SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





Form
10-Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the quarterly period
ended              June 30,
2010





Or





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the transition period
from            to





Commission
      File No.
                111596





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


(Exact
name of registrant as specified in its charter)





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





(770)
587-9898


(Registrant's
telephone number)





N/A


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





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


YesxNo ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files).


Yes ̈No ̈





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


Large accelerated filer ̈Accelerated
FilerxNon-accelerated
Filer ̈Smaller
reporting company ̈





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





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





Class
                        
                        Outstanding at August 3,
    2010Common Stock, $.001 Par
    Value
                        
                        54,993,907shares of registrant’sCommon
Stock













PERMA-FIX
ENVIRONMENTAL SERVICES, INC.





INDEX





Page
      No.PART
      I        FINANCIAL
      INFORMATIONItem
      1.
                                                Condensed
      Financial StatementsConsolidated
      Balance Sheets - June 30, 2010 (unaudited) and December 31,
      2009
                                                1Consolidated
      Statements of Operations - Three and Six Months Ended June 30, 2010
      (unaudited) and 2009 (unaudited)
                                                3Consolidated
      Statements of Cash Flows - Six Months Ended June 30, 2010 (unaudited) and
      2009 (unaudited)
                                                4Consolidated
      Statement of Stockholders' Equity -Six Months Ended June 30, 2010
      (unaudited)
                                                5Notes
      to Consolidated Financial Statements
                                                6Item
      2.
                                                Management's
      Discussion and Analysis ofFinancial Condition and Results of
      Operations
                                                21Item
      3.
                                                Quantitative
      and Qualitative Disclosures About Market Risk
                                                44Item
      4.
                                                Controls
      and Procedures
                                                44PART
      II       OTHER
      INFORMATIONItem
      1.
                                                Legal
      Proceedings
                                                45Item
      1A.
                                                Risk
      Factors
                                                46Item
      6.
                                                Exhibits
                                                46










PART
I - FINANCIAL INFORMATION


ITEM
1. – Financial Statements





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


Consolidated
Balance Sheets





June 30,
                  2010
                
                
                December 31,(Amount in Thousands, Except for Share Amounts)
                
                (Unaudited)
                
                
                2009ASSETSCurrent
      assets:Cash
                
                $
                68
                
                
                $
                141Restricted
      cash
                
                
                55
                
                
                
                55Accounts
      receivable, net of allowance for doubtful accounts of $304 and $296,
      respectively
                
                
                10,078
                
                
                
                13,141Unbilled
      receivables - current
                
                
                8,166
                
                
                
                9,858Inventories
                
                
                565
                
                
                
                351Prepaid
      and other assets
                
                
                2,028
                
                
                
                3,097Deferred
      tax assets - current
                
                
                707
                
                
                
                1,856Current
      assets related to discontinued operations
                
                
                109
                
                
                
                174Total
      current assets
                
                
                21,776
                
                
                
                28,673Property
      and equipment:Buildings
      and land
                
                
                27,131
                
                
                
                27,098Equipment
                
                
                33,000
                
                
                
                31,757Vehicles
                
                
                649
                
                
                
                650Leasehold
      improvements
                
                
                11,506
                
                
                
                11,455Office
      furniture and equipment
                
                
                1,905
                
                
                
                1,933Construction-in-progress
                
                
                1,400
                
                
                
                1,27575,591
                
                
                
                74,168Less
      accumulated depreciation and amortization
                
                
                (30,710
                )
                
                
                (28,441
                )Net
      property and equipment
                
                
                44,881
                
                
                
                45,727Property
      and equipment related to discontinued operations
                
                
                637
                
                
                
                651Intangibles
      and other long term assets:Permits
                
                
                18,068
                
                
                
                18,079Goodwill
                
                
                15,330
                
                
                
                12,352Unbilled
      receivables – non-current
                
                
                2,619
                
                
                
                2,502Finite
      Risk Sinking Fund
                
                
                17,396
                
                
                
                15,480Deferred
      tax asset, net of liabilities
                
                
                208
                
                
                
                272Other
      assets
                
                
                2,293
                
                
                
                2,339Total
      assets
                
                $
                123,208
                
                
                $
                126,075





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


1





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


Consolidated
Balance Sheets, Continued





June
      30,
                  2010
                
                
                December
      31,(Amount in Thousands, Except for Share
      Amounts)
                
                (Unaudited)
                
                
                2009LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                4,097
                
                
                $
                4,927Current
      environmental accrual
                
                
                75
                
                
                
                25Accrued
      expenses
                
                
                9,180
                
                
                
                6,478Disposal/transportation
      accrual
                
                
                2,275
                
                
                
                2,761Unearned
      revenue
                
                
                3,034
                
                
                
                8,949Current
      liabilities related to discontinued operations
                
                
                740
                
                
                
                993Current
      portion of long-term debt
                
                
                3,038
                
                
                
                3,050Total
      current liabilities
                
                
                22,439
                
                
                
                27,183Environmental
      accruals
                
                
                1,497
                
                
                
                785Accrued
      closure costs
                
                
                12,114
                
                
                
                12,031Other
      long-term liabilities
                
                
                578
                
                
                
                508Long-term
      liabilities related to discontinued operations
                
                
                1,336
                
                
                
                1,433Long-term
      debt, less current portion
                
                
                7,563
                
                
                
                9,331Total
      long-term liabilities
                
                
                23,088
                
                
                
                24,088Total
      liabilities
                
                
                45,527
                
                
                
                51,271Commitments
      and ContingenciesPreferred
      Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized,
      1,284,730 shares issued and outstanding, liquidation value $1.00 per
      share
                
                
                1,285
                
                
                
                1,285Stockholders'
      equity:Preferred
      Stock, $.001 par value; 2,000,000 shares authorized,no shares issued and
      outstanding
                
