PERMA FIX ENVIRONMENTAL SERVICES INC

Previous wording

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

Current wording

We were disappointed with our second quarter financial results within both of our segments which experienced continued delays in procurements, project starts and waste shipments due, in part from the unexpected residual impact of the Continuing Resolution (“CR”) that continued into the better part of the second quarter. As previously disclosed, revenue in both segments for the first quarter of 2024 were negatively impacted by the CR as Congress did not pass a Federal Budget until late March. Our Treatment Segment also experienced temporary failure of a certain waste processing equipment at one of its facilities in late June which also negatively impacted revenue production. We expect this equipment to be back in service by the first half of August. Once back in service, we intend to accelerate waste processing to address backlog accumulated due to the equipment failure. We continue to accelerate investments in research and development (“R&D”) on our new technology PFAS (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology).

Previous wording

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

Current wording

We believe our base business is well positioned for improvements in the second half of 2024 and, as previously reported, we continue to advance a variety of additional initiatives that we expect will have a positive impact on both revenue and earnings in the second half of the year that are expected to be more fully realized in 2025. These initiatives include, among other things, positioning ourself for large and mid-size procurements within the U.S. Department of Energy (“DOE”) and U.S. Navy and waste treatment in support of DOE’s Hanford closure strategy, continued investments in our facilities and capabilities to allow for broader waste treatment (including PFAS), and continued expansion of our waste treatment offerings within the international and commercial markets.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

We continue to aggressively bid on various contracts, including potential contracts within the international markets.

Previous wording

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

Current wording

Consolidated revenues decreased $11,046,000 for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, as follows:

Previous wording

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

Current wording

(1)Includes wastes generated by government clients of $608,000 and $763,000 for the three months ended June 30, 2024, and the corresponding period of 2023, respectively.

Previous wording

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

Current wording

Treatment Segment revenue decreased by $5,376,000 or 24.0% for the six months ended June 30, 2024, over the same period in 2023. The overall decrease in revenue was primarily due to lower waste volume attributed from the factors as discussed in the “Overview” section above. The increase in other nuclear waste revenue was primarily due to higher waste volume. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment revenue decreased by approximately $12,160,000 or 53.5%. The decrease in revenue in the Services Segment was due to the reasons as discussed in the “Overview” above. Additionally, our Services Segment revenues are project based; as such, the scope, duration, and completion of each project vary. Revenues from both segments were also negatively impacted from delays in procurements resulting from the impact of the CR.

Previous wording

Cost of goods sold decreased $2,861,000 for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, as follows:

Current wording

Cost of goods sold decreased $5,224,000 for the quarter ended June 30, 2024, as compared to the quarter ended June 30, 2023, as follows:

Previous wording

Cost of goods sold for the Treatment Segment increased by approximately $419,000 or 5.0%. Treatment Segment’s variable costs increased by approximately $506,000 primarily due to higher disposal costs. Treatment Segment’s overall fixed costs were lower by approximately $87,000 resulting from the following: general expenses were lower by $238,000 primarily due to lower utility costs; depreciation expenses were lower by approximately $206,000 due to fully depreciated asset retirement obligations that occurred in the third quarter of 2023 in connection with our EWOC facility; maintenance expenses were lower by approximately $42,000; regulatory expenses were higher by approximately $53,000; salaries and payroll related expenses were higher by $335,000 due to higher headcount; and travel expenses were higher by approximately $11,000. Services Segment cost of goods sold decreased $3,280,000 or 37.5% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll related, outside services, and travel costs totaling approximately $2,870,000; lower material and supplies, lab and regulatory expenses totaling approximately $316,000; lower depreciation expense totaling approximately $115,000; and slightly higher general expenses by approximately $21,000 in various categories. Included within cost of goods sold is depreciation and amortization expense of $404,000 and $726,000 for the three months ended March 31, 2024, and 2023, respectively.

