for the twelve months ended December 31, 2015 as
compared to the corresponding period of 2014. The increase was primarily due to the increase in monthly
amortized financing fees associated with amendments to our Credit Facility that we entered into with our
lender on April 14, 2014 and July 25, 2014.
Income Taxes
We recorded income tax expenses of $543,000 and $417,000 for continuing operations for the years ended
December 31, 2015 and 2014, respectively. The Company’s effective tax rates were approximately 40.0%
and (19.7%) for the twelve months ended December 31, 2015 and 2014, respectively. The differences in
effective tax rate for the twelve months ended December 31, 2015 as compared to the twelve months ended
December 31, 2014 was primarily due to deferred tax expense related to the Company’s indefinite-lived
intangibles not covered by valuation allowance.
Discontinued Operations
The Company’s discontinued operations consist of subsidiaries included in our Industrial Segment: (1)
subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our Perma-Fix South
Georgia, Inc. (“PFSG”) facility which suffered a fire and explosion on August 14, 2013 and is currently
undergoing regulatory closure. In June 2014, the Company entered into a settlement agreement and release
with one of its insurance carriers, resulting in receipt of approximately $3,850,000 in insurance settlement
proceeds, which was used for working capital purposes. The Company subsequently recorded a gain on
insurance settlement of approximately $3,842,000 in connection with the fire and explosion at our PFSG
facility. In 2014, the Company also recorded approximately $723,000 of asset impairment charges as result
of the Company’s decision not to rebuild PFSG in accordance with ASC 360, “Property, Plant, and
Equipment.”
24
On May 11, 2015, PFSG received a Notice of Violation and proposed Consent Order (“CO”) from the
Georgia Department of Natural Resources Environmental Protection Division (“GAEPD”), which alleged
certain violations (resulting from the fire and explosion in 2013 and prior inspections of the facility) of
Georgia hazardous waste management regulations and PFSG hazardous waste management permit. The
proposed CO also established the process for formally closing the PFSG hazardous waste management
facilities, should PFSG elect to do so; and proposed the assessment of a civil penalty. The final terms of the
CO, including a $201,200 civil penalty, were executed on July 1, 2015. The civil penalty was paid by the
Company and recorded in the second quarter of 2015. On September 29, 2015, the Company submitted a
draft Post-Closure Plan for review and approval by the GAEPD.
On June 4, 2015, Perma-Fix of Michigan, Inc. (“PFMI”) entered into a letter of intent (“LOI”) to sell the
property PFMI formerly operated for a sale price of approximately $450,000. PFMI is a closed location.
As required by ASC 360, the Company concluded that tangible asset impairment existed for PFMI and
recorded approximately $150,000 in asset impairment charge in the second quarter of 2015. On September
29, 2015, PFMI entered into a Purchase Agreement (the “Agreement”) for the sale of the property for a
sales price of $450,000, which is subject to completion of a due diligence by the buyer. Upon execution of
the Agreement, PFMI received a $20,000 deposit which is being held in an escrow account (recorded as
restricted cash within discontinued operations). In consideration of an amendment to the Agreement entered
into on February 17, 2016, which included extending the time period for completion of the due diligence by
the buyer, the buyer agreed to forfeit $10,000 of the $20,000 held in escrow to PFMI, which the $10,000
was received by PFMI on February 18, 2016. Upon timely closing of the transaction, which is expected to
be completed during the latter part of March 2016, the buyer shall receive a credit against the purchase price
which shall be the lesser of $15,000 and 50% of funds paid by the buyer for certain due diligence costs, and
a credit against the purchase price of $20,000. At closing, PFMI is expected to receive $50,000 (which
includes the remaining $10,000 held in escrow) reduced by sales commissions and certain other closing
costs and PFMI and the buyer will execute a Land Contract (“Contract”) which will provide for, among
other things, the remaining balance of the purchase price of $375,000 to be paid by the buyer in 60 equal
monthly installment of approximately $7,250, due on or before the 15th of each month immediately
following the execution of the Contract. PFMI retains legal title to the property until the buyer fulfills the
obligations under the Contract.
During the fourth quarter of 2015, an arbitrator ordered the Company to pay approximately $1,278,000 to a
contractor hired by the Company to perform emergency response services at our PFSG subsidiary resulting
from the fire and explosion in 2013. As discussed above, PFSG is currently undergoing regulatory closure,
subject to state and federal environmental permitting requirements. In arbitration, the contractor had sought
payment of unpaid invoices totaling approximately $1,400,000 (which included interest of approximately
$600,000) and contract penalties totaling approximately $800,000. In addition, the contractor claimed
approximately $500,000 in attorney’s fees. On December 7, 2015, the Company was notified of the
following Arbitrator’s award totaling approximately $1,278,000, which was paid on December 31, 2015: (a)
$747,000 for unpaid invoices; (b) interest of $400,000; (c) attorney fees of $125,000; and (d) $6,000 in
certain administrative fees in connection with the arbitration. The Company had previously accrued
approximately $871,000 for this matter. The remaining charge of approximately $407,000 was recorded by
the Company in 2015 (in the fourth quarter), with $400,000 recorded as interest expense.
Our discontinued operations had no revenue for the twelve months ended December 31, 2015 and 2014.
We had a net loss of $1,864,000 and net income of $1,688,000 for our discontinued operations for the
twelve months ended December 31, 2015 and 2014, respectively. Our net loss for the twelve months ended
December 31, 2015 included the civil penalty recorded during the second quarter of 2015 for our PFSG
facility and the asset impairment charge recorded during the second quarter of 2015 for our PFMI facility as
discussed above. In addition, our net loss for the twelve months ended December 31, 2015 included the
$407,000 expenses recorded in the fourth quarter in connection with the arbitration award as discussed
above. Our net income for our discontinued operations for the twelve months ended December 31, 2014,
included a gain on insurance settlement of approximately $3,842,000 and asset impairment charge of
approximately $723,000 in connection with the fire and explosion sustained at our PFSG subsidiary.
25
Liquidity and Capital Resources
We achieved improvement in financial position and liquidity in the twelve months ended December 31,
2015 as compared to the corresponding period of 2014. As of December 31, 2015, working capital was
approximately $3,091,000, an improvement of $2,719,000 from a working capital of approximately
$372,000 as of December 31, 2014. Our loss from continuing operations was $63,000 as compared to a loss
from continuing operations of $2,992,000 in 2014. We generated positive cash flow from continuing
operations of approximately $1,704,000 in 2015 as compared to $661,000 in 2014. The Company’s
financial results were negatively impacted by certain non-recurring charges incurred in 2015 within
discontinued operations as discussed previously (“Discontinued Operations” above).
Our cash flow requirements during 2015 consisted of general working capital needs, scheduled payments on
our debt obligations, remediation projects and planned capital expenditures and were financed primarily by
our operations, Credit Facility, and equity raise by our majority-owned Polish subsidiary, PF Medical (“see
“Financing Activities” below for further information regarding the equity raise). We continue to explore all
potential sources of increasing revenue, including our Medical Segment’s R&D of the new medical isotope
production technology. We are continually reviewing operating costs and are committed to further reducing
operating costs to bring them in line with revenue levels, when needed. Although there are no assurances,
we believe that our cash flows from operations and our availability from our Credit Facility are sufficient to
fund our operations for the next twelve months.
The Company’s cash flow requirements for 2016 will consist primarily of general working capital needs,
scheduled principal payments on our debt obligations and capital leases, remediation projects and planned
capital expenditures which we plan to fund from operations and our Credit Facility availability. The
Company’s majority-owned Polish subsidiary, PF Medical, continues to dedicate resources to the R&D of
the new medical isotope production technology and to take the necessary steps for eventual submittal of this
technology for U.S. Food and Drug Administration (“FDA”) and other regulatory approval and
commercialization of this technology. Costs to be incurred for our Medical Segment for fiscal year 2016 is
expected to be similar to costs incurred for fiscal year 2015, which was approximately $2,114,000. The need
for capital by PF Medical may require PF Medical to obtain its own credit facility or by additional equity
raises. If PF Medical obtains its own separate credit facility, such could result in restrictions on our rights as
a majority stock owner. Any equity raises, if successful, would result in dilution of the Company’s
ownership of PF Medical.
The following table reflects the cash flow activity during the twelve months ended December 31, 2015 and
the corresponding period of 2014:
(In thousands)
Cash provided by operating activities of continuing operations
Cash used in operating activities of discontinued operations
Cash (used in) provided by investing activities of continuing operations
Proceeds from property insurance claims of discontinued operations
Cash used in financing activities of continuing operations
Principal repayment of long-term debt for discontinued operations
Effect of exchange rate changes on cash
(Decrease) increase in cash
2015
$
2014
$
1,704
(2,862)
(492)
(490)
(105)
(2,245)
661
(2,093)
856
5,727
(1,769)
(35)
3,347
$
$
As of December 31, 2015, we were in a net borrowing position (Revolving Credit). 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, 2015, was primarily cash
received from the sale of certain equity by our majority-owned Polish subsidiary, PF Medical, which is not a
credit party under our Amended Loan Agreement with PNC Bank and minor petty cash and local account
balances used for miscellaneous services and supplies at our remaining subsidiaries.
26
Operating Activities
Accounts Receivable, net of allowances for doubtful accounts, totaled $9,673,000 at December 31, 2015, an
increase of $1,401,000 from the December 31, 2014 balance of $8,272,000. The increase was primarily due
to increased revenue and timing of accounts receivable collections due to the variety of payment terms
provided to our customers.
Accounts Payable, totaled $6,109,000 at December 31, 2015, an increase of $759,000 from the December
31, 2014 balance of $5,350,000. The increase was primarily related to the increase in activity as evidence
by the increase in revenue. Also, we continue to manage payment terms with our vendors to maximize our
cash position throughout all segments.
Disposal/transportation accrual as of December 31, 2015, totaled $1,107,000, a decrease of $630,000 over
the December 31, 2014 balance of $1,737,000. Our disposal accrual can vary based on revenue mix and the
timing of waste shipments for final disposal. During the twelve months of 2015, we shipped more waste for
disposal which is reflected in a lower inventory on-site as compared to year end 2014. In addition, we
disposed of certain waste at a less expensive disposal outlet which positively impacted our disposal accrual.
We had working capital of $3,091,000 (which included working capital of our discontinued operations) as
of December 31, 2015, as compared to working capital of $372,000 as of December 31, 2014. Our working
capital was positively impacted primarily by cash generated from our operations offset by payments of
certain of our current liabilities, the reduction of deferred revenue, and the reduction of our current-debt.
Investing Activities
During 2015, our purchases of capital equipment totaled approximately $623,000. These expenditures were
primarily for improvements in our Treatment Segment. These capital expenditures were funded by cash
from operations. We have budgeted approximately $1,200,000 for 2016 capital expenditures for our
Treatment and Services Segments to maintain operations and regulatory compliance requirements. Certain
of these budgeted projects may either be delayed until later years or deferred altogether. We have
traditionally incurred actual capital spending totals for a given year at less than the initial budgeted 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 (“Loan Agreement”), with PNC Bank, National Association (“PNC”),
acting as agent and lender. The Loan Agreement, as amended (“Amended Loan Agreement”) provided us
with the following Credit Facility: (a) up to $12,000,000 revolving credit (“Revolving Credit”), subject to
the amount of borrowings based on a percentage of eligible receivables (as defined) and (b) a term loan
(“Term Loan”) of $16,000,000, which required monthly installments of approximately $190,000 (based on a
seven-year amortization). PF Medical is not a credit party under our Amended Loan Agreement; as such,
the Company is prohibited from financing PF Medical with proceeds obtained under our Amended Loan
Agreement. As of December 31, 2015, the availability under our Revolving Credit was approximately
$2,687,000, based on our eligible receivables and was net of an indefinite reduction of borrowing
availability of $1,500,000. The Amended Loan Agreement authorized us to use the $3,850,000 insurance
settlement proceeds received on June 30, 2014 by our PFSG subsidiary (which suffered a fire and explosion
on August 14, 2013 and is included within our discontinued operations) for working capital purposes but
placed an indefinite reduction on our borrowing availability by the $1,500,000 as discussed above.
Under the Amended Loan Agreement, which is to terminate on October 31, 2016, we had the option of
paying an annual rate of interest due on the Revolving Credit at prime plus 2% or London Inter Bank Offer
Rate (“LIBOR”) plus 3% and the Term Loan at prime plus 2.5% or LIBOR plus 3.5%.
On March 24, 2016, we entered into an amendment to our Amended Loan Agreement with our lender which
provided, among other things, the following (the amendment, together with the Amended Loan Agreement
is collectively known as the “Revised Loan Agreement”):
27
•
•
•
•
•
extended the due date of our current Credit Facility from October 31, 2016 to March 24, 2021
(“maturity date”);
amended the Term loan to approximately $6,100,000, which requires monthly payments of
approximately $102,000 (based on a five-year amortization) and which approximated the term loan
balance under our existing Credit Facility at the date of the amendment. The revolving line of credit
is to remain at up to $12,000,000 (subject to the amount of borrowings based on a percentage of
eligible receivables as previously defined under the Amended Loan Agreement);
released $1,000,000 of the $1,500,000 borrowing availability hold that the lender had previously
placed on the Company in connection with the insurance settlement proceeds received by our PFSG
facility, which suffered a fire in 2013;
revised the interest payment options to paying an annual rate of interest due on the Revolving Credit
at prime plus 1.75% or LIBOR plus 2.75% and the Term Loan at prime plus 2.25% or LIBOR plus
3.25%; and
revised our annual capital spending maximum limit from $6,000,000 to $3,000,000.
In connection with the amendment, the Company paid PNC a closing fee of $70,000.
Pursuant to the amendment, we may terminate the Revised Loan Agreement upon 90 days’ prior written
notice upon payment in full of its obligations under the Revised Loan Agreement. We have agreed to pay
PNC 1.0% of the total financing in the event we pay off our obligations on or before March 23, 2017, .50%
of the total financing if we pay off our obligations after March 23, 2017 but prior to or on March 23, 2018,
and .25% of the total financing if we pays off our obligations after March 23, 2018 but prior to or on March
23, 2019. No early termination fee shall apply if we pay off its obligations after March 23, 2019.
All other terms of the Amended Loan Agreement remain principally unchanged.
In accordance with ASC 470, “Debt,” this post balance-sheet date agreement demonstrated the Company’s
ability to refinance its short-term obligations on a long-term basis; therefore, the Company has reclassified
our outstanding debt under the Amended Loan Agreement as discussed above at December 31, 2015 to
long-term except for $1,486,000 in principal payments that will be due by December 31, 2016.
Our Credit Facility with PNC contains certain financial covenants, along with customary representations
and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a
default under our Credit Facility allowing our lender to immediately require the repayment of all
outstanding debt under our Credit Facility and terminate all commitments to extend further credit. The
following table illustrates the quarterly financial covenant requirements under our Credit Facility as of
December 31, 2015:
(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
1.15:1
$30,000
2.79:1
$42,898
1.70:1
$42,694
1.42:1
$44,653
1.30:1
$44,417
We met our quarterly fixed charge coverage ratio and minimum tangible adjusted net worth requirements in
each of the quarters in 2015 in accordance with our Amended Loan Agreement and we expect to meet these
requirements in 2016 under our loan agreement; however, if we fail to meet any of these quarterly financial
covenant requirements in any of the quarters in 2016 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 loan agreement. In the event that our lender accelerates the payment of our borrowings, we may
not have sufficient liquidity to repay our debt under our loan agreement and other indebtedness.
28
On August 2, 2013, we completed a lending transaction with Messrs. Robert Ferguson and William
Lampson (“collectively, the “Lenders”), whereby we borrowed from the Lenders the sum of $3,000,000 (the
“Loan”). Mr. Ferguson serves as an advisor to the Company’s Board of Directors and is also a member of
the Board of Directors of our majority-owned Polish Subsidiary (see “Related Party Transactions – Mr.
Robert L. Ferguson” in this section for further information on Mr. Ferguson). 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 provided for
monthly payments of accrued interest only during the first year of the Loan 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 with our 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 us.
As consideration for us receiving the Loan, we issued a Warrant to each Lender to purchase up to 35,000
shares of our Common Stock at an exercise price of $2.23 per share which was based on the closing price of
our Common Stock at the closing of the transaction. The Warrants are exercisable six months from August
2, 2013 and expire on August 2, 2016. The fair value of the Warrants was estimated to be approximately
$59,000 using the Black-Scholes option pricing model. As further consideration for the Loan, we also
issued an aggregate 90,000 shares of our Common Stock, with each Lender receiving 45,000 shares. 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 Company’s Common 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 were
recorded as a debt discount, which is being amortized using the effective interest method over the term of
the Loan as interest expense – financing fees in the accompanying Consolidated Statements of Operations.
During August 2014, PF Medical executed stock subscription agreements totaling approximately
$2,357,000 for 250,000 shares of its Series E Common Stock to non-U.S. persons in an offshore private
placement. In connection with this transaction, PF Medical has received approximately $1,478,000 and
$67,000 in proceeds (before deduction for commissions and legal expenses relating to this offering of
approximately $242,000) in 2014 and 2015, respectively, for the 250,000 shares. As of December 31, 2015,
the $67,000 is being held in an escrow account and is expected to be released from the escrow account
during the first quarter of 2016 for payment of certain expenses related to the medical isotope project. The
Company has recorded the amount held in escrow as restricted cash on the accompanying Consolidated
Balance Sheets as of December 31, 2015. PF Medical has elected to transfer all the rights, title, and interests
of the remaining approximately 86,585 unpaid shares back to PF Medical. The unpaid shares to be
transferred back to PF Medical will require the termination of the original stock subscription agreements for
the 86,585 shares.
On April 30, 2015, PF Medical officially accepted a grant awarded by the National Centre for Research and
Development (“NCRD”) in Poland to further develop and commercialize a novel prototype generator for the
production of Tc-99m for use in cancer and cardiac imaging (“Generator Project”), subject to official
issuance of the grant. The Generator Project is under the leadership and supervision of PF Medical and
consists of four additional entities from Poland (together known as the “Generator Project team”). NCRD’s
subsidy grant for the Generator Project is approximately $2,547,000 and will be funded by NCRD over a
four year period. If needed, PF Medical expects to fund any capital requirements in excess of the subsidy
grant for the Generator Project allocated by NCRD through the sale of equity. Of the $2,547,000 subsidy
grant allocation, PF Medical will directly receive approximately $745,000 over a four year period and the
remaining amount will be allocated to other members of the Generator Project team to be used solely to
support technology development and testing of the Generator Project. PF Medical officially was awarded the
grant by NCRD in December 2015. The subsidy grant will be funded based on milestone completion of the
Generator Project.
On July 24, 2015, PF Medical and Digirad Corporation, a Delaware corporation (“Digirad”), Nasdaq:
DRAD, entered into a multi-year Tc-99m Supplier Agreement (the “Supplier Agreement”) and a Series F
Stock Subscription Agreement (the “Subscription Agreement”), (together, the “Digirad Agreements”). The
Supplier Agreement became effective upon the completion of the Subscription Agreement. Pursuant to the
terms of the Digirad Agreements, Digirad purchased, in a private placement, 71,429 shares of PF Medical’s
29
restricted Series F Stock for an aggregate purchase price of $1,000,000, which was received on July 24,
2015. As of December 31, 2015, legal expenses incurred for this offering totaled approximately $29,000.
The 71,429 share investment made by Digirad constituted approximately 5.4% of the outstanding common
shares of PF Medical. As a result of this transaction, the Company’s ownership interest in PF Medical
diluted from approximately 64.0% to 60.5%. The Supplier Agreement provides, among other things, that
upon PF Medical’s commercialization of certain Tc99m generators, Digirad will purchase agreed upon
quantities of Tc-99m for its nuclear imaging operations either directly or in conjunction with its preferred
nuclear pharmacy supplier and PF Medical will supply Digirad, or its preferred nuclear pharmacy supplier,
with Tc-99m at a preferred pricing, subject to certain conditions.
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, 2015, which total approximately
$1,539,000, payable as follows: $675,000 in 2016; $670,000 in 2017; with the remaining $194,000 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, including facility closures. As of December 31, 2015, the
total amount of these bonds and letters of credit outstanding was approximately $1,738,000, 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, 2015, the closure and post-closure
requirements for these facilities were approximately $46,404,000. We have recorded approximately
$21,380,000 in a sinking fund related to these policies in other long term assets on the accompanying
Consolidated Balance Sheets.
Critical Accounting Policies
In preparing the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”), 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 (generally ranging from 9.0% to 33%) of revenue as we incur costs for
transportation, analyses 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 provisions. 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
30
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.
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 2.4% of revenue for 2015 and 13.2% of accounts receivable as of December
31, 2015. Additionally, this allowance was approximately 3.8% of revenue for 2014 and 20.8% of accounts
receivable as of December 31, 2014.
Intangible Assets. Intangible assets consist primarily of the recognized value of the permits required to
operate our business. We continually monitor the propriety of the carrying amount of our permits to
determine whether current events and circumstances warrant adjustments to the carrying value.
Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October
1, or when events or changes in the business environment indicate that the carrying value may be impaired.
If the fair value of the asset is less than the carrying amount, we perform a quantitative test to determine the
fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its
fair value. Significant judgments are inherent in these analyses and include assumptions for, among other
factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash
flows, and the determination of appropriate long term discount rates.
We performed impairment testing of our permits related to our Treatment reporting unit as of October 1,
2015 and 2014 and determined there was no impairment.
Intangible assets that have definite useful lives are amortized using the straight-line method over the
estimated useful lives (with the exception of customer relationships which are amortized using an
accelerated method) and are excluded from our annual intangible asset valuation review as of October 1.
