SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 


Form 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended                June 30, 2010       

Or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                                                      to                                           

Commission File No.
111596

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)
58-1954497
(IRS Employer Identification Number)
 
   
8302 Dunwoody Place, Suite 250, Atlanta, GA
(Address of principal executive offices)
30350
(Zip Code)

(770) 587-9898
(Registrant's telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes ¨    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer ¨        Accelerated Filer x        Non-accelerated Filer ¨        Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨    No x

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the latest practical date.

Class
 
Outstanding at August 3, 2010
Common Stock, $.001 Par Value
 
54,993,907
   
shares of registrant’s
   
Common Stock
 


 
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

INDEX

     
Page No.
PART I        FINANCIAL INFORMATION   
       
 
Item 1.
Condensed Financial Statements
 
       
   
Consolidated Balance Sheets - June 30, 2010 (unaudited) and December 31, 2009
1
       
   
Consolidated Statements of Operations - Three and Six Months Ended June 30, 2010 (unaudited) and 2009 (unaudited)
3
       
   
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2010 (unaudited) and 2009 (unaudited)
4
       
   
Consolidated Statement of Stockholders' Equity -Six Months Ended June 30, 2010 (unaudited)
5
       
   
Notes to Consolidated Financial Statements
6
       
 
Item 2.
Management's Discussion and Analysis ofFinancial Condition and Results of Operations
21
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
44
       
 
Item 4.
Controls and Procedures
44
       
PART II       OTHER INFORMATION   
       
 
Item 1.
Legal Proceedings
45
       
 
Item 1A.
Risk Factors
46
       
 
Item 6.
Exhibits
46
 
 
 

 

PART I - FINANCIAL INFORMATION
ITEM 1. – Financial Statements

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets

   
June 30,
2010
   
December 31,
 
(Amount in Thousands, Except for Share Amounts)
 
(Unaudited)
   
2009
 
             
ASSETS
           
Current assets:
           
Cash
  $ 68     $ 141  
Restricted cash
    55       55  
Accounts receivable, net of allowance for doubtful accounts of $304 and $296, respectively
    10,078       13,141  
Unbilled receivables - current
    8,166       9,858  
Inventories
    565       351  
Prepaid and other assets
    2,028       3,097  
Deferred tax assets - current
    707       1,856  
Current assets related to discontinued operations
    109       174  
Total current assets
    21,776       28,673  
                 
Property and equipment:
               
Buildings and land
    27,131       27,098  
Equipment
    33,000       31,757  
Vehicles
    649       650  
Leasehold improvements
    11,506       11,455  
Office furniture and equipment
    1,905       1,933  
Construction-in-progress
    1,400       1,275  
      75,591       74,168  
Less accumulated depreciation and amortization
    (30,710 )     (28,441 )
Net property and equipment
    44,881       45,727  
                 
Property and equipment related to discontinued operations
    637       651  
                 
Intangibles and other long term assets:
               
Permits
    18,068       18,079  
Goodwill
    15,330       12,352  
Unbilled receivables – non-current
    2,619       2,502  
Finite Risk Sinking Fund
    17,396       15,480  
Deferred tax asset, net of liabilities
    208       272  
Other assets
    2,293       2,339  
Total assets
  $ 123,208     $ 126,075  

The accompanying notes are an integral part of these consolidated financial statements.

 
1

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets, Continued

   
June 30,
2010
   
December 31,
 
(Amount in Thousands, Except for Share Amounts)
 
(Unaudited)
   
2009
 
             
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current liabilities:
           
Accounts payable
  $ 4,097     $ 4,927  
Current environmental accrual
    75       25  
Accrued expenses
    9,180       6,478  
Disposal/transportation accrual
    2,275       2,761  
Unearned revenue
    3,034       8,949  
Current liabilities related to discontinued operations
    740       993  
Current portion of long-term debt
    3,038       3,050  
Total current liabilities
    22,439       27,183  
                 
Environmental accruals
    1,497       785  
Accrued closure costs
    12,114       12,031  
Other long-term liabilities
    578       508  
Long-term liabilities related to discontinued operations
    1,336       1,433  
Long-term debt, less current portion
    7,563       9,331  
Total long-term liabilities
    23,088       24,088  
                 
Total liabilities
    45,527       51,271  
                 
Commitments and Contingencies
               
                 
Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share
    1,285       1,285  
                 
Stockholders' equity:
               
Preferred Stock, $.001 par value; 2,000,000 shares authorized,no shares issued and outstanding
    ¾       ¾  
Common Stock, $.001 par value; 75,000,000 shares authorized,55,032,117 and 54,628,904 shares issued, respectively; 54,993,907 and 54,628,904 outstanding, respectively
    55       55  
Additional paid-in capital
    100,523       99,641  
Accumulated deficit
    (24,094 )     (26,177 )
      76,484       73,519  
Less Common Stock in treasury at cost: 38,210 and 0 shares, respectively
    (88 )     ¾  
                 
Total stockholders' equity
    76,396       73,519  
                 
Total liabilities and stockholders' equity
  $ 123,208     $ 126,075  

The accompanying notes are an integral part of these consolidated financial statements.

 
2

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
(Amounts in Thousands, Except for Per Share Amounts)
 
2010
   
2009
   
2010
   
2009
 
                         
Net revenues
  $ 28,096     $ 23,698     $ 53,955     $ 45,700  
Cost of goods sold
    21,356       18,244       41,876       35,675  
Gross profit
    6,740       5,454       12,079       10,025  
                                 
Selling, general and administrative expenses
    3,829       3,889       7,653       7,707  
Loss (gain) on disposal of property and equipment
    ¾       ¾       2       (12 )
Income from operations
    2,911       1,565       4,424       2,330  
                                 
Other income (expense):
                               
Interest income
    16       41       37       93  
Interest expense
    (208 )     (468 )     (427 )     (1,015 )
Interest expense-financing fees
    (103 )     (63 )     (206 )     (76 )
Other
    ¾       9       5       10  
Income from continuing operations before taxes
    2,616       1,084       3,833       1,342  
Income tax expense
    1,101       91       1,537       100  
Income from continuing operations
    1,515       993       2,296       1,242  
                                 
(Loss) income from discontinued operations, net of taxes
    (69 )     (242 )     (213 )     57  
Net income applicable to Common Stockholders
  $ 1,446     $ 751     $ 2,083     $ 1,299  
                                 
Net income (loss) per common share – basic
                               
Continuing operations
  $ .03     $ .02     $ .04     $ .02  
Discontinued operations
    ¾       (.01 )     ¾       ¾  
Net income per common share
  $ .03     $ .01     $ .04     $ .02  
                                 
Net income (loss) per common share – diluted
                               
Continuing operations
  $ .03     $ .02     $ .04     $ .02  
Discontinued operations
    ¾       (.01 )     ¾       ¾  
Net income per common share
  $ .03     $ .01     $ .04     $ .02  
                                 
Number of common shares used in computing net income (loss) per share:
                               
Basic
    54,991       54,124       54,843       54,053  
Diluted
    55,124       54,537       55,012       54,189  

The accompanying notes are an integral part of these consolidated financial statements.

