form10q.htm


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________

Form 10-Q

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

Or

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

Commission File No.   111596

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

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

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

N/A

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

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

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

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

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

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

Class
Outstanding at November 1, 2010
Common Stock, $.001 Par Value
55,067,970
shares of registrant’s
Common Stock
 


 
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

INDEX

PART I
FINANCIAL INFORMATION
Page No.
     
Item 1.
 
     
 
1
     
 
3
     
 
4
     
 
5
     
 
6
     
Item 2.
22
     
Item 3.
46
     
Item 4.
46
     
PART II
OTHER INFORMATION
 
     
Item 1.
47
     
Item 1A.
47
     
Item 6.
47

 
 

 
PART I - FINANCIAL INFORMATION
ITEM 1. – Financial Statements

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets

   
September 30, 2010
   
December 31,
 
(Amount in Thousands, Except for Share Amounts)
 
(Unaudited)
   
2009
 
             
ASSETS
           
Current assets:
           
Cash
  $ 98     $ 141  
Restricted cash
    55       55  
Accounts receivable, net of allowance for doubtful accounts of $392 and $296, respectively
    10,937       13,141  
Unbilled receivables - current
    8,564       9,858  
Inventories
    581       351  
Prepaid and other assets
    3,152       3,097  
Deferred tax assets - current
    1,262       1,856  
Current assets related to discontinued operations
    103       174  
Total current assets
    24,752       28,673  
                 
Property and equipment:
               
Buildings and land
    27,237       27,098  
Equipment
    33,172       31,757  
Vehicles
    750       650  
Leasehold improvements
    11,506       11,455  
Office furniture and equipment
    1,909       1,933  
Construction-in-progress
    1,009       1,275  
      75,583       74,168  
Less accumulated depreciation and amortization
    (31,499 )     (28,441 )
Net property and equipment
    44,084       45,727  
                 
Property and equipment related to discontinued operations
    637       651  
                 
Intangibles and other long term assets:
               
Permits
    18,059       18,079  
Goodwill
    15,330       12,352  
Unbilled receivables – non-current
    2,646       2,502  
Finite Risk Sinking Fund
    17,410       15,480  
Deferred tax asset, net of liabilities
    196       272  
Other assets
    2,189       2,339  
Total assets
  $ 125,303     $ 126,075  

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

 
1


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

(Amount in Thousands, Except for Share Amounts)
 
September 30, 2010 (Unaudited)
   
December 31, 2009
 
             
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current liabilities:
           
Accounts payable
  $ 5,645     $ 4,927  
Current environmental accrual
    32       25  
Accrued expenses
    7,457       6,478  
Disposal/transportation accrual
    2,683       2,761  
Unearned revenue
    4,287       8,949  
Current liabilities related to discontinued operations
    646       993  
Current portion of long-term debt
    3,825       3,050  
Total current liabilities
    24,575       27,183  
                 
Environmental accruals
    1,467       785  
Accrued closure costs
    12,156       12,031  
Other long-term liabilities
    624       508  
Long-term liabilities related to discontinued operations
    1,228       1,433  
Long-term debt, less current portion
    8,506       9,331  
Total long-term liabilities
    23,981       24,088  
                 
Total liabilities
    48,556       51,271  
                 
Commitments and Contingencies
               
                 
Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share
    1,285       1,285  
                 
Stockholders' equity:
               
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding
           
Common Stock, $.001 par value; 75,000,000 shares authorized, 55,069,094 and 54,628,904 shares issued, respectively; 55,030,884 and 54,628,904 outstanding, respectively
    55       55  
Additional paid-in capital
    100,655       99,641  
Accumulated deficit
    (25,160 )     (26,177 )
      75,550       73,519  
Less Common Stock in treasury at cost: 38,210 and 0 shares, respectively
    (88 )      
                 
Total stockholders' equity
    75,462       73,519  
                 
Total liabilities and stockholders' equity
  $ 125,303     $ 126,075  

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

 
2


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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Amounts in Thousands, Except for Per Share Amounts)
 
2010
   
2009
   
2010
   
2009
 
                         
Net revenues
  $ 25,088     $ 26,534     $ 79,043     $ 72,234  
Cost of goods sold
    22,222       19,270       63,800       54,673  
Gross profit
    2,866       7,264       15,243       17,561  
                                 
Selling, general and administrative expenses
    3,876       3,903       11,439       11,574  
Research and development
    345       154       734       460  
Loss (gain) on disposal of property and equipment
    143       (3 )     145       (15 )
(Loss) income from operations
    (1,498 )     3,210       2,925       5,542  
                                 
Other income (expense):
                               
Interest income
    15       29       51       121  
Interest expense
    (159 )     (331 )     (586 )     (1,346 )
Interest expense-financing fees
    (103 )     (104 )     (309 )     (180 )
Other
    2       (5 )     8       5  
(Loss) income from continuing operations before taxes
    (1,743 )     2,799       2,089       4,142  
Income tax (benefit) expense
    (640 )     165       896       265  
(Loss) income from continuing operations
    (1,103 )     2,634       1,193       3,877  
                                 
Income (loss) from discontinued operations, net of taxes
    37       (12 )     (176 )     44  
Net (loss) income applicable to Common Stockholders
  $ (1,066 )   $ 2,622     $ 1,017     $ 3,921  
                                 
Net (loss) income per common share – basic
                               
Continuing operations
  $ (.02 )   $ .05     $ .02     $ .07  
Discontinued operations
                       
Net (loss) income per common share
  $ (.02 )   $ .05     $ .02     $ .07  
                                 
Net (loss) income per common share – diluted
                               
Continuing operations
  $ (.02 )   $ .05     $ .02     $ .07  
Discontinued operations
                       
Net (loss) income per common share
  $ (.02 )   $ .05     $ .02     $ .07  
                                 
Number of common shares used in computing net (loss) income per share:
                               
Basic
    55,031       54,281       54,906       54,130  
Diluted
    55,031       54,954       55,031       54,412  

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

 
3


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

   
Nine Months Ended
 
   
September 30,
 
(Amounts in Thousands)
 
2010
   
2009
 
Cash flows from operating activities:
           
Net income
  $ 1,017     $ 3,921  
Less: (loss) income on discontinued operations
    (176 )     44  
                 
Income from continuing operations
    1,193       3,877  
Adjustments to reconcile net income to cash provided by operations:
               
Depreciation and amortization
    3,564       3,569  
Non-cash financing costs
    250       133  
Deferred taxes
    670        
Provision for bad debt and other reserves
    117       274  
Loss (gain) on disposal of plant, property and equipment
    145       (15 )
Issuance of common stock for services
    180       189  
Share based compensation
    237       390  
Changes in operating assets and liabilities of continuing operations, net of effect from business acquisitions:
               
