PERMA FIX ENVIRONMENTAL SERVICES INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained within Item 1 – “Business” and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) may be deemed “forward-looking statements” within the meaning of Section 27A of the Act, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the “Private Securities Litigation Reform Act of 1995”). See “Special Note regarding Forward-Looking Statements” contained in this report. Management’s discussion and analysis is based, among other things, on our audited consolidated financial statements and includes our accounts and the accounts of our wholly-owned subsidiaries. 20 The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report. Overview We were disappointed with our 2024 financial results, which were negatively impacted by a number of unexpected events and factors. These events and factors included among other things, ● Continuing Resolution (“CR”) impacts primarily in the first half of 2024 that directly resulted in delays in project starts for existing services backlogs along with delays in procurement cycles for pipeline projects; ● poor weather conditions, including two hurricanes, which resulted in delays in waste shipments and project mobilization activities by certain customers and power outages and plant shutdowns at certain of our treatment facilities; ● temporary outages at certain of our facilities for equipment replacement and repairs, program enhancement and testing to support permit expansion and broader market penetration which contributed to revenue production delays; ● accelerated investments in R&D of our new technology to treat PFAS which required significant management and operation support, thereby also limiting resources needed for revenue production; and ● completion of two large projects primarily in the fourth quarter of 2023 in the Services Segment that were not replaced by new projects of similar value. These two projects generated an aggregate of approximately $35,273,000 in revenue in 2023. As a result of the aforementioned events and factors, overall revenue decreased by $30,618,000 or 34.1% to $59,117,000 for the twelve-months ended December 31, 2024, from $89,735,000 for the corresponding period of 2023. Treatment Segment revenue decreased by $8,524,000 to $34,953,000 or 19.6% from $43,477,000, and Services Segment revenue decreased by $22,094,000 or 47.8% to $24,164,000 from $46,258,000. Total gross profit for the twelve-months ended December 31, 2024, decreased $16,367,000 or 100.0% due to decreased revenue generated in both segments. Selling, general and administrative (“SG&A”) expenses decreased $484,000 or 3.2% for the twelve-months ended December 31, 2024, as compared to the corresponding period of 2023. During 2024, we provided a full valuation allowance against our deferred tax assets (see a discussion of this valuation allowance and the impact to our financial statements in “Results of Operations – Income Taxes” below). In 2024, we completed two public equity raises and sold an aggregate 4,581,282 shares of our Common Stock. See “Liquidity and Capital Resources - Financing Activities” within this MD&A for discussions of these equity raises that occurred in May 2024 and December 2024. Although we are disappointed with our 2024 financial results, we believe our base business is positioned for improvement and that our results of operations should improve in 2025. We continue to advance a number of initiatives which are discussed within this report on Form 10-K. Some of these initiatives have been realized, with additional initiatives that are expected to be more fully realized in 2025. In December 2024, BWXT Technologies, Inc (“BWXT”) announced that the DOE had awarded BWXT and its team, which we are a member of, the contract for the cleanup operations at the West Valley Development Project in West Valley, NY. As disclosed by BWXT, the contract has a 10-year ordering period with a maximum value of up to $3 billion that can be performed for up to 15 years. The scope attributable to us has not yet been defined and is subject to certain approvals. The West Valley Project is anticipated to begin transition in the first quarter of 2025 and realize full operations in 120 days from initiation. As previously disclosed, in December 2023, we and our partner, Campoverde Srl, each owning 50% of the partnership, were awarded a multi-year contract for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy. Revenue generated and to be generated by us from this contract has been and will be limited to project management support through 2025. The scope of work in the initial phases of this contract is being performed predominantly by our partner. We expect to generate an increase in revenue under this contract starting in 2026 when the waste treatment phases begin. 21 Our continuing initiatives include, among other things, positioning ourselves for further large and mid-size procurements within the DOE and DOD and waste treatment in support of DOE’s Hanford closure strategy, continued investments in our facilities and capabilities to allow for broader waste treatment (including PFAS) (see “Known Trends and Uncertainties - New Processing Technology” within this MD&A for a discussion of our PFAS technology), and continued expansion of our waste treatment offerings within the international and commercial markets (see “Part I, Item 1 – Business – Foreign Revenue and Initiatives” for a discussion of our foreign revenue and initiatives). See “Known Trends and Uncertainties – Federal Funding” within this MD&A for a discussion of factors that could impacts our results of operations in 2025. Business Environment Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to federal governmental clients, primarily as subcontractors for others who are contractors to government entities or directly as the prime contractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, current economic and political conditions, the manner in which the applicable