UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended December 31, 2008
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. 1-11596

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

Delaware
 
58-1954497
State or other jurisdiction
of incorporation or organization
 
(IRS Employer Identification Number)
     
8302 Dunwoody Place, #250, Atlanta, GA
 
30350
(Address of principal executive offices)
 
(Zip Code)
 
(770) 587-9898
 
 
(Registrant's telephone number)
 

Securities registered pursuant to Section 12(b) of the Act:
   
Title of each class
 
Name of each exchange on which registered
     
Common Stock, $.001 Par Value
 
NASDAQ Capital Markets

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o        No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o       No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will  not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 Act).
Yes o         No x

The aggregate market value of the Registrant's voting and non-voting common equity held by nonaffiliates of the Registrant computed by reference to the closing sale price of such stock as reported by NASDAQ as of the last business day of the most recently completed second fiscal quarter (June 30, 2008), was approximately $147,085,000.  For the purposes of this calculation, all executive officers and directors of the Registrant (as indicated in Item 12) are deemed to be affiliates.  Such determination should not be deemed an admission that such directors or officers, are, in fact, affiliates of the Registrant.  The Company's Common Stock is listed on the NASDAQ Capital Markets.

As of March 9, 2009, there were 53,985,119 shares of the registrant's Common Stock, $.001 par value, outstanding.

Documents incorporated by reference:  none
 
 


 
PERMA-FIX ENVIRONMENTAL SERVICES, INC.

INDEX
 
 
Page No.
     
   1
     
 13
     
 21
     
 21
     
 21
     
 22
     
23
     
   
     
25
     
27
     
29
     
55
     
 
56
     
59
     
  107
     
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132

 
PART I
 
BUSINESS
 
 
Company Overview and Principal Products and Services
Perma-Fix Environmental Services, Inc. (the Company, which may be referred to as we, us, or our), an environmental and technology know-how company, is a Delaware corporation organized in 1990, and is engaged through its subsidiaries, in:

·
Nuclear Waste Management Services (“Nuclear Segment”), which includes:
 
o
Treatment, storage, processing and disposal of mixed waste (which is waste that contains both low-level radioactive and hazardous waste) including on and off-site waste remediation and processing;
 
o
Nuclear, low-level radioactive, and mixed waste treatment, processing and disposal; and
 
o
Research and development of innovative ways to process low-level radioactive and mixed waste.
·
Consulting Engineering Services (“Engineering Segment”), which includes:
 
o
Consulting services regarding broad-scope environmental issues, including air, water, and hazardous waste permitting, 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.
·
Industrial Waste Management Services (“Industrial Segment”), which includes:
 
o
Treatment, storage, processing, and disposal of hazardous and non-hazardous waste; and
 
o
Wastewater management services, including the collection, treatment, processing and disposal of hazardous and non-hazardous wastewater.

In May 2007, our Board of Directors authorized the divestiture of our Industrial Segment.  On September 26, 2008, our Board of Directors approved retaining our Industrial Segment facilities/operations at Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of Orlando, Inc. (“PFO”).  This subsequent decision to retain operations at PFFL, PFSG, and PFO within our Industrial Segment is based on our belief that these operations are self-sufficient, which should allow senior management more freedom to focus on growing our Nuclear operations, while benefiting from the cash flow and growth prospects of these three facilities and the fact that we were unable in the current economic climate to obtain the values for these companies that we believe they are worth.  In 2008, we completed the sale of substantially all of the assets of three of our Industrial Segment facilities/operations as follows:  on January 8, 2008, we completed the sale of substantially all of the assets of Perma-Fix Maryland, Inc. (“PFMD”) for $3,825,000 in cash and the assumption by the buyer of certain liabilities of PFMD, with a final working capital adjustment of $170,000 received by us from the buyer in the fourth quarter of 2008; on March 14, 2008, we completed the sale of substantially all of the assets of Perma-Fix of Dayton, Inc. (“PFD”) for approximately $2,143,000 in cash, plus assumption by the buyer of certain of PFD’s liabilities and obligations.  In June 2008, we paid the buyer $209,000 in final working capital adjustment; and on May 30, 2008, we completed the sale of substantially all of the assets of Perma-Fix Treatment Services, Inc. (“PFTS”) for approximately $1,503,000, and assumption by the buyer of certain liabilities of PFTS.  In July 2008, we paid the buyer $135,000 in final working capital adjustments.

As a result of our Board of Directors’ approval to retain our PFFL, PFO, and PFSG facilities/operations in September 2008, we restated the consolidated financial statements for all periods presented to reflect the reclassification of these three facilities/operations back into our continuing operations.  In the third quarter of 2008, we classified one of the two properties at PFO as held for sale.  In the fourth quarter of 2008, we completed the sale of this property at PFO for $900,000 in cash.  We do not expect any impact or reduction to PFO’s operating capability from the sale of the property at PFO.

Our goal is to continue focus on the efficient operation of our existing facilities within our Nuclear, Industrial, and Engineering Segments, evaluate strategic acquisitions primarily within the Nuclear Segments, and to continue the research and development of innovative technologies to treat nuclear waste, mixed waste, and industrial waste.   We continue to place greater attention and resources on our nuclear


business. Our Nuclear Segment facility, Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility, which was acquired in June 2007, had $17,325,000 in revenue, which represented 22.9% of our consolidated revenue from continuing operations in 2008 as compared to $8,439,000 or 13.1% in 2007.  PFNWR is a hazardous waste, low level radioactive waste and mixed waste (containing both hazardous waste and low level radioactive waste) management company based in Richland, Washington, adjacent to the Department of Energy’s (“DOE”) Hanford Site.  This acquisition provides us with a number of strategic benefits.  Foremost, this acquisition secured PFNWR’s radioactive and hazardous waste permits and licenses, which further solidified our position within the mixed waste industry.  Additionally, the PFNWR facility is located adjacent to the Hanford Site, which represents one of the largest environmental clean-up projects in the nation and is expected to be one of the most expansive of DOE’s nuclear weapons sites to remediate.  In addition, the acquisition of PFNWR facility introduced our West Coast presence and increases our treatment capacity for radioactive only waste.

During the second quarter of 2008, our East Tennessee Materials and Energy Corporation (“M&EC”) facility within our Nuclear Segment was awarded a subcontract by CH Plateau Remediation Company (“CHPRC”) to perform a portion of facility operations and waste management activities for the DOE Hanford, Washington site.  The general contract awarded by the DOE to CHPRC and our subcontract provide for a transition period from August 11, 2008 through September 30, 2008, a base period from October 1, 2008 through September 30, 2013, and an option period from October 1, 2013 through September 30, 2018.  The subcontract is a cost-plus award fee contract.  On October 1, 2008, operations of this subcontract commenced at the DOE Hanford Site.  We believe full operations under this 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 based period.  As of December 31, 2008, revenue from this subcontractor accounted for $8,120,000 or 10.8% of total revenue from our continuing operations.  As of the date of this report, we have employed an additional 177 employees to service this subcontract.  This subcontract, as are most, if not all, contracts involving work relating to federal sites provide that the government or subcontractor may terminate or renegotiate the contract with us at any time for convenience or 30 days notice.

We service research institutions, commercial companies, public utilities, and governmental agencies nationwide, including the DOE and Department of Defense (“DOD”). The distribution channels for our services are through direct sales to customers or via intermediaries.

We were incorporated in December of 1990. Our executive offices are located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.

Demand for our services has been, and we expect that demand will continue to be, subject to significant fluctuation (including substantial reductions) due to a variety of factors beyond our control, such as the current economic recession and the large budget deficits of our federal government and many of our states (see “Risk Factors” and “Management Discussion and Analysis of Financial Condition and Results of Operations contained herein for a discussion as to these factors that could have a significant effect on our business and results).  However, we believe that government funding made available for DOE remediation projects under the recently enacted government stimulus plan could have a positive impact on our government subcontracts within our Nuclear Segment. (see “Dependence Upon a Single or Few Customers in this section for certain subcontracts with the DOE within our Nuclear Segment), although we continue to remain cautious of the future due to the heightened financial market and economic turmoil and large federal/budget deficit.

Website access to Company's reports
Our internet website address is www.perma-fix.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“Commission”).  Additionally, we make available free of charge on our internet website:


·
our Code of Ethics;
 
·
the charter of our Corporate Governance and Nominating Committee;
 
·
our Anti-Fraud Policy;
 
·
the charter of our Audit Committee.

Segment Information and Foreign and Domestic Operations and Export Sales
During 2008, we were engaged in three operating segments.  Pursuant to FAS 131, we define an operating segment as:

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

We therefore define our operating segments as each business line that we operate.  These segments, however, exclude the Corporate and Operation Headquarters, which do not generate revenue; Perma-Fix of Michigan Inc. (“PFMI”) and Perma-Fix of Pittsburgh, Inc. (“PFP”), two non-operational facilities within our Industrial Segment which were approved as discontinued operations by our Board of Director effective November 8, 2005, and October 4, 2004, respectively; and PFMD, PFD, and PFTS, three Industrial Segment facilities which were divested in January 2008, March 2008, and May 2008, respectively, as previously discussed.

Most of our activities are conducted nationwide.  We do not own any foreign operations and we had no export sales during 2008.

Operating Segments
We have three operating segments, which represent each business line that we operate. The Nuclear Segment, which operates four facilities; the Industrial Segment, which operates three facilities; and the Engineering Segment as described below:

NUCLEAR WASTE MANAGEMENT SERVICES (“Nuclear Segment”), which includes nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive constituents) hazardous and non-hazardous waste treatment, processing and disposal services through four uniquely licensed (Nuclear Regulatory Commission or state equivalent) and permitted (Environmental Protection Agency (“EPA”) or state equivalent) treatment and storage facilities.  The presence of nuclear and low-level radioactive constituents within the waste streams processed by this segment creates different and unique operational, processing and permitting/licensing requirements, as discussed below.

Perma-Fix of Florida, Inc. (“PFF”), located in Gainesville, Florida, specializes in the storage, processing, and treatment of certain types of wastes containing both low-level radioactive and hazardous wastes, which are known in the industry as mixed waste (“mixed waste”).  PFF is one of the first facilities nationally to operate under both a hazardous waste permit and a radioactive materials license, from which it has built its reputation based on its ability to treat difficult waste streams using its unique processing technologies and its ability to provide related research and development services.  PFF has substantially increased the amount and type of mixed waste and low level radioactive waste that it can store and treat.  Its mixed waste services have included the treatment and processing of waste Liquid Scintillation Vials (“LSVs”) since the mid 1980's.  LSVs are used for the counting of certain radionuclides.  The LSVs are generated primarily by institutional research agencies and biotechnical companies.  The business has expanded into receiving and handling other types of mixed waste, primarily from the nuclear utilities, commercial generators, prominent pharmaceutical companies, the DOE and other government facilities as well as select mixed waste field remediation projects.  PFF also continues to receive and process certain hazardous and non-hazardous waste streams as a compliment to its expanded nuclear and mixed waste processing activities.


Diversified Scientific Services, Inc. (“DSSI”) located in Kingston, Tennessee, specializes in the storage, processing, and destruction of certain types of mixed waste.  DSSI, like PFF, is one of only a few facilities nationally to operate under both a hazardous waste permit and a radioactive materials license.  Additionally, DSSI is the only commercial facility of its kind in the U.S. that is currently operating and licensed to destroy liquid organic mixed waste, through such a treatment unit.  DSSI provides mixed waste disposal services for nuclear utilities, commercial generators, prominent pharmaceutical companies, and agencies and contractors of the U.S. government, including the DOE and the DOD.  On November 26, 2008, the U.S. Environmental Protection Agency (“EPA”) Region 4 issued a permit to DSSI to commercially store and dispose of radioactive Polychlorinated Biphenyls (“PCBs”).  Currently, we are unaware of any other commercial facilities authorized to store and dispose of radioactive PCB wastes.

East Tennessee Materials & Energy Corporation (“M&EC”), located in Oak Ridge, Tennessee, is another mixed waste facility.  M&EC also operates under both a hazardous waste permit and radioactive materials license.  M&EC represents the largest of our four mixed waste facilities, covering 150,000 sq. ft., and is located in leased facilities at the DOE East Tennessee Technology Park.  In 2007, M&EC completed its facility expansion (“SouthBay”) to treat DOE special process wastes from the DOE Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio under the subcontract awarded by LATA/Parallax Portsmouth LLC to our Nuclear Segment in 2006.  LATA/Parallax performs environmental remediation services, including groundwater cleanup and waste management activities, under contract to DOE at the Portsmouth site.

Perma-Fix Northwest Richland, Inc. (“PFNWR”), which we acquired in June 2007, is located in Richland, Washington.  PFNWR is a permitted hazardous, low level radioactive and mixed waste treatment, storage and disposal facility located at the Hanford Site in the eastern part of the state of Washington.  The DOE’s Hanford Site is subject to one of the largest, most complex, and costliest DOE clean up plans.  The strategic addition of PFNWR facility provides the Company with immediate access to treat some of the most complex nuclear waste streams in the nation.  PFNWR predominately provides waste treatment services to contractors of government agencies, in addition to commercial generators.

For 2008, the Nuclear Segment accounted for $61,359,000 or 81.3% of total revenue from continuing operations, as compared to $51,704,000 or 80.1% of total revenue from continuing operations for 2007.  See “ – Dependence Upon a Single or Few Customers” and “Financial Statements and Supplementary Data” for further details and a discussion as to our Nuclear Segment's contracts with the federal government or with others as a subcontractor to the federal government.

INDUSTRIAL WASTE MANAGEMENT SERVICES (“Industrial Segment”), which includes, off-site waste storage, treatment, processing and disposal services of hazardous and non-hazardous waste (solids and liquids) through three permitted treatment and/or disposal facilities, as discussed below.

Perma-Fix of Ft. Lauderdale, Inc. (“PFFL”) is a permitted facility located in Ft. Lauderdale, Florida. PFFL collects and treats wastewaters, oily wastewaters, used oil and other off-specification petroleum-based products, some of which may potentially be recycled into usable products.  Key activities at PFFL include process cleaning and material recovery, production and sales of on-specification fuel oil, custom tailored waste management programs and hazardous material disposal and recycling materials from generators such as the cruise line and marine industries.

Perma-Fix of Orlando, Inc. (“PFO”) is a permitted treatment and storage facility located in Orlando, Florida. PFO collects, stores and treats hazardous and non-hazardous wastes under one of our most inclusive permits.  PFO is also a transporter of hazardous waste and operates a transfer facility at the site.  PFO also collects oily waste waters, used oil, and other off-specification petroleum based products and performs vacuum service work in Florida.

Perma-Fix of South Georgia, Inc. (“PFSG”) is a permitted treatment and storage facility located in Valdosta, Georgia.  PFSG provides storage, treatment and disposal services to hazardous and non-hazardous waste generators primarily throughout the Southeastern portion of the United States, in conjunction with the


utilization of the PFO facility and transportation services.  PFSG operates a hazardous waste storage facility that primarily blends and processes hazardous and non-hazardous waste liquids, solids and sludges into substitute fuel or as a raw material substitute in cement kilns that have been specially permitted for the processing of hazardous and non-hazardous waste.

For 2008, the Industrial Segment accounted for approximately $10,951,000 or 14.5% of our total revenue from continuing operations as compared to approximately $10,442,000 or 16.2% for 2007.  See “Financial Statements and Supplementary Data” for further details.

CONSULTING ENGINEERING SERVICES (“Engineering Segment”), which provides environmental engineering and regulatory compliance consulting services through one subsidiary, as discussed below.

Schreiber, Yonley & Associates (“SYA”) is located in Ellisville, Missouri.  SYA specializes in air, water, and hazardous waste permitting, 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.

During 2008, environmental engineering and regulatory compliance consulting services accounted for approximately $3,194,000 or 4.2% of our total revenue from continuing operations, as compared to approximately $2,398,000 or 3.7% in 2007.  See “Financial Statements and Supplementary Data” for further details.

Discontinued Operations
As stated previously above, our discontinued operations includes the following facilities within our Industrial Segment:  Perma-Fix of Michigan Inc. (“PFMI”), Perma-Fix of Pittsburgh, Inc. (“PFP”), two non-operational facilities which were approved as discontinued operations by our Board of Director effective October 4, 2004, and November 8, 2005, respectively, and PFMD, PFD, and PFTS, three Industrial Segment facilities which were divested in January 2008, March 2008, and May 2008, respectively.

Our discontinued operations generated $3,195,000 and $19,965,000 of revenue in 2008 and 2007, respectively.

Importance of Patents, Trademarks and Proprietary Technology
We do not believe we are dependent on any particular trademark in order to operate our business or any significant segment thereof.  We have received registration to the year 2010 and 2012 for the service marks “Perma-Fix” and “Perma-Fix Environmental Services,” respectively, by the U.S. Patent and Trademark Office.

We are active in the research and development (“R&D”) of technologies that allow us to address certain of our customers' environmental needs. To date, our R&D efforts have resulted in the granting of seven active patents and the filing of several pending patent applications. Our flagship technology, the Perma-Fix Process, is a proprietary, cost effective, treatment technology that converts hazardous waste into non-hazardous material. Subsequently, we developed the Perma-Fix II process, a multi-step treatment process that converts hazardous organic components into non-hazardous material. The Perma-Fix II process is particularly important to our mixed waste strategy. We believe that at least one third of DOE mixed waste contains organic components.

The Perma-Fix II process is designed to remove certain types of organic hazardous constituents from soils or other solids and sludges (“Solids”) through a water-based system.  Until development of this Perma-Fix II process, we were not aware of a relatively simple and inexpensive process that would remove the organic hazardous constituents from Solids without elaborate and expensive equipment or expensive treating agents.  Due to the organic hazardous constituents involved, the disposal options for such materials are limited, resulting in high disposal cost when there is a disposal option available.  By reducing the organic hazardous waste constituents in the Solids to a level where the Solids meet Land Disposal Requirements, the


generator's disposal options for such waste are substantially increased, allowing the generator to dispose of such waste at substantially less cost.  We began commercial use of the Perma-Fix II process in 2000.  However, changes to current environmental laws and regulations could limit the use of the Perma-Fix II process or the disposal options available to the generator.  See “—Permits and Licenses” and “—Research and Development.”

Permits and Licenses
Waste management companies are subject to extensive, evolving and increasingly stringent federal, state and local environmental laws and regulations.  Such federal, state and local environmental laws and regulations govern our activities regarding the treatment, storage, processing, disposal and transportation of hazardous, non-hazardous and radioactive wastes, and require us to obtain and maintain permits, licenses and/or approvals in order to conduct certain of our waste activities.  Failure to obtain and maintain our permits or approvals would have a material adverse effect on us, our operations, and financial condition.  The permits and licenses have terms ranging from one to ten years, and provided that we maintain a reasonable level of compliance, renew with minimal effort, and cost.  Historically, there have been no compelling challenges to the permit and license renewals.  Such permits and licenses, however, represent a potential barrier to entry for possible competitors.

Nuclear Segment:
PFF operates its hazardous, mixed and low-level radioactive waste activities under a RCRA Part B permit and a radioactive materials license issued by the State of Florida.

DSSI operates hazardous, mixed and low-level radioactive waste activities under a RCRA Part B permit and a radioactive materials license issued by the State of Tennessee.  On November 26, 2008, the U.S. EPA Region 4 issued a permit to DSSI to commercially store and dispose of radioactive Polychlorinated Biphenyls (“PCBs”).  DSSI began the permitting process to add Toxic Substances Control Act (“TSCA”) regulated wastes, namely PCBs, containing radioactive constituents to its authorization in 2004 in order to meet the demand for the treatment of government and commercially generated radioactive PCB wastes.  Currently, we are unaware of any other commercial facility authorized to store and dispose of radioactive PCB wastes.

