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What changed in PERMA FIX ENVIRONMENTAL SERVICES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PERMA FIX ENVIRONMENTAL SERVICES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+252 added−264 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-23)

Top changes in PERMA FIX ENVIRONMENTAL SERVICES INC's 2023 10-K

252 paragraphs added · 264 removed · 177 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

35 edited+16 added−12 removed28 unchanged
Biggest changeOur inability to continue under existing contracts that we have with U.S government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.
Biggest changeOur inability to continue under existing contracts that we have with U.S government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. 4 We performed services relating to waste generated by government clients (domestic), either indirectly for others as a subcontractor to government entities or directly as a prime contractor to government entities, representing approximately $70,642,000 or 78.7%, of our total revenue during 2023, as compared to $59,658,000, or 84.5%, of our total revenue during 2022.
DSSI, located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and treatment activities under RCRA Part B permits and a radioactive materials license issued by the State of Tennessee Department of Environment and Conservation, Division of radiological health. Co-regulated TSCA Polychlorinated Biphenyl (“PCB”) wastes are also managed for PCB destruction under EPA Approval.
Co-regulated TSCA Polychlorinated Biphenyl (“PCB”) wastes are also managed for PCB under EPA Approval. DSSI, located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and treatment activities under RCRA Part B permits and a radioactive materials license issued by the State of Tennessee Department of Environment and Conservation, Division of radiological health.
Department of Transportation, the Interstate Commerce Commission and transportation regulatory bodies in the states in which we operate. We cannot predict the extent to which we may be affected by any law or rule that may be enacted or enforced in the future, or any new or different interpretations of existing laws or rules. 6
Department of Transportation, the Interstate Commerce Commission and transportation regulatory bodies in the states in which we operate. We cannot predict the extent to which we may be affected by any law or rule that may be enacted or enforced in the future, or any new or different interpretations of existing laws or rules.
Failure to obtain and maintain our permits or approvals would have a material adverse effect on us, our operations, and financial condition. The permits and licenses have terms ranging from one to ten years, and provided that we maintain a reasonable level of compliance, renew with minimal effort, and cost.
Failure to obtain and maintain our permits or approvals would have a material adverse effect on us, our operations, and financial condition. The permits and licenses have terms ranging from one to ten years, and provide that we maintain a reasonable level of compliance, renew with minimal effort, and cost.
The finalization, form and capitalization of this unpopulated partnership is subject to numerous conditions, including but not limited to, winning a certain contract, completion and execution of a definitive agreement and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast future economic conditions.
The finalization, form and capitalization of this unpopulated partnership is subject to numerous conditions, including but not limited to, completion and execution of a definitive agreement and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast future economic conditions.
The combination of RCRA Part B hazardous waste permits, TSCA authorizations, and radioactive material licenses held by the Company and its subsidiaries comprising our Treatment Segment is very difficult to obtain for a single facility and make this Segment unique.
The combination of RCRA Part B hazardous waste permits, TSCA authorizations, and radioactive material licenses held by us and our subsidiaries comprising our Treatment Segment is very difficult to obtain for a single facility and make this Segment unique.
The decrease represents payments for remediation projects. At December 31, 2022, $112,000 of the total accrued environmental liabilities was recorded as current. The nature of our business exposes us to significant cost to comply with governmental environmental laws, rules and regulations and risk of liability for damages.
The decrease represents payments for remediation projects. As of December 31, 2023, $61,000 of the total accrued environmental liabilities was recorded as current. The nature of our business exposes us to significant cost to comply with governmental environmental laws, rules and regulations and risk of liability for damages.
See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’ contracts with government clients (domestic and foreign) or with others as a subcontractor to government clients. 1 SERVICES SEGMENT, which includes: - Technical services, which include: ○ professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering; ○ health physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support to government and private radioactive materials licensees; ○ 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; ○ global technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental), project management, waste management, environmental, and decontamination and decommissioning (“D&D”) field, technical, and management personnel and services to commercial and government customers; and ○ waste management services to commercial and governmental customers. - Nuclear services, which include: ○ D&D of government and commercial facilities impacted with radioactive material and hazardous constituents including engineering, technology applications, specialty services, logistics, transportation, processing and disposal; and ○ license termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process: project management, planning, characterization, waste stream identification and delineation, remediation/demolition, final status survey, compliance demonstration, reporting, transportation, disposal and emergency response. - A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
SERVICES SEGMENT, which includes: - Technical services, which include: ○ professional radiological measurement and site survey of large government and commercial installations using advanced methods, technology and engineering; ○ health physics services including health physicists, radiological engineers, nuclear engineers and health physics technicians support to government and private radioactive materials licensees; ○ 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; ○ global technical services providing consulting, engineering (civil, nuclear, mechanical, chemical, radiological and environmental), project management, waste management, environmental, and decontamination and decommissioning (“D&D”) field, technical, and management personnel and services to commercial and government customers; and ○ waste management services to commercial and governmental customers. - Nuclear services, which include: ○ D&D of government and commercial facilities impacted with radioactive material and hazardous constituents including engineering, technology applications, specialty services, logistics, transportation, processing and disposal; and ○ license termination support of radioactive material licensed and federal facilities over the entire cycle of the termination process: project management, planning, characterization, waste stream identification and delineation, remediation/demolition, final status survey, compliance demonstration, reporting, transportation, disposal and emergency response. - A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e., rental) health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.
These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored by the applicable state regulators. At December 31, 2022, we had total accrued environmental remediation liabilities of $861,000, a decrease of $15,000 from the December 31, 2021 balance of $876,000.
These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored by the applicable state regulators. As of December 31, 2023, we had total accrued environmental remediation liabilities of $845,000, a decrease of $16,000 from the December 31, 2022, balance of $861,000.
For 2022, the Services Segment accounted for $37,241,000, or 52.8%, of total revenue, as compared to $39,199,000, or 54.3%, of total revenue for 2021. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’ contracts with government clients (domestic and foreign) or with others as a subcontractor to government clients.
For 2023, the Services Segment accounted for $46,258,000, or 51.5%, of total revenue, as compared to $37,241,000, or 52.8%, of total revenue for 2022. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’ contracts with government clients (domestic) or with others as a subcontractor to government clients.
In addition, we could be deemed a potentially responsible party (“PRP”) for the costs of required cleanup of properties, which may be contaminated by hazardous substances generated or transported by us to a site we selected, including properties owned or leased by us. We could also be subject to fines and civil penalties in connection with violations of regulatory requirements.
In addition, we could be deemed a potentially responsible party (“PRP”) for the costs of required cleanup of properties, which may be contaminated by hazardous substances generated or transported by us to a site we selected, including properties owned or leased by us.
Radioactive material processing is authorized under radioactive materials licenses issued by the State of Washington and mixed waste processing is additionally authorized under a RCRA Part B permit with TSCA authorization issued jointly by the State of Washington and the EPA. EWOC, located in Oak Ridge, Tennessee, operates a low-level radioactive waste material processing facility.
Radioactive material processing is authorized under radioactive materials licenses issued by the State of Washington and mixed waste processing is additionally authorized under a RCRA Part B permit. Co-regulated TSCA PCB wastes are also managed for PCB under EPA Approval. EWOC, located in Oak Ridge, Tennessee, operates a low-level radioactive waste material processing facility.
A significant amount of our revenues from our Treatment and Services Segments are generated indirectly as subcontractors for others who are prime contractors to government authorities, particularly the DOE and DOD, or directly as the prime contractor to government authorities.
Dependence Upon a Single or Few Customers Our Treatment and Services Segments have significant relationships with the U.S. governmental authorities. A significant amount of our revenues from our Treatment and Services Segments are generated indirectly as subcontractors for others who are prime contractors to government authorities, particularly the DOE and DOD, or directly as the prime contractor to government authorities.
(“PFF”), Diversified Scientific Services, Inc., (“DSSI”), Perma-Fix Northwest Richland, Inc. (“PFNWR”) and Oak Ridge Environmental Waste Operations Center (“EWOC”); and - Research & Development (“R&D”) activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.
Environmental Protection Agency (“EPA”) or state equivalent) treatment and storage facilities as follow: Perma-Fix of Florida, Inc. (“PFF”), Diversified Scientific Services, Inc., (“DSSI”), Perma-Fix Northwest Richland, Inc. (“PFNWR”) and Oak Ridge Environmental Waste Operations Center (“EWOC”); and - Research & Development (“R&D”) activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.
If the permit requirements for hazardous waste treatment, storage, and disposal (“TSD”) activities and/or the licensing requirements for the handling of low-level radioactive matters are eliminated or if such licenses or permits were made less rigorous to obtain, we believe such would allow companies to enter into these markets and provide greater competition. 3 Number of Employees At December 31, 2022, we employed approximately 296 employees, of whom 287 are full-time employees and 9 are part-time/temporary employees.
If the permit requirements for hazardous waste treatment, storage, and disposal (“TSD”) activities and/or the licensing requirements for the handling of low-level radioactive matters are eliminated or if such licenses or permits were made less rigorous to obtain, we believe such would allow companies to enter into these markets and provide greater competition.
Regulations promulgated under OSHA by the Department of Labor require employers of persons in the transportation and environmental industries, including independent contractors, to implement hazard communications, work practices and personnel protection programs in order to protect employees from equipment safety hazards and exposure to hazardous chemicals.
Regulations promulgated under OSHA by the Department of Labor require employers of persons in the transportation and environmental industries, including independent contractors, to implement hazard communications, work practices and personnel protection programs in order to protect employees from equipment safety hazards and exposure to hazardous chemicals. 6 Atomic Energy Act The Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and Byproduct materials in the U.S. and its territories.
The principal element of our business strategy consists of upgrading our facilities within our Treatment Segment to increase efficiency and modernize and expand treatment capabilities to meet the changing markets associated with the waste management industry.
The principal element of our business strategy consists of upgrading our facilities within our Treatment Segment to increase efficiency and modernize and expand treatment capabilities to meet the changing markets associated with the waste management industry. Within our Services Segment, we continue to increase competitive procurement effectiveness and broaden the market penetration within both the commercial and government sectors.
The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European nuclear market. It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five (55) percent and our interest will be forty-five (45) percent.
It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five (55) percent and our interest will be forty-five (45) percent.
R&D totaled $336,000 and $746,000 for 2022 and 2021, respectively. 5 Governmental Regulation Environmental companies, such as us, and their customers are subject to extensive and evolving environmental laws and regulations by a number of federal, state and local environmental, safety and health agencies, the principal of which being the EPA.
Governmental Regulation Environmental companies, such as us, and their customers are subject to extensive and evolving environmental laws and regulations by a number of federal, state and local environmental, safety and health agencies, the principal of which being the EPA. These laws and regulations largely contribute to the demand for our services.
The majority of our research activities are performed as we receive new and unique waste to treat. Our competitors also devote resources to R&D and many such competitors have greater resources at their disposal than we do.
We conduct research internally, and also through collaborations with other third parties. The majority of our research activities are performed as we receive new and unique waste to treat. Our competitors also devote resources to R&D and many such competitors have greater resources at their disposal than we do. R&D totaled $561,000 and $336,000 for 2023 and 2022, respectively.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 operating decision maker “(CODM”) to make decisions about resources to be allocated and assess its performance; and ● for which discrete financial information is available.
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 operating decision maker “(CODM”) to make decisions about resources to be allocated and assess its performance; and ● for which discrete financial information is available. 1 TREATMENT SEGMENT reporting includes: - nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive waste), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed (Nuclear Regulatory Commission or state equivalent) and permitted (U.S.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – COVID-19 and Other Impact” for a full discussion of COVID-19 and other impacts on the Company’s results of operations). Segment Information and Foreign and Domestic Operations and Sales For 2022, the Company has two reportable segments.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – for a full discussion of the Company’s results of operations for 2023). Segment Information and Foreign and Domestic Operations and Sales For 2023, we have two reportable segments.
R&D Innovation and technical know-how by our operations is very important to the success of our business. Our goal is to discover, develop and bring to market innovative ways to process waste that address unmet environmental needs. We conduct research internally, and also through collaborations with other third parties.
We could also be subject to fines and civil penalties in connection with violations of regulatory requirements. 5 R&D Innovation and technical know-how by our operations is very important to the success of our business. Our goal is to discover, develop and bring to market innovative ways to process waste that address unmet environmental needs.
COVID-19 and Other Impacts Our 2022 financial results continued to be impacted by COVID-19, among other things. Our Treatment Segment began to see steady improvements in waste receipts starting in the second quarter of 2022 from certain customers who had previously delayed waste shipments due, in part, from the impact of COVID-19.