government authority will be required to spend funding to remediate various sites and potential future federal budget issues. In addition, our governmental contracts and subcontracts relating to activities at federal governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations, and cash flows. Results of Operations The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment Segment and Services Segment. Summary - Years Ended December 31, 2024 and 2023 Below are the results of continuing operations for years ended December 31, 2024, and 2023 (amounts in thousands): (Consolidated) 2024 % 2023 % Net revenues $ 59,117 100.0 $ 89,735 100.0 Cost of goods sold 59,115 100.0 73,366 81.8 Gross profit 2 — 16,369 18.2 Selling, general and administrative 14,491 24.5 14,975 16.7 Research and development 1,172 2.0 561 .6 Loss on disposal of property and equipment 21 — 77 .1 (Loss) income from operations (15,682 ) (26.5 ) 756 .8 Interest income 921 1.5 606 .7 Interest expense (473 ) (.8 ) (323 ) (.4 ) Interest expense – financing fees (66 ) (.1 ) (93 ) (.1 ) Other income (expense) 166 .3 (11 ) — (Loss) income from continuing operations before taxes (15,134 ) (25.6 ) 935 1.0 Income tax expense 4,435 7.5 17 — (Loss) income from continuing operations $ (19,569 ) (33.1 ) $ 918 1.0 22 Revenue Consolidated revenues decreased $30,618,000 for the year ended December 31, 2024, compared to the year ended December 31, 2023, as follows: (In thousands) 2024 % Revenue 2023 % Revenue Change % Change Treatment Government waste $ 22,098 37.4 $ 29,506 32.9 $ (7,408 ) (25.1 ) Hazardous/non-hazardous (1) 4,995 8.4 6,260 7.0 (1,265 ) (20.2 ) Other nuclear waste 7,860 13.3 7,711 8.6 149 1.9 Total 34,953 59.1 43,477 48.5 (8,524 ) (19.6 ) Services Nuclear 20,353 34.4 43,121 48.0 (22,768 ) (52.8 ) Technical 3,811 6.5 3,137 3.5 674 21.5 Total 24,164 40.9 46,258 51.5 (22,094 ) (47.8 ) Total $ 59,117 100.0 $ 89,735 100.0 $ (30,618 ) (34.1 ) 1) Includes wastes generated by government clients of $2,898,000 and $2,943,000 for the twelve months ended December 31, 2024, and 2023, respectively. Treatment Segment revenue decreased by $8,524,000 or 19.6% for the twelve-months ended December 31, 2024, over the same period in 2023. The overall decrease in revenue was primarily due to lower waste volume attributed from the factors as discussed in the “Overview” section above. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment revenue decreased by approximately $22,094,000 or 47.8%. The decrease in revenue in the Services Segment was due to the reasons as discussed in the “Overview” above. Additionally, our Services Segment revenues are project based; as such, the scope, duration, and completion of each project vary. Cost of Goods Sold Cost of goods sold decreased $14,251,000 for the year ended December 31, 2024, as compared to the year ended December 31, 2023, as follows: % % (In thousands) 2024 Revenue 2023 Revenue Change Treatment $ 36,063 103.2 $ 36,601 84.2 $ (538 ) Services 23,052 95.4 36,765 79.5 $ (13,713 ) Total $ 59,115 100.0 $ 73,366 81.8 $ (14,251 ) Cost of goods sold for the Treatment Segment decreased by approximately $538,000 or 1.5%. Treatment Segment’s variable costs decreased by approximately $1,467,000 primarily due to overall lower transportation, disposal, lab and bonus/incentive costs. Treatment Segment’s overall fixed costs increased by approximately $929,000 resulting from the following: salaries and payroll related expenses were higher by $1,717,000 due to higher headcount; regulatory costs were higher by approximately $101,000; depreciation expenses were lower by approximately $626,000 due to fully depreciated AROs that occurred in the third quarter of 2023 in connection with our EWOC facility; maintenance costs were lower by approximately $123,000; general expenses were lower by $111,000 in various categories; and travel expenses were lower by approximately $29,000. Services Segment cost of goods sold decreased $13,713,000 or 37.3% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to overall lower salaries/payroll related, outside services, and travel costs totaling approximately $13,565,000; lower depreciation expenses of approximately $220,000; lower general expenses of $49,000 in various categories; and higher material and supplies expenses of approximately $121,000. Included within cost of goods sold is depreciation and amortization expense of $1,637,000 and $2,484,000 for the twelve months ended December 31, 2024, and 2023, respectively. 23 Gross Profit Gross profit for the year ended December 31, 2024, was $16,367,000 lower than 2023 as follows: % % (In thousands) 2024 Revenue 2023 Revenue Change Treatment $ (1,110 ) (3.2 ) $ 6,876 15.8 $ (7,986 ) Services 1,112 4.6 9,493 20.5 $ (8,381 ) Total $ 2 0.0 $ 16,369 18.2 $ (16,367 ) Treatment Segment gross profit decreased by $7,986,000 or approximately 116.1% and gross margin decreased to (3.2)% from 15.8% primarily due to lower revenue from lower waste volume, overall lower averaged price from waste mix and the impact of our fixed cost structure. Services Segment gross profit decreased by $8,381,000 or 88.3% primarily due to decreased revenue as discussed in the “Overview” above. The decrease in gross margin from 20.5% to 4.6% was attributed to overall lower margin projects as the two large projects completed in late 2023 were higher margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore have varying margin structures. SG&A SG& A expenses decreased $484,000 for the year ended December 31, 2024, as compared to the corresponding period for 2023 as follows: (In thousands) 2024 % Revenue 2023 % Revenue Change Administrative $ 6,896 — $ 7,230 — $ (334 ) Treatment 4,290 12.3 4,249 9.8 41 Services 3,305 13.7 3,496 7.6 (191 ) Total $ 14,491 24.5 $ 14,975 16.7 $ (484 ) Administrative SG&A expenses were lower primarily due to lower incentive expenses of approximately $540,000, which was offset by overall higher expenses of $206,000 in various categories. Administrative SG&A expenses in 