PERMA FIX ENVIRONMENTAL SERVICES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Consolidated Financial Statements Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 34 Consolidated Balance Sheets as of December 31, 2022 and 2021 36 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 38 Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2022 and 2021 39 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022 and 2021 40 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 41 Notes to Consolidated Financial Statements 42 Financial Statement Schedules In accordance with the rules of Regulation S-X, schedules are not submitted because they are not applicable to or required by the Company. 33 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Perma-Fix Environmental Services, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Perma-Fix Environmental Services, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue recognition for certain revenue contracts As described further in note 2 to the financial statements, the Company has certain fixed price contracts that are long term in nature with non-standard terms. These terms and contract modifications impact revenue recognition and require significant effort and judgement by management. We have identified revenue recognition for these contracts as a critical audit matter. The principal considerations for our determination that revenue recognition for these contracts is a critical audit matter are that there is a considerable auditor effort and judgement required to analyze and evaluate contracts for the types of terms and conditions that impact revenue recognition. 34 Our audit procedures related to the revenue recognition for these contracts included the following, among others. ● We obtained and inspected a selection of long-term, non-standard contracts and modifications and amendments to understand the terms and conditions and the related impact on revenue recognition, specifically the identification of: ◌ contract term, ◌ performance obligations, and ◌ determination of the measure of progress. ● We obtained the detail of underlying costs for each project and tested the underlying accuracy of the data by agreeing to supporting documentation. ● We utilized the cost data to recalculate management’s measure of completion for selected projects under the input method. ● We performed a retrospective review using contracts, which were tested through prior year procedures and completed during the current year, to evaluate management’s ability to accurately budget for input method contracts. ● We evaluated the appropriateness of the recording of revenue for both billed and unbilled amounts related to these contracts. Realizability of deferred tax assets As described further in note 14 to the financial statements, deferred tax assets are reduced by a valuation allowance if, based on the evaluation of positive and negative evidence, in management’s judgment it is more likely than not that some portion or all, of the deferred tax assets will not be realized. During the year ended December 31, 2022, management concluded that sufficient positive evidence exists to ensure the realizability of the US federal deferred tax assets. The principal considerations for our determination that the realizability of US federal deferred tax assets is a critical audit matter are that the projected financial information related to the profitability of the Company which is reliant on the ability to predict future revenue is subject to significant management judgments in determining whether the net deferred tax assets are more likely than not to be realized in the future, which in turn led to a high degree of auditor judgement and effort in performing procedures and evaluating audit evidence related to management’s assessment of the realization of deferred tax assets. Our audit procedures related to the realizability of US federal deferred tax assets included the following, among others. ● We evaluated the positive and negative evidence available to support management’s assessment of the realizability of the assets ● We tested the completeness and accuracy of the underlying data used in management’s assessment ● We evaluated the prospective financial information related to future profitability including consideration of: ◌ the current and past performance of the Company ◌ the consistency with external market and industry data ◌ the consistency with evidence obtained in other areas. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2014. Atlanta, Georgia March 23, 2023 35 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2022 2021 (Amounts in Thousands, Except for Share and Per Share Amounts) 2022 2021 ASSETS Current assets: Cash $ 1,866 $ 4,440 Accounts receivable, net of allowance for credit losses of $ 57 and $ 85 , respectively 9,364 11,372 Unbilled receivables 6,062 8,995 Inventories 814 680 Prepaid and other assets 5,405 4,472 Current assets related to discontinued operations 15 15 Total current assets 23,526 29,974 Property and equipment: Buildings and land 24,021 20,631 Equipment 21,242 22,131 Vehicles 442 443 Leasehold improvements 23 23 Office furniture and equipment 1,299 1,316 Construction-in-progress 727 2,997 Total property and equipment 47,754 47,541 Less accumulated depreciation ( 28,797 ) ( 28,932 ) Net property and equipment 18,957 18,609 Property and equipment related to discontinued operations 81 81 Operating lease right-of-use assets 1,971 2,460 Intangibles and other long term assets: Permits 9,610 9,476 Other intangible assets - net 629 894 Finite risk sinking fund (restricted cash) 11,570 11,471 Deferred tax assets 4,116 3,527 Other assets 438 809 Total assets $ 70,898 $ 77,301 The accompanying notes are an integral part of these consolidated financial statements. 36 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS, CONTINUED As of December 31, (Amounts in Thousands, Except for Share and per Share Amounts) 2022 2021 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,325 $ 11,975 Accrued expenses 4,593 5,078 Disposal/transportation accrual 887 1,065 Deferred revenue 4,813 5,580 Accrued closure costs - current 682 578 Current portion of long-term debt 476 393 Current portion of operating lease liabilities 416 406 Current portion of finance lease liabilities 154 333 Current liabilities related to discontinued operations 362 506 Total current liabilities 22,708 25,914 Accrued closure costs 7,284 6,613 Long-term debt, less current portion 563 600 Long-term operating lease liabilities, less current portion 1,584 2,029 Long-term finance lease liabilities, less current portion 318 884 Long-term liabilities related to discontinued operations 908 677 Total long-term liabilities 10,657 10,803 Total liabilities 33,365 36,717 Commitments and Contingencies (Note 16) - - Stockholders’ Equity: Preferred Stock, $ .001 par value; 2,000,000 shares authorized, no shares issued and outstanding — — Common Stock, $ .001 par value; 30,000,000 shares authorized; 13,332,398 and 13,222,552 shares issued, respectively; 13,324,756 and 13,214,910 shares outstanding, respectively 13 13 Additional paid-in capital 115,209 114,307 Accumulated deficit ( 77,436 ) ( 73,620 ) Accumulated other comprehensive loss ( 165 ) ( 28 ) Less Common Stock in treasury, at cost; 7,642 shares ( 88 ) ( 88 ) Total stockholders’ equity 37,533 40,584 Total liabilities and stockholders’ equity $ 70,898 $ 77,301 The accompanying notes are an integral part of these consolidated financial statements. 37 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2022 2021 (Amounts in Thousands, Except for Per Share Amounts) 2022 2021 Net revenues $ 70,599 $ 72,191 Cost of goods sold 60,990 65,367 Gross profit 9,609 6,824 Selling, general and administrative expenses 14,652 12,845 Research and development 336 746 Loss on disposal of property and equipment 18 2 Loss from operations ( 5,397 ) ( 6,769 ) Other income (expense): Interest income 99 26 Interest expense ( 175 ) ( 247 ) Interest expense-financing fees ( 61 ) ( 41 ) Other (Note 11) 1,945 ( 86 ) Gain on extinguishment of debt (Note 11) — 5,381 Loss on deconsolidation of subsidiary (Note 15) — ( 1,062 ) Loss from continuing operations before taxes ( 3,589 ) ( 2,798 ) Income tax benefit ( 378 ) ( 3,890 ) (Loss) income from continuing operations, net of taxes ( 3,211 ) 1,092 Loss from discontinued operations (Note 9) ( 605 ) ( 421 ) Net (loss) income ( 3,816 ) 671 Net loss attributable to non-controlling interest — ( 164 ) Net (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders $ ( 3,816 ) $ 835 Net (loss) income per common share attributable to Perma-Fix Environmental Services, Inc. stockholders - basic and diluted: Continuing operations $ ( .24 ) $ .10 Discontinued operations ( .05 ) ( .03 ) Net (loss) income per common share $ ( .29 ) $ .07 Number of common shares used in computing net (loss) income per share: Basic 13,280 12,433 Diluted 13,280 12,673 The accompanying notes are an integral part of these consolidated financial statements. 38 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME For the years ended December 31, (Amounts in Thousands) 2022 2021 (Amounts in Thousands) 2022 2021 Net (loss) income $ ( 3,816 ) $ 671 Other comprehensive (loss) income: Foreign currency translation reclass to loss on deconsolidation of subsidiary (Note 15) — 148 Foreign currency translation adjustments ( 137 ) 31 Total other comprehensive (loss) income ( 137 ) 179 Comprehensive (loss) income ( 3,953 ) 850 Comprehensive loss attributable to non-controlling interest — ( 164 ) Comprehensive (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders $ ( 3,953 ) $ 1,014 The accompanying notes are an integral part of these consolidated financial statements. 39 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the years ended December 31, (Amounts in Thousands, Except for Share Amounts) Shares Amount Capital Treasury Income Subsidiary Deficit Equity Common Stock Additional Paid-In Common Stock Held In Accumulated Other Comprehensive Non-controlling Interest in Accumulated Total Stockholders’ Shares Amount Capital Treasury Income Subsidiary Deficit Equity Balance at December 31, 2020 12,161,539 $ 12 $ 108,931 $ ( 88 ) $ ( 207 ) $ ( 1,742 ) $ ( 74,455 ) $ 32,451 Net (loss) income — — — — — ( 164 ) 835 671 Foreign currency translation — — — — 31 — — 31 Deconsolidation of subsidiary (Note 15) — — ( 1,004 ) — 148 1,906 — 1,050 Issuance of Common Stock for services 60,723 — 427 — — — — 427 Stock-Based Compensation — — 250 — — — — 250 Issuance of Common Stock upon exercise of options 290 — — — — — — — Sale of Common Stock, net of  offering costs (Note 7) 1,000,000 1 5,703 — — — — 5,704 Balance at December 31, 2021 13,222,552 $ 13 $ 114,307 $ ( 88 ) $ ( 28 ) $ — ( 73,620 ) $ 40,584 Net loss — — — — — — ( 3,816 ) ( 3,816 ) Foreign currency translation — — — — ( 137 ) — — ( 137 ) Issuance of Common Stock for services 90,920 — 481 — — — — 481 Stock-Based Compensation — — 408 — — — — 408 Issuance of Common Stock upon exercise of options 18,926 — 13 — — — — 13 Balance at December 31, 2022 13,332,398 $ 13 $ 115,209 $ ( 88 ) $ ( 165 ) $ — $ ( 77,436 ) $ 37,533 The accompanying notes are an integral part of these consolidated financial statements. 40 PERMA-FIX ENVIRONMENTAL SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, (Amounts in Thousands) 2022 2021 (Amounts in Thousands) 2022 2021 Cash flows from operating activities: Net (loss) income $ ( 3,816 ) $ 671 Less: loss on discontinued operations (Note 9) ( 605 ) ( 421 ) (Loss) income from continuing operations ( 3,211 ) 1,092 Adjustments to reconcile net (loss) income from continuing operations to cash provided by (used in) operating activities: Depreciation and amortization 2,109 1,687 Interest on finance lease with purchase option — 7 Loss on deconsolidation of subsidiary (Note 15) — 1,062 Gain on extinguishment of debt (Note 11) — ( 5,381 ) Amortization of debt issuance costs 60 40 Deferred tax benefit ( 390 ) ( 3,860 ) (Recovery of) provision for credit losses on accounts receivable ( 20 ) 26 Loss on disposal of property and equipment 18 2 Issuance of common stock for services 481 427 Stock-based compensation 408 250 Changes in operating assets and liabilities of continuing operations: Accounts receivable 2,028 ( 1,739 ) Unbilled receivables 2,933 5,458 Prepaid expenses, inventories and other assets 2,018 1,165 Accounts payable, accrued expenses and unearned revenue ( 6,270 ) ( 6,552 ) Cash provided by (used in) provided by continuing operations 164 ( 6,316 ) Cash used in discontinued operations ( 717 ) ( 521 ) Cash used in operating activities ( 553 ) ( 6,837 ) Cash flows from investing activities: Purchases of property and equipment (net) ( 1,023 ) ( 1,577 ) Proceeds from sale of property and equipment 26 17 Deconsolidation of subsidiary - cash — ( 4 ) Cash used in investing activities of continuing operations ( 997 ) ( 1,564 ) Cash flows from financing activities: Borrowing on revolving credit 73,322 74,987 Repayments of revolving credit borrowings ( 73,322 ) ( 74,987 ) Proceeds from capital line 524 — Principal repayment of finance lease liabilities ( 860 ) ( 334 ) Principal repayments of long term debt ( 502 ) ( 440 ) Payment of debt issuance costs ( 35 ) ( 48 ) (Offering costs paid)/ proceeds from sale of Common Stock, net of offering costs paid (Note 7) ( 61 ) 5,765 Proceeds from issuance of Common Stock upon exercise of options 13 — Cash (used in) provided by financing activities of continuing operations ( 921 ) 4,943 Effect of exchange rate changes on cash ( 4 ) ( 1 ) Decrease in cash and finite risk sinking fund (restricted cash) (Note 2) ( 2,475 ) ( 3,459 ) Cash and finite risk sinking fund (restricted cash) at beginning of period (Note 2) 15,911 19,370 Cash and finite risk sinking fund (restricted cash) at end of period (Note 2) $ 13,436 $ 15,911 Supplemental disclosure: Interest paid $ 173 $ 230 Income taxes paid 6 47 Non-cash investing and financing activities: Equipment purchase subject to finance lease 114 556 Equipment purchase subject to financing — 29 The accompanying notes are an integral part of these consolidated financial statements. 