Current wording

Cost of goods sold for the Treatment Segment decreased by approximately $803,000 or 7.7%. Treatment Segment’s variable costs decreased by approximately $667,000 primarily due to lower disposal, transportation, material and supplies and outside services costs. Treatment Segment’s overall fixed costs were lower by approximately $136,000 resulting from the following: depreciation expenses were lower by approximately $222,000 due to fully depreciated asset retirement obligations (“AROs”) that occurred in the third quarter of 2023 in connection with our EWOC facility; regulatory expenses were lower by approximately $87,000; maintenance expenses were lower by approximately $173,000; general expenses were higher by $146,000 in various categories; salaries and payroll related expenses were higher by $193,000 due to higher headcount; and travel expenses were slightly higher by approximately $7,000. Services Segment cost of goods sold decreased $4,421,000 or 43.5% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to overall lower salaries/payroll related, outside services, and travel costs totaling approximately $4,424,000; lower depreciation expense totaling approximately $46,000; lower regulatory costs of $15,000; and higher lab expenses of approximately $64,000. Included within cost of goods sold is depreciation and amortization expense of $405,000 and $672,000 for the three months ended June 30, 2024, and 2023, respectively.

Previous wording

Gross profit decreased 3,629,000 for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023, as follows:

Current wording

Gross profit for the quarter ended June 30, 2024, decreased $5,822,000 over the same period in 2023, as follows:

Previous wording

Treatment Segment gross profit decreased by $1,304,000 or approximately 104.2% and gross margin decreased to (0.6)% from 13.0% primarily due to lower revenue from lower waste volume, overall lower averaged price from waste mix and the impact of our fixed costs structure. Services Segment gross profit decreased by $2,325,000 or 132.3% primarily due to decreased revenue resulting from the completion of the two large projects as previously disclosed. The decrease in gross margin from 16.7% to (11.6)% was attributed to overall lower margin projects as the two large completed projects were higher margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.

Current wording

Treatment Segment gross profit decreased by $4,992,000 or approximately 133.4% and gross margin decreased to (7.3)% from 16.7% primarily due to lower revenue from lower waste volume, overall lower averaged price from waste mix and the impact of our fixed costs structure. Services Segment gross profit decreased by $4,459,000 or 117.9% primarily due to decreased revenue as discussed in the “Overview” above. The decrease in gross margin from 16.7% to (6.4)% was attributed to overall lower margin projects as the two large projects completed in late 2023 were higher margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.

Previous wording

SG&Aexpenses increased $58,000 for the three months ended March 31, 2024, as compared to the corresponding period for 2023, as follows:

Current wording

SG&Aexpenses decreased $96,000 for the three months ended June 30, 2024, as compared to the corresponding period for 2023, as follows:

Previous wording

Administrative SG&A expenses were higher primarily due to higher travel, outside services and general expenses totaling approximately $29,000 which was offset by lower salaries and payroll related expenses totaling approximately $12,000. Treatment Segment SG&A expenses were higher primarily due to overall higher salaries and payroll related expenses by approximately $91,000 which was offset by lower general expenses in various categories. The decrease in Services Segment SG&A was primarily due to lower outside services expenses resulting from fewer consulting and legal matters. Included in SG&A expenses is depreciation and amortization expense of $27,000 and $21,000 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Administrative SG&A expenses were slightly higher primarily due to overall higher general, salaries and payroll related and travel expenses totaling approximately $44,000 which was offset by lower outside services expenses totaling approximately $25,000. Treatment Segment SG&A expenses were higher primarily due to higher salaries and payroll related expenses by approximately $102,000 which was offset by overall lower travel, outside services and general expenses totaling approximately $54,000. The decrease in Services Segment SG&A was primarily due to lower outside services expenses by approximately $22,000 and lower salaries and payroll related expenses of approximately $148,000. The overall decrease was offset by higher travel expenses of $7,000. Included in SG&A expenses is depreciation and amortization expense of $25,000 and $20,000 for the three months ended June 30, 2024, and 2023, respectively.

Previous wording

R&D expenses increased by approximately $197,000 in the first quarter of 2024 as compared to the corresponding period of 2023 primarily due to expenses incurred for our PFAS technology (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology).