Our 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.
We cannot predict the extent to which our operations may be affected by future enforcement policies as applied to existing laws or by the enactment of new environmental laws and regulations.
Although our customers remain responsible by law for their environmental problems, we must also comply with the requirements of those laws applicable to our services. We cannot predict the extent to which our operations may be affected by future enforcement policies as applied to existing laws or by the enactment of new environmental laws and regulations.
Heading into 2023, we expect to see continued improvements in waste receipts and continued increases in project work from contracts recently won and bids submitted in both segments that are awaiting awards, subject to potential COVID-19 and economic impacts. (See “Item 7.
Heading into 2024, we expect 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.
Our Treatment and Services Segments provide services to research institutions, commercial companies, public utilities, and governmental agencies (domestic and foreign), including the U.S. Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”). The distribution channels for our services are through direct sales to customers or via intermediaries.
Our Treatment and Services Segments provide services primarily to research institutions, commercial companies, public utilities, and governmental entities, including the U.S. Department of Energy (“DOE”) and U.S. Department of Defense (“DOD”).
Foreign Revenue and Initiative Our consolidated revenue for 2022 and 2021 included approximately $406,000, or 0.6%, and $9,277,000, or 12.9%, respectively, from Canadian customers. 2 During March 2022, we signed a joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”) in the United Kingdom.
During March 2022, we signed a non-binding joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”) in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European nuclear market.
See “Risk Factors – Risks Related to our Business and Operations – Our operations are subject to seasonal factors, which causes our revenues to fluctuate” for a discussion of our seasonal factors. Permits and Licenses Waste management service companies are subject to extensive, evolving and increasingly stringent federal, state, and local environmental laws and regulations.
Seasonal Factors of our Business Our operations are generally subject to seasonal factors. See “Risk Factors – Risks Related to our Business and Operations – Our operations are subject to seasonal factors, which causes our revenues to fluctuate” for a discussion of our seasonal factors.
PFNWR, located in Richland, Washington, operates a low-level radioactive waste processing facility as well as a mixed waste processing facility.
Co-regulated TSCA PCB wastes are also managed for PCB destruction under EPA Approval. 3 PFNWR, located in Richland, Washington, operates a low-level radioactive waste processing facility as well as a mixed waste processing facility.
Our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with a different customer from year to year. 4 Competitive Conditions The Treatment Segment’s largest competitor is EnergySolutions which operates treatment facilities in Oak Ridge, TN and Erwin, TN and treatment/disposal facilities for low level radioactive waste in Clive, UT and Barnwell, SC.
Competitive Conditions The Treatment Segment’s largest competitor is EnergySolutions which operates treatment facilities in Oak Ridge, TN and Erwin, TN and treatment/disposal facilities for low level radioactive waste in Clive, UT and Barnwell, SC.
Upon finalization of this venture, we will be required to make an investment in this venture. The amount of our investment, the period of which it is to be made and the method of funding are to be determined. Seasonal Factors of our Business Our operations are generally subject to seasonal factors.
Upon finalization of this venture, we will be required to make an investment in this venture. The amount of our investment, the period of which it is to be made and the method of funding are to be determined. Our consolidated revenue for 2023 and 2022 included approximately $2,066,000, or 2.3%, and $1,226,000, or 1.7%, respectively, from foreign customers.
The Company continues to remain focused on expansion into both commercial and international markets to supplement government spending in the United States of America (“USA”), from which a significant portion of the Company’s revenue is derived. This includes new services, new customers and increased market share in our current markets.
We continue to increase our focus on expansion into both commercial and international markets (see “Foreign Revenue and Initiatives” below for further discussion of a recently won foreign contract) to supplement government spending in the United States of America (“USA”), from which a significant portion of our revenue is derived.
None of our employees are unionized. Environmental, Social and Governance (“ESG”) During 2022, we continued to improve our ESG performance. Our ESG subcommittee under our Corporate Governance and Nominating Committee continues to provide guidance on ESG management. Our executive team is responsible for the development of a strategic roadmap for ESG efforts with support from management from key functional areas.
Our executive team is responsible for the continuing development of our ESG strategic roadmap with support from management from key functional areas.
For 2022, the Treatment Segment accounted for $33,358,000, or 47.2%, of total revenue, as compared to $32,992,000, or 45.7%, of total revenue for 2021.
For 2023, the Treatment Segment accounted for $43,477,000, or 48.5%, of total revenue, as compared to $33,358,000, or 47.2%, of total revenue for 2022. See “Dependence Upon a Single or Few Customers” for further details and a discussion as to our Segments’ contracts with government clients (domestic) or with others as a subcontractor to government clients.
Removed
Within our Services Segment, we continue to bid on projects, increase competitive procurement effectiveness and broaden the market penetration within both the commercial and government sectors.
Added
This includes new services, new customers and increased market share in our current markets. We experienced significant improvement in our 2023 financial results as the lingering effects of COVID-19 began to subside starting in the early part of 2022.
Removed
This positive trend was negatively impacted by occurrences of severe weather conditions which resulted in temporary delays in waste shipments from certain customers and a temporary shortage in skilled production personnel which peaked through the fourth quarter of 2022 at one of our facilities.
Added
Within our Services Segment, certain projects which were delayed/curtailed in the 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.
Removed
In early part of 2022, our Services Segment continued to experience delays/curtailments in project work by certain customers since the award of projects to us late in the second quarter of 2021 due to COVID-19 impact and/or administrative delays.
Added
Revenues from both of our 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.
Removed
However, starting in the second quarter of 2022, work under these projects had resumed/increased as the pandemic impacts began to subside and has since reached full operational status. In 2022, we continued to realize delays in procurement and planning on behalf of our government clients that saw easing through the second half of the year.
Added
However, due to our operations which is subject to seasonal factor, we generally experience 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.
Removed
TREATMENT SEGMENT reporting includes: - nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive waste), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed (Nuclear Regulatory Commission or state equivalent) and permitted (U.S. Environmental Protection Agency (“EPA”) or state equivalent) treatment and storage facilities as follow: Perma-Fix of Florida, Inc.
Added
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.
Removed
Our corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.
Added
Although we expect 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.
Removed
Dependence Upon a Single or Few Customers Our Treatment and Services Segments have significant relationships with the U.S. governmental authorities. Our Services Segment also had significant relationships with the Canadian government authorities.
Added
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 (See “Item 7.
Removed
The contracts/task order agreements (“TOA”) that we are a party to with Canadian governmental authorities also generally provide that the government authorities may terminate the contracts/task order agreements at any time for any reason for convenience. Project work under TOAs with Canadian government authority has substantially been completed. A significant account receivable due to our Perma-Fix Canada, Inc.
Added
The distribution channels for our services are through direct sales to customers or via intermediaries. 2 Our corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350. Foreign Revenue and Initiative As noted previously, we continue to increase our focus on expansion into international markets.
Removed
(“PF Canada”) is subject to continuing negotiations. See “Known Trends and Uncertainties – Perma-Fix Canada, Inc. (“PF Canada”)” in Part II – Item 7 – “Management’s Discussion and Analysis of financial Condition and Results of Operations” for additional discussion as to a terminated Canadian TOA.
Added
On December 18, 2023, the joint venture (“JV”) where we 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.
Removed
We performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either indirectly for others as a subcontractor to government entities or directly as a prime contractor to government entities, representing approximately $60,030,000, or 85.0%, of our total revenue during 2022, as compared to $60,812,000, or 84.2%, of our total revenue during 2021.
Added
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 us under the initial phases will be limited to project management support through 2025.
Removed
These laws and regulations largely contribute to the demand for our services. Although our customers remain responsible by law for their environmental problems, we must also comply with the requirements of those laws applicable to our services.
Added
We expect 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.
Removed
Atomic Energy Act The Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and Byproduct materials in the U.S. and its territories.
Added
Permits and Licenses Waste management service companies are subject to extensive, evolving and increasingly stringent federal, state, and local environmental laws and regulations.
Added
Number of Employees At December 31, 2023, we employed approximately 297 employees, of whom 288 are full-time employees and 9 are part-time/temporary employees. None of our current employees are unionized. The Company entered into a Project Labor Agreement (“PLA”) dated June 21, 2023, with UA Plumbers & Steamfitters Local 598.
Added
The goal of this partnership is to supply our PFNWR facility with the organized labor force needed to take on the challenges of providing a supplement treatment alternative to include concrete-like grout for Hanford’s Low Activity Tank Waste if and when the DOE grants a contract to PFNWR to treat the Low Activity Tank Waste.
Added
This supplemental capability would support DOE’s glassifying process provided by the Hanford Vitrification Plant for safe transport and disposal off-site. Environmental, Social and Governance (“ESG”) We have a ESG subcommittee under our Corporate Governance and Nominating Committee to provide guidance on ESG management.
Added
Our revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with a different customer from year to year.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

57 edited+13 added−16 removed75 unchanged
Biggest changeIf we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our common stock could decline significantly, and our business, financial condition, and reputation could be harmed. 15 Delaware law, certain of our charter provisions, our stock option plans, outstanding warrants and our Preferred Stock may inhibit a change of control under circumstances that could give you an opportunity to realize a premium over prevailing market prices.
Biggest changeDelaware law, certain of our charter provisions, our stock option plans, outstanding warrants and our Preferred Stock may inhibit a change of control under circumstances that could give you an opportunity to realize a premium over prevailing market prices. We are a Delaware corporation governed by the General Corporation Law of Delaware, an anti-takeover law.
The maximum we can borrow under the revolving part of the credit facility is based on a percentage of the amount of our eligible receivables outstanding at any one time reduced by outstanding standby letters of credit and any borrowing reduction that our lender has or may impose from time to time.
The maximum we can borrow under the revolving part of our credit facility is based on a percentage of the amount of our eligible receivables outstanding at any one time reduced by outstanding standby letters of credit and any borrowing reduction that our lender has or may impose from time to time.
Any of the foregoing could adversely impact our operating results, financial condition, and liquidity. Our ability to continue our operations depends on our ability to generate profitable operations or complete equity or debt financings to increase our capital. 13 We may be unable to utilize loss carryforwards in the future.
Any of the foregoing could adversely impact our operating results, financial condition, and liquidity. Our ability to continue our operations depends on our ability to generate profitable operations or complete equity or debt financings to increase our capital. 13 We may be unable to utilize loss carryforwards in future.
As a result of our indebtedness, we could, among other things, be: ● required to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available for operations and future business opportunities; ● make it more difficult for us to satisfy our obligations; ● limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all; ● limit our ability to adjust to changing economic, business and competitive conditions; ● place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing; ● make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic conditions; and ● make us more susceptible to changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing.
We could, among other things, be: ● required to dedicate a substantial portion of our cash flow to the payment of principal and interest, thereby reducing the funds available for operations and future business opportunities; ● make it more difficult for us to satisfy our obligations; ● limit our ability to borrow additional money if needed for other purposes, including working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes, on satisfactory terms or at all; ● limit our ability to adjust to changing economic, business and competitive conditions; ● place us at a competitive disadvantage with competitors who may have less indebtedness or greater access to financing; ● make us more vulnerable to an increase in interest rates, a downturn in our operating performance or a decline in general economic conditions; and ● make us more susceptible to changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing.
Furthermore, as a result of our governmental contracts or subcontracts involving governmental facilities, claims for civil or criminal fraud may be brought by the government or violations of these regulations, requirements or statutes. 10 Changes in environmental regulations and enforcement policies could subject us to additional liability and adversely affect our ability to continue certain operations.
Furthermore, as a result of our governmental contracts or subcontracts involving governmental facilities, claims for civil or criminal fraud may be brought by the government or violations of these regulations, requirements or statutes. Changes in environmental regulations and enforcement policies could subject us to additional liability and adversely affect our ability to continue certain operations.
Errors or ambiguities as to contract specifications can also lead to cost-overruns. 9 Adequate bonding is necessary for us to win certain types of new work and support facility closure requirements. We are often required to provide performance bonds to customers under certain of our contracts, primarily within our Services Segment.
Errors or ambiguities as to contract specifications can also lead to cost-overruns. Adequate bonding is necessary for us to win certain types of new work and support facility closure requirements. We are often required to provide performance bonds to customers under certain of our contracts, primarily within our Services Segment.
Adverse public reaction also could lead to increased regulation or outright prohibition, limitations on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse impact on our customers’ and our business. 11 The elimination or any modification of the Price-Anderson Acts indemnification authority could have adverse consequences for our business.