M&EC operates hazardous and low-level radioactive waste activities under a RCRA Part B permit and a radioactive materials license issued by the State of Tennessee.

PFNWR operates its hazardous, mixed and low-level radioactive waste activities under a RCRA Part B permit and a radioactive materials license issued by the State of Washington.

The combination of a RCRA Part B hazardous waste permit and a radioactive materials license, as held by PFF, DSSI and M&EC, and PFNWR are very difficult to obtain for a single facility and make these facilities unique.

Industrial Segment:
PFFL operates under a used oil processors license and a solid waste processing permit issued by the Florida Department of Environmental Protection (“FDEP”), a transporter license issued by the FDEP and a transfer facility license issued by Broward County, Florida.

PFO operates a hazardous and non-hazardous waste treatment and storage facility under various permits, including a RCRA Part B permit, and a used oil processors permit issued by the State of Florida.

PFSG operates a hazardous waste treatment and storage facility under a RCRA Part B permit, issued by the State of Georgia.


Seasonality
Historically, we have experienced reduced activities and related billable hours throughout the November and December holiday periods within our Engineering Segment.  Our Industrial Segment operations experience reduced activities during the holiday periods; however, one key product line is the servicing of cruise line business where operations are typically higher during the winter months, thus offsetting the impact of the holiday season.  The DOE and DOD represent major customers for the Nuclear Segment.  In conjunction with the federal government’s September 30 fiscal year-end, the Nuclear Segment historically experienced seasonably large shipments during the third quarter, leading up to this government fiscal year-end, as a result of incentives and other quota requirements.  Correspondingly for a period of approximately three months following September 30, the Nuclear Segment is generally seasonably slow, as the government budgets are still being finalized, planning for the new year is occurring, and we enter the holiday season.    Over the past years, due to our efforts to work with the various government customers to smooth these shipments more evenly throughout the year, we have seen smaller fluctuations in the quarters.  Although we have seen smaller fluctuation in the quarters in recent years, as government spending is contingent upon its annual budget and allocation of funding, we cannot provide assurance that we will not have larger fluctuations in the quarters in the near future.  For 2008, government agencies were operated under “Continuing Resolution” without finalized budgets due in part to the impending change in Administration, which had a negative impact on availability of funding for services offered by our Nuclear Segment.

Backlog
The Nuclear Segment of our Company maintains a backlog of stored waste, which represents waste that has not been processed.  The backlog is principally a result of the timing and complexity of the waste being brought into the facilities and the selling price per container.  As of December 31, 2008, our Nuclear Segment had a backlog of approximately $10,244,000, as compared to approximately $14,600,000, as of December 31, 2007.  Additionally, the time it takes to process mixed waste from the time it arrives may increase due to the types and complexities of the waste we are currently receiving.  We typically process our backlog during periods of low waste receipts, which historically has been in the first or fourth quarter.

Dependence Upon a Single or Few Customers
Our Nuclear Segment has a significant relationship with the federal government, and continues to enter into, contracts with (directly or indirectly as a subcontractor) the federal government.  The contracts that we are a party to with the federal government or with others as a subcontractor to the federal government generally provide that the government may terminate or renegotiate the contracts in 30 days notice, at the government's election.  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.

We performed services relating to waste generated by the federal government, either directly or indirectly as a subcontractor (including LATA/Parallax, Fluor Hanford, and CHPRC as discussed below) to the federal government, representing approximately $43,464,000 or 57.6% of our total revenue from continuing operations during 2008, as compared to $30,000,000 or 46.5% of our total revenue from continuing operations during 2007, and $33,226,000 or 48.7% of our total revenue from continuing operations during 2006.

Included in the amounts discussed above, are revenues from LATA/Parallax Portsmouth LLC (“LATA/Parallax”).  LATA/Parallax manages DOE environmental programs.  Our revenues from LATA/Parallax contributed $4,841,000 or 6.4%, $8,784,000 or 13.6%, and 10,341,000 or 15.2% of our revenues from continuing operations for 2008, 2007, and 2006, respectively.   In 2006, our M&EC facility was awarded a subcontract by LATA/Parallax to treat DOE special process wastes from the DOE Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio.  This subcontract has been extended through September 30, 2009.   We currently have two other subcontracts with LATA/Parallax to treat wastes which are set to expire on September 30, 2009.  As with most contracts relating to the federal government,


LATA/Parallax can terminate the contract with us at any time for convenience, which could have a material adverse effect on our operations.

Since 2004, our Nuclear Segment has treated mixed low-level waste, as a subcontractor, for Fluor Hanford, who acts as a general contractor for the DOE.  However, with the acquisition of our PFNWR facility in 2007, a significant amount of our revenues is derived from Fluor Hanford, a DOE general contractor since 1996.  Fluor Hanford manages several major activities at the DOE’s Hanford Site, including dismantling former nuclear processing facilities, monitoring and cleaning up the site’s contaminated groundwater, and retrieving and processing transuranic waste for off-site shipment.  The Hanford Site is one of DOE’s largest nuclear weapon environmental remediation projects.  Our PFNWR facility is located adjacent to the Hanford Site and treats low level radioactive and mixed wastes.  We have three subcontracts with Fluor Hanford (as the general contractor at the DOE Site) at our PFNWR facility, with the initial contract dating back to 2003.  Fluor Hanford’s successor, CHPRC, was awarded the Plateau Remediation Contract for the Hanford Site in the second quarter of 2008 and has begun management of the waste activities previously managed by Fluor Hanford under these three subcontracts, effective October 1, 2008.  CHPRC has extended these subcontracts to March 31, 2009 and we expect these subcontracts will be renegotiated by CHPRC beyond March 31, 2009.  Revenue from Fluor Hanford has been transitioned to CHPRC and we expect these revenues to remain constant or possibly increase, dependent upon DOE funding, in fiscal year 2009.   Revenues from Fluor Hanford totaled $7,974,000 or 10.6% (approximately $5,160,000 from PFNWR), $6,985,000 (approximately $3,100,000 from PFNWR) or 10.8%, and $1,229,000 or 1.8% of our consolidated revenue from continuing operations for 2008, 2007, and 2006, respectively.

In connection with the CHPRC obligations under its DOE general contract as discussed above, our M&EC facility was awarded a subcontract by CHPRC to participate in the cleanup of the central portion of the Hanford Site, which once housed certain chemical separation buildings and other facilities that separated and recovered plutonium and other materials for use in nuclear weapons.  This subcontract became effective on June 19, 2008, the date DOE awarded CHPRC the general contract.    DOE’s general contract and M&EC’s subcontract provided a transition period from August 11, 2008 through September 30, 2008, a base period from October 1, 2008 through September 30, 2013, and an option period from October 1, 2013 through September 30, 2018.  M&EC’s subcontract is a cost plus award fee contract.  On October 1, 2008, operations of this subcontract commenced at the DOE Hanford Site.  We believe full operations under this 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.  As of December 31, 2008, revenue from this subcontractor accounted for $8,120,000 or 10.8% of total revenue from our continuing operations.  As of the date of this report, we have employed an additional 177 employees to service this subcontract.

Competitive Conditions
The Nuclear Segment’s largest competitor is EnergySolutions, which provides treatment and disposal capabilities at its Oak Ridge, Tennessee and Clive, Utah facilities.  EnergySolutions presents the largest competitive challenge in the market.  At present, EnergySolutions’ Clive, Utah facility is one of the few radioactive disposal sites for commercially generated wastes in the country in which our Nuclear Segment can dispose of its nuclear waste.  If EnergySolutions should refuse to accept our waste or cease operations at its Clive, Utah facility, such would have a material adverse effect on us for commercial wastes.  The Nuclear Segment treats and disposes of DOE generated wastes largely at DOE owned sites.  Smaller competitors are also present in the market place; however, they do not present a significant challenge at this time.    Our Nuclear Segment solicits business on a nationwide basis with both government and commercial clients.

The permitting and licensing requirements, and the cost to obtain such permits, are barriers to the entry of hazardous waste treatment, storage, and diposal (“TSD”) facilities and radioactive and mixed waste activities as presently operated by our subsidiaries.  We believe that there are no formidable barriers to entry into certain of the on-site treatment businesses, and certain of the non-hazardous waste operations, which do not require such permits.  If the permit requirements for hazardous waste storage, treatment, and disposal activities and/or the licensing requirements for the handling of low level radioactive matters are eliminated


or if such licenses or permits were made less rigorous to obtain, such would allow companies to enter into these markets and provide greater competition.

Engineering Segment consulting services provided by us through SYA involve competition with larger engineering and consulting firms.  We believe that we are able to compete with these firms based on our established reputation in these market areas and our expertise in several specific elements of environmental engineering and consulting such as environmental applications in the cement industry, emission reduction strategies, and Maximum Available Control Technology (“MACT”) compliance.

Within our Industrial Segment we solicit business primarily in the Southeastern portion of the United States.   We believe that we are a significant provider in the delivery of off-site waste treatment services in the Southeast portion of the United States.  We compete with facilities operated by national, regional and independent environmental services firms located within a several hundred-mile radius of our facilities.

Capital Spending, Certain Environmental Expenditures and Potential Environmental Liabilities
Capital Spending
During 2008, our purchases of capital equipment totaled approximately $1,158,000 of which $1,129,000 and $29,000 was for our continuing and discontinued operations, respectively.  Of the total capital spending, $148,000 was financed for our continuing operations, resulting in total net purchases of $1,010,000 funded out of cash flow ($981,000 for continuing operations and $29,000 for our discontinued operations).  These expenditures were for compliance, sustenance, expansion, and improvements to the operations principally within the Nuclear Segment.  These capital expenditures were funded by the cash provided by operations and from cash provided by financing activities. We have budgeted approximately $1,300,000 for 2009 capital expenditures for our segments to expand our operations into new markets, reduce the cost of waste processing and handling, expand the range of wastes that can be accepted for treatment and processing, and to maintain permit compliance requirements.  Certain of these budgeted projects are discretionary and may either be delayed until later in the year or deferred altogether.  We have traditionally incurred actual capital spending totals for a given year less than the initial budget amount.  The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.

Environmental Liabilities
We have four remediation projects, which are currently in progress at certain of our continuing and discontinued facilities. These remediation projects principally entail the removal/remediation of contaminated soil and, in some cases, the remediation of surrounding ground water.

In June 1994, we acquired PFD, which we divested in March 2008.  Prior to us acquiring PFD in 1994, the former owners of PFD had merged Environmental Processing Services, Inc. (“EPS”) with PFD.  The party that sold PFD to us in 1994 agreed to indemnify us for costs associated with remediating the property leased by EPS (“Leased Property”).  Such remediation involves soil and/or groundwater restoration.  The Leased Property used by EPS to operate its facility is separate and apart from the property on which PFD's facility was located.  The contamination of the Leased Property occurred prior to PFD being acquired by us.  During 1995, in conjunction with the bankruptcy filing by the selling party, we recognized an environmental liability of approximately $1,200,000 for remedial activities at the Leased Property.  Upon the sale of PFD in March 2008 by Perma-Fix, we retained the environmental liability of PFD as it related only to the remediation of the EPS site.  In 2008, we performed a field investigation to gather additional information required to close certain soil contamination issues and to support development of the final groundwater remediation approach.  We have accrued approximately $489,000, at December 31, 2008, for the estimated, remaining costs of remediating the Leased Property used by EPS, which will extend over the next seven years.

In conjunction with the acquisition of Perma-Fix of Memphis, Inc. (“PFM”), we assumed and recorded certain liabilities to remediate gasoline contaminated groundwater and investigate, under the hazardous and solid waste amendments, potential areas of soil contamination on PFM's property.  Prior to our ownership of PFM, the owners installed monitoring and treatment equipment to restore the groundwater to acceptable


standards in accordance with federal, state and local authorities. In 2008, we completed all soil remediation with the exception of that associated with the groundwater contamination.  In addition, we installed wells and equipment associated with groundwater remediation.  We have accrued approximately $275,000 at December 31, 2008, for the estimated, remaining costs of remediating the groundwater contamination, which will extend over the next five years.  This environmental liability is included in our continuing operations and will remain the financial obligation of the Company.

In conjunction with the acquisition of PFSG, a subsidiary within our Industrial Segment, we initially recognized an environmental accrual of $2,200,000 for estimated long-term costs to remove contaminated soil and to undergo ground water remediation activities at the acquired facility in Valdosta, Georgia.  The remedial activities began in 2003.  We have accrued approximately $531,000, at December 31, 2008, to complete remediation of the facility, which we anticipate spending over the next seven years.

In conjunction with an oil spill at PFTS, we accrued approximately $69,000 to remediate the contaminated soil and ground water at this location.  Upon the sale of PFTS facility in May 2008, the remaining environmental reserve of approximately $35,000 was recorded as a “gain on disposal of discontinued operations, net of taxes” in the second quarter of 2008 on our “Consolidated Statement of Operations”.

In conjunction with the acquisition of PFMD in March 2004, we accrued for long-term environmental liabilities of $391,000 as a best estimate of the cost to remediate the hazardous and/or non-hazardous contamination on certain properties owned by PFMD.  In connection with the sale of PFMD facility in January 2008, the buyer assumed this liability in addition to obligations and liabilities for environmental conditions at the Maryland facility except for fines, assessments, or judgments to governmental authorities prior to the closing of the transaction or third party tort claims existing prior to the closing of the sale.

As a result of the discontinued operations at the PFMI facility in 2004, we were required to complete certain closure and remediation activities pursuant to our RCRA permit, which were completed in January 2006.  In September 2006, PFMI signed a Corrective Action Consent Order with the State of Michigan, requiring performance of studies and development and execution of plans related to the potential clean-up of soils in portions of the property.  The level and cost of the clean-up and remediation are determined by state mandated requirements.  Upon discontinuation of operations in 2004, we engaged our engineering firm, SYA, to perform an analysis and related estimate of the cost to complete the RCRA portion of the closure/clean-up costs and the potential long-term remediation costs.  Based upon this analysis, we estimated the cost of this environmental closure and remediation liability to be $2,464,000.  During 2006, based on state-mandated criteria, we re-evaluated our required activities to close and remediate the facility, and during the quarter ended June 30, 2006, we began implementing the modified methodology to remediate the facility.  As a result of the reevaluation and the change in methodology, we reduced the accrual by $1,182,000.  We have spent approximately $745,000 for closure costs since September 30, 2004, of which $26,000 was spent during 2008 and $81,000 was spent during 2007.  In the 4th quarter of 2007, we reduced our reserve by $9,000 as a result of our reassessment of the cost of remediation.  We have $538,000 accrued for the closure, as of December 31, 2008, and we anticipate spending $425,000 in 2009 with the remainder over the next six years.  Based on the current status of the Corrective Action, we believe that the remaining reserve is adequate to cover the liability.

No insurance or third party recovery was taken into account in determining our cost estimates or reserves, nor do our cost estimates or reserves reflect any discount for present value purposes.

The nature of our business exposes us to significant risk of liability for damages.  Such potential liability could involve, for example, claims for cleanup costs, personal injury or damage to the environment in cases where we are held responsible for the release of hazardous materials; claims of employees, customers or third parties for personal injury or property damage occurring in the course of our operations; and claims alleging negligence or professional errors or omissions in the planning or performance of our services.  In addition, we could be deemed a responsible party for the costs of required cleanup of any property, which may be contaminated by hazardous substances generated or transported by us to a site we selected,


including properties owned or leased by us (see “Legal Proceedings” in Part I, Item 3).  We could also be subject to fines and civil penalties in connection with violations of regulatory requirements.

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.  The majority of our research activities are performed as we receive new and unique waste to treat; as such, we recognize these expenses as a part of our processing costs.  We feel that our investments in research have been rewarded by the discovery of the Perma-Fix Process and the Perma-Fix II process.  Our competitors also devote resources to research and development and many such competitors have greater resources at their disposal than we do.  We have estimated that during 2008, 2007, and 2006, we spent approximately $1,020,000, $715,000, and $422,000, respectively, in Company-sponsored research and development activities.

Number of Employees
In our service-driven business, our employees are vital to our success.  We believe we have good relationships with our employees.  As of December 31, 2008, we employed 554 full time persons, of whom 16 were assigned to our corporate office, 20 were assigned to our Operations Headquarters, 24 were assigned to our Engineering Segment, 42 were assigned to our Industrial Segment, and 452 were assigned to our Nuclear Segment.  Of the 452 employees at our Nuclear Segment, 177 employees were hired in 2008 as result of our new subcontract awarded to us by CHPRC. Of the 177 employees, 84 employees (representing 15.2% of the Company's total number of employees) are unionized and are covered by a collective bargaining agreement. The bargaining agreement has a term of three years effective April 1, 2007 and expires on March 31, 2010 and is subject to a two year extension pending wage and benefit renegotiation (see “-Company Overview and Principal Products and Services” in this section).

Governmental Regulation
Environmental companies and their customers are subject to extensive and evolving environmental laws and regulations by a number of national, state and local environmental, safety and health agencies, the principal of which being the EPA.  These laws and regulations largely contribute to the demand for our services.  Although our customers remain responsible by law for their environmental problems, we must also comply with the requirements of those laws applicable to our services.  We cannot predict the extent to which our operations may be affected by future enforcement policies as applied to existing laws or by the enactment of new environmental laws and regulations.  Moreover, any predictions regarding possible liability are further complicated by the fact that under current environmental laws we could be jointly and severally liable for certain activities of third parties over whom we have little or no control.  Although we believe that we are currently in substantial compliance with applicable laws and regulations, we could be subject to fines, penalties or other liabilities or could be adversely affected by existing or subsequently enacted laws or regulations.  The principal environmental laws affecting our customers and us are briefly discussed below.

The Resource Conservation and Recovery Act of 1976, as amended (“RCRA”)
RCRA and its associated regulations establish a strict and comprehensive permitting and regulatory program applicable to hazardous waste.  The EPA has promulgated regulations under RCRA for new and existing treatment, storage and disposal facilities including incinerators, storage and treatment tanks, storage containers, storage and treatment surface impoundments, waste piles and landfills.  Every facility that treats, stores or disposes of hazardous waste must obtain a RCRA permit or must obtain interim status from the EPA, or a state agency, which has been authorized by the EPA to administer its program, and must comply with certain operating, financial responsibility and closure requirements.

The Safe Drinking Water Act, as amended (the “SDW Act”)
SDW Act regulates, among other items, the underground injection of liquid wastes in order to protect usable groundwater from contamination.  The SDW Act established the Underground Injection Control Program (“UIC Program”) that provides for the classification of injection wells into five classes.  Class I wells are those which inject industrial, municipal, nuclear and hazardous wastes below all underground sources of drinking water in an area.  Class I wells are divided into non-hazardous and hazardous categories with more


stringent regulations imposed on Class I wells which inject hazardous wastes.  PFTS' permit to operate its underground injection disposal wells is limited to non-hazardous wastewaters.

The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA,” also referred to as the “Superfund Act”)
CERCLA governs the cleanup of sites at which hazardous substances are located or at which hazardous substances have been released or are threatened to be released into the environment.  CERCLA authorizes the EPA to compel responsible parties to clean up sites and provides for punitive damages for noncompliance.  CERCLA imposes joint and several liabilities for the costs of clean up and damages to natural resources.

Health and Safety Regulations
The operation of our environmental activities is subject to the requirements of the Occupational Safety and Health Act (“OSHA”) and comparable state laws.  Regulations promulgated under OSHA by the Department of Labor require employers of persons in the transportation and environmental industries, including independent contractors, to implement hazard communications, work practices and personnel protection programs in order to protect employees from equipment safety hazards and exposure to hazardous chemicals.

