# Perma Fix Environmental Services Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Perma Fix Environmental Services Inc](/companies/pesi.md) (CIK 891532)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 13:18 ET
- Period: 2023-09-30
- Accession: 0001493152-23-039110
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/891532/000149315223039110/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/891532/000149315223039110/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $21.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $67.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $17.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $54.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $4.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $12.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $120.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $340.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $3.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $11.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $496.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $765.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $89.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $189.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $254.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $482.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $341.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $404.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 13,979,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 13,749,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$26.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $2.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $32.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $79.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $27.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $40.7m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $2.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $880.0k | us-gaap:LongTermDebtCurrent |

## Management's discussion and analysis

As filed, 47,775 characters.

### Forward-looking Statements

Certain statements contained within this report may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the “Private Securities Litigation Reform Act of 1995”). All statements in this report other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements. The words “believe,” “expect,” “anticipate,” “intend,” “will,” and similar expressions identify forward-looking statements. Forward-looking statements contained herein relate to, among other things,

- demand for our services;
- U.S. government shutdown;
- reductions in the level of government funding in future years;
- reducing operating costs and non-essential expenditures;
- ability to meet loan agreement quarterly covenant requirements;
- cash flow requirements;
- Canadian receivable;
- execution of written settlement agreement between PF Canada and CNL;
- sufficient liquidity to fund operations for the next twelve months;
- future results of operations and liquidity;
- effect of macroeconomic concerns, such as inflation and higher interest rates, on our business;
- manner in which the applicable government will be required to spend funding to remediate various sites;
- finalization of partnership agreement with Springfields Fuels Limited;
- successful on international bids;
- continued increases in operating costs;
- funding of capital expenditures from cash from operations, borrowing availability under our credit facility and/or financing;
- steady improvement in waste shipments and work under projects during balance of 2023;
- funding of remediation expenditures for sites from funds generated internally;
- compliance with environmental regulations;
- potential effect of being a PRP;
- potential violations of environmental laws and attendant remediation at our facilities; and
- our ability to effect increases in the prices of the services we offer.

While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to be correct. There are a variety of factors which could cause future outcomes to differ materially from those described in this report, including, but not limited to:

- general economic conditions;
- contract bids, including international markets;
- material reduction in revenues;
- inability to meet PNC covenant requirements;
- inability to collect in a timely manner a material amount of receivables;
- increased competitive pressures;
- inability to maintain and obtain required permits and approvals to conduct operations;

22

- inability to develop new and existing technologies in the conduct of operations;
- inability to maintain and obtain closure and operating insurance requirements;
- inability to retain or renew certain required permits;
- discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures;
- delays at our third-party disposal site can extend collection of our receivables greater than twelve months;
- refusal of third-party disposal sites to accept our waste;
- changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
- requirements to obtain permits for TSD activities or licensing requirements to handle low level radioactive materials are limited or lessened;
- management retention and development;
- financial valuation of intangible assets is substantially more/less than expected;
- the need to use internally generated funds for purposes not presently anticipated;
- inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
- terminations of contracts with government agencies or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
- renegotiation of contracts involving government agencies;
- disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment;
- inability to raise capital on commercially reasonable terms;
- inability to increase profitable revenue;
- economic uncertainties;
- new governmental regulations; and
- risk factors and other factors set forth in “Special Note Regarding Forward-Looking Statements” contained in the Company’s 2022 Form 10-K and the “Forward-Looking Statements” contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) for the first and second quarters 2023 10-Q and this third quarter 2023 10-Q.

23

### Overview

Revenue increased by $3,405,000 or 18.4% to $21,877,000 for the three months ended September 30, 2023, from $18,472,000 for the corresponding period of 2022. We saw increases in both segments where Treatment Segment revenue increased by $1,918,000 to $10,795,000 or 21.6% from $8,877,000 and Services Segment revenue increased by $1,487,000 or 15.5% to $11,082,000 from $9,595,000. The increase in revenue in the Treatment Segment was primarily due to overall higher waste volume which was offset by lower averaged price waste due to revenue mix. The increase in revenue in the Services Segment was due to continuing operation and improved productivity on certain projects which had been delayed/curtailed in 2022 due, in part, from the lingering effects of the COVID-19 pandemic. Revenue in both segments were also positively impacted by contracts won in the first half of 2023. As previously disclosed, the lingering effects of COVID-19 negatively impacted our revenue in 2022 as work under projects and waste shipments continued to be delayed by certain customers into the first half of 2022. Additionally, in 2022, procurement and planning on behalf of our government clients continued to be delayed which did not ease until the second half of 2022. Total gross profit for the third quarter of 2023 increased $1,479,000 or 48.2% due to increased revenue. Selling, General, and Administrative (“SG&A”) expenses remained flat for the three months ended September 30, 2023 as compared to the corresponding period of 2022.