Current wording

R&D expenses increased by $152,000 and $349,000 for the three and six months ended June 30, 2024, respectively, as compared to the corresponding period of 2023 primarily due to expenses incurred in connection with our new PFAS technology.

Previous wording

Interest income increased by approximately $47,000 in the first quarter of 2024 as compared to the corresponding period of 2023 primarily due to higher interest earned from our finite risk sinking fund and interest income earned from our money market deposit account that we maintained with our lender starting in late 2023. The overall increase in interest income from the above was reduced by interest income received in March of 2023 of approximately $60,000 in connection with the Employee Retention Credit refund that we received.

Current wording

Interest income increased by approximately $41,000 and $89,000 for the three and six months ended June 30, 2024, respectively, as compared to the corresponding period of 2023 primarily due to higher interest income earned from our finite risk sinking fund from higher interest rates that took effect starting in April 2023. Additionally, the increase in interest income resulted from interest income earned from our money market deposit account (“MMDA”) that we maintained with our lender starting in late 2023. The overall increase in interest income from the above was reduced by interest income received in March of 2023 of approximately $60,000 in connection with the Employee Retention Credit refund that we received.

Previous wording

Interest expense increased by approximately $63,000 in the first quarter of 2024 as compared to the corresponding period of 2023 primarily due to interest incurred on the $2,500,000 term loan dated July 31, 2023, under our credit facility.

Current wording

Interest expense increased by approximately $62,000 and $125,000 for the three and six months ended June 30, 2024, respectively, as compared to the corresponding period of 2023 primarily due to interest incurred on the $2,500,000 term loan dated July 31, 2023, under our credit facility.

Previous wording

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

Current wording

We had an income tax benefit of $1,161,000 and income tax expense of $432,000 for continuing operations for the three months ended June 30, 2024, and the corresponding period of 2023, respectively, and income tax benefit of $2,117,000 and income tax expense of $228,000 for continuing operations for the six months ended June 30, 2024, and the corresponding period of 2023, respectively. Our effective tax rates were approximately 23.5% and 45.4% for the three months ended June 30, 2024, and the corresponding period of 2023, respectively, and 22.6% and 53.0% for the six months ended June 30, 2024, and the corresponding period of 2023, respectively. Our effective tax rates for the three and six months periods ended June 30, 2024, and the corresponding periods of 2023 were impacted by non-deductible expenses and state taxes.

Previous wording

Our cash flow requirements during the three months ended March 31, 2024, were primarily financed by our operations, cash on hand, and credit facility availability. Our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures which include our PFAS technology (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology). We plan to fund these requirements from our operations, credit facility availability, cash on hand (which will include, when received, cash from outstanding receivables due to our Perma-Fix Canada, Inc. subsidiary from a certain customer - See “Known Trends and Uncertainties – Perma-Fix Canada, Inc. (“PF Canada”)” for a discussion of this outstanding receivables) and possible other methods. Our ability to utilize our credit facility from our lender is subject to meeting our quarterly financial covenant requirements, among other things. We continue to explore all sources of increasing our capital and/or liquidity and to improve our revenue and working capital, including, but not limited to entering into equity transactions. There are no assurances that we will be successful in increasing our liquidity through our efforts. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. As of March 31, 2024, our borrowing availability under our revolving part of our credit facility was approximately $2,379,000, which included our cash (deposited with our lender) and was based on our eligible receivables and was net of approximately $3,950,000 in outstanding standby letters of credit and a $750,000 indefinite reduction in borrowing availability that our lender imposed. We believe that our cash flows from operations, our available liquidity from our credit facility, and our cash on hand (which will include, when received, cash from the outstanding Canadian receivables noted above) should be sufficient to fund our operations for the next twelve months.

