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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

Form 10-Q

 

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

 

For the quarterly period ended March 31, 2024

 

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)

 

58-1954497

(IRS Employer
Identification Number)

     

8302 Dunwoody Place, Suite 250, Atlanta, GA

(Address of principal executive offices)

 

30350

(Zip Code)

 

(770) 587-9898

(Registrant’s telephone number)

 

N/A

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class

  Trading Symbol  

Name of each exchange on which registered

Common Stock, $.001 Par Value

 

PESI

 

Nasdaq Capital Markets

 

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 ☒ 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 ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☒ Smaller reporting company Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the close of the latest practical date.

 

Class   Outstanding at May 2, 2024
Common Stock, $.001 Par Value   13,735,303 shares

 

 

 

 
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

 

INDEX

 

    Page No.
PART I FINANCIAL INFORMATION
     
  Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 
       
    Condensed Consolidated Balance Sheets - March 31, 2024 and December 31, 2023 1
       
    Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2024 and 2023 3
       
    Condensed Consolidated Statements of Comprehensive Loss - Three Months Ended March 31, 2024 and 2023 4
       
    Condensed Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2024 and 2023 5
       
   

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023

6
       
    Notes to Condensed Consolidated Financial Statements 7
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
       
  Item 4. Controls and Procedures 30
       

PART II

OTHER INFORMATION  
     

 

Item 1.

Legal Proceedings

30
       
  Item 1A. Risk Factors 30
       
 

Item 6.

Exhibits

31

 

 
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Condensed Consolidated Balance Sheets

 

           
   March 31, 2024 
(Amounts in Thousands, Except for Share and Per Share Amounts)  (Unaudited)  December 31, 2023
       
ASSETS          
Current assets:          
Cash  $2,374   $7,500 
Accounts receivable, net of allowance for credit losses of $19 and $30, respectively   8,701    9,722 
Unbilled receivables   8,797    8,432 
Inventories   1,071    1,155 
Prepaid and other assets   3,955    3,738 
Current assets related to discontinued operations   13    13 
Total current assets   24,911    30,560 
           
Property and equipment:          
Buildings and land   24,319    24,311 
Equipment   22,930    22,809 
Vehicles   434    434 
Leasehold improvements   8    8 
Office furniture and equipment   1,140    1,130 
Construction-in-progress   1,158    1,010 
Total property and equipment   49,989    49,702 
Less accumulated depreciation   (31,099)   (30,693)
Net property and equipment   18,890    19,009 
           
Property and equipment related to discontinued operations   81    81 
           
Operating lease right-of-use assets   1,885    1,990 
           
Intangibles and other long term assets:          
Permits   9,973    9,905 
Other intangible assets - net   442    461 
Finite risk sinking fund (restricted cash)   12,222    12,074 
Deferred tax assets   5,284    4,299 
Other assets   351    370 
Total assets  $74,039   $78,749 

 

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

 

1
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Condensed Consolidated Balance Sheets, Continued

 

   March 31, 2024 
(Amounts in Thousands, Except for Share and per Share Amounts)  (Unaudited)  December 31, 2023
       
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $7,979   $9,582 
Accrued expenses   6,238    6,560 
Disposal/transportation accrual   1,515    1,198 
Deferred revenue   7,295    6,815 
Accrued closure costs - current   85    79 
Current portion of long-term debt   673    773 
Current portion of operating lease liabilities   346    380 
Current portion of finance lease liabilities   287    291 
Current liabilities related to discontinued operations   238    269 
Total current liabilities   24,656    25,947 
           
Accrued closure costs   8,015    8,051 
Long-term debt, less current portion   1,873    1,975 
Long-term operating lease liabilities, less current portion   1,594    1,670 
Long-term finance lease liabilities, less current portion   706    776 
Long-term liabilities related to discontinued operations   955    953 
Total long-term liabilities   13,143    13,425 
           
Total liabilities   37,799    39,372 
           
Commitments and Contingencies (Note 9 )   -    - 
           
           
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; 13,730,580 and 13,654,201 shares issued, respectively; 13,722,938 and 13,646,559 shares outstanding, respectively   14    14 
Additional paid-in capital   116,981    116,502 
Accumulated deficit   (80,511)   (76,951)
Accumulated other comprehensive loss   (156)   (100)
Less Common Stock in treasury, at cost; 7,642 shares   (88)   (88)
Total stockholders’ equity   36,240    39,377 
           
Total liabilities and stockholders’ equity  $74,039   $78,749 

 

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

 

2
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

(Amounts in Thousands, Except for Per Share Amounts)  2024  2023
   Three Months Ended March 31,
(Amounts in Thousands, Except for Per Share Amounts)  2024  2023
       
Revenues  $13,617   $20,107 
Cost of goods sold   14,237    17,098 
Gross (loss) profit   (620)   3,009 
           
Selling, general and administrative expenses   3,544    3,486 
Research and development   296    99 
Loss from operations   (4,460)   (576)
           
Other income (expense):          
Interest income   174    127 
Interest expense   (116)   (53)
Interest expense-financing fees   (13)   (20)
Other   1     
Loss from continuing operations before taxes   (4,414)   (522)
Income tax benefit   (956)   (204)
Loss from continuing operations, net of taxes   (3,458)   (318)
           
Loss from discontinued operations (net of taxes) (Note 10)   (102)   (93)
Net loss  $(3,560)  $(411)
           
Net loss per common share - basic and diluted:          
           
Continuing operations  $(.25)  $(.02)
Discontinued operations   (.01)   (.01)
Net loss per common share  $(.26)  $(.03)
           
Number of common shares used in computing net loss per share:          
Basic   13,676    13,358 
Diluted   13,676    13,358 

 

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

 

3
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

(Amounts in Thousands)  2024  2023
   Three Months Ended March 31,
(Amounts in Thousands)  2024  2023
       
Net loss  $(3,560)  $(411)
Other comprehensive (loss) income:          
Foreign currency translation (loss) gain   (56)   7 
Total other comprehensive (loss) income   (56)   7 
           
Comprehensive loss  $(3,616)   (404)

 

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

 

4
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except for share amounts)

 

   Shares   Amount   Capital   In Treasury   Loss   Deficit   Equity 
               Accumulated      
         Additional  Common  Other     Total
   Common Stock  Paid-In  Stock Held  Comprehensive  Accumulated  Stockholders’
   Shares  Amount  Capital  In Treasury  Loss  Deficit  Equity
                      
