perma20150630_10q.htm

 



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549   

Form 10-Q

 

[X]

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

For the quarterly period ended        June 30, 2015          

 

Or

 

[   ]

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

For the transition period from                                   to                                     

 

Commission File No.

111596

 

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)

 

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, or a smaller reporting company. See definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

 

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   

      Common Stock, $.001 Par Value     

     Outstanding at August 1, 2015    

     11,525,888    

     shares of registrant’s     

     Common Stock    

 

 

 

 
 

 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

 

INDEX

 

PART I           FINANCIAL INFORMATION  

Page No.

   

Item 1.

Consolidated Condensed Financial Statements (Unaudited)

 

Consolidated Balance Sheets - June 30, 2015 and December 31, 2014

1

 

Consolidated Statements of Operations - Three and Six Months Ended June 30, 2015 and 2014

3

 

Consolidated Statements of Comprehensive (Loss) Income - Three and Six Months Ended June 30, 2015 and 2014

4

 

Consolidated Statements of Stockholders’ Equity - Six Months Ended June 30, 2015

5

 

Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014

6

 

Notes to 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

33

 

 

Item 4.

 

Controls and Procedures

 33

       
PART II          OTHER INFORMATION  
       
Item 1.   Legal Proceedings 34
       
Item 1A.   Risk Factors 34
       
Item 6.   Exhibits 34

 

 
 

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Balance Sheets

(Unaudited)

 

   

June 30,

   

December 31,

 

(Amounts in Thousands, Except for Share and per Share Amounts)

 

2015

   

2014

 
                 

ASSETS

               

Current assets:

               

Cash

  $ 1,041     $ 3,680  

Restricted cash

    152       85  

Accounts receivable, net of allowance for doubtful accounts of $1,886 and $2,170, respectively

    9,615       8,272  

Unbilled receivables - current

    5,865       7,177  

Inventories

    404       498  

Prepaid and other assets

    2,813       3,010  

Deferred tax asset - current

    385       385  

Current assets related to discontinued operations

    22       20  

Total current assets

    20,297       23,127  
                 

Property and equipment:

               

Buildings and land

    20,196       20,362  

Equipment

    35,631       35,434  

Vehicles

    403       403  

Leasehold improvements

    11,613       11,613  

Office furniture and equipment

    1,828       1,799  

Construction-in-progress

    380       336  
      70,051       69,947  

Less accumulated depreciation and amortization

    (48,780 )     (47,123 )

Net property and equipment

    21,271       22,824  
                 

Property and equipment related to discontinued operations

    531       681  
                 

Intangibles and other long term assets:

               

Permits

    16,751       16,709  

Other intangible assets - net

    2,214       2,435  

Unbilled receivables – non-current

    253       273  

Finite risk sinking fund

    21,351       21,334  

Other assets

    1,178       1,253  

Total assets

  $ 83,846     $ 88,636  

 

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

 

 

 
1

 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Balance Sheets, Continued

(Unaudited)

 

   

June 30,

   

December 31,

 

(Amounts in Thousands, Except for Share and per Share Amounts)

 

2015

   

2014

 
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Accounts payable

  $ 5,485     $ 5,350  

Accrued expenses

    4,212       4,540  

Disposal/transportation accrual

    1,412       1,737  

Deferred revenue

    3,321       4,873  

Current liabilities related to discontinued operations

    2,042       2,137  

Current portion of long-term debt

    2,310       2,319  

Current portion of long-term debt - related party

    1,414       1,414  

Total current liabilities

    20,196       22,370  
                 

Accrued closure costs

    5,237       5,508  

Other long-term liabilities

    835       803  

Deferred tax liabilities

    5,462       5,391  

Long-term liabilities related to discontinued operations

    675       590  

Long-term debt, less current portion

    7,220       6,690  

Long-term debt, less current portion - related party

    242       949  

Total long-term liabilities

    19,671       19,931  
                 

Total liabilities

    39,867       42,301  
                 

Commitments and Contingencies (Note 8)

               
                 

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 $835 and $803, respectively

    1,285       1,285  
                 

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; 11,512,783 and 11,476,485 shares issued, respectively; 11,505,141 and 11,468,843 shares outstanding, respectively

    11       11  

Additional paid-in capital

    103,958       103,765  

Accumulated deficit

    (61,976 )     (59,758 )

Accumulated other comprehensive (loss) income

    (63 )     11  

Less Common Stock in treasury, at cost; 7,642 shares

    (88 )     (88 )

Total Perma-Fix Environmental Services, Inc. stockholders' equity

    41,842       43,941  

Non-controlling interest

    852       1,109  

Total stockholders' equity

    42,694       45,050  
                 

Total liabilities and stockholders' equity

  $ 83,846     $ 88,636  

 

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

 

 
2

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(Amounts in Thousands, Except for Per Share Amounts)

 

2015

   

2014

   

2015

   

2014

 
                                 

Net revenues

  $ 16,354     $ 12,657     $ 29,955     $ 23,201  

Cost of goods sold

    12,322       11,100       24,445       21,551  

Gross profit

    4,032       1,557       5,510       1,650  
                                 

Selling, general and administrative expenses

    2,905       2,970       5,776       6,182  

Research and development

    514       317       918       687  

Impairment loss on goodwill

          380             380  

Gain on disposal of property and equipment

          (16 )           (16 )

Income (loss) from operations

    613       (2,094 )     (1,184 )     (5,583 )
                                 

Other income (expense):

                               

Interest income

    11       6       20       14  

Interest expense

    (140 )     (214 )     (267 )     (367 )

Interest expense-financing fees

    (56 )     (36 )     (115 )     (81 )

Foreign currency loss

                (4 )      