41 PERMA-FIX ENVIRONMENTAL SERVICES, INC. Notes to Consolidated Financial Statements December 31, 2022 and 2021 NOTE 1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how company, is a Delaware corporation, engaged through its subsidiaries, in three reportable segments: TREATMENT SEGMENT, which includes: - nuclear, low-level radioactive, mixed waste (containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and - R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams. SERVICES SEGMENT, which includes: - Technical services, which include: ◌ professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering; ◌ integrated Occupational Safety and Health services including IH assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and OSHA citation assistance; ◌ global technical services providing consulting, engineering, project management, waste management, environmental, and D&D field, technical, and management personnel and services to commercial and government customers; and ◌ on-site waste management services to commercial and governmental customers. - Nuclear services, which include: ◌ technology-based services including engineering, D&D, specialty services and construction, logistics, transportation, processing and disposal; ◌ remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; logistics; transportation; and emergency response; and - A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized NEOSH instrumentation. The Company’s continuing operations consist of the operations of our subsidiaries/facilities as follow: Diversified Scientific Services, Inc. (“DSSI”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”), Perma-Fix of Canada, Inc. (“PF Canada”) and Oak Ridge Environmental Waste Operations Center (“EWOC”). The Company’s continuing operations also consisted of Perma-Fix ERRG, a variable interest entity (“VIE”) for which we were the primary beneficiary. The VIE was an unpopulated joint venture (“JV”) entered between the Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) for a specific project under the Services Segment in which the Company and ERRG had a 51 % and 49 % partnership interest in the joint venture, respectively. During the fourth quarter of 2022, project work under the JV was completed As of December 31, 2022, total assets and liabilities under the VIE were each $ 0 . 42 The Company’s discontinued operations (see “Note 9 – Discontinued Operations”) consist of operations of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations. For 2021, the Company’s segment also included the Medical Segment. The Medical Segment entailed the R&D of the Company’s medical isotope production technology by the Company’s majority-owned Polish subsidiary, Perma-Fix Medical S.A (“PFM Poland”), and PFM Poland’s wholly-owned subsidiary, Perma-Fix Medical Corporation (“PFMC”). The Company’s Medical Segment (or “PF Medical”) had not generated any revenue. During the fourth quarter of 2021, the Company made the strategic decision to cease all R&D activities under the Medical Segment which resulted in the sale of 100 % of PFM Poland (See “Note 15 – PF Medical” for a discussion of this sale). Financial Positions and Liquidity The Company’s 2022 financial results continued to be impacted by COVID-19, among other things. The Company’s Treatment Segment began to see steady improvements in waste receipts starting in the second quarter of 2022 from certain customers who had previously delayed waste shipments due, in part, from the impact of COVID-19. This positive trend was negatively impacted by occurrences of severe weather conditions which resulted in temporary delays in waste shipments from certain customers and a temporary shortage in skilled production personnel which peaked through the fourth quarter of 2022 at one of the Company’s facilities. In early part of 2022, the Company’s Services Segment continued to experience delays/curtailments in project work by certain customers since the award of projects to us late in the second quarter of 2021 due to COVID-19 impact and/or administrative delays. However, starting in the second quarter of 2022, work under these projects had resumed/increased as the pandemic impacts began to subside and has since reached full operational status. In 2022, the Company continued to realize delays in procurement and planning on behalf of our government clients that saw easing through the second half of the year. Heading into 2023, the Company expects to see continued improvements in waste receipts and continued increases in project work from contracts recently won and bids submitted in both segments that are awaiting awards, subject to potential impact of COVID-19 and economic impacts. The Company’s cash flow requirements during the twelve months ended December 31, 2022 were primarily financed by its operations, cash on hand and credit facility availability. The Company’s cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on its debt obligations, remediation projects, and planned capital expenditures. The Company plans to fund these requirements from its operations, credit facility availability, cash on hand and a refund that it expects to receive under the Employee Retention Credit program under the CARES Act (see a discussion of this expected refund in “Note 11 – The Coronavirus Aid, Relief, and Economic Security Act (“CARES ACT) – Employee Retention Credit (“ERC”)”). The Company continues to explore all sources of increasing its capital and/or liquidity and to improve its revenue and working capital, including either amending our existing lines of credit, obtaining new term loans or entering into equity transactions. There are no assurances that we will be successful in increasing our liquidity though these efforts. The Company is 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. At this time, the Company believes that its cash flows from operations, available liquidity from its credit facility, cash on hand and the expected refund from the ERC program should be sufficient to fund its operations for the next twelve months. The Company continues to closely monitor any potential impact from the countries’ economic conditions and COVID-19 pandemic on all aspects of our business. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Company’s consolidated financial statements include our accounts, those of our wholly-owned subsidiaries, and Perma-Fix ERRG, a VIE for which we were the primary beneficiary as discussed above, after elimination of all significant intercompany accounts and transactions. The consolidated financial statements for 2021 also included the accounts of the Company’s Medical Segment which was divested in December 2021 as discussed above. 43 Use of Estimates The Company prepares financial statements in conformity with accounting standards generally accepted in the United States (“U.S. GAAP”), which may require estimates of future cash flows and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results could differ from those estimates. Cash and Finite Risk Sinking Fund (Restricted Cash) At December 31, 2022, the Company had cash on hand of approximately $ 1,866,000 . At December 31, 2021, the Company had cash on hand of approximately $ 4,440,000 . At December 31, 2022 and 2021, the Company had finite risk sinking funds of approximately $ 11,570,000 and $ 11,471,000 , respectively, which represented cash held as collateral under the Company’s financial assurance policy (see “Note 16 – Commitment and Contingencies – Insurance” for a discussion of this finite risk sinking fund). Accounts Receivable During the fourth quarter of 2022, the Company adopted ASU 2016-13, “Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.” This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including accounts receivable. Accounts receivable are customer obligations due under normal trade terms requiring payment within 30 or 60 days from the invoice date based on the customer type (government, broker, or commercial). The new standard requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivbles that are current or not yet due, which were not considered under the previous accounting guidance. In accordance with ASU 2016-13, the Company’s expected loss allowance methodology for receivables is developed using historical collection experience, current and future economic and market conditions that may affect customers’ ability to pay, and a review of the current status of customers’ accounts receivables. The Company does not apply a credit loss allowance to government related receivables due to our past successful experience in their collectability. The Company’s monitoring activities include routine follow-up on past due accounts and consideration of customers’ financial conditions. Once the Company has exhausted all options in the collection of a delinquent accounts receivable balance, which includes collection letters, demands for payment, collection agencies and attorneys, the account is deemed uncollectible and subsequently written off. The write off process involves approvals from senior management based on required approval thresholds. The following table sets forth the activity in the allowance for credit losses for the years ended December 31, 2022 and 2021 (in thousands): SCHEDULE OF CREDIT LOSSES FOR FINANCING RECEIVABLES, CURRENT Year Ended December 31, 2022 2021 Allowance for credit losses - beginning of year $ 85 $ 404 (Recovery of) provision charges ( 21 ) 41 Write-off ( 7 ) ( 360 ) Allowance for credit losses - end of year $ 57 $ 85 Unbilled Receivables Unbilled receivables are generated by differences between invoicing timing and our over time revenue recognition methodology used for revenue recognition purposes. As major processing and contract completion phases are completed and the costs are incurred, the Company recognizes the corresponding percentage of revenue. Within our Treatment Segment, the facilities experience delays in processing invoices due to the complexity of the documentation that is required for invoicing, as well as the difference between completion of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables. The timing differences occur for several reasons which include: partially from delays in the final processing of all wastes associated with certain work orders and partially from delays for analytical testing that is required after the facilities have processed waste but prior to our release of waste for disposal. The tasks relating to these delays can take months to complete but are generally completed within twelve months. 44 Unbilled receivables within our Services Segment can result from work performed under contracts but invoice milestones have not yet been met and/or contract claims and pending change orders, including requests for equitable adjustments (“REA”) when work has been performed and collection of revenue is reasonably assured. Inventories Inventories consist of treatment chemicals, saleable used oils, and certain supplies. Additionally, the Company has replacement parts in inventory, which are deemed critical to the operating equipment and may also have extended lead times should the part fail and need to be replaced. Inventories are valued at the lower of cost or net realizable value with cost determined by the first-in, first-out method. Disposal and Transportation Costs The Company accrues for waste disposal based on the waste at each facility at the end of each accounting period. Current market prices for transportation and disposal costs are applied to the end of period waste inventories to calculate for the transportation and disposal accruals. Property and Equipment Property and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes. Generally, asset lives range from ten to forty years for buildings (including improvements and asset retirement costs) and three to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment. Leasehold improvements are capitalized and amortized over the lesser of the term of the lease or the life of the asset. Maintenance and repairs are charged directly to expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss from sale or retirement is recognized in the accompanying Consolidated Statements of Operations. Renewals and improvements, which extend the useful lives of the assets, are capitalized. Certain property and equipment expenditures are financed through leases. Amortization of financed leased assets is computed using the straight-line method over the estimated useful lives of the assets. At December 31, 2022, assets recorded under finance leases were $ 1,201,000 less accumulated depreciation of $ 549,000 , resulting in net fixed assets under finance leases of $ 652,000 . At December 31, 2021, assets recorded under finance leases were $ 2,409,000 less accumulated depreciation of $ 475,000 , resulting in net fixed assets under finance leases of $ 1,934,000 . These assets are recorded within net property and equipment on the Consolidated Balance Sheets. Long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. Our depreciation expense totaled approximately $ 1,872,000 and $ 1,476,000 in 2022 and 2021, respectively. Leases The Company accounts for leases in accordance with FASB’s ASU 2016-02, “Leases (Topic 842).” 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. 45 The Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent primarily leases for office and warehouse spaces used to conduct our business. These leases have remaining terms of approximately one to seven years which include additional options to renew. The Company includes renewal options in valuing its ROU assets and liabilities when it determines that it is reasonably certain to exercise these renewal options. As most of our operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate as the discount rate when determining the present value of the lease payments. The incremental borrowing rate is determined based on the Company’s secured borrowing rate, lease terms and current economic environment. Some of our operating leases include both lease (rent payments) and non-lease components (maintenance costs such as cleaning and landscaping services). The Company has elected the practical expedient to account for lease component and non-lease component as a single component for all leases under ASU 2016-02. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Finance leases primarily consist of processing and transport equipment used by our facilities’ operations. The Company’s finance leases also included a building with land utilized for our waste treatment operations which included a purchase option. During the third quarter of 2021, the Company concluded that it was more likely than not that it would not exercise this purchase option but will continue to lease the property. Accordingly, a reassessment of this lease was performed which resulted in reclassification of this lease to an operating lease. The Company’s finance leases have remaining terms of approximately one to three years. See “Property and Equipment” above for assets recorded under financed leases. Borrowing rates for our finance leases are either explicitly stated in the lease agreements or implicitly determined from available terms in the lease agreements. The Company adopted the policy to not recognize ROU assets and liabilities for short term leases. Intangible Assets Intangible assets consist primarily of the recognized value of the permits required to operate our business. Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment indicate that the carrying value may be impaired. If the fair value of the asset is less than the carrying amount, a quantitative test is performed to determine the fair value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair value. Judgments and estimates are inherent in these analyses and include assumptions for, among other factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows, and the determination of appropriate long-term discount rates. Impairment testing of our indefinite-lived permits related to our Treatment reporting unit as of October 1, 2022 and 2021 resulted in no impairment charges. Intangible assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives (with the exception of customer relationships which are amortized using an accelerated method) and are excluded from our annual intangible asset valuation review as of October 1. Definite-lived intangible assets are also tested for impairment whenever events or changes in circumstances suggest impairment might exist. R&D Operational innovation and technical know-how are very important to the success of our business. Our goal is to discover, develop, and bring to market innovative ways to process waste that address unmet environmental needs and to develop new company service offerings. The Company conducts research internally and also through collaborations with other third parties. R&D costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development and enhancement of new potential waste treatment processes and new technology and are charged to expense when incurred in accordance with ASC Topic 730, “Research and Development.” 46 Accrued Closure Costs and ARO Accrued closure costs represent our estimated environmental liability to clean up our facilities, as required by our permits, in the event of closure. ASC 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations, and credit adjusted risk-free rate to be used. This estimate is inflated, using an inflation rate, to the expected time at which the closure will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. ARO’s are included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property. In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Increases in the ARO liability due to passage of time impact net income as accretion expense, which is included in cost of goods sold. Changes in costs resulting from changes or expansion at the facilities require adjustment to the ARO liability and are capitalized and charged as depreciation expense, in accordance with the Company’s depreciation policy. Income Taxes Income taxes are accounted for in accordance with ASC 740, “Income Taxes.” Under ASC 740, the provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to the temporary differences between financial reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ASC 740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not to be realized. ASC 740 sets out a consistent framework for preparers to use to determine the appropriate recognition and measurement of uncertain tax positions. ASC 740 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized. ASC 740 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. The Company recognizes accrued interest and income tax penalties related to unrecognized tax benefits as a component of income tax expense. The Company reassesses the validity of our conclusions regarding uncertain income tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. Foreign Currency The Company’s foreign subsidiaries include PF UK Limited and PF Canada and also included PF Medical. Assets and liabilities are translated to U.S. dollars at the exchange rate in effect at the balance sheet date and revenue and expenses at the average exchange rate for the period. Foreign currency translation adjustments for these subsidiaries are accumulated as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Gains and losses resulting from foreign currency transactions are recognized in the Consolidated Statements of Operations. Concentration Risk The Company performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either indirectly for others as a subcontractor to government entities or directly as a prime contractor, representing approximately $ 60,030,000 , or 85.0 % , of our total revenue during 2022, as compared to $ 60,812,000 , or 84.2 % , of our total revenue during 2021. 47 Our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with a different customer from year to year. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains cash with high quality financial institutions, which may exceed Federal Deposit Insurance Corporation (“FDIC”) insured amounts from time to time. Concentration of credit risk with respect to accounts receivable is limited due to the Company’s large number of customers and their dispersion throughout the United States as well as with the significant amount of work that we perform for government entities. The Company had two government related customers whose total unbilled and net outstanding receivable balances represented 12.5 % and 23.0 % of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2022. The Company had two government related customers whose total unbilled and net outstanding receivable balances represented 18.2 % and 23.5 % of the Company’s total consolidated unbilled and net accounts receivable at December 31, 2021. Revenue Recognition and Related Policies The Company recognizes revenue in accordance with FASB’s ASC 606, “Revenue from Contracts with Customers.” ASC 606 provides a single, comprehensive revenue recognition model for all contracts with customers. Under ASC 606, a five-step process is utilized in order to determine revenue recognition, depicting the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Under ASC 606, a performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract transaction price is allocated to each distinct performance obligation and recognized as revenues as the performance obligation is satisfied. Treatment Segment Revenues: Contracts in our Treatment Segment primarily have a single performance obligation as the promise to receive, treat and dispose of waste is not separately identifiable in the contract and, therefore, not distinct. Performance obligations are generally satisfied over time using the input method. Under the input method, the Company uses a measure of progress divided into major phases which include receipt (ranging from 9.0 % to 33 % ), treatment/processing (ranging from 40 % to 79 % ) and shipment/final disposal (ranging from 9.0 % to 27 % ). As major processing phases are completed and the costs are incurred, the proportional percentage of revenue is recognized. Transaction price for Treatment Segment contracts are determined by the stated fixed rate per unit price as stipulated in the contract. The Company periodically enter into arrangements with customers for transportation of wastes to either our facility or to non-company owned disposal sites. Revenue from this arrangement is recognized at a point in time, upon the transfer of control. Control transfers when the wastes are picked up by the Company. Services Segment Revenues: Revenues for our Services Segment are generated from time and materials or fixed price arrangements: The Company’s primary obligation to customers in time and materials contracts relate to the provision of services to the customer at the direction of the customer. This provision of services at the request of the customer is the performance obligation, which is satisfied over time. Revenue earned from time and materials contracts is determined using the input method and is based on contractually defined billing rates applied to services performed and materials delivered. Under fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and all of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is estimated based upon the estimated cost to complete the overall project. Revenue from fixed price contracts is recognized over time primarily using the input method. For the input method, revenue is recognized based on costs incurred on the project relative to the total estimated costs of the project. As discussed above for the Treatment and Services Segments, the Company’ revenue is generally recognized using the input method. This method of measuring progress provides a faithful depiction of the transfer to goods and services because the costs incurred are expected to be substantially proportionate to the Company’s satisfaction of the performance obligation. 48 Contracts with our customers within our Treatment Segment are generally short term with an original expected length of one year or less. For the Services Segment, contracts with our customers generally have original terms ranging from one year or less to approximately twenty-four months. 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. Variable Consideration The Company’s contracts generally do not give rise to variable consideration. However, from time to time, the Company may submit requests for equitable adjustments under certain of its government contracts for price or other modifications that are determined to be variable consideration. The Company estimates the amount of variable consideration to include in the estimated transaction price based on historical experience with government contracts, anticipated performance and management’s best judgment at the time and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates are re-assessed each reporting period as required. Significant Payment Terms Invoicing is based on schedules established in customer contracts. Payment terms vary by customers but are generally established at 30 days from invoicing. Incremental Costs to Obtain a Contract Costs incurred to obtain contracts with our customers are immaterial and as a result, the Company expenses (within selling, general and administration expenses (“SG&A”)) incremental costs incurred in obtaining contracts with our customer as incurred. Remaining Performance Obligations The Company applies the practical expedient in 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. Stock-Based Compensation Stock-based compensation granted to employees are accounted for in accordance with ASC 718, “Compensation – Stock Compensation.” Stock-based payment transactions for acquiring goods and services from nonemployees are also accounted for under ASC 718. ASC 718 requires stock-based payments to employees and nonemployees, including grant of options, to be recognized in the Statement of Operations based on their fair values. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards which requires subjective assumptions. Assumptions used to estimate the fair value of stock-based awards include the exercise price of the award, the expected term, the expected volatility of our stock over the stock-based award’s expected term, the risk-free interest rate over the award’s expected term, and the expected annual dividend yield. The Company accounts for forfeitures when they occur. Comprehensive (Loss) Income The components of comprehensive (loss) income are net (loss) income and the effects of foreign currency translation adjustments. 49 (Loss) Income Per Share Basic (loss) income per share is calculated based on the weighted-average number of outstanding common shares during the applicable period. Diluted (loss) income per share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share. (Loss) income per share is computed separately for each period presented. Fair Value of Financial Instruments Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded at fair value on a nonrecurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is: Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. Financial instruments include cash (Level 1), accounts receivable, accounts payable, and debt obligations (Level 3). Credit is extended to customers based on an evaluation of a customer’s financial condition and, generally, collateral is not required. At December 31, 2022 and December 31, 2021, the fair value of the Company’s financial instruments approximated their carrying values. The fair value of the Company’s revolving credit and term loan approximate its carrying value due to the variable interest rate. Recently Adopted Accounting Standards In May 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-04, “Earnings Per Share (Topic 206), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This ASU is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this ASU by the Company effective January 1, 2022 did not have a material impact on its financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified the scope and application of the original guidance. The Company determined that only its obligations under its credit facility were impacted by these ASUs. During the third quarter of 2022, the Company entered into an amendment dated August 29, 2022 to its loan agreement which replaced the LIBOR option with the Secured Overnight Finance Rate (“SOFR”) option under its credit facility. The adoption of these aforementioned ASUs by the Company during the third quarter of 2022 did not have a material impact to its financial statements (see “Note 10 – Long Term Debt” for a discuss of the Company’s credit facility and the amendment dated August 29, 2022). On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. 