Balance at December 31, 2023   13,654,201   $14   $116,502   $(88)  $(100)  $(76,951)  $39,377 
Net loss                                           (3,560)            (3,560)
Foreign currency translation                   (56)       (56)
Issuance of Common Stock for services   14,963        118                118 
Issuance of Common Stock upon exercise of options   31,416        104                104 
Issuance of Common Stock upon exercise of warrant   30,000        105                105 
Stock-Based Compensation           152                152 
Balance at March 31, 2024   13,730,580   $14   $116,981   $(88)  $(156)  $(80,511)  $36,240 
                                    
Balance at December 31, 2022   13,332,398   $13   $115,209   $(88)  $(165)  $(77,436)  $37,533 
Net loss                       (411)   (411)
Foreign currency translation                   7        7 
Issuance of Common Stock for services   33,319        118                118 
Issuance of Common Stock upon exercise of options   31,719        7                7 
Stock-Based Compensation           118                118 
Balance at March 31, 2023   13,397,436   $13   $115,452   $(88)  $(158)  $(77,847)  $37,372 

 

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

 

5
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

       
   Three Months Ended March 31,
(Amounts in Thousands)  2024  2023
Cash flows from operating activities:          
Net loss  $(3,560)  $(411)
Less: loss from discontinued operations, net of taxes (Note 10)   (102)   (93)
           
Loss from continuing operations, net of taxes   (3,458)   (318)
Adjustments to reconcile loss from continuing operations to cash (used in) provided by operating activities :          
Depreciation and amortization   431    747 
Amortization of debt issuance costs   12    20 
Deferred tax benefit   (956)   (204)
Recovery of credit losses on accounts receivable   (11)   (6)
Issuance of common stock for services   118    118 
Stock-based compensation   152    118 
Changes in operating assets and liabilities of continuing operations:          
Accounts receivable   1,032    (1,511)
Unbilled receivables   (365)   (639)
Prepaid expenses, inventories and other assets   334    1,876 
Accounts payable, accrued expenses and unearned revenue   (1,721)   1,561 
Cash (used in) provided by continuing operations   (4,432)   1,762 
Cash used in discontinued operations   (159)   (198)
Cash (used in) provided by operating activities   (4,591)   1,564 
           
Cash flows from investing activities:          
Purchases of property and equipment (net of financed amount)   (244)   (748)
Cash used in investing activities of continuing operations   (244)   (748)
           
Cash flows from financing activities:          
Repayments of revolving credit borrowings   (18,314)   (20,257)
Borrowing on revolving credit   18,314    20,257 
Proceeds from issuance of Common Stock upon exercise of options/warrant   209    7 
Principal repayments of finance lease liabilities   (75)   (41)
Principal repayments of long term debt   (259)   (137)
Payment of debt issuance costs       (33)
Cash used in financing activities   (125)   (204)
           
Effect of exchange rate changes on cash   (18)    
           
(Decrease) increase in cash and finite risk sinking fund (restricted cash)   (4,978)   612 
Cash and finite risk sinking fund (restricted cash) at beginning of period   19,574    13,436 
Cash and finite risk sinking fund (restricted cash) at end of period  $14,596   $14,048 
           
Supplemental disclosure:          
Interest paid  $117   $55 
Income taxes paid        
Non-cash investing and financing activities:          
Equipment purchase subject to finance lease       50 
Equipment purchase subject to finance   44     

 

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

 

6
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Notes to Condensed Consolidated Financial Statements

 

March 31, 2024

(Unaudited)

 

Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

1. Basis of Presentation

 

The condensed consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2024.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2023.

 

The condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries.

 

Financial Position and Liquidity

 

The Company’s results of operations in the first quarter of 2024 were impacted by accelerated investments and several events, which included the following:

 

● Accelerated investments in research and development (“R&D”) on our new technology to treat Per- and Polyfluorinated Substances (“PFAS”);

● Reduced activities by our customers due to poor weather conditions, which resulted in the closure of two of our facilities for a week, including delays in shipments to support backlog;

● Continuing Resolution impacts due to the inability of Congress to pass a Federal Budget through late March 2024, which contributed to delays in procurements, project starts and waste shipment, due to uncertain budget projections by our government clients;

● Completion of two large projects in the Services Segment that were not replaced by new project starts due to delays in mobilization activities until late April; and

● All three primary treatment facilities realized outages in March which impacted revenue as the Company utilized the aforementioned slowdowns for equipment replacement and repairs, program enhancements, and testing to support permit expansion and broader market penetration.

 

The Company believes that most of these accelerated investments and unanticipated impacts should have limited duration effects to its financial performance. The Company expects that the second quarter will not include material continued impact from these activities. With the passage of the Federal Budget in late March 2024 and improved weather conditions, the Company has begun to see steady improvements in waste receipts, project starts that were delayed and increased procurement activities. The Company’s waste treatment backlog stands at approximately $10,580,000 as of March 31, 2024, an increase of approximately $1,878,000 from the December 31, 2023, balance of $8,702,000.

 

The Company’s cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on its debt obligations, remediation projects, and planned capital expenditures which include its PFAS technology. The Company plans to fund these requirements from its operations, credit facility availability, cash on hand (which will include, when received, cash from outstanding receivables due to our Perma-Fix Canada, Inc. subsidiary from a certain customer - See “Note 9 – Commitments and Contingencies - Perma-Fix Canada, Inc. (“PF Canada”)” for a discussion of this outstanding receivables) and possible other methods. The Company’s ability to utilize its credit facility from its lender is subject to meeting our quarterly financial covenant requirements, among other things. The Company continues to explore all sources of increasing its capital and/or liquidity and to improve its revenue and working capital, including, but not limited to entering into equity transactions. There are no assurances that the Company will be successful in increasing its liquidity through its efforts. The Company is continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. The Company believes that its cash flows from operations, its available liquidity from its credit facility, and its cash on hand (which will include, when received, cash from the outstanding Canadian receivables noted above) should be sufficient to fund our operations for the next twelve months.

 

2. Summary of Significant Accounting Policies

 

Our accounting policies are as set forth in the notes to the December 31, 2023, consolidated financial statements referred to above.

