Unassociated Document
UNITED
STATES
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 March 31, 2007
Or
o |
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)
|
(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
T
No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer £ Accelerated
Filer
T Non-accelerated
filer
£
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £
No T
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 May 8, 2007
52,071,244
shares
of registrant’s
Common
Stock
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
|
|
Page
No.
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
|
20
|
|
|
|
|
|
39
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
43
|
|
|
|
|
|
44
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Amounts
in Thousands, Except for Share Amounts)
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
982
|
|
$
|
1,863
|
|
Restricted
cash
|
|
|
65
|
|
|
65
|
|
Accounts
receivable, net of allowance for doubtful
|
|
|
|
|
|
|
|
accounts
of $385 and $415, respectively
|
|
|
16,333
|
|
|
15,256
|
|
Unbilled
receivables - current
|
|
|
11,578
|
|
|
12,861
|
|
Inventories
|
|
|
1,067
|
|
|
847
|
|
Prepaid
expenses
|
|
|
2,686
|
|
|
3,039
|
|
Other
receivables
|
|
|
78
|
|
|
1,622
|
|
Current
assets of discontinued operations
|
|
|
21
|
|
|
22
|
|
Total
current assets
|
|
|
32,810
|
|
|
35,575
|
|
|
|
|
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
Buildings
and land
|
|
|
20,614
|
|
|
20,965
|
|
Equipment
|
|
|
31,436
|
|
|
31,414
|
|
Vehicles
|
|
|
4,780
|
|
|
4,616
|
|
Leasehold
improvements
|
|
|
11,474
|
|
|
11,469
|
|
Office
furniture and equipment
|
|
|
2,513
|
|
|
2,502
|
|
Construction-in-progress
|
|
|
6,470
|
|
|
4,896
|
|
|
|
|
77,287
|
|
|
75,862
|
|
Less
accumulated depreciation and amortization
|
|
|
(30,666
|
)
|
|
(29,942
|
)
|
Net
property and equipment
|
|
|
46,621
|
|
|
45,920
|
|
|
|
|
|
|
|
|
|
Property
and equipment of discontinued operations
|
|
|
706
|
|
|
706
|
|
|
|
|
|
|
|
|
|
Intangibles
and other assets:
|
|
|
|
|
|
|
|
Permits
|
|
|
13,444
|
|
|
13,395
|
|
Goodwill
|
|
|
1,330
|
|
|
1,330
|
|
Unbilled
receivable – non-current
|
|
|
3,821
|
|
|
2,600
|
|
Finite
Risk Sinking Fund
|
|
|
5,566
|
|
|
4,518
|
|
Other
assets
|
|
|
1,825
|
|
|
1,953
|
|
Total
assets
|
|
$
|
106,123
|
|
$
|
105,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED
BALANCE SHEETS, CONTINUED
(Amounts
in Thousands, Except for Share Amounts)
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(Unaudited)
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4,995
|
|
$
|
3,922
|
|
Current
environmental accrual
|
|
|
927
|
|
|
871
|
|
Accrued
expenses
|
|
|
11,044
|
|
|
11,287
|
|
Unearned
revenue
|
|
|
3,637
|
|
|
3,575
|
|
Current
liabilities of discontinued operations
|
|
|
726
|
|
|
707
|
|
Current
portion of long-term debt
|
|
|
2,421
|
|
|
2,403
|
|
Total
current liabilities
|
|
|
23,750
|
|
|
22,765
|
|
|
|
|
|
|
|
|
|
Environmental
accruals
|
|
|
1,686
|
|
|
1,754
|
|
Accrued
closure costs
|
|
|
5,432
|
|
|
5,393
|
|
Other
long-term liabilities
|
|
|
3,130
|
|
|
3,019
|
|
Long-term
liabilities of discontinued operations
|
|
|
1,362
|
|
|
1,402
|
|
Long-term
debt, less current portion
|
|
|
5,948
|
|
|
5,926
|
|
Total
long-term liabilities
|
|
|
17,558
|
|
|
17,494
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
41,308
|
|
|
40,259
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,285
|
|
|
1,285
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Preferred
Stock, $.001 par value; 2,000,000 shares authorized,
|
|
|
|
|
|
|
|
no
shares issued and outstanding, respectively
|
|
|
¾
|
|
|
¾
|
|
Common
Stock, $.001 par value; 75,000,000 shares authorized,
|
|
|
|
|
|
|
|
52,071,244
and 52,053,744 shares issued, including 0 share held
|
|
|
|
|
|
|
|
and
988,000 shares of treasury stock retired in 2006,
respectively
|
|
|
52
|
|
|
52
|
|
Additional
paid-in capital
|
|
|
93,128
|
|
|
92,980
|
|
Stock
subscription receivable
|
|
|
(66
|
)
|
|
(79
|
)
|
Accumulated
deficit
|
|
|
(29,584
|
)
|
|
(28,500
|
)
|
Total
stockholders' equity
|
|
|
63,530
|
|
|
64,453
|
|
Total
liabilities and stockholders' equity
|
|
$
|
106,123
|
|
$
|
105,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
20,155
|
|
$
|
21,118
|
|
Cost
of goods sold
|
|
|
14,265
|
|
|
14,288
|
|
Gross
profit
|
|
|
5,890
|
|
|
6,830
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
6,543
|
|
|
5,241
|
|
Loss
(gain) on disposal of property and equipment
|
|
|
(20
|
)
|
|
3
|
|
Income
(loss) from operations
|
|
|
(633
|
)
|
|
1,586
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
88
|
|
|
33
|
|
Interest
expense
|
|
|
(225
|
)
|
|
(357
|
)
|
Interest
expense-financing fees
|
|
|
(48
|
)
|
|
(49
|
)
|
Other
|
|
|
(14
|
)
|
|
(13
|
)
|
Income
(loss) from continuing operations before taxes
|
|
|
(832
|
)
|
|
1,200
|
|
Income
tax expense
|
|
|
126
|
|
|
72
|
|
Income
(loss) from continuing operations
|
|
|
(958
|
)
|
|
1,128
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of taxes
|
|
|
(126
|
)
|
|
(450
|
)
|
Net
income (loss)
|
|
|
(1,084
|
)
|
|
678
|
|
|
|
|
|
|
|
|
|
Preferred
Stock dividends
|
|
|
¾
|
|
|
¾
|
|
Net
income (loss) applicable to Common Stock
|
|
$
|
(1,084
|
)
|
$
|
678
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share – basic
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(.02
|
)
|
$
|
.03
|
|
Discontinued
operations
|
|
|
¾
|
|
|
(.01
|
)
|
Net
income (loss) per common share
|
|
$
|
(.02
|
)
|
$
|
.02
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share – diluted
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(.02
|
)
|
$
|
.03
|
|
Discontinued
operations
|
|
|
¾
|
|
|
(.01
|
)
|
Net
income (loss) per common share
|
|
$
|
(.02
|
)
|
$
|
.02
|
|
|
|
|
|
|
|
|
|
Number
of shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
Basic
|
|
|
52,063
|
|
|
44,831
|
|
Diluted
|
|
|
52,063
|
|
|
45,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Unaudited)
|
|
Three
Months Ended
March
31,
|
|
(Amounts
in Thousands)
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
Income (loss)
|
|
$
|
(1,084
|
)
|
$
|
678
|
|
Adjustments
to reconcile net income (loss) to cash provided by
|
|
|
|
|
|
|
|
operations:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,217
|
|
|
1,194
|
|
Provision
(credit) for bad debt and other reserves
|
|
|
42
|
|
|
(41
|
)
|
(Gain)
loss on disposal of property and equipment
|
|
|
(20
|
)
|
|
3
|
|
Issuance
of Common Stock for services
|
|
|
12
|
|
|
10
|
|
Share
based compensation
|
|
|
111
|
|
|
29
|
|
Discontinued
operations
|
|
|
(20
|
)
|
|
(291
|
)
|
Changes
in operating assets and liabilities of continuing
operatons:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,120
|
)
|
|
3,099
|
|
Unbilled
receivables
|
|
|
62
|
|
|
(2,026
|
)
|
Prepaid
expenses, inventories and other assets
|
|
|
1,932
|
|
|
1,325
|
|
Accounts
payable, accrued expenses, and unearned revenue
|
|
|
853
|
|
|
(3,644
|
)
|
Net
cash provided by operations
|
|
|
1,985
|
|
|
336
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property and equipment, net
|
|
|
(1,496
|
)
|
|
(496
|
)
|
Proceeds
from sale of plant, property and equipment
|
|
|
28
|
|
|
1
|
|
Change
in restricted cash, net
|
|
|
¾
|
|
|
9
|
|
Change
in finite risk sinking fund
|
|
|
(1,048
|
)
|
|
(1,022
|
)
|
Discontinued
operations
|
|
|
¾
|
|
|
104
|
|
Net
cash used in investing activities
|
|
|
(2,516
|
)
|
|
(1,404
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
borrowings of revolving credit
|
|
|
¾
|
|
|
1,573
|
|
Principal
repayments of long-term debt
|
|
|
(388
|
)
|
|
(531
|
)
|
Proceeds
from issuance of stock
|
|
|
25
|
|
|
¾
|
|
Repayment
of stock subscription receivable
|
|
|
13
|
|
|
¾
|
|
Net
cash provided by (used in) financing activities
|
|
|
(350
|
)
|
|
1,042
|
|
Decrease
in cash
|
|
|
(881
|
)
|
|
(26
|
)
|
Cash
at beginning of period
|
|
|
1,863
|
|
|
94
|
|
Cash
at end of period
|
|
$
|
982
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
191
|
|
$
|
244
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Long-term
debt incurred for purchase of property and equipment
|
|
|
428
|
|
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
(Unaudited,
for the three months ended March 31, 2007)
(Amounts
in thousands,
|
|
Common
Stock
|
|
Additional
Paid-In
|
|
Loan
for
|
|
Accumulated
|
|
Total
Stockholders'
|
|
except
for share amounts)
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Equity
|
|
Deficit
|
|
Equity
|
|
Balance
at December 31, 2006
|
|
|
52,053,744
|
|
$
|
52
|
|
$
|
92,980
|
|
$
|
(79
|
)
|
$
|
(28,500
|
)
|
$
|
64,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
(1,084
|
)
|
|
(1,084
|
)
|
Issuance
of Common Stock for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
and services
|
|
|
¾
|
|
|
¾ |
|
|
12
|
|
|
¾
|
|
|
¾
|
|
|
12
|
|
Issuance
of Common Stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of Warrants & Options
|
|
|
17,500
|
|
|
¾
|
|
|
25
|
|
|
¾
|
|
|
¾
|
|
|
25
|
|
Share
based compensation
|
|
|
¾
|
|
|
¾
|
|
|
111
|
|
|
¾
|
|
|
¾
|
|
|
111
|
|
Repayment
of stock subscription
receivable
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
|
|
|
¾
|
|
|
13
|
|
Balance
at March 31, 2007
|
|
|
52,071,244
|
|
$
|
52
|
|
$
|
93,128
|
|
$
|
(66
|
)
|
$
|
(29,584
|
)
|
$
|
63,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
March
31, 2007
(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, 2006.
The
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. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America 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 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.
It
is
suggested that these consolidated 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,
2006.
The
results of operations for the three months ended March 31, 2007, are not
necessarily indicative of results to be expected for the fiscal year ending
December 31, 2007.
2.
|
Summary
of Significant Accounting
Policies
|
Our
accounting policies are as set forth in the notes to consolidated financial
statements referred to above.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157
simplifies and codifies guidance on fair value measurements under generally
accepted accounting principles. This standard defines fair value, establishes
a
framework for measuring fair value and prescribes expanded disclosures about
fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years, with early adoption permitted. We are
currently evaluating the effect, if any, the adoption of SFAS 157 will have
on
our financial condition, results of operations and cash flows.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunities to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. SFAS 159 is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement
objectives for accounting financial instruments. SFAS 159 is effective as of
the
beginning of an entity’s first fiscal year that begins after November, 15, 2007.
We are currently evaluating the effect, if any, the adoption of SFAS 159 will
have on our financial condition, results of operations and cash
flow.
Reclassifications
Certain
prior period amounts have been reclassified to conform with the current period
presentation.
3.
|
Stock
Based Compensation
|
On
January 1, 2006, we adopted Financial Accounting Standards Board (“FASB”)
Statement No. 123 (revised) ("SFAS 123R"), Share-Based
Payment,
a
revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation,
superseding APB Opinion No. 25, Accounting
for Stock Issued to Employees, and
its
related implementation guidance. This Statement establishes
accounting standards for entity exchanges of equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative upon adopting
SFAS 123R.
We
adopted SFAS 123R utilizing the modified prospective method in which
compensation cost is recognized beginning with the effective date based on
SFAS 123R requirements for all (a) share-based payments granted after the
effective date and (b) awards granted to employees prior to the effective
date of SFAS 123R that remain unvested on the effective date. In accordance
with the modified prospective method, the consolidated financial statements
for
prior periods have not been restated to reflect, and do not include, the impact
of SFAS 123R.
Prior
to
our adoption of SFAS 123R, on
July 28, 2005, the Compensation and Stock Option Committee of the Board of
Directors approved the acceleration of
vesting
for all
the outstanding and unvested options to purchase Common Stock awarded to
employees as of the approval date. The Board of Directors approved the
accelerated vesting
of these
options based on the belief that it was in the best interest of our stockholders
to reduce future compensation expense that would otherwise be required in the
statement of operations upon adoption of SFAS 123R, effective beginning January
1, 2006. The accelerated vesting triggered the re-measurement of compensation
cost under current accounting standards. In the event a holder of an
accelerated vesting option terminates employment with us prior to the end of
the
original vesting term of such options, we will recognize the compensation
expense at the time of termination.
As
of
March 31, 2007, we had 2,610,250 employee stock options outstanding, which
included 1,677,250 that were outstanding and fully vested at December 31, 2005,
833,000 employee stock options approved and granted on March 2, 2006, of which
277,667 became vested on March 2, 2007, and 100,000 employee stock options
approved and granted on May 15, 2006. The weighted average exercise price of
the
1,954,917 outstanding and fully vested employee stock options is $1.95 with a
weighted contractual life of 4.13 years. The employee stock options outstanding
at December 31, 2005 are ten year options, issuable at exercise prices from
$1.25 to $3.00 per share, and expiration dates from April 8, 2007 to October
28,
2014. The employee stock option grants in March and May 2006 are six year
options with a three year vesting period, with exercise prices from $1.85 to
$1.86 per share. Additionally, we also have 489,000 outstanding and fully vested
director stock options, of which 90,000 became fully vested in January 2007,
with exercise price ranging from $1.2188 to $2.98 per share and expiration
dates
from December 8, 2007 to July 27, 2016. The 90,000 director stock options were
granted on July 27, 2006, resulting from the reelection of our Board of
Directors. The weighted average exercise price of the 489,000 outstanding and
fully vested director stock option is $1.97 with a weighted contractual life
of
6.42 years. We have not granted any employee or director stock options for
the
three months ended March 31, 2007.
We
recognized share based compensation expense of approximately $87,000 for the
three months ended March 31, 2007, for the employee stock options grants of
March 2, 2006 and May 15, 2006, as compared to approximately $18,000 for the
period ended March 31, 2006. For the stock option grants on March 2, 2006 and
May 15, 2006, we have estimated compensation expense based on the fair value
at
grant date using the Black-Scholes valuation model, and have recognized
compensation expense using a straight-line amortization method over the three
year vesting period. As SFAS 123R requires that stock-based
compensation
expense be based on options that are
ultimately expected to vest, approximately $30,000 of the $87,000 share based
compensation expense recognized above for the three months ended March 31,
2007
was the result of the difference between our estimated forfeiture rate of 5.7%
and the actual forfeiture rate of 1.7% for the first year vesting of our March
2, 2006 employee option grant. When estimating forfeitures, we consider trends
of actual option forfeitures. The forfeiture rates are evaluated, and revised
as
necessary. We also recognized the remaining share based compensation expense
of
approximately $24,000 for the three months ended March 31, 2007 for the 90,000
director option grant made on July 27, 2006, which became vested in January
2007. Pursuant to the adoption of SFAS 123R, during the three month period
ended
March 31, 2006, we recorded share based compensation expense for the director
stock options granted prior to, but not yet vested as of January 1, 2006, as
if
the fair value method required for pro forma disclosure under SFAS 123 were
in
effect for expense recognition purposes. As such, we recorded approximately
$11,000 in share compensation expense for the period ended March 31, 2006.