The Company has one definite-lived permit which was excluded from our annual impairment review as
noted above. The net carrying value of this one definite-lived permit as of December 31, 2015 and 2014 was
approximately $172,000 and $227,000, respectively. Intangible assets with definite useful lives are also
tested for impairment whenever events or changes in circumstances indicate that the asset’s carrying value
may not be recoverable.
Accrued Closure Costs and Asset Retirement Obligations (“ARO”). Accrued closure costs represent our
estimated environmental liability to clean up our facilities as required by our permits, in the event of
closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair
value of a liability for an ARO be recognized in the period in which it is incurred with the associated ARO
capitalized as part of the carrying cost of the asset. The recognition of an ARO requires that management
make numerous estimates, assumptions and judgments regarding such factors as estimated probabilities,
timing of settlements, material and service costs, current technology, laws and regulations, and credit
adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at
which the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present
value. ARO’s are included within buildings as part of property and equipment and are depreciated over the
estimated useful life of the property. In periods subsequent to initial measurement of the ARO, 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 and are included in cost of
31
goods sold in the Consolidated Statements of Operations. Changes in the estimated future cash flows costs
underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the
ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with the
Company’s depreciation policy.
Accrued Environmental Liabilities. We have three remediation projects in progress (all within discontinued
operations). 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 (See
“Environmental Contingencies” below for further information of these liabilities).
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. We use 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, 2015,
we had net deferred tax assets of approximately $8,592,000 (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, 2015
and 2014, we concluded that it was more likely than not that $8,592,000 and $7,896,000 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.
Known Trends and Uncertainties
Economic Conditions. The Company’s business continues to be heavily dependent on services that we
provide to governmental clients (including the U.S. Department of Energy (“DOE”) and U.S. Department of
Defense (“DOD”)) directly as the contractor or indirectly as a subcontractor. We believe demand for our
services will continue to be subject to fluctuations due to a variety of factors beyond our control, including
the current economic conditions, the large budget deficit that the government is facing, and the manner in
which the government will be required to spend funding to remediate federal sites. In addition, our
governmental contracts and subcontracts relating to activities at governmental sites are generally subject to
32
termination or renegotiation on 30 days notice at the government’s option. Significant reductions in the
level of governmental funding or specifically mandated levels for different programs that are important to
our business could have a material adverse impact on our business, financial position, results of operations
and cash flows.
Significant Customers. Our Treatment and Services Segments have significant relationships with the federal
government, and continue to enter into contracts, directly as the prime contractor or indirectly for others 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 representing approximately
$36,105,000 or 57.9% of our total revenue from continuing operations during 2015, as compared to
$34,780,000 or 60.9% of our total revenue from continuing operations during 2014.
Revenue generated by one of the customers (non-government related and excluded from above) in the
Services Segment accounted for 10% or more of the total revenues generated from continuing operations for
the twelve months ended December 31, 2015:
Customer
Prologis Teterboro, LLC
Year
2015
Total
Revenue
$10,686,000
% of Total
Revenue
17.1%
As our revenues are event/project based where the completion of one contract with a specific customer may
be replaced by another contract with a different customer from year to year, we do not believe the loss of one
specific customer from one year to the next will generally have a material adverse effect on our operations
and financial condition.
PF Medical
The Company’s majority-owned Polish subsidiary, PF Medical, continues to dedicate resources to the R&D
of the new medical isotope production technology and to take the necessary steps for eventual submittal of
this technology for U.S. Food and Drug Administration (“FDA”) and other regulatory approval and
commercialization of this technology. Costs to be incurred for our Medical Segment for fiscal year 2016 is
expected to be similar to costs incurred for fiscal year 2015, which was approximately $2,114,000. The need
for capital by PF Medical may require PF Medical to obtain its own credit facility or by additional equity
raises. If PF Medical obtains its own separate credit facility, such could result in restrictions on our rights as
a majority stock owner. Any equity raises, if successful, may result in dilution of the Company’s ownership
of PF Medical.
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.
33
Our subsidiaries where the remediation expenditures will be made are the former Environmental Processing
Services, Inc. (“EPS”) site in Dayton, Ohio, a former Resource Conservation and Recovery Act (”RCRA”)
storage facility operated by the former owners of Perma-Fix Dayton, Inc. (“PFD”), Perma-Fix of Memphis
Inc.’s (“PFM” – closed location) site in Memphis, Tennessee, and PFSG facility in Valdosta, Georgia (in
closure status). 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. Remediation activities at our Perma-Fix of Michigan, Inc. subsidiary
(“PFMI” – closed location) in Brownstown, Michigan, were completed in 2015. All of the reserves noted
above 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, 2015, we had total accrued environmental remediation liabilities of $900,000, of which
$9,000 is recorded as a current liability, which reflects a decrease of $116,000 from the December 31, 2014
balance of $1,016,000. The net decrease of $116,000 represents payments on remediation projects at PFSG
and PFM totaling approximately $78,000 and reduction in reserve of $38,000 due to completion of
remediation activities at our PFMI location. The December 31, 2015 current and long-term accrued
environmental liability at December 31, 2015 is summarized as follows (in thousands):
Current
Accrual
$ 9
Long-term
Accrual
$ 60
15
816
$ 891
$ 9
Total
$ 69
15
816
$ 900
PFD
PFM
PFSG
Total liability
Related Party Transactions
Mr. David Centofanti
Mr. David Centofanti serves as our Vice President of Information Systems. For such position, he received
annual compensation of $168,000 and $163,000 in 2015 and 2014, respectively. Mr. David Centofanti is the
son of our Chief Executive Officer (“CEO”), President and a Board of Directors (“Board”) member, 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.
Mr. Robert L. Ferguson
Mr. Robert L. Ferguson serves as an advisor to the Company’s Board and is also a member of the
Supervisory Board of Perma-Fix Medical, a majority-owned Polish subsidiary of the Company. Mr.
Ferguson previously served as a Board member of the Company from June 2007 to February 2010 and
again from August 2011 to September 2012. As an advisor to the Company’s Board, Mr. Ferguson is paid
$4,000 monthly plus reasonable expenses. For such services, Mr. Ferguson received compensation of
approximately $58,000 and $56,000 for the years ended December 31, 2015 and 2014, respectively. 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”) (see further details and terms of this Loan in this “MD&A – Liquidity and Capital Resources -
Financing Activities”).
Mr. John Climaco
On June 2, 2015, Mr. Climaco, a current member of the Company’s Board and a member of the Strategic
Advisory Committee of the Board, was elected as the Executive Vice President (“EVP”) of PF Medical. As
EVP of PF Medical, Mr. Climaco receives an annual salary of $150,000 and is not eligible to receive
compensation for serving on the Company’s Board.
34
On October 17, 2014, the Company’s Compensation and Stock Option Committee and the Board, with Mr.
Climaco abstaining, approved a consulting agreement with Mr. Climaco. Pursuant to the consulting
agreement, Mr. Climaco was responsible to, among other things:
• Review the Company’s operations to restructure costs to render the Company more
competitive;
• Evaluate all functions, including but not limited to sales, marketing, accounting, operations,
and executive management as well as cost structures for each facility;
• Assist in the development of the Company’s strategy opportunity and other initiatives,
including but not limited to the development of the Company’s medical isotope production
technology; and
• Other assignments as determined by the Board.
Mr. Climaco was paid $22,000 per month under the consulting agreement, beginning September 2014, until
the termination of the consulting agreement effective June 2, 2015, upon Mr. Climaco’s election as EVP of
PF Medical. For his services under the consulting agreement, Mr. Climaco received approximately
$117,000 and $107,000 in 2015 and 2014, respectively.
Mr. Climaco is also a Director of Digirad Corporation. On July 24, 2015 PF Medical and Digirad entered
into a multi-year Tc-99m Supplier Agreement and a Subscription Agreement (see further details of the these
agreement this “MD&A – Liquidity and Capital Resources - Financing Activities”).
Mr. Robert Schreiber, Jr.
During March 2011, we entered into a five-year lease with Lawrence Properties LLC for certain office and
warehouse space used and occupied by Schreiber, Yonley and Associates (“SYA”), a wholly owned
subsidiary of the Company until its sale by the Company on July 29, 2014. Lawrence Properties is owned
by Robert Schreiber, Jr., the President of SYA until his resignation on July 29, 2014, and Mr. Schreiber’s
spouse. Under the lease, which commenced June 1, 2011, we paid monthly rent of approximately $11,400,
which we believe was lower than costs charged by unrelated third party landlords. Rent payment under this
lease was approximately $72,000 for the year ended December 31, 2014. In connection with the Company’s
sale of SYA, the lease was terminated on July 29, 2014. Mr. Schreiber is a member of the Supervisory
Board of PF Medical, a majority-owned Polish subsidiary of the Company.
Employment Agreements
We have employment agreements (each dated July 10, 2014) with each of Dr. Centofanti (our President and
CEO), Ben Naccarato (our Chief Financial Officer or “CFO”), and John Lash (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 had not yet been 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 the Company’s Common Stock granted to, and held by, the officer covered by the employment
agreement to be immediately vested and exercisable.
Management Incentive Plans (“MIPs”)
The Company has an individual MIP for each of our CEO, CFO and COO, which awards cash compensation
based on achievement of certain performance targets for fiscal year 2015. A total of approximately
$214,000 is payable as of December 31, 2015 under the three MIPs for 2015. Such payment is expected to
be paid during the second quarter of 2016. On February 4, 2016, the Company’s Compensation and Stock
Option Committee approved individual MIPs for our CEO, COO, and CFO. The MIPs are effective as of
January 1, 2016. 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 5% to 100% or $13,962 to $279,248 of the 2016 base salary for the
35
CEO, 5% to 100% or $10,750 to $215,000 of the 2016 base salary for the COO, and 5% to 100% or $11,033
to $220,667 of the 2016 base salary for the CFO.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required under Regulation S-K for smaller reporting companies.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Forward-looking Statements
Certain statements contained within this report may be deemed "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (collectively, the "Private Securities Litigation Reform Act of 1995").
All statements in this report other than a statement of historical fact are forward-looking statements that are
subject to known and unknown risks, uncertainties and other factors, which could cause actual results and
performance of the Company to differ materially from such statements. The words "believe," "expect,"
"anticipate," "intend," "will," and similar expressions identify forward-looking statements. Forward-looking
statements contained herein relate to, among other things,
• demand for our services;
• reductions in the level of government funding in future years;
• expect to meet our quarterly financial covenant requirements in 2016;
• ability to achieve profitability;
• continue to focus on expansion into both commercial and international markets to increase revenues and
expect to continue into 2016;
• may not have liquidity to repay debt if our lender accelerates payment of our borrowings;
• our cash flows from operations and our available liquidity from our Credit Facility are sufficient to
service our obligations;
• manner in which the government will be required to spend funding to remediate federal sites;
• reducing operating costs to bring them in line with revenue level, when necessary;
• fund capital expenditures from cash from operations and/or financing;
• subsidy grant is expected to be funded based on milestone completion of the Generator Project;
• PF Medical expects to fund any capital requirements in excess of the subsidy grant for the Generator
Project allocated by NCRD through the sale of equity;
• fund the expenses to remediate these sites (PFSG, PFD, and PFM) from funds generated internally;
• compliance with environmental regulations;
• supply shortage of Tc-99m is expected to continue as one of the specialized reactors is expected to cease
production and go off-line in the near future;
• disposal site for our nuclear waste and negative effect if ownership of disposal site is in the hands of one
owner; and
• potential effect of being a PRP;
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;
36
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
inability to maintain and obtain closure and operating insurance requirements;
inability to retain or renew certain required permits;
discovery of additional contamination or expanded contamination at any of the sites or facilities
leased or owned by us or our subsidiaries which would result in a material increase in remediation
expenditures;
delays at our third party disposal site can extend collection of our receivables greater than twelve
months;
refusal of third party disposal sites to accept our waste;
changes in federal, state and local laws and regulations, especially environmental laws and
regulations, or in interpretation of such;
requirements to obtain permits for TSD activities or licensing requirements to handle low level
radioactive materials are limited or lessened;
potential increases in equipment, maintenance, operating or labor costs;
management retention and development;
financial valuation of intangible assets is substantially more/less than expected;
the requirement to use internally generated funds for purposes not presently anticipated;
inability to continue to be profitable on an annualized basis;
inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
terminations of contracts with 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.
37
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, 2015 and 2014
Consolidated Statements of Operations for the years ended
December 31, 2015 and 2014
Consolidated Statements of Comprehensive Loss for the
years ended December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the years
ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
Page No.
39
40
42
43
44
45
46
Financial Statement Schedules
In accordance with the rules of Regulation S-X, schedules are not submitted because they are not applicable
to or required by the Company.
38
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Stockholders of
Perma-Fix Environmental Services, Inc.
We have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc.
(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2015 and 2014, and the
related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for
each of the two 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. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. 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 as of December 31, 2015
and 2014, and the results of their operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 24, 2016
39
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Amounts in Thousands, Except for Share and per Share Amounts)
2015
2014
ASSETS
Current assets:
Cash
Restricted cash
Accounts receivable, net of allowance for doubtful
accounts of $1,474 and $2,170, respectively
Unbilled receivables - current
Inventories
Prepaid and other assets
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
Net property and equipment
Property and equipment related to discontinued operations
Intangibles and other long term assets:
Permits
Other intangible assets - net
Unbilled receivables – non-current
Finite risk sinking fund
Other assets
Total assets
$
1,435
99
$
3,680
85
9,673
4,569
377
4,081
34
20,268
20,209
35,191
422
11,626
1,755
497
69,700
(49,707)
19,993
531
8,272
7,177
498
3,010
20
22,742
20,362
35,434
403
11,613
1,799
336
69,947
(47,123)
22,824
681
16,761
2,066
707
21,380
1,359
83,065
$
16,709
2,435
273
21,334
1,253
88,251
$
The accompanying notes are an integral part of these consolidated financial statements.
40
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31,
(Amounts in Thousands, Except for Share and per Share Amounts)
2015
2014
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Disposal/transportation accrual
Deferred revenue
Current liabilities related to discontinued operations
Current portion of long-term debt
Current portion of long-term debt - related party
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
Long-term debt, less current portion - related party
Total long-term liabilities
Total liabilities
Commitments and Contingencies (Note 13)
$
6,109
4,341
1,107
2,631
531
1,508
950
17,177
$
5,350
4,540
1,737
4,873
2,137
2,319
1,414
22,370
5,301
867
5,424
1,064
7,530
20,186
37,363
5,508
803
5,006
590
6,690
949
19,546
41,916
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 $867
and $803, respectively
Stockholders' Equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $.001 par value; 30,000,000 shares authorized;
11,551,232 and 11,476,485 shares issued, respectively;
11,543,590 and 11,468,843 shares outstanding, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive (loss) income
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
105,556
(60,808)
(117)
(88)
44,554
(137)
44,417
11
104,541
(59,758)
11
(88)
44,717
333
45,050
Total liabilities and stockholders' equity
$
83,065
$
88,251
The accompanying notes are an integral part of these consolidated financial statements.
41
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(Amounts in Thousands, Except for Per Share Amounts)
2015
2014
Net revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development
Impairment loss on goodwill
Gain on disposal of property and equipment
Income (loss) from operations
Other income (expense):
Interest income
Interest expense
Interest expense-financing fees
Foreign currency loss
Other
Income (loss) from continuing operations before taxes
Income tax expense
Loss from continuing operations, net of taxes
(Loss) income from discontinued operations, net of taxes
Net loss
Net loss attributable to non-controlling interest
Net loss attributable to Perma-Fix Environmental
Services, Inc. common stockholders
Net income (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 income (loss) per share:
Basic
Diluted
$
$
$
$
$
62,383
48,032
14,351
10,996
2,302
(80)
1,133
53
(489)
(228)
(10)
21
480
543
(63)
(1,864)
(1,927)
(877)
57,065
45,157
11,908
11,973
1,315
380
(41)
(1,719)
27
(616)
(192)
(24)
(51)
(2,575)
417
(2,992)
1,688
(1,304)
(79)
(1,050)
$
(1,225)
.07 $
(.16)
(.09) $
(.26)
.15
(.11)
11,516
11,552
11,443
11,443
The accompanying notes are an integral part of these consolidated financial statements.
42
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31,
(Amounts in Thousands)
2015
2014
Net loss
Other comprehensive (loss) income:
Foreign currency translation (loss) gain
Total other comprehensive (loss) income
Comprehensive loss
Comprehensive loss attributable to non-controlling
interest
Comprehensive loss attributable to Perma-Fix
Environmental Services, Inc. common stockholders
$
(1,927)
$
(1,304)
(128)
(128)
9
9
(2,055)
(1,295)
(877)
(79)
$
(1,178)
$
(1,216)
The accompanying notes are an integral part of these consolidated financial statements.
43
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
Income (Loss)
Non-controlling
Interest in
Subsidiary
Accumulated
Deficit
Total
Stockholders'
Equity
Balance at December 31, 2013
11,406,573 $
Net loss
Foreign currency translation
Issuance of stock - Perma-Fix Medical
S.A., net of expenses of $242
Issuance of Common Stock upon
exercise of options
Issuance of Common Stock for
services
Stock-Based Compensation
2,577
67,335
Balance at December 31, 2014
11,476,485 $
Net loss
Foreign currency translation
Issuance of stock - Perma-Fix Medical
S.A., net of expenses of $29
Issuance of Common Stock upon
exercise of options
Issuance of Common Stock for
services
Stock-Based Compensation
Balance at December 31, 2015
3,423
71,324
11,551,232 $
11
11
11
$
103,454
$
(88)
$
776
7
270
34
$
104,541
$
(88)
$
631
10
282
92
105,556
$
$
(88)
$
2
9
11
(128)
$
$
(58,533)
$
(79)
412
(1,225)
$
333
$
(59,758)
$
(877)
407
(1,050)
(117)
$
(137)
$
(60,808)
$
44,846
(1,304)
9
1,188
7
270
34
45,050
(1,927)
(128)
1,038
10
282
92
44,417
The accompanying notes are an integral part of these consolidated financial statements.
44
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) income on discontinued operations, net of taxes
Loss from continuing operations
Adjustments to reconcile net income (loss) from continuing operations to cash used in operating activities:
Depreciation and amortization
Amortization of debt discount
Deferred tax expense
(Recovery of) provision for bad debt reserves
Impairment of goodwill
Gain on disposal of plant, property and equipment
Loss on sale of SYA subsidiary (see Note 8)
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 provided by continuing operations
Cash used in discontinued operations
Cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of plant, property and equipment
Proceeds from sale of SYA subsidiary (see Note 8)
Payments to finite risk sinking fund
Cash (used in) provided by investing activities of continuing operations
Proceeds from property insurance claims of discontinued operations (see Note 8)
Cash (used in) provided by investing activities
Cash flows from financing activities:
Borrowing on revolving credit
Repayments of revolving credit
Principal repayments of long term debt
Principal repayments of long term debt - related party
Proceeds from issuance of common stock
Issuance of stock - Perma-Fix Medical S.A., net of expenses of $29 and $242, respectively
Cash used in financing activities of continuing operations
Principal repayment of long-term debt for discontinued operations
Cash used in financing activities
Effect of exchange rate changes on cash
(Decrease) increase in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosure:
Interest paid
Income taxes paid
Proceeds from stock subscription for Perma-Fix Medical S.A. held in escrow
2015
2014
$
(1,927)
(1,864)
$
(1,304)
1,688
(63)
(2,992)
3,717
87
418
(433)
──
(80)
──
282
92
(968)
2,174
135
(3,657)
1,704
(2,862)
(1,158)
(623)
127
50
(46)
(492)
──
(492)
67,614
(65,265)
(2,320)
(1,500)
10
971
(490)
──
(490)
(105)
4,240
86
539
291
380
(41)
53
270
34
(713)
(2,606)
1,149
(29)
661
(2,093)
(1,432)
(464)
133
1,214
(27)
856
5,727
6,583
66,644
(66,644)
(2,463)
(500)
7
1,187
(1,769)
(35)
(1,804)
──
(2,245)
3,680
1,435
$
3,347
333
3,680
$
$
903
116
67
$
607
41
──
The accompanying notes are an integral part of these consolidated financial statements.
45
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 1
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an
environmental and technology know-how company, is a Delaware corporation, engaged through its
subsidiaries, in three reportable segments:
TREATMENT SEGMENT, which includes:
-
-
nuclear, low-level radioactive, mixed waste (containing both hazardous and low-level radioactive
constituents), hazardous and non-hazardous waste treatment, processing and disposal services
primarily through four uniquely licensed and permitted treatment and storage facilities; and
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 governmental 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;
- 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.
On April 4, 2014, the Company completed the acquisition of a controlling interest in a Polish Company, a
publicly traded shell company on the NewConnect (alternative share market run by the Warsaw Stock
Exchange) in Poland and sold to the Polish shell all of the shares of Perma-Fix Medical Corporation, a
Delaware corporation organized by the Company (incorporated in January 2014). Perma-Fix Medical
Corporation’s only asset was a worldwide license granted by the Company to use, develop and market the
new process and technology developed by the Company in the production of Technetium-99 (“Tc-99m”) for
medical diagnostic applications. Tc-99m is the most widely used medical isotope in the world. Since the
acquired shell company (now named Perma-Fix Medical S.A. or “PF Medical”) did not meet the definition
of a business under Accounting Standards Codification (“ASC”) 805, “Business Combinations”, the
transaction was accounted for as a capital transaction. PF Medical, the Company’s majority-owned Polish
subsidiary (which we own approximately 60.5% as of December 31, 2015), continues to perform research
46
and development (“R&D”) of its new medical isotope production technology. As of December 31, 2015, PF
Medical has not generated any revenue as it is primarily in the R&D stage. In accordance with ASC 280,
“Segment Reporting,” the Company has determined that the operations of PF Medical meet the definition of
a reportable segment. Accordingly, all of the historical numbers presented in the consolidated financial
statements have been recast to include the operations of PF Medical as a separate reportable segment
(“Medical Segment”).
