ANNUAL REPORT
A Nuclear Services and Waste Management Company
NUCLEARWASTETECHNICAL2017 T O O U R VA LU E D
SH A R E H O LD E R S ,
2017 was a transition
year for the Company,
as we implemented a
number of important
changes and achieved
several very signifi-
cant milestones. From
a cash flow perspec-
tive, we achieved $2.4 million of adjusted EBITDA* for the
year, compared to just $575,000 for 2016.* Heading into
2018, we are seeing the further benefit of our initiatives,
as we achieved not only positive adjusted EBITDA,* but
also positive net income in the first quarter of 2018, which
reflects our successful efforts to streamline operations
while broadening our market base.
From a macro perspective, we are encouraged by the
improved budget within the Department of Energy (DOE).
The recently enacted budget provides $7.1 billion for the
DOE’s environmental management activities, which is $706
million above the $6.4 billion level enacted for fiscal 2017.
For this reason, we remain optimistic that Perma-Fix could
realize increased opportunities for waste treatment growth
in the latter half of 2018.
We’ve seen a pickup among defense clients that are begin-
ning to plan and implement remediation projects, which will
provide an increase in nuclear services opportunities in the
third and fourth quarters, while also providing waste treat-
ment growth. We are also moving ahead with construction
activities at our Gainesville facility to accept and treat radio-
active contaminated water and additional commercial waste
streams beginning in late Q3, as well as expansion pro-
grams in the hazardous waste processing markets.
We are making progress with installation of the GeoMelt®
system that is being installed at our Perma-Fix Northwest
facility through our partnership with Veolia Nuclear Solutions.
Upon completion of construction, installation and startup
testing, the GeoMelt® vitrification system will be used to
treat waste drums containing sodium residual waste. This
vitrification capability will provide the capacity to treat non-
bulk sodium waste that has otherwise represented a waste
stream with no path for disposition. This type of partnership
with Veolia will provide an attractive niche market for
Perma-Fix to leverage our existing permitted facilities to
deploy new technologies.
difficult to treat. Once treated in our U.S.-based facilities, we
return the waste in a stable form for final disposal in the
country of origin.
Within the Services Segment, we are seeing increased bid-
ding activity. Although it has taken a while to get the Services
Segment back on track, especially with project bids delayed,
I remain confident we’re on the right long-term trajectory
and our management team continues to focus on increasing
our win-rate.
In terms of the Medical subsidiary, we continue to trim costs.
Not for any lack of enthusiasm, but rather we have shifted
the strategy to focus on an international partnering strategy,
where we can work with partners that are much better
equipped to develop a medical product and advance it
through the appropriate regulatory bodies. Initially, we are
focusing on smaller markets in Europe and elsewhere,
where the costs and regulatory hurdles are much lower. An
advantage to this pathway is we can advance the technology
and accumulate additional data that will help streamline the
path for eventual regulatory approval in the U.S.
So to wrap up, our financials are improving, we are seeing
strong improvement in waste receipts and backlog, we’ve
trimmed our expenses, and we see several opportunities on
the horizon that could be quite significant and potentially
transform the business when they materialize. Given our
reduced overhead and scalable operations, we believe fur-
ther revenue growth has the potential to significantly
enhance our profitability.
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,
Mark Duff
President and Chief Executive Officer
We continue to look outside the U.S. as well and are seeing a
number of new international opportunities that should con-
tribute to our growth, especially waste streams that are
* See definition of adjusted EBITDA and reconcilement of the adjusted
EBITDA numbers to (loss) income from continuing operations under
GAAP and discussion of forward-looking statements in the “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, 2017
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, a smaller reporting company, or
an emerging growth company. See definition of "large accelerated filer,” “accelerated filer," “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:1) Accelerated Filer (cid:1) Non-accelerated Filer (cid:1) Smaller reporting company (cid:2) Emerging growth company (cid:1)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act (cid:1)
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, 2017), was approximately $40,026,912. For the purposes of this calculation, all directors and executive officers of the Registrant (as indicated in
Item 12) have been deemed to be affiliates. Such determination should not be deemed an admission that such directors and executive officers, are, in
fact, affiliates of the Registrant. The Company's Common Stock is listed on the NASDAQ Capital Markets.
As of February 20, 2018, there were 11,747,055 shares of the registrant's Common Stock, $.001 par value, outstanding.
Documents incorporated by reference: None
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
INDEX
Page No.
PART I
Item 1.
Business ................................................................................................................................... 1
Item 1A.
Risk Factors ............................................................................................................................. 7
Item 1B.
Unresolved Staff Comments .................................................................................................... 17
Item 2.
Properties ................................................................................................................................. 17
Item 3.
Legal Proceedings .................................................................................................................... 17
Item 4.
Mine Safety Disclosure ............................................................................................................ 17
PART II
Item 5.
Market for Registrant’s Common Equity and Related Stockholder Matters ........................... 17
Item 6.
Selected Financial Data ........................................................................................................... 18
Item 7.
Management's Discussion and Analysis of Financial Condition
And Results of Operations ..................................................................................................... 18
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ............................................... 32
Special Note Regarding Forward-Looking Statements .......................................................... 32
Item 8.
Financial Statements and Supplementary Data ...................................................................... 35
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................................................................................... 72
Item 9A.
Controls and Procedures ........................................................................................................ 72
Item 9B.
Other Information .................................................................................................................. 73
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ..................................................... 74
Item 11.
Executive Compensation ........................................................................................................ 82
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters ............................................................................................................... 101
Item 13.
Certain Relationships and Related Transactions, and Director Independence ....................... 104
Item 14.
Principal Accountant Fees and Services ................................................................................ 107
PART IV
Item 15.
Exhibits and Financial Statement Schedules ....................................................................... …107
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.
We have grown through acquisitions and internal growth. Our goal is to continue to focus on the safe and
efficient operation of our three waste treatment facilities and on-site activities, identify and pursue strategic
acquisitions to expand our market base, and conduct research and development (“R&D”) of innovative
technologies to solve complex waste management challenges providing increased value to our clients. The
Company continues to focus on expansion into both commercial and international markets to supplement
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.
Additionally, our goal is for our majority-owned subsidiary, Perma-Fix Medical S.A. and its wholly-owned
subsidiary, Perma-Fix Medical Corporation (“PFM Corporation” – a Delaware corporation) (together
known as “PF Medical” or our “Medical Segment), to raise the necessary capital to continue its R&D
activities in order to pursue commercialization of its medical isotope production technology (see “Medical
Segment” below for further information in connection with this segment).
Segment Information and Foreign and Domestic Operations and Sales
The Company has three reportable segments. In accordance with Financial Accounting Standards Board
(“FASB”) ASC 280, “Segment Reporting”, we define an operating segment as:
a business activity from which we may earn revenue and incur expenses;
•
• whose operating results are regularly reviewed by the chief operating decision maker “(CODM”) to
make decisions about resources to be allocated and assess its performance; and
for which discrete financial information is available.
•
TREATMENT SEGMENT reporting includes:
-
nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive
waste), hazardous and non-hazardous waste treatment, processing and disposal services primarily
through three 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”), and Perma-Fix Northwest Richland, Inc. (“PFNWR”). 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.
The Company continues with the closure of its East Tennessee Materials and Energy Corporation
(“M&EC”) facility within the Treatment Segment. Operations at the M&EC facility are limited during the
remaining term of the lease and the facility continues to transition waste shipments and operational
capabilities to our other Treatment Segment facilities, subject to customer requirements and regulatory
approvals. Simultaneously, the Company continues with closure and decommissioning activities in
accordance with M&EC’s license and permit requirements. Current plans are to complete closure activities
by the end of the facility’s lease term, which has been extended to June 30, 2018 from January 21, 2018.
For 2017, the Treatment Segment accounted for $37,750,000 or 75.9% of total revenue, as compared to
$32,253,000 or 63.0% of total revenue for 2016. Treatment Segment revenues for 2017 and 2016 included
revenues of $6,312,000 and $4,419,000 for the M&EC subsidiary, which is currently in closure status. See
1
“– 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:
- 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, decontamination and decommissioning (“D&D”) field,
technical, and management personnel and services to commercial and government
customers; and
o on-site waste management services to commercial and government customers.
- Nuclear services, which include:
o
o
technology-based services including engineering, D&D, specialty services and construction,
logistics, transportation, processing and disposal;
remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear
investigation; radiological
legacy sites. Such services capability
engineering; partial and total plant D&D; facility decontamination, dismantling, demolition,
and planning; site restoration; logistics; transportation; and emergency response; and
a company owned equipment calibration and maintenance laboratory that services, maintains,
calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and
occupational safety and health (“NEOSH”) instrumentation.
includes: project
-
For 2017, the Services Segment accounted for $12,019,000 or 24.1% of total revenue, as compared to
$18,966,000 or 37.0% of total revenue for 2016. 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 (of which we own approximately 60.5% at December 31, 2017),
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. As previously disclosed, during the
latter part of 2016, our Medical Segment ceased a substantial portion of its R&D activities for the new
medical isotope production technology due to the need for substantial capital to fund such activities. We
anticipate that our Medical Segment will not restart its full scale R&D activities until it obtains the
necessary funding.
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 for 2017 and 2016 included approximately $84,000 or 0.2% and $139,000 or
0.3%, respectively, from our United Kingdom operation, Perma-Fix UK Limited (“PF UK Limited”).
2
Our consolidated revenue for 2017 and 2016 included approximately $1,073,000 or 2.2% and $262,000 or
0.5%, respectively, from Canadian customers (including revenues generated by our Perma-Fix of Canada,
Inc. (“PF Canada”) subsidiary).
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. We also have registration to
April 2023 for a service mark for PF Canada. In addition, we have received registration for two service
marks for our Safety & Ecology Holdings Corporation and its subsidiaries (collectively known as “Safety
and Ecology Corporation” or “SEC”) to periods ranging from 2018 to 2027.
We are active in the R&D of technologies that allow us to address certain of our customers' environmental
needs. To date, we have fifteen active patents and the filing of several applications for which patents are
pending. These fifteen active patents have remaining lives ranging from approximately one to seventeen
years. These active patents include an U.S and an international patent for new technology for the production
of radiological isotopes for certain types of medical applications; and which have been licensed to PFM
Corporation. These patents are effective through March 2032.
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. We believe that these permit and license requirements
represent a potential barrier to entry for possible competitors.
PFF, located in Gainesville, Florida, operates its hazardous, mixed and low-level radioactive waste activities
under a Resource Conservation and Recovery Act (“RCRA”) Part B permit, Toxic Substances Control Act
(“TSCA”) authorization, Restricted RX Drug Distributor-Destruction license, and a radioactive materials
license issued by the State of Florida.
DSSI, located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and
treatment activities under RCRA Part B permits and a radioactive materials license issued by the State of
Tennessee Department of Environment and Conservation. Co-regulated TSCA Polychlorinated Biphenyl
(“PCB”) wastes are also managed for PCB destruction under the EPA Approval effective June 2008.
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.
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. The M&EC facility is
currently undergoing closure activity requirements. The Company fully impaired the permit value of
approximately $8,288,000 for our M&EC subsidiary in 2016. The permits at M&EC will be terminated
upon completion of requirements pursuant to M&EC’s closure plan.
3
The combination of a RCRA Part B hazardous waste permit, TSCA authorization, and a radioactive
materials license, as held by our Treatment Segment are very difficult to obtain for a single facility and
make these facilities unique.
We believe that the permitting and licensing requirements, and the cost to obtain such permits, are barriers
to the entry of hazardous waste and radioactive and mixed waste activities as presently operated by our
waste treatment subsidiaries. If the permit requirements for hazardous waste treatment, storage, and disposal
(“TSD”) activities and/or the licensing requirements for the handling of low level radioactive matters are
eliminated or if such licenses or permits were made less rigorous to obtain, we believe such would allow
companies to enter into these markets and provide greater competition.
Backlog
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. At December 31, 2017, our Treatment Segment
had a backlog of approximately $7,666,000, as compared to approximately $5,250,000 at December 31,
2016. Additionally, the time it takes to process waste from the time it arrives may increase due to the types
and complexities of the waste we are currently receiving. We typically process our backlog during periods
of low waste receipts, which historically has been in the first or fourth quarters.
Dependence Upon a Single or Few Customers
Our Treatment and Services Segments have significant relationships with the 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
$36,654,000 or 73.6% of our total revenue during 2017, as compared to $27,354,000 or 53.4% of our total
revenue during 2016.
Revenue generated by one of the customers (PSC Metal, Inc.) (non-government related and excluded from
above) in the Services Segment accounted for approximately $9,763,000 or 19.1% of the total revenues
generated for the twelve months ended December 31, 2016. Project work for this customer commenced in
March 2016 and was completed in December 2016.
As our revenues are project/event based where the completion of one contract with a specific customer may
be replaced by another contract with a different customer from year to year, we do not believe the loss of one
specific customer from one year to the next will generally have a material adverse effect on our operations
and financial condition.
Competitive Conditions
The Treatment Segment’s largest competitor is EnergySolutions (“ES”) which operates treatment facilities
in Oak Ridge, TN and Erwin, TN and a disposal facility for low level radioactive waste in Clive, UT. Waste
Control Specialists (“WCS”), which has licensed disposal capabilities for low level radioactive waste in
Andrews, TX, is also a competitor in the treatment market with increasing market share. Perma-Fix now has
two options for disposal of treated nuclear waste and thus mitigates prior risk of ES providing the only
outlet for disposal. The Treatment Segment treats and disposes of DOE generated wastes largely at DOE
owned sites. Smaller competitors are also present in the market place; however, 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 continue to focus on
emerging international markets for additional work.
Our Services Segment is engaged in highly competitive businesses in which a number of our government
4
contracts and some of our commercial contracts are awarded through competitive bidding processes. The
extent of such competition varies according to the industries and markets in which our customers operate as
well as the geographic areas in which we operate. The degree and type of competition we face is also often
influenced by the project specification being bid on and the different specialty skill sets of each bidder for
which our Services Segment competes, especially projects subject to the governmental bid process. We also
have the ability to prime federal government small business procurements (small business set asides).
Based on past experience, we believe that large businesses are more willing to team with small businesses in
order to be part of these often substantial procurements. There are a number of qualified small businesses in
our market that will provide intense competition that may provide a challenge to our ability to maintain
strong growth rates and acceptable profit margins. For international business there are additional
competitors, many from within the country the work is to be performed, making winning work in foreign
countries more challenging. If our Services Segment is unable to meet these competitive challenges, it could
lose market share and experience an overall reduction in its profits.
Certain Environmental Expenditures and Potential Environmental Liabilities
Environmental Liabilities
We have three remediation projects, which are currently in progress 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.
These remediation activities are closely reviewed and monitored by the applicable state regulators.
At December 31, 2017, we had total accrued environmental remediation liabilities of $871,000, of which
$632,000 are recorded as a current liability, a decrease of $54,000 from the December 31, 2016 balance of
$925,000. The net decrease of $54,000 represents payments on remediation projects at PFSG and PFD
totaling approximately of $79,000 and an increase to the reserve of approximately $25,000 at PFD due to
reassessment of the remediation reserve.
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 properties, which may be
contaminated by hazardous substances generated or transported by us to a site we selected, including
properties owned or leased by us. We could also be subject to fines and civil penalties in connection with
violations of regulatory requirements.
Research and Development (“R&D”)
Innovation and technical know-how by our operations is very important to the success of our business. Our
goal is to discover, develop and bring to market innovative ways to process waste that address unmet
environmental needs. We conduct research internally, and also through collaborations with other third
parties. The majority of our research activities are performed as we receive new and unique waste to treat.
Our competitors also devote resources to R&D and many such competitors have greater resources at their
disposal than we do. As previously discussed, our Medical Segment ceased a substantial portion of its R&D
activities during the latter part of 2016 due to the need for substantial capital to fund such activities. We are
continually exploring ways to raise this capital. We anticipate that our Medical Segment will not restart its
full scale R&D activities until it obtains the necessary funding. We have estimated that during 2017 and
2016, we spent approximately $1,595,000 and $2,046,000, respectively, in R&D activities, of which
approximately $1,141,000 and $1,489,000, respectively, were spent by our Medical Segment for the R&D
of its medical isotope production technology.
5
Number of Employees
In our service-driven business, our employees are vital to our success. We believe we have good
relationships with our employees. At December 31, 2017, we employed approximately 246 employees, of
whom 236 are full-time employees and 10 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
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.
6
Other Laws
Our activities are subject to other federal environmental protection and similar laws, including, without
limitation, the Clean Water Act, the Clean Air Act, the Hazardous Materials Transportation Act and the
TSCA. Many states have also adopted laws for the protection of the environment which may affect us,
including laws governing the generation, handling, transportation and disposition of hazardous substances
and laws governing the investigation and cleanup of, and liability for, contaminated sites. Some of these
state provisions are broader and more stringent than existing federal law and regulations. Our failure to
conform our services to the requirements of any of these other applicable federal or state laws could subject
us to substantial liabilities which could have a material adverse effect on us, our operations and financial
condition. In addition to various federal, state and local environmental regulations, our hazardous waste
transportation activities are regulated by the U.S. Department of Transportation, the Interstate Commerce
Commission and transportation regulatory bodies in the states in which we operate. We cannot predict the
extent to which we may be affected by any law or rule that may be enacted or enforced in the future, or any
new or different interpretations of existing laws or rules.
ITEM 1A.
RISK FACTORS
The following are certain risk factors that could affect our business, financial performance, and results of
operations. These risk factors should be considered in connection with evaluating the forward-looking
statements contained in this Form 10-K, as the forward-looking statements are based on current
expectations, and actual results and conditions could differ materially from the current expectations.
Investing in our securities involves a high degree of risk, and before making an investment decision, you
should carefully consider these risk factors as well as other information we include or incorporate by
reference in the other reports we file with the Securities and Exchange Commission (the “Commission”).
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.
We maintain finite risk insurance policies and bonding mechanisms which provide financial assurance to
the applicable states for our permitted facilities in the event of unforeseen closure of those facilities. We are
required to provide and to maintain financial assurance that guarantees to the state that in the event of
closure, our permitted facilities will be closed in accordance with the regulations. In the event that we are
unable to obtain or maintain our financial assurance coverage for any reason, this could materially impact
our operations and our permits which we are required to have in order to operate our treatment, storage, and
disposal facilities.
If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.
Our business exposes us to various risks, including claims for causing damage to property and injuries to
persons that may involve allegations of negligence or professional errors or omissions in the performance of
our services. Such claims could be substantial. We believe that our insurance coverage is presently adequate
and similar to, or greater than, the coverage maintained by other companies in the industry of our size. If
we are unable to obtain adequate or required insurance coverage in the future, or if our insurance is not
available at affordable rates, we would violate our permit conditions and other requirements of the
environmental laws, rules, and regulations under which we operate. Such violations would render us unable
to continue certain of our operations. These events would have a material adverse effect on our financial
condition.
The inability to maintain existing government contracts or win new government contracts over an
extended period could have a material adverse effect on our operations and adversely affect our
future revenues.
A material amount of our Treatment and Services Segments’ revenues are generated through various 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
$36,654,000 or 73.6% and $27,354,000 or 53.4%, of our consolidated operating revenues for 2017 and
2016, respectively. Most of our government contracts or our subcontracts granted under government
7
contracts are awarded through a regulated competitive bidding process. Some government contracts are
awarded to multiple competitors, which increase overall competition and pricing pressure and may require
us to make sustained post-award efforts to realize revenues under these government contracts. All contracts
with, or subcontracts involving, the federal government are terminable, or subject to renegotiation, by the
applicable governmental agency on 30 days notice, at the option of the governmental agency. If we fail to
maintain or replace these relationships, or if a material contract is terminated or renegotiated in a manner
that is materially adverse to us, our revenues and future operations could be materially adversely affected.
Our existing and future customers may reduce or halt their spending on 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.
8
Our governmental contracts, which are primarily with the DOE or subcontracts relating to DOE sites, are a
significant part of our business. Allowable costs under U.S. government contracts are subject to audit by the
U.S. government. If these audits result in determinations that costs claimed as reimbursable are not allowed
costs or were not allocated in accordance with applicable regulations, we could be required to reimburse the
U.S. government for amounts previously received.
Governmental contracts or subcontracts involving governmental facilities are often subject to specific
procurement regulations, contract provisions and a variety of other requirements relating to the formation,
administration, performance and accounting of these contracts. Many of these contracts include express or
implied certifications of compliance with applicable regulations and contractual provisions. If we fail to
comply with any regulations, requirements or statutes, our existing governmental contracts or subcontracts
involving governmental facilities could be terminated or we could be suspended from government
contracting or subcontracting. If one or more of our governmental contracts or subcontracts are terminated
for any reason, or if we are suspended or debarred from government work, we could suffer a significant
reduction in expected revenues and profits. Furthermore, as a result of our governmental contracts or
subcontracts involving governmental facilities, claims for civil or criminal fraud may be brought by the
government or violations of these regulations, requirements or statutes.
We are a holding company and depend, in large part, on receiving funds from our subsidiaries to
fund our indebtedness.
Because we are a holding company and operations are conducted through our subsidiaries, our ability to
meet our obligations depends, in large part, on the operating performance and cash flows of our subsidiaries.
Loss of certain key personnel could have a material adverse effect on us.
Our success depends on the contributions of our key management, environmental and engineering
personnel. Our future success depends on our ability to retain and expand our staff of qualified personnel,
including environmental specialists and technicians, sales personnel, and engineers. Without qualified
personnel, we may incur delays in rendering our services or be unable to render certain services. We cannot
be certain that we will be successful in our efforts to attract and retain qualified personnel as their
availability is limited due to the demand for hazardous waste management services and the highly
competitive nature of the hazardous waste management industry. We do not maintain key person insurance
on any of our employees, officers, or directors.
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. If either of these disposal sites ceases to accept waste or closes for any reason or refuses to accept the
waste of our Treatment Segment, for any reason, we would be limited to only the one remaining site to
dispose of our nuclear waste. With only one end disposal site to dispose of our waste, we could be subject
to significantly increased costs which could negatively impact our results of operations.
Our businesses subject us to substantial potential environmental liability.
Our business of rendering services in connection with management of waste, including certain types of
hazardous waste, low-level radioactive waste, and mixed waste (waste containing both hazardous and low-
level radioactive waste), subjects us to risks of liability for damages. Such liability could involve, without
limitation:
9
•
•
•
claims for clean-up costs, personal injury or damage to the environment in cases in which we are
held responsible for the release of hazardous or radioactive materials;
claims of employees, customers, or third parties for personal injury or property damage occurring in
the course of our operations; and
claims alleging negligence or professional errors or omissions in the planning or performance of our
services.
Our operations are subject to numerous environmental laws and regulations. We have in the past, and could
in the future, be subject to substantial fines, penalties, and sanctions for violations of environmental laws
and substantial expenditures as a responsible party for the cost of remediating any property which may be
contaminated by hazardous substances generated by us and disposed at such property, or transported by us
to a site selected by us, including properties we own or lease.
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
10
activities of our customers, more onerous operating requirements or other conditions that could have a
material adverse impact on our customers’ and our business.
We may be exposed to certain regulatory and financial risks related to climate change.
Climate change is receiving ever increasing attention from scientists and legislators alike. The debate is
ongoing as to the extent to which our climate is changing, the potential causes of this change and its
potential impacts. Some attribute global warming to increased levels of greenhouse gases, including carbon
dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions.
Presently there are no federally mandated greenhouse gas reduction requirements in the United States.
However, there are a number of legislative and regulatory proposals to address greenhouse gas emissions,
which are in various phases of discussion or implementation. The outcome of federal and state actions to
address global climate change could result in a variety of regulatory programs including potential new
regulations. Any adoption by federal or state governments mandating a substantial reduction in greenhouse
gas emissions could increase costs associated with our operations. Until the timing, scope and extent of any
future regulation becomes known, we cannot predict the effect on our financial position, operating results
and cash flows.
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
11
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.
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 $10,099,000 and $57,956,000 in net operating loss carryforwards for federal and
state income tax purposes, respectively, which will expire in various amounts starting in 2021 if not used
against future federal and state income tax liabilities, respectively. 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 any of our permits, other intangible assets, and tangible assets becomes impaired, we may be
required to record significant charges to earnings.
Under accounting principles generally accepted in the United States (“U.S. GAAP”), we review our
intangible and tangible assets for impairment when events or changes in circumstances indicate the carrying
value may not be recoverable. Our permits are tested for impairment at least annually (the Company has no
goodwill at December 31, 2017). Factors that may be considered a change in circumstances, indicating that
the carrying value of our permit, other intangible assets, and tangible assets may not be recoverable, include
a decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth
rates in our industry. During 2016, we recorded approximately $8,288,000 and $1,816,000 in impairment
charges for intangible and tangible assets, respectively, in connection with the pending closure of our
M&EC facility by June 2018. During 2017, we fully impaired the remaining tangible assets of our M&EC
facility resulting in an additional impairment charge recorded in the amount of approximately $672,000. We
may be required, in the future, to record additional impairment charges in our financial statements, in which
any impairment of our permit, other intangible assets, and tangible assets is determined. Such impairment
charges could negatively impact our results of operations.
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 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 and support facility closure
requirements.
We are often required to provide performance bonds 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. In addition, we
provide bonds to support financial assurance in the event of facility closure pursuant to state requirements.
12
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.
Closure of our M&EC facility located in Oak Ridge, Tennessee could negatively impact our financial
results.
Our M&EC facility is schedule to close by the end of the second quarter of 2018. Our strategic plan
includes the process of transitioning waste shipments and operational capabilities to our other Treatment
Segment facilities, subject to customer requirements and regulatory approvals. Simultaneously, we continue
with closure and decommissioning activities in accordance with M&EC’s license and permit requirements.
We believe that the pending closure of our M&EC facility in Oak Ridge, Tennessee should reduce our fixed
costs within our Treatment Segment with minimal loss in revenue, thereby improving our Treatment
Segment gross margin. However, as certain waste shipments are dependent on our customers’ requirements
and the operational capabilities of our other Treatment facilities to accept and treat these wastes, there are
no guarantees that our other Treatment facilities will be able to treat these wastes. In such event, our
financial results could be materially impacted.
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 to our information systems. Because of efforts on the part of
computer hackers and cyberterrorists to breach data security of companies, we face risk associated with
potential failures to adequately protect critical corporate, customer and employee data. As part of our
business, we develop and retain confidential data about our company and our customers, including the U.S.
government. We also rely on the services of a variety of vendors to meet our data processing and
communications needs.
Despite our implemented security measures and established policies, we cannot be certain that all of our
systems are entirely free from vulnerability to attack or other technological difficulties or failures or failures
on the part of our employees to follow our established security measures and policies. Information security
risks have increased significantly. Our technologies, systems, and networks may become the target of
cyber-attacks, computer viruses, malicious code, or information security breaches that could result in the
unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’
confidential, proprietary and other information and the disruption of our business operations. A security
breach could adversely impact our customer relationships, reputation and operation and result in violations
of applicable privacy and other laws, financial loss to us or to our customers or to our employees, and
litigation exposure. Although we are aware that on at least one occasion during 2017 that there was a
breach of our existing security procedures and policies as to employee information due to an employee’s
error in not following our existing security procedures and policies, we do not believe this breach had a
13
material adverse effect on us. While we maintain a system of internal controls and procedures, any breach,
attack, or failure as discussed above could have a material adverse impact on our business, financial
condition, and results of operations or liquidity.
There is also an increasing attention on the importance of cybersecurity relating to infrastructure. This
creates the potential for future developments in regulations relating to cybersecurity that may adversely
impact us, our customers and how we offer our services to our customers.
Risks Relating to our Intellectual Property
If we cannot maintain our governmental permits or cannot obtain required permits, we may not be
able to continue or expand our operations.