Adverse public reaction also could lead to increased regulation or outright prohibition, limitations on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse impact on our customers’ and our business. The elimination or any modification of the Price-Anderson Acts indemnification authority could have adverse consequences for our business.
If we are unable to meet these competitive challenges, we could lose market share and experience on overall reduction in our profits. We bear the risk of cost overruns in fixed-price contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates.
If we are unable to meet these competitive challenges, we could lose market share and experience on overall reduction in our profits. 9 We bear the risk of cost overruns in fixed-price contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates.
If we fail to meet any of our financial covenants going forward, including the minimum quarterly FCCR requirement, and our lender does not further waive the non-compliance or further revise our covenant requirement so that we are in compliance, our lender could accelerate the payment of our borrowings under our credit facility and terminate our credit facility.
If we fail to meet any of our financial covenants going forward, including the minimum quarterly FCCR requirement, and our lender does not waive the non-compliance or revise our covenant requirement so that we are in compliance, our lender could accelerate the payment of our borrowings under our credit facility and terminate our credit facility.
Risks Related to Laws and Regulations As a government contractor, we are subject to extensive government regulation, and our failure to comply with applicable regulations could subject us to penalties that may restrict our ability to conduct our business. Our governmental contracts or subcontracts relating to DOE sites, are a significant part of our business.
Risks Related to Laws and Regulations As a government contractor, we are subject to extensive government regulation, and our failure to comply with applicable regulations could subject us to penalties that may restrict our ability to conduct our business. Our governmental contracts or subcontracts relating to DOE and DOD sites, are a significant part of our business.
Additionally, in the past, when we also failed to meet our minimum FCCR requirement in certain instances, our lender has either waived these instances of non-compliance or provided certain amendments to our FCCR requirements which enabled us to meet our quarterly FCCR requirements. Also, our lender has in the past waived our FCCR testing requirement in certain quarters.
In the past, when we failed to meet our minimum FCCR requirement in certain instances, our lender has either waived these instances of non-compliance or provided certain amendments to our FCCR requirements which enabled us to meet our quarterly FCCR requirements. Also, our lender has in the past waived our FCCR testing requirement in certain quarters.
These factors include, but are not limited to: ● accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities or involving shipments of nuclear materials; ● failure of government to approve necessary budgets, or to reduce the amount of the budget necessary, to fund remediation sites, including DOE and DOD sites; ● civic opposition to or changes in government policies regarding nuclear operations; ● a reduction in demand for nuclear generating capacity; or ● failure to perform under existing contracts, directly or indirectly, with the government.
These factors include, but are not limited to: ● accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities or involving shipments of nuclear materials; ● failure of government to approve necessary budgets, or to reduce the amount of the budget necessary, to fund remediation sites, including DOE and DOD sites; ● government shut-downs; ● civic opposition to or changes in government policies regarding nuclear operations; ● a reduction in demand for nuclear generating capacity; or ● failure to perform under existing contracts, directly or indirectly, with the government.
If these estimates prove inaccurate, or if circumstances change such as unanticipated technical problems, difficulties in obtaining permits or approvals, changes in laws or labor conditions, continued supply chain interruptions, weather delays, cost of raw materials, our suppliers’ or subcontractors’ inability to perform, and/or other events beyond our control, such as the impact of COVID-19, cost overruns may occur and we could experience reduced profits or, in some cases, a loss for that project.
If these estimates prove inaccurate, or if circumstances change such as unanticipated technical problems, difficulties in obtaining permits or approvals, changes in laws or labor conditions, supply chain interruptions, weather delays, cost of raw materials, our suppliers’ or subcontractors’ inability to perform, and/or other events beyond our control, such as the impact of public health events, cost overruns may occur and we could experience reduced profits or, in some cases, a loss for that project.
The price of our Common Stock on the NASDAQ Capital Markets constantly changes. We expect that the market price of our Common Stock will continue to fluctuate. This may make it difficult for our stockholders to resell the Common Stock when a stockholder wants or at prices a stockholder finds attractive.
The price of our Common Stock on the Nasdaq Capital Market constantly fluctuates. We expect that the market price of our Common Stock will continue to fluctuate. This may make it difficult for our stockholders to resell the Common Stock when a stockholder wants or at prices a stockholder finds attractive.
During economic downturns, large budget deficits that the federal government and many states are experiencing, and other events beyond our control, including, but not limited to the impact from COVID-19, the ability of private and government entities to spend on waste services, including nuclear services, may decline significantly.
During economic downturns, large budget deficits that the federal government and many states are experiencing, and other events beyond our control, including, but not limited to the impact from public health events (such as COVID-19), the ability of private and government entities to spend on waste services, including nuclear services, may decline significantly.
A security breach could adversely impact our customer relationships, reputation and operation and result in violations of applicable privacy and other laws, financial loss to us or to our customers or to our employees, and litigation exposure.
A security breach could adversely impact our customer relationships, reputation and operations, result in violations of applicable privacy and other laws and/or financial loss to us or to our customers or to our employees, and similar litigation exposure.
These unissued shares could be used by our management to make it more difficult for, and thereby discourage, an attempt to acquire control of us. Third party expectations relating to ESG factors may impose additional costs and expose us and our clients to new risks.
Future sales of authorized and unissued shares could be used by our management to make it more difficult for, and thereby discourage, an attempt to acquire control of us. Third party expectations relating to ESG factors may impose additional costs and expose us and our clients to new risks.
Economic downturns, reductions in government funding or other events (including COVID-19) beyond our control could have a material negative impact on our businesses.
Economic downturns, reductions in government funding or other events beyond our control could have a material negative impact on our businesses.
Residual and lingering macroeconomic effects from these such events could continue to impact supply chain, workforce availability, and/or increased costs which could have a downward effect on our business, financial condition and results of operations.
Residual and lingering macroeconomic effects from these such events could again in the future impact supply chain, workforce availability, and/or increased costs which could have a downward effect on our business, financial condition and results of operations.
Our operations depend, in large part, upon governmental funding (for example, the annual budget of the DOE) 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.
Our operations depend, in large part, upon governmental funding (for example, the annual budget of the DOE) 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. 8 The loss of one or a few customers could have an adverse effect on us.
Our Treatment Segment has limited options available for disposal of our nuclear waste. Currently, there are only four commercial disposal sites for our low-level radioactive waste and six commercial disposal sites for our very low-level activity waste we receive from non-governmental sites, allowing us to take advantage of the pricing competition between these sites.
Currently, there are only four commercial disposal sites for our low-level radioactive waste and six commercial disposal sites for our very low-level activity waste we receive from non-governmental sites, allowing us to take advantage of the pricing competition between these sites.
Our permits are tested for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of our permit, other intangible assets, and tangible assets may not be recoverable, include a decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry.
Factors that may be considered a change in circumstances, indicating that the carrying value of our permit, other intangible assets, and tangible assets may not be recoverable, include a decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry.
Such litigation, if significant and not adequately insured against, could adversely affect our financial condition and our ability to fund our operations. Protracted litigation would likely cause us to spend significant amounts of our time, effort, and money. This could prevent our management from focusing on our operations and expansion.
Such litigation, if significant and not adequately insured against, could adversely affect our financial condition and our ability to fund our operations. Protracted litigation would likely cause us to spend significant amounts of our time, effort, and money.
In the event that we are unable to obtain or maintain our financial assurance coverage for any reason, this could materially impact our operations and our permits which we are required to have in order to operate our treatment, storage, and disposal facilities.
In the event that we are unable to obtain or maintain our financial assurance coverage for any reason, this could materially impact our operations and our permits which we are required to have in order to operate our treatment, storage, and disposal facilities. If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.
We may be required, in the future, to record impairment charges in our financial statements, in which any impairment of our permit, other intangible assets, and tangible assets is determined. Such impairment charges could negatively impact our results of operations.
We may be required, in the future, to record impairment charges in our financial statements, in which any impairment of our permit, other intangible assets and tangible assets is determined.
The loss of one or a few customers could have an adverse effect on us. One or a few governmental customers or governmental related customers have in the past, and may in the future, account for a significant portion of our revenue in any one year or over a period of several consecutive years.
One or a few governmental customers or governmental related customers have in the past, and may in the future, account for a significant portion of our revenue in any one year or over a period of several consecutive years.
If environmental regulation or enforcement is relaxed, the demand for our services could decrease. The demand for our services is substantially dependent upon the public’s concern with, and the continuation and proliferation of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous, non-hazardous, and low-level radioactive waste.
The demand for our services is substantially dependent upon the public’s concern with, and the continuation and proliferation of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous, non-hazardous, and low-level radioactive waste.
As a result, our failure to maintain our safety record could have a material adverse effect on our business, financial condition and results of operations. 14 Systems failures, interruptions or breaches of security and other cyber security risks could have an adverse effect on our financial condition and results of operations.
As a result, our failure to maintain our safety record could have a material adverse effect on our business, financial condition and results of operations. Systems failures, interruptions or breaches of security and other cybersecurity risks could have an adverse effect on our financial condition and results of operations. We are subject to certain operational risks to our information systems.
Prevailing economic conditions, interest rate levels, and financial, competitive, business, and other factors affect us. Many of these factors are beyond our control, including the impact of COVID-19. Our indebtedness could limit our financial and operating activities, and adversely affect our ability to incur additional debt to fund future needs.
Prevailing economic conditions, interest rate levels, and financial, competitive, business, and other factors affect us. Many of these factors are beyond our control. If our financial and operating activities are limited, it could adversely affect our ability to incur additional debt to fund future needs.
We have approximately $25,413,000 and $78,400,000 in net operating loss carryforwards for federal and state income tax purposes, respectively and expires in various amounts starting in 2022 if not used against future federal and state income tax liabilities, respectively. Approximately $25,296,000 of our federal net operating loss carryforwards were generated after December 31, 2017 and thus do not expire.
We have approximately $19,450,000 and $72,859,000 in net operating loss carryforwards for federal and state income tax purposes, respectively and expires in various amounts starting in 2023 if not used against future federal and state income tax liabilities, respectively. All of our federal net operating loss carryforwards were generated after December 31, 2017 and thus do not expire.
Breach of any of the covenants in our credit facility could result in a default, triggering repayment of outstanding debt under the credit facility and the termination of our credit facility. Our credit facility with our bank contains financial covenants.
Such impairment charges could negatively impact our results of operations. 12 Breach of any of the covenants in our credit facility could result in a default, triggering repayment of outstanding debt under the credit facility and the termination of our credit facility. Our credit facility with our bank contains financial covenants.
The issuance of our Common Stock will result in the dilution in the percentage membership interest of our stockholders and the dilution in ownership value. At December 31, 2022, we had 13,324,756 shares of Common Stock outstanding.
The issuance of our Common Stock will result in the dilution in the percentage membership interest of our stockholders and the dilution in ownership value. As of December 31, 2023, we had 13,646,559 shares of Common Stock outstanding.
If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations. Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial.
Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial.
If we fail to comply with any regulations, requirements or statutes, our existing governmental contracts or subcontracts involving governmental facilities could be terminated or we could be suspended from government contracting or subcontracting.
Many of these contracts include express or implied certifications of compliance with applicable regulations and contractual provisions. If we fail to comply with any regulations, requirements or statutes, our existing governmental contracts or subcontracts involving governmental facilities could be terminated or we could be suspended from government contracting or subcontracting.
Failure to maintain effective internal control over financial reporting or failure to remediate a material weakness in internal control over financial reporting could have a material adverse effect on our business, operating results, and stock price.
Changes to current environmental laws and regulations also could limit the use of our proprietary technology. 15 Failure to maintain effective internal control over financial reporting or failure to remediate a material weakness in internal control over financial reporting could have a material adverse effect on our business, operating results, and stock price.
We cannot be certain that we will be successful in our efforts to attract and retain qualified personnel as their availability is limited (especially in the current labor market environment) due to the demand for hazardous waste management services and the highly competitive nature of the hazardous waste management industry.
We cannot be certain that we will be successful in our efforts to attract and retain qualified personnel as their availability is limited due to the demand for hazardous waste management services and the highly competitive nature of the hazardous waste management industry. We do not maintain key person insurance on any of our employees, officers, or directors.
Controls and Procedures” for a discussion of this material weakness and the remediation plan that were implemented). If we are unable to maintain adequate internal control over financial reporting at any time going forward, there is a reasonable possibility that a misstatement of our annual or interim financial statements will not be prevented or detected in a timely manner.