Atomic Energy Act
The Atomic Energy Act of 1954 governs the safe handling and use of Source, Special Nuclear and Byproduct materials in the U.S. and its territories.  This act authorized the Atomic Energy Commission (now the Nuclear Regulatory Commission “USNRC”) to enter into “Agreements with States to carry out those regulatory functions in those respective states except for Nuclear Power Plants and federal facilities like the VA hospitals and the DOE operations.”  The State of Florida (with the USNRC oversight), Office of Radiation Control, regulates the radiological program of the PFF facility, and the State of Tennessee (with the USNRC oversight), Tennessee Department of Radiological Health, regulates the radiological program of the DSSI and M&EC facilities.  The State of Washington (with the USNRC oversight) Department of Health, regulates the radiological operations of the PFNWR facility.

Other Laws
Our activities are subject to other federal environmental protection and similar laws, including, without limitation, the Clean Water Act, the Clean Air Act, the Hazardous Materials Transportation Act and the Toxic Substances Control Act.  Many states have also adopted laws for the protection of the environment which may affect us, including laws governing the generation, handling, transportation and disposition of hazardous substances and laws governing the investigation and cleanup of, and liability for, contaminated sites.  Some of these state provisions are broader and more stringent than existing federal law and regulations.  Our failure to conform our services to the requirements of any of these other applicable federal or state laws could subject us to substantial liabilities which could have a material adverse effect on us, our operations and financial condition.  In addition to various federal, state and local environmental regulations, our hazardous waste transportation activities are regulated by the U.S. Department of Transportation, the Interstate Commerce Commission and transportation regulatory bodies in the states in which we operate. We cannot predict the extent to which we may be affected by any law or rule that may be enacted or enforced in the future, or any new or different interpretations of existing laws or rules.

Insurance
We believe we maintain insurance coverage adequate for our needs and similar to, or greater than, the coverage maintained by other companies of our size in the industry.  There can be no assurances, however, that liabilities, which we may incur will be covered by our insurance or that the dollar amount of such liabilities, which are covered will not exceed our policy limits.  Under our insurance contracts, we usually accept self-insured retentions, which we believe is appropriate for our specific business risks.  We are required by EPA regulations to carry environmental impairment liability insurance providing coverage for damages on a claims-made basis in amounts of at least $1,000,000 per occurrence and $2,000,000 per year in the aggregate.  To meet the requirements of customers, we have exceeded these coverage amounts.



In June 2003, we entered into a 25-year finite risk insurance policy with AIG (see “Part I, Item 1A. - Risk Factors” for certain potential risk related to 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 provides a maximum $35,000,000 of financial assurance coverage, and thus far has provided $32,515,000 in financial assurance as of December 31, 2008.  In March 2009, we increased our maximum policy coverage to $39,000,000 in order to secure additional financial assurance coverage requirement for our DSSI subsidiary to commercially store and dispose of PCB wastes under a permit issued by theEPA on November 26, 2008.  As a result of this additional financial assurance requirement for our DSSI permit, our coverage under this policy totals approximately $37,936,000.
  
In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility, which we acquired in June 2007, with AIG (see “Part I, Item 1A. - Risk Factors” for certain potential risk related to AIG).  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.

RISK FACTORS
 
The following are certain risk factors that could affect our business, financial performance, and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Form 10-K, as the forward-looking statements are based on current expectations, and actual results and conditions could differ materially from the current expectations.  Investing in our securities involves a high degree of risk, and before making an investment decision, you should carefully consider these risk factors as well as other information we include or incorporate by reference in the other reports we file with the Securities and Exchange Commission (“SEC”).

Risks Relating to our Operations

Our insurer that provides our financial assurance that we are required to have in order to operate our permitted treatment, storage and disposal facility has experienced financial difficulties.
It has been publicly reported that American International Group, Inc. (“AIG”), has experienced significant financial difficulties and is continuing to experience significant financial difficulties.  A subsidiary of AIG provides our finite risk insurance policies which provide financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure.  We are required to provide and to maintain financial assurance that guarantees to the state that in the event of closure of our permitted facilities will be closed in accordance with the regulations.  The policies provide a maximum of $35,000,000 of financial assurance coverage of which the coverage amount totals $32,515,000 at December 31, 2008.  In March 2009, the policies were increased to provide a maximum of $39,000,000 of financial assurance coverage of which the coverage amounts totals $37,936,000.  This additional increase was the result of additional financial assurance coverage requirement for our DSSI subsidiary to commercially store and dispose of PCB wastes under a permit issued by theEPA on November 26, 2008.  The AIG subsidiary also provides other operating insurance policies for the Company and our subsidiaries.  In the event of a failure of AIG, this could materially impact our operations and our permits which we are required to have in order to operate our treatment, storage, and disposal facilities.

If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.
Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services.  Such claims could be substantial.  We believe that our insurance coverage is presently adequate and similar to, or greater than, the coverage maintained by other companies in the industry of our size.  If we are unable to obtain adequate or required insurance coverage in the future, or if our insurance is not available at affordable rates, we would violate our permit conditions and other requirements of the


environmental laws, rules, and regulations under which we operate.  Such violations would render us unable to continue certain of our operations.  These events would have a material adverse effect on our financial condition.

The inability to maintain existing government contracts or win new government contracts over an extended period could have a material adverse effect on our operations and adversely affect our future revenues.
A material amount of our Nuclear Segment's revenues are generated through various U.S. government contracts or subcontracts involving the U.S. government.  Our revenues from governmental contracts and subcontracts relating to governmental facilities within our Nuclear Segment were approximately $43,464,000 and $30,000,000, representing 57.6% and 46.5%, respectively, of our consolidated operating revenues from continuing operations for 2008 and 2007.  Most of our government contracts or our subcontracts granted under government contracts are awarded through a regulated competitive bidding process. Some government contracts are awarded to multiple competitors, which increase overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these government contracts. All contracts with, or subcontracts involving, the federal government are terminable, or subject to renegotiation, by the applicable governmental agency on 30 days notice, at the option of the governmental agency.  If we fail to maintain or replace these relationships, or if a material contract is terminated or renegotiated in a manner that is materially adverse to us, our revenues and future operations could be materially adversely affected.

Failure of our Nuclear Segment to be profitable could have a material adverse effect.
Our Nuclear Segment has historically been profitable.  With the divestitures of certain facilities within our Industrial Segment and the acquisition of our Perma-Fix Northwest Richland, Inc. (“PFNWR”) within our Nuclear Segment in June 2007, the Nuclear Segment represents the Company’s largest revenue segment. The Company’s main objectives are to increase focus on the efficient operation of our existing facilities within our Nuclear Segment and to further evaluate strategic acquisitions within the Nuclear Segment.  If our Nuclear Segment fails to continue to be profitable in the future, this could have a material adverse effect on the Company’s results of operations, liquidity and our potential growth.

Our existing and future customers may reduce or halt their spending on nuclear services with outside vendors, including us.
A variety of factors may cause our existing or future customers (including the federal government) to reduce or halt their spending on nuclear services from outside vendors, including us. These factors include, but are not limited to:

 
·
accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities or involving shipments of nuclear materials;
 
·
failure of the federal government to approve necessary budgets, or to reduce the amount of the budget necessary, to fund remediation of DOE and DOD sites;
 
·
civic opposition to or changes in government policies regarding nuclear operations; or
 
·
a reduction in demand for nuclear generating capacity.

These events could result in or cause the federal government to terminate or cancel its existing contracts involving us to treat, store or dispose of contaminated waste at one or more of the federal sites since all contracts with, or subcontracts involving, the federal government are terminable upon or subject to renegotiation at the option of the government on 30 days notice.  These events also could adversely affect us to the extent that they result in the reduction or elimination of contractual requirements, lower demand for nuclear services, burdensome regulation, disruptions of shipments or production, increased operational costs or difficulties or increased liability for actual or threatened property damage or personal injury.


Economic downturns (ie: the current economic recession) and/or reductions in government funding could have a material negative impact on our businesses.
Demand for our services has been, and we expect that demand will continue to be, subject to significant fluctuations due to a variety of factors beyond our control, including the current economic recession and conditions, inability of the federal government to adopt its budget or reductions in the budget for spending to remediate federal sites due to numerous reasons, including, without limitation, the substantial deficits that the federal government has and is continuing to incur.  During economic downturns, such as the current economic recession, and large budget deficits that the federal government and many states are experiencing, the ability of private and government entities to spend on nuclear services may decline significantly.  Although the recently adopted economic stimulus package provides for substantial funds to remediate federal nuclear sites, we cannot be certain that economic or political conditions will be generally favorable or that there will not be significant fluctuations adversely affecting our industry as a whole.  In addition, our operations depend, in large part, upon governmental funding, particularly funding levels at the DOE.  Significant reductions in the level of governmental funding (for example, the annual budget of the DOE) or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows.

The loss of one or a few customers could have an adverse effect on us.
One or a few governmental customers or governmental related customers have in the past, and may in the future, account for a significant portion of our revenue in any one year or over a period of several consecutive years.  Because customers generally contract with us for specific projects, we may lose these significant customers from year to year as their projects with us are completed. Our inability to replace the business with other projects could have an adverse effect on our business and results of operations.

As a government contractor, we are subject to extensive government regulation, and our failure to comply with applicable regulations could subject us to penalties that may restrict our ability to conduct our business.
Our governmental contracts, which are primarily with the DOE or subcontracts relating to DOE sites, are a significant part of our business.  Allowable costs under U.S. government contracts are subject to audit by the U.S. government.  If these audits result in determinations that costs claimed as reimbursable are not allowed costs or were not allocated in accordance with applicable regulations, we could be required to reimburse the U.S. government for amounts previously received.

Governmental contracts or subcontracts involving governmental facilities are often subject to specific procurement regulations, contract provisions and a variety of other requirements relating to the formation, administration, performance and accounting of these contracts.  Many of these contracts include express or implied certifications of compliance with applicable regulations and contractual provisions.  If we fail to comply with any regulations, requirements or statutes, our existing governmental contracts or subcontracts involving governmental facilities could be terminated or we could be suspended from government contracting or subcontracting.  If one or more of our governmental contracts or subcontracts are terminated for any reason, or if we are suspended or debarred from government work, we could suffer a significant reduction in expected revenues and profits. Furthermore, as a result of our governmental contracts or subcontracts involving governmental facilities, claims for civil or criminal fraud may be brought by the government or violations of these regulations, requirements or statutes.

Loss of certain key personnel could have a material adverse effect on us.
Our success depends on the contributions of our key management, environmental and engineering personnel, especially Dr. Louis F. Centofanti, Chairman, President, and Chief Executive Officer.  The loss of Dr. Centofanti could have a material adverse effect on our operations, revenues, prospects, and our ability to raise additional funds.  Our future success depends on our ability to retain and expand our staff of qualified personnel, including environmental specialists and technicians, sales personnel, and engineers. Without qualified personnel, we may incur delays in rendering our services or be unable to render certain services.  We cannot be certain that we will be successful in our efforts to attract and retain qualified personnel as their availability is limited due to the demand for hazardous waste management services and


the highly competitive nature of the hazardous waste management industry.  We do not maintain key person insurance on any of our employees, officers, or directors.

Changes in environmental regulations and enforcement policies could subject us to additional liability and adversely affect our ability to continue certain operations.
We cannot predict the extent to which our operations may be affected by future governmental enforcement policies as applied to existing laws, by changes to current environmental laws and regulations, or by the enactment of new environmental laws and regulations.  Any predictions regarding possible liability under such laws are complicated further by current environmental laws which provide that we could be liable, jointly and severally, for certain activities of third parties over whom we have limited or no control.

The refusal to accept our waste for disposal by, or a closure of, the end disposal site that our Nuclear Segment utilizes to dispose of its waste could subject us to significant risk and limit our operations.
Our Nuclear Segment has limited options available for disposal of its waste. If this disposal site ceases to accept waste or closes for any reason or refuses to accept the waste of our Nuclear Segment, for any reason, we could have nowhere to dispose of our nuclear waste or have significantly increased costs from disposal alternatives. With nowhere to dispose of our nuclear waste, we would be subject to significant risk from the implications of storing the waste on our site, and we would have to limit our operations to accept only waste that we can dispose of.

Our businesses subject us to substantial potential environmental liability.
Our business of rendering services in connection with management of waste, including certain types of hazardous waste, low-level radioactive waste, and mixed waste (waste containing both hazardous and low-level radioactive waste), subjects us to risks of liability for damages. Such liability could involve, without limitation:
 
 
·
claims for clean-up costs, personal injury or damage to the environment in cases in which we are held responsible for the release of hazardous or radioactive materials; and
 
·
claims of employees, customers, or third parties for personal injury or property damage occurring in the course of our operations; and
 
·
claims alleging negligence or professional errors or omissions in the planning or performance of our services.
 
Our operations are subject to numerous environmental laws and regulations. We have in the past, and could in the future, be subject to substantial fines, penalties, and sanctions for violations of environmental laws and substantial expenditures as a responsible party for the cost of remediating any property which may be contaminated by hazardous substances generated by us and disposed at such property, or transported by us to a site selected by us, including properties we own or lease.

As our operations expand, we may be subject to increased litigation, which could have a negative impact on our future financial results.
Our operations are highly regulated and we are subject to numerous laws and regulations regarding procedures for waste treatment, storage, recycling, transportation, and disposal activities, all of which may provide the basis for litigation against us. In recent years, the waste treatment industry has experienced a significant increase in so-called “toxic-tort” litigation as those injured by contamination seek to recover for personal injuries or property damage.  We believe that, as our operations and activities expand, there will be a similar increase in the potential for litigation alleging that we have violated environmental laws or regulations or are responsible for contamination or pollution caused by our normal operations, negligence or other misconduct, or for accidents, which occur in the course of our business activities.  Such litigation, if significant and not adequately insured against, could adversely affect our financial condition and our ability to fund our operations.  Protracted litigation would likely cause us to spend significant amounts of our time, effort, and money. This could prevent our management from focusing on our operations and expansion.
 

Our operations are subject to seasonal factors, which cause our revenues to fluctuate.
We have historically experienced reduced revenues and losses during the first and fourth quarters of our fiscal years due to a seasonal slowdown in operations from poor weather conditions, overall reduced activities during these periods resulting from holiday periods, and finalization of government budgets during the fourth quarter of each year.  During our second and third fiscal quarters there has historically been an increase in revenues and operating profits.  If we do not continue to have increased revenues and profitability during the second and third fiscal quarters, this will have a material adverse effect on our results of operations and liquidity.

If environmental regulation or enforcement is relaxed, the demand for our services will decrease.
The demand for our services is substantially dependent upon the public's concern with, and the continuation and proliferation of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous, non-hazardous, and low-level radioactive waste.  A decrease in the level of public concern, the repeal or modification of these laws, or any significant relaxation of regulations relating to the treatment, storage, recycling, and disposal of hazardous waste and low-level radioactive waste would significantly reduce the demand for our services and could have a material adverse effect on our operations and financial condition. We are not aware of any current federal or state government or agency efforts in which a moratorium or limitation has been, or will be, placed upon the creation of new hazardous or radioactive waste regulations that would have a material adverse effect on us; however, no assurance can be made that such a moratorium or limitation will not be implemented in the future.

We and our customers operate in a politically sensitive environment, and the public perception of nuclear power and radioactive materials can affect our customers and us.
We and our customers operate in a politically sensitive environment. Opposition by third parties to particular projects can limit the handling and disposal of radioactive materials.  Adverse public reaction to developments in the disposal of radioactive materials, including any high profile incident involving the discharge of radioactive materials, could directly affect our customers and indirectly affect our business. Adverse public reaction also could lead to increased regulation or outright prohibition, limitations on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse impact on our customers’ and our business.

We may not be successful in winning new business mandates from our government and commercial customers.
We must be successful in winning mandates from our government and commercial customers to replace revenues from projects that are nearing completion and to increase our revenues. Our business and operating results can be adversely affected by the size and timing of a single material contract.

The elimination or any modification of the Price-Anderson Acts indemnification authority could have adverse consequences for our business.
The Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the manufacture, use, and storage of radioactive materials.  The Price-Anderson Act supports the nuclear services industry by offering broad indemnification to DOE contractors for liabilities arising out of nuclear incidents at DOE nuclear facilities.  That indemnification protects DOE prime contractor, but also similar companies that work under contract or subcontract for a DOE prime contract or transporting radioactive material to or from a site.  The indemnification authority of the DOE under the Price-Anderson Act was extended through 2025 by the Energy Policy Act of 2005.

The Price-Anderson Act’s indemnification provisions generally do not apply to our processing of radioactive waste at governmental facilities, and do not apply to liabilities that we might incur while performing services as a contractor for the DOE and the nuclear energy industry.  If an incident or evacuation is not covered under Price-Anderson Act indemnification, we could be held liable for damages, regardless of fault, which could have an adverse effect on our results of operations and financial condition. If such indemnification authority is not applicable in the future, our business could be adversely affected if the owners and operators of new facilities fail to retain our services in the absence of commercial adequate insurance and indemnification.
 

We are engaged in highly competitive businesses and typically must bid against other competitors to obtain major contracts.
We are engaged in highly competitive business in which most of our government contracts and some of our commercial contracts are awarded through competitive bidding processes.  We compete with national and regional firms with nuclear services practices, as well as small or local contractors.  Some of our competitors have greater financial and other resources than we do, which can give them a competitive advantage.  In addition, even if we are qualified to work on a new government contract, we might not be awarded the contract because of existing government policies designed to protect certain types of businesses and underrepresented minority contractors.  Competition also places downward pressure on our contract prices and profit margins.  Intense competition is expected to continue for nuclear service contracts.  If we are unable to meet these competitive challenges, we could lose market share and experience on overall reduction in our profits.

Our failure to maintain our safety record could have an adverse effect on our business.
Our safety record is critical to our reputation. In addition, many of our government and commercial customers require that we maintain certain specified safety record guidelines to be eligible to bid for contracts with these customers.  Furthermore, contract terms may provide for automatic termination in the event that our safety record fails to adhere to agreed-upon guidelines during performance of the contract.  As a result, our failure to maintain our safety record could have a material adverse effect on our business, financial condition and results of operations.

We continue to have material weaknesses in our Internal Control over Financial Reporting (“ICFR”).
During our evaluation of our ICFR, we noted that the monitoring of invoicing process controls and the corresponding transportation and disposal process controls at our Industrial Segment subsidiaries were ineffective and were not being applied consistently.  In addition, we noted that the monitoring of quote to invoicing control was ineffective at certain of our Nuclear Segment subsidiaries.  These deficiencies resulted in material weaknesses to our ICFR, and could result in sales being priced and invoiced at amounts which were not approved by the customer, or the appropriate level of management, and recognition of revenue in incorrect financial reporting period.  These deficiencies have resulted in our disclosure that our ICFR was ineffective as of the end of 2008 and 2007.  Although these material weaknesses did not result in a material adjustment to our quarterly or annual financial statements, if we are unable to remediate these material weaknesses, there is a reasonable possibility that a misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We may be unable to utilize loss carryforwards in the future.
We have approximately $26,589,000 in net operating loss carryforwards which will expire from 2009 to 2028 if not used against future federal income tax liabilities.  Our net loss carryforwards are subject to various limitations.  Our ability to use the net loss carryforwards depends on whether we are able to generate sufficient income in the future years.  Further, our net loss carryforwards have not been audited or approved by the Internal Revenue Service.