Revenue increased by $13,174,000 or 24.5% to $67,016,000 for the nine months ended September 30, 2023, from $53,842,000 for the corresponding period of 2022. As with the third quarter of 2023, we saw increases in both segments where Treatment Segment revenue increased by $8,474,000 to $33,223,000 or 34.2% from $24,749,000 and Services Segment revenue increased by $4,700,000 or 16.2% to $33,793,000 from $29,093,000. The increases in revenue in both the Treatment and Services Segments were due primarily to the same reasons as discussed above for the third quarter. Total gross profit for the nine months ended 2023 increased $4,484,000 or 59.1% due to increased revenue generated in both segments. SG&A expenses decreased $66,000 or 0.6% for the nine months ended September 30, 2023, as compared to the corresponding period of 2022.

We expect to see continued steady improvements in waste receipts and increases in project work from certain existing contracts, contracts already won in 2023, and bids submitted in both segments that are awaiting awards during the balance of 2023. However, if Congress is unable to enact FY 2024 appropriation bills or extend the continuing resolutions to fund government spending by November 17, 2023, the U.S. government will enter into a shutdown. The full impact of any government shutdown is uncertain. However, if a government shutdown were to occur and were to continue an extended period, our financial results of operations could be negatively impacted by delays in procurement actions, waste shipments and project delays on newly awarded projects.

### Business Environment

Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government entities or directly as the prime contractor. We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions and the manner in which the applicable government will be required to spend funding to remediate various sites and a potential government shutdown. In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option, and our governmental contracts/TOAs with the Canadian government authorities also allowed the authorities to terminate the contract/task orders at any time for convenience. Work under all of our contracts/TOAs with Canadian government authorities has been completed. See ‘Known Trends and Uncertainties – Perma-Fix Canada Inc. (“PF Canada”)” within this MD&A for a discussion of a significant account receivable due PF Canada under a Canadian TOA which was previously terminated. 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.

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

### 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 – Three and Nine Months Ended September 30, 2023 and 2022

|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
| --- | ---: | ---: | ---: | ---: |
| Consolidated (amounts in thousands) | 2023% | 2022% | 2023% | 2022% |
| Net revenues | $21,877 100.0 | $18,472 100.0 | $67,016 100.0 | $53,842 100.0 |
| Cost of goods sold | 17,328 79.2 | 15,402 83.4 | 54,942 82.0 | 46,252 85.9 |
| Gross profit | 4,549 20.8 | 3,070 16.6 | 12,074 18.0 | 7,590 14.1 |
| Selling, general and administrative | 3,933 18.0 | 3,929 21.3 | 10,969 16.4 | 11,035 20.5 |
| Research and development | 120 .5 | 69 .3 | 340 .5 | 245 .5 |
| Loss on disposal of property and equipment | — — | — — | — — | 1 — |
| Loss from operations | 496 2.3 | (928) (5.0) | 765 1.1 | (3,691) (6.9) |
| Interest income | 146 .7 | 29 .2 | 445 .7 | 69 .1 |
| Interest expense | (89) (.4) | (47) (.2) | (189) (.3) | (123) (.2) |
| Interest expense-financing fees | (36) (.2) | (16) (.1) | (80) (.1) | (44) — |
| Other | (17) (.01) | 1,965 10.6 | (11) — | 1,960 3.6 |
| Income (loss) from continuing operations before taxes | 500 2.3 | 1,003 5.5 | 930 1.4 | (1,829) (3.4) |
| Income tax expense (benefit) | 254 1.2 | 179 1.0 | 482 .7 | (147) (.3) |
| Income (loss) from continuing operations, net of taxes | $246 1.1 | $824 4.5 | $448 .7 | $(1,682) (3.1) |

#### Revenues

Consolidated revenues increased $3,405,000 for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, as follows:

