PERMA FIX ENVIRONMENTAL SERVICES INC

Previous 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.

Current wording

In addition to the aforementioned factors, we continue to experience delays in procurements and contract awards from government clients in the first nine months of 2024. Although we are disappointed with our 2024 financial results for the first nine months of 2024, we believe our base business is positioned for improvement in 2025 and that our results of operations should improve in 2025. As previously disclosed, we continue to advance a variety of additional initiatives that are expected to be more fully realized in 2025. These initiatives include, among other things, positioning ourselves 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

Revenue decreased by $17,536,000 or 38.8% to $27,603,000 for the six months ended June 30, 2024, from $45,139,000 for the corresponding period of 2023. Treatment Segment revenue decreased by $5,376,000 to $17,052,000 or 24.0% from $22,428,000. The decrease in revenue within the Treatment Segment was attributed to factors as discussed above for our second quarter results and factors previously disclosed for our first quarter results which included delays in waste shipments by certain customers due to poor weather conditions and CR impacts, temporary outages in March at our three primary facilities for equipment replacement and repairs, program enhancement and testing to support permit expansion and broader market penetration, and accelerated investment in R&D on our new technology to treat PFAS. Services Segment revenue decreased by $12,160,000 or 53.5% to $10,551,000 from $22,711,000. The decrease in revenue in the Services Segment was attributed to slower project mobilizations and delays in certain projects from the impact of the CR. The decrease in revenue in the Services Segment was also due, in part to the completion of two large projects in late 2023 which were not replaced by new projects of similar value. Together, these two large projects had generated a significant amount of revenues in the first half of 2023 as they were in full operational status. We incurred a gross loss in the six months ended June 30, 2024, of approximately $1,926,000 as compared to a gross profit of $7,525,000 in the corresponding period of 2023, reflecting a decrease in gross profit of approximately $9,451,000 or 125.6%, primarily due to decreased revenue in both segments. SG&A expenses decreased $37,000 or 0.5% for the six months ended June 30, 2024, as compared to the corresponding period of 2023.

Current wording

For the nine months ended September 30, 2024, overall revenue decreased by $22,601,000 or 33.7% to $44,415,000 from $67,016,000 for the corresponding period of 2023 where we saw decrease in revenue in both segments. Treatment Segment revenue decreased by $7,107,000 to $26,116,000 or 21.4% from $33,223,000 and Services Segment revenue decreased by $15,494,000 or 45.8% to $18,299,000 from $33,793,000. The decrease in revenue within the Treatment Segment was attributed to factors which included among other things, delays in waste shipments by certain customers due to poor weather conditions and earlier Continuing Resolution (“CR”) impacts, temporary outages at our three primary facilities for equipment replacement and repairs, program enhancement and testing to support permit expansion and broader market penetration, weather impacts at certain of our treatment facilities resulting in temporary shutdown which limited revenue production and accelerated investment in R&D on our new technology to treat PFAS. Overall lower averaged price from waste mix within the Treatment Segment also contributed to revenue decrease. The decrease in revenue in the Services Segment was due to slower mobilization and delays in certain projects from the earlier impact of CR and poor weather conditions. Additionally, the decrease in revenue in the Services Segment was also attributed to the completion of two large projects in late 2023 which were not replaced by new projects of similar value. Together, these two large projects had generated a significant amount of revenues in the first nine months of 2023 when they were in full operational status. Total gross profit for the nine months ended 2024 decreased $12,666,000 or 104.9% due to decreased revenue generated in both segments. SG&A expenses decreased $338,000 or 3.1% for the nine months ended September 30, 2024, as compared to the corresponding period of 2023.

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 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.

Current wording

Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to U.S 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

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

Current wording

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

Previous 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:

Current wording

Consolidated revenues decreased $5,065,000 for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, as follows:

Previous 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.

Current wording

(1)Includes wastes generated by government clients of $784,000 and $653,000 for the three months ended September 30, 2024, and the corresponding period of 2023, respectively.

Previous 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.

Current wording

Treatment Segment revenue decreased by $1,731,000 or 16.0% for the three months ended September 30, 2024, over the same period in 2023. The overall decrease in revenue in the Treatment Segment was primarily due to lower waste volume as discussed in the “Overview” above. Services Segment revenue decreased by approximately $3,334,000 or 30.1%. The decrease in revenue in the Services Segment was due to 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.