2023 included incentives earned in connection with the Company’s management incentive plans (“MIPs”) and other employees’ bonus plans. Such incentives were not earned in 2024. Treatment Segment SG&A expenses were higher primarily due to higher salaries and payroll related expenses of approximately $420,000 which were offset by overall lower travel, outside services and general expenses totaling approximately $379,000. The decrease in Services Segment SG&A was primarily due to lower outside services expenses of approximately $102,000 from fewer consulting and legal matters and lower salaries and payroll related expenses of approximately $249,000. The overall lower SG&A expenses were offset by higher credit loss expenses of approximately $160,000 as a certain account receivable was determined to be uncertain as to collectability as of December 31, 2024. Included in SG&A expenses is depreciation and amortization expense of $126,000 and $84,000 for the twelve months ended December 31, 2024 and 2023, respectively. R&D R&D expenses increased by $611,000 for the twelve-months ended December 31, 2024, as compared to the corresponding period of 2023 primarily due to expenses incurred in connection with our new PFAS technology. Interest Income Interest income increased by approximately $315,000 for the twelve-months ended December 31, 2024, as compared to the corresponding period of 2023. The increase was primarily due to higher interest income earned from our finite risk sinking fund from higher interest rates that took effect starting in March 2023. Additionally, the increase in interest income resulted from more funds that we maintained in our money market deposit accounts from the two equity raises that were complete in May 2024 and December 2024. The overall increase in interest income from the above was reduced by interest income received in March of 2023 of approximately $60,000 in connection with the Employee Retention Credit refund that we received. 24 Interest Expense Interest expense increased by approximately $150,000 for the twelve-months ended December 31, 2024, as compared to the corresponding period of 2023. The increase was attributed primarily to interest incurred on the $2,500,000 term loan dated July 31, 2023, under our credit facility and the promissory note that we entered into on July 24, 2024, for the purchase of our EWOC facility. The higher interest expense was also attributed to more finance leases. Income Taxes We record a valuation allowance against our net deferred tax asset to the extent we determine it is more likely than not that such asset will not be realized in the future. We regularly evaluate the probability that our deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed. This determination involves judgement and the use of estimates and assumptions, including expectations of future taxable income and tax planning strategies. We apply judgment to consider the relative impact of negative and positive evidence, and the weight given to negative and positive evidence is commensurate with the extent to which such evidence can be objectively verified. Based on our evaluation of all available positive and negative evidence, and with greater weight placed on the objectively verifiable evidence which primarily included our three-year cumulative losses, we determined that it was more likely than not that our net U.S. deferred tax asset will not be realized. As a result, in 2024, we provided a full valuation allowance against our U.S. federal and state deferred tax assets and recorded an income tax expense in the amount of approximately $8,194,000. We continue to maintain a valuation allowance against foreign tax attributes that may not be realized. We had income tax expenses of $4,435,000 and $17,000 for continuing operations for the twelve-months ended December 31, 2024 and 2023, respectively. Our effective tax rates were approximately 29.3% and 1.8% for the twelve-month ended December 31, 2024 and 2023, respectively. Our effective tax rate for the twelve-months ended December 31, 2024, was impacted primarily by the income tax expense recorded in the amount of approximately $8,194,000 as we provided for a full valuation allowance against our U.S. federal and state deferred tax assets. Our effective tax rate for the twelve-months ended December 31, 2023, was impacted by non-deductible expenses and state taxes. Backlog Our Treatment Segment maintains a backlog of stored waste, which represents waste that has not been processed. The backlog is principally a result of the timing and complexity of the waste being brought into the facilities and the selling price per container. As of December 31, 2024, our Treatment Segment had a backlog of approximately $7,859,000, as compared to approximately $8,702,000 as of December 31, 2023. Additionally, the time it takes to process waste from the time it arrives may increase due to the types and complexities of the waste we are currently receiving. We typically process our backlog during periods of low waste receipts, which historically has been in the first or fourth quarters. Discontinued Operations and Environmental Contingencies Our discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and earlier, as well as three previously closed locations. Our discontinued operations had no revenue for the twelve-months ended December 31, 2024 and 2023. We incurred net losses of $410,000 (net of tax benefit of $149,000) and $433,000 (net of tax benefit of $117,000) for our discontinued operations for the twelve-months ended December 31, 2024, and 2023, respectively. Net losses for both years were primarily due to costs incurred in connection with management of administrative and regulatory matters related to our remediation projects. We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. 