Accounts receivable
    2,087       (5,134 )
Unbilled receivables
    1,150       4,320  
Prepaid expenses, inventories and other assets
    1,576       1,052  
Accounts payable, accrued expenses and unearned revenue
    (5,174 )     (8,460 )
Cash provided by continuing operations
    5,995       195  
Cash used in discontinued operations
    (678 )     (695 )
Cash provided by (used in) operating activities
    5,317       (500 )
                 
Cash flows from investing activities:
               
Purchases of property and equipment, net
    (1,922 )     (1,016 )
Proceeds from sale of plant, property and equipment
    1       16  
Payment to finite risk sinking fund
    (1,930 )     (4,112 )
Payment of earn-out to Nuvotec shareholders
    (1,000 )     (734 )
Cash used in investing activities of continuing operations
    (4,851 )     (5,846 )
Cash provided by discontinued operations
    37       11  
Net cash used in investing activities
    (4,814 )     (5,835 )
                 
Cash flows from financing activities:
               
Net borrowing of revolving credit
    791       4,136  
Principal repayments of long term debt
    (2,499 )     (2,073 )
Proceeds from issuance of long term debt
          2,982  
Proceeds from issuance of stock
    509       481  
Proceeds from finite risk financing
    653       753  
Cash (used in) provided by financing activities of continuing operations
    (546 )     6,279  
                 
Decrease in cash
    (43 )     (56 )
Cash at beginning of period
    141       129  
Cash at end of period
  $ 98     $ 73  
                 
Supplemental disclosure:
               
Interest paid, net of amounts capitalized
  $ 689     $ 3,832  
Income taxes paid
    457       261  
Non-cash investing and financing activities:
               
Long-term debt incurred for purchase of property and equipment
    87       125  
Note issued for earn-out to Nuvotec shareholders
    1,322       476  
Issuance of Common Stock for debt
          476  
Issuance of Warrants for debt
          190  

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

 
4


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

(Amounts in thousands,
 
Common Stock
   
Additional Paid-In
   
Common Stock Held In
   
Accumulated
   
Total Stockholders'
 
except for share amounts)
 
Shares
   
Amount
   
Capital
   
Treasury
   
Deficit
   
Equity
 
Balance at December 31, 2009
    54,628,904     $ 55     $ 99,641     $ ¾     $ (26,177 )   $ 73,519  
                                                 
Net income
    ¾       ¾       ¾       ¾       1,017       1,017  
Issuance of Common Stock upon exercise of Options
    350,000       ¾       597       ¾       ¾       597  
Payment of Option exercise by Common Stock shares
    ¾       ¾       ¾       (88 )     ¾       (88 )
Issuance of Common Stock for services
    90,190       ¾       180       ¾       ¾       180  
Stock-Based Compensation
    ¾       ¾       237       ¾       ¾       237  
Balance at September 30, 2010
    55,069,094     $ 55     $ 100,655     $ (88 )   $ (25,160 )   $ 75,462  

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

 
5


PERMA-FIX ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
September 30, 2010
 (Unaudited)

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

1.
Basis of Presentation

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

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

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

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

Also, the Company has reclassified research and development costs in its “Consolidated Statements of Operations” as a separate line item starting with this Form 10-Q.  Accordingly, prior period amounts have been reclassified to conform to the 2010 presentation.  These reclassifications had no impact on the Company’s results of operations.

2.
Summary of Significant Accounting Policies

Our accounting policies are as set forth in the notes to consolidated financial statements referred to above with the exception of research and development costs below, which we have reclassified and disclosed as a separate line item for all periods presented on the “Consolidated Statements of Operations” as noted above.

Research and Development
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.  Research and development costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with the development and enhancement of new potential waste treatment processes and are charged to expense when incurred in accordance with Accounting Standards Codification (“ASC”) Topic 730, “Research and Development”.

 
6


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

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

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

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

In July 2010, the FASB issued ASU  2010-20,“Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”, which amends existing guidance by requiring more robust and disaggregated disclosures by an entity about the credit quality of its financing receivables and its allowance for credit losses. These disclosures will provide financial statement users with additional information about the nature of credit risks inherent in financing receivables, how credit risks are analyzed and assessed in determining allowance for credit losses, and reasons for any changes made in allowance for credit losses. This update is generally effective for interim and annual reporting periods ending on or after December 15, 2010; however, certain aspects of the update pertaining to activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  We do not expect ASU 2010-20 to have a material impact on our consolidated financial statements.

 
7


During 2010, the FASB has issued several ASU’s – ASU No. 2010-01 through ASU No. 2010-20.  Except for ASU No. 2010-06 and ASU No. 2010-20 discussed above, the ASU’s entail technical corrections to existing guidance related to specialized industries or entities and therefore have minimal, if any, impact on the Company.

3.
Stock Based Compensation

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

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

On September 29, 2010, we granted 72,000 options from the Company’s 2003 Outside Director Stock Plan to our six outside directors which allows for the purchase of up to 72,000 Common Stock from the Plan, as a result of their re-election at our Annual Meeting of Stockholders held on September 29, 2010.  The options granted were for a contractual term of ten years with vesting period of six months.  The exercise price of the options was $1.68 per share which was equal to our closing stock price the day preceding the grant date, pursuant to the 2003 Outside Directors Stock Plan.  During 2009, 84,000 options were granted from the same plan to our seven outside directors resulting from their re-election at the Company’s July 29, 2009 Annual Meeting of Stockholders.

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

The Company estimates fair value of stock options using the Black-Scholes valuation model.  Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield.  The fair value of the options granted during the nine months ended September 30, 2010 and 2009 noted above and the related assumptions used in the Black-Scholes option pricing model used to value the options granted were as follows.
 
 
8

 
   
Outside Director Stock Options Granted
 
   
September 30, 2010
   
September 30, 2009
 
Weighted-average fair value per share
  $ 1.12     $ 1.97  
Risk -free interest rate (1)
  2.52%     3.69%  
Expected volatility of stock (2)
  60.69%     63.37%  
Dividend yield
 
None
   
None
 
Expected option life (3)
 
10.0 years
   
10.0 years
 

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

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

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

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

As of September 30, 2010, we had 2,005,525 employee stock options outstanding, of which 1,607,025 are vested.  The weighted average exercise price of the 1,607,025 outstanding and fully vested employee stock option is $2.02 with a remaining weighted contractual life of 2.02 years.  Additionally, we had 766,000 outstanding director stock options, of which 694,000 are vested.  The weighted average exercise price of the 694,000 outstanding and fully vested director stock option is $2.29 with a weighted remaining contractual life of 5.24 years.