*(In thousands)*

| Treatment | 2023 | % Revenue | 2022 | % Revenue | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Government waste | $6,692 | 30.6 | $5,475 | 29.7 | $1,217 | 22.2 |
| Hazardous/non-hazardous (1) | 1,389 | 6.3 | 1,150 | 6.2 | 239 | 20.8 |
| Other nuclear waste | 2,714 | 12.4 | 2,252 | 12.2 | 462 | 20.5 |
| Total | 10,795 | 49.3 | 8,877 | 48.1 | 1,918 | 21.6 |
| Services |  |  |  |  |  |  |
| Nuclear services | 9,996 | 45.7 | 9,360 | 50.7 | 636 | 6.8 |
| Technical services | 1,086 | 5.0 | 235 | 1.2 | 851 | 362.1 |
| Total | 11,082 | 50.7 | 9,595 | 51.9 | 1,487 | 15.5 |
| Total | $21,877 | 100.0 | $18,472 | 100.0 | $3,405 | 18.4 |

(1) Includes wastes generated by government clients of $653,000 and $540,000 for the three months ended September 30, 2023, and the corresponding period of 2022, respectively.

Treatment Segment revenue increased by $1,918,000 or 21.6% for the three months ended September 30, 2023 over the same period in 2022. The overall increase was primarily due to higher waste volume offset by lower averaged price waste from revenue mix. As previously disclosed, starting in the latter part of the second quarter of 2022, our Treatment Segment began to see steady improvements in waste receipts from certain customers who had previously delayed waste shipments due, in part, from the lingering effects of COVID-19. Services Segment revenue increased by approximately $1,487,000 or 15.5%. The increase in revenue in the Services Segment was due to continuing operation and improved productivity on certain projects which had been delayed/curtailed in the early part of 2022 due, in part, from the lingering effects of the COVID-19 pandemic. Our Services Segment revenues are project-based; as such, the scope, duration, and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value. Revenues from both of our segments were also positively impacted from contracts won in the first half of 2023.

Consolidated revenues increased $13,174,000 for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, as follows:

*(In thousands)*

| Treatment | 2023 | % Revenue | 2022 | % Revenue | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Government waste | $23,036 | 34.4 | $16,666 | 31.0 | $6,370 | 38.2 |
| Hazardous/non-hazardous (1) | 4,522 | 6.7 | 3,515 | 6.5 | 1,007 | 28.6 |
| Other nuclear waste | 5,665 | 8.5 | 4,568 | 8.5 | 1,097 | 24.0 |
| Total | 33,223 | 49.6 | 24,749 | 46.0 | 8,474 | 34.2 |
| Services |  |  |  |  |  |  |
| Nuclear services | 31,918 | 47.6 | 28,320 | 52.6 | 3,598 | 12.7 |
| Technical services | 1,875 | 2.8 | 773 | 1.4 | 1,102 | 142.6 |
| Total | 33,793 | 50.4 | 29,093 | 54.0 | 4,700 | 16.2 |
| Total | $67,016 | 100.0 | $53,842 | 100.0 | $13,174 | 24.5 |

(1) Includes wastes generated by government clients of $2,126,000 and $1,652,000 for the nine months ended September 30, 2023, and the corresponding period of 2022, respectively.

Treatment Segment revenue increased by $8,474,000 or 34.2% for the nine months ended September 30, 2023 over the same period in 2022. Similar to the third quarter, the overall increase was primarily due to higher waste volume offset by lower averaged price waste from revenue mix. Services Segment revenue increased by approximately $4,700,000 or 16.2%. due to continuing operation and improved productivity on certain projects which had been delayed/curtailed in the early part of 2022 due, in part, from the lingering effects of the COVID-19 pandemic. Our Services Segment revenues are project-based; as such, the scope, duration, and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value. Revenues from both of our segments were also positively impacted from contracts won in the first half of 2023.

#### Cost of Goods Sold

Cost of goods sold increased $1,926,000 for the quarter ended September 30, 2023, as compared to the quarter ended September 30, 2022, as follows:

*(In thousands)*

|  | 2023 | %% Revenue | 2022 | Revenue | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Treatment | $9,301 | 86.2 | $6,910 | 77.8 | $2,391 |
| Services | 8,027 | 72.4 | 8,492 | 88.5 | (465) |
| Total | $17,328 | 79.2 | $15,402 | 83.4 | $1,926 |