Risks Relating to our Intellectual Property

If we cannot maintain our governmental permits or cannot obtain required permits, we may not be able to continue or expand our operations.
We are a waste management company. Our business is subject to extensive, evolving, and increasingly stringent federal, state, and local environmental laws and regulations. Such federal, state, and local environmental laws and regulations govern our activities regarding the treatment, storage, recycling, disposal, and transportation of hazardous and non-hazardous waste and low-level radioactive waste.  We must obtain and maintain permits or licenses to conduct these activities in compliance with such laws and regulations.  Failure to obtain and maintain the required permits or licenses would have a material adverse effect on our operations and financial condition.  If any of our facilities are unable to maintain currently held permits or licenses or obtain any additional permits or licenses which may be required to conduct its operations, we may not be able to continue those operations at these facilities, which could have a material adverse effect on us.
 

We believe our proprietary technology is important to us.
We believe that it is important that we maintain our proprietary technologies. There can be no assurance that the steps taken by us to protect our proprietary technologies will be adequate to prevent misappropriation of these technologies by third parties.  Misappropriation of our proprietary technology could have an adverse effect on our operations and financial condition.  Changes to current environmental laws and regulations also could limit the use of our proprietary technology.

Risks Relating to our Financial Position and Need for Financing

Breach of financial covenants in existing credit facility could result in a default, triggering repayment of outstanding debt under the credit facility.

Our credit facility with our bank contains financial covenants. A breach of any of these covenants could result in a default under our credit facility triggering our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments to extend further credit. In the past, none of our covenants have been restrictive to our operations.  If we fail to meet our loan covenants in the future and our lender does not waive the non-compliance or revise our covenant so that we are in compliance, our lender could accelerate the repayment of borrowings under our credit facility.  In the event that our lender accelerates the payment of our borrowing, we may not have sufficient liquidity to repay our debt under our credit facility and other indebtedness.

Our amount of debt and floating rates of interest could adversely affect our operations.
At December 31, 2008, our aggregate consolidated debt was approximately $16,203,000. If our floating rates of interest experienced an upward increase of 1%, our debt service would increase by approximately $162,000 annually.  Our secured revolving credit facility (the “Credit Facility”) provides for an aggregate commitment of $25,000,000, consisting of an $18,000,000 revolving line of credit and a term loan of $7,000,000.  The maximum we can borrow under the revolving part of the Credit Facility is based on a percentage of the amount of our eligible receivables outstanding at any one time.  As of December 31, 2008, we had borrowings under the revolving part of our Credit Facility of $6,500,000 and borrowing availability of up to an additional $5,400,000 based on our outstanding eligible receivables.   A lack of operating results could have material adverse consequences on our ability to operate our business.  Our ability to make principal and interest payments, or to refinance indebtedness, will depend on both our and our subsidiaries' future operating performance and cash flow. Prevailing economic conditions, interest rate levels, and financial, competitive, business, and other factors affect us.  Many of these factors are beyond our control.

Risks Relating to our Common Stock

Issuance of substantial amounts of our Common Stock could depress our stock price.
Any sales of substantial amounts of our Common Stock in the public market could cause an adverse effect on the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities.  The issuance of our Common Stock will result in the dilution in the percentage membership interest of our stockholders and the dilution in ownership value.  As of December 31, 2008, we had 53,934,560 shares of Common Stock outstanding.

In addition, as of December 31, 2008, we had outstanding options to purchase 3,417,347 shares of Common Stock at exercise prices from $1.22 to $2.98 per share.  Further, we have adopted a preferred share rights plan, and if such is triggered, could result in the issuance of a substantial amount of our Common Stock.    The existence of this quantity of rights to purchase our Common Stock could result in a significant dilution in the percentage ownership interest of our stockholders and the dilution in ownership value.  Future sales of the shares issuable could also depress the market price of our Common Stock.
 

We do not intend to pay dividends on our Common Stock in the foreseeable future.
Since our inception, we have not paid cash dividends on our Common Stock, and we do not anticipate paying any cash dividends in the foreseeable future.  Our Credit Facility prohibits us from paying cash dividends on our Common Stock.

The price of our Common Stock may fluctuate significantly, which may make it difficult for our stockholders to resell our Common Stock when a stockholder wants or at prices a stockholder finds attractive.
The price of our Common Stock on the Nasdaq Capital Markets constantly changes. We expect that the market price of our Common Stock will continue to fluctuate. This may make it difficult for our stockholders to resell the Common Stock when a stockholder wants or at prices a stockholder finds attractive.

Future issuance or potential issuance of our Common Stock could adversely affect the price of our Common Stock, our ability to raise funds in new stock offerings, and dilute our shareholders percentage interest in our Common Stock.

Future sales of substantial amounts of our Common Stock in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our Common Stock, and impair our ability to raise capital through future offerings of equity.  No prediction can be made as to the effect, if any, that future issuances or sales of shares of Common Stock or the availability of shares of Common Stock for future issuance, will have on the trading price of our Common Stock.  Such future issuances could also significantly reduce the percentage ownership and dilute the ownership value of our existing common stockholders.

Delaware law, certain of our charter provisions, our stock option plans, outstanding warrants and our Preferred Stock may inhibit a change of control under circumstances that could give you an opportunity to realize a premium over prevailing market prices.

We are a Delaware corporation governed, in part, by the provisions of Section 203 of the General Corporation Law of Delaware, an anti-takeover law. In general, Section 203 prohibits a Delaware public corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. As a result of Section 203, potential acquirers may be discouraged from attempting to effect acquisition transactions with us, thereby possibly depriving our security holders of certain opportunities to sell, or otherwise dispose of, such securities at above-market prices pursuant to such transactions. Further, certain of our option plans provide for the immediate acceleration of, and removal of restrictions from, options and other awards under such plans upon a “change of control” (as defined in the respective plans). Such provisions may also have the result of discouraging acquisition of us.

We have authorized and unissued 17,648,093 (which include outstanding options to purchase 3,417,347 shares of our Common Stock) shares of Common Stock and 2,000,000 shares of Preferred Stock as of December 31, 2008 (which includes 600,000 shares of our Preferred Stock reserved for issuance under our preferred share rights plan).  These unissued shares could be used by our management to make it more difficult, and thereby discourage an attempt to acquire control of us.

Our Preferred Share Rights Plan may adversely affect our stockholders.
In May 2008, we adopted a preferred share rights plan (the “Rights Plan”), designed to ensure that all of our stockholders receive fair and equal treatment in the event of a proposed takeover or abusive tender offer. However, the Rights Plan may also have the effect of deterring, delaying, or preventing a change in control that might otherwise be in the best interests of our stockholders.
 

In general, under the terms of the Rights Plan, subject to certain limited exceptions, if a person or group acquires 20% or more of our Common Stock or a tender offer or exchange offer for 20% or more of our Common Stock is announced or commenced, our other stockholders may receive upon exercise of the rights (the “Rights”) issued under the Rights Plan the number of shares our Common Stock or of one-one hundredths of a share of our Series A Junior Participating Preferred Stock, par value $.001 per share, having a value equal to two times the purchase price of the Right.  In addition, if we are acquired in a merger or other business combination transaction in which we are not the survivor or more than 50% of our assets or earning power is sold or transferred, then each holder of a Right (other than the acquirer) will thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the Right.  The purchase price of each Right is $13, subject to adjustment.

The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors. The Rights may be redeemed by us at $0.001 per Right at any time before any person or group acquires 20% or more of our outstanding common stock.  The rights should not interfere with any merger or other business combination approved by our board of directors. The Rights expire on May 2, 2018. 

UNRESOLVED STAFF COMMENTS
 
None

PROPERTIES
 
Our principal executive office is in Atlanta, Georgia.  Our Operations Headquarters is located in Oak Ridge, Tennessee.  Our Nuclear Segment facilities are located in Gainesville, Florida; Kingston, Tennessee; Oak Ridge, Tennessee, and in Richland, Washington.  Our Consulting Engineering Services is located in Ellisville, Missouri.  Our Industrial Segment facilities are located in Orlando and Ft. Lauderdale, Florida; and Valdosta, Georgia.  Our Industrial Segment also has two non-operational facilities: Brownstown, Michigan, where we still maintain the property; and Pittsburgh, Pennsylvania, for which the leased property was released back to the owner in 2006 upon final remediation of the leased property.

We operate eight facilities.  All of the facilities are in the United States.  Five of our facilities are subject to mortgages as granted to our senior lender (Kingston, Tennessee; Gainesville, Florida; Richland, Washington; Fort Lauderdale, Florida; and Orlando, Florida).

We also lease properties for office space, all of which are located in the United States as described above.  Included in our leased properties is M&EC's 150,000 square-foot facility, located on the grounds of the DOE East Tennessee Technology Park located in Oak Ridge, Tennessee.

We believe that the above facilities currently provide adequate capacity for our operations and that additional facilities are readily available in the regions in which we operate, which could support and supplement our existing facilities.

LEGAL PROCEEDINGS
 
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 Partially 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.
 

As of the date of this report, Louisiana DEQ (“LDEQ”) has collected approximately $8,400,000 for the remediation of the site and has completed removal of above ground waste from the site.  The EPA’s unofficial estimate to complete remediation of the site is between $9,000,000 and $12,000,000; however, based on preliminary outside consulting work hired by the PRP group, which we are a party to, the remediation costs can be below EPA’s estimation.  The PRP Group has established a cooperative relationship with LDEQ and EPA, and is working closely with these agencies to assure that the funds held by LDEQ are used cost-effective.  As a result of recent negotiations with LDEQ and EPA, further remediation work by LDEQ has been put on hold pending completion of a site assessment by the PRP Group.  This site assessment could result in remediation activities to be completed within the funds held by LDEQ.  As part of the PRP Group, we have paid an initial assessment of $10,000 in the fourth quarter of 2007, which was allocated among the facilities. In addition, we accrued approximately $27,000 in the third quarter of 2008 for our estimated portion of the cost of the site assessment, which was allocated among the facilities.  Approximately $9,000 of the accrued amount was paid to the PRP Group in the fourth quarter of 2008.  As of the date of this report, we cannot accurately access our total 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.

Notice of Violation - Perma-Fix Treatment Services, Inc. (“PFTS”)
In July 2008, PFTS received a notice of violation (“NOV”) from the Oklahoma Department of Environmental Quality (“ODEQ”) alleging that eight loads of waste materials received by PFTS between January 2007 and July 2007 were improperly analyzed to assure that the treatment process rendered the waste non-hazardous before disposition in PFTS’ non-hazardous injection well.  The ODEQ alleges the handling of these waste materials violated regulations regarding hazardous waste.  The ODEQ did not assert any penalties against PFTS in the NOV and requested PFTS to respond within 30 days from receipt of the letter.  PFTS responded on August 22, 2008 and is currently in settlement discussions with the ODEQ.  PFTS sold most all of its assets to a non-affiliated third party on May 30, 2008.

Industrial Segment Divested Facilities/Operations
We sold substantially all of the assets of PFTS pursuant to an Asset Purchase Agreement on May 30, 2008.  Under this Agreement the buyer assumed certain debts and obligations of PFTS, including, but not limited to, certain debts and obligations of PFTS to regulatory authorities under certain consent agreements entered into by PFTS with the appropriate regulatory authority to remediate portions of the facility sold to the buyer.  If any of these liabilities/obligations are not paid or preformed by the buyer, the buyer would be in breach of the Asset Purchase Agreement and we may assert claims against the buyer for such breach.  We currently are discussing with the buyer of the PFTS’ assets regarding certain liabilities which the buyer assumed and agreed to pay but which the buyer has refused to satisfy as of the date of this report.   In addition, the buyer of the PFTS assets is required to replace our financial assurance bond with its own financial assurance mechanism for facility closures.  Our financial assurance bond of $685,000 for PFTS was required to remain in place until the buyer has provided replacement coverage.  The respective regulatory authority will not release us from our financial assurance obligations until the buyer complies with the appropriate financial assurance regulations.   On March 24, 2009, the respective regulatory authority authorized the release of our financial assurance bond of $685,000 for PFTS.  The buyer of PFTS’ assets has provided its own financial assurance bond which was approved by the respective regulatory authority.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None
 
 
 
EXECUTIVE OFFICERS OF  THE REGISTRANT
 
The following table sets forth, as of the date hereof, information concerning our executive officers:

NAME
 
AGE
 
POSITION
Dr. Louis F. Centofanti
 
65
 
Chairman of the Board, President and Chief Executive Officer
Mr. Larry McNamara
 
59
 
Chief Operating Officer
Mr. Robert Schreiber, Jr.
 
58
 
President of SYA, Schreiber, Yonley & Associates, a subsidiary of the Company, and Principal Engineer
Mr. Ben Naccarato
 
46
 
Chief Financial Officer, Vice President, and Secretary

Dr. Louis F. Centofanti
Dr. Centofanti has served as Chairman of the Board since he joined the Company in February 1991.  Dr. Centofanti also served as President and Chief Executive Officer of the Company from February 1991 until September 1995 and again in March 1996 was elected to serve as President and Chief Executive Officer of the Company.  From 1985 until joining the Company, Dr. Centofanti served as Senior Vice President of USPCI, Inc., a large hazardous waste management company, where he was responsible for managing the treatment, reclamation and technical groups within USPCI.  In 1981 he founded PPM, Inc., a hazardous waste management company specializing in the treatment of PCB contaminated oils, which was subsequently sold to USPCI.  From 1978 to 1981, Dr. Centofanti served as Regional Administrator of the U.S. Department of Energy for the southeastern region of the United States.  Dr. Centofanti has a Ph.D. and a M.S. in Chemistry from the University of Michigan, and a B.S. in Chemistry from Youngstown State University.

Mr. Larry McNamara
Mr. McNamara has served as Chief Operating Officer since October 2005.  From October 2000 to October 2005, he served as President of the Nuclear Waste Management Services Segment.  From December 1998 to October 2000, he served as Vice President of the Company's Nuclear Waste Management Services Segment.  Between 1997 and 1998, he served as Mixed Waste Program Manager for Waste Control Specialists (WCS) developing plans for the WCS mixed waste processing facilities, identifying markets and directing proposal activities.  Between 1995 and 1996, Mr. McNamara was the single point of contact for the DOD to all state and federal regulators for issues related to disposal of Low Level Radioactive Waste and served on various National Committees and advisory groups. Mr. McNamara served, from 1992 to 1995, as Chief of the Department of Defense Low Level Radioactive Waste office.  Between 1986 and 1992, he served as the Chief of Planning for the Department of Army overseeing project management and program policy for the Army program.  Mr. McNamara has a B.S. from the University of Iowa.

Mr. Robert Schreiber, Jr.
Mr. Schreiber has served as President of SYA since the Company acquired the environmental engineering firm in 1992. Mr. Schreiber co-founded the predecessor of SYA, Lafser & Schreiber in 1985, and served in several executive roles in the firm until our acquisition of SYA.  From 1978 to 1985, Mr. Schreiber served as Director of Air programs and all environmental programs for the Missouri Department of Natural Resources. Mr. Schreiber provides technical expertise in wide range of areas including the cement industry, environmental regulations and air pollution control.  Mr. Schreiber has a B.S. in Chemical Engineering from the University of Missouri – Columbia.

Mr. Ben Naccarato
Mr. Naccarato was named Chief Financial Officer by the Company’s Board of Directors on February 26, 2009.  Mr. Naccarato was appointed on October 24, 2008 by the Company’s Board of Directors as the Interim Chief Financial Officer, effective November 1, 2008.  Mr. Naccarato has been with the Company since September 2004 and has served as Vice President, Corporate Controller/Treasurer since May 2006.   Previous to serving as the Vice President, Corporate Controller/Treasurer, Mr. Naccarato served as Vice President, Finance of the Company’s Industrial Segment.  Prior to joining the Company in September 2004, Mr. Naccarato served as the CFO of Culp Petroleum Company, Inc., a privately held company in the fuel distribution and used waste oil industry from December 2002 to September 2004.  Mr. Naccarato is a


graduate of University of Toronto having received a Bachelor of Commerce and Finance Degree and is a Certified Management Accountant.

Resignation of Chief Financial Officer
On October 22, 2008, Mr. Steven Baughman, tendered his resignation as Chief Financial Officer, Vice President, and Secretary of the Board of Directors of the Company.  Mr. Baughman’s resignation from his positions and as an executive officer became effective October 31, 2008.

Certain Relationships
There are no family relationships between any of our Directors or executive officers. Dr. Centofanti is the only Director who is our employee.


PART II

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock, is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol “PESI”. The following table sets forth the high and low market trade prices quoted for the Common Stock during the periods shown.  The source of such quotations and information is the NASDAQ online trading history reports.
 
   
2008
   
2007
 
   
Low
   
High
   
Low
   
High
 
Common Stock
1st Quarter
  $ 1.49     $ 2.48     $ 2.07     $ 2.57  
 
2nd Quarter
    1.50       3.18       2.13       3.25  
 
3rd Quarter
    1.75       2.99       1.74       3.40  
 
4th Quarter
    .63       2.09       2.25       3.05  

As of March 9, 2009, there were approximately 265 stockholders of record of our Common Stock, including brokerage firms and/or clearing houses holding shares of our Common Stock for their clientele (with each brokerage house and/or clearing house being considered as one holder).  However, the total number of beneficial stockholders as of March 9, 2009, was approximately 3,249.

Since our inception, we have not paid any cash dividends on our Common Stock and have no dividend policy.  Our loan agreement prohibits paying any cash dividends on our Common Stock without prior approval from the lender.  We do not anticipate paying cash dividends on our outstanding Common Stock in the foreseeable future.

No sales of unregistered securities, other than the securities sold by us during 2008, as reported in our Forms 10-Q for the quarters ended March 31, 2008, June 30, 2008, and September 30, 2008,  which were not registered under the Securities Act of 1933, as amended, were issued during 2007.  There were no purchases made by us or on behalf of us or any of our affiliated members of shares of our Common Stock during the last quarter of 2008.

Preferred Share Rights Plan
In May 2008, we adopted a shareholder rights plan which will impact a potential acquirer unless the acquirer negotiates with our Board of Directors and the Board of Directors approves the transaction.  The rights plan has a 10 year term.  Pursuant to this plan, one preferred share purchase right (a “Right”) is attached to each currently outstanding or subsequently issued share of our Common Stock.  Prior to becoming exercisable, the Rights trade together with our Common Stock.  In general, the Rights will become exercisable if a person or group (other than the acquirer) acquires or announces a tender or exchange offer for 20% or more of our Common Stock.  Each Right entitles the holder to purchase from us one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Preferred Stock”), at an exercise price of $13 per one one-hundredth of a share, subject to adjustment.  If a person or group acquires 20% or more of our Common Stock, each Right will entitle the holder (other than the acquirer) to purchase shares of our Common Stock (or, in certain circumstances, cash or other securities) having a market value of twice the exercise price of a Right at such time.  Under certain circumstances, each Right will entitle the holder (other than the acquirer) to purchase the common stock of the acquirer having a market value of twice the exercise price of a Right at such time.  In addition, under certain circumstances, our Board of Directors may exchange each Right (other than those held by the acquirer) for one share of our Common Stock, subject to adjustment.  If the Rights become exercisable, holders of our Common Stock (other than the acquirer), will receive the number of Rights they would have received if their units had been redeemed and the purchase price paid in our Common Stock.  Our Board of Directors may redeem the Rights at a price of $0.001 per Right generally at any time before 10 days after the Rights become exercisable.



Common Stock Price Performance Graph
The following Common Stock price performance graph compares the yearly change in the Company’s cumulative total stockholders’ returns on the Common Stock during the years 2004 through 2008, with the cumulative total return of the NASDAQ Market Index and the published industry index prepared by Hemscott and known as Hemscott Industry Group 637-Waste Management Index (“Industry Index”) assuming the investment of $100 on January 1, 2004.

The stockholder returns shown on the graph below are not necessarily indicative of future performance, and we will not make or endorse any predications as to future stockholder returns.
 