Previous wording

(1)Includes wastes generated by government clients of $1,236,000 and $1,473,000 for the six months ended June 30, 2024, and the corresponding period of 2023, respectively.

Current wording

(1)Includes wastes generated by government clients of $2,330,000 and $2,126,000 for the nine months ended September 30, 2024, and the corresponding period of 2023, respectively.

Previous wording

Treatment Segment revenue decreased by $4,491,000 or 35.0% for the three months ended June 30, 2024, over the same period in 2023. The overall decrease in revenue in the Treatment Segment was primarily due to lower waste volume as discussed in the “Overview” above. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment revenue decreased by approximately $6,555,000 or 53.7%. The decrease in revenue in the Services Segment was due to 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 residual impact of the CR.

Current wording

Treatment Segment revenue decreased by $7,107,000 or 21.4% for the nine months ended September 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. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment revenue decreased by approximately $15,494,000 or 45.8%. 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.

Previous 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:

Current wording

Cost of goods sold decreased $1,850,000 for the quarter ended September 30, 2024, as compared to the quarter ended September 30, 2023, as follows:

Previous 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.

Current wording

Cost of goods sold for the Treatment Segment decreased by approximately $647,000 or 7.0% primarily due to lower revenue. Treatment Segment’s variable costs decreased by approximately $931,000 primarily due to overall lower transportation, disposal and lab costs. Treatment Segment’s overall fixed costs were higher by approximately $284,000 resulting from the following: salaries and payroll related expenses were higher by approximately $528,000 due to higher headcount; maintenance expenses were higher by approximately $136,000 due to unexpected breakdowns of certain equipment which required repair/replacement as discussed in the “Overview” previously; travel expenses were lower by approximately $22,000; depreciation expenses were lower by approximately $213,000 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 $41,000; and general expenses were lower by $104,000 in various categories. Services Segment cost of goods sold decreased $1,203,000 or 15.0% 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 $1,379,000; lower depreciation expenses of approximately $44,000; lower general expenses of approximately $110,000 in various categories; and overall higher material and supplies, regulatory, disposal and lab expenses totaling approximately $330,000. Included within cost of goods sold is depreciation and amortization expense of $408,000 and $666,000 for the three months ended September 30, 2024, and 2023, respectively.

Previous wording

Cost of goods sold for the Treatment Segment decreased by approximately $384,000 or 2.1%. Treatment Segment’s variable costs decreased by approximately $161,000 primarily due to lower material and supplies, transportation and lab costs totaling approximately $627,000 which was offset by higher disposal costs of approximately $466,000. Treatment Segment’s overall fixed costs were lower by approximately $223,000 resulting from the following: depreciation expenses were lower by approximately $428,000 due to fully depreciated AROs that occurred in the third quarter of 2023 in connection with our EWOC facility; regulatory expenses were lower by approximately $34,000; maintenance expenses were lower by approximately $216,000; general expenses were lower by $92,000 in various categories; salaries and payroll related expenses were higher by $529,000 due to higher headcount; and travel expenses were higher by approximately $18,000. Services Segment cost of goods sold decreased $7,701,000 or 40.7% 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 $7,294,000; lower depreciation expense totaling approximately $160,000; lower regulatory costs of $13,000; overall lower material and supplies and disposal costs of approximately $269,000; and higher general expenses of approximately $35,000 in various categories. Included within cost of goods sold is depreciation and amortization expense of $810,000 and $1,398,000 for the six months ended June 30, 2024, and 2023, respectively.

Current wording

Cost of goods sold for the Treatment Segment decreased by approximately $1,031,000 or 3.7%. Treatment Segment’s variable costs decreased by approximately $1,092,000 primarily due to overall lower material and supplies, transportation, disposal and lab costs. Treatment Segment’s overall fixed costs increased by approximately $61,000 resulting from the following: salaries and payroll related expenses were higher by $1,057,000 due to higher headcount; depreciation expenses were lower by approximately $641,000 due to fully depreciated AROs that occurred in the third quarter of 2023 in connection with our EWOC facility; regulatory expenses were lower by approximately $75,000; maintenance expenses were lower by approximately $80,000; general expenses were lower by $196,000 in various categories; and travel expenses were slightly lower by approximately $4,000. Services Segment cost of goods sold decreased $8,904,000 or 33.0% 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 $8,673,000; lower depreciation expenses of approximately $204,000; lower general expenses of $75,000 in various categories; and overall higher material and supplies, regulatory, disposal and lab expenses totaling approximately $48,000. Included within cost of goods sold is depreciation and amortization expense of $1,218,000 and $2,063,000 for the nine months ended September 30, 2024, and 2023, respectively.