If we are unable to maintain adequate internal control over financial reporting, there is a reasonable possibility that a misstatement of our annual or interim financial statements will not be prevented or detected in a timely manner.
In addition, at December 31, 2022, we had outstanding options to purchase 1,018,400 shares of our Common Stock at exercise prices ranging from $2.79 to $7.50 per share and an outstanding warrant to purchase 60,000 shares of our Common Stock at exercise price of $3.51 per share.
In addition, at December 31, 2023, we had outstanding options to purchase 994,500 shares of our common stock at exercise prices ranging from $3.15 to $9.81 per share, and an outstanding warrant to purchase 30,000 shares of our Common Stock at an exercise price of $3.51 per share.
If any of our permits, other intangible assets, and tangible assets becomes impaired, we may be required to record significant charges to earnings. Under accounting principles generally accepted in the United States (“U.S. GAAP”), we review our intangible and tangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
Risks Relating to our Financial Performance and Position and Need for Financing If any of our permits, other intangible assets, and tangible assets becomes impaired, we may be required to record significant charges to earnings. Under accounting principles generally accepted in the United States (“U.S.
In such event, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness and/or operate our business. 12 Our debt and borrowing availability under our credit facility could adversely affect our operations. At December 31, 2022, our aggregate consolidated debt was approximately $1,039,000.
In such event, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness and/or operate our business. Inability to borrow under our credit facility could adversely affect our operations.
We must be successful in winning mandates from our government, commercial customers and international customers to replace revenues from projects that we have completed or that are nearing completion and to increase our revenues. Our business and operating results can be adversely affected by the size and timing of a single material contract.
We may not be successful in winning new business mandates from our government, commercial or international customers. We must be successful in winning mandates from our government, commercial and international customers to replace revenues from projects that we have completed or that are nearing completion and to increase our revenues.
Natural disasters and/or public health events, including COVID-19 and their direct and indirect macroeconomic impacts, could continue to negatively impact our business and results of operations. Public health threats and outbreaks such as COVID-19 and natural disasters such as hurricanes and severe weather conditions have negatively impacted our results of operations.
Public health threats and outbreaks such as COVID-19 and natural disasters such as hurricanes and severe weather conditions have previously negatively impacted our results of operations.
We are subject to certain operational risks to our information systems. Because of efforts on the part of computer hackers and cyberterrorists to breach data security of companies, we face risk associated with potential failures to adequately protect critical corporate, customer and employee data.
Because of efforts on the part of computer hackers and cyberterrorists to breach data security of companies, we face risk associated with potential failures to adequately protect critical corporate, customer and employee data. As part of our business, we develop and retain confidential data about us and our customers, including the U.S. government.
Allowable costs under U.S. government contracts are subject to audit by the U.S. government. If these audits result in determinations that costs claimed as reimbursable are not allowed costs or were not allocated in accordance with applicable regulations, we could be required to reimburse the U.S. government for amounts previously received.
If these audits result in determinations that costs claimed as reimbursable are not allowed costs or were not allocated in accordance with applicable regulations, we could be required to reimburse the U.S. government for amounts previously received. 10 Governmental contracts or subcontracts involving governmental facilities are often subject to specific procurement regulations, contract provisions and a variety of other requirements relating to the formation, administration, performance and accounting of these contracts.
Furthermore, contract terms may provide for automatic termination in the event that our safety record fails to adhere to agreed-upon guidelines during performance of the contract.
In addition, many of our government and commercial customers require that we maintain certain specified safety record guidelines to be eligible to bid for contracts with these customers. Furthermore, contract terms may provide for automatic termination in the event that our safety record fails to adhere to agreed-upon guidelines during performance of the contract.
As part of our business, we develop and retain confidential data about us and our customers, including the U.S. government. We also rely on the services of a variety of vendors to meet our data processing and communications needs.
We also rely on the services of a variety of vendors to meet our data processing and communications needs.
This creates the potential for future developments in regulations relating to cybersecurity that may adversely impact us, our customers and how we offer our services to our customers. We may be exposed to certain regulatory and financial risks related to climate change . Climate change is receiving ever increasing attention from scientists, legislators and the public.
This creates the potential for future developments in regulations relating to cybersecurity that may adversely impact us, our customers and how we offer our services to our customers. Climate change could negatively impact the Company’s operations and financial condition.
There can be no assurance that the steps taken by us to protect our proprietary technologies will be adequate to prevent misappropriation of these technologies by third parties. Misappropriation of our proprietary technology could have an adverse effect on our operations and financial condition. Changes to current environmental laws and regulations also could limit the use of our proprietary technology.
We believe our proprietary technology is important to us. We believe that it is important that we maintain our proprietary technologies. There can be no assurance that our steps to protect our proprietary technologies will be adequate to prevent misappropriation of these technologies by third parties. Such misappropriation could adversely effect our operations and financial condition.
Because customers generally contract with us for specific projects, we may lose these significant customers from year to year as their projects with us are completed.
Because customers generally contract with us for specific projects, we may lose these significant customers from year to year as their projects with us are completed. Our inability to replace the business with other similar significant projects could have an adverse effect on our business and results of operations.
Because we are a holding company and operations are conducted through our subsidiaries, our ability to meet our obligations depends, in large part, on the operating performance and cash flows of our subsidiaries. Our Treatment Segment has limited end disposal sites to utilize to dispose of its waste which could significantly impact our results of operations.
We are a holding company and depend, in large part, on receiving funds from our subsidiaries to fund our indebtedness. Because we are a holding company and operations are conducted through our subsidiaries, our ability to meet our obligations depends, in large part, on the operating performance and cash flows of our subsidiaries.
Most of our government contracts or our subcontracts granted under government contracts are awarded through a regulated competitive bidding process. Some government contracts are awarded to multiple competitors, which increase overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these government contracts.
Some government contracts are awarded to multiple competitors, which increase overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these government contracts. Contracts with, or subcontracts involving, the U.S federal government are generally terminable for convenience at any time at the option of the governmental agency.
At December 31, 2022, we had no borrowing under the revolving part of our credit facility and borrowing availability of up to an additional $4,290,000. The borrowing availability of $4,290,000 at December 31, 2022 included a requirement from our lender that we maintain a minimum of $3,000,000 in borrowing availability.
As of December 31, 2023, we had no borrowing under the revolving part of our credit facility and borrowing availability of up to an additional $10,622,000, which included our cash (deposited with our lender) and was based on our eligible receivables and was net of approximately $3,950,000 in outstanding standby letters of credit and a $750,000 indefinite reduction in borrowing availability that our lender imposed.
With limited end disposal site to dispose of our waste, we could be subject to significantly increased costs which could negatively impact our results of operations. Our operations are subject to seasonal factors, which cause our revenues to fluctuate.
With limited end disposal site to dispose of our waste, we could be subject to significantly increased costs which could negatively impact our results of operations. Direct and indirect macroeconomic impacts resulting from natural disasters, public health events and/or world conflicts in various regions could continue to and may in the future negatively impact our business and results of operations.
We failed to meet our quarterly fixed charge coverage ratio (“FCCR”) requirement for the second quarter of 2022; however, our lender waived this non-compliance. We were not required to perform testing of our FCCR in the first and third quarters of 2022.
We were not required to perform testing of our fixed charge coverage ratio (“FCCR”) in the first quarter of 2023 but otherwise met all of our other financial covenant requirements. We met all of our covenant requirements in each of the remaining quarters of 2023.
A material amount of our Treatment and Services Segments’ revenues are generated through various government contracts or subcontracts. Our revenues from governmental contracts and subcontracts relating to governmental facilities within our segments were approximately $60,030,000, or 85.0%, and $60,812,000, or 84.2%, of our consolidated revenues for 2022 and 2021, respectively.
A material amount of our Treatment and Services Segments’ revenues are generated through various government contracts or subcontracts. Most of our government contracts or our subcontracts granted under government contracts are awarded through a regulated competitive bidding process.
Our failure to maintain our safety record could have an adverse effect on our business. Our safety record is critical to our reputation. In addition, many of our government and commercial customers require that we maintain certain specified safety record guidelines to be eligible to bid for contracts with these customers.
Our business and operating results can be adversely affected by the size and timing of a single material contract. 14 Our failure to maintain our safety record could have an adverse effect on our business. Our safety record is critical to our reputation.
We have authorized and unissued 15,589,202 (which include shares issuable under outstanding options to purchase 1,018,400 shares of our Common Stock and shares issuable under an outstanding warrant to purchase 60,000 shares of our Common Stock) shares of our Common Stock and 2,000,000 shares of our Preferred Stock as of December 31, 2022.
Assuming the issuance of the Common Stock underlying such options and warrant, at December 31, 2023, we had available for future issuance 15,321,299 shares of authorized and unissued Common Stock, and 2,000,000 shares of our preferred stock.
Removed
Contracts with, or subcontracts involving, the U.S federal government are generally terminable for convenience at any time at the option of the governmental agency. The contracts/TOAs that we are a party to with Canadian governmental authorities also generally provide that the government authorities may terminate the contracts/TOAs at any time for any reason for convenience.
Added
The multi-year contract that was awarded to us and our JV partner, Campoverde Srl, by the European Commission (the “Contracting Authority”) on December 18, 2023, for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy as discussed previously may be terminated by the Contracting Authority under certain conditions as set forth in the contract.
Removed
Our inability to replace the business with other similar significant projects could have an adverse effect on our business and results of operations. 8 We are a holding company and depend, in large part, on receiving funds from our subsidiaries to fund our indebtedness.
Added
Our Treatment Segment has limited end disposal sites to utilize to dispose of its waste which could significantly impact our results of operations. Our Treatment Segment has limited options available for disposal of our nuclear waste.
Removed
Governmental contracts or subcontracts involving governmental facilities are often subject to specific procurement regulations, contract provisions and a variety of other requirements relating to the formation, administration, performance and accounting of these contracts. Many of these contracts include express or implied certifications of compliance with applicable regulations and contractual provisions.
Added
Additionally, world conflicts currently occurring in various regions may lead to similar macroeconomic effects which could have a downward effect on our business, financial conditions and results of operations.
Removed
Risks Relating to our Financial Performance and Position and Need for Financing We sustained a loss in 2022, and if we are unable to improve our results of operations in 2023, it could have a material adverse effect on the Company. In 2022, we sustained a loss in our results of operations.
Added
Our operations are subject to seasonal factors, which cause our revenues to fluctuate.
Removed
We believe that we will be able to improve our results of operations in 2023. If we are unable to substantially improve our results in 2023, it could have a material adverse effect on the Company and our operations.
Added
Allowable costs under U.S. government contracts are subject to audit by the U.S. government.
Removed
As a result of a recent amendment that we entered into with our lender in March 2023, we were not required to perform testing our FCCR for the fourth quarter of 2022.
Added
This could prevent our management from focusing on our operations and expansion. 11 If environmental regulation or enforcement is relaxed, the demand for our services could decrease.
Removed
Our Second Amended and Restated Revolving Credit, Term Loan and Security Agreement dated May 8, 2020, as amended, provides for a total credit facility commitment consisting of a $18,000,000 revolving line of credit, a term loan balance of approximately $1,742,000 and a capital line of $1,000,000, with advances available through May 4, 2022.
Added
GAAP”), we review our intangible and tangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Our permits are tested for impairment at least annually.
Removed
As a result of a recent amendment to our credit facility that we entered into with our lender in March 2023, the revolving line of credit was reduced to $12,500,000.
Added
In addition, as of December 31, 2023, we had outstanding options to purchase 994,500 shares of our Common Stock at exercise prices ranging from $3.15 to $9.81 per share and an outstanding warrant to purchase 30,000 shares of our Common Stock at exercise price of $3.51 per share.
Removed
As a result of the amendment to our credit facility that we entered into with our lender as discussed above, we are required to continue to maintain a minimum of $3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for the quarter ended June 30, 2023 has been met and certified to our lender.
Added
Climate change may present both immediate and long-term risks to the Company and our customers and these risks may increase over time.
Removed
We do not maintain key person insurance on any of our employees, officers, or directors. We may not be successful in winning new business mandates from our government and commercial customers or international customers.
Added
Climate risks can arise from both physical risks (those risks related to the physical effects of climate change) and transition risks (risks related to governmental regulatory requirements, legal technology, market and reputational changes from a transition to a low carbon economy).
Removed
The debate is ongoing as to the extent to which our climate is changing, the potential causes of this change and its potential impacts. Some attribute global warming to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions.