25 Liquidity and Capital Resources Our cash flow requirements during the twelve-months ended December 31, 2024, were primarily financed by our Liquidity (defined as borrowing availability under the revolving credit plus cash in our MMDA maintained with our lender). Our Liquidity included net proceeds received from the sales of an aggregate 4,581,282 shares of our Common Stock pursuant to certain Securities Purchase and Underwriting Agreements executed in May 2024 and December 2024 (see “Financing Activities” below for a discussion of these offerings, including the planned usage of the proceeds). We believe our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, R&D on our PFAS technology and capital expenditures (which include our PFAS technology) (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology). We plan to fund these requirements from our operations and Liquidity under our Credit Facility. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels. As of December 31, 2024, we had no outstanding borrowing under our revolving credit and our Liquidity under our Credit Facility was approximately $33,905,000. We believe that our cash flows from operations and our Liquidity should be sufficient to fund our operations for the next twelve months. Although we believe our operations should improve in 2025, if we continue to incur losses such as in 2024, this could cause a reduction in our Liquidity. The following table reflects the cash flow activity for the year ended December 31, 2024, and the corresponding period of 2023: (In thousands) 2024 2023 Cash (used in) provided by operating activities of continuing operations $ (14,146 ) $ 7,069 Cash used in operating activities of discontinued operations (597 ) (597 ) Cash used in investing activities of continuing operations (4,079 ) (2,038 ) Cash used in investing activities of discontinued operations (51 ) — Cash provided by financing activities of continuing operations 40,955 1,696 Effect of exchange rate changes on cash (1 ) 8 Increase in cash and finite risk sinking fund (restricted cash) $ 22,081 $ 6,138 As of December 31, 2024, we were in a positive cash position with no revolving credit balance. As of December 31, 2024, we had cash on hand of approximately $28,975,000. Operating Activities Cash used in operating activities of our continuing operations during 2024 consisted mostly of the significant net loss that we incurred of approximately $19,569,000, adjusted for certain non-cash items, such as $656,000 of stock-based compensation expense, $1,763,000 of depreciation and amortization expense and the deferred income tax expense of $4,448,000. The decrease in cash used in operating activities of our continuing operations from 2023 to 2024 was driven primarily from the significant net loss that we incurred. Our cash used in operating activities of our discontinued operations consisted primarily of expenses incurred in connection with management and administration of regulatory matters for the Company’s remediation projects. We had working capital of $28,283,000 (which included working capital of our discontinued operations) as of December 31, 2024, as compared to working capital of $4,613,000 as of December 31, 2023. The improvement in our in our working capital was primarily due to the increase in our cash from the sales of our Common Stock in May 2024 and December 2024, which was offset by the significant losses incurred from our results of operations attributed to the various factors as previously discussed. Perma-Fix Canada Inc. (“PF Canada”) Our cash used in operating activities in 2024 included receipt of certain outstanding receivables from Canadian Nuclear Laboratories, LTD (“CNL”) as follows: During the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from CNL on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario, Canada (“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has since been completed. CNL may terminate the TOA at any time for convenience. At year-end 2023, PF Canada had approximately $2,389,000 in outstanding receivables due from CNL as a result of work performed under the TOA. A settlement agreement was reached between PF Canada and CNL on the payment of the aforementioned amount by CNL, subject to certain conditions/terms precedents being met. PF Canada received a partial payment from CNL of the outstanding receivables during the first quarter of 2024. In May 2024, PF Canada received the remaining approximately $1,612,000 in outstanding receivables from CNL. As a result of the aforementioned payments received from CNL, no outstanding receivables remain under the TOA from CNL. 26 Investing Activities Cash used in investing activities of our continuing operations during 2024 consisted mostly of our purchases of property and equipment totaling approximately $3,811,000, of which $406,000 was financed. The remaining cash used in investing activities consisted of cash outlays made in connection with our operating permits and certain intangible assets. The increase in cash used in investing activities of our continuing operations in 2024 as compared to 2023 was primarily due to capital expenditures made in connection with our PFAS technology which included the installation of our first unit in treating PFAS. Cash used in investing activities of our discontinued operations was primarily for roof replacement at our PFSG location. Capital Expenditures We anticipate making capital expenditures of approximately $2,000,000 to $5,500,000 in 2025 to maintain operations and regulatory compliance requirements and support revenue growth. We expect our capital expenditures to be higher in 2025 based on certain strategic project initiatives which include the installation of our second generation unit for our PFAS technology. We plan to fund our capital expenditures for 2025 from cash from operations, Liquidity under our Credit Facility and/or financing. The initiation and timing of our capital expenditures are subject to a number of factors which include, among other things, cost/benefit analysis, the pace of our strategic project initiatives and improvement in our operations. Financing Activities Our cash provided by financing during 2024 