We are a nuclear services and waste management company. Our business is subject to extensive, evolving,
and increasingly stringent federal, state, and local environmental laws and regulations. Such federal, state,
and local environmental laws and regulations govern our activities regarding the treatment, storage,
recycling, disposal, and transportation of hazardous and non-hazardous waste and low-level radioactive
waste. We must obtain and maintain permits or licenses to conduct these activities in compliance with such
laws and regulations. Failure to obtain and maintain the required permits or licenses would have a material
adverse effect on our operations and financial condition. If any of our facilities are unable to maintain
currently held permits or licenses or obtain any additional permits or licenses which may be required to
conduct its operations, we may not be able to continue those operations at these facilities, which could have
a material adverse effect on us.
We believe our proprietary technology is important to us.
We believe that it is important that we maintain our proprietary technologies. There can be no assurance that
the steps taken by us to protect our proprietary technologies will be adequate to prevent misappropriation of
these technologies by third parties. Misappropriation of our proprietary technology could have an adverse
effect on our operations and financial condition. Changes to current environmental laws and regulations also
could limit the use of our proprietary technology.
Risks Relating to our Financial Position and Need for Financing
Breach of any of the 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 minimum 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 minimum quarterly fixed charge coverage ratio requirements in 2017. If we fail to meet any of
our financial covenants, including the minimum quarterly fixed charge coverage ratio requirement in the
future and our lender does not waive the non-compliance or revise our covenant requirement 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, 2017, our aggregate consolidated debt was approximately $3,962,000 (excluding debt
issuance costs). Our Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated
October 31, 2011, as subsequently amended (“Revised Loan Agreement”) provides for a total credit facility
commitment of approximately $18,100,000, consisting of a $12,000,000 revolving line of credit and a term
loan of $6,100,000. The maximum we can borrow under the revolving part of the credit facility is based on
a percentage of the amount of our eligible receivables outstanding at any one time reduced by outstanding
standby letters of credit and any borrowing reduction that our lender may impose from time to time. At
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December 31, 2017, we had no borrowings under the revolving part of our credit facility and borrowing
availability of up to an additional $3,687,000. A lack of positive operating results could have material
adverse consequences on our ability to operate our business. Our ability to make principal and interest
payments, or to refinance indebtedness, will depend on both our and our subsidiaries' future operating
performance and cash flow. Prevailing economic conditions, interest rate levels, and financial, competitive,
business, and other factors affect us. Many of these factors are beyond our control.
Our indebtedness could limit our financial and operating activities, and adversely affect our
ability to incur additional debt to fund future needs.
As a result of our indebtedness, we could, among other things, be:
•
require to dedicate a substantial portion of our cash flow to the payment of principal and
interest, thereby reducing the funds available for operations and future business opportunities;
• make it more difficult for us to satisfy our obligations;
•
limit our ability to borrow additional money if needed for other purposes, including working
capital, capital expenditures, debt service requirements, acquisitions and general corporate or
other purposes, on satisfactory terms or at all;
limit our ability to adjust to changing economic, business and competitive conditions;
•
• place us at a competitive disadvantage with competitors who may have less indebtedness or
greater access to financing;
• make us more vulnerable to an increase in interest rates, a downturn in our operating
performance or a decline in general economic conditions; and
• make us more susceptible to changes in credit ratings, which could impact our ability to obtain
financing in the future and increase the cost of such financing.
Any of the foregoing could adversely impact our operating results, financial condition, and liquidity. Our
ability to continue our operations depends on our ability to generate profitable operations or complete equity
or debt financings to increase our capital.
Risks Relating to our Common Stock
Issuance of substantial amounts of our Common Stock could depress our stock price.
Any sales of substantial amounts of our Common Stock in the public market could cause an adverse effect
on the market price of our Common Stock and could impair our ability to raise capital through the sale of
additional equity securities. The issuance of our Common Stock will result in the dilution in the percentage
membership interest of our stockholders and the dilution in ownership value. At December 31, 2017, we had
11,730,981 shares of Common Stock outstanding.
In addition, at December 31, 2017, we had outstanding options to purchase 624,800 shares of our Common
Stock at exercise prices ranging from $2.79 to $13.35 per share. Further, our preferred share rights plan, if
triggered, could result in the issuance of a substantial amount of our Common Stock. The existence of this
quantity of rights to purchase our Common Stock under the preferred share rights plan could result in a
significant dilution in the percentage ownership interest of our stockholders and the dilution in ownership
value. Future sales of the shares issuable could also depress the market price of our Common Stock.
We do not intend to pay dividends on our Common Stock in the foreseeable future.
Since our inception, we have not paid cash dividends on our Common Stock, and we do not anticipate
paying any cash dividends in the foreseeable future. Our credit facility prohibits us from paying cash
dividends on our Common Stock without prior approval from our lender.
The price of our Common Stock may fluctuate significantly, which may make it difficult for our
stockholders to resell our Common Stock when a stockholder wants or at prices a stockholder finds
attractive.
The price of our Common Stock on the NASDAQ Capital Markets constantly changes. We expect that the
market price of our Common Stock will continue to fluctuate. This may make it difficult for our
stockholders to resell the Common Stock when a stockholder wants or at prices a stockholder finds
attractive.
15
Future issuance of our Common Stock could adversely affect the price of our Common Stock, our
ability to raise funds in new stock offerings and could dilute the percentage ownership of our common
stockholders.
Future sales of substantial amounts of our Common Stock or equity-related securities in the public market,
or the perception that such sales or conversions could occur, could adversely affect prevailing trading prices
of our Common Stock and could dilute the value of Common Stock held by our existing stockholders. No
prediction can be made as to the effect, if any, that future sales of shares of our Common Stock or the
availability of shares of our Common Stock for future sale will have on the trading price of our Common
Stock. Such future sales or conversions could also significantly reduce the percentage ownership of our
common stockholders.
Delaware law, certain of our charter provisions, our stock option plans, outstanding warrants and
our Preferred Stock may inhibit a change of control under circumstances that could give you an
opportunity to realize a premium over prevailing market prices.
We are a Delaware corporation governed, in part, by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law. In general, Section 203 prohibits a Delaware public
corporation from engaging in a “business combination” with an “interested stockholder” for a period of
three years after the date of the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. As a result of Section 203, potential acquirers
may be discouraged from attempting to effect acquisition transactions with us, thereby possibly depriving
our security holders of certain opportunities to sell, or otherwise dispose of, such securities at above-market
prices pursuant to such transactions. Further, certain of our option plans provide for the immediate
acceleration of, and removal of restrictions from, options and other awards under such plans upon a “change
of control” (as defined in the respective plans). Such provisions may also have the result of discouraging
acquisition of us.
We have authorized and unissued 17,636,577 (which include shares issuable under outstanding options to
purchase 624,800 shares of our Common Stock) shares of our Common Stock and 2,000,000 shares of our
Preferred Stock as of December 31, 2017 (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, including adjustment for 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
Plan terminates on May 2, 2018.
16
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2.
PROPERTIES
Our principal executive office is in Atlanta, Georgia. Our Business Center is located in Knoxville,
Tennessee. Our Treatment Segment facilities are located in Gainesville, Florida; Kingston, Tennessee; and
Richland, Washington. Our M&EC facility located in Oak Ridge, Tennessee is currently undergoing closure
requirement activities which we plan to complete by the second quarter of 2018. Our Services Segment
maintains offices as noted below, which are all leased properties. We maintain properties in Valdosta,
Georgia and Memphis, Tennessee, which are all non-operational and are included within our discontinued
operations.
The 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 (SEC)
Knoxville, TN (SEC)
Blaydon On Tyne, England (PF UK Limited)
Pittsburgh, PA (SEC)
Newport, KY (SEC)
Oak Ridge, TN (M&EC)
Atlanta, GA (Corporate)
Square Footage
20,850
5,000
1,000
640
1,566
150,000
6,499
Expiration of Lease
May 31, 2018
September 30, 2018
Monthly
Monthly
Monthly
June 30, 2018
February 28, 2021
We believe that the above facilities currently provide adequate capacity for our operations and that
additional facilities are readily available in the regions in which we operate, which could support and
supplement our existing facilities.
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of conducting our business, we may become involved in litigation or be subject to
local, state and federal agency (government) proceedings. We are not a party to any litigation or
governmental proceeding, which our management believes could result in any judgments or fines that would
have a material adverse effect on our financial position, liquidity or results of future operations.
ITEM 4.
MINE SAFETY DISCLOSURE
Not Applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our Common Stock is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol “PESI.”
The following table sets forth the high and low market trade prices quoted for the Common Stock during the
periods shown. The source of such quotations and information is the NASDAQ online trading history
reports.
2017
2016
Common Stock 1st Quarter
2nd Quarter
3rd Quarter
Low High Low
High
$ 2.85 $ 4.00 $ 3.42 $ 3.95
5.64
2.95
4.34
5.62
3.25
3.62
4.29
3.85
4.30
17
4th Quarter
3.40
4.05
3.25
5.24
At February 20, 2018, there were approximately 187 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 at February 20, 2018 was approximately 2,210.
Since our inception, we have not paid any cash dividends on our Common Stock and have no dividend
policy. Our Revised Loan Agreement prohibits us from paying any cash dividends on our Common Stock
without prior approval from our lender. We do not anticipate paying cash dividends on our outstanding
Common Stock in the foreseeable future.
No sales of unregistered securities occurred during 2017. 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 2017.
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. The Rights Plan
terminates on May 2, 2018.
See Note 5 “Capital Stock, Stock Plans, Warrants, and Stock Based Compensation” in Part II, Item 8,
“Financial Statements and Supplementary Data” and “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 are incorporated herein by
reference.
ITEM 6.
SELECTED FINANCIAL DATA
Not required under Regulation S-K for smaller reporting companies.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements contained within this “Management's Discussion and Analysis of Financial Condition
and Results of Operations” (“MD&A”) may be deemed “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended (collectively, the “Private Securities Litigation Reform Act of 1995”). See “Special Note
regarding Forward-Looking Statements” contained in this report.
Management's discussion and analysis is based, among other things, upon our audited consolidated financial
statements and includes our accounts, 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 decreased $1,450,000 or 2.8% to $49,769,000 for the twelve months ended December 31, 2017
from $51,219,000 for the corresponding period of 2016. The decrease in revenue was primarily due to the
decrease in revenue of approximately $6,947,000 or 36.6% from $18,966,000 to $12,019,000 in the
Services Segment. Treatment Segment revenue increased approximately $5,497,000 or 17.0% from higher
waste volume and higher averaged price waste resulting from revenue mix. Total gross profit increased
$1,536,000 or 21.7% for the twelve months ended December 31, 2017 as compared to the corresponding
period of 2016 primarily due to higher revenue generated from our Treatment Segment. Total selling,
18
general and administrative (“SG&A”) expenses increased $377,000 or 3.5% for the twelve months ended
December 31, 2017 as compared to the corresponding period of 2016.
We continue our plan to close our East Tennessee Materials and Energy Corporation (“M&EC”) facility by
the end of the M&EC’s lease term which has been extended to June 30, 2018 from January 21, 2018. In
accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment,” during
the third quarter of 2017, we performed an updated financial valuation of M&EC’s remaining long-lived
tangible assets (inclusive of the capitalized asset retirement costs) for further potential impairment. Based on
our analysis using an undiscounted cash flow approach, we concluded that the carrying value of the
remaining tangible assets for M&EC was not recoverable and exceeded its fair value. Consequently, we
fully impaired the remaining tangible assets for M&EC resulting in $672,000 in tangible asset impairment
loss (non-cash). During 2017, we also recorded an additional $1,400,000 in closure liabilities due to a
change in estimated closure costs for our M&EC facility. M&EC revenues were approximately $6,312,000
and $4,419,000 for the years ended December 31, 2017 and 2016, respectively. Upon closure of M&EC, we
estimate that we will eliminate annual fixed costs estimated to be approximately $4,000,000 to $5,000,000.
We had a working capital deficit of approximately $2,268,000 at December 31, 2017, as compared to
working capital deficit of $2,131,000 at December 31, 2016
As previously reported, at the direction of Dr. Louis Centofanti, our former Chief Executive Officer
(“CEO”) and President, and the Board of Directors (the “Board”), we instituted our succession plan
effective during the third quarter of 2017, in which Dr. Louis Centofanti resigned his position as our CEO
and President and the Board elected Mark Duff as the new CEO and President of the Company, effective
September 8, 2017. Mark Duff previously held the position of Executive Vice President/Chief Operating
Officer (“EVP/COO”). In order to have Dr. Louis Centofanti remain active in the operation of the
Company, the Board then elected Dr. Louis Centofanti as EVP of Strategic Initiatives effective September
8, 2018. Dr. Louis Centofanti continues to serve as a member of the Board.
Business Environment and Outlook
Our Treatment and Services Segments’ business continues to be heavily dependent on services that we
provide to governmental clients directly as the contractor or indirectly as a subcontractor. We believe
demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our
control, including 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 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. As previously disclosed, during the latter part of 2016, our Medical
Segment reduced its research and development (“R&D”) activities substantially due to the need for capital
to fund such activities. Our Medical Segment continues to seek various sources in order to raise this capital.
We anticipate that our Medical Segment R&D activities will be limited until the necessary capital is
obtained through its own credit facility or additional equity raise. If the Medical Segment is unable to raise
the necessary capital, the Medical Segment could be required to further reduce, delay or eliminate its R&D
program.
We are continually reviewing operating costs and are committed to further reducing operating costs to bring
them in line with revenue levels, when needed.
We continue 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. See “Liquidity and Capital Resources” below for further discussion of our liquidity.
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
19
(“Medical”). Our Medical Segment has not generated any revenue and all costs incurred are included within
R&D:
Summary - Years Ended December 31, 2017 and 2016
Below are the results of continuing operations for years ended December 31, 2017 and 2016 (amounts in
thousands):
(Consolidated)
Net revenues
Cost of goods sold
Gross profit
Selling, general and administrative
Research and development
(Gain) loss on disposal of property and equipment
Impairment loss on tangible assets
Impairment loss on intangible assets
Loss from operations
Interest income
Interest expense
Interest expense – financing fees
Other
Loss from continuing operations before taxes
Income tax benefit
Loss from continuing operations
$
2017
49,769
41,149
8,620
11,101
1,595
(12)
672
(4,736)
140
(315)
(35)
123
(4,823)
(1,285)
%
100.0
82.7
17.3
22.3
3.2
1.3
(9.5)
.3
(.6)
(.1)
.2
(9.7)
(2.6)
$
2016
51,219
44,135
7,084
10,724
2,046
2
1,816
8,288
(15,792)
110
(489)
(108)
22
(16,257)
(2,994)
$
(3,538)
(7.1)
$
(13,263)
%
100.0
86.2
13.8
20.9
4.0
3.5
16.2
(30.8)
.2
(.9)
(.2)
(31.7)
(5.8)
(25.9)
Net Revenue
Consolidated revenues decreased $1,450,000 for the year ended December 31, 2017 compared to the year
ended December 31, 2016, as follows:
(In thousands)
Treatment
Government waste
Hazardous/non-hazardous
Other nuclear waste
Total
Services
Nuclear
Technical
Total
Total
2017
%
Revenue
2016
%
Revenue
Change
%
Change
$
27,592
4,855
5,303
37,750
9,186
2,833
12,019
55.4
9.8
10.7
75.9
18.4
5.7
24.1
$
21,433
4,511
6,309
32,253
17,035
1,931
18,966
41.9
8.8
12.3
63.0
33.2
3.8
37.0
$
6,159
344
(1,006)
5,497
(7,849)
902
(6,947)
28.7
7.6
(15.9)
17.0
(46.1)
46.7
(36.6)
$
49,769
100.0
$
51,219
100.0
$
(1,450)
(2.8)
Treatment Segment revenue increased $5,497,000 or 17.0% for the year ended December 31, 2017 over the
same period in 2016. The revenue increase was primarily due to higher revenue generated from government
clients of approximately $6,159,000 or 28.7% primarily due to higher averaged price waste resulting from
waste mix and higher waste volume. Other nuclear waste revenue decreased by approximately $1,006,000
or 15.9% primarily due to both lower waste volume and lower averaged price waste. Services Segment
revenue decrease by $6,947,000 or 36.6% for the year ended December 31, 2017 over the same period in
2016 primarily due to the completion of a nuclear services project in December 2016 which had generated
revenues of approximately $9,763,000 in 2016. The decrease in revenue in the Services Segment was also
partially due to delays in a large nuclear services project in May 2017 due to government funding
uncertainties. This project commenced at the end of August 2017 and is expected to continue until
approximately June 2018. Our Services Segment revenues are project based; as such, the scope, duration
20
and completion of each project vary. As a result, our Services Segment revenues are subject to differences
relating to timing and project value.
Cost of Goods Sold
Cost of goods sold decreased $2,986,000 for the year ended December 31, 2017, as compared to the year
ended December 31, 2016, as follows:
(In thousands)
Treatment
Services
Total
2017
$ 29,834
11,315
$ 41,149
%
Revenue
79.0
94.1
82.7
2016
$ 28,238
15,897
$ 44,135
%
Revenue
87.6
83.8
86.2
Change
$ 1,596
(4,582)
(2,986)
$
Cost of goods sold for the Treatment Segment increased by $1,596,000 or approximately 5.7%. Costs of
goods sold for the Treatment Segment for 2017 included approximately $550,000 and $850,000 in
additional closure costs recorded in the third and fourth quarters of 2017, respectively, in connection with
the pending closure of our M&EC facility as discussed above. Also, cost of goods sold for the Treatment
Segment for 2016 included a write-off of approximately $587,000 in prepaid fees recorded in the second
quarter of 2016 resulting from the impairment of certain equipment at our M&EC facility due to the pending
closure of the M&EC facility. Such fees were incurred for emission performance testing certification
requirements as mandated by the state. Excluding the additional closure costs of $1,400,000 recorded in
2017 and the write-off of $587,000 recorded in 2016, total Treatment Segment cost of goods sold increased
$783,000 or 2.8%. Treatment Segment variable costs increased by approximately $750,000 primarily in
disposal, transportation, material and supplies, and lab costs due to higher revenue. Treatment Segment
overall fixed costs were slightly higher by approximately $33,000 resulting from the following:
maintenance expense was higher by $257,000; general expense was higher by approximately $222,000 in
various categories; regulatory expense was higher by $190,000; salaries and payroll related expenses were
lower by approximately $414,000 due to lower headcount from normal attrition and employees working on
the pending closure of the M&EC facility (resulting in salaries and payroll related expenses charged to
closure accrual); and depreciation expense was lower by approximately $222,000 as we fully impaired the
remaining tangible assets of our M&EC facility during the third quarter of 2017 resulting from an updated
financial valuation of the remaining tangible assets at M&EC due to the pending closure of the facility by
the end of June 2018. Services Segment cost of goods sold decreased $4,582,000 or 28.8% primarily due to
the decrease in revenue as discussed above. The decrease in Services Segment’s cost of goods sold was
primarily in salaries and payroll related expenses, travel, and outside services expenses totaling
approximately $3,142,000 with the remaining decrease primarily in material and supplies and disposal
costs. Included within cost of goods sold is depreciation and amortization expense of $3,720,000 and
$4,002,000 for the twelve months ended December 31, 2017, and 2016, respectively.
Gross Profit
Gross profit for the year ended December 31, 2017 was $1,536,000 higher than 2016 as follows:
(In thousands)
Treatment
Services
Total
2017
$ 7,916
704
$ 8,620
%
Revenue
21.0
5.9
17.3
2016
$ 4,015
3,069
$ 7,084
%
Revenue
12.4
16.2
13.8
Change
$ 3,901
(2,365)
1,536
$
Treatment Segment gross profit increased $3,901,000 or 97.2%. Excluding the $1,400,000 in additional
closure costs recorded in 2017 and the $587,000 write off in prepaid fees recorded in the second quarter of
2016 in connection with the pending closure of our M&EC facility discussed above, Treatment Segment
gross profit increased $4,714,000 or 102.4% and gross margin increased to 24.7% from 14.3% primarily
due to increased revenue. In the Services Segment, the decreases in gross profit of $2,365,000 or 77.1% and
gross margin from 16.2% to 5.9% was primarily due to the decrease in revenue as discussed above.
Additionally, our overall Services Segment gross margin is impacted by our current projects which are
competitively bid on and will therefore, have varying margin structures.
21
SG&A
SG&A expenses increased $377,000 for the year ended December 31, 2017 as compared to the
corresponding period for 2016 as follows:
(In thousands)
Administrative
Treatment
Services
Total
2017
$
4,788
3,316
2,997
11,101
$
%
Revenue
8.8
24.9
22.3
2016
$
4,919
3,506
2,299
10,724
$
%
Revenue
10.9
12.1
20.9
Change
$
(131)
(190)
698
377
$
The increase in total SG&A was primarily due to higher SG&A costs in the Services Segment. Services
Segment SG&A increased by $698,000 primarily due to higher bad debt expenses of approximately
$757,000. During the fourth quarter of 2017, we recorded an additional $364,000 in bad debt expense in
our Services Segment as certain accounts receivable were determined not to be collectible at December 31,
2017. The increase in bad debt expenses in 2017 as compared to 2016 was also impacted by a reduction in
bad debt expense of approximately $364,000 we recorded during the second quarter of 2016 resulting from
a reduction in allowance for doubtful accounts as a previously uncertain account receivable was determined
to be collectible at June 30, 2016. In addition, Services Segment salaries and payroll related expenses were
higher by approximately $49,000 and general expenses were higher by approximately $15,000 in various
categories. The overall higher costs in SG&A in the Services Segment were partially offset by lower outside
services costs of approximately $71,000 resulting from fewer consulting/subcontract matters, lower
depreciation expenses of $35,000 as certain fixed assets became fully depreciated at year end 2016, and
lower travel expenses of $17,000. The decrease in Administrative SG&A was primarily the result of lower
salaries and payroll related expenses of approximately $100,000 and lower amortization expense of
approximately $44,000 as we recorded a patent write-off during the second quarter of 2016. In addition,
Administrative SG&A expenses were lower by approximately $29,000 in outside service expenses resulting
from fewer subcontract/consulting matters. The total decrease in Administrative SG&A costs was partially
offset by higher travel expenses of approximately $27,000 made by our executives and higher general
expenses of $15,000 in various categories. Treatment SG&A was lower primarily due to lower salaries and
payroll related costs of approximately $341,000. The lower costs in Treatment SG&A were partially offset
by higher general expenses of $101,000 mostly due to higher tradeshow/marketing expenses and higher
outside services expenses of approximately $50,000 due to more consulting matters. Included in SG&A
expenses is depreciation and amortization expense of $83,000 and $163,000 for the twelve months ended
December 31, 2017 and 2016, respectively.
R&D
R&D expenses decreased $451,000 for the year ended December 31, 2017 as compared to the
corresponding period of 2016 as follows:
(In thousands)
Administrative
Treatment
Services
PF Medical
Total
2017
$
2016
$
15
439
1,141
1,595
$
$
Change
(65)
(38)
(348)
(451)
$
$
15
504
38
1,489
2,046
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. The decrease in R&D costs for 2017 as compared
to 2016 was primarily due to reduced R&D performed by our PF Medical Segment.
Interest Expense
Interest expense decreased approximately $174,000 for the twelve months ended December 31, 2017 as
compared to the corresponding period of 2016. Interest expense for 2016 included a $68,000 loss on debt
22
extinguishment that we recorded in the first quarter of 2016 resulting from an amendment dated March 24,
2016 that we entered into with our lender which extended the due date of our credit facility, among other
things, to March 24, 2021. Excluding this $68,000 loss on debt extinguishment, the decrease was primarily
due to lower interest from our declining term loan balance and lower average revolver loan balance
outstanding.
Interest Expense- Financing Fees
Interest expense-financing fees decreased approximately $73,000 for the twelve months ended December
31, 2017 as compared to the corresponding period of 2016. The decrease was primarily due to lower
monthly amortized financing fees resulting from our amended credit facility pursuant to the amendment
dated March 24, 2016 as discussed above. The decrease was also the result of final amortization of debt
discount as financing fees which occurred in August 2016 in connection with the issuance of our common
stock and two warrants to certain lenders as consideration for the Company receiving a $3,000,000 loan
which was paid off by the Company in August 2016.
Income Taxes
We had income tax benefits of $1,285,000 and $2,994,000 for continuing operations for the years ended
December 31, 2017 and 2016, respectively. The Company’s effective tax rates were approximately 26.6%
and 18.4% for the twelve months ended December 31, 2017 and 2016, respectively. Our tax benefit for
2017 included a tax benefit in the amount of approximately $1,695,000 recorded in the fourth quarter of
2017 resulting primarily from the required re-measurement of our deferred assets and liabilities and the
reversal of valuation allowance and refunding of alternative minimum tax (“AMT”) credit carryforward.
This tax benefit was recorded as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) enacted into
law on December 22, 2017 (see “Critical Accounting Policies” in this section for a further discussion of the
Tax Act and the tax benefit recorded). Our income tax benefit for the year ended 2016 was primarily the
result of a tax benefit recorded in the amount of approximately $3,203,000 resulting from the permit
impairment loss recorded for the M&EC subsidiary during the second quarter of 2016.
Discontinued Operations
Our discontinued operations consist of all our subsidiaries included in our Industrial Segment which were
divested in 2011 and prior, previously closed locations, and our Perma-Fix of South Georgia, Inc. (“PFSG”)
facility which is currently undergoing closure, subject to regulatory approval of necessary plans and
permits.
Our discontinued operations had no revenue for the twelve months ended December 31, 2017 and 2016.
We incurred net losses of $592,000 and $730,000 for our discontinued operations for the twelve months
ended December 31, 2017 and 2016, respectively (net of taxes of $0 for each period). Losses for the
periods discussed above were primarily due to costs incurred in the administration and continued
monitoring of our discontinued operations.
Liquidity and Capital Resources
Our cash flow requirements during 2017 were primarily financed by our operations, credit facility
availability, and the restricted finite risk sinking funds that were released back to us in May 2017 from the
cancellation of a previous financial assurance policy issued by American International Group (“AIG”) for
our Perma-Fix Northwest Richland, Inc. (“PFNWR”) subsidiary (see “Investing Activities” below for
further information of this finite sinking fund and the replacement closure mechanism acquired for the
PFNWR subsidiary). We anticipate that our cash flow requirements for the next twelve months will consist
primarily of general working capital needs, scheduled principal payments on our debt obligations,
remediation projects, planned capital expenditures, and closure spending requirements in the amount of
approximately $2,791,000 in connection with the pending closure of our M&EC facility (“M&EC closure”).
We plan to fund these requirements from our operations and our credit facility. Additionally, as a result of
the M&EC closure, we expect to receive during 2018, a partial release of approximately $5,000,000 of the
$15,676,000 restricted finite risk sinking funds held by AIG as collateral under the financial assurance
policy dated June 2003 that we currently have with AIG. This partial release in finite risk sinking funds is
subject to approval from AIG and the appropriate Tennessee state regulators and when released, will further
enhance our liquidity. We continue to explore all sources of increasing revenue. We are continually
23
reviewing operating costs and are committed to further reducing operating costs to bring them in line with
revenue levels, when necessary. Although there are no assurances, we believe that our cash flows from
operations and our available liquidity from our credit facility are sufficient to fund our operations for the
next twelve months. Additionally, the partial release of the finite risk sinking funds that we expect to receive
during 2018 as a result of the M&EC closure as discussed above will further provide additional funding for
our operations as needed. As previously disclosed, during the latter part of 2016, our Medical Segment
substantially reduced its R&D activities due to the need for capital to fund such activities. We anticipate that
our Medical Segment will not resume full R&D activities until it obtains the necessary funding through
obtaining its own credit facility or additional equity raise. Our Medical Segment continues to seek various
sources in order to raise this funding. If the Medical Segment is unable to raise the necessary capital, the
Medical Segment could be required to further reduce, delay or eliminate its R&D program.
The following table reflects the cash flow activity for the year ended December 31, 2017 and the
corresponding period of 2016:
(In thousands)
Cash provided by operating activities of continuing operations
Cash used in operating activities of discontinued operations
Cash provided by (used in) investing activities of continuing operations
Cash provided by investing activities of discontinued operations
Cash used in financing activities of continuing operations
Effect of exchange rate changes on cash
Increase (decrease) in cash
2017
2016
$
$
1,089
(647)
5,402
69
(5,022)
9
900
1,063
(959)
(499)
84
(956)
(5)
(1,272)
$
$
At December 31, 2017, we were in a positive cash position and no revolving credit balance. At December
31, 2017, we had cash on hand of approximately $1,063,000 which includes account balances for our
foreign subsidiaries totaling approximately $305,000.