Previous wording

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

Current wording

Gross profit for the quarter ended September 30, 2024, decreased $3,215,000 over the same period of 2023, as follows:

Previous wording

Treatment Segment gross profit decreased by $3,688,000 or approximately 148.1% and gross margin decreased to (14.3)% from 19.4% 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 $2,134,000 or 105.4% primarily due to decreased revenue as discussed in the “Overview” above. The decrease in gross margin in the Services Segment from 16.6% to (1.9)% 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.

Current wording

Treatment Segment gross profit decreased by $1,084,000 or approximately 72.6% and gross margin decreased to 4.5% from 13.8% primarily due to lower revenue from lower waste volume and the impact of our fixed costs structure. Services Segment gross profit decreased by $2,131,000 or 69.8% primarily due to decreased revenue as discussed in the “Overview” above. The decrease in gross margin in the Services Segment from 27.6% to 11.9% 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

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.

Current wording

Treatment Segment gross profit decreased by $6,076,000 or approximately 116.0% and gross margin decreased to (3.2)% from 15.8% 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 $6,590,000 or 96.4% primarily due to decreased revenue as discussed in the “Overview” above. The decrease in gross margin from 20.2% to 1.3% 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 decreased $96,000 for the three months ended June 30, 2024, as compared to the corresponding period for 2023, as follows:

Current wording

SG&Aexpenses decreased $301,000 for the three months ended September 30, 2024, as compared to the corresponding period for 2023, as follows:

Previous 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.

Current wording

The decrease in Administrative SG&A expenses was primarily due to lower accrued incentives expenses. In the prior year quarter, approximately $178,000 in estimated accrued incentive expenses were recorded in connection with the Company’s management incentive plans (“MIPs”) and other employees’ bonus plans. Treatment Segment SG&A expenses were higher primarily due to higher salaries and payroll related expenses of approximately $139,000 which were offset by lower outside services expenses of $20,000 from fewer consulting matters and lower general expenses of $74,000 in various categories. The decrease in Services Segment SG&A was primarily due to the following: salaries and payroll related expenses were lower by approximately $65,000; outside services expenses were lower by approximately $69,000 due to fewer consulting/legal matters; and overall general expenses were lower by approximately $29,000 in various categories. Included in SG&A expenses is depreciation and amortization expenses of $25,000 and $20,000 for the three months ended September 30, 2024, and 2023, respectively.

Previous wording

SG&Aexpenses decreased $37,000 for the six months ended June 30, 2024, as compared to the corresponding period for 2023, as follows:

Current wording

SG&Aexpenses decreased $338,000 for the nine months ended September 30, 2024, as compared to the corresponding period for 2023, as follows:

Previous wording

Administrative SG&A expenses were slightly higher primarily due to overall higher general, salaries and payroll related and travel expenses totaling approximately $55,000 which was offset by lower outside services expenses totaling approximately $19,000. Treatment Segment SG&A expenses were higher primarily due to higher salaries and payroll related expenses by approximately $193,000 which was offset by overall lower travel, outside services and general expenses totaling approximately $86,000. The decrease in Services Segment SG&A was primarily due to lower outside services expenses of approximately $46,000 and lower salaries and payroll related expenses of approximately $138,000. The overall decrease was offset by slightly higher travel expenses of $4,000. Included in SG&A expenses is depreciation and amortization expense of $52,000 and $41,000 for the six months ended June 30, 2024, and 2023, respectively.