Cost of goods sold for the Treatment Segment increased by approximately $2,391,000 or 34.6% primarily due to higher revenue. Treatment Segment’s variable costs increased by approximately $1,584,000, primarily due to higher material and supplies, disposal, lab and outside services costs. Treatment Segment’s overall fixed costs were higher by approximately $807,000 resulting from the following: salaries and payroll related expenses were higher by approximately $484,000 due to higher headcount; depreciation expenses were higher by approximately $194,000 due to depreciation for asset retirement obligations (“ARO”) in connection with our Oak Ridge Environmental Waste Operations Center (“EWOC”) facility; regulatory expenses were higher by approximately $57,000; travel expenses were higher by approximately $30,000; and general expenses were higher by approximately $42,000 in various categories. Services Segment cost of goods sold decreased $465,000 or 5.5%. The overall decrease in cost of goods sold was primarily due to the following: lower outside services and travel costs totaling approximately $761,000; overall lower material and supplies, lab, regulatory and disposal costs totaling approximately $186,000; higher general expenses by approximately $48,000 in various categories; and higher salaries and payroll related expenses by approximately $434,000. Included within cost of goods sold is depreciation and amortization expense of $666,000 and $471,000 for the three months ended September 30, 2023, and 2022, respectively.

Cost of goods sold increased $8,690,000 for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, as follows:

*(In thousands)*

|  | 2023 | %% Revenue | 2022 | Revenue | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Treatment | $27,986 | 84.2 | $20,581 | 83.2 | $7,405 |
| Services | 26,956 | 79.8 | 25,671 | 88.2 | 1,285 |
| Total | $54,942 | 82.0 | $46,252 | 85.9 | $8,690 |

Cost of goods sold for the Treatment Segment increased by approximately $7,405,000 or 36.0%. Treatment Segment’s variable costs increased by approximately $4,858,000 primarily due to higher material and supplies, disposal, lab and outside services costs. Treatment Segment’s overall fixed costs were higher by approximately $2,547,000 resulting from the following: salaries and payroll related expenses were higher by approximately $1,106,000 due to higher headcount; depreciation expenses were higher by approximately $597,000 due to depreciation for ARO in connection with our EWOC facility; general expenses were higher by approximately $310,000 primarily due to higher utility costs; maintenance costs were higher by approximately $251,000; regulatory expenses were higher by approximately $222,000; and travel expenses were higher by approximately $61,000. Services Segment cost of goods sold increased $1,285,000 or 5.0% due to higher revenue. The overall increase in cost of goods sold was primarily due to the following: aggregated higher salaries/payroll related, outside services, and travel costs totaling approximately $1,886,000; higher depreciation expenses of $93,000; lower material and supplies, lab, regulatory and disposal expenses totaling approximately $582,000; and lower general expenses by approximately $112,000 in various categories. Included within cost of goods sold is depreciation and amortization expense of $2,063,000 and $1,373,000 for the nine months ended September 30, 2023, and 2022, respectively.

#### Gross Profit

Gross profit for the quarter ended September 30, 2023, increased $1,479,000 over the same period of 2022, as follows:

*(In thousands)*

|  | 2023 | %% Revenue | 2022 | Revenue | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Treatment | $1,494 | 13.8 | $1,967 | 22.2 | $(473) |
| Services | 3,055 | 27.6 | 1,103 | 11.5 | 1,952 |
| Total | $4,549 | 20.8 | $3,070 | 16.6 | $1,479 |

Treatment Segment gross profit decreased by $473,000 or approximately 24.0% and gross margin decreased to 13.8% from 22.2% primarily due to lower averaged price waste from revenue mix and the increase in fixed costs. Services Segment gross profit increased by $1,952,000 or 177.0% and gross margin increased to 27.6% from 11.5% primarily due to higher revenue and improved margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid and therefore have varying margin structures.

Gross profit for the nine months ended September 30, 2023, increased $4,484,000 over the same period in 2022, as follows:

*(In thousands)*

|  | 2023 | %% Revenue | 2022 | Revenue | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Treatment | $5,237 | 15.8 | $4,168 | 16.8 | $1,069 |
| Services | 6,837 | 20.2 | 3,422 | 11.8 | 3,415 |
| Total | $12,074 | 18.0 | $7,590 | 14.1 | $4,484 |

Treatment Segment gross profit increased by $1,069,000 or 25.6% due to higher revenue. The decrease in gross margin to 15.8% from 16.8% was primarily due to lower averaged price waste from revenue mix and the increase in fixed costs. Services Segment gross profit increased by $3,415,000 or 99.8% and gross margin increased from 11.8% to 20.2% primarily due to higher revenue and improved margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively bid and therefore have varying margin structures.