Operating Activities
Accounts receivable, net of allowances for doubtful accounts, totaled $7,940,000 at December 31, 2017, a
decrease of $977,000 from the December 31, 2016 balance of $8,917,000 (including accounts receivable –
non-current). The decrease was primarily due to increased accounts receivable collections. We provide a
variety of payment terms to our customers; therefore, our accounts receivable are impacted by these terms
and the related timing of accounts receivable collections.
Accounts payable, totaled $3,537,000 at December 31, 2017, a decrease of $707,000 from the December 31,
2016 balance of $4,244,000. The decrease was primarily due to the timing of the payment of our accounts
payable. Also, we continue to manage payment terms with our vendors to maximize our cash position
throughout all segments.
Disposal/transportation accrual at December 31, 2017, totaled $2,071,000, an increase of $681,000 over the
December 31, 2016 balance of $1,390,000. Our disposal accrual can vary based on revenue mix and the
timing of waste shipments for final disposal. During 2017, we shipped less waste for disposal.
We had a working capital deficit of $2,268,000 (which included working capital of our discontinued
operations) at December 31, 2017, as compared to a working capital deficit of $2,131,000 at December 31,
2016. Our working capital was negatively impacted by the reclassification of approximately $881,000 in
accrued closure costs from long-term to current in the first quarter of 2017 and the additional current closure
costs accrual recorded in the amount of approximately $1,400,000 during the second half of 2017 in
connection with the pending M&EC closure. We used the finite risk sinking funds received from the
cancellation of our PFNWR financial assurance policy to pay down our payables and to pay off our
revolving credit which is included in long-term liabilities on the Consolidated Balance Sheets.
24
Investing Activities
During 2017, our purchases of capital equipment totaled approximately $439,000. These expenditures were
primarily for improvements in our Treatment Segment. These capital expenditures were funded by cash
from operations. We have budgeted approximately $1,000,000 for 2018 capital expenditures for our
Treatment and Services Segments to maintain operations and regulatory compliance requirements. On
March 7, 2018, our Board approved an additional $1,000,000 in capital spending for footprint expansion for
one of our Treatment Segment facilities. 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.
We had a closure policy dated August 2007 for our PFNWR facility with AIG (“PFNWR policy”) which
provided financial assurance to the State of Washington in the event of closure of the PFNWR facility. In
April 2017, we received final releases from state and federal regulators for the PFNWR policy which
enabled us to cancel the PFNWR policy resulting in the release of approximately $5,951,000 on May 1,
2017 in finite sinking funds previously held by AIG as collateral for the PFNWR policy. We used the
released finite sinking funds to pay off our revolving credit with the remaining funds used for general
working capital needs. We have acquired new bonds in the required amount of approximately $7,000,000
(“new bonds”) to replace the PFNWR policy in providing financial assurance for the PFNWR facility. Upon
receipt of the $5,951,000 in finite sinking funds from AIG, we and our lender executed a standby letter of
credit in the amount of $2,500,000 as collateral for the new bonds for the PFNWR facility.
Financing Activities
We entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated
October 31, 2011 (“Amended Loan Agreement”), with PNC National Association (“PNC”), acting as agent
and lender. The Amended Loan Agreement, as subsequently amended (“Revised Loan Agreement”),
provides us with the following credit facility with a maturity date of March 24, 2021: (a) up to $12,000,000
revolving credit (“revolving credit”) and (b) a term loan (“term loan”) of approximately $6,100,000, which
requires monthly installments of approximately $101,600 (based on a seven-year amortization). The
maximum that we can borrow under the revolving credit is based on a percentage of eligible receivables (as
defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our
lender may impose from time to time.
Under the Revised Loan Agreement, we have 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%.
Pursuant to the Revised Loan Agreement, we may terminate the Revised Loan Agreement, upon 90 days’
prior written notice upon payment in full of our obligations under the Revised Loan Agreement. We agreed
to pay PNC 1.0% of the total financing in the event we had paid 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 pay 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 our obligations after March 23,
2019.
At December 31, 2017, the borrowing availability under our revolving credit was $3,687,000, based on our
eligible receivables and includes an indefinite reduction of borrowing availability of $2,000,000 that our
lender has imposed, which includes $750,000 that was imposed immediately upon the receipt of the
$5,951,000 in finite sinking funds by us in connection with cancellation of our PFNWR policy, pursuant to
a “Condition Subsequent” clause in the November 17, 2016 amendment that we entered into with our lender
(see “Investing Activities” above for further discussion of the receipt of the finite risk sinking funds in
connection with our PFNWR facility). Our borrowing availability under our revolving credit was also
reduced by outstanding standby letters of credit totaling approximately $2,675,000.
25
We have had discussions with our lender as to the removal of the $2,000,000 reduction in borrowing
availability discussed above. Our lender has advised us that they will be reducing the $2,000,000 reduction
in borrowing availability to $1,000,000 during the first half of 2018, subject to receipt of appropriate
approvals by the lender and execution of documentation, and would consider removal of the remaining
$1,000,000 reduction in borrowing availability depending on our results during 2018.
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 details
the quarterly financial covenant requirements under our credit facility at December 31, 2017.
(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
$26,000
3.13:1
$30,148
2.57:1
$28,850
2.40:1
$26,853
1.45:1
$27,161
We met our quarterly financial covenants in each of the quarters of 2017 and we expect to meet these
quarterly financial covenant requirements in the next twelve months. If we fail to meet any of these
quarterly financial covenant requirements as noted above and our lender does not waive the non-compliance
or revise our covenant so that we are in compliance, our lender could accelerate the repayment of
borrowings under our credit facility. In the event that our lender accelerates the payment of our borrowings,
we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness.
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 at December 31, 2017, which total approximately
$645,000, payable as follows: $366,000 in 2018; $141,000 in 2019; $118,000 in 2020; with the remaining
$20,000 in 2021.
From time to time, we are required to post standby letters of credit and various bonds to support contractual
obligations to customers and other obligations, including facility closures. At December 31, 2017, the total
amount of outstanding standby letters of credit totaled approximately $2,675,000 and the total amount of
bonds outstanding totaled approximately $8,305,000. The Company also provides closure and post-closure
requirements through a financial assurance policy for certain of our Treatment Segment facilities through
AIG. At December 31, 2017, the closure and post-closure requirements for these facilities were
approximately $29,473,000.
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 becomes 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
26
burial where applicable. We review and evaluate our revenue recognition estimates and policies on an
annual basis.
For our Services Segment, revenues on services are performed under fixed price, time and material, 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 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 collections patterns, that allows us to calculate the total allowance required.
This analysis excludes government related receivables due to our past successful experience in their
collectability. Our allowance was approximately 1.4% of revenue for 2017 and 8.3% of accounts receivable
at December 31, 2017. Additionally, this allowance was approximately 0.5% of revenue for 2016 and 3.0%
of accounts receivable at December 31, 2016.
Intangible Assets. Intangible assets consist primarily of the recognized value of the permits required to
operate our business. We continually monitor the propriety of the carrying amount of our permits to
determine whether current events and circumstances warrant adjustments to the carrying value.
Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October
1, or when events or changes in the business environment indicate that the carrying value may be impaired.
If the fair value of the asset is less than the carrying amount, we perform a quantitative test to determine the
fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its
fair value. Significant judgments are inherent in these analyses and include assumptions for, among other
factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash
flows, and the determination of appropriate long term discount rates.
Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2017 resulted in
no impairment charges. In 2016, based on our analysis, we fully impaired the permit value of approximately
$8,288,000 for our M&EC subsidiary as a result of our decision to close the M&EC facility. We performed
impairment testing of the remaining permits related to our Treatment reporting unit as of October 1, 2016
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. We
have 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 at December 31, 2017 and 2016 was approximately
27
$62,000 and $117,000, 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
goods sold in the Consolidated Statements of Operations. Changes in the estimated future cash flows costs
underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the
ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with our
depreciation policy.
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 grant of options, to be recognized in the income statement based on their fair values. We account
for stock-based compensation issued to consultants in accordance with the provisions of ASC 505-50,
“Equity-Based Payments to Non-Employees.” Measurement of stock-based payment transactions with
consultants, including options, is based on the fair value of whichever is more reliably measurable: (a) the
goods or services received; or (b) the equity instrument issued. The measurement date for the fair value of
the stock-based payment transaction is determined at the earlier of performance commitment date or
performance completion date. 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-based awards include the exercise price of the award, the expected term, the expected volatility of our
stock over the stock-based award’s expected term, the risk-free interest rate over the award’s expected term,
and the expected annual dividend yield. We account for forfeitures when they occur.
Income Taxes. The provision for income tax is determined in accordance with ASC 740, “Income Taxes.”
We are required to estimate our income taxes in each of the jurisdictions in which we operate. We record
28
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.
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal
Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to
21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a
worldwide tax system to a territorial system, the elimination of AMT for corporations and a one-time
transition tax on the mandatory deemed repatriation of foreign earnings. As of December 31, 2017, the
Company has estimated its provision for income taxes in accordance with the Tax Act and guidance
available resulting in the recognition of approximately $1,695,000 of income tax benefits in the fourth
quarter of 2017, the period in which the legislation was enacted. The tax benefits of $1,695,000 consist of
$916,000 related to the required re-measurement of deferred tax assets and liabilities, based on the rates at
which they are expected to reverse in the future and $779,000 related to the reversal of valuation allowance
and refunding of AMT credit carryforwards.
As of December 31, 2017, we had net deferred tax assets of approximately $10,259,000 (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, 2017, we concluded that it was more likely than not that $10,259,000 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. Our 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 prime contractor or indirectly for others 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 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
$36,654,000 or 73.6% of our total revenue during 2017, as compared to $27,354,000 or 53.4% of our total
revenue during 2016.
Revenue generated by one of the customers (PSC Metal, Inc.) (non-government related and excluded from
above) in the Services Segment accounted for approximately $9,763,000 or 19.1% of the total revenues
generated for the twelve months ended December 31, 2016. Project work for this customer commenced in
March 2016 and was completed in December 2016.
29
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.
Environmental Contingencies
We are engaged in the waste management services segment of the pollution control industry. As a
participant in the on-site treatment, storage and disposal market and the off-site treatment and services
market, we are subject to rigorous federal, state and local regulations. These regulations mandate strict
compliance and therefore are a cost and concern to us. Because of their integral role in providing quality
environmental services, we make every reasonable attempt to maintain complete compliance with these
regulations; however, even with a diligent commitment, we, along with many of our competitors, may be
required to pay fines for violations or investigate and potentially remediate our waste management facilities.
We routinely use third party disposal companies, who ultimately destroy or secure landfill residual materials
generated at our facilities or at a client's site. In the past, numerous third party disposal sites have
improperly managed waste and consequently require remedial action; consequently, any party utilizing
these sites may be liable for some or all of the remedial costs. Despite our aggressive compliance and
auditing procedures for disposal of wastes, we could further be notified, in the future, that we are a
potentially responsible party (“PRP”) at a remedial action site, which could have a material adverse effect.
We have three remediation projects, which are currently in progress 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
removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water.
The remediation activities are closely reviewed and monitored by the applicable state regulators. While no
assurances can be made that we will be able to do so, we expect to fund the expenses to remediate these
sites from funds generated internally.
remediation projects principally entail
the divestiture of PFD. These
At December 31, 2017, we had total accrued environmental remediation liabilities of $871,000, of which
$632,000 are recorded as a current liability, a decrease of $54,000 from the December 31, 2016 balance of
$925,000. The net decrease of $54,000 represents payments on remediation projects at PFSG and PFD
totaling approximately of $79,000 and an increase to the reserve of approximately $25,000 at PFD due to
reassessment of the remediation reserve.
Related Party Transactions
David Centofanti
David Centofanti serves as our Vice President of Information Systems. For such position, he received
annual compensation of $168,000 for each of the years 2017 and 2016. David Centofanti is the son of Dr.
Louis Centofanti, our EVP of Strategic Initiatives and a Board member. Dr. Louis Centofanti previously
held the position of President and CEO until September 8, 2017. We believe the compensation received by
David Centofanti for his technical expertise which he provides to us is competitive and comparable to
compensation we would have to pay to an unaffiliated third party with the same technical expertise.
Robert L. Ferguson
Robert L. Ferguson serves as an advisor to our Board and is also a member of the Supervisory Board of PF
Medical, our majority-owned Polish subsidiary. Robert Ferguson previously served as our Board member
from June 2007 to February 2010 and again from August 2011 to September 2012. We previously
completed a lending transaction with Robert Ferguson and William Lampson in August 2013 (collectively,
the “Lenders”) whereby we borrowed from the Lenders $3,000,000 which was paid in full by us in August
2016. Robert Ferguson is also a consultant to us in connection with our Test Bed Initiative (“TBI”) at our
PFNWR facility. As an advisor to our Board, Robert Ferguson is paid $4,000 monthly plus reasonable
expenses. For such services, Robert Ferguson received compensation of approximately $51,000 and
$59,000 for the years ended December 31, 2017 and 2016, respectively. For Robert Ferguson’s consulting
work in connection with the Company’s TBI, on July 27, 2017 (“grant date”), we granted Robert Ferguson
a stock option from the Company’s 2017 Plan for the purchase of up to 100,000 shares of the Company’s
30
Common Stock at an exercise price of $3.65 a share, which was the fair market value of our Common Stock
on the date of grant (“Ferguson Stock Option”). The vesting of the Ferguson Stock Option is subject to the
achievement of the following milestones (“waste” as noted below is defined as liquid LAW (“low activity
waste”) and/or liquid TRU (“transuranic waste”)):
• Upon treatment and disposal of three gallons of waste at the PFNWR facility by January 27, 2018,
10,000 shares of the Ferguson Stock Option shall become exercisable;
• Upon treatment and disposal of 2,000 gallons of waste at the PFNWR facility by January 27, 2019,
30,000 shares of the Ferguson Stock Option shall become exercisable; and
• Upon treatment and disposal of 50,000 gallons of waste at the PFNWR facility and assistance, on
terms satisfactory to us, in preparing certain justifications of cost and pricing data for the waste and
obtaining a long-term commercial contract relating to the treatment, storage and disposal of waste
by January 27, 2021, 60,000 shares of the Ferguson Stock Option shall become exercisable.
The term of the Ferguson Stock Option is seven (7) years from the grant date. Each of the milestones is
exclusive of each other; therefore, achievement of any of the milestones above by Robert Ferguson by the
designated date will provide Robert Ferguson the right to exercise the number of options in accordance with
the milestone attained. The 10,000 options as noted above become vested by Robert Ferguson on December
19, 2017. The fair value of the 10,000 options was determined to be approximately $20,000.
John Climaco
John Climaco, who had been a Board member since October 2013, did not stand for reelection at the
Company’s 2017 Annual Meeting of Stockholders held on July 27, 2017. In addition to his previous service
as a Board member, John Climaco also served as EVP of PF Medical, a majority-owned Polish subsidiary
of the Company, from June 2, 2015 to June 30, 2017. As EVP of PF Medical, John Climaco received an
annual salary of $150,000 and was not eligible to receive compensation for serving on the Company’s
Board. PF Medical had entered into a multi-year supplier agreement and stock subscription agreement in
July 2015 with Digirad Corporation, where John Climaco serves as a board member.
Employment Agreements
We entered into employment agreements with each of Mark Duff (President and CEO), Ben Naccarato
(Chief Financial Officer (“CFO”)), and Dr. Louis Centofanti, (EVP of Strategic Initiatives), with each
employment dated September 8, 2017. Each of the employment agreements is effective for three years from
September 8, 2017 (the “Initial Term”) unless earlier terminated by us or by the executive officer. At the
end of the Initial Term of each employment agreement, each employment agreement will automatically be
extended for one additional year, unless at least six months prior to the expiration of the Initial Term, we or
the executive officer provides written notice not to extend the terms of the employment agreement. Each
employment agreement provides for annual base salaries, performance bonuses (as provided in the
Management Incentive Plan (“MIP”) as approved by our Board, and other benefits commonly found in such
agreements. In addition, each employment agreement provides that in the event the executive officer
terminates his employment for “good reason” (as defined in the agreements) or is terminated by us without
cause (including the executive officer terminating his employment for “good reason” or is terminated by us
without cause within 24 months after a Change in Control (as defined in the agreement)), we will pay the
executive officer the following: (a) a sum equal to any unpaid base salary; (b) accrued unused vacation time
and any employee benefits accrued as of termination but not yet been paid (“Accrued Amounts”); (c) two
years of full base salary; (d) performance compensation under the MIP earned with respect to the fiscal year
immediately preceding the date of termination; and (e) an additional year of performance compensation as
provided under the MIP earned, if not already paid, with respect to the fiscal year immediately preceding the
date of termination. If the executive terminates his employment for a reason other than for good reason, we
will pay to the executive the amount equal to the Accrued Amounts plus any performance compensation
payable pursuant to the MIP.
If there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase
common stock held by the executive officer will immediately become exercisable in full commencing on
31
the date of termination through the original term of the options. In the event of the death of an executive
officer, all outstanding stock options to purchase common stock held by the executive officer will
immediately become exercisable in full commencing on the date of death, with such options exercisable for
the lesser of the original option term or twelve months from the date of the executive officer’s death. In the
event of an executive officer terminating his employment for “good reason” or is terminated by us without
cause, all outstanding stock options to purchase common stock held by the executive officer will
immediately become exercisable in full commencing on the date of termination, with such options
exercisable for the lesser of the original option term or within 60 days from the date of the executive’s date
of termination.
We had previously entered into an employment agreement with each of Dr. Louis Centofanti and Ben
Naccarato on July 10, 2014 which both employment agreements are due to expire on July 10, 2018, as
amended (the “July 10, 2014 Employment Agreements”). We also had previously entered into an
employment agreement dated January 19, 2017 (which was effective June 11, 2016) with Mark Duff which
is due to expire on June 11, 2019 (the “January 19, 2017 Employment Agreement”). The July 10, 2014
Employment Agreements and the January 19, 2017 Employment Agreement were terminated effective
September 8, 2017.
MIPs
On January 19, 2017, our Board and the Compensation and Stock Option Committee (the “Compensation
Committee”) approved individual MIP for each Mark Duff, Ben Naccarato, and Dr. Louis Centofanti. Each
of the MIPs is effective January 1, 2017 and applicable for year the year ended December 31, 2017. Each
MIP provides guidelines for the calculation of annual cash incentive based compensation, subject to
Compensation Committee oversight and modification. Each MIP awards cash compensation based on
achievement of performance thresholds, with the amount of such compensation established as a percentage
of the executive’s 2017 annual base salary on the approval date of the MIP. The potential target performance
compensation ranges approved was from 5% to 100% ($13,962 to $279,248) of the base salary for Dr. Louis
Centofanti, EVP of Strategic Initiatives effective September 8, 2017 and previously the CEO and President;
5% to 100% ($13,350 to $267,000) of the base salary for Mark Duff, CEO and President effective
September 8, 2017 and previously the EVP/COO; and 5% to 100% ($11,033 to $220,667) of the base salary
for Ben Naccarato, CFO. Pursuant to the MIPs, the Compensation Committee had the right to modify,
change or terminate the MIPs at any time and for any reason. No performance compensation was earned or
payable under each of the 2017 MIPs as discussed above.
On January 18, 2018, the Board and Compensation Committee approved individual MIP for each Mark
Duff, CEO and President, Ben Naccarato, CFO, and Dr. Louis Centofanti, EVP of Strategic Initiatives. The
MIPs are effective January 1, 2018 and applicable for year ended December 31, 2018. Each MIP provides
guidelines for the calculation of annual cash incentive based compensation, subject to Compensation
Committee oversight and modification. Each MIP awards cash compensation based on achievement of
performance thresholds, with the amount of such compensation established as a percentage of the
executive’s 2018 annual base salary on the approval date of the MIP. The potential target performance
compensation ranges from 5% to 100% ($13,350 to $267,000) of the base salary for the CEO and President;
5% to 100% ($11,475 to $229,494) of the base salary for the CFO; and 5% to 100% ($11,170 to $223,400)
of the base salary for the EVP of Strategic Initiatives. Pursuant to the MIPs, the Compensation Committee
has the right to modify, change or terminate the MIPs at any time and for any reason.
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
32
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;
• continue to focus on expansion into both commercial and international markets to increase revenues;
• reductions in the level of government funding in future years;
• R&D activity of our Medical Segment;
• reducing operating costs;
• expect to meet our quarterly financial covenant requirements in the next twelve months;
• cash flow requirements;
• government funding for our services;
• 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 operations;
• manner in which the government will be required to spend funding to remediate federal sites;
• audit by the Internal Revenue Services of our net operating losses;
• funding operations;
• fund capital expenditures from cash from operations and/or financing;
• fund remediation expenditures for sites from funds generated internally;
• compliance with environmental regulations;
• future environmental policies affecting operations;
• potential effect of being a PRP;
• subject to fines and civil penalties in connection with violations of regulatory requirements;
• large business are more willing to team with small businesses;
• permit and license requirements represent a potential barrier to entry for possible competitors;
• process backlog during periods of low waste receipts, which historically has been in the first and fourth
quarters;
• potential sites for violations of environmental laws and remediation of our facilities;
• partial release of finite risk sinking funds by AIG in 2018 as result of M&EC closure;
• closure of M&EC and elimination of certain fixed costs;
• effect of new Tax Act;
• continuation of contracts;
• loss of contracts;
• necessary capital for Medical Segment;
• continuation of a large nuclear services project until approximately June 2018;
• reduction in certain operating costs resulting from pending shut down of M&EC facility; and
• disposal of our waste.
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;
inability 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;
33
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
public not accepting our new technology;
inability to develop new and existing technologies in the conduct of operations;
inability to maintain and obtain closure and operating insurance requirements;
inability to retain or renew certain required permits;
discovery of additional contamination or expanded contamination at any of the sites or facilities
leased or owned by us or our subsidiaries which would result in a material increase in remediation
expenditures;
delays at our third party disposal site can extend collection of our receivables greater than twelve
months;
refusal of third party disposal sites to accept our waste;
changes in federal, state and local laws and regulations, especially environmental laws and
regulations, or in interpretation of such;
requirements to obtain permits for TSD activities or licensing requirements to handle low level
radioactive materials are limited or lessened;
potential increases in equipment, maintenance, operating or labor costs;
management retention and development;
financial valuation of intangible assets is substantially more/less than expected;
the requirement to use internally generated funds for purposes not presently anticipated;
inability to continue to be profitable on an annualized basis;
inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
terminations of contracts with 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.
34
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, 2017 and 2016
Consolidated Statements of Operations for the years ended
December 31, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the
years ended December 31, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended
December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the years
ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
Page No.
36
37
39
40
41
42
43
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.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Stockholders
Perma-Fix Environmental Services Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc. (a
Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related
consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of
the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
/s/GRANT THORNTON LLP
We have served as the Company’s auditor since 2014.
Atlanta, Georgia
March 16, 2018
36
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Amounts in Thousands, Except for Share and Per Share Amounts)
2017
2016
ASSETS
Current assets:
Cash
Accounts receivable, net of allowance for doubtful
accounts of $720 and $272, 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
Accounts receivable - non-current
Unbilled receivables - non-current
Finite risk sinking fund
Other assets
Other assets related to discontinued operations
Total assets
$
1,063
$
163
7,940
4,547
393
3,281
89
17,313
23,806
33,182
393
11,549
1,670
653
71,253
(56,383)
14,870
81
8,705
2,926
370
2,358
85
14,607
22,544
33,454
409
11,626
1,738
667
70,438
(53,323)
17,115
81
8,419
1,487
184
15,676
1,313
195
59,538
$
8,474
1,721
212
216
21,487
1,154
268
65,335
$
The accompanying notes are an integral part of these consolidated financial statements.
37
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
As of December 31,
(Amounts in Thousands, Except for Share and per Share Amounts)
2017
2016
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Disposal/transportation accrual
Deferred revenue
Accrued closure costs - current
Current portion of long-term debt
Current liabilities related to discontinued operations
Total current liabilities
Accrued closure costs
Other long-term liabilities
Deferred tax liabilities
Long-term debt, less current portion
Long-term liabilities related to discontinued operations
Total long-term liabilities
Total liabilities
Commitments and Contingencies (Note 13)
$
3,537
4,782
2,071
4,311
2,791
1,184
905
19,581
$
4,244
4,094
1,390
2,691
2,177
1,184
958
16,738
5,604
1,191
1,694
2,663
359
11,511
31,092
5,138
931
2,362
7,649
361
16,441
33,179
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 $995
and $931, respectively (Note 7)
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;
11,738,623 and 11,677,025 shares issued, respectively;
11,730,981 and 11,669,383 shares outstanding, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Less Common Stock in treasury, at cost; 7,642 shares
Total Perma-Fix Environmental Services, Inc. stockholders' equity
Non-controlling interest
Total stockholders' equity
1,285
1,285
12
106,417
(77,893)
(112)
(88)
28,336
(1,175)
27,161
11
106,048
(74,213)
(162)
(88)
31,596
(725)
30,871
Total liabilities and stockholders' equity
$
59,538
$
65,335
The accompanying notes are an integral part of these consolidated financial statements.
38
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(Amounts in Thousands, Except for Per Share Amounts)
2017
2016
Net revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development
(Gain) loss on disposal of property and equipment
Impairment loss on tangible assets
Impairment loss on intangible assets
Loss from operations
Other income (expense):
Interest income
Interest expense
Interest expense-financing fees
Other
Loss from continuing operations before taxes
Income tax benefit
Loss from continuing operations, net of taxes
Loss from discontinued operations, net of taxes of $0
Net loss
Net loss attributable to non-controlling interest
Net loss attributable to Perma-Fix Environmental
Services, Inc. common stockholders
Net loss per common share attributable to Perma-Fix
Environmental Services, Inc. stockholders - basic and diluted:
Continuing operations
Discontinued operations
Net loss per common share
Number of common shares used in computing
net loss per share:
Basic
Diluted
$
$
49,769
41,149
8,620
11,101
1,595
(12)
672
(4,736)
140
(315)
(35)
123
(4,823)
(1,285)
(3,538)
(592)
(4,130)
(450)
51,219
44,135
7,084
10,724
2,046
2
1,816
8,288
(15,792)
110
(489)
(108)
22
(16,257)
(2,994)
(13,263)
(730)
(13,993)
(588)
$
$
$
(3,680)
$
(13,405)
(.26) $
(.05)
(.31) $
(1.09)
(.06)
(1.15)
11,706
11,706
11,608
11,608
The accompanying notes are an integral part of these consolidated financial statements.
39
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31,
(Amounts in Thousands)
2017
2016
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustments
Total other comprehensive income (loss)
Comprehensive loss
Comprehensive loss attributable to non-controlling
interest
Comprehensive loss attributable to Perma-Fix
Environmental Services, Inc. common stockholders
$
(4,130)
$
(13,993)
50
50
(45)
(45)
(4,080)
(14,038)
(450)
(588)
$
(3,630)
$
(13,450)
The accompanying notes are an integral part of these consolidated financial statements.
40
Balance at December 31, 2015
11,551,232 $
$
105,556
$
(88)
$
(117)
$
PERMA-FIX ENVIRONMENTAL SERVICES, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31,
(Amounts in Thousands, Except for Share Amounts)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Common
Stock Held
In Treasury
Accumulated Other
Comprehensive
Loss
Non-controlling
Interest in
Subsidiary
Accumulated
Deficit
Total
Stockholders'
Equity
70,000
55,793
11,677,025 $
11
11
$
$
61,598
11,738,623 $
1
12
156
238
98
106,048
$
$
$
225
144
106,417
$
$
(88)
$
$
(88)
$
(45)
(162)
$
$
50
(137)
$
(588)
(60,808)
$
(13,405)
(725)
$
(450)
$
(74,213)
(3,680)
$
$
(112)
$
(1,175)
$
(77,893)
$
44,417
(13,993)
(45)
156
238
98
30,871
(4,130)
50
226
144
27,161
Net loss
Foreign currency translation
Issuance of Common Stock upon
exercise of Warrants
Issuance of Common Stock for
services
Stock-Based Compensation
Balance at December 31, 2016
Net loss
Foreign currency translation
Issuance of Common Stock for
services
Stock-Based Compensation
Balance at December 31, 2017
The accompanying notes are an integral part of these consolidated financial statements.
