Quarterly report pursuant to Section 13 or 15(d)

Operating Segments

Operating Segments

9 Months Ended

Sep. 30, 2017

10.

Operating Segments

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

Our reporting segments are defined as below:

TREATMENT SEGMENT reporting includes:

	-	nuclear, low-level radioactive, mixed, hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities (see “Note 7 – East Tennessee Materials and Energy Corporation (“M&EC”) for further detail of pending closure of the M&EC facility); and
	-	R&D activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

SERVICES SEGMENT, which includes:

	-	On-site waste management services to commercial and government customers;
	-	Technical services, which include:

professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering;

	o	integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
	o	global technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers;

Nuclear services, which include:

	o	technology-based services including engineering, decontamination and decommissioning (“D&D”), specialty services and construction, logistics, transportation, processing and disposal;
	o	remediation of nuclear licensed and federal facilities and the remediation cleanup of nuclear legacy sites. Such services capability includes: project investigation; radiological engineering; partial and total plant D&D; facility decontamination, dismantling, demolition, and planning; site restoration; site construction; logistics; transportation; and emergency response; and

A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) of health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.

MEDICAL SEGMENT reporting includes: R&D costs for the new medical isotope production technology from our majority-owned Polish subsidiary, PF Medical. The Medical Segment has not generated any revenue as it continues to be primarily in the R&D stage. All costs incurred for the Medical Segment are reflected within R&D in the accompanying Consolidated Statements of Operations and consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development of this new technology.

Our reporting segments exclude our corporate headquarters and our discontinued operations (see Note 9 – “Discontinued Operations”) which do not generate revenues.

The table below presents certain financial information of our operating segments for the three and nine months ended September 30, 2017 and 2016 (in thousands).

Segment Reporting for the Quarter Ended September 30, 2017

	Treatment			Services			Medical			Segments Total			Corporate ⁽¹⁾			Consolidated Total
Revenue from external customers	$	9,355		$	2,403			—		$	11,758		$	—		$	11,758
Intercompany revenues		77			10			—			87			—			—
Gross profit		1,613			132			—			1,745			—			1,745
Research and development		96			—			197			293			—			293
Interest income		—			—			—			—			34			34
Interest expense		(1	)		(1	)		—			(2	)		(57	)		(59	)
Interest expense-financing fees		—			—			—			—			(9	)		(9	)
Depreciation and amortization		964			134			—			1,098			9			1,107
Segment income (loss) before income taxes		40	⁽³⁾		(478	)		(197	)		(635	)		(1,271	)		(1,906	)
Income tax expense		70			—			—			70			1			71
Segment (loss) income		(30	)		(478	)		(197	)		(705	)		(1,272	)		(1,977	)
Expenditures for segment assets		81			3			—			84			—			84

Segment Reporting for the Quarter Ended September 30, 2016

	Treatment			Services			Medical			Segments Total			Corporate ⁽¹⁾			Consolidated Total
Revenue from external customers	$	7,643		$	5,278			—		$	12,921		$	—		$	12,921
Intercompany revenues		28			8			—			36			—			—
Gross profit		837			970			—			1,807			—			1,807
Research and development		95			4			342			441			—			441
Interest income		—			—			—			—			31			31
Interest expense		(2	)		(2	)		—			(4	)		(97	)		(101	)
Interest expense-financing fees		—			—			—			—			(14	)		(14	)
Depreciation and amortization		1,019			161			—			1,180			9			1,189
Segment (loss) income before income taxes		(90	)		360			(342	)		(72	)		(1,391	)		(1,463	)
Income tax expense		35			—			—			35			2			37
Segment (loss) income		(125	)		360			(342	)		(107	)		(1,393	)		(1,500	)
Expenditures for segment assets		63			13			—			76			—			76

Segment Reporting for the Nine Months Ended September 30, 2017

	Treatment			Services			Medical			Segments Total			Corporate ⁽¹⁾			Consolidated Total
Revenue from external customers	$	29,019		$	8,160			—		$	37,179		$	—		$	37,179
Intercompany revenues		191			21			—			212			—			—
Gross profit		6,474			343			—			6,817			—			6,817
Research and development		339			—			947			1,286			14			1,300
Interest income		—			—			—			—			105			105
Interest expense		(27	)		(2	)		—			(29	)		(220	)		(249	)
Interest expense-financing fees		—			—			—			—			(27	)		(27	)
Depreciation and amortization		2,960			405			—			3,365			29			3,394
Segment income (loss) before income taxes		2,880	⁽³⁾		(1,738	)		(947	)		195			(3,855	)		(3,660	)
Income tax expense		215			—			—			215			3			218
Segment income (loss)		2,665			(1,738	)		(947	)		(20	)		(3,858	)		(3,878	)
Expenditures for segment assets		188			12			—			200			—			200

Segment Reporting for the Nine Months Ended September 30, 2016

	Treatment			Services			Medical			Segments Total			Corporate ⁽¹⁾			Consolidated Total
Revenue from external customers	$	22,832		$	14,936			—		$	37,768		$	—		$	37,768
Intercompany revenues		38			23			—			61			—			—
Gross profit		1,280			2,377			—			3,657			—			3,657
Research and development		321			38			1,196			1,555			15			1,570
Interest income		3			—			—			3			75			78
Interest expense		(19	)		(2	)		—			(21	)		(356	)		(377	)
Interest expense-financing fees		—			—			—			—			(99	)		(99	)
Depreciation and amortization		2,437			482			—			2,919			67			2,986
Segment (loss) income before income taxes		(11,895	)⁽²⁾		682			(1,196	)		(12,409	)		(4,164	)		(16,573	)
Income tax (benefit) expense		(3,095	)⁽²⁾		—			—			(3,095	)		2			(3,093	)
Segment (loss) income		(8,800	)		682			(1,196	)		(9,314	)		(4,166	)		(13,480	)
Expenditures for segment assets		86			17			1			104			—			104

⁽¹⁾Amounts reflect the activity for corporate headquarters not included in the segment information.

⁽²⁾Amounts include tangible and intangible asset impairment losses of $1,816,000 and $8,288,000, respectively for the Company’s M&EC subsidiary. Also includes a tax benefit of approximately $3,203,000 recorded resulting from the intangible impairment loss recorded for our M&EC subsidiary.

⁽³⁾Amounts include tangible asset impairment loss of $672,000 for the Company’s M&EC subsidiary (see “Note 7 – East Tennessee Materials and Energy Corporation (“M&EC”)”).