#### SG&A

SG&A expenses increased $4,000 for the three months ended September 30, 2023, as compared to the corresponding period for 2022, as follows:

*(In thousands)*

|  | 2023 | % Revenue | 2022 | % Revenue | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Administrative | $1,916 | — | $1,826 | — | $90 |
| Treatment | 1,039 | 9.6 | 1,144 | 12.9 | (105) |
| Services | 978 | 8.8 | 959 | 10.0 | 19 |
| Total | $3,933 | 18.0 | $3,929 | 21.3 | $4 |

Administrative SG&A expenses were higher primarily due to the following: salaries and payroll-related expenses were higher by approximately $205,000, primarily due to higher accrued incentives of approximately $178,000 in connection with the Company’s management incentive plans (“MIPs”); outside services expenses were lower by approximately $85,000 resulting from fewer audit/consulting matters; and general expenses were lower by approximately $30,000 in various categories. Treatment Segment SG&A expenses were lower primarily due to the following: outside services expenses were lower by approximately $19,000 as a result of fewer consulting matters; salaries and payroll related expenses were lower by approximately $92,000; travel expenses were lower by approximately $3,000; and general expense were higher by approximately $9,000. The increase in Services Segment SG&A was primarily due to higher general and travel expenses. Included in SG&A expenses is depreciation and amortization expense of $20,000 and $26,000 for the three months ended September 30, 2023, and 2022, respectively.

SG&A expenses decreased $66,000 for the nine months ended September 30, 2023, as compared to the corresponding period for 2022, as follows:

*(In thousands)*

|  | 2023 | % Revenue | 2022 | % Revenue | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Administrative | $5,281 | — | $5,278 | — | $3 |
| Treatment | 3,071 | 9.2 | 3,302 | 13.3 | (231) |
| Services | 2,617 | 7.7 | 2,455 | 8.4 | 162 |
| Total | $10,969 | 16.4 | $11,035 | 20.5 | $(66) |

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Administrative SG&A expenses were slightly higher primarily due to the following: payroll-related expenses were higher by approximately $241,000, including an increase in accrued incentives of approximately $192,000 in connection with the Company’s MIPs and higher 401(k) matching expenses as payroll expenses in the first nine months of 2022 included more forfeitures of 401(k) plan matching funds contributed by us for former employees who failed to meet the 401(k) plan vesting requirements; outside services expenses were lower by approximately $187,000 as a result of fewer audit/consulting matters; general expenses were lower by approximately $42,000 in various categories; and travel expenses were lower by approximately $9,000. Treatment Segment SG&A expenses were lower primarily due to the following: outside services expenses were lower by approximately $83,000 due to fewer consulting matters; salaries and payroll related expenses were lower by approximately $210,000; travel expenses were lower by approximately $15,000; general expenses were higher by approximately $45,000 in various categories; and credit losses on accounts receivable were higher by approximately $32,000. The increase in SG&A expenses within our Services Segment was primarily due to the following: salaries/payroll-related expenses were higher by approximately $86,000 due to more administrative support functions required as the result of higher revenue; travel expenses were higher by approximately $25,000; and credit losses on accounts receivable were higher by approximately $72,000, as in the first quarter of 2022 our Services Segment collected on certain accounts that were previously deemed to be uncollectible. Such increases were partially offset by decreases in general expenses of approximately $21,000 in various categories. Included in SG&A expenses is depreciation and amortization expense of $61,000 and $60,000 for the nine months ended September 30, 2023, and 2022, respectively.

#### Interest Income

Interest income increased by approximately $117,000 and $376,000 for the three and nine months ended September 30, 2023, respectively, as compared to the corresponding period of 2022 primarily due to higher interest earned from the finite risk sinking fund. Interest income for the nine months ended September 30, 2023, also included approximately $60,000 received in March 2023 under the Employee Retention Credit (“ERC”) program under the CARES Act.

#### Interest Expense

Interest expense increased by approximately $42,000 and $66,000 for the three and nine months ended September 30, 2023, respectively, as compared to the corresponding period of 2022 due to interest incurred on the new $2,500,000 term loan dated July 31, 2023, under the Company’s credit facility. Interest expense was also higher in both periods from higher interest rate on our term loan dated May 8, 2020, which was offset by the declining term loan balance. The increase in interest expense for the nine months ended September 30, 2023, was also the result of interest incurred from advances made in May of 2022 from the capital line under our credit facility.