41
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(Amounts in Thousands)
Cash flows from operating activities:
Net loss
Less: loss on discontinued operations, net of taxes of $0 (Note 8)
Loss from continuing operations
Adjustments to reconcile net loss from continuing operations to cash provided by operating activities:
Depreciation and amortization
Amortization of debt issuance/discount costs
Deferred tax benefit
Provision for (recovery of) bad debt reserves
(Gain ) loss on disposal of property and equipment
Impairment loss on tangible assets
Impairment loss on intangible assets
Issuance of common stock for services
Stock-based compensation
Changes in operating assets and liabilities of continuing operations:
Restricted cash
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 provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from /(payment to) finite risk sinking fund
Cash provided by (used in) investing activities of continuing operations
Cash provided by investing activities of discontinued operations
Cash provided by (used in) investing activities
Cash flows from financing activities:
Borrowing on revolving credit
Repayments of revolving credit borrowings
Principal repayments of long term debt
Principal repayments of long term debt - related party
Payment of debt issuance costs
Proceeds from issuance of common stock upon exercise of warrants
Release of proceeds for stock subscription for Perma-Fix Medical S.A. previously held in escrow
Cash used in financing activities of continuing operations
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosure:
Interest paid
Income taxes paid
Non-cash investing and financing activities:
Equipment purchase subject to capital lease
2017
2016
$
(4,130)
(592)
$
(13,993)
(730)
(3,538)
(13,263)
3,803
36
(668)
462
(12)
672
──
225
144
──
515
(1,589)
(54)
1,093
1,089
(647)
442
(439)
30
5,811
5,402
69
5,471
45,163
(48,966)
(1,219)
──
──
──
──
(5,022)
4,165
173
(3,062)
(314)
2
1,816
8,288
238
98
35
1,070
2,134
2,870
(3,187)
1,063
(959)
104
(436)
44
(107)
(499)
84
(415)
57,976
(56,522)
(1,508)
(1,000)
(122)
156
64
(956)
9
(5)
900
163
1,063
$
(1,272)
1,435
163
$
$
318
58
$
424
41
196
──
The accompanying notes are an integral part of these consolidated financial statements.
42
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
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 three uniquely licensed and permitted treatment and storage facilities; and
research and development (“R&D”) activities to identify, develop and implement innovative waste
processing techniques for problematic waste streams.
SERVICES SEGMENT, which includes:
- Technical services, which include:
o professional radiological measurement and site survey of large government and commercial
o
installations using advanced methods, technology and engineering;
integrated Occupational Safety and Health services including industrial hygiene (“IH”)
assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos
management/abatement oversight; indoor air quality evaluations; health risk and exposure
assessments; health & safety plan/program development, compliance auditing and training
services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
o global technical services providing consulting, engineering, project management, waste
management, environmental, and decontamination and decommissioning field, technical,
and management personnel and services to commercial and government customers; and
o on-site waste management services to commercial and governmental 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; logistics; transportation; and emergency response; and
- A company owned equipment calibration and maintenance laboratory that services, maintains,
calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and
occupational safety and health (“NEOSH”) instrumentation.
MEDICAL SEGMENT, which includes: R&D of the Company’s medical isotope production technology
by our majority-owned Polish subsidiary, Perma-Fix Medical S.A. and its wholly-owned subsidiary Perma-
Fix Medical Corporation (“PFM Corporation”) (together known as “PF Medical” or the Medical Segment).
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 (see “Financial Position and Liquidity” below for further discussion of
Medical Segment’s significant curtailment of its R&D activities during the latter part of 2016).
The Company’s continuing operations consist of Diversified Scientific Services, Inc. (“DSSI”), Perma-Fix
of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), East Tennessee Materials &
Energy Corporation (“M&EC”) (see “Note 3 – M&EC Facility” regarding the pending closure of this
facility by June 30, 2018), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK
43
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, previously closed locations, and our Perma-Fix
of South Georgia, Inc. (“PFSG”) facility which is non-operational and is in closure status.
Financial Position and Liquidity
The Company’s cash flow requirements during 2017 were primarily financed by our operations, credit
facility availability, and the restricted finite risk sinking funds that were released back to us in May 2017
from the cancellation of a previous financial assurance policy issued by American International Group
(“AIG”) for our PFNWR subsidiary (see “Note 13 – Commitments and Contingencies - Insurance” for
further information of the finite sinking funds and the replacement closure mechanism acquired for the
PFNWR subsidiary).
The Company’s cash flow requirements for 2018 and into the first quarter of 2019 will consist primarily of
general working capital needs, scheduled principal payments on our debt obligations, remediation projects,
planned capital expenditures and closure spending requirements in connection with the closure of our
M&EC facility (“M&EC closure”) (see “Note 3 – M&EC facility” for further discussion of the pending
M&EC closure) which we plan to fund from operations and our credit facility availability. The Company
continues to explore all sources of increasing revenue. The Company is continually reviewing operating
costs and is committed to further reducing operating costs to bring them in line with revenue levels, when
necessary.
As previously disclosed, during the latter part of 2016, the Company’s Medical Segment reduced its R&D
activities substantially due to the need for capital to fund such activities. The Company anticipates that the
Medical Segment will not resume full R&D activities until the necessary capital is obtained through its own
credit facility or additional equity raise. Our Medical Segment continues to seek various sources in order to
raise this funding. If the Medical Segment is unable to raise the necessary capital, the Medical Segment
could be required to further reduce, delay or eliminate its R&D program.
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.
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.
Cash
At December 31, 2017, the Company had cash on hand of approximately $1,063,000, which included
account balances for our foreign subsidiaries totaling approximately $305,000. At December 31, 2016, the
Company had cash on hand of approximately $163,000, which included account balances for our foreign
subsidiaries totaling approximately $157,000.
44
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms requiring payment within 30 or
60 days from the invoice date based on the customer type (government, broker, or commercial). The
carrying amount of accounts receivable is reduced by an allowance for doubtful accounts, which is a
valuation allowance that reflects management's best estimate of the amounts that will not be collected. The
Company regularly reviews all accounts receivable balances that exceed 60 days from the invoice date and
based on an assessment of current credit worthiness, estimates the portion, if any, of the balance that will
not be collected. This analysis excludes government related receivables due to our past successful
experience in their collectability. Specific accounts that are deemed to be uncollectible are reserved at 100%
of their outstanding balance. The remaining balances aged over 60 days have a percentage applied by aging
category, based on historical experience that allows us to calculate the total allowance required. Once the
Company has exhausted all options in the collection of a delinquent accounts receivable balance, which
includes collection letters, demands for payment, collection agencies and attorneys, the account is deemed
uncollectible and subsequently written off. The write off process involves approvals from senior
management based on required approval thresholds.
The following table set forth the activity in the allowance for doubtful accounts for the years ended
December 31, 2017 and 2016 (in thousands):
Allowance for doubtful accounts - beginning of year
Provision for (recovery of) bad debt reserve
Write-off
Allowance for doubtful accounts - end of year
$
$
Year Ended December 31,
2017
2016
272
462
(14)
720
$
$
1,474
(314)
(888)
272
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, the Company recognizes the corresponding
percentage of revenue. Within our Treatment Segment, the facilities experience delays in processing
invoices due to the complexity of the documentation that is required for invoicing, as well as the difference
between completion of revenue recognition milestones and agreed upon invoicing terms, which results in
unbilled receivables. The timing differences occur for several reasons: partially from delays in the final
processing of all wastes associated with certain work orders and partially from delays for analytical testing
that is required after the facilities 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 the Company now has historical
data to review the timing of these delays, the Company realizes 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. The Company, therefore, segregates 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, the
Company has 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.
45
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 Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment”,
long-lived assets, such as property, plant and equipment, 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
are presented separately in the appropriate asset and liability sections of the balance sheet. See “Note 3 –
M&EC Facility” for impairment charges incurred on tangible assets resulting from the pending closure of
the M&EC facility.
Our depreciation expense totaled approximately $3,429,000 and $3,717,000 in 2017 and 2016, 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
fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its
fair value. Significant judgments are inherent in these analyses and include assumptions for, among other
factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash
flows, and the determination of appropriate long term discount rates.
Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2017 resulted in
no impairment charges for the year ended December 31, 2017. In 2016, the Company fully impaired the
permit value of our M&EC subsidiary resulting from the pending closure of the facility (see “Note 3 –
M&EC Facility” for further information of this impairment). The Company performed impairment testing
of its remaining permits related to the Treatment reporting unit as of October 1, 2016 and determined there
was no further 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. Definite-lived intangible assets are also tested for impairment whenever events or changes in
circumstances suggest impairment might exist.
R&D
Operational innovation and technical know-how is very important to the success of our business. Our goal
46
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 $1,141,000 and $1,489,000 for the years ended
December 31, 2017 and 2016, 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 flows. 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 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.
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
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.
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.
47
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 $36,654,400 or 73.6% of total revenue during 2017, as compared to $27,354,000 or 53.4% of
total revenue during 2016.
Revenue generated by one of the customers (PSC Metal, Inc.) (non-government related and excluded from
above) in the Services Segment accounted for approximately $9,763,000 or 19.1% of the total revenues
generated for the twelve months ended December 31, 2016. Project work for this customer commenced in
March 2016 and was completed in December 2016.
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 accounts receivable. The Company maintains cash 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.
The Company had two government related customers whose net outstanding receivable balance represented
17.9% and 16.8% of the Company’s total consolidated net accounts receivable at December 31, 2017. The
Company had two customers whose net outstanding receivable balance represented 10.1% (government
related account) and 20.8% (non-government related account) of the Company’s total consolidated net
accounts receivable at December 31, 2016.
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 basis 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
48
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 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 fixed price, time and material, 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.
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 grant of options, to be
recognized in the Statement of Operations based on their fair values. The Company accounts for stock-
based compensation issued to consultants in accordance with the provisions of ASC 505-50, “Equity-Based
Payments to Non-Employees.” Measurement of stock-based payment transactions with consultants,
including options, is based on the fair value of whichever is more reliably measurable: (a) the goods or
services received; or (b) the equity instrument issued. The measurement date for the fair value of the stock-
based payment transaction is determined at the earlier of performance commitment date or performance
completion date. 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-based awards include the exercise price of the award, the expected term, the expected volatility of our
stock over the stock-based award’s expected term, the risk-free interest rate over the award’s expected term,
and the expected annual dividend yield. The Company accounts for forfeitures when they occur.
Comprehensive Income (Loss)
The components of comprehensive income (loss) are net income (loss) and the effects of foreign currency
translation adjustments.
49
Income (Loss) Per Share
Basic income (loss) per share is calculated based on the weighted-average number of outstanding common
shares during the applicable period. Diluted income (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. Income (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.
Financial instruments include 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, 2017 and December 31, 2016, the fair value of the
Company’s financial instruments approximated their carrying values. The fair value of the Company’s
revolving credit and term loan approximate its carrying value due to the variable interest rate.
Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accountings Standards
Update (“ASU”) No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments –
Equity Method and Joint Ventures (Topic 232) – Amendments to SEC Paragraphs Pursuant to staff
Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” This amendment
states that registrants should consider additional qualitative disclosures if the impact of an issued but not yet
adopted ASU is unknown or cannot be reasonably estimated and to include a description of the effect of the
accounting policies that the registrant expects to apply, if determined. Transition guidance included in
certain issued but not yet adopted ASUs were also updated to reflect this update. This update is effective
immediately. The adoption of ASU 2017-03 by the Company in the first quarter of 2017 did not have a
material impact on the Company’s financial position, results of operations and cash flows. The Company
will revise its disclosures for the standards not yet adopted as required by ASU 2017-03 as the Company
progresses through its impact assessments.
Recently Issued Accounting Standards – Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” followed by a
series of related accounting standard updates (collectively referred to as “Topic 606”), which will supersede
nearly all existing revenue recognition guidance. Topic 606 provides a single, comprehensive revenue
recognition model for all contracts with customers. Under the new standard, a five-step process is utilized in
order to determine revenue recognition, depicting the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. Topic
606 also requires additional disclosure surrounding the nature, amount, timing and uncertainty of revenue
and cash flows arising from customer contracts, including significant judgments and changes in judgments
and assets recognized from costs incurred to obtain or fulfill a contract. Topic 606 is effective for annual
reporting periods beginning after December 15, 2017 (including interim reporting periods within those
periods). The new standard permits two implementation approaches: the full retrospective method, in which
case the standard would be applied to each prior reporting period presented and the cumulative effect of
applying the standard would be recognized at the earliest period shown, or the modified retrospective
50
method, in which case the cumulative effect of applying the standard would be recognized at the date of
initial application. The Company has completed the evaluation of customer contracts and continues to
identify and implement appropriate changes to our business policies, processes, systems and controls to
support the adoption, recognition and disclosures under the new standard. The Company will adopt the new
revenue standard in the first quarter of 2018 applying the modified retrospective method. Based on our
evaluation, we do not believe that the adoption of ASU 2014-09 will result in a significant change in
accounting principles applied to the Company's financial position, results of operations or cash flows. We
believe that revenue will continue to be generally recognized consistent with our current revenue
recognition model. The potential future impacts would be limited to the capitalization of direct and
incremental contract acquisition costs, which have not historically been material. The Company will
continue to monitor the materiality of these contract acquisition costs on an ongoing basis to determine if
these costs become material and should be capitalized. In accordance with the new standard, the Company
will expand revenue recognition disclosures beginning in the first quarter of 2018 to address the new
qualitative and quantitative requirements.
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. This
ASU is effective January 1, 2019 for the Company. The Company is still evaluating the potential impact of
adopting this guidance on our financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)," which aims to
eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in
the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. Subsequently, in
November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230), Restricted Cash, a
consensus of the FASB Emerging Issues Task Force," which clarifies the guidance on the cash flow
classification and presentation of changes in restricted cash or restricted cash equivalents. Therefore,
amounts generally described as restricted cash or restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on
the statement of cash flow. ASU 2016-15 and ASU 2016-18 are effective for annual reporting periods, and
interim periods therein, beginning after December 15, 2017 and are effective January 1, 2018 for the
Company. The Company does not expect the adoption of these ASUs to have a material impact on the
Company’s financial position, results of operations, or cash flows.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of
Assets Other Than Inventory,” which eliminates the existing exception in U.S. GAAP prohibiting the
recognition of the income tax consequences for intra-entity asset transfers. Under ASU 2016-16, entities
will be required to recognize the income tax consequences of intra-entity asset transfers other than inventory
when the transfer occurs. ASU 2016-16 is effective on a modified retrospective basis for fiscal years, and
for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption
permitted. This ASU is effective January 1, 2018 for the Company. The Company does not expect the
adoption of this ASU to have a material impact on the Company’s financial position, results of operations,
or cash flows
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) – Clarifying the
Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or
disposals) of assets or businesses. The definition of a business affects many areas of accounting including
acquisition, disposals, goodwill and consolidation. This standard is effective for fiscal years beginning after
December 15, 2017, including interim periods within that reporting period and is effective for the Company
51
January 1, 2018. The Company does not expect the adoption of this ASU to have a material impact on the
Company’s financial position, results of operations, or cash flows.
In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of
Modification Accounting.” This ASU provides guidance about which changes to the terms or conditions of
a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-
09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal
years, and early adoption is permitted, including in an interim period. ASU 2017-09 is to be applied on a
prospective basis to an award modified on or after the adoption date. This ASU is effective January 1, 2018
for the Company. The Company does not expect the adoption of this ASU to have a material impact on the
Company’s financial position, results of operations, or cash flows.
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial
Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception.” Part I of this update addresses the complexity of
accounting for certain financial instruments with down round features. Down round features are features of
certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the
basis of the pricing of future equity offerings. When determining whether certain financial instruments
should be classified as liabilities or equity instruments, a down round feature no longer precludes equity
classification when assessing whether the instrument is indexed to an entity's own stock. Part II of this
update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of
the existence of extensive pending content in the FASB Accounting Standards Codification and does not
have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2018. Early adoption is permitted. This ASU is effective for the Company
January 1, 2019. The Company is currently assessing the impact that this standard will have on its financial
statements.
In February 2018, FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”.
This ASU allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act
between “Accumulated other comprehensive income” and “Retained earnings.” This ASU relates to the
requirement that adjustments to deferred tax liabilities and assets related to a change in tax laws or rates to
be included in “Income from continuing operations”, even in situations where the related items were
originally recognized in “Other comprehensive income” (rather than in “Income from continuing
operations”). ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be
applied either in the period of adoption or retrospectively to each period in which the effect of the change in
the tax laws or rates were recognized. The Company is currently assessing the impact that this standard will
have on its financial statements.
NOTE 3
M&EC FACILITY
During the second quarter of 2016, the Company’s M&EC subsidiary was notified by the lessor that the
lease agreement under which M&EC operates its Oak Ridge, Tennessee facility would not be renewed at the
end of the lease term ending January 21, 2018. In light of this event and our strategic review of operations
within our Treatment Segment, the Company instituted a plan to close its M&EC facility located in Oak
Ridge, Tennessee at the end of the lease term which has been extended to June 30, 2018. Operations at the
M&EC facility are limited during the remaining term of the lease and the facility continues to transition
waste shipments and operational capabilities to our other Treatment Segment facilities, subject to customer
requirements and regulatory approvals. Simultaneously, the Company continues with closure and
decommissioning activities in accordance with M&EC’s license and permit requirements. As a result of the
Company’s decision to close its M&EC facility, the Company’s financial results have been impacted by
52
certain non-cash impairment losses, write-offs and accruals as described below for years ended December
31, 2017 and 2016.
The Company performed a discounted cash flow analysis prepared at June 30, 2016 for M&EC’s intangible
assets (permits), utilizing our best estimates of projected future cash flows. Based on this analysis, the
Company concluded that impairment existed and subsequently determined that the permit for our M&EC
subsidiary was fully impaired resulting in an intangible impairment loss of approximately $8,288,000.
M&EC is required to complete certain clean-up/maintenance activities at its facility pursuant to its permit
requirements. The extent and cost of these activities are determined by federal/state mandate requirements.
The Company performed an analysis and related estimate of the cost to complete the closure activities in
accordance with its permit requirements during the second quarter of 2016 and based on this analysis, the
Company recorded an additional $1,626,000 in closure liabilities with a corresponding increase to
capitalized ARO costs, which were being depreciated over the remaining term of the lease. The capitalized
ARO costs were reported as a component of “Net Property and equipment” in the Consolidated Balance
Sheets.
In accordance with ASC 360, “Property, Plant, and Equipment,” the Company performed an updated
financial valuation of M&EC’s long-lived tangible assets during the second quarter of 2016, inclusive of the
capitalized ARO costs, for potential impairment. Based on our analysis using an undiscounted cash flows
approach, the Company concluded that the carrying value of certain tangible assets (property and
equipment) for M&EC was not recoverable and exceeded its fair value. Consequently, the Company
recorded $1,816,000 in tangible asset impairment loss in the second quarter of 2016. The Company also
reevaluated the estimated useful lives of the remaining tangible assets and as a result of this analysis,
reduced the current estimated useful lives of these assets ranging from 2 to 28 years at June 30, 2016 to 1.6
years, the remaining term of the lease. Accordingly, the Company was depreciating the carrying value of
M&EC’s remaining tangible assets of approximately $4,728,000 at June 30, 2016 over a period of
approximately 1.6 years, which was to the original lease expiration date of January 21, 2018.
In the second quarter of 2016, the Company also wrote-off approximately $587,000 in fees previously
incurred relating to emission performance testing certification requirement in order to meet state compliance
mandate in connection with certain M&EC equipment which was impaired. Such amount had been
previously included in “Prepaid and other assets” on the Consolidated Balance Sheets.
During the third quarter of 2017, the Company performed an updated financial valuation of M&EC’s
remaining long-lived tangible assets (inclusive of ARO costs) for further potential impairment. Based on
our analysis using an undiscounted cash flow approach, the Company concluded that the carrying value of
the remaining tangible assets for M&EC was not recoverable and exceeded its fair value. Consequently, the
Company fully impaired the remaining tangible assets at M&EC resulting in a tangible asset impairment
loss of $672,000. Additionally, during the third and fourth quarters of 2017, the Company recorded an
additional $550,000 and $850,000, respectively, in closure costs and current closure costs liabilities due to
change in estimated closure costs.
During the years ended December 31, 2017 and 2016, M&EC’s revenues were approximately $6,312,000
and $4,419,000, respectively.
NOTE 4
PERMIT AND OTHER INTANGIBLE ASSETS
The following table summarizes changes in the carrying amount of permits. No permit exists at our Services
and Medical Segments.
53
Permit (amount in thousands)
Balance as of December 31, 2015
PCB permit amortized (1)
Permit in progress
Permit impairment for M&EC subsidiary
Balance as of December 31, 2016
PCB permit amortized (1)
Balance as of December 31, 2017
Treatment
$
16,761
(55)
56
(8,288)
8,474
(55)
8,419
$
(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 $62,000 and $117,000 as of
December 31, 2017 and 2016, 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)
1-17
3
12
10
December 31, 2017
December 31, 2016
Gross
Carrying Accumulated
Amortization
Amount
Net
Carrying
Amount
Gross
Carrying Accumulated
Amortization
Amount
Net
Carrying
Amount
$
$
657
410
3,370
545
4,982
$
$
(306)
(398)
(2,246)
(483)
(3,433)
$
$
351
12
1,124
62
1,549
$
$
577
405
3,370
545
4,897
$
$
(274)
(383)
(1,974)
(428)
(3,059)
$
$
303
22
1,396
117
1,838
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:
Year
2018
2019
2020
2021
2022
Amount
(In thousands)
$
336
254
218
198
173
1,179
$
Amortization expense recorded for definite-lived intangible assets was approximately $374,000 and
$448,000, for the years ended December 31, 2017 and 2016, respectively.
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 the Company’s 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
54
election to the Board, and the grant of an option to purchase 2,400 shares of Common Stock upon each re-
election. At the Annual Meeting of Stockholders held on July 27, 2017 (“2017 Annual Meeting”), the
Company’s stockholders approved an amendment to the 2003 Plan which authorized the issuance of an
additional 300,000 shares of the Company’s Common Stock under the plan. After the approval of the
amendment, the number of shares of the Company’s Common Stock authorized under the 2003 Plan was
1,100,000. At December 31, 2017, the 2003 Plan had available for issuance approximately 391,215 shares.
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 authorized an aggregate grant of 200,000 Non-Qualified Stock Options (“NQSOs”) and Incentive
Stock Options (“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 is to be fixed by the
Compensation and Stock Option Committee (the “Compensation Committee”), but no stock option is
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 is not to 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 is not to be less than 110% of the fair market value at the time of grant. The exercise price
of any NQSOs granted under the plan is not to be less than the fair market value of the shares at the time of
grant. As discussed below, as the result of the approval of the 2017 Stock Option Plan (“2017 Plan”) at the
Company’s 2017 Annual Meeting, no further options remain available for issuance under the 2010 Plan
immediately upon the approval of the 2017 Plan; however, the 2010 Plan remains in full force and effect
with respect to the outstanding options issued and unexercised at the date of the approval of the 2017 Plan
which consisted of an option for the purchase of up to 10,000 shares of our common stock with expiration
date of July 10, 2020 and an option for the purchase of up to 50,000 shares of the Company’s Common
Stock with expiration date of May 15, 2022.
The Company adopted the 2017 Plan, which was approved by the Company’s stockholders at the
Company’s 2017 Annual Meeting. The 2017 Plan authorizes the grant of options to officers and employees
of the Company, including any employee who is also a member of the Board, as well as to consultants of
the Company. The 2017 Plan authorizes an aggregate grant of 540,000 NQSOs and ISOs, which includes a
rollover of 140,000 shares remaining available for issuance under the 2010 Plan as discussed above.
Consultants of the Company can only be granted NQSOs. The term of each stock option granted under the
2017 Plan shall be fixed by the Compensation Committee, but no stock options will be exercisable more
than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after the
grant date. The exercise price of any ISO granted under the 2017 Plan to an individual who is not a 10%
stockholder at the time of the grant shall 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 shall not be less than the fair market value of the shares at the time of grant.
Stock Options to Employees and Outside Director
On January 13, 2017, the Company granted 6,000 NQSOs from the Company’s 2003 Plan to a new director
elected by the Company’s Board to fill the vacancy left by Jack Lahav who retired from the Board in
October 2016. The options granted were for a contractual term of ten years with a vesting period of six
months. The exercise price of the NQSO was $3.79 per share, which was equal to our closing stock price
the day preceding the grant date, pursuant to the 2003 Plan.
On July 27, 2017, the Company granted 12,000 NQSOs from the Company’s 2003 Plan to five of the six re-
elected directors at the 2017 Annual Meeting. Dr. Louis F. Centofanti, who is a member of the Board, is not
eligible to receive options under the 2003 Plan since he is also an employee of the Company, pursuant to the
2003 Plan. The NQSOs granted to the five directors were for a contractual term of ten years with a vesting
period of six months. The exercise price of the NQSO was $3.55 per share, which was equal to our closing
stock price the day preceding the grant date, pursuant to the 2003 Plan.
55
On July 27, 2017, the Company granted ISOs from the 2017 Plan (following the approval of the 2017 Plan
as discussed above) to the named executive officers as follows: ISOs to exercise 50,000 shares to the Chief
Executive Officer (“CEO”) (Dr. Louis Centofanti); ISOs to exercise 100,000 shares to the Executive Vice
President (“EVP”)/Chief Operating Officer (“COO”) (Mark Duff); and ISOs to exercise 50,000 shares to the
Chief Financial Officer (“CFO”) (Ben Naccarato). Effective September 8, 2017, Mark Duff succeeded Dr.
Louis Centofanti as the CEO with Dr. Louis Centofanti serving as EVP of Strategic Initiatives and
continuing to serve as a member of the Board (see “Note 15 – Related Party Transaction for further detail of
this transition”). The share covered by each ISO granted has a contractual term of six years with one-fifth
yearly vesting over a five year period. The exercise price of each share covered by the ISO was $3.65 per
share, which was equal to the fair market value of the Company’s Common Stock on the date of grant. At
December 31, 2017, the 2017 Plan had an additional 130,000 shares of the Company’s Common Stock
available for the granting of additional options.
On October 19, 2017, the Company granted an aggregate of 110,000 ISOs from the 2017 Plan to certain
employees. The ISOs granted were for a contractual term of six years with one-fifth yearly vesting over a
five year period. The exercise price of the ISO was $3.60 per share, which was equal to the fair market
value of the Company’s common stock on the date of grant.
On May 15, 2016, the Company granted 50,000 ISOs from the Company’s 2010 Plan to Mark Duff. The
ISOs granted were for a contractual term of six years with one-third yearly vesting over a three year period.
The exercise price of the ISO was $3.97 per share, which was equal to the fair market value of the
Company’s Common Stock on the date of grant.
On July 28, 2016, the Company granted an aggregate of 12,000 NQSOs from the 2003 Plan to five of the
seven re-elected directors at our Annual Meeting of Stockholders held on July 28, 2016. Two of the
directors were not eligible to receive options under the 2003 Stock Plan as they were employees of the
Company or its subsidiaries. The NQSOs granted were for a contractual term of ten years with a vesting
period of six months. The exercise price of the NQSOs was $4.60 per share, which was equal to the
Company’s closing stock price the day preceding the grant date, pursuant to the 2003 Plan.
No employees or directors exercised options during 2017 and 2016.
The Company estimates the fair value of stock options using the Black-Scholes valuation model.