MEDICAL SEGMENT, which includes: R&D of a new medical isotope production technology by our
majority-owned Polish subsidiary, PF Medical. The Company’s Medical Segment has not generated any
revenue as it continues to be primarily in the R&D stage. All costs incurred by the Medical Segment are
reflected within R&D in the accompanying consolidated financial statements..
The Company’s continuing operations consist of 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” which was divested on July
29, 2014), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF
UK Limited”), Perma-Fix of Canada, Inc. (“PF Canada”), and PF Medical (a majority-owned Polish
subsidiary).
The Company’s discontinued operations (see Note 8) consist of all our subsidiaries included in our
Industrial Segment which were divested in 2011 and prior, two previously closed locations, and our Perma-
Fix of South Georgia, Inc. (“PFSG”) facility which suffered a fire on August 14, 2013 and became non-
operational and is closure status.
Financial Position and Liquidity
The Company achieved improvement in financial position and liquidity in the twelve months ended
December 31, 2015 as compared to the corresponding period of 2014. As of December 31, 2015, working
capital was approximately $3,091,000, an improvement of $2,719,000 from a working capital of
approximately $372,000 as of December 31, 2014. The Company generated a loss from continuing
operations of $63,000 as compared to a loss from continuing operations of $2,992,000 in 2014. The
Company’s financial results were negatively impacted by certain non-recurring charges incurred in 2015
within discontinued operations (see Note 8 – “Discontinued Operations and Divestitures”).
The Company’s cash flow requirements during 2015 were financed primarily by our operations, Credit
Facility availability, and an equity raise by PF Medical. The Company is continually reviewing operating
costs and is committed to further reducing operating costs to bring them in line with revenue levels, when
needed.
The Company’s cash flow requirements for 2016 will consist primarily of general working capital needs,
scheduled principal payments on our debt obligations and capital leases, remediation projects and planned
capital expenditures which we plan to fund from operations and our Credit Facility availability. The
Company’s majority-owned Polish subsidiary, PF Medical, continues to dedicate resources to the R&D of
the new medical isotope production technology and to take the necessary steps for eventual submittal of this
technology for U.S. Food and Drug Administration (“FDA”) and other regulatory approval and
commercialization of this technology. The need for capital may require PF Medical to obtain its own credit
facility or through additional equity raises by PF Medical. If PF Medical obtains its own separate credit
facility, such could result in restrictions on our rights as a majority stock owner. Any equity raises, if
successful, would result in dilution of the Company’s ownership of PF Medical.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Our consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, and our
majority-owned Polish subsidiary, PF Medical, after elimination of all significant intercompany accounts
and transactions.
47
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Use of Estimates
When the Company prepares financial statements in conformity with accounting standards generally
accepted in the United States of America (“US GAAP”), the Company 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. Actual results could differ from those estimates. See Notes 8, 11, 12 and 13 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 and proceeds held in
escrow resulting from stock subscription agreements executed in connection with the sale of common stock
by the Company’s majority-owned Polish subsidiary, PF Medical (see Note 3 - “PF Medical” for further
details).
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
collectability. Specific accounts that are deemed to be uncollectible are reserved at 100% of their
outstanding balance. The remaining balances aged over 60 days have a percentage applied by aging
category, based on historical experience that allows us to calculate the total allowance required. Once 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 from senior
management based on required approval thresholds.
The following table set forth the activity in the allowance for doubtful accounts for the years ended
December 31, 2015 and 2014 (in thousands):
Allowance for doubtful accounts-beginning of year
(Recovery of) provision for bad debt reserve
Write-off
Allowance for doubtful accounts-end of year
Year Ended December 31,
2015
2014
$
$
2,170
(433)
(263)
1,474
$
$
1,932
291
(53)
2,170
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. Retainage receivables of approximately $229,000 and $11,000 as of December 31,
2015 and 2014, respectively, are included in the accounts receivable balance on the Company’s
Consolidated Balance Sheets in the respective periods.
Unbilled Receivables
Unbilled receivables are generated by differences between invoicing timing and our proportional
performance based methodology used for revenue recognition purposes. As major processing and contract
completion phases are completed and the costs are 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
48
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 portion 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 improvements, 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
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 depreciation expense totaled approximately $3,246,000 and $3,602,000 in 2015 and 2014, respectively.
Intangible Assets
Intangible assets consist primarily of the recognized value of the permits required to operate our business.
We continually monitor the propriety of the carrying amount of our permits to determine whether current
events and circumstances warrant adjustments to the carrying value.
Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October
1, or when events or changes in the business environment indicate that the carrying value may be impaired.
If the fair value of the asset is less than the carrying amount, we perform a quantitative test to determine the
49
fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its
fair value. Significant judgments are inherent in these analyses and include assumptions for, among other
factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash
flows, and the determination of appropriate long term discount rates.
We performed impairment testing of our permits related to our Treatment reporting unit as of October 1,
2015 and 2014 and determined there was no impairment.
Intangible assets that have definite useful lives are amortized using the straight-line method over the
estimated useful lives (with the exception of customer relationships which are amortized using an
accelerated method) and are excluded from our annual intangible asset valuation review as of October 1.
The Company has one definite-lived permit which was excluded from our annual impairment review as
noted above. The net carrying value of this one definite-lived permit as of December 31, 2015 and 2014 was
approximately $172,000 and $227,000, respectively. Definite-lived intangible assets are also tested for
impairment whenever events or changes in circumstances suggest impairment might exist.
Research and Development (“R&D”)
Operational innovation and technical know-how 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. The Company conducts research
internally and also through collaborations with other third parties. R&D 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 new technology and are
charged to expense when incurred in accordance with ASC Topic 730, “Research and Development.” The
Company’s R&D expenses included approximately $2,114,000 and $759,000 for the years ended December
31, 2015 and 2014, respectively, incurred by our Medical Segment in the R&D of its medical isotope
production technology.
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. ASC 410, “Asset Retirement and Environmental Obligations”
requires that the discounted fair value of a liability for an ARO be recognized in the period in which it is
incurred with the associated ARO capitalized as part of the carrying cost of the asset. The recognition of an
ARO requires that management make numerous estimates, assumptions and judgments regarding such
factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws
and regulations, and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation
rate, to the expected time at which the closure will occur, and then discounted back, using a credit adjusted
risk free rate, to the present value. ARO’s are included within buildings as part of property and equipment
and are depreciated over the estimated useful life of the property. In periods subsequent to initial
measurement of the ARO, 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, which is included in cost of goods sold. Changes in costs resulting from changes or
expansion at the facilities require adjustment to the ARO liability calculated and are capitalized and charged
as depreciation expense, in accordance with the Company’s depreciation policy.
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.
50
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. The Company
evaluates the realizability of its deferred income tax assets, primarily resulting from impairment loss and net
operating loss carryforwards, and adjusts its valuation allowance, if necessary. Once the Company utilizes
its net operating loss carryforwards or reverses the related valuation allowance it has recorded on these
deferred tax assets, the Company would expect its 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
accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax
expense.
The Company reassesses 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 Currency
The Company’s foreign subsidiaries include PF UK Limited, PF Canada and PF Medical. Assets and
liabilities are translated to U.S. dollars at the exchange rate in effect at the balance sheet date and revenue
and expenses at the average exchange rate for the period. Foreign currency translation adjustments for these
subsidiaries are accumulated as a separate component of accumulated other comprehensive income (loss) in
stockholders’ equity. Gains and losses resulting from foreign currency transactions are recognized in the
consolidated statements of operations.
Concentration Risk
The Company performed services relating to waste generated by the federal government, either directly as a
prime contractor or indirectly for others as a subcontractor to the federal government, representing
approximately $36,105,000 or 57.9% of total revenue from continuing operations during 2015, as compared
to $34,780,000 or 60.9% of total revenue from continuing operations during 2014.
Revenue generated by one of the customers (non-government related and excluded from above) in the
Services Segment accounted for 10% or more of the total revenues generated from continuing operations for
the twelve months ended December 31, 2015:
Customer
Prologis Teterboro, LLC
Year
2015
Total
Revenue
$10,686,000
% of Total
Revenue
17.1%
As our revenues are project/event based where the completion of one contract with a specific customer may
be replaced by another contract with a different customer from year to year, we do not believe the loss of one
specific customer from one year to the next will generally have a material adverse effect on our operations
and financial condition.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash
equivalents with high quality financial institutions, which may exceed Federal Deposit Insurance
Corporation (“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to
accounts receivable is limited due to the Company's large number of customers and their dispersion
throughout the United States as well as with the significant amount of work that we perform for the federal
government as discussed above.
51
The Company has one customer whose net outstanding receivable balance represented 16.2% and 13.8% of
the Company’s total consolidated net accounts receivable at December 31, 2015 and 2014, respectively.
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 its revenue and expenses, the Company
assesses, among other things, whether it is the primary obligor or principal taxpayer for the taxes assessed in
each jurisdiction where the Company does business. As the Company is merely a collection agent for the
government authority in certain of our facilities, the Company records the taxes on a net bases and excludes
them from revenue and cost of services.
Revenue Recognition
Treatment Segment revenues. The processing of mixed waste is complex and may take several months or
more to complete; as such, the Treatment Segment recognizes revenues using a proportional performance
based methodology with its measure of progress towards completion determined based on output measures
consisting of milestones achieved and completed. The Treatment Segment has waste tracking capabilities,
which it continues to enhance, to allow for better matching of 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 are incurred, the
Treatment Segment recognizes the corresponding percentage of revenue utilizing a proportional
performance model. The Treatment Segment experiences 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 the
waste is processed waste but prior to our release of the waste for disposal. As the waste moves through these
processing phases and revenues are recognized, the correlating costs are expensed as incurred. Although the
Treatment Segment uses its 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 customer, 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. The Services Segment estimates its 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, the Services Segment is reimbursed for costs incurred plus a certain
percentage markup for indirect costs, in accordance with contract provisions. Costs incurred in excess of
contract funding may be renegotiated for reimbursement. The Services Segment also earns a fee based on
the approved costs to complete the contract. The Services Segment recognizes 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.
52
Self-Insurance
Effective May 2015, the Company moved to a fully-insured group health plan. Previously the Company
was self-insured for a significant portion of our group health. Under the self-insured group health plan, the
Company estimated 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 were closely reviewed, monitored, and adjusted when warranted by changing
circumstances. The estimated accruals for these liabilities could have been affected if actual experience
related to the number of claims and cost per claim differed from these assumptions and historical trends. No
self-insurance reserves were required as of December 31, 2015 as the Company moved to a fully-insured
group health plan. Self-insurance reserve was approximately $397,000 as of December 31, 2014 and was
included in Accrued expenses in the accompanying consolidated balance sheets. The total amount expensed
for self-insurance during 2015 and 2014 were approximately $868,000 and $2,697,000, respectively, for our
continuing operations. Monthly group health insurance premium under the fully-insured group health plan is
approximately $220,000.
Stock-Based Compensation
The Company accounts 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.
The Company recognizes 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. 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 by 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 (loss) are net income (loss) and the effects of foreign currency
translation adjustments.
Earning (Loss) Per Share
Basic earning (loss) per share is calculated based on the weighted-average number of outstanding common
shares during the applicable period. Diluted earning (loss) per share is based on the weighted-average
number of outstanding common shares plus the weighted-average number of potential outstanding common
shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive
earnings per share. Earning (loss) per share is computed separately for each period presented.
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.
53
Financial instruments include cash and restricted cash (Level 1), accounts receivable, accounts payable, and
debt obligations (Level 3). Credit is extended to customers based on an evaluation of a customer’s financial
condition and, generally, collateral is not required. At December 31, 2015 and December 31, 2014, 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.
Recently Adopted Accounting Standards
In June 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-12, “Compensation
Stock – Compensation (Topic 718).” ASU 2014-12 applies to all reporting entities that grant their
employees share-based payments in which the terms of the award provide that a performance target that
affects vesting could be achieved after the requisite service period. It requires that a performance target that
affects vesting and that could be achieved after the requisite service period be treated as a performance
condition and follows existing accounting guidance for the treatment of performance conditions. The
standard is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015, with early adoption permitted. The adoption of this ASU in the fourth quarter of 2015
did not have an impact on the Company's results of operations, cash flows or financial position.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the
Consolidation Analysis.” ASU 2015-02 changes the analysis that a reporting entity must perform to
determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2015. Early adoption is
permitted, including adoption in an interim period. The adoption of this ASU in the fourth quarter of 2015
did not have an impact on the Company's results of operations, cash flows or financial position.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes.” ASU 2015-17 simplifies the presentation of deferred taxes by requiring
deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The provisions of this
ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2016. Early adoption is permitted. A reporting entity should apply the amendment prospectively or
retrospectively. The Company adopted ASU 2015-17 retrospectively in the fourth quarter of 2015. Balances
as of December 31, 2014 were restated to conform with 2015 classification, resulting in a decrease in
current deferred tax assets of $385,000 and a decrease in long-term deferred tax liabilities of $385,000.
Other than these reclassifications, the adoption of ASU 2015-17 had no impact on the Company’s results of
operations and cash flows.
Recently Issued Accounting Standards – Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU
2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. The
revenue guidance contains principles that an entity will apply to determine the measurement of revenue and
timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict
the transfer of goods or services to customers at an amount that the entity expects to be entitled to in
exchange for those goods or services. In July 2015, the FASB deferred the effective date to annual reporting
periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early
adoption is permitted to the original effective date of December 15, 2016 (including interim reporting
periods within those periods). The ASU may be applied retrospectively to each prior period presented or
retrospectively with the cumulative effect recognized as of the date of initial application. The Company is
still evaluating the potential impact of adopting this guidance on our financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern.” ASU 2014-15 requires management to assess an entity’s ability to
continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new
standard will be effective for all entities in the first annual period ending after December 15, 2016. The
Company is still evaluating the potential impact of adopting this guidance on our financial statements.
54
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of
Inventory.” ASU 2015-11 requires that inventory within the scope of this update be measured at the lower
of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in
this update do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory
method. The amendments apply to all other inventory, which includes inventory that is measured using first-
in, first-out (FIFO) or average cost. For all entities, the guidance is effective for annual periods, and interim
periods within those annual periods, beginning after December 15, 2016. Early adoption is permitted. The
Company is still evaluating the potential impact of adopting this guidance on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. Under ASU 2016-02, an
entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose
key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee,
a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and
quantitative information about leasing arrangements to enable a user of the financial statements to assess the
amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is
effective for annual reporting periods beginning after December 15, 2018, including interim periods within
that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The
Company is still evaluating the potential impact of adopting this guidance on our financial statements.
NOTE 3
PF Medical
The Company’s subsidiaries include PF Medical, a majority-owned Polish subsidiary acquired in April
2014. PF Medical continues to conduct R&D of its new medical isotope production technology which it
plans for eventual commercialization.
During August 2014, PF Medical executed stock subscription agreements totaling approximately
$2,357,000 for 250,000 shares of its Series E Common Stock to non-U.S. persons in an offshore private
placement. In connection with this transaction, PF Medical has received approximately $1,478,000 and
$67,000 in proceeds (before deduction for commissions and legal expenses relating to this offering of
approximately $242,000) in 2014 and 2015, respectively, for the 250,000 shares. As of December 31, 2015,
the $67,000 is being held in an escrow account and is expected to be released from the escrow account
during the first quarter of 2016 for payment of certain expenses related to the medical isotope project. The
Company has recorded the amount held in escrow as restricted cash on the accompanying Consolidated
Balance Sheets as of December 31, 2015. PF Medical has elected to transfer all the rights, title, and interests
of the remaining approximately 86,585 unpaid shares back to PF Medical. The unpaid shares to be
transferred back to PF Medical will require the termination of the original stock subscription agreements for
the 86,585 shares.
On July 24, 2015, PF Medical and Digirad Corporation, a Delaware corporation (“Digirad”), Nasdaq:
DRAD, entered into a multi-year Tc-99m Supplier Agreement (the “Supplier Agreement”) and a Series F
Stock Subscription Agreement (the “Subscription Agreement”), (together, the “Digirad Agreements”). The
Supplier Agreement became effective upon the completion of the Subscription Agreement. Pursuant to the
terms of the Digirad Agreements, Digirad purchased, in a private placement, 71,429 shares of PF Medical’s
restricted Series F Stock for an aggregate purchase price of $1,000,000, which was received on July 24,
2015. As of December 31, 2015, legal expenses incurred for this offering totaled approximately $29,000.
The 71,429 share investment made by Digirad constituted approximately 5.4% of the outstanding common
shares of PF Medical. As a result of this transaction, the Company’s ownership interest in PF Medical
diluted from approximately 64.0% to 60.5%. The Supplier Agreement provides, among other things, that
upon PF Medical’s commercialization of certain Tc99m generators, Digirad will purchase agreed upon
quantities of Tc-99m for its nuclear imaging operations either directly or in conjunction with its preferred
nuclear pharmacy supplier and PF Medical will supply Digirad, or its preferred nuclear pharmacy supplier,
with Tc-99m at a preferred pricing, subject to certain conditions.
55
NOTE 4
PERMIT AND OTHER INTANGIBLE ASSETS
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, 2013
PCB permit amortized (1)
Permit in progress
Balance as of December 31, 2014
PCB permit amortized (1)
Permit in progress
Balance as of December 31, 2015
Treatment
$
16,744
(55)
20
16,709
(55)
107
16,761
$
(1) Amortization for the one definite-lived permit capitalized in 2009. This permit is being amortized over a ten year period in
accordance with its estimated useful life. Net carrying value of this permit was approximately $172,000 and $227,000 as of
December 31, 2015 and 2014, respectively.
The following table summarizes information relating to the Company’s definite-lived intangible assets:
Intangibles (amount in thousands)
Patent
Software
Customer relationships
Permit
Total
Useful
Lives
(Years)
8-18
3
12
10
December 31, 2015
December 31, 2014
Gross
Carrying Accumulated
Amortization
Amount
Net
Carrying
Amount
Gross
Carrying Accumulated
Amortization
Amount
Net
Carrying
Amount
$
$
539
395
3,370
545
4,849
$
$
(203)
(364)
(1,671)
(373)
(2,611)
$
$
336
31
1,699
172
2,238
$
$
512
375
3,370
545
4,802
$
$
(168)
(319)
(1,335)
(318)
(2,140)
$
$
344
56
2,035
227
2,662
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):
Year
2016
2017
2018
2019
2020
Amount
(In thousands)
$
412
366
335
256
221
1,590
$
Amortization expense recorded for definite-lived intangible assets for the Company was approximately
$471,000 and $638,000, for the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, the Company has no goodwill. In 2014, the Company recorded an
impairment charge of $380,000 in connection with the sale of our SYA subsidiary on July 29, 2014, in
accordance with ASC Topic 350 “Intangible – Goodwill and Other” (“ASC 350”). The impairment charges
recorded were non-cash 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.
56
NOTE 5
CAPITAL STOCK, STOCK PLANS, WARRANTS, AND STOCK BASED COMPENSATION
Stock Option Plans
The Company adopted the 2003 Outside Directors Stock Plan (the “2003 Plan”), which was approved by
our stockholders at the Annual Meeting of Stockholders on July 29, 2003. Options granted under the 2003
Plan generally have a vesting period of six months from the date of grant and a term of 10 years, with an
exercise price equal to the closing trade price on the date prior to grant date. The 2003 Plan also provides
for the issuance to each outside director a number of shares of Common Stock in lieu of 65% or 100%
(based on option elected by each director) of the fee payable to the eligible director for services rendered as
a member of the Board of Directors (“Board”). The number of shares issued is determined at 75% of the
market value as defined in the plan. The 2003 Plan, as amended, also provides for the grant of an option to
purchase up to 6,000 shares of Common Stock for each outside director upon initial election to the Board,
and the grant of an option to purchase 2,400 shares of Common Stock upon each re-election. The number
of shares of the Company’s Common Stock authorized under the 2003 Plan is 800,000, pursuant to the 2003
Plan, as amended.
Effective July 28, 2004, the Company adopted the 2004 Stock Option Plan ( the “2004 Plan”), which was
approved by our stockholders at the Annual Meeting of Stockholders on such date. The 2004 Plan provided
for the grants of options to selected officers and employees, including any employee who was also a
member of the Board of the Company. A maximum of 400,000 shares of our Common Stock were
authorized for issuance under this plan in the form of either Incentive Stock Options (“ISO”) or Non-
Qualified Stock Options (“NQSOs”). The options granted under the 2004 Plan were 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. On July 28, 2014, the 2004 Plan expired. The last options issued under the
2004 Plan prior to the expiration date of the Plan expired on February 26, 2015.
On April 28, 2010, the Company adopted the 2010 Stock Option Plan (“2010 Plan”), which was approved
by our stockholders at the Company’s Annual Meeting of Stockholders on September 29, 2010. The 2010
Plan authorizes an aggregate grant of 200,000 NQSOs and ISOs to officers and employees 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 and Stock Option Committee (“Compensation Committee”), but
no stock options 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 ISO
granted under the 2010 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 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 NQSOs granted under the plan will not be less than the fair
market value of the shares at the time of grant.
No employees exercised options during 2015 and 2014. During 2015, the Company issued a total of 3,423
shares of our Common Stock upon exercise of 3,423 NQSOs by an outside director from the 2003 Plan, at
an exercise price of $2.79 per share which resulted in total proceeds of approximately $9,600. During 2014,
the Company issued a total of 2,577 shares of our Common Stock upon exercise of 2,577 NQSOs by an
outside director from the 2003 Plan, at exercise price of $2.79 per share which resulted in total proceeds of
approximately $7,200.