 
 
Assumes $100 invested in the Company on January 1, 2004, the Industry Index and the NASDAQ Market Index, and the reinvestment of dividends. The above five-year Cumulative Total Return Graph shall not be deemed to be “soliciting material” or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference by any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 (collectively, the “Acts”) or be subject to the liabilities under Section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not be deemed to be soliciting material or to be filed under such Acts.
 

 
SELECTED FINANCIAL DATA
 
The financial data included in this table has been derived from our audited consolidated financial statements, which have been audited by BDO Seidman, LLP.  In 2007, as a result of the Company’s decision to divest the facilities within our Industrial Segment, our Industrial Segment facilities were reclassified (with the exception of PFMI and PFP which were already reclassified as discontinued operations in 2004 and 2005, respectively) in our discontinued operations, in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144.  As a result of the Company’s decision to retain PFFL, PFSG, and PFO within the Industrial Segment in September 2008, the Company’s previously reported Consolidated Statement of Operations data for the years noted below have been restated to reflect the reclassification of these three facilities/operations back into our continuing operations from discontinued operations, in accordance with SFAS No. 144.  Certain prior year amounts have been reclassified to conform with current year presentations.  Amounts are in thousands, except for per share amounts.   The information set forth below should be read in conjunction with “Management’s Discussion Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of the Company and the notes thereto included elsewhere herein.

Statement of Operations Data:
 
   
2008(1)
   
2007(1)(2)
   
2006(1)
   
2005
   
2004(3)
 
Revenues
  $ 75,504     $ 64,544     $ 68,205     $ 68,833     $ 61,912  
Income (loss) from continuing operations
    920       (2,380 )     5,422       4,067       (3,170 )
Loss from discontinued operations, net of taxes
    (1,332 )     (6,830 )     (711 )     (328 )     (16,191 )
Gain on disposal of discontinued operations, net of taxes
    2,323       ¾       ¾       ¾       ¾  
Net income (loss)
    1,911       (9,210 )     4,711       3,739       (19,361 )
Preferred stock dividends
    ¾       ¾       ¾       (156 )     (190 )
Net income (loss) applicable to Common Stockholders
    1,911       (9,210 )     4,711       3,583       (19,551 )
Income (loss) per common share - Basic
                                       
Continuing operations
    .02       (.05 )     .11       .09       (.08 )
Discontinued operations
    (.02 )     (.13 )     (.01 )     (.01 )     (.40 )
Disposal of discontinued operations
    .04       ¾       ¾       ¾       ¾  
Net income (loss) per share
    .04       (.18 )     .10       .08       (.48 )
Income (loss) per common share - Diluted
                                       
Continuing operations
    .02       (.05 )     .11       .09       (.08 )
Discontinued operations
    (.02 )     (.13 )     (.01 )     (.01 )     (.40 )
Disposal of discontinued operations
    .04       ¾       ¾       ¾       ¾  
Net income (loss) per share
    .04       (.18 )     .10       .08       (.48 )
Basic number of shares used in computing
                                       
net income (loss) per share
    53,803       52,549       48,157       42,605       40,478  
Diluted number of shares and potential
                                       
common shares used in computing
                                       
net income (loss) per share
    54,003       52,549       48,768       44,804       40,478  


 
Balance Sheet Data:
 
   
December 31,
 
   
2008
   
2007
   
2006
   
2005
   
2004
 
Working capital (deficit)
  $ (3,886 )   $ (17,154 )   $ 12,810     $ 5,916     $ (497 )
Total assets
    123,712       126,048       106,355       98,457       100,304  
Current and long-term debt
    16,203       18,836       8,329       13,375       18,956  
Total liabilities
    60,791       66,035       40,617       50,019       56,771  
Preferred Stock of subsidiary
    1,285       1,285       1,285       1,285       1,285  
Stockholders' equity
    61,636       58,728       64,453       47,153       42,248  
 
 
(1)
Includes recognized stock based compensation expense of $531,000, $457,000 and $338,000 for 2008, 2007 and 2006, respectively, pursuant to the adoption of SFAS 123R which became effective January 1, 2006.

 
(2)
Includes financial data of PFNWR acquired during 2007 and accounted for using the purchase method of accounting in which the results of operations are reported from the date of acquisition, June 13, 2007.

 
(3)
Includes financial data of PFMD and PFP acquired during 2004 and accounted for using the purchase method of accounting in which the results of operations are reported from the date of acquisition, March 23, 2004.




MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained within this “Management's Discussion and Analysis of Financial Condition and Results of Operations” 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”).  See “Special Note regarding Forward-Looking Statements” contained in this report.

Management's discussion and analysis is based, among other things, upon our audited consolidated financial statements and includes our accounts and the accounts of our wholly-owned subsidiaries, after elimination of all significant intercompany balances and transactions.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto included in Item 8 of this report.

Review
2008 was a turbulent year throughout the U.S economy, with the domestic recessionary environment which became evident during the latter part of 2008.  This turbulence impacted our results in 2008.  Demand for our services has been, and we expect that demand will continue to be, subject to significant fluctuations due to a variety of factors beyond our control, including the current economic recession and conditions, inability of the federal government to adopt its budget or reductions in the budget for spending to remediate federal sites due to numerous reasons, including, without limitation, the substantial deficits that the federal government has and is continuing to incur.  During economic downturns, such as the current economic recession, and large budget deficits that the federal government and many states are experiencing, the ability of private and government entities to spend on nuclear services may decline significantly.  Although the recently adopted economic stimulus package provides for substantial funds to remediate federal nuclear sites, we cannot be certain that economic or political conditions will be generally favorable or that there will not be significant fluctuations adversely affecting our industry as a whole.  In addition, our operations depend, in large part, upon governmental funding, particularly funding levels at the Department of Energy (“DOE”).  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 (for example, the annual budget of the DOE) or specifically mandated levels for different programs that are important to our business could have a material adverse impact on our business, financial position, results of operations and cash flows.

Within our Nuclear Segment, we generated revenue of $61,359,000, which included revenue of approximately $17,325,000 at our Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility acquired in June of 2007 and $7,095,000 of revenue generated from a subcontract awarded to us by the DOE’s general contractor CH Plateau Remediation Compay (“CHPRC”) to treat wastes at the Hanford Site.  This CHPRC subcontract became effective October 1, 2008.  In 2007, revenue from PFNWR accounted for $8,439,000 of our revenue within our Nuclear Segment.  Excluding revenue of PFNWR and CHPRC, our Nuclear Segment’s revenue decreased $6,326,000 or 14.6% due primarily to reduced receipts offset in part by higher priced wastes.  Our Industrial Segment generated $10,951,000 in revenue in 2008 as compared to $10,442,000 in 2007 or 4.9% increase.  This increase was primarily the result of oil sales which paralled the high price of oil globally in 2008.  Revenue in our Industrial Segment includes revenue of Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of South Georgia, Inc. (“PFSG”), and Perma-Fix of Orlando, Inc. (“PFO”).  In May 2007, our Board of Directors authorized the divestiture of our Industrial Segment.  In September 2008, our Board of Directors approved retaining the three facilities/operations at PFFL, PFSG, and PFO, which resulted in the reclassification of these three facilities/operations back into our continuing operations.  The subsequent decision to retain these operations within our Industrial Segment is based on our belief that these operations are self sufficient, which should allow senior management the freedom to focus on growing our nuclear operations, while benefiting from the cash flow and growth prospects of these three facilities and the fact that we were unable in the current economic climate to obtain the values for


these companies that we believe they are worth.  In the fourth quarter of 2008, we sold one of the two properties at our PFO facility for $900,000 in cash, which was used for our working capital.  We do not expect any impact or reduction to PFO’s operating capability from the sale of the property at PFO.  Revenue in our Engineering Segment was up 33.2% in 2008 from 2007 due primarily to increase in billable hours.  The backlog of stored waste within the Nuclear Segment was reduced to $10,244,000, at December 31, 2008, down from $14,646,000 in 2007, reflecting the reduced waste receipts in the year.

In 2008, we completed the sale of substantially all of the assets of three of our Industrial Segment facilities/operations which was reclassified into our discontinued operations in May 2007 as follows:  on January 8, 2008, we completed the sale of substantially all of the assets of Perma-Fix Maryland, Inc. (“PFMD”) for $3,825,000 in cash and the assumption by the buyer of certain liabilities of PFMD, with a final working capital adjustment of $170,000 received by Perma-Fix from the buyer in the fourth quarter of 2008; on March 14, 2008, we completed the sale of substantially all of the assets of Perma-Fix of Dayton, Inc. (“PFD”) for approximately $2,143,000 in cash, plus assumption by the buyer of certain of PFD’s liabilities and obligations.  In June 2008, we paid the buyer $209,000 in final working capital adjustment; and on May 30, 2008, we completed the sale of substantially all of the assets of Perma-Fix Treatment Services, Inc. (“PFTS”) for approximately $1,503,000, and assumption by the buyer of certain liabilities of PFTS.  In July 2008, we paid the buyer $135,000 in final working capital adjustments. Proceeds received from the sale of these three facilities were used to pay off our term note and pay down our revolver.  In August 2008, we reloaded our term note back to $7,000,000 with the revolving line of credit remaining at $18,000,000.  The due date of the $25,000,000 credit facility was extended through July 31, 2012.

We have taken steps to improve our working capital in 2008.  Our working capital position at December 31, 2008 is a negative $3,886,000, which includes working capital of our discontinued operations, as compared to a negative working capital of $17,154,000 as of December 31, 2007.  The improvement in our working capital is the result of the reclassification of our indebtedness to certain of our lenders from current (less current maturities) to long term in the first quarter of 2008 due to the Company meeting its fixed charge coverage ratio, pursuant to our loan agreement, as amended, in the first quarter of 2008.  In 2007, the Company failed to meet its fixed charge coverage ratio as of December 31, 2007 and as a result we were required under generally accepted accounting principles to reclassify approximately $11,403,000 in debt under our credit facility with PNC and debt payable to KeyBank National Association, due to a cross default provision from long term to current as of December 31, 2007.   We met our fixed charge coverage ratio in each quarter in 2008 and we anticipate meeting this ratio in 2009.  Our working capital in 2008 was also impacted by the annual cash payment to the finite risk sinking fund of $1,004,000, our payments of approximately $4,274,000 in financial assurance coverage for our PFNWR facility, capital spending of approximately $1,158,000, the reclassification of approximately $833,000 in principal balance on the shareholder note resulting from the acquisition of PFNWR in June from long term to current, payment of approximately $3,039,000 on the KeyBank debt from the PFNWR acquisition, and the payments against the long term portion of our term note of approximately $4,100,000 in proceeds received from sale of PFMD, PFD, and PFTS.


Outlook
We believe that government funding that will be available for DOE projects under the recently enacted government stimulus plan as it relates to our existing government contracts within our Nuclear Segment should positively impact our Nuclear Segment since the stimulus plan provides for a substantial amount for remediation of DOE sites.  However, declining consumer confidence continues to impact the U.S. economy.  Turmoil in the financial markets continues to strain the availability of credit which could limit our customers’ ability to obtain adequate financing which could decrease the demand for our services, thereby negatively impacting our results of operations into 2009.   A significant amount of our revenues within our Nuclear Segment stem from U.S. government contracts or subcontracts involving the U.S. government.  Our government contracts and subcontracts relating to activities at governmental sites are subject to termination or renegotiation on 30 days notice at the government’s option.  With government deficits at an all time high, in light of the uncertainty in the current economy, funding for certain governmental remediation projects at DOE and DOD sites could be cut off or curtailed thereby negatively impacting our results of operations and liquidity.  The Company continues to remain cautious of the future due to the heightened financial market turmoil and the large government deficit.

Results of Operations
The reporting of financial results and pertinent discussions are tailored to three reportable segments: Nuclear Waste Management Services (“Nuclear”), Industrial Waste Management Services (“Industrial”), and Consulting Engineering Services (“Engineering”).

Below are the results of continuing operations for our years ended December 31, 2008, 2007, and 2006 (amounts in thousands):
 
(Consolidated)
 
2008
   
%
   
2007
   
%
   
2006
   
%
 
Net Revenues
  $ 75,504       100.0     $ 64,544       100.0     $ 68,205       100.0  
Cost of goods sold
    55,310       73.3       45,544       70.6       43,160       63.3  
Gross Profit
    20,194       26.7       19,000       29.4       25,045       36.7  
                                                 
Selling, general and administrative
    18,832       24.9       18,082       28.0       17,803       26.1  
Asset impairment (recovery) loss
    (507 )     (.7 )     1,836       2.8       ¾       ¾  
(Gain) loss on disposal of property
                                               
      and equipment
    (295 )     (.4 )     172       .3       27       ¾  
Income (loss) from operations
    2,164       2.9       (1,090 )     (1.7 )     7,215       10.6  
Interest income
    226       .3       312       .4       280       .4  
Interest expense
    (1,317 )     (1.7 )     (1,321 )     (2.0 )     (1,255 )     (1.8 )
Interest expense – financing fees
    (137 )     (.2 )     (196 )     (.3 )     (192 )     (.3 )
Other
    (6 )     ¾       (85 )     (.1 )     (119 )     (.2 )
Income (loss) from continuing operations before taxes
    930       1.3       (2,380 )     (3.7 )     5,929       8.7  
Income tax expense
    10       ¾       ¾       ¾       507       .8  
Income (loss) from continuing operations
    920       1.3       (2,380 )     (3.7 )     5,422       7.9  
Preferred Stock dividends
    ¾       ¾       ¾       ¾       ¾       ¾  
 
Summary - Years Ended December 31, 2008 and 2007

Net Revenue
Consolidated revenues from continuing operations increased $10,960,000 for the year ended December 31, 2008, compared to the year ended December 31, 2007, as follows:

 
 
(In thousands)
 
2008
   
% Revenue
   
2007
   
% Revenue
   
Change
   
% Change
 
Nuclear
                                   
Government waste
  $ 14,209       18.9     $ 11,763       18.2     $ 2,446       20.8  
LATA/Parallax
    4,841       6.4       8,784       13.6       (3,943 )     (44.9 )
Fluor Hanford
    2,814 (1)     3.7       3,885 (2)     6.0       (1,071 )     (27.6 )
CHPRC
    7,095 (1)     9.4       ¾       ¾       7,095       100.0  
Hazardous/non-hazardous
    3,973       5.3       5,068       7.9       (1,095 )     (21.6 )
Other nuclear waste
    11,102       14.7       13,765       21.3       (2,663 )     (19.3 )
Acquisition 6/07 (PFNWR)
    17,325 (1)     22.9       8,439 (2)     13.1       8,886       105.3  
Total
    61,359       81.3       51,704       80.1       9,655       18.7  
                                                 
Industrial
                                               
Commercial waste
    5,495       7.3       5,699       8.8       (204 )     (3.6 )
Government services
    814       1.1       1,653       2.6       (839 )     (50.8 )
Oil sales
    4,642       6.1       3,090       4.8       1,552       50.2  
Total
    10,951       14.5       10,442       16.2       509       4.9  
                                                 
Engineering
    3,194       4.2       2,398       3.7       796       33.2  
                                                 
Total
  $ 75,504       100.0     $ 64,544       100.0     $ 10,960       17.0  
                                                 
(1)  Revenue of $17,325,000 from PFNWR for 2008 includes approximately $14,505,000 relating to wastes generated by the federal government, either directly or indirectly as a subcontractor to the federal government.  Of the $14,505,000 in revenue, approximately $5,160,000 was from Fluor Hanford, a contractor to the federal government and approximately $1,025,000 was from CHPRC, a contractor to the federal government.  Revenue in 2008 from Fluor Hanford totaled approximately $7,974,000 or 10.6% of total consolidated revenue.  Revenue in 2008 from CHPRC totaled approximately $8,120,000 or 10.8% of total consolidated revenue.

(2)  Revenue of $8,439,000 from PFNWR for 2007 includes approximately $5,568,000 relating to wastes generated by the federal government, either directly or indirectly as a subcontractor to the federal government.  Of the $5,568,000 in revenue, approximately $3,100,000 was from Fluor Hanford, a contractor to the federal government.  Revenue in 2007 from Fluor Hanford totaled approximately $6,985,000 or 10.8 % of total consolidated revenue.

The Nuclear Segment experienced a $9,655,000 increase in revenue for the year ended December 31, 2008 over the same period in 2007.  Total revenue within the Nuclear Segment included $17,325,000 of revenue at our PFNWR facility for the full year of 2008 as compared to $8,439,000 after the facility was acquired on June 13, 2007.  In addition, our revenue for the Nuclear Segment included revenue of $7,095,000 for our new subcontract awarded to us from CHPRC.  In the second quarter of 2008, we were awarded a subcontract by CHPRC to perform a portion of facility operations and waste management activities for the DOE Hanford, Washington Site.  The general contract awarded by the DOE to CHPRC and our subcontract provide for a transition period from August 11, 2008 through September 30, 2008, a base period from October 1, 2008 through September 30, 2013 and an option period from October 1, 2013 through September 30, 2018.  On October 1, 2008, operations of this subcontract commenced at the DOE Hanford Site.  Excluding our revenue from PFNWR and CHPRC, revenue within our Nuclear Segment decreased approximately $6,326,000 or 14.6% as compared to the same period of 2007.  Excluding revenue from PFNWR and CHPRC, revenue from government generators (which includes our subcontrtacts with LATA/Parallax and Fluor Hanford) decreased $2,568,000 or 10.5% due primarily to overall lower government receipts.  For 2008, government agencies were operated under “Continuing Resolution” without finalized budgets due in part to the impending change in Administration, which had a negative impact on availability of funding for services offered by our Nuclear Segment.  We saw a decrease of $3,943,000 or 44.9% under our subcontracts with LATA/Parallax due to significant progress made by LATA/Parallax in completing legacy waste removal actions as part of their clean-up project at Portsmouth for the DOE.  We saw a decrease of approximately $1,071,000 or 27.6% in revenue from Fluor Hanford due to lower overall


receipts and transition of revenue from Fluor Hanford to CHPRC effective October 1, 2008 (see “known Trends and Uncertainties – significant customers” in this section).  Revenue from remaining government wastes increased approximately $2,446,000 or 20.8% due to higher priced waste with reduced volume.  Revenue from hazardous and non-hazardous waste was down $1,095,000 or 21.6% due to lower volume of waste received offset by higher average prices per drum which increase approximately 38.5%.  The price change is primarily due to waste mix.  We also had three large event projects in 2007, while none occurred in 2008.  Other nuclear waste revenue decreased $2,663,000 or 19.3% as packaging and field service related revenue from LATA/Parallax Portsmouth contract from 2007 did not occur in 2008.  Revenue in our Industrial Segment increased $509,000 or 4.9% due primarily to higher oil sale revenue.  We saw an increase of approximately 52.6% in average price per gallon while volume only decreased 2.1%.  The increase in average price per gallon was attributed to the high global oil costs throughout most of 2008.  This increase in oil sale revenue was partially offset by lower government revenue resulting from termination of a government contract in July 2007.  Revenue in our Engineering Segment increased approximately $796,000 or 33.2% due primarily to the increase of billable hours of 29.0% caused by increase in external business, with the billability rate remaining fairly constant, a slight decrease of .3% from 2007 to 2008.