Other

    15       7       15       14  

Income (loss) from continuing operations before taxes

    443       (2,331 )     (1,535 )     (6,003 )

Income tax expense

    36       30       71       60  

Income (loss) from continuing operations, net of taxes

    407       (2,361 )     (1,606 )     (6,063 )
                                 

(Loss) income from discontinued operations, net of taxes

    (713 )     2,372       (936 )     2,105  

Net (loss) income

    (306 )     11       (2,542 )     (3,958 )
                                 

Net loss attributable to non-controlling interest

    (152 )           (324 )      
                                 

Net (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ (154 )   $ 11     $ (2,218 )   $ (3,958 )
                                 

Net income (loss) per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic and diluted:

                               

Continuing operations

  $ .05     $ (.21 )   $ (.11 )   $ (.53 )

Discontinued operations

    (.06 )     .21       (.08 )     .18  

Net loss per common share

  $ (.01 )   $     $ (.19 )   $ (.35 )
                                 

Number of common shares used in computing net income (loss) per share:

                               

Basic

    11,505       11,433       11,496       11,426  

Diluted

    11,536       11,433       11,496       11,426  

 

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

 

 
3

 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(Amounts in Thousands)

 

2015

   

2014

   

2015

   

2014

 
                                 

Net (loss) income

  $ (306 )   $ 11     $ (2,542 )   $ (3,958 )

Other comprehensive income (loss):

                               

Foreign currency translation gain (loss)

    13       10       (74 )     (6 )
                                 

Comprehensive (loss) income

    (293 )     21       (2,616 )     (3,964 )

Comprehensive loss attributable to non-controlling interest

    (152 )           (324 )      

Comprehensive (loss) income attributable to Perma-Fix Environmental Services, Inc. stockholders

  $ (141 )   $ 21     $ (2,292 )   $ (3,964 )

 

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

 

 
4

 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 2015

(Unaudited)

 

   

Common Stock

    Additional     Common Stock     Accumulated Other     Non-controlling           Total  

(Amounts in thousands, except for share amounts)

 

Shares

   

Amount

    Paid-In Capital     Held In Treasury     Comprehensive Income (Loss)     Interest in Subsidiary     Accumulated Deficit     Stockholders' Equity  
                                                                 

Balance at December 31, 2014

    11,476,485     $ 11     $ 103,765     $ (88 )   $ 11     $ 1,109     $ (59,758 )   $ 45,050  

Net loss

                                  (324 )     (2,218 )     (2,542 )

Foreign currency translation

                            (74 )                 (74 )

Perma-Fix Medical S.A. (proceeds from stock subscription receivables)

                                  67             67  

Issuance of Common Stock upon exercise of options

    2,388             7                               7  

Issuance of Common Stock for services

    33,910             140                               140  

Stock-Based Compensation

                46                               46  

Balance at June 30, 2015

    11,512,783     $ 11     $ 103,958     $ (88 )   $ (63 )   $ 852     $ (61,976 )   $ 42,694  

 

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

 

 

 
5

 

 

          PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

   

Six Months Ended

 
   

June 30,

 

(Amounts in Thousands)

 

2015

   

2014

 

Cash flows from operating activities:

               

Net loss

  $ (2,542 )   $ (3,958 )

Less: (loss) income on discontinued operations

    (936 )     2,105  
                 

Loss from continuing operations

    (1,606 )     (6,063 )

Adjustments to reconcile loss from continuing operations to cash used in operating activities:

               

Depreciation and amortization

    1,909       2,309  

Amortization of debt discount

    43       43  

Deferred tax expense

    71       60  

Recovery of bad debt reserves

    (21 )     (6 )

Impairment loss on goodwill

          380  

Gain on disposal of plant, property and equipment

          (16 )

Issuance of common stock for services

    140       129  

Stock-based compensation

    46       (17 )

Changes in operating assets and liabilities of continuing operations

               

Accounts receivable

    (1,322 )     (2,654 )

Unbilled receivables

    1,332       793  

Prepaid expenses, inventories and other assets

    451       960  

Accounts payable, accrued expenses and unearned revenue

    (2,316 )     (247 )

Cash used in continuing operations

    (1,273 )     (4,329 )

Cash used in discontinued operations

    (798 )     (1,527 )

Cash used in operating activities

    (2,071 )     (5,856 )
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (265 )     (333 )

Proceeds from sale of property and equipment

          42  

Payment to finite risk sinking fund

    (17 )     (14 )

Cash used in investing activities of continuing operations

    (282 )     (305 )

Proceeds from property insurance claims of discontinued operations

          5,727  

Net cash (used in) provided by investing activities

    (282 )     5,422  
                 

Cash flows from financing activities:

               

Repayments of revolving credit borrowings

    (31,478 )     (30,295 )

Borrowing of revolving credit

    33,162       31,686  

Proceeds from Issuance of common stock

    7        

Principal repayments of long term debt

    (1,164 )     (1,236 )

Principal repayments of long term debt-related party

    (750 )      

Cash (used in) provided by financing activities of continuing operations

    (223 )     155  

Principal repayments of long term debt for discontinued operations

          (18 )

Cash (used in) provided by financing activities

    (223 )     137  
                 

Effect of exchange rate changes on cash

    (63 )      
                 

Decrease in cash

    (2,639 )     (297 )

Cash at beginning of period

    3,680       333  

Cash at end of period

  $ 1,041     $ 36  
                 

Supplemental disclosure:

               

Interest paid

  $ 277     $ 341  

Income taxes paid

    50       30  

 

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

 

 
6

 

  

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements

June 30, 2015

(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, 2014.

 

1.