Assumptions used to estimate the fair value of stock options granted include the exercise price of the award,
the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-
free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of
the options granted during 2017 and 2016 and the related assumptions used in the Black-Scholes option
model used to value the options granted were as follows:
$
$
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)
October 19, 2017
1.75
1.98%
54.64%
None
5.0 years
Employee Stock Option Granted
July 27, 2017
1.88
May 15, 2016
2.00
$
1.98%
53.15%
None
6.0 years
1.27%
53.12%
None
6.0 years
July 27, 2017
2.48
Outside Director Stock Options Granted
January 13, 2017
2.63
$
$
July 28, 2016
3.00
2.32%
57.21%
None
2.40%
56.32%
None
1.52%
55.99%
None
10.0 years
10.0 years
10.0 years
56
(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 fiscal years 2017 and 2016.
Employee Stock Options
Director Stock Options
Total
$
$
Year Ended
2017
78,000
46,000
124,000
$
$
2016
53,000
45,000
98,000
At December 31, 2017, the Company has approximately $578,000 of total unrecognized compensation cost
related to unvested employee and director options, of which $151,000 is expected to be recognized in 2018,
$126,000 in 2019, $114,000 in 2020, $114,000 in 2021, with the remaining $73,000 in 2022.
Stock Options to Consultant
Robert Ferguson is a consultant to the Board and a consultant to the Company in connection with the
Company’s Test Bed Initiative (“TBI”) at its PFNWR facility (see “Note 15 – Related Party Transactions”
for further discussion). For Robert Ferguson’s consulting work with the Board, he has been receiving
monthly compensation of $4,000. For Robert Ferguson’s consulting work in connection with the
Company’s TBI, on July 27, 2017 (“grant date”), the Company granted Robert Ferguson a stock option
from the Company’s 2017 Plan for the purchase of up to 100,000 shares of the Company’s Common Stock
at an exercise price of $3.65 a share, which was the fair market value of the Company’s Common Stock on
the date of grant (“Ferguson Stock Option”). The vesting of the Ferguson Stock Option is subject to the
achievement of the following milestones (“waste” as noted below is defined as liquid LAW (“low activity
waste”) and/or liquid TRU (“transuranic waste”)):
• Upon treatment and disposal of three gallons of waste at the PFNWR facility by January 27, 2018,
10,000 shares of the Ferguson Stock Option shall become exercisable;
• Upon treatment and disposal of 2,000 gallons of waste at the PFNWR facility by January 27, 2019,
30,000 shares of the Ferguson Stock Option shall become exercisable; and
• Upon treatment and disposal of 50,000 gallons of waste at the PFNWR facility and assistance, on
terms satisfactory to the Company, in preparing certain justifications of cost and pricing data for the
waste and obtaining a long-term commercial contract relating to the treatment, storage and disposal
of waste by January 27, 2021, 60,000 shares of the Ferguson Stock Option shall become
exercisable.
The term of the Ferguson Stock Option is seven (7) years from the grant date. Each of the milestones is
exclusive of each other; therefore, achievement of any of the milestones above by Robert Ferguson by the
designated date will provide Robert Ferguson the right to exercise the number of options in accordance with
the milestone attained.
The Company has recorded approximately $20,000 in consulting expenses (included in selling, general and
administrative expenses (“SG&A”)) and additional paid-in capital in connection with this transaction which
amount was estimated to be the fair value of the 10,000 options on the performance completion date of
December 19, 2017 under the first milestone. The fair value of the 10,000 options was estimated using the
Black-Scholes valuation model with the following assumptions: 52.65% volatility, risk free interest rate of
2.30%, and an expected life of approximately 6.6 years and no dividends.
Summary of Stock Option Plans
The summary of the Company’s total plans as of December 31, 2017 and 2016, and changes during the
57
period then ended are presented as follows:
Options outstanding January 1, 2017
Granted
Exercised
Forfeited/expired
Options outstanding end of period (1)
Options exercisable at December 31, 2017(1)
Options vested and expected to be vested at December 31, 2017
Options outstanding January 1, 2016
Granted
Exercised
Forfeited/expired
Options outstanding end of period (2)
Options exercisable at December 31, 2016(2)
Options vested and expected to be vested at December 31, 2016
Weighted
Average
Remaining
Contractual
Term
(years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (3)
6.69
3.64
─
8.95
4.42
6.30
4.42
5.5
4.6
5.5
$
$
$
19,780
13,080
19,780
Weighted
Average
Remaining
Contractual
Term
(years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value (3)
7.65
4.09
─
8.14
6.69
7.61
6.78
4.3
3.7
4.3
$
$
$
20,940
20,940
20,940
Shares
247,200
428,000
─
(50,400)
624,800
179,467
624,800
Shares
218,200
62,000
─
(33,000)
247,200
181,867
239,750
$
$
$
$
(1) Options with exercise prices ranging from $2.79 to $13.35
(2) Options with exercise prices ranging from $2.79 to $14.75
(3) 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, 2017 and changes during the period
then ended are presented as follows:
Non-vested options January 1, 2017
Granted
Vested
Forfeited
Non-vested options at December 31, 2017
Shares
65,333
428,000
(48,000)
─
445,333
Weighted Average
Grant-Date
Fair Value
$
2.23
1.89
2.32
─
1.89
$
Common Stock Issued for Services
The Company issued a total of 61,598 and 55,793 shares of our Common Stock in 2017 and 2016,
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
$234,000 and $233,000 in compensation expense (included in SG&A) for the twelve months ended
December 31, 2017 and 2016, respectively, for the portion of director fees earned in the Company’s
Common Stock.
58
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.
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 of 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 the 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 Plan
terminates on May 2, 2018.
Warrants and Common Stock Issuance for Debt
As December 31, 2017, the Company has no Warrant outstanding. On August 2, 2016, the Company issued
an aggregate of 70,000 shares of the Company’s Common Stock resulting from the exercise of two
Warrants, at an exercise price of $2.23 per share, issued to two lenders in connection with a $3,000,000 loan
dated August 2, 2013 received by the Company (See Note 9 – “Long-Term Debt – Promissory Note” for
further information on the exercise of the Warrants and the loan).
Shares Reserved
At December 31, 2017, the Company has reserved approximately 624,800 shares of our Common Stock for
future issuance under all of the option arrangements.
NOTE 6
INCOME (LOSS) PER SHARE
The following table reconciles the income (loss) and average share amounts used to compute both basic and
diluted income (loss) per share:
59
(Amounts in Thousands, Except for Per Share Amounts)
Net loss attributable to Perma-Fix Environmental Services,
Inc., common stockholders:
Loss from continuing operations attributable to
Years Ended
December 31,
2017
2016
Perma-Fix Environmental Services, Inc. common stockholders
$
(3,088)
$
(12,675)
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
(592)
(730)
(3,680)
$
(13,405)
(.31) $
(1.15)
(.31) $
(1.15)
$
$
$
11,706
─
─
11,706
11,608
─
─
11,608
Potential shares excluded from above weighted average share
calculations due to their anti-dilutive effect include:
Stock options
595
150
NOTE 7
PREFERRED STOCK ISSUANCE AND CONVERSION
Series B Preferred Stock
The Series B Preferred Stock of the Company’s consolidated subsidiary, M&EC, 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 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
dividends are fully cumulative. M&EC has failed to pay dividends on its Series B Preferred Stock since the
Series B Preferred Stock was issued. Since the dividends on M&EC’s Series B Preferred Stock are
cumulative, M&EC has been accruing dividends for the Series B Preferred Stock issued July 2002, and have
accrued a total of approximately $995,000 of unpaid cumulative dividends since July 2002, of which
$64,000 was accrued in each of the years ended December 31, 2003 to 2017 and is included in other long
term liabilities in the accompanying Consolidated Balance Sheets.
NOTE 8
DISCONTINUED OPERATIONS
The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment:
(1) subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility,
which is currently in the process of undergoing closure, subject to regulatory approval of necessary plans
and permits.
The following table presents the major class of assets of discontinued operations at December 31, 2017 and
2016. The Company’s discontinued operations include a note receivable in the amount of approximately
$375,000 recorded in May 2016 resulting from the sale of property at our Perma-Fix of Michigan, Inc.
(“PFMI” – a closed location) subsidiary. This note requires 60 equal monthly installment payments by the
buyer of approximately $7,250 (which includes interest). At December 31, 2017, receivables related to this
transaction totaled approximately $268,000, of which approximately $73,000 is included in “Current assets
60
related to discontinued operations” and approximately $195,000 is included in “Other assets related to
discontinued operations” in the accompanying Consolidated Balance Sheets. No assets and liabilities were
held for sale at December 31, 2017 and 2016.
(Amounts in Thousands)
Current assets
Other assets
Total current assets
Long-term assets
Property, plant and equipment, net (1)
Other assets
Total long-term assets
Total assets
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
December 31,
2017
December 31,
2016
$
$
$
$
89
89
81
195
276
365
8
265
632
905
120
239
359
1,264
$
$
$
$
85
85
81
268
349
434
13
268
677
958
113
248
361
1,319
(1) net of accumulated depreciation of $10,000 for each period presented.
The Company incurred losses from discontinued operations of $592,000 and $730,000 for the years ended
December 31, 2017 and 2016 (net of taxes of $0 for each period), respectively. Losses for the periods
discussed above were primarily due to costs incurred in the administration and continued monitoring of our
discontinued operations.
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.
The remediation activities are closely reviewed and monitored by the applicable state regulators.
At December 31, 2017, we had total accrued environmental remediation liabilities of $871,000, of which
$632,000 are recorded as a current liability, a decrease of $54,000 from the December 31, 2016 balance of
$925,000. The net decrease of $54,000 represents payments on remediation projects at PFSG and PFD
totaling approximately of $79,000 and an increase to the reserve of approximately $25,000 at PFD due to
reassessment of the remediation reserve.
The current and long-term accrued environmental liability at December 31, 2017 is summarized as follows
(in thousands).
PFD
PFM
PFSG
Total liability
Current
Accrual
$ 25
607
$ 632
Long-term
Accrual
$ 60
15
164
$ 239
Total
$ 85
15
771
$ 871
61
NOTE 9
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2017 and December 31, 2016:
(Amounts in Thousands)
Revolving Credit facility dated October 31, 2011, as amended, borrowings based upon
eligible accounts receivable, subject to monthly borrowing base calculation, balance due
March 24, 2021. Effective interest rate for 2017 and 2016 was 4.1% and 3.9%,
respectively.(1) (2)
Term Loan dated October 31, 2011, as amended, payable in equal monthly installments of
principal of $102, balance due on March 24, 2021. Effective interest rate for 2017
and 2016 was 4.6% and 3.8%, respectively.(1) (2)
Total debt
Less current portion of long-term debt
Long-term debt
December 31,
2017
December 31,
2016
$
$
$ 3,803
3,847 (3)
5,030 (3)
3,847
1,184
2,663
$
8,833
1,184
7,649
(1) Our revolving credit facility is collateralized by our accounts receivable and our term loan is collateralized by our
property, plant, and equipment.
(2) See below “Revolving Credit and Term Loan Agreement” for monthly payment interest options. Prior to April 1,
2016, the monthly installment payment under the term loan was approximately $190,000.
(3) Net of debt issuance costs of ($115,000) and ($151,000) at December 31, 2017 and December 31, 2016,
respectively.
Revolving Credit and Term Loan Agreement
The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security
Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC National Association
(“PNC”), acting as agent and lender. The Amended Loan Agreement has been amended from time to time
since the execution of the Amended Loan Agreement. The Amended Loan Agreement, as subsequently
amended (“Revised Loan Agreement”), provides the Company with the following credit facility with a
maturity date of March 24, 2021: (a) up to $12,000,000 revolving credit (“revolving credit”) and (b) a term
loan (“term loan”) of approximately $6,100,000, which requires monthly installments of approximately
$101,600 (based on a seven-year amortization). The maximum that we can borrow under the revolving
credit is based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding
standby letters of credit and borrowing reductions that our lender may impose from time to time.
Under the Revised Loan Agreement, we have 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%.
Pursuant to the Revised Loan Agreement, the Company may terminate the Revised Loan Agreement, upon
90 days’ prior written notice upon payment in full of its obligations under the Revised Loan Agreement.
The Company agreed to pay PNC 1.0% of the total financing in the event the Company had paid off its
obligations on or before March 23, 2017, .50% of the total financing if the Company pays off its obligations
after March 23, 2017 but prior to or on March 23, 2018, and .25% of the total financing if the Company
pays off its obligations after March 23, 2018 but prior to or on March 23, 2019. No early termination fee
shall apply if the Company pays off its obligations after March 23, 2019.
At December 31, 2017, the borrowing availability under our revolving credit was approximately
$3,687,000, based on our eligible receivables and includes an indefinite reduction of borrowing availability
of $2,000,000 that the Company’s lender has imposed. The $2,000,000 in borrowing availability reduction
included a $750,000 additional reduction imposed by the Company’s lender upon the receipt by the
62
Company in May 2017 of $5,941,000 in finite risk funds in connection with the cancellation the closure
policy for the Company’s PFNWR subsidiary (see “Note 13 – Commitments and Contingencies –
Insurance” for further discussion of the closure policy). Our borrowing availability under our revolving
credit was also reduced by outstanding standby letters of credit totaling approximately $2,675,000.
In connection with one of the amendments that the Company entered into with PNC during 2016 extending
the maturity date of the credit facility, the Company recorded approximately $68,000 in loss on
extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishments,”
which was included in interest expense in the accompanying Consolidated Statements of Operations for
fiscal year 2016. Additionally, the Company paid its lenders closing fees totaling approximately $122,000
in connection with the amendments executed in 2016 which is being amortized over the remaining term of
the loan as interest expense-financing fees.
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 met all of its quarterly financial covenant requirements in 2017 and expects to meet these
financial covenant requirements in 2018 and into the first quarter of 2019.
Promissory Note
The Company entered into a $3,000,000 loan dated August 2, 2013 with Robert Ferguson and William
Lampson (each known as the “Lender”). As consideration for the Company receiving the loan, the
Company issued to each Lender a Warrant to purchase up to 35,000 shares of the Company’s Common
Stock at an exercise price of $2.23 per share. On August 2, 2016, each Lender exercised his Warrant for the
purchase of 35,000 shares of our Common Stock, resulting in total proceeds paid to the Company of
approximately $156,000. As further consideration for the loan, the Company had also issued to each Lender
45,000 shares of the Company’s Common Stock. The fair value of the Warrants and Common Stock and the
related closing fees incurred from this transaction were recorded as debt discount, which has been fully
amortized using the effective interest method over the term of the loan as interest expense – financing fees.
The loan was repaid in full by the Company in August 2016.
The following table details the amount of the maturities of long-term debt maturing in future years at
December 31, 2017 (net of debt issuance costs of $115,000).
Year ending December 31:
(In thousands)
2018 $
2019
2020
2021
$
1,184
1,184
1,184
295
3,847
Total
NOTE 10
ACCRUED EXPENSES
Accrued expenses include the following (in thousands) at December 31:
Salaries and employee benefits
Accrued sales, property and other tax
Interest payable
Insurance payable
Other
Total accrued expenses
63
$
$
2017
2,988
402
3
630
759
4,782
2016
2,695
265
6
675
453
4,094
$
$
Each of our executives has an individual Management Incentive Plan (“MIP”) for fiscal year 2017 and 2016
which provides for the potential payment of performance compensation (see “Note 15 – Related Party
Transactions – MIPs for further discussion of the MIPs). No performance compensation payments were
earned under any of the MIPs for years 2017 and 2016.
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, 2017 and 2016, were as follows:
Amounts in thousands
Balance as of December 31, 2015
Accretion expense
Payments
Adjustment to closure liability
Balance as of December 31, 2016
Accretion expense
Payments
Adjustment to closure liability
Balance as of December 31, 2017
$
$
5,301
374
(693)
2,333
7,315
460
(2,037)
2,657
8,395
As a result of the Company’s decision to close our M&EC subsidiary, the Company recorded an additional
$1,400,000 and $1,626,000 in closure liabilities in 2017 and 2016, respectively, due to changes in estimated
closure costs (see “Note 3 – M&EC Facility” for further information of these additional closure liabilities
recorded). The Company also recorded an additional $1,257,000 in closure liabilities in 2017 for its DSSI
subsidiary due to changes in estimated closure costs. Additionally, the Company increased the closure
liabilities for its PFNWR subsidiary in the amount of approximately $707,000 during 2016 resulting from a
change in estimated closure costs.
In 2017, the Company had spending of approximately $1,872,000 and $165,000 in closure related activities
for the M&EC and PFNWR subsidiaries, respectively. In 2016, the Company had spending of
approximately $283,000 and $410,000 in closure related activities for the M&EC and PFNWR subsidiaries,
respectively. The spending at our PFNWR facility for years 2017 and 2016 was made in connection with
the closure of certain processing unit/equipment.
At December 31, 2017, M&EC’s closure liabilities totaled approximately $2,791,000 with the entire amount
classified as current. At December 31, 2016, total accrued closure liabilities for our M&EC subsidiary
totaled approximately $3,058,000 of which $2,177,000 were recorded as current liabilities.
The reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the
Consolidated Balance Sheet at December 31, 2017 and 2016 with the following activity for the years ended
December 31, 2017 and 2016:
64
Amounts in thousands
Balance as of December 31, 2015
Amortization of closure and post-closure asset
Adjustment to closure and post-closure asset
Balance as of December 31, 2016
Amortization of closure and post-closure asset
Impairment of closure and post-closure asset
Adjustment to closure and post-closure asset
Balance as of December 31, 2017
$
$
2,575
(760)
2,333
4,148
(1,071)
(413)
1,257
3,921
The impairment of ARO for 2017 resulted from the impairment of M&EC’s remaining tangible assets
recorded in the third quarter of 2017 (See “Note 3 – M&EC Facility”). The adjustment made to ARO for
2017 was due to the increase in closure liabilities recorded for the DSSI subsidiary as discussed above. The
adjustments made to ARO for 2016 were due to the increases in closure liabilities recorded for the PFNWR
and M&EC subsidiaries as discussed above.
NOTE 12
INCOME TAXES
The components of current and deferred federal and state income tax (benefit) expense for continuing
operations for the years ended December 31, consisted of the following (in thousands):
Federal income tax (benefit) expense - current
Federal income tax benefit - deferred
State income tax expense - current
State income tax expense (benefit) - deferred
Total income tax (benefit) expense
2017
(780)
(778)
163
110
(1,285)
$
$
2016
9
(2,657)
59
(405)
(2,994)
$
$
An overall reconciliation between the expected tax benefit using the federal statutory rate of 34% and the
benefit for income taxes from continuing operations as reported in the accompanying Consolidated
Statement of Operations is provided below (in thousands).
Tax benefit at statutory rate
State tax benefit, net of federal benefit
Change in deferred tax rates
Impact of Tax Act
Permanent items
Difference in foreign rate
Change in deferred tax liabilities
Other
(Decrease) increase in valuation allowance
Income tax (benefit) expense
2017
(1,640)
(295)
1,711
(1,695)
104
170
881
(135)
(386)
(1,285)
$
$
$
$
2016
(5,527)
(785)
(82)
119
98
(260)
(241)
3,684
(2,994)
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making
significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal
corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the
transition of U.S international taxation from a worldwide tax system to a territorial system, the elimination
of alternative minimum tax (“AMT”) for corporations and a one-time transition tax on the mandatory
deemed repatriation of foreign earnings. As of December 31, 2017, the Company has estimated its provision
for income taxes in accordance with the Tax Act and guidance available resulting in the recognition of
65
approximately $1,695,000 of income tax benefit in the fourth quarter of 2017, the period in which the
legislation was enacted. The tax benefit of $1,695,000 consists of $916,000 related to the re-measurement of
deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future and
$779,000 related to the reversal of valuation allowance and refunding of AMT credit carryforwards.
While the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base
erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and
anti-abuse tax (“BEAT”) provisions.
The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary
earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has
elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any
deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31,
2017.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to
related foreign corporations, and imposes a minimum tax if greater than regular tax. The Company does not
expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its
consolidated financial statements for the year ended December 31, 2017.
The Tax Act imposes a one-time transition tax on previously untaxed earnings and profits of foreign
subsidiaries. As of December 31, 2017, the Company has current and accumulated deficits in earnings and
profits for all of its foreign subsidiaries. As such, the Company does not expect any exposure to the one-
time transition tax.
The changes to existing U.S. tax laws as a result of the Tax Act, which the Company believes have the most
significant impact on the Company’s federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years
in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s
deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax
rate from 34% to 21%, resulting in a deferred tax benefit of $916,000 for the year ended December 31, 2017
and a corresponding $916,000 decrease in net deferred tax liabilities as of December 31, 2017. This benefit
is attributable to the Company being in a net deferred tax liability position at the time of re-measurement.
Repeal of Alternative Minimum Tax and Refund of existing AMT Credits
The Tax Act fully repeals the corporate alternative minimum tax beginning in 2018. Additionally, any
AMT credits generated in prior years will be refundable between 2018 and 2021. The Company had AMT
credits in the amount of $779,000 that it was carrying with a full valuation allowance. As a result of the Tax
Act, the valuation allowance against these credits is reversed and the credits are reclassified from a deferred
tax asset to current and long-term tax receivables.
The Company 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, 2017 and
2016 as follows (in thousands):
66
Deferred tax assets:
Net operating losses
Environmental and closure reserves
Depreciation and amortization
Other
Deferred tax liabilities:
Depreciation and amortization
Goodwill and indefinite lived intangible assets
Prepaid expenses
Valuation allowance
Net deferred income tax liabilities
$
2017
5,992
2,158
907
1,252
$
2016
7,288
3,189
2,285
(1,694)
(50)
8,565
(10,259)
(1,694)
(162)
(2,362)
(72)
10,166
(12,528)
(2,362)
In 2017 and 2016, the Company concluded that it was more likely than not that $10,259,000 and
$12,528,000 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.
The Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax
purposes of approximately $10,099,000 and $57,956,000, respectively, as of December 31, 2017. The
estimated consolidated federal and state NOLs include approximately $2,618,000 and $3,769,000,
respectively, of our majority-owned subsidiary, PF Medical, which is not part of our consolidated group for
tax purposes. These net operating losses can be carried forward and applied against future taxable income,
if any, and expire in various amounts starting in 2021. However, as a result of various stock offerings and
certain acquisitions, which in the aggregate constitute a change in control, the use of these NOLs will be
limited under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended.
Additionally, NOLs may be further limited under the provisions of Treasury Regulation 1.1502-21
regarding Separate Return Limitation Years.
The tax years 2014 through 2016 remain open to examination by taxing authorities in the jurisdictions in
which the Company operates.
No uncertain tax positions were identified by the Company for the years currently open under statute of
limitations, including 2017 and 2016.
The Company had no federal income tax payable for the years ended December 31, 2017 and 2016.
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 at the disposal site, 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 (“Master Closure Policy”)
with AIG, which provides financial assurance to the applicable states for our permitted facilities in the event
67
of unforeseen closure. The Master Closure 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 Master Closure Policy, as amended, were made by
2012. At December 31, 2017, our financial assurance coverage amount under this Master Closure Policy
totaled approximately $29,473,000, which included a reduction in financial assurance requirement of
approximately $9,711,000 for our DSSI subsidiary made during the fourth quarter of 2016 resulting from a
recalculation the state mandated closure requirement. The Company has recorded $15,676,000 and
$15,546,000 in sinking fund related to this policy in other long term assets on the accompanying
Consolidated Balance Sheets at December 31, 2017 and 2016, respectively, which includes interest earned
of $1,205,000 and $1,075,000 on the sinking fund as of December 31, 2017 and 2016, respectively. Interest
income for the years ended 2017 and 2016 was approximately $130,000 and $86,000, 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.
The Company also had a finite risk insurance policy dated August 2007 for our PFNWR facility with AIG
(“PFNWR policy”) which provided financial assurance to the State of Washington in the event of closure of
the PFNWR facility. The Company had recorded $5,941,000 in finite risk sinking funds at December 31,
2016 in other long term assets on the accompanying Consolidated Balance Sheets which included interest
earned of $241,000 on the sinking fund. In April 2017, the Company received final releases from state and
federal regulators for the PFNWR policy which enabled the Company to cancel the PFNWR policy
resulting in the release of approximately $5,951,000 on May 1, 2017 in finite sinking funds previously held
by AIG as collateral for the PFNWR policy. The Company used the released finite sinking funds to pay off
our revolving credit with the remaining funds used for general working capital needs. The Company has
acquired new bonds in the required amount of approximately $7,000,000 (“new bonds”) to replace the
PFNWR policy in providing financial assurance for the PFNWR facility. Upon receipt of the $5,951,000 in
finite sinking funds from AIG, the Company and its lender executed a standby letter of credit in the amount
of $2,500,000 as collateral for the new bonds for the PFNWR facility. In addition, the Company’s lender
imposed an additional $750,000 restriction on the Company’s borrowing availability pursuant to a
“Condition Subsequent” clause in an amendment that the Company entered into with its lender in the latter
part of 2016. Interest income earned under the PFNWR policy for the years ended December 2017 and 2016
was approximately $10,000 and $21,000, respectively.
Letter of Credits and Bonding Requirements
From time to time, the Company is required to post standby letters of credit and various bonds to support
contractual obligations to customers and other obligations, including facility closures. At December 31,
2017, the total amount of standby letters of credit outstanding totaled approximately $2,675,000 and the
total amount of bonds outstanding totaled approximately $8,305,000.
Operating Leases
The Company leases certain facilities and equipment under non-cancelable operating leases. The following
table lists future minimum rental payments at December 31, 2017 under these (in thousands):
Year ending December 31:
2018
2019
2020
2021
Total
366
141
118
20
645
$
Total rent expense under these leases was $754,000 and $735,000 for the years ended 2017 and 2016,
respectively.
NOTE 14
PROFIT SHARING PLAN
68
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. In 2017 and 2016, the Company contributed
approximately $326,000 and $307,000 in 401(k) matching funds, respectively.
NOTE 15
RELATED PARTY TRANSACTIONS
David Centofanti
David Centofanti serves as our Vice President of Information Systems. For such position, he received
annual compensation of $168,000 for each of the years 2017 and 2016. David Centofanti is the son of our
EVP of Strategic Initiatives and a Board member, Dr. Louis Centofanti. Dr. Louis Centofanti previously
held the position of President and CEO until September 8, 2017.
Robert L. Ferguson
Robert L. Ferguson serves as an advisor to our Board and is also a member of the Supervisory Board of PF
Medical, our majority-owned Polish subsidiary. Robert Ferguson previously served as our Board member
from June 2007 to February 2010 and again from August 2011 to September 2012. The Company
previously completed a lending transaction with Robert Ferguson and William Lampson in August 2013
(collectively, the “Lenders”) whereby we borrowed from the Lenders $3,000,000 which was paid in full by
us in August 2016 (see “Note 9 – Long-Term Debt – Promissory Note” for further details). As an advisor to
our Board, Robert Ferguson is paid $4,000 monthly plus reasonable expenses. For such services, Robert
Ferguson received compensation of approximately $51,000 and $59,000 for the years 2017 and 2016,
respectively. Robert Ferguson is also a consultant to us in connection with our TBI at our PFNWR facility
(see “Note 5 – Capital Stock, Stock Plan, Warrants, and Stock Based Compensation” for a discussion of the
options granted to Robert Ferguson in connection with the TBI initiatives).
John Climaco
John Climaco, who had been a Board member since October 2013, did not stand for reelection at the
Company’s 2017 Annual Meeting of Stockholders held on July 27, 2017. In addition to his previous service
as a Board member, John Climaco also served as EVP of PF Medical, a majority-owned Polish subsidiary
of the Company, from June 2, 2015 to June 30, 2017. As EVP of PF Medical, John Climaco received an
annual salary of $150,000 and was not eligible to receive compensation for serving on the Company’s
Board. PF Medical had entered into a multi-year supplier agreement and stock subscription agreement in
July 2015 with Digirad Corporation, where John Climaco serves as a board member.
Employment Agreements
The Company entered into employment agreements with each of Mark Duff (President and CEO effective
September 8, 2017, who previously held the position of EVP and COO), Ben Naccarato (CFO), and Dr.