#### Income Taxes

We had income tax expenses of $254,000 and $179,000 for continuing operations for the three months ended September 30, 2023, and 2022, respectively, and income tax expense of $482,000 and income tax benefit of $147,000 for the nine months ended September 30, 2023, and 2022, respectively. Our effective tax rates were approximately 50.8% and 17.8% for the three months ended September 30, 2023, and 2022, respectively, and 51.8% and 8.0% for the nine months ended September 30, 2023, and 2022, respectively. Our effective tax rates for the three and nine months ended September 30, 2023, were impacted by non-deductible expenses and state taxes.

### Liquidity and Capital Resources

Our cash flow requirements during the nine months ended September 30, 2023 were primarily financed by our operations, cash on hand (which included the ERC, along with interest, that we received in March 2023 and proceeds from a new term loan dated July 31, 2023 in the amount of $2,500,000 provided to us under an amendment to our existing credit facility), and credit facility availability (See “Financing Activities” below for a discussion of an amendment to our credit facility that we entered into with our lender on July 31, 2023, which extended the maturity date of our credit facility and provided the new term loan to us, among other things). Our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility availability, and cash on hand. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. At September 30, 2023, our borrowing availability under our revolving credit facility was approximately $10,378,000, which included our cash and was based on our eligible receivables and was net of approximately $3,200,000 in outstanding standby letters of credit and a $750,000 indefinite reduction in borrowing availability that our lender imposed pursuant to the July 31, 2023 amendment of the Loan Agreement. We believe that our cash flows from operations, our available liquidity from our credit facility, and our cash on hand should be sufficient to fund our operations for the next twelve months,

The following table reflects the cash flow activities during the first nine months of 2023:

*(In thousands)*

|  |  |
| --- | ---: |
| Cash provided by operating activities of continuing operations | $452 |
| Cash used in operating activities of discontinued operations | (478) |
| Cash used in investing activities of continuing operations | (1,386) |
| Cash provided by financing activities of continuing operations | 1,890 |
| Increase in cash and finite risk sinking fund (restricted cash) | $478 |

At September 30, 2023, we were in a positive cash position with no revolving credit balance. At September 30, 2023, we had cash on hand of approximately $1,988,000.

#### Operating Activities

Accounts receivable, net of credit losses, totaled $15,342,000 at September 30, 2023, an increase of $5,978,000 from the December 31, 2022 balance of $9,364,000. The increase was attributed to increased revenue, timing of invoicing, and our accounts receivable collection. Our contracts with our customers are subject to various payment terms and conditions. Our accounts receivable at September 30, 2023, include invoices for work performed for a certain Canadian project that remains outstanding which we expect to collect, subject to finalization of a written settlement agreement (See discussion under “Known Trends and Uncertainties – Perma-Fix Canada Inc. (“PF Canada”)”) for a discussion of the account receivable.

Accounts payable totaled $9,614,000 at September 30, 2023, a decrease of $711,000 from the December 31, 2022 balance of $10,325,000. Our accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout all segments.

We had working capital of $4,748,000 (which included working capital of our discontinued operations) at September 30, 2023, as compared to working capital of $818,000 at December 31, 2022. The increase in our working capital was primarily due to increases in our accounts and unbilled receivables from improved operations. The overall increase was offset by the increase in our accrued expenses.

#### Investing Activities

For the nine months ended September 30, 2023, our purchases of capital equipment totaled approximately $1,695,000, of which $309,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2023 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations, borrowing availability under our credit facility, and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.

During March 2022, we signed a joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”) in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European nuclear market. It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five percent (55%) and our interest will be forty-five percent (45%). The finalization, form and capitalization of this unpopulated partnership is subject to numerous conditions, including but not limited to, winning a certain contract, completion and execution of a definitive agreement and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast future economic conditions. Upon finalization of this venture, we will be required to make an investment in this venture. The amount of our investment, the period in which it is to be made and the method of funding are to be determined.

#### Financing Activities

We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement, as amended (including the two amendments that we entered into with PNC in 2023 described below), provides us with the following credit facility with a maturity date of May 15, 2027: (a) up to $12,500,000 revolving credit (“revolving credit”), with the maximum that we can borrow under the revolving credit based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing reductions that our lender may impose from time to time; (b) a term loan (“Term Loan 1”) dated May 8, 2020, of approximately $1,742,000, requiring monthly installments of $35,547; (c) a term loan (“Term Loan 2”) of $2,500,000 dated July 31, 2023, requiring monthly installments of $41,667; and (d) a capital expenditure line (“Capital Line”) of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve months starting May 4, 2021 (the “Borrowing Period”), with interest only payable on advances during the Borrowing Period. Amounts advanced under the Capital Line at the end of the Borrowing Period totaled approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, commencing June 1, 2022.

