PERMA FIX ENVIRONMENTAL SERVICES INC

March 31, 2025

Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024.

1. Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three months ended March 31, 2025, are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2025.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2024.

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

2. Summary of Significant Accounting Policies

Our accounting policies are as set forth in the notes to the December 31, 2024, consolidated financial statements referred to above.

Recently Issued Accounting Standards –Adopted

In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, “Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.” ASU 2023-05 applies to the formation of a “joint venture” or a “corporate joint venture” and requires a joint venture to initially measure all contributions received upon its formation at fair value. The guidance does not impact accounting by the venturers. The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025, on a prospective basis. The adoption of ASU 2023-05 by the Company on January 1, 2025, had no impact to its condensed consolidated financial statements.

Recently Issued Accounting Standards – Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, “Income Statement— Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) - Disaggregation of Income Statement Expenses,” which enhances the disclosures required for certain expense captions in the Company’s annual and interim consolidated financial statements. ASU 2024-03 is effective prospectively or retrospectively for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. ASU 2023-09 will become effective starting with the Company’s annual financial statements for the year ended December 31, 2025. The Company is currently evaluating the impact of this standard on its disclosures.

3. Revenue

Disaggregation of Revenue

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

Contract Balances

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

During the three months ended March 31, 2025, and 2024, the Company recognized revenue of $2,934,000 and $3,165,000 respectively, related to untreated waste that was in the Company’s control as of the beginning of each respective year. Revenue recognized in each period relates to performance obligations satisfied within the respective period.

Accounts Receivable

The following table represents changes in accounts receivable, net of credit losses, for the periods noted:

Remaining Performance Obligations

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

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

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

4. Leases

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

The Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities include primarily leases for office and warehouse spaces used to conduct our business. Finance leases primarily consist of lab, processing and transport equipment used by our facilities’ operations.

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

The weighted average remaining lease term and the weighted average discount rate for operating and finance leases as of March 31, 2025, were:

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

The following table reconciles the undiscounted cash flows for the operating and finance leases as of March 31, 2025, to the operating and finance lease liabilities recorded on the balance sheet (in thousands):

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

5. Intangible Assets

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

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

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

Amortization expenses relating to the definite-lived intangible assets as discussed above were $15,000 and $25,000 for the three months ended March 31, 2025, and 2024, respectively.

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

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

In connection with the appointment of Mr. Troy Eshleman to the position of Chief Operating Officer (“COO”) by the Company’s Board of Directors (the “Board”) on January 23, 2025 (see further information in “Note 13 – Executive Compensation” regarding this appointment), the Compensation and Stock Option Committee (the “Compensation Committee”) recommended, and the Board approved, the grant to Mr. Eshleman of an ISO for the purchase, under the Company’s 2017 Stock Option Plan (the “2017 Plan”), of up to 50,000 shares of the Company’s common stock, $.001 (the “Common Stock”). The ISO has a six-year term and vests at 20% per year over a five-year period, commencing on the first anniversary of the grant date. The exercise price of the ISO is $10.70 per share, which equals the closing price of the Company’s Common Stock as quoted on NASDAQ on the grant date.

The following table summarizes stock-based compensation recognized for the three months ended March 31, 2025, and 2024 for our employee and director stock options.

As March 31, 2025, the Company had approximately $2,004,000 of total unrecognized compensation costs related to unvested options for employee and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized is approximately 3.1 years.

The summary of the Company’s total Stock Option Plans as of March 31, 2025, and March 31, 2024, along with changes during the periods then ended, is presented below. The Company’s Plans consist of the 2017 Plan and the 2003 Outside Directors Stock Plan (the “2003 Plan”):

(1) Options with exercise prices ranging from $3.31 to $10.70

(2) Options with exercise prices ranging from $3.31 to $9.81

(3) Options with exercise prices ranging from $3.15 to $9.81

(4) Options with exercise prices ranging from $3.15 to $7.50

(5) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

During the three months ended March 31, 2025, the Company issued a total of 10,565 shares of its Common Stock under the 2003 Plan to its outside directors as compensation for serving on the Company’s Board. The Company recorded approximately $117,000 in compensation expenses (included in selling, general and administration (“SG&A”) expenses) in connection with the issuance of shares of its Common Stock to outside directors.