Added
Climate change could have a material, adverse effect on environmental companies like ours that are involved in the treatment, disposal and other services related to hazardous waste, radioactive waste and/or mixed (waste that contain both hazardous and radioactive) waste by changing or restricting how we perform our services or what services we can perform or taking action that materially increases our costs to do business in order to regulate or reduce climate change.
Removed
Presently there are no federally mandated greenhouse gas reduction requirements in the United States. However, there are a number of legislative and regulatory proposals to address greenhouse gas emissions, which are in various phases of discussion or implementation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company currently leases properties in the following locations for operations and administrative functions within our Treatment and Services Segments, including our corporate office and Business Center: Square Footage (SF)/ Location Acreage (AC) Expiration of Lease Oak Ridge, TN (Business Center) 16,319 SF April 30, 2026 Oak Ridge, TN (Services) 5,000 SF September 30, 2023 Blaydon On Tyne, England (Services) 1,000 SF Monthly New Brighton, PA (Services) 3,558 SF June 30, 2024 Newport, KY (Services) 1,566 SF Monthly Atlanta, GA (Corporate) 6,499 SF July 31, 2024 Oak Ridge, TN (Treatment) 8.7 AC, including 17,400 SF September 30, 2023 We believe that the above facilities currently provide adequate capacity for our operations and that additional facilities are readily available in the regions in which we operate, which could support and supplement our existing facilities.
Biggest changeThe Company currently leases properties in the following locations for operations and administrative functions within our Treatment and Services Segments, including our corporate office and Business Center: Square Footage (SF)/ Location Acreage (AC) Expiration of Lease Oak Ridge, TN (Business Center) 16,319 SF April 30, 2026 Oak Ridge, TN (Services) 5,000 SF September 30, 2024 Blaydon On Tyne, England (Services) 1,000 SF Monthly New Brighton, PA (Services) 3,558 SF June 30, 2024 Newport, KY (Services) 1,566 SF Monthly Atlanta, GA (Corporate) 6,499 SF July 31, 2024 Oak Ridge, TN (Treatment) 8.7 AC, including 17,400 SF September 30, 2028 We believe that the above facilities currently provide adequate capacity for our operations and that additional facilities are readily available in the regions in which we operate, which could support and supplement our existing facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS See “Part II – Item 8 - Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 16 – Commitments and Contingencies – Legal Matters” for a discussion of our legal proceedings. ITEM 4. MINE SAFETY DISCLOSURE Not Applicable. PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS See “Part II – Item 8 - Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 14 – Commitments and Contingencies – Legal Matters” for a discussion of our legal proceedings. ITEM 4. MINE SAFETY DISCLOSURE Not Applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThere were no purchases made by us or on behalf of us or any of our affiliated members of shares of our Common Stock during 2022.
Biggest changeSee “Warrant” in “Note 6 - Capital Stock, Stock Plans, Warrants, and Stock Based Compensation” in “Part II, Item 8, Financial Statements and Supplementary Data” for further discussion of this warrant exercise. There were no purchases made by us or on behalf of us or any of our affiliated members of shares of our Common Stock during 2023.
The actual number of our stockholders is greater than this number, and includes beneficial owners whose shares are held in “street name” by banks, brokers, and other nominees. 17 Since our inception, we have not paid any cash dividends on our Common Stock and have no dividend policy.
The actual number of our stockholders is greater than this number, and includes beneficial owners whose shares are held in “street name” by banks, brokers, and other nominees. Since our inception, we have not paid any cash dividends on our Common Stock and have no dividend policy.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol “PESI.” The following table sets forth the high and low market trade prices quoted for the Common Stock during the periods shown.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded on the Nasdaq Capital Market (“Nasdaq”) under the symbol “PESI.” The following table sets forth the high and low market trade prices quoted for the Common Stock during the periods shown.
Our loan agreement dated May 8, 2020, as amended, prohibits us from paying any cash dividends on our Common Stock without prior approval from our lender. We do not anticipate paying cash dividends on our outstanding Common Stock in the foreseeable future.
Our Loan Agreement dated May 8, 2020, as amended, prohibits us from paying any cash dividends on our Common Stock without prior approval from our lender. We do not anticipate paying cash dividends on our outstanding Common Stock in the foreseeable future. No sales of unregistered securities occurred during the first three quarters of 2023.
The source of such quotations and information is the NASDAQ online trading history reports. 2022 2021 Low High Low High Common Stock 1 st Quarter $ 4.89 $ 6.52 $ 5.74 $ 7.99 2 nd Quarter 4.91 6.09 6.70 7.95 3 rd Quarter 4.26 5.93 5.53 7.56 4 th Quarter 3.20 4.57 6.00 7.30 At February 14, 2023, there were approximately 128 stockholders of record of our Common Stock.
The source of such quotations and information is the NASDAQ online trading history reports. 2023 2022 Low High Low High Common Stock 1st Quarter $ 3.56 $ 12.00 $ 4.89 $ 6.52 2nd Quarter 7.52 12.60 4.91 6.09 3rd Quarter 8.73 13.87 4.26 5.93 4th Quarter 6.50 10.72 3.20 4.57 18 At February 12, 2024, there were approximately 121 stockholders of record of our Common Stock.
Added
On December 12, 2023, the Company issued 30,000 shares of its Common Stock resulting from the exercise of a Warrant for the purchase of up to 30,000 shares of the Company’s Common Stock at an exercise price of $3.51 per share, resulting in proceeds received by the Company of approximately $105,000.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSummary - Years Ended December 31, 2022 and 2021 Below are the results of continuing operations for years ended December 31, 2022 and 2021 (amounts in thousands): (Consolidated) 2022 % 2021 % Net revenues $ 70,599 100.0 $ 72,191 100.0 Cost of goods sold 60,990 86.4 65,367 90.5 Gross profit 9,609 13.6 6,824 9.5 Selling, general and administrative 14,652 20.8 12,845 17.8 Research and development 336 .4 746 1.0 Loss on disposal of property and equipment 18 — 2 — Loss from operations (5,397 ) (7.6 ) (6,769 ) (9.3 ) Interest income 99 .1 26 — Interest expense (175 ) (.3 ) (247 ) (.3 ) Interest expense – financing fees (61 ) (.1 ) (41 ) (.1 ) Other income (expense) 1,945 2.8 (86 ) (.1 ) Gain on extinguishment of debt — — 5,381 7.4 Loss on deconsolidation of subsidiary — — (1,062 ) (1.5 ) Loss from continuing operations before taxes (3,589 ) (5.1 ) (2,798 ) (3.9 ) Income tax benefit (378 ) (.6 ) (3,890 ) (5.4 ) (Loss) income from continuing operations $ (3,211 ) (4.5 ) $ 1,092 1.5 20 Revenue Consolidated revenues decreased $1,592,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021, as follows: (In thousands) 2022 % Revenue 2021 % Revenue Change % Change Treatment Government waste $ 21,946 31.1 $ 20,816 28.8 $ 1,130 5.4 Hazardous/non-hazardous (1) 5,062 7.1 4,915 6.8 147 3.0 Other nuclear waste 6,350 9.0 7,261 10.1 (911 ) (12.5 ) Total 33,358 47.2 32,992 45.7 366 1.1 Services Nuclear 35,952 50.9 37,834 52.4 (1,882 ) (5.0 ) Technical 1,289 1.9 1,365 1.9 (76 ) (5.6 ) Total 37,241 52.8 39,199 54.3 (1,958 ) (5.0 ) Total $ 70,599 100.0 $ 72,191 100.0 $ (1,592 ) (2.2 ) 1) Includes wastes generated by government clients of $2,380,000 and $2,299,000 for the twelve months ended December 31, 2022 and 2021, respectively.
Biggest changeSummary - Years Ended December 31, 2023 and 2022 Below are the results of continuing operations for years ended December 31, 2023, and 2022 (amounts in thousands): (Consolidated) 2023 % 2022 % Net revenues $ 89,735 100.0 $ 70,599 100.0 Cost of goods sold 73,366 81.8 60,990 86.4 Gross profit 16,369 18.2 9,609 13.6 Selling, general and administrative 14,975 16.7 14,652 20.8 Research and development 561 .6 336 .4 Loss on disposal of property and equipment 77 .1 18 — Income (loss) from operations 756 .8 (5,397 ) (7.6 ) Interest income 606 .7 99 .1 Interest expense (323 ) (.4 ) (175 ) (.3 ) Interest expense – financing fees (93 ) (.1 ) (61 ) (.1 ) Other (expense) income (11 ) — 1,945 2.8 Income (loss) from continuing operations before taxes 935 1.0 (3,589 ) (5.1 ) Income tax expense (benefit) 17 — (378 ) (.6 ) Income (loss) from continuing operations $ 918 1.0 $ (3,211 ) (4.5 ) Revenue Consolidated revenues increased $19,136,000 for the year ended December 31, 2023, compared to the year ended December 31, 2022, as follows: (In thousands) 2023 % Revenue 2022 % Revenue Change % Change Treatment Government waste $ 29,506 32.9 $ 21,946 31.1 $ 7,560 34.4 Hazardous/non-hazardous (1) 6,260 7.0 5,062 7.1 1,198 23.7 Other nuclear waste 7,711 8.6 6,350 9.0 1,361 21.4 Total 43,477 48.5 33,358 47.2 10,119 30.3 Services Nuclear 43,121 48.0 35,952 50.9 7,169 19.9 Technical 3,137 3.5 1,289 1.9 1,848 143.4 Total 46,258 51.5 37,241 52.8 9,017 24.2 Total $ 89,735 100.0 $ 70,599 100.0 $ 19,136 27.1 1) Includes wastes generated by government clients of $2,943,000 and $2,380,000 for the twelve months ended December 31, 2023, and 2022, respectively. 21 Treatment Segment revenue increased by $10,119,000 or 30.3% for the twelve-months ended December 31, 2023 over the same period in 2022.
Changes in the estimated future cash flows costs underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with our depreciation policy. Income Taxes.
Changes in the estimated future cash flows costs underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with our depreciation policy. 28 Income Taxes.
A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit.
A breach of any of these financial covenants, unless waived by our lender, could result in a default under our credit facility allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit.
During March 2022, we signed a joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”) in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European nuclear market.
During March 2022, we signed a non-binding joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”) in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European nuclear market.
The finalization, form and capitalization of this unpopulated partnership is subject to numerous conditions, including but not limited to, winning a certain contract, completion and execution of a definitive agreement and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast future economic conditions.
The finalization, form and capitalization of this unpopulated partnership is subject to numerous conditions, including but not limited to, completion and execution of a definitive agreement and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast future economic conditions.
We typically process our backlog during periods of low waste receipts, which historically has been in the first or fourth quarters. 23 Discontinued Operations and Environmental Contingencies Our discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and prior and three previously closed locations.
We typically process our backlog during periods of low waste receipts, which historically has been in the first or fourth quarters. 23 Discontinued Operations and Environmental Contingencies Our discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in 2011 and earlier, as well as three previously closed locations.
Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2022 and 2021 resulted in no impairment charges.
Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2023, and 2022 resulted in no impairment charges.
We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including without limitation, the economic conditions, the manner in which the government entity will be required to spend funding to remediate various sites, and potential COVID-19 impact.
We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including without limitation, the economic conditions and the manner in which the government entity will be required to spend funding to remediate various sites.
See “Special Note regarding Forward-Looking Statements” contained in this report. Management’s discussion and analysis is based, among other things, our audited consolidated financial statements and includes our accounts, the accounts of our wholly-owned subsidiaries and the account of a variable interest entity for which we were the primary beneficiary.
See “Special Note regarding Forward-Looking Statements” contained in this report. Management’s discussion and analysis is based, among other things, our audited consolidated financial statements and includes our accounts and the accounts of our wholly-owned subsidiaries. Our 2022 consolidated financial statements also included the accounts of a variable interest entity (“VIE”) for which we were the primary beneficiary.
Investing Activities During 2022, our purchases of capital equipment totaled approximately $1,137,000, of which $114,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2023 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth.
Investing Activities During 2023, our purchases of capital equipment totaled approximately $2,498,000, of which $784,000 was subject to financing, with the remaining funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2024 capital expenditures primarily for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth.
As disclosed above, our Treatment Segment began to see steady improvements in waste receipts starting in the second quarter of 2022 from certain customers who had previously delayed waste shipments due, in part, from the impact of COVID-19.
As previously disclosed, starting in the latter part of the second quarter of 2022, our Treatment Segment began to see steady improvements in waste receipts from certain customers who had previously delayed waste shipments due, in part, from the lingering effects of COVID-19.