Cost of Goods Sold
Cost of goods sold increased $9,766,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007, as follows:
 
(In thousands)
 
2008
   
%
Revenue
   
2007
   
%
Revenue
   
Change
 
Nuclear
  $ 35,143       79.8     $ 30,261       69.9     $ 4,882  
Acquisition 6/07 (PFNWR)
    10,606       61.2       4,938       58.5     $ 5,668  
Industrial
    7,439       67.9       8,707       83.4       (1,268 )
Engineering
    2,122       66.4       1,638       68.3       484  
Total
  $ 55,310       73.3     $ 45,544       70.6     $ 9,766  
 
Excluding the cost of goods sold of approximately $10,606,000 for the PFNWR facility, the Nuclear Segment’s cost of goods sold for the year ending December 31, 2008 were up approximately $4,882,000.  The $35,143,000 in cost of good sold in the Nuclear Segment (excluding PFNWR) includes cost of good sold of approximately $5,584,000 related to the CHPRC subcontract.  Excluding this $5,584,000 in cost of good sold, our remaining Nuclear Segment cost of goods sold decreased $702,000 or 2.3%.  Although receipts were down 41.6% as compared to prior year, cost as a percentage of revenue (excluding the CHPRC subcontract and PFNWR) increased to 80.0% from 69.9%. This reflects the mix of wastes received which was costlier to dispose.  In the Industrial Segment, cost of goods sold decreased $1,268,000 or 14.6% due primarily to reduced revenue from a government contract which terminated in July 2007.  This decrease was offset by higher cost of good sold related to material and supply purchases, especially raw oil purchases, the result of the increase in the global cost of oil throughout 2008.  Cost as a percentage of revenue decreased from 83.4% in 2007 to 67.9% due primarily to reduction in government receipts processed.  Total cost of good sold for the Industrial Segment decreased despite depreciation expenses of approximately $244,000 incurred as result of the reclassification of PFFL, PFO, and PFSG facilities as continuing operations.  The Engineering Segment costs increased $484,000 or 29.5% due primarily to increased revenue of 33.2%.  Included within cost of goods sold is depreciation and amortization expense of $4,612,000 and $3,918,000 for the year ended December 31, 2008 and 2007, respectively.


Gross Profit
Gross profit for the year ended December 31, 2008, was $1,194,000 higher than 2007, as follows:
 
(In thousands)
 
2008
   
%
Revenue
   
2007
   
%
Revenue
   
Change
 
Nuclear
  $ 8,891       20.2     $ 13,004       30.1     $ (4,113 )
Acquisition 6/07 (PFNWR)
    6,719       38.8       3,501       41.5       3,218  
Industrial
    3,512       32.1       1,735       16.6       1,777  
Engineering
    1,072       33.6       760       31.7       312  
Total
  $ 20,194       26.7     $ 19,000       29.4     $ 1,194  
                                         
The Nuclear Segment gross profit, excluding gross profit of our PFNWR facility, decreased $4,113,000 from 2007 to 2008.  Gross profit of the Nuclear Segment (excluding PFNWR) includes the gross profit of our CHPRC subcontract of approximately $1,511,000.  Excluding this gross profit, our Nuclear Segment gross profit decreased $5,624,000 or 43.2% from 2007 to 2008 due primarily to lower volume of waste received.  Gross margin decreased from 30.1% to 20.0% which reflects the receipt of lower margin waste streams in 2008.  The Industrial Segment gross profit increased $1,777,000 or 102.4% due primarily to the improved revenue mix resulting from higher margin oil revenue which displaced lower margin hazardous waste disposal revenue.  Gross margin increased to 32.1% in 2008 from 16.6% in 2007 which reflects the favorable increase in oil price throughout much of 2008.  The Engineering Segment gross profit increased $312,000 or 41.1% due to increased revenue resulting from a 29.0% increase in billable hours in 2008 as compared to 2007.  Gross margin remained fairly constant, with an increase of 1.9% in 2008 as compared to 2007.

Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses increased $750,000 for the year ended December 31, 2008, as compared to the corresponding period for 2007, as follows:
 
(In thousands)
 
2008
   
%
Revenue
   
2007
   
%
Revenue
   
Change
 
Administrative
  $ 5,679       ¾     $ 5,457       ¾     $ 222  
Nuclear
    6,924       15.7       7,520       17.4       (596 )
Acquisition 06/07 (PFNWR)
    2,878       16.6       1,678       19.9       1,200  
Industrial
    2,686       24.5       2,910       27.9       (224 )
Engineering
    665       20.8       517       21.6       148  
Total
  $ 18,832       24.9     $ 18,082       28.0     $ 750  
 
Excluding the SG&A of our PFNWR facility, our Nuclear SG&A expenses decreased $596,000 or 7.9% in 2008 as compared to 2007.  The decrease within the Nuclear Segment (excluding PFNWR) was due to lower payroll, commission, travel related expenses, and general expenses due to headcount reduction resulting from decreased revenue.  The increase in administrative SG&A was primarily the result of higher stock option expenses as we granted 1,083,000 options to certain company officers and employees.  Such options were not granted in 2007.  In addition, legal fees were higher in 2008 due to the Company’s daily legal corporate matters and public corporate filings.  These increases were offset by lower director fees in 2008 as we had a one time fee payment of $160,000 to a member of our Board of Directors in 2007 as compensation for his service in negotiating the agreement in principal to resolve a certain legal matter with the EPA against our former PFD facility.  The decrease in SG&A in our Industrial Segment is due to lower payroll related expenses as we continue to streamline costs within the segment.  This decrease was offset by incremental depreciation expense incurred in 2008 of approximately $128,000 as a result of the reclassification of PFO, PFFL, and PFSG into continuing operations and higher bonus/commission expenses at PFFL due to higher revenue in 2008 as compared to 2007.  The Engineering Segment increase was the result of an increase in payroll related expenses but this increase was offset by a significant decrease in bad


debt expense.  Included in SG&A expense is depreciation and amortization expense of $254,000 and $174,000 for the years ended December 31, 2008 and 2007, respectively.

Loss (Gain) on Disposal of Property and Equipment
The gain on disposal of property and equipment in 2008 is primarily due to the sale of one of the properties at our PFO for $900,000 which resulted in gain of approximately $483,000.  The proceeds were used for our working capital.  This gain was offset by disposal of idle equipment at our DSSI and M&EC facilities.  The loss on disposal of property and equipment for 2007 was attributed mainly to the disposal of idle equipment at our M&EC, DSSI, and PFFL facilities.

Asset Impairment Recovery
In May 2007, our PFSG, PFO, and PFFL facilities met the held for sale criteria under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets as a result of our Board of Directors approving the divestiture of these facilities, which resulted in impairment losses of $1,329,000 and $507,000 for PFSG and PFO, respectively.   In September 2008, these facilities were reclassified back into continuing operations as a result of our Board of Directors approving the retention of these facilities.  In the third quarter of 2008, we reclassified one of the two properties at PFO as “net property and equipment held for sale” within our continuing operations in accordance with SFAS No. 144.  We evaluated the fair value of PFO’s assets and as a result, recorded the $507,000 previously impairment loss as an asset impairment recovery.

Interest Income
Interest income decreased $86,000 for the year ended December 31, 2008, as compared to 2007.  The decrease is primarily due to interest earned from excess cash in a sweep account which the Company had in the first six months of 2007 but did not have in the same period of 2008.  The excess cash the Company had in 2007 was the result of warrants and option exercises from the latter part of 2006.

Interest Expense
Interest expense decreased $4,000 for the year ended December 31, 2008, as compared to the corresponding period of 2007.
 
(In thousands)
 
2008
   
2007
   
Change
   
%
 
PNC interest
  $ 508     $ 702     $ (194 )     (27.6 )
Other
    809       619       190       30.7  
Total
  $ 1,317     $ 1,321     $ (4 )     (0.3 )
                                 
The decrease in 2008 is due primarily to the reduction in term loan balance and the payoff of our term note from proceeds received from the sale of our three Industrial Segment facilities, PFTS, PFD, and PFMD, in addition to lower interest rate in 2008.  This decrease was offset by higher interest due to capitalized interest of approximately $144,000 in 2007 resulting from the completion of the “SouthBay” project in 2007 at our M&EC facility.  Additionally, this decrease was offset by external debt incurred resulting from the acquisition of our PFNWR facility in June 2007.

Interest Expense - Financing Fees
Interest expense-financing fees decreased approximately $59,000 from 2007 to 2008 due primarily to monthly amortized financing fees associated with PNC revolving credit and term note for our original debt and subsequent amendments which became fully amortized in May 2008.  This decrease was offset by financing fees paid to PNC for Amendment No. 12 which is amortized over the term of the amendment, starting from August 2008 and ending July 2012.

Income Tax
We have provided a valuation allowance on substantially all of our deferred tax assets.  We will continue to monitor the realizability of these net deferred tax assets and will reverse some or all of the valuation allowance as appropriate.  In making this determination, we consider a number of factors including whether


there is a historical pattern of consistent and significant profitability in combination with our assessment of forecasted profitability in the future periods.  Such patterns and forecasts allow us to determine whether our most significant deferred tax assets such as net operating losses will be realizable in future years, in whole or in part.  These deferred tax assets in particular will require us to generate taxable income in the applicable jurisdictions in future years in order to recognize their economic benefits.  We do not believe that we have sufficient evidence to conclude that some or all of the valuation allowance on deferred tax assets should be reversed.  However, facts and circumstances could change in future years and at such point we may reverse the allowance as appropriate.  For the years ended December 31, 2008 and 2007, we had $0 and $0, respectively, in federal income tax expense, as a result of a 100% valuation allowance against the deferred tax asset and our alternative minimum tax liability at December 31, 2008, and $10 and $0, respectively, in state income taxes.   Our net operating loss carryforwards have not been audited or approved by the Internal Revenue Service.

Summary - Years Ended December 31, 2007 and 2006

Net Revenue
Consolidated revenues from continuing operations decreased $3,661,000 for the year ended December 31, 2007, compared to the year ended December 31, 2006, as follows:
 
(In thousands)
 
2007
   
% Revenue
   
2006
   
% Revenue
   
Change
   
% Change
 
Nuclear
                                   
Government waste
  $ 11,763       18.2     $ 21,656       31.8     $ (9,893 )     (45.7 )
LATA/Parallax
    8,784       13.6       10,341       15.2       (1,557 )     (15.1 )
Fluor Hanford
    3,885 (1)     6.0       1,229       1.8       2,656       216.1  
CHPRC
    ¾       ¾       ¾       ¾       ¾       ¾  
Hazardous/non-hazardous
    5,068       7.9       3,343       4.9       1,725       51.6  
Other nuclear waste
    13,765       21.3       12,854       18.8       911       7.1  
Recent acquisition 6/07 (PFNWR)
    8,439 (1)     13.1       ¾       ¾       8,439       100.0  
Total
    51,704       80.1       49,423       72.5       2,281       4.6  
                                                 
Industrial
                                               
Commercial waste
    5,699       8.8       8,679       12.7       (2,980 )     (34.3 )
Government services
    1,653       2.6       3,594       5.3       (1,941 )     (54.0 )
Oil sales
    3,090       4.8       3,151       4.6       (61 )     (1.9 )
Total
    10,442       16.2       15,424       22.6       (4,982 )     (32.3 )
                                                 
Engineering
    2,398       3.7       3,358       4.9       (960 )     (28.6 )
                                                 
Total
  $ 64,544       100.0     $ 68,205       100.0     $ (3,661 )     (5.4 )
                                                 
 (1)  Revenue of $8,439,000 from PFNWR for 2007 includes approximately $5,568,000 relating to wastes generated by the federal government, either directly or indirectly as a subcontractor to the federal government.  Of the $5,568,000 in revenue, approximately $3,100,000 was from Fluor Hanford, a contractor to the federal government.  Revenue in 2007 from Fluor Hanford totaled approximately $6,985,000 or 10.8 % of total consolidated revenue.

The Nuclear Segment experienced a $2,281,000 increase in revenue for the year ended December 31, 2007 over the same period in 2006.  Total revenue within the Nuclear Segment included $8,439,000 of revenue from our PFNWR facility, which was acquired on June 13, 2007.  Excluding the revenue of our PFNWR facility, revenue from our Nuclear Segment decreased approximately $6,158,000 or 12.5% as compared to the same period of 2006.  Revenue from government generators (which includes LATA/Parallax and Fluor Hanford) decreased $8,794,000 (excluding government revenue of $5,568,000 from our PFNWR facility) or 26.5% due to overall lower government receipts.  The decrease in government waste revenue included a significant decrease in revenue of approximately $4,893,000 or 73.0% from 2006 for Bechtel Jacobs.  The Bechtel Jacobs contract in Oak Ridge is continuing at reduced waste volumes due to the large legacy waste


clean-up project completion in 2005.  2006 revenues of our Nuclear Segment include approximately $1.1 million recognized from Bechtel Jacobs as a result of a settlement of a lawsuit in connection with a dispute over surcharges from waste treated in 2003.  Due to varying waste constituencies, waste received and its related pricing can vary.  2007 saw a decline in average pricing of 21.6% while volume increased 7.9%.  Although our receipts were down, the increase in volume was the result of the Company’s continued effort to process and dispose more of its backlog.  The backlog of stored waste within the Nuclear Segment was reduced to $9,964,000, excluding the backlog of our PFNWR facility of $4,683,000 at December 31, 2007, down from $12,492,000 in 2006, which reflects increases in processing and disposal for the year.  The decrease for LATA/Parallax is due to significant progress made by LATA/Parallax in completing legacy waste removal actions as part of their clean-up project at Portsmouth for the Department of Energy.  Fluor Hanford revenue increased approximately $2,656,000 (excluding approximately $3,100,000 from PFNWR) or 216.1% due mainly to increased receipts at our DSSI facility.  Hazardous and non-hazardous revenue increased approximately $1,725,000 or 51.6% as compared to the same period of 2006 due to a combination of increased volume of 19.6% and price increases of 26.7% in per drum equivalent of waste processed.  Revenue from the Industrial Segment decreased $4,982,000 or 32.3% from 2006.  Revenue from government decreased 54.0% due to termination of a government contract in November 2006.  Commercial waste revenue was down primarily due to our efforts to eliminate non-profitable revenue streams and pursue more profitable ones.  Revenue from the Engineering Segment decreased $960,000 or 28.6% due to less billable hours and related reimbursable costs in part to a large event project in 2006 which did not repeat in 2007 and more hours spent supporting the divestiture of the Industrial Segment facilities that are for sale.

Cost of Goods Sold
Cost of goods sold increased $2,384,000 for the year ended December 31, 2007, as compared to the year ended December 31, 2006, as follows:
 
(In thousands)
 
2007
   
%
Revenue
   
2006
   
%
Revenue
   
Change
 
Nuclear
  $ 30,261       69.9     $ 28,493       57.7     $ 1,768  
Acquisition 6/07 (PFNWR)
    4,938       58.5                   4,938  
Industrial
    8,707       83.4       12,106       78.5       (3,399 )
Engineering
    1,638       68.3       2,561       76.3       (923 )
Total
  $ 45,544       70.6     $ 43,160       63.3     $ 2,384  
 
Excluding the cost of goods sold of approximately $4,938,000 for the PFNWR facility, the Nuclear Segment’s cost of goods sold for the year ending December 31, 2007 were up approximately $1,768,000.  Processing and disposal costs increased due to increased volume as well as different mix of waste.  In addition, costs related to the new “SouthBay” area at M&EC increased due to labor and analytical expenses.  In 2007, M&EC completed its facility expansion (“SouthBay”) to treat DOE special process wastes from the DOE Portsmouth Gaseous Diffusion Plant located in Piketon, Ohio under the subcontract awarded by LATA/Parallax Portsmouth LLC to our Nuclear Segment in 2006.  The Industrial Segment costs decreased $3,399,000 or 28.1% due primarily to lower revenue as efforts were made during the year to streamline and reorganize operations to focus on more profitable revenue streams and to operate more efficiently.  In addition, depreciation in 2007 was reduced by approximately seven months due to classification of PFFL, PFO, and PFSG to discontinued operations in May 2007.  The Engineering Segment costs fell due to lower reimbursable expenses related to a large event project in 2006.  Included within cost of goods sold is depreciation and amortization expense of $3,918,000 and $3,341,000 for the year ended December 31, 2007 and 2006, respectively, reflecting an increase of $577,000 over 2006 resulting primarily from the completion of the “SouthBay” area and the acquisition of PFNWR offset by the decrease in depreciation resulting from the classification of PFFL, PFO, and PFSG to discontinued operations in 2007.


Gross Profit
Gross profit for the year ended December 31, 2007, decreased $6,045,000 over 2006, as follows:
 
(In thousands)
 
2007
   
%
Revenue
   
2006
   
%
Revenue
   
Change
 
Nuclear
  $ 13,004       30.1     $ 20,930       42.3     $ (7,926 )
Acquisition (PFNWR)
    3,501       41.5                   3,501  
Industrial
    1,735       16.6       3,318       21.5       (1,583 )
Engineering
    760       31.7       797       23.7       (37 )
Total
  $ 19,000       29.4     $ 25,045       36.7     $ (6,045 )
 
The Nuclear Segment gross profit, excluding approximately $3,501,000 from PFNWR facility, saw a decrease of 37.9% from 2006 primarily due to lower volume of waste received.  In addition, revenue mix shifted to processing and disposal of higher volumes of lower price waste resulting in higher costs of sales.      In addition, surcharges were significantly lower in 2007 which impacted gross profit and gross margin.  The Bechtel Jacobs surcharge of $1.1 million in 2006 had no associated costs which increased prior year’s gross profit.  The Industrial Segment gross profit decreased due primarily to lower revenue.  The Engineering Segment gross profit decreased though its gross profit percentage increased.  The sizable portion of the large event project in 2006 included low margin pass through expenses, resulting in higher gross profit and lower margins in 2006.

Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses increased $279,000 for the year ended December 31, 2007, as compared to the corresponding period for 2006, as follows:
 
(In thousands)
 
2007
   
%
Revenue
   
2006
   
%
Revenue
   
Change
 
Administrative
  $ 5,457       ¾     $ 5,627       ¾     $ (170 )
Nuclear
    7,520       17.4       7,467       15.1       53  
Acquisition 06/07 (PFNWR)
    1,678       19.9       ¾       ¾       1,678  
Industrial
    2,910       27.9       4,163       27.0       (1,253 )
Engineering
    517       21.6       546       16.3       (29 )
Total
  $ 18,082       28.0     $ 17,803       26.1     $ 279  
 
Excluding the SG&A of our PFNWR facility, our 2007 SG&A expenses decreased $1,399,000 or 7.9% over 2006.  The decrease in administrative SG&A was the result of lower payroll related expense totaling approximately $688,000 related to a reduction in general labor and bonus expenses.   This decrease was offset by higher public company expense totaling approximately $250,000 due to an increase in director fees for our Board of Director services and payment of a one time fee to a member of our Board of Directors as compensation for his service in negotiating the agreement in principal to resolve a certain legal matter with the EPA against our PFD facility.  In addition, we had higher outside service fees of approximately $268,000 related to consulting and the adoption of FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB No.109” (“FIN 48”) and other tax related issues.  The Nuclear Segment’s SG&A small decrease is due to lower payroll related expenses as commissions were down consistent with reduced revenues and severance expense was down from 2006.  The decrease in SG&A in the Industrial Segment is due to the reduction of headcount, specifically the restructuring of the sales force to streamline costs.  The Engineering Segment decrease was the result of a decrease in payroll related expenses as commissions and headcount were down but were offset by an increase in bad debt expense.  Included in SG&A expenses is depreciation and amortization expense of $174,000 and $288,000 for the years ended December 31, 2007 and 2006, respectively, reflecting the decrease in depreciation resulting from the classification of PFFL, PFO, and PFSG to discontinued operations in May of 2007.


Asset Impairment loss
In May 2007, our PFSG, PFO, and PFFL facilities met the held for sale criteria under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets as a result of our Board of Directors approving the divestiture of these facilities.  We therefore compared the offered sale price less cost to sell to the carrying value of the investment for each of these facilities which resulted in impairment loss of $1,329,000 and $507,000 for PFSG and PFO, respectively.