During the three months ended March 31, 2025, the Company issued an aggregate 28,091 shares of its Common Stock from cashless exercises of options for the purchase of 40,000 shares of the Company’s Common Stock at $3.15 per share. Additionally, the Company issued an aggregate 12,500 shares of its Common Stock from cash exercises of options for the purchase of 12,500 shares of the Company’s Common Stock, at exercise prices of $3.15 and $3.95 per share, resulting in proceeds of approximately $41,000.

In connection with the Company’s sales of its Common Stock in May 2024 and December 2024, the Company issued warrants to certain underwriter, placement agents and their designees to purchase up to an aggregate 188,038 shares of the Company’s Common Stock at exercise prices of $11.50 and $12.19 per share. These warrants remained outstanding as of March 31, 2025.

7. Loss Per Share

Basic loss per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted loss per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive loss per shares. The following table reconciles the loss and average share amounts used to compute both basic and diluted loss per share:

For the three months ended March 31, 2025,1,174,216 weighted average shares of common stock underlying options and warrants were excluded from the computation of diluted loss per share because the effect would be anti-dilutive.

For the three months ended March 31, 2024,976,593 weighted average shares of common stock underlying options were excluded from the computation of diluted loss per share because the effect would be anti-dilutive.

8.** Long Term Debt

Long-term debt consists of the following as of March 31, 2025, and December 31, 2024:

Credit Facility

The Company entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, which has since been amended, with PNC National Association (“PNC” and “lender”), acting as agent and lender (the “Loan Agreement”). The Loan Agreement provides the Company with a credit facility with a maturity date of May 15, 2027 (the “Credit Facility”) which consists of the following as of March 31, 2025: (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 ($3,200,000 as of March 31, 2025) and borrowing reductions that the Company’s lender may impose from time to time ($750,000 as of March 31, 2025); (b) a term loan (“Term Loan”) of $2,500,000, requiring monthly installments of $41,667; and (c) a capital expenditure loan (“Capital Loan”) of approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest.

Pursuant to the Loan Agreement, payments of annual interest rates are as follows: (i) interest due on the revolving credit is at prime (7.50% at March 31, 2025) plus 2% or Secured Overnight Finance Rate (“SOFR”) (as defined in the Loan Agreement) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by the Company; (ii) interest due on the Capital Loan is at prime plus 2.50% or SOFR plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by the Company; and (iii) interest due on the Term Loan is at prime plus 3% or SOFR plus 4.00% plus an SOFR Adjustment applicable for an interest period selected by the Company. SOFR Adjustment rates of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by the Company.

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

On March 11, 2025, the Company entered into an amendment to its Loan Agreement with its lender which provided the following, among other things:

As of March 31, 2025, the Company had no outstanding borrowing under its revolving credit and its Liquidity was approximately $29,277,000.

The Company’s Loan Agreement, as amended, with PNC contains certain financial covenant requirements, along with customary representations and warranties. A breach of any of these financial covenant requirements, unless waived by PNC, could result in a default under the Company’s Loan Agreement allowing its lender to immediately require the repayment of all outstanding debt under the Company’s Loan Agreement and terminate all commitments to extend further credit. The Company met all of its financial covenant requirements in the first quarter of 2025.

9. Commitments and Contingencies

Hazardous Waste

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

Legal Matters

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

Tetra Tech EC, Inc. (“Tetra Tech”)

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

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

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

The majority of Tetra Tech’s claims were previously dismissed by the Court. The remaining claims of intentional interference with contractual relations and inducing a breach of contract were dismissed by the Court pursuant to Defendants’ request for summary judgment. Tetra Tech appealed the dismissal of the remaining two claims and subsequently agreed to withdraw its appeal, which the Court dismissed at Tetra Tech’s request. As of March 31, 2025, the litigation has been resolved, and Tetra Tech has formally released and forever discharged the Company from any and all claims arising out of or in any way related to the complaint.

Michael O’Neill

On November 25, 2024, purported shareholder Michael O’Neill filed a complaint in the Court of Chancery of the State of Delaware against the Company and all current directors of the Company, asserting individual and class action claims for alleged breach of contract and breach of fiduciary duty. The case is styled Michael O’Neill v. Perma-Fix Environmental Services, Inc., et al., C.A. No. 2024-1211-PAF.