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

Stock Options
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Employee Stock Options
  $ 71,000     $ 110,000     $ 209,000     $ 304,000  
Director Stock Options
    1,000       56,000       28,000       86,000  
Total
  $ 72,000     $ 166,000     $ 237,000     $ 390,000  

We recognized stock-based compensation expense using a straight-line amortization method over the requisite period, which is the vesting period of the stock option grant.  ASC 718 requires that stock based compensation expense be based on options that are ultimately expected to vest.  ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We have generally estimated forfeiture rate based on historical trends of actual forfeitures.  When actual forfeitures vary from our estimates, we recognize the difference in compensation expense in the period the actual forfeitures occur or when options vest.  As of September 30, 2010, we have approximately $359,000 of total unrecognized compensation cost related to unvested options, of which $119,000 is expected to be recognized in remaining 2010, $237,000 in 2011, and $3,000 in 2012.

 
9


4.
Capital Stock, Stock Plans, and Warrants

During the nine months ended September 30, 2010, we issued an aggregate of 350,000 shares of our Common Stock upon exercise of 350,000 employee stock options, at exercise prices ranging from $1.25 to $2.19.  An employee used 38,210 shares of personally held Company Common Stock as payment for the exercise of 70,000 options to purchase 70,000 shares of the Company’s Common Stock at $1.25 per share, as permitted under the 1993 Non-Qualified Stock Option Plan.  The 38,210 shares are held as treasury stock.  The cost of the 38,210 shares was determined to be approximately $88,000 in accordance with the Plan.  As of September 30, 2010, we received $509,000 in total proceeds from stock option exercise.  During the nine months ended September 30, 2010, we also issued 90,190 shares of our Common Stock under our 2003 Outside Directors Stock Plan to our outside directors as compensation for serving on our Board of Directors, of which 36,977 shares were issued in the third quarter of 2010.  We pay each of our outside directors $2,167 monthly in fees for serving as a member of our Board of Directors.  The Audit Committee Chairman receives an additional monthly fee of $1,833 due to the position’s additional responsibility. In addition, each board member is paid $1,000 for each board meeting attendance as well as $500 for each telephonic conference call.  As a member of the Board of Directors, each director elects to receive either 65% or 100% of the director’s fee in shares of our Common Stock based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due. The balance of each director’s fee, if any, is payable in cash.

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

   
Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term
   
Aggregate Intrinsic Value
 
Options outstanding January 1, 2010
    3,109,525     $ 2.05              
Granted
    72,000       1.68              
Exercised
    (350,000 )     1.70           $ 223,000  
Forfeited
    (60,000 )     2.11                
Options outstanding End of Period (1)
    2,771,525       2.09       3.5     $ 36,900  
Options Exercisable at September 30, 2010 (1)
    2,301,025     $ 2.10       3.3     $ 16,900  
Options Vested and expected to be vested at September 30, 2010
    2,752,634     $ 2.09       3.5     $ 36,900  

   
Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term
   
Aggregate Intrinsic Value
 
Options outstanding January 1, 2009
    3,417,347     $ 2.03              
Granted
    229,000       1.88              
Exercised
    (258,333 )     1.86           $ 152,750  
Forfeited
    (119,000 )     2.14                
Options outstanding End of Period (2)
    3,269,014       2.03       4.0     $ 1,124,662  
Options Exercisable at September 30, 2009 (2)
    2,424,681     $ 1.99       3.5     $ 922,992  
Options Vested and expected to be vested at September 30, 2009
    3,231,231     $ 2.03       4.0     $ 1,122,395  

(1) Option with exercise price ranging from $1.42 to $2.98
(2) Option with exercise price ranging from $1.25 to $2.98

 
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5.
Earnings (Loss) Per Share

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

The following is a reconciliation of basic net income (loss) per share to diluted net income (loss) per share for the three and nine months ended September 30, 2010 and 2009:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
(Unaudited)
   
(Unaudited)
 
(Amounts in Thousands, Except for Per Share Amounts)
 
2010
   
2009
   
2010
   
2009
 
(Loss) earnings per share from continuing operations
                       
(Loss) income from continuing operations applicable to
                       
Common Stockholders
  $ (1,103 )   $ 2,634       1,193     $ 3,877  
Basic (loss) income per share
  $ (.02 )   $ .05       .02     $ .07  
Diluted (loss) income per share
  $ (.02 )   $ .05       .02     $ .07  
                                 
Income (loss) per share from discontinued operations
                               
Income (loss) from discontinued operations
  $ 37     $ (12 )     (176 )   $ 44  
Basic income (loss) per share
  $     $           $  
Diluted income (loss) per share
  $     $           $  
                                 
Weighted average common shares outstanding – basic
    55,031       54,281       54,906       54,130  
Potential shares exercisable under stock option plans
          614       93       243  
Potential shares upon exercise of Warrants
          59       32       39  
Weighted average shares outstanding – diluted
    55,031       54,954       55,031       54,412  
                                 
                                 
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
                               
Upon exercise of options
    2,463       241       1,715       1,785  
Upon exercise of Warrants
                       

 
11


6.
Long Term Debt

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

(Amounts in Thousands)
 
September 30, 2010
   
December 31, 2009
 
Revolving Credit facility dated December 22, 2000, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.25% at September 30, 2010) plus 2.0% or minimum floor base London InterBank Offer Rate ("LIBOR") of 1.0% plus 3.0%, balance due in July 2012. Effective interest rate for the first nine months of 2010 was 4.45% (1) (2) (3)
  $ 3,449     $ 2,659  
Term Loan dated December 22, 2000, payable in equal monthly installments of principal of $83, balance due in July 2012, variable interest paid monthly at option of prime rate plus 2.5% or minimum floor base LIBOR of 1.0% plus 3.5%. Effective interest rate for the first nine months of 2010 was 4.72%(1) (2) (3)
    4,917       5,667  
Installment Agreement in the Agreement and Plan of Merger with Nuvotec and PEcoS, dated April 27, 2007, payable in three equal yearly installment of principal of $833 beginning June 2009.  Interest accrues at annual rate of 8.25% on outstanding principal balance.  Final principal and remaining accrued interest payment due on June 30, 2011.
    833       1,667  
Promissory Note dated May 8, 2009, payable in monthly installments of principal of $87 starting June 8, 2009, balance due May 8, 2011, variable interest paid monthly at LIBOR plus 4.5%, with LIBOR at least 1.5%.(4)
    1,401       1,938  
Promissory Note dated September 28, 2010, payable in 36 monthly equal installments of $40, which includes interest and principal, beginning October 15, 2010, interest accrues at annual rate of 6.0% (5)
    1,322        
Various capital lease and promissory note obligations, payable 2010 to 2013, interest at rates ranging from 5.0% to 10.8%.
    409       450  
      12,331       12,381  
Less current portion of long-term debt
    3,825       3,050  
    $ 8,506     $ 9,331  

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

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

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

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

(5)  Uncollateralized note.