Basis of Presentation

 

The consolidated condensed 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 consolidated condensed 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 six months ended June 30, 2015 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2015.

 

The Company suggests that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

 

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

 

2.

Summary of Significant Accounting Policies

 

Our accounting policies are as set forth in the notes to the December 31, 2014 consolidated financial statements referred to above.

 

Recently Issued Accounting Standards – Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. The revenue guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In June 2014, the FASB issued ASU 2014-12, “Compensation Stock – Compensation (Topic 718).” ASU 2014-12 applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. It requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and follows existing accounting guidance for the treatment of performance conditions. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company has assessed the impact of adopting this guidance and concluded that it will not have a material impact on the Company's financial condition, results of operations or cash flows.

 

 

 
7

 

 

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective for all entities in the first annual period ending after December 15, 2016. The Company is still evaluating the potential impact of adopting this guidance on our financial statements.

 

In November 2014, the FASB issued ASU, 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” ASU 2014-06 clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years and interim periods beginning after December 15, 2015. The Company has assessed the impact of adopting this guidance and concluded that it will not have a material impact on the Company's financial condition, results of operations or cash flows.

 

In January 2015, the FASB issued ASU 2015-01, “Income Statement-Extraordinary and Unusual Items.” ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for annual reporting periods and interim periods, within those annual periods beginning after December 15, 2015.  The Company has assessed the impact of adopting this guidance and concluded that it will not have a material impact on the Company's financial condition, results of operations or cash flows.

 

In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis.” ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company has assessed the impact of adopting this guidance and concluded that it will not have a material impact on the Company's financial condition, results of operations or cash flows.

 

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." ASU 2015-03 amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted.  The Company has assessed the impact of adopting this guidance and concluded that it will not have a material impact on the Company's financial condition, results of operations or cash flows.

 

3.

Intangible Assets

 

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

 

           

June 30, 2015

   

December 31, 2014

 
   

Useful

   

Gross

           

Net

   

Gross

           

Net

 
   

Lives

   

Carrying

   

Accumulated

   

Carrying

   

Carrying

   

Accumulated

   

Carrying

 
   

(Years)

   

Amount

   

Amortization

   

Amount

   

Amount

   

Amortization

   

Amount

 

Intangibles (amount in thousands)

                                                       

Patent

    8-18     $ 512     $ (186 )   $ 326     $ 512     $ (168 )   $ 344  

Software

    3       379       (358 )     21       375       (319 )     56  

Customer relationships

    12       3,370       (1,503 )     1,867       3,370       (1,335 )     2,035  

Permit

    10       545       (345 )     200       545       (318 )     227  

Total

          $ 4,806     $ (2,392 )   $ 2,414     $ 4,802     $ (2,140 )   $ 2,662  

 

The intangible assets noted above 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 Company has only one definite-lived permit that is subject to amortization.

 

 

 
8

 

 

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

 

   

Amount

 

Year

 

(In thousands)

 
         

2015 (remaining)

  $ 239  

2016

    425  

2017

    391  

2018

    361  

2019

    280  
    $ 1,696  

 

Amortization expenses relating to the definite-lived intangible assets as discussed above were $125,000 and $252,000 for the three and six months ended June 30, 2015, respectively, and $176,000 and $352,000 for the three and six months ended June 30, 2014, respectively.

 

Goodwill Impairment

During the second quarter of 2014, the Company recorded a goodwill impairment charge of $380,000 in connection with the sale of our Schreiber, Yonley and Associates, Inc. (“SYA”) subsidiary which was completed on July 29, 2014.

 

4.

Capital Stock, Stock Plans and Stock Based Compensation

 

The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors. No stock options were granted during the first six months of 2015 or 2014.

 

As of June 30, 2015, the Company had an aggregate of 55,000 employee stock options outstanding (from the 2010 Stock Option Plans), of which none are vested. The weighted average exercise price of the 55,000 outstanding employee stock options is $5.00 with a remaining weighted contractual life of 5.0 years. Additionally, we had an aggregate of 166,635 outstanding director stock options (from the 2003 Outside Directors Stock Plans), of which all are vested. The weighted average exercise price of the 166,635 outstanding and fully vested director stock options is $8.88 with a remaining weighted contractual life of 4.6 years.

 

The summary of the Company’s total Stock Option Plans as of June 30, 2015, and 2014, and changes during the periods then ended, are presented below. The Company’s Plans consist of the 2010 and 2004 Stock Option Plans and the 2003 Outside Directors Stock Plans:

 

   

Shares

   

Weighted Average

Exercise Price

   

Weighted Average Remaining Contractual Term (years)

   

Aggregate Intrinsic Value

 

Options outstanding Janury 1, 2015

    239,023     $ 7.81                  

Granted

                           

Exercised

    (2,388 )     2.79             $ 3,248  

Forfeited/expired

    (15,000 )     7.10                  

Options outstanding end of period (1)

    221,635       7.91       4.7     $ 18,869  

Options exercisable at June 30, 2015(1)

    166,635     $ 8.88       4.6     $ 18,869  

Options vested and expected to be vested at June 30, 2015

    212,835     $ 8.04       4.7     $ 18,869  

 

 

 
9

 

 

   

Shares

   

Weighted Average Exercise Price

   

Weighted Average Remaining Contractual Term (years)

   

Aggregate Intrinsic Value

 

Options outstanding Janury 1, 2014

    362,800     $ 9.53                  

Granted

                           

Exercised

                         

Forfeited/expired

    (62,000 )     7.96                  

Options outstanding end of period (1)

    300,800       9.85       2.8     $ 41,070  

Options exercisable at June 30, 2014(1)

    300,800     $ 9.85       2.8     $ 41,070  

Options vested and expected to be vested at June 30, 2014

    300,800     $ 9.85       2.8     $ 41,070  

 

(1) Options with exercise prices ranging from $2.79 to $14.75

 

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 following table summarizes stock-based compensation recognized for the three and six months ended June 30, 2015 and 2014 for our employee and director stock options.