                
                3⁄4
                
                
                
                3⁄4Common
      Stock, $.001 par value; 75,000,000 shares authorized,55,032,117 and
      54,628,904 shares issued, respectively; 54,993,907 and 54,628,904
      outstanding, respectively
                
                
                55
                
                
                
                55Additional
      paid-in capital
                
                
                100,523
                
                
                
                99,641Accumulated
      deficit
                
                
                (24,094
                )
                
                
                (26,177
                )76,484
                
                
                
                73,519Less
      Common Stock in treasury at cost: 38,210 and 0 shares,
      respectively
                
                
                (88
                )
                
                
                3⁄4Total
      stockholders' equity
                
                
                76,396
                
                
                
                73,519Total
      liabilities and stockholders' equity
                
                $
                123,208
                
                
                $
                126,075





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


2





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended
                  June 30,
                
                
                Six Months Ended
                  June 30,(Amounts in Thousands, Except for Per Share
      Amounts)
                
                2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      revenues
                
                $
                28,096
                
                
                $
                23,698
                
                
                $
                53,955
                
                
                $
                45,700Cost
      of goods sold
                
                
                21,356
                
                
                
                18,244
                
                
                
                41,876
                
                
                
                35,675Gross
      profit
                
                
                6,740
                
                
                
                5,454
                
                
                
                12,079
                
                
                
                10,025Selling,
      general and administrative expenses
                
                
                3,829
                
                
                
                3,889
                
                
                
                7,653
                
                
                
                7,707Loss
      (gain) on disposal of property and equipment
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                2
                
                
                
                (12
                )Income
      from operations
                
                
                2,911
                
                
                
                1,565
                
                
                
                4,424
                
                
                
                2,330Other
      income (expense):Interest
      income
                
                
                16
                
                
                
                41
                
                
                
                37
                
                
                
                93Interest
      expense
                
                
                (208
                )
                
                
                (468
                )
                
                
                (427
                )
                
                
                (1,015
                )Interest
      expense-financing fees
                
                
                (103
                )
                
                
                (63
                )
                
                
                (206
                )
                
                
                (76
                )Other
                
                
                3⁄4
                
                
                
                9
                
                
                
                5
                
                
                
                10Income
      from continuing operations before taxes
                
                
                2,616
                
                
                
                1,084
                
                
                
                3,833
                
                
                
                1,342Income
      tax expense
                
                
                1,101
                
                
                
                91
                
                
                
                1,537
                
                
                
                100Income
      from continuing operations
                
                
                1,515
                
                
                
                993
                
                
                
                2,296
                
                
                
                1,242(Loss)
      income from discontinued operations, net of taxes
                
                
                (69
                )
                
                
                (242
                )
                
                
                (213
                )
                
                
                57Net
      income applicable to Common Stockholders
                
                $
                1,446
                
                
                $
                751
                
                
                $
                2,083
                
                
                $
                1,299Net
      income (loss) per common share – basicContinuing
      operations
                
                $
                .03
                
                
                $
                .02
                
                
                $
                .04
                
                
                $
                .02Discontinued
      operations
                
                
                3⁄4
                
                
                
                (.01
                )
                
                
                3⁄4
                
                
                
                3⁄4Net
      income per common share
                
                $
                .03
                
                
                $
                .01
                
                
                $
                .04
                
                
                $
                .02Net
      income (loss) per common share – dilutedContinuing
      operations
                
                $
                .03
                
                
                $
                .02
                
                
                $
                .04
                
                
                $
                .02Discontinued
      operations
                
                
                3⁄4
                
                
                
                (.01
                )
                
                
                3⁄4
                
                
                
                3⁄4Net
      income per common share
                
                $
                .03
                
                
                $
                .01
                
                
                $
                .04
                
                
                $
                .02Number
      of common shares used in computing net income (loss) per
      share:Basic
                
                
                54,991
                
                
                
                54,124
                
                
                
                54,843
                
                
                
                54,053Diluted
                
                
                55,124
                
                
                
                54,537
                
                
                
                55,012
                
                
                
                54,189





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


3





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months Ended
                  June 30,(Amounts in Thousands)
                
                2010
                
                
                2009Cash
      flows from operating activities:Net
      income
                
                $
                2,083
                
                
                $
                1,299Less:
      (loss) income on discontinued operations
                
                
                (213
                )
                
                
                57Income
      from continuing operations
                
                
                2,296
                
                
                
                1,242Adjustments
      to reconcile net income to cash provided by operations:Depreciation
      and amortization
                
                
                2,349
                
                
                
                2,381Non-cash
      financing costs
                
                
                167
                
                
                
                49Deferred
      taxes
                
                
                1,213
                
                
                
                ―Provision
      for bad debt and other reserves
                
                
                29
                
                
                
                212Loss
      (gain) on disposal of plant, property and equipment
                
                
                2
                
                
                
                (12
                )Issuance
      of common stock for services
                
                
                120
                
                
                
                129Share
      based compensation
                
                
                165
                
                
                
                224Changes
      in operating assets and liabilities of continuing operations, net of
      effect from business acquisitions:Accounts
      receivable
                
                
                3,034
                
                
                
                168Unbilled
      receivables
                
                
                1,575
                
                
                
                2,896Prepaid
      expenses, inventories and other assets
                
                
                1,063
                
                
                
                297Accounts
      payable, accrued expenses and unearned revenue
                
                
                (7,435
                )
                
                
                (9,100
                )Cash
      provided by (used in) continuing operations
                
                
                4,578
                
                
                
                (1,514
                )Cash
      used in discontinued operations
                
                
                (520
                )
                
                
                (448
                )Cash
      provided by (used in) operating activities
                
                
                4,058
                
                
                
                (1,962
                )Cash
      flows from investing activities:Purchases
      of property and equipment
                