Current wording

Our cash flow requirements during the six months ended June 30, 2024, were primarily financed by our operations and Liquidity (defined as borrowing availability under the revolving credit plus cash in our MMDA maintained with our lender) under our Credit Facility. Our cash included net proceeds received from the sale of 2,051,282 shares our Common Stock to certain institutional and retail investors in May 2024 (see “Financing Activities” below for a discussion of this direct offering, including the planned usage of the proceeds). Our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures which include our PFAS technology (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology). We plan to fund these requirements from our operations and Liquidity under our Credit Facility. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels. At June 30, 2024, we had no outstanding borrowing under our revolving credit and our Liquidity under our Credit Facility was approximately $19,466,000. We believe that our cash flows from operations and our Liquidity under our Credit Facility should be sufficient to fund our operations for the next twelve months.

Previous wording

The following table reflects the cash flow activities during the first three months of 2024:

Current wording

The following table reflects the cash flow activities during the first six months of 2024

Previous wording

As of March 31, 2024, we were in a positive cash position with no revolving credit balance. As of March 31, 2024, we had cash on hand of approximately $2,374,000. which included account balances of our foreign subsidiaries totaling approximately $837,000.

Current wording

As of June 30, 2024, we were in a positive cash position with no revolving credit balance. As of June 30, 2024, we had cash on hand of approximately $18,122,000. which included net proceeds received the sale of our Common Stock in May 2024 as discussed above.

Previous wording

Accounts receivable, net of credit losses, totaled $8,701,000 as of March 31, 2024, a decrease of $1,021,000 from the December 31, 2023, balance of $9,722,000. The decrease was primarily due to reduced billing from decreased revenues which were negatively impacted by a number of events as previously discussed (See “Overview” within this MD&A). Our accounts receivable at March 31, 2024, included invoices for work performed for a certain Canadian project that remained outstanding for which a settlement agreement has been reached, with collection subject to meeting certain conditions/terms precedent (See discussion under “Known Trends and Uncertainties - Perma-Fix Canada Inc. (“PF Canada”)” below for a discussion of the accounts receivable that remains payable by our customer to PF Canada).

Current wording

Accounts receivable, net of credit losses, totaled $6,423,000 as of June 30, 2024, a decrease of $3,299,000 from the December 31, 2023, balance of $9,722,000. The decrease was primarily due to reduced billing from decreased revenues which were negatively impacted by a number of events as previously discussed (See “Overview” within this MD&A). Our accounts receivable was also reduced by the collection in May 2024 of outstanding accounts receivable for work performed for a certain Canadian project for which a settlement agreement had previously been reached, with collection subject to meeting certain conditions/terms precedent (see “Perma-Fix Canada Inc. (“PF Canada”)”) below for a discussion on the collection of the receivables).

Previous wording

Accounts payable totaled $7,979,000 as of March 31, 2024, a decrease of $1,603,000 from the December 31, 2023, balance of $9,582,000. The decrease in accounts payable was attributed to our overall reduced operations as discussed previously. Additionally, or accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout our segments.

Current wording

Accounts payable totaled $9,111,000 as of June 30, 2024, a decrease of $471,000 from the December 31, 2023, balance of $9,582,000. The decrease in accounts payable was attributed to our overall reduced operations as discussed previously. Additionally, our accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout our segments.

Previous wording

We had working capital of $255,000 (which included working capital of our discontinued operations) as of March 31, 2024, as compared to working capital of $4,613,000 as of December 31, 2023. The decrease in our working capital was primarily due to the reduction in our cash which was significantly impacted by the revenue decreases in both segments as previously discussed.

Current wording

We had working capital of $12,783,000 (which included working capital of our discontinued operations) as of June 30, 2024, as compared to working capital of $4,613,000 as of December 31, 2023. The increase in our working capital was primarily due to the increase in our cash from the sale of our Common Stock (see “Financing Activities” below for a discussion of this direct offering, including the planned usage of the proceeds).

Previous wording

For the three months ended March 31, 2024, our purchases of capital equipment totaled approximately $288,000, of which $44,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2024 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations, borrowing availability under our credit facility and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.

Current wording

For the six months ended June 30, 2024, our purchases of capital equipment totaled approximately $885,000, of which $44,000 was subject to financing, with the remaining funded from cash from operations and our Credit Facility. We have budgeted approximately $2,000,000 for 2024 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations, proceeds from the equity raise completed in May 2024, borrowing availability under our Credit Facility and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.