consisted mostly of net proceeds of $41,859,000 received from the sales of our Common Stock in May 2024 and December 2024 as discussed below and proceeds received from option and a warrant exercises totaling approximately $292,000, partially offset by principal payments of approximately $832,000 primarily for our Terms Loans and Capital Loan under our Credit Facility (see below for a discussion of our Credit Facility) and $291,000 for our finance leases. Credit Facility We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, which has since been amended from time to time, with PNC National Association (“PNC” and “lender”), acting as agent and lender (the “Loan Agreement”). The Loan Agreement provides us with the following credit facility with a maturity date of May 15, 2027 (the “Credit Facility): (a) up to $12,500,000 revolving credit (“revolving credit”), which borrowing capacity is subject to eligible receivables (as defined) and reduced by outstanding standby letters of credit ($3,200,000 as of December 31, 2024) and borrowing reductions that our lender may impose from time to time ($750,000 as of December 31, 2024); (b) a term loan (“Term Loan 1”) of approximately $1,742,000, requiring monthly installments of $35,547 (Term Loan 1 was paid off by us in June 2024); (c) a term loan (“Term Loan 2”) of $2,500,000, requiring monthly installments of $41,667; and (d) a capital expenditure loan (“Capital Loan”) of approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, that commenced on June 1, 2022. On May 8, 2024 and November 12, 2024, we entered into amendments to our Loan Agreement with our lender which provided the following, among other things: ● removed the quarterly fixed charge coverage ratio (“FCCR”) testing requirement for the first, second and third quarters of 2024; ● reinstated the quarterly FCCR testing requirement starting in the fourth quarter of 2024 and revises the methodology to be used in calculating the FCCR as follows (with no change to the minimum 1.15:1 ratio requirement): FCCR for the fourth quarter is to be determined based on financial results for the three-months period ending December 31, 2024; FCCR for the first quarter of 2025 is to be determined based on financial results for the six-months period ending March 31, 2025; FCCR for the second quarter of 2025 is to be determined based on financial results for the nine-months period ending June 30, 2025; and FCCR for the third quarter of 2025 and each fiscal quarter thereafter is to be determined based on financial results for a trailing twelve-months period ending basis; ● requires maintenance of a minimum of $3,000,000 in daily Liquidity starting June 30, 2024, through September 29, 2025 (which we have met to date); and ● in the event that we are able to achieve our minimum quarterly FCCR requirement utilizing our financial results based on a trailing twelve-months period starting with the quarter ended September 30, 2024 (which we did not achieve as of December 31, 2024), the maintenance of a minimum of $3,000,000 in daily Liquidity requirement as discussed above will be removed. Any subsequent fiscal quarter testing of the FCCR will revert back to a trailing twelve-months period method. In connection with the amendments, we paid our lender fees totaling $37,500 which is being amortized over the remaining term of the Loan Agreement as interest expense-financing fees. 27 On March 11, 2025, we entered into an amendment to our Loan Agreement with our lender which provided the following, among other things: ● removes the quarterly FCCR testing requirement for the fourth quarter of 2024; ● removes the requirement that we maintain a minimum of $3,000,000 in daily Liquidity through September 29, 2025, which was removable earlier subject to meeting certain conditions; ● removes the quarterly FCCR covenant testing requirement utilizing a twelve-month trailing basis; however, such FCCR testing requirement will be triggered on the day we fail to meet a minimum of $5,000,000 in daily Liquidity. If triggered, we will be required to show compliance of a FCCR ratio of not less than 1.15 to 1.00 utilizing a trailing twelve-month-period ended starting with the most recently reported fiscal quarter and each fiscal quarter thereafter. The FCCR testing requirement can be removed again once we are able to achieve a minimum of $5,000,000 in daily Liquidity for a thirty-consecutive-day period from the trigger date; and ● revises the Facility Fee (as defined) from .375% to .500%. Such fee percentage will revert back to .375% at such time that we are able to achieve a minimum 1.15 to 1.00 ratio in FCCR on a twelve-month trailing basis. In connection with the amendment, the Company paid its lender a fee of $12,500. Our Credit Facility under our Loan Agreement with PNC contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our Credit Facility allowing our lender to immediately require the repayment of all outstanding debt under our Credit Facility and terminate all commitments to extend further credit. We were not required to perform testing of our FCCR requirement for the first, second and third quarters of 2024 pursuant to the amendments dated May 8, 2024, and November 12, 2024, to our Loan Agreement as discussed above. We were also not required to perform testing of our FCCR requirement for the fourth quarter of 2024 pursuant to the amendment dated March 11, 2025, to our Loan Agreement, as amended, as discussed above. Otherwise, we met all of our other financial covenant requirements in each of the quarters in 2024. We expect to meet our quarterly financial covenant requirements for the next twelve months. EWOC Note Our financing activities for 2024 included monthly principal payments on a note that we entered into on July 24, 2024, to finance the balance of the purchase price of the property where our EWOC facility operates. Pursuant to a Purchase and Sales Agreement dated April 30, 2024, we acquired the property for a purchase price of $425,000, paying $63,750 in