                
                (1,467
                )
                
                
                (552
                )Proceeds
      from sale of plant, property and equipment
                
                
                ―
                
                
                
                12Payment
      to finite risk sinking fund
                
                
                (1,916
                )
                
                
                (2,738
                )Cash
      used in investing activities of continuing operations
                
                
                (3,383
                )
                
                
                (3,278
                )Cash
      provided by discontinued operations
                
                
                37
                
                
                
                11Net
      cash used in investing activities
                
                
                (3,346
                )
                
                
                (3,267
                )Cash
      flows from financing activities:Net
      borrowing of revolving credit
                
                
                2
                
                
                
                3,691Principal
      repayments of long term debt
                
                
                (1,949
                )
                
                
                (1,514
                )Proceeds
      from issuance of long term debt
                
                
                ―
                
                
                
                2,982Proceeds
      from issuance of stock
                
                
                509
                
                
                
                ―Proceeds
      from finite risk financing
                
                
                653
                
                
                
                ―Cash
      (used in) provided by financing activities of continuing
      operations
                
                
                (785
                )
                
                
                5,159Decrease
      in cash
                
                
                (73
                )
                
                
                (70
                )Cash
      at beginning of period
                
                
                141
                
                
                
                129Cash
      at end of period
                
                $
                68
                
                
                $
                59Supplemental
      disclosure:Interest
      paid, net of amounts capitalized
                
                $
                544
                
                
                $
                3,628Income
      taxes paid
                
                
                400
                
                
                
                57Non-cash
      investing and financing activities:Long-term
      debt incurred for purchase of property and equipment
                
                
                ―
                
                
                
                ―Issuance
      of Common Stock for debt
                
                
                ―
                
                
                
                476Issuance
      of Warrants for debt
                
                
                ―
                
                
                
                190





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


4





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


(Unaudited,
for the six months ended June 30, 2010)





Additional
                
                
                Common
                
                
                
                
                
                Total(Amounts
      in thousands,
                
                Common Stock
                
                
                Paid-In
                
                
                Stock
      Held In
                
                
                Accumulated
                
                
                Stockholders'except for share amounts)
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Treasury
                
                
                Deficit
                
                
                EquityBalance
      at December 31, 2009
                
                
                54,628,904
                
                
                $
                55
                
                
                $
                99,641
                
                
                $
                3⁄4
                
                
                $
                (26,177
                )
                
                $
                73,519Net
      income
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                2,083
                
                
                
                2,083Issuance
      of Common Stock upon exercise of Options
                
                
                350,000
                
                
                
                3⁄4
                
                
                
                597
                
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                597Payment
      of Option exercise by Common Stock shares
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                (88
                )
                
                
                3⁄4
                
                
                
                (88
                )Issuance
      of Common Stock for services
                
                
                53,213
                
                
                
                3⁄4
                
                
                
                120
                
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                120Stock-Based
      Compensation
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                165
                
                
                
                3⁄4
                
                
                
                3⁄4
                
                
                
                165Balance
      at June 30, 2010
                
                
                55,032,117
                
                
                $
                55
                
                
                $
                100,523
                
                
                $
                (88
                )
                
                $
                (24,094
                )
                
                $
                76,396





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


5





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





June
30, 2010


(Unaudited)





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





1.
            Basis of
      Presentation





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





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





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





2.
            Summary of Significant
      Accounting Policies





Recently
Adopted Accounting Pronouncements


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


6





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





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





Recently
Issued Accounting Standards


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





Reclassifications


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





3.
            Stock Based
      Compensation





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





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





As of
June 30, 2010, we had 2,010,525 employee stock options outstanding, of which
1,386,858 are vested.  The weighted average exercise price of the
1,386,858 outstanding and fully vested employee stock option is $1.98 with a
remaining weighted contractual life of 2.40 years.  Additionally, we
had 694,000 outstanding and fully vested director stock options with a weighted
average exercise price and remaining contractual life of $2.29 and 5.50 years,
respectively.





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





7




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





Employee
      Stock Options Granted
                              as of June 30, 2009Weighted-average
      fair value per share
                            
                            $.76Risk
      -free interest rate (1)
                            
                            2.07%
      - 2.40%Expected
      volatility of stock (2)
                            
                            59.16%
      - 60.38%Dividend
      yield
                            
                            NoneExpected
      option life (3)
                            
                            4.6
      years - 5.8 years





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





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





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





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





Three
      Months Ended
                      
                      
                      Six
      Months EndedStock Options
                      
                      June 30,
                      
                      
                      June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Employee
      Stock Options
                      
                      $
                      79,000
                      
                      
                      $
                      89,000
                      
                      
                      $
                      138,000
                      
                      
                      $
                      194,000Director
      Stock Options
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      27,000
                      
                      
                      
                      30,000Total
                      
                      $
                      79,000
                      
                      
                      $
                      89,000
                      
                      
                      $
                      165,000
                      
                      
                      $
                      224,000





We
recognized stock-based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant.  ASC 718 requires that stock based compensation expense
be based on options that are ultimately expected to vest.  ASC 718
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.  We have generally estimated forfeiture rate based on
historical trends of actual forfeitures.  When actual forfeitures vary
from our estimates, we recognize the difference in compensation expense in the
period the actual forfeitures occur or when options vest.  As of June
30, 2010, we have approximately $375,000 of total unrecognized compensation cost
related to unvested options, of which $162,000 is expected to be recognized in
remaining 2010, $202,000 in 2011, and $11,000 in 2012.