The summary of the Company’s total Plans as of December 31, 2015 and 2014, and changes during the
period then ended are presented as follows:
57
Options outstanding January 1, 2015
Granted
Exercised
Forfeited/Expired
Options outstanding End of Period (1)
Options Exercisable at December 31, 2015(1)
Options Vested and expected to be vested at December 31, 2015
Options outstanding January 1, 2014
Granted
Exercised
Forfeited/Expired
Options outstanding End of Period (1)
Options Exercisable at December 31, 2014(1)
Options Vested and expected to be vested at December 31, 2014
Weighted
Average
Remaining
Contractual
Term
(years)
Weighted
Average
Exercise
Price
$
7.81
4.19
2.79
8.13
Shares
239,023
12,000
(3,423)
(29,400)
218,200
$
7.65
169,533
212,333
$
$
8.47
7.72
4.8
4.5
4.8
Weighted
Average
Remaining
Contractual
Term
(years)
Weighted
Average
Exercise
Price
$
9.53
4.70
2.79
9.95
Shares
362,800
71,800
(2,577)
(193,000)
239,023
$
7.81
167,223
230,223
$
$
9.15
7.92
4.9
4.2
4.9
Aggregate
Intrinsic
Value (2)
4,298
14,676
14,676
14,676
Aggregate
Intrinsic
Value (2)
3,705
41,957
31,037
41,957
$
$
$
$
$
$
$
$
(1) Options with exercise prices ranging from $2.79 to $14.75
(2) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise
price of the option.
The summary of the Company’s nonvested options as of December 31, 2015 and changes during the period
then ended are presented as follows:
Non-vested options January 1, 2015
Granted
Vested
Non-vested options at December 31, 2015
Weighted
Average
Grant-Date
Fair Value
2.85
$
2.84
2.81
2.87
$
Shares
71,800
12,000
(35,133)
48,667
Capital Stock Issued for Services
The Company issued a total of 71,324 and 67,335 shares of our Common Stock in 2015 and 2014,
respectively, under our 2003 Plan to our outside directors as compensation for serving on our Board. As a
member of the Board, 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. The Company recorded approximately
$269,000 and $273,000 in compensation expense for the twelve months ended December 31, 2015 and
2014, respectively, for the portion of director fees earned in the Company’s Common Stock.
Preferred Share Rights Plan
In May 2008, the Company 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.
58
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 the Company is 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 two times the purchase price of the Right. The initial purchase price of each Right was $13.00,
subject to adjustment as defined in plan.
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 expire on
May 2, 2018.
Warrants and Capital Stock Issuance for Debt
As of December 31, 2015, the Company has 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 for 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 of $2.23 per
share. The Warrants are exercisable six months from August 2, 2013 and expire on August 2, 2016. These
Warrants are still outstanding at December 31, 2015. The Company also issued 90,000 shares of the
Company’s Common Stock to the Lenders. See Note 9 – “Long-Term Debt – Promissory Note and
Installment Agreement” for further information and accounting treatment of the Warrants and Common
Stock.
Shares Reserved
At December 31, 2015, the Company has reserved approximately 288,200 shares of Common Stock for
future issuance under all of the option and warrant arrangements.
Stock Based Compensation
As discussed above, the Company has certain stock option plans which it awards NQSOs and ISOs to
employees, officers, and outside directors. Stock options granted to employees generally have a six year
contractual term with one-third yearly vesting over a three year period. Stock options granted to outside
directors generally have a ten year contractual term with vesting period of six months.
On September 17, 2015, the Company granted an aggregate of 12,000 NQSOs from the Company’s 2003
Plan to five of the seven re-elected directors at our Annual Meeting of Stockholders held on September 17,
2015. Two of the directors are not eligible to receive options under the 2003 Plan as they are employees of
the Company or its subsidiaries. Dr. Centofanti is the Company’s Chief Executive Officer (“CEO”) and Mr.
John Climaco is an Executive Vice President (“EVP”) of PF Medical (effective June 2, 2015), the
Company’s majority-owned Polish subsidiary. The NQSOs granted were for a contractual term of ten years
with a vesting period of six months. The exercise price of the NQSOs was $4.19 per share, which was equal
to the Company’s closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions
used to estimate the fair value of stock options granted include the exercise price of the award, the expected
term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest
rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options
granted during 2015 and 2014 and the related assumptions used in the Black-Scholes option model used to
value the options granted were as follows (No options were granted to employees during 2015):
59
$
$
Weighted-average fair value per share
Risk -free interest rate (1)
Expected volatility of stock (2)
Dividend yield
Expected option life (3)
Weighted-average fair value per share
Risk -free interest rate (1)
Expected volatility of stock (2)
Dividend yield
Expected option life (3)
Outside Director Stock Options Granted
For Year Ended
2015
2.84
2.21%
57.98%
None
$
2014
2.73
2.63%
59.59%
None
10.0 years
10.0 years
Employee Stock Option Granted
For Year Ended 2014
2.88
1.91%
61.84%
None
6.0 years
(1) The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the
option.
(2) The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the
option.
(3) The expected option life is based on historical exercises and post-vesting data.
The following table summarizes stock-based compensation recognized for the fiscal year 2015 and 2014.
Employee Stock Options
Director Stock Options
Total
$
$
Year Ended
2015
53,000
39,000
92,000
2014
(14,000)
48,000
34,000
$
$
The Company recognizes 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, “Compensation
– Stock Compensation” requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. The Company has generally estimated
forfeiture rates based on historical trends of actual forfeitures. When actual forfeitures vary from our
estimates, the Company recognizes the difference in compensation expense in the period the actual
forfeitures occur or when options vest. The total stock-based compensation expense for the twelve months
ended December 31, 2014 included a reduction in expense of approximately $54,000 resulting from the
forfeiture of options by Mr. Jim Blankenhorn, our previous Chief Operating Officer (“COO”), who
voluntarily resigned from the Company effective March 28, 2014. The COO was granted an option from
the Company’s 2010 Plan on July 25, 2011, to purchase up to 60,000 shares of the Company’s Common
Stock at $7.85 per share. The options had a six year contractual term with one-third yearly vesting over a
three year period.
As of December 31, 2015, the Company has approximately $86,000 of total unrecognized compensation
cost related to unvested options, of which $67,000 is expected to be recognized in 2016, with the remaining
$19,000 in 2017.
NOTE 6
INCOME (LOSS) PER SHARE
The following table reconciles the income (loss) and average share amounts used to compute both basic and
60
diluted income (loss) per share:
(Amounts in Thousands, Except for Per Share Amounts)
Net income (loss) attributable to Perma-Fix Environmental Services,
Inc., common stockholders:
Income (loss) from continuing operations attributable to
Perma-Fix Environmental Services, Inc. common stockholders
Income (loss) from discontinuing operations attributable to
Perma-Fix Environmental Services, Inc. common stockholders
Net loss attributable to Perma-Fix Environmental Services, Inc.
common stockholders
Basic loss per share attributable to Perma-Fix Environmental
Services, Inc. common stockholders
Diluted loss per share attributable to Perma-Fix Environmental
Services, Inc. common stockholders
Weighted average shares outstanding:
Basic weighted average shares outstanding
Add: dilutive effect of stock options
Add: dilutive effect of warrants
Diluted weighted average shares outstanding
Twelve Months Ended
December 31,
(Unaudited)
2015
2014
$
$
$
$
814
$
(2,913)
(1,864)
1,688
(1,050)
$
(1,225)
(.09) $
(.11)
(.09) $
(.11)
11,516
6
30
11,552
11,443
11,443
Potential shares excluded from above weighted average share
calcu al tions due to their anti-dilutive effect include:
Stock options
183
201
NOTE 7
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 $867,000
since July 2002, of which $64,000 was accrued in each of the years ended December 31, 2003 to 2015 and
is included within Other long term liabilities of the Consolidated Balance Sheet.
NOTE 8
DISCONTINUED OPERATIONS AND DIVESTITURES
Discontinued Operations
The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment:
(1) subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility
which suffered a fire and explosion on August 14, 2013 and is currently undergoing regulatory closure. The
Company carried general liability, pollution, property and business interruption, and workers compensation
insurance with a maximum deductible of approximately $300,000. In June 2014, the Company entered into
a settlement agreement and release with one of its insurance carriers, resulting in receipt of approximately
$3,850,000 in insurance settlement proceeds, which was used for working capital purposes. The Company
subsequently recorded a gain on insurance settlement of approximately $3,842,000 in connection with the
fire and explosion at our PFSG facility. In 2014, the Company also recorded approximately $723,000 of
61
asset impairment charges as result of the Company’s decision not to rebuild PFSG in accordance with ASC
360.
On May 11, 2015, PFSG received a Notice of Violation and proposed Consent Order (“CO”) from the
Georgia Department of Natural Resources Environmental Protection Division (“GAEPD”), which alleged
certain violations (resulting from the fire and explosion in 2013 and prior inspections of the facility) of
Georgia hazardous waste management regulations and PFSG hazardous waste management permit. The
proposed CO also established the process for formally closing the PFSG hazardous waste management
facilities, should PFSG elect to do so; and proposed the assessment of a civil penalty. The final terms of the
CO, including a $201,200 civil penalty, were executed on July 1, 2015. The civil penalty was paid by the
Company and recorded during the second quarter of 2015. On August 28, 2015, the Company notified
GAEPD its intent to close the PFSG facility; and on September 29, 2015, the Company submitted a draft
Post-Closure Plan for review and approval by the GAEPD.
On June 4, 2015, the Perma-Fix of Michigan, Inc. (“PFMI”) entered into a letter of intent (“LOI”) to sell the
property PFMI formerly operated for a sale price of approximately $450,000. PFMI is a closed location.
As required by ASC 360, the Company concluded that asset impairment existed for PFMI and recorded
approximately $150,000 in an asset impairment charge in the second quarter of 2015. On September 29,
2015, PFMI entered into a Purchase Agreement (the “Agreement”) for the sale of the property for a sales
price of $450,000, which is subject to completion of a due diligence by the buyer during the first quarter of
2016, as amended. Upon execution of the Agreement, PFMI received a $20,000 deposit which is being held
in an escrow account (recorded as restricted cash within discontinued operations) (see Note 17 -
“Subsequent Event – PFMI” for further information of this Agreement).
During the fourth quarter of 2015, an arbitrator ordered the Company to pay approximately $1,278,000 to a
contractor hired by the Company to perform emergency response services at our PFSG subsidiary resulting
from the fire and explosion in 2013. As discussed above, PFSG is currently undergoing regulatory closure,
subject to state and federal environmental permitting requirements. In arbitration, the contractor had sought
payment of unpaid invoices totaling approximately $1,400,000 (which included interest of approximately
$600,000) and contract penalties totaling approximately $800,000. In addition, the contractor claimed
approximately $500,000 in attorney’s fees. On December 7, 2015, the Company was notified of the
following Arbitrator’s award totaling approximately $1,278,000, which was paid on December 31, 2015: (a)
$747,000 for unpaid invoices; (b) interest of $400,000; (c) attorney fees of $125,000; and (d) $6,000 in
certain administrative fees in connection with the arbitration. The Company had previously accrued
approximately $871,000 for this matter. The remaining charge of approximately $407,000 was recorded by
the Company in 2015 (in the fourth quarter of 2015, with $400,000 recorded as interest expense.
The following table summarizes the results of discontinued operations for the years ended December 31,
2015 and 2014.
Amount in Thousands
For The Year Ended December 31,
2015
2014
Interest expense
Operating (loss) income from discontinued operations
Gain on insurance settlement of discontinued operations
Income tax (benefit) expense
(Loss) income from discontinued operations
$
(401)
(1,915)
$
—
(51)
(1,864)
(6)
(2,108)
3,842
46
1,688
The following table presents the major class of assets of discontinued operations that are classified as held
for sale as of December 31, 2015 and December 31, 2014. The held for sale assets may differ at the closing
of a sale transaction from the reported balances as of December 31, 2015.
62
(Amounts in Thousands)
Property
Total assets held for sale
December 31,
2015
December 31,
2014
$
$
450
450
$
$
600
600
The following table presents the major classes of assets and liabilities of discontinued operations that are not
held for sale as of December 31, 2015 and December 31, 2014:
(Amounts in Thousands)
Current assets
Other assets
Total current assets
Long-term assets
Property, plant and equipment, net (1)
Total long-term assets
Total assets not held for sale
Current liabilities
Accounts payable
Accrued expenses and other liabilities
Environmental liabilities
Total current liabilities
Long-term liabilities
Closure liabilities
Environmental liabilities
Total long-term liabilities
Total liabilities not held for sale
December 31,
2015
December 31,
2014
$
$
$
$
34
34
81
81
115
85
437
9
531
173
891
1,064
1,595
$
$
$
20
20
81
81
101
947
462
728
2,137
302
288
590
2,727
(1) net of accumulated depreciation of $10,000 for each period presented.
Environmental Liabilities
The Company has three remediation projects, which are currently in progress at our Perma-Fix of Dayton,
Inc. (“PFD”), Perma-Fix of Memphis, Inc. (“PFM” – closed location), and PFSG (in closure status)
subsidiaries. The Company divested PFD in 2008; however, the environmental liability of PFD was retained
by the Company upon the divestiture of PFD. These remediation projects principally entail the
removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water.
Remediation activities at our Perma-Fix of Michigan, Inc. subsidiary (“PFMI” – closed location) in
Brownstown, Michigan, were completed in 2015. The remediation activities are closely reviewed and
monitored by the applicable state regulators.
At December 31, 2015, we had total accrued environmental remediation liabilities of $900,000, of which
$9,000 is recorded as a current liability, which reflects a decrease of $116,000 from the December 31, 2014
balance of $1,016,000. The net decrease of $116,000 represents payments on remediation projects at PFSG
and PFM totaling approximately $78,000 and a decrease in reserve of $38,000 due to completion of
remediation activities at our PFMI location. The December 31, 2015 current and long-term accrued
environmental liability at December 31, 2015 is summarized as follows (in thousands).
Current
Accrual
$ 9
Long-term
Accrual
$ 60
15
816
$ 891
$ 9
Total
$ 69
15
816
$ 900
PFD
PFM
PFSG
Total liability
63
Divestiture of SYA
On July 29, 2014, the Company completed the sale of its wholly-owned subsidiary, SYA. SYA was a
professional engineering and environmental consulting services company and was included in the
Company’s Services Segment. In accordance with ASU 2014-08, “Presentation of Financial Statements
(Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and
Disclosure of Disposals of Components of an Entity”, the divestiture of SYA was reported in continuing
operations for all periods presented. The purchaser of SYA paid approximately $1,300,000 for 100% of the
capital stock and $60,000 as an adjustment to the purchase price for excess working capital with $50,000 of
such consideration placed in escrow for a period of one year to cover any claims by the purchaser for
indemnification for certain limited types of losses incurred by the purchaser following the closing. The
$50,000 was recorded as restricted cash on the Company’s Consolidated Balance Sheets. The proceeds
received were used to pay down our revolver and used for working capital. Expense related to the sale of
SYA totaled approximately $96,000. The Company recorded a loss on the sale of SYA of approximately
$53,000 (net of taxes of $0), which included a final excess working capital adjustment of approximately
$42,000. The loss on the sale of $53,000 was included in “other” expense on our Consolidated Statements
of Operations. On August 4, 2015, the Company received the $50,000 which had been placed in escrow as
discussed above.
NOTE 9
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2015 and 2014:
(Amounts in Thousands)
Revolving Credit facility dated October 31, 2011, borrowings based upon eligible accounts
receivables, subject to monthly borrowing base calculation, variable interest paid
monthly at option of prime rate (3.50% at December 31, 2015) plus 2.0% or London Interbank
Offer Rate ("LIBOR") plus 3.0%, balance due October 31, 2016. Effective interest rate
for 2015 and 2014 was 4.0% and 4.1%, respectively. (1)
Term Loan dated October 31, 2011, payable in equal monthly installments of principal of
$190, balance due on October 31, 2016, variable interest paid monthly at option of prime
rate plus 2.5% or LIBOR plus 3.5%. Effective interest rate for 2015 and 2014 was 3.7% and
3.7%, respectively. (1)
Promissory Note dated August 2, 2013, payable in twelve monthly installments of interest
only, starting September 1, 2013 followed with twenty-four monthly installments of $125 in
principal plus accrued interest. Interest accrues at annual rate of 2.99%. (2) (4)
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%, paid in full on January 30, 2015. (2)
Capital lease (interest at rate of 6.0%)
Less current portion of long-term debt
December 31,
2015
December 31,
2014
$ 2,349 (3) $
—
6,666 (3)
8,952
950
2,363
—
23
9,988
2,458
7,530
$
$
10
47
11,372
3,733
7,639
(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) As discussed in Note 17 – “Subsequent Events,” on March 24, 2016, the Company entered into an amendment to its
Amended Loan Agreement (see discussion below), dated October 31, 2011, with PNC Bank, National Association
(“PNC”) which extended the due date of our current Credit Facility from October 31, 2016 to March 24, 2021 (the
amendment, together with the Amended Loan Agreement, is collectively known as the “Revised Loan Agreement”).
Pursuant to the Revised Loan Agreement, the revolving line of credit is to remain at up to $12,000,000 (subject to the
amount of borrowings based on a percentage of eligible receivables as previously defined under the Amended Loan
Agreement) with the term loan revised to $6,100,000, with monthly payment of approximately $102,000. In
accordance with ASC 470, “Debt,” this post balance-sheet date agreement demonstrated the Company’s ability to
64
refinance its short-term obligations on a long-term basis; therefore, the Company has reclassified the current portion of
the outstanding debt to long-term except for $1,486,000 in principal payments that will be due by December 31, 2016
(see Note 17 - “Subsequent Events” for further details of this Revised Loan Agreement).
(4) Net of debt discount of ($50,000) and ($137,000) at December 31, 2015 and December 31, 2014, respectively. See
“Promissory Notes and Installment Agreements” 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 (“Loan Agreement”), with PNC, acting as agent and lender. The Loan
Agreement, as amended (“Amended Loan Agreement”) provides the Company with the following Credit
Facility: (a) up to $12,000,000 revolving credit (“Revolving Credit”), subject to the amount of borrowings
based on a percentage of eligible receivables (as defined) and (b) a term loan (“Term Loan”) of
$16,000,000, which requires monthly installments of approximately $190,000 (based on a seven-year
amortization). As of December 31, 2015, the availability under the Company’s Revolving Credit was
approximately $2,687,000, based on our eligible receivables and was net of an indefinite reduction of
borrowing availability of $1,500,000. The Amended Loan Agreement authorized the Company to use the
$3,850,000 insurance settlement proceeds received on June 30, 2014 by our PFSG subsidiary (which
suffered a fire and explosion on August 14, 2013 and is included within our discontinued operations) for
working capital purposes but placed an indefinite reduction on our borrowing availability by the $1,500,000
as discussed above.
The Company’s Credit Facility with PNC contains certain financial covenants, along with customary
representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could
result in a default under our Credit Facility allowing our lender to immediately require the repayment of all
outstanding debt under our Credit Facility and terminate all commitments to extend further credit. The
Company’s Amended Loan Agreement prohibits us to declare, pay, or make any dividend distribution on
any shares of our Common Stock or Preferred Stock. The Company met its quarterly fixed charge coverage
ratio and minimum tangible adjusted net worth requirements in each of the quarters in 2015.
Promissory Notes and Installment Agreements
On February 12, 2013, the Company entered into an unsecured promissory note (“the new note”) with
Timios National Corporation (“TNC”) in the principal amount of approximately $230,000 as a result of a
settlement with TNC in connection with certain claims that the Company asserted against TNC for breach
of certain representations and covenant subsequent to our acquisition of SEC from TNC on October 31,
2011. The new note was entered into as a result of the settlement in which a previously issued promissory
note that the Company entered into with TNC as partial consideration of the purchase price of SEC was
cancelled and terminated and replaced with the new note. Final payment of approximately $10,000 on this
note was made in January 2015.
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 (the “Loan”) (See payment terms of this promissory note in the table above). The
Lenders are stockholders of the Company, having received shares of our Common Stock in connection with
the acquisition of our PFNWR subsidiary in June 2007. The proceeds from the Loan were used for general
working capital purposes. In connection with this Loan, the Lenders entered into a Subordination
Agreement 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, the Company issued a Warrant to each Lender to purchase up to 35,000
shares of the Company’s Common Stock at an exercise price of $2.23 per share, which was based on the
closing price of the Company’s Common Stock at the closing of the transaction. The Warrants are
exercisable six months from August 2, 2013 and expire on August 2, 2016. The fair value of the Warrants
was estimated 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 also issued an aggregate 90,000 shares of
65
the Company’s Common Stock, with each Lender receiving 45,000 shares. The Company 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 were recorded as a debt discount,
which is being amortized using the effective interest method over the term of the loan as interest expense –
financing fees. Mr. Robert Ferguson serves as an advisor to the Company’s Board of Directors (see Note 15
– “Related Party Transaction – Mr. Robert Ferguson” for further information on Mr. Ferguson).
In the event of default of the promissory note by the Company, the Lenders have the option to receive a cash
payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest (“Payoff
Amount”), or the number of whole shares of the Company’s Common Stock equal to the Payoff Amount
divided by the closing bid price of the Company’s 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 the
Company’s Common Stock is traded. The maximum number of payoff shares is restricted to less than 20%
of the outstanding equity.
The following table details the amount of the maturities of long-term debt maturing in future years as of
December 31, 2015 of our continuing operations (excludes debt discount of $50,000). See footnote (3)
above regarding the classification of the Company’s outstanding debt under our Amended Loan Agreement
as current and long-term.
Year ending December 31:
(In thousands)
2016 $
Beyond 2016
Total
$
2,508
7,530
10,038
NOTE 10
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
$
$
2015
2,822
202
9
833
475
4,341
2014
2,935
410
22
546
627
4,540
$
$
The Company has an individual Management Incentive Plan (“MIP”) for each of our CEO, Chief Financial
Officer (“CFO”) and COO, which awards cash compensation based on achievement of certain performance
targets for fiscal year 2015. A total of approximately $214,000 (included in “salaries and employee
benefits”) was accrued under the three MIPs for 2015. Such amounts are expected to be paid during the
second quarter of 2016. No performance incentive payments were made under any of the MIPs in 2014.