On March 21, 2023, we entered into an amendment to our Loan Agreement, as amended, with our lender which provided, among other things, the following:

- removed the quarterly fixed charge coverage ratio (“FCCR”) testing requirement for the fourth quarter of 2022 and removed the FCCR testing requirement for the first quarter of 2023;
- reduced the maximum revolving credit line under the credit facility from $18,000,000 to $12,500,000;
- reinstated the quarterly FCCR testing requirement starting in the second quarter of 2023 using a trailing twelve-month period (with no change to the minimum 1.15:1 ratio requirement for each quarter); and
- 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 June 30, 2023 has been met and certified to the lender (we met our FCCR requirement in the second quarter of 2023 which was certified to our lender and therefore, this requirement is no longer applicable under our Loan Agreement, as amended).

In connection with the March 2023 amendment, we paid our lender a fee of $25,000 which is being amortized over the remaining term of the Loan Agreement, as amended, as interest expense-financing fees.

On July 31, 2023, we entered into a further amendment of the Loan Agreement, as amended, with our lender which provided, among other things, the following:

- extended the maturity date of the Loan Agreement, as amended, to May 15, 2027, from May 15, 2024;
- an additional term loan (“Term Loan 2”) to us in the amount of $2,500,000, requiring monthly installments of approximately $41,667. The annual rate of interest due on Term Loan 2 is at prime plus 3.00% or SOFR (as defined in the Loan Agreement, as amended) plus 4.00% plus an SOFR Adjustment applicable for an interest period selected by us. A SOFR Adjustment rate of 0.10% and 0.15% is applicable for a one-month interest period and three-month period, respectively, that may be selected by us;
- removed the minimum Tangible Adjusted Net Worth (as defined in the Loan Agreement) covenant requirement;
- placed an indefinite reduction in borrowing availability of $750,000; and
- allows for up to $2,500,000 in capital expenditure made in fiscal year 2023 and thereafter to be treated as financed capital expenditure in the Company’s quarterly FCCR covenant calculation requirement.

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At maturity of the Loan Agreement, as amended, any unpaid principal balance plus interest, if any, will become due.

Pursuant to the amendment dated July 31, 2023, we have agreed to pay PNC 1.0% of the total financing under the Loan Agreement, as amended, in the event we pay off our obligations on or before July 31, 2024, and 0.5% of the total financing if we pay off our obligations after July 31, 2024, to and including July 31, 2025. No early termination fee shall apply if we pay off our obligations under the amended Loan Agreement after July 31, 2025.

In connection with amendment dated July 31, 2023, we paid our lender a fee of $100,000 which is being amortized over the remaining term of the Loan Agreement, as amended, as interest expense-financing fees.

Pursuant to the Loan Agreement, as amended, the annual rate of interest due on the revolving credit is at prime (8.50% at September 30, 2023) plus 2% or SOFR plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by us. The annual rate of interest due on Term Loan 1 and the Capital 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. 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. See payment of annual rate of interest due on Term Loan 2 under the amendment dated July 31, 2023, as discussed above.

Our credit facility under our Loan Agreement, as amended, contains certain financial covenants, along with customary representations and warranties. A breach of any of these financial covenants, unless waived by our lender, 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 the FCCR requirement in the first quarter of 2023 pursuant to the March 21, 2023 amendment as discussed above. We otherwise met all of our other financial covenant requirements. We met all of our covenant requirements in the second and third quarters of 2023 and we expect to meet our covenant requirements in the next twelve months.

### 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. At September 30, 2023, the total amount of standby letters of credit outstanding totaled approximately $3,200,000 and the total amount of bonds outstanding totaled approximately $36,428,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. At September 30, 2023, the closure and post-closure requirements for these facilities were approximately $22,461,000.

### Critical Accounting Policies and Estimates

There were no significant changes in our accounting policies or critical accounting estimates that are discussed in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Recent Accounting Pronouncements

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

### Known Trends and Uncertainties

*Significant Customers*. Our Treatment and Services Segments have significant relationships with the U.S governmental authorities through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to government authorities. We also had significant relationships with Canadian government authorities primarily through TOAs entered into with Canadian government authorities. Project work under all TOAs with Canadian government authorities has been completed. The contracts that we are a party to with others as subcontractors to the U.S federal government or directly with the U.S federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. The contracts/TOAs that we were a party to with Canadian governmental authorities also generally provide that the government authorities may terminate the contracts/TOAs at any time for any reason for convenience. Our inability to continue under existing contracts that we have with the U.S 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.