8





4.
            Capital Stock, Stock
      Plans, and Warrants





During
the six months ended June 30, 2010, we issued an aggregate of 350,000 shares of
our Common Stock upon exercise of 350,000 employee stock options, at exercise
prices ranging from $1.25 to $2.19.  An employee used 38,210 shares of
personally held Company Common Stock as payment for the exercise of 70,000
options to purchase 70,000 shares of the Company’s Common Stock at $1.25 per
share, as permitted under the 1993 Non-Qualified Stock Option
Plan.  The 38,210 shares are held as treasury stock.  The
cost of the 38,210 shares was determined to be approximately $88,000 in
accordance with the Plan.  As of June 30, 2010, we received $509,000
in total proceeds from stock option exercise.  During the six months
ended June 30, 2010, we also issued 53,213 shares of our Common Stock under our
2003 Outside Directors Stock Plan to our outside directors as compensation for
serving on our Board of Directors, of which 27,707 shares were issued in the
second quarter of 2010.  We pay each of our outside directors $2,167
monthly in fees for serving as a member of our Board of
Directors.  The Audit Committee Chairman receives an additional
monthly fee of $1,833 due to the position’s additional
responsibility.  In addition, each board member is paid $1,000 for
each board meeting attendance as well as $500 for each telephonic conference
call.  As a member of the Board of Directors, each director elects to
receive either 65% or 100% of the director’s fee in shares of our Common Stock
based on 75% of the fair market value of our Common Stock determined on the
business day immediately preceding the date that the quarterly fee is
due.  The balance of each director’s fee, if any, is payable in
cash.





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





Shares
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Weighted
                                  Average
                                  Remaining
                                  Contractual
                                  Term
                                
                                
                                Aggregate
                                  Intrinsic
                                  ValueOptions
      outstanding Janury 1, 2010
                                
                                
                                3,109,525
                                
                                
                                $
                                2.05Granted
                                
                                ─
                                
                                
                                ─Exercised
                                
                                
                                (350,000
                                )
                                
                                
                                1.70
                                
                                
                                
                                
                                
                                $
                                223,000Forfeited
                                
                                
                                (55,000
                                )
                                
                                
                                2.17Options
      outstanding End of Period (1)
                                
                                
                                2,704,525
                                
                                
                                
                                2.09
                                
                                
                                
                                3.6
                                
                                
                                $
                                28,450Options
      Exercisable at June 30, 2010 (1)
                                
                                
                                2,080,858
                                
                                
                                $
                                2.08
                                
                                
                                
                                3.4
                                
                                
                                $
                                13,250Options
      Vested and expected to be vested at June 30, 2010
                                
                                
                                2,666,742
                                
                                
                                $
                                2.09
                                
                                
                                
                                3.6
                                
                                
                                $
                                28,450





Shares
                                              
                                              
                                              Weighted
                                                Average
                                                Exercise
                                                Price
                                              
                                              
                                              Weighted
                                                Average
                                                Remaining
                                                Contractual
                                                Term
                                              
                                              
                                              Aggregate
                                                Intrinsic
                                                ValueOptions
      outstanding Janury 1, 2009
                                              
                                              
                                              3,417,347
                                              
                                              
                                              $
                                              2.03Granted
                                              
                                              
                                              145,000
                                              
                                              
                                              
                                              1.42Exercised
                                              
                                              ─
                                              
                                              
                                              ─
                                              
                                              
                                              
                                              
                                              $
                                              ─Forfeited
                                              
                                              
                                              (19,000
                                              )
                                              
                                              
                                              1.97Options
      outstanding End of Period (2)
                                              
                                              
                                              3,543,347
                                              
                                              
                                              
                                              2.01
                                              
                                              
                                              
                                              4.0
                                              
                                              $
                                              1,524,369Options
      Exercisable at June 30, 2009 (2)
                                              
                                              
                                              2,407,847
                                              
                                              
                                              $
                                              1.95
                                              
                                              
                                              
                                              3.4
                                              
                                              $
                                              1,209,349Options
      Vested and expected to be vested at June 30, 2009
                                              
                                              
                                              3,501,989
                                              
                                              
                                              $
                                              1.95
                                              
                                              
                                              
                                              4.0
                                              
                                              $
                                              1,518,579





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


(2)Option
with exercise price ranging from $1.22 to $2.98


9





5.
            Earnings (Loss) Per
      Share





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





The
following is a reconciliation of basic net income (loss) per share to diluted
net income (loss) per share for the three and six months ended June 30, 2010 and
2009:




Three Months Ended
                                              June 30,
                                            
                                            
                                            Six Months Ended
                                              June 30,(Unaudited)
                                            
                                            
                                            (Unaudited)(Amounts in Thousands, Except for Per Share
      Amounts)
                                            
                                            2010
                                            
                                            
                                            2009
                                            
                                            
                                            2010
                                            
                                            
                                            2009Earnings per share from continuing
      operationsIncome
      from continuing operations applicable toCommon
      Stockholders
                                            
                                            $
                                            1,515
                                            
                                            
                                            $
                                            993
                                            
                                            
                                            
                                            2,296
                                            
                                            
                                            $
                                            1,242Basic
      income per share
                                            
                                            $
                                            .03
                                            
                                            
                                            $
                                            .02
                                            
                                            
                                            
                                            .04
                                            
                                            
                                            $
                                            .02Diluted
      income per share
                                            
                                            $
                                            .03
                                            
                                            
                                            $
                                            .02
                                            
                                            
                                            
                                            .04
                                            
                                            
                                            $
                                            .02(Loss) income per share from discontinued
      operations(Loss)
      income from discontinued operations
                                            
                                            $
                                            (69
                                            )
                                            
                                            $
                                            (242
                                            )
                                            
                                            
                                            (213
                                            )
                                            
                                            $
                                            57Basic
      loss per share
                                            
                                            $
                                            3⁄4
                                            
                                            
                                            $
                                            (.01
                                            )
                                            
                                            
                                            3⁄4
                                            
                                            
                                            $
                                            3⁄4Diluted
      loss per share
                                            
                                            $
                                            3⁄4
                                            
                                            
                                            $
                                            (.01
                                            )
                                            