NOTE 11
ACCRUED CLOSURE COSTS AND 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. Changes to reported closure liabilities for the
years ended December 31, 2015 and 2014, were as follows:
66
Amounts in thousands
Balance as of December 31, 2013
Accretion expense
Balance as of December 31, 2014
Accretion expense
Payments
Adjustment to closure liability
Balance as of December 31, 2015
$
$
5,222
286
5,508
299
(331)
(175)
5,301
The decreases in closure liabilities in 2015 included approximately $331,000 of costs incurred in connection
with the closure of processing unit/equipment at our PFNWR facility and a reduction of approximately
$175,000 in closure liabilities at our PFNWR facility resulting from a change in estimated closure costs.
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, 2015 and 2014 as follows:
Amounts in thousands
Balance as of December 31, 2013
Amortization of closure and post-closure asset
Balance as of December 31, 2014
Amortization of closure and post-closure asset
Adjustment to closure and post-closure asset
Balance as of December 31, 2015
$
$
2,961
(91)
2,870
(152)
(143)
2,575
The adjustment to the ARO for 2015 was due to the adjustment made to our closure liability as discussed
above.
NOTE 12
INCOME TAXES
The components of current and deferred federal and state income tax expense (benefit) for continuing
operations for the years ended December 31, consisted of the following (in thousands):
Federal income tax expense (benefit) - current
Federal income tax expense - deferred
State income tax expense (benefit) - current
State income tax expense - deferred
Total income tax expense
2015
2014
116
142
9
276
543
$
$
(121)
530
(1)
9
417
$
$
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, 2015 and
2014 as follows (in thousands):
67
Deferred tax assets:
Net operating losses
Environmental and closure reserves
Other
Deferred tax liabilities:
Depreciation and amortization
Goodwill and indefinite lived intangible assets
Investment
Prepaid expenses
Valuation allowance
Net deferred income tax liabilities
$
2015
4,566
2,497
2,800
(1,130)
(5,443)
―
(122)
3,168
(8,592)
(5,424)
$
2014
4,611
2,520
3,129
(2,322)
(5,006)
(25)
(17)
2,890
(7,896)
(5,006)
An overall reconciliation between the expected tax expense using the federal statutory rate of 34% and the
expense for income taxes from continuing operations as reported in the accompanying Consolidated
Statement of Operations is provided below (in thousands).
Tax expense (benefit) at statutory rate
State tax benefit, net of federal benefit
Change in deferred tax rates
Permanent items
Non-deductible Goodwill
Difference in foreign rate
Reversal of deferred tax assets for divested facility (SYA)
Reversal of deferred tax assets on stock compensation
Change in deferred tax liabilities
Other
Increase in valuation allowance
Income tax expense
$
$
2015
2014
166
(93)
208
84
―
40
―
―
206
(124)
56
543
$
$
(864)
(66)
―
137
129
98
99
593
―
75
216
417
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 2015 and 2014, we determined that it was more
likely than not that approximately $8,592,000 and $7,896,000, 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 $56,000 and $216,000 for the years ended December 31, 2015
and 2014, respectively.
We have estimated net operating loss carryforwards (NOLs) for federal and state income tax purposes of
approximately $4,651,000 and $52,784,000, respectively, as of December 31, 2015. 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
68
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.
The Company accounts for uncertainties in income taxes pursuant to ASC 740. A reconciliation of the
beginning and ending amount of our unrecognized tax expense is summarized as follows (in thousands):
Balances at beginning of year
Reduction related to prior year tax position
Balances at end of the year
(1) Includes $26,000 in interest and penalties.
2015
2014
― $
―
― $
180
(180)
―
(1)
$
$
The tax years 2012 through 2014 remain open to examination by taxing authorities in the jurisdictions in
which the Company operates.
As of December 31, 2015 and 2014, the Company had approximately $32,000 and $85,000 of federal
income tax payable, respectively.
NOTE 13
COMMITMENTS AND CONTINGENCIES
Hazardous Waste
In connection with our waste management services, we process both hazardous and non-hazardous waste,
which we transport to our own, or other, facilities for destruction or disposal. As a result of disposing of
hazardous substances, in the event any cleanup is required, we could be a potentially responsible party for
the costs of the cleanup notwithstanding any absence of fault on our part.
Legal Matters
In the normal course of conducting our business, we are involved in various litigation. We are not a party to
any litigation or governmental proceeding which our management believes could result in any judgments
or fines against us that would have a material adverse effect on our financial position, liquidity or results of
future operations.
Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with American
International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our
permitted facilities in the event of unforeseen closure. The policy, as amended, provides for a maximum
allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other
performance and surety bond requirements. All of the required payments for this finite risk insurance policy,
as amended, were made by 2012. As of December 31, 2015, our financial assurance coverage amount under
this policy totaled approximately $38,454,000. The Company has recorded $15,460,000 and $15,429,000 in
sinking fund related to this policy in other long term assets on the accompanying Consolidated Balance
Sheets as of December 31, 2015 and 2014, respectively, which includes interest earned of $989,000 and
$958,000 on the sinking fund as of December 31, 2015 and 2014, respectively. Interest income for the
twelve months ended December 31, 2015 and 2014 was approximately $31,000 and $20,000, respectively.
If the Company so elects, AIG is obligated to pay the Company an amount equal to 100% of the sinking
fund account balance in return for complete release of liability from both us and any applicable regulatory
agency using this policy as an instrument to comply with financial assurance requirements.
In August 2007, the Company entered into a second finite risk insurance policy for 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. The
Company has made all of the required payments on this policy. The Company has recorded $5,920,000 and
69
$5,905,000 in our sinking fund related to this policy in other long term assets on the accompanying
Consolidated Balance Sheets as of December 31, 2015 and 2014, respectively, which includes interest
earned of $220,000 and $205,000 on the sinking fund as of December 31, 2015 and 2014, respectively.
Interest income for the twelve months ended December 31, 2015 and 2014 was approximately $15,000 and
$7,000, respectively. This policy is renewed annually at the end of the four year term with a nominal fee for
the variance between the coverage requirement and the sinking fund balance. The Company has renewed
this policy annually from 2011 to 2015 (with fees ranging from $41,000 to $46,000 annually). All other
terms of the policy remain substantially unchanged.
Letter of Credits and Bonding Requirements
From time to time, we are required to post standby letters of credit and various bonds to support contractual
obligations to customers and other obligations, including facility closures. As of December 31, 2015, the
total amount of these bonds and letters of credit outstanding was approximately $1,738,000, of which the
majority of the amount relates to various bonding requirements.
Operating Leases
The Company leases certain facilities and equipment under operating leases. The following table lists
future minimum rental payments as of December 31, 2015 under these leases for our continuing operations
(in thousands):
Year ending December 31:
2016
2017
2018
beyond 2018
Total
675
670
194
―
1,539
$
Total rent expense was $976,000 and $1,158,000 for the years ended 2015 and 2014, respectively, for our
continuing operations. These amounts included payments on non-cancelable operating leases of
approximately $659,000 and $826,000 for the years ended 2015 and 2014, respectively. The remaining rent
expense was for non-contractual monthly and daily rentals of specific use vehicles, machinery and
equipment.
NOTE 14
PROFIT SHARING PLAN
The Company 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. The Company, at
its discretion, may make matching contributions of 25% based on the employee’s elective contributions.
Company contributions vest over a period of five years. Effective June 15, 2012, the Company suspended
its matching contribution in an effort to reduce costs in light of the economic environment. The Company
commenced its matching contribution again effective January 1, 2015. In 2015, the Company contributed
approximately $303,000 in 401(k) matching funds.
NOTE 15
RELATED PARTY TRANSACTIONS
Related Party Transactions
Mr. David Centofanti
70
Mr. David Centofanti serves as the Company’s Vice President of Information Systems. For such position,
he received annual compensation of $168,000 and $163,000 in 2015 and 2014, respectively. Mr. Centofanti
is the son of the Company’s CEO, President and a Board member, Dr. Louis F. Centofanti.
Mr. Robert L. Ferguson
Mr. Robert L. Ferguson serves as an advisor to the Company’s Board and is also a member of the
Supervisory Board of PF Medical, a majority-owned Polish subsidiary of the Company. Mr. Ferguson
previously served as a Board member for the Company from June 2007 to February 2010 and again from
August 2011 to September 2012. As an advisor to the Company’s Board, Mr. Ferguson is paid $4,000
monthly plus reasonable expenses. For such services, Mr. Ferguson received compensation of
approximately $58,000 and $56,000 for the years ended December 31, 2015 and 2014, respectively. 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”) (see further details and terms of this Loan in this Note 9 – “Long Term Debt – Promissory Notes
and Installment Agreements”).
Mr. John Climaco
On June 2, 2015, Mr. Climaco, a current member of the Company’s Board and a member of the Strategic
Advisory Committee of the Board, was elected as the EVP of PF Medical. As EVP of PF Medical, Mr.
Climaco receives an annual salary of $150,000 and is not eligible to receive compensation for serving on the
Company’s Board.
On October 17, 2014, the Company’s Compensation Committee and the Board, with Mr. Climaco
abstaining, approved a consulting agreement with Mr. Climaco. Pursuant to the consulting agreement, Mr.
Climaco was responsible to, among other things:
• Review the Company’s operations to restructure costs to render the Company more
competitive;
• Evaluate all functions, including but not limited to sales, marketing, accounting, operations,
and executive management as well as cost structures for each facility;
• Assist in the development of the Company’s strategy opportunity and other initiatives,
including but not limited to the development of the Company’s medical isotope technology;
and
• Other assignments as determined by the Board.
Mr. Climaco was paid $22,000 per month under the consulting agreement, beginning September 2014, until
the termination of the consulting agreement effective June 2, 2015, upon Mr. Climaco’s election as EVP of
PF Medical. For his services under the consulting agreement, Mr. Climaco received approximately
$117,000 and $107,000 in 2015 and 2014, respectively.
Mr. Climaco is also a Director of Digirad Corporation. On July 24, 2015 PF Medical and Digirad entered
into a multi-year Tc-99 Supplier Agreement and a Subscription Agreement (see further details of these
agreements in this Note 3 – “PF Medical).
Mr. Robert Schreiber, Jr.
During March 2011, we entered into a five-year lease with Lawrence Properties LLC for certain office and
warehouse space used and occupied by SYA, a wholly owned subsidiary of the Company until its sale by
the Company on July 29, 2014. Lawrence Properties is owned by Robert Schreiber, Jr., the President of
SYA until his resignation on July 29, 2014, and Mr. Schreiber’s spouse. Under the lease, which
commenced June 1, 2011, we paid monthly rent of approximately $11,400. Rent payment under this lease
was approximately $72,000 for the year ended December 31, 2014. In connection with the Company’s sale
of SYA, the lease was terminated on July 29, 2014. Mr. Schreiber is a member of the Supervisory Board of
PF Medical, a majority-owned Polish subsidiary of the Company.
71
Employment Agreements
We have employment agreements (each dated July 10, 2014) with each of Dr. Centofanti (our President and
CEO), Ben Naccarato (our CFO), and John Lash (our 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 had not yet been 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. The Company had an employment agreement dated August 24, 2011 with Mr. James A.
Blankenhorn. 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.
MIPs
The Company has an individual MIP for each of our CEO, CFO and COO, which awards cash
compensation based on achievement of certain performance targets for fiscal year 2015. A total of
approximately $214,000 (which is expected to be paid during the second quarter of 2016) was accrued
under the three MIPs for 2015. See “Subsequent Events” in Note 17 for discussion of the 2016 MIPs.
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 decision maker
(“CODM”) 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 three reporting segments, which include Treatment and Services Segments, which are
based on a service offering approach; and Medical, whose primary purpose at this time is the continuation
of R&D of a new medical isotope production technology. The Medical Segment has not generated any
revenues and all costs incurred are reflected within R&D in the accompanying Statements of Operations.
Our reporting segments exclude our corporate headquarter and our discontinued operations (see Note 8 –
“Discontinued Operations and Divestitures”) which do not generate revenues.
The table below shows certain financial information of our reporting segments for 2015 and 2014 (in
thousands).
72
Segment Reporting as of and for the year ended December 31, 2015
Revenue from external customers
Intercompany revenues
Gross profit
Research and Development
Interest income
Interest expense
Interest expense-financing fees
Depreciation and amortization
Segment income (loss) before income taxes
Income tax expense
Segment income (loss)
Segment assets(1)
Expenditures for segment assets
Total debt
Treatment
$ 41,318
113
10,910
179
6
(38)
(2)
2,949
7,101
538
6,563
46,307
579
23
Services
$ 21,065
25
3,441
725
1,178
1,178
9,481
33
Medical
2,114
(2,114)
(2,114)
1,793
Segment Reporting as of and for the year ended December 31, 2014
Revenue from external customers
Intercompany revenues
Gross profit
Research and Development
Interest income
Interest expense
Interest expense-financing fees
Depreciation and amortization
Segment income (loss) before income taxes
Income tax expense (benefit)
Segment income (loss)
Segment assets(1)
Expenditures for segment assets
Total debt
Treatment
$ 42,343
12
10,480
437
(38)
3,281
6,149
604
5,545
50,226
399
47
Services
$ 14,722
70
1,428
99
(1)
2
910
(2,184) (6)
(191)
(1,993) (6)
8,920
64
Medical
759
(759)
(759)
1,213
Segments
Total
$ 62,383 (3)
138
14,351
2,293
6
(38)
(2)
3,674
6,165
538
5,627
57,581
612
23
Segments
Total
$ 57,065 (3)
82
11,908
1,295
(39)
2
4,191
3,206
413
2,793
60,359
463
47
Corporate
$ —
9
47
(451)
(226)
43
(5,685)
5
(5,690)
25,484 (4)
11
9,965 (5)
Corporate
$ —
20
27
(577)
(194)
49
(5,781)
4
(5,785)
27,892 (4)
1
11,325 (5)
(2)
Consolidated
Total
$ 62,383
14,351
2,302
53
(489)
(228)
3,717
480
543
(63)
83,065
623
9,988
(2)
Consolidated
Total
$ 57,065
11,908
1,315
27
(616)
(192)
4,240
(2,575)
417
(2,992)
88,251
464
11,372
(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 Company performed services relating to waste generated by the federal government, either directly as a prime contractor or
indirectly as a subcontractor to the federal government, representing approximately $36,105,000 or 57.9% of total revenue from
continuing operations during 2015 and $34,780,000 or 60.9% of total revenue from continuing operations during 2014. The
following reflects such revenue generated by our two segments:
Treatment
Services
Total
2015
30,130,000
5,975,000
36,105,000
$
$
2014
29,786,000
4,994,000
34,780,000
$
$
(4) Amount includes assets from our discontinued operations of $565,000 and $701,000, as of December 31, 2015 and 2014,
respectively.
(5) Net of debt discount of ($50,000) and ($137,000) for 2015 and 2014, respectively, 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 9 – “Long-
Term Debt – Promissory Note and Installment Agreement” for additional information.
73
(6) Included goodwill impairment charge of $380,000 recorded for the Company’s SYA subsidiary which was divested on July 29,
2014.
NOTE 17
SUBSEQUENT EVENTS
Credit Facility
On March 24, 2016, the Company entered into an amendment to its Amended Loan Agreement (see Note 9
– “Long Term Debt” for a discussion of this Amended Loan Agreement) with our lender which provided,
among other things, the following (the amendment, together with the Amended Loan Agreement is
collectively known as the “Revised Loan Agreement”):
•
•
•
•
•
extended the due date of our current Credit Facility from October 31, 2016 to March 24, 2021
(“maturity date”);
amended the term loan to approximately $6,100,000, which requires monthly payments of
approximately $102,000 (based on a five-year amortization) and which approximated the term loan
balance under our existing Credit Facility at the date of the amendment. The revolving line of credit
is to remain at up to $12,000,000 (subject to the amount of borrowings based on a percentage of
eligible receivables as previously defined under the Amended Loan Agreement);
released $1,000,000 of the $1,500,000 borrowing availability hold that the lender had previously
placed on the Company in connection with the insurance settlement proceeds received by our PFSG
facility, which suffered a fire in 2013;
revised the interest payment options to paying an annual rate of interest due on the Revolving Credit
at prime plus 1.75% or LIBOR plus 2.75% and the Term Loan at prime plus 2.25% or LIBOR plus
3.25%; and
revised our annual capital spending maximum limit from $6,000,000 to $3,000,000.
In connection with the amendment, the Company paid PNC a closing fee of $70,000.
Pursuant to the amendment, the Company may terminate the Revised Loan Agreement upon 90 days’ prior
written notice upon payment in full of its obligations under the Revised Loan Agreement. The Company
has agreed to pay PNC 1.0% of the total financing in the event it pays off its obligations on or before March
23, 2017, .50% of the total financing if it pays off its obligations after March 23, 2017 but prior to or on
March 23, 2018, and .25% of the total financing if it pays off its obligations after March 23, 2018 but prior
to or on March 23, 2019. No early termination fee shall apply if the Company pays off its obligations after
March 23, 2019.
All other terms of the Amended Loan Agreement remain principally unchanged.
PFMI
On September 29, 2015, PFMI entered into a Purchase Agreement (the “Agreement”) for the sale of the
property which PFMI formerly operated on for a sale price of $450,000, which is subject to completion of a
due diligence by the buyer (see Note 8 – “Discontinued Operations and Divestitures” for further information
regarding to PFMI). Upon execution of the Agreement, PFMI received a $20,000 deposit which is being
held in an escrow account (recorded as restricted cash within discontinued operations). In consideration of
an amendment to the Agreement entered into on February 17, 2016, which included extending the time
period for completion of the due diligence by the buyer, the buyer agreed to forfeit $10,000 of the $20,000
held in escrow to PFMI, which the $10,000 was received by PFMI on February 18, 2016. Upon timely
closing of the transaction, which is expected to be completed during the latter part of March 2016, the buyer
shall receive a credit against the purchase price which shall be the lesser of $15,000 and 50% of funds paid
by the buyer for certain due diligence costs, and a credit against the purchase price of $20,000. At closing,
74
PFMI is expected to receive $50,000 (which includes the remaining $10,000 held in escrow) reduced by
sales commissions and certain other closing costs and PFMI and the buyer will execute a Land Contract
(“Contract”) which will provide for, among other things, the remaining balance of the purchase price of
$375,000 to be paid by the buyer in 60 equal monthly installment of approximately $7,250, due on or before
the 15th of each month immediately following the execution of the Contract. PFMI retains legal title to the
property until the buyer fulfills the obligations under the Contract.
Management Incentive Plans (MIPs)
On February 4, 2016, the Company’s Compensation and Stock Option Committee approved individual MIPs
for our CEO, COO, and CFO. The MIPs are effective as of January 1, 2016. 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 5%
to 100% or $13,962 to $279,248 of the 2016 base salary for the CEO, 5% to 100% or $10,750 to $215,000
of the 2016 base salary for the COO, and 5% to 100% or $11,033 to $220,667 of the 2016 base salary for the
CFO.
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
(“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,
2015.
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 accounting principles generally accepted
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. 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. 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
75
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.
Management, with the participation of our CEO and CFO, conducted an assessment of the
effectiveness of internal control over financial reporting as of December 31, 2015 based on the
framework in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this
assessment, 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, 2015.
This Form 10-K does not include an attestation report of the Company’s independent
registered public accounting firm regarding internal control over 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 management’s report in this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes 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
December 31, 2015 that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting except the following:
The Company’s tax filing and tax provision function are performed by separate third party tax
professional firms which will assist with the oversight of our income tax provision preparation
procedures. In addition, management has commenced the utilization of a checklist to ensure
all major income tax components are accounted for during the review process.
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 Board of Directors
(“Board”):
NAME (1)
Dr. Louis F. Centofanti
John M. Climaco
Dr. Gary Kugler
Mr. Jack Lahav
Honorable Joe R. Reeder
Mr. Larry M. Shelton
AGE POSITION
72 Director; President and Chief Executive Officer (“CEO”);
Supervisory Board Member, Perma-Fix Medical S.A.
47 Director; Executive Vice President, Perma-Fix Medical S.A.
75 Director; Supervisory Board Member, Perma-Fix Medical S.A.
67 Director
68 Director
62 Chairman of the Board; Supervisory Board Member, Perma-Fix
Mr. Mark A. Zwecker
65 Director
Medical S.A.
76
Each director is elected to serve until the next annual meeting of stockholders.
(1) Dr. Charles E. Young elected not to stand for re-election at the Company’s 2015 Annual Meeting of
Stockholders held on September 17, 2015. Dr. Young’s decision not to stand for re-election was not due to
any disagreement with the Company.
Director Information
Dr. Louis F. Centofanti
Dr. Centofanti served as Chairman of our Board from the Company’s inception in February 1991 until
December 16, 2014, at which time Mr. Larry M. Shelton, an independent member of our Board, was
appointed to the position of Chairman of the Board. Dr. Centofanti continues to serve as a member of our
Board. Dr. Centofanti served as Company President and CEO (February 1991 to September 1995) and
again in March 1996 was elected Company President and CEO. In January 2015, Dr. Centofanti was
appointed by the U.S Secretary of Commerce Penny Prizker to serve on the U.S. Department of
Commerce’s Civil Nuclear Trade Advisory Committee (“CINTAC”). The CINTAC is composed of
industry representatives from the civil nuclear industry and meets periodically throughout the year to
discuss the critical trade issues facing the U.S. civil nuclear sector. Effective June 2, 2015, Dr. Centofanti
was elected to the Supervisory Board of Perma-Fix Medical S.A. (“PF Medical”), a majority-owned Polish
subsidiary of the Company involved in the research and development of a new medical isotope production
technology. From 1985 until joining the Company, Dr. Centofanti served as Senior Vice President (“SVP”)
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 oil. 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 Dr. Centofanti to
optimize our role in this competitive, evolving market, and led the Board to conclude that he should serve as
a director.