 

   

Three Months Ended

   

Six Months Ended

 

Stock Options

 

June 30,

   

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Employee Stock Options

  $ 13,000     $     $ 26,000     $ (39,000 )

Director Stock Options

          1,000       20,000       22,000  

Total

  $ 13,000     $ 1,000     $ 46,000     $ (17,000 )

 

The Company recognized stock-based compensation expense using a straight-line amortization method over the requisite service period, which is the vesting period of the stock option grant. ASC 718, “Compensation – Stock Compensation” requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has generally estimated forfeiture rates based on historical trends of actual forfeitures. When actual forfeitures vary from our estimates, the Company recognizes the difference in compensation expense in the period the actual forfeitures occur or when options vest. The total stock-based compensation expense for the six months ended June 30, 2014 included a reduction in expense of approximately $54,000 resulting from the forfeiture of options by Mr. Jim Blankenhorn, our Chief Operating Officer (“COO”), who voluntarily resigned from the Company effective March 28, 2014. The COO was granted an option from the Company’s 2010 Stock Option Plan on July 25, 2011, to purchase up to 60,000 shares of the Company’s Common Stock at $7.85 per share. The options had a six year contractual term with one-third yearly vesting over a three year period.

 

As of June 30, 2015, the Company has approximately $99,000 of total unrecognized compensation cost related to unvested options, of which $27,000 is expected to be recognized in remaining 2015, $53,000 in 2016, with the remaining $19,000 in 2017.

 

During the six months ended June 30, 2015, the Company issued a total of 33,910 shares of our Common Stock under our 2003 Plan to our outside directors as compensation for serving on our Board of Directors. Also, an outside director exercised 2,388 options from the 2003 Plan for the purchase of 2,388 shares of the Company’s Common Stock at $2.79 per share.

 

 

 
10

 

 

5.

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. The following table reconciles the income (loss) and average share amounts used to compute both basic and diluted income (loss) per share:

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

(Unaudited)

   

(Unaudited)

 

(Amounts in Thousands, Except for Per Share Amounts)

 

2015

   

2014

   

2015

   

2014

 
Net (loss) income attributable to Perma-Fix Environmental Services, Inc., common stockholders:                                

Income (loss) from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ 559     $ (2,361 )   $ (1,282 )   $ (6,063 )

(Loss) income from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders

    (713 )     2,372       (936 )     2,105  

Net (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ (154 )   $ 11     $ (2,218 )   $ (3,958 )
                                 

Basic (loss) income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ (.01 )   $     $ (.19 )   $ (.35 )
                                 

Diluted (loss) income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders

  $ (.01 )   $     $ (.19 )   $ (.35 )
                                 

Weighted average shares outstanding:

                               

Basic weighted average shares outstanding

    11,505       11,433       11,496       11,426  

Add: dilutive effect of stock options

    4                    

Add: dilutive effect of warrants

    27                    

Diluted weighted average shares outstanding

    11,536       11,433       11,496       11,426  
                                 
                                 

Potential shares excluded from above weighted average share calcualtions due to their anti-dilutive effect include:

                               

Upon exercise of options

    202,600       276,800       185,800       276,800  

 

 

 
11

 

 

6.

Long Term Debt

 

Long-term debt consists of the following at June 30, 2015 and December 31, 2014:

 

(Amounts in Thousands)

 

June 30,

2015

   

December 31,

2014

 

Revolving Credit facility dated October 31, 2011, borrowings based upon eligible accounts receivables, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.25% at June 30, 2015) plus 2.0% or London Interbank Offer Rate ("LIBOR") plus 3.0%, balance due October 31, 2016. Effective interest rate for the first six months of 2015 was 3.3%. (1)

  $ 1,685     $  

Term Loan dated October 31, 2011, payable in equal monthly installments of principal of $190, balance due on October 31, 2016, variable interest paid monthly at option of prime rate plus 2.5% or LIBOR plus 3.5%. Effective interest rate for the first six months of 2015 was 3.7%. (1)

    7,810       8,952  

Promissory Note dated February 12, 2013, payable in monthly installments of $10, which includes interest and principal, starting February 28, 2013, interest accrues at annual rate of 6.0%, paid in full on January 30, 2015. (2)

          10  

Promissory Note dated August 2, 2013, payable in twelve monthly installments of interest only, starting September 1, 2013 and twenty-four monthly installments of $125 in principal plus accrued interest. Interest accrues at annual rate of 2.99%. (2) (3)

    1,656       2,363  

Capital lease (interest at rate of 6.0%)

    35       47  
      11,186       11,372  

Less current portion of long-term debt

    3,724       3,733  
    $ 7,462     $ 7,639  

 

(1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.

 

(2) Uncollateralized note.

 

(3) Net of debt discount of ($94,000) and ($137,000) for June 30, 2015 and December 31, 2014, respectively. See “Promissory Notes and Installment Agreements” below for additional information.

 

Revolving Credit and Term Loan Agreement

The Company entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011, (“Loan Agreement”), with PNC Bank, National Association (“PNC”), acting as agent and lender. The Loan Agreement, as amended (“Amended Loan Agreement”), provides us with the following Credit Facility: (a) up to $12,000,000 revolving credit facility (“Revolving Credit”), subject to the amount of borrowings based on a percentage of eligible receivables (as defined) and (b) a term loan (“Term Loan”) of $16,000,000, which requires monthly installments of approximately $190,000 (based on a seven-year amortization).