                                            
                                            3⁄4
                                            
                                            
                                            $
                                            3⁄4Weighted
      average common shares outstanding – basic
                                            
                                            
                                            54,991
                                            
                                            
                                            
                                            54,124
                                            
                                            
                                            
                                            54,843
                                            
                                            
                                            
                                            54,053Potential
      shares exercisable under stock option plans
                                            
                                            
                                            99
                                            
                                            
                                            
                                            367
                                            
                                            
                                            
                                            131
                                            
                                            
                                            
                                            111Potential
      shares upon exercise of Warrants
                                            
                                            
                                            34
                                            
                                            
                                            
                                            46
                                            
                                            
                                            
                                            38
                                            
                                            
                                            
                                            25Weighted
      average shares outstanding – diluted
                                            
                                            
                                            55,124
                                            
                                            
                                            
                                            54,537
                                            
                                            
                                            
                                            55,012
                                            
                                            
                                            
                                            54,189Potential
      shares excluded from above weighted average share calculations due to
      their anti-dilutive effect include:Upon
      exercise of options
                                            
                                            
                                            1,715
                                            
                                            
                                            
                                            1,546
                                            
                                            
                                            
                                            1,625
                                            
                                            
                                            
                                            2,645Upon
      exercise of Warrants
                                            
                                            
                                            3⁄4
                                            
                                            
                                            
                                            3⁄4
                                            
                                            
                                            
                                            3⁄4
                                            
                                            
                                            
                                            3⁄4


10





6.
            Long Term
      Debt





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





(Amounts
      in Thousands)
                    
                    June
      30,
                      2010
                    
                    
                    December
      31,
                      2009Revolving Credit
      facility dated December 22, 2000, borrowings based upon eligible accounts
      receivable, subject to monthly borrowing base calculation, variable
      interest paid monthly at option of prime rate (3.25% at June 30, 2010)
      plus 2.0% or minimum floor base London InterBank Offer Rate ("LIBOR") of
      1.0% plus 3.0%, balance due in July, 2012. Effective interest rate for the
      six months of 2010 was 4.43% (1) (2)
      (3)
                    
                    $
                    2,661
                    
                    
                    $
                    2,659Term Loan dated December
      22, 2000, payable in equal monthly installments of principal of $83,
      balance due in July, 2012, variable interest paid monthly at option of
      prime rate plus 2.5% or minimum floor base LIBOR of 1.0% plus 3.5%.
      Effective interest rate for the six months of 2010 was 4.81%(1) (2)
      (3)
                    
                    
                    5,167
                    
                    
                    
                    5,667Installment Agreementin
      the Agreement and Plan of Merger with Nuvotec and PEcoS, dated April 27,
      2007, payable in three equal yearly installment of principal of $833
      beginning June, 2009. Interest accrues at annual rate of 8.25% on
      outstanding principal balance. Final principal and remaining accrued
      interest payment due on June 30, 2011.
                    
                    
                    833
                    
                    
                    
                    1,667Promissory Notedated
      May 8, 2009, payable in monthly installments of principal of $87 starting
      June 8, 2009, balance due May 8, 2011, variable interest paid monthly at
      LIBOR plus 4.5%, with LIBOR at least 1.5%.(4)
                    
                    
                    1,580
                    
                    
                    
                    1,938Various capital lease and
      promissory note obligations, payable 2010 to 2013, interest at
      rates ranging from 5.0% to 12.6%.
                    
                    
                    360
                    
                    
                    
                    45010,601
                    
                    
                    
                    12,381Less
      current portion of long-term debt
                    
                    
                    3,038
                    
                    
                    
                    3,050$
                    7,563
                    
                    
                    $
                    9,331





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





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





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





(4)Net
of debt discount of ($284,000) based on the estimated fair value of two Warrants
and 200,000 shares of the Company’s Common Stock issued on May 8, 2009 in
connection with a $3,000,000 promissory note entered into by the Company and Mr.
William Lampson and Mr. Diehl Rettig.  See “Promissory Note and
Installment Agreement” below for additional
information.


11





Revolving
Credit and Term Loan Agreement


On
December 22, 2000, we entered into a Revolving Credit, Term Loan and Security
Agreement ("Loan Agreement") with PNC Bank, National Association, a national
banking association ("PNC") acting as agent ("Agent") for lenders, and as
issuing bank, as amended.  The Agreement provided for a term loan
("Term Loan") in the amount of $7,000,000, which requires monthly installments
of $83,000.  The Agreement also provided for a revolving line of
credit ("Revolving Credit") with a maximum principal amount outstanding at any
one time of $18,000,000, as amended.  The Revolving Credit advances
are subject to limitations of an amount up to the sum of (a) up to 85% of
Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of
Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to
85% of acceptable Government Agency Receivables aged up to 150 days from invoice
date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less
(e) reserves the Agent reasonably deems proper and necessary.  As of
June 30, 2010, the excess availability under our Revolving Credit was $8,100,000
based on our eligible receivables.