John M. Climaco
Mr. Climaco has been a director of the Company since October 2013. Effective June 2, 2015, Mr. Climaco
was named the Executive Vice President (“EVP”) of PF Medical, a majority-owned Polish subsidiary of the
Company involved in the research and development of a new medical isotope production technology. From
2012 through 2015, Mr. Climaco served as an independent consultant to a variety of healthcare and medical
technology companies. Since 2012, Mr. Climaco has served as a member of the Board for Digirad
Corporation, a NASDAQ-listed company that manufactures cameras for nuclear imaging applications and
provides for in-office nuclear cardiology imaging (see “Certain Relationships and Related Transactions, and
Director Independence” for a discussion of certain transactions between Digirad and PF Medical and Mr.
Climaco’s employment with PF Medical). Mr. Climaco has also served as a board member for PDI, Inc., a
provider of outsourced commercial services to pharmaceutical, biotechnology, and healthcare companies.
He has also served as a board member for InfuSystem Holdings, Inc., a NASDAQ-listed company that is a
leading supplier of infusion services to oncologists and other out-patient treatment settings. From 2003 to
2012, Mr. Climaco served as President and CEO, as well as a member of the Board 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 earned his B.A. in Philosophy from Middlebury College and holds a
J.D. from the University of California Hasting College of the Law.
77
Mr. Climaco’s extensive legal and operational experience, including strategic planning and business
development, provides valuable asset to the Company’s immediate and future growth in our industry, and
led the Board to conclude that he should serve as a director.
Dr. Gary G. Kugler
Dr. Gary Kugler, a director since September 2013, served as the Chairman of the Board of the Nuclear
Waste Management Organization (“NWMO”) from 2006 to June 2014, where he led its oversight through
the work of four committees, including an Audit-Finance-Risk Committee. NWMO was established under
the Canadian Nuclear Fuel Waste Act (2002) to investigate and implement approaches for managing
Canada’s used nuclear fuel. Dr. Kugler also served on the Board of Ontario Power Generation, Inc.
(“OPG”) from 2004 to March 2014 where he served as a member on four different committees, including
the Audit, Finance, and Risk Committee from 2004 to 2008. OPG is one of Canada’s largest electricity
generation companies, owning 18 nuclear, 65 hydro, and two biomass power plants. Effective June 2, 2015,
Dr. Kugler was elected to the Supervisory Board of PF Medical, a majority-owned Polish subsidiary of the
Company involved in the research and development of a new medical isotope production technology. 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 SVP, Nuclear Products & Services, in 2004, where
he was responsible for all of AECL’s commercial operations, including nuclear power plant 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, and led the Board to
conclude that he should serve as a director.
Mr. Jack Lahav
Jack Lahav, a director since September 2001, is a private investor and entrepreneur, specializing in
launching and growing sophisticated technological businesses. Mr. Lahav is a philanthropist, devoting much
of his time to charitable activities, serving as President as well as Board member of several charities. Mr.
Lahav currently serves as Chairman of several companies, among them Docsera, a company that develops
fast digitations capability for the education market; Buzzilla, an Israeli company that delivers the
conversation on the internet a client seeks to follow about its organization or company; and Phoenix Audio
Technologies, a company that provides better audio communication solutions for Voice over Internet
Protocol (“VoIP”) and other internet applications. 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, and was President of Advanced Technologies, Inc., a robotics company
that was acquired by a leading U.S manufacturing company. Mr. Lahav served as a director of Vocaltec
Communications, Ltd., the company that pioneered VoIP, and helped complete its initial public offering on
NASDAQ. From 2001 to 2004, Mr. Lahav served as Chairman of Quigo Technologies, Inc., a search-engine
company acquired by AOL in December 2007.
Having launched a number of successful businesses, Mr. Lahav has established a record of success in
developing and growing many businesses. 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. These factors led the Board to conclude that he
should serve as a director.
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 57 offices and over
1,900 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 where he oversaw a multibillion-dollar infrastructure program, and, for the past
78
fourteen years has served on the International Advisory Board of the Panama Canal. He has served on the
boards of the National Defense Industry Association (NDIA) (and chaired 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 was appointed by governor Terry McCauliffe to the Virginia Military Institute’s Board
of Visitors (2014). Mr. Reeder is also a 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). 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 solving and overseeing solutions to complex issues involving both
domestic and international concerns. His extensive knowledge and problem-solving experience has
enhanced the Board’s ability to address significant challenges in the nuclear market, and led the Board to
conclude that he should serve as a director.
Mr. Larry M. Shelton
Mr. Shelton, a director since July 2006, was appointed to the position of Chairman of the Board of the
Company on December 16, 2014, replacing Dr. Louis Centofanti, who held that position since February
1991. Mr. Shelton currently is the Chief Financial Officer (“CFO”) (since 1999) of S K Hart Management,
LC, an investment holding company. In January 2013, Mr. Shelton was elected President of Pony Express
Land Development, Inc. (an affiliate of SK Hart Management, LC), a privately-held land development
company, for which he has served on the Board since December 2005. In March 2012, he was appointed
Director and CFO of S K Hart Ranches (PTY) Ltd, a private South African Company involved in
agriculture business, and in April 2014, Mr. Shelton was appointed to the Supervisory Board of PF Medical,
a majority-owned Polish subsidiary of the Company involved in the research and development of a new
medical isotope production technology. Mr. Shelton has over 18 years of experience as an executive
financial officer for several waste management companies. He was CFO of Envirocare of Utah, Inc. (1995–
1999), and CFO of USPCI, Inc. (1982–1987), a New York Stock Exchange listed company. Since July
1989, Mr. Shelton has served on the Board of Subsurface Technologies, Inc., a privately-held company
specializing in providing environmentally sound innovative solutions for water well rehabilitation and
development. Mr. Shelton has a B.A. in accounting from the University of Oklahoma.
With his years of accounting experience as CFO for various companies, including a number of waste
management companies, Mr. Shelton combines extensive knowledge and understanding of accounting
principles, financial reporting requirements, evaluating and overseeing financial reporting processes and
business matters. These factors led the Board to conclude that he should serve as a director.
Mr. Mark A. Zwecker
Mark Zwecker, a director since the Company's inception in January 1991, currently serves as the CFO and a
Board member for JCI US Inc., a telecommunications 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,
79
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 position him well to serve as a member of our Board. These factors
led the Board to conclude that he should serve as a director
BOARD LEADERSHIP STRUCTURE
The Board recognizes that it is responsible for evaluating and determining its most effective leadership
structure for the Company. As a result, in December 2014, the Board considered whether its leadership
structure was optimal in light of the competitive environment in the Company operates, and whether an
alternate structure would be preferred to provide effective Board leadership and oversight of management
by the Board. Based on these considerations, on December 16, 2014, the Board decided to separate the
positions of Chairman of the Board and CEO, and appointed Larry M. Shelton, a current independent
director of the Company, to serve as the Chairman of the Board, with Dr. Louis Centofanti continuing to
serve as CEO. Prior to that time, both such positions were held by Dr. Centofanti.
Our directors continue to have increasingly more oversight responsibilities, and the Company believes that
an independent Chairman, whose sole responsibility is leading the Board, will enable our CEO to focus
primarily on the Company’s business goals and implementing our growth strategies for the benefit of the
Company and its shareholders. As noted, the Board recognizes that there is no “one structure fits all” model
for providing corporate leadership, and the Company’s leadership structure may change in the future as
circumstances may dictate.
Mr. Mark Zwecker, a current member of our Board, continues to serve as the Independent Lead Director, a
position he has held since February 2010. 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 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 Jack Lahav, who replaced Dr. Gary G. Kugler as a member of the
Audit Committee effective September 17, 2015.
Our Board has determined that each of our Audit Committee members is and was independent within the
meaning of the rules of NASDAQ and is 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”).
The Audit Committee has also received from, and discussed with, Grant Thornton, LLP, 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 and Mr. John Climaco, is
“independent” within the meaning of the applicable NASDAQ rules. Dr. Centofanti is not deemed to be an
“independent director” because of his employment as a senior executive of the Company. The Board
determined that Mr. Climaco does not currently qualify as an “independent director” because of his
employment effective June 2, 2015, as EVP of PF Medical, a majority-owned Polish subsidiary of the
Company and because he is also a director of Digirad Corporation which PF Medical entered into a supplier
agreement and a subscription agreement (together, the “Digirad Agreement”) on July 24, 2015 (see “John
80
Climaco” under “Certain Relationships and Related Transactions, and Director Independence” for further
discussion of his position with PF Medical and a description of the Digirad Agreement).
COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (“Compensation Committee”) reviews and recommends to
the Board the compensation and benefits of all of the Company’s officers and reviews general policy matters
relating to compensation and benefits of the Company’s employees. The Compensation Committee also
administers the Company’s stock option plans. The Compensation Committee has the sole authority to retain
and terminate a compensation consultant, as well as to approve the consultant’s fees and other terms of
engagement. It also has the authority to obtain advice and assistance from internal or external legal,
accounting or other advisors. No compensation consultant was employed during 2015. Members of the
Compensation Committee are Dr. Gary G. Kugler (who became a member effective September 17, 2015 and
who also replaced Larry Shelton as Chairperson of the Compensation Committee effective September 17,
2015), Larry M. Shelton, Joe R. Reeder, and Mark A. Zwecker. Dr. Charles E. Young was a member of the
Compensation Committee until his departure from the Board effective September 17, 2015. Dr. Young
elected not to stand for re-election at the Company’s 2015 Annual Meeting of Stockholders held on
September 17, 2015. None of the members of the Compensation 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.
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. Dr. Charles E. Young served on the Nominating Committee until his departure
from the Board effective September 17, 2015. All members of the Nominating Committee are and were
“independent” as that term is defined by current NASDAQ listing standards.
The Nominating Committee recommends to the Board 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 (the “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;
• 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 in accordance with the terms of the 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;
81
•
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.
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
There have been no changes to the stockholder nomination process since the Company’s last proxy
statement. The procedure for stockholder nominees to the Board is set out below.
The Nominating Committee will consider properly submitted stockholder nominations for candidates for
membership on the Board from stockholders who meet each of the requirements set forth in the 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 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 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 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 Bylaws. If the
Board, upon the recommendation of the Nominating Committee, determines that a nomination was not
made in accordance with the Bylaws, the Chairman of the Meeting shall declare the nomination defective
and it will be disregarded.
RESEARCH AND DEVELOPMENT COMMITTEE
We have a 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. The R&D Committee does not have a charter.
STRATEGIC ADVISORY COMMITTEE
We have a separately-designated Strategic Advisory Committee (the “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.
82
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of the date hereof, information concerning our executive officers:
NAME
Dr. Louis Centofanti
Mr. Ben Naccarato
Mr. John Lash
AGE
72
53
53
POSITION
President and Chief Executive Officer (“CEO”)
Chief Financial Officer (“CFO”), Vice President, and Secretary
Chief Operating Officer (“COO”)
Dr. Louis Centofanti
See “Director – Dr. Louis F. Centofanti” in this section for information on Dr. Centofanti.
Mr. Ben Naccarato
Mr. Naccarato has served as the CFO 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 CFO of Culp Petroleum Company, Inc., a privately held company
in the fuel distribution and used waste oil industry from December 2002 to September 2004. In July 2015,
Mr. Naccarato was named the CFO of PF Medical, the Company’s majority-owned Polish subsidiary
involved in the research and development of a new medical isotope technology. Effective December 22,
2015, Mr. Naccarato was appointed to the Management Board of PF Medical. Mr. Naccarato is a graduate
of University of Toronto having received a Bachelor of Commerce and Finance Degree and is a Chartered
Professional Accountant, Certified Management Accountant.
Mr. John Lash
Mr. Lash had served as the Company’s COO since March 20, 2014. Mr. Lash previously served as SVP 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 SVP 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 U.S. Department of Energy
(“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.
Certain Relationships
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 2015 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), except for Mr. Jack Lahav, who inadvertently failed to timely file two Form 4s to
report two transactions.
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
83
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 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, including our CEO and CFO, 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 at the same web
address.
ITEM 11.
EXECUTIVE COMPENSATION
Summary Compensation
The following table summarizes the total compensation paid or earned by each of the named executive
officers (“NEOs”) for the fiscal years ended December 31, 2015 and 2014.
Bonus
($)
Option
Awards
($) (4)
Non-Equity
Incentive Plan
Compensation
($) (5)
All other
Compensation
($) (6)
Total
Compensation
($)
Name and Principal Position
Year
Salary
Dr. Louis Centofanti (1)
President and CEO
Ben Naccarato
Vice President and CFO
John Lash (2)
Vice President and COO
2015
2014
2015
2014
2015
2014
($)
271,115
271,115
214,240
214,240
215,000
201,770
25,000
(3)
129,739
82,691
65,343
65,575
31,446
26,141
37,710
33,135
26,863
23,372
385,252
297,256
317,293
247,375
307,438
379,881
(1)
Effective December 16, 2014, Mr. Larry Shelton, a current independent member of the Board, replaced Dr. Centofanti as
Chairman of the Board.
(2) Named as COO effective March 20, 2014. Previously, Mr. Lash served as SVP of Operations for the Company’s Treatment
Segment. The salary noted for 2014 reflects prorated amount earned as SVP of Operations for the Treatment Segment and
prorated amount earned as the COO.
84
(3)
(4)
(5)
Represents a sign-on bonus upon becoming as COO of the Company on March 20, 2014.
Reflects the aggregate grant date fair value of awards computed in accordance with ASC 718, “Compensation – Stock
Compensation.” Assumptions used in the calculation of this amount are included in Note 5 – “Capital Stock, Stock Plans,
Warrants and Stock Based Compensation” to “Notes to Consolidated Financial Statement.” No options were granted to any
NEOs in 2015. No options were granted to NEOs in 2014 with the exception of Mr. Lash.
Represents performance compensation earned under the Company’s Management Incentive Plan (“MIP”) with respect to each
NEO. The MIP for each NEO is described under the heading “2015 Management Incentive Plans (“MIP”).” See
compensation earned under each of the 2015 MIPs under the heading “Compensation Earned under 2015 MIPs”. No
compensation was earned by any named executive officer under his respective MIP for 2014.
(6) The amount shown includes a monthly automobile allowance ($500 or $750), insurance premiums (health, disability and life)
paid by the Company, on behalf of the executive, and 401(k) matching contribution. No 401(k) matching contribution was
included in such calculation for 2014 as the Company did not provide matching during 2014.
Name
Dr. Louis Centofanti
Ben Naccarato
John Lash
Insurance
Premium
Auto Allowance or
Company Car
$
$
$
17,028
24,039
17,028
$
$
$
9,000
9,000
6,000
$
$
$
401(k) match
5,418
4,671
3,835
$
$
$
Total
31,446
37,710
26,863
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, 2015
Option Awards
Number of
Securities
Underlying
Unexercised
Number of
Securities
Underlying
Unexercised
Options
Options
(#) (1)
Unexercisable
(#)
Exercisable
—
—
—
—
Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised Unearned
Option
Exercise
Options
Price
($)
—
—
Option
Expiration
Date
—
—
(#)
—
—
15,000
30,000
(2)
5.00
7/10/2020
Name
Dr. Louis Centofanti
Ben Naccarato
John Lash
(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 10, 2014 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.
None of the Company’s NEOs exercised options during 2015.
Employment Agreements
The Company entered into employment agreements on July 10, 2014 with our CEO, COO, and CFO (each
is a named NEO), which were approved by the Compensation Committee and the Board. These agreements
provided that (a) Dr. Centofanti, CEO, was entitled to receive an annual base salary of $271,115; (b) Mr.
Lash, COO, was entitled to receive an annual base salary of $215,000; and (c) Mr. Naccarato, CFO, was
entitled to receive an annual base salary of $214,240. The base salary is subject to adjustment as
determined by the Compensation Committee. 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 MIP for the CEO, CFO, and COO (see further detail of each MIP below under the heading
85
“2015 Management Incentive Plans (“MIPs”)”). The employment agreements dated July 10, 2014 with our
CEO, COO, and CFO are collectively referred to as the “Employment Agreements” and each as an
“Employment Agreement.”
Each of the Employment Agreements is effective for three 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
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 turpitude;
• 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.
86
“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 then in office, of a majority of the
Company’s Board; or
•
•
•
•
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.
Potential Payments
The following table sets forth the potential (estimated) payments and benefits to which our NEOs, Dr.
Centofanti, Mr. Lash, 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, 2015, the last day of our fiscal
year.
87
Name and Principal Position
Potential Payment/Benefit
Dr. Louis Centofanti
President, CEO and Director
Severance
Stock Options
Ben Naccarato
CFO
Severance
Stock Options
John Lash
COO
Severance
Stock Options
Disability,
Death,
or For Cause
Termination by
Executive for Good
Reason or by
Company Without
Cause
Change in Control
of the Company
$
$
$
$
$
$
──
──
──
──
──
──
(1)
(1)
(2)
$
$
$
$
$
$
271,115
──
214,240
──
215,000
──
$
$
$
$
$
$
(1)
(1)
(2)
──
──
──
──
──
──
(1)
(1)
(3)
(1) No stock option outstanding as of December 31, 2015.
(2)
(3)
Benefit is estimated to be zero since the number of stock options vested that were in-the-money as of December 31, 2015 (as
reported on NASDAQ) was zero.
Benefit is estimated to be zero since the number of stock options outstanding that were in-the-money as of December 31,
2015 (as reported on NASDAQ) was zero.
No performance compensation under the NEO’s MIP would have been payable at December 31, 2015 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 “2015 Management Incentive Plans (“MIPs”)” 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)).
2015 Executive Compensation Components
For the fiscal year ended December 31, 2015, 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 2015, salary accounted for
approximately 69% of the total compensation of our NEOs, while equity option awards, bonus, MIP
compensation, and other compensation accounted for approximately 31% 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
88
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 Compensation Committee’s assessment of the individual’s performance. The base salary and potential
annual base salary adjustments for the CEO, COO, and CFO 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. 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.
2015 Management Incentive Plans (“MIPs”)
On April 17, 2015, the Compensation Committee approved individual MIPs for our CEO, COO, and CFO.
The MIPs were effective as of January 1, 2015. Each MIP provided guidelines for the calculation of annual
cash incentive based compensation, subject to Compensation Committee oversight and modification. Each
MIP awarded cash compensation based on achievement of performance thresholds (as discussed below),
with the amount of such compensation established as a percentage of base salary. The potential target
performance compensation ranged from 5% to 100% or $13,556 to $271,115 of the 2015 base salary for the
CEO, 5% to 100% or $10,750 to $215,000 of the 2015 base salary for the COO, and 5% to 100% or $10,712
to $214,240 of the 2015 base salary for the CFO.
Performance compensation is paid on or about 90 days after year-end, or sooner, based on finalization of
our audited financial statements for 2015. 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 retained 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 total performance compensation payable to the CEO, COO, and CFO as a group was not to exceed 50%
of the Company’s pre-tax net income prior to the calculation of performance compensation.
The following describes the principal terms of each MIP:
CEO MIP:
2015 CEO performance compensation was based upon meeting corporate revenue, earnings before interest,
taxes, depreciation and amortization (“EBITDA”), health and safety, and environmental compliance (permit
89
and license violations) objectives during fiscal year 2015 from our continuing operations (excluding PF
Medical). The Compensation Committee believes performance compensation payable under each of the
2015 MIPs as discussed herein and below should be based on achievement of EBITDA Target as this target
provides better indicator of operating performance as it excludes certain non-cash items. EBITDA has
certain limitations as it does not reflect all items of income or cash flows that affect the Company’s financial
performance under Generally Accepted Accounting Principles (“GAAP”). At achievement of 70% to 119%
of the Revenue and EBITDA Targets, the potential performance compensation was payable at 5% to 50% of
the total base salary, of which 60% was based on EBITDA goal, 10% on revenue goal, 15% on the number
of health and safety claim incidents that occurred during fiscal year 2015, and the remaining 15% on the
number of notices alleging environmental, health or safety violations under our permits or licenses that
occurred during the fiscal year 2015. Upon achievement of over 119% of the Revenue and EBITDA
Targets, with potential performance compensation payable at over 50% to 100% of the total base salary, the
amount of total performance compensation payable was based on the four objectives noted above, with the
payment of such performance compensation being weighted more heavily toward the EBITDA objective.
Each of the revenue and EBITDA components was based on our Board approved Revenue Target and
EBITDA Target. The 2015 target performance incentive compensation for our CEO was 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
TARGET
Revenue Target
EBITDA Target
$
$
42,500,000
4,080,000
$
$
59,500,000
5,712,000
$
$
72,250,000
6,936,000
$
$
85,000,000
8,160,000
$
$
102,000,000
9,792,000
$
$
119,000,000
11,424,000
$
$
136,000,000
13,056,000
Threshold % Of Target
Bonus % Awarded
% of Target Achieved
50%
0%
50%-69%
70%
10%
70%-84%
85%
50%
140%
170%
85%-99% 100%-119% 120%-139% 140%-159%
100%
100%
120%
130%
160%
200%
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
-
$
-
-
-
$
-
$
$
$
$
$
$
6,778
40,667
10,167
10,167
67,779
13,556
81,334
20,334
20,334
135,558
19,365
116,192
20,334
20,334
176,225
27,112
162,669
20,334
20,334
230,449
32,921
197,526
20,334
20,334
271,115
$
$
$
$
$
$
1,356
8,134
2,033
2,033
13,556
1) Revenue was 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 was determined by
comparing the actual consolidated revenue from continuing operations to the Board approved Revenue
Target from continuing operations, which is $85,000,000. The Board reserved 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 was defined as earnings before interest, taxes, depreciation, and amortization from continuing
operations, excluding PF Medical. The percentage achieved was determined by comparing the actual
EBITDA to the Board approved EBITDA Target, which was $8,160,000. The Board reserved the right
to modify or change the EBITDA 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.