The complaint purports to be brought by the named plaintiff individually and on behalf of all “similarly situated Perma-Fix stockholders.” According to the complaint, defendants allegedly made materially false and misleading statements in its proxy statement filed with the Securities and Exchange Commission on June 8, 2023 regarding the effect of broker non-votes. In particular, the complaint alleges that defendants incorrectly stated in the proxy statement that broker non-votes would have no effect on the vote solicited to approve an amendment to the Company’s 2017 Stock Option Plan to increase by 600,000 shares the number of shares of Common Stock issuable under the plan, resulting in an alleged defective approval of the plan amendment. As of the date of this Form 10-Q, the Company has not issued any options under the plan relating to the additional shares included in the plan amendment.

The Company believes that the complaint is without merit. The Company and the individual defendants are vigorously defending against the complaint.

The Company’s insurance carrier is providing a defense in connection with this lawsuit, subject to a $1,000,000 self-insured retention and the terms and limitations contained in the insurance policy.

Shareholder Demand Letter

The Company’s Board received a demand letter, dated February 4, 2025 (the “Letter”), from a putative shareholder of the Company, claiming thata provision in the Company’s Amended and Restated Bylaws (“Bylaws”), requiring shareholders, to the fullest extent permitted by law, to indemnify the Company for attorneys’ fees in certain corporate proceedings in which the shareholder is not the prevailing party, must be removed. This provision of the Company’s Bylaws was adopted in 2012 when the Company adopted its Amended and Restated Bylaws. The statute prohibiting certain reimbursements of attorneys’ fees was adopted in 2015. The Letter demands that the Board amend its Bylaws to remove the particular provision in question.

After reviewing the Letter, the Board established a Demand Review Committee (the “Committee”) to review, analyze and evaluate the shareholder demand received above, and to make recommendations to the Board with respect to such demand. The Committee was ad hoc, in that the composition of the Committee will necessarily change in response to the specific shareholder demand. Initial members of the Committee are comprised of Board members who are disinterested and independent with respect to the matters set forth in the Letter discussed above. The Committee was authorized to engage, at the Company’s expense, experts and advisors that the Committee deems appropriate to assist in its review and determination. Based on the Committee’s review and analysis of the demand and the current case law, in connection with the above Letter, the Committee determined to recommend to the Board to reject such demand as being baseless. Based on the Committee’s recommendation to the Board, the Board determined that the demand is meritless and rejected such demand.

Insurance

The Company has a 25-year finite risk insurance policy entered into in June 2003 (“2003 Closure Policy”) with AIG Specialty Insurance Company (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. The 2003 Closure Policy, as amended, provides for a maximum allowable coverage of $28,177,000 which includes available capacity to allow for annual inflation and other performance and surety bond requirements. Total coverage under the 2003 Closure Policy, as amended, was $23,949,000 as of March 31, 2025. As of March 31, 2025, and December 31, 2024, finite risk sinking funds contributed by the Company related to the 2003 Closure Policy which is included in other long term assets on the accompanying Condensed Consolidated Balance Sheets totaled $12,824,000 and $12,680,000, respectively, which included interest earned of $3,353,000 and $3,209,000 on the finite risk sinking funds as of March 31, 2025, and December 31, 2024, respectively. Interest income for the three months ended March 31, 2025, and 2024, was approximately $144,000 and $148,000, respectively. If the Company so elects, AIG is obligated to pay the Company an amount equal to 100% of the finite risk sinking fund account balance in return for complete release of liability from both the Company and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.

Letter of Credits and Bonding Requirements

From time to time, the Company is required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of March 31, 2025, the total amount of standby letters of credit outstanding was approximately $3,200,000, and the total amount of bonds outstanding was approximately $21,481,000.

10. **Discontinued Operations **

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

The Company’s discontinued operations had net losses of $73,000 (net of taxes of $0) and $102,000 (net of tax benefit of $29,000) for the three months ended March 31, 2025, and 2024. The losses were primarily due to costs incurred in the administration and continued monitoring of our discontinued operations. The Company’s discontinued operations had no revenues for each of the periods noted above.

The following table presents the major class of assets of discontinued operations as of March 31, 2025, and December 31, 2024. No assets and liabilities were held for sale at each of the periods noted.