 
3

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Six Months Ended
June 30,
 
(Amounts in Thousands)
 
2010
   
2009
 
Cash flows from operating activities:
           
Net income
  $ 2,083     $ 1,299  
Less: (loss) income on discontinued operations
    (213 )     57  
                 
Income from continuing operations
    2,296       1,242  
Adjustments to reconcile net income to cash provided by operations:
               
Depreciation and amortization
    2,349       2,381  
Non-cash financing costs
    167       49  
Deferred taxes
    1,213        
Provision for bad debt and other reserves
    29       212  
Loss (gain) on disposal of plant, property and equipment
    2       (12 )
Issuance of common stock for services
    120       129  
Share based compensation
    165       224  
Changes in operating assets and liabilities of continuing operations, net of effect from business acquisitions:
               
Accounts receivable
    3,034       168  
Unbilled receivables
    1,575       2,896  
Prepaid expenses, inventories and other assets
    1,063       297  
Accounts payable, accrued expenses and unearned revenue
    (7,435 )     (9,100 )
Cash provided by (used in) continuing operations
    4,578       (1,514 )
Cash used in discontinued operations
    (520 )     (448 )
Cash provided by (used in) operating activities
    4,058       (1,962 )
                 
Cash flows from investing activities:
               
Purchases of property and equipment
    (1,467 )     (552 )
Proceeds from sale of plant, property and equipment
          12  
Payment to finite risk sinking fund
    (1,916 )     (2,738 )
Cash used in investing activities of continuing operations
    (3,383 )     (3,278 )
Cash provided by discontinued operations
    37       11  
Net cash used in investing activities
    (3,346 )     (3,267 )
                 
Cash flows from financing activities:
               
Net borrowing of revolving credit
    2       3,691  
Principal repayments of long term debt
    (1,949 )     (1,514 )
Proceeds from issuance of long term debt
          2,982  
Proceeds from issuance of stock
    509        
Proceeds from finite risk financing
    653        
Cash (used in) provided by financing activities of continuing operations
    (785 )     5,159  
                 
Decrease in cash
    (73 )     (70 )
Cash at beginning of period
    141       129  
Cash at end of period
  $ 68     $ 59  
                 
Supplemental disclosure:
               
Interest paid, net of amounts capitalized
  $ 544     $ 3,628  
Income taxes paid
    400       57  
Non-cash investing and financing activities:
               
Long-term debt incurred for purchase of property and equipment
           
Issuance of Common Stock for debt
          476  
Issuance of Warrants for debt
          190  

The accompanying notes are an integral part of these consolidated financial statements.

 
4

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, for the six months ended June 30, 2010)

               
Additional
   
Common
         
Total
 
(Amounts in thousands,
 
Common Stock
   
Paid-In
   
Stock Held In
   
Accumulated
   
Stockholders'
 
except for share amounts)
 
Shares
   
Amount
   
Capital
   
Treasury
   
Deficit
   
Equity
 
Balance at December 31, 2009
    54,628,904     $ 55     $ 99,641    
$
¾     $ (26,177 )   $ 73,519  
                                                 
Net income
    ¾       ¾       ¾       ¾       2,083       2,083  
Issuance of Common Stock upon exercise of Options
    350,000       ¾       597       ¾       ¾       597  
Payment of Option exercise by Common Stock shares
    ¾       ¾       ¾       (88 )     ¾       (88 )
Issuance of Common Stock for services
    53,213       ¾       120       ¾       ¾       120  
Stock-Based Compensation
    ¾       ¾       165       ¾       ¾       165  
Balance at June 30, 2010
    55,032,117     $ 55     $ 100,523     $ (88 )   $ (24,094 )   $ 76,396  

The accompanying notes are an integral part of these consolidated financial statements.

 
5

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010
(Unaudited)

Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

1.
Basis of Presentation

The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading.  Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated.  The results of operations for the six months ended June 30, 2010, are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2010.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 (“2009 Form 10-K”).

As previously disclosed in our 2009 Form 10-K, our Perma-Fix of Memphis, Inc. (“PFM”) facility was reclassified back into discontinued operations from continuing operations during the fourth quarter of 2009, in accordance with ASC360, “Property, Plant, and Equipment”. Accordingly, the accompanying condensed financial statements have been restated for all periods presented to reflect the reclassification of PFM as discontinued operations.  (See “Note 8 – Discontinued Operations” for additional information regarding PFM).

2.
Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2009-13, “Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force.”  This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted.  ASU No. 2009-13 did not materially impact our operations, financial position, and disclosure requirement.

 
6

 

On February 24, 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”, which remove the requirement for a Securities and Exchange Commission (“SEC”) filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP.  The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued.  The FASB believes these amendments remove potential conflicts with the SEC’s literature.  All of the amendments in the ASU were effective upon issuance except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.  ASU No. 2010-09 did not materially impact our operations, financial position, and disclosure requirement.

In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition Milestone Methods (Topic 605)”.  This update provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.  Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon the achievement of milestone events. An entity may only recognize consideration that is contingent upon the achievement of a milestone in its entirety in the period the milestone is achieved only if the milestone meets certain criteria. This guidance is effective prospectively for milestones achieved in fiscal years beginning on or after June 15, 2010.  ASU 2010-17 did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards
In January 2010, the FASB issued ASU 2010-6, “Improving Disclosures About Fair Value Measurements”, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair- value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010.  We do not expect ASU 2010-6 to have a material impact on our consolidated financial statements.

Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.

3.
Stock Based Compensation

We follow FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) to account for stock-based compensation.  ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.

The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors.  Stock options granted to employees have either a ten year contractual term with one fifth yearly vesting over a five year period or a six year contractual term with one third yearly vesting over a three year period.  Stock options granted to outside directors have a ten year contractual term with vesting period of six months.

As of June 30, 2010, we had 2,010,525 employee stock options outstanding, of which 1,386,858 are vested.  The weighted average exercise price of the 1,386,858 outstanding and fully vested employee stock option is $1.98 with a remaining weighted contractual life of 2.40 years.  Additionally, we had 694,000 outstanding and fully vested director stock options with a weighted average exercise price and remaining contractual life of $2.29 and 5.50 years, respectively.

No option was granted during the six months ended June 30, 2010.  During the six months ended June 30, 2009, an aggregate 145,000 Incentive Stock Options (“ISOs”) were granted in the first quarter of 2009 to certain employees of the Company which allows for the purchase of 145,000 Common Stock from the Company’s 2004 Stock Option Plan.  The option grants were for a contractual term of six years with vesting period over a three year period at one-third increments per year.  The exercise price of the options granted was $1.42 per share which was based on our closing stock price on the date of grant.

7

 
The Company estimates fair value of stock options using the Black-Scholes valuation model.  Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield.  The fair value of the options granted during the six months of 2009 noted above and the related assumptions used in the Black-Scholes option pricing model used to value the options granted as of June 30, 2009 were as follows.

   
Employee Stock Options Granted
as of June 30, 2009
 
Weighted-average fair value per share
 
$.76
 
Risk -free interest rate (1)
 
2.07% - 2.40%
 
Expected volatility of stock (2)
 
59.16% - 60.38%
 
Dividend yield
 
None
 
Expected option life (3)
 
4.6 years - 5.8 years
 

(1)  The risk-free interest rate is based on the U.S. Treasury yield in effect at the grant date over the expected term of the option.

(2)  The expected volatility is based on historical volatility from our traded Common Stock over the expected term of the option.

(3)  The expected option life is based on historical exercises and post-vesting data.

The following table summarizes stock-based compensation recognized for the three and six months ended June 30, 2010 and 2009 for our employee and director stock options.

   
Three Months Ended
   
Six Months Ended
 
Stock Options
 
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Employee Stock Options
  $ 79,000     $ 89,000     $ 138,000     $ 194,000  
Director Stock Options
    ¾       ¾       27,000       30,000  
Total
  $ 79,000     $ 89,000     $ 165,000     $ 224,000  

We recognized stock-based compensation expense using a straight-line amortization method over the requisite period, which is the vesting period of the stock option grant.  ASC 718 requires that stock based compensation expense be based on options that are ultimately expected to vest.  ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We have generally estimated forfeiture rate based on historical trends of actual forfeitures.  When actual forfeitures vary from our estimates, we recognize the difference in compensation expense in the period the actual forfeitures occur or when options vest.  As of June 30, 2010, we have approximately $375,000 of total unrecognized compensation cost related to unvested options, of which $162,000 is expected to be recognized in remaining 2010, $202,000 in 2011, and $11,000 in 2012.