We
have approximately $569,000 of total unrecognized compensation cost related
to
unvested options as of March 31, 2007, of which approximately $164,000 will
be
recognized in remaining 2007, $219,000 will be recognized in 2008, and the
remaining $186,000 in 2009.
We
calculated a fair value of $0.868 for each March 2, 2006 option grant on the
date of grant using the Black-Scholes option pricing model with the following
assumptions:
no
dividend yield; an expected life of four years; expected volatility of 54.0%;
and a risk free interest rate of 4.70%. We calculated a fair value of $0.877
for
the May 15, 2006 option grant on the date of grant with the following
assumptions: no dividend yield; an expected life of four years; an expected
volatility of 54.6%; and a risk-free interest rate of 5.03%. We calculated
a
fair value of $1.742 for each July 27, 2006 director option grant on the date
of
the grant with the following assumptions: no dividend yield; an expected life
of
ten years; an expected volatility of 73.31%; and a risk free interest rate
of
4.98%.
Our
computation of expected volatility is based on historical volatility from our
traded common stock. Due to our change in the contractual term and vesting
period, we utilized the
simplified method, defined in the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 107, to calculate the expected term for our 2006 grants.
The
interest rate for periods within the contractual life of the award is based
on
the U.S. Treasury yield curve in effect at the time of grant.
4.
|
Earnings
(Loss) Per Share
|
Basic
EPS
is based on the weighted average number of shares of Common Stock outstanding
during the period. Diluted EPS includes the dilutive effect of potential common
shares. Diluted loss per share for the three months ended March 31, 2007, do
not
include potential common shares as their effect would be antidilutive.
The
following is a reconciliation of basic net income (loss) per share to diluted
net income (loss) per share for the three months ended March 31, 2007 and
2006:
|
|
Three
Months Ended March 31,
|
|
(Amounts
in Thousands, Except for Per Share Amounts)
|
|
2007
|
|
2006
|
|
Earnings
(loss) per share from continuing operations
|
|
|
|
|
|
Income(loss)
from continuing operations
|
|
$
|
(958
|
)
|
|
1,128
|
|
Preferred
stock dividends
|
|
|
¾
|
|
|
¾
|
|
Income
(loss) from continuing operations applicable to Common
Stock
|
|
|
(958
|
)
|
|
1,128
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Preferred
Stock dividends
|
|
|
¾
|
|
|
¾
|
|
Income
(loss) – diluted
|
|
$
|
(958
|
)
|
$
|
1,128
|
|
Basic
income (loss) per share
|
|
$
|
(.02
|
)
|
$
|
.03
|
|
Diluted
income (loss) per share
|
|
$
|
(.02
|
)
|
$
|
.03
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share from discontinued operations
|
|
|
|
|
|
|
|
Loss
– basic and diluted
|
|
$
|
(126
|
)
|
$
|
(450
|
)
|
Basic
loss per share
|
|
|
¾
|
|
$
|
(.01
|
)
|
Diluted
loss per share
|
|
|
¾
|
|
$
|
(.01
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic
|
|
|
52,063
|
|
|
44,831
|
|
Potential
shares exercisable under stock option plans
|
|
|
¾
|
|
|
211
|
|
Potential
shares upon exercise of Warrants
|
|
|
¾
|
|
|
307
|
|
Weighted
average shares outstanding – diluted
|
|
|
52,063
|
|
|
45,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
shares excluded from above weighted average share calculations
due to
their anti-dilutive effect include:
|
|
|
|
|
|
|
|
Upon
exercise of options
|
|
|
270
|
|
|
2,258
|
|
Upon
exercise of Warrants
|
|
|
|
|
|
1,776
|
|
Long-term
debt consists of the following at March 31, 2007 and December 31,
2006:
(Amounts
in Thousands)
|
|
March
31,
2007
|
|
December
31,
2006
|
|
|
|
(Unaudited)
|
|
|
|
Revolving
Credit
facility dated December 22, 2000, borrowings based
|
|
|
|
|
|
upon
eligible accounts receivable, subject to monthly borrowing
base
|
|
|
|
|
|
calculation,
variable interest paid monthly at prime rate plus ½%
|
|
|
|
|
|
|
|
(8.75%
at March 31, 2007), balance due in May 2008.
|
|
|
¾
|
|
|
¾
|
|
Term
Loan
dated December 22, 2000, payable in equal monthly
|
|
|
|
|
|
|
|
installments
of principal of $83, balance due in May 2008, variable
|
|
|
|
|
|
|
|
interest
paid monthly at prime rate plus 1% (9.25% at March 31,
2007).
|
|
|
5,250
|
|
|
5,500
|
|
Promissory
Note dated
June 25, 2001, payable in semiannual installments
|
|
|
|
|
|
|
|
on
June 30 and December 31 through December 31, 2008,
variable
|
|
|
|
|
|
|
|
interest
accrues at the applicable law rate determined under the
IRS
|
|
|
|
|
|
|
|
Code
Section (10.0% on March 31, 2007) and is payable in one
lump
|
|
|
|
|
|
|
|
sum
at the end of installment period.
|
|
|
1,434
|
|
|
1,434
|
|
Installment
Agreement
dated June 25, 2001, payable in semiannual IRS
|
|
|
|
|
|
|
|
installments
on June 30 and December 31 through December 31, 2008,
|
|
|
|
|
|
|
|
variable
interest accrues at the applicable law rate determined under
the
|
|
|
|
|
|
|
|
Code
Section (10.0% on March 31, 2007) and is payable in one
|
|
|
|
|
|
|
|
lump
sum at the end of installment period.
|
|
|
353
|
|
|
353
|
|
Various
capital lease and promissory note obligations, payable 2007
to
|
|
|
|
|
|
|
|
2012,
interest at rates ranging from 5.0% to 15.7%.
|
|
|
1,332
|
|
|
1,042
|
|
|
|
|
8,369
|
|
|
8,329
|
|
Less
current portion of long-term debt
|
|
|
2,421
|
|
|
2,403
|
|
|
|
$
|
5,948
|
|
$
|
5,926
|
|
Revolving
Credit and Term Loan Agreement
On
December 22, 2000, we entered into a Revolving Credit, Term Loan and Security
Agreement ("Agreement") with PNC Bank, National Association, a national banking
association ("PNC") acting as agent ("Agent") for lenders, and as issuing bank,
as amended. The Agreement provides for a term loan ("Term Loan") in the amount
of $7,000,000, which requires monthly installments of $83,000 with the remaining
unpaid principal balance due on May 31, 2008. The Agreement also provides for
a
revolving line of credit ("Revolving Credit") with a maximum principal amount
outstanding at any one time of $18,000,000, as amended. The Revolving Credit
advances are subject to limitations of an amount up to the sum of (a) up to
85%
of Commercial Receivables aged 90 days or less from invoice date, (b) up to
85%
of Commercial Broker Receivables aged up to 120 days from invoice date, (c)
up
to 85% of acceptable Government Agency Receivables aged up to 150 days from
invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60
days, less (e) reserves the Agent reasonably deems proper and necessary. As
of
March 31, 2007, the excess availability under our Revolving Credit was
$11,395,000 based on our eligible receivables.
Pursuant
to the Agreement, as amended, the Term Loan bears interest at a floating rate
equal to the prime rate plus 1%, and the Revolving Credit at a floating rate
equal to the prime rate plus ½%. The Agreement was subject to a prepayment fee
of 1% until March 25, 2006, and ½% until March 25, 2007 had we elected to
terminate the Agreement with PNC.
Promissory
Note
In
conjunction with our acquisition of M&EC, M&EC issued a promissory note
for a principal amount of $3.7 million to Performance Development Corporation
("PDC"), dated June 25, 2001, for monies advanced to M&EC for certain
services performed by PDC. The promissory note is payable over eight years
on a
semiannual basis on June 30 and December 31. The principal repayments for 2007
will be approximately $400,000 semiannually. Interest is accrued at the
applicable law rate ("Applicable Rate") pursuant to the provisions of section
6621 of the Internal Revenue Code of 1986 as amended (10% on March 31, 2007)
and
payable in one lump sum at the end of the loan period. On March 31, 2007, the
outstanding balance was $3,268,000 including accrued interest of approximately
$1,834,000. Pursuant to the agreement the accrued interest is to be paid at
the
end of the term, and as such, is recorded as a long-term liability. PDC has
directed M&EC to make all payments under the promissory note directly to the
Internal Revenue Service ("IRS") to be applied to PDC's obligations under its
installment agreement with the IRS.
Installment
Agreement
Additionally,
M&EC entered into an installment agreement with the IRS for a principal
amount of $923,000 effective June 25, 2001, for certain withholding taxes owed
by M&EC. The installment agreement is payable over eight years on a
semiannual basis on June 30 and December 31. The principal repayments for 2007
will be approximately $100,000 semiannually. Interest is accrued at the
Applicable Rate, and is adjusted on a quarterly basis and payable in lump sum
at
the end of the installment period. On March 31, 2007, the rate was 10%. On
March
31, 2007, the outstanding balance was $796,000 including accrued interest of
approximately $443,000. The interest expense is recorded as a long-term
liability, pursuant to the terms of the agreement.
6.
|
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
In
the
normal course of conducting our business, we are involved in various
litigations. There has been no material change in legal proceedings from those
disclosed previously in the Company's Form 10-K for the year ended December
31,
2006 other than the following material developments:
In
December 2004, our Dayton, Ohio subsidiary, Perma-Fix of Dayton, Inc. (PFD)
was
sued under the citizen’s suit provisions of the Clean Air Act in the United
States District Court for the Southern District of Ohio, Western District,
styled Barbara
Fisher v. Perma-Fix of Dayton, Inc.
The suit
alleges violation by PFD of a number of state and federal clean air statutes
in
connection with the operation of PFD’s facility, primarily due to PFD’s
operating its facility without a Title V air permit. The complaint further
alleges that PFD failed to install appropriate air pollution control equipment,
conduct appropriate recordkeeping, properly monitor and report, and further
alleges that air emissions from PFD’s facility injured persons, endangered the
health of the public and constituted a nuisance in violation of Ohio law. The
action seeks remediation, injunctive relief, imposition of civil penalties,
attorney fees, and costs and other forms of relief. On
or
about May 19, 2006, the U.S. Department of Justice (“DOJ”), on behalf of the
EPA, intervened in the case seeking injunctive relief and civil penalties
against PFD for alleged violations which parallel certain claims asserted in
the
citizen’s suit, including claims PFD’s failure to have obtained, and to have
operated its facility without, a Title V air permit, failure to install
appropriate air pollution control equipment and conduct appropriate
recordkeeping, monitoring and reporting was in violation of the Clean Air Act
and applicable regulations. The federal complaint also alleges that PFD failed
to respond to a formal request for information from the EPA in a timely manner
and request civil penalties.
On
April
25, 2007, PFD reached an agreement in principle (“AIP”) with DOJ/USEPA
representatives to settle all of the United States’ claims. In addition to
taking specific actions to address relevant air pollution control regulations
and permit requirements, the AIP states that PFD will pay a civil penalty of
$800,000. However, at this time, PFD expects the $800,000 will consist of as
many as three components: 1) cash payment to the appropriate regulatory
authority; 2) supplemental environmental project(s) consisting of cash
equivalent investment(s) in PFD’s facility and/or the local community; and 3)
supplemental environmental project(s) consisting of one or more capital
projects. The process for formalizing the details of a settlement agreement
(consent decree) and meeting the DOJ/EPA official approval requirements
(including public notice and comment) is expected to take between 90 and 120
days. Cost estimates associated with taking action to address air pollution
control regulations and permit requirements are dependent upon the
definitization of the consent decree. If agreement on all terms and format
of
such a final consent decree is not reached, then the AIP will be null and void
and no party may seek to enforce it. The AIP does not address the citizen’s suit
portion of the lawsuit, and, as a result, we expect the citizen’s suit to
continue after finalization of the settlement with the federal government.
PFD
continues to mount a vigorous defense against, and seek an acceptable resolution
of, the claims and requests for relief brought by the citizen’s
group.
As
of
March 31, 2007, we have incurred approximately $2.7 million in costs in
vigorously defending against the lawsuits above, of which approximately $1.2
million was incurred in the first quarter of 2007. On April 12, 2007, we were
notified by our insurer, American International Group (“AIG”), that it
has
withdrawn its prior denial of coverage and has agreed to defend and indemnify
us
(PFD) in the above disclosed lawsuit, subject to insurer’s reservation of rights
as discussed below.
Although
our insurer has agreed to reimburse us for reasonable defense costs incurred
in
connection with the litigation prior to the insurer’s assumption of the defense,
the insurer’s agreement to defend and indemnify PFD is subject to the insurer’s
reservation of its rights to deny indemnity pursuant to various policy
provisions and exclusions of the policy, including, without limitation, payment
of any civil penalties and fines, as well as the insurer’s right to recoup any
defense cost it has advanced in the event that it is determined that the policy
provides no coverage. At this time, the amount of the reimbursement from our
insurer of the amount of legal and out of pocket defense costs that we have
incurred to date has not been determined. As such, we have not recorded any
of
the reimbursement.
Insurance
We
believe we maintain insurance coverage adequate for our needs and which is
similar to, or greater than, the coverage maintained by other companies of
our
size in the industry. There can be no assurances, however, those liabilities,
which may be incurred by us, will be covered by our insurance or that the dollar
amount of such liabilities, which are covered, will not exceed our policy
limits. Under our insurance contracts, we usually accept self-insured
retentions, which we believe is appropriate for our specific business risks.
We
are required by EPA regulations to carry environmental impairment liability
insurance providing coverage for damages on a claims-made basis in amounts
of at
least $1,000,000 per occurrence and $2,000,000 per year in the aggregate. To
meet the requirements of customers, we have exceeded these coverage amounts.
In
June
2003, we entered into a 25-year finite risk insurance policy, which provides
financial assurance to the applicable states for our permitted facilities in
the
event of unforeseen closure. Prior to obtaining or renewing operating permits
we
are required to provide financial assurance that guarantees to the states that
in the event of closure our permitted facilities will be closed in accordance
with the regulations. The policy provides a maximum $35 million of financial
assurance coverage of which the coverage amount totals $30,096,000 at March
31,
2007, and has available capacity to allow for annual inflation and other
performance and surety bond requirements. This finite risk insurance policy
required an upfront payment of $4.0 million, of which $2,766,000 represented
the
full premium for the 25-year term of the policy, and the remaining $1,234,000,
was deposited in a sinking fund account representing a restricted cash account.
In February 2007, we paid our fourth of nine required annual installments of
$1,004,000, of which $991,000 was deposited in the sinking fund account, the
remaining $13,000 represents a terrorism premium. As of March 31, 2007, we
have
recorded $5,566,000 in our sinking fund on the balance sheet,
which
includes interest earned of $368,000 on the
sinking fund as of March 31, 2007. Interest income for the three months ended
March 31, 2007, was $57,000.
7.
|
Discontinued
Operations
|
PFP
Effective
November 8, 2005, our Board of Directors approved the discontinuation of
operations at the facility in Pittsburgh, Pennsylvania, owned by our subsidiary,
Perma-Fix of Pittsburgh, Inc. ("PFP"). The decision to discontinue operations
at
PFP was due to our reevaluation of the facility and our ability to achieve
profitability at the facility in the near term. During February 2006, we
completed the remediation of the leased property and the equipment, and released
the property back to the owner. The operating results for the current and prior
periods have been reclassified to discontinued operations in our Consolidated
Statements of Operations.
PFP
recorded a loss of $500 for the three months ended March 31, 2007 and an
operating loss of $342,000 the same period ended March 31, 2006. The loss in
2006 was partially due to costs of $200,000 associated with our early
termination of our leased property. The assets and liabilities related to PFP
have been reclassified into separate categories in the Consolidated Balance
Sheets as of March 31, 2007 and December 31, 2006. The assets are recorded
at
their net realizable value, and consist of equipment of $106,000. PFP has no
liabilities on the books as of March 31, 2007.