Loss (Gain) on Disposal of Property and Equipment
The loss on fixed asset disposal for the year ended December 31, 2007, was $172,000, as compared to a loss of $27,000 for the same period in 2006.  The loss for 2007 was attributed mainly to the disposal of idle equipment at our M&EC, DSSI, and PFFL facilities and the loss for 2006 was attributed mainly to the disposal of idle equipment at our DSSI and PFSG facilities, offset by gain from the sale of equipment at our PFO facility.   

Interest Income
Interest income increased $32,000 for the year ended December 31, 2007, as compared to 2006.  The increase is attributable to interest on the finite risk sinking fund which was increased by $1,000,000 in February of 2007, as well as an additional increase of $258,000 for our PFNWR facility closure policy.  In addition, the increase in 2007 is also attributed to interest earned from additional cash in the Company’s sweep account during the first six months of 2007.

Interest Expense
Interest expense increased $66,000 for the year ended December 31, 2007, as compared to the corresponding period of 2006.
 
(In thousands)
 
2007
   
2006
   
Change
   
%
 
PNC interest
  $ 702     $ 728     $ (26 )     (3.6 )
Other
    619       527       92       17.5  
Total
  $ 1,321     $ 1,255     $ 66       5.3  
 
The increase in 2007 is due primarily to increased external debt related to the Nuvotec acquisition of approximately $272,000.  In addition, revolver debt at PNC increased due to increased borrowings made necessary for the acquisition, resulting in approximately $59,000 in additional interest expense.  Offsetting these increases were reduced interest expense of approximately $85,000 on term note, capitalized interest of approximately $144,000 related to the “SouthBay” construction completed in 2007, and reduced interest expense from diminishing principal on other equipment related loans.

Interest Expense - Financing Fees
Interest expense-financing fees remained fairly constant for the year ended December 31, 2007, as compared to the corresponding period of 2006.

Income Tax
For the years ended December 31, 2007 and 2006, we had $0 and approximately $83,000, respectively, in federal income tax expense, as a result of a 100% valuation allowance against the deferred tax asset and our alternative minimum tax liability at December 31, 2007, and $0 and $424,000, respectively, in state income taxes primarily for our subsidiary, M&EC, in Oak Ridge, Tennessee. 

Discontinued Operations and Divestitures
Our discontinued operations encompass our PFMD, PFD, and PFTS facilities within our Industrial Segment, as well as two previously shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), and Perma-Fix of Michigan, Inc. (“PFMI”), two facilities which were approved as discontinued operations by our Board of Directors effective November 8, 2005, and October 4, 2004, respectively.


In 2008, we completed the sale of substantially all of the assets of PFMD, PFD, and PFTS as follows:  on January 8, 2008, we completed the sale of substantially all of the assets of PFMD for $3,825,000 in cash (cash received was $3,811,000, which was net of closing closts) and the assumption by the buyer of certain liabilities of PFMD, with a final working capital adjustment of $170,000 received by Perma-Fix from the buyer in the fourth quarter of 2008; on March 14, 2008, we completed the sale of substantially all of the assets of PFD for approximately $2,143,000 in cash (cash received was $2,139,000, which was net of certain closing costs), plus assumption by the buyer of certain of PFD’s liabilities and obligations.  In June 2008, we paid the buyer $209,000 in final working capital adjustment; and on May 30, 2008, we completed the sale of substantially all of the assets of PFTS for approximately $1,503,000 (cash received was $1,468,000, which was net of certain closing/settlement costs), and assumption by the buyer of certain liabilities of PFTS.  In July 2008, we paid the buyer $135,000 in final working capital adjustments. Proceeds received from the sale of these three facilities were used to pay off our term note and pay down our revolver.

Our discontinued Industrial Segment facilities generated revenues of $3,195,000, $19,965,000, and $19,724,000 for the years ended December 31, 2008, 2007, and 2006, respectively, and had net operating losses of $1,332,000, $6,830,000 and $711,000 for the same periods, respectively.  Our operating loss in 2007 included impairment loss of $2,727,000 and $1,804,000 for PFD and PFTS, respectively.

Assets related to discontinued operations total $761,000 and $8,626,000 as of December 31, 2008, and 2007, respectively, and liabilities related to discontinued operations total $2,994,000 and $9,037,000 as of December 31, 2008 and 2007, respectively.

Non Operational Facilities
The Industrial Segment includes two previously shut-down facilities which were presented as discontinued operations in prior years.  These facilities include Perma-Fix of Pittsburgh (PFP) and Perma-Fix of Michigan (PFMI).  Our decision to discontinue operations at PFP was due to our reevaluation of the facility and our inability to achieve profitability at the facility.  During February 2006, we completed the remediation of the leased property and the equipment at PFP, and released the property back to the owner.  Our decision to discontinue operations at PFMI was principally a result of two fires that significantly disrupted operations at the facility in 2003, and the facility’s continued drain on the financial resources of our Industrial Segment.  As a result of the discontinued operations at the PFMI facility, we were required to complete certain closure and remediation activities pursuant to our RCRA permit, which were completed in January 2006.  In September 2006, PFMI signed a Corrective Action Consent Order with the State of Michigan, requiring performance of studies and development and execution of plans related to the potential clean-up of soils in portions of the property.  The level and cost of the clean-up and remediation are determined by state mandated requirements.  Upon discontinuation of operations in 2004, we engaged our engineering firm, SYA, to perform an analysis and related estimate of the cost to complete the RCRA portion of the closure/clean-up costs and the potential long-term remediation costs.  Based upon this analysis, we estimated the cost of this environmental closure and remediation liability to be $2,464,000.  During 2006, based on state-mandated criteria, we re-evaluated our required activities to close and remediate the facility, and during the quarter ended June 30, 2006, we began implementing the modified methodology to remediate the facility.  As a result of the reevaluation and the change in methodology, we reduced the accrual by $1,182,000.  We have spent approximately $745,000 for closure costs since September 30, 2004, of which $26,000 was spent during 2008 and $81,000 was spent during 2007.  In the 4th quarter of 2007, we reduced our reserve by $9,000 as a result of our reassessment of the cost of remediation.  We have $538,000 accrued for the closure, as of December 31, 2008, and we anticipate spending $425,000 in 2009 with the remainder over the next six years.  Based on the current status of the Corrective Action, we believe that the remaining reserve is adequate to cover the liability.

As of December 31, 2008, PFMI has a pension payable of $1,129,000.  The pension plan withdrawal liability is a result of the termination of the union employees of PFMI.  The PFMI union employees participate 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 $181,000 that we expect to pay over the next year.
 
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Liquidity and Capital Resources
Our capital requirements consist of general working capital needs, scheduled principal payments on our debt obligations and capital leases, remediation projects and planned capital expenditures.  Our capital resources consist primarily of cash generated from operations, funds available under our revolving credit facility and proceeds from issuance of our Common Stock.  Our capital resources are impacted by changes in accounts receivable as a result of revenue fluctuation, economic trends, collection activities, and the profitability of the segments.

At December 31, 2008, we had cash of $129,000.  The following table reflects the cash flow activities during 2008.
 
(In thousands)
 
2008
 
Cash provided by continuing operations
  $ 4,210  
Gain on disposal of discontinued operations
    (2,323 )
Cash used in discontinued operations
    (1,422 )
Cash used in investing activities of continuing operations
    (5,057 )
Proceeds from sale of discontinued operations
    6,734  
Cash provided by investing activities of discontinued operations
    75  
Cash used in financing activities of continuing operations
    (1,968 )
Principal repayment of long-term debt for discontinued operations
    (238 )
increase in cash
  $ 11  
 
We are in a net borrowing position and therefore attempt to move all excess cash balances immediately to the revolving credit facility, so as to reduce debt and interest expense.  We utilize a centralized cash management system, which includes remittance lock boxes and is structured to accelerate collection activities and reduce cash balances, as idle cash is moved without delay to the revolving credit facility or the Money Market account, if applicable.  The cash balance at December 31, 2008, primarily represents minor petty cash and local account balances used for miscellaneous services and supplies.

Operating Activities
Accounts receivable, net of allowances for doubtful accounts, totaled $13,416,000, a decrease of $1,545,000 over the December 31, 2007, balance of $14,961,000.  Our account receivable balance as of December 31, 2008 included approximately $1,503,000 in receivables resulting from the subcontract awarded to us by CHPRC in the second quarter of 2008.  Excluding this account receivable from CHPRC, our Nuclear Segment experienced a decrease of approximately $3,515,000 as a result of improved collection efforts.  The Engineering Segment experienced a decrease of approximately $50,000 due also mainly to improved collection efforts.  The Industrial Segment experienced an increase of approximately $517,000 due mainly to combination of increase in revenue and reduced collection.

Unbilled receivables are generated by differences between invoicing timing and the percentage of completion methodology used for revenue recognition purposes.  As major processing phases are completed and the costs incurred, we recognize the corresponding percentage of revenue.  We experience delays in processing invoices due to the complexity of the documentation that is required for invoicing, as well as, the difference between completion of revenue recognition milestones and agreed upon invoicing terms, which results in unbilled receivables.  The timing differences occur for several reasons:  partially from delays in the final processing of all wastes associated with certain work orders and partially from delays for analytical testing that is required after we have processed waste but prior to our release of waste for disposal.   The difference also occurs due to our end disposal sites requirement of pre-approval prior to our shipping waste for disposal and our contract terms with the customer that we dispose of the waste prior to invoicing.  These delays usually take several months to complete.  As of December 31, 2008, unbilled receivables totaled
 
 
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$16,962,000, an increase of $2,757,000 from the December 31, 2007, balance of $14,205,000.    The delays in processing invoices, as mentioned above, usually take several months to complete but are normally considered collectible within twelve months.  However, as we now have historical data to review the timing of these delays, we realize that certain issues, including but not limited to delays at our third party disposal site, can exacerbate collection of some of these receivables greater than twelve months.  Therefore, we have segregated the unbilled receivables between current and long term.  The current portion of the unbilled receivables as of December 31, 2008 is $13,104,000, an increase of $2,671,000 from the balance of $10,433,000 as of December 31, 2007.  The long term portion as of December 31, 2008 is $3,858,000, an increase of $86,000 from the balance of $3,772,000 as of December 31, 2007.

As of December 31, 2008, total consolidated accounts payable was $11,076,000, an increase of $5,169,000 from the December 31, 2007, balance of $5,907,000.  The increase is the result of higher cost of sales related to receipt of lower margin waste streams within our Nuclear Segment, higher costs related to the disposal of our legacy wastes as well as our continued efforts to manage payment terms with our vendors to maximize our cash position throughout all segments.   Accounts payable can increase in conjunction with decreases in accrued expenses depending on the timing of vendor invoices.

Accrued expenses as of December 31, 2008, totaled $8,896,000, a decrease of $1,086,000 over the December 31, 2007, balance of $9,982,000.  Accrued expenses are made up of accrued compensation, interest payable, insurance payable, certain tax accruals, and other miscellaneous accruals.  The decrease is primarily due to reduction in insurance payable due to the divestiture of our three Industrial facilities, PFMD, PFD, and PFTS, which resulted in lower insurance premium. This decrease was offset by higher bonus accrual at our Engineering Segment due to increased revenue for the year.

Disposal/transportation accrual as of December 31, 2008, totaled $5,847,000, a decrease of $1,003,000 over the December 31, 2007 balance of $6,850,000.  The decrease is mainly attributed to the reduction of the legacy waste accrual at PFNWR facility.  In addition, revenue reduction at our PFF, DSSI, and M&EC facilities attributed to this reduction in disposal/transportation accrual.

Our working capital position at December 31, 2008 was a negative $3,886,000, which includes working capital of our discontinued operations, as compared to a negative working capital of $17,154,000 as of December 31, 2007.  The improvement in our working capital is primarily the result of the reclassification of our indebtedness to certain of our lenders from current (less current maturities) to long term in the first quarter of 2008 due to the Company meeting its fixed charge coverage ratio, pursuant to our loan agreement, as amended, in the first quarter of 2008.  We have met our fixed charge coverage ratio in each of the quarters in 2008 and we anticipate meeting this ratio in 2009.  In 2007, the Company failed to meet its fixed charge coverage ratio as of December 31, 2007 and as a result we were required under generally accepted accounting principles to reclassify debt under our credit facility with PNC and debt payable to KeyBank National Association, due to a cross default provision from long term to current as of December 31, 2007.   Our working capital in 2008 was also impacted by the annual cash payment to the finite risk sinking fund of $1,004,000, our payments of approximately $4,274,000 in financial assurance coverage for our PFNWR facility, capital spending of approximately $1,158,000, the reclassification of approximately $833,000 in principal balance on the shareholder note resulting from the acquisition of PFNWR in June from long term to current, payment of approximately $3,039,000 on the KeyBank debt from the PFNWR acquisition and the payments against the long term portion of our term note of approximately $4,100,000 in proceeds received from sale of PFMD, PFD, and PFTS.

Investing Activities
During 2008, our purchases of capital equipment totaled approximately $1,158,000 of which $1,129,000 and $29,000 was for our continuing and discontinued operations, respectively.  Of the total capital spending, $148,000 was financed for our continuing operations, resulting in total net purchases of $1,010,000 funded out of cash flow ($981,000 for continuing operations and $29,000 for our discontinued operations).  These expenditures were for compliance, sustenance, expansion, and improvements to the operations principally within the Nuclear Segment.  These capital expenditures were funded by the cash provided by operations
 
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and cash provided by financing activities. We have budgeted approximately $1,300,000 for 2009 capital expenditures for our segments to expand our operations into new markets, reduce the cost of waste processing and handling, expand the range of wastes that can be accepted for treatment and processing, and to maintain permit compliance requirements.  Certain of these budgeted projects are discretionary and may either be delayed until later in the year or deferred altogether.  We have traditionally incurred actual capital spending totals for a given year less than the initial budget amount.  The initiation and timing of projects are also determined by financing alternatives or funds available for such capital projects.  We anticipate funding these capital expenditures by a combination of lease financing and internally generated funds.

In June 2003, we entered into a 25-year finite risk insurance policy with American International Group, Inc. (“AIG”) (see “Part I, Item 1A. - Risk Factors” for certain potential risk related to 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 provides a maximum $35,000,000 of financial assurance coverage of which the coverage amount totals $32,515,000 at December 31, 2008, and has available capacity to allow for annual inflation and other performance and surety bond requirements.  In 2008, we increased our assurance coverage by $1,697,000 due to a revision to our DSSI facility closure estimate.  Our 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.  In February 2008, we paid our fifth of nine required annual installments of $1,004,000, of which $991,000 was deposited in the sinking fund account, the remaining $13,000 represents a terrorism premium.  As of December 31, 2008, we have recorded $6,918,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $730,000 on the sinking fund as of December 31, 2008.  We recorded $155,000 of interest income on the sinking fund for 2008.  On the fourth and subsequent anniversaries of the contract inception, we may elect to terminate this contract.  If we so elect, the Insurer will 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, which we acquired in June 2007, with AIG (see “Part I, Item 1A. - Risk Factors” for certain potential risk related to AIG).  The policy provides an initial $7,800,000 of financial assurance coverage with annual growth rate of 1.5%, which at the end of the four year term policy, will provide maximum coverage of $8,200,000.  The policy will renew automatically on an annual basis at the end of the four year term and will not be subject to any renewal fees.  The policy requires total payment of $7,158,000, consisting of an annual payment of $1,363,000, two annual payments of $1,520,000, starting July 31, 2007 and an additional $2,755,000 to be paid in five quarterly payments of $551,000 beginning September 2007.  In July 2007, we paid the $1,363,000, of which $1,106,000 represented premium on the policy and the remaining was deposited into a sinking fund account.  In July 2008, we paid the first of the two $1,520,000 payments, with $1,344,000 deposited into a sinking fund account and the remaining representing premium.   As of December 31, 2008, we have made all of the five quarterly payments which were deposited into a sinking fund.  As of December 31, 2008, we have recorded $4,427,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $71,000 on the sinking fund as of December 31, 2008.  Interest income for 2008 totaled $68,000.

On November 26, 2008, the U.S. EPA Region 4 issued a permit to our DSSI facility to commercially store and dispose of PCBs.  DSSI began the permitting process to add TSCA regulated wastes, namely PCBs, containing radioactive constituents to its authorization in 2004 in order to meet the demand for the treatment of government and commercially generated radioactive PCB wastes.  In March 2009, we secured financial assurance coverage with AIG which will enable DSSI to receive and process wastes under this permit.  We secured this financial assurance coverage requirement by increasing our initial 25-year finite risk insurance policy with AIG from maximum policy coverage of $35,000,000 to $39,000,000.  Our coverage under this policy increased approximately $5,421,000 from $32,515,000 to approximately $37,936,000 as result of this
 
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additional financial assurance coverage requirement for the DSSI permit.  Payment for this financial assurance coverage requires a total payment of approximately $5,219,000, consisting of an upfront payment of $2,000,000, of which approximately $1,655,000 will be deposited into a sinking fund account, with the remaining representing fee payable to AIG.  In addition, we are required to make three yearly payments of approximately $1,073,000 starting December 31, 2009, of which $888,000 will be deposited into a sinking fund account, with the remaining to represent fee payable to AIG.  We made our initial $2,000,000 payment to AIG on March 6, 2009 from funds made available from an Amendment to our loan Agreement entered between us, our subsidiary, and PNC Bank, National Association, on March 5, 2009 (see “Financing Activities” in this section for the Amendment made with PNC Bank and see “Risk Factors” for a discussion as to the potential risks relating to AIG).

On July 28, 2006, our Board of Directors has authorized a common stock repurchase program to purchase up to $2,000,000 of our Common Stock, through open market and privately negotiated transactions, with the timing, the amount of repurchase transactions and the prices paid under the program as deemed appropriate by management and dependent on market conditions and corporate and regulatory considerations.   We plan to fund any repurchases under this program through our internal cash flow and/or borrowing under our line of credit.  As of the date of this report, we have not repurchased any of our Common Stock under the program as we continue to evaluate this repurchase program within our internal cash flow and/or borrowings under our line of credit.

Financing Activities
We entered into a Revolving Credit, Term Loan and Security Agreement (“Agreement”) with PNC Bank, National Association, a national banking association (“PNC”) acting as agent (“Agent”) for lenders, and as issuing bank.  The Agreement provided for a term loan (“Term Loan”) in the amount of $7,000,000, which requires principal repayments based upon a seven-year amortization, payable over five years, with monthly installments of $83,000 and the remaining unpaid principal balance due on November 27, 2008, as amended.  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.  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 December 31, 2008, the excess availability under our revolving credit was $5,394,000 based on our eligible receivables.

During 2008, we entered into various Amendments to the PNC Agreement.  Under these Amendments, the due date of the credit facility with PNC was extended to July 31, 2012, the method of calculating the fixed charge coverage ratio covenant contained in the loan agreement in each quarter of 2008 was modified, and our Term Loan was increased back up to $7,000,000 from the principal outstanding balance of $0, with the revolving line of credit remaining at $18,000,000.  The Term Loan continues to be payable in monthly installments of approximately $83,000, plus accrued interest, with the remaining unpaid principal balance and accrued interest, payable by July 31, 2012.  We agreed to pay PNC 1.0% 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 obligation after August 5, 2010.  We agreed to grant mortgages to PNC as to certain of our facilities not previously granted to PNC under the Agreement.  The $7,000,000 in loan proceeds was used to reduce our revolver balance and our current liabilities.