 
8

 

4.
Capital Stock, Stock Plans, and Warrants

During the six months ended June 30, 2010, we issued an aggregate of 350,000 shares of our Common Stock upon exercise of 350,000 employee stock options, at exercise prices ranging from $1.25 to $2.19.  An employee used 38,210 shares of personally held Company Common Stock as payment for the exercise of 70,000 options to purchase 70,000 shares of the Company’s Common Stock at $1.25 per share, as permitted under the 1993 Non-Qualified Stock Option Plan.  The 38,210 shares are held as treasury stock.  The cost of the 38,210 shares was determined to be approximately $88,000 in accordance with the Plan.  As of June 30, 2010, we received $509,000 in total proceeds from stock option exercise.  During the six months ended June 30, 2010, we also issued 53,213 shares of our Common Stock under our 2003 Outside Directors Stock Plan to our outside directors as compensation for serving on our Board of Directors, of which 27,707 shares were issued in the second quarter of 2010.  We pay each of our outside directors $2,167 monthly in fees for serving as a member of our Board of Directors.  The Audit Committee Chairman receives an additional monthly fee of $1,833 due to the position’s additional responsibility.  In addition, each board member is paid $1,000 for each board meeting attendance as well as $500 for each telephonic conference call.  As a member of the Board of Directors, each director elects to receive either 65% or 100% of the director’s fee in shares of our Common Stock based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due.  The balance of each director’s fee, if any, is payable in cash.

The summary of the Company’s total Plans as of June 30, 2010 as compared to June 30, 2009, and changes during the period then ended are presented as follows:

   
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Options outstanding Janury 1, 2010
    3,109,525     $ 2.05              
Granted
 
   
             
Exercised
    (350,000 )     1.70           $ 223,000  
Forfeited
    (55,000 )     2.17                
Options outstanding End of Period (1)
    2,704,525       2.09       3.6     $ 28,450  
Options Exercisable at June 30, 2010 (1)
    2,080,858     $ 2.08       3.4     $ 13,250  
Options Vested and expected to be vested at June 30, 2010
    2,666,742     $ 2.09       3.6     $ 28,450  

   
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Options outstanding Janury 1, 2009
    3,417,347     $ 2.03              
Granted
    145,000       1.42              
Exercised
 
   
       
$
 
Forfeited
    (19,000 )     1.97              
Options outstanding End of Period (2)
    3,543,347       2.01       4.0  
$
1,524,369  
Options Exercisable at June 30, 2009 (2)
    2,407,847     $ 1.95       3.4  
$
1,209,349  
Options Vested and expected to be vested at June 30, 2009
    3,501,989     $ 1.95       4.0  
$
1,518,579  

(1) Option with exercise price ranging from $1.42 to $2.98
(2) Option with exercise price ranging from $1.22 to $2.98

 
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5.
Earnings (Loss) Per Share

Basic earning per share excludes any dilutive effects of stock options, warrants, and convertible preferred stock.  In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive earnings per share.

The following is a reconciliation of basic net income (loss) per share to diluted net income (loss) per share for the three and six months ended June 30, 2010 and 2009:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
(Unaudited)
   
(Unaudited)
 
(Amounts in Thousands, Except for Per Share Amounts)
 
2010
   
2009
   
2010
   
2009
 
Earnings per share from continuing operations
                       
Income from continuing operations applicable to
                       
Common Stockholders
  $ 1,515     $ 993       2,296     $ 1,242  
Basic income per share
  $ .03     $ .02       .04     $ .02  
Diluted income per share
  $ .03     $ .02       .04     $ .02  
                                 
(Loss) income per share from discontinued operations
                               
(Loss) income from discontinued operations
  $ (69 )   $ (242 )     (213 )   $ 57  
Basic loss per share
 
$
¾     $ (.01 )     ¾    
$
¾  
Diluted loss per share
 
$
¾     $ (.01 )     ¾    
$
¾  
                                 
Weighted average common shares outstanding – basic
    54,991       54,124       54,843       54,053  
Potential shares exercisable under stock option plans
    99       367       131       111  
Potential shares upon exercise of Warrants
    34       46       38       25  
Weighted average shares outstanding – diluted
    55,124       54,537       55,012       54,189  
                                 
                                 
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
                               
Upon exercise of options
    1,715       1,546       1,625       2,645  
Upon exercise of Warrants
    ¾       ¾       ¾       ¾  

 
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6.
Long Term Debt

Long-term debt consists of the following at June 30, 2010 and December 31, 2009:

(Amounts in Thousands)
 
June 30,
2010
   
December 31,
2009
 
Revolving Credit facility dated December 22, 2000, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.25% at June 30, 2010) plus 2.0% or minimum floor base London InterBank Offer Rate ("LIBOR") of 1.0% plus 3.0%, balance due in July, 2012. Effective interest rate for the six months of 2010 was 4.43% (1) (2) (3)
  $ 2,661     $ 2,659  
Term Loan dated December 22, 2000, payable in equal monthly installments of principal of $83, balance due in July, 2012, variable interest paid monthly at option of prime rate plus 2.5% or minimum floor base LIBOR of 1.0% plus 3.5%. Effective interest rate for the six months of 2010 was 4.81%(1) (2) (3)
    5,167       5,667  
Installment Agreement in the Agreement and Plan of Merger with Nuvotec and PEcoS, dated April 27, 2007, payable in three equal yearly installment of principal of $833 beginning June, 2009. Interest accrues at annual rate of 8.25% on outstanding principal balance. Final principal and remaining accrued interest payment due on June 30, 2011.
    833       1,667  
Promissory Note dated May 8, 2009, payable in monthly installments of principal of $87 starting June 8, 2009, balance due May 8, 2011, variable interest paid monthly at LIBOR plus 4.5%, with LIBOR at least 1.5%.(4)
    1,580       1,938  
Various capital lease and promissory note obligations, payable 2010 to 2013, interest at rates ranging from 5.0% to 12.6%.
    360       450  
      10,601       12,381  
Less current portion of long-term debt
    3,038       3,050  
    $ 7,563     $ 9,331  

(1)  Our Revolving Credit is collateralized by our account receivables and our Term Loan is collateralized by our property, plant, and equipment.

(2)  Prior to March 5, 2009, variable interest was paid monthly at prime plus 1/2% for our Revolving Credit and prime plus 1.0% for our Term Loan.

(3) From March 5, 2009 to January 24, 2010, variable interest were determined based on the options as noted; however, minimum floor base under the LIBOR option was 2.5% for both our Revolving Credit and Term Loan.  Effective January 25, 2010, minimum floor base under the LIBOR option was amended from 2.5% to 1.0%.

(4)  Net of debt discount of ($284,000) based on the estimated fair value of two Warrants and 200,000 shares of the Company’s Common Stock issued on May 8, 2009 in connection with a $3,000,000 promissory note entered into by the Company and Mr. William Lampson and Mr. Diehl Rettig.  See “Promissory Note and Installment Agreement” below for additional information.   