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





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





Promissory
Note and Installment Agreement


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





On May 8,
2009, the Company entered into a promissory note with William N. Lampson and
Diehl Rettig (collectively, the “Lenders”) for $3,000,000.  The
Lenders were formerly shareholders of PFNW and PFNWR prior to our acquisition of
PFNW and PFNWR and are also stockholders of the Company having received shares
of our Common Stock in connection with our acquisition of PFNW and
PFNWR.  We used the proceeds of the loan primarily to pay off a
promissory note entered into by our M&EC subsidiary with PDC in June 2001,
with the remaining funds used for working capital purposes.  The
promissory note provides for monthly principal repayment of approximately
$87,000 plus accrued interest, starting June 8, 2009, and on the 8th day of each
month thereafter, with interest payable at LIBOR plus 4.5%, with LIBOR at least
1.5%.  Any unpaid principal balance along with accrued interest is due
May 8, 2011.  We paid approximately $22,000 in closing costs for the
promissory note which is being amortized over the term of the
note.  The promissory note may be prepaid at anytime by the Company
without penalty.  As consideration of the Company receiving this loan,
we issued a Warrant to Mr. Lampson and a Warrant to Mr. Diehl to purchase up to
135,000 and 15,000 shares, respectively, of the Company’s Common Stock at an
exercise price of $1.50 per share.  The Warrants are exercisable six
months from May 8, 2009 and expire on May 8, 2011.  We also issued an
aggregate of 200,000 shares of the Company’s Common Stock with Mr. Lampson
receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s
Common Stock.  We estimated the fair value of the Common Stock and
Warrants to be approximately $476,000 and $190,000, respectively.  The
fair value of the Common Stock and Warrants was recorded as a debt discount and
is being amortized over the term of the loan as interest expense – financing
fees.  Debt discount amortized as of June 30, 2010 totaled
approximately $382,000.  Mr. Rettig is now deceased; accordingly, the
remaining portion of the note payable to Mr. Rettig and the Warrants and Stock
issued to him is now payable to and held by his personal representative or
estate.


12





The
promissory note also includes an embedded Put Option (“Put”) that can be
exercised upon default, whereby the lender has the option to receive a cash
payment equal to the amount of the unpaid principal balance plus all accrued and
unpaid interest, or the number of whole shares of our Common Stock having a
value equal to the outstanding principal balance.  The maximum number
of payoff shares is restricted to less than 20% of the outstanding
equity.  We concluded that the Put should have been bifurcated at
inception; however, the Put Option had and continues to have nominal value as of
June 30, 2010.  We will continue to monitor the fair value of the Put
on a regular basis.





7.
            Commitments and
      Contingencies





Hazardous
Waste


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





Legal


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





Perma-Fix
of Dayton (“PFD”), Perma-Fix of Florida (“PFF”), Perma-Fix of Orlando (“PFO”),
Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of Memphis
(“PFM”)


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





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


13





Industrial
Segment Divested Facilities/Operations


As
previously disclosed, our subsidiary, Perma-Fix Treatment Services, Inc.
(“PFTS”), sold substantially all of its assets in May 2008, pursuant to an Asset
Purchase Agreement, as amended (“Agreement”).  Under the Agreement,
the buyer, A Clean Environment, Inc. (“ACE”) assumed certain debts and
obligations of PFTS.  We sued ACE regarding certain liabilities which
we believed ACE assumed and agreed to pay under the Agreement but which ACE
refused to pay.  ACE filed a counterclaim against us alleging that
PFTS made certain misrepresentations and failed to disclose certain
liabilities.  The pending litigation is styled American Environmental
Landfill, Inc. v. Perma-Fix Environmental Services, Inc. v. A Clean Environment,
Inc., Case No. CJ-2008-659, pending in the District Court of Osage
County, State of Oklahoma.  This matter was ordered to arbitration,
which was heard in April 2010.  On May 11, 2010 the Arbitrator ruled
in favor of PFTS on all but one issue of contention.  More
specifically, the Arbitrator (i) ruled in favor of the Company and PFTS on each
of the claims asserted by ACE with the exception of a single claim in the amount
of approximately $4,000; and (ii) ruled in favor of the Company and PFTS (a) in
the amount of approximately $57,000 representing liabilities assumed by ACE but
paid by PFTS, together with an order directing ACE to indemnify and hold
harmless the Company and PFTS from any damages, costs or expenses, including
reasonable attorney’s fees, associated with other unpaid accounts payable
totaling approximately $44,000; and (b) in the amount of approximately $114,000
on a claim relating to an equipment lease, together with an order directing ACE
to indemnify and hold harmless the Company and PFTS from any damages, costs or
expenses, including reasonable attorney’s fees associated with any future
liability or loss arising out of the equipment lease.The Arbitrator’s award has
been entered as a judgment by the court.  ACE has challenged the
confirmation of award and the entry of a final judgment based on the award, and
has indicated that they may appeal the Arbitrator’s award and any judgment
entered thereon.





Earn-Out
Amount – Perma-Fix Northwest, Inc. (“PFNWR”) and Perma-Fix Northwest Richland,
Inc. (“PFNWR”)