50 In June 2016, the FASB issued ASU No. 2016-13, “Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments,” and various subsequent amendments to the initial guidance (collectively, “Topic 326”). Topic 326 introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables and loans. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842),” which defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies (“SRC”) as defined by the Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of these ASUs by the Company during the fourth quarter of 2022 did not have a material impact to its financial statements. Recently Issued Accounting Standards – Not Yet Adopted In August 2020, the FASB issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by removing major separation models and removing certain settlement condition qualifiers for the derivatives scope exception for contracts in an entity’s own equity, and simplifies the related diluted net income per share calculation for both Subtopics. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, for the Company as an SRC. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and disclosures. NOTE 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 following tables present further disaggregation of our revenues by different categories for our Services and Treatment Segments: SCHEDULE OF DISAGGREGATION OF REVENUE Revenue by Contract Type (In thousands) Twelve Months Ended Twelve Months Ended December 31, 2022 December 31, 2021 Treatment Services Total Treatment Services Total Fixed price $ 33,358 $ 26,960 $ 60,318 $ 32,992 $ 11,236 $ 44,228 Time and materials — 10,281 10,281 — 27,963 27,963 Total $ 33,358 $ 37,241 $ 70,599 $ 32,992 $ 39,199 $ 72,191 Revenue $ 33,358 $ 37,241 $ 70,599 $ 32,992 $ 39,199 $ 72,191 Revenue by generator (In thousands) Twelve Months Ended Twelve Months Ended December 31, 2022 December 31, 2021 Treatment Services Total Treatment Services Total Domestic government $ 23,752 $ 35,906 $ 59,658 $ 22,538 $ 29,013 $ 51,551 Domestic commercial 8,307 1,408 9,715 9,294 1,412 10,706 Foreign government 574 ( 202 ) 372 577 8,684 9,261 Foreign commercial 725 129 854 583 90 673 Total $ 33,358 $ 37,241 $ 70,599 $ 32,992 $ 39,199 $ 72,191 Revenue $ 33,358 $ 37,241 $ 70,599 $ 32,992 $ 39,199 $ 72,191 51 Contract Balances The timing of revenue recognition and billings results 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 our performance obligation. The following table represents changes in our contract asset and contract liabilities balances: SCHEDULE OF CONTRACT LIABILITIES Year-to-date Year-to-date (In thousands) December 31, 2022 December 31, 2021 Change ($) Change (%) Contract assets Unbilled receivables - current $ 6,062 $ 8,995 $ ( 2,933 ) ( 32.6 )% Contract liabilities Deferred revenue $ 4,813 $ 5,580 $ ( 767 ) ( 13.7 )% The decrease in unbilled receivables was primarily due to invoicing in connection with the Company’s Canadian projects within the Services Segment. The decrease in deferred revenue was attributed primarily to revenue recognized in connection with a Services Segment contract. During the twelve months ended December 31, 2022 and 2021, the Company recognized revenue of $ 6,576,000 and $ 7,196,000 , 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 related to performance obligations satisfied within the respective period. NOTE 4 LEASES The components of lease cost for the Company’s leases were as follows (in thousands): SCHEDULE OF COMPONENTS OF LEASE COST Twelve Months Ended December 31, 2022 2021 Operating Leases: Lease cost $ 627 $ 499 Finance Leases: Amortization of ROU assets 176 220 Interest on lease liability 37 97 Finance leases 213 317 Short-term lease rent expense 7 13 Total lease cost $ 847 $ 829 The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31, 2022 were: SCHEDULE OF WEIGHTED AVERAGE LEASE Operating Leases Finance Leases Weighted average remaining lease terms (years) 6.2 3.0 Weighted average discount rate 7.8 % 5.3 % The weighted average remaining lease term and the weighted average discount rate for operating and finance leases at December 31, 2021 were: Operating Leases Finance Leases Weighted average remaining lease terms (years) 6.9 4.0 Weighted average discount rate 7.6 % 6.2 % 52 The following table reconciles the undiscounted cash flows for the operating and finance leases at December 31, 2022 to the operating and finance lease liabilities recorded on the balance sheet (in thousands): SCHEDULE OF OPERATING AND FINANCE LEASE LIABILITY MATURITY Operating Leases Finance Leases 2023 $ 556 $ 174 2024 416 170 2025 325 149 2026 301 18 2027 286 — 2028 and thereafter 656 — Total undiscounted lease payments 2,540 511 Less: Imputed interest ( 540 ) ( 39 ) Present value of lease payments $ 2,000 $ 472 Current portion of operating lease obligations $ 416 $ — Long-term operating lease obligations, less current portion $ 1,584 $ — Current portion of finance lease obligations $ — $ 154 Long-term finance lease obligations, less current portion $ — $ 318 Supplemental cash flow and other information related to our leases were as follows (in thousands): SCHEDULE OF SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION RELATED TO LEASES Twelve Months Ended December 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flow from operating leases $ 573 $ 439 Operating cash flow from finance leases $ 37 $ 97 Financing cash flow from finance leases $ 860 $ 334 ROU assets obtained in exchange for lease obligations for: Finance liabilities $ 147 $ 577 Operating liabilities $ — $ 491 Reduction to ROU assets resulitng from reassessment for Finance liabilities $ — $ ( 364 ) NOTE 5 PERMIT AND OTHER INTANGIBLE ASSETS The following table summarizes changes in the carrying value of permits, which exist only in our Treatment Segment. SCHEDULE OF INTANGIBLE ASSETS Permit (amount in thousands) Treatment Balance as of December 31, 2020 $ 8,922 Permit renewal 121 Permit in progress 433 Balance as of December 31, 2021 $ 9,476 Permit in progress 134 Balance as of December 31, 2022 $ 9,610 53 The following table summarizes information relating to the Company’s definite-lived intangible assets: SCHEDULE OF DEFINITE LIVED INTANGIBLE ASSETS Weighted Average December 31, 2022 December 31, 2021 Amortization Gross Net Gross Net Other Intangibles Period Carrying Accumulated Carrying Carrying Accumulated Carrying (amount in thousands) (Years) Amount Amortization Amount Amount Amortization Amount Patent 8.3 $ 711 $ ( 374 ) $ 337 $ 787 $ ( 351 ) $ 436 Software 3 640 ( 468 ) 172 592 ( 415 ) 177 Customer relationships 10 3,370 ( 3,250 ) 120 3,370 ( 3,089 ) 281 Total $ 4,721 $ ( 4,092 ) $ 629 $ 4,749 $ ( 3,855 ) $ 894 The intangible assets noted above were amortized on a straight-line basis over their useful lives with the exception of customer relationships which were amortized using an accelerated method. The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets: SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE Amount Year (In thousands) 2023 $ 195 2024 63 2025 26 2026 25 2026 22 Amortization expense recorded for definite-lived intangible assets was approximately $ 237,000 and $ 211,000 , for the years ended December 31, 2022 and 2021, respectively. NOTE 6 CAPITAL STOCK, STOCK PLANS, WARRANTS AND STOCK BASED COMPENSATION Stock Option Plans The Company’s 2003 Outside Directors Stock Plan (the “2003 Plan”) provides for the grant of Non-Qualified Stock Options (“NQSOs”) to member of the Company’s Board of Directors (the “Board”) who is not an employee of the Company or its subsidiaries (“Eligible Director”). On July 20, 2021, the Company’s stockholders approved an amendment (the “Amendment”) to the 2003 Plan which provided the following, among other things: i) authorized an additional 500,000 shares of the Company’s Common Stock for issuance under the 2003 Plan, (ii) increased (a) the number of shares of Common Stock subject to the automatic option grant made to each Eligible Director upon initial election, from 6,000 to 20,000 shares, and (b) the number of shares of Common Stock subject to the automatic option grant made to each Eligible Director upon reelection, from 2,400 to 10,000 shares, (iii) amended the vesting period of options granted under the 2003 Plan, from a six-month vesting period to 25 % per year, beginning on the first anniversary date of the grant, and (iv) provided for acceleration of vesting under certain conditions. The exercise price of options to be granted under the 2003 Plan continued to equal to the closing trade price on the date prior to the grant date. The 2003 Plan continued to provide for the issuance to each Eligible Director a number of shares of the Company’s Common Stock in lieu of 65% or 100% (based on option elected by each director) of the fee payable to the Eligible Director for services rendered as a member of the Board. The number of shares issued is determined at 75% of the market value as defined in the 2003 Plan (the Company recognizes 100% of the market value of the shares issued). The number of shares of the Company’s Common Stock authorized under the 2003 Plan is 1,600,000 . At December 31, 2022, the 2003 Plan had available for issuance 448,534 shares. 54 The Company’s 2017 Stock Option Plan authorizes the grant of options to officers and employees of the Company, including any employee who is also a member of the Board, as well as to consultants of the Company. The 2017 Stock Option Plan, as amended (the “2017 Plan”), authorizes an aggregate grant of 1,140,000 NQSOs and Incentive Stock Options (“ISOs”). Consultants of the Company can only be granted NQSOs. The term of each stock option granted under the 2017 Plan shall be fixed by the Compensation and Stock Option Committee (the “Compensation Committee”), but no stock options will be exercisable more than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after the grant date. The exercise price of any ISO granted under the 2017 Plan to an individual who is not a 10% stockholder at the time of the grant shall not be less than the fair market value of the shares at the time of the grant, and the exercise price of any ISO granted to a 10% stockholder shall not be less than 110% of the fair market value at the time of grant. The exercise price of any NQSOs granted under the plan shall not be less than the fair market value of the shares at the time of grant. At December 31, 2022, the 2017 Plan had available for issuance 353,000 shares. Stock Options to Employees and Outside Director On July 21, 2022, the Company issued a NQSO to each of the Company’s seven reelected outside directors for the purchase, under the Company’s 2003 Plan, of up to 10,000 shares of the Company’s Common Stock. The Company’s Executive Vice President (“EVP”) of Strategic Initiatives and also a member of the Company’s Board, was not eligible to receive an option under the 2003 Plan as an employee of the Company. Each NQSO granted is for a contractual term of ten years with one-fourth vesting annually over a four-year period. The exercise price of the NQSO is $ 5.15 per share, which was equal to the fair market value of the Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan. On July 21, 2022, the Company granted ISOs to certain employees for purchase under the Company’s 2017 Plan, of up to an aggregate of 24,000 shares of the Company’s Common Stock. Each ISO granted is for a contractual term of six years with one-fifth vesting annually over a five-year period. The exercise price of the ISO is $ 5.34 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant. On October 14, 2021, the Company granted ISOs to certain employees for the purchase, under the Company’s 2017 Plan, of up to an aggregate 305,000 shares of the Company’s Common Stock. The total ISOs granted included an ISO for each of the Company’s executive officers for the purchase set forth in his respective ISO Agreement, as follows: 50,000 shares for the CEO; 25,000 shares for the CFO; 20,000 shares for the EVP of Strategic Initiatives; 25,000 shares for the EVP of Waste Treatment Operations; and 25,000 shares for the EVP of Nuclear and Technical Services. Each of the ISOs granted has a contractual term of six years with one-fifth yearly vesting over a five-year period. The exercise price of the ISO is $ 7.005 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant. On July 20, 2021, the Company issued a NQSO to each of the Company’s seven reelected outside directors for the purchase, under the Company’s 2003 Plan, of up to 10,000 shares of the Company’s Common Stock. Each NQSO granted has for a contractual term of ten years with one-fourth vesting annually over a four-year period. The exercise price of the NQSO is $ 5.93 per share, which was equal to the fair market value of the Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan. On May 4, 2021, the Company issued a NQSO to a new director elected by the Company’s Board, for the purchase, under the Company’s 2003 Plan, of up to 6,000 shares of the Company’s Common Stock. The NQSO granted has a contractual term of ten years with a vesting period of six months . The exercise price of the NQSO is $ 7.50 per share, which was equal to the fair market value of the Company’s Common Stock the day preceding the grant date, pursuant to the 2003 Plan. During 2022, the Company issued 16,526 shares of its Common Stock from a cashless exercise of an option for the purchase of 50,000 shares of the Company’s Common Stock at $ 3.97 per share. Additionally, the Company issued 2,400 shares of its Common Stock from the exercise of an option for the purchase of 2,400 shares of the Company’s Common Stock at $ 5.50 per share resulting in proceeds of approximately $ 13,000 . During 2021, the Company issued 290 shares of its Common Stock from a cashless exercise of an option for the purchase of 500 shares of the Company’s Common Stock at $ 3.15 per share. 