 
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Revolving Credit and Term Loan Agreement
On December 22, 2000, we entered into a Revolving Credit, Term Loan and Security Agreement ("Loan Agreement") with PNC Bank, National Association, a national banking association ("PNC") acting as agent ("Agent") for lenders, and as issuing bank, as amended.  The Agreement provided for a term loan ("Term Loan") in the amount of $7,000,000, which requires monthly installments of $83,000.  The Agreement also provided for a revolving line of credit ("Revolving Credit") with a maximum principal amount outstanding at any one time of $18,000,000, as amended.  The Revolving Credit advances are subject to limitations of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up to 150 days from invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent reasonably deems proper and necessary.  As of June 30, 2010, the excess availability under our Revolving Credit was $8,100,000 based on our eligible receivables.

Pursuant to the Loan Agreement, as amended, we may terminate the Loan Agreement upon 90 days’ prior written notice upon payment in full of the obligation.  We agreed to pay PNC 1% of the total financing in the event we pay off our obligations on or prior to August 4, 2009 and 1/2 % of the total financing if we pay off our obligations on or after August 5, 2009, but prior to August 4, 2010.  No early termination fee shall apply if we pay off our obligations after August 5, 2010.

On January 25, 2010, we entered into an Amendment (Amendment No. 14) to our PNC Loan Agreement.  This Amendment amended the interest rate to be paid under the LIBOR option.  Under the terms of the Loan Agreement, we are to pay interest on the outstanding balance of the term loan and the revolving line of credit, at our option, based on prime plus 2.5% and 2.0%, respectively, or LIBOR plus 3.5% and 3.0%, respectively.  Under the Loan Agreement prior to this Amendment, the LIBOR option included a 2.5% floor, which limited the minimum interest rates on the term loan and revolving line of credit at 6.0% and 5.5%, respectively.  Under this Amendment, we and PNC agreed to lower the floor on the LIBOR interest rate option by 150 basis points to 1.0%, allowing for minimum interest rate floor under the LIBOR option on the outstanding balances of our term loan and revolving line of credit of 4.5% and 4.0%, respectively.  The prime rate option of prime plus 2.5% and 2.0% in connection with our term loan and revolving line of credit, respectively, was not changed under this Amendment.  All other terms of the Loan Agreement, as amended prior to this Amendment, remain substantially unchanged.

Promissory Note and Installment Agreement
In conjunction with our acquisition of Perma-Fix Northwest Richland, Inc. (“PFNWR”) and Perma-Fix Northwest, Inc. (“PFNW”), we agreed to pay shareholders of Nuvotec (n/k/a PFNW) that qualified as accredited investors, pursuant to Rule 501 of Regulation D promulgated under the Securities Act of 1933, $2,500,000, with principal payable in equal installment of $833,333 on June 30, 2009, June 30, 2010, and June 30, 2011.  Interest accrued on the outstanding principal balance at 8.25% starting in June 2007 and is payable on June 30, 2008, June 30, 2009, June 30, 2010, and June 30, 2011.  As of June 30, 2010, we have paid two of the three principal installments of $833,333, along with accrued interest.  Interest paid as of June 30, 2010 totaled approximately $560,000 which represents interest from June 2007 to June 2010.

On May 8, 2009, the Company entered into a promissory note with William N. Lampson and Diehl Rettig (collectively, the “Lenders”) for $3,000,000.  The Lenders were formerly shareholders of PFNW and PFNWR prior to our acquisition of PFNW and PFNWR and are also stockholders of the Company having received shares of our Common Stock in connection with our acquisition of PFNW and PFNWR.  We used the proceeds of the loan primarily to pay off a promissory note entered into by our M&EC subsidiary with PDC in June 2001, with the remaining funds used for working capital purposes.  The promissory note provides for monthly principal repayment of approximately $87,000 plus accrued interest, starting June 8, 2009, and on the 8th day of each month thereafter, with interest payable at LIBOR plus 4.5%, with LIBOR at least 1.5%.  Any unpaid principal balance along with accrued interest is due May 8, 2011.  We paid approximately $22,000 in closing costs for the promissory note which is being amortized over the term of the note.  The promissory note may be prepaid at anytime by the Company without penalty.  As consideration of the Company receiving this loan, we issued a Warrant to Mr. Lampson and a Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares, respectively, of the Company’s Common Stock at an exercise price of $1.50 per share.  The Warrants are exercisable six months from May 8, 2009 and expire on May 8, 2011.  We also issued an aggregate of 200,000 shares of the Company’s Common Stock with Mr. Lampson receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s Common Stock.  We estimated the fair value of the Common Stock and Warrants to be approximately $476,000 and $190,000, respectively.  The fair value of the Common Stock and Warrants was recorded as a debt discount and is being amortized over the term of the loan as interest expense – financing fees.  Debt discount amortized as of June 30, 2010 totaled approximately $382,000.  Mr. Rettig is now deceased; accordingly, the remaining portion of the note payable to Mr. Rettig and the Warrants and Stock issued to him is now payable to and held by his personal representative or estate.

 
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The promissory note also includes an embedded Put Option (“Put”) that can be exercised upon default, whereby the lender has the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest, or the number of whole shares of our Common Stock having a value equal to the outstanding principal balance.  The maximum number of payoff shares is restricted to less than 20% of the outstanding equity.  We concluded that the Put should have been bifurcated at inception; however, the Put Option had and continues to have nominal value as of June 30, 2010.  We will continue to monitor the fair value of the Put on a regular basis.

7.
Commitments and Contingencies

Hazardous Waste
In connection with our waste management services, we handle both hazardous and non-hazardous waste, which we transport to our own, or other facilities for destruction or disposal.  As a result of disposing of hazardous substances, in the event any cleanup is required, we could be a potentially responsible party for the costs of the cleanup notwithstanding any absence of fault on our part.

Legal
In the normal course of conducting our business, we are involved in various litigation.

Perma-Fix of Dayton (“PFD”), Perma-Fix of Florida (“PFF”), Perma-Fix of Orlando (“PFO”), Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of Memphis (“PFM”)
In May 2007, the above facilities were named Potentially Responsible Parties (“PRPs”) at the Marine Shale Superfund site in St. Mary Parish, Louisiana (“Site”).  Information provided by the EPA indicates that, from 1985 through 1996, the Perma-Fix facilities above were responsible for shipping 2.8% of the total waste volume received by Marine Shale.  Subject to finalization of this estimate by the PRP group, PFF, PFO and PFD could be considered de-minimus at .06%, .07% and .28% respectively.  PFSG and PFM would be major at 1.12% and 1.27% respectively.  However, at this time the contributions of all facilities are consolidated.

The Louisiana Department of Environmental Quality (“LDEQ”) has collected approximately $8,400,000 to date for the remediation of the site (Perma-Fix subsidiaries have not been required to contribute any of the $8,400,000) and has completed removal of above ground waste from the site, with approximately $5,000,000 remaining in this fund held by the LDEQ.  The EPA’s unofficial estimate to complete remediation of the site is between $9,000,000 and $12,000,000, including work performed by LDEQ to date; however, based on preliminary outside consulting work hired by the PRP group, which we are a party to, the remediation costs could be below EPA’s estimation.  During 2009, a site assessment was conducted and paid for by the PRP group, the cost of which was exclusive of the $8,400,000.  No unexpected issues were identified during the assessment.  Collections from small contributors have also begun for remediation of this site.  Remediation activities going forward will be funded by LDEQ, until those funds are exhausted, at which time, any additional requirements, if needed, will be funded from the small contributors.  Once funds from the small contributors are exhausted, if additional funds are required, we believe that they should be provided by the members of the PRP group.  As part of the PRP Group, we paid an initial assessment of $10,000, which was allocated among the facilities. In addition, we have paid our contribution of the site assessment of $27,000, of which $9,000 was paid in the first quarter of 2010.   As of the date of this report, we cannot accurately access our ultimate liability.  The Company records its environmental liabilities when they are probable of payment and can be estimated within a reasonable range.  Since this contingency currently does not meet this criteria, a liability has not been established.