Louis Centofanti, (EVP of Strategic Initiatives, who retired from the position of President and CEO
effective September 8, 2017) with each employment agreement dated September 8, 2017. Each of the
employment agreements is effective for three years from September 8, 2017 (the “Initial Term”) unless
earlier terminated by us or by the executive officer. At the end of the Initial Term of each employment
agreement, each employment agreement will automatically be extended for one additional year, unless at
least six months prior to the expiration of the Initial Term, we or the executive officer provides written
notice not to extend the terms of the employment agreement. Each employment agreement provides for
annual base salaries, performance bonuses as provided in the MIP as approved by our Board, and other
benefits commonly found in such agreements. In addition, each employment agreement provides that in the
event the executive officer terminates his employment for “good reason” (as defined in the agreements) or is
69
terminated by the Company without cause (including the executive officer terminating his employment for
“good reason” or is terminated by us without cause within 24 months after a Change in Control (as defined
in the agreement)), the Company will pay the executive officer the following: (a) a sum equal to any unpaid
base salary; (b) accrued unused vacation time and any employee benefits accrued as of termination but not
yet been paid (“Accrued Amounts”); (c) two years of full base salary; (d) performance compensation under
the MIP earned with respect to the fiscal year immediately preceding the date of termination; and (e) an
additional year of performance compensation as provided under the MIP earned, if not already paid, with
respect to the fiscal year immediately preceding the date of termination. If the executive terminates his
employment for a reason other than for good reason, the Company will pay to the executive the amount
equal to the Accrued Amounts plus any performance compensation payable pursuant to the MIP.
If there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase
common stock held by the executive officer will immediately become exercisable in full commencing on
the date of termination through the original term of the options. In the event of the death of an executive
officer, all outstanding stock options to purchase common stock held by the executive officer will
immediately become exercisable in full commencing on the date of death, with such options exercisable for
the lesser of the original option term or twelve months from the date of the executive officer’s death. In the
event of an executive officer terminating his employment for “good reason” or is terminated by us without
cause, all outstanding stock options to purchase common stock held by the executive officer will
immediately become exercisable in full commencing on the date of termination, with such options
exercisable for the lesser of the original option term or within 60 days from the date of the executive’s date
of termination.
We had previously entered into an employment agreement with each of Dr. Louis Centofanti and Ben
Naccarato on July 10, 2014 which both employment agreements are due to expire on July 10, 2018, as
amended (the “July 10, 2014 Employment Agreements”). We also had previously entered into an
employment agreement dated January 19, 2017 (which was effective June 11, 2016) with Mark Duff which
is due to expire on June 11, 2019 (the “January 19, 2017 Employment Agreement”). The July 10, 2014
Employment Agreements and the January 19, 2017 Employment Agreement were terminated effective
September 8, 2017.
MIPs
On January 19, 2017, our Board and the Compensation Committee approved individual MIP for each Mark
Duff, Ben Naccarato, and Dr. Louis Centofanti. Each MIP is effective January 1, 2017 and applicable for the
year ended December 31, 2017. Each MIP provides guidelines for the calculation of annual cash incentive
based compensation, subject to Compensation Committee oversight and modification. Each MIP awards
cash compensation based on achievement of performance thresholds, with the amount of such compensation
established as a percentage of the executive’s 2017 annual base salary on the approval date of the MIP. The
potential target performance compensation ranges approved was from 5% to 100% ($13,962 to $279,248) of
the base salary for Dr. Louis Centofanti, EVP of Strategic Initiatives effective September 8, 2017 and
previously the CEO and President; 5% to 100% ($13,350 to $267,000) of the base salary for Mark Duff,
CEO and President effective September 8, 2017 and previously the EVP/COO; and 5% to 100% ($11,033 to
$220,667) of the base salary for Ben Naccarato, CFO. Pursuant to the MIPs, the Compensation Committee
had the right to modify, change or terminate the MIPs at any time and for any reason. No performance
compensation was earned or payable under each of the 2017 MIPs as discussed above.
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
70
• 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 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 Consolidated Statements of Operations. Our
reporting segments exclude our corporate headquarter and our discontinued operations (see “Note 8 –
Discontinued Operations”) which do not generate revenues.
The table below shows certain financial information of our reporting segments as of and for the years then
ended December 31, 2017 and 2016 (in thousands).
Segment Reporting as of and for the year ended December 31, 2017
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 (benefit) expense
Segment income (loss)
Segment assets(1)
Expenditures for segment assets
Total debt
Treatment
$ 37,750
362
7,916
439
(35)
Services
$ 12,019
31
704
(5)
3,228
3,577 (6)
(1,290) (7)
4,867
32,724
396
536
(2,286)
(2,286)
6,324
43
Medical
1,141
(1,141)
(1,141)
548
Segment Reporting as of and for the year ended December 31, 2016
Segments
Total
$ 49,769 (3)
393
8,620
1,580
(40)
3,764
150
(1,290)
1,440
39,596
439
Corporate
$ —
15
140
(275)
(35)
39
(4,973)
5
(4,978)
19,942 (4)
3,847 (5)
(2)
Consolidated
Total
$ 49,769
8,620
1,595
140
(315)
(35)
3,803
(4,823)
(1,285)
(3,538)
59,538
439
3,847
Revenue from external customers
Intercompany revenues
Gross profit
Research and development
Interest income
Interest expense
Interest expense-financing fees
Depreciation and amortization
Segment (loss) income before income taxes
Income tax (benefit) expense
Segment (loss) income
Segment assets(1)
Expenditures for segment assets
Total debt
Treatment
$ 32,253
40
4,015
504
3
(29)
3,451
(10,119) (6)
(3,013) (7)
(7,106)
32,482
418
Services
$ 18,966
28
3,069
38
(2)
632
744
744
8,105
17
Medical
1,489
(1,489)
(1,489)
382
1
Segments
Total
$ 51,219 (3)
68
7,084
2,031
3
(31)
4,083
(10,864)
(3,013)
(7,851)
40,969
436
Corporate
$ —
15
107
(458)
(108)
82
(5,393)
19
(5,412)
24,366 (4)
8,833 (5)
(2)
Consolidated
Total
$ 51,219
7,084
2,046
110
(489)
(108)
4,165
(16,257)
(2,994)
(13,263)
65,335
436
8,833
(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 for others as a subcontractor to the federal government, representing approximately $36,654,000 or 73.6% of total
revenue for 2017 and $27,354,000 or 53.4% of total revenue for 2016. The following reflects such revenue generated by our
two segments:
71
Treatment
Services
Total
2017
27,591,000
9,063,000
36,654,000
$
$
2016
21,434,000
5,920,000
27,354,000
$
$
(4) Amount includes assets from our discontinued operations of $365,000 and $434,000 at December 31, 2017 and 2016,
respectively.
(5) net of debt issuance costs of ($115,000) and ($151,000) for 2017 and 2016, respectively (see “Note 9 – “Long-Term Debt” for
additional information).
(6) For the year ended December 31, 2016, amounts include tangible and intangible asset impairment losses of $1,816,000 and
$8,288,000, respectively, recorded in connection with the pending closure of M&EC. For the year ended December 31, 2017,
amount includes tangible asset impairment loss of $672,000 recorded in connection with the pending closure of M&EC (see
“Note 3 – M&EC Facility”).
(7) For the year ended December 31, 2016, amount includes a tax benefit of approximately $3,203,000 recorded resulting from the
intangible impairment loss recorded for our M&EC subsidiary (see “Note 3 – M&EC Facility”). For the year ended December
31, 2017, amount includes a tax benefit recorded in the amount of approximately $1,695,000 resulting from the Tax Cuts and
Jobs Act enacted on December 22, 2017 (see “Note 12 – Income Taxes” for further information of this tax benefit).
NOTE 17
SUBSEQUENT EVENTS
MIPs
On January 18, 2018, the Board and Compensation Committee approved individual MIP for the CEO, CFO,
and EVP of Strategic Initiatives. Each MIP is effective January 1, 2018 and applicable for the year ended
December 31, 2018. Each MIP provides guidelines for the calculation of annual cash incentive based
compensation, subject to Compensation Committee oversight and modification. Each MIP awards cash
compensation based on achievement of performance thresholds, with the amount of such compensation
established as a percentage of the executive’s annual 2018 base salary on the approval date of the MIP. The
potential target performance compensation ranges from 5% to 100% of the 2018 base salary for the CEO
($13,350 to $267,000), 5% to 100% of the 2018 base salary for the CFO ($11,475 to $229,494), and 5% to
100% of the 2018 base salary for the EVP of Strategic Initiatives ($11,170 to $223,400).
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(e) and 15d-15(e) 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
72
December 31, 2017.
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) and 15d-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
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, 2017 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, 2017.
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. Since the
Company is not a large accelerated filer or an accelerated filer, 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 during the fiscal
quarter ended December 31, 2017 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
73
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
DIRECTORS
The following table sets forth, as of the date of this Report, information concerning our Board of Directors
(“Board”):
AGE POSITION
NAME
Dr. Louis F. Centofanti
Mr. S. Robert Cochran
Dr. Gary Kugler
Honorable Joe R. Reeder
Mr. Larry M. Shelton
Mr. Zach P. Wamp (1)
Mr. Mark A. Zwecker
Each director is elected to serve until the next annual meeting of stockholders.
74 Director; EVP of Strategic Initiatives; President of PF Medical
64 Director
77 Director
70 Director
64 Chairman of the Board
60 Director
67 Director
(1) Mr. Zach Wamp was unanimously elected by the Board as a director effective January 18, 2018 to fill a vacancy on the Board.
Director Information
Our directors and executive officers, their ages, the positions with us held by each of them, the periods
during which they have served in such positions and a summary of their recent business experience is set
forth below. Each of the biographies of the current directors listed below also contains information
regarding such person's service as a director, business experience, director positions with other public
companies held currently or at any time during the past five years, and the experience, qualifications,
attributes and skills that our Board considered in nominating or appointing each of them to serve as one of
our directors.
Dr. Louis F. Centofanti
Dr. Centofanti currently holds the position of EVP of Strategic Initiatives. Effective January 26, 2018, Dr.
Centofanti was appointed to the position of President of PF Medical and no longer a member of the
Supervisory Board of PF Medical (a position he had held since June 2, 2015). From March 1996 to
September 8, 2017 and from February 1991 to September 1995, Dr. Centofanti held the position of
President and CEO of the Company. Dr. Centofanti served as Chairman of the Board from the Company’s
inception in February 1991 until December 16, 2014. 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. From 1985 until joining the Company, Dr. Centofanti served as Senior Vice
President (“SVP”) of USPCI, Inc., a large publicly-held 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 and PPM, Inc., and as a senior executive 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’s operations and his
extensive knowledge of its history, coupled with his drive for innovation and excellence, positions Dr.
74
Centofanti to optimize our role in this competitive, evolving market, and led the Board to conclude that he
should serve as a director.
Mr. S. Robert Cochran
Mr. Cochran was appointed by the Board as a director effective January 13, 2017 and was reelected as a
director on July 27, 2017 at the Company’s Annual Meeting of Stockholders (“2017 Annual Meeting”).
Since November 2015, Mr. Cochran has served as President and CEO of CTG, LLC, a company that
provides strategic business development support, as well as acquisitions and business/management
restructuring activity support. Since April 2012, Mr. Cochran has been a director of Longenecker &
Associates, Inc., a privately held consulting firm that provides highly specialized, fast-response technical-
management support to nuclear and environmental industries. From March 2012 to November 2015, Mr.
Cochran served as President and Officer Director of CB&I Federal Services, LLC (a subsidiary of Chicago
Bridge & Iron Company, NYSE: CBI), which provides mission-critical services primarily to the U.S.
federal government. From 2006 to 2011, Mr. Cochran served as President of B&W Technical Service
Group, Inc., an operating group of The Babcock & Wilcox Company (NYSE: BW), which provides support
to government and commercial clients, including management and operation of complex high-consequence
nuclear facilities, nuclear material processing and manufacturing, classified component manufacturing,
engineering, procurement and construction of major capital projects, nuclear safeguards and security,
environmental cleanup and remediation, and nuclear-facility deactivation. From 2007 to 2011, Mr. Cochran
served as Chairman of the Board of Pantex LLC and B&W Y-12, where he had direct responsibility for the
performance and operations associated with nuclear weapons production enterprise. Before joining The
Babcock & Wilcox Company, Mr. Cochran worked for more than 20 years in operations and development
within the engineering, construction, facilities management and operations, environmental technology, and
remediation industries. This experience includes serving as President and CEO of MAGma LLC, a
privately-held company that provided management and operational restructuring, strategic development,
and acquisition/divestiture services to the public utility, engineering and construction, and Department of
Energy business sectors. Additionally, as its SVP, Mr. Cochran led Tyco Infrastructure’s development and
delivery of services, opening new markets and service areas valued at more than $1 billion. Mr. Cochran
received an executive M.B.A. from the University of Richmond’s Robins School of Business and a B.S.
from James Madison University.
Mr. Cochran has had an extensive career in solving and overseeing solutions to complex issues involving
both domestic and international concerns. In addition, his government related services provide solid
experience for the continuing growth of the Company’s Treatment and Services Segments. His extensive
knowledge and problem-solving experience enhances 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.
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. Dr. Kugler served as a
member of the Supervisory Board of PF Medical from June 2015 to December 2016. 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
75
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.
Honorable Joe R. Reeder
Mr. Reeder, a director since 2003, served as Shareholder-in-Charge of the Mid-Atlantic Region (1999-2008)
for Greenberg Traurig LLP, one of the nation's largest law firms, with 38 offices and approximately 2,000
attorneys worldwide. Currently, a principal shareholder in the law firm, Mr. Reeder’s clientele includes
sovereign nations, international corporations, and law firms. 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 14 years he has served on
the International Advisory Board of the Panama Canal. He has served on the boards of the National
Defense Industry Association (“NDIA”) (Chairing NDIA’s Ethics Committee), the Armed Services
YMCA, and many other private companies and charitable organizations. Following successive
appointments by Virginia 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 subsidiary of Elbit Systems Ltd. (NASDAQ: ESLT), that provides product and system
solutions focusing on defense, homeland security, and commercial aviation. Mr. Reeder also served as a
Board member for Washington First Bank (since April 2004), and of its parent, Washington First
Bankshares, Inc. (since 2009). As of December 13, 2017, Mr. Reeder serves as a Board member for Sandy
Spring Bancorp, Inc. (NASDAQ: SASR), which purchased Washington First Bank in the last quarter of
2017. 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, has also held the position of Chairman of the Board of the Company
since December 16, 2014. Mr. Shelton currently is the Chief Financial Officer (“CFO”) (since 1999) of S K
Hart Management, LLC, a private investment management company. Mr. Shelton served as President of
Pony Express Land Development, Inc. (an affiliate of SK Hart Management, LLC), a privately-held land
development company, from January 2013 to until August 2017 and 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. Mr. Shelton served as a member of the Supervisory
Board of PF Medical from April 2014 to December 2016. Mr. Shelton has over 19 years of experience as an
executive financial officer for several waste management companies, including as CFO of Envirocare of
Utah, Inc. (now Energy Solutions (1995–1999)) and CFO of USPCI, Inc. (1982–1987), a NYSE- 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. Zach P. Wamp
Mr. Zach Wamp was unanimously elected by the Board to fill a vacancy on the Board effective January 18,
2018. Mr. Wamp is currently the President of Zach Wamp Consulting, a position he has held since 2011.
As the President and owner of Zach Wamp Consulting, he has served some of the most prominent
companies from Silicon Valley to Wall Street as a business development consultant and advisor. From
76
September 2013 to November 2017, Mr. Wamp chaired the Board of Directors for Chicago Bridge and Iron
Federal Services, LLC (a subsidiary of Chicago Bridge & Iron Company, NYSE: CBI, which provides
critical services primarily to the U.S. federal government). From January 1995 to January 2011, Mr. Wamp
served as a member of the U.S. House of Representatives from Tennessee’s 3rd district. His district included
the Oak Ridge National Laboratory, with strong science and research missions from energy to homeland
security. Among his many accomplishments which included various leadership roles in the advancement of
education and science, Mr. Wamp was instrumental in the formation and success of the Tennessee Valley
Technology Corridor, which created thousands of jobs for Tennesseans in the areas of high-tech research,
development, and manufacturing. During his career in the political arena, Mr. Wamp served on several
prominent subcommittees during his 14 years on the House Appropriations Committee, including serving as
a “ranking member” of the Subcommittee on Military Construction and Veterans Affairs and Related
Agencies. Mr. Wamp has been a regular panelist on numerous media outlet and has been featured in a
number of national publications effectively articulating sound social and economic policy. Mr. Wamp’s
business career has also included work in the real estate sector for a number of years as a licensed industrial-
commercial real estate broker where he was named Chattanooga’s Small Business Person of the Year. He is
a founding partner in Learning Blade, the nation’s premiere STEM education platform which is now
operating at some level in 28 states.
Mr. Wamp has extensive career in solving and overseeing solutions to complex issues involving domestic
concerns. In addition, his wide-ranging career, particularly with respect to his government-related work,
provides solid experience for the continuing growth of the Company’s Treatment and Services Segments.
His extensive knowledge and problem-solving experience enhances 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. 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 and wholly-owned subsidiary of Japan
Communications, Inc. (Tokyo Stock Exchange (Securities Code: 9424)), which provides cellular service for
M2M (machine to machine) applications. From 2006 to 2013, Mr. Zwecker served as Director of Finance
for Communications Security and Compliance Technologies, Inc., a wholly-owned subsidiary of JCI US
Inc. that develops security software 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
solutions provider. In 1983, with Dr. Centofanti, Mr. Zwecker co-founded a start-up, PPM, Inc., a hazardous
waste management company. He remained with PPM, Inc. until its acquisition in 1985 by USPCI.
Mr. Zwecker has a B.S. in Industrial and Systems Engineering from the Georgia Institute of Technology and
an M.B.A. from Harvard University.
As a director since our inception, Mr. Zwecker’s understanding of our business provides valuable insight to
the Board. With years of experience in operations and finance for various companies, including a number
of waste management companies, Mr. Zwecker combines extensive knowledge of accounting principles,
financial reporting rules and regulations, the ability to evaluate financial results, and understanding of
financial reporting processes. He has an extensive background in operating complex organizations. Mr.
Zwecker’s experience and background 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
We currently separate the roles of Chairman of the Board and CEO. The Board believes that this leadership
structure promotes balance between the Board’s independent authority to oversee our business, and the CEO
and his management team, who manage the business on a day-to-day basis.
The Company does not have a written policy with respect to the separation of the positions of Chairman of
the Board and CEO. The Company believes it is important to retain its flexibility to allocate the
responsibilities of the offices of the Chairman and CEO in any way that is in the best interests of the
Company at a given point in time; therefore, the Company’s leadership structure may change in the future
77
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), Dr. Gary G. Kugler, and S. Robert Cochran, who replaced Mr. Larry Shelton effective April
20, 2017.
Our Board has determined that each of our Audit Committee members is and was independent within the
meaning of the rules of the 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 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 OF DIRECTOR INDEPENDENCE
The Board has determined that each director, other than Dr. Centofanti, 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. Mr. John Climaco, who did not stand for
re-election at the Company’s 2017 Annual Meeting, did not qualify as an “independent director” because of
his previous employment as EVP of PF Medical, a majority-owned Polish subsidiary of the Company, and
because of his directorship at Digirad Corporation, a company with which PF Medical had previously
entered into a multi-year supplier agreement and stock subscription 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 2017. Members of the
Compensation Committee are Dr. Gary G. Kugler (Chairperson), Larry M. Shelton, and Joe R. Reeder.
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 (“Nominating
Committee”). Members of the Nominating Committee are Joe R. Reeder (Chairperson), Dr. Gary G. Kugler,
and S. Robert Cochran who replaced Mark A. Zwecker as a member effective April 20, 2017. All members
of the Nominating Committee are and were “independent” as that term is defined by current NASDAQ
listing standards.
78
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, as amended (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;
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
79
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 S. Robert
Cochran (Chairperson, replacing John M. Climaco who did not stand for reelection at the Company’s 2017
Annual Meeting), Joe R. Reeder, Mark A. Zwecker, and Larry M. Shelton. The Strategic Advisory
Committee does not have a charter.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of the date hereof, information concerning our executive officers:
NAME
Mr. Mark Duff
Mr. Ben Naccarato
Dr. Louis Centofanti
AGE
55
55
74
POSITION
President and CEO
CFO, Vice President, and Secretary; CFO of PF Medical
EVP of Strategic Initiatives; President of PF Medical
Mr. Mark Duff
Mr. Mark Duff was appointed President and CEO by the Company’s Board on September 8, 2017,
succeeding Dr. Louis Centofanti. Previously, Mr. Duff served as EVP of the Company, from June 11, 2016.
In September 2016, upon Mr. John Lash’s retirement as Chief Operating Officer (“COO”) of the Company,
Mr. Duff was named COO, in addition to his position as EVP. Mr. Duff has 30 years of management and
technical experience in the U.S Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”)
environmental and construction markets as a corporate officer, senior project manager, co-founder of a
consulting firm, and federal employee. For the immediate five years prior to joining the Company in June
2016, Mr. Duff was responsible for the successful completion of over 70 performance-based projects at the
Paducah Gaseous Diffusion Plant (“PGDP”) in Paducah, KY. At the PGDP, he served as the Project
Manager for the Paducah Remediation Contract, which was a five-year project with a total value of $458
million. Prior to the PGDP project, Mr. Duff was a senior manager supporting Babcock and Wilcox
(“B&W”), leading several programs that included building teams to solve complex technical problems.
These programs included implementation of the American Recovery and Reinvestment Act (“ARRA”) at the
DOE Y-12 facility with a $245 million budget for new cleanup projects completed over a two-year period.
During this period, Mr. Duff served as project manager leading a team of senior experts in support of
Toshiba Corporation in Tokyo, Japan to integrate United States technology in the recovery of the Fukushima
Daiichi Nuclear Reactor disaster. Prior to joining B&W, Mr. Duff served as the president of Safety and
Ecology Corporation (“SEC”). As President of SEC, he helped grow the company from $50 million to $80
80
million in annual revenues with significant growth in infrastructure, marketing, and client diversification.
Mr. Duff has an MBA from the University of Phoenix and received his B.S. from the University of
Alabama.
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. 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 production technology. Effective December 22, 2015, Mr.
Naccarato was appointed to the Management Board of PF Medical. Mr. Naccarato has over 29 years of
experience in senior financial positions in the waste management and used oil industries. From December
2002 to September 2004, Mr. Naccarato was the CFO of a privately held company in the fuel distribution
and used waste oil industry. Mr. Naccarato is a graduate of University of Toronto with a Bachelor of
Commerce and Finance Degree and is a Chartered Professional Accountant, Certified Management
Accountant (CPA, CMA).
Dr. Louis Centofanti
See “Director – Dr. Louis F. Centofanti” in this section for information on Dr. Centofanti.
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 2017 none of our executive
officers, directors, or beneficial owners of more than 10% of our Common Stock failed to timely file reports
under Section 16(a).
Capital Bank–Grawe Gruppe AG (“Capital Bank”) has advised us that it is a banking institution regulated
by the banking regulations of Austria, which holds shares of our Common Stock as agent on behalf of
numerous investors. Capital Bank has represented that all of its investors are accredited investors under
Rule 501 of Regulation D promulgated under the Act. In addition, Capital Bank has advised us that none of
its investors, individually or as a group, beneficially own more than 4.9% of our Common Stock as
calculated in accordance with Rule 13d-3 of the Exchange Act. Capital Bank has further informed us that its
clients (and not Capital Bank) maintain full voting and dispositive power over such shares. Consequently,
Capital Bank has advised us that it believes it is not the beneficial owner, as such term is defined in Rule
13d-3 of the Exchange Act, of the shares of our Common Stock registered in the name of Capital Bank
because it has neither voting nor investment power, as such terms are defined in Rule 13d-3, over such
shares. Capital Bank has informed us that it does not believe that it is required (a) to file, and has not filed,
reports under Section 16(a) of the Exchange Act or (b) to file either Schedule 13D or Schedule 13G in
connection with the shares of our Common Stock registered in the name of Capital Bank.
If the representations of, or information provided by Capital Bank are incorrect or Capital Bank was
historically acting on behalf of its investors as a group, rather than on behalf of each investor independent of
other investors, then Capital Bank and/or the investor group would have become a beneficial owner of more
than 10% of our Common Stock on February 9, 1996, as a result of the acquisition of 1,100 shares of our
Preferred Stock that were convertible into a maximum of 256,560 shares 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
81
Related Stockholder Matter – Security Ownership of Certain Beneficial Owners” for a discussion of Capital
Bank’s current record ownership of our securities).
Code of Ethics
Our Code of Ethics applies to all our executive officers and is available on our website at www.perma-
fix.com. If any amendments are made to the Code of Ethics or any grants of waivers are made to any
provision of the Code of Ethics to any of our executive officers, we will promptly disclose the amendment
or waiver and nature of such amendment or waiver on our website 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, 2017 and 2016.
Name and Principal Position
Year
Salary
Mark Duff (1)
President and CEO
Ben Naccarato
Vice President and CFO
Dr. Louis Centofanti
EVP of Strategic Initiatives
($)
267,000
136,581
226,552
220,667
262,959
279,248
(2)
(3)
2017
2016
2017
2016
2017
2016
Bonus
($)
Option
Awards
($) (4)
188,118
100,094
94,059
94,059
Non-Equity
Incentive Plan
Compensation
($) (5)
All other
Compensation
($) (6)
Total
Compensation
($)
32,362
40,800
36,706
37,537
30,464
31,763
487,480
277,475
357,317
258,204
387,482
311,011
(1) On September 8, 2017, Mr. Duff was named by the Company as President and CEO, succeeding Dr. Louis Centofanti, who
retired from the position of President and CEO and was named to the position of EVP of Strategic Initiatives. Previously, Mr.
Duff was appointed as EVP by the Company on May 15, 2016 (effective June 11, 2016) and earns an annual salary of
$267,000. Effective September 30, 2016, Mr. Duff also assumed the additional position of COO upon Mr. John Lash’s
retirement from the position of COO (Mr. Lash retired from the Company effective December 31, 2016). As President and
CEO of the Company, Mr. Duff continues to earn an annual salary of $267,000. Amount noted in chart above for 2016
reflects salary earned by Mr. Duff from the date of his employment in June 2016.
(2)
Effective April, 20, 2017, the Compensation Committee and the Board approved Mr. Naccarato’s annual salary to $229,494
from $220,667.
(3) As EVP of Strategic Initiatives, Dr. Centofanti’s annual salary was amended to $223,400 from $279,248.
(4)
(5)
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
other NEOs in 2016 other than Mr. Duff.
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 “2017 Management Incentive Plans (“MIP”).” No compensation
was earned by any NEO under his respective MIP for 2017 and 2016. Mr. Duff did not have a MIP for 2016.
(6) The amount shown includes a monthly automobile allowance of $750, insurance premiums (health, disability and life) paid by
the Company on behalf of the executive, and 401(k) matching contributions.
82
Name
Mark Duff
Ben Naccarato
Dr. Louis Centofanti
Insurance
Premium
$
$
$
18,073
23,208
16,223
$
$
$
Auto Allowance
9,000
9,000
9,000
$
$
$
401(k) match
5,289
4,498
5,241
$
$
$
Total
32,362
36,706
30,464
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth unexercised options held by the NEOs as of the fiscal year-end.
Outstanding Equity Awards at December 31, 2017
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
—
—
Number of
Securities
Underlying
Unexercised
Options
(#) (1)
Unexercisable
50,000
50,000
—
16,667
(3)
100,000
33,333
(2)
(2)
(2)
(3)
Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised Unearned
Options
(#)
—
—
—
Option
Exercise
Price
($)
Option
Expiration
Date
3.65
3.65
3.65
3.97
7/27/2023
7/27/2023
7/27/2023
5/15/2022
Name
Dr. Louis Centofanti
Ben Naccarato
Mark Duff
(1) Pursuant to the NEO’s employment agreements with the Company, each dated September 9, 2017, in the event of a change in
control, death of the executive officer, the executive officer terminates his employment for “good reason” or the executive
officer is terminated by the Company without cause, each outstanding option and award shall immediately become exercisable in
full (see “Employment Agreements” below for further discussion of the exercisability terms of the option under these events).