 
12


Revolving Credit and Term Loan Agreement
On December 22, 2000, we entered into a Revolving Credit, Term Loan and Security Agreement ("Loan Agreement") with PNC Bank, National Association, a national banking association ("PNC") acting as agent ("Agent") for lenders, and as issuing bank, as amended.  The Agreement provided for a term loan ("Term Loan") in the amount of $7,000,000, which requires monthly installments of $83,000.  The Agreement also provided for a revolving line of credit ("Revolving Credit") with a maximum principal amount outstanding at any one time of $18,000,000, as amended.  The Revolving Credit advances are subject to limitations of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up to 150 days from invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent reasonably deems proper and necessary. As of September 30, 2010, the excess availability under our Revolving Credit was $8,819,000 based on our eligible receivables.

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

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

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

On May 8, 2009, the Company entered into a promissory note with William N. Lampson and Diehl Rettig (collectively, the “Lenders”) for $3,000,000.  The Lenders were formerly shareholders of PFNW prior to our acquisition of PFNW and PFNWR and are also stockholders of the Company having received shares of our Common Stock in connection with our acquisition of PFNW and PFNWR.  We used the proceeds of the loan primarily to pay off a promissory note entered into by our M&EC subsidiary with PDC in June 2001, with the remaining funds used for working capital purposes. The promissory note provides for monthly principal repayment of approximately $87,000 plus accrued interest, starting June 8, 2009, and on the 8th day of each month thereafter, with interest payable at LIBOR plus 4.5%, with LIBOR at least 1.5%. Any unpaid principal balance along with accrued interest is due May 8, 2011. We paid approximately $22,000 in closing costs for the promissory note which is being amortized over the term of the note. The promissory note may be prepaid at anytime by the Company without penalty. As consideration of the Company receiving this loan, we issued a Warrant to Mr. Lampson and a Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares, respectively, of the Company’s Common Stock at an exercise price of $1.50 per share.  The Warrants are exercisable six months from May 8, 2009 and expire on May 8, 2011.  We also issued an aggregate of 200,000 shares of the Company’s Common Stock, with Mr. Lampson receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s Common Stock. We estimated the fair value of the Common Stock and Warrants to be approximately $476,000 and $190,000, respectively.  The fair value of the Common Stock and Warrants was recorded as a debt discount and is being amortized over the term of the loan as interest expense – financing fees.  Debt discount amortized as of September 30, 2010 totaled approximately $466,000. Mr. Rettig is now deceased; accordingly, the remaining portion of the note payable to Mr. Rettig and the Warrants and Stock issued to him is now payable to and held by his personal representative or estate.

 
13


The promissory note also includes an embedded Put Option (“Put”) that can be exercised upon default, whereby the lender has the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest, or the number of whole shares of our Common Stock having a value equal to the outstanding principal balance.  The maximum number of payoff shares is restricted to not more than 19.9% of the outstanding equity. We concluded that the Put should have been bifurcated at inception; however, the Put Option had and continues to have nominal value as of September 30, 2010.  We will continue to monitor the fair value of the Put on a regular basis.

On September 28, 2010, the Company entered into a promissory note in the principal amount of $1,322,000, with the former shareholders of Nuvotec (n/k/a “PFNW”) in connection with an earn-out amount that we are required to pay upon meeting certain conditions for each fiscal year ending June 30, 2008 to June 30, 2011 as result of our acquisition of PFNW and PFNWR.  Interest is accrued at an annual interest rate of 6%. The promissory note provides for 36 equal monthly payments of approximately $40,000, consisting of interest and principal, starting October 15, 2010.  The promissory note may be prepaid at any time without penalty. See further details of the earn-out amount in Note 7 below, “Commitments and Contingencies - Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNWR”) and Perma-Fix Northwest Richland, Inc. (“PFNWR”)”.

7.
Commitments and Contingencies

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

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

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

 
14


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

Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNWR”) and Perma-Fix Northwest Richland, Inc. (“PFNWR”)
In connection with the acquisition of PFNW and PFNWR, we are required to pay to those former shareholders of Nuvotec (n/k/a “PFNW”) immediately prior to our acquisition, an earn-out amount upon meeting certain conditions for each fiscal year ending June 30, 2008, to June 30, 2011, with the aggregate of the full earn-out amount not to exceed $4,552,000, pursuant to the Merger Agreement, as amended (“Agreement”).  Under the Agreement, the earn-out amount to be paid for any particular fiscal year is to be an amount equal to 10% of the amount that the revenues for our nuclear business (as defined) for such fiscal year exceeds the budgeted amount of revenues for our nuclear business for that particular period.  No earn-out was required to be paid for fiscal year 2008, and we paid $734,000 in earn out for fiscal year 2009 during the third quarter of 2009. We were required to pay $2,978,000 in earn-out prior to the Offset Amounts as discussed below for fiscal year ending June 30, 2010. Pursuant to the Agreement, any indemnification obligations payable to the Company by the former shareholders of Nuvotec will be deducted (“Offset Amount”) from any earn-out amounts payable by the Company for the fiscal year ending June 30, 2010, and June 30, 2011.  Pursuant to the Agreement, the aggregate amount of any Offset Amount may total up to $1,000,000, except an Offset Amount is unlimited as to indemnification relating to liabilities for taxes, misrepresentation or inaccuracies with respect to the capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation of any representation, warranty or covenant. As of the date of payment of the earn-out for fiscal year ending June 30, 2010, we identified an Offset Amount of approximately $93,000 relating to an excise tax issue and a refund request from a PEcoS customer in connection with services for waste treatment prior to our acquisition of PFNWR and PFNW.  We have also identified an anticipated Offset Amount of $563,000 in connection with the receipt of nonconforming waste at the PFNWR facility prior to our acquisition of PFNWR and PFNW.  We are currently involved in litigation with the party that delivered the nonconforming waste to the facility prior to our acquisition of PFNWR and PFNW.  On September 30, 2010, we paid $1,000,000 of the $2,322,000 in earn-out amount (which is the amount after deducting for the Offset Amounts noted above) for fiscal year ending June 30, 2010, with the remaining $1,322,000 payable in a promissory note, as permitted under the Agreement, as amended (See Note 6 – “Long Term Debt – Promissory Note and Installment Agreement” for term and condition of the note).