 

The Amended Loan Agreement terminates as of October 31, 2016, unless sooner terminated. We may terminate the Amended Loan Agreement upon 90 days’ prior written notice and upon payment in full of our obligations under the Amended Loan Agreement.

 

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 Company met its quarterly fixed charge coverage ratio and minimum tangible adjusted net worth requirements in each of the first and second quarters of 2015.

 

As of June 30, 2015, the availability under our revolving credit was $3,637,000, based on our eligible receivables and includes an indefinite reduction of borrowing availability of $1,500,000. On July 28, 2014, the Company entered into an amendment to the Amended Loan Agreement which among other things, authorized the Company to use the $3,850,000 insurance settlement proceeds received on June 30, 2014 by our Perma-Fix of South Georgia, Inc. (“PFSG”) subsidiary (which suffered a fire on August 14, 2013 and is included within our discontinued operations) for working capital purposes but placed an indefinite reduction on our borrowing availability by the $1,500,000 as discussed above.

 

 
12

 

 

Promissory Notes and Installment Agreements

On February 12, 2013, the Company entered into an unsecured promissory note (“the new note”) with Timios National Corporation (“TNC”) in the principal amount of approximately $230,000 as a result of a settlement with TNC in connection with certain claims that the Company asserted against TNC for breach of certain representations and covenant subsequent to our acquisition of Safety & Ecology Corporation (“SEC”) from TNC on October 31, 2011. The new note was entered into as a result of the settlement in which a previously issued promissory note that the Company entered into with TNC as partial consideration of the purchase price of SEC was cancelled and terminated and replaced with the new note. Final payment of approximately $10,000 on this note was made in January 2015.

 

On August 2, 2013, the Company completed a lending transaction with Messrs. Robert Ferguson (who serves as an advisor to the Company’s Board of Directors and is also a member of the Board of Directors for our majority-owned Polish subsidiary, Perma-Fix Medical S.A.) and William Lampson (“collectively, the “Lenders”), whereby the Company borrowed from the Lenders the sum of $3,000,000 pursuant to the terms of a Loan and Security Purchase Agreement and promissory note (the “Loan”) (See payment terms of this promissory note in the table above). In connection with this Loan, the Lenders entered into a Subordination Agreement dated August 2, 2013, with the Company’s Credit Facility lender, whereby the Lenders agreed to subordinate payment under the Loan, and agreed that the Loan will be junior in right of payment to the Credit Facility in the event of default or bankruptcy or other insolvency proceeding by the Company. As consideration for the Company receiving the Loan, the Company issued a Warrant to each Lender to purchase up to 35,000 shares of the Company’s Common Stock at an exercise price based on the closing price of the Company’s Common Stock at the closing of the transaction which was determined to be $2.23. The Warrants are exercisable six months from August 2, 2013 and expire on August 2, 2016. The fair value of the Warrants was estimated to be approximately $59,000 using the Black-Scholes option pricing model. As further consideration for the Loan, the Company also issued an aggregate 90,000 shares of the Company’s Common Stock, with each Lender receiving 45,000 shares. The Company determined the fair value of the 90,000 shares of Common Stock to be approximately $200,000 which was based on the closing price of the stock of $2.23 per share on August 2, 2013. The fair value of the Warrants and Common Stock and the related closing fees incurred from the transaction were recorded as a debt discount, which is being amortized using the effective interest method over the term of the loan as interest expense – financing fees.

 

In the event of default of the promissory note by the Company, the Lenders have the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest (“Payoff Amount”), or the number of whole shares of the Company’s Common Stock equal to the Payoff Amount divided by the closing bid price of the Company’s Common Stock on the date immediately prior to the date of default of the promissory note, as reported by the primary national securities exchange on which the Company’s Common Stock is traded. The maximum number of payoff shares is restricted to less than 20% of the outstanding equity.

 

7.

Perma-Fix Medical S.A.

 

On April 4, 2014, the Company completed the acquisition of a controlling interest in a Polish Company, a publicly traded shell company on the NewConnect (alternative share market run by the Warsaw Stock Exchange) in Poland and sold to the Polish shell all of the shares of Perma-Fix Medical Corporation, a Delaware corporation (“PF Medical Corporation”) organized by the Company (incorporated in January 2014). PF Medical Corporation’s only asset was and is a worldwide license granted by the Company to use, develop and market the new process and technology developed by the Company in the production of Technetium-99 (“Tc-99m”) for medical diagnostic applications. Since the acquired shell company (now named as Perma-Fix Medical S.A. or PF Medical S.A.) did not meet the definition of a business under ASC 805, “Business Combinations”, the transaction was accounted for as a capital transaction. The primary purpose of PF Medical S.A. (which the Company owns 64% of as of June 30, 2015) is to provide a financing vehicle for the development and marketing of its medical isotope or Tc-99m technology used in medical diagnostic testing for potential use throughout the world.

 

 

 
13

 

 

During August, 2014, PF Medical S.A. executed stock subscription agreements totaling approximately $2,357,000 for 250,000 shares of its Series E Common Stock to non-U.S. persons in an offshore private placement under Regulation S promulgated under the Securities Act of 1933, as amended (“Securities Act”). In connection with this transaction, as of June 30, 2015, PF Medical S.A. has received approximately $1,545,000 in proceeds (of which approximately $67,000 was received in the first quarter of 2015) for the 250,000 shares (before deduction for commissions and legal expenses relating to this offering of approximately $242,000). The $67,000 is being held in an escrow account as the proceeds will be used to pay for potential future expenses related to the medical isotope project. The Company has recorded the amount held in escrow as restricted cash on the accompanying Consolidated Balance Sheet. PF Medical S.A. expects to receive the remaining proceeds for the stock subscription receivables in the amount of approximately $761,000 by December 2015. The remaining stock subscription receivables are offset against non-controlling interest. If PF Medical S.A. does not receive approximately $599,000 of the remaining stock subscription receivables, which represents approximately 68,181 shares, PF Medical S.A. has the option to have the purchaser of such shares transfer all of its rights, title and interest in such shares to PF Medical S.A. or for PF Medical S.A. to be paid for the 68,161 shares with shares of another publicly traded company. See Note 13 – “Subsequent Events” for further information regarding PF Medical S.A.