PFMI
On
October 4, 2004, our Board of Directors approved the discontinuation of
operations at the facility in Detroit, Michigan, owned by our subsidiary,
Perma-Fix of Michigan, Inc. ("PFMI"). The decision to discontinue operations
at
PFMI was principally a result of two fires that significantly disrupted
operations at the facility in 2003, and the facility's continued drain on the
financial resources of our Industrial segment. We are in the process of
remediating the facility and evaluating our available options for future use
or
sale of the property. The operating activities for the current and prior periods
have been reclassified to discontinued operations in our Consolidated Statements
of Operations.
PFMI
recorded a loss of $126,000 for the three months ended March 31, 2007, and
a
loss of $108,000 for the three months ended March 31, 2006. During the last
half
of 2005, we settled the three insurance claims we submitted relative to the
two
fires at PFMI, a property claim for the first fire and a property claim and
business interruption claim for the second fire. During 2004, we recorded a
receivable of $1,585,000 based on negotiations with the insurance carrier on
the
business interruption claim. The income from recording this receivable was
recorded as a reduction of "loss from discontinued operations" and reduced
the
operating losses for 2004. During 2005, we received insurance proceeds and
claim
settlements of $3,253,000 for settlement of all three claims. Of these proceeds,
$1,476,000 was recorded as income from discontinued operations during the third
quarter of 2005, which is net of $192,000 paid for public adjustor
fees.
Assets
and liabilities related to the discontinued operation have been reclassified
to
separate categories in the Consolidated Balance Sheets as of March 31, 2007
and
December 31, 2006. As of March 31, 2007, assets are recorded at their estimated
net realizable values, and consist of property and equipment of $600,000 and
prepaid expense of $21,000. Liabilities as of March 31, 2007, consist of current
accrued expenses of $32,000, environmental accruals of $639,000, and a pension
payable of $1,417,000. The pension plan withdrawal liability, is a result of
the
termination of the union employees of PFMI. The PFMI union employees participate
in the Central States Teamsters Pension Fund ("CST"), which provides that a
partial or full termination of union employees may result in a withdrawal
liability, due from PFMI to CST. The recorded liability is based upon a demand
letter received from CST in August 2005 that provided for the payment of $22,000
per month over an eight year period. This obligation is recorded as a long-term
liability, with a current portion of $158,000 that we expect to pay over the
next year.
As
a
result of the discontinuation of operations at the PFMI facility, we are
required to complete certain closure and remediation activities pursuant to
our
RCRA permit. Also, in order to close and dispose of the facility, we may have
to
complete certain additional remediation activities related to the land,
building, and equipment. The level and cost of the clean-up and remediation
will
be determined by state mandated requirements, the extent to which is not known
at this time. Also, impacting this estimate is the level of contamination
discovered, as we begin remediation, and the related clean-up standards which
must be met in order to dispose of or sell the facility. We engaged our
engineering firm, SYA, to perform an analysis and related estimate of the cost
to complete the RCRA portion of the closure/clean-up costs and the potential
long-term remediation costs. Based upon this analysis, we estimated the cost
of
this environmental closure and remediation liability to be $2,464,000. During
2006 we re-evaluated our required activities to close and remediate the
facility, and during the quarter ended June 30, 2006, we began implementing
the
modified methodology to remediate the facility. As a result of the reevaluation
and the change in methodology, we reduced the accrual by $1,182,000.
We
have spent approximately $644,000 for closure costs since September 30, 2004,
of
which $15,000 has been spent during the first quarter of 2007 and $74,000 was
spent in 2006. We have $639,000 accrued for the closure, as of March 31, 2007,
and we anticipate spending $536,000 in 2007 with the remainder over the next
five years.
Pursuant
to FAS 131, we define an operating segment as a business activity:
·
|
from
which we may earn revenue and incur expenses;
|
|
|
·
|
whose
operating results are regularly reviewed by the segment president
to make
decisions about resources to be allocated to the segment and assess
its
performance; and
|
|
|
·
|
for
which discrete financial information is
available.
|
We
have
three operating segments, which are defined as each business line that we
operate. This however, excludes corporate headquarters, which does not generate
revenue, and our discontinued operations, PFMI and PFP.
Our
operating segments are defined as follows:
The
Industrial Waste Management Services segment provides on-and-off site treatment,
storage, processing and disposal of hazardous and non-hazardous industrial
waste, and wastewater through our six facilities; Perma-Fix Treatment Services,
Inc., Perma-Fix of Dayton, Inc., Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix
of
Orlando, Inc., Perma-Fix of South Georgia, Inc., and Perma-Fix of Maryland,
Inc.
We provide through certain of our facilities various waste management services
to certain governmental agencies.
The
Nuclear Waste Management Services segment provides treatment, storage,
processing and disposal of nuclear, low-level radioactive, mixed (waste
containing both hazardous and non-hazardous constituents), hazardous and
non-hazardous waste through our three facilities; Perma-Fix of Florida, Inc.,
Diversified Scientific Services, Inc. and East Tennessee Materials and Energy
Corporation.
The
Consulting Engineering Services segment provides environmental engineering
and
regulatory compliance services through Schreiber, Yonley & Associates, Inc.
which includes oversight management of environmental restoration projects,
air
and soil sampling and compliance and training activities to industrial and
government customers, as well as, engineering and compliance support needed
by
our other segments.
The
table
below presents certain financial information in thousands by business segment
as
of and for the three months ended March 31, 2007 and 2006 (in
thousands).
Segment
Reporting for the Quarter Ended March 31, 2007 |
|
|
|
Industrial
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate
(2)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
7,234
|
|
$
|
12,344
|
(3)
|
|
|
$
|
577
|
|
$
|
20,155
|
|
|
¾
|
|
|
|
$
|
20,155
|
|
Intercompany
revenues
|
|
|
231
|
|
|
555
|
|
|
|
|
235
|
|
|
1,021
|
|
|
¾
|
|
|
|
|
1,021
|
|
Gross
profit
|
|
|
1,290
|
|
|
4,431
|
|
|
|
|
169
|
|
|
5,890
|
|
|
¾
|
|
|
|
|
5,890
|
|
Interest
income
|
|
|
¾
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
88
|
|
|
|
|
88
|
|
Interest
expense
|
|
|
25
|
|
|
91
|
|
|
|
|
¾
|
|
|
116
|
|
|
109
|
|
|
|
|
225
|
|
Interest
expense-financing fees
|
|
|
¾
|
|
|
¾
|
|
|
|
|
¾
|
|
|
¾
|
|
|
48
|
|
|
|
|
48
|
|
Depreciation
and amortization
|
|
|
446
|
|
|
743
|
|
|
|
|
9
|
|
|
1,198
|
|
|
19
|
|
|
|
|
1,217
|
|
Segment
profit (loss)
|
|
|
(1,683
|
)
|
|
2,153
|
|
|
|
|
49
|
|
|
519
|
|
|
(1,477
|
)
|
|
|
|
(958
|
)
|
Segment
assets(1)
|
|
|
21,244
|
|
|
70,596
|
|
|
|
|
2,063
|
|
|
93,903
|
|
|
12,220
|
(4)
|
|
|
|
106,123
|
|
Expenditures
for segment assets
|
|
|
558
|
|
|
1,353
|
|
|
|
|
10
|
|
|
1,921
|
|
|
3
|
|
|
|
|
1,924
|
|
Total
long-term debt
|
|
|
906
|
|
|
2,200
|
|
|
|
|
13
|
|
|
3,119
|
|
|
5,250
|
(5)
|
|
|
|
8,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reporting for the Quarter Ended March 31, 2006 |
|
|
|
Industrial
|
|
Nuclear
|
|
|
Engineering
|
|
Segments
Total
|
|
Corporate
(2)
|
|
|
Consolidated
Total
|
|
Revenue
from external customers
|
|
$
|
8,222
|
|
$
|
12,158
|
(3)
|
|
|
$
|
738
|
|
$
|
21,118
|
|
|
¾
|
|
|
|
$
|
21,118
|
|
Intercompany
revenues
|
|
|
391
|
|
|
673
|
|
|
|
|
110
|
|
|
1,174
|
|
|
¾
|
|
|
|
|
1,174
|
|
Gross
profit
|
|
|
1,777
|
|
|
4,821
|
|
|
|
|
232
|
|
|
6,830
|
|
|
¾
|
|
|
|
|
6,830
|
|
Interest
income
|
|
|
2
|
|
|
¾
|
|
|
|
|
¾
|
|
|
2
|
|
|
31
|
|
|
|
|
33
|
|
Interest
expense
|
|
|
28
|
|
|
112
|
|
|
|
|
¾
|
|
|
140
|
|
|
217
|
|
|
|
|
357
|
|
Interest
expense-financing fees
|
|
|
1
|
|
|
¾
|
|
|
|
|
¾
|
|
|
1
|
|
|
48
|
|
|
|
|
49
|
|
Depreciation
and amortization
|
|
|
441
|
|
|
732
|
|
|
|
|
10
|
|
|
1,183
|
|
|
11
|
|
|
|
|
1,194
|
|
Segment
profit (loss)
|
|
|
(89
|
)
|
|
2,706
|
|
|
|
|
91
|
|
|
2,708
|
|
|
(1,580
|
)
|
|
|
|
1,128
|
|
Segment
assets(1)
|
|
|
23,350
|
|
|
62,411
|
|
|
|
|
2,183
|
|
|
87,944
|
|
|
9,192
|
(4)
|
|
|
|
97,136
|
|
Expenditures
for segment assets
|
|
|
194
|
|
|
264
|
|
|
|
|
25
|
|
|
483
|
|
|
13
|
|
|
|
|
496
|
|
Total
long-term debt
|
|
|
1,018
|
|
|
3,109
|
|
|
|
|
21
|
|
|
4,148
|
|
|
10,270
|
(5)
|
|
|
|
14,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Segment
assets have been adjusted for intercompany accounts to reflect actual
assets for each segment.
|
(2) |
Amounts
reflect the activity for corporate headquarters not included in the
segment information.
|
(3)
|
The
consolidated revenues within the Nuclear segment include the LATA/Parallax
revenues for the quarter ended March 31, 2007, which total $1,954,000
or
(9.7%) of total revenue and $458,000 or (2.2%) for the same quarter
2006.
|
(4)
|
Amount
includes assets from Perma-Fix of Michigan, Inc., and Perma-Fix of
Pittsburgh, Inc. two discontinued operations from the Industrial
segment,
of approximately $727,000 and $716,000 as of March 31, 2007 and 2006,
respectively.
|
(5)
|
Includes
the balance outstanding from our revolving line of credit and term
loan,
which is utilized by all of our
segments.
|
In
July
2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes”. FIN 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance
on
how a company should measure the amount of benefit that the
company
is to recognize in its financial statements.
FIN 48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48
is
effective for fiscal years beginning after December 15, 2006. We adopted FIN
48
in the first quarter of 2007. As a result of the implementation of FIN 48,
we
have concluded that we have not taken any uncertain tax positions on any of
our
open tax returns filed through the period ended December 31, 2005 that would
materially distort our financial statement. Our methods of accounting are based
on established tax principles approved in the Internal Revenue Code (IRC) and
are properly calculated and reflected within our returns. In addition, we have
filed returns in all applicable jurisdictions in which it has material nexus
warranting a return filing. Furthermore, we have not experienced an ownership
change as defined in IRC section 382 that would further limit our ability to
utilize net operating loss carryforwards as reflected on our 2003 through 205
tax returns.
We
have
not yet filed our income tax returns for the period ended December 31, 2006
tax
year; however, we expect that the actual return will mirror tax positions taken
within our income tax provision for 2006. As we believe that all such positions
are fully supportable by existing Federal law and related interpretations,
there
are no uncertain tax positions to consider in accordance with FIN 48. The impact
of our reassessment of our tax positions in accordance with FIN 48 did not
have
any impact on our result of operations, financial condition or liquidity.
10.
|
Acquisition
- Definitive Agreement
|
During
April 2007, we entered
into a definitive agreement (the “Merger Agreement”) to acquire Nuvotec USA,
Inc. (Nuvotec) and its wholly owned subsidiary, Pacific EcoSolutions, Inc.
(PEcoS) through a reverse subsidiary merger (the “Merger”). PEcoS is a nuclear
waste management company that treats both low level and mixed waste, based
in
Richland, Washington. Subject
and pursuant to the terms of the Merger Agreement, as consideration for the
Merger, we would pay to the Nuvotec shareholders approximately $11.6 million,
subject to adjustment, payable as follows: (a) $2.5 million in cash at closing
of the Merger which amount the parties have orally agreed to modify to $2.1
million, subject to execution of a formal amendment to the Merger Agreement;
(b)
an earn-out amount not to exceed $4.6 million over a four year period (“Earn-Out
Amount”), with the first $1.0 million of the Earn-Out Amount to be placed in an
escrow account to satisfy certain indemnification obligations under the Merger
Agreement of Nuvotec, PEcoS, and the shareholders of Nuvotec to us that we
identify within two years following the Merger; and (c) subject to adjustment
pursuant to the terms of the Merger Agreement and payable only to the
shareholders
of Nuvotec that qualify as accredited investors pursuant
to Rule 501 of Regulation D promulgated under the Securities Act:
· |
$2.5
million, payable over a four year period (subject to voluntary
prepayment
without penalty), unsecured and nonnegotiable and bearing an annual
rate
of interest of 8.25%, with (i) accrued interest only payable on
June 30,
2008, (ii) $833,333.33, plus accrued and unpaid interest, payable
on June
30, 2009, (iii) $833,333.33, plus accrued and unpaid interest,
payable on
June 30, 2010, and (iv) the remaining unpaid principal balance,
plus
accrued and unpaid interest, payable on June 30, 2011 (collectively,
the
“Installment Payments”).
|
· |
$2.0
million in shares of our common stock, with the number of shares
determined by dividing $2.0 million by 95% of average of the closing
price
of our common stock as quoted on the Nasdaq during the 20 trading
days
period ending five business days prior to the closing of the Merger;
and
|
The
Installment Payments and our common stock would be issued and paid only to
the
shareholders of Nuvotec that qualify as accredited investors in a private
placement exempt from registration under Section 4(2) and/or Rule 506 of
Regulation D.
The
Merger Agreement requires that, upon completion of the Merger, the debt of
Nuvotec and PEcoS will be limited to (a) approximately $9.1 million owing under
Nuvotec’s existing credit facility, plus accrued and
unpaid
interest thereon, (b) $375,000 owing to
certain stockholders of Nuvotec immediately prior to the Merger, plus accrued
and unpaid interest thereon, which we will pay at the closing of the
transaction, and (c) other liabilities incurred in the ordinary course of PEcoS’
business.
If
the
Merger is completed, we have agreed to increase the number of our directors
from
seven to eight and to take reasonable action to nominate and recommend for
election Robert L. Ferguson (“Ferguson”), the current Chairman and Chief
Executive Officer of Nuvotec and PEcoS, as a member of our board of directors.
Mr. Ferguson’s nomination is subject to certain conditions, including the
limitation that our board of directors is not required to nominate Ferguson
if
doing so would breach any fiduciary duty or legal requirements of the
board.
Prior
to
the closing of the Merger, Nuvotec is permitted to transfer certain of its
assets, including the spin off to the shareholders of Nuvotec of the common
stock of Nuvotec’s majority owned subsidiary, Vivid Learning Systems, Inc.
(OTCBB:VVDL).
Assumption
of Nuvotec’s debt of approximately $9.1 million owing under its credit facility
is anticipated to be paid by us with $2.9 million at closing with the remaining
balance to be financed by Nuvotec’s lender, which is to be negotiated. We intend
to fund any consideration and with debt assumed by us consisting of cash
payments to be paid at closing from our borrowings under our Revolving Credit
facility. We anticipate the acquisition will be completed in the second quarter
of 2007.
The
PEcoS’ facility is located on 45 acres adjacent to the Department of Energy’s
(DOE) Hanford site, and is comprised of a low-level radioactive waste (LLRW)
facility and a mixed waste (MW) facility. The LLRW facility has a radioactive
materials license, and encompasses approximately 70,000 square feet. The MW
facility has RCRA and TSCA permits, a radioactive materials license, and
encompasses approximately 80,000 square feet. The
DOE’s
Hanford site was first utilized as part of the Manhattan Project and throughout
the Cold War to provide the plutonium and other materials necessary for the
development of nuclear weapons. Most
of
Hanford's reactors were shut down in the 1970s, while substantial quantities
of
nuclear waste still remain at the site. Currently,
the Hanford Site is engaged in one of the nation’s largest environmental
cleanups, which is expected to continue beyond 2030. PEcoS’ net revenue and net
income during its fiscal year ended September 30, 2006, was approximately $13
million and $628,000, respectively.