11. Segment Reporting

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

The Company has two reporting segments, consisting of the Treatment and Services Segments, which are primarily based on a service offering approach and defined as follow:

TREATMENT SEGMENT, which includes:

SERVICES SEGMENT, which includes:

The Company’s reporting segments exclude our corporate headquarter which serves to support its two reporting segments through various functions, such as our executives, finance, treasury, human resources, accounting, and legal departments. Financial results for the corporate headquarter are not considered by the CODM in evaluating the performance of the reportable segments. Our reporting segment also excludes our discontinued operations (see “Note 10 – Discontinued Operations”) which do not generate revenues.

The Company’s CODM, which is its chief executive officer, evaluates the performance of the Treatment and Services segments and allocates resources (including financial or capital resources) to each reporting segment based on revenue and (loss) income from operations by comparing actual results for these metrics to budgeted and forecasted amounts for these metrics on a monthly, quarterly and year-to-date basis. The Company’s CODM does not evaluate and allocate resources for the reportable segments using assets; therefore, the Company does not disclosure assets for its reporting segments.

The table below summarizes loss from operations for the Company’stwo reporting segments and its corporate headquarter and provides reconciliation of such financial metric to the Company’s consolidated totals for the three months ended March 31, 2025, and 2024 for our continuing operations. Significant segment expenses that are included in the measure of segment profit or losses for each reportable segment, and regularly provided to the CODM include payroll and benefit, material and supplies, disposal, transportation and subcontract expenses and are reflected separately, where applicable (in thousands).

Segment Reporting for the Quarter Ended March 31, 2025

Segment Reporting for the quarter ended March 31, 2024

The following table presents depreciation and amortization for the three months ended March 31, (in thousand):

The following table presents capital expenditures for the three months ended March 31, (net of financed amount of $132 and $44 for the three months ended March 31, 2025, and 2024, respectively) (in thousand):

12. Income Taxes

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

The Company had income tax expense of $0 and income tax benefit of approximately $956,000 for continuing operations for the three months ended March 31, 2025, and 2024, respectively. The Company’s effective tax rate was approximately 0% and 21.7% for the three months ended March 31, 2025, and 2024, respectively. The Company’s effective tax rate for the three months ended March 31, 2025, was impacted by the Company’s recognition of a full valuation allowance against its U.S federal and state deferred tax assets in the quarter ended September 30, 2024. The Company’s effective tax rate for the three months ended March 31, 2024, was impacted by non-deductible expenses and state taxes.

13. Executive Compensation

Appointment of COO

On January 23, 2025, the Company’s Board approved the appointment of Mr. Troy Eshleman as the Company’s COO at an annual salary of $320,000. Mr. Troy Eshleman was originally hired by the Company on January 6, 2025, as Vice President of Operations.

EVP of Hanford and International Waste Operations

On January 23, 2025, the Board appointed Mr. Richard Grondin as the Company’s Executive Vice President (“EVP”) of Hanford and International Waste Operations, at an annual salary of $315,267. Prior to his appointment to such office, Mr. Grondin previously served as the Company’s EVP of Waste Treatment Operations. Mr. Grondin remains a named executive officer of the Company.

Management Incentive Plans (“MIPs”)

On January 23, 2025, the Board (with Mr. Mark Duff and Dr. Louis Centofanti abstaining) and the Compensation Committee approved individual MIP for the calendar year 2025 for each of the Company’s executive officers. Each MIP is effective January 1, 2025, and applicable for year 2025. Each MIP provides guidelines for the calculation of annual cash incentive-based compensation, subject to Compensation Committee oversight and modification. The performance compensation under each of the MIPs is based upon meeting certain of the Company’s separate target objectives during 2025. The total potential target performance compensation payable ranges from 25% to 150% of the 2025 base salary for the Chief Executive Officer (the “CEO”) ($104,287 to $625,733),29% to 100% of the 2025 base salary for the Chief Financial Officer (the “CFO”) ($95,681 to $332,811),29% to 100% of the 2025 base salary for the EVP of Strategic Initiatives ($79,736 to $277,346),25% to 100% ($78,817 to $315,267) of the 2025 base salary for the EVP of Hanford and International Waste Operations, and 25% to 100% of the 2025 base salary for the COO ($80,000 to $320,000).

14. Subsequent Events

The Company evaluated subsequent events and transactions that occurred after the balance sheet date through May 8, 2025, the date that these consolidated financial statements were available to be issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.