 
13

 

Industrial Segment Divested Facilities/Operations
As previously disclosed, our subsidiary, Perma-Fix Treatment Services, Inc. (“PFTS”), sold substantially all of its assets in May 2008, pursuant to an Asset Purchase Agreement, as amended (“Agreement”).  Under the Agreement, the buyer, A Clean Environment, Inc. (“ACE”) assumed certain debts and obligations of PFTS.  We sued ACE regarding certain liabilities which we believed ACE assumed and agreed to pay under the Agreement but which ACE refused to pay.  ACE filed a counterclaim against us alleging that PFTS made certain misrepresentations and failed to disclose certain liabilities.  The pending litigation is styled American Environmental Landfill, Inc. v. Perma-Fix Environmental Services, Inc. v. A Clean Environment, Inc., Case No. CJ-2008-659, pending in the District Court of Osage County, State of Oklahoma.  This matter was ordered to arbitration, which was heard in April 2010.  On May 11, 2010 the Arbitrator ruled in favor of PFTS on all but one issue of contention.  More specifically, the Arbitrator (i) ruled in favor of the Company and PFTS on each of the claims asserted by ACE with the exception of a single claim in the amount of approximately $4,000; and (ii) ruled in favor of the Company and PFTS (a) in the amount of approximately $57,000 representing liabilities assumed by ACE but paid by PFTS, together with an order directing ACE to indemnify and hold harmless the Company and PFTS from any damages, costs or expenses, including reasonable attorney’s fees, associated with other unpaid accounts payable totaling approximately $44,000; and (b) in the amount of approximately $114,000 on a claim relating to an equipment lease, together with an order directing ACE to indemnify and hold harmless the Company and PFTS from any damages, costs or expenses, including reasonable attorney’s fees associated with any future liability or loss arising out of the equipment lease. The Arbitrator’s award has been entered as a judgment by the court.  ACE has challenged the confirmation of award and the entry of a final judgment based on the award, and has indicated that they may appeal the Arbitrator’s award and any judgment entered thereon.

Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNWR”) and Perma-Fix Northwest Richland, Inc. (“PFNWR”)
In connection with the acquisition of PFNW and PFNWR, we are required to pay to those former shareholders of PFNW immediately prior to our acquisition, an earn-out amount upon meeting certain conditions for each fiscal year ending June 30, 2008, to June 30, 2011, with the aggregate of the full earn-out amount not to exceed $4,552,000, pursuant to the Merger Agreement, as amended (“Agreement”).  Under the Agreement, the earn-out amount to be paid for any particular fiscal year is to be an amount equal to 10% of the amount that the revenues for our nuclear business (as defined) for such fiscal year exceeds the budgeted amount of revenues for our nuclear business for that particular period.  No earn-out was required to be paid for fiscal year 2008 and we paid $734,000 in earn out for fiscal year 2009 in the third quarter of 2009.  Pursuant to the Agreement, any indemnification obligations payable to the Company by the former shareholders Nuvotec will be deducted (“Offset Amount”) from any earn-out amounts payable by the Company for the fiscal year ending June 30, 2010, and June 30, 2011.  Pursuant to the Agreement, the aggregate amount of any Offset Amount may total up to $1,000,000, except an Offset Amount is unlimited as to indemnification relating to liabilities for taxes, misrepresentation or inaccuracies with respect to the capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation of any representation, warranty or covenant.  At this time, we have identified certain Offset Amounts against the earn-out for the twelve month period ending June 30, 2010.  The Offset Amount includes the sum of approximately $93,000 relating to an excise tax issue and a refund request from a PEcoS customer in connection with services for waste treatment prior to our acquisition of PFNWR and PFNW.  A potential Offset Amount is in connection with the receipt of nonconforming waste at the PFNWR facility prior to our acquisition of PFNWR and PFNW (“Nonconforming Waste Issue”).  We are currently reviewing this potential Offset Amount relating to the Nonconforming Waste Issue.  We are currently involved in litigation with the party that delivered the nonconforming waste to the facility prior to our acquisition of PFNWR and PFNW.  The Company may elect to pay any future earn-out amounts in excess of $1,000,000 after any Offset Amount, for each fiscal year ended June 30, 2010, and 2011 by means of a three year unsecured promissory note bearing an annual rate of 6.0%, payable in 36 equal monthly installments due on the 15th day of each months.  As of June 30, 2010, we have calculated that $2,978,000 in earn-out amount has been earned for fiscal year ended June 30, 2010, less any Offset Amounts.  The earn-out amount payable includes the Offset Amount of $93,000 as mentioned above but does not include the potential Offset Amount in connection with the Nonconforming Waste Issue as we are still reviewing such potential Offset Amount.  Accordingly, as of June 30, 2010, we have recorded the $2,978,000 in earn-out as an increase to goodwill for PFNWR, with an increase to accrued expense payable of $2,885,000 and a reduction to receivable of $93,000, which represents the Offset Amount previously recorded.  This Offset Amount of $93,000 may be increased should we determine the amount of offset for the Nonconforming Waste Issue.  We anticipate paying the earn-out amount in the third quarter of 2010.
 
14

 
Insurance
In June 2003, we entered into a 25-year finite risk insurance policy with Chartis, a subsidiary of American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure.  Prior to obtaining or renewing operating permits, we are required to provide financial assurance that guarantees to the states that in the event of closure, our permitted facilities will be closed in accordance with the regulations.  The policy provided an initial maximum $35,000,000 of financial assurance coverage and has available capacity to allow for annual inflation and other performance and surety bond requirements.  Our initial finite risk insurance policy required an upfront payment of $4,000,000, of which $2,766,000 represented the full premium for the 25-year term of the policy, and the remaining $1,234,000, was deposited in a sinking fund account representing a restricted cash account.  We are required to make seven annual installments, as amended, of $1,004,000, of which $991,000 is to be deposited in the sinking fund account, with the remaining $13,000 represents a terrorism premium.  In addition, we are required to make a final payment of $2,008,000, of which $1,982,000 is to be deposited in the sinking fund account, with the remaining $26,000 represents a terrorism premium.  In February 2010, we paid our seventh of the eight required remaining payments.  In March 2009, we increased our maximum allowable policy coverage from $35,000,000 to $39,000,000 in order for our Diversified Scientific Services, Inc. (“DSSI”) facility to receive and process Polychlorinated Biphenyls (“PCBs”) wastes. Payment for this policy increase requires a total payment of approximately $5,219,000, consisting of an upfront payment of $2,000,000 made on March 6, 2009, of which approximately $1,655,000 was deposited into a sinking fund account, with the remaining representing fee payable to Chartis.  In addition, we are required to make three yearly payments of approximately $1,073,000 payable starting December 31, 2009, of which $888,000 is be deposited into a sinking fund account, with the remaining to represent fee payable to Chartis.  In February 2010, we paid our first of the three $1,073,000 required payments.

As of June 30, 2010, our total financial coverage amount under this policy totaled $36,345,000.  We have recorded $11,541,000 in our sinking fund related to the policy noted above on the balance sheet, which includes interest earned of $828,000 on the sinking fund as of June 30, 2010.  Interest income for the three and six months ended June 30, 2010, was approximately $9,000, and $23,000, respectively.   On the fourth and subsequent anniversaries of the contract inception, we may elect to terminate this contract.  If we so elect, Chartis is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for complete releases of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.