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

 
15


As of September 30, 2010, our total financial coverage amount under this policy totaled $36,345,000.  We have recorded $11,550,000 in our sinking fund related to the policy noted above on the balance sheet, which includes interest earned of $837,000 on the sinking fund as of September 30, 2010.  Interest income for the three and nine months ended September 30, 2010, was approximately $9,000, and $32,000, respectively.  On the fourth and subsequent anniversaries of the contract inception, we may elect to terminate this contract.  If we so elect, Chartis is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for complete releases of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.

In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility with Chartis. The policy provides an initial $7,800,000 of financial assurance coverage with annual growth rate of 1.5%, which at the end of the four year term policy, will provide maximum coverage of $8,200,000.  The policy will renew automatically on an annual basis at the end of the four year term and will not be subject to any renewal fees.  The policy requires total payments of $7,158,000, consisting of an initial payment of $1,363,000, and two annual payments of $1,520,000, payable by July 31, 2008 and July 31, 2009, and an additional $2,755,000 payment to be made in five quarterly payments of $551,000 beginning September 2007.  In July 2007, we paid the initial payment of $1,363,000, of which $1,106,000 represented premium on the policy and the remaining was deposited into a sinking fund account.  We have made each of the annual payments of $1,520,000, of which $1,344,000 was deposited into a sinking fund account and the remaining represented premium. We have also made all of the five quarterly payments which were deposited into a sinking fund. As of September 30, 2010, we have recorded $5,860,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $160,000 on the sinking fund as of September 30, 2010.  Interest income for the three and nine months ended September 30, 2010 totaled approximately $5,000 and $19,000, respectively.

8.
Discontinued Operations

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

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

 
16


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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(Amounts in Thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Net revenues
  $     $     $     $  
Interest (expense) recovery
  $ (15 )   $ 95     $ (57 )   $ (64 )
Income tax expense (benefit)
  $ 6           $ (44 )      
Income (loss) from discontinued operations
  $ 37     $ (12 )   $ (176 )   $ 44  

Our “income from discontinued operations, net of taxes”, for the three months ended September 30, 2010, was primarily due to the $167,000 we received as final settlement of a lawsuit that we filed against the buyer of PFTS, A Clean Environment, Inc. (“ACE”), regarding certain liabilities which we believed ACE assumed and agreed to pay under the Purchase Agreement but which ACE refused to pay.  Our net loss in the third quarter of 2009, included approximately $115,000 in abated interest in connection with an excise tax audit for fiscal years 1999 to 2006 for PFTS.  We had recorded $119,000 in interest related to this tax audit in the second quarter of 2009.  Our net income for the nine months ended September 30, 2009, was primarily due to a recovery of approximately $400,000 in closure cost for PFTS recorded in the first quarter of 2009 resulting from the release of our financial assurance bond for PFTS by the appropriate regulatory authority after the buyer of PFTS acquired its financial assurance.

Assets and liabilities related to discontinued operations total $740,000 and $1,874,000 as of September 30, 2010, respectively and $825,000 and $2,426,000 as of December 31, 2009, respectively.

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

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

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

 
17


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

   
September 30,
   
December 31,
 
(Amounts in Thousands)
 
2010
   
2009
 
             
Other assets
  $ 103     $ 174  
Total assets of discontinued operations
  $ 103     $ 174  
Account payable
  $     $ 1  
Accrued expenses and other liabilities
    1,269       1,508  
Deferred revenue
           
Environmental liabilities
    605       917  
Total liabilities of discontinued operations
  $ 1,874     $ 2,426  

The environmental liabilities for our discontinued operations consist of remediation projects currently in progress at PFMI, PFM, and PFD.  All of the remedial clean-up projects were an issue for years prior to our acquisition of the facility and were recognized pursuant to a business combination and recorded as part of the purchase price allocation to assets acquired and liabilities assumed.  The environmental liability for PFD was retained by the Company upon the sale of PFD in March 2008 and pertains to the remediation of a leased property which was separate and apart from the property on which PFD’s facility was located.  The reduction of approximately $312,000 in environmental liabilities from the December 31, 2009 balance of $917,000 represents payments made on these remediation projects.

“Accrued expenses and other liabilities” for our discontinued operations include a pension payable at PFMI of $773,000 as of September 30, 2010. The pension plan withdrawal liability is a result of the termination of the union employees of PFMI. The PFMI union employees participated in the Central States Teamsters Pension Fund ("CST"), which provides that a partial or full termination of union employees may result in a withdrawal liability, due from PFMI to CST.  The recorded liability is based upon a demand letter received from CST in August 2005 that provided for the payment of $22,000 per month over an eight year period. This obligation is recorded as a long-term liability, with a current portion of $199,000 that we expect to pay over the next year.

9.
Operating Segments

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

 
Ÿ
from which we may earn revenue and incur expenses;
 
Ÿ
whose operating results are regularly reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance; and
 
Ÿ
for which discrete financial information is available.

We currently have three operating segments, which are defined as each business line that we operate.  This however, excludes corporate headquarters, which does not generate revenue, and our discontinued operations, which include certain facilities within our Industrial Segment (See “Note 8 – Discontinued Operations” to “Notes to Consolidated Financial Statements”).

Our operating segments are defined as follows:

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

 
18


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

The Industrial Waste Management Services Segment (“Industrial Segment”) provides on-and-off site treatment, storage, processing and disposal of hazardous and non-hazardous industrial waste, wastewater, used oil and other off specification petroleum based products through our three facilities; Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of Orlando, Inc., and Perma-Fix of South Georgia, Inc. See Note 11, “Subsequent Event”, for a discussion that our Board of Directors has authorized us to attempt to sell these remaining three facilities in our Industrial Segment and to reclassify these facilities as discontinued operations.  Note 11 also discusses that we have entered into letters of intent to sell the stock or assets of Perma-Fix of Fort Lauderdale, Inc. and Perma-Fix of Orlando, Inc.

 
19


The table below presents certain financial information of our operating segment as of and for the three and nine months ended September 30, 2010 and 2009 (in thousands).
 