3) The Health and Safety Incentive Target was based upon the actual number of Worker’s Compensation
Lost Time Accidents, as provided by the Company’s Worker’s Compensation carrier. The Corporate
Controller submitted 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 were identified on the loss report as “indemnity claims.” The following number of Worker’s
Compensation Lost Time Accidents and corresponding Performance Target Thresholds were
established for the annual Incentive Compensation Plan calculation for 2015.
90
Claim Number
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
4) Permits or License Violations incentive was earned/determined according to the scale set forth below:
An “official notice of non-compliance” was 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 resulted in a facility’s implementation of
corrective action(s).
Permit and
License Violations
6
5
4
3
2
1
Performance
Target
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
5) No performance incentive compensation was payable for achieving the health and safety, permit and
license violation, and revenue targets unless a minimum of 70% of the EBITDA Target was achieved.
COO MIP:
2015 COO performance compensation was based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2015
from our continuing operations (excluding PF Medical). At achievement of 70% to 119% of the Revenue
and EBITDA Targets, the potential performance compensation was payable at 5% to 50% of the total base
salary, of which 60% was based on EBITDA goal, 10% on revenue goal, 15% on the number of health and
safety claim incidents that occurred during fiscal year 2015, and the remaining 15% on the number of
notices alleging environmental, health or safety violations under our permits or licenses that occurred during
the fiscal year 2015. Upon achievement of over 119% of the Revenue and EBITDA Targets, with potential
performance compensation payable at over 50% to 100% of the total base salary, the amount of
performance compensation payable was based on the four objectives noted above, with the payment of such
performance compensation being weighted more heavily toward the EBITDA objective. Each of the
revenue and EBITDA components was based on our Board approved Revenue Target and EBITDA Target.
The 2015 target performance incentive compensation for our COO was as follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$ 215,000
$ 107,500
$ 322,500
91
Revenue Target
EBITDA Target
$
$
42,500,000
4,080,000
$
$
59,500,000
5,712,000
$
$
72,250,000
6,936,000
$
$
85,000,000
8,160,000
$
$
102,000,000
9,792,000
$
$
119,000,000
11,424,000
$
$
136,000,000
13,056,000
TARGET
Threshold % Of Target
Bonus % Awarded
% of Target Achieved
50%
0%
50%-69%
70%
10%
70%-84%
85%
50%
140%
170%
85%-99% 100%-119% 120%-139% 140%-159%
100%
100%
120%
130%
160%
200%
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
$
-
-
-
-
$
-
$
$
$
$
$
$
5,374
32,250
8,063
8,063
53,750
10,750
64,500
16,125
16,125
107,500
15,357
92,143
16,125
16,125
139,750
21,500
129,000
16,125
16,125
182,750
26,107
156,643
16,125
16,125
215,000
$
$
$
$
$
$
1,074
6,450
1,613
1,613
10,750
1) Revenue was 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 was determined by
comparing the actual consolidated revenue from continuing operations to the Board approved Revenue
Target from continuing operations, which was $85,000,000. The Board reserved 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 was defined as earnings before interest, taxes, depreciation, and amortization from continuing
operations, excluding PF Medical. The percentage achieved is determined by comparing the actual
EBITDA to the Board approved EBITDA Target, which was $8,160,000. The Board reserved the right
to modify or change the EBITDA 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.
3) The Health and Safety Incentive Target was based upon the actual number of Worker’s Compensation
Lost Time Accidents, as provided by the Company’s Worker’s Compensation carrier. The Corporate
Controller submitted 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 were identified on the loss report as “indemnity claims.” The following number of Worker’s
Compensation Lost Time Accidents and corresponding Performance Target Thresholds were
established for the annual Incentive Compensation Plan calculation for 2015.
Claim Number
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
4) Permits or License Violations incentive was earned/determined according to the scale set forth below:
An “official notice of non-compliance” was 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 resulted in a facility’s implementation of
corrective action(s).
License Violations
Target
6
5
4
3
2
1
92
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
5) No performance incentive compensation was payable for achieving the health and safety, permit and
license violation, and revenue targets unless a minimum of 70% of the EBITDA Target was achieved.
CFO MIP:
2015 CFO performance compensation was based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2015
from our continuing operations (excluding PF Medical). At achievement of 70% to 119% of the Revenue
and EBITDA Targets, the potential performance compensation was payable at 5% to 50% of the total base
salary, of which 60% was based on EBITDA goal, 10% on revenue goal, 15% on the number of health and
safety claim incidents that occurred during fiscal year 2015, and the remaining 15% on the number of
notices alleging environmental, health or safety violations under our permits or licenses that occurred during
the fiscal year 2015. Upon achievement of over 119% of the Revenue and EBITDA Targets, with potential
performance compensation payable at over 50% to 100% of the total base salary, the amount of
performance compensation payable was based on the four objectives noted above, with the payment of such
performance compensation being weighted more heavily toward the EBITDA objective. Each of the
revenue and EBITDA components was based on our Board approved Revenue Target and EBITDA Target.
The 2015 target performance incentive compensation for our CFO was as follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$ 214,240
$ 107,120
$ 321,360
TARGET
Revenue Target
EBITDA Target
$
$
42,500,000
4,080,000
$
$
59,500,000
5,712,000
$
$
72,250,000
6,936,000
$
$
85,000,000
8,160,000
$
$
102,000,000
9,792,000
$
$
119,000,000
11,424,000
$
$
136,000,000
13,056,000
Threshold % Of Target
Bonus % Awarded
% of Target Achieved
50%
0%
50%-69%
70%
10%
70%-84%
85%
50%
140%
170%
85%-99% 100%-119% 120%-139% 140%-159%
100%
100%
120%
130%
160%
200%
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
-
$
-
-
-
$
-
$
$
$
$
$
$
5,356
32,136
8,034
8,034
53,560
10,712
64,272
16,068
16,068
107,120
15,303
91,817
16,068
16,068
139,256
21,424
128,544
16,068
16,068
182,104
26,015
156,089
16,068
16,068
214,240
$
$
$
$
$
$
1,071
6,427
1,607
1,607
10,712
1) Revenue was 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 was determined by
comparing the actual consolidated revenue from continuing operations to the Board approved Revenue
Target from continuing operations, which was $85,000,000. The Board reserved 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 was defined as earnings before interest, taxes, depreciation, and amortization from continuing
operations, excluding PF Medical. The percentage achieved was determined by comparing the actual
EBITDA to the Board approved EBITDA Target, which was $8,160,000. The Board reserved the right
to modify or change the EBITDA 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.
3) The Health and Safety Incentive Target was based upon the actual number of Worker’s Compensation
Lost Time Accidents, as provided by the Company’s Worker’s Compensation carrier. The Corporate
Controller submitted 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 were identified on the loss report as “indemnity claims.” The following number of Worker’s
Compensation Lost Time Accidents and corresponding Performance Target Thresholds were
established for the annual Incentive Compensation Plan calculation for 2015.
93
Claim Number
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
4) Permits or License Violations incentive was earned/determined according to the scale set forth below:
An “official notice of non-compliance” was 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 resulted in a facility’s implementation of
corrective action(s).
License Violations
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
5) No performance incentive compensation was payable for achieving the health and safety, permit and
license violation, and revenue targets unless a minimum of 70% of the EBITDA Target was achieved.
2015 MIP Targets
As discussed above, 2015 MIPs approved for the CEO, COO, and CFO by the Compensation Committee
awarded cash compensation based on achievement of performance targets which included Revenue and
EBITDA Targets as approved by our Board. The Revenue Target of $85,000,000 and EBITDA Target of
$8,160,000 set forth in the 2015 MIPs were based on our Board approved 2015 budget as adjusted for the
Board’s expectation that warranted payments of MIPs. In formulating the Revenue Target of $85,000,000,
the Board considered 2014 results, current economic conditions, and forecasts for 2015 government (U.S
DOE) spending. The Compensation Committee believed the performance targets were likely to be achieved,
but not assured.
Compensation Earned Under 2015 MIPs
The following table sets forth the MIP compensation earned by the CEO, CEO, and CFO for fiscal year
2015 under each MIP. We anticipate paying the compensation earned under each of the MIPs in the second
quarter of 2016.
CEO MIP:
Target Objectives:
Revenue
EBITDA
Health & Safety
Permit & License Violations
Total Performance Compensation
Performance Target
Range Achieved
70%-84%
85%-99%
160%+
160%+
MIP Compensation
Earned
1,356
40,667
20,334
20,334
82,691
$
$
94
COO MIP:
Target Objectives:
Revenue
EBITDA
Health & Safety
Permit & License Violations
Total Performance Compensation
CFO MIP:
Target Objectives:
Revenue
EBITDA
Health & Safety
Permit & License Violations
Total Performance Compensation
Performance Target
Range Achieved
70%-84%
85%-99%
160%+
160%+
Performance Target
Range Achieved
70%-84%
85%-99%
160%+
160%+
MIP Compensation
Earned
1,075
32,250
16,125
16,125
65,575
MIP Compensation
Earned
1,071
32,136
16,068
16,068
65,343
$
$
$
$
2016 MIPs
On February 4, 2016, the Compensation Committee approved individual MIPs for our CEO, COO, and
CFO. The MIPs are effective as of January 1, 2016. Each MIP provides guidelines for the calculation of
annual cash incentive based compensation, subject to Compensation Committee oversight and modification.
Each MIP awards cash compensation based on achievement of performance thresholds (as discussed below),
with the amount of such compensation established as a percentage of base salary. The potential target
performance compensation ranges from 5% to 100% or $13,962 to $279,248 of the 2016 base salary for the
CEO, 5% to 100% or $10,750 to $215,000 of the 2016 base salary for the COO, and 5% to 100% or $11,033
to $220,667 of the 2016 base salary for the CFO.
Performance compensation is paid on or about 90 days after year-end, or sooner, based on finalization of
our audited financial statements for 2016. 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 total performance compensation paid to the CEO, COO, and CFO as a group is not to exceed 50% of
the Company’s pre-tax net income (exclusive of PF Medical, the Company’s majority-owned Polish
subsidiary) prior to the calculation of performance compensation.
The following describes the principal terms of each MIP:
CEO MIP:
2016 CEO performance compensation is based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2016
from our continuing operations (excluding PF Medical). The Compensation Committee believes
performance compensation payable under each of the 2016 MIPs as discussed herein and below should be
based on achievement of EBITDA Target as this target provides better indicator of operating performance
as it excludes certain non-cash items. EBITDA has certain limitations as it does not reflect all items of
income or cash flows that affect the Company’s financial performance under GAAP. At achievement of
70% to 119% of the Revenue and EBITDA Targets, the potential performance compensation is payable at
5% to 50% of the total base salary, of which 60% is based on EBITDA goal, 10% on revenue goal, 15% on
the number of health and safety claim incidents that occur during fiscal year 2016, 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 2016. Upon achievement of over 119% of the Revenue and EBITDA
95
Targets, with potential performance compensation payable at over 50% to 100% of the total base salary, the
amount of total performance compensation payable is based on the four objectives noted above, with the
payment of such performance compensation being weighted more heavily toward the EBITDA objective.
Each of the revenue and EBITDA components is based on our Board approved Revenue Target and
EBITDA Target. The 2016 target performance incentive 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):
$ 279,248
$ 139,624
$ 418,872
Revenue Target
EBITDA Target
<$56,000,000
<$6,370,000
$
$
56,000,000
6,370,000
$
$
68,000,000
7,735,000
$
$
80,000,000
9,100,000
$
$
96,000,000
10,920,000
$
$
112,000,000
12,740,000
$
$
128,000,000
14,560,000
TARGET
% of Performance Incentive Target
% of Target Achieved
0%
<70%
10%
70%-84%
50%
170%
85%-99% 100%-119% 120%-139% 140%-159%
100%
130%
200%
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
-
$
-
-
-
$
-
$
$
$
$
$
$
6,981
41,887
10,472
10,472
69,812
13,962
83,774
20,944
20,944
139,624
19,945
119,678
20,944
20,944
181,511
27,924
167,549
20,944
20,944
237,361
33,908
203,452
20,944
20,944
279,248
$
$
$
$
$
$
1,397
8,377
2,094
2,094
13,962
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 $80,000,000. 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, excluding PF Medical. The percentage achieved is determined by comparing the actual
EBITDA to the Board approved EBITDA Target, which is $9,100,000. The Board reserves the right to
modify or change the EBITDA 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.
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
Controller will submit a report on a quarterly basis documenting and confirming the number of
Worker’s Compensation Lost Time Accidents, supported by the Worker’s Compensation Loss Report
provided by the company’s carrier or broker. 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 2016.
Claim Number
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
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,
96
Health or Safety requirement or permit provision, which results in a facility’s implementation of
corrective action(s).
Permit and
License Violations
6
5
4
3
2
1
Performance
Target
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
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 MIP:
2016 COO performance compensation is based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2016
from our continuing operations (excluding PF Medical). At achievement of 70% to 119% of the Revenue
and EBITDA Targets, the potential performance compensation is payable at 5% to 50% of the total base
salary, of which 60% is based on EBITDA goal, 10% on revenue goal, 15% on the number of health and
safety claim incidents that occur during fiscal year 2016, 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 2016. Upon achievement of over 119% of the Revenue and EBITDA Targets, with potential
performance compensation payable at over 50% to 100% of the total base salary, the amount of total
performance compensation payable is based on the four objectives noted above, with the payment of such
performance compensation being weighted more heavily toward the EBITDA objective. Each of the
revenue and EBITDA components is based on our Board approved Revenue Target and EBITDA Target.
The 2016 target performance incentive compensation for our COO is as follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of MIP):
Total Annual Target Compensation (at 100% of MIP):
$ 215,000
$ 107,500
$ 322,500
Revenue Target
EBITDA Target
<$56,000,000
<$6,370,000
$
$
56,000,000
6,370,000
$
$
68,000,000
7,735,000
$
$
80,000,000
9,100,000
$
$
96,000,000
10,920,000
$
$
112,000,000
12,740,000
$
$
128,000,000
14,560,000
TARGET
% of Performance Incentive Target
% of Target Achieved
0%
<70%
10%
70%-84%
50%
170%
85%-99% 100%-119% 120%-139% 140%-159%
100%
130%
200%
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
-
$
-
-
-
$
-
$
$
$
$
$
$
5,374
32,250
8,063
8,063
53,750
10,750
64,500
16,125
16,125
107,500
15,357
92,143
16,125
16,125
139,750
21,500
129,000
16,125
16,125
182,750
26,107
156,643
16,125
16,125
215,000
$
$
$
$
$
$
1,074
6,450
1,613
1,613
10,750
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 $80,000,000. 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, excluding PF Medical. The percentage achieved is determined by comparing the actual
97
EBITDA to the Board approved EBITDA Target, which is $9,100,000. The Board reserves the right to
modify or change the EBITDA 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.
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
Controller will submit a report on a quarterly basis documenting and confirming the number of
Worker’s Compensation Lost Time Accidents, supported by the Worker’s Compensation Loss Report
provided by the company’s carrier or broker. 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 2016.
Claim Number
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
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
6
5
4
3
2
1
Performance
Target
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
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 MIP:
2016 CFO performance compensation is based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2016
from our continuing operations (excluding PF Medical). At achievement of 70% to 119% of the Revenue
and EBITDA Targets, the potential performance compensation is payable at 5% to 50% of the total base
salary, of which 60% is based on EBITDA goal, 10% on revenue goal, 15% on the number of health and
safety claim incidents that occur during fiscal year 2016, 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 2016. Upon achievement of over 119% of the Revenue and EBITDA Targets, with potential
performance compensation payable at over 50% to 100% of the total base salary, the amount of total
performance compensation payable is based on the four objectives noted above, with the payment of such
performance compensation being weighted more heavily toward the EBITDA objective. Each of the
revenue and EBITDA components is based on our Board approved Revenue Target and EBITDA Target.
The 2016 target performance incentive 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):
$ 220,667
$ 110,334
$ 331,001
98
Revenue Target
EBITDA Target
<$56,000,000
<$6,370,000
$
$
56,000,000
6,370,000
$
$
68,000,000
7,735,000
$
$
80,000,000
9,100,000
$
$
96,000,000
10,920,000
$
$
112,000,000
12,740,000
$
$
128,000,000
14,560,000
TARGET
% of Performance Incentive Target
% of Target Achieved
0%
<70%
10%
70%-84%
50%
170%
85%-99% 100%-119% 120%-139% 140%-159%
100%
130%
200%
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
$
-
-
-
-
$
-
$
$
$
$
$
$
5,517
33,100
8,275
8,275
55,167
11,034
66,200
16,550
16,550
110,334
15,762
94,572
16,550
16,550
143,434
22,067
132,400
16,550
16,550
187,567
26,795
160,772
16,550
16,550
220,667
$
$
$
$
$
$
1,103
6,620
1,655
1,655
11,033
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 $80,000,000. 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, excluding PF Medical. The percentage achieved is determined by comparing the actual
EBITDA to the Board approved EBITDA Target, which is $9,100,000. The Board reserves the right to
modify or change the EBITDA 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.
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
Controller will submit a report on a quarterly basis documenting and confirming the number of
Worker’s Compensation Lost Time Accidents, supported by the Worker’s Compensation Loss Report
provided by the company’s carrier or broker. 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 2016.
Claim Number
Target
6
5
4
3
2
1
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
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).
99
Permit and
License Violations
6
5
4
3
2
1
Performance
Target
70%-84%
85%-99%
100%-119%
120%-139%
140%-159%
160% +
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.
2016 MIP Targets
As discussed above, 2016 MIPs approved for the CEO, COO, and CFO by the Compensation Committee
award cash compensation based on achievement of performance targets which included Revenue and
EBITDA Targets as approved by our Board. The Revenue Target of $80,000,000 and EBITDA Target of
$9,100,000 set forth in the 2016 MIPs are based on our Board approved 2016 budget as adjusted for the
Board’s expectation that warranted payments of MIPs. In formulating the Revenue Target of $80,000,000,
the Board considered 2015 results, current economic conditions, and forecasts for 2016 government (U.S
DOE) spending. The Compensation Committee believed the performance targets were likely to be achieved,
but not assured.
Long-Term Incentive Compensation
Employee Stock Option Plans
The 2010 Stock Option Plan (the “2010 Option Plan”) encourages 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. The 2010 Option Plan authorizes the grant of Non-Qualified Stock Options
(“NQSOs”) and Incentive Stock Options (“ISOs”) for the purchase of our Common Stock.
The 2010 Option Plan assists 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. In 2015, no options were granted to any
employees.
Pursuant to 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
100
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 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
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, Apri1 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. Effective June
15, 2012, we suspended our matching contribution in an effort to reduce costs in light of the economic
environment. The Company commenced matching fund contribution effective January 1, 2015. In 2015, the
Company contributed approximately $303,000 in 401(k) matching funds, of which approximately $14,000
was for our NEOs (see the Summary Compensation table in this section for 401(k) matching fund
contributions made for the NEOs).
Perquisites and Other Personal Benefits
The Company provides executive officers with limited perquisites and other personal benefits
(health/disability/life insurance) 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 on September 17, 2015, our stockholders voted, on a non-
binding, advisory basis, on the compensation of our NEOs for 2014. A substantial majority (approximately
98%) of the total votes cast on our say-on-pay proposal at that meeting approved the compensation of our
NEOs for 2014 on a non-binding, advisory basis. The Compensation Committee and the Board believes that
101
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 NEOs. We will hold an advisory vote on the compensation
of our NEOs at our 2016 annual meeting of stockholders.
Compensation of Directors
Directors who are employees receive no additional compensation for serving on the Board or its
committees. In 2015, we provided the following annual compensation to directors who are not employees:
• options to purchase 2,400 shares of our Common Stock with each option having a 10 year term and
•
•
•
being fully vested after six months from grant date;
a quarterly director fee of $8,000;
an additional quarterly fee of $5,500 and $7,500 to the Chairman of our Audit Committee and
Chairman of the Board (non-employee), respectively; 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.
Effective June 2, 2015, Mr. John Climaco, a current director of the Company, was named the EVP of PF
Medical, the Company’s majority-owned Polish subsidiary. As the EVP of PF Medical, Mr. Climaco is
provided an annual salary of $150,000 from PF Medical. As a result of Mr. Climaco’s employment with PF
Medical, he was no longer eligible to receive compensation for this service as a director of the Company.
The table below summarizes the director compensation expenses recognized by the Company for the
director option and stock awards (resulting from fees earned) for the year ended December 31, 2015. The
terms of the 2003 Outside Directors Plan are further described below under “2003 Outside Directors Plan.”
Compensation noted below for Mr. Climaco was earned as a director of the Company prior to becoming the
EVP of PF Medical.