In
connection with the acquisition of PFNW and PFNWR, we are required to pay to
those former shareholders of PFNW immediately prior to our acquisition, an
earn-out amount upon meeting certain conditions for each fiscal year ending June
30, 2008, to June 30, 2011, with the aggregate of the full earn-out amount not
to exceed $4,552,000, pursuant to the Merger Agreement, as amended
(“Agreement”).  Under the Agreement, the earn-out amount to be paid
for any particular fiscal year is to be an amount equal to 10% of the amount
that the revenues for our nuclear business (as defined) for such fiscal year
exceeds the budgeted amount of revenues for our nuclear business for that
particular period.  No earn-out was required to be paid for fiscal
year 2008 and we paid $734,000 in earn out for fiscal year 2009 in the third
quarter of 2009.  Pursuant to the Agreement, any indemnification
obligations payable to the Company by the former shareholders Nuvotec will be
deducted (“Offset Amount”) from any earn-out amounts payable by the Company for
the fiscal year ending June 30, 2010, and June 30, 2011.  Pursuant to
the Agreement, the aggregate amount of any Offset Amount may total up to
$1,000,000, except an Offset Amount is unlimited as to indemnification relating
to liabilities for taxes, misrepresentation or inaccuracies with respect to the
capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation
of any representation, warranty or covenant.  At this time, we have
identified certain Offset Amounts against the earn-out for the twelve month
period ending June 30, 2010.  The Offset Amount includes the sum of
approximately $93,000 relating to an excise tax issue and a refund request from
a PEcoS customer in connection with services for waste treatment prior to our
acquisition of PFNWR and PFNW.  A potential Offset Amount is in
connection with the receipt of nonconforming waste at the PFNWR facility prior
to our acquisition of PFNWR and PFNW (“Nonconforming Waste
Issue”).  We are currently reviewing this potential Offset Amount
relating to the Nonconforming Waste Issue.  We are currently involved
in litigation with the party that delivered the nonconforming waste to the
facility prior to our acquisition of PFNWR and PFNW.  The Company may
elect to pay any future earn-out amounts in excess of $1,000,000 after any
Offset Amount, for each fiscal year ended June 30, 2010, and 2011 by means of a
three year unsecured promissory note bearing an annual rate of 6.0%, payable in
36 equal monthly installments due on the 15th day of
each months.  As of June 30, 2010, we have calculated that $2,978,000
in earn-out amount has been earned for fiscal year ended June 30, 2010, less any
Offset Amounts.  The earn-out amount payable includes the Offset
Amount of $93,000 as mentioned above but does not include the potential Offset
Amount in connection with the Nonconforming Waste Issue as we are still
reviewing such potential Offset Amount.  Accordingly, as of June 30,
2010, we have recorded the $2,978,000 in earn-out as an increase to goodwill for
PFNWR, with an increase to accrued expense payable of $2,885,000 and a reduction
to receivable of $93,000, which represents the Offset Amount previously
recorded.  This Offset Amount of $93,000 may be increased should we
determine the amount of offset for the Nonconforming Waste Issue.  We
anticipate paying the earn-out amount in the third quarter of 2010.




14




Insurance


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





As of
June 30, 2010, our total financial coverage amount under this policy totaled
$36,345,000.  We have recorded $11,541,000 in our sinking fund related
to the policy noted above on the balance sheet, which includes interest earned
of $828,000 on the sinking fund as of June 30, 2010.  Interest income
for the three and six months ended June 30, 2010, was approximately $9,000, and
$23,000, respectively.   On the fourth and subsequent
anniversaries of the contract inception, we may elect to terminate this
contract.  If we so elect, Chartis is obligated to pay us an amount
equal to 100% of the sinking fund account balance in return for complete
releases of liability from both us and any applicable regulatory agency using
this policy as an instrument to comply with financial assurance
requirements.





In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility with Chartis.  The policy provides an initial $7,800,000 of
financial assurance coverage with annual growth rate of 1.5%, which at the end
of the four year term policy, will provide maximum coverage of
$8,200,000.  The policy will renew automatically on an annual basis at
the end of the four year term and will not be subject to any renewal
fees.  The policy requires total payment of $7,158,000, consisting of
an initial payment of $1,363,000, and two annual payments of $1,520,000, payable
by July 31, 2008 and July 31, 2009, and an additional $2,755,000 payment to be
made in five quarterly payments of $551,000 beginning September
2007.  In July 2007, we paid the initial payment of $1,363,000, of
which $1,106,000 represented premium on the policy and the remaining was
deposited into a sinking fund account.  We have made each of the
annual payments of $1,520,000, of which $1,344,000 was deposited into a sinking
fund account and the remaining represented premium.   We have
also made all of the five quarterly payments which were deposited into a sinking
fund.  As of June 30, 2010, we have recorded $5,855,000 in our sinking
fund related to this policy on the balance sheet, which includes interest earned
of $155,000 on the sinking fund as of June 30, 2010.  Interest income
for the three and six months ended June 30, 2010 totaled approximately $7,000
and $14,000, respectively.




15




Environmental
Liabilities


We
currently have four remediation projects in progress at certain of our
continuing (Perma-Fix of South Georgia, Inc. (“PFSG”)) and discontinued
(Perma-Fix of Michigan, Inc. (“PFMI”), Perma-Fix of Memphis, Inc. (“PFM”), and
Perma-Fix of Dayton, Inc. (“PFD”)) operations within our Industrial Segment.
These remediation projects principally entail the removal/remediation of
contaminated soil and, in some cases, the remediation of surrounding ground
water.  See further detail on the environmental liabilities of our
discontinued operations in Note 8 below, “Discontinued Operations”.





At June
30, 2010, we had total accrued environmental remediation liabilities of
$1,572,000 for our PFSG facility, of which $75,000 is recorded as a current
liability.  The environmental remediation liability at June 30, 2010,
included an increase to our reserve of approximately $844,000 recorded within
our cost of goods sold in the second quarter of 2010, due to a change in the
scope of the remediation requirements mandated by the Georgia Environmental
Protection Division (“GEPD”) for our PFSG facility.





8.      Discontinued
Operations




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





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





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





Three Months Ended
                                      
                                      
                                      Six Months EndedJune 30,
                                      
                                      
                                      June 30,(Amounts
      in Thousands)
                                      
                                      2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2009Net
      revenues
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —Interest
      expense
                                      
                                      $
                                      (26
                                      )
                                      
                                      $
                                      (139
                                      )
                                      
                                      $
                                      (41
                                      )
                                      
                                      $
                                      (159
                                      )Income
      tax (benefit)
                                      
                                      $
                                      (50
                                      )
                                      
                                      
                                      —
                                      
                                      
                                      $
                                      (50
                                      )
                                      
                                      
                                      —(Loss)
      income from discontinued operations
                                      
                                      $
                                      (69
                                      )
                                      
                                      $
                                      (242
                                      )
                                      
                                      $
                                      (213
                                      )
                                      
                                      $
                                      57




16




Our
“income from discontinued operations, net of taxes”, for the six months ended
June 30, 2009, included a recovery of approximately $400,000 in closure cost for
PFTS recorded in the first quarter of 2009 resulting from the release of our
financial assurance bond for PFTS by the appropriate regulatory authority after
the buyer of PFTS acquired its financial assurance.  In the second
quarter of 2009, we recorded approximately $119,000 in interest related to a
certain excise tax audit for fiscal years 1999 to 2006 for PFTS.