 

Recently Issued Accounting Standards – Not Yet Adopted

 

In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, “Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.” ASU 2023-05 applies to the formation of a “joint venture” or a “corporate joint venture” and requires a joint venture to initially measure all contributions received upon its formation at fair value. The guidance does not impact accounting by the venturers. The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025 on a prospective basis. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

 

7
 

 

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of a segment’s profit or loss. The ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted, and should be applied on a retrospective basis. ASU 2023-07 will be effective for the Company’s financial statements for the year ended December 31, 2024. This ASU will not have impact on the Company’s consolidated financial condition or results of operations. The Company is evaluating the impact to the related segment reporting disclosures.

 

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. This ASU will not have impact on the Company’s consolidated financial condition or results of operations. The Company is evaluating the impact to its income taxes reporting disclosures.

 

3. Revenue

 

Disaggregation of Revenue

 

In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of our services and provides meaningful disaggregation of each business segment’s results of operations. The nature of the Company’s performance obligations within our Treatment and Services Segments results in the recognition of our revenue primarily over time. The following tables present further disaggregation of our revenues by different categories for our Services and Treatment Segments:

 

Revenue by Contract Type

   Treatment   Services   Total   Treatment   Services   Total 
(In thousands)  Three Months Ended   Three Months Ended 
   March 31, 2024   March 31, 2023 
   Treatment   Services   Total   Treatment   Services   Total 
Fixed price  $8,709   $4,314   $13,023   $9,594   $8,647   $18,241 
Time and materials       594    594         1,866    1,866 
Total  $8,709   $4,908   $13,617   $9,594   $10,513   $20,107 

 

Revenue by generator

   Treatment   Services   Total   Treatment   Services   Total 
(In thousands)  Three Months Ended   Three Months Ended 
   March 31, 2024   March 31, 2023 
   Treatment   Services   Total   Treatment   Services   Total 
Domestic government   $5,761   $4,303   $10,064   $7,257   $9,718   $16,975 
Domestic commercial    2,501    504    3,005    2,206    597    2,803 
Foreign government         79    79    95    177    272 
Foreign commercial    447    22    469    36    21    57 
Total   $8,709   $4,908   $13,617   $9,594   $10,513   $20,107 

 

Contract Balances

 

The timing of revenue recognition and billings results in unbilled receivables (contract assets). The Company’s contract liabilities consist of deferred revenues which represent advance payment from customers in advance of the completion of our performance obligation. The following table represents changes in our contract asset and contract liabilities balances:

 

           Year-to-date   Year-to-date 
(In thousands)  March 31, 2024   December 31, 2023   Change ($)   Change (%) 
Contract assets                    
Unbilled receivables - current  $8,797   $                      8,432   $365    4.3%
                     
Contract liabilities                    
Deferred revenue  $7,295   $6,815   $480    7.0%

 

8
 

 

During the three months ended March 31, 2024, and 2023, the Company recognized revenue of $3,165,000 and $3,494,000, respectively, related to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized in each period relates to performance obligations satisfied within the respective period.

 

Remaining Performance Obligations

 

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

 

Within our Services Segment, there are service contracts which provide that the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. For those contracts, the Company has utilized the practical expedient in ASC 606-10-55-18, which allows the Company to recognize revenue in the amount for which we have the right to invoice; accordingly, the Company does not disclose the value of remaining performance obligations for those contracts.

 

The Company’s contracts and subcontracts relating to activities at governmental sites generally allow for termination for convenience at any time at the government’s option without payment of a substantial penalty. The Company does not disclose remaining performance obligations on these contracts.

 

4. Leases

 

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease based on facts and circumstances present in that arrangement. Lease classifications, recognition, and measurement are then determined at the lease commencement date.

 

The Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities include primarily leases for office and warehouse spaces used to conduct our business. The Company’s operating leases also include a building with land utilized for our waste treatment operations which includes a purchase option. Finance leases consist primarily of processing and transport equipment used by our facilities’ operations.

 

The components of lease cost for the Company’s leases were as follows (in thousands):

 

   2024   2023 
   Three Months Ended 
   March 31, 
   2024   2023 
Operating Lease:          
Lease cost  $143   $156 
           
Finance Leases:          
Amortization of ROU assets   65    38 
Interst on lease liablity   22    6 
Finance lease   87    44 
           
Total lease cost  $230   $200 

 

The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2024 were:

 

   Operating Leases   Finance Leases 
Weighted average remaining lease terms (years)   5.4    4.3 
           
Weighted average discount rate   7.6%   8.8%

 

9
 

 

The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at March 31, 2023 were:

 

   Operating Leases   Finance Leases 
Weighted average remaining lease terms (years)    6.1    3.0 
           
Weighted average discount rate    7.8%   5.5%

 

The following table reconciles the undiscounted cash flows for the operating and finance leases at March 31, 2024, to the operating and finance lease liabilities recorded on the balance sheet (in thousands):

 

   Operating Leases   Finance Leases 
2024  $372   $275 
2025   433    345 
2026   416    192 
2027   406    157 
2028   383    134 
2029 and thereafter   366    102 
Total undiscounted lease payments   2,376    1,205 
Less: Imputed interest   (436)   (212)
Present value of lease payments  $1,940   $993 
           
Current portion of operating lease obligations  $346   $ 
Long-term operating lease obligations, less current portion  $1,594   $ 
Current portion of finance lease obligations  $   $287 
Long-term finance lease obligations, less current portion  $   $706 

 

Supplemental cash flow and other information related to our leases were as follows (in thousands):

 

   2024   2023 
   Three Months Ended 
   March 31, 
   2024   2023 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flow from operating leases  $147   $144 
Operating cash flow from finance leases  $22   $6 
Financing cash flow from finance leases  $75   $41 
           
ROU assets obtained in exchange for lease obligations for:          
Finance liabilities  $     $50 

 

5. Intangible Assets

 

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

 

       March 31, 2024   December 31, 2023 
   Weighted Average   Gross       Net   Gross       Net 
   Amortization Period   Carrying   Accumulated   Carrying   Carrying   Accumulated   Carrying 
   (Years)   Amount   Amortization   Amount   Amount   Amortization   Amount 
Other Intangibles (amount in thousands)                                                               
Patents   8.3   $710   $(390)  $320   $710   $(387)  $323 
Software   3    673    (551)   122    667    (529)   138 
Total       $1,383   $(941)  $442   $1,377   $(916)  $461 

 

The intangible assets noted above are amortized on a straight-line basis over their useful lives.