 

8.

Commitments and Contingencies

 

Hazardous Waste

In connection with our waste management services, we handle both hazardous and non-hazardous waste, which we transport to our own, or other, facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required, we could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.

 

Legal Matters

In the normal course of conducting our business, we are involved in various litigation. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.

 

Insurance

The Company has a 25-year finite risk insurance policy entered into in June 2003 with American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other performance and surety bond requirements. All of the required payments for this finite risk insurance policy, as amended, were made by 2012. As of June 30, 2015, our financial assurance coverage amount under this policy totaled approximately $38,454,000. The Company has recorded $15,443,000 in our sinking fund related to the policy noted above in other long term assets on the accompanying consolidated balance sheets, which includes interest earned of $972,000 on the sinking fund as of June 30, 2015. Interest income for the three and six month periods ended June 30, 2015, was approximately $6,000 and $14,000, respectively. Interest income for the three and six month periods ended June 30, 2014, was approximately $5,000 and $11,000, respectively. If the Company so elects, AIG is obligated to pay us 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.

 

 

 
14

 

 

In August 2007, the Company entered into a second finite risk insurance policy for our Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility with AIG. The policy provided an initial $7,800,000 of financial assurance coverage with an annual growth rate of 1.5%, which at the end of the four year term policy, provides maximum coverage of $8,200,000. The Company has made all of the required payments on this policy. As of June 30, 2015, the Company has recorded $5,908,000 in our sinking fund related to this policy in other long term assets on the accompanying consolidated balance sheets, which includes interest earned of $208,000 on the sinking fund as of June 30, 2015. Interest income for the three and six month periods ended June 30, 2015, was approximately $2,000 and $3,000, respectively. Interest income for the three and six month periods ended June 30, 2014, was approximately $1,000 and $3,000, respectively. This policy is renewed annually at the end of the four year term with a nominal fee for the variance between the coverage requirement and the sinking fund balance. The Company has renewed this policy annually from 2011 to 2014 (with fees ranging from $41,000 to $46,000 annually). All other terms of the policy remain substantially unchanged.

 

Letter of Credits and Bonding Requirements

From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of June 30, 2015, the total amount of these bonds and letters of credit outstanding was approximately $1,773,000, of which the majority of the amount relates to various bonding requirements.

 

9.

Discontinued Operations

 

The Company’s discontinued operations consist of subsidiaries included in our Industrial Segment: (1) subsidiaries divested in 2011 and prior, (2) two previously closed locations, and (3) our PFSG facility. On August 14, 2013, our PFSG facility incurred fire damage which left it non-operational. In 2014, the Company elected not to rebuild the PFSG facility. The Company carried general liability, pollution, property and business interruption, and workers compensation insurance with a maximum deductible of approximately $300,000. On June 20, 2014, the Company entered into a settlement agreement and release with one of its insurance carriers resulting in receipt of approximately $3,850,000 in insurance settlement proceeds on June 30, 2014, which was used to pay down the Company’s Revolving Credit.

 

On May 11, 2015, PFSG received a Consent Order (“CO”) from the Georgia Department of Natural Resources Environmental Protection Division (“GAEPD”), which alleged certain violations of Georgia Rules for Hazardous Waste Management and the PFSG Hazardous Waste Permit. The CO also established the process for formerly closing the PFSG hazardous waste management facilities, should PFSG elect to do so. The CO requests payment of $201,200 as penalty for these alleged violations which was paid by the Company and recorded in the three months ended June 30, 2015. Pursuant to the CO, PFSG shall have 60 days from July 1, 2015 to provide notification of final closure of the entire facility or intent to resume hazardous waste management operations; and 90 days from July 1, 2015 to submit a post closure plan in the event PFSG decides to proceed with final closure of the facility. The Company has begun initiating full closure requirements of the facility which will include submittal of a post closure plan to be approved by GAEPD. As a result, PFSG is no longer classified as held for sale.

 

On June 4, 2015, the Company entered into a letter of intent (“LOI”) to sell the property which our Perma-Fix of Michigan, Inc. (“PFMI”) formerly operated on for a sale price of approximately $450,000. PFMI is a closed location. The sale of the property at PFMI is subject to execution of a purchase agreement and completion of due diligence within 90 days of the LOI. As required by ASC 360, the Company concluded that tangible asset impairment existed for PFMI as of June 30, 2015 and recorded approximately $150,000 in asset impairment charge which was included in “(Loss) income from discontinued operations, net of taxes” in the accompanying Consolidated Condensed Statements of Operations.

 

 

 
15

 

 

The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2015 and 2014. Operating loss for the three and six months ended June 30, 2015 included the penalty recorded for PFSG and the asset impairment charge recorded for PFMI as discussed above. Operating loss for the three and six months ended June 30, 2014 included a tangible asset impairment charge of approximately $685,000 recorded during the second quarter of 2014 for PFSG. Remaining operating losses for the periods reflected below were primarily due to costs incurred in the administration and continued monitoring of our discontinued operations, primarily for the PFSG site.