Known Trends and Uncertainties Economic Conditions. Our business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government authorities (particularly the DOE and DOD) or directly as the prime contractor.
Our business continues to be heavily dependent on services that we provide to governmental clients (domestic), primarily as subcontractors for others who are prime contractors to government authorities (particularly the DOE and DOD) or directly as the prime contractor.
Our Treatment and Services Segments have significant relationships with the U.S governmental authorities through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to government authorities. We also had significant relationships with Canadian government authorities primarily through TOAs entered into with Canadian government authorities.
Our Treatment and Services Segments have significant relationships with the U.S governmental authorities through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to government authorities.
Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.
Certain of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from cash from operations, collections of unpaid receivables, borrowing availability under our credit facility and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.
We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various sites, and/or potential further impact from COVID-19.
We believe demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without limitation, the economic conditions and the manner in which the applicable government will be required to spend funding to remediate various sites and a potential partial government shutdown.
Off Balance Sheet Arrangements From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. At December 31, 2022, the total amount of standby letters of credit outstanding totaled approximately $3,016,000 and the total amount of bonds outstanding totaled approximately $35,432,000.
Off Balance Sheet Arrangements From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. At December 31, 2023, the total amount of standby letters of credit outstanding totaled approximately $3,950,000 and the total amount of bonds outstanding totaled approximately $36,674,000.
Project work under TOAs with Canadian government authorities has substantially been completed. Our inability to continue under existing contracts that we have with the U.S government (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.
Our inability to continue under existing contracts that we have with the U.S government (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition.
Our discontinued operations had no revenue for the twelve months ended December 31, 2022 and 2021. We incurred net losses of $605,000 (net of tax benefit of $199,000) and $421,000 (net of tax benefit of $139,000) for our discontinued operations for the twelve months ended December 31, 2022 and 2021, respectively.
Our discontinued operations had no revenue for the twelve-months ended December 31, 2023 and 2022. We incurred net losses of $433,000 (net of tax benefit of $117,000) and $605,000 (net of tax benefit of $199,000) for our discontinued operations for the twelve-months ended December 31, 2023, and 2022, respectively.
We may attempt to increase our sales prices in order to maintain satisfactory margin; however, competitive pressures in our industry may have the effect of inhibiting our ability to reflect these increased costs in the prices of our services that we provide to our customers and therefore reduce our profitability. Liquidity.
We may attempt to increase our service and treatment prices in order to maintain satisfactory margin from the effect of these factors as discussed above; however, competitive pressures in our industry may have the effect of inhibiting our ability to reflect these increased costs in the prices of our services that we provide to our customers and therefore reduce our profitability.
On March 21, 2023, we entered into an amendment to our Revised Loan Agreement with our lender which provides, among other things, the following: ● removed the quarterly FCCR testing requirement for the fourth quarter of 2022 and removes the FCCR testing requirement the first quarter of 2023; 26 ● reduced the maximum revolving credit line under the credit facility from $18,000,000 to $12,500,000; ● reinstates the quarterly FCCR testing requirement starting in the second quarter of 2023 using a trailing twelve months period (with no change to the minimum 1.15:1 ratio requirement for each quarter); and ● requires maintenance of a minimum of $3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for the quarter ended June 30, 2023 has been met and certified to the lender.
On March 21, 2023, we entered into an amendment to our Loan Agreement, as amended, with our lender which provided, among other things, the following: ● removed the quarterly fixed charge coverage ratio (“FCCR”) testing requirement for the fourth quarter of 2022 and removed the FCCR testing requirement for the first quarter of 2023; ● reduced the maximum revolving credit line under the credit facility from $18,000,000 to $12,500,000; ● reinstated the quarterly FCCR testing requirement starting in the second quarter of 2023 using a trailing twelve-months period (with no change to the minimum 1.15:1 ratio requirement for each quarter); and ● required maintenance of a minimum of $3,000,000 in borrowing availability under the revolving credit until the minimum FCCR requirement for the quarter ended June 30, 2023 has been met and certified to the lender (we met our FCCR requirement in the second quarter of 2023 which was certified to our lender and therefore, this requirement is no longer applicable under our Loan Agreement, as amended).
The following table reflects the cash flow activity for the year ended December 31, 2022 and the corresponding period of 2021: (In thousands) 2022 2021 Cash provided by (used in) operating activities of continuing operations $ 164 $ (6,316 ) Cash used in operating activities of discontinued operations (717 ) (521 ) Cash used in investing activities of continuing operations (997 ) (1,564 ) Cash (used in) provided by financing activities of continuing operations (921 ) 4,943 Effect of exchange rate changes on cash (4 ) (1 ) Decrease in cash and finite risk sinking fund (restricted cash) $ (2,475 ) $ (3,459 ) At December 31, 2022, we were in a positive cash position with no revolving credit balance.
The following table reflects the cash flow activity for the year ended December 31, 2023, and the corresponding period of 2022: (In thousands) 2023 2022 Cash provided by operating activities of continuing operations $ 6,745 $ 164 Cash used in operating activities of discontinued operations (597 ) (717 ) Cash used in investing activities of continuing operations (1,714 ) (997 ) Cash provided by (used in) financing activities of continuing operations 1,696 (921 ) Effect of exchange rate changes on cash 8 (4 ) Increase (decrease) in cash and finite risk sinking fund (restricted cash) $ 6,138 $ (2,475 ) As of December 31, 2023, we were in a positive cash position with no revolving credit balance.
The increase in net losses in 2022 as compared to 2021 was primarily due to costs incurred in connection with management of administrative and regulatory matters within our discontinued operations. We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water.
In 2022, we incurred additional costs in connection with management of administrative and regulatory matters related to our remediation projects. We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water.
Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying value.
These estimates are re-assessed each reporting period as required. 27 Intangible Assets . Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying value.
Our other accounting policies are described in the accompanying notes to our consolidated financial statements of this Form 10-K (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – “Note 2 – Summary of Significant Accounting Policies”): Intangible Assets .
Our other accounting policies are described in the accompanying notes to our consolidated financial statements of this Form 10-K (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies”): Revenues. Our revenues are generated from our two segments, Treatment and Services.
In addition, our U.S. governmental contracts and subcontracts relating to activities at governmental sites are generally subject to termination for convenience at any time at the option of the government. Our TOAs with the Canadian government also provided that the government may terminate a TOA at any time for convenience.
In addition, our U.S. governmental contracts and subcontracts relating to activities at governmental sites are generally subject to termination for convenience at any time at the option of the government.
At this time, we believe that our cash flows from operations, our available liquidity from our credit facility, our cash on hand and the expected refund from the ERC program should be sufficient to fund our operations for the next twelve months.
W e believe that our cash flows from operations, our available liquidity from our credit facility, and our cash on hand should be sufficient to fund our operations for the next twelve months.
In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option, and our governmental contracts/TOAs with the Canadian government authorities also allow the authorities to terminate the contract/task orders at any time for convenience.
In addition, our governmental contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s option.
Our Services Segment revenues are project based; as such, the scope, duration and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value.
Our Services Segment revenues are project-based; as such, the scope, duration, and completion of each project vary. As a result, our Services Segment revenues are subject to differences relating to timing and project value. Revenues from both of our segments were also positively impacted from contracts won in 2023.
We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through American International Group, Inc. (“AIG”).
We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through American International Group, Inc. (“AIG”). At December 31, 2023, the closure and post-closure requirements for these facilities were approximately $22,461,000.
Treatment Segment’s overall fixed costs were higher by approximately $1,234,000 resulting from the following: general expenses were higher by $483,000 primarily due to higher utility costs; depreciation expenses were higher by approximately $392,000 due to depreciation for asset retirement obligations in connection with our EWOC facility; regulatory expenses were higher by approximately $232,000 primarily due to additional closure costs recorded for our EWOC facility due to change in estimated costs; maintenance costs were higher by approximately $109,000; salaries and payroll related expenses were higher by $61,000; and travel expenses were lower by approximately $43,000.
Treatment Segment’s overall fixed costs were higher by approximately $2,297,000 resulting from the following: salaries and payroll related expenses were higher by approximately $1,483,000 due to higher headcount; depreciation expenses were higher by approximately $393,000 due to depreciation for asset retirement obligations in connection with our EWOC facility; general expenses were higher by approximately $279,000 primarily due to higher utility costs; maintenance costs were higher by approximately $235,000; travel expenses were higher by approximately $90,000; and regulatory expenses were lower by approximately $183,000.
Treatment Segment’s variable costs increased by approximately $607,000 primarily due to higher material and supplies, transportation, and outside services costs.
Treatment Segment’s variable costs increased by approximately $6,189,000 primarily due to higher material and supplies, disposal, lab, outside services costs and higher employee incentives.
We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary.
There are no assurances that we will be successful in increasing our liquidity through our efforts. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary.
Income Taxes We had income tax benefits of $378,000 and $3,890,000 for continuing operations for the twelve months ended December 31, 2022 and 2021, respectively. Our effective tax rates were approximately 10.5% and 139.0% for the twelve months ended December 31, 2022 and 2021, respectively.
Income Taxes We had income tax expense of $17,000 and income tax benefit of $378,000 for continuing operations for the twelve-months ended December 31, 2023 and 2022, respectively. Our effective tax rates were approximately 1.8% and 10.5% for the twelve- month ended December 31, 2023 and 2022, respectively.
At December 31, 2022, the closure and post-closure requirements for these facilities were approximately $21,175,000. 27 Critical Accounting Policies and Estimates Our consolidated financial statements are prepared based upon the selection and application of US GAAP, which may require us to make estimates, judgments and assumptions that affect amounts reported in our financial statements and accompanying notes.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared based upon the selection and application of US GAAP, which may require us to make estimates, judgments and assumptions that affect amounts reported in our financial statements and accompanying notes.
Financing Activities We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, (the “Loan Agreement”), with PNC National Association (“PNC”), acting as agent and lender.
The amount of our investment, the period of which it is to be made and the method of funding are to be determined. 25 Financing Activities We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan Agreement”), with PNC National Association (“PNC” and “lender”), acting as agent and lender.
We performed services relating to waste generated by government clients (domestic and foreign (primarily Canadian)), either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately $60,030,000, or 85.0%, of our total revenue during 2022, as compared to $60,812,000, or 84.2%, of our total revenue during 2021.
We performed services relating to waste generated by government clients (domestic), either directly as a prime contractor or indirectly for others as a subcontractor to government entities, representing approximately $70,642,000, or 78.7%, of our total revenue during 2023, as compared to $59,658,000, or 84.5%, of our total revenue during 2022.
Interest Income Interest income increased by approximately $73,000 for the twelve months ended December 31 2022 as compared to the corresponding period of 2021 primarily due to higher interest earned from our finite risk sinking fund.
Included in SG&A expenses is depreciation and amortization expense of $84,000 and $82,000 for the twelve months ended December 31, 2023 and 2022, respectively. Interest Income Interest income increased by approximately $507,000 for the twelve-months ended December 31, 2023, respectively, as compared to the corresponding period of 2022 primarily due to higher interest earned from the finite risk sinking fund.
Accounts payable, totaled $10,325,000 at December 31, 2022, a decrease of $1,650,000 from the December 31, 2021 balance of $11,975,000. Our accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout all segments.
Our accounts payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position throughout our segments. Accrued expenses totaled $6,560,000 as of December 31, 2023, an increase of $1,967,000 from the December 31, 2022, balance of $4,593,000.
At December 31, 2022, we had cash on hand of approximately $1,866,000. Operating Activities Accounts receivable, net of credit losses, totaled $9,364,000 at December 31, 2022, a decrease of $2,008,000 from the December 31, 2021 balance of $11,372,000. The decrease was attributed to timing of invoicing and accounts receivable collection.
As of December 31, 2023, we had cash on hand of approximately $7,500,000. Operating Activities Accounts receivable, net of credit losses, totaled $9,722,000 as of December 31, 2023, an increase of $358,000 from the December 31, 2022, balance of $9,364,000. The increase was attributed to increased revenue, timing of invoicing, and our accounts receivable collection.
In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies.
In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions could cause an increase or decrease to the valuation allowance which could materially impact our results of operations.
As a result of this new provision, payment of annual rate of interest due on the revolving credit is at prime (7.50% at December 31, 2022) plus 2% or Term SOFR Rate (as defined in the Revised Loan Agreement) plus 3.00% plus an SOFR Adjustment applicable for an interest period selected by us and payment of annual rate of interest due on the term loan and the capital expenditure line is at prime plus 2.50% or Term SOFR Rate plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by us.