 

10
 

 

The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets:

 

    Amount 
Year   (In thousands) 
      
2024 (Remaining)   $                     58 
2025    45 
2026    40 
2027    22 
2028    13 

 

Amortization expenses relating to the definite-lived intangible assets as discussed above were $25,000 and $55,000 for the three months ended March 31, 2024, and 2023, respectively.

 

6. Capital Stock, Stock Plans, Warrants and Stock Based Compensation

 

The Company has certain stock option plans under which it may award incentive stock options (“ISOs”) and/or non-qualified stock options (“NQSOs”) to employees, officers, outside directors, and outside consultants.

 

On January 18, 2024, the Company granted ISOs to certain employees under the 2017 Stock Option Plan (“2017 Plan”), for the purchase of up to an aggregate of 45,000 shares of the Company’s common stock, par value $.001 (the “Common Stock”). Each ISO granted is for a contractual term of six years with one-fifth vesting annually over a five-year period. The exercise price of the ISO is $7.75 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

 

The following table summarizes stock-based compensation recognized for the three months ended March 31, 2024, and 2023 for our employee and director stock options.

 

   2024   2023 
   Three Months Ended 
Stock Options  March 31, 
   2024   2023 
Employee Stock Options  $91,000   $86,000 
Director Stock Options   61,000    32,000 
Total  $152,000   $118,000 

 

At March 31, 2024, the Company had approximately $1,823,000 of total unrecognized compensation costs related to unvested options for employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized is approximately 3.2 years.

 

The summary of the Company’s total Stock Option Plans as of March 31, 2024 and March 31, 2023, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2017 Plan and the 2003 Outside Directors Stock Plan (the “2003 Plan”):

 

   Shares   Weighted Average Exercise Price   Weighted Average Remaining Contractual Term (years)   Aggregate Intrinsic Value (4) 
Options outstanding January 1, 2024   994,500   $5.57         - 
Granted   45,000   $7.75           
Exercised   (43,500)  $5.61        $212,410 
Forfeited   (11,000)  $7.01           
Options outstanding end of period (1)   985,000   $5.66    4.8   $6,139,346 
Options exercisable at March 31, 2024(2)   350,300   $5.06    3.8   $2,391,576 

 

11
 

 

   Shares   Weighted Average Exercise Price   Weighted Average Remaining Contractual Term (years)   Aggregate Intrinsic Value (4) 
Options outstanding January 1, 2023   1,018,400   $5.02         - 
Granted   295,000   $3.95           
Exercised   (44,400)  $3.56        $370,196 
Forfeited/expired   (4,500)  $3.90           
Options outstanding end of period (3)   1,264,500   $4.83    4.2   $8,791,279 
Options exercisable at March 31, 2023(3)   499,500   $4.30    2.3   $6,047,029 

 

(1) Options with exercise prices ranging from $3.15 to $9.81
(2) Options with exercise prices ranging from $3.15 to $7.50
(3) Options with exercise prices ranging from $2.79 to $7.50
(4) 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.

 

During the three months ended March 31, 2024, the Company issued a total of 14,963 shares of its Common Stock under the 2003 Plan to its outside directors as compensation for serving on our Board of Directors (the “Board”). The Company recorded approximately $118,000 in compensation expenses (included in selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares of its Common Stock to outside directors.

 

During the three months ended March 31, 2024, the Company issued an aggregate 12,916 shares of its Common Stock from cashless exercises of options for the purchase of 25,000 shares of the Company’s Common Stock ranging from $3.15 per share to $7.005 per share. Additionally, the Company issued 18,500 shares of its Common Stock from the cash exercises of options for the purchase of 18,500 shares of the Company’s Common Stock, at exercise prices ranging from $3.95 per share to $7.005 per share, resulting in proceeds of approximately $104,000.

 

In connection with a $2,500,000 loan that the Company received from Mr. Robert Ferguson (the “Ferguson Loan”) on April 1, 2019, the Company issued a warrant to Mr. Ferguson (the “Ferguson Warrant”) for the purchase of up to 60,000 shares of our Common Stock at an exercise price of $3.51 per share. The Ferguson Loan was paid in full in December 2020. Upon Mr. Ferguson’s death, the Ferguson Warrant was transferred equally to Mr. Ferguson’s two heirs with each holding a Warrant for the purchase of up to 30,000 shares of the Company’s Common Stock, as permitted under the Ferguson Warrant. One of the Warrants was exercised by Mr. Ferguson’s heir in 2023. On March, 22, 2024, the remaining Warrant was exercised by Mr. Ferguson’s heir for the purchase of 30,000 shares of the Company’s Common Stock, resulting in proceeds received by the Company of approximately $105,000.

 

12
 

 

7. Loss Per Share

 

Basic loss per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted 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 loss earnings per shares. The following table reconciles the loss and average share amounts used to compute both basic and diluted loss per share:

 

         
   Three Months Ended 
   (Unaudited) 
   March 31, 
(Amounts in Thousands, Except for Per Share Amounts)  2024   2023 
Loss per common share from continuing operations          
Loss from continuing operations, net of taxes  $(3,458)  $(318)
Basic and diluted loss per share  $(.25)  $(.02)
           
Loss per common share from discontinued operations, net of taxes          
Loss from discontinued operations, net of taxes  $(102)  $(93)
Basic and diluted loss per share  $(.01)  $(.01)
           
Net loss per common share          
Net loss  $(3,560)  $(411)
Basic and diluted loss per share  $(.26)  $(.03)
           
Weighted average shares outstanding:          
Basic weighted average shares outstanding   13,676    13,358 
Add: dilutive effect of stock options        
Diluted weighted average shares outstanding   13,676    13,358 
           
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include:          
Stock options   75    335 

 


8.
Long Term Debt

 

Long-term debt consists of the following as of March 31, 2024, and December 31, 2023:

 