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 

(Amounts in Thousands)

 

2015

   

2014

   

2015

   

2014

 
                                 

Net revenues

  $     $     $     $  

Interest expense

  $     $ (6 )   $ (1 )   $ (7 )

Operating loss from discontinued operations

  $ (713 )   $ (1,169 )   $ (936 )   $ (1,436 )

Income tax expense

  $     $     $     $  

Gain on insurance settlement of discontinued operations

  $     $ 3,541     $     $ 3,541  

(Loss) income from discontinued operations

  $ (713 )   $ 2,372     $ (936 )   $ 2,105  

 

The following table presents the major class of assets of discontinued operations that are classified as held for sale as of June 30, 2015 and December 31, 2014. The held for sale assets may differ at the closing of a sale transaction from the reported balances as of June 30, 2015. Assets and liabilities previously classified as held for sale for PFSG for as of December 31, 2014 have been reclassified to assets and liabilities not held for sale (see charts below) due to the Company’s decision to initiate final closure of PFSG.

 

   

June 30,

   

December 31,

 

(Amounts in Thousands)

 

2015

   

2014

 
                 

Property

  $ 450     $ 600  

Total assets held for sale

  $ 450     $ 600  

 

The following table presents the major classes of assets and liabilities of discontinued operations that are not held for sale as of June 30, 2015 and December 31, 2014:

 

   

June 30,

   

December 31,

 

(Amounts in Thousands)

 

2015

   

2014

 

Current assets

               

Other assets

  $ 22       20  

Total current assets

    22       20  

Long-term assets

               

Property, plant and equipment, net (1)

    81       81  

Total long-term assets

    81       81  

Total assets not held for sale

  $ 103     $ 101  

Current liabilities

               

Accounts payable

  $ 915     $ 947  

Accrued expenses and other liabilities

    500       462  

Environmental liabilities

    627       728  

Total current liabilities

    2,042       2,137  

Long-term liabilities

               

Closure liabilities

    306       302  

Environmental liabilities

    369       288  

Total long-term liabilities

    675       590  

Total liabilities not held for sale

  $ 2,717     $ 2,727  


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

 

 

 
16

 

 

10.

Operating Segments

 

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

 

We currently have two reporting segments, Treatment and Services Segments, which are based on a service offering approach. This, however, excludes corporate headquarters, which do not generate revenue, our discontinued operations (see Note 9 – “Discontinued Operations”), and PF Medical S.A, a developmental entity whose primary purpose at this time is the R&D and marketing of medical isotope technology used in the medical diagnostic testing and is not generating any revenues (see Note 7 – Perma-Fix Medical S.A.” for further information of this entity).

 

Our reporting segments are defined as below:

 

TREATMENT SEGMENT reporting includes:

 

-

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

 

-

R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

 

SERVICES SEGMENT, which includes:

 

-

On-site waste management services to commercial and government customers;

 

-

Technical services, which include:

 

o

professional radiological measurement and site survey of large government and commercial 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;

 

-

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; site construction; logistics; transportation; and emergency response; and

 

-

A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) of health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.

 

 

 
17

 

 

The table below presents certain financial information of our operating segments as of and for the three and six months ended June 30, 2015 and 2014 (in thousands).

 

Segment Reporting for the Quarter Ended June 30, 2015

                                       
   

Treatment

   

Services

   

Segments

Total

   

Corporate

And Other  (1)

   

Consolidated

Total

 

Revenue from external customers

  $ 11,087     $ 5,267     $ 16,354     $     $ 16,354  

Intercompany revenues

    1       6       7              

Gross profit

    3,335       697       4,032             4,032  

Interest income

    1             1       10       11  

Interest expense

    (11 )           (11 )     (129 )     (140 )

Interest expense-financing fees

                      (56 )     (56 )

Depreciation and amortization

    743       190       933       10       943  

Segment profit (loss)

    2,258       60       2,318       (1,911 )     407  

Expenditures for segment assets

    138             138       6       144  

 

Segment Reporting for the Quarter Ended June 30, 2014

                                       
   

Treatment

   

Services

   

Segments

Total

   

Corporate

And Other (1)

   

Consolidated

Total

 

Revenue from external customers

  $ 9,396     $ 3,261     $ 12,657     $     $ 12,657  

Intercompany revenues

          33       33              

Gross profit

    1,325       232       1,557             1,557  

Interest income

                      6       6  

Interest expense

    (15 )     (1 )     (16 )     (198 )     (214 )

Interest expense-financing fees

          2       2       (38 )     (36 )

Depreciation and amortization

    837       248       1,085       13       1,098  

Segment profit (loss)

    166       (944 )     (778 )     (1,583 )     (2,361 )

Expenditures for segment assets

    120             120             120  

 

Segment Reporting for the Six Months Ended June 30, 2015

                                       
   

Treatment

   

Services

   

Segments

Total

   

Corporate

And Other (1)

   

Consolidated

Total

 

Revenue from external customers

  $ 20,836     $ 9,119     $ 29,955     $     $ 29,955  

Intercompany revenues

    2       15       17              

Gross profit

    4,570       940       5,510             5,510  

Interest income

    2             2       18       20  

Interest expense

    (34 )           (34 )     (233 )     (267 )

Interest expense-financing fees

    (2 )           (2 )     (113 )     (115 )

Depreciation and amortization

    1,507       380       1,887       22       1,909  

Segment profit (loss)

    2,443       (241 )     2,202       (3,808 )     (1,606 )

Expenditures for segment assets

    244       13       257       8       265  

 

Segment Reporting for the Six Months Ended June 30, 2014

                                       
   

Treatment

   

Services

   

Segments

Total

   

Corporate

And Other (1)

   

Consolidated

Total

 

Revenue from external customers

  $ 17,068     $ 6,133     $ 23,201     $     $ 23,201  

Intercompany revenues

          44       44              

Gross profit

    1,435       215       1,650             1,650  

Interest income

                      14       14  

Interest expense

    (25 )     (1 )     (26 )     (341 )     (367 )

Interest expense-financing fees

          2       2       (83 )     (81 )

Depreciation and amortization

    1,787       496       2,283       26       2,309  

Segment loss

    (1,007 )     (1,992 )     (2,999 )     (3,064 )     (6,063 )

Expenditures for segment assets

    331       2       333             333  

 

(1) Amounts reflect the activity for corporate headquarters and PF Medical S.A., not included in the segment information.