cash and financing the balance with a bank loan of $361,250 (the “Note”). The Note, which matures on July 24, 2044 (the “Note”), provides for monthly payments of $3,100 for the first five years commencing August 24, 2024, which payments includes interest at an annual fixed interest rate of 8.10%. Monthly payments under the Note will then be adjusted at the end of years five, ten and fifteen, with interest calculated based on the weekly average five-year US Treasury Securities Rate plus 3.0%. Under no circumstances will the variable interest rate on the Note be less than 4.0% per annum or more than (except in the case of default) the lesser of 20.5% per annum or the maximum rate allowed by applicable law. We agreed to pay the lender 3.0% of the total outstanding principal balance under the Note in the event we pay off our obligations during the first year of the Note. The prepayment penalty rate will be reduced by 1.0% at each subsequent annual anniversary of the Note. No prepayment penalty will apply in the event we pay off the Note on the fourth anniversary of the Note or thereafter. The property was previously accounted for under our operating leases. 28 Sale of Common Stock (May 2024) On May 21, 2024, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional and retail investors (the “Purchasers”), pursuant to which we sold and issued, in a registered direct public offering, an aggregate of 2,051,282 shares of the Company’s Common Stock, at a negotiated purchase price per share of $9.75 (the “Shares”), for aggregate gross proceeds to us of approximately $20,000,000, before deducting fees payable to the placement agents and other estimated offering expenses payable by the Company (the “Offering”). The net proceeds from the Offering was utilized to fund (i) continued R&D and business development relating to our patent-pending process for the destruction of PFAS, as well as the cost of installing at least one commercial treatment unit; (ii) ongoing facility capital expenditures and maintenance costs; and (iii) general corporate and working capital purposes. The Shares were offered and sold by the Company pursuant to the Company’s “shelf” registration statement on Form S-3 and prospectus supplement relating thereto. Craig-Hallum Capital Group LLC (“Craig-Hallum”) and Wellington Shields & Co. LLC (“Wellington Shields”) (Wellington Shields and Craig-Hallum together are known as the “Placement Agents”) served as the exclusive placement agents in connection with the Offering. We paid the Placement Agents an aggregate cash fee of $1,200,000, which represented 6.00% of the gross proceeds of the Offering. We also reimbursed the Placement Agents certain expenses in connection with the Offering in an aggregate amount of approximately $80,000. As additional compensation to the Placement Agents in connection with the Offering, we also issued to the Placement Agents and two (2) of their designees, warrants (the “Placement Agents’ Warrants”) to purchase an aggregate of 61,538 shares of Common Stock (the “Warrant Shares”), an amount equal to 3.0% of the number of Shares sold in the registered direct offering. The Placement Agents’ Warrants have an exercise price per share equal to $12.19, which is equal to approximately 125% of the price per share of the Shares sold in the Offering. Neither the Placement Agents’ Warrants nor the Warrant Shares have been registered under the Registration Statement or otherwise. The Placement Agents’ Warrants have a term of five years, are exercisable at any time and from time to time, in whole or in part, during the four and one-half (4 ½) year period commencing 180 days from the last date of closing of the Offering, which was May 24, 2024, and are exercisable via “cashless exercise” in certain circumstances. The aggregate fair value of the “Placement Agents’ Warrants” was determined to be approximately $331,000 using the Black-Scholes pricing model with the following assumptions: 58.78% volatility, risk free interest rate of 4.53%, an expected life of five years and no dividend. The aggregate fair market value of the Placement Agent’s Warrants was recorded as an offset to gross proceeds of the Offering and an increase to additional paid-in capital. After deducting costs incurred (which have all been paid) of approximately $1,544,000 (exclusive of the aggregate fair market value of the Placement Agents’ Warrants as discussed above) which were recorded as a deduction to equity in connection with the Offering, net cash proceeds to us totaled approximately $18,456,000. Sale of Common Stock (December 2024) On December 18, 2024, we entered into an underwriting agreement (the “Underwriting Agreement”) with Craig-Hallum Capital Group, LLC (the “Underwriter”) to which we sold and issued pursuant to the terms and conditions of the Underwriting Agreement, 2,200,000 shares of the Company’s Common Stock. The shares of Common stock were sold at a negotiated price to the public of $10.00 per share. The Underwriting Agreement also allowed the Underwriter a 30-day over-allotment option (the “Over-Allotment Option”) to purchase up to an additional 330,000 shares of our Common Stock on the same terms and conditions, which option was exercised in its entirely on December 18, 2024. The shares were offered and sold to the public pursuant to our “universal shelf” registration statement on Form S-3 filed with the Commission on December 2, 2024, and declared effective by the Commission on December 12, 2024, and prospectus supplement relating thereto. The aggregate gross proceeds received by us from the sale of the 2,530,000 shares sold totaled $25,300,000, before deducting fees payable to the Underwriter and other estimated offering expenses payable by us (the “Offering”). The net proceeds from the Offering is anticipated to fund (i) continued R&D and business development relating to our patent-pending process for the destruction of PFAS, as well as the cost of installing at least one second-generation Perma-FAS commercial treatment unit; (ii) ongoing facility capital expenditures and maintenance costs; and (iii) general corporate and working capital purposes. 