11.
|
Capital
Stock And Employee Stock
Plan
|
During
the three months ended March 31, 2007, we issued 17,500 shares of our Common
Stock upon exercise of employee stock options, at exercise prices from $1.375
to
$1.44 per share. We also had 1,775,638 warrants to purchase shares of our Common
Stocks expiring on March 22, 2007. Total proceeds received during the three
months ended March 31, 2007 related to warrant and option exercises totaled
approximately $38,000, which includes $25,000 from employee stock option
exercises and $13,000 from repayment of stock subscription resulting from
exercise of warrant to purchase 60,000 shares of our Common Stock on a loan
by
the Company at an arms length basis in 2006.
On
July
28, 2006, our Board of Directors has authorized a common stock repurchase
program to purchase up to $2,000,000 of our Common Stock, through open market
and privately negotiated transactions, with the timing, the amount of repurchase
transactions and the prices paid under the program as deemed appropriate by
management and dependent on market conditions and corporate and regulatory
considerations. As of the date of this report, we have not repurchased any
of
our Common Stock under the program as we continue to evaluate this repurchase
program within our internal cash flow and/or borrowings under our line of
credit.
The
summary of the Company’s total Plans as of March 31, 2007 as compared to March
31, 2006 and changes during the period then ended are presented as
follows:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Options
outstanding Janury 1, 2007
|
|
|
2,816,750
|
|
$
|
1.86
|
|
|
|
|
|
|
|
Granted
|
|
|
¾
|
|
|
¾
|
|
|
|
|
|
|
|
Exercised
|
|
|
17,500
|
|
|
1.41
|
|
|
|
|
$
|
16,938
|
|
Forfeited
|
|
|
¾
|
|
|
¾
|
|
|
|
|
|
|
|
Options
outstanding End of Period
|
|
|
2,799,250
|
|
|
1.86
|
|
|
5.1
|
|
$
|
1,465,613
|
|
Options
Exercisable at March 31, 2007
|
|
|
2,143,917
|
|
$
|
1.87
|
|
|
5.2
|
|
$
|
1,123,840
|
|
Options
Vested and expected to be vested at March 31, 2007
|
|
|
2,752,047
|
|
$
|
1.86
|
|
|
5.1
|
|
$
|
1,441,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Options
outstanding January 1, 2006
|
|
|
2,546,750
|
|
$
|
1.79
|
|
|
|
|
|
|
|
Granted
|
|
|
878,000
|
|
|
1.86
|
|
|
|
|
|
|
|
Exercised
|
|
|
¾
|
|
|
¾
|
|
|
|
|
$
|
—
|
|
Forfeited
|
|
|
7,500
|
|
|
1.44
|
|
|
|
|
|
|
|
Options
outstanding End of Period
|
|
|
3,417,250
|
|
|
1.81
|
|
|
5.5
|
|
$
|
634,726
|
|
Options
Exercisable at March 31, 2006
|
|
|
2,539,250
|
|
$
|
1.79
|
|
|
5.4
|
|
$
|
590,826
|
|
Options
Vested and expected to be vested at March 31, 2006
|
|
|
3,367,204
|
|
$
|
1.81
|
|
|
5.5
|
|
$
|
632,223
|
|
The
following tables summarize information about options under the plans outstanding
at March 31, 2007 and 2006:
Options
Outstanding
|
|
Options
Exercisable
|
|
Description
and Range of Exercise Prices at March 31, 2007
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Equity Plan
|
|
|
12,000
|
|
|
1.5
|
|
$
|
1.25
|
|
|
12,000
|
|
|
1.5
|
|
$
|
1.25
|
|
($1.25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
Stock Option Plan
|
|
|
1,290,250
|
|
|
4.6
|
|
|
1.86
|
|
|
1,290,250
|
|
|
4.6
|
|
|
1.86
|
|
($1.25
- $2.19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Stock Option Plan
|
|
|
1,008,000
|
|
|
5.1
|
|
|
1.83
|
|
|
352,667
|
|
|
5.5
|
|
|
1.77
|
|
($1.44
- $1.86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
Outside Director Stock Option Plan
|
|
|
165,000
|
|
|
3.7
|
|
|
2.05
|
|
|
165,000
|
|
|
3.7
|
|
|
2.05
|
|
($1.21880
- $2.98)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
Outside Director Stock Option Plan
|
|
|
324,000
|
|
|
7.8
|
|
|
1.94
|
|
|
324,000
|
|
|
7.8
|
|
|
1.94
|
|
($1.70-
$2.15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Description
and Range of Exercise Prices at March 31, 2006
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Equity Plan
|
|
|
27,000
|
|
|
1.6
|
|
$
|
1.16
|
|
|
27,000
|
|
|
1.6
|
|
$
|
1.16
|
|
($1.00
- $1.25)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
Stock Option Plan
|
|
|
1,989,250
|
|
|
5.1
|
|
|
1.79
|
|
|
1,989,250
|
|
|
5.1
|
|
|
1.79
|
|
($1.00-
$2.19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Stock Option Plan
|
|
|
967,000
|
|
|
6.2
|
|
|
1.82
|
|
|
89,000
|
|
|
8.6
|
|
|
1.44
|
|
($1.44
- $1.86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
Outside Director Stock Option Plan
|
|
|
200,000
|
|
|
4.0
|
|
|
2.00
|
|
|
200,000
|
|
|
4.0
|
|
|
2.00
|
|
($1.21880
- $2.98)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
Outside Director Stock Option Plan
|
|
|
234,000
|
|
|
8.2
|
|
|
1.85
|
|
|
234,000
|
|
|
8.2
|
|
|
1.85
|
|
($1.70-
$2.15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART
I, ITEM 2
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,
·
|
improve
our operations and liquidity;
|
·
|
anticipated
improvement in the financial performance of the
Company;
|
·
|
ability
to comply with the Company's general working capital requirements;
|
·
|
anticipate
a full repayment of our Term Loan by May 2008;
|
·
|
ability
to be able to continue to borrow under the Company's revolving line
of
credit;
|
·
|
ability
to generate sufficient cash flow from operations to fund all costs
of
operations and remediation of certain formerly leased property in
Dayton,
Ohio, and the Company's facilities in Memphis, Tennessee; Detroit,
Michigan; Valdosta, Georgia; and Tulsa, Oklahoma;
|
·
|
ability
to remediate certain contaminated sites for projected
amounts;
|
·
|
ability
to fund budgeted capital expenditures of $4,137,000 during 2007;
|
·
|
we
expect backlog levels to continue to fluctuate within the same range
throughout 2007, subject to the complexity of the waste streams and
timing
of receipts and processing of materials;
|
·
|
LATA/Parallax
can terminate the contract with us at any time for convenience, which
could have a material adverse effect on our operations;
|
·
|
growth
of our Nuclear segment;
|
·
|
we
anticipate spending $536,000 in closure costs in 2007 with the remainder
over the next five years;
|
·
|
under
our insurance contracts, we usually accept self-insured retentions,
which
we believe is appropriate for our specific business
risks.
|
·
|
we
believe we maintain insurance coverage adequate for our needs and
which is
similar to, or greater than the coverage maintained by other companies
of
our size in the industry.
|
·
|
we
intend to fund any consideration consisting of cash payments to be
paid at
closing from our borrowing under our Revolving Credit
facility;
|
·
|
the
insurer’s agreement to defend and indemnify us and our Dayton, Ohio
subsidiary is subject to the insurer’s reservation of its rights to deny
indemnity pursuant to various policy provisions and exclusions of
the
policy, including, without limitation, payment of any civil penalties
and
fines, as well as the insurer’s right to right to recoup any defense cost
it has advanced in the event that it is determined that the policy
provides no coverage;
|
·
|
as
part of the agreement, PFD will file for a Title V air permit, make
certain improvement the facility and meet certain air requirements
in
connection with managing waste at the facility;
|
·
|
continue
to see changes in the market;
|
·
|
we
could be a potentially responsible party for the costs of the cleanup
notwithstanding any absence of fault on our part;
|
·
|
we
do not expect future inflationary changes to differ materially from
the
last three years;
|
·
|
no
current intention to close any facilities, other than the Michigan
and
Pittsburgh facilities.
|
·
|
our
ability to negotiate a final consent decree with the U.S. Department
of
Justice with respect to the Dayton facility or the approval of such
consent decree by the appropriate assistant attorney general;
|
·
|
the
process for formalizing the details of a settlement agreement (consent
decree) and meeting the DOJ/EPA official approval requirements (including
public notice and comment) is expected to
|
|
take between
90 and
120 days; |
·
|
the
agreement in principle (“AIP”) states that PFD will pay a civil penalty of
$800,000; however, at this time, PFD expects the $800,000 will consist
of
as many as three components;
|
·
|
it
is anticipated that the citizen’s suit would continue;
and
|
·
|
the
anticipated closing of the Nuvotec Acquisition in the second quarter
of
2007.
|
While
the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to have
been correct. There are a variety of factors, which could cause future outcomes
to differ materially from those described in this report, including, but not
limited to:
·
|
general
economic conditions;
|
·
|
material
reduction in revenues;
|
·
|
inability
to collect in a timely manner a material amount of receivables;
|
·
|
increased
competitive pressures;
|
·
|
the
ability to maintain and obtain required permits and approvals to
conduct
operations;
|
·
|
the
ability to develop new and existing technologies in the conduct of
operations;
|
·
|
ability
to retain or renew certain required permits;
|
·
|
discovery
of additional contamination or expanded contamination at a certain
Dayton,
Ohio, property formerly leased by the Company or the Company's facilities
at Memphis, Tennessee; Valdosta, Georgia; Detroit, Michigan; and
Tulsa,
Oklahoma, which would result in a material increase in remediation
expenditures;
|
·
|
changes
in federal, state and local laws and regulations, especially environmental
laws and regulations, or in interpretation of such;
|
·
|
potential
increases in equipment, maintenance, operating or labor
costs;
|
·
|
management
retention and development;
|
·
|
financial
valuation of intangible assets is substantially less than
expected;
|
·
|
the
requirement to use internally generated funds for purposes not presently
anticipated;
|
·
|
inability
to continue to be profitable on an annualized basis;
|
·
|
the
inability of the Company to maintain the listing of its Common Stock
on
the NASDAQ;
|
·
|
the
determination that PFMI and PFSG were responsible for a material
amount of
remediation at certain superfund sites;
|
·
|
terminations
of contracts with federal agencies or subcontracts involving federal
agencies, or reduction in amount of waste delivered to the Company
under
the contracts or subcontracts;
|
·
|
execution
of final agreement with EPA with regard to PFD
lawsuit.
|
The
Company undertakes no obligations to update publicly any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Overview
We
provide services through three reportable operating segments. The Industrial
Waste Management Services segment ("Industrial segment") is engaged in on-site
and off-site treatment, storage, disposal and processing of a wide variety
of
by-products and industrial, hazardous and non-hazardous wastes, 24-hour
emergency response, vacuum services and marine and industrial maintenance
services. The segment operates and maintains facilities and businesses in the
waste by-product brokerage, on-site treatment and stabilization, and off-site
blending, treatment and disposal industries. The Nuclear Waste Management
Services segment ("Nuclear segment") provides treatment, storage, processing
and
disposal services of mixed waste (waste containing both hazardous and low-level
radioactive materials) and low-level radioactive wastes, including research,
development and on-site and off-site waste remediation. The presence of nuclear
and low-level radioactive constituents within the waste streams processed by
this segment create different and unique operational, processing and
permitting/licensing requirements from those contained within the Industrial
segment. Our Consulting Engineering Services segment ("Engineering segment")
provides a wide variety of environmental related consulting and engineering
services to both industry and government. These services include oversight
management of
environmental
restoration projects, air and soil
sampling, compliance reporting, surface and subsurface water treatment design
for removal of pollutants, and various compliance and training
activities.
The
first
quarter of 2007 reflected a revenue decrease of $963,000 to $20,155,000 or
4.6%
from revenue of $21,118,000 for the same period of 2006. This decrease was
primarily from the Industrial segment, which saw a decrease of 12.0%. This
was primarily due to the termination of low margin waste revenue as we attempt
to replace it with higher margin waste streams. This decrease was offset
by a modest increase in the Nuclear segment’s revenues of 1.5% over the first
quarter of 2006 as we continue to augment the growth opportunities in our
Nuclear segment by among other things, expansion within the mixed waste market,
and receipt of more complex waste streams. Gross Profit for the quarter
was also down by $940,000. This reduction was primarily due to revenue mix
primarily in the Nuclear segment, as well as the reduced revenue in the
Industrial and Engineering segments. We continue to pursue beneficial contracts
and revenues, as well as evaluating additional cost savings. We completed
the construction on our M&EC south bay special waste processing area and
will commence processing special wastes in this new area in the second quarter
of 2007. In addition, we are pleased by the recent receipt of a certification
to
dispose of certain types of nuclear related waste at the Nevada Test Site which
will assist in the growth of our Nuclear segment. Our interest expense and
interest expense - financing fees continue to decrease as our operations and
cash flow improve and we are able to reduce our long term
debt.
Results
of Operations
The
reporting of financial results and pertinent discussions are tailored to three
reportable segments: Industrial, Nuclear and Engineering. The table below should
be used when reviewing management's discussion and analysis for the three months
ended March 31, 2007 and 2006:
|
|
Three
Months Ended March 31,
|
|
Consolidated
(amounts in thousands)
|
|
2007
|
|
%
|
|
2006
|
|
%
|
|
Net
Revenues
|
|
$
|
20,155
|
|
|
100.0
|
|
$
|
21,118
|
|
|
100.0
|
|
Cost
of good sold
|
|
|
14,265
|
|
|
70.8
|
|
|
14,288
|
|
|
67.7
|
|
Gross
Profit
|
|
|
5,890
|
|
|
29.2
|
|
|
6,830
|
|
|
32.3
|
|
Selling,
general and administrative
|
|
|
6,543
|
|
|
32.4
|
|
|
5,241
|
|
|
24.8
|
|
Loss
(gain) on disposal of property and equipment
|
|
|
(20
|
)
|
|
(.1
|
)
|
|
3
|
|
|
¾
|
|
Income
(loss) from operations
|
|
$
|
(633
|
)
|
|
(3.1
|
)
|
$
|
1,586
|
|
|
7.5
|
|
Interest
expense
|
|
|
(225
|
)
|
|
(1.1
|
)
|
|
(357
|
)
|
|
(1.7
|
)
|
Interest
expense-financing fees
|
|
|
(48
|
)
|
|
(.2
|
)
|
|
(49
|
)
|
|
(.2
|
)
|
Other
|
|
|
(14
|
)
|
|
(.1
|
)
|
|
(13
|
)
|
|
(.1
|
)
|
Income
(loss) from continuing operations
|
|
|
(958
|
)
|
|
(4.8
|
)
|
|
1,128
|
|
|
5.3
|
|
Preferred
Stock dividends
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
|
¾
|
|
Summary
- Three Months Ended March 31, 2007 and 2006
Net
Revenue
Consolidated
revenues decreased $963,000 for the three months ended March 31, 2007, compared
to the three months ended March 31, 2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
%
Change
|
|
Nuclear
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
waste
|
|
$
|
4,535
|
|
|
22.5
|
|
$
|
5,005
|
|
|
23.7
|
|
$
|
(470
|
)
|
|
(9.4
|
)
|
Hazardous/Non-hazardous
|
|
|
1,486
|
|
|
7.3
|
|
|
800
|
|
|
3.8
|
|
|
686
|
|
|
85.8
|
|
Other
nuclear waste
|
|
|
3,973
|
|
|
19.7
|
|
|
3,882
|
|
|
18.4
|
|
|
91
|
|
|
2.3
|
|
Bechtel
Jacobs
|
|
|
396
|
|
|
2.0
|
|
|
2,013
|
|
|
9.5
|
|
|
(1,617
|
)
|
|
(80.3
|
)
|
LATA/Parallax
|
|
|
1,954
|
|
|
9.7
|
|
|
458
|
|
|
2.2
|
|
|
1,496
|
|
|
326.6
|
|
Total
|
|
|
12,344
|
|
|
61.2
|
|
|
12,158
|
|
|
57.6
|
|
|
186
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
waste
|
|
|
5,180
|
|
|
25.7
|
|
|
6,164
|
|
|
29.2
|
|
|
(984
|
)
|
|
(16.0
|
)
|
Government
services
|
|
|
1,172
|
|
|
5.8
|
|
|
1,027
|
|
|
4.8
|
|
|
145
|
|
|
14.1
|
|
Oil
Sales
|
|
|
882
|
|
|
4.4
|
|
|
1,031
|
|
|
4.9
|
|
|
(149
|
)
|
|
(14.5
|
)
|
Total
|
|
|
7,234
|
|
|
35.9
|
|
|
8,222
|
|
|
38.9
|
|
|
(988
|
)
|
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
|
|
|
577
|
|
|
2.9
|
|
|
738
|
|
|
3.5
|
|
|
(161
|
)
|
|
(21.8
|
)
|
Total
|
|
$
|
20,155
|
|
|
100.0
|
|
$
|
21,118
|
|
|
100.0
|
|
$
|
(963
|
)
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Nuclear segment realized revenue growth of $186,000 or 1.5% for the three months
ended March 31, 2007 over the same period in 2006. The increase is principally
due to the segments continued expansion within the mixed waste market, which
includes an increase in receipts of higher activity wastes, which are more
complex and requires greater technical processing expertise. Processing revenue
was down due to revenue mix as 2006 revenue included higher volumes of high
priced waste streams such as mercury and lab packs. Our hazardous and
non-hazardous revenue was up due to two special event soil projects completed
in
the quarter. Our revenue from subcontracts relating to federal/DOE contracts
contributed approximately $6,885,000 of the Nuclear segment’s revenue, down from
$7,476,000 in 2006. The backlog of stored waste at March 31, 2007, was
$13,359,000 compared to $12,491,000 as of December 31, 2006. This increase
reflects our ongoing ability to attract customer waste from both government
and
commercial customers. We expect backlog levels to continue to fluctuate within
the same range throughout 2007, subject to the complexity of the waste streams
and timing of receipts and processing of materials. This level of backlog
material continues to position the nuclear segment well, from a processing
revenue perspective. Revenue in the Industrial Segment was down primarily from
reductions in commercial revenue due to poor weather conditions in the northeast
and our continued focus on eliminating low margin revenue within the segment.