Segment Reporting for the Quarter Ended September 30, 2010
 
   
Nuclear
   
Industrial
   
Engineering
   
Segments Total
   
Corporate (2)
   
Consolidated Total
 
Revenue from external customers
  $ 22,283 (3)   $ 2,224     $ 581     $ 25,088     $     $ 25,088  
Intercompany revenues
    893       119       44       1,056             1,056  
Gross profit (negative gross profit)
    2,631       271       (36 )     2,866             2,866  
Interest income
                            15       15  
Interest expense
    24       2       1       27       132       159  
Interest expense-financing fees
    1                   1       102       103  
Depreciation and amortization
    1,143       61       6       1,210       6       1,216  
Segment profit (loss)
    1,212       (143 )     (173 )     896       (1,999 )     (1,103 )
Segment assets(1)
    92,812       6,102       2,033       100,947       24,356 (4)     125,303  
Expenditures for segment assets
    363       74       15       452       3       455  
Total long-term debt
    1,064       158       19       1,241       11,090 (5)     12,331  

Segment Reporting for the Quarter Ended September 30, 2009
 
   
Nuclear
   
Industrial
   
Engineering
   
Segments Total
   
Corporate (2)
   
Consolidated Total
 
Revenue from external customers
  $ 23,518 (3)   $ 2,128     $ 888     $ 26,534     $     $ 26,534  
Intercompany revenues
    366       150       91       607             607  
Gross profit
    6,405       633       226       7,264             7,264  
Interest income
                            29       29  
Interest expense (recovery)
    67       (25 )     1       43       288       331  
Interest expense-financing fees
                            104       104  
Depreciation and amortization
    1,066       107       8       1,181       7       1,188  
Segment profit (loss)
    4,225       266       74       4,565       (1,931 )     2,634  
Segment assets(1)
    100,642       5,322       2,222       108,186       21,489 (4)     129,675  
Expenditures for segment assets
    425       14       1       440       24       464  
Total long-term debt
    2,032       116       24       2,172       18,686 (5)     20,858  

Segment Reporting for the Nine Months Ended September 30, 2010
 
   
Nuclear
   
Industrial
   
Engineering
   
Segments Total
   
Corporate (2)
   
Consolidated Total
 
Revenue from external customers
  $ 70,356 (3)   $ 6,766     $ 1,921     $ 79,043     $     $ 79,043  
Intercompany revenues
    2,461       405       391       3,257             3,257  
Gross profit
    14,541       524       178       15,243             15,243  
Interest income
                            51       51  
Interest expense
    114       5       2       121       465       586  
Interest expense-financing fees
    1       1             2       307       309  
Depreciation and amortization
    3,337       190       21       3,548       16       3,564  
Segment profit (loss)
    7,868       (750 )     (183 )     6,935       (5,742 )     1,193  
Segment assets(1)
    92,812       6,102       2,033       100,947       24,356 (4)     125,303  
Expenditures for segment assets
    1,427       456       16       1,899       23       1,922  
Total long-term debt
    1,064       158       19       1,241       11,090 (5)     12,331  

Segment Reporting for the Nine Months Ended September 30, 2009
 
   
Nuclear
   
Industrial
   
Engineering
   
Segments Total
   
Corporate (2)
   
Consolidated Total
 
Revenue from external customers
  $ 63,364 (3)   $ 6,200     $ 2,670     $ 72,234     $     $ 72,234  
Intercompany revenues
    1,807       525       314       2,646             2,646  
Gross profit
    15,468       1,390       703       17,561             17,561  
Interest income
                            121       121  
Interest expense
    592       14       3       609       737       1,346  
Interest expense-financing fees
                            180       180  
Depreciation and amortization
    3,196       320       27       3,543       26       3,569  
Segment profit (loss)
    8,698       180       319       9,197       (5,320 )     3,877  
Segment assets(1)
    100,642       5,322       2,222       108,186       21,489 (4)     129,675  
Expenditures for segment assets
    867       113       3       983       33       1,016  
Total long-term debt
    2,032       116       24       2,172       18,686 (5)     20,858  
 
(1)
Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.

 
20


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

(3)
The consolidated revenues within the Nuclear Segment include the CH Plateau Remediation Company (“CHPRC”) revenue of $13,880,000 or 55.3% and $37,881,000 or 47.9% of our total consolidated revenue for the three and nine months ended September 30, 2010, respectively, as compared to $10,680,000 or 40.3% and $33,051,000 or 45.7% of our total consolidated revenue for the three and nine months ended September 30, 2009, respectively.  Our M&EC facility was awarded a subcontract by CHPRC, a general contractor to the Department of Energy (“DOE”), in the second quarter of 2008.  See “Known Trends and Uncertainties – Significant Customers” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of revenue from CHPRC.

(4)
Amount includes assets from discontinued operations of $740,000 and $725,000 as of September 30, 2010 and 2009, respectively.

(5)
Net of debt discount of ($200,000) and ($533,000) as of September 30, 2010 and September 30, 2009, respectively, based on the estimated fair value of two Warrants and 200,000 shares of the Company’s Common Stock issued on May 8, 2009 in connection with a $3,000,000 promissory note entered into by the Company and Mr. William Lampson and Mr. Diehl Rettig.  See Note 6 - “Promissory Note and Installment Agreement” for additional information.   

10.
Income Taxes

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

The Company effective tax rates were approximately 35.8% and 5.9% for the three months ended September 30, 2010 and 2009, respectively, as compared to approximately 43.6% and 6.4% for the nine months ended September 30, 2010 and 2009, respectively.  The higher income tax rate for the three and nine months period ended September 30, 2010, as compared to the corresponding period of 2009, was due to a lower valuation allowance in 2010 on our deferred tax asset related to federal and state net operating loss (NOL) carryforwards.  We had a full valuation allowance on all of our deferred tax assets in 2009.

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

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

11.
Subsequent Event

Potential Sale of Industrial Segment Operations
During October 2010, our Board of Directors authorized us to attempt to sell the Company’s remaining Industrial Segment facilities and operations consisting of Perma-Fix of Ft. Lauderdale, Inc. (“PFFL”), Perma-Fix of Orlando, Inc. (“PFO”) and Perma-Fix of South Georgia, Inc. (“PFSG”) and to reclassify these operations as “discontinued operations.”  For the year 2009 and first nine months of 2010 ending September 30, 2010, these remaining operations within our Industrial Segment accounted for $8,283,000 or 8.2% and $6,766,000 or 8.6%, respectively, of our consolidated net revenues.  These three operating facilities had net loss of $450,000 and net loss of $1,246,000, for the year 2009 and the nine months ended September 30, 2010, respectively.  We have entered into letters of intent to sell the stock or assets of PFFL and PFO.  Both of the letters of intent are subject to numerous conditions, including, but not limited to, completion of due diligence by the buyer and negotiation and execution of definitive agreements.  If the transaction relating to PFFL is completed, the letter of intent provides that the buyer will pay us $6,000,000, subject to certain adjustments.  If the transaction relating to PFO is completed, the letter of intent provides that the buyer will pay us $2,000,000, subject to certain adjustments.