(Amounts in Thousands)  March 31, 2024   December 31, 2023 
Revolving Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due on May 15, 2027. Effective interest rate for the first quarter of 2024 was 10.5% (1)  $   $ 
Revolving Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due on May 15, 2027. Effective interest rate for the first quarter of 2024 was 10.5% (1)  $   $ 
Term Loan 1 dated May 8, 2020, payable in equal monthly installments of principal, balance due on May 15, 2027. Effective interest rate for the first quarter of 2024 was 10.2% (1)   107    213 
Term Loan 2 dated July 31, 2023, payable in equal monthly installments of principal, balance due on May 15, 2027. Effective interest rate for first quarter of 2024 was 9.5% (1)   2,208    2,333 
Capital Line dated May 4, 2021, payable in equal monthly installments of principal, balance due on May 15, 2027. Effective interest rate for first quarter of 2024 was 9.0% (1)   332    358 
Debt Issuance Costs   (158)(2)   (170)(2)
Notes Payable up to 2030, annual interest rate of 10.7% and 9.1%.   57    14 
Total debt   2,546    2,748 
Less current portion of long-term debt   673    773 
Long-term debt  $1,873   $1,975 

 

(1) Our revolving credit facility is collateralized by our accounts receivable, and our term loans and capital line are collateralized by our property, plant, and equipment.
(2) Aggregate unamortized debt issuance costs in connection with the Company’s credit facility, which consists of the revolving credit, Term loan 1, Term loan 2 and Capital Line, as applicable.

 

13
 

 

Revolving Credit and Term Loan Agreement

 

The Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan Agreement”), with PNC National Association (“PNC” and “lender”), acting as agent and lender. The Loan Agreement, as amended from time to time, provides the Company with the following credit facility with a maturity date of May 15, 2027: (a) up to $12,500,000 revolving credit (“revolving credit”), with the maximum that the Company can borrow under the revolving credit based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that the Company’s lender may impose from time to time; (b) a term loan (“Term Loan 1”) of approximately $1,742,000, requiring monthly installments of $35,547; (c) a term loan (“Term Loan 2”) of $2,500,000, requiring monthly installments of $41,667; and (d) a capital expenditure line (“Capital Line”) of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve months starting May 4, 2021 (the “Borrowing Period”). Amounts advanced under the Capital Line at the end of the Borrowing Period totaled approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, commencing June 1, 2022.

 

Pursuant to the Loan Agreement, as amended, payments of annual interest rates are as follows: (i) interest due on the revolving credit is at prime (8.50% at March 31, 2024) plus 2% or Secured Overnight Finance Rate (“SOFR”) (as defined in the Loan Agreement, as amended) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by the Company; (ii) interest due on each Term Loan 1 and the Capital Line is at prime plus 2.50% or SOFR plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by the Company; and (iii) interest due on Term Loan 2 is at prime plus 3% or SOFR plus 4.00% plus an SOFR Adjustment applicable for an interest period selected by the Company. SOFR Adjustment rates of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by the Company.

 

The Company agreed to pay PNC 1.0% of the total financing under the Loan Agreement, as amended, in the event the Company pays off its obligations on or before July 31, 2024, and 0.5% of the total financing if the Company pays off its obligations after July 31, 2024, to and including July 31, 2025. No early termination fee shall apply if the Company pays off its obligations under Loan Agreement, as amended, after July 31, 2025.

 

At March 31, 2024, the borrowing availability under the Company’s credit facility was approximately $2,379,000 which included our cash (deposited with the Company’s lender) and was based on our eligible receivables and is net of approximately $3,950,000 in outstanding standby letters of credit and net of a $750,000 indefinite reduction in borrowing availability imposed by the Company’s lender.

 

The Company’s credit facility under its Loan Agreement, as amended, 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 was not required to perform testing of its fixed charge coverage ratio (“FCCR”) requirement for the first quarter of 2024 pursuant to an amendment dated May 8, 2024, to the Company’s Loan Agreement, as amended (see “Note 15 – Subsequent Events – Credit Facility” for this amendment which removed the testing requirement of the FCCR for the first quarter of 2024, among other things). The Company met all of its other financial covenant requirements in the first quarter of 2024.

 

9. Commitments and Contingencies

 

Hazardous Waste

 

In connection with our waste management services, the Company processes hazardous, non-hazardous, low-level radioactive and mixed (containing both hazardous and low-level radioactive) waste, which the Company transports to its 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, the Company 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, the Company may be involved in various litigation. The Company is 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.

 

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Tetra Tech EC, Inc. (“Tetra Tech”)

 

During July 2020, Tetra Tech EC, Inc. (“Tetra Tech”) filed a complaint in the U.S. District Court for the Northern District of California (the “Court”) against CH2M Hill, Inc. (“CH2M”) and four subcontractors of CH2M, including the Company (“Defendants”). The complaint alleges various claims, including a claim for negligence, negligent misrepresentation, equitable indemnification and related business claims against all Defendants related to alleged damages suffered by Tetra Tech in respect of certain draft reports prepared by Defendants at the request of the U.S. Navy as part of an investigation and review of certain whistleblower complaints about Tetra Tech’s environmental restoration at the Hunter’s Point Naval Shipyard in San Francisco.

 

CH2M was hired by the Navy in 2016 to review Tetra Tech’s work. CH2M subcontracted with environmental consulting and cleanup firms Battelle Memorial Institute, Cabrera Services, Inc., SC&A, Inc. and the Company to assist with the review, according to the complaint.

 

The Company’s insurance carrier is providing a defense on our behalf in connection with this lawsuit, subject to a $100,000 self-insured retention and the terms and limitations contained in the insurance policy.

 

The majority of Tetra Tech’s claims have been dismissed by the Court. Remaining claims include: (1) intentional interference with contractual relations; and (2) inducing a breach of contract. The Company continues to believe it has no liability exposure to Tetra Tech.

 

Perma-Fix Canada Inc. (“PF Canada”)

 

During the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from Canadian Nuclear Laboratories, LTD. (“CNL”) on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada (“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since been completed. CNL may terminate the TOA at any time for convenience. At year-end 2023, PF Canada had approximately $2,389,000 in outstanding receivables due from CNL as a result of work performed under the TOA. A settlement agreement was reached between PF Canada and CNL on the payment of the aforementioned amount by CNL, subject to certain conditions/terms precedents being met, including release of certain liens. The Company received a partial payment from CNL of the outstanding receivables during the first quarter of 2024. As of March 31, 2024, approximately $1,612,000 in outstanding receivables remain payable by CNL to PF Canada upon completion of the settlement conditions/terms, which the Company believes should occur by the end of 2024.