Current wording

Administrative SG&A expenses were lower primarily due to the following: payroll-related expenses were lower by approximately $178,000 primarily due to lower accrued incentive expenses. Administrative SG&A expenses in the third quarter of 2023 included estimated incentives recorded in the amount of approximately $178,000 in connection with the Company’s management incentive plans (“MIPs”) and other employees’ bonus plans. Such incentives were not recorded in the first nine months of 2024; outside services expenses were lower by approximately $40,000 from fewer consulting/legal matters; and overall general and maintenance expenses were higher by approximately $71,000. Treatment Segment SG&A expenses were higher primarily due to higher salaries and payroll related expenses of approximately $332,000 which were offset by overall lower travel, outside services and general expenses totaling approximately $179,000. The decrease in Services Segment SG&A was primarily due to lower outside services expenses of approximately $116,000 from fewer consulting and legal matters, lower salaries and payroll related expenses of approximately $203,000 and lower general expenses of $25,000 in various categories. Included in SG&A expenses is depreciation and amortization expenses of $77,000 and $61,000 for the nine months ended September 30, 2024, and 2023, respectively.

Previous 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.

Current wording

R&D expenses increased by $183,000 and $532,000 for the three and nine months ended September 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 $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.

Current wording

The increase in interest income for the nine months ended September 30, 2024, as compared to the corresponding period of 2023 was 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 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 $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.

Current wording

Interest expense increased by approximately $32,000 and $157,000 for the three and nine months ended September 30, 2024, respectively, as compared to the corresponding period of 2023. The increase for each of the periods above was attributed primarily to interest incurred on the $2,500,000 term loan dated July 31, 2023, under our credit facility and the promissory note that we entered into on July 24, 2024, for the purchase of our EWOC facility. The higher interest expense was also from more finance leases.

Previous 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.

Current wording

We had income tax expenses of $6,417,000 and $4,300,000 for the three and nine months ended September 30, 2024, respectively, and income tax expenses of $254,000 and $482,000 for the three and nine months ended September 30, 2023, respectively, for our continuing operations. Our effective tax rates were approximately 268.6% and 36.6% for the three and nine months ended September 30, 2024, respectively, and 50.8% and 51.8% for the three and nine months ended September 30, 2023, respectively. Our effective tax rates for the three and nine months ended September 30, 2024, were primarily impacted by the full valuation allowance on our deferred assets as discussed above.

Previous 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.

Current wording

Our cash flow requirements during the nine months ended September 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, R&D on our PFAS technology and 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. Our ability to utilize our Credit Facility from our lender is subject to meeting our quarterly financial covenant requirements, among other things. 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 September 30, 2024, we had no outstanding borrowing under our revolving credit and our Liquidity under our Credit Facility was approximately $13,984,000. We believe that our cash flows from operations and our Liquidity should be sufficient to fund our operations for the next twelve months. Although we believe we should be profitable in 2025, if we continue to incur losses, such may cause a reduction in our Liquidity.

Previous wording

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

Current wording

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

Previous 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.

Current wording

As of September 30, 2024, we were in a positive cash position with no revolving credit balance. At September 30, 2024, we had cash on hand of approximately $10,567,000.

Previous 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).

Current wording

Accounts receivable, net of credit losses, totaled $8,741,000 as of September 30, 2024, a decrease of $981,000 from the December 31, 2023, balance of $9,722,000. The decrease was attributed 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 was 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 $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.

Current wording

Accounts payable totaled $7,675,000 as of September 30, 2024, a decrease of $1,907,000 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 $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).

Current wording

We had working capital of $9,424,000 (which included working capital of our discontinued operations) as of September 30, 2024, as compared to working capital of $4,613,000 as of December 31, 2023. The improvement in our 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) which was offset by the significant losses incurred from our results of operations attributed to the various factors as previously discussed.

Previous 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.

Current wording

For the nine months ended September 30, 2024, our purchases of capital equipment totaled approximately $2,630,000, of which $406,000 was subject to financing, with the remaining funded from cash from operations, cash from the equity raise that we completed in May 2024 and our Credit Facility. We budgeted approximately $2,000,000 for 2024 capital expenditures for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Our capital expenditures for 2024 also included additional expenditures made to support our PFAS initiatives from cash from our equity raise completed in May 2024. Certain of our 2024 budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations, Liquidity 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

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.

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 (8.00% at September 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 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.

Current wording

We agreed to pay PNC 0.5% of the total financing if we pay off our obligations under our Loan Agreement 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 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.

Current wording

Our Credit Facility under our Loan Agreement 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 were also not required to perform testing of our FCCR requirement for the third quarter of 2024 pursuant to the amendment dated November 12, 2024, to our Loan Agreement, as amended, as discussed above. Otherwise, we met all of our other financial covenant requirements in each of the first three quarters of 2024. We expect to meet our quarterly financial covenant requirements for the next twelve months.