(2) Incentive stock option granted on July 27, 2017 under the Company’s 2017 Stock Option Plan. The option has a contractual term
of six years with one-fifth yearly vesting over a five year period.
(3) Incentive stock option granted on May 15, 2016 under the Company’s 2010 Stock Option Plan. The option has a contractual term
of six years with one-third yearly vesting over a three year period.
None of the Company’s NEOs exercised options during 2017.
Employment Agreements
On September 8, 2017, the Company’s Board approved the appointment of Mr. Mark Duff as the
Company’s new President and CEO, succeeding Dr. Louis Centofanti, who was named to the position of
EVP of Strategic Initiatives and continues to serve as a member of the Board.
Immediately after the appointment of Mark Duff as the Company’s new President and CEO, the Company’s
Compensation Committee and the Board approved, and the Company entered into, employment agreements
with each of Mark Duff, CEO, Dr. Louis Centofanti, EVP of Strategic Initiatives, and Ben Naccarato, CFO
(collectively, the “New Employment Agreements”). The Company had previously entered into an
employment agreement with each of Dr. Louis Centofanti and Ben Naccarato on July 10, 2014, both of
which were due to expire on July 10, 2018 (together, the “July 10, 2014 Employment Agreements”). The
Company also had previously entered into an employment agreement dated January 19, 2017 (which was
effective June 11, 2016) with Mark Duff, which was due to expire on June 11, 2019 (the “January 19, 2017
Employment Agreement”). The July 10, 2014 Employment Agreements and the January 19, 2017
Employment Agreement were terminated effective September 8, 2017.
Pursuant to the New Employment Agreements, all of which were effective September 8, 2017, (a) Mark
Duff will serve as the Company’s President and CEO, with an annual salary of $267,000; (b) Dr. Louis
Centofanti will serve as the Company’s EVP of Strategic Initiatives, with an annual salary of $223,400; and
(c) Ben Naccarato will continue to serve as the Company’s CFO, with an annual salary of $229,494. In
83
addition, each of these executive officers is entitled to participate in the Company’s broad-based benefits
plans and to certain performance compensation payable under separate MIPs as approved by the Company’s
Compensation Committee and Board. The Company’s Compensation Committee and the Board approved
individual 2017 MIPs on January 19, 2017 (which were effective January 1, 2017 and applicable for year
2017) for each of Mark Duff, Dr. Louis Centofanti, and Ben Naccarato (see discussion of the 2017 MIPs
below under “2017 Management Incentive Plans (“MIPs”)).
Each of the New Employment Agreements is effective for three years from September 8, 2017 (the “Initial
Term”) unless earlier terminated by the Company or by the executive officer. At the end of the Initial Term
of each New Employment Agreement, each New Employment Agreement will automatically be extended
for one additional year, unless at least six months prior to the expiration of the Initial Term, the Company or
the executive officer provides written notice not to extend the terms of the New Employment Agreement.
Pursuant to the New Employment Agreements, if the executive officer’s employment is terminated due to
death/disability or for cause (as defined in the agreements), the Company will pay to the executive officer or
to his estate an amount equal to the sum of any unpaid base salary, accrued unused vacation time through
the date of termination, any benefits due to the executive officer under any employee benefit plan (the
“Accrued Amounts”) and any performance compensation payable pursuant to the MIP.
If the executive officer terminates his employment for “good reason” (as defined in the agreements) or is
terminated by the Company without cause (including any such termination for “good reason” or without
cause within 24 months after a Change in Control (as defined in the agreement)), the Company will pay the
executive officer the Accrued Amounts, two years of full base salary, performance compensation (under the
MIP) earned with respect to the fiscal year immediately preceding the date of termination, and an additional
year of performance compensation (under the MIP) earned, if not already paid, with respect to the fiscal
year immediately preceding the date of termination. If the executive terminates his employment for a reason
other than for good reason, the Company will pay to the executive an amount equal to the Accrued Amounts
plus any performance compensation payable pursuant to the MIP.
If there is a Change in Control (as defined in the agreements), all outstanding stock options to purchase
common stock held by the executive officer will immediately become exercisable in full commencing on
the date of termination through the original term of the options. In the event of the death of an executive
officer, all outstanding stock options to purchase common stock held by the executive officer will
immediately become exercisable in full commencing on the date of death, with such options exercisable for
the lesser of the original option term or twelve months from the date of the executive officer’s death. In the
event an executive officer terminates his employment for “good reason” or is terminated by the Company
without cause, all outstanding stock options to purchase common stock held by the executive officer will
immediately become exercisable in full commencing on the date of termination, with such options
exercisable for the lesser of the original option term or within 60 days from the date of the executive’s date
of termination. Severance benefits payable with respect to a termination (other than Accrued Amounts) shall
not be payable until the termination constitutes a “separation from service” (as defined under Treasury
Regulation Section 1.409A-1(h)).
Potential Payments
The following table sets forth the potential (estimated) payments and benefits to which our NEOs, Mark
Duff, Ben Naccarato, and Dr. Centofanti would be entitled upon termination of employment or following a
Change in Control of the Company, as specified under each of their respective agreements with the
Company, assuming each circumstance described below occurred on December 31, 2017, the last day of our
fiscal year.
84
Name and Principal Position
Potential Payment/Benefit
Disability
or For Cause
Death
By Executive for
Good Reason or by
Company Without
Cause
Change in Control
of the Company
Mark Duff
President and CEO
Salary
Performance compensation
Stock Options
Ben Naccarato
CFO
Salary
Performance compensation
Stock Options
Dr. Louis Centofanti
EVP of Strategic Initiatives
Salary
Performance compensation
Stock Options
$
$
$
$
$
$
$
$
$
──
──
──
──
──
──
──
──
──
$
(2) $
(3) $
$
(2) $
(5) $
$
(2) $
(5) $
──
──
──
──
──
──
──
──
──
(2)
(4)
(2)
(4)
(2)
(4)
$
$
$
$
$
$
$
$
$
534,000
──
──
458,988
──
──
446,800
──
──
(1)
(2)
(4)
(1)
(2)
(4)
(1)
(2)
(4)
$
$
$
$
$
$
$
$
$
534,000
──
──
458,988
──
──
446,800
──
──
(1)
(2)
(4)
(1)
(2)
(4)
(1)
(2)
(4)
(1)
Represents two times the base salary of executive at December 31, 2017.
(2) No amount was earned and payable under the 2017 MIP. Additionally, pursuant to the 2017 MIP, if the participant’s
employment with the Company is voluntarily or involuntarily terminated prior to the annual payment of the MIP
compensation period, no MIP is payable (see “2017 Management Incentive Plans (“MIPs”) below).
(3)
Benefit is zero since the number of stock options vested was at-the-money at December 31, 2017 (as reported on the
NASDAQ).
(4) All outstanding options become vested immediately upon circumstances noted; however, benefit is zero since the number of
stock options that was outstanding is either out-of-the money or at-the money at December 31, 2017.
(5)
Benefit is zero since no stock option was vested at December 31, 2017.
2017 Executive Compensation Components
For the fiscal year ended December 31, 2017, 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 2017, salary accounted for
approximately 61.4% of the total compensation of our NEOs, while equity option awards, MIP
compensation, and other compensation accounted for approximately 38.6% of the total compensation of the
NEOs.
Base Salary
The NEOs, other officers, and other employees of the Company receive a base salary during the fiscal year.
Base salary ranges for executive officers are determined for each executive based on his or her position and
responsibility by using market data and comparisons to the Peer Group.
During its review of base salaries for executives, the Compensation Committee primarily considers:
85
• 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 NEOs are set forth in their respective employment agreements.
Effective April 20, 2017, the Compensation Committee and the Board approved an increase to the CFO’s
(Ben Naccarato) base salary to $229,494 and effective September 8, 2017, as a result of Dr. Centofanti’s
retirement from the position of President and CEO and his appointment to the position of EVP of Strategic
Initiatives, Dr. Centofanti’s annual base salary was amended to $223,400 from $279,248.
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.
2017 Management Incentive Plans (“MIPs”)
On January 19, 2017, the Board and the Compensation Committee approved individual MIPs for each of Dr.
Louis Centofanti, the then CEO, Mark Duff, the then EVP/COO, and Ben Naccarato, CFO. The MIPs were
effective January 1, 2017. 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, with the amount of such compensation
established as a percentage of the executive’s 2017 base salary on the approval date of the MIP. The
potential target performance compensation ranged from 5% to 100% of the 2017 base salary for the CEO
($13,962 to $279,248), 5% to 100% of the 2017 base salary for the EVP/COO ($13,350 to $267,000), and
5% to 100% of the 2017 base salary for the CFO ($11,033 to $220,667). 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.
Performance compensation is paid on or about 90 days after year-end, or sooner, based on finalization of
our audited financial statements for 2017. 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 total performance compensation payable under the MIPs to the CEO, EVP/COO, and CFO as a group is
not to exceed 50% of the Company’s pre-tax net income (exclusive of PF Medical) prior to the calculation
of performance compensation.
No cash incentive based compensation was paid to any of the NEOs under his respective 2017 MIP.
The following describes the principal terms of each MIP as approved on January 19, 2017:
86
CEO MIP:
2017 CEO performance compensation was based upon meeting corporate revenue, EBITDA (earnings
before interest, taxes, depreciation and amortization), health and safety, and environmental compliance
(permit and license violations) objectives during fiscal year 2017 from our continuing operations (excluding
PF Medical). The Compensation Committee believes performance compensation payable under each of the
2017 MIPs as discussed herein and below should be based on achievement of an EBITDA target, which
excludes certain non-cash items, as this target provides a better indicator of operating performance.
However, 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 was payable at 5% to 50% of the CEO’s 2017
base salary. For this compensation, 60% was based on the EBITDA goal, 10% on the revenue goal, 15% on
the number of health and safety claim incidents that occurred during fiscal year 2017, 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 2017. At achievement of 120% to 160%+ of the revenue and
EBITDA targets, the potential performance compensation was payable at 65% to 100% of the CEO’s 2017
base salary. For this compensation, the amount 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 2017 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):
$ 279,248
$ 139,624
$ 418,872
CEO MIP MATRIX
2017
Performance Target Column:
(a)
(b)
(c)
(d)
(e)
(f)
TARGET
Revenue Target
EBITDA Target
<
<
$
$
56,000,000
6,510,000
$
$
56,000,000
6,510,000
$
$
68,000,000
7,905,000
$
$
80,000,000
9,300,000
$
$
96,000,000
11,160,000
$
$
112,000,000
13,020,000
$
$
128,000,000
14,880,000
% 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 was defined as the total consolidated third-party top line revenue from continuing operations
(excluding PF Medical) as publicly reported in the Company’s 2017 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 $80,000,000.
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 for 2017, which was $9,300,000. 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.
87
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 Worker’s Compensation Loss Report provided by
the company’s carrier or broker. 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 was established for the annual incentive compensation plan calculation for 2017.
Work Comp.
Performance
Claim Number
Target Payable Under Column
6
5
4
3
2
1
(a)
(b)
(c)
(d)
(e)
(f)
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 during 2017 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
Performance
License Violations
Target Payable Under Column
6
5
4
3
2
1
(a)
(b)
(c)
(d)
(e)
(f)
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.
EVP/COO MIP:
2017 EVP/COO performance compensation was based upon meeting corporate revenue, EBITDA, health
and safety, and environmental compliance (permit and license violations) objectives during fiscal year 2017
from our continuing operations (excluding PF Medical). At achievement of 70% to 119% of the revenue
target and 60% to 119% of the EBITDA target, the potential performance compensation was payable at 5%
to 50% of the 2017 base salary. For this compensation, 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 2017, 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 2017. Upon achievement of 120% to 160%+ of the
revenue and EBITDA targets, the potential performance compensation was payable at 65% to 100% of the
EVP/COO’s 2017 base salary. For this compensation, the amount 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 2017 target performance incentive compensation for our EVP/COO
was as follows:
88
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$ 267,000
$ 133,500
$ 400,500
EVP/COO MIP MATRIX
2017
Performance Target Column:
(a)
(b)
(c)
(d)
(e)
(f)
TARGET
Revenue Target
EBITDA Target
<
<
$
$
56,000,000
5,600,000
$
$
56,000,000
5,600,000
$
$
63,586,000
6,358,600
$
$
80,000,000
9,300,000
$
$
96,000,000
11,160,000
$
$
112,000,000
13,020,000
$
$
128,000,000
14,880,000
% of Performance Incentive Target
% of Revenue Target Achieved
% of EBITDA Target Achieved
0%
<70%
<60%
10%
70%-78%
60%-67%
50%
170%
79%-99% 100%-119% 120%-139% 140%-159%
68%-99% 100%-119% 120%-139% 140%-159%
100%
130%
200%
160%+
160%+
Revenue
EBITDA
Health and Safety
Permit & License Violations
$
-
-
-
-
$
-
$
$
$
$
$
$
6,674
40,050
10,013
10,013
66,750
13,350
80,100
20,025
20,025
133,500
19,071
114,429
20,025
20,025
173,550
26,700
160,200
20,025
20,025
226,950
32,421
194,529
20,025
20,025
267,000
$
$
$
$
$
$
1,334
8,010
2,003
2,003
13,350
1) Revenue was defined as the total consolidated third-party top line revenue from continuing operations
(excluding PF Medical) as publicly reported in the Company’s 2017 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 $80,000,000.
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 for 2017, which was $9,300,000. 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 Worker’s Compensation Loss Report provided by
the company’s carrier or broker. 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 was established for the annual incentive compensation plan calculation for 2017.
Work Comp.
Performance
Claim Number
Target Payable Under Column
6
5
4
3
2
1
(a)
(b)
(c)
(d)
(e)
(f)
89
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 during 2017 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
Performance
License Violations
Target Payable Under Column
6
5
4
3
2
1
(a)
(b)
(c)
(d)
(e)
(f)
5) No performance incentive compensation was payable for achieving the health and safety, permit and
license violation, and revenue targets unless a minimum of 60% of the EBITDA target was achieved.
CFO MIP:
2017 CFO performance compensation was based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2017
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 2017 base
salary. For this compensation, 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 2017, 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 2017. Upon achievement of 120% to 160%+ of the revenue and EBITDA
targets, the CFO’s potential performance compensation was payable at 65% to 100% of the CFO’s 2017
base salary. For this compensation, the amount 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 2017 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):
$220,667
$110,334
$331,001
90
CFO MIP MATRIX
2017
Performance Target Column:
(a)
(b)
(c)
(d)
(e)
(f)
TARGET
Revenue Target
EBITDA Target
<
<
$
$
56,000,000
6,510,000
$
$
56,000,000
6,510,000
$
$
68,000,000
7,905,000
$
$
80,000,000
9,300,000
$
$
96,000,000
11,160,000
$
$
112,000,000
13,020,000
$
$
128,000,000
14,880,000
% 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
-
$
-
-
-
$
-
1,103
6,620
1,655
1,655
11,033
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) Revenue was defined as the total consolidated third-party top line revenue from continuing operations
(excluding PF Medical) as publicly reported in the Company’s 2017 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 $80,000,000.
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 for 2017, which was $9,300,000. 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 Worker’s Compensation Loss Report provided by
the company’s carrier or broker. 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 was established for the annual incentive compensation plan calculation for 2017.
Work Comp.
Performance
Claim Number
Target Payable Under Column
6
5
4
3
2
1
(a)
(b)
(c)
(d)
(e)
(f)
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 during 2017 from a
local, state, or federal regulatory authority alleging one or more violations of an otherwise applicable
91
Environmental, Health or Safety requirement or permit provision, which resulted in a facility’s
implementation of corrective action(s).
Permit and
Performance
License Violations
Target Payable Under Column
6
5
4
3
2
1
(a)
(b)
(c)
(d)
(e)
(f)
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.
2017 MIP Targets
As discussed above, 2017 MIPs approved for the CEO, EVP/COO, and CFO by the Board and the
Compensation Committee provided for the award of cash compensation based on achievement of
performance targets which included revenue and EBITDA targets as approved by our Board. The 2017 MIP
revenue target of $80,000,000 and EBITDA target of $9,300,000 were set by the Compensation Committee
taking into account the Board-approved budget for 2017 as well as the committee’s expectations for
performance that in its estimation would warrant payment of incentive cash compensation. In formulating
the revenue target of $80,000,000, the Board considered 2016 results, current economic conditions, and
forecasts for 2017 government (U.S DOE) spending. The Compensation Committee believed the
performance targets were likely to be achieved, but not assured. No cash incentive-based compensation was
paid under any of the 2017 MIPs.
2018 MIPs
On January 18, 2018, the Board and the Compensation Committee approved individual MIP for our CEO,
CFO and EVP of Strategic Initiatives. The MIPs are effective January 1, 2018 and applicable for year 2018.
Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to
Compensation Committee oversight and modification. Each MIP awards cash compensation based on
achievement of performance thresholds, with the amount of such compensation established as a percentage
of the executive’s 2018 annual base salary on the approval date of the MIP. The potential target performance
compensation ranges from 5% to 100% of the base salary for the CEO ($13,350 to $267,000), 5% to 100%
of the base salary for the CFO ($11,475 to $229,494) and 5% to 100% of the base salary for the EVP of
Strategic Initiatives ($11,170 to $223,400).
Performance compensation is paid on or about 90 days after year-end, or sooner, based on finalization of
our audited financial statements for 2018. 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, CFO and EVP of Strategic Initiatives as a group is
not to exceed 50% of the Company’s pre-tax net income (exclusive of PF Medical) prior to the calculation
of performance compensation.
The following describes the principal terms of each 2018 MIP as approved on January 18, 2018:
CEO MIP:
2018 CEO performance compensation is based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2018
92
from our continuing operations (excluding PF Medical). The Compensation Committee believes
performance compensation payable under each of the 2018 MIPs as discussed herein and below should be
based on achievement of an EBITDA target, which excludes certain non-cash items, as this target provides a
better indicator of operating performance. However, 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 60% to 110% of each of the revenue and EBITDA targets, the potential performance
compensation is payable at 5% to 50% of the 2018 base salary. For this compensation, 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 2018, 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 2018. Upon achievement of
111% to 150%+ of each of the revenue and EBITDA targets, the potential performance compensation is
payable at 65% to 100% of the CEO’s 2018 base salary. For this compensation, the amount 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 2018 target performance incentive compensation
for our CEO is as follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$ 267,000
$ 133,500
$ 400,500
Perma-Fix Environmental Services, Inc.
2018 Management Incentive Plan
CEO MIP MATRIX
<60%
60%-74%
75%-89%
90%-110% 111%-129%
130%-150%
>150%
Performance Target Achieved
Revenue
EBITDA
Health & Safety
Permit & License Violations
$
$
-
-
-
-
-
$
1,334
$
6,674
$
13,350
$
19,071
$
26,700
$
32,421
8,010
2,003
40,050
80,100
114,429
160,200
194,529
10,013
20,025
20,025
20,025
20,025
2,003
13,350
$
10,013
66,750
$
20,025
133,500
$
20,025
173,550
$
20,025
226,950
$
20,025
267,000
$
1)
2)
3)
Revenue is defined as the total consolidated third-party top line revenue from continuing operations
(excluding PF Medical) as publicly reported in the Company’s 2018 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 $63,398,000.
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.
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 for 2018, which is $7,682,000. 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.
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 2018.
93
Work Comp.
Performance
Claim Number
Target Payable Under Column
6
5
4
3
2
1
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
4)
Permits or license incentive is earned/determined according to the scale set forth below: An “official
notice of non-compliance” is defined as an official communication during 2018 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
Performance
License Violations
Target Payable Under Column
6
5
4
3
2
1
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
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 60% of the EBITDA target is
achieved.
CFO MIP:
2018 CFO performance compensation is based upon meeting corporate revenue, EBITDA, health and
safety, and environmental compliance (permit and license violations) objectives during fiscal year 2018
from our continuing operations (excluding PF Medical). At achievement of 60% to 110% of each of the
revenue and EBITDA targets, the potential performance compensation is payable at 5% to 50% of the 2018
base salary. For this compensation, 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 2018, 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 2018. Upon achievement of 111% to 150%+ of each of the revenue and
EBITDA targets, the potential performance compensation is payable at 65% to 100% of the CFO’s 2018
base salary. For this compensation, the amount 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 2018 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):
$ 229,494
$ 114,747
$ 344,241
94
Perma-Fix Environmental Services, Inc.
2018 Management Incentive Plan
CFO MIP MATRIX
<60%
60%-74%
75%-89%
90%-110% 111%-129%
130%-150%
>150%
Performance Target Achieved
Revenue
EBITDA
Health & Safety
Permit & License Violations
$
$
-
-
-
-
-
$
1,146
$
5,736
$
11,475
$
16,392
$
22,949
$
27,867
6,885
1,722
34,424
68,848
98,355
137,696
167,203
8,607
17,212
17,212
17,212
17,212
1,722
11,475
$
8,607
57,374
$
17,212
114,747
$
17,212
149,171
$
17,212
195,069
$
17,212
229,494
$
1)
2)
3)
Revenue is defined as the total consolidated third-party top line revenue from continuing operations
(excluding Medical) as publicly reported in the Company’s 2018 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 $63,398,000. 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.
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 for 2018, which is $7,682,000. 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.
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 2018.
Work Comp.
Claim Number
Performance
Target Payable Under Column
6
5
4
3
2
1
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
4)
Permits or license incentive is earned/determined according to the scale set forth below: An “official
notice of non-compliance” is defined as an official communication during 2018 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).
95
Permit and
Performance
License Violations
Target Payable Under Column
6
5
4
3
2
1
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
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 60% of the EBITDA target is
achieved.
EVP of Strategic Initiatives MIP:
2018 EVP of Strategic Initiatives performance compensation is based upon meeting corporate revenue,
EBITDA, health and safety, and environmental compliance (permit and license violations) objectives during
fiscal year 2018 from our continuing operations (excluding PF Medical). At achievement of 60% to 110%
of each of the revenue and EBITDA targets, the potential performance compensation is payable at 5% to
50% of the 2018 base salary. For this compensation, 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 2018, 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 2018. Upon achievement of 111% to 150%+ of each of
the revenue and EBITDA targets, the potential performance compensation is payable at 65% to 100% of the
EVP of Strategic Initiative’s 2018 base salary. For this compensation, the amount 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 2018 target performance incentive compensation
for our EVP of Strategic Initiatives is as follows:
Annualized Base Pay:
Performance Incentive Compensation Target (at 100% of Plan):
Total Annual Target Compensation (at 100% of Plan):
$ 223,400
$ 111,700
$ 335,100
Perma-Fix Environmental Services, Inc.
2018 Management Incentive Plan
EVP OF STRATEGIC INITIATIVES MIP MATRIX
<60%
60%-74%
75%-89%
90%-110% 111%-129%
130%-150%
>150%
Performance Target Achieved
Revenue
EBITDA
Health & Safety
Permit & License Violations
$
$
-
-
-
-
-
$
1,116
$
5,584
$
11,170
$
15,957
$
22,340
$
27,127
6,702
1,676
33,510
67,020
95,743
134,040
162,763
8,378
16,755
16,755
16,755
16,755
1,676
11,170
$
8,378
55,850
$
16,755
111,700
$
16,755
145,210
$
16,755
189,890
$
16,755
223,400
$
1)
Revenue is defined as the total consolidated third-party top line revenue from continuing operations
(excluding Medical) as publicly reported in the Company’s 2018 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 $63,398,000. 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.
96
2)
3)
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 for 2018, which is $7,682,000. 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.
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 2018.
Work Comp.
Claim Number
Performance
Target Payable Under Column
6
5
4
3
2
1
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150+
4)
Permits or license incentive is earned/determined according to the scale set forth below: An “official
notice of non-compliance” is defined as an official communication during 2018 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
Performance
License Violations
Target Payable Under Column
6
5
4
3
2
1
60%-74%
75%-89%
90%-110%
111%-129%
130%-150%
>150%
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 60% of the EBITDA target is
achieved.
2018 MIP Targets
As discussed above, 2018 MIPs approved for the CEO, CFO and EVP of Strategic Initiatives by the Board
and the Compensation Committee provide for the award of cash compensation based on achievement of
performance targets which included revenue and EBITDA targets as approved by our Board. The 2018 MIP
revenue target of $63,398,000 and EBITDA target of $7,682,000 were set by the Compensation Committee
97
taking into account the Board-approved budget for 2018 as well as the committee’s expectations for
performance that in its estimation would warrant payment of incentive cash compensation. In formulating
the revenue target of $63,398,000, the Board considered 2017 results, current economic conditions, and
forecasts for 2018 government (U.S DOE) spending. The Compensation Committee believes the
performance targets are likely to be achieved, but not assured.
Long-Term Incentive Compensation
Employee Stock Option Plans
The 2010 Stock Option Plan and 2017 the Stock Option Plan (together, the “Option Plans”) encourage
participants to focus on long-term performance and provides an opportunity for executive officers and
certain designated key employees to increase their stake in the Company. Stock options succeed by
delivering value to executives only when the value of our stock increases. The Option Plans authorize the
grant of Non-Qualified Stock Options (“NQSOs”) and Incentive Stock Options (“ISOs”) for the purchase of
our Common Stock.
The Option Plans assist the Company to:
•
enhance the link between the creation of stockholder value and long-term executive incentive
compensation;
• provide an opportunity for increased equity ownership by executives; and
• maintain competitive levels of total compensation;
Stock option award levels are determined based on market data, vary among participants based on their
positions with us and are granted generally at the Compensation Committee’s regularly scheduled July or
August 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.
On July 27, 2017, the Company granted ISOs from the 2017 Stock Option Plan to the NEOs as follows:
100,000 ISOs to Mr. Mark Duff; 50,000 ISOs to Dr. Louis Centofanti; and 50,000 ISOs to Mr. Ben
Naccarato. The ISOs granted were for a contractual term of six years with one-fifth yearly vesting over a
five year period. The exercise price of the ISOs was $3.65 per share, which was equal to the fair market
value of the Company’s common stock on the date of grant.
Additionally, Mr. Duff has outstanding 50,000 ISO’s granted to him by the Company on May 15, 2016
from the 2010 Stock Option Plan. The ISOs granted were for a contractual term of six years with one-third
vesting annually over a three-year period. The exercise price of the ISOs was $3.97 per share, which was
equal to the fair market value of the Company’s Common Stock on the date of grant.
In cases of termination of an executive officer’s employment due to death, by the executive for “good
reason”, by the Company without cause, and due to a “change of control,” all outstanding stock options to
purchase common stock held by the executive officer will immediately become exercisable in full (see
further discussion of these fully vested options and exercisability term of these options in each of these
circumstances in “Item 11 – EXECUTIVE COMPENSATION – Employment Agreements.” Otherwise,
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 retirement (subject
to a six month limitation) and disability (subject to a one-year limitation).
98
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.
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. In 2017, the
Company contributed approximately $326,000 in 401(k) matching funds, of which approximately $15,000
was for our NEOs (see the “Summary Compensation” table in this section for 401(k) matching fund
contributions made for the NEOs for 2017). In 2016, the Company contributed approximately $307,000 in
401(k) matching funds, of which approximately $15,000 was for our 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 July 27, 2017, our stockholders voted, on a non-binding,
advisory basis, on the compensation of our NEOs for 2016. A substantial majority (approximately 88%) of
the total votes cast on our say-on-pay proposal at that meeting approved the compensation of our NEOs for
2016 on a non-binding, advisory basis. The Compensation Committee and the Board believes that this
affirms our stockholders’ support of our approach to executive compensation. The Compensation
Committee expects to continue to consider the results of future stockholder say-on-pay advisory votes when
making future compensation decisions for our NEOs. We will hold an advisory vote on the compensation of
our NEOs at our 2018 annual meeting of stockholders.
Compensation of Directors
Directors who are employees receive no additional compensation for serving on the Board or its
committees. In 2017, 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;
•
99
•
•
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 meeting attendance via
conference call.