Revenue from oil sales was also down as a large bulk oil purchase by an asphalt
vendor in the first quarter of 2006 did not repeat in 2007. The engineering
segment experienced a reduction in revenue from first quarter of 2006 due to
lower billable hours from lower staffing levels and demand for more time spent
on internal projects.
Cost
of Goods Sold
Cost
of
goods sold decreased $23,000 for the quarter ended March 31, 2007, compared
to
the quarter ended March 31, 2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Nuclear
|
|
$
|
7,913
|
|
|
64.1
|
|
$
|
7,337
|
|
|
60.3
|
|
$
|
576
|
|
Industrial
|
|
|
5,944
|
|
|
82.2
|
|
|
6,445
|
|
|
78.4
|
|
|
(501
|
)
|
Engineering
|
|
|
408
|
|
|
70.7
|
|
|
506
|
|
|
68.6
|
|
|
(98
|
)
|
Total
|
|
$
|
14,265
|
|
|
70.8
|
|
$
|
14,288
|
|
|
67.7
|
|
$
|
(23
|
)
|
Nuclear
segment costs of sales were higher than first quarter of 2006 primarily due
to
increased revenue. Our total expenses included increased costs for labor,
materials and supplies used in the packaging of waste at a DOE clean up site
which was being shipped to our operating facilities for treatment. Costs as
a
percentage of revenue were 3.8% higher in 2007 due to revenue mix. Industrial
segment costs were lower than first quarter of 2006 due to lower revenue. Costs
as a percentage of revenue increased by 3.8% as certain fixed costs continue
despite lower revenue. Engineering segment costs were lower than prior year
due
to decreased revenue. Included within cost of goods sold is depreciation and
amortization expense of $1,142,000 and $1,109,000 for the three months ended
March 31, 2007, and 2006, respectively.
Gross
Profit
Gross
profit for the quarter ended March 31, 2007 decreased $940,000 over 2006, as
follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Nuclear
|
|
$
|
4,431
|
|
|
35.9
|
|
$
|
4,821
|
|
|
39.7
|
|
$
|
(390
|
)
|
Industrial
|
|
|
1,290
|
|
|
17.8
|
|
|
1,777
|
|
|
21.6
|
|
|
(487
|
)
|
Engineering
|
|
|
169
|
|
|
29.3
|
|
|
232
|
|
|
31.4
|
|
|
(63
|
)
|
Total
|
|
$
|
5,890
|
|
|
29.2
|
|
$
|
6,830
|
|
|
32.3
|
|
|
(940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall
gross profit in the first quarter of 2007 was down compared to the same period
last year primarily due to revenue and revenue mix. Though Nuclear segment
revenue increased moderately, the revenue mix produced lower margins primarily
due to increased direct costs related to the packaging revenue at a DOE clean
up
site which did not occur in 2006. The reduction in gross profit and gross margin
in the Industrial segment and the Engineering segment was due to reduced
revenue.
Selling,
General and Administrative
Selling,
general and administrative ("SG&A")
expenses
increased $1,302,000 for the three months ended March 31, 2007, as compared
to
the corresponding period for 2006, as follows:
(In
thousands)
|
|
2007
|
|
%
Revenue
|
|
2006
|
|
%
Revenue
|
|
Change
|
|
Administrative
|
|
$
|
1,346
|
|
|
¾
|
|
$
|
1,307
|
|
|
¾
|
|
$
|
39
|
|
Nuclear
|
|
|
2,107
|
|
|
17.1
|
|
|
1,955
|
|
|
16.1
|
|
|
152
|
|
Industrial
|
|
|
2,971
|
|
|
41.1
|
|
|
1,839
|
|
|
22.4
|
|
|
1,132
|
|
Engineering
|
|
|
119
|
|
|
20.6
|
|
|
140
|
|
|
19.0
|
|
|
(21
|
)
|
Total
|
|
$
|
6,543
|
|
|
32.5
|
|
$
|
5,241
|
|
|
24.8
|
|
$
|
1,302
|
|
Overall,
our SG&A expenses in the first quarter of 2007 were higher than first
quarter 2006. Nuclear segment SG&A was up as it continues to expand its
management staff to more efficiently bid on new contracts, service and manage
its facilities and increase its efforts towards compliance with corporate
policies
and regulatory agencies. The increase in the
Industrial segment was a result of increased legal fees as we worked to resolve
certain legal issues at our facilities, specifically the Barbara Fisher and
United States of America v. Perma-Fix of Dayton, Inc. litigation. (See
“Commitments and Contingencies - Legal” in “Notes to Consolidated Financial
Statements”). The Engineering segment had lower SG&A expense primarily due
to lower labor expense. Administrative overhead was up slightly due to increased
consulting fees and general administrative fees associated with our corporate
office. Included in SG&A expenses is depreciation and amortization expense
of $75,000 and $85,000 for the three months ended March 31, 2007, and 2006,
respectively.
Interest
Expense
Interest
expense decreased $132,000 for the quarter ended March 31, 2007, as compared
to
the corresponding period of 2006.
(In
thousands)
|
|
2007
|
|
2006
|
|
Change
|
|
PNC
interest
|
|
$
|
108
|
|
$
|
196
|
|
$
|
(88
|
)
|
Other
|
|
|
117
|
|
|
161
|
|
|
(44
|
)
|
Total
|
|
$
|
225
|
|
$
|
357
|
|
$
|
(132
|
)
|
The
decrease in the first quarter of 2007 as compared to the same quarter in the
prior year is due to lower interest paid on diminishing balances of both our
long term debt with our principle lender and our various equipment loans. In
addition, the company was in a positive cash position and did not require any
borrowings on the revolving credit line as it did last year.
Interest
Expense - Financing Fees
Interest
expense-financing fees were consistent with the corresponding period of 2006.
During 2005, we entered into Amendment No. 4 and Amendment No. 5 with PNC,
which
extended the maturity date on the term loan and revolver agreements to May
2008.
The remaining financing fees are now amortized through May 2008. As of March
31,
2007, the unamortized balance of prepaid financing fees is $219,000, which
is
comprised of $220,000 from the original PNC debt and $338,000 associated with
Amendment No. 4 and Amendment No. 5, offset by the monthly amortization of
these
fees over the past twenty one months. These prepaid financing dues will be
amortized through May 2008 at a rate of $16,000 per month.
Income
Tax Expense
Income
tax expense increased approximately $54,000 to $126,000 for the three months
ended March 31, 2007, from $72,000 for the three months ended March 31, 2006.
The effective income tax rate for the first quarter of 2007 was (13.2%) compared
to 9.6% in the first quarter of 2006. We have modified our process for
calculating the interim income tax provision, as we now are using projected
full
year income as a basis for determining the Company's overall estimated income
tax expense. Under this method, our effective income tax rate for 2007 is
project at 5.8%. Our prior methodology calculated the interim provision based
on
the results of the specific period of time being included within the financial
statements. We believe that our new methodology is more congruent with the
principles provided for in FAS 109 and APB 28.
Discontinued
Operations
PFP
Effective
November 8, 2005, our Board of Directors approved the discontinuation of
operations at the facility in Pittsburgh, Pennsylvania, owned by our subsidiary,
Perma-Fix of Pittsburgh, Inc. ("PFP"). The decision to discontinue operations
at
PFP was due to our reevaluation of the facility and our ability to achieve
profitability at the facility in the near term. During February 2006, we
completed the remediation of the leased property and the equipment, and released
the property back to the owner. The operating results for the current and prior
periods have been reclassified to discontinued operations in our Consolidated
Statements of Operations.
PFP
recorded a loss of $500 for the three months ended March 31, 2007 and an
operating loss of $342,000 the same period ended March 31, 2006. The loss in
2006 was partially due to early termination costs of $200,000 associated with
our early termination of our leased property. The assets and liabilities related
to PFP have been reclassified into separate categories in the Consolidated
Balance Sheets as of March 31, 2007 and December 31, 2006. The assets are
recorded at their net realizable value, and consist of equipment of $106,000.
PFP has no liabilities on the books as of March 31, 2007.
PFMI
On
October 4, 2004, our Board of Directors approved the discontinuation of
operations at the facility in Detroit, Michigan, owned by our subsidiary,
Perma-Fix of Michigan, Inc. ("PFMI"). The decision to discontinue operations
at
PFMI was principally a result of two fires that significantly disrupted
operations at the facility in 2003, and the facility's continued drain on the
financial resources of our Industrial segment. We are in the process of
remediating the facility and evaluating our available options for future use
or
sale of the property. The operating activities for the current and prior periods
have been reclassified to discontinued operations in our Consolidated Statements
of Operations.
PFMI
recorded a loss of $126,000 for the three months ended March 31, 2007, and
a
loss of $108,000 for the three months ended March 31, 2006. During the last
half
of 2005 we settled the three insurance claims we submitted relative to the
two
fires at PFMI, a property claim for the first fire and a property claim and
business interruption claim for the second fire. During 2004, we recorded a
receivable of $1,585,000 based on negotiations with the insurance carrier on
the
business interruption claim. The income from recording this receivable was
recorded as a reduction of "loss from discontinued operations" and reduced
the
operating losses for 2004. During 2005, we received insurance proceeds and
claim
settlements of $3,253,000 for settlement of all three claims. Of these proceeds,
$1,476,000 was recorded as income from discontinued operations during the third
quarter of 2005, which is net of $192,000 paid for public adjustor
fees.
Assets
and liabilities related to the discontinued operation have been reclassified
to
separate categories in the Consolidated Balance Sheets as of March 31, 2007
and
December 31, 2006. As of March 31, 2007, assets are recorded at their estimated
net realizable values, and consist of property and equipment of $600,000 and
prepaid expense of $21,000. Liabilities as of March 31, 2007, consist of current
accrued expenses of $32,000, environmental accruals of $639,000, and a pension
payable of $1,417,000. The pension plan withdrawal liability, is a result of
the
termination of the union employees of PFMI. The PFMI union employees participate
in the Central States Teamsters Pension Fund ("CST"), which provides that a
partial or full termination of union employees may result in a withdrawal
liability, due from PFMI to CST. The recorded liability is based upon a demand
letter received from CST in August 2005 that provided for the payment of $22,000
per month over an eight year period. This obligation is recorded as a long-term
liability, with a current portion of $158,000 that we expect to pay over the
next year.
As
a
result of the discontinuation of operations at the PFMI facility, we are
required to complete certain closure and remediation activities pursuant to
our
RCRA permit. Also, in order to close and dispose of the facility, we may have
to
complete certain additional remediation activities related to the land,
building, and equipment. The level and cost of the clean-up and remediation
will
be determined by state mandated requirements, the extent to which is not known
at this time. Also, impacting this estimate is the level of contamination
discovered, as we begin remediation, and the related clean-up standards which
must be met in order to dispose of or sell the facility. We engaged our
engineering firm, SYA, to perform an analysis and related estimate of the cost
to complete the RCRA portion of the closure/clean-up costs and the potential
long-term remediation costs. Based upon this analysis, we estimated the cost
of
this environmental closure and remediation liability to be $2,464,000. During
2006 we re-evaluated our required activities to close and remediate the
facility, and during the quarter ended June 30, 2006, we began implementing
the
modified methodology to remediate the facility. As a result of the reevaluation
and the change in methodology, we reduced the accrual by $1,182,000.
We
have spent approximately $644,000 for closure costs since September 30, 2004,
of
which $15,000 has been spent during the first quarter of 2007 and $74,000 was
spent in 2006. We have $639,000 accrued for the closure, as of March 31, 2007,
and we anticipate spending $536,000 in 2007 with the remainder over the next
five years.
Liquidity
and Capital Resources of the Company
Our
capital requirements consist of general working capital needs, scheduled
principal payments on our debt obligations and capital leases, remediation
projects and planned capital expenditures. Our capital resources consist
primarily of cash generated from operations, funds available under our revolving
credit facility and proceeds from issuance of our Common Stock. Our capital
resources are impacted by changes in accounts receivable as a result of revenue
fluctuation, economic trends, collection activities, and the profitability
of
the segments.
At
March
31, 2007, we had cash of $982,000. The following table reflects the cash flow
activities during the first quarter of 2007.
(In
thousands)
|
|
2007
|
|
Cash
provided by operations
|
|
$
|
1,985
|
|
Cash
used in investing activities
|
|
|
(2,516
|
)
|
Cash
used in financing activities
|
|
|
(350
|
)
|
Decrease
in cash
|
|
$
|
(881
|
)
|
We
are
not currently in a net borrowing position. We attempt to move all excess funds
into a Money Market Sweep account in order to maximize the interest earned.
When
we are in a net borrowing position, we attempt to move all excess cash balances
immediately to the revolving credit facility, so as to reduce debt and interest
expense. We utilize a centralized cash management system, which includes
remittance lock boxes and is structured to accelerate collection activities
and
reduce cash balances, as idle cash is moved without delay to the Money Market
account or the revolving credit facility if applicable. The cash balance at
March 31, 2007, is primarily made up of cash in the Money Market Sweep account
and minor petty cash and local account balances used for miscellaneous services
and supplies.
Operating
Activities
Accounts
receivable, net of allowances for doubtful accounts, totaled $16,333,000, an
increase of $1,077,000 over the December 31, 2006, balance of $15,256,000.
The
Nuclear segment experienced an increase of $1,932,000 as a result of a delay
in
the funding at one of our large broker customers. In addition, increased efforts
to reduce our unbilled receivables resulted in increased receivables at March
31, 2007. In the Industrial segment, reduced revenues and increased collections
contributed to a reduction of $700,000. The Engineering segment also experienced
a decrease of $155,000 as a result of reduced revenue and improved collection
efforts.
Unbilled
receivables are generated by differences between invoice timing and the
percentage of completion methodology used for revenue recognition purposes.
As
major processing phases are completed and the costs incurred, we recognize
the
corresponding percentage of revenue. We experience delays in processing invoices
due to the complexity of the documentation that is required for invoicing,
as
well as, the difference between completion of revenue recognition milestones
and
agreed upon invoicing terms, which results in unbilled receivables. The timing
differences occur for several reasons, partially from delays in the final
processing of all wastes associated with certain work orders and partially
from
delays for analytical testing that is required after we have processed waste
but
prior to our release of waste for disposal. The difference also occurs due
to
our end disposal sites requirement of pre-approval prior to our shipping waste
for disposal and our contract terms with the customer that we dispose of the
waste prior to invoicing. These delays usually take several months to complete.
