NOTE 1

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how company, is a Delaware corporation, engaged through its subsidiaries, in two reportable segments:

TREATMENT SEGMENT, which includes:

SERVICES SEGMENT, which includes:

The Company’s continuing operations consist of the operations of our subsidiaries/facilities as follow: Diversified Scientific Services, Inc. (“DSSI”), Perma-Fix of Florida, Inc. (“PFF”), Perma-Fix of Northwest Richland, Inc. (“PFNWR”), Safety & Ecology Corporation (“SEC”), Perma-Fix Environmental Services UK Limited (“PF UK Limited”), Perma-Fix Canada, Inc. (“PF Canada”) and Oak Ridge Environmental Waste Operations Center (“EWOC”).

The Company’s continuing operations also consisted of Perma-Fix ERRG, a variable interest entity (“VIE”) for which we were the primary beneficiary. The VIE was an unpopulated joint venture (“JV”) entered between the Company and Engineering/Remediation Resources Group, Inc. (“ERRG”) for a specific project under the Services Segment in which the Company and ERRG had a 51% and 49% partnership interest in the joint venture, respectively. During the fourth quarter of 2022, project work under the JV was completed

The Company’s discontinued operations (see “Note 8 – Discontinued Operations”) consist of operations of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and earlier, as well as three previously closed locations.

On December 18, 2023, a JV where the Company and Campoverde Srl (“JV partner”) each owns 50% of the partnership, was awarded a multi-year contract valued up to approximately EUR 50 million by the European Commission (the “Contracting Authority”) for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy. Work under this JV has not started as of December 31, 2023. The scope of work to be performed in the initial phases of this contract will be performed predominately by our JV partner. Revenue generated by the Company under the initial phases will be limited to project management support through 2025. The Company expects to generate an increase in revenue under this contract starting in 2026 when the waste treatment phases begin. The Contracting Authority may terminate the contract under certain conditions as set forth in the contract. Once activities commence under this JV, the Company will consolidate the operations of this JV into its financial statements.

Financial Positions and Liquidity

The Company experienced significant improvement in its 2023 financial results as the lingering effects of COVID-19 began to subside starting in the early part of 2022. The Company’s Treatment Segment continued to see steady improvements in waste receipts from certain customers who had previously delayed waste shipments due, in part, from the impact of COVID-19. Within the Company’s Services Segment, certain projects which were delayed/curtailed in first part of 2022 due, in part, from the lingering effects of the COVID-19, achieved full operational status and improved productivity in 2023 which positively impacted revenue. Revenues from both of the Company’s Segments were also positively impacted from contracts won in 2023 as procurement and planning on behalf of our government clients continued to progress as the lingering effects of COVID-19 pandemic subsided.

Heading into 2024, the Company expects to see overall continue steady improvements in waste receipts and increases in project work from certain existing contracts, contracts won in 2023, and bids submitted in both segments that are awaiting awards. However, due to our operations which is subject to seasonal factor, the Company generally experiences lower revenue in the first quarter due to overall reduced activities by our customers from the usual slowdown in operations due, in part, from returning from the holiday periods and poorer weather conditions. Additionally, due to Congress’s inability to timely approve FY 2024 budget and the extension of the continuing resolution, certain of our government related customers have informed us that waste shipments will likely be delayed. Although the Company expects to see overall improvements in revenue in 2024 as disclosed above, if Congress is unable to enact the full FY 2024 appropriation bills or further extend the continuing resolutions to fund government spending by the late March deadline, the U.S. government will enter into a partial shutdown. The full impact of any additional continued resolution beyond March or a partial government shutdown is uncertain. If a partial government shutdown were to occur and were to continue an extended period, our financial results of operations could be negatively impacted by delays in procurement actions, waste shipments and project delays on newly awarded projects.

The Company’s cash flow requirements during the twelve-months ended December 31, 2023, were primarily financed by its operations, credit facility availability and cash on hand (which included the ERC, along with interest, that the Company received in March 2023 (See “Note 10 – Employee Retention Credit (“ERC”) and proceeds from a new term loan dated July 31, 2023, in the amount of $2,500,000 provided to us under an amendment to the Company’s existing credit facility (See “Note 9 – Long Term Debt”)). The Company’s cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures. The Company plans to fund these requirements from its operations, cash on hand, credit facility availability, and collections of unpaid receivables (See “Note 14 – Commitments and Contingencies - Perma-Fix Canada, Inc. (“PF Canada”)” and “Note 19 – Subsequent Events – Perma-Fix Canada, Inc. (“PF Canada”)” for a discussion of a settlement agreement relating to unpaid receivables due to the Company from Canadian Nuclear Laboratories (“CNL”)). The Company’s ability to utilize its credit facility from its lender is subject to meeting its quarterly financial covenant requirements, among other things. The Company continues to explore all sources of increasing its capital and/or liquidity and to improve its revenue and working capital, including, but not limited to entering into equity transactions. There are no assurances that the Company will be successful in increasing our liquidity through our efforts. The Company is continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary. At this time, the Company believes that its cash flows from operations, our available liquidity from our credit facility, and our cash on hand should be sufficient to fund our operations for the next twelve months.