55 The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted during 2022 and 2021 and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows: SCHEDULE OF STOCK OPTIONS VALUATION ASSUMPTIONS Employee Stock Options Granted 2022 2021 Weighted-average fair value per share $ 2.71 3.51 Risk -free interest rate (1) 3.00 % 1.05 % Expected volatility of stock (2) 55.72 % 58.61 % Dividend yield None None Expected option life (3) 5.0 years 5.0 years Outside Director Stock Options Granted 2022 2021 Weighted-average fair value per share $ 3.61 $ 3.9 Risk -free interest rate (1) 2.91 % 1.23 % - 1.61 % Expected volatility of stock (2) 55.04 % 55.84 % - 55.91 % Dividend yield None None Expected option life (3) 10.0 years 10.0 years (1) The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option. (2) The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option. (3) The expected option life is based on historical exercises and post-vesting data. The following table summarizes stock-based compensation recognized for fiscal years 2022 and 2021. SCHEDULE OF SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS Year Ended 2022 2021 Employee Stock Options $ 313,000 $ 178,000 Director Stock Options 95,000 72,000 Total $ 408,000 $ 250,000 At December 31, 2022, the Company has approximately $ 1,293,000 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 3.6 years. Stock Options to Consultant The Company granted a NQSO to Robert Ferguson on July 27, 2017 from the Company’s 2017 Plan for the purchase of up to 100,000 shares of the Company’s Common Stock (“Ferguson Stock Option”) in connection with his work as a consultant to the Company’s Test Bed Initiative (“TBI”) at our PFNWR facility at an exercise price of $ 3.65 per share, which was the fair market value of the Company’s Common Stock on the date of grant. The term of the Ferguson Stock Option is seven years from the grant date. The vesting of the Ferguson Stock Option is subject to the achievement of three separate milestones by certain dates. The first milestone was met and the 10,000 shares under the first milestone were issued to Robert Ferguson in May 2018. The Company had previously entered into amendments whereby the vesting dates for the second and third milestones for the purchase of up to 30,000 and 60,000 shares of the Company’s Common Stock were extended to December 31, 2022 and December 31, 2023, respectively. The 30,000 shares under the second milestone failed to vest by December 31, 2022 and therefore were forfeited. The Company has not recognized compensation costs (fair value of approximately $ 39,000 at December 31, 2022) for the remaining 60,000 Ferguson Stock Option under the remaining final milestone since achievement of the performance obligation under the remaining final milestone is uncertain at December 31, 2022. Upon Mr. Ferguson’s death, the remaining Ferguson Stock Option is now held by Mr. Ferguson’s estate. 56 Summary of Stock Option Plans The summary of the Company’s total plans as of December 31, 2022 and 2021, and changes during the period then ended are presented as follows: SCHEDULE OF STOCK OPTIONS ROLL FORWARD Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (2) Options outstanding January 1, 2022 1,019,400 $ 4.91 - Granted 94,000 $ 5.20 Exercised ( 52,400 ) $ 4.04 $ 97,856 Forfeited/expired ( 42,600 ) $ 4.08 Options outstanding end of period (1) 1,018,400 $ 5.02 3.8 $ 44,262 Options exercisable at December 31, 2022 (1) 530,900 $ 4.27 2.4 $ 30,962 Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (2) Options outstanding January 1, 2021 658,400 $ 3.87 - Granted 381,000 $ 6.82 Exercised ( 500 ) $ 3.15 $ 2,175 Forfeited/expired ( 19,500 ) $ 6.75 Options outstanding end of period (1) 1,019,400 $ 4.91 4.0 $ 1,669,687 Options exercisable at December 31, 2021 (1) 438,400 $ 3.95 2.7 $ 1,064,432 (1) Options with exercise prices ranging from $ 2.79 to $ 7.50 (2) The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price The summary of the Company’s nonvested options as of December 31, 2022 and changes during the period then ended are presented as follows: SCHEDULE OF NON VESTED OPTIONS Weighted Average Grant-Date Shares Fair Value Non-vested options January 1, 2022 581,000 $ 3.13 Granted 94,000 3.39 Vested ( 154,500 ) 2.67 Forfeited ( 33,000 ) 3.08 Non-vested options at December 31, 2022 487,500 $ 3.32 Warrant In connection with a $ 2,500,000 loan that the Company entered into with Mr. Robert Ferguson (the “Ferguson Loan”) on April 1, 2019, the Company issued a warrant to Mr. Ferguson for the purchase of up to 60,000 shares of our Common Stock at an exercise price of $ 3.51 per share. The warrant expires on April 1, 2024 and remains outstanding at December 31, 2022. Upon Mr. Ferguson’s death, the warrant is now held by Mr. Ferguson’s estate. The Ferguson Loan was paid-in-full in December 2020. 57 Common Stock Issued for Services The Company issued a total of 90,920 and 60,723 shares of our Common Stock in 2022 and 2021, respectively, under our 2003 Plan to our outside directors as compensation for serving on our Board. As a member of the Board, each director elects to receive either 65% or 100% of the director’s fee in shares of our Common Stock. The number of shares received is calculated based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due. The balance of each director’s fee, if any, is payable in cash. The Company recorded approximately $ 477,000 and $ 467,000 in compensation expense (included in SG&A expenses) for the twelve months ended December 31, 2022 and 2021, respectively, for the portion of director fees earned in the Company’s Common Stock. Sale of Common Stock On September 30, 2021, the Company entered into subscription agreements with certain institutional and retail investors in a registered direct offering, for the sale and issuance of 1,000,000 shares of the Company’s Common Stock (See “Note 7 – Common Stock Subscription Agreements” for a discussion of the issuance of the shares from this direct offering). Shares Reserved At December 31, 2022, the Company has reserved approximately 1,018,400 shares of our Common Stock for future issuance under all of the option arrangements. NOTE 7 COMMON STOCK SUBSCRIPTION AGREEMENTS On September 30, 2021, the Company entered into subscription agreements (the “Subscription Agreements”) with certain institutional and retail investors (the “Purchasers”), pursuant to which the Company agreed to sell and issue, in a registered direct offering, an aggregate of 1,000,000 shares (the “Shares”) of our Common Stock, at a negotiated purchase price per share of $ 6.20 (the “Shares”), for aggregate gross proceeds to us of approximately $ 6,200,000 . The offering price per share was negotiated based on the average closing price of our Common Stock as quoted on Nasdaq over the three-week period immediately preceding the date of the Subscription Agreements, less a five percent discount. The Shares were offered and sold by the Company through a prospectus supplement pursuant to the Company’s “shelf” registration statement on Form S-3, which was previously filed with the Commission on May 13, 2019 and subsequently declared effective on May 22, 2019 (the “Registration Statement”). Wellington Shields & Co., LLC (“Wellington”) served as the exclusive placement agent in connection with the Offering, pursuant to a placement agency agreement dated as of September 23, 2021 (the “Placement Agency Agreement”), between the Company and Wellington. The Company paid Wellington a cash fee of 6.00 % of the aggregate gross proceeds in the Offering which totaled $ 372,000 . The Company also reimbursed Wellington for certain expenses in connection with the Offering in an aggregate amount not to exceed $ 50,000 . After deducting costs incurred directly in connection with the offering of approximately $ 496,000 which were recorded as deduction to equity, net proceeds to the Company totaled approximately $ 5,704,000 . Approximately $ 61,000 of the offering costs were paid in 2022. The aggregate net proceeds from the offering were primarily used for working capital and general corporate purposes, including for certain facility expansion and upgrades. 58 NOTE 8 INCOME (LOSS) PER SHARE The following table reconciles the (loss) income and average share amounts used to compute both basic and diluted (loss) income per share: SCHEDULE OF EARNINGS PER SHARE Years Ended December 31, (Amounts in Thousands, Except for Per Share Amounts) 2022 2021 Net (loss) income attributable to Perma-Fix Environmental Services, Inc., common stockholders: (Loss) income from continuing operations, net of taxes $ ( 3,211 ) $ 1,092 Net loss attributable to non-controlling interest — ( 164 ) (Loss) income from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders $ ( 3,211 ) $ 1,256 Loss from discontinuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders ( 605 ) ( 421 ) Net (loss) income attributable to Perma-Fix Environmental Services, Inc. common stockholders $ ( 3,816 ) $ 835 Basic (loss) income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders $ ( .29 ) $ .07 Diluted (loss) income per share attributable to Perma-Fix Environmental Services, Inc. common stockholders $ ( .29 ) $ .07 Weighted average shares outstanding: Basic weighted average shares outstanding 13,280 12,433 Add: dilutive effect of stock options — 211 Add: dilutive effect of warrants — 29 Diluted weighted average shares outstanding 13,280 12,673 Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include: Stock options 499 323 Warrant — — NOTE 9 DISCONTINUED OPERATIONS The Company’s discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations. The Company incurred losses from discontinued operations of $ 605,000 (net of tax benefit of $ 199,000 ) and $ 421,000 (net of tax benefit of $ 139,000 ) for the years ended December 31, 2022 and 2021, respectively. The increase in net losses in 2022 as compared to 2021 was primarily due to costs incurred in connection with management of administrative and regulatory matters for the Company’s remediation projects as discussed below. 59 The following table presents the major class of assets of discontinued operations at December 31, 2022 and December 31, 2021. No assets and liabilities were held for sale at each of the periods noted. SCHEDULE OF DISPOSAL GROUPS, INCLUDING DISCONTINUED OPERATION BALANCE SHEET December 31, December 31, (Amounts in Thousands) 2022 2021 Current assets Other assets $ 15 $ 15 Total current assets 15 15 Long-term assets Property, plant and equipment, net (1) 81 81 Total long-term assets 81 81 Total assets $ 96 $ 96 Current liabilities Accounts payable $ 104 $ 3 Accrued expenses and other liabilities 146 154 Environmental liabilities 112 349 Total current liabilities 362 506 Long-term liabilities Closure liabilities 159 150 Environmental liabilities 749 527 Total long-term liabilities 908 677 Total liabilities $ 1,270 $ 1,183 (1) net of accumulated depreciation of $ 10,000 for each period presented. Environmental Liabilities The Company has three remediation projects, which are currently in progress relating to our PFD, PFM and PFSG (closed locations) subsidiaries, all within our discontinued operations. The Company divested PFD in 2008; however, the environmental liability of PFD was retained by the Company upon the divestiture of PFD. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators. At December 31, 2022, the Company had total accrued environmental remediation liabilities of $ 861,000 , a decrease of $ 15,000 from the December 31, 2021 balance of $ 876,000 . The decrease represents payments for remediation projects. At December 31, 2022, $ 112,000 of the total accrued environmental liabilities was recorded as current. The current and long-term accrued environmental liabilities at December 31, 2022 are summarized as follows (in thousands). SCHEDULE OF CURRENT AND LONG TERM ACCRUED ENVIRONMENTAL LIABILITY Current Long-term Accrual Accrual Total PFD — $ 60 $ 60 PFM — 15 15 PFSG 112 674 786 Total liability $ 112 $ 749 $ 861 Total liability $ 112 $ 749 $ 861 60 NOTE 10 LONG-TERM DEBT Long-term debt consists of the following at December 31, 2022 and December 31, 2021: SCHEDULE OF LONG TERM DEBT (Amounts in Thousands) December 31, 2022 December 31, 2021 Revolving Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due on May 15, 2024. Effective interest rate for 2022 and 2021 was 0% and 5.3%, respectively (1) $ — $ — Revolving Credit facility dated May 8, 2020, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, balance due on May 15, 2024 . Effective interest rate for 2022 and 2021 was 8.9 % and 5.3 % , respectively (1) $ — $ — Term Loan dated May 8, 2020, payable in equal monthly installments of principal, balance due on May 15, 2024 . Effective interest rate for 2022 and 2021 was 5.6 % and was 4.5 % , respectively (1) 552 (2) 954 (2) Capital Line dated May 4, 2021, payable in equal monthly installments of principal, balance due on May 15, 2024 . Effective interest rate for 2022 was 6.2 % . (1) 463 — Notes Payable to 2023 and 2025, annual interest rate of 5.6 % and 9.1 % . 