Each director may elect to have either 65% or 100% of such fees payable in Common Stock under the 2003
Outside Directors Stock Plan (“2003 Outside Directors Plan”), with the balance payable in cash.
Dr. Louis Centofanti, a current member of the Board, is not eligible to receive compensation for his service
as a director of the Company as he is an employee (named executive officer) of the Company. Mr. John
Climaco, who did not stand for reelection at the Company’s 2017 Annual Meeting, was also not eligible to
receive compensation for his service as director of the Company as he was EVP of PF Medical (the
Company’s majority-owned Polish subsidiary) from June 2, 2015 to June 30, 2017. As EVP of PF Medical,
Mr. Climaco was provided an annual salary of $150,000 from PF Medical. See “Summary Compensation”
table in this section for Dr. Centofanti’s annual salary as an employee of the Company.
The table below summarizes the director compensation expenses recognized by the Company for the
director options and stock awards (resulting from fees earned) for the year ended December 31, 2017. The
terms of the 2003 Outside Directors Plan are further described below under “2003 Outside Directors Plan.”
Director Compensation
Fees
Earned or
Name
S. Robert Cochran
Dr. Gary G. Kugler
Joe R. Reeder
Larry M. Shelton
Mark A. Zwecker
In Cash
($) (1)
6,101
13,125
—
23,800
21,000
Paid
Stock
Awards
($) (2)
Option
Awards
($) (3)
40,446
32,502
50,002
58,936
52,000
21,732
5,952
5,952
5,952
5,952
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
Non-Equity
Incentive Plan
Compensation
($)
—
—
—
—
—
($)
—
—
—
—
—
All Other
Compensation
Total
($)
—
—
—
—
—
($)
68,279
51,579
55,954
88,688
78,952
(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 exclude the value of
the directors’ fee elected to be paid in Common Stock under the 2003 Outside Directors Plan, which values are included under
“Stock Awards.”
(2)
The number of shares of Common Stock comprising stock awards granted under the 2003 Outside Directors Plan is calculated
based on 75% of the closing market value of the Common Stock as reported on the NASDAQ on the business day
immediately preceding the date that the quarterly fee is due. Such shares are fully vested on the date of grant. The value of
the stock award is based on the market value of our Common Stock at each quarter end times the number of shares issuable
under the award. The amount shown is the fair value of the Common Stock on the date of the award.
(3) Options granted under the Company’s 2003 Outside Directors Plan resulting from re-election to the Board of Directors on
July 27, 2017. Options are for a 10-year period with an exercise price of $3.55 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 ($2.48) 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.” Option awards for S. Robert Cochran also included 6,000 options granted to
him upon initial appointment to the Board on January 13, 2017. The options are for a 10-year period with an exercise price of
$3.79 per share and are fully vested six months from date of grant. The fair value of the 6,000 options was determined to be
approximately $15,780 based on fair value of $2.63 per share. The following table reflects the aggregate number of
outstanding non-qualified stock options held by the Company’s directors at December 31, 2017. As an employee of the
Company or its subsidiaries, Dr. Centofanti is not eligible to participate in the 2003 Outside Directors Plan. Options reflected
below for Dr. Centofanti were granted from the 2017 Option Plan as discussed previously:
100
Name
S. Robert Cochran
Dr. Louis Centofanti
Dr. Gary G. Kugler
Joe R. Reeder
Larry M. Shelton
Mark A. Zwecker
Total
Options Outstanding at
December 31, 2017
8,400
50,000
9,600
24,000
24,000
24,000
140,000
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 Outside 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 Outside 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. At December 31, 2017, options to purchase 154,800 shares of
Common Stock were outstanding under the 2003 Outside Directors Plan, of which 142,800 were vested at
December 31, 2017.
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 2017, the fees
earned by our outside directors totaled approximately $298,000. 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 Outside Directors Plan.
At December 31, 2017, we have issued 547,985 shares of our Common Stock in payment of director fees
since the inception of the 2003 Outside Directors Plan.
In the event of a “change of control” (as defined in the 2003 Outside 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
December 31, 2017, 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)
TALANTA Investment Group, LLC (3)
Title
Of Class
Common
Common
Amount and
Nature of
Ownership
1,397,560
772,356
Percent
Of
Class (1)
11.9%
6.6%
(1) The number of shares and the percentage of outstanding Common Stock shown as beneficially owned by
a person are based upon 11,747,055 shares of Common Stock outstanding on February 20, 2018, 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.
101
(2) This information is based on the Schedule 13F of Heartland Advisors, Inc., an investment advisor, filed
with the Securities and Exchange Commission on February 2, 2018, disclosing that at December 31, 2017,
Heartland Advisors, Inc. had dispositive power over all shares shown above, but shared voting power over
1,236,833 of such shares and no voting power over 160,727 of the shares. The address of Heartland
Advisors, Inc. is 789 North Water Street, Milwaukee, WI 53202.
(3) This information is based on the Schedule 13D of TALANTA Investment Group, LLC, a private
investment firm, filed with the Securities and Exchange Commission on August 2, 2017, disclosing that as
of July 25, 2017, (i) TALANTA Investment Group, LLC, (ii) TALANTA Fund, L.P, and (iii) Justyn R.
Putnam (collectively, the “Reporting Persons”), had shared dispositive power and shared voting power over
all shares shown in the table above. The address of the Reporting Persons is 401N. Tryon Street, 10th Floor,
Charlotte, North Carolina 28202.
As of February 12, 2018, Capital Bank–Grawe Gruppe AG (“Capital Bank”), a banking institution regulated
by the banking regulations of Austria, holds of record as a nominee for, and as an agent of, certain
accredited investors, 1,413,029 shares of our Common Stock. 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 disposition or
investment of such stock. Additionally, Capital Bank's investors maintain full voting and dispositive power
over the Common Stock beneficially owned by such investors, and Capital Bank has neither voting nor
investment power over such shares. Accordingly, Capital Bank believes that (i) it is not the beneficial
owner, as such term is defined in Rule 13d-3 of the Exchange Act, of the shares of Common Stock
registered in Capital Bank’s name because (a) Capital Bank holds the Common Stock as a nominee only, (b)
Capital Bank has neither voting nor investment power over such shares, and (c) Capital Bank has not
nominated or sought to nominate, and does not intend to nominate in the future, any person to serve as a
member of our Board; and (ii) 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.
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 was 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 12, 2018:
Name of
Record Owner
Capital Bank-Grawe Gruppe
Title
Of Class
Common
Amount and
Nature of
Ownership
1,413,029(+)
Percent
Of
Class (*)
12.0%
(*) This calculation is based upon 11,747,055 shares of Common Stock outstanding on February 20, 2018,
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
102
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 20, 2018, 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)
S. Robert Cochran (4)
Dr. Gary Kugler (5)
Joe R. Reeder (6)
Larry M. Shelton (7)
Zack Wamp (8)
Mark A. Zwecker (9)
Ben Naccarato (10)
Mark Duff (11)
Directors and Executive Officers as a Group (9 persons)
Amount and Nature
of Beneficial Owner (1)
215,925
19,636
51,560
160,701
112,164
—
180,062
(3)
(4)
(5)
(6)
(7)
(8)
(9)
1,500
(10)
(11)
22,667
764,215 (12)
Percent of Class (1)
1.84%
*
*
1.37%
*
*
1.53%
*
*
6.45%
*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) 153,125 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. Cochran has sole voting and investment power over these shares which include: (i) 11,236 shares of
Common Stock held of record by Mr. Cochran, 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) 41,960 shares of
Common Stock held of record by Dr. Kugler, and (ii) options to purchase 9,600 shares, which are
immediately exercisable.
(6) Mr. Reeder has sole voting and investment power over these shares which include: (i) 136,701 shares of
Common Stock held of record by Mr. Reeder, and (ii) options to purchase 24,000 shares, which are
immediately exercisable.
(7) Mr. Shelton has sole voting and investment power over these shares which include: (i) 88,164 shares of
Common Stock held of record by Mr. Shelton, and (ii) options to purchase 24,000 shares, which are
immediately exercisable. Mr. Shelton also owns 750 shares of PF Medical’s Common Stock.
(8) Mr. Wamp does not beneficially own any of the Company’s shares.
103
(9) Mr. Zwecker has sole voting and investment power over these shares which include: (i) 156,062 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 all such shares, which are held of record by
Mr. Naccarato. Mr. Naccarato also owns 100 shares of PF Medical’s Common Stock.
(11) Mr. Duff has sole voting and investment power over these shares which include: (i) 6,000 shares of
Common Stock held of record by Mr. Duff, and (ii) options to purchase 16,667 shares, which are
immediately exercisable.
(12) Amount includes 106,667 options, which are immediately exercisable.
Equity Compensation Plans
The following table sets forth information as of December 31, 2017, with respect to our equity
compensation plans.
Equity Compensation Plan
Number of securities to
be issued upon exercise
of outstanding options
warrants and rights
(a)
Weighted average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
(c)
624,800
—
624,800
$4.42
—
$4.42
521,215
—
521,215
Plan Category
Equity compensation plans
approved by stockholders
Equity compensation plans not
approved by stockholders
Total
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We describe below transactions to which we were a party during our last two fiscal years or to which we
currently propose to be a party in the future, and in which:
•
•
the amounts involved exceeded or will exceed the lesser of $120,000 or one percent of the average
of our total assets at year-end for the last two completed fiscal years; and
any of our directors, executive officers or beneficial owners of more than 5% of any class of our
voting securities, or any member of the immediate family of the foregoing persons, had or will have
a direct or indirect material interest.
Audit Committee Review
Our Audit Committee Charter provides for the review by the Audit Committee of any related party
transactions, other than transactions involving an employment relationship with the Company, which are
reviewed by the Compensation Committee. Although we do not have written policies for the review of
related party transactions, the Audit Committee reviews transactions between the Company and its directors,
executive officers, and their respective immediate family members. In reviewing a proposed transaction, the
Audit Committee takes into account, among other factors it deems appropriate:
the extent of the related person’s interest in the transaction;
(1)
(2) whether the transaction is on terms generally available to an unaffiliated third-party under the
same or similar circumstances;
(3) the cost and benefit to the Company;
104
(4) the impact or potential impact on a director’s independence in the event the related party is a
director, an immediate family member of a director or an entity in which a director is a partner,
stockholder or executive officer;
(5) the availability of other sources for comparable products or services;
(6) the terms of the transaction; and
(7) the risks to the Company.
Related party transactions are reviewed by the Audit Committee prior to the consummation of the
transaction. With respect to a related party transaction arising between Audit Committee meetings, the CFO
may present it to the Audit Committee Chairperson, who will review and may approve the related party
transaction subject to ratification by the Audit Committee at the next scheduled meeting. Our Audit
Committee shall approve only those transactions that, in light of known circumstances, are not inconsistent
with the Company’s best interests.
Related Party Transactions
David Centofanti
David Centofanti serves as our Vice President of Information Systems. For such position, he received
annual compensation of $168,000 for each of the years 2017 and 2016. David Centofanti is the son of Dr.
Louis F. Centofanti, our EVP of Strategic Initiatives and a Board member. Dr. Louis Centofanti previously
held the position of President and CEO until September 8, 2017.
Robert L. Ferguson
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. Robert Ferguson previously
served as a Board member of the Company from June 2007 to February 2010 and again from August 2011
to September 2012. The Company previously completed a lending transaction with Robert Ferguson and
William Lampson in August 2013 (collectively, the “Lenders”) whereby the Company borrowed from the
Lenders $3,000,000 which was paid in full by the Company in August 2016. Robert Ferguson is also a
consultant to the Company in connection with the Company’s Test Bed Initiative (“TBI”) at its Perma-Fix
Northwest Richland, Inc. (“PFNWR”) facility. As an advisor to the Company’s Board, Robert Ferguson is
paid $4,000 monthly plus reasonable expenses. For such services, Robert Ferguson received compensation
of approximately $51,000 and $59,000 for the years ended December 31, 2017 and 2016, respectively. For
Robert Ferguson’s consulting work in connection with the Company’s TBI, on July 27, 2017 (“grant date”),
the Company granted Robert Ferguson a stock option from the Company’s 2017 Stock Option Plan for the
purchase of up to 100,000 shares of the Company’s common stock at an exercise price of $3.65 a share,
which was the fair market value of the Company’s common stock on the date of grant (“Ferguson Stock
Option”). The vesting of the Ferguson Stock Option is subject to the achievement of the following
milestones (“waste” as noted below is defined as liquid LAW (“low activity waste”) and/or liquid TRU
(“transuranic waste”)):
• Upon treatment and disposal of three gallons of waste at the PFNWR facility by January 27, 2018,
10,000 shares of the Ferguson Stock Option shall become exercisable;
• Upon treatment and disposal of 2,000 gallons of waste at the PFNWR facility by January 27, 2019,
30,000 shares of the Ferguson Stock Option shall become exercisable; and
• Upon treatment and disposal of 50,000 gallons of waste at the PFNWR facility and assistance, on
terms satisfactory to the Company, in preparing certain justifications of cost and pricing data for the
waste and obtaining a long-term commercial contract relating to the treatment, storage and disposal
of waste by January 27, 2021, 60,000 shares of the Ferguson Stock Option shall become
exercisable.
The term of the Ferguson Stock Option is seven (7) years from the grant date. Each of the milestones is
exclusive of each other; therefore, achievement of any of the milestones above by Robert Ferguson by the
designated date will provide Robert Ferguson the right to exercise the number of options in accordance with
105
the milestone attained. The 10,000 options as noted above become vested by Robert Ferguson on December
19, 2017. The fair value of the 10,000 options was determined to be approximately $20,000.
John Climaco
John Climaco, who had been a director since October 2013, did not stand for reelection at the Company’s
2017 Annual Meeting of Stockholders held on July 27, 2017. In addition to his previous service as a board
member, John Climaco also served as EVP of PF Medical, a majority-owned Polish subsidiary of the
Company, from June 2, 2015 to June 30, 2017. As EVP of PF Medical, John Climaco received an annual
salary of $150,000 and was not eligible to receive compensation for serving on the Company’s Board. PF
Medical had entered into a multi-year supplier agreement and stock subscription agreement in July 2015
with Digirad Corporation, where John Climaco serves as a board member.
Board Independence
Our Common Stock is listed on the NASDAQ Capital Market. Rule 5605 of the NASDAQ Marketplace
Rules requires a majority of a listed company's board of directors to be comprised of independent directors.
In addition, the NASDAQ Marketplace Rules require that, subject to specified exceptions, each member of
a listed company's audit, compensation and corporate governance and nominating committees be
independent under applicable provisions of the Exchange Act. Audit committee members must also satisfy
independence criteria set forth in Rule 10A-3 under the Exchange Act, and compensation committee
members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. Under
NASDAQ Rule 5605(a)(2), a director will only qualify as an "independent director" if, in the opinion of our
Board, that person does not have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. In order to be considered independent for
purposes of Rule 10A-3 under the Exchange Act, a member of an audit committee of a listed company may
not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other
board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the
listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of
its subsidiaries. In order to be considered independent for purposes of Rule 10C-1, the board must consider,
for each member of a compensation committee of a listed company, all factors specifically relevant to
determining whether a director has a relationship to such company which is material to that director's ability
to be independent from management in connection with the duties of a compensation committee member,
including, but not limited to: the source of compensation of the director, including any consulting advisory
or other compensatory fee paid by such company to the director; and whether the director is affiliated with
the company or any of its subsidiaries or affiliates.
Our Board annually undertakes a review of the composition of our Board and its committees and the
independence of each director. Based upon information requested from and provided by each director
concerning his or her background, employment and affiliations, including family relationships, our Board has
determined that each of Messrs. S. Robert Cochran, Dr. Gary Kugler, Honorable Joe R. Reeder, Larry M.
Shelton, Zach Wamp and Mark A. Zwecker is an "independent director" as defined under the NASDAQ
Marketplace Rules. Our Board has also determined that Mr. Mark A. Zwecker (Chairperson), Dr. Gary G.
Kugler, Mr. S. Robert Cochran, and Mr. Larry M. Shelton (who was a member of the Audit Committee until
April 20, 2017), who comprise/comprised our Audit Committee, and Dr. Gary G. Kugler (Chairperson), Mr.
Larry M. Shelton, and the Honorable Joe R. Reeder, who comprise our Compensation and Stock Option
Committee, satisfy the independence standards for such committees established by the Securities and
Exchange Commission and the NASDAQ Marketplace Rules, as applicable. In making such determination,
our Board considered the relationships that each such non-employee director has with our Company and all
other facts and circumstances our Board deemed relevant in determining independence, including the
beneficial ownership of our capital stock by each non-employee director.
Our Board has determined that Dr. Centofanti is not deemed to be an “independent director” because of his
employment as an executive officer of the Company. Our Board of Director also determined that Mr.
Climaco, who did not stand for re-election at the Company’s 2017 Annual Meeting of Stockholders on July
27, 2017, did not qualify as an “independent director” because of his previous employment as EVP of PF
Medical, a majority-owned Polish subsidiary of the Company and because of his directorship at Digirad
106
Corporation, a company which PF Medical had previously entered into a multi-year supplier agreement and
stock subscription agreement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table reflects the aggregate fees for the audit and other services provided by Grant Thornton
LLP, the Company’s independent registered public accounting firm, for fiscal years 2017 and 2016:
Fee Type
2017
2016
Audit Fees(1)
Tax Fees (2)
Total
$
454,000
393,000
92,000
$
546,000
165,000
558,000
(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 reasonably provide, such as consents
and review of regulatory documents filed with the Securities and Exchange Commission.
(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 2017 and 2016 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
107
Schedules are not required, are not applicable or the information is set forth in the consolidated
financial statements or notes thereto.
(a)(3)
Exhibits
The Exhibits listed in the Exhibit Index are filed or incorporated by reference as a part of this
report.
SIGNATURES
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.
Perma-Fix Environmental Services, Inc.
By /s/ Mark Duff
Mark Duff
Chief Executive Officer, President and
Principal Executive Officer
By /s/ Ben Naccarato
Ben Naccarato
Chief Financial Officer and
Principal Financial Officer
Date March 16, 2018
Date March 16, 2018
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 16, 2018
By /s/ S. Robert Cochran
Robert Cochran, Director
By /s/ Dr. Gary G. Kugler
Dr. Gary Kugler, Director
By /s/ Joe R. Reeder
Joe R. Reeder, Director
Date March 16, 2018
Date March 16, 2018
Date March 16, 2018
By /s/ Larry M. Shelton
Date March 16, 2018
Larry M. Shelton, Chairman of the Board
By /s/ Zach P. Wamp
Zach P. Wamp, Director
By /s/ Mark A. Zwecker
Mark A. Zwecker, Director
Date March 16, 2018
Date March 16, 2018
108
Exhibit
No.
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
4.12
EXHIBIT INDEX
Description
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 effective July 28, 2016, of Perma-Fix
Environmental Services, Inc., as incorporated by reference from Exhibit 3(ii) to the
Company’s 8-K filed on August 1, 2016.
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.
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.
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.
Second Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement and Waiver, dated May 9, 2013, between the Company and PNC Bank, National
Association, as incorporated by reference from Exhibit 4.1 to the Company’s Form 10-Q for
the quarter ended March 31, 2013, filed on May 10, 2013.
Third Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement between PNC Bank, National Association and Perma-Fix Environmental
Services, Inc., dated August 2, 2013, as incorporated by reference from Exhibit 4.1 to the
Company’s Form 10-Q for the quarter ended June 30, 2013, filed on August 8, 2013.
Third Amended, Restated and Substituted Revolving Credit Note between PNC Bank,
National Association and Perma-Fix Environmental Services, Inc., dated August 2, 2013,
as incorporated by reference from Exhibit 4.2 to the Company’s Form 10-Q for the quarter
ended June 30, 2013, filed on August 8, 2013.
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.
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, as incorporated by reference from Exhibit 4.17 to the
Company’s 2015 Form 10-K filed on March 24, 2016.
Eighth 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 22, 2016, as incorporated by reference from Exhibit 4.9 to the
Company’s Form 10-Q for the quarter ended June 30, 2016 filed on August 22, 2016.
109
4.13
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Ninth Amendment to Amended and Restated Revolving Credit, Term Loan and Security
Agreement between PNC Bank, National Association and Perma-Fix Environmental
Services, Inc., dated November 17, 2016, as incorporated by reference from Exhibit 4.10 to
the Company’s Form 10-Q for the quarter ended September 30, 2016 filed on November 18,
2016.
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.
Third Amendment to 2003 Outside Directors Stock Plan.
Fourth Amendment to 2003 Outside Directors Stock Plan, as incorporated by reference
from Exhibit A to the Company’s Proxy Statement for its 2017 Annual Meeting of
Stockholders filed on June 22, 2017.
2017 Stock Option Plan, as incorporated by reference from Exhibit B to the Company’s
Proxy Statement for its 2017 Annual Meeting of Stockholders filed on June 22, 2017.
Employment Agreement dated September 8, 2017 between Mark Duff, Chief Executive
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 99.1 to the Company’s Form 8-K filed on September 12, 2017.
Employment Agreement dated September 8, 2017 between Dr. Louis Centofanti, Executive
Vice President of Strategic Initiatives, and Perma-Fix Environmental Services, Inc., which
is incorporated by reference from Exhibit 99.2 to the Company’s Form 8-K filed on
September 12, 2017.
Employment Agreement dated September 8, 2017 between Ben Naccarato, Chief Financial
Officer, and Perma-Fix Environmental Services, Inc., which is incorporated by reference
from Exhibit 99.3 to the Company’s Form 8-K filed on September 12, 2017.
2017 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2017,
as incorporated by reference from Exhibit 99.2 to the Company’s Form 8-K filed on January
25, 2017.
2017 Incentive Compensation Plan for Executive Vice President/Chief Operating Officer,
effective January 1, 2017, as incorporated by reference from Exhibit 99.3 to the Company’s
Form 8-K filed on January 25, 2017.
2017 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2017, as
incorporated by reference from Exhibit 99.4 to the Company’s Form 8-K filed on January
25, 2017.
2018 Incentive Compensation Plan for Chief Executive Officer, effective January 1, 2018,
as incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K filed on January
23, 2018.
2018 Incentive Compensation Plan for Chief Financial Officer, effective January 1, 2018, as
incorporated by reference from Exhibit 99.2 to the Company’s Form 8-K filed on January
23, 2018.
2018 Incentive Compensation Plan for Executive Vice President of Strategic Initiatives,
effective January 1, 2018, as incorporated by reference from Exhibit 99.3 to the Company’s
Form 8-K filed on January 23, 2018.
Incentive Stock Option Agreement dated July 27, 2017 between Perma-Fix Environmental
Services, Inc., and Chief Executive Officer, as incorporated by reference from Exhibit 99.1
to the Company’s Form 8-K filed on August 2, 2017.
Incentive Stock Option Agreement dated July 27, 2017 between Perma-Fix Environmental
Services, Inc., and Executive Vice President/Chief Operating Officer, as incorporated by
reference from Exhibit 99.2 to the Company’s Form 8-K filed on August 2, 2017.
Incentive Stock Option Agreement dated July 27, 2017 between Perma-Fix Environmental
Services, Inc., and Chief Financial Officer, as incorporated by reference from Exhibit 99.3
to the Company’s Form 8-K filed on August 2, 2017.
Stock Option Agreement dated July 27, 2017 between Perma-Fix Environmental Services,
Inc., and Mr. Robert L. Ferguson, as incorporated by reference from Exhibit 10.6 to the
Company’s third quarter Form 10-Q filed on August 9, 2017.
110
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
List of Subsidiaries
Consent of Grant Thornton, LLP
Certification by Mark Duff, Chief Executive Officer and Principal Executive Officer of the
Company pursuant to Rule 13a-14(a) and 15d-14(a).
Certification by Ben Naccarato, Chief Financial Officer and Principal Financial Officer of
the Company pursuant to Rule 13a-14(a) and 15d-14(a).
Certification by Mark Duff, Chief Executive Officer and Principal Executive Officer of the
Company furnished pursuant to 18 U.S.C. Section 1350.
Certification by Ben Naccarato, Chief Financial Officer and Principal Financial 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.
111
EXHIBIT 31.1
CERTIFICATIONS
I, Mark Duff, 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 16, 2018
/s/ Mark Duff
Mark Duff
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 16, 2018
/s/ Ben Naccarato
Ben Naccarato
Chief Financial Officer and
Principal Financial Officer
(This page intentionally left blank.)
C O R P O R ATE
I N FO R M ATI O N
Board of Directors
Dr. Louis F. Centofanti
Executive Vice President of
Strategic Initiatives
(Director since 1991)
Stanley Robert Cochran
Director(1)(2)(4)
President and Chief Executive
Officer of CTG, LLC
(Director since January 2017)
Dr. Gary Kugler
Director(5)
Former Senior Vice President of
Atomic Energy of Canada Limited
(Director since 2013)
Joe R. Reeder
Director(2)(3)(4)
Shareholder of
Greenburg Traurig, LLP,
Former Army Undersecretary
(Director since 2003)
Larry M. Shelton
Chairman of the Board(1)(3)(4)
Chief Financial Officer of
S K Hart Management
(Director since 2004)
Zach P. Wamp
Director(2)
President of Zach Wamp Consulting
(Director since January 2018)
Mark A. Zwecker
Director(1)(3)(4)
Chief Financial Officer of JCI US Inc.
(Director since 1991)
(1) Member of Audit Committee
(2) Member of Corporate Governance
and Nominating Committee
(3) Member of Compensation and
Stock Option Committee
(4) Member of Strategic Advisory
Committee
(5) Dr. Kugler is not standing for
re-election as a member of the
Board at the 2018 Annual Meeting of
Shareholders but would remain a
member of the Board until such
Annual Meeting.
Management Team
Mark Duff
President and
Chief Executive Officer
Ben Naccarato
Vice President and
Chief Financial Officer
Dr. Louis F. Centofanti
Executive Vice President of
Strategic Initiatives
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,
impairment charges on tangible and intangible assets, write-off of prepaid fees resulting from tangible asset
impairment loss and closure costs accrued for East Tennessee Materials and Energy Corporation (M&EC)
(where applicable). Both EBITDA and adjusted EBITDA are not measures of performance calculated in accor-
dance 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 oper-
ating performance. The Company’s management utilizes EBITDA and adjusted EBITDA as a 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) income from continuing operations for the period noted.
(In thousands)
(Loss) income from continuing operations
Adjustments:
Depreciation and amortization
Interest income
Interest expense
Interest expense—financing fees
Income tax (benefit) expense
EBITDA
Research and development costs related to medical isotope project
Impairment loss on tangible assets
Impairment loss on intangible assets
Write-off of prepaid fees resulting from impairment loss on tangible asset
Closure costs accrued for M&EC subsidiary
Adjusted EBITDA
Fiscal Year
2016
Fiscal Year
2017
First Quarter
2018
$(13,263)
$(3,538)
$253
4,165
(110)
489
108
(2,994)
(11,605)
1,489
1,816
8,288
587
—
$ 575
3,803
(140)
315
35
(1,285)
(810)
1,141
672
—
—
1,400
$ 2,403
372
(49)
53
9
51
689
100
—
—
—
—
$789
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, further benefit of our initiatives; increased opportunities for waste treatment growth and
nuclear services opportunities in the latter half of 2018; leverage our existing permitted facilities to deploy new
technologies; benefit of the GeoMelt® system; new international opportunities should contribute to our growth;
increasing our win-rate; path for eventual regulatory approval in the U.S.; and revenue growth has the potential
to significantly enhance our profitability. 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 2017 Annual Report.
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Corporate Information
Executive Offices
8302 Dunwoody Place,
Suite 250
Atlanta, Georgia 30350
Telephone: 770-587-9898
Fax: 770-587-9937
Transfer Agent and Registrar
Continental Stock Transfer &
Trust Company
One State Street Plaza,
30th Floor
New York, New York
10004-1561
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.
Stockholder Inquiries
Inquiries concerning stock-
holder records should be
addressed to the Transfer
Agent listed above. 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.
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