As of March 31, 2007, unbilled receivables totaled $15,399,000, a decrease
of
$62,000 from the December 31, 2006, balance of $15,461,000. Though efforts
to
reduce this total were successful at some of our facilities, others were
impacted by delays related to the final shipment of wastes to end disposal
sites
that are due to shipment approvals needed from generators, and the complexity
of
the current contracts, which requires greater levels of documentation and
additional testing for final invoicing. As a result there was minimal change
in
total unbilled receivables. These delays usually take several months to overcome
but are normally considered collectible within twelve months. However, as we
now
have historical data to review the
timing
of these delays, we realize that certain
issues can exacerbate collection of some of these receivables greater than
twelve months. Therefore, we have segregated the unbilled receivables between
current and long term. The current portion of the unbilled receivables as of
March 31, 2007 is $11,578,000, a decrease of $1,283,000 from the balance of
$12,861,000 as of December 31, 2006. The long term portion as of March 31,
2007
is $3,821,000, an increase of $1,221,000 from the balance of $2,600,000 as
of
December 31, 2006.
As
of
March 31, 2007, total consolidated accounts payable was $4,995,000, an increase
of $1,073,000 from the December 31, 2006, balance of $3,922,000. We continue
to
manage payment terms with our vendors to maximize our cash position throughout
all segments. Accounts payable also increased in the Nuclear segment reflecting
increased cost of sales in the quarter. Industrial segment accounts payable
increased primarily due to the legal fees incurred in connection the Barbara
Fisher and United States of America v. Perma-Fix of Dayton, Inc. litigation.
(See
“Commitments and Contingencies - Legal” in “Notes to Consolidated Financial
Statements”).
Accrued
Expenses as of March 31, 2007, totaled $11,044,000, a decrease of $243,000
over
the December 31, 2006, balance of $11,287,000. Accrued expenses are made up
of
disposal and processing cost accruals, accrued compensation, interest payable,
insurance payable and certain tax accruals. The decrease to accrued expenses
was
principally a result of a decrease in disposal accruals of $455,000 and payroll
related decreases of $248,000 offset by increases to legal fees of $300,000
related to Barbara Fisher and United States of America v. Perma-Fix of Dayton,
Inc. litigation and increases to insurance payable related to renewal of
policies of $160,000.
The
working capital position at March 31, 2007, was $9,060,000, as compared to
a
working capital position of $12,810,000 at December 31, 2006. The decrease
in
this position of $3,750,000 is primarily due to capital spending of
approximately $1,500,000, our annual payment to our Finite Risk Closure Fund
of
approximately $1,000,000, and the reclassification of certain unbilled revenue
from a current asset to a long term asset of approximately
$1,250,000.
Investing
Activities
Our
purchases of capital equipment for the three-month period ended March 31, 2007,
totaled approximately $1,924,000 of which $428,000 was financed, resulting
in
net purchases of $1,496,000 funded out of cash flow. These expenditures were
for
expansion and improvements to the operations principally within the Nuclear
and
Industrial segments. These capital expenditures were funded by the cash provided
by operations. We budgeted capital expenditures of approximately $4,137,000
for
fiscal year 2007, which includes an estimated $2,929,000 to complete certain
current projects committed at December 31, 2006, as well as other identified
capital and permit compliance purchases. Our purchases during the first quarter
of 2007 include approximately $1,048,000 of those projects committed at December
31, 2006. Certain of these budgeted projects are discretionary and may either
be
delayed until later in the year or deferred altogether. We have traditionally
incurred actual capital spending totals for a given year less than the initial
budget amount. The initiation and timing of projects are also determined by
financing alternatives or funds available for such capital projects. We
anticipate funding these capital expenditures by a combination of lease
financing and internally generated funds.
In
June
2003, we entered into a 25-year finite risk insurance policy, which provides
financial assurance to the applicable states for our permitted facilities in
the
event of unforeseen closure. Prior to obtaining or renewing operating permits
we
are required to provide financial assurance that guarantees to the states that
in the event of closure our permitted facilities will be closed in accordance
with the regulations. The policy provides a maximum $35 million of financial
assurance coverage of which the coverage amount totals $30,096,000 at March
31,
2007, and has available capacity to allow for annual inflation and other
performance and surety bond requirements. This finite risk insurance policy
required an upfront payment of $4.0 million, of which $2,766,000 represented
the
full premium for the 25-year term of the policy, and the remaining $1,234,000,
was deposited in a sinking fund account representing a restricted cash account.
In February 2007, we paid our fourth of nine required annual installments of
$1,004,000, of which
$991,000
was deposited in the sinking fund account
and the remaining $13,000 represents a terrorism premium. As of March 31, 2007,
we have recorded $5,566,000 in our sinking fund on the balance sheet, which
includes interest earned of $368,000 on the sinking fund as of March 31, 2007.
Interest income for the three months ended March 31, 2007, was $57,000. On
the
fourth and subsequent anniversaries of the contract inception, we may elect
to
terminate this contract. If we so elect, the Insurer will pay us an amount
equal
to 100% of the sinking fund account balance in return for complete releases
of
liability from both us and any applicable regulatory agency using this policy
as
an instrument to comply with financial assurance requirements.
Financing
Activities
On
December 22, 2000, we entered into a Revolving Credit, Term Loan and Security
Agreement ("Agreement") with PNC Bank, National Association, a national banking
association ("PNC") acting as agent ("Agent") for lenders, and as issuing bank,
as amended. The Agreement provides for a term loan ("Term Loan") in the amount
of $7,000,000, which requires monthly installments of $83,000 with the remaining
unpaid principal balance due on May 31, 2008. The Agreement also provided for
a
revolving line of credit ("Revolving Credit") with a maximum principal amount
outstanding at any one time of $18,000,000, as amended. The Revolving Credit
advances are subject to limitations of an amount up to the sum of (a) up to
85%
of Commercial Receivables aged 90 days or less from invoice date, (b) up to
85%
of Commercial Broker Receivables aged up to 120 days from invoice date, (c)
up
to 85% of acceptable Government Agency Receivables aged up to 150 days from
invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60
days, less (e) reserves the Agent reasonably deems proper and necessary. As
of
March 31, 2007, the excess availability under our Revolving Credit was
$11,395,000 based on our eligible receivables.
Pursuant
to the Agreement, as amended, the Term Loan bears interest at a floating rate
equal to the prime rate plus 1%, and the Revolving Credit at a floating rate
equal to the prime rate plus ½%. The Agreement is subject to a prepayment fee of
1% until March 25, 2006, and ½% until March 25, 2007 had we elected to terminate
the Agreement with PNC.
In
conjunction with our acquisition of M&EC, M&EC issued a promissory note
for a principal amount of $3.7 million to Performance Development Corporation
("PDC"), dated June 25, 2001, for monies advanced to M&EC for certain
services performed by PDC. The promissory note is payable over eight years
on a
semiannual basis on June 30 and December 31. The principal repayments for 2007
will be approximately $400,000 semiannually. Interest is accrued at the
applicable law rate ("Applicable Rate") pursuant to the provisions of section
6621 of the Internal Revenue Code of 1986 as amended (10% on March 31, 2007)
and
payable in one lump sum at the end of the loan period. On March 31, 2007, the
outstanding balance was $3,268,000 including accrued interest of approximately
$1,834,000. Pursuant to the agreement the accrued interest is to be paid at
the
end of the term, and as such, is recorded as a long-term liability. PDC has
directed M&EC to make all payments under the promissory note directly to the
Internal Revenue Service ("IRS") to be applied to PDC's obligations under its
installment agreement with the IRS.
Additionally,
M&EC entered into an installment agreement with the IRS for a principal
amount of $923,000 effective June 25, 2001, for certain withholding taxes owed
by M&EC. The installment agreement is payable over eight years on a
semiannual basis on June 30 and December 31. The principal repayments for 2007
will be approximately $100,000 semiannually. Interest is accrued at the
Applicable Rate, and is adjusted on a quarterly basis and payable in lump sum
at
the end of the installment period. On March 31, 2007, the rate was 10%. On
March
31, 2007, the outstanding balance was $796,000 including accrued interest of
approximately $443,000. The interest expense is recorded as a long-term
liability, pursuant to the terms of the agreement.
In
summary, we have continued to take steps to improve our operations and
liquidity, as discussed above. However, we continue to direct working capital
to
our facilities to fund capital additions within both the Nuclear and Industrial
segments. We have experienced a slowdown in accounts receivable collections
and
continue to experience delays in billing certain earned revenue but we continue
to work with our
vendors
to obtain favorable payment terms which
improve the company’s liquidity position. As of March 31, 2007 we have not used
our Revolving Line of Credit. We also continue to incur reductions to our
current reserves recorded on our discontinued operations. If we are unable
to
improve our operations and remain profitable in the foreseeable future, such
would have a material adverse effect on our liquidity position.
Contractual
Obligations
The
following table summarizes our contractual obligations at March 31, 2007, and
the effect such obligations are expected to have on our liquidity and cash
flow
in future periods, (in thousands):
|
|
|
|
Payments
due by period
|
|
Contractual
Obligations
|
|
Total
|
|
2007
|
|
2008
- 2010
|
|
2011
- 2012
|
|
After
2012
|
|
Long-term
debt
|
|
$
|
8,369
|
|
$
|
2,328
|
|
$
|
5,903
|
|
$
|
138
|
|
|
¾
|
|
Interest
on long-term debt (1)
|
|
|
2,277
|
|
|
—
|
|
|
2,277
|
|
|
¾
|
|
|
—
|
|
Interest
on variable rate debt (2)
|
|
|
517
|
|
|
450
|
|
|
67
|
|
|
¾
|
|
|
¾
|
|
Operating
leases
|
|
|
3,646
|
|
|
1,085
|
|
|
2,048
|
|
|
513
|
|
|
¾
|
|
Finite
risk policy (3)
|
|
|
5,019
|
|
|
¾
|
|
|
3,011
|
|
|
2,008
|
|
|
¾
|
|
Pension
withdrawal liability (4)
|
|
|
1,417
|
|
|
131
|
|
|
517
|
|
|
447
|
|
|
322
|
|
Environmental
contingencies (5)
|
|
|
3,252
|
|
|
1,383
|
|
|
880
|
|
|
503
|
|
|
486
|
|
Purchase
obligations (6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
contractual obligations
|
|
$
|
24,497
|
|
$
|
5,377
|
|
$
|
14,703
|
|
$
|
3,609
|
|
$
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Our
IRS Note and PDC Note agreements call for interest to be paid at
the end
of the term, December 2008.
|
(2) |
We
have variable interest rates on our Term Loan and Revolving Credit
of 1%
and 1/2% over the prime rate of interest, respectively, and as such
we
have made certain assumptions in estimating future interest payments
on
this variable interest rate debt. We assume an increase in prime
rate of
0.25% in each of the years 2007 and 2008 for our term note. We anticipate
a full repayment of our Term Loan by May 2008. Our Revolver balance
was
zero as of March 31, 2007.
|
(3) |
Our
finite risk insurance policy provides financial assurance guarantees
to
the states in the event of unforeseen closure of our permitted facilities.
See Liquidity and Capital Resources - Investing activities earlier
in this
Management's Discussion and Analysis for further discussion on our
finite
risk policy.
|
(4) |
The
pension withdrawal liability is the estimated liability to us upon
termination of our union employees at our discontinued operation,
PFMI.
See Discontinued Operations earlier in this section for discussion
on our
discontinued operation.
|
(5) |
The
environmental contingencies and related assumptions are discussed
further
in the Environmental Contingencies section of this Management's Discussion
and Analysis, and are based on estimated cash flow spending for these
liabilities.
|
(6) |
We
are not a party to any significant long-term service or supply contracts
with respect to our processes. We refrain from entering into any
long-term
purchase commitments in the ordinary course of
business.
|
Critical
Accounting Estimates
In
preparing consolidated financial statements in conformity with generally
accepted accounting principles in the United States of America, management
makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. We believe the following critical
accounting policies affect the more significant estimates used to prepare the
consolidated financial statements:
Revenue
Recognition Estimates:
Nuclear
revenues.
The
processing of mixed waste is complex and may take several months or more to
complete, as such we recognize revenues on a percentage of completion basis
with
our measure of progress towards completion determined based on output measures
consisting of milestones achieved and completed. We have waste tracking
capabilities, which we continue to enhance, to allow us to better match the
revenues earned to the processing phases achieved. The revenues are recognized
as each of the following three processing phases are completed: receipt,
treatment/processing and shipment/final disposal. However, based on the
processing of certain waste streams, the treatment/processing and shipment/final
disposal phases may be combined as they are completed concurrently. As major
processing phases are completed and the costs incurred, we recognize the
corresponding percentage of revenue. We experience delays in processing invoices
due to the complexity of the documentation that is required for invoicing,
as
well as the difference between completion of revenue recognition milestones
and
agreed upon invoicing terms, which results in unbilled receivables. The timing
differences occur for several reasons, partially from delays in the final
processing of all wastes associated with certain work orders and partially
from
delays for analytical testing that is required after we have processed waste
but
prior to our release of waste for disposal. The difference also occurs due
to
our end disposal sites requirement of pre-approval prior to our shipping waste
for disposal and our contract terms with the customer that we dispose of the
waste prior to invoicing. As the waste moves through these processing phases
and
revenues are recognized, the correlating costs are incurred. Although we use
our
best estimates and all available information to accurately determine these
disposal expenses, the risk does exist that the accrual could prove to be
inadequate in the event the waste requires re-treatment. Furthermore, should
the
waste be returned to the generator, the related receivables could be
uncollectible; however, historical experience has not indicated this to be
a
material uncertainty. Changes to total estimated revenues, contract costs and
percent complete, if any, are recorded in the period they are first determined.
Estimated losses, if any, on uncompleted contracts are recorded in the period
in
which it is first determined a loss is apparent.
Industrial
waste revenues.
Since
industrial waste streams are much less complicated than mixed waste streams
and
they require a short processing period, we recognize revenues for industrial
services at the time the services are substantially rendered, which generally
happens upon receipt of the waste, or shortly thereafter. These large volumes
of
bulk waste are received and immediately commingled with various customers'
wastes, which transfers the legal and regulatory responsibility and liability
to
us upon receipt. As we continue to enhance our waste tracking systems within
the
segment we will continue to review and reevaluate our revenue recognition
policy.
Consulting
revenues.
Consulting revenues are recognized as services are rendered, as is consistent
with industry standards. The services provided are based on billable hours
and
revenues are recognized in relation to incurred labor and consulting costs.
Out
of pocket costs reimbursed by customers are also included in
revenues.
Allowance
for Doubtful Accounts.
The
carrying amount of accounts receivable is reduced by an allowance for doubtful
accounts, which is a valuation allowance that reflects management's best
estimate of un-collectable amounts. All accounts receivable balances after
60
days from the invoice date are regularly reviewed based on current credit
worthiness, and that portion, deemed un-collectable, if any, are computed.
Specific accounts deemed to be uncollectible are reserved at 100% of their
outstanding balance. The remaining balances aged over 60 days have a percentage
applied by aging category (5% for balances 61-90 days, 20% for 91-120 days,
and
40% over 120 days), based on a historical valuation, that
allows
us to calculate the total reserve required.
This allowance was approximately 0.5%, and 0.6% of revenue and approximately
2.7%, and 3.1% of accounts receivable for 2006, and 2005,
respectively.
Intangible
Assets.
Intangible assets relating to acquired businesses consist primarily of the
cost
of purchased businesses in excess of the estimated fair value of net
identifiable assets acquired (“goodwill”) and the recognized permit value of the
business. Prior to our adoption of SFAS 142, effective January 1, 2002, goodwill
had been amortized over 20 to 40 years and permits amortized over 10 to 20
years. Effective January 1, 2002, we discontinued amortizing our indefinite
life
intangible assets (goodwill and permits). Goodwill and intangible assets that
have indefinite useful lives are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to the extent that
the
carrying amount exceeds the asset’s fair value. For goodwill the impairment
determination is made at the reporting unit level and consists of two steps.