In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility with Chartis.  The policy provides an initial $7,800,000 of financial assurance coverage with annual growth rate of 1.5%, which at the end of the four year term policy, will provide maximum coverage of $8,200,000.  The policy will renew automatically on an annual basis at the end of the four year term and will not be subject to any renewal fees.  The policy requires total payment of $7,158,000, consisting of an initial payment of $1,363,000, and two annual payments of $1,520,000, payable by July 31, 2008 and July 31, 2009, and an additional $2,755,000 payment to be made in five quarterly payments of $551,000 beginning September 2007.  In July 2007, we paid the initial payment of $1,363,000, of which $1,106,000 represented premium on the policy and the remaining was deposited into a sinking fund account.  We have made each of the annual payments of $1,520,000, of which $1,344,000 was deposited into a sinking fund account and the remaining represented premium.   We have also made all of the five quarterly payments which were deposited into a sinking fund.  As of June 30, 2010, we have recorded $5,855,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $155,000 on the sinking fund as of June 30, 2010.  Interest income for the three and six months ended June 30, 2010 totaled approximately $7,000 and $14,000, respectively.
 
15

 
Environmental Liabilities
We currently have four remediation projects in progress at certain of our continuing (Perma-Fix of South Georgia, Inc. (“PFSG”)) and discontinued (Perma-Fix of Michigan, Inc. (“PFMI”), Perma-Fix of Memphis, Inc. (“PFM”), and Perma-Fix of Dayton, Inc. (“PFD”)) operations within our Industrial Segment. These remediation projects principally entail the removal/remediation of contaminated soil and, in some cases, the remediation of surrounding ground water.  See further detail on the environmental liabilities of our discontinued operations in Note 8 below, “Discontinued Operations”.

At June 30, 2010, we had total accrued environmental remediation liabilities of $1,572,000 for our PFSG facility, of which $75,000 is recorded as a current liability.  The environmental remediation liability at June 30, 2010, included an increase to our reserve of approximately $844,000 recorded within our cost of goods sold in the second quarter of 2010, due to a change in the scope of the remediation requirements mandated by the Georgia Environmental Protection Division (“GEPD”) for our PFSG facility.

8.      Discontinued Operations
 
Our discontinued operations encompass our Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”) facilities within our Industrial Segment, which we completed the sale of substantially all of the assets on January 8, 2008, March 14, 2008, and May 30, 2008, respectively.  Our discontinued operations also includes three previously shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), Perma-Fix of Michigan, Inc. (“PFMI”), and Perma-Fix of Memphis, Inc. (“PFM”), which were approved as discontinued operations by our Board of Directors effective November 8, 2005, October 4, 2004, and March 12, 1998, respectively.

The PFM facility was reclassified back into discontinued operations from continuing operations in the fourth quarter of 2009.  As noted above, PFM was approved as a discontinued operation by our Board on March 12, 1998.  This decision was the result of an explosion at the facility in 1997, which significantly disrupted its operations and the high costs required to rebuild its operations.  PFM had been reported as a discontinued operation until 2001.  In 2001, the facility was reclassified back into continuing operations as we had no other facilities classified as discontinued operations and its impact on our financial statements was de minimis.  As the result of the reclassification of PFM back into discontinued operations in the fourth quarter of 2009, the accompanying condensed financial statements have been restated for all periods presented to reflect the reclassification of PFM as discontinued operations.

The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2010, and 2009.  The operating results of discontinued operations are included in our Consolidated Statements of Operations as part of our “(Loss) income from discontinued operations, net of taxes.”

   
Three Months Ended
   
Six Months Ended
 
    
June 30,
   
June 30,
 
(Amounts in Thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Net revenues
  $     $     $     $  
Interest expense
  $ (26 )   $ (139 )   $ (41 )   $ (159 )
Income tax (benefit)
  $ (50 )         $ (50 )      
(Loss) income from discontinued operations
  $ (69 )   $ (242 )   $ (213 )   $ 57  
 
16

 
Our “income from discontinued operations, net of taxes”, for the six months ended June 30, 2009, included a recovery of approximately $400,000 in closure cost for PFTS recorded in the first quarter of 2009 resulting from the release of our financial assurance bond for PFTS by the appropriate regulatory authority after the buyer of PFTS acquired its financial assurance.  In the second quarter of 2009, we recorded approximately $119,000 in interest related to a certain excise tax audit for fiscal years 1999 to 2006 for PFTS.

Assets and liabilities related to discontinued operations total $746,000 and $2,076,000 as of June 30, 2010, respectively and $825,000 and $2,426,000 as of December 31, 2009, respectively.

The following table presents the Industrial Segment’s major class of asset of discontinued operations that is classified as held for sale as of June 30, 2010 and December 31, 2009.  No liabilities of discontinued operations are held for sale.  The held for sale asset balance as of December 31, 2009 may differ from the respective balance at closing:

   
June 30,
   
December 31,
 
(Amounts in Thousands)
 
2010
   
2009
 
             
Property, plant and equipment, net (1)
    637       651  
Total assets held for sale
  $ 637     $ 651  

 (1)
net of accumulated depreciation of $10,000 and $13,000 as of June 30, 2010, and December 31, 2009, respectively.

The following table presents the Industrial Segment’s major classes of assets and liabilities of discontinued operations that are not held for sale as of June 30, 2010 and December 31, 2009:

   
June 30,
   
December 31,
 
(Amounts in Thousands)
 
2010
   
2009
 
             
Other assets
  $ 109     $ 174  
Total assets of discontinued operations
  $ 109     $ 174  
Account payable
  $ 29     $ 1  
Accrued expenses and other liabilities
    1,364       1,508  
Deferred revenue
           
Environmental liabilities
    683       917  
Total liabilities of discontinued operations
  $ 2,076     $ 2,426  

The environmental liabilities for our discontinued operations consist of remediation projects currently in progress at PFMI, PFM, and PFD.  All of the remedial clean-up projects were an issue for years prior to our acquisition of the facility and were recognized pursuant to a business combination and recorded as part of the purchase price allocation to assets acquired and liabilities assumed.  The environmental liability for PFD was retained by the Company upon the sale of PFD in March 2008 and pertains to the remediation of a leased property which was separate and apart from the property on which PFD’s facility was located.  The reduction of approximately $234,000 in environmental liabilities from the December 31, 2009 balance of $917,000 represents payments made on these remediation projects.

“Accrued expenses and other liabilities” for our discontinued operations include a pension payable at PFMI of $817,000 as of June 30, 2010.  The pension plan withdrawal liability is a result of the termination of the union employees of PFMI.  The PFMI union employees participated in the Central States Teamsters Pension Fund ("CST"), which provides that a partial or full termination of union employees may result in a withdrawal liability, due from PFMI to CST.  The recorded liability is based upon a demand letter received from CST in August 2005 that provided for the payment of $22,000 per month over an eight year period.  This obligation is recorded as a long-term liability, with a current portion of $199,000 that we expect to pay over the next year.
 
17

 
9.      Operating Segments

Pursuant to ASC 280, “Segment Reporting”, we define an operating segment as a business activity:

·
from which we may earn revenue and incur expenses;
 
·
whose operating results are regularly reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance; and
 
·
for which discrete financial information is available.
 
We currently have three operating segments, which are defined as each business line that we operate.  This however, excludes corporate headquarters, which does not generate revenue, and our discontinued operations, which include certain facilities within our Industrial Segment (See “Note 8 – Discontinued Operations” to “Notes to Consolidated Financial Statements”).

Our operating segments are defined as follows:

The Nuclear Waste Management Services Segment (“Nuclear Segment”) provides treatment, storage, processing and disposal of nuclear, low-level radioactive, mixed (waste containing both hazardous and non-hazardous constituents), hazardous and non-hazardous waste and on-site waste management services  through our four facilities:  Perma-Fix of Florida, Inc., Diversified Scientific Services, Inc., East Tennessee Materials and Energy Corporation, and Perma-Fix of Northwest Richland, Inc.