29 We paid the Underwriter a total cash fee of 7.00% of the aggregate gross proceeds in the Offering, which totaled approximately $1,771,000. We also reimbursed the Underwriter certain expenses in connection with the Offering in an aggregate amount of approximately $95,000. As additional compensation to the Underwriter in connection with the Offering, we also issued to the Underwriter and three (3) of their designees, warrants (the “Underwriters’ Warrant’s”) to purchase an aggregate of 126,500 shares of Common Stock (the “Warrant Shares”), equal to 5.0% of the number of Shares sold in the offering, at an exercise price per share equal to $11.50, which exercise price is equal to approximately 115% of the price per share of the shares sold in the Offering. The Underwriter’s Warrants have a term of five years, are exercisable at any time and from time to time, in whole or in part, during the five (5) year period commencing on December 19, 2024, the closing date of the Offering, and are exercisable via “cashless exercise” in certain circumstances. The aggregate fair value of the “Underwriter’s Warrants” was determined to be approximately $695,000 using the Black-Scholes pricing model with the following assumptions: 58.51% volatility, risk free interest rate of 4.43%, an expected life of five years and no dividend. The aggregate fair market value of the Underwriter’s Warrants was recorded as an offset to gross proceeds of the Offering and an increase to additional-paid-in capital. After deducting costs incurred of approximately $2,092,000 (exclusive of the aggregate fair market value of the Underwriter’s Warrants as discussed above) which were recorded as a deduction to equity in connection with the Offering, net cash proceeds to us totaled approximately $23,208,000. We have paid approximately $1,897,000 of the $2,092,000 costs incurred in connection with the Offering. Off Balance Sheet Arrangements From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of December 31, 2024, the total amount of standby letters of credit outstanding was approximately $3,200,000 and the total amount of bonds outstanding was approximately $20,930,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through American International Group, Inc. (“AIG”). As of December 31, 2024, the closure and post-closure requirements for these facilities were approximately $23,379,000. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared based upon the selection and application of US GAAP, which may require us to make estimates, judgments and assumptions that affect amounts reported in our financial statements and accompanying notes. The accounting policies below are those we believe affect the more significant estimates and judgments used in preparation of our financial statements. Our other accounting policies are described in the accompanying notes to our consolidated financial statements of this Form 10-K (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies”): Revenues . Our revenues are generated from our two reportable segments, Treatment and Services. Certain contracts within our Services Segment are generated from long-term fixed price contracts. 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 determined based on fixed price outline within the contract. 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. 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. Revenue for Treatment Segment performance obligations are generally satisfied over time using the input method. For the input method, revenue is recognized based on the costs incurred. Transaction price for Treatment Segment contracts are determined by the stated fixed rate per unit price as stipulated in the contract. 30 Some of our contracts have multiple performance obligations, most commonly when we provide additional services to the customer under a waste treatment contract. For contract with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Generally, we use the observable selling prices from an observable price list, but when a price list is not available, the standalone selling price is determined by the cost plus margin approach. Within our Treatment Segment, we 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 us. Our contracts generally do not give rise to variable consideration. However, from time to time, we may submit requests for equitable adjustments under certain of our government contracts for price or other modifications that are determined to be variable consideration. We estimate 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. Intangible Assets . Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying value. 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. We perform a quantitative test to determine if the fair value of the assets is less than the carrying value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair value. Significant judgments 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 permits related to our Treatment reporting unit as of October 1, 2024, and 2023 resulted in no impairment charges. Intangible assets that have definite useful lives are amortized using the straight-line method over the estimated useful lives and are excluded from our annual intangible asset valuation review as of October 1. Intangible assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. Our future cash flow assumptions and conclusions with respect to asset impairments could be impacted by changes arising from (i) a sustained period of economic and industrial slowdowns (ii) inability to scale our operations and implement cost reduction efforts during reduced demand and/or (iii) a significant decline in our share price for a sustained period of time. These factors, among others, could significantly impact the impairment analysis and may result in future asset impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations. We believe that the assumptions and estimates utilized for the reporting periods are appropriate based on the information available to management. Accrued Closure Costs and Asset Retirement Obligations (“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. We develop estimates for the cost of these activities based on our evaluation of site-specific facts and circumstances, such as the existence of structures and other improvements that would need to be dismantled and the length of the post-closure period as determined by the applicable regulatory agency, among other things. Included in our cost estimates are our interpretation of current regulatory requirements and any proposed regulatory changes. These cost estimates may change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies. Our cost estimates are calculated using internal sources as well as input from third-party experts. 