 

Insurance

 

The Company has a 25-year finite risk insurance policy entered into in June 2003 (“2003 Closure Policy”) with AIG Specialty Insurance Company (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The 2003 Closure Policy, as amended, provides for a maximum allowable coverage of $28,177,000 which includes available capacity to allow for annual inflation and other performance and surety bond requirements. Total coverage under the 2003 Closure Policy, as amended, was $23,376,000 at March 31, 2024. As of March 31, 2024 and December 31, 2023, finite risk sinking funds contributed by the Company related to the 2003 Closure Policy which is included in other long term assets on the accompanying Condensed Consolidated Balance Sheets totaled $12,222,000 and $12,074,000, respectively, which included interest earned of $2,751,000 and $2,603,000 on the finite risk sinking funds as of March 31, 2024 and December 31, 2023, respectively. Interest income for the three months ended March 31, 2024, and 2023, was approximately $148,000 and $67,000, respectively. If the Company so elects, AIG is obligated to pay the Company an amount equal to 100% of the finite risk 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.

 

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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 March 31, 2024, the total amount of standby letters of credit outstanding was approximately $3,950,000 and the total amount of bonds outstanding was approximately $26,747,000.

 

10. Discontinued Operations

 

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

 

The Company’s discontinued operations had net losses of $102,000 (net of tax benefit of $29,000) and $93,000 (net of tax benefit of $30,000) for the three months ended March 31, 2024, and 2023. The losses were primarily due to costs incurred in the administration and continued monitoring of our discontinued operations. The Company’s discontinued operations had no revenues for each of the periods noted above.

 

The following table presents the major class of assets of discontinued operations as of March 31, 2024, and December 31, 2023. No assets and liabilities were held for sale at each of the periods noted.

 

   March 31,   December 31, 
(Amounts in Thousands)  2024   2023 
Current assets          
Other assets  $13   $13 
Total current assets   13    13 
Long-term assets          
Property, plant and equipment, net (1)   81    81 
Total long-term assets   81    81 
Total assets  $94   $94 
Current liabilities          
Accounts payable  $94   $80 
Accrued expenses and other liabilities   128    128 
Environmental liabilities   16    61 
Total current liabilities   238    269 
Long-term liabilities          
Closure liabilities   171    169 
Environmental liabilities   784    784 
Total long-term liabilities   955    953 
Total liabilities  $1,193   $1,222 

 

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

 

11. Operating Segments

 

In accordance with ASC 280, “Segment Reporting”, the Company defines an operating segment as a business activity: (1) from which we may earn revenue and incur expenses; (2) whose operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance; and (3) for which discrete financial information is available.

 

Our reporting segments are defined below:

 

TREATMENT SEGMENT, which includes:

 

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

 

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

 

  - Nuclear services, which include:

 

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

 

Our reporting segments exclude our corporate headquarters and our discontinued operations (see “Note 10 – Discontinued Operations”) which do not generate revenues.

 

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The table below presents certain financial information of our operating segments for the three months ended March 31, 2024, and 2023 (in thousands):

 

Segment Reporting for the Quarter Ended March 31, 2024

 

               (1)     
   Treatment   Services   Segments Total   Corporate (1)   Consolidated Total 
Revenue from external customers  $8,709   $4,908   $13,617   $   $13,617 
Intercompany revenues   45    16    61         
Gross loss   (52)   (568)   (620)       (620)
Research and development   218    28    246    50    296 
Interest income               174    174 
Interest expense   (36)       (36)   (80)   (116)
Interest expense-financing fees               (13)   (13)
Depreciation and amortization   366    44    410    21    431 
Segment loss before income taxes   (1,371)   (1,388)   (2,759)   (1,655)   (4,414)
Income tax benefit   (525)   (431)   (956)       (956)
Segment loss   (846)   (957)   (1,803)   (1,655)   (3,458)
Expenditures for segment assets   160    84    244        244(2)

 

Segment Reporting for the Quarter Ended March 31, 2023

 

               (1)     
   Treatment   Services   Segments Total   Corporate (1)   Consolidated Total 
Revenue from external customers  $9,594   $10,513   $20,107   $   $20,107 
Intercompany revenues   204    19    223         
Gross profit   1,252    1,757    3,009        3,009 
Research and development   67    3    70    29    99 
Interest income                127    127 
Interest expense   (22)   (1)   (23)   (30)   (53)
Interest expense-financing fees                (20)   (20)
Depreciation and amortization   573    160    733    14    747 
Segment income (loss) before income taxes   157    943    1,100    (1,622)   (522)
Income tax benefit   (174)   (30)   (204)       (204)
Segment income (loss)   331    973    1,304    (1,622)   (318)
Expenditures for segment assets   748        748        748 (2) 

 

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

 

(2)Net of financed amount of $44,000 and $50,000 for the three months ended March 31, 2024, and 2023, respectively.

 

12. Income Taxes

 

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.

 

The Company had income tax benefits of approximately $956,000 and $204,000 for continuing operations for the three months ended March 31, 2024, and 2023, respectively. The Company’s effective tax rate was approximately 21.7% and 39.1% for the three months ended March 31, 2024, and the corresponding period of 2023, respectively. The Company’s tax rates for the three months ended March 31, 2024, and 2023 were impacted by non-deductible expenses and state taxes.

 

The Organization for Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15% for multinational enterprises with annual global revenues exceeding €750 million. Numerous countries, including European Union member states, have enacted or are expected to enact legislation to be effective as early as January 1, 2024, with general implementation of a global minimum tax rate by January 1, 2025. The Company has evaluated the impact of these rules and currently believes they will not have any material impact on its financial results in 2024.

 

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13. Variable Interest Entity (“VIE”)

 

On December 18, 2023, the joint venture (“JV”) where the Company and Campoverde Srl (“JV partner”) each owns 50% of the partnership, was awarded a multi-year contract valued up to approximately EUR 50 million by the European Commission (the “Contracting Authority”) for the treatment of radioactive waste from the Joint Research Center in Ispra, Work under this JV started in the first quarter of 2024 and has generated limited revenue in the first quarter of 2024. The scope of work under the initial phases of this contract will be performed predominately by our JV partner. Revenue generated by the Company under the initial phases is limited to project management support through 2025. The Company expects to generate an increase in revenue under this contract starting in 2026 when the waste treatment phases begin.

 

The Company determines whether joint ventures in which it has invested are VIEs at the start of each new venture and when a reconsideration event has occurred. A VIE is a legal entity that satisfies any of the following characteristics: (a) the legal entity does not have sufficient equity investment at risk; (b) the equity investors at risk as a group, lack the characteristics of a controlling financial interest; or (c) the legal entity is structured with disproportionate voting rights.