Director Compensation
Fees
Earned or
Name
John M. Climaco
Dr. Gary G. Kugler
Jack Lahav
Joe R. Reeder
Larry M. Shelton
Dr. Charles E. Young (5)
Mark A. Zwecker
In Cash
($) (1)
6,475
12,775
—
3,150
23,275
9,229
20,475
Paid
Stock
Awards
($) (2)
Option
Awards
($) (3)
16,032
31,635
46,669
43,801
57,633
22,855
50,698
—
6,823
6,823
6,823
6,823
—
6,823
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
Non-Equity
Incentive Plan
Compensation
($)
—
—
—
—
—
—
—
($)
—
—
—
—
—
—
—
All Other
Compensation
Total
($)
($)
117,000
—
—
—
—
—
—
(4)
139,507
51,233
53,492
53,774
87,731
32,084
77,996
(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
102
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 Directors Plan resulting from re-election to the Board of Directors on
September 17, 2015. Options are for a 10 year period with an exercise price of $4.19 per share 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 ($2.84) on the date of grant times the number of options granted, which was 2,400 for each director, pursuant
to ASC 718, “Compensation – Stock Compensation.” No option was granted to Dr. Young as he did not stand for re-election
at the Company’s Annual Meeting of Stockholders held on September 17, 2015. Mr. Climaco was not eligible to receive
option under the 2003 Outside Directors Plan upon re-election to the Company’s Board as he became an employee of the
Company upon being named the EVP of PF Medical, a majority-owned Polish subsidiary of the Company, effective June 2,
2015. The following is the aggregate number of outstanding non-qualified stock options held by the Company’s directors at
December 31, 2015. Dr. Centofanti, the President, CEO and a Board member of the Company has no options as of December
31, 2015 :
Name
John M. Climaco
Dr. Gary G. Kugler
Jack Lahav
Joe R. Reeder
Larry M. Shelton
Mark A. Zwecker
Total
Options Outstanding as of
December 31, 2015
8,400
4,800
24,000
24,000
27,600
24,000
112,800
(4)
Reflect amount paid as a consultant pursuant to a consulting agreement dated October 17, 2014 entered into between Mr.
Climaco and the Company. The agreement provides for monthly fees of $22,000 (effective September 2014) plus reasonable
expenses. The consulting agreement was terminated effective June 2, 2015, upon Mr. Climaco becoming EVP of PF Medical.
(5)
Elected not to stand for re-election at the Company’s Annual Meeting of Stockholders held on September 17, 2015.
See “John Climaco” under “Certain Relationships and Related Transactions, and Director Independence”
for further information on Mr. Climaco.
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, as amended (“2003 Directors Plan”), each outside director is granted a 10 year option to
purchase up to 6,000 shares of Common Stock on the date such director is initially elected to the Board, and
receives on each re-election date an option to purchase up to another 2,400 shares of our 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 date the option is granted and no option shall be exercisable after the expiration of ten years from the
date the option is granted. As of December 31, 2015, options to purchase 163,200 shares of Common Stock
are outstanding under the 2003 Directors Plan, of which 151,200 were vested as of December 31, 2015.
As a member of the Board, each director may elect 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 2015, the
fees earned by our outside directors totaled approximately $345,000. 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.” Effective June 2, 2015, Mr. John Climaco, a current director, became ineligible to
participate in the 2003 Directors Plan upon becoming the EVP of PF Medical, a majority-owned Polish
subsidiary of the Company. As the EVP of PF Medical, Mr. Climaco is provided an annual salary of
$150,000 from PF Medical.
103
As of December 31, 2015, we have issued 430,594 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 Directors 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.
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 February
29, 2016, 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
1,789,947
Percent
Of
Class (1)
15.5%
(1) The number of shares and the percentage of outstanding Common Stock shown as beneficially owned by
a person are based upon 11,557,944 shares of Common Stock outstanding on February 29, 2016, 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, filed with the Securities and Exchange Commission on
February 5, 2016, which provides that Heartland Advisors, Inc., an investment advisor, shares voting power
over 1,629,305 of such shares and shares dispositive power over all of the 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 February 29, 2016, Capital Bank holds of record as a nominee for, and as an agent of, certain
accredited investors, 977,140 shares of our Common Stock;
• 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 2015 and the first two months of 2016, 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
104
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.
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 February 29, 2016.
Name of
Record Owner
Capital Bank Grawe Gruppe
Title
Of Class
Common
Amount and
Nature of
Ownership
977,140(+)
Percent
Of
Class (*)
8.5%
(*) This calculation is based upon 11,557,944 shares of Common Stock outstanding on February 29, 2016,
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
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, we do not believe that Capital Bank is our affiliate. Capital
Bank's address is Burgring 16, A-8010 Graz, Austria.
Security Ownership of Management
The following table sets forth information as to the shares of voting securities beneficially owned as of
February 29, 2016, by each of our directors and NEOs and by all of our directors and NEOs 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 Kugler (5)
Jack Lahav (6)
Joe R. Reeder (7)
Larry M. Shelton (8)
Mark A. Zwecker (9)
Ben Naccarato (10)
John Lash (11)
Directors and Executive Officers as a Group (9 persons)
Amount and Nature
of Beneficial Owner (1)
217,025
22,763
30,124
212,088
135,420
85,679
153,534
(3)
(4)
(5)
(6)
(7)
(8)
(9)
1,000
(10)
(11)
16,000
873,633 (12)
Percent of Class (1)
1.88%
*
*
1.83%
1.17%
*
1.33%
*
*
7.48%
105
*Indicates beneficial ownership of less than one percent (1%).
(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) 154,225 shares held of record by Dr. Centofanti, 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. Dr.
Centofanti also owns 700 shares of PF Medical’s Common Stock.
(4) Mr. Climaco has sole voting and investment power over these shares which include: (i) 14,363 shares of
Common Stock held of record by Mr. Climaco, and (ii) options to purchase 8,400 shares, which are
immediately exercisable.
(5) Dr. Kugler has sole voting and investment power over these shares which include: (i) 25,324 shares of
Common Stock held of record by Dr. Kugler, and (ii) options to purchase 4,800 shares, which are
immediately exercisable.
(6) Mr. Lahav has sole voting and investment power over these shares which include: (i) 188,088 shares of
Common Stock held of record by Mr. Lahav, and (ii) options to purchase 24,000 shares, which are
immediately exercisable.
(7) Mr. Reeder has sole voting and investment power over these shares which include: (i) 111,420 shares of
Common Stock held of record by Mr. Reeder, and (ii) options to purchase 24,000 shares, which are
immediately exercisable.
(8) Mr. Shelton has sole voting and investment power over these shares which include: (i) 58,079 shares of
Common Stock held of record by Mr. Shelton, and (ii) options to purchase 27,600 shares, which are
immediately exercisable. Mr. Shelton also owns 750 shares of PF Medical’s Common Stock.
(9) Mr. Zwecker has sole voting and investment power over these shares which include: (i) 129,534 shares of
Common Stock held of record by Mr. Zwecker, and (ii) options to purchase 24,000 shares, which are
immediately exercisable.
(10) Mr. Naccarato has sole voting and investment power over these shares which include: 1,000 shares held
of record by Mr. Naccarato. Mr. Naccarato also owns 100 shares of PF Medical’s Common Stock.
(11) Mr. Lash has sole voting and investment power over these shares which include: 1,000 shares held of
record by Mr. Lash, and (ii) options to purchase 15,000 shares, which are immediately exercisable.
(12)Amount includes 127,800 options, which are immediately exercisable to purchase 127,800 shares of
Common Stock.
Equity Compensation Plans
The following table sets forth information as of December 31, 2015, with respect to our equity
compensation plans.
Number of securities to
be issued upon exercise
of outstanding options
warrants and rights
Equity Compensation Plan
Weighted average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
106
Plan Category
Equity compensation plans
Approved by stockholders
Equity compensation plans not
Approved by stockholders
Total
(a)
(b)
218,200
—
218,200
$7.65
—
$7.65
securities reflected in
column (a)
(c)
345,206
—
345,206
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Related Party Transactions
Mr. David Centofanti
Mr. David Centofanti serves as the Company’s Vice President of Information Systems. For such position,
he received annual compensation of $168,000 and $163,000 in 2015 and 2014, respectively. Mr. Centofanti
is the son of our CEO, President and a Board member, Dr. Louis F. Centofanti.
Mr. Robert L. Ferguson
Mr. Robert L. Ferguson serves as an advisor to the Company’s Board and is also a member of the
Supervisory Board of PF Medical, a majority-owned Polish subsidiary of the Company. Mr. Ferguson
previously served as a Board member for the Company from June 2007 to February 2010 and again from
August 2011 to September 2012. As an advisor to the Company’s Board, Mr. Ferguson is paid $4,000
monthly plus reasonable expenses. For such services, Mr. Ferguson received compensation of
approximately $58,000 and $56,000 for the years ended December 31, 2015 and 2014, respectively. 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 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. 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 of $2.23 per share, which was based on the closing price of the Company’s
Common Stock at the closing of the transaction. The Warrants are exercisable six months from August 2,
2013 and expire on August 2, 2016. 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.
Mr. John Climaco
On June 2, 2015, Mr. Climaco, a current member of the Company’s Board and a member of the Strategic
Advisory Committee of the Board, was named as the EVP of PF Medical, the Company’s majority-owned
Polish subsidiary. As EVP of PF Medical, Mr. Climaco receives an annual salary of $150,000 and became
ineligible to receive compensation for serving on the Company’s Board.
On October 17, 2014, the Company’s Compensation Committee and the Board, with Mr. Climaco
abstaining, approved a consulting agreement with Mr. Climaco. Pursuant to the consulting agreement, Mr.
Climaco was responsible to, among other things:
•
•
review the Company’s operations to restructure costs to render the Company more
competitive;
evaluate all functions, including but not limited to sales, marketing, accounting, operations,
and executive management as well as cost structures for each facility;
107
•
assist in the development of the Company’s strategy opportunity and other initiatives,
including but not limited to the development of the Company’s medical isotope technology;
and
• other assignments as determined by the Board.
Mr. Climaco was paid $22,000 per month under the consulting agreement, beginning September 2014, until
the termination of the consulting agreement effective June 2, 2015, upon Mr. Climaco’s employment as the
EVP of PF Medical. For his services under the consulting agreement, Mr. Climaco received approximately
$117,000 and $107,000 in 2015 and 2014, respectively.
Mr. Climaco is also a director of Digirad Corporation, a Delaware corporation (“Digirad”), Nasdaq: DRAD.
On July 24, 2015, PF Medical and Digirad, entered into a multi-year Technetium 99 (“Tc-99m”) Supplier
Agreement (the “Supplier Agreement”) and a Series F Stock Subscription Agreement (the “Subscription
Agreement”), (together, the “Digirad Agreements”). The Supplier Agreement became effective upon the
completion of the Subscription Agreement. Pursuant to the terms of the Digirad Agreements, Digirad
purchased, in a private placement and pursuant to Regulation S under the Securities Act, 71,429 shares of
PF Medical’s restricted Series F Stock for an aggregate purchase price of $1,000,000. The 71,429 share
investment made by Digirad constituted approximately 5.4% of the outstanding common shares of Perma-
Fix Medical. As a result of this transaction, the Company’s ownership interest in PF Medical diluted from
approximately 64.0% to approximately 60.5%. The Supplier Agreement provides, among other things, that
upon PF Medical’s commercialization of certain Tc99m generators, Digirad will purchase agreed upon
quantities of Tc-99m for its nuclear imaging operations either directly or in conjunction with its preferred
nuclear pharmacy supplier and PF Medical will supply Digirad, or its preferred nuclear pharmacy supplier,
with Tc-99m at a preferred pricing, subject to certain conditions.
Employment Agreements
We have an employment agreement (each dated July 10, 2014) with each of Dr. Centofanti (our President
and CEO), Ben Naccarato (our CFO), and John Lash (our 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 had not yet been 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.
MIPs
The Company has an individual MIP for each of our CEO, CFO and COO for fiscal years 2015 and 2016,
which awards cash compensation based on achievement of certain performance targets for each fiscal year
(See Part III, Item 11 – “Executive Compensation – “ 2015 MIPs and Compensation Earned Under 2015
MIPs” for a description of each MIP and amount earned by each named executive under the 2015 MIPs and
“2016 MIPs” for a discussion of each MIP for 2016).
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Effective July 9, 2014, the Audit Committee of the Company’s Board appointed Grant Thornton, LLP
(“Grant Thornton”) as the independent registered public accounting firm to audit the consolidated financial
statements.
On June 25, 2014, the Audit Committee approved the dismissal of BDO USA, LLP (“BDO”) as the
Company’s independent registered accounting firm.
The following table reflects the aggregate fees for the audit and other services provided by Grant Thornton,
the Company’s independent registered public accounting firm, for fiscal years 2015 and 2014:
108
Fee Type
2015
2014
Audit Fees(1)
Tax Fees (2)
Total
$
340,000
347,000
136,000
—
$
476,000
347,000
(1) Audit fees consist of audit work performed in connection with the annual financial statements, the reviews of unaudited quarterly
financial statements, and work generally only the independent registered accounting firm can reasonable provide, such as consents
and review of regulatory documents filed with the Securities and Exchange Commissions.
(2) Fees for income tax planning, filing, and consulting.
The Audit Committee of the Company's Board has considered whether Grant Thornton’s provision of the
services described above for the fiscal years 2015 and 2014 was compatible with maintaining its
independence.
Engagement of the Independent Auditor
The Audit Committee approves in advance all engagements with the Company’s independent accounting
firm to perform audit or non-audit services for us. All services under the headings Audit Fees and Tax 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 the independent
accounting firm and any member of the independent accounting firm’s alliance network of
firms, and may revise the pre-approved services during the period based on later determinations.
Pre-approved services
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.
typically
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
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
109
The Exhibits listed in the Exhibit Index are filed or incorporated by reference as a part of this
report.
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
Chief Executive Officer, President and
Principal Executive Officer
By /s/ Ben Naccarato
Ben Naccarato
Chief Financial Officer and
Principal Financial Officer
Date March 24, 2016
Date March 24 , 2016
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 March 24, 2016
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
Date March 24, 2016
Date March 24, 2016
Date March 24, 2016
Date March 24, 2016
By /s/ Larry M. Shelton
Date March 24, 2016
Larry M. Shelton, Chairman of the Board
By /s/ Mark A. Zwecker
Mark A. Zwecker, Director
Date March 24, 2016
110
Exhibit
No.
2.1
3(i)
3(ii)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
EXHIBIT INDEX
Description
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,
Restated Certificate of Incorporation, as amended, of Perma-Fix Environmental Services,
Inc., as incorporated by reference from Exhibit 3(i) to the Company’s 2014 Form 10-K filed
on March 31, 2015.
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 4.2
to the Company’s 2014 Form 10-K filed on March 31, 2015.
Letter Agreement dated September 29, 2008, between the Company and Continental Stock
Transfer & Trust Company to correct certain subparagraph numbering on the 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 4.3 to the
Company’s 2014 Form 10-K filed on March 31, 2015.
Loan and Securities Purchase Agreement, dated August 2, 2013 between William N.
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.
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.
111
4.12
4.13
4.14
4.15
4.16
4.17
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
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.
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, as incorporated by reference from
Exhibit 4.17 to the Company’s 2013 Form 10-K.
Fifth Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement between PNC Bank, National Association and Perma-Fix Environmental
Services, Inc., dated July 25, 2014, as incorporated by reference from Exhibit 4.1 to the
Company’s 8-K filed on July 31, 2014.
Sixth Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement between PNC Bank, National Association and Perma-Fix Environmental
Services, Inc., dated July 28, 2014, as incorporated by reference from Exhibit 4.2 to the
Company’s 8-K filed on July 31, 2014.
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.
Seventh Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement between PNC Bank, National Association and Perma-Fix Environmental
Services, Inc., dated March 24, 2016.
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 10.2 to the Company’s 2014 Form 10-K filed on March 31, 2015.
First Amendment to 2003 Outside Directors Stock Plan, as incorporated by reference from
Exhibit 10.3 to the Company’s 2014 Form 10-K filed on March 31, 2015.
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.
Third Amendment to 2003 Outside Directors Stock Plan, as incorporated by reference from
Exhibit “B” to the Company’ 2014 Proxy Statement dated August 11, 2014.
Consent Decree, dated December 12, 2007, between United States of America and Perma-
Fix of Dayton, Inc., as incorporated by reference from Exhibit 10.7 to the Company’s 2014
Form 10-K filed on March 31, 2015.
2010 Stock Option Plan of the Company.
Employment Agreement dated July 10, 2014 between Louis Centofanti, Chief Executive
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 10.1 to the Company’s Form 8-K filed on July 15, 2014.
Employment Agreement dated July 10, 2014 between John Lash, Chief Operating Officer,
and Perma-Fix Environmental Services, Inc., which is incorporated by reference from
Exhibit 10.2 to the Company’s Form 8-K filed on July 15, 2014.
Employment Agreement dated July 10, 2014 between Ben Naccarato, Chief Financial
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 10.3 to the Company’s Form 8-K filed on July 15, 2014.
Contract and Purchase Order between United States Enrichment Corporation (now known
as Centrus) and Perma-Fix Environmental Services Inc., as incorporated by reference from
Exhibit 10.14 to the Company’s 2014 Form 10-K filed on March 31, 2015. CERTAIN
INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS A REQUEST
BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE FREEDOM OF INFORMATION
ACT WAS GRANTED ON JUNE 15, 2015.
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.
112
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
16.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Incentive Stock Option Agreement between Perma-Fix Environmental Services, Inc. and
Mr. John Lash, as incorporated by reference from Exhibit 10.7 to the Company’s 8-K filed
on July 15, 2014.
2014 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2014,
as incorporated by reference from Exhibit 10.4 to the Company’s Form 8-K filed on July
15, 2014.
2014 Incentive Compensation Plan for Chief Operating Officer, effective January 1, 2014,
as incorporated by reference from Exhibit 10.5 to the Company’s Form 8-K filed on July
15, 2014.
2014 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2014, as
incorporated by reference from Exhibit 10.6 to the Company’s Form 8-K filed on July 15,
2014.
2015 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2015,
as incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K filed on April
23, 2015.
2015 Incentive Compensation Plan for Chief Operating Officer, effective January 1, 2015,
as incorporated by reference from Exhibit 99.2 to the Company’s Form 8-K filed on April
23, 2015.
2015 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2015, as
incorporated by reference from Exhibit 99.3 to the Company’s Form 8-K filed on April 23,
2015.
2016 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2016,
as incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K filed on
February 10, 2016.
2016 Incentive Compensation Plan for Chief Operating Officer, effective January 1, 2016,
as incorporated by reference from Exhibit 99.2 to the Company’s Form 8-K filed on
February 10, 2016.
2016 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2016, as
incorporated by reference from Exhibit 99.3 to the Company’s Form 8-K filed on February
10, 2016.
Letter from BDO USA, LLP to the Securities and Exchange Commission, dated June 30,
2014, as incorporated by reference from Exhibit 16.1 to the Company’s 8-K filed on July 1,
2014.
List of Subsidiaries
Consent of Grant Thornton, 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.
113
EXHIBIT 31.1
CERTIFICATIONS
I, Louis F. Centofanti, certify that:
1.
I have reviewed this annual report on Form 10-K of Perma-Fix Environmental Services, Inc.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of the
internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date:
March 24, 2016
/s/ Louis F. Centofanti
Louis F. Centofanti
Chief Executive Officer, President
and Principal Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Ben Naccarato, certify that:
1.
I have reviewed this annual report on Form 10-K of Perma-Fix Environmental Services, Inc.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of the internal control over financial reporting, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date:
March 24, 2016
/s/ Ben Naccarato
Ben Naccarato
Chief Financial Officer and
Principal Financial Officer
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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
President, and
Chief Executive Officer
(Director since 1991)(4)
John M. Climaco
Director(5)
Executive Vice President of
Perma-Fix Medical S.A.
(Director since October 2013)
Dr. Gary Kugler
Director(2)(3)(4)
Former Senior Vice President of
Atomic Energy of Canada Limited
(Director since September 2013)
Corporate Information
Jack Lahav
Director(1)(2)
Private Investor
(Director since 2001)
Joe R. Reeder
Director(2)(3)(5)
Shareholder of
Greenburg Traurig, LLP,
Former Army Undersecretary
(Director since 2003)
Larry M. Shelton
Chairman of the Board(1)(3)(5)
Chief Financial Officer of
S K Hart Management
(Director since 2006)
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
(6) Date of employment with the
Company became effective
June 13, 2016
Management Team
Dr. Louis F. Centofanti
President and
Chief Executive Officer
Ben Naccarato
Vice President and
Chief Financial Officer
John Lash
Vice President and
Chief Operating Officer
Mark Duff
Executive Vice President(6)
Executive Offices
8302 Dunwoody Place, Suite 250
Atlanta, Georgia 30350
Telephone: 770-587-9898
Fax: 770-587-9937
Independent Registered
Public Accounting Firm
Grant Thornton LLP
1100 Peachtree Street NE #1200
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
concerning 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.
The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before research
and development costs related to the Medical Isotope project. Both EBITDA and adjusted EBITDA are not measures of performance calculated in
accordance with accounting standards generally accepted in the United States of America (“U.S. GAAP”), and should not be considered in isolation of,
or as a substitute for, earnings as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. The Company
believes the presentation of EBITDA and adjusted EBITDA is relevant and useful by enhancing the readers’ ability to understand the Company’s
operating performance. The Company’s management utilizes EBITDA and adjusted EBITDA as means to measure performance. The Company’s meas-
urements of EBITDA and adjusted EBITDA may not be comparable to similar titled measures reported by other companies. The table below reconciles
EBITDA and adjusted EBITDA, both non-GAAP measures, to GAAP numbers for loss from continuing operations for the fiscal year 2015.
(In thousands)
Loss from continuing operations
Adjustments:
Depreciation & amortization
Interest income
Interest expense
Interest expense—financing fees
Income tax expense
EBITDA
Research and development costs related to medical Isotope project
Adjusted EBITDA
Fiscal Year
2015
$ (63)
3,717
(53)
489
228
543
4,861
2,114
$6,975
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, anticipate continued improvement and growth in our Treatment and Services Segments; market opportunities; expect to
receive shipments in the second quarter and into the second half of 2016; growth in our Services Segment; expect strong second half of 2016 in our
Treatment Segment; revenue streams; diversify our revenue; successfully commercialize medical isotope technology; new markets; positive outlook
for 2016; and winning contracts. See “Special Note Regarding Forward-Looking Statements” contained in 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.
The Shareholders’ letter should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in the Form 10-K contained within this 2015 Annual Report.
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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