 
21


In accordance to ASC 360, “Property, Plant, and Equipment”, assets and liabilities of these three facilities will be presented as held for sale within discontinued operations in the fourth quarter of 2010.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

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

Ÿ
cash flow from operations and our available liquidity from our line of credit are sufficient to service the Company’s current obligations;
Ÿ
we believe government funding made available for DOE project under the government economic stimulus plan in February 2009 should positively impact our existing government contracts within our Nuclear Segment in the remaining months of 2010 and 2011;
Ÿ
higher government funding made available through the economic stimulus package (American Recovery and Reinvestment Act) enacted by Congress in 2009, could result in large fluctuations in remaining 2010 and 2011;
Ÿ
demand for our service will continue to be subject to fluctuations due to a variety of factors beyond our control, including the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites;
Ÿ
significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flow;
Ÿ
with much of our Nuclear Segment customer base being government or prime contractors treating government waste, we do not believe economic upturns or downturns have a significant impact on the demand for our services;
Ÿ
we plan to fund any repurchases under the common stock repurchase plan through our internal cash flow and/or borrowing under our line of credit;
Ÿ
no immediate plans or current commitments to issue shares under the registration statement;
Ÿ
ability to remediate certain contaminated sites for projected amounts from funds generated internally;
Ÿ
no further impairment of intangible or tangible assets;
Ÿ
despite our aggressive compliance and auditing procedures for disposal of wastes, we could, in the future, be notified that we are a Partially Responsible Party (“PRP”) at a remedial action site, which could have a material adverse effect;
Ÿ
we make every reasonable attempt to maintain complete compliance with these regulations; however, even with a diligent commitment, we, along with many of our competitors, may be required to pay fines for violations or investigate and potentially remediate our waste management facilities;
Ÿ
ability to generate funds internally to remediate sites;
Ÿ
ability to fund budgeted capital expenditures of $2,730,000 during 2010 through our operations or lease financing or a combination of both;

 
22


Ÿ
we believe full operations under the CHPRC subcontract will result in revenues for on-site and off-site work of approximately $200,000,000 to $250,000,000 over the five year base period;
Ÿ
in the event of failure of AIG, this could significantly impact our operations and our permits;
Ÿ
because government spending is contingent upon its annual budget and allocation of funding, we cannot provide assurance that we will not have large fluctuations in the quarters in the near future;
Ÿ
pending legislative and regulatory proposals related to greenhouse gas emission, if enacted into law, could increase costs associated with our operations;
Ÿ
our inability to continue under existing contracts that we have with the federal government (directly or indirectly as a subcontractor) could have a material adverse effect on our operations and financial condition;
Ÿ
we believe we maintain insurance coverage adequate for our needs and which is similar to, or greater than the coverage maintained by other companies of our size in the industry;
Ÿ
due to the continued uncertainty in the economy, changes within the environmental insurance market, and the financial difficulties of AIG, whose subsidiary Chartis, is the provider of our financial assurance policies, we have no guarantees as to continued coverage by Chartis, that we will be able to obtain similar insurance in future years, or that the cost of such insurance will not increase materially;
Ÿ
as there are limited disposal sites available to us, a change in the number of available sites or an increase or decrease in demand for the existing disposal areas could significantly affect the actual disposal costs either positively or negatively;
Ÿ
we believe certain critical accounting policies affect the more significant estimates used in preparation of our consolidated financial statements;
Ÿ
once funds from the small contributors are exhausted, if additional funds are required, we believe that they should be provided by the members of the PRP group;
Ÿ
pending legislative and regulatory proposals which address greenhouse gas emissions, if and when enacted, could increase costs associated with our operations;
Ÿ
both of the letters of intent are subject to numerous conditions, including, but not limited to, completion of due diligence by the buyer and negotiation and execution of definitive agreements;
Ÿ
we do not expect ASU 2010-6 to have a material impact on our consolidated financial statements; and
Ÿ
we do not expect ASU 2010-20 to have a material impact on our consolidated financial statements.

While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to have been correct.  There are a variety of factors, which could cause future outcomes to differ materially from those described in this report, including, but not limited to:
 
Ÿ
general economic conditions;
Ÿ
material reduction in revenues;
Ÿ
ability to meet PNC covenant requirements;
Ÿ
inability to collect in a timely manner a material amount of receivables;
Ÿ
increased competitive pressures;
Ÿ
the ability to maintain and obtain required permits and approvals to conduct operations;
Ÿ
the ability to develop new and existing technologies in the conduct of operations;
Ÿ
ability to retain or renew certain required permits;
Ÿ
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;
Ÿ
changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
Ÿ
potential increases in equipment, maintenance, operating or labor costs;
Ÿ
management retention and development;
Ÿ
financial valuation of intangible assets is substantially more/less than expected;

 
23


Ÿ
the requirement to use internally generated funds for purposes not presently anticipated;
Ÿ
inability to continue to be profitable on an annualized basis;
Ÿ
the inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
Ÿ
terminations of contracts with federal agencies or subcontracts involving federal agencies, or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
Ÿ
renegotiation of contracts involving the federal government;
Ÿ
disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment;
Ÿ
Risk Factors contained in Item 1A of our 2009 Form 10-K; and
Ÿ
factors set forth in “Special Note Regarding Forward-Looking Statements” contained in our 2009 Form 10-K.

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

Overview
We provide services through three reportable operating segments: Nuclear Waste Management Services Segment (“Nuclear Segment”), Industrial Waste Management Services Segment (“Industrial Segment”), and Consulting Engineering Services Segment (“Engineering Segment”).   The Nuclear Segment provides treatment, storage, processing and disposal services of mixed waste (waste containing both hazardous and low-level radioactive materials) and low-level radioactive wastes, including research, development and on-site and off-site of mixed and low-level radioactive waste remediation.  Our Industrial Segment provides on-and-off site treatment, storage, processing and disposal of hazardous and non-hazardous industrial waste and wastewater, in addition to the sales of used oil and other off-specification petroleum-based products.  In October 2010, our Board of Directors authorized us to attempt to sell the remaining operations and facilities within our Industrial Segment. See “Potential Sale of Industrial Segment Operations” below. Our Engineering Segment provides a wide variety of environmental related consulting and engineering services to both industry and government.  These services include oversight management of environmental restoration projects, air, soil, and water sampling, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities.