 

The Company consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

 

Based on the Company’s evaluation of this JV and the contractual terms of this arrangement, the Company determined that this JV is a VIE but the Company is not the primary beneficiary. Accordingly, no consolidation of this JV is required by the Company. No capital contributions have been or are expected to be made by either the Company or the JV partner under this JV.

 

14. Management Incentive Plans (“MIPs”)

 

On January 18, 2024, the Board (with Mr. Mark Duff and Dr. Louis Centofanti abstaining) and the Compensation and Stock Option Committee (the “Compensation Committee”) approved individual MIP for the calendar year 2024 for each of the Company’s executive officers. Each MIP is effective January 1, 2024 and applicable for year 2024. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. The performance compensation under each of the MIPs is based upon meeting certain of the Company’s separate target objectives during 2024. The total potential target performance compensation payable ranges from 25% to 150% of the 2024 base salary for the Chief Executive Officer ($104,287 to $625,733), 29% to 100% of the 2024 base salary for the Chief Financial Officer ($95,681 to $332,811), 25% to 100% of the 2024 base salary for the Executive Vice President (“EVP”) of Strategic Initiatives ($69,337 to $277,346), and 25% to 100% ($71,317 to $285,267) of the 2024 base salary for the EVP of Waste Treatment Operations.

 

15. Subsequent Events

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date through May 9, 2024, the date that these consolidated financial statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements other than the below.

 

Credit Facility

 

On May 8, 2024, the Company entered into an amendment to its Loan Agreement, as amended, with its lender which provided the following, among other things:

 

  removes the quarterly FCCR testing requirement for the first and second quarters of 2024;
  reinstates the quarterly FCCR testing requirement starting in the third quarter of 2024 and revises the methodology to be used in calculating the FCCR as follows (with no change to the minimum 1.15:1 ratio requirement): FCCR for the third quarter is to be determined based on financial results for the three-months period ending September 30, 2024; FCCR for the fourth quarter is to be determined based on financial results for the six-months period ending December 31, 2024; FCCR for the first quarter of 2025 is to be determined based on financial results for the nine-months period ending March 31, 2025; and FCCR for the second quarter of 2025 and each fiscal quarter thereafter is to be determined based on financial results for a trailing twelve-months period ending basis;
  requires maintenance of a daily minimum $2,250,000 in borrowing availability under the revolving credit through June 29, 2024, and a minimum of $3,000,000 in borrowing availability starting June 30, 2024, through June 29, 2025; and
  in the event the Company is able to achieve its minimum quarterly FCCR requirement utilizing its financial results based on a trailing twelve-months period starting with the quarter ending June 30, 2024, the maintenance of a daily minimum borrowing availability requirement of $3,000,000 as discussed above will be removed. Any subsequent fiscal quarter testing of the FCCR will revert back to a trailing twelve-months period method.

 

In connection with the amendment, we paid our lender a fee of $25,000.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-looking Statements

 

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

 

demand for our services;
reductions in the level of government funding in future years;
accelerated investments and unanticipated impact on an ongoing basis;
base business is well positioned for the second half of 2024;
advancement of initiatives to have positive impact beginning in second half of 2024 and more fully realized in 2025;
reducing operating costs and non-essential expenditures;
ability to meet loan agreement quarterly covenant requirements;
cash flow requirements;
receipt of remaining Canadian receivable upon completion of conditions/terms of the settlement agreement in 2024;
sufficient liquidity to fund operations for the next twelve months;
revenue under the Italian project;
manner in which the applicable government will be required to spend funding to remediate various sites;
successful on international bids;
funding of operating and capital expenditures from cash from operations, cash on hand, borrowing availability under our credit facility, financing, and collection of Canadian receivables, when received;
our PFAS method is highly scalable process with minimal capital expenditures;
our PFAS technology process will exceed current treatment options;
installation of operational unit and accepting commercial waste for destruction by the end of the year;
funding of remediation expenditures for sites from funds generated internally;
compliance with environmental regulations;
value of Italian contract;
positioning for procurements from DOE and other government agencies;
potential effect of being a PRP; and
potential violations of environmental laws and attendant remediation at our facilities.

 

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

 

general economic conditions;
contract bids, including international markets;
material reduction in revenues;
inability to meet PNC covenant requirements;
inability to collect in a timely manner a material amount of receivables;
inability to collect Canadian receivables;
increased competitive pressures;
inability to maintain and obtain required permits and approvals to conduct operations;
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;
inability of the federal government to adopt a budget in a timely manner;
requirements to obtain permits for treatment, storage and disposal (TSD) activities or licensing requirements to handle low level radioactive materials are limited or lessened;
management retention and development;
financial valuation of intangible assets is substantially more/less than expected;
the need to use internally generated funds for purposes not presently anticipated;
inability of the Company to maintain the listing of its Common Stock on the Nasdaq;
terminations of contracts with government agencies or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
failure of joint venture partner to perform its requirements in connection with the Italian project;
changes in the scope of work relating to existing contracts;
occurrence of an event similar to COVID-19 having adverse effects on the U.S. and world economics;
renegotiation of contracts involving government agencies;
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;
economic uncertainties;
non-acceptance of our new technology;
new governmental regulations; and
risk factors and other factors set forth in “Special Note Regarding Forward-Looking Statements” contained in the Company’s 2023 Form 10-K and the “Forward-Looking Statements” contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) of this first quarter 2024 10-Q.

 

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Overview

 

As previously disclosed, our results of operations in the first quarter of 2024 were impacted by accelerated investments and several events, which included the following:

 

● Accelerated investments in research and development (“R&D”) on our new technology to treat Per- and Polyfluorinated Substances (“PFAS”) (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology);

● Reduced activities by our customers due to poor weather conditions, which resulted in the closure of two of our facilities for a week, including delays in shipments to support backlog;

● Continuing Resolution impacts due to the inability of Congress to pass a Federal Budget through late March 2024, which contributed to delays in procurements, project starts and waste shipment, due to uncertain budget projections by our government clients;

● Completion of two large projects in the Services Segment that were not replaced by new project starts due to delays in mobilization activities until late April; and

● All three primary treatment facilities realized outages in March which impacted revenue as the Company utilized the aforementioned slowdowns for equipment replacement and repairs, program enhancements, and testing to support permit expansion and broader market penetration.