24 39 Total debt 1,039 993 Less current portion of long-term debt 476 393 Long-term debt $ 563 $ 600 (1) Our revolving credit facility is collateralized by our accounts receivable and our term loan and capital line are collateralized by our property, plant, and equipment. (2) Net of debt issuance costs of ($ 88,000 ) and ($ 112,000 ) at December 31, 2022 and December 31, 2021, respectively. Revolving Credit, Term Loan and Capital Line Agreement The Company 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”), acting as agent and lender. The Loan Agreement provides the Company with the following credit facility with a maturity date of March 15, 2024 : (a) up to $ 18,000,000 revolving credit (“revolving credit”) see “Note 20 – Subsequent Events – Credit Facility” for a discussion of an amendment that the Company entered into with its lender on March 21, 2023 which reduced the maximum revolving credit to $ 12,500,000 ) and (b) a term loan (“term loan”) of approximately $ 1,742,000 , requiring monthly installments of $ 35,547 . The maximum that the Company can borrow under the revolving credit is based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that the Company’s lender may impose from time to time. The Loan Agreement, as amended (the “Amended Loan Agreement”), also provides a capital expenditure 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”). Only interest is payable on advances during the Borrowing Period. At the end of the Borrowing Period, the total amount advanced under the line will amortize equally based on a five-year amortization schedule with principal payment due monthly plus interest. At the maturity date of the Amended Loan Agreement, any unpaid principal balance plus interest, if any, will become due. Amount advanced under the capital line totaled approximately $ 524,000 which requires monthly installments in principal of approximately $ 8,700 plus interest, starting June 1, 2022. The advance was used to purchase the underlying asset under a previous finance lease. During 2022, the Company entered into further amendments to the Amended Loan Agreement with its lender, which provided the following, among other things (with the amended terms set forth in a Revised Loan Agreement): ● waived the Company’s failure to meet the minimum quarterly FCCR requirement for the fourth quarter of 2021 and second quarter of 2022; ● removed the quarterly FCCR testing requirement for the first and third quarters of 2022; ● reinstated the quarterly FCCR testing requirement starting for the fourth quarter of 2022 and revised the methodology in calculating the FCCR for the quarter ended December 31, 2022 and the methodology to be used in calculating the FCCR for the quarter ending March 31, 2023 (with no change to the minimum 1.15:1 ratio requirement for each quarter) ; ● required maintenance of a minimum of $ 3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for the quarter ended December 31, 2022 has been met and certified to the lender; 61 ● revised the annual rate used to calculate the Facility Fee (as defined in the Loan Agreement) on the revolving credit, with addition of the capital expenditure line, from 0.375 % to 0.500 % . Upon meeting the minimum FCCR requirement of 1.15:1 on a twelve-month trailing basis, the Facility Fee rate of 0.375 % will be reinstated; ● added certain additional anti-terrorism provisions to the covenants; and ● replaced the LIBOR based interest rate benchmark with the SOFR. As a result of this new provision, payment of annual rate of interest due on the revolving credit is at prime (7.50% at December 31, 2022) plus 2% or Term SOFR Rate (as defined in the Revised Loan Agreement) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by us and payment of annual rate of interest due on the term loan and the capital expenditure line is at prime plus 2.50% or Term SOFR Rate plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by us. A 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 In connection with the amendments, the Company paid its lender fees totaling $ 30,000 which is being amortized over the remaining term of the Revised Loan Agreement as interest expense-financing fees. The Company’s credit facility under its Revised 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. The Company’s Revised Loan Agreement prohibits us from paying cash dividends on our Common Stock without prior approval from our lender. The Company was not required to perform testing of the FCCR requirement in the first and third quarters of 2022 pursuant to amendments as discussed above. Based on an amendment that the Company entered into with its lender on March 21, 2023, the Company was not required to perform testing of the FCCR requirement in the fourth quarter of 2022 (see “Note 20 – Subsequent Events – Credit Facility” for a discussion of this amendment which provided for this provision, among other things). The Company failed to meet its FCCR requirement in the second quarter of 2022; however, this non-compliance was waived by our lender pursuant to an amendment that we entered into with our lender in 2022 as discussed above. Other than the above discussion pertaining to the Company’s FCCR requirements, the Company met all of its other financial covenant requirements in each of the quarters of 2022. After May 7, 2022, the Company may terminate its Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the Revised Loan Agreement with no early termination fees. At December 31, 2022, the borrowing availability under the Company’s revolving credit was approximately $ 4,290,000 based on our eligible receivables and is net of approximately $ 3,016,000 in outstanding standby letters of credit. The Company’s borrowing availability of $ 4,290,000 at December 31, 2022 included a requirement from our lender that we maintain a minimum of $ 3,000,000 in borrowing availability. The following table details the amount of the maturities of long-term debt maturing in future years at December 31, 2022 (excludes debt issuance costs of $88,000). SCHEDULE OF MATURITIES OF LONG-TERM DEBT Year ending December 31: (In thousands) 2023 $ 542 2024 578 2025 7 Total $ 1,127 62 NOTE 11 CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT (“CARES ACT”) Employee Retention Credit (“ERC”) The CARES Act, which was enacted on March 27, 2020, provides an Employee Retention Credit (“ERC”) for qualifying businesses keeping employees on their payroll during the COVID-19 pandemic. The ERC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERC availability and guidelines under the CARES Act. Following these amendments, the Company determined that it was eligible for the ERC, and as a result of the foregoing legislations, is eligible to claim a refundable tax credit against the Company’s share of certain payroll taxes equal to 70 % of the qualified wages paid to employees between July 1, 2021 and September 30, 2021. Qualified wages are limited to $ 10,000 per employee per calendar quarter in 2021 for a maximum allowable ERC per employee of $ 7,000 per calendar quarter in 2021. For purposes of the amended ERC, an eligible employer is defined as having experienced a significant (20% or more) decline in gross receipts during one or more of the first three 2021 calendar quarters when compared to 2019. During the third quarter of 2022, the Company determined it was eligible for the ERC and amended its third quarter 2021 employer payroll tax filings claiming a refund from the U.S. Treasury in the amount of approximately $ 1,975,000 . As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we account for the ERC by analogy to International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC and recorded the expected refund as other income (within “Other income (expense)”) on the Company’s Consolidated Statements of Operations and other receivables (within “Prepaid and other assets”) on the Company’s Consolidated Balance Sheets. For federal income tax purposes, this item was treated as a reduction in payroll costs for 2021, the year in which the costs originated. This resulted in a timing difference for the benefit between financial statement inclusion and tax inclusion between 2021 and 2022. This timing difference does not impact the Company’s effective tax rate. Paycheck Protection Program (“PPP”) Loan In April 2020, the Company received a PPP Loan in the amount of approximately $ 5,318,000 under the CARES Act, as amended. The PPP Loan was administered by the SBA. Proceeds from the promissory note was used by the Company for eligible payroll costs, mortgage interest, rent and utility costs as permitted by the CARES Act, as amended. The annual interest rate on the PPP Loan was 1.0 % . In late 2020, the Company applied for forgiveness on repayment of the PPP Loan and effective June 15, 2021, the entire balance of the PPP Loan of approximately $ 5,318,000 , along with accrued interest of approximately $ 63,000 was forgiven by the SBA. Accordingly, the Company recorded the entire forgiven PPP Loan balance, along with accrued interest, totaling approximately $ 5,381,000 as “Gain on extinguishment of debt” on its Consolidated Statement of Operations for the year ended 2021. Deferral of Employment Tax Deposits The CARES Act, as amended, provided employers the option to defer the payment of an employer’s share of social security taxes beginning on March 27, 2020 through December 31, 2020 with 50 % of the amount of social security taxes deferred to become due on December 31, 2021 with the remaining 50 % due on December 31, 2022. The Company’s deferment of such taxes totaled approximately $ 1,252,000 of which approximately $ 626,000 was paid in December 2021 with the remaining paid in December 2022 (previously included in “Accrued expenses” within current liabilities in our Consolidated Balance Sheets). 63 NOTE 12 ACCRUED EXPENSES Accrued expenses include the following (in thousands) at December 31: SCHEDULE OF ACCRUED EXPENSES 2022 2021 Salaries and employee benefits $ 2,629 $ 3,049 Accrued sales, property and other tax 240 183 Interest payable 8 3 Insurance payable 1,253 1,209 Other 463 634 Total accrued expenses $ 4,593 $ 5,078 NOTE 13 ACCRUED CLOSURE COSTS AND ARO Accrued closure costs represent our estimated environmental liability to clean up our fixed-based regulated facilities as required by our permits, in the event of closure. Changes to reported closure liabilities (current and long-term) for the years ended December 31, 2022 and 2021, were as follows: SCHEDULE OF CHANGE IN ASSET RETIREMENT OBLIGATION Amounts in thousands Balance as of December 31, 2020 $ 6,365 Accretion expense 377 Addition to closure liability 499 Spending ( 50 ) Balance as of December 31, 2021 $ 7,191 Accretion expense 411 Addition to closure liability 1,339 Spending ( 975 ) Balance as of December 31, 2022 $ 7,966 In 2022, the Company recorded a total of approximately $ 1,339,000 in additional estimated closure liabilities of which approximately $ 465,000 (within long-term) was recorded in connection with the footprint expansion at one of our facilities and an update to a processing enclosure area at another facility. The remaining additional closure liabilities was recorded for our EWOC facility for decommissioning activities due to changes in estimated closure costs. At December 31, 2022, current portion of the closure liabilities totaled approximately $ 682,000 which reflects primarily closure liabilities for our EWOC facility. The spending made in 2022 was primarily for our EWOC facility. The addition to closure liabilities for 2021 reflected primarily estimated costs for decommissioning activities required to restore the leased property at our EWOC facility back to its original condition at the end of its lease term. As of December 31, 2021, current portion of the closure liabilities totaled approximately $ 578,000 which consists primarily of the closure liabilities for our EWOC facility. 