We 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 $16,234,000 or 74.2% and $55,380,000 or 82.6% of our total revenues generated during the three and nine months ended September 30, 2023, respectively, as compared to $15,279,000 or 82.7% and $46,488,000 or 86.3% of our total revenues generated during the three and nine months ended September 30, 2022, respectively.

*Potential U.S Government Shutdown.* 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 U.S. government authorities. As previously disclosed, if Congress is unable to enact FY 2024 appropriation bills or extend the continuing resolutions to fund government spending by November 17, 2023, the U.S. government will enter into a shutdown. The full impact of any government shutdown is uncertain. However, if a government shutdown were to occur and were to continue an extended period, our financial results of operations could be negatively impacted by delays in procurement actions, waste shipments and project delays on newly awarded projects.

*Potential Partnership with Springfields Fuels Limited.* As discussed above, we have signed a term sheet addressing plans to partner with Springfields Fuels Limited, an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility in the United Kingdom. See “Liquidity and Capital Resources – Investing Activities” of this MD&A for a discussion of this transaction.

*Perma-Fix Canada Inc. (“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 September 30, 2023, PF Canada has approximately $2,287,000 in unpaid receivables due from CNL as a result of work performed under the TOA. Additionally, CNL has approximately $1,056,000 in contractual holdback under the TOA that is payable to PF Canada. CNL and PF Canada have completed discussions and reached an agreement in principle to settle related matters under which, subject to execution of a written settlement agreement, the noted unpaid receivables and contractual holdback amounts will be paid to PF Canada.

#### Potential International Contracts

We continue to aggressively bid, either individually or with others as a joint venture partner, on potential contracts within the international markets. At any given time, we are awaiting decisions on any number of outstanding bids by prospective customers. Certain of these outstanding bids, if awarded, could be material to the Company.

*Inflation and Supply Chain.* Our financial results have been negatively impacted by various macroeconomic factors, including the effects of inflation, supply chain issues, labor shortages, and higher interest rates, due, in part, to the continued impact of COVID-19. Continued increases in any of our operating costs, including utility, transportation, wage rates, and supply costs, may further increase our overall cost of goods sold or operating expenses. We may attempt to increase our service and treatment prices in order to maintain satisfactory margin from the effect of these factors as discussed above; however, competitive pressures in our industry may have the effect of inhibiting our ability to reflect these increased costs in the prices of our services that we provide to our customers and therefore reduce our profitability.

### Environmental Contingencies

We are engaged in the waste management services segment of the pollution control industry. As a participant in the on-site treatment, storage and disposal market and the off-site treatment and services market, we are subject to rigorous federal, state and local regulations. These regulations mandate strict compliance and therefore are a cost and concern to us. Because of their integral role in providing quality environmental services, we make every reasonable attempt to maintain complete compliance with these regulations; however, even with a diligent commitment, we, along with many of our competitors, may be required to pay fines for violations or investigate and potentially remediate our waste management facilities.

We routinely use third party disposal companies, who ultimately destroy, or secure landfill for, residual materials generated at our facilities or at a client’s site. In the past, numerous third-party disposal sites have improperly managed waste and consequently require remedial action; consequently, any party utilizing these sites may be liable for some or all of the remedial costs. Despite our aggressive compliance and auditing procedures for disposal of wastes, we could be notified, in the future, that we are a potentially responsible party (“PRP”) at a remedial action site, which could have a material adverse effect.

We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. We expect to fund the expenses to remediate these sites from funds generated from operations. At September 30, 2023, we had total accrued environmental remediation liabilities of $861,000 with no change from the December 31, 2022 balance. At September 30, 2023, $77,000 of the total accrued environmental liabilities was recorded as current.

## Controls and procedures

As filed, 1,361 characters.

|  |  |
| --- | --- |
| (a) | Evaluation of disclosure controls and procedures. |
|  | We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management. As of the end of the period covered by this report, we carried out an evaluation with the participation of our Principal Executive Officer and Principal Financial Officer. Based on this recent assessment, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective as of September 30, 2023. |
| (b) | Changes in internal control over financial reporting. |
|  | There was no other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. |

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## Risk factors

As filed, 193 characters.

There has been no other material change from the risk factors previously disclosed in our Form 10-K for the year ended December 31, 2022, and our Form 10-Q for the quarter ended March 31, 2023.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-039110. Last ingested by Listed: Nov 5, 2026, 13:52 ET. No prices; not investment advice.