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, we 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 flow. Increases in the ARO liability due to passage of time impact net income as accretion expense and are included in cost of goods sold in the Consolidated Statements of Operations. Changes in the estimated future cash flows costs underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with our depreciation policy. 31 Income Taxes . The provision for income tax is determined in accordance with ASC 740, “Income Taxes.” As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We record this amount as a provision or benefit for taxes. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, and assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We regularly review deferred tax assets by jurisdiction to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions could cause an increase or decrease to the valuation allowance which could materially impact our results of operations. Recent Accounting Pronouncements See “Item 8 – Financial Statements and Supplementary Data” – Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies” for the recent accounting pronouncement that was adopted in 2024 and recent accounting pronouncements that will be adopted in future periods. Known Trends and Uncertainties Significant Customers . Our Treatment and Services Segments have significant relationships with federal governmental authorities through contracts entered into indirectly as subcontractors for others who are contractors or directly as the prime contractor to federal government authorities. Our inability to continue under existing contracts that we have with the federal government (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. The contracts that we are a party to with others as subcontractors to the federal government or directly with the federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. Our inability to continue under existing contracts that we have with the federal government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. We performed services relating to waste generated by federal government clients, either directly as a prime contractor or indirectly for others as a subcontractor to federal government entities, representing approximately $40,551,000, or 68.6%, of our total revenue during 2024, as compared to $68,595,000 or 76.4%, of our total revenue during 2023. 32 Federal Funding . As discussed above, a significant portion of our revenue is generated through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to federal government authorities. Uncertainties exist regarding how future federal government budget and program and policy decisions will unfold, which include, the spending priorities of the new Administration and Congress, passage of the 2025 fiscal year U.S. government budget and potential for enactment of additional continuing resolutions to keep government departments and agencies in operations. The full impact of these uncertainties could negatively impact our financial results by impairing our ability to perform work on existing contracts, delaying or cancelling procurement actions by government entities, and/or cause other disruptions or delays, including payment delays. New Processing Technology . We have completed the fabrication, installation, commissioning and startup of our first full scale commercial Perma-FAS system (“System”) for PFAS (commonly known as “forever chemicals”) destruction at our Perma-Fix Florida, Inc. facility. Our System and patent-pending technology successfully processed commercial PFAS-containing waste materials. There are limited current treatment options for these materials, and we expect that our process will exceed any of these methods. Some of the sizable markets for PFAS include AFFF (aqueous film-forming foam) firefighting foams, both expired concentrate and flushing liquids, contaminated liquids from PFAS systems, and other water-based separation products from a variety of industrial systems. We have already secured and are treating approximately 6,000 gallons of AFFF liquids to support ongoing operations, demonstration, and further testing of our System. We believe that we will receive an additional 20,000 gallons in the coming months. Our strategy for our System includes continued treatment of PFAS liquids over the coming months and targeting engineering refinements to support larger-scale Systems. With significant upgrades to our prototype currently in the design phase, we anticipate deployment of the second-generation unit in the third quarter of 2025 at one of our other existing treatment facilities to support revenue generation in the fourth quarter of 2025. By the third quarter of 2025, we expect to advance this technology into pilot-scale applications for soil, biosolids, and filter media, broadening the reach of our System’s destruction capabilities for PFAS. Related Party Transactions See a discussion of our related party transactions in “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidate Financial Statements – Note 15 – Related Party Transactions.”