64 The reported closure asset or ARO, is reported as a component of “Net Property and equipment” in the Consolidated Balance Sheets at December 31, 2022 and 2021 with the following activity for the years ended December 31, 2022 and 2021: SCHEDULE OF ASSET RETIREMENT OBLIGATIONS Amounts in thousands Balance as of December 31, 2020 $ 3,348 Addition to closure and post-closure asset 478 Amortization of closure and post-closure asset ( 250 ) Balance as of December 31, 2021 $ 3,576 Addition to closure and post-closure asset 1,128 Amortization of closure and post-closure asset ( 603 ) Balance as of December 31, 2022 $ 4,101 The addition to ARO reflects closure obligations as discussed above. NOTE 14 INCOME TAXES The components of (loss) income before income tax benefits by jurisdiction for continuing operations for the years ended December 31, consisted of the following (in thousands): SCHEDULE OF INCOME (LOSS) BEFORE INCOME TAX (BENEFIT) EXPENSE 2022 2021 United States ( 2,782 ) ( 1,733 ) Canada ( 630 ) ( 1,880 ) United Kingdom ( 177 ) ( 246 ) Poland — 1,061 Total loss before tax benefit $ ( 3,589 ) $ ( 2,798 ) The components of current and deferred federal and state income tax (benefits) expense for continuing operations for the years ended December 31, consisted of the following (in thousands): SCHEDULE OF COMPONENTS OF INCOME TAX (BENEFIT) EXPENSE 2022 2021 Federal income tax benefit - deferred ( 331 ) ( 3,503 ) State income tax expense (benefit) - current 12 ( 56 ) Foreign income tax expense - current — 26 State income tax benefit - deferred ( 59 ) ( 357 ) Total income tax benefit $ ( 378 ) $ ( 3,890 ) An overall reconciliation between the expected tax benefit using the federal statutory rate of 21% for each of the years ended 2022 and 2021 and the benefit for income taxes from continuing operations as reported in the accompanying Consolidated Statement of Operations is provided below (in thousands). SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION 65 2022 2021 Federal tax benefit at statutory rate $ ( 754 ) $ ( 588 ) State tax expense (benefit), net of federal benefit 5 ( 412 ) Change in deferred tax rates 20 ( 93 ) Permanent items 220 62 PPP Loan forgiveness — ( 1,130 ) Debt forgiveness (PFM Poland) — ( 518 ) Difference in foreign rate ( 42 ) ( 135 ) True-up of deferred tax items 63 1,058 Other — ( 7 ) Increase (decrease) in valuation allowance 110 ( 2,127 ) Income tax benefit $ ( 378 ) $ ( 3,890 ) During the fourth quarter of 2021, the Company sold PFM Poland resulting from its decision to cease all R&D activities under its Medical Segment. Prior to the sale, the Company purchased Perma-Fix Medical LLC which was converted from PFMC, a wholly-owned subsidiary of PFM Poland. Perma-Fix Medical LLC was treated as a disregarded entity for tax purposes, resulting in a realized tax loss of $ 2,466,000 from uncollected payables. As a condition of the sale of PFM Poland, the Company forgave its receivables from PFM Poland resulting in a $ 3,089,000 capital loss on the sale of 100 % interest of PFM Poland stock (see “Note 15 – PF Medical for a discussion on the sale of PFM Poland). The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income. In conducting this assessment, the Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not to be realized. As of September 30, 2021, the Company determined that it was more likely than not that it would be able to realize a portion of the deferred income tax assets. As a result, a deferred income tax benefit in the amount of approximately $ 2,351,000 attributable to the valuation allowance release on beginning of year deferred tax assets primarily related to U.S. Federal income taxes was realized in the three months ended September 30, 2021. The Company had previously maintained a full valuation allowance against its net deferred income tax assets. The Company continues to maintain a valuation allowance against certain state and foreign tax attributes that may not be realizable along with the capital loss carryover generated during 2021 that it does not expect to realize. As of December 31, 2022, the Company assessed whether its deferred tax asset will more likely than not to be realized. This assessment included both positive and negative available evidences, which included the Company’s current contracts, cumulative loss, future reversal of existing taxable differences, and overall prospect of future business and earnings. Based on the weight of these available evidences, the Company concluded that it will more likely than not utilize its Federal and certain state net operating losses. The global intangible low-taxed income (“GILTI”) provisions under the Tax Cuts and Jobs Act of 2017 (the “TCJA”) require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2022 and 2021. As the Canada and United Kingdom foreign subsidiaries are in loss positions for 2022, no GILTI inclusion is expected for these entities for the current year. In addition, the aforementioned sale of PFM Poland in 2021 did not result in any GILTI inclusion. On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act included a number of income tax law changes, including modifications to the interest limitation under Internal Revenue Code (“IRC”) §163(j) and reinstatement of the ability to carry back net operating losses. The Company received forgiveness of its PPP Loan effective June 15, 2021 which was included in its Consolidated Statement of Operations as “Gain on extinguishment of debt” but was exempt from income taxes. 66 The Company had temporary differences and net operating loss carry forwards from both our continuing and discontinued operations, which gave rise to deferred tax assets and liabilities at December 31, 2022 and 2021 as follows (in thousands): SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets: 2022 2021 Net operating losses $ 11,647 $ 10,057 Environmental and closure reserves 2,269 2,040 Lease liability 482 575 Capital loss carryforward 756 740 Other 936 1,099 Deferred tax liabilities: Depreciation and amortization ( 4,351 ) ( 3,362 ) Indefinite lived intangible assets ( 503 ) ( 464 ) Right-of-use lease asset ( 476 ) ( 583 ) 481(a) adjustment ( 53 ) ( 104 ) Prepaid expenses ( 30 ) ( 24 ) Deferred tax assets, gross 10,677 9,974 Valuation allowance ( 6,560 ) ( 6,447 ) Net deferred income tax asset 4,117 3,527 The Company has estimated net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately $ 25,413,000 and $ 78,400,000 , respectively, as of December 31, 2022. These NOLs can be carried forward and applied against future taxable income, if any, and expire in various amounts starting in 2022 . Approximately $ 25,296,000 of our federal NOLs were generated after December 31, 2017 and thus do not expire. The tax years 2019 through 2021 remain open to examination by taxing authorities in the jurisdictions in which the Company operates. No uncertain tax positions were identified by the Company for the years currently open under statute of limitations. The Company had no federal income tax payable for the years ended December 31, 2022 and 2021. Beginning in 2022, the TCJA amended Section 174 to eliminate current-year deductibility of research and experimentation (“R&E”) expenditures and software development costs (collectively, “R&E expenditures”) and instead require taxpayers to charge their R&E expenditures to a capital account amortized over five years (15 years for expenditures attributable to R&E activity performed outside the United States). For the 2022 tax year, the Company has capitalized $ 303,000 of research and development expenses. While Management believes this estimate to be materially accurate, the Company plans to complete a formal IRC Section 174 analysis in advance of filing the tax return for the year ended December 31, 2022. NOTE 15 PF MEDICAL The Company made the strategic decision during the fourth quarter of 2021 to cease all R&D activities under its Medical Segment. The Medical Segment conducted its activities through the Company’s majority-owned Polish subsidiary, PFM Poland and PFM Poland’s wholly-owned subsidiary PFMC, a Delaware corporation. On December 30, 2021, the Company entered into a Sales of Shares Agreement (the “sales agreement”) for its entire stock ownership ( 60.54 % ) of PFM Poland for notes receivable of approximately $ 47,000 (USD) which was paid by the buyer in 2022. As condition precedent to the sales agreement, the Company released PFM Poland from unsatisfied trade payables owed by PFM Poland to the Company totaling approximately $ 2,537,000 (USD). The Company ceased to have any continuing involvement with PFM Poland. 67 Immediately before the sales agreement was executed, the Company converted PFMC from a S Corporation to a limited liability company (Perm-Fix Medical LLC or “PFM LLC”) and acquired the entire ownership from the majority-owned Polish subsidiary for $ 10 . The transaction was deemed to be a common control transaction and all assets and liabilities were transferred using the historical carrying values in accordance with guidance in ASC 805-50-25, “Business Combinations, Related Issues, Recognition.” The carrying amount of the non-controlling interest was adjusted to reflect the change in the ownership of the subsidiary. As a result, approximately $ 1,004,000 of the non-controlling interest related to the cumulative loss of PFM LLC was recognized as additional paid-in capital on the Company’s Consolidated Statements of Stockholders’ Equity and approximately $ 902,000 was recognized as a component within “Loss on deconsolidation of subsidiary” recorded on the Company’s Consolidated Statement of Operations. As a result, effective December 30, 2021, PFM Poland was no longer a subsidiary of the Company and the Company deconsolidated the entity from its consolidated financial statements in accordance with guidance in ASC 810-10-40, “Consolidation, Overall, Derecognition. ” Accordingly, the December 31, 2021 Consolidated Balance Sheet did not in include balances for PFM due to the sale and deconsolidation of PFM Poland. The Company’s Consolidated Statements of Operations included results of its majority-owned Polish subsidiary for the period through December 30, 2021. The Company recognized a non-cash “Loss on deconsolidation of subsidiary” of approximately $ 1,062,000 on its Consolidated Statements of Operation from the above transaction. The loss included approximately $ 94,000 in legal and accounting costs incurred for the transaction. SCHEDULE OF LOSS ON DECONSOLIDATION (In thousands) Note receivable consideration received $ 47 Less: Carrying amount of non-controlling interest 902 Carrying amount of accumulated other comprehensive loss 148 Net liabilities ( 35 ) Transaction costs 94 Loss on deconsolidation of subsidiary $ ( 1,062 ) NOTE 16 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 United States 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. 68 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. Our insurance carrier is providing 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 have been dismissed by the Court. Remaining claims include: (1) Intentional Interference with Contractual Relations; and (2) Inducing a Breach of Contract. The Company continues to believe it has no liability exposure to Tetra Tech. PF Canada 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. As of December 31, 2022, PF Canada has approximately $ 1,853,000 in unpaid receivables due from CNL as a result of work performed under the TOA. Additionally, CNL has approximately $ 1,060,000 in contractual holdback under the TOA that is payable to PF Canada. CNL also established a bond securing approximately $ 1,900,000 (CAD) to cover certain issues raised in connection with the TOA. Under the TOA, CNL may be entitled to set off certain costs and expenses incurred by CNL in connection with the termination of the TOA, including the bond as discussed above, against amounts owed to PF Canada for work performed by PF Canada or its subcontractors. PF Canada continues to be in discussions with CNL to finalize the amounts due to PF Canada under the TOA and continues to believe these amounts are due and payable to PF Canada. Insurance The Company has a 25 -year finite risk insurance policy entered into in June 2003 (“2003 Closure Policy”) with 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 $ 21,175,000 at December 31, 2021. At December 31, 2022 and December 31, 2021, 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 Consolidated Balance Sheets totaled $ 11,570,000 and $ 11,471,000 , respectively, which included interest earned of $ 2,099,000 and $ 2,000,000 on the finite risk sinking funds as of December 31, 2022 and December 31, 2021, respectively. Interest income for the year ended 2022 and 2021 was approximately $ 99,000 and $ 25,000 , respectively. If the Company so elects, AIG is obligated to pay us an amount equal to 100 % of the finite risk sinking fund account balance in return for complete release of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements. 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. At December 31, 2022, the total amount of standby letters of credit outstanding was approximately $ 3,016,000 and the total amount of bonds outstanding was approximately $ 35,432,000 . 69 NOTE 17 PROFIT SHARING PLAN The Company adopted a 401(k) Plan in 1992, which is intended to comply with Section 401 of the Internal Revenue Code and the provisions of the Employee Retirement Income Security Act of 1974. All full-time employees who have attained the age of 18 are eligible to participate in the 401(k) Plan. Eligibility is immediate upon employment but enrollment is only allowed during four quarterly open periods of January 1, April 1, July 1, and October 1. Participating employees may make annual pretax contributions to their accounts up to 100 % of their compensation, up to a maximum amount as limited by law. The Company, at its discretion, may make matching contributions of 25 % based on the employee’s elective contributions. Company contributions vest over a period of five years . In 2022 and 2021, the Company contributed approximately $ 575,000 and $ 589,000 in 401(k) matching funds, respectively. NOTE 18 RELATED PARTY TRANSACTIONS David Centofanti David Centofanti serves as our Vice President of Information Systems. For such position, he received annual compensation of $ 187,000 and $ 184,000 for 2022 and 2021, respectively. David Centofanti is the son of our EVP of Strategic Initiatives and a Board member. Employment Agreements The Company entered into an employment agreement dated July 22, 2020 with each of our executive officers (each employment agreement referred to as “Employment Agreement”). Each Employment Agreement is effective for three years from July 22, 2020 (the “Initial Term”) unless earlier terminated by the Company or by the executive officer. At the end of the Initial Term of each Employment Agreement, each Employment Agreement will automatically be extended for one additional year, unless at least six months prior to the expiration of the Initial Term, we or the executive officer provides written notice not to extend the terms of the Employment Agreement. Each Employment Agreement provides for annual base salary, performance bonuses (as provided in the Management Incentive Plan (“MIP”) as approved by the Company’s Compensation Committee and Board) and other benefits commonly found in such agreement. Pursuant to each Employment Agreement, if the executive officer’s employment is terminated due to death/disability or for cause (as defined in the agreement), the Company will pay to the executive officer or to his estate an amount equal to the sum of any unpaid base salary and accrued unused vacation time through the date of termination and any benefits due to the executive officer under any employee benefit plan (the “Accrued Amounts”) plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of termination. If the executive officer terminates his employment for “good reason” (as defined in the agreement) or is terminated by the Company without cause (including any such termination for “good reason” or without cause within 24 months after a Change in Control (as defined in the agreement)), the Company will pay the executive officer the Accrued Amounts, two years of full base salary, and two times the performance compensation (under the MIP) earned with respect to the fiscal year immediately preceding the date of termination provided the performance compensation earned with respect to the fiscal year immediately preceding the date of termination has not been paid. If performance compensation earned with respect to the fiscal year immediately preceding the date of termination has been made to the executive officer, the executive officer will be paid an additional year of the performance compensation earned with respect to the fiscal year immediately preceding the date of termination. If the executive terminates his employment for a reason other than for good reason, the Company will pay to the executive an amount equal to the Accrued Amounts plus any performance compensation payable pursuant to the MIP with respect to the fiscal year immediately preceding the date of termination. 