First, the Company determines the fair value of a reporting unit and compares
it
to its carrying amount. Second, if the carrying amount of a reporting unit
exceeds its fair value, an impairment loss is recognized for any excess of
the
carrying amount of the reporting unit’s goodwill over the implied fair value of
the goodwill. The implied value of goodwill is determined by allocating the
fair
value of the reporting unit in a manner similar to a purchase price allocation,
in accordance with FASB Statement No. 141, Business
Combinations.
The
residual fair value after this allocation is the impaired fair value of the
reporting unit goodwill. On January 1, 2002, upon adopting SFAS 142 we obtained
an initial financial valuation of our intangible assets, which indicated no
impairment to our indefinite life intangible assets. Our annual financial
valuations performed as of October 1, 2006 and October 1, 2005 indicated no
impairments.
Accrued
Closure Costs.
Accrued
closure costs represent a contingent environmental liability to clean up a
facility in the event we cease operations in an existing facility. The accrued
closure costs are estimates based on guidelines developed by federal and/or
state regulatory authorities under Resource Conservation and Recovery Act
("RCRA"). Such costs are evaluated annually and adjusted for inflationary
factors and for approved changes or expansions to the facilities. Increases
due
to inflationary factors for 2007 and 2006, have been approximately 2.9%, and
2.7%, respectively, and based on the historical information, we do not expect
future inflationary changes to differ materially from the last three years.
Increases or decreases in accrued closure costs resulting from changes or
expansions at the facilities are determined based on specific RCRA guidelines
applied to the requested change. This calculation includes certain estimates,
such as disposal pricing, external labor, analytical costs and processing costs,
which are based on current market conditions. However, except for the Michigan
and Pittsburgh facilities, we have no current intention to close any of our
facilities.
Accrued
Environmental Liabilities.
We have
five remediation projects currently in progress. The current and long-term
accrual amounts for the projects are our best estimates based on proposed or
approved processes for clean-up. Circumstances that could affect the outcome
include new technologies being developed every day to reduce our overall costs,
or increased contamination levels that could arise as we complete remediation
which could increase our costs, neither of which we anticipate at this time.
Significant changes in regulations could also adversely or favorably affect
our
costs to remediate existing sites or potential future sites, which cannot be
reasonably quantified. We have also accrued a long-term environmental liability
for our PFMD facility acquired in March 2004, which is not a permitted facility,
so we are currently under no obligation to clean up the
contamination.
Disposal
Costs.
We
accrue for waste disposal based upon a physical count of the total waste at
each
facility at the end of each accounting period. Current market prices for
transportation and disposal costs are applied to the end of period waste
inventories to calculate the disposal accrual. Costs are calculated using
current costs for disposal, but economic trends could materially affect our
actual costs for disposal. Disposal sites available to us are limited. An
increase or decrease in available sites or demand for the existing disposal
areas could significantly affect the actual disposal costs either positively
or
negatively.
Share-Based
Compensation. On
January 1, 2006, we adopted Financial Accounting Standards Board (“FASB”)
Statement No. 123 (revised) (“SFAS 123R”), Share-Based
Payment,
a
revision of FASB
Statement
No. 123, Accounting
for Stock-Based Compensation,
superseding APB Opinion No. 25, Accounting
for Stock Issued to Employees, and
its
related implementation guidance. This Statement establishes
accounting standards for entity exchanges of equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity’s equity instruments or that may be settled by the issuance of those
equity instruments. SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative upon adopting. We
adopted SFAS 123R utilizing the modified prospective method in which
compensation cost is recognized beginning with the effective date based on
SFAS 123R requirements for all (a) share-based payments granted after the
effective date and (b) awards granted to employees prior to the effective
date of SFAS 123R that remain unvested on the effective date. In accordance
with the modified prospective method, the consolidated financial statements
for
prior periods have not been restated to reflect, and do not include, the impact
of SFAS 123R.
Prior
to
our adoption of SFAS 123R, on
July 28, 2005, the Compensation and Stock Option Committee of the Board of
Directors approved the acceleration of vesting for all the outstanding and
unvested options to purchase Common Stock awarded to employees as of the
approval date. The Board of Directors approved the accelerated vesting of these
options based on the belief that it was in the best interest of our stockholders
to reduce future compensation expense that would otherwise be required in the
statement of operations upon adoption of SFAS 123R, effective beginning January
1, 2006. The accelerated vesting triggered the re-measurement of compensation
cost under current accounting standards. In the event a holder of an
accelerated vesting option terminates employment with us prior to the end of
the
original vesting term of such options, we will recognize the compensation
expense at the time of termination.
We
recognize compensation expense based on the fair value at grant date using
the
Black-Scholes valuation model, using a straight-line amortization method over
the option’s vesting period. As SFAS 123R requires that stock-based
compensation expense be based on options that are ultimately expected to vest,
stock-based compensation has been reduced for estimated forfeitures, which
is
estimated using historical trends of actual option forfeitures.
FIN
48
In
July
2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes”. FIN 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance
on
how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We adopted FIN 48 in the first quarter of
2007. The impact of our reassessment of our tax positions in accordance with
FIN
48 did not have any impact on the result of operations, financial condition
or
liquidity. See Note “Income Taxes” in “Notes to Consolidated Financial
Statements” for impact of FIN 48 on our financial statement.
Known
Trends and Uncertainties
Seasonality.
Historically, we have experienced a seasonal slowdown within our industrial
segment operations and revenues during the winter months extending from late
November through early March. The seasonality factor is a combination of poor
weather conditions in the central plains and Midwestern geographical markets
we
serve for on-site and off-site waste management services, and the impact of
reduced activities during holiday periods resulting in a decrease in revenues
and earnings during such periods. Our engineering segment also experiences
reduced activities and related billable hours throughout the November and
December holiday periods. The DOE and DOD represent major customers for the
Nuclear segment. In conjunction with the federal government's September 30
fiscal year-end, the Nuclear segment historically experienced seasonably large
shipments during the third quarter, leading up
to
this government fiscal year-end, as a result of
incentives and other quota requirements. Correspondingly for a period of
approximately three months following September 30, the Nuclear segment is
generally seasonably slow, as the governmental budgets are still being
finalized, planning for the new year is occurring and we enter the holiday
season. More recently, due to our efforts to work with the various government
customers to smooth these shipment more evenly throughout the year, we have
seen
much less fluctuation in the quarters, with receipts in the fourth quarter
2006
actually higher than the third quarter. Receipts for first quarter 2007 were
relatively flat as compared to first quarter of 2006. In addition, our revenue
recognition policy further reduces this impact on our revenue. See “Revenue
Recognition Estimates” in this “Management Discussion and Analysis of Financial
Condition and Results of Operations”.
Economic
Conditions. Economic
downturns or recessionary conditions can adversely affect the demand for our
services, principally within the Industrial segment. Reductions in industrial
production generally follow such economic conditions, resulting in reduced
levels of waste being generated and/or sent off for treatment. Although we
believe we are currently experiencing an economic upturn, our Industrial
revenues have decreased $988,000 from the three month ended March 31, 2006
as
compared to the three months ended for the same period of 2007, as we continue
to review contracts and revenue streams in efforts to replace those that are
not
profitable with more profitable ones.
Significant
Customers.
While
our revenues are principally derived from numerous and varied customers, we
have
a significant relationship with the federal government and its contractors.
During the three months ended March 31, 2007 and 2006, our Nuclear and
Industrial segment performed services relating to waste generated by the federal
government, either directly or indirectly as a subcontractor to the federal
government, representing approximately $8,057,000 or 40.0%, and $8,503,000
or
40.3% of our consolidated revenues for the respective periods. Most, if not
all,
contracts with the federal government or with others as a subcontractor to
the
federal government provide that the government may terminate the contracts
for
convenience at any time.
Included
in the amounts discussed above, are revenues from LATA/Parallax Portsmouth
LLC
(“LATA/Parallax”). In first quarter of 2006, our Nuclear segment was awarded a
$9.4 million contract by LATA/Parallax to remove and treat U.S Department of
Energy (DOE) special process waste from the DOE Portsmouth Gaseous Diffusion
Plant located in Piketon, Ohio. LATA/Parallax performs environmental remediation
services, including groundwater cleanup and waste management activities, under
contract to DOE at the Portsmouth site. The subcontract requires treatment
and
disposal of mixed waste that was generated during Gaseous Diffusion Plant
operations at the Piketon, Ohio plant and includes materials used to trap
impurities, decontamination wastes, and wastes generated during system upgrades.
Since signing the initial contract, the scope of our work has increased and
the
value of the contract has increased to approximately $11.5 million, with the
period of performance expected to be completed by September 30, 2008. Our
revenues from LATA/Parallax contributed $1,954,000 or 9.7% of our consolidated
revenue for the three month ended March 31, 2007 and $458,000 or 2.2% for the
same period ended 2006. As with contracts relating to the federal government,
LATA/Parallax can terminate the contract with us at any time for convenience,
which could have a material adverse effect on our operations.
Insurance.
We
maintain insurance coverage similar to, or greater than, the coverage maintained
by other companies of the same size and industry, which complies with the
requirements under applicable environmental laws. We evaluate our insurance
policies annually to determine adequacy, cost effectiveness and desired
deductible levels. Due to the downturn in the economy and changes within the
environmental insurance market, we have no guarantee that we will be able to
obtain similar insurance in future years, or that the cost of such insurance
will not increase materially.
Certain
Legal Proceedings. Our
subsidiary, PFD, is involved in certain legal proceedings with the DOJ, on
behalf of the EPA, and sued under the citizen’s suit provision of the Clean Air
Act in the United States District Court for the Southern District of Ohio,
Western District, alleging, among other things, that it had not obtained a
Title
V air permits in order to operate its facility and is in violation of the Clean
Air Act
and
applicable state statutes and regulations. The
legal proceedings further allege that PFD failed to install appropriate air
pollution control equipment, conduct appropriate recordkeeping, properly monitor
and report, and that air emissions from PFD’s facility injured persons,
endangered the health of the public and constituted a nuisance in violation
of
Ohio law.
On
April
25, 2007 PFD reached an agreement in principle (“AIP”) with DOJ/USEPA
representatives to settle all of the United States’ claims. In addition to
taking specific actions to address relevant air pollution control regulations
and permit requirements, the AIP states that PFD will pay a civil penalty of
$800,000. However, at this time, PFD expects the $800,000 will consist of as
many as three components: 1) cash payment to the appropriate regulatory
authority; 2) supplemental environmental project(s) consisting of cash
equivalent investment(s) in PFD’s facility and/or the local community; and 3)
supplemental environmental project(s) consisting of one or more capital
projects. The process for formalizing the details of a settlement agreement
(consent decree) and meeting the DOJ/EPA official approval requirements
(including public notice and comment) is expected to take between 90 and 120
days. Cost estimates associated with taking action to address air pollution
control regulations and permit requirements are dependent upon the
definitization of the consent decree. If agreement on all terms and format
of
such a final consent decree is not reached, then the AIP will be null and void
and no party may seek to enforce it. The AIP does not address the citizen’s suit
portion of the lawsuit, and, as a result, we expect the citizen’s suit to
continue after finalization of the settlement with the federal government.
PFD
continues to mount a vigorous defense against, and seek an acceptable resolution
of, the claims and requests for relief brought by the citizen’s
group.
As
of
March 31, 2007, we have incurred approximately $2.7 million in costs in
vigorously defending against the lawsuits above, of which approximately $1.2
million was incurred in the first quarter of 2007. On April 12, 2007, we were
notified by our insurer, American International Group (“AIG”), that it
has
withdrawn its prior denial of coverage and has agreed to defend and indemnify
us
(PFD) in the above disclosed lawsuit, subject to insurer’s reservation of rights
as discussed below.
Although
our insurer has agreed to reimburse us for reasonable defense costs incurred
in
connection with the litigation prior to the insurer’s assumption of the defense,
the insurer’s agreement to defend and indemnify PFD is subject to the insurer’s
reservation of its rights to deny indemnity pursuant to various policy
provisions and exclusions of the policy, including, without limitation, payment
of any civil penalties and fines, as well as the insurer’s right to recoup any
defense cost it has advanced in the event that it is determined that the policy
provides no coverage. At this time, the amount of the reimbursement from our
insurer of the amount of legal and out of pocket defense costs that we have
incurred to date has not been determined. As such, we have not recorded any
of
the reimbursement.
Cost
estimates associated with taking action to address air pollution control
regulations and permit requirements are dependent upon the definitization of
the
consent decree. Nevertheless, these actions, including agreeing to operate
the
PFD facility as a “major source” in accordance with certain Clean Air Act
hazardous air pollutant control requirements is not expected to have a material
adverse affect on us or our liquidity.
Acquisition
- Definitive Agreement
During
April 2007, we entered
into a definitive agreement (the “Merger Agreement”) to acquire Nuvotec USA,
Inc. (Nuvotec) and its wholly owned subsidiary, Pacific EcoSolutions, Inc.
(PEcoS) through a reverse subsidiary merger (the “Merger”). PEcoS is a nuclear
waste management company that treats both low level and mixed waste, based
in
Richland, Washington. Subject
and pursuant to the terms of the Merger Agreement, as consideration for the
Merger, we would pay to the Nuvotec shareholders approximately $11.6 million,
subject to adjustment, payable as follows: (a) $2.5 million in cash at closing
of the Merger which amount the parties have orally agreed to modify to $2.1
million, subject to execution of a formal amendment to the Merger Agreement;
(b)
an earn-out amount not to exceed $4.6 million over a four year period (“Earn-Out
Amount”), with the first $1.0 million of the Earn-Out Amount to be placed in an
escrow account to satisfy certain indemnification obligations under the Merger
Agreement of Nuvotec, PEcoS, and the shareholders of Nuvotec to us that we
identify within two years following the Merger; and (c) subject to adjustment
pursuant to the terms of the Merger Agreement and payable only to the
shareholders of Nuvotec that qualify as accredited investors pursuant to Rule
501 of Regulation D promulgated under the Securities Act:
· |
$2.5
million, payable over a four year period (subject to voluntary
prepaymenjt
without penalty), unsecured and nonnegotiable and bearing an annual
rate
of interest of 8.25%, with (i) accrued interest only payable on
June 30,
2008, (ii) $833,333.33, plus accrued and unpaid interest, payable
on June
30, 2009, (iii) $833,333.33, plus accrued and unpaid interest,
payable on
June 30, 2010, and (iv) the remaining unpaid principal balance,
plus
accrued and unpaid interest, payable on June 30, 2011 (collectively,
the
“Installment Payments”).
|
· |
$2.0
million in shares of our common stock, with the number of shares
determined by dividing $2.0 million by 95% of average of the closing
price
of our common stock as quoted on the Nasdaq during the 20 trading
days
period ending five business days prior to the closing of the Merger;
and
|
The
Installment Payments and our common stock would be issued and paid only to
the
shareholders of Nuvotec that qualify as accredited investors in a private
placement exempt from registration under Section 4(2) and/or Rule 506 of
Regulation D.
The
Merger Agreement requires that, upon completion of the Merger, the debt of
Nuvotec and PEcoS will be limited to (a) approximately $9.1 million owing under
Nuvotec’s existing credit facility, plus accrued and unpaid interest thereon,
(b) $375,000 owing to certain stockholders of Nuvotec immediately prior to
the
Merger, plus accrued and unpaid interest thereon, which we will pay at the
closing of the transaction, and (c) other liabilities incurred in the ordinary
course of PEcoS’ business.
If
the
Merger is completed, we have agreed to increase the number of our directors
from
seven to eight and to take reasonable action to nominate and recommend for
election Robert L. Ferguson (“Ferguson”), the current Chairman and Chief
Executive Officer of Nuvotec and PEcoS, as a member of our board of directors.
Mr. Ferguson’s nomination is subject to certain conditions, including the
limitation that our board of directors is not required to nominate Ferguson
if
doing so would breach any fiduciary duty or legal requirements of the
board.
Assumption
of Nuvotec’s debt of approximately $9.1 million owing under its credit facility
is anticipated to be paid by us with $2.9 million at closing with the remaining
balance to be financed by Nuvotec’s lender, which is to be negotiated. We intend
to fund any consideration and with debt assumed by us consisting of cash
payments to be paid at closing from our borrowings under our Revolving Credit
facility. We anticipate the acquisition will be completed in the second quarter
of 2007.