Previous wording

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

Current wording

We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, which has since been amended from time to time, with PNC National Association (“PNC” and “lender”), acting as agent and lender (the “Loan Agreement”). The Loan Agreement provides us with the following credit facility with a maturity date of May 15, 2027 (the “Credit Facility): (a) up to $12,500,000 revolving credit (“revolving credit”), which borrowing capacity is subject to eligible receivables (as defined) and reduced by outstanding standby letters of credit ($3,950,000 as of June 30, 2024) and borrowing reductions that our lender may impose from time to time ($750,000 as of June 30, 2024); (b) a term loan (“Term Loan 1”) of approximately $1,742,000, requiring monthly installments of $35,547 (Term Loan 1 was paid off by us in June 2024); (c) a term loan (“Term Loan 2”) of $2,500,000, requiring monthly installments of $41,667; and (d) a capital expenditure line (“Capital Line”) of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve months starting May 4, 2021 (the “Borrowing Period”). Amounts advanced under the Capital Line at the end of the Borrowing Period totaled approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, commencing June 1, 2022.

Previous wording

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

Current wording

On May 8, 2024, we entered into an amendment to our Loan Agreement with our lender which provided the following, among other things:

Previous wording

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

Current wording

In connection with the amendment, we paid our lender a fee of $25,000 which is being amortized over the remaining term of the Loan Agreement as interest expense-financing fees.

Previous wording

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

Current wording

Pursuant to our Loan Agreement, payments of annual interest rates are as follows: (i) interest due on the revolving credit is at prime (8.50% at June 30, 2024) plus 2% or SOFR (as defined in the Loan Agreement, as amended) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by us; (ii) interest due on each Term Loan 1 and the Capital Line was/is at prime plus 2.50% or SOFR plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by us; and (iii) interest due on Term Loan 2 is at prime plus 3% or SOFR plus 4.00% plus an SOFR Adjustment applicable for an interest period selected by us. SOFR Adjustment rates of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by us.

Previous wording

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

Current wording

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

Previous wording

Our credit facility under our Loan Agreement, as amended, with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. We were not required to perform testing of our FCCR requirement for the first quarter of 2024 pursuant to the amendment dated May 8, 2024, to our Loan Agreement, as amended, as discussed above. We met all of our other financial covenant requirements in the first quarter of 2024. We expect to meet our quarterly financial covenant requirements for the next twelve months under our Loan Agreement, as amended, pursuant to the terms of the amendment dated May 8, 2024, as discussed above.

Current wording

Our Credit Facility under our Loan Agreement, as amended, with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our Credit Facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. We were not required to perform testing of our FCCR requirement for the first and second quarters of 2024 pursuant to the amendment dated May 8, 2024, to our Loan Agreement as discussed above. We met all of our other financial covenant requirements in the first and second quarters of 2024. We expect to meet our quarterly financial covenant requirements for the next twelve months.

Previous wording

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

Current wording

During the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from Canadian Nuclear Laboratories, LTD. (“CNL”) on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada (“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since been completed. CNL may terminate the TOA at any time for convenience. At year-end 2023, PF Canada had approximately $2,389,000 in outstanding receivables due from CNL as a result of work performed under the TOA. A settlement agreement was reached between PF Canada and CNL on the payment of the aforementioned amount by CNL, subject to certain conditions/terms precedents being met. PF Canada received a partial payment from CNL of the outstanding receivables during the first quarter of 2024. In May 2024, PF Canada received the remaining approximately $1,612,000 in outstanding receivables from CNL. No outstanding receivables remain under the TOA from CNL as of June 30, 2024.

Previous wording

From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. At March 31, 2024, the total amount of standby letters of credit outstanding totaled approximately $3,950,000 and the total amount of bonds outstanding totaled approximately $26,747,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At March 31, 2024, the closure and post-closure requirements for these facilities were approximately $23,376,000.