The annual rate of interest due on Term Loan 2 is at prime (8.50% at December 31, 2023) plus 3.00% or Secured Overnight Finance Rate (“SOFR”) (as defined in the Loan Agreement, as amended) plus 4.00% plus an SOFR Adjustment applicable for an interest period selected by us.
Cost of Goods Sold Cost of goods sold decreased $4,377,000 for the year ended December 31, 2022, as compared to the year ended December 31, 2021, as follows: % % (In thousands) 2022 Revenue 2021 Revenue Change Treatment $ 28,115 84.3 $ 26,274 79.6 $ 1,841 Services 32,875 88.3 39,093 99.7 (6,218 ) Total $ 60,990 86.4 $ 65,367 90.5 $ (4,377 ) Cost of goods sold for the Treatment Segment increased by approximately $1,841,000 or 7.0%.
Cost of Goods Sold Cost of goods sold increased $12,376,000 for the year ended December 31, 2023, as compared to the year ended December 31, 2022, as follows: (In thousands) 2023 % Revenue 2022 % Revenue Change Treatment $ 36,601 84.2 $ 28,115 84.3 $ 8,486 Services 36,765 79.5 32,875 88.3 $ 3,890 Total $ 73,366 81.8 $ 60,990 86.4 $ 12,376 Cost of goods sold for the Treatment Segment increased by approximately $8,486,000 or 30.2%.
Treatment Segment SG&A expenses were higher primarily due to the following: outside services expense were higher by $120,000 due to more consulting/business matters (including our ESG initiatives); salaries and payroll related expenses were higher by $46,000; travel expenses were higher by approximately $59,000; and general expenses were higher by $164,000 which included higher tradeshow expenses and various other categories.
Treatment Segment SG&A expenses were lower primarily due to the following: outside services expenses were lower by approximately $110,000 due to fewer consulting matters; salaries and payroll related expenses were lower by approximately $212,000; travel expenses were lower by approximately $24,000; and general expenses were higher by approximately $176,000 in various categories.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report. COVID-19 and Other Impacts Our 2022 financial results continued to be impacted by COVID-19, among other things.
During the fourth quarter of 2022, project work under this VIE was completed. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report.
The increase was entirely from our Services Segment due to higher margin projects. The decrease in Treatment Segment gross profit was impacted by overall lower averaged price waste from revenue mix and the impact of the increase in fixed costs.
Despite the slight increase in gross margin, Treatment Segment gross margin was negatively impacted by higher variable costs from waste mix and the impact of overall increase in fixed costs. Services Segment gross profit increased by $5,127,000 or 117.4% and gross margin increased from 11.7% to 20.5% primarily due to higher revenue and improved margin projects.
SG&A SG& A expenses increased $1,807,000 for the year ended December 31, 2022 as compared to the corresponding period for 2021 as follows: (In thousands) 2022 % Revenue 2021 % Revenue Change Administrative $ 6,882 — $ 5,751 — $ 1,131 Treatment 4,419 13.2 4,030 12.2 389 Services 3,351 9.0 3,064 7.8 287 Total $ 14,652 20.8 $ 12,845 17.8 $ 1,807 Administrative SG&A expenses were higher primarily due to the following: overall outside services expenses were higher by approximately $654,000 resulting from higher consulting/outside services/audit fees; travel expenses were higher by approximately $19,000; general expenses were higher by approximately $13,000 in various categories; and salaries and payroll related expenses were higher by approximately $445,000 primarily due to higher stock-based compensation expenses from options granted to certain employees in October 2021 and higher 401(k) plan matching expenses as our payroll expenses in 2021 included more forfeitures of 401(k) plan matching funds contributed by us for former employees who failed to meet the 401(k) plan vesting requirements.
Our overall Services Segment gross margin is impacted by our current projects which are competitively bid and therefore have varying margin structures. 22 SG&A SG& A expenses increased $323,000 for the year ended December 31, 2023, as compared to the corresponding period for 2022 as follows: (In thousands) 2023 % Revenue 2022 % Revenue Change Administrative $ 7,230 - $ 6,882 - $ 348 Treatment 4,249 9.8 4,419 13.2 (170 ) Services 3,496 7.6 3,351 9.0 145 Total $ 14,975 16.7 $ 14,652 20.8 $ 323 Administrative SG&A expenses were higher primarily due to the following: payroll-related expenses were higher by approximately $660,000 primarily due to higher accrued employee incentives (including our management incentive plans (“MIPs”)) and higher 401(k) matching expenses as payroll expenses in 2022 included more forfeitures of 401(k) plan matching funds contributed by us for former employees who failed to meet the 401(k) plan vesting requirements; outside services expenses were lower by approximately $256,000 as a result of fewer audit/consulting matters; and general expenses were lower by approximately $56,000 in various categories.
At December 31, 2022, our Treatment Segment had a backlog of approximately $9,156,000, as compared to approximately $7,129,000 at December 31, 2021. Additionally, the time it takes to process waste from the time it arrives may increase due to the types and complexities of the waste we are currently receiving.
Additionally, the time it takes to process waste from the time it arrives may increase due to the types and complexities of the waste we are currently receiving.
Our Treatment Segment revenue increased by $366,000 or 1.1% primarily due to overall higher waste volume which was offset by lower averaged price waste due to revenue mix.
The overall increase was primarily due to higher waste volume offset by lower averaged price from waste mix.
Upon finalization of this venture, we will be required to make an investment in this venture. The amount of our investment, the period of which it is to be made and the method of funding are to be determined.
Upon finalization of this venture, we will be required to make an investment in this venture.
See above discussion contained herein as to issues relating to “Liqudity” and efforts to improve our liquidity Related Party Transactions See a discussion of the Company’s related party transactions in “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidate Financial Statements – Note 18 – Related Party Transactions and Note 20 – Subsequent Events – Executive Compensation - MIPs.”
Related Party Transactions See a discussion of our related party transactions in “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidate Financial Statements – Note 16 – Related Party Transactions.”
Interest Expense Interest expense decreased by approximately $72,000 for the twelve months ended December 31, 2022 as compared to the corresponding period of 2021 primarily due to lower interest expense from our declining term loan balance outstanding.
Interest Expense Interest expense increased by approximately $148,000 for the twelve-months ended December 31, 2023, as compared to the corresponding period of 2022 due to interest incurred on the new $2,500,000 term loan dated July 31, 2023, under our credit facility.
Services Segment cost of goods sold decreased $6,218,000 or 15.9% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll related, outside services, material and supplies and travel costs totaling approximately $6,863,000 which was offset by higher disposal, transportation and general expenses totaling approximately $645,000.
The overall increase in cost of goods sold was primarily due to the following: aggregated higher salaries/payroll related, outside services, and travel costs totaling approximately $4,356,000; higher depreciation expenses of $63,000; lower material and supplies, lab, regulatory and disposal expenses totaling approximately $444,000; and lower general expenses by approximately $85,000 in various categories.
Our accounts receivable at December 31, 2022 include invoices for work performed which previously was in our unbilled account for a certain Canadian project that remain outstanding and subject to negotiations (see unbilled receivables discussion below). See discussion under “Known Trends and Uncertainties – Perma-Fix Canada, Inc.
Our contracts with our customers are subject to various payment terms and conditions. Our accounts receivable at December 31, 2023, included invoices for work performed for a certain Canadian project that remained outstanding which a settlement agreement has been reached, subject to meeting certain conditions/terms precedent (See discussion under “Known Trends and Uncertainties - Perma-Fix Canada Inc.
Subject to COVID-19 and other impacts as discussed above, our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures.
Our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility availability, cash on hand and collections of unpaid receivables (See “Known Trends and Uncertainties – Perma-Fix Canada, Inc.
At the end of the Borrowing Period, advance on the capital line totaled approximately $524,000. We are required to make monthly principal installment payment of approximately $8,700 starting June 1, 2022 plus interest. At December 31, 2022, balance on the capital line was approximately $463,000.
Amounts advanced under the Capital Line at the end of the Borrowing Period totaled approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, commencing June 1, 2022.
Continued increases in any of our operating costs, including further changes in fuel prices, wage rates, supplies, and utility costs, may further increase our overall cost of goods sold or operating expenses. Some of these cost increases have been the result of inflationary pressures that could further reduce profitability.
Continued i ncreases in any of our operating costs, including utility, transportation, wage rates, and supply costs, may further increase our overall cost of goods sold or operating expenses.
Backlog Our Treatment Segment maintains a backlog of stored waste, which represents waste that has not been processed. The backlog is principally a result of the timing and complexity of the waste being brought into the facilities and the selling price per container.
The backlog is principally a result of the timing and complexity of the waste being brought into the facilities and the selling price per container. As of December 31, 2023, our Treatment Segment had a backlog of approximately $8,702,000, as compared to approximately $9,156,000 as of December 31, 2022.
Based on an amendment that we entered into with our lender on March 21, 2023 as discussed below, we were not required to perform testing of the FCCR requirement in the fourth quarter of 2022.
We were not required to perform testing of the FCCR requirement in the first quarter of 2023 pursuant to the March 21, 2023, amendment as discussed above. We otherwise met all of our other financial covenant requirements.
Other than the above discussion pertaining to our FCCR requirements, we met all of our other financial covenant requirements in each of the quarters of 2022. We expect to meet our quarterly financial covenant requirements for the next twelve months under our Amended Loan Agreement.
We met all of our covenant requirements in each of the second to fourth quarters of 2023 and we expect to meet our covenant requirements in the next twelve months.
A change in these assumptions could cause an increase or decrease to the valuation allowance which could materially impact our results of operations. 28 Recent Accounting Pronouncements See “Item 8 – Financial Statements and Supplementary Data” – Notes to Consolidated Financial Statements” – Note 2 – Summary of Significant Accounting Policies” for the recent accounting pronouncements that have been adopted during the year ended December 31, 2022, or will be adopted in future periods.
Recent Accounting Pronouncements See “Item 8 – Financial Statements and Supplementary Data” – Notes to Consolidated Financial Statements” – Note 2 – Summary of Significant Accounting Policies” for the recent accounting pronouncements that will be adopted in future periods. Known Trends and Uncertainties Economic Conditions.
We had working capital of $818,000 (which included working capital of our discontinued operations) at December 31, 2022, as compared to working capital of $4,060,000 at December 31, 2021. Our working capital was negatively impacted primarily by our results of operations which were heavily impacted from COVID-19 and other delays as discussed previously, especially in the first quarter of 2022.
We had working capital of $4,613,000 (which included working capital of our discontinued operations) as of December 31, 2023, as compared to working capital of $818,000 as of December 31, 2022. The improvement in our working capital was primarily due to increases in our cash and unbilled receivables from improved operations.
Heading into 2023, we expect to see continued improvements in waste receipts and continued increases in project work from contracts recently won and bids submitted in both segments that are awaiting awards, subject to potential impact of COVID-19 and economic impacts. 18 Liquidity Overview We believe we have sufficient liquidity on hand to continue business operations during the next twelve months.
See a discussion of our liquidity overview within this MD&A – “Liquidity and Capital Resources.” Heading into 2024, we expect 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.
A SOFR Adjustment rates of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by us In connection with the amendments, we paid our lender fees totaling $30,000 which is being amortized over the remaining term of the Revised Loan Agreement as interest expense-financing fees.
In connection with the March 2023 amendment, we paid our lender a fee of $25,000 which is being amortized over the remaining term of the Loan Agreement, as amended, as interest expense-financing fees.
SG&A expenses increased by approximately $1,807,000 or 14.1% for the year ended December 31, 2022 as compared to the corresponding period of 2021.
Selling, General, and Administrative (“SG&A”) expenses increased $323,000 or 2.2% for the twelve-months ended December 31, 2023, as compared to the corresponding period of 2022.
Included within cost of goods sold is depreciation and amortization expense of $2,027,000 and $1,654,000 for the twelve months ended December 31, 2022, and 2021, respectively. 21 Gross Profit Gross profit for the year ended December 31, 2022 was $2,785,000 higher than 2021 as follows: % % (In thousands) 2022 Revenue 2021 Revenue Change Treatment $ 5,243 15.7 $ 6,718 20.4 $ (1,475 ) Services 4,366 11.7 106 0.3 4,260 Total $ 9,609 13.6 $ 6,824 9.5 $ 2,785 Treatment Segment gross profit decreased by $1,475,000 or approximately 22.0% and gross margin decreased to 15.7% from 20.4% primarily due to lower averaged price waste from revenue mix and the impact of the increase in fixed costs.