The
PEcoS’ facility is located on 45 acres adjacent to the Department of Energy’s
(DOE) Hanford site, and is comprised of a low-level radioactive waste (LLRW)
facility and a mixed waste (MW) facility. The LLRW facility has a radioactive
materials license, and encompasses approximately 70,000 square feet. The MW
facility has RCRA and TSCA permits, a radioactive materials license, and
encompasses
approximately
80,000 square feet. The
DOE’s
Hanford site was first utilized as part of the Manhattan Project and throughout
the Cold War to provide the plutonium and other materials necessary for the
development of nuclear weapons. Most
of
Hanford's reactors were shut down in the 1970s, while substantial quantities
of
nuclear waste still remain at the site. Currently,
the Hanford Site is engaged in one of the nation’s largest environmental
cleanups, which is expected to continue beyond 2030. PEcoS’ net revenue and net
income during its fiscal year ended September 30, 2006, was approximately $13
million and $628,000, respectively.
Environmental
Contingencies
We
are
engaged in the waste management services segment of the pollution control
industry. As a participant in the on-site treatment, storage and disposal market
and the off-site treatment and services market, we are subject to rigorous
federal, state and local regulations. These regulations mandate strict
compliance and therefore are a cost and concern to us. Because of their integral
role in providing quality environmental services, we make every reasonable
attempt to maintain complete compliance with these regulations; however, even
with a diligent commitment, we, along with many of our competitors, may be
required to pay fines for violations or investigate and potentially remediate
our waste management facilities.
We
routinely use third party disposal companies, who ultimately destroy or secure
landfill residual materials generated at our facilities or at a client's site.
Compared with certain of our competitors, we dispose of significantly less
hazardous or industrial by-products from our operations due to rendering
material non-hazardous, discharging treated wastewaters to publicly-owned
treatment works and/or processing wastes into saleable products. In the past,
numerous third party disposal sites have improperly managed wastes and
consequently require remedial action; consequently, any party utilizing these
sites may be liable for some or all of the remedial costs. Despite our
aggressive compliance and auditing procedures for disposal of wastes, we could,
in the future, be notified that we are a PRP at a remedial action site, which
could have a material adverse effect.
For
2007,
$1,409,000 is budgeted in environmental remediation expenditures to comply
with
federal, state and local regulations in connection with remediation of certain
contaminates at our facilities. Our facilities where the remediation
expenditures will be made are the Leased Property in Dayton, Ohio (EPS), a
former RCRA storage facility as operated by the former owners of PFD, PFM's
facility in Memphis, Tennessee, PFSG's facility in Valdosta, Georgia, PFTS's
facility in Tulsa, Oklahoma, PFMD's facility in Baltimore, Maryland, and PFMI's
facility in Detroit, Michigan. While no assurances can be made that we will
be
able to do so, we expect to fund the expenses to remediate the sites from funds
generated internally.
At
March
31, 2007, we had total accrued environmental remediation liabilities of
$3,252,000, of which $1,463,000 is recorded as a current liability, a decrease
of $26,000 from the December 31, 2006, balance of $3,278,000. This decrease
represents payments on remediation projects. The March 31, 2007, current and
long-term accrued environmental balance is as follows:
|
|
Current
Accrual
|
|
Long-term
Accrual
|
|
Total
|
|
PFD
|
|
$
|
299,000
|
|
$
|
431,000
|
|
$
|
730,000
|
|
PFM
|
|
|
461,000
|
|
|
328,000
|
|
|
789,000
|
|
PFSG
|
|
|
160,000
|
|
|
506,000
|
|
|
666,000
|
|
PFTS
|
|
|
7,000
|
|
|
30,000
|
|
|
37,000
|
|
PFMD
|
|
|
¾
|
|
|
391,000
|
|
|
391,000
|
|
|
|
|
927,000
|
|
|
1,686,000
|
|
|
2,613,000
|
|
PFMI
|
|
|
536,000
|
|
|
103,000
|
|
|
639,000
|
|
|
|
$
|
1,463,000
|
|
$
|
1,789,000
|
|
$
|
3,252,000
|
|
Recently
Adopted Accounting Standards
In
July
2006, the Financial Accounting Standard Board (FASB) issued FASB Interpretation
No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes”. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes”. FIN 48 requires a company to evaluate whether the tax
position taken by a company will more likely than not be sustained upon
examination by the appropriate taxing authority. It also provides guidance
on
how a company should measure the amount of benefit that the company is to
recognize in its financial statements. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. We adopted FIN 48 in the first quarter of
2007. As a result of the implementation of FIN 48, we have concluded that we
have not taken any uncertain tax positions on any of our open tax returns filed
through the period ended December 31, 2005 that would materially distort our
financial statement. Our methods of accounting are based on established tax
principles approved in the Internal Revenue Code (IRC) and are properly
calculated and reflected within our returns. In addition, we have filed returns
in all applicable jurisdictions in which it has material nexus warranting a
return filing. Furthermore, we have not experience an ownership changed as
defined in IRC section 382 that would further limit our ability to utilize
net
operating loss carryforwards as reflected on our 2003 through 205 tax
returns.
We
have
not yet filed our income tax returns for the period ended December 31, 2006
tax
year; however, we expect that the actual return will mirror tax positions taken
within our income tax provision for 2006. As we believe that all such positions
are fully supportable by existing Federal law and related interpretations,
there
are no uncertain tax positions to consider in accordance with FIN 48. The impact
of our reassessment of our tax positions in accordance with FIN 48 did not
have
any impact on the result of operations, financial condition or liquidity.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157
simplifies and codifies guidance on fair value measurements under generally
accepted accounting principles. This standard defines fair value, establishes
a
framework for measuring fair value and prescribes expanded disclosures about
fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years, with early adoption permitted. We are
currently evaluating the effect, if any, the adoption of SFAS 157 will have
on
our financial condition, results of operations and cash flows.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunities to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. SFAS 159 is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement
objectives for accounting financial instruments. SFAS 159 is effective as of
the
beginning of an entity’s first fiscal year that begins after November, 15, 2007.
We are currently evaluating the effect, if any, the adoption of SFAS 159 will
have on our financial condition, results of operations and cash
flow.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
PART
I, ITEM 3
We
are
exposed to certain market risks arising from adverse changes in interest rates,
primarily due to the potential effect of such changes on our variable rate
loan
arrangements with PNC. As of March 31, 2007, we have no interest swap agreement
outstanding, and we
were
exposed to variable interest rates under our loan
arrangements with PNC.
The
interest rates payable to PNC are based on a spread over prime rate.
If
our
floating rates of interest experienced an upward increase of 1%, our debt
service would have increased by approximately
$13,000
for the three months ended March 31, 2007.
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
PART
1, ITEM 4
(a)
|
Evaluation
of disclosure controls, and procedures.
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|
|
|
We
maintain disclosure controls and procedures that are designed to
ensure
that information required to be disclosed in our periodic reports
filed
with the Securities and Exchange Commission (the "SEC") is recorded,
processed, summarized and reported within the time periods specified
in
the rules and forms of the SEC and that such information is accumulated
and communicated to our management. Based on their most recent evaluation,
which was completed as of the end of the period covered by this Quarterly
Report on Form 10-Q, we have evaluated, with the participation of
our
Chief Executive Officer and Chief Financial Officer the effectiveness
of
our disclosure controls and procedures (as defined in Rules 13a-15
and
15d-15 of the Securities Exchange Act of 1934, as amended) and believe
that such are not effective, as a result of the identified material
weaknesses in our internal control over financial reporting as set
forth
below (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).
|
|
1. |
The
monitoring of pricing and invoicing process controls at certain
facilities
within the Company's Industrial Segment was ineffective and was
not being
applied consistently. This weakness could result in sales being
priced and
invoiced at amounts, which were not approved by the customer or
the
appropriate level of management. Further, controls over non-routine
revenue streams in this segment, such as Bill & Hold transactions,
were ineffective and could result in revenue being prematurely
recognized.
Although this material weakness did not result in an adjustment
to the
quarterly or annual financial statements, if not remediated, it
has a more
than remote potential to cause a material misstatement to be unprevented
or undetected. We are currently evaluating this control weakness
and
anticipate remediation of this control weakness in the third quarter
of
2007.
|
|
2. |
The
Company lacks the technical expertise and processes to ensure compliance
with SFAS No. 109, “Accounting for Income Taxes”, and did not
maintain adequate controls with respect to accurate and timely tax
account reconciliations and analyses. This material weakness resulted
in
an audit adjustment and, if not remediated, it has a more than
remote
potential to cause a material misstatement to be unprevented or
undetected. See below “Change in internal control over financial
reporting” for corrective action taken by the Company to remediate this
material weakness in our internal control over financial
reporting.
|
|
3. |
The
Company lacks the technical expertise, controls and policies to
ensure
that significant non-routine transactions are being appropriately
reviewed, analyzed, and monitored on a timely basis. Although this
material weakness did not result in an adjustment to the quarterly
or
annual financial statements, if not remediated, it has more than
a remote
potential to cause a material misstatement to be unprevented or
undetected. See below “Change in internal control over financial
reporting” for corrective action taken by the Company to remediate this
material weakness in our internal control over financial
reporting.
|
(b)
|
Changes
in internal control over financial reporting.
|
|
|
|
There
have been no changes in our internal control over financial reporting,
other than reported below:
|
|
1. |
We
have obtained the service of an outside tax firm which will provide
on-going technical expertise to ensure we accurately and timely
complete
tax account reconciliatons and analyses, in addition to ensuring
compliance with applicable tax laws and
regulations.
|
|
2. |
We
have obtained the service of an outside consulting firm which
will provide
the necessary on-going technical expertise to ensure that non-routine
transactions are being appropriately reviewed, analyzed, accounted
for and
monitored on a timely and accurately
basis.
|
|
PERMA-FIX
ENVIRONMENTAL SERVICES, INC.
|
|
Legal
Proceedings
|
|
|
|
There
are no additional material legal proceedings pending against us and/or
our
subsidiaries not previously reported by us in Item 3 of our Form
10-K for
the year ended December 31, 2006, which is incorporated herein by
reference. However, the following material developments has occurred
with
regard to the following legal proceedings:
Our
subsidiary, PFD, is involved in certain legal proceedings with the
DOJ, on
behalf of the EPA, and sued under the citizen’s suit provision of the
Clean Air Act in the United States District Court for the Southern
District of Ohio, Western District, alleging, among other things,
that it
had not obtained a Title V air permits in order to operate its facility
and is in violation of the Clean Air Act and applicable state statutes
and
regulations. The legal proceedings further allege that PFD failed
to
install appropriate air pollution control equipment, conduct appropriate
recordkeeping, properly monitor and report, and that air emissions
from
PFD’s facility injured persons, endangered the health of the public and
constituted a nuisance in violation of Ohio law.
On
April 25, 2007 PFD reached an agreement in principle (“AIP”) with
DOJ/USEPA representatives to settle all of the United States’ claims. In
addition to taking specific actions to address relevant air pollution
control regulations and permit requirements, the AIP states that
PFD will
pay a civil penalty of $800,000. However, at this time, PFD expects
the
$800,000 will consist of as many as three components: 1) cash payment
to
the appropriate regulatory authority; 2) supplemental environmental
project(s) consisting of cash equivalent investment(s) in PFD’s facility
and/or the local community; and 3) supplemental environmental project(s)
consisting of one or more capital projects. The process for formalizing
the details of a settlement agreement (consent decree) and meeting
the
DOJ/EPA official approval requirements (including public notice and
comment) is expected to take between 90 and 120 days. Cost estimates
associated with taking action to address air pollution control regulations
and permit requirements are dependent upon the definitization of
the
consent decree. If agreement on all terms and format of such a final
consent decree is not reached, then the AIP will be null and void
and no
party may seek to enforce it. The AIP does not address the citizen’s suit
portion of the lawsuit, and, as a result, we expect the citizen’s suit to
continue after finalization of the settlement with the federal government.
PFD continues to mount a vigorous defense against, and seek an acceptable
resolution of, the claims and requests for relief brought by the
citizen’s
suit.
As
of March 31, 2007, we have incurred approximately $2.7 million in
costs in
vigorously defending against the lawsuits above, of which approximately
$1.2 million was incurred in the first quarter of 2007. On April
12, 2007,
we were notified by our insurer, American International Group (“AIG”),
that it
has withdrawn its prior denial of coverage and has agreed to defend
and
indemnify us and our Dayton, Ohio subsidiary, (PFD), in the above
disclosed lawsuit, subject to the insurer’s reservation of rights as
discussed above.
Although
our insurer has agreed to reimburse us for reasonable defense costs
incurred in connection with the Dayton litigation prior to the insurer’s
assumption of the defense, the insurer’s agreement to defend and indemnify
us and our Dayton, Ohio subsidiary is subject to the insurer’s reservation
of its rights to deny indemnity pursuant to various policy provisions
and
exclusions of the policy, including, without limitation, payment
of any
civil penalties and fines, as well as the insurer’s right to recoup any
defense cost it has advanced in the event that it is determined that
the
policy provides no coverage. At this time, the amount of the
|
|
|
|
reimbursement
from our insurer of the amount of legal and out of
pocket costs that we have incurred to date has not been determined.
As
such, we have not recorded any of the
reimbursement. |
|
Risk
Factors
|
|
There
has been no material changes from the risk factors previously disclosed
in
our Form 10-K for the year ended December 31, 2006, except the following
risk factor set forth in our Form 10-K is revised to read as
follows:
“IF
WE CANNOT MAINTAIN OUR GOVERNMENTAL PERMITS OR CANNOT OBTAIN REQUIRED
PERMITS, WE MAY NOT BE ABLE TO CONTINUE OR EXPAND OUR
OPERATIONS.
We
are a waste management company. Our business is subject to extensive,
evolving, and increasingly stringent federal, state, and local
environmental laws and regulations. Such federal, state, and local
environmental laws and regulations govern our activities regarding
the
treatment, storage, recycling, disposal, and transportation of hazardous
and non-hazardous waste and low-level radioactive waste. We must
obtain
and maintain permits or licenses to conduct these activities in compliance
with such laws and regulations. Failure to obtain and maintain the
required permits or licenses would have a material adverse effect
on our
operations and financial condition. If any of our facilities are
unable to
maintain currently held permits or licenses or obtain any additional
permits or licenses which may be required to conduct its operations,
we
may not be able to continue those operations at these facilities,
which
could have a material adverse effect on us.
It
has been alleged in a pending citizen’s suit in which the federal
government intervened as a plaintiff that PFD’s facility does not have,
and has been operating without having, all of its required air permits.
PFD has entered into an agreement in principle to settle the federal
government’s portion of the lawsuit, which agreement is subject to
numerous conditions (including, among other things, finalization
of a
definitive consent order that is to be approved by the court). Under
the
agreement in principle, PFD has agreed to file for and obtain certain
air
permits. The agreement with the federal government does not limit
the
citizen’s suit and it is anticipated that the citizen’s suit will
continue. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Known Trends and Uncertainties” and “Legal
Proceedings”.”
|
|
|
|
Exhibits
|
|
|
(a)
|
Exhibits
|
|
|
|
|
10.1
|
Agreement
and Plan of Merger dated April 27, 2007, by and among Perma-Fix
Environmental Services, Inc., Nuvotec USA, Inc., Pacific EcoSolutions,
Inc., and PESI Transitory, Inc., which is incorporated by reference
from
Exhibit 2.1 to the Company’s Form 8-K, filed May 3, 2007. The Company will
furnish supplementally a copy of any omitted exhibit or schedule
to the
Commission upon request.
|
|
|
|
|
|
Certification
by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
pursuant to Rule 13a-14(a) or 15d-14(a).
|
|
|
|
|
|
Certification
by Steven T. Baughman, Chief Financial Officer of the Company pursuant
to
Rule 13a-14(a) or 15d-14(a).
|
|
|
|
|
|
Certification
by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
furnished pursuant to 18 U.S.C. Section 1350.
|
|
|
|
|
|
Certification
by Steven T. Baughman, Chief Financial Officer of the Company furnished
pursuant to 18 U.S.C. Section 1350.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
|
PERMA-FIX
ENVIRONMENTAL SERVICES
|
|
|
|
|
Date:
May 9, 2007
|
By:
|
/s/
Dr. Louis F. Centofanti
|
|
Dr.
Louis F. Centofanti
Chairman
of the Board
Chief
Executive Officer
|
|
|
|
|
Date:
May 9, 2007
|
By:
|
/s/
Steven Baughman
|
|
Steven
T. Baughman
|
|
Chief
Financial Officer
|