Current wording

From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. At June 30, 2024, the total amount of standby letters of credit outstanding totaled approximately $3,950,000 and the total amount of bonds outstanding totaled approximately $21,976,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At June 30, 2024, the closure and post-closure requirements for these facilities were approximately $23,379,000.

Previous wording

Significant Customers. The contracts that we are a party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. Our Italian contract under the JV may be terminated by the Contracting Authority under certain conditions as set forth in the contract. Our inability to continue under existing contracts that we have with government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. We performed services relating to waste generated by government clients, either indirectly as a subcontractor or directly as a prime contractor to government entities, representing approximately $10,143,000 or 74.5% of our total revenue during the three months ended March 31, 2024, as compared to $17,247,000 or 85.8%of our total revenue during the corresponding period of 2023.

Current wording

Significant Customers. The contracts that we are a party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. Our Italian contract under the partnership may be terminated by the Contracting Authority under certain conditions as set forth in the contract. Our inability to continue under existing contracts that we have with government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. We performed services relating to waste generated by government clients, either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately $10,509,000 or 75.1% and $20,652,000 or 74.8% of our total revenues generated during the three and six months ended June 30, 2024, respectively, as compared to 21,899,000 or 87.5% and $39,146,000 or 86.7% of our total revenues generated during the three and six months ended June 30, 2023.

Previous wording

*New Processing Technology.*We have successfully completed pilot plant testing on our new, patent-pending process for the destruction of PFAS, commonly known as “forever chemicals.” PFAS compounds do not degrade over time through any natural process or environmental conditions, bioaccumulate, and are harmful to humans and the environment. Our tests were designed to demonstrate the destruction of commercial quantities of PFAS-contaminated liquids and better define the parameters needed to construct the first commercial unit. There are limited current treatment options for these materials and we expect that our process will exceed any of these methods. Some of the sizable markets for PFAS include AFFF (aqueous film-forming foam) firefighting foams, both expired concentrate and flushing liquids, contaminated liquids from PFAS systems, and other water-based separation products from a variety of industrial systems. We believe that our process is highly scalable with minimal capital expenditures or labor costs required since we are employing a non-incineration, chemical-based process. We are now in the process of final design and fabrication for installation of the first operational unit and plan to be operational, accepting commercial waste for destruction by the end of the year. We have established goals for additional units to be installed at each existing treatment plant to follow in 2025.

Current wording

*New Processing Technology.*We have successfully completed pilot plant testing on our new, patent-pending process for the destruction of PFAS, commonly known as “forever chemicals.” PFAS compounds do not degrade over time through any natural process or environmental conditions, bioaccumulate, and are harmful to humans and the environment. Our tests were designed to demonstrate the destruction of commercial quantities of PFAS-contaminated liquids and better define the parameters needed to construct the first commercial unit. There are limited current treatment options for these materials and we expect that our process will exceed any of these methods. Some of the sizable markets for PFAS include AFFF (aqueous film-forming foam) firefighting foams, both expired concentrate and flushing liquids, contaminated liquids from PFAS systems, and other water-based separation products from a variety of industrial systems. We believe that our process is highly scalable with minimal capital expenditures or labor costs required since we are employing a non-incineration, chemical-based process. We are now in the process of final fabrication for installation of the first operational unit and plan to be operational, accepting commercial waste for destruction by the end of the year. We have established goals for additional units to be installed at each existing treatment plant to follow in 2025.

Previous wording

We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. We expect to fund the expenses to remediate these sites from funds generated from operations. As of March 31, 2024, we had total accrued environmental remediation liabilities of $800,000, a decreased of approximately $45,000 from the December 31, 2023 balance of $845,000. The decrease represents payments for remediation projects. At March 31, 2024, $16,000 of the total accrued environmental liabilities was recorded as current.

Current wording

We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. We expect to fund the expenses to remediate these sites from funds generated from operations. As of June 30, 2024, we had total accrued environmental remediation liabilities of $772,000, a decreased of approximately $73,000 from the December 31, 2023 balance of $845,000. The decrease represents payments for remediation projects. At June 30, 2024, $6,000 of the total accrued environmental liabilities was recorded as current.