Previous wording

Craig-Hallum Capital Group LLC (“Craig-Hallum”) and Wellington Shields & Co. LLC (“Wellington Shields”) (Wellington Shields and Craig-Hallum together are known as the “Placement Agents”) served as the exclusive placement agents in connection with the Offering. We paid the Placement Agents a total cash fee of 6.00% of the aggregate gross proceeds in the Offering, which totaled approximately $1,200,000. We also reimbursed the Placement Agents certain expenses in connection with the Offering in an aggregate amount of approximately $90,000. As additional compensation to the Placement Agents in connection with the Offering, we also issued to the Placement Agents and two (2) of their members designees, warrants (the “Placement Agents’ Warrants”) to purchase an aggregate of 61,538 shares of Common Stock (the “Warrant Shares”), with the aggregate number of Warrant Shares that may be acquired under the Placement Agents’ Warrants equal to 3.0% of the number of Shares sold in the registered direct offering, at an exercise price per share equal to $12.19, which is equal to approximately 125% of the price per share of the Shares sold in the Offering. Neither the Placement Agents’ Warrants nor the Warrant Shares have been registered under the Registration Statement or otherwise. The Placement Agents’ Warrants have a term of five years, are exercisable at any time and from time to time, in whole or in part, during the four and one-half (4 ½) year period commencing 180 days from the last date of closing of the Offering which was May 24, 2024, and are exercisable via “cashless exercise” in certain circumstances. The aggregate fair value of the “Placement Agents’ Warrants” was determined to be approximately $331,000 using the Black-Scholes pricing model with the following assumptions: 58.78% volatility, risk free interest rate of 4.53%, an expected life of five years and no dividend. The aggregate fair market value of the Placement Agent’s Warrants was recorded as an offset to gross proceeds of the Offering and an increase to additional-paid-in capital.

Current wording

Craig-Hallum Capital Group LLC (“Craig-Hallum”) and Wellington Shields & Co. LLC (“Wellington Shields”) (Wellington Shields and Craig-Hallum together are known as the “Placement Agents”) served as the exclusive placement agents in connection with the Offering. We paid the Placement Agents a total cash fee of 6.00% of the aggregate gross proceeds in the Offering, which totaled approximately $1,200,000. We also reimbursed the Placement Agents certain expenses in connection with the Offering in an aggregate amount of approximately $80,000. As additional compensation to the Placement Agents in connection with the Offering, we also issued to the Placement Agents and two (2) of their members designees, warrants (the “Placement Agents’ Warrants”) to purchase an aggregate of 61,538 shares of Common Stock (the “Warrant Shares”), with the aggregate number of Warrant Shares that may be acquired under the Placement Agents’ Warrants equal to 3.0% of the number of Shares sold in the registered direct offering, at an exercise price per share equal to $12.19, which is equal to approximately 125% of the price per share of the Shares sold in the Offering. Neither the Placement Agents’ Warrants nor the Warrant Shares have been registered under the Registration Statement or otherwise. The Placement Agents’ Warrants have a term of five years, are exercisable at any time and from time to time, in whole or in part, during the four and one-half (4 ½) year period commencing 180 days from the last date of closing of the Offering which was May 24, 2024, and are exercisable via “cashless exercise” in certain circumstances. The aggregate fair value of the “Placement Agents’ Warrants” was determined to be approximately $331,000 using the Black-Scholes pricing model with the following assumptions: 58.78% volatility, risk free interest rate of 4.53%, an expected life of five years and no dividend. The aggregate fair market value of the Placement Agent’s Warrants was recorded as an offset to gross proceeds of the Offering and an increase to additional-paid-in capital.

Previous wording

After deducting costs incurred of approximately $1,554,000 (exclusive of the aggregate fair market value of the Placement Agents’ Warrants as discussed above) which were recorded as a deduction to equity in connection with the Offering, net cash proceeds to us totaled approximately $18,446,000. We have paid approximately $1,364,000 of the $1,554,000 costs in connection with the Offering.