70 If there is a Change in Control (as defined in the agreement), all outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on the date of termination through the original term of the options. In the event of the death of an executive officer, all outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on the date of death, with such options exercisable for the lesser of the original option term or twelve months from the date of the executive officer’s death. In the event an executive officer terminates his employment for “good reason” or is terminated by the Company without cause, all outstanding stock options to purchase common stock held by the executive officer will immediately become exercisable in full commencing on the date of termination, with such options exercisable for the lesser of the original option term or within 60 days from the date of the executive’s date of termination. Severance benefits payable with respect to a termination (other than Accrued Amounts) shall not be payable until the termination constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)). MIPs On January 20, 2022, the Board and the Compensation Committee also approved individual MIP for the calendar year 2022 for each of our executive officers. Each MIP was effective January 1, 2022 and applicable for year 2022. Each MIP provided 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 was based upon meeting certain of the Company’s separate target objectives during 2022. Assuming each target objective was achieved under the same performance threshold range under each MIP, the total potential target performance compensation payable ranged from 25 % to 150 % of the 2022 base salary for the CEO ($ 93,717 to $ 562,304 ), 25 % to 100 % of the 2022 base salary for the CFO ($ 76,193 to $ 304,772 ), 25 % to 100 % of the 2022 base salary for the EVP of Strategic Initiatives ($ 63,495 to $ 253,980 ), 25 % to 100 % of the 2022 base salary for the EVP of Nuclear and Technical Services ($ 76,193 to $ 304,772 ) and 25 % to 100 % ($ 65,308 to $ 261,233 ) of the 2022 base salary for the EVP of Waste Treatment Operations. No compensation was earned under each of the MIPs. NOTE 19 SEGMENT REPORTING In accordance with ASC 280, “Segment Reporting”, we define an operating segment as a business activity: ● from which we may earn revenue and incur expenses; ● whose operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance; and ● for which discrete financial information is available. We have two reporting segments, consisting of the Treatment and Services Segments, which are based on a service offering approach. The Company’s segment in 2021 also included the Medical Segment which primary purpose was the R&D of a medical isotope production technology. The Medical Segment had not generated any revenues. During December 2021, the Company made the strategic decision to cease all R&D activities under the Medical Segment which resulted in the sale of 100 % of its interest of PFM Poland (see “Note 15 – PF Medical” for a discussion of this transaction). Our reporting segments exclude our corporate headquarter, business center and our discontinued operations (see “Note 9 – Discontinued Operations”) which do not generate revenues. The table below shows certain financial information of our reporting segments as of and for the years ended December 31, 2022 and 2021 (in thousands). 71 SCHEDULE OF SEGMENT REPORTING INFORMATION Segment Reporting as of and for the year ended December 31, 2022 Treatment Services Segments Total Corporate (2) Consolidated Total Revenue from external customers $ 33,358 $ 37,241 $ 70,599 (3)(4) $ — $ 70,599 Intercompany revenues 56 213 269 — — Gross profit 5,243 4,366 9,609 — 9,609 Research and development 246 23 269 67 336 Interest income — — — 99 99 Interest expense ( 74 ) ( 3 ) ( 77 ) ( 98 ) ( 175 ) Interest expense-financing fees — ( 1 ) ( 1 ) ( 60 ) ( 61 ) Depreciation and amortization 1,710 334 2,044 65 2,109 Segment income (loss) before income taxes 1,531 1,565 3,096 ( 6,685 ) ( 3,589 ) (13) Income tax benefit ( 236 ) ( 133 ) ( 369 ) ( 9 ) ( 378 ) Segment income (loss) 1,767 1,698 3,465 ( 6,676 ) ( 3,211 ) Segment assets (1) 37,918 8,473 (8) 46,391 24,507 (5) 70,898 Expenditures for segment assets (net) 866 157 1,023 — 1,023 (7) Total debt 482 5 487 552 1,039 (6) Segment Reporting as of and for the year ended December 31, 2021 Treatment Services Medical Segments Total Corporate (2) Consolidated Total Revenue from external customers $ 32,992 $ 39,199 — $ 72,191 (3)(4) $ — $ 72,191 Intercompany revenues 1,265 47 — 1,312 — — Gross profit 6,718 106 — 6,824 — 6,824 Research and development 221 71 414 706 40 746 Interest income 1 — — 1 25 26 Interest expense ( 100 ) ( 10 ) — ( 110 ) ( 137 ) ( 247 ) Interest expense-financing fees — ( 1 ) — ( 1 ) ( 40 ) ( 41 ) Depreciation and amortization 1,306 353 — 1,659 28 1,687 Segment income (loss) before income taxes 2,283 ( 3,044 ) ( 1,476 ) (11)(12) ( 2,237 ) ( 561 ) (9)(11) ( 2,798 ) Income tax (benefit) expense ( 150 ) ( 962 ) 26 ( 1,086 ) ( 2,804 ) ( 3,890 ) (10) Segment income (loss) 2,433 ( 2,082 ) ( 1,502 ) ( 1,151 ) 2,243 1,092 Segment assets (1) 37,050 15,244 (8) 48 52,342 24,959 (5) 77,301 Expenditures for segment assets (net) 1,363 205 — 1,568 9 1,577 (7) Total debt 25 14 — 39 954 993 (6) (1) Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment. (2) Amounts reflect the activity for corporate headquarters not included in the segment information. (3) The Company performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately 60,030,000 or 85.0 % of total revenue for 2022 and 60,812,000 or 84.2 % of total revenue for 2021. The following reflects such revenue generated by our two segments: (4) The following table reflects revenue based on customer location: (5) Amount includes assets from our discontinued operations of $ 96,000 and $ 96,000 at December 31, 2022 and 2021, respectively. (6) Net of debt issuance costs of ($ 88,000 ) and ($ 112,000 ) for 2022 and 2021, respectively (see “Note 10 – “Long-Term Debt” for additional information). (7) Net of financed amount of $ 114,000 and $ 585,000 for the year ended December 31, 2022 and 2021, respectively. (8) Includes long-lived asset (net) for our PF Canada, Inc. subsidiary of $ 0 and $ 25,000 for the year ended December 31, 2022 and 2021, respectively. (9) Amount includes approximately $ 5,381,000 of “Gain on extinguishment of debt” recorded in connection with the Company’s PPP Loan which was forgiven by the SBA effective June 15, 2021 (see “Note 11 – Coronavirus Aid, Relief and Economic Securities Act (“CARES ACT”) – Paycheck Protection Program (“PPP”) Loan” for information of this loan forgiveness). (10) Includes tax benefit recorded in amount of approximately $ 2,351,000 resulting from release of valuation allowance on the Company’s deferred tax assets. (11) Includes elimination of gain/loss of $ 2,537,000 in debt forgiveness between PFM Poland and the Company (see “Note 15 – PF Medical” for a discussion of this debt forgiveness). (12) Amount includes a “Loss on deconsolidation of subsidiary” recorded in the amount of approximately $ 1,062,000 resulting from the sale of PFM Poland (see “Note 15 – PF Medical” for a discussion of this loss). (13) Includes approximately $ 1,975,000 recorded as other income under the Employee Retention Credit program under the CARES Act, as amended (see “Note 11 – Coronavirus Aid, Relief and Economic Securities Act (“CARES ACT”) – Employee Retention Credit (“ERC”)” for a discussion of this expected refund amount). SCHEDULE OF REVENUE BY MAJOR CUSTOMERS BY REPORTING SEGMENTS 2022 2021 Treatment Services Total Treatment Services Total Domestic government $ 23,752 $ 35,906 $ 59,658 $ 22,538 $ 29,013 $ 51,551 Foreign government 574 ( 202 ) 372 577 8,684 9,261 Total $ 24,326 $ 35,704 $ 60,030 $ 23,115 $ 37,697 $ 60,812 (4) The following table reflects revenue based on customer location: SCHEDULE OF REVENUE BASED ON CUSTOMER LOCATION 2022 2021 United States $ 69,373 $ 62,257 Canada 406 9,277 Germany 678 567 Italy 14 — United Kingdom 128 90 Total $ 70,599 $ 72,191 (5) Amount includes assets from our discontinued operations of $ 96,000 and $ 96,000 at December 31, 2022 and 2021, respectively. 72 (6) Net of debt issuance costs of ($ 88,000 ) and ($ 112,000 ) for 2022 and 2021, respectively (see “Note 10 – “Long-Term Debt” for additional information). (7) Net of financed amount of $ 114,000 and $ 585,000 for the year ended December 31, 2022 and 2021, respectively. (8) Includes long-lived asset (net) for our PF Canada, Inc. subsidiary of $ 0 and $ 25,000 for the year ended December 31, 2022 and 2021, respectively. (9) Amount includes approximately $ 5,381,000 of “Gain on extinguishment of debt” recorded in connection with the Company’s PPP Loan which was forgiven by the SBA effective June 15, 2021 (see “Note 11 – Coronavirus Aid, Relief and Economic Securities Act (“CARES ACT”) – Paycheck Protection Program (“PPP”) Loan” for information of this loan forgiveness). (10) Includes tax benefit recorded in amount of approximately $ 2,351,000 resulting from release of valuation allowance on the Company’s deferred tax assets. (11) Includes elimination of gain/loss of $ 2,537,000 in debt forgiveness between PFM Poland and the Company (see “Note 15 – PF Medical” for a discussion of this debt forgiveness). (12) Amount includes a “Loss on deconsolidation of subsidiary” recorded in the amount of approximately $ 1,062,000 resulting from the sale of PFM Poland (see “Note 15 – PF Medical” for a discussion of this loss). (13) Includes approximately $ 1,975,000 recorded as other income under the Employee Retention Credit program under the CARES Act, as amended (see “Note 11 – Coronavirus Aid, Relief and Economic Securities Act (“CARES ACT”) – Employee Retention Credit (“ERC”)” for a discussion of this expected refund amount). NOTE 20 SUBSEQUENT EVENTS Management evaluated events occurring subsequent to December 31, 2022 through March 23, 2023, the date these consolidated financial statements were available for issuance, and other than as noted below determined that no material recognizable subsequent events occurred. Executive Compensation MIPs On January 19, 2023, the Board and the Compensation Committee approved individual MIP for the calendar year 2023 for each of our executive officers. Each MIP is effective January 1, 2023 and applicable for year 2023. 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 2023. Assuming each target objective is achieved under the same performance threshold range under each MIP, the total potential target performance compensation payable ranges from 25 % to 150 % of the 2023 base salary for the CEO ($ 93,717 to $ 562,305 ), 25 % to 100 % of the 2023 base salary for the CFO ($ 76,193 to $ 304,772 ), 25 % to 100 % of the 2023 base salary for the EVP of Strategic Initiatives ($ 63,495 to $ 253,980 ), 25 % to 100 % of the 2023 base salary for the EVP of Nuclear and Technical Services ($ 76,193 to $ 304,772 ) and 25 % to 100 % ($ 65,308 to $ 261,233 ) of the 2023 base salary for the EVP of Waste Treatment Operations. ISOs On January 19, 2023, the Company granted ISOs to certain employees for the purchase, under the Company’s 2017 Plan, of up to an aggregate 295,000 shares of the Company’s Common Stock. The total ISOs granted included an ISO for each of the Company’s executive officers for the purchase set forth in his respective ISO Agreement, as follows: 70,000 shares for the CEO; 40,000 shares for the CFO; 30,000 shares for the EVP of Strategic Initiatives; 30,000 shares for the EVP of Waste Treatment Operations; and 30,000 shares for the EVP of Nuclear and Technical Services. Each of the ISOs granted has a contractual term of six years with one-fifth yearly vesting over a five-year period . The exercise price of the ISO is $ 3.95 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant. Credit Facility On March 21, 2023, the Company entered into an amendment to its Revised Loan Agreement with its lender which provides, among other things, the following: ● removed the quarterly FCCR testing requirement for the fourth quarter of 2022 and removes the FCCR testing requirement the first quarter of 2023; ● reduced the maximum revolving credit line under the credit facility from $ 18,000,000 to $ 12,500,000 ; ● reinstates the quarterly FCCR testing requirement starting in the second quarter of 2023 using a trailing twelve months period (with no change to the minimum 1.15:1 ratio requirement for each quarter) ; and ● requires maintenance of a minimum of $ 3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for the quarter ended June 30, 2023 has been met and certified to the lender. In connection with the amendment, the Company paid its lender a fee of $ 25,000 . 73 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.