 

 
18

 

 

11.

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 expenses of $36,000 and $71,000 from continuing operations for the three and six months ended June 30, 2015, respectively, and income tax expenses of $30,000 and $60,000 from continuing operations for the three and six months ended June 30, 2014, respectively. The Company’s effective tax rates were approximately 6.1% and (5.9%) for the three and six months ended June 30, 2015, respectively, and (1.5%) and (1.1%) for the three and six months ended June 30, 2014, respectively.  The Company has provided a full valuation allowance on its net deferred tax assets.

 

12.

Related Party Transactions

 

Mr. John Climaco. 

On June 2, 2015, Mr. Climaco was elected as the Executive Vice President of Perma-Fix Medical S.A. (“PF Medical”), a majority-owned Polish subsidiary of the Company. Mr. Climaco will receive an annual salary from PF Medical of $150,000. Mr. Climaco currently serves as a Director of the Company and a member of the Strategic Advisory Committee of the Board.

 

On October 17, 2014, the Company’s Compensation and Stock Option Committee and the Board, with Mr. Climaco abstaining, approved a consulting agreement with John Climaco. Pursuant to the consulting agreement, Mr. Climaco was responsible to, among other things:

 

 

Review the Company’s operations to restructure costs to render the Company more competitive;

 

Evaluate all functions, including but not limited to sales, marketing, accounting, operations, and executive management as well as cost structures for each facility;

 

Assist in the development of the Company’s strategy opportunity and other initiatives, including but not limited to the development of the Company’s medical isotope technology; and

 

Other assignments as determined by the Board.

 

Mr. Climaco was paid $22,000 per month under the consulting agreement, beginning September 2014. This consulting agreement was terminated effective June 2, 2015, upon Mr. Climaco’s election as Executive Vice-President of PF Medical discussed above.

 

Mr. Climaco is also a director of Digirad Corporation. On July 24, 2015, PF Medical entered into a multi-year Tc-99m Supplier Agreement and a Subscription Agreement with Digirad Corporation (see “Note 13 - Subsequent Events” for further information regarding these Agreements).

 

PF Medical

Mr. Robert L. Ferguson, who the Company borrowed $3,000,000 pursuant to a Loan and Security Purchase Agreement and promissory note, dated August 2, 2013, and who also serves as an advisor to the Company’s Board, was also named as a member of its Supervisory Board of Directors of PF Medical (see “Note 6 – Long Term Debt – Promissory Note and Installment Agreements” for further information of this loan).

 

13.

Subsequent Events

 

PF Medical 

On July 24, 2015, the Company’s majority-owned Polish subsidiary, PF Medical and Digirad Corporation, a Delaware corporation (“Digirad”), Nasdaq: DRAD, entered into a multi-year Tc-99m Supplier Agreement (the “Supplier Agreement”) and a Series F Stock Subscription Agreement (the “Subscription Agreement”), (together, the “Digirad Agreements”). The Supplier Agreement is effective upon the completion of the Subscription Agreement. PF Medical was formed to develop and commercialize a new process to produce Tc-99m, the most widely used medical isotope in the world. Pursuant to the terms of the Digirad Agreements, Digirad purchased 71,429 shares of PF Medical’s restricted Series F Stock for an aggregate purchase price of $1,000,000. Under Polish law, issuance of shares requires approval of the shares by the Polish court which is expected to occur in the third quarter of 2015. In the event that the shares are not approved by the Polish court within 120 days from the date of payment by Digirad to PF Medical of the $1,000,000 purchase price on July 24, 2015, Perma-Fix Medical and Digirad have agreed that Perma-Fix Medical will return the $1,000,000 to Digirad and the Digirad Agreements shall terminate. The 71,429 share investment made by Digirad, when completed, will constitute approximately 5.4% of the outstanding common shares of Perma-Fix Medical. Upon issuance of the 71,429 shares to Digirad, the Company’s ownership interest in Perma-Fix Medical would be diluted from approximately 64.0% to approximately 60.5%. The Supplier Agreement provides, among other things, that upon PF Medical’s commercialization of certain Tc99m generators, Digirad will purchase agreed upon quantities of Tc-99m for its nuclear imaging operations either directly or in conjunction with its preferred nuclear pharmacy supplier and Perma-Fix Medical will supply Digirad, or its preferred nuclear pharmacy supplier, with Tc-99m at a preferred pricing, subject to certain conditions.

 

 
19

 

 

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

 

demand for our services;

reductions in the level of government funding in future years;

expect to meet our quarterly financial covenant requirements in each of the remaining quarters of 2015;

ability to achieve profitability;

continuing demand for our services;

successfully implement our plan and generate positive cash flow in 2015;

expand into both commercial and international markets to increase revenues;

may not have liquidity to repay debt if our lender accelerates payment of our borrowings;

our cash flows from operations and our available liquidity from our Credit Facility are sufficient to service our obligations;

ability to continue under existing contracts that we have with the federal government (directly or indirectly as a subcontractor);