The third quarter of 2010 reflected a revenue decrease of $1,446,000 or 5.4% to $25,088,000 from revenue of $26,534,000 for the same period of 2009.  Within our Nuclear Segment, we generated revenue of $22,283,000 in the third quarter of 2010, a decrease of $1,235,000 or 5.3% from the corresponding period of 2009. Revenue generated from the subcontract awarded to our M&EC subsidiary by CH Plateau Remediation Company (“CHPRC”), for facility operations and waste management activities for the DOE Hanford Site, increased approximately $2,066,000 in the quarter primarily due to increased headcount under this subcontract. This subcontract has a base period from October 1, 2008 through September 30, 2013 and an option period from October 1, 2013 through September 30, 2018.  Revenue from the remaining Nuclear Segment decreased $3,301,000 as a result of reduced volume and lower average priced waste.  Our Industrial Segment generated $2,224,000 in revenue in the third quarter of 2010, as compared to $2,128,000 for the corresponding period of 2009, or 4.5% increase.  The increase was primarily the result of higher revenue from used oil sales due to higher average price per gallon. Revenue from the Engineering Segment decreased $307,000 or 34.6% to $581,000 from $888,000 for the same period of 2009.

The third quarter 2010 gross profit decreased $4,398,000 or 60.5% from the corresponding period of 2009 primarily due to reduced revenue and revenue mix. The gross profit for the third quarter 2009 within our Nuclear Segment, included a reduction of approximately $787,000 in disposal/transportation costs resulting from a change in estimate related to accrued costs to dispose of legacy waste that were assumed as part of the acquisition of our PFNWR facility in June 2007.

SG&A for the third quarter of 2010 decreased by 0.7% to $3,876,000 from $3,903,000, in the corresponding period of 2009.

 
24


We had a net loss from continuing operations of $1,103,000 for the third quarter of 2010, as compared to net income of $2,634,000 for the third quarter of 2009.

Our working capital was $177,000 (which includes working capital of our discontinued operations) as of September 30, 2010, as compared to a working capital of $1,490,000 as of December 31, 2009.  Our working capital was impacted by cash collection from the reduction in trade receivables and current unbilled used to pay our finite risk obligations and our revolver which are both classified as long term.  Our working capital was also impacted by the increase in our current debt and accounts payable.

Potential Sale of Industrial Segment Operations
During October 2010, our Board of Directors authorized us to attempt to sell the Company’s remaining Industrial Segment facilities and operations consisting of Perma-Fix of Ft. Lauderdale, Inc. (“PFFL”), Perma-Fix of Orlando, Inc. (“PFO”) and Perma-Fix of South Georgia, Inc. (“PFSG”) and to reclassify these operations as “discontinued operations.”  For the year 2009 and first nine months of 2010 ending September 30, 2010, these remaining operations within our Industrial Segment accounted for $8,283,000 or 8.2% and $6,766,000 or 8.6%, respectively, of our consolidated net revenues.  These three operating facilities had net loss of $450,000 and net loss of $1,246,000, for the year 2009 and the nine months ended September 30, 2010, respectively.  We have entered into letters of intent to sell the stock or assets of PFFL and PFO.  Both of the letters of intent are subject to numerous conditions, including, but not limited to, completion of due diligence by the buyer and negotiation and execution of definitive agreements.  If the transaction relating to PFFL is completed, the letter of intent provides that the buyer will pay us $6,000,000, subject to certain adjustments.  If the transaction relating to PFO is completed, the letter of intent provides that the buyer will pay us $2,000,000, subject to certain adjustments.

In accordance to ASC 360, “Property, Plant, and Equipment”, assets and liabilities of these three facilities will be presented as held for sale within discontinued operations in the fourth quarter of 2010.

Outlook
We believe that government funding made available for DOE projects under the government stimulus plan in February 2009 should positively impact our existing government contracts within our Nuclear Segment in the remaining months of 2010 and 2011 since the stimulus plan provides for a substantial amount for remediation of DOE sites.  However, we expect that demand for our services will be subject to fluctuations due to a variety of factors beyond our control, including the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites. Our operations depend, in large part, upon governmental funding, particularly funding levels at the DOE.  In addition, our governmental contracts and subcontracts relating to activities at governmental sites are subject to termination or renegotiation on 30 days notice at the government’s option.  Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows.

 
25


Results of Operations
The reporting of financial results and pertinent discussions are tailored to three reportable segments: Nuclear, Industrial, and Engineering.

   
September 30,
   
September 30,
 
Consolidated (amounts in thousands)
 
2010
   
%
   
2009
   
%
   
2010
   
%
   
2009
   
%
 
Net revenues
  $ 25,088       100.0     $ 26,534       100.0     $ 79,043       100.0     $ 72,234       100.0  
Cost of goods sold
    22,222       88.6       19,270       72.6       63,800       80.7       54,673       75.7  
Gross profit
    2,866       11.4       7,264       27.4       15,243       19.3       17,561       24.3  
Selling, general and administrative
    3,876       15.4       3,903       14.7       11,439       14.5       11,574       16.0  
Research and development
    345       1.4       154       .6       734       .9       460       .6  
Loss (gain) on disposal of property and equipment
    143       .6       (3 )           145       .2       (15 )      
(Loss) income from operations
  $ (1,498 )     (6.0 )   $ 3,210       12.1     $ 2,925       3.7     $ 5,542       7.7  
Interest income
    15             29       .1       51             121       .2  
Interest expense
    (159 )     (.6 )     (331 )     (1.2 )     (586 )     (.7 )     (1,346 )     (1.9 )
Interest expense-financing fees
    (103 )     (.4 )     (104 )     (.4 )     (309 )     (.4 )     (180 )     (.3 )
other
    2             (5 )           8             5        
(Loss) income from continuing operations before taxes
    (1,743 )     (7.0 )     2,799       10.6       2,089       2.6       4,142       5.7  
Income tax (benefit) expense
    (640 )     (2.6 )     165       .6       896       1.1       265       .3  
Loss (income) from continuing operations
    (1,103 )     (4.4 )     2,634       10.0       1,193       1.5       3,877       5.4  
Preferred Stock dividends
                                               

Summary – Three and Nine Months Ended September 30, 2010 and 2009

Consolidated revenues decreased $1,446,000 for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, as follows:

(In thousands)
 
2010
   
% Revenue
   
2009
   
% Revenue
   
Change
   
% Change
 
Nuclear
                                   
Government waste
  $ 4,819       19.2     $ 9,697       36.6     $ (4,878 )     (50.3 )
Hazardous/Non-hazardous
    871       3.5       802       3.0       69       8.6  
Other nuclear waste
    2,713       10.8       2,339       8.8       374       16.0  
CHPRC
    13,880       55.3       10,680       40.3       3,200       30.0  
Total
    22,283       88.8       23,518       88.7       (1,235 )     (5.3 )
                                                 
Industrial
                                               
Commercial
  $ 1,421       5.7     $ 1,405       5.3     $ 16