 

We believe that most of these accelerated investments and unanticipated impacts should have limited duration effects to our financial performance. We expect that the second quarter will not include material continued impact from these activities. With the passage of the Federal Budget in late March 2024 and improved weather conditions, we have begun to see steady improvements in waste receipts, project starts that were delayed and increased procurement activities. Our waste treatment backlog stands at approximately $10,580,000 as of March 31, 2024, an increase of approximately $1,878,000 from the December 31, 2023, balance of $8,702,000.

 

We believe our base business is well positioned for the second half of 2024 and, as previously reported, we continue to advance a variety of additional initiatives that we expect will have a further positive impact on both revenue and earnings beginning the second half of the year that are expected to be more fully realized in 2025. These initiatives include, among other things, positioning ourself for large and mid-size procurements within the U.S. Department of Energy (“DOE”) and U.S. Navy and waste treatment in support of DOE’s Hanford closure strategy, continued investments in our facilities and capabilities to allow for broader waste treatment, and continued expansion of our waste treatment offerings within the international and commercial markets. As previously disclosed, in December 2023, the JV where we and Campoverde Srl (“JV partner”) each owns 50% of the partnership, was awarded a multi-year contract valued up to approximately EUR 50 million by the European Commission (the “Contracting Authority”) for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy. Work under this JV started in the first quarter of 2024. We generated limited revenue under this JV contract in the first quarter of 2024. The scope of work in the initial phases of this contract will be performed predominately by our JV partner. Revenue generated by us under the initial phases will be limited to project management support through 2025. We expect to generate an increase in revenue under this contract starting in 2026 when the waste treatment phases begin.

 

As a result of the aforementioned events which negatively impacted our results of operations for the first quarter of 2024, we incurred an overall decreased in revenue of approximately $6,490,000 or 32.3% to $13,617,000 for the three months ended March 31, 2024 from $20,107,000 for the corresponding period of 2023. Revenue decreased in both segments where Services Segment revenue decreased by $5,605,000 or 53.3% to $4,908,000 from $10,513,000 and Treatment Segment revenue decreased by $885,000 to $8,709,000 or 9.2% from $9,594,000. We incurred a gross loss in the first quarter of 2024 of approximately $620,000 as compared to a gross profit of $3,009,000 in the corresponding period of 2023, reflecting a decrease in gross profit of approximately $3,629,000 or 120.6%, primarily due to decreased revenue in both segments. Selling, General, and Administrative (“SG&A”) expenses increased by $58,000 or 1.7% for the three months ended March 31, 2024 as compared to the corresponding period of 2023 (see below “Results of Operations” for further discussions of our financial results).

 

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Business Environment

 

Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government entities or directly as the prime contractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various sites and potential future federal budget issues. In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option. Our Italian contract under our JV as discussed above may be terminated by the Contracting Authority under certain conditions as set forth in the contract. 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.

 

We are reviewing methods to raise additional capital to supplement our liquidity requirements (see “Liquidity and Capital Resources” below for a discussion of our liquidity). We continue to aggressively bid on various contracts, including potential contracts within the international markets.

 

Results of Operations

 

The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment and Services.

 

Summary – Three Months Ended March 31, 2024 and 2023

 

   Three Months Ended 
   March 31, 
Consolidated (amounts in thousands)  2024   %   2023   % 
Revenues  $13,617    100.0   $20,107    100.0 
Cost of good sold   14,237    104.6    17,098    85.0 
Gross (loss) profit   (620)   (4.6)   3,009    15.0 
Selling, general and administrative   3,544    26.0    3,486    17.3 
Research and development   296    2.2    99    .5 
Loss from operations  $(4,460)   (32.8)  $(576)   (2.8)
Interest income   174    1.3    127    .6 
Interest expense   (116)   (.8)   (53)   (.3)
Interest expense-financing fees   (13)   (.1)   (20)   (.1)
Other   1             
Loss from continuing operations before taxes   (4,414)   (32.4)   (522)   (2.6)
Income tax benefit   (956)   (7.0)   (204)   (1.0)
Loss from continuing operations  $(3,458)   (25.4)  $(318)   (1.6)

 

23
 

 

Revenues

 

Consolidated revenues decreased $6,490,000 for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, as follows:

 

(In thousands)  2024   % Revenue   2023   % Revenue   Change   % Change 
Treatment                              
Government waste  $5,133    37.7   $6,642    33.0   $(1,509)   (22.7)
Hazardous/non-hazardous (1)   1,337    9.8    1,511    7.5    (174)   (11.5)
Other nuclear waste   2,239    16.5    1,441    7.2    798    55.4 
Total   8,709    64.0    9,594    47.7    (885)   (9.2)
                               
Services                              
Nuclear services   4,569    33.5    10,082    50.1    (5,513)   (54.7)
Technical services   339    2.5    431    2.1    (92)   (21.3)
Total   4,908    36.0    10,513    52.3    (5,605)   (53.3)
                               
Total  $13,617    100.0   $20,107    100.0   $(6,490)   (32.3)

 

(1) Includes wastes generated by government clients of $628,000 and $710,000 for the three months ended March 31, 2024 and the corresponding period of 2023, respectively.

 

Treatment Segment revenue decreased by $885,000 or 9.2% for the three months ended March 31, 2024, over the same period in 2023. The decrease in revenue generated from government clients was primarily due to lower waste volume attributed from the events as discussed in the “Overview” section above which included delays in waste shipments due to poor weather conditions and from Continuing Resolution impact due to the inability of Congress to timely pass the Federal Budget. The increase in other nuclear waste revenue was primarily due to higher waste volume which included increased revenue generated from commercial and international clients. The overall revenue within our Treatment Segment was also negatively impacted by delays in waste treatment production and waste receipts due to temporary outages of our facilities as previously discussed. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment revenue decreased by approximately $5,605,000 or 53.3%. The decrease in revenue in the Services Segment was due in part, to the completion of two large projects which were not replaced by new project starts due to delays in mobilization activities until late April 2024 from the impact of the Continuing Resolution as previously discussed. Additionally, our Services Segment revenues are project based; as such, the scope, duration, and completion of each project vary. Revenues from both segments were also negatively impacted from delays in procurements resulting from the impact of Continuing Resolutions.

 

Cost of Goods Sold