On March 5, 2009, we entered into another Amendment with PNC Bank to our Agreement.  This Amendment increased our borrowing availability by approximately an additional $2,200,000.  In addition, pursuant to the Amendment, monthly interest due on our revolving line of credit was amended from prime plus 1/2% to prime plus 2.0% and monthly interest due on our Term Loan was amended from prime plus 1.0% to prime plus 2.5%.  The Company also has the option to pay monthly interest due on the revolving line of credit by using the London Interbank Offer Rate (“LIBOR”), with the minimum floor base LIBOR
 
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rate of 2.5%, plus 3.0% and to pay monthly interest due on the Term Loan using the minimum floor base LIBOR rate of 2.5%, plus 3.5%.  In addition, pursuant to the Amendment, the fixed charge coverage ratio was amended to reduce the availability monthly by $48,000.  The Amendment also allowed us to retain funds received from the sale of our PFO property.  All other terms and conditions to the credit facility remain principally unchanged.  We utilized approximately $2,000,000 of the additional availability in connection with AIG’s financial assurance bond relating to our new permit to store and dispose of radioactive PCB waste as discussed above.

In connection with our acquisition of M&EC, M&EC issued a promissory note in the principal amount of $3,700,000, together with interest at an annual rate equal to the applicable law rate pursuant to Section 6621 of the Internal Revenue Code, to Performance Development Corporation (“PDC”), dated June 25, 2001, for monies advanced to M&EC by PDC and certain services performed by PDC on behalf of M&EC prior to our acquisition of M&EC.  The principal amount of the promissory note was payable over eight years on a semiannual basis on June 30 and December 31, with a final principal payment to be made by December 31, 2008.  All accrued and unpaid interest on the promissory note was payable in one lump sum on December 31, 2008.  PDC directed M&EC to make all payments under the promissory note directly to the IRS to be applied to PDC’s obligations to the IRS.  On December 29, 2008, M&EC and PDC entered into an amendment to the promissory note, whereby the outstanding principal and accrued interest due under the promissory note totaling approximately $3,066,000 is to be paid in the following installments:  $500,000 payment to be made by December 31, 2008 and five monthly payment of $100,000 to be made starting January 27, 2009, with the balance consisting of accrued and unpaid interest due on June 30, 2009.  We made the $500,000 payment on December 31, 2008.  Interest is to continue to accrue at the applicable law rate pursuant to the provisions of section 6621 of the Internal Revenue Code of 1986, as amended.  We have been directed by PDC to make all payments under the promissory note, as amended, directly to the IRS to be applied to PDC’s obligations under its obligations with the IRS.  As of December 31, 2008, and after payment of the $500,000 installment, the outstanding balance due under the promissory note to PDC, as amended, was approximately $2,566,000, which consists of interest only.  We anticipate paying the balance from our working capital.

Additionally, M&EC entered into an installment agreement, effective June 25, 2001, with the IRS for a principal amount of $923,000, plus accrued and unpaid interest, for certain withholding taxes owed by M&EC for periods prior to our acquisition of M&EC.  Although the M&EC installment agreement was payable over eight years, we were advised by the IRS that due to the method that the IRS utilized to apply the previous payments made by us in connection with the PDC promissory note discussed above, the M&EC installment agreement has been paid in full.

In conjunction with our acquisition of Nuvotec (n/k/a Perma-Fix of Northwest, Inc.) and PEcoS (n/k/a Perma-Fix of Northwest Richland, Inc.), (collectively called “PFNWR”) which was completed on June 13, 2007, we entered into a promissory note for a principal amount of $4,000,000 to KeyBank National Association, dated June 13, 2007, which represents debt assumed by us as result of the acquisition.  The promissory note is payable over a two year period with monthly principal repayment of $160,000 starting July 2007 and $173,000 starting July 2008, along with accrued interest.  Interest is accrued at prime rate plus 1.125%.  As of December 31, 2008, we have no outstanding balance on the note.

Additionally, in conjunction with our acquisition of PFNWR, we agreed to pay shareholders of Nuvotec 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 is accrued on 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.  Interest paid as of December 31, 2008 totaled $216,000.  Interest accrued as of December 31, 2008 totaled $103,000.  We anticipate paying the principal and interests due in 2009 from our working capital.



During 2008, we issued 111,179 shares of our Common Stock upon exercise of 106,179 employee stock options, at exercise prices ranging from $1.25 to $1.86 and 5,000 director stock options, at an exercise price of $1.75.  Total proceeds received during 2008 related to option exercises totaled approximately $184,000.  In addition, we received the remaining $25,000 from repayment of stock subscription resulting from exercise of warrants to purchase 60,000 shares of our Common Stock on a loan by the Company at an arms length basis in 2006 in the first six months of 2008.
 
In summary, the reclassification of debts (less current maturities) due to certain of our lenders resulting from our compliance of our fixed charge coverage ratio in the first quarter of 2008 back to long term from current has improved our working capital position as of December 31, 2008.  In addition, cash received from the sale of substantially all of the assets of PFMD and PFD (net of collateralized portion held by our credit facility) in the first quarter of 2008 and the sale of substantially all of the assets of PFTS in the second quarter of 2008, was used to pay off our term note and reduce our revolver balance.  The acquisition of PFNW and PFNWR in June 2007 continues to negatively impact our working capital as we continue to draw funds from our revolver to make payments on debt that we assumed as well as financial assurance payments requirement resulting from legacy wastes assumed from the acquisition.  In connection with the acquisition of PFNW and PFNWR, we could be required to pay an earn-out amount not to exceed $4,552,000 over a four year period.  The earn-out amounts will be earned if certain annual revenue targets are met by the Company’s consolidated Nuclear Segment.  We anticipate that all or a portion of the first $1,000,000 of the earn-out amount could be placed in an escrow account during the later part of 2009 to satisfy certain indemnification obligations under the Agreement.  We continue to take steps to improve our operations and liquidity and to invest working capital into our facilities to fund capital additions in the Nuclear Segment.  We restructured our credit facility with our lender in the third quarter of 2008 to better support the future needs of the Company. Although there are no assurances, we believe that our cash flows from operations and our available liquidity from our line of credit are sufficient to service the Company’s current obligations.

Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2008, and the effect such obligations are expected to have on our liquidity and cash flow in future periods, (in thousands):
 
         
Payments due by period
 
Contractual Obligations
 
Total
   
2009
     
2010-2012
     
2013-2014
   
After 2014
 
Long-term debt
  $ 16,203     $ 2,022     $ 14,172     $ 9     $  
Interest on long-term debt (1)
    3,077       2,871       206       ¾       ¾  
Interest on variable rate debt (2)
    2,532       824       1,708       ¾       ¾  
Operating leases
    2,097       744       1,300       53       ¾  
Finite risk policy (3)
    10,756       4,525       6,231       ¾       ¾  
Pension withdrawal liability (4)
    1,129       181       625       323       ¾  
Environmental contingencies (5)
    1,833       776       559       386       112  
Purchase obligations (6)
                             
     Total contractual obligations
  $ 37,627     $ 11,943     $ 24,801     $ 771     $ 112  
 
(1)
Our PDC Note agreements dated June 2001, as amended on December 29, 2008, call for the remaining balance of $2,566,000 which consists of interest, to be paid by June 30, 2009.  Monthly payment of $100,000 is to be made starting January 27, 2009.   Interest is to be accrued at the applicable rate pursuant to the term of the original note.  In conjunction with our acquisition of PFNWR, which was completed on June 13, 2007, we agreed to pay shareholders of Nuvotec 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 is accrued on 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.
 
(2) We have variable interest rates on our Term Loan and Revolving Credit of 2.5% and 2.0% over the prime rate of interest, as amended, respectively, and as such we have made certain assumptions in estimating future interest payments on this variable interest rate debt. We assume an increase in prime rate of 1/2% in each of the years 2009 through July 2012.
   
(3)
Our finite risk insurance policy provides financial assurance guarantees to the states in the event of unforeseen closure of our permitted facilities.  See Liquidity and Capital Resources – Investing activities earlier in this Management’s Discussion and Analysis for further discussion on our finite risk policy.

(4)
The pension withdrawal liability is the estimated liability to us upon termination of our union employees at our discontinued operation, PFMI.  See Discontinued Operations earlier in this section for discussion on our discontinued operation.

(5)
The environmental contingencies and related assumptions are discussed further in the Environmental Contingencies section of this Management’s Discussion and Analysis, and are based on estimated cash flow spending for these liabilities.  The environmental contingencies noted are for PFMI, PFM, PFSG, and PFD, which are the financial obligations of the Company.  The environmental liability, as it relates to the remediation of the EPS site assumed by the Company as a result of the original acquisition of the PFD facility, was retained by the Company upon the sale of PFD in March 2008.
  
(6)
We are not a party to any significant long-term service or supply contracts with respect to our processes.  We refrain from entering into any long-term purchase commitments in the ordinary course of business.
   
Critical Accounting Estimates
In preparing the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during the reporting period.  We believe the following critical accounting policies affect the more significant estimates used in preparation of the consolidated financial statements:

Revenue Recognition Estimates.  We utilize a percentage of completion methodology for purposes of revenue recognition in our Nuclear Segment.  As we accept more complex waste streams in this segment, the treatment of those waste streams becomes more complicated and time consuming.  We have continued to enhance our waste tracking capabilities and systems, which has enabled us to better match the revenue earned to the processing phases achieved.  The major processing phases are receipt, treatment/processing and shipment/final disposition.  Upon receiving mixed waste we recognize a certain percentage (ranging from 20% to 33%) of revenue as we incur costs for transportation, analytical and labor associated with the receipt of mixed wastes.  As the waste is processed, shipped and disposed of we recognize the remaining revenue and the associated costs of transportation and burial.  The waste streams in our Industrial Segment are much less complicated, and services are rendered shortly after receipt, as such we do not use percentage of completion estimates in our Industrial segment.  We review and evaluate our revenue recognition estimates and policies on a quarterly basis.   Under our subcontract awarded by CHPRC in 2008, we are reimbursed for costs incurred plus a certain percentage markup for indirect costs, in accordance with contract provision.  Costs incurred on excess of contract funding may be renegotiated for reimbursement.  We also earn a fee based on the approved costs to complete the contract.  We recognize this fee using the proportion of costs incurred to total estimated contract costs.


Allowance for Doubtful Accounts.  The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts, which is a valuation allowance that reflects management's best estimate of the amounts that are uncollectible.  We regularly review all accounts receivable balances that exceed 60 days from the invoice date and based on an assessment of current credit worthiness, estimate the portion, if any, of the balances that are uncollectible.  Specific accounts that are deemed to be uncollectible are reserved at 100% of their outstanding balance.  The remaining balances aged over 60 days have a percentage applied by aging category (5% for balances 61-90 days, 20% for balances 91-120 days and 40% for balances over 120 days aged), based on a historical valuation, that allows us to calculate the total reserve required. This allowance was approximately 0.4% of revenue for 2008 and 2.4%, of accounts receivable as of December 31, 2008.  Additionally, this allowance was approximately 0.3% of revenue for 2007 and 1.3% of accounts receivable as of December 31, 2007.

Intangible Assets.  Intangible assets relating to acquired businesses consist primarily of the cost of purchased businesses in excess of the estimated fair value of net identifiable assets acquired  or goodwill and the recognized value of the permits required to operate the business.  We continually reevaluate the propriety of the carrying amount of permits and goodwill to determine whether current events and circumstances warrant adjustments to the carrying value.  We test each Segment’s (or Reporting Unit’s) goodwill and permits, separately, for impairment, annually as of October 1.  Our annual impairment test as of October 1, 2008 and 2007 resulted in no impairment of goodwill and permits.  The methodology utilized in performing this test estimates the fair value of our operating segments using a discounted cash flow valuation approach.  Those cash flow estimates incorporate assumptions that marketplace participants would use in their estimates of fair value.  The most significant assumptions used in the discounted cash flow valuation regarding each of the Segment’s fair value in connection with goodwill valuations are:  (1) detailed five year cash flow projections, (2) the risk adjusted discount rate, and (3) the expected long-term growth rate.  The primary drivers of the cash flow projection in 2008 include sales revenue and projected margin which are based on our current revenue, projected government funding as it relates to our existing government contracts and future revenue expected as part of the government stimulus plan.  The risk adjusted discount rate represents the weighted average cost of capital and is established based on (1) the 20 year risk-free rate, which is impacted by events external to our business, such as investor expectation regarding economic activity (2) our required rate of return on equity, and (3) the current after tax rate of return on debt.  In valuing our goodwill for 2008, risk adjusted discount rate of 18% was used for the Nuclear and Industrial Segment and 16% for our Engineering Segment.  As of December 31, 2008, the fair value of our reporting units exceeds carrying value by approximately $6,616,000, $616,000, and $3,329,000 above its carrying value for the Nuclear, Engineering, and Industrial Segment, respectively.

Property and Equipment
Property and equipment expenditures are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes, while accelerated depreciation methods are principally used for income tax purposes.  Generally, annual depreciation rates range from ten to forty years for buildings (including improvements and asset retirement costs) and three to seven years for office furniture and equipment, vehicles, and decontamination and processing equipment.  Leasehold improvements are capitalized and amortized over the lesser of the term of the lease or the life of the asset.  Maintenance and repairs are charged directly to expense as incurred.  The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any gain or loss from sale or retirement is recognized in the accompanying consolidated statements of operations. Renewals and improvement, which extend the useful lives of the assets, are capitalized.  We include within buildings, asset retirement obligations, which represents our best estimates of the cost to close, at some undetermined future date, our permitted and/or licensed facilities.  In 2008, due to change in estimate of the costs to close our DSSI and PFNWR facility based on federal/state regulatory guidelines, we increased our asset retirement obligation (“ARO”) by $726,000 and $373,000 for our DSSI and PFNWR facility, respectively, which will be depreciated prospectively over the remaining life of the asset, in accordance with SFAS No. 143 “Accounting for Asset Retirement Obligations”.



In accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets, such as property, plant and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.  The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.  In 2007, as result of the approved divestiture of our Industrial Segment by our Board of Directors and in accordance with SFAS No. 144, we recorded $2,727,000 and $1,804,000 in tangible asset impairment loss for PFD and PFTS, respectively, which were included in “loss from discontinued operations, net of taxes” on our Consolidated Statements of Operations for the year ended December 31, 2007.

In September 2008, our Board of Directors approved retaining our Industrial Segment facilities/operations at PFFL, PFSG, and PFO.  As a result of this decision, we restated the condensed consolidated financial statements for all periods presented to reflect the reclassification of these three facilities/operations back into our continuing operations.  During the third quarter of 2008, we classified one of the two properties at PFO as “net property and equipment held for sale” within our continued operations in the Consolidated Balance Sheets in accordance to SFAS No. 144.  We evaluated the fair value of PFO’s assets and as a result, recorded a credit of $507,000 related to the recovery of previous impairment charges for PFO, which is included in “Asset Impairment Recovery” on the Consolidated Statements of Operations for the year ended December 31, 2008.  On December 23, 2008, we sold the property at PFO for $900,000 in cash resulting in a gain of $483,000.

Accrued Closure Costs. Accrued closure costs represent a contingent environmental liability to clean up a facility in the event we cease operations in an existing facility.  The accrued closure costs are estimates based on guidelines developed by federal and/or state regulatory authorities under Resource Conservation and Recovery Act (“RCRA”). Such costs are evaluated annually and adjusted for inflationary factors and for approved changes or expansions to the facilities. Increases due to inflationary factors for 2008 and 2007, have been approximately 2.7%, and 2.9%, respectively, and based on the historical information, we do not expect future inflationary changes to differ materially from the last three years.  Increases or decreases in accrued closure costs resulting from changes or expansions at the facilities are determined based on specific RCRA guidelines applied to the requested change.  This calculation includes certain estimates, such as disposal pricing, external labor, analytical costs and processing costs, which are based on current market conditions.  We have no current intention to close any of our facilities except for the Michigan and Pittsburgh facilities.

Accrued Environmental Liabilities. We have four remediation projects currently in progress.  The current and long-term accrual amounts for the projects are our best estimates based on proposed or approved processes for clean-up.  The circumstances that could affect the outcome range from new technologies that are being developed every day to reduce our overall costs, to increased contamination levels that could arise as we complete remediation which could increase our costs, neither of which we anticipate at this time.  In addition, significant changes in regulations could adversely or favorably affect our costs to remediate existing sites or potential future sites, which cannot be reasonably quantified.  Our environmental liabilities also included $391,000 in accrued long-term environmental liability as of December 31, 2007 for our Maryland facility acquired in March 2004.  As previously disclosed, in January 2008, we sold substantially all of the assets of the Maryland facility.  In connection with this sale, the buyer has assumed this liability, in addition to obligations and liabilities for environmental conditions at the Maryland facility except for fines, assessments, or judgments to governmental authorities prior to the closing of the transaction or third party tort claims existing prior to the closing of the sale.  In connection with the sale of our PFD facility in March 2008, the Company has retained the environmental liability for the remediation of an independent site known as EPS.  This liability was assumed by the Company as a result of the original acquisition of the


PFD facility.  In connection with the sale of our PFTS facility in May 2008, the remaining environmental reserve of approximately $35,000 was recorded as a “gain on disposal of discontinued operation, net of taxes” in the second quarter of 2008 on our “Consolidated Statement of Operations” as the buyer has assumed any future on-going environmental monitoring.  The environmental liabilities of PFM, PFMI, PFSG, and PFD remain the financial obligations of the Company.

Disposal/Transportation Costs. We accrue for waste disposal based upon a physical count of the total waste at each facility at the end of each accounting period.  Current market prices for transportation and disposal costs are applied to the end of period waste inventories to calculate the disposal accrual.  Costs are calculated using current costs for disposal, but economic trends could materially affect our actual costs for disposal. 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.

Share-Based Compensation.  On January 1, 2006, we adopted Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised) (“SFAS 123R”), Share-Based Payment, a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation, superseding APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.  This Statement establishes accounting standards for entity exchanges of equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.  SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative upon adopting SFAS 123R.  We adopted SFAS 123R utilizing the modified prospective method in which compensation cost is recognized beginning with the effective date based on SFAS 123R requirements for all (a) share-based payments granted after the effective date and (b) awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date.  In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R.

Pursuant to the adoption of SFAS 123R, we recorded stock-based compensation expense for the director stock options granted prior to, but not yet vested, as of January 1, 2006, using the fair value method required under SFAS 123R.  For our employee and director stock option grants, we have estimated compensation expense based on the fair value at grant date using the Black-Scholes valuation model and have recognized compensation expense using a straight-line amortization method over the vesting period.  As SFAS 123R requires that stock-based compensation expense be based on options that are ultimately expected to vest, our stock-based compensation is reduced for estimated forfeiture rates.  When estimating forfeitures, we considered historical trends of actual option forfeitures.  Forfeiture rates are evaluated, and revised when necessary.  For the August 2008 and December 2008 employee stock option grants, we have estimated 5% and 0% forfeiture rates, respectively, for the first year of vesting.  Our December 2008 employee option grants were made to employees hired resulting from the subcontract awarded to us from CHPRC.  We based our forfeiture rate for these option grants on historical employment terms under similar type contracts. For the 2008 director stock option grants, we have estimated 0% forfeiture rate for the first year of vesting based on historical trend of actual forfeitures.

Our computation of expected volatility used to calculate the fair value of options granted using the Black-Scholes valuation model is based on historical volatility from our traded common stock over the expected term of the option grants.  For our employee option grants made prior to 2008, we used the simplified method, defined in the SEC’s Staff Accounting Bulletin No. 107, to calculate the expected term.  For our employee option grants made in August 2008, we computed the expected term based on the historical exercise and post-vesting data.  For the December 2008 option grants made to employees working under the CHPRC subcontract, we computed the expected term based on the initial subcontract term of five years.  For our director option grants, the expected term is calculated based on historical exercise and post-vesting


data.  The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.