Gross Profit Gross profit for the year ended December 31, 2023, was $6,760,000 higher than 2022 as follows: (In thousands) 2023 % Revenue 2022 % Revenue Change Treatment $ 6,876 15.8 $ 5,243 15.7 $ 1,633 Services 9,493 20.5 4,366 11.7 $ 5,127 Total $ 16,369 18.2 $ 9,609 13.6 $ 6,760 Treatment Segment gross profit increased by $1,633,000 or 31.1% primarily due to higher revenue as discussed previously.
The increase in SG&A expenses within our Services Segment was primarily due to the following: travel expenses were higher by $32,000; general expenses were higher by approximately $107,000 which included higher tradeshow expenses and various other categories; salaries/payroll related and consulting expenses were higher by approximately $202,000, and credit loss expense on accounts receivable was lower by approximately $54,000.
The increase in SG&A expenses within our Services Segment was primarily due to the following: salaries/payroll-related expenses were higher by approximately $92,000 due to more administrative support functions required as the result of higher revenue; travel expenses were higher by approximately $43,000; credit losses on accounts receivable were higher by approximately $59,000, as in the first quarter of 2022 our Services Segment collected on certain accounts that were previously deemed to be uncollectible; outside services expenses were lower by approximately $41,000 due to fewer consulting matters; and general expenses were lower slightly by $8,000.
Our Treatment Segment began to see steady improvements in waste receipts starting in the second quarter of 2022 from certain customers who had previously delayed waste shipments due, in part, from the impact of COVID-19 which is reflective of our Treatment Segment’s backlog of approximately $9,156,000 at December 31, 2022, an increase of approximately $2,027,000 from the balance of $7,129,000 at December 31, 2021.
Overview We experienced significant improvement in our 2023 financial results as the lingering effects of COVID-19 began to subside starting in the early part of 2022. Our 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.
Liquidity and Capital Resources Our cash flow requirements during the twelve months ended December 31, 2022 were primarily financed by our operations, cash on hand and credit facility availability.
Liquidity and Capital Resources Our cash flow requirements during the twelve-months ended December 31, 2023, were primarily financed by our operations, cash on hand (which included the ERC, along with interest, that we received in March 2023 and proceeds from a new term loan dated July 31, 2023, in the amount of $2,500,000 provided to us under an amendment to our existing credit facility), and credit facility availability.
As of December 31, 2022, PF Canada has approximately $1,853,000 in unpaid receivables due from CNL as a result of work performed under the TOA. Additionally, CNL has approximately $1,060,000 in contractual holdback under the TOA that is payable to PF Canada.
As of December 31, 2023, PF Canada has approximately $2,389,000 in unpaid receivables due from CNL as a result of work performed under the TOA. CNL and PF Canada have reached a settlement agreement on payment of the receivables to PF Canada by CNL, subject to certain conditions/terms precedents being met, including release of certain liens.
Our effective tax rates for the twelve months ended December 31, 2022 were impacted by non-deductible expenses and state taxes. Our effective tax rate for the twelve months ended December 31, 2021 was substantially impacted by the release of our valuation allowance on deferred tax assets primarily related to U.S.
Our effective tax rates for the twelve-months ended December 31, 2023, and 2022 were impacted by non-deductible expenses and state taxes. Backlog Our Treatment Segment maintains a backlog of stored waste, which represents waste that has not been processed.
Our credit facility under our Revised Loan Agreement with PNC contains certain financial covenants, along with customary representations and warranties.
See payment of annual rate of interest due on Term Loan 2 under the amendment dated July 31, 2023, as discussed above. Our credit facility under our Loan Agreement, as amended, contains certain financial covenants, along with customary representations and warranties.
At December 31, 2022, we had borrowing availability under our revolving credit facility of approximately $4,290,000 which was based on a percentage of eligible receivables and subject to certain reserves. Our borrowing availability of $4,290,000 at December 31, 2022 included a requirement from our lender that we maintain a minimum of $3,000,000 in borrowing availability.
As of December 31, 2023, our borrowing availability under our revolving part of our credit facility was approximately $10,622,000, which included our cash (deposited with our lender) and was based on our eligible receivables and was net of approximately $3,950,000 in outstanding standby letters of credit and a $750,000 indefinite reduction in borrowing availability that our lender imposed pursuant to the July 31, 2023 amendment of our Loan Agreement.
We continue to aggressively bid on various contracts, including potential contracts within the international markets. Results of Operations The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment Segment (“Treatment”) and the Services Segment (“Services”). Our financial results for 2021 also included our Medical Segments.
Once activities commence under this JV, we will consolidate the operations of this JV into our financial statements. 20 Results of Operations The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment Segment and Services Segment.
During the third quarter of 2022, we recorded approximately $1,975,000 in other income and other receivables (within current assets in our Consolidated Balance Sheets), which represent an employee retention credit that we are eligible for under the Coronavirus Aid, Relief, and Economic Security Act, as amended (the “CARES Act”) as result of the COVID-19 pandemic (see “Employee Retention Credit (“ERC”)” within this MD&A for a discussion of this refund that we are expecting resulting from this tax credit). 19 Business Environment Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government entities or directly as the prime contractor.
Business Environment Our Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients, primarily as subcontractors for others who are prime contractors to government entities or directly as the prime contractor.
The Loan Agreement provides us with the following credit facility with a maturity date of March 15, 2024: (a) up to $18,000,000 revolving credit (“revolving credit”) (see discussion below as to an amendment dated March 21, 2023 which reduced the revolving credit to $12,500,000) and (b) a term loan (“term loan”) of approximately $1,742,000, requiring monthly installments of $35,547.
On July 31, 2023, we entered into a further amendment of the Loan Agreement, as amended, with our lender which provided, among other things, the following: ● extended the maturity date of the Loan Agreement, as amended, to May 15, 2027, from May 15, 2024; ● an additional term loan (“Term Loan 2”) to us in the amount of $2,500,000, requiring monthly installments of approximately $41,667.
Removed
This positive trend was negatively impacted by occurrences of severe weather conditions which contributed to temporary delays in waste shipments from certain customers and a temporary shortage in skilled production personnel which peaked through the fourth quarter of 2022 at one of our facilities.
Added
Within our 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.
Removed
In early part of 2022, our Services Segment continued to experience delays/curtailments in project work by certain customers since the award of projects to us late in the second quarter of 2021 due to COVID-19 impact and/or administrative delays.
Added
Revenue from both of our 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. 19 Revenue increased by $19,136,000 or 27.1% to $89,735,000 for the twelve-months ended December 31, 2023, from $70,599,000 for the corresponding period of 2022.
Removed
However, starting in the second quarter of 2022, work under these projects had resumed/increased as the pandemic impacts began to subside and has since reached full operational status. In 2022, we continued to realize delays in procurement and planning on behalf of our government clients that saw easing through the second half of the year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−1 removed2 unchanged
Biggest changeForward-looking statements contained herein relate to, among other things, ● demand for our services; ● reductions and improvement in the level of government funding in future years; 30 ● reducing operating costs and non-essential expenditures; ● ability to meet loan agreement quarterly financial covenant requirements; ● funding of cash flow requirements; ● Canadian receivables; ● sufficient liquidity to continue business; ● future results of operations and liquidity; ● increasing liquidity; ● government funding for our services; ● may not have liquidity to repay debt if our lender accelerates payment of our borrowings; ● manner in which the applicable government will be required to spend funding to remediate various sites; ● funding operations; ● continued increases in pricing and/or further tightening supply chain; ● fund capital expenditures from cash from operations and/or financing; ● impact from COVID-19 and economic conditions; ● continue improvement in waste receipts and project work; ● submitted bid; ● ownership percentage interest upon finalization of partnership agreement; ● investment requirement upon finalization of joint venture; ● positive trends; ● compliance with environmental laws, rules and regulations; ● potential effect of being a PRP; ● potential sites for violations of environmental laws and remediation of our facilities; ● ERC refund; ● future price increases; ● sales prices; and ● continuation of contracts with federal government.
Biggest changeForward-looking statements contained herein relate to, among other things, ● demand for our services; ● partial U.S. government shutdown or additional continued resolution; ● delay waste shipment by government related customers; ● reductions in the level of government funding in future years; ● reducing operating costs and non-essential expenditures; ● ability to meet loan agreement quarterly covenant requirements; ● cash flow requirements; ● receipt of remaining Canadian receivable upon completion of conditions/terms of the settlement agreement in 2024; ● sufficient liquidity to fund operations for the next twelve months; ● revenue under the Italian project; ● future results of operations and liquidity; 30 ● effect of macroeconomic concerns, such as inflation and higher interest rates, on our business; ● manner in which the applicable government will be required to spend funding to remediate various sites; ● finalization of non-binding partnership agreement with Springfields Fuels Limited; ● successful on international bids; ● continued increases in operating costs; ● funding of capital expenditures from cash from operations, collections of unpaid receivables, borrowing availability under our credit facility and/or financing; ● steady improvement in waste shipments and work under projects in 2024; ● funding of remediation expenditures for sites from funds generated internally; ● compliance with environmental regulations; ● potential effect of being a PRP; ● potential violations of environmental laws and attendant remediation at our facilities; and ● our ability to effect increases in the prices of the services we offer.
There are a variety of factors, which could cause future outcomes to differ materially from those described in this report, including, but not limited to: ● general economic conditions; ● contract bids, including international markets; ● material reduction in revenues; ● inability to meet PNC covenant requirements; ● inability to collect in a timely manner a material amount of receivables; ● increased competitive pressures; ● inability to maintain and obtain required permits and approvals to conduct operations; ● public not accepting our new technology; ● inability to develop new and existing technologies in the conduct of operations; ● inability to maintain and obtain closure and operating insurance requirements; ● inability to retain or renew certain required permits; ● discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures; ● delays at our third-party disposal site can extend collection of our receivables greater than twelve months; ● refusal of third-party disposal sites to accept our waste; ● changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such; ● requirements to obtain permits for TSD activities or licensing requirements to handle low level radioactive materials are limited or lessened; 31 ● 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; ● inability of the Company to maintain the listing of its Common Stock on the NASDAQ; ● terminations of contracts with government agencies or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts; ● renegotiation of contracts involving government agencies; ● federal government’s inability or failure to provide necessary funding to remediate contaminated federal sites; ● disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment; ● inability to raise capital on commercially reasonable terms; ● inability to increase profitable revenue; ● impact of the COVID-19 and economic uncertainties; ● new governmental regulations; ● lender refuses to waive non-compliance or revise our covenant so that we are in compliance; ● continued supply chain interruptions; ● continued inflationary pressures; ● recession; ● challenge by regulatory authorities of our claim to the ERC; and ● risk factors contained in Item 1A of this report. 32
There are a variety of factors which could cause future outcomes to differ materially from those described in this report, including, but not limited to: ● general economic conditions; ● contract bids, including international markets; ● material reduction in revenues; ● inability to meet PNC covenant requirements; ● inability to collect in a timely manner a material amount of receivables; ● increased competitive pressures; ● inability to maintain and obtain required permits and approvals to conduct operations; ● inability to develop new and existing technologies in the conduct of operations; ● inability to maintain and obtain closure and operating insurance requirements; ● inability to retain or renew certain required permits; ● discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures; ● delays at our third-party disposal site can extend collection of our receivables greater than twelve months; ● refusal of third-party disposal sites to accept our waste; ● changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such; ● requirements to obtain permits for TSD activities or licensing requirements to handle low level radioactive materials are limited or lessened; ● management retention and development; ● financial valuation of intangible assets is substantially more/less than expected; ● the need to use internally generated funds for purposes not presently anticipated; ● inability of the Company to maintain the listing of its Common Stock on the NASDAQ; ● terminations of contracts with government agencies or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts; ● failure of joint venture partner to perform its requirements in connection with the Italian project; ● failure to approve 2024 budget by the U.S. government; ● partial government shutdown; ● Changes in the scope of work relating to existing contracts; ● occurrence of an event similar to COVID-19 having adverse effects on the U.S. and world economics; ● renegotiation of contracts involving government agencies; ● disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment; ● inability to raise capital on commercially reasonable terms; ● inability to increase profitable revenue; ● economic uncertainties; ● new governmental regulations; and ● risk factors contained in Item 1A of this report. 31
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 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”).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required under Regulation S-K for smaller reporting companies. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-looking Statements Certain statements contained within this report may be deemed “forward-looking statements” within the meaning of the “Private Securities Litigation Reform Act of 1995”.
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required under Regulation S-K for smaller reporting companies.

Other PESI 10-K year-over-year comparisons