The Consulting Engineering Services Segment (“Engineering Segment”) provides environmental engineering and regulatory compliance services through Schreiber, Yonley & Associates, Inc. which includes oversight management of environmental restoration projects, air, soil, and water sampling, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities to industrial and government customers, as well as, engineering and compliance support needed by our other segments.

The Industrial Waste Management Services Segment (“Industrial Segment”) provides on-and-off site treatment, storage, processing and disposal of hazardous and non-hazardous industrial waste, wastewater, used oil and other off specification petroleum based products through our three facilities; Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of Orlando, Inc., and Perma-Fix of South Georgia, Inc.
 
18

 
The table below presents certain financial information of our operating segment as of and for the three and six months ended June 30, 2010 and 2009 (in thousands).
 
Segment Reporting for the Quarter Ended June 30, 2010
   
Nuclear
   
Industrial
   
Engineering
   
Segments
Total
   
Corporate (2)
   
Consolidated
Total
 
Revenue from external customers
  $ 25,181 (3)   $ 2,249     $ 666     $ 28,096     $ ¾     $ 28,096  
Intercompany revenues
    778       134       132       1,044       ¾       1,044  
Gross profit (negative gross profit)
    7,036       (336 )     40       6,740       ¾       6,740  
Interest income
    ¾       ¾       ¾       ¾       16       16  
Interest expense
    47       2       1       50       158       208  
Interest expense-financing fees
    ¾       1       ¾       1       102       103  
Depreciation and amortization
    1,143       58       7       1,208       5       1,213  
Segment profit (loss)
    4,248       (797 )     (49 )     3,402       (1,887 )     1,515  
Segment assets(1)
    92,392       5,916       2,004       100,312       22,896 (4)     123,208  
Expenditures for segment assets
    706       172       1       879       2       881  
Total long-term debt
    1,092       80       21       1,193       9,408 (5)     10,601  

Segment Reporting for the Quarter Ended June 30, 2009
   
Nuclear
   
Industrial
   
Engineering
   
Segments
Total
   
Corporate (2)
   
Consolidated
Total
 
Revenue from external customers
  $ 20,732 (3)   $ 1,962     $ 1,004     $ 23,698     $ ¾     $ 23,698  
Intercompany revenues
    690       187       52       929       ¾       929  
Gross profit
    4,872       300       282       5,454       ¾       5,454  
Interest income
    ¾       ¾       ¾       ¾       41       41  
Interest expense
    165       34       1       200       268       468  
Interest expense-financing fees
    ¾       ¾       ¾       ¾       63       63  
Depreciation and amortization
    1,073       110       9       1,192       9       1,201  
Segment profit (loss)
    2,718       (141 )     159       2,736       (1,743 )     993  
Segment assets(1)
    97,508       5,246       2,221       104,975       18,875 (4)     123,850  
Expenditures for segment assets
    176       64       2       242       6       248  
Total long-term debt
    1,938       130       25       2,093       18,670 (5)     20,763  

Segment Reporting for the Six Months Ended June 30, 2010
   
Nuclear
   
Industrial
   
Engineering
   
Segments
Total
   
Corporate (2)
   
Consolidated
Total
 
Revenue from external customers
  $ 48,073 (3)   $ 4,542     $ 1,340     $ 53,955     $ ¾     $ 53,955  
Intercompany revenues
    1,568       286       347       2,201       ¾       2,201  
Gross profit
    11,627       253       199       12,079       ¾       12,079  
Interest income
    ¾       ¾       ¾       ¾       37       37  
Interest expense
    90       3       1       94       333       427  
Interest expense-financing fees
    ¾       1       ¾       1       205       206  
Depreciation and amortization
    2,195       129       15       2,339       10       2,349  
Segment profit (loss)
    6,655       (607 )     (10 )     6,038       (3,742 )     2,296  
Segment assets(1)
    92,392       5,916       2,004       100,312       22,896 (4)     123,208  
Expenditures for segment assets
    1,063       382       2       1,447       20       1,467  
Total long-term debt
    1,092       80       21       1,193       9,408 (5)     10,601  

Segment Reporting for the Six Months Ended June 30, 2009
   
Nuclear
   
Industrial
   
Engineering
   
Segments
Total
   
Corporate (2)
   
Consolidated
Total
 
Revenue from external customers
  $ 39,846 (3)   $ 4,071     $ 1,783     $ 45,700     $ ¾     $ 45,700  
Intercompany revenues
    1,441       374       223       2,038       ¾       2,038  
Gross profit
    8,792       756       477       10,025       ¾       10,025  
Interest income
    1       ¾       ¾       1       92       93  
Interest expense
    525       38       3       566       449       1,015  
Interest expense-financing fees
    ¾       ¾       ¾       ¾       76       76  
Depreciation and amortization
    2,129       213       19       2,361       20       2,381  
Segment profit (loss)
    4,472       (87 )     245       4,630       (3,388 )     1,242  
Segment assets(1)
    97,508       5,246       2,221       104,975       18,875 (4)     123,850  
Expenditures for segment assets
    428       113       2       543       9       552  
Total long-term debt
    1,938       130       25       2,093       18,670 (5)     20,763  
 
(1)
Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.
 
19

 
(2)
Amounts reflect the activity for corporate headquarters not included in the segment information.

(3)
The consolidated revenues within the Nuclear Segment include the CH Plateau Remediation Company (“CHPRC”) revenue of $12,276,000 or 43.7% and $24,001,000 or 44.5% of our total consolidated revenue for the three and six months ended June 30, 2010, respectively, as compared to $11,624,000 or 49.1% and $22,371,000 or 49.0% of our total consolidated revenue for the three and six months ended June 30, 2009, respectively.  Our M&EC facility was awarded a subcontract by CHPRC, a general contractor to the Department of Energy (“DOE”), in the second quarter of 2008.  See “Known Trends and Uncertainties – Significant Customers” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the revenue transition discussion.

(4)
Amount includes assets from discontinued operations of $746,000 and $724,000 as of June 30, 2010 and 2009, respectively.

(5)
Net of debt discount of ($284,000) and ($617,000) as of June 30, 2010 and June 30, 2009, respectively, based on the estimated fair value of two Warrants and 200,000 shares of the Company’s Common Stock issued on May 8, 2009 in connection with a $3,000,000 promissory note entered into by the Company and Mr. William Lampson and Mr. Diehl Rettig.  See Note 6 - “Promissory Note and Installment Agreement” for additional information.   

10.  Income Taxes

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

The Company’s effective tax rates were approximately 42.1% and 8.4% for the three months ended June 30, 2010 and 2009, respectively, and approximately 40.1% and 7.5% for the six months ended June 30, 2010 and 2009, respectively.  The higher income tax for the three and six months period ended June 30, 2010, as compared to the corresponding period of 2009, was due to less valuation allowance in 2010 on our deferred tax asset related to federal and state net operating loss (NOL) carryforwards.  We have full valuation allowance on all of our deferred tax assets in 2009.

The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”.  Deferred income tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income.  The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income taxes to an amount that is more likely than not to be realized.