Current wording

After deducting costs incurred of approximately $1,544,000 (exclusive of the aggregate fair market value of the Placement Agents’ Warrants as discussed above) which were recorded as a deduction to equity in connection with the Offering, net cash proceeds to us totaled approximately $18,456,000. We have paid approximately $1,505,000 of the $1,544,000 costs incurred in connection with the Offering.

Previous wording

On July 24, 2024, We purchased the property which our EWOC facility operates on pursuant to a Purchase and Sales Agreement dated April 30, 2024, for a purchase price of $425,000. The Company paid $63,750 in cash and entered into a promissory note dated July 24, 2024, in an amount of $361,250 with a bank (the “lender”) for the remaining balance of the purchase price, with a maturity date in twenty years or July 24, 2044 (the “Note”). For the first five years starting August 24, 2024, monthly payments under the Note will consists of approximately $3,100 which include an annual fixed interest rate of 8.10%. Monthly payments under the Note will then be adjusted at the end of years five, ten and fifteen, with interest calculated based on the weekly average 5 year US Treasury Securities Rate plus 3.0%. Under no circumstances will the variable interest rate on the Note be less than 4.0% per annum or more than (except in the case of default) the lesser of 20.5% per annum or the maximum rate allowed by applicable law. We agreed to pay the lender 3.0% of the total outstanding principal balance under the Note in the event we pays off our obligations during the first year of the Note. The prepayment penalty rate will be reduced by 1.0% at each subsequent annual anniversary of the Note. No prepayment penalty will apply in the event we pay off the Note on the fourth anniversary of the Note or thereafter. The property was previously accounted for under our operating leases.

Current wording

On July 24, 2024, We purchased the property which our EWOC facility operates on pursuant to a Purchase and Sales Agreement dated April 30, 2024, for a purchase price of $425,000. We paid $63,750 in cash and entered into a promissory note dated July 24, 2024, in an amount of $361,250 with a bank (the “lender”) for the remaining balance of the purchase price, with a maturity date in twenty years or July 24, 2044 (the “Note”). For the first five years starting August 24, 2024, monthly payments under the Note will consists of approximately $3,100 which include an annual fixed interest rate of 8.10%. Monthly payments under the Note will then be adjusted at the end of years five, ten and fifteen, with interest calculated based on the weekly average five-year US Treasury Securities Rate plus 3.0%. Under no circumstances will the variable interest rate on the Note be less than 4.0% per annum or more than (except in the case of default) the lesser of 20.5% per annum or the maximum rate allowed by applicable law. We agreed to pay the lender 3.0% of the total outstanding principal balance under the Note in the event we pays off our obligations during the first year of the Note. The prepayment penalty rate will be reduced by 1.0% at each subsequent annual anniversary of the Note. No prepayment penalty will apply in the event we pay off the Note on the fourth anniversary of the Note or thereafter. The property was previously accounted for under our operating leases.

Previous 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.

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. As a result of the aforementioned payments received from CNL, no outstanding receivables remain under the TOA from CNL.

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 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.

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 September 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 $20,568,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At September 30, 2024, the closure and post-closure requirements for these facilities were approximately $23,379,000.

Previous wording

See “Note 2 – Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” for the recent accounting pronouncements that will be adopted in future periods.

Current wording

See “Note 2 – Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” for the recent accounting pronouncement that will be adopted in future periods.

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 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.

Current wording

Significant Customers. The contracts that we are a party to with others as subcontractors to the U.S government or directly with the U.S government generally provide that the government may terminate the contract at any time for convenience at the government’s option. Our inability to continue under existing contracts that we have with U.S. 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 U.S government clients, either directly as a prime contractor or indirectly for others as a subcontractor to U.S. government entities, representing approximately $11,749,000 or 69.9% and $31,748,000 or 71.5% of our total revenues generated during the three and nine months ended September 30, 2024, respectively, as compared to 14,923,000 or 68.2% and $52,270,000 or 78.0% of our total revenues generated during the three and nine months ended September 30, 2023, respectively. Our partnership’s Italian contract may be terminated by the Contracting Authority under certain conditions as set forth in the contract. The scope of work to be performed in the initial phases of the Italian contract will be performed predominately by our JV partner. Revenue generated by the Company under the initial phases of the Italian contract will be limited to project management support through 2025 and is not material to date. The Company expects to generate an increase in revenue under the Italian contract starting in 2026 when the waste treatment phases begin.