20

 
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

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,

·
cash flow from operations and our available liquidity from our line of credit are sufficient to service our current obligations;
·
we expect to meet our financial covenants in 2010;
·
we believe government funding made available for DOE project under the government economic stimulus plan in February 2009 should continue to positively impact our existing government contracts within our Nuclear Segment;
·
higher government funding made available through the economic stimulus package (American Recovery and Reinvestment Act) enacted by Congress in 2009, could result in larger fluctuations in 2010;
·
demand for our service will continue to be subject to fluctuations due to a variety of factors beyond our control, including the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites;
·
 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 flow;
·
with much of our Nuclear Segment customer base being government or prime contractors treating government waste, we do not believe economic upturns or downturns have a significant impact on the demand for our services;
·
we plan to fund any repurchases under the common stock repurchase plan through our internal cash flow and/or borrowing under our line of credit;
·
no immediate plans or current commitments to issue shares under the registration statement;
·
ability to remediate certain contaminated sites for projected amounts;
·
no further impairment of intangible or tangible assets;
·
despite our aggressive compliance and auditing procedures for disposal of wastes, we could, in the future, be notified that we are a Partially Responsible Party (“PRP”) at a remedial action site, which could have a material adverse effect;
·
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;
·
ability to generate funds internally to remediate sites;
·
ability to fund budgeted capital expenditures of $2,000,000 during 2010 through our operations or lease financing or a combination of both;
·
we believe full operations under the CHPRC subcontract will result in revenues for on-site and off-site work of approximately $200,000,000 to $250,000,000 over the five year base period;
·
in the event of failure of AIG, this could significantly impact our operations and our permits;
·
although we have seen smaller fluctuation in government receipts between quarters in recent years, nevertheless, as government spending is contingent upon its annual budget and allocation of funding, we cannot provide assurance that we will not have larger fluctuations in the quarters in the near future;
·
our inability to continue under existing contracts that we have with the federal government (directly or indirectly as a subcontractor) could have a material adverse effect on our operations and financial condition;
 
21

 
·
we believe we maintain insurance coverage adequate for our needs and which is similar to, or greater than the coverage maintained by other companies of our size in the industry;
·
due to the continued uncertainty in the economy, changes within the environmental insurance market, and the financial difficulties of AIG, whose subsidiary Chartis, is the provider of our financial assurance policies, we have no guarantees as to continued coverage by Chartis, that we will be able to obtain similar insurance in future years, or that the cost of such insurance will not increase materially;
·
as there are limited disposal sites available to us, a change in the number of available sites or an increase or decrease in demand for the existing disposal areas could significantly affect the actual disposal costs either positively or negatively;
·
we believe certain critical accounting policies affect the more significant estimates used in preparation of our consolidated financial statements;
·
once funds from the small contributors are exhausted, if additional funds are required, we believe that they should be provided by the members of the PRP group;
·
pending legislative and regulatory proposals which address greenhouse gas emissions, if and when enacted, could increase costs associated with our operations;
·
we anticipate paying the earn-out amount in the third quarter of 2010, subject to finalization of the Offset Amount; and
·
we do not expect ASU 2010-6 to have a material impact on our consolidated financial statements;

While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to have been 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;
·
material reduction in revenues;
·
ability to meet PNC covenant requirements;
·
inability to collect in a timely manner a material amount of receivables;
·
increased competitive pressures;
·
the ability to maintain and obtain required permits and approvals to conduct operations;
·
the ability to develop new and existing technologies in the conduct of operations;
·
ability 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;
·
changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
·
potential increases in equipment, maintenance, operating or labor costs;
·
management retention and development;
·
financial valuation of intangible assets is substantially more/less than expected;
·
the requirement to use internally generated funds for purposes not presently anticipated;
·
inability to continue to be profitable on an annualized basis;
·
the inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
·
terminations of contracts with federal agencies or subcontracts involving federal agencies, or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
·
renegotiation of contracts involving the federal government;
·
disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment;
·
Risk Factors contained in Item 1A of our 2009 Form 10-K; and
·
factors set forth in “Special Note Regarding Forward-Looking Statements” contained in our 2009 Form 10-K.
 
22

 
The Company undertakes no obligations to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview
We provide services through three reportable operating segments: Nuclear Waste Management Services Segment (“Nuclear Segment”), Industrial Waste Management Services Segment (“Industrial Segment”), and Consulting Engineering Services Segment (“Engineering Segment”).   The Nuclear Segment provides treatment, storage, processing and disposal services of mixed waste (waste containing both hazardous and low-level radioactive materials) and low-level radioactive wastes, including research, development and on-site and off-site of mixed and low-level radioactive waste remediation.  Our Industrial Segment provides on-and-off site treatment, storage, processing and disposal of hazardous and non-hazardous industrial waste and wastewater, in addition to the sales of used oil and other off-specification petroleum-based products.  Our Engineering Segment provides a wide variety of environmental related consulting and engineering services to both industry and government.  These services include oversight management of environmental restoration projects, air, soil, and water sampling, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities.

The second quarter of 2010 reflected a revenue increase of $4,398,000 to $28,096,000 or 18.6% from revenue of $23,698,000 for the same period of 2009.  Within our Nuclear Segment, we generated revenue of $25,181,000 in the second quarter of 2010, an increase of $4,449,000 or 21.5% from the corresponding period of 2009.  Of the $4,449,000 increase in revenue, approximately $2,471,000 was attributed to the increase in revenue generated from the subcontract awarded to our M&EC subsidiary by CH Plateau Remediation Company (“CHPRC”), a general contractor to the Department of Energy (“DOE”), in the second quarter of 2008, to perform a portion of facility operations and waste management activities for the DOE Hanford Site.  The remaining increase was attributed to higher activity waste streams.  Our Industrial Segment generated $2,249,000 in revenue in the second quarter of 2010, as compared to $1,962,000 for the corresponding period of 2009, or 14.6% increase.  The increase was primarily the result of higher volume and increased pricing in certain waste streams as well as increased average pricing per gallon in used oil sales.  Revenue from the Engineering Segment decreased $338,000 or 33.7% to $666,000 from $1,004,000 for the same period of 2009.

The second quarter 2010 gross profit increased $1,286,000 or 23.6% from the corresponding period of 2009 due primarily to higher priced wastes and the CHPRC subcontract at M&EC.  The gross profit for the quarter also included an increase to the environmental reserve of approximately $844,000 for remediation expenditure for our Perma-Fix of South Georgia, Inc. facility (“PFSG”).

SG&A for the second quarter of 2010 decreased 1.5% to $3,829,000 from $3,889,000 in the corresponding period of 2009.

Our income from continuing operations was $1,515,000 for the second quarter 2010, as compared to $993,000 for the corresponding period of 2009.  Our income from continuing operations for the second quarter of 2010 included income tax expense of $1,101,000 as compared to income tax expense of $91,000 for the corresponding period of 2009.

We had a working capital deficit of $663,000 (which includes working capital of our discontinued operations) as of June 30, 2010, as compared to a working capital of $1,490,000 as of December 31, 2009.  Our working capital deficit was primarily the result of $2,885,000 in earn-out amount payable recorded in connection with the acquisition of our PFNWR facility in June 2007.
 
23

 
Outlook
We believe that government funding made available for DOE projects under the government stimulus plan in February 2009 should continue to positively impact our existing government contracts within our Nuclear Segment since the stimulus plan provides for a substantial amount for remediation of DOE sites.  However, we expect that demand for our services will be subject to fluctuations due to a variety of factors beyond our control, including the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites. Our operations depend, in large part, upon governmental funding, particularly funding levels at the DOE.  In addition, our governmental contracts and subcontracts relating to activities at governmental sites are subject to termination or renegotiation on 30 days notice 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 three reportable segments: Nuclear, Industrial, and Engineering.

   
Three Months Ending
   
Six Months Ending
 
   
June 30,
   
June 30,
 
Consolidated (amounts in thousands)
 
2010
   
%
   
2009
   
%
   
2010
   
%
   
2009
   
%