Assets
and liabilities related to discontinued operations total $746,000 and $2,076,000
as of June 30, 2010, respectively and $825,000 and $2,426,000 as of December 31,
2009, respectively.





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





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





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





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





June 30,
                    
                    
                    December 31,(Amounts in Thousands)
                    
                    2010
                    
                    
                    2009Other
      assets
                    
                    $
                    109
                    
                    
                    $
                    174Total
      assets of discontinued operations
                    
                    $
                    109
                    
                    
                    $
                    174Account
      payable
                    
                    $
                    29
                    
                    
                    $
                    1Accrued
      expenses and other liabilities
                    
                    
                    1,364
                    
                    
                    
                    1,508Deferred
      revenue
                    
                    
                    —
                    
                    
                    
                    —Environmental
      liabilities
                    
                    
                    683
                    
                    
                    
                    917Total
      liabilities of discontinued operations
                    
                    $
                    2,076
                    
                    
                    $
                    2,426





The
environmental liabilities for our discontinued operations consist of remediation
projects currently in progress at PFMI, PFM, and PFD.  All of the
remedial clean-up projects were an issue for years prior to our acquisition of
the facility and were recognized pursuant to a business combination and recorded
as part of the purchase price allocation to assets acquired and liabilities
assumed.  The environmental liability for PFD was retained by the
Company upon the sale of PFD in March 2008 and pertains to the remediation of a
leased property which was separate and apart from the property on which PFD’s
facility was located.  The reduction of approximately $234,000 in
environmental liabilities from the December 31, 2009 balance of $917,000
represents payments made on these remediation projects.





“Accrued expenses and other
liabilities” for our discontinued operations include apension payable at PFMI of
$817,000 as of June 30, 2010.The pension plan withdrawal
liability is a result of the termination of the union employees of
PFMI.  The PFMI union employees participated in the Central States
Teamsters Pension Fund ("CST"), which provides that a partial or full
termination of union employees may result in a withdrawal liability, due from
PFMI to CST.  The recorded liability is based upon a demand letter
received from CST in August 2005 that provided for the payment of $22,000 per
month over an eight year period.  This obligation is recorded as a
long-term liability, with a current portion of $199,000 that we expect to pay
over the next year.




17




9.      Operating
Segments





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





·
            from
      which we may earn revenue and incur
expenses;




·
            whose
      operating results are regularly reviewed by the Chief Executive Officer to
      make decisions about resources to be allocated to the segment and assess
      its performance; and




·
            for
      which discrete financial information is
  available.




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





Our
operating segments are defined as follows:





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





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





The
Industrial Waste Management Services Segment (“Industrial Segment”) provides
on-and-off site treatment, storage, processing and disposal of hazardous and
non-hazardous industrial waste, wastewater, used oil and other off specification
petroleum based products through our three facilities; Perma-Fix of Ft.
Lauderdale, Inc., Perma-Fix of Orlando, Inc., and Perma-Fix of South Georgia,
Inc.




18




The table
below presents certain financial information of our operating segment as of and
for the three and six months ended June 30, 2010 and 2009 (in
thousands).


Segment
Reporting for the Quarter Ended June 30, 2010
 Nuclear
                      
                      
                      Industrial
                      
                      
                      Engineering
                      
                      
                      SegmentsTotal
                      
                      
                      Corporate
      (2)
                      
                      
                      Consolidated
      TotalRevenue
      from external customers
                      
                      $
                      25,181
                      (3)
                      
                      $
                      2,249
                      
                      
                      $
                      666
                      
                      
                      $
                      28,096
                      
                      
                      $
                      3⁄4
                      
                      
                      $
                      28,096Intercompany
      revenues
                      
                      
                      778
                      
                      
                      
                      134
                      
                      
                      
                      132
                      
                      
                      
                      1,044
                      
                      
                      
                      3⁄4
                      
                      
                      
                      1,044Gross
      profit (negative gross profit)
                      
                      
                      7,036
                      
                      
                      
                      (336
                      )
                      
                      
                      40
                      
                      
                      
                      6,740
                      
                      
                      
                      3⁄4
                      
                      
                      
                      6,740Interest
      income
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      16
                      
                      
                      
                      16Interest
      expense
                      
                      
                      47
                      
                      
                      
                      2
                      
                      
                      
                      1
                      
                      
                      
                      50
                      
                      
                      
                      158
                      
                      
                      
                      208Interest
      expense-financing fees
                      
                      
                      3⁄4
                      
                      
                      
                      1
                      
                      
                      
                      3⁄4
                      
                      
                      
                      1
                      
                      
                      
                      102
                      
                      
                      
                      103Depreciation
      and amortization
                      
                      
                      1,143
                      
                      
                      
                      58
                      
                      
                      
                      7
                      
                      
                      
                      1,208
                      
                      
                      
                      5
                      
                      
                      
                      1,213Segment
      profit (loss)
                      
                      
                      4,248
                      
                      
                      
                      (797
                      )
                      
                      
                      (49
                      )
                      
                      
                      3,402
                      
                      
                      
                      (1,887
                      )
                      
                      
                      1,515Segment
      assets(1)
                      
                      
                      92,392
                      
                      
                      
                      5,916
                      
                      
                      
                      2,004
                      
                      
                      
                      100,312
                      
                      
                      
                      22,896
                      (4)
                      
                      
                      123,208Expenditures
      for segment assets
                      
                      
                      706
                      
                      
                      
                      172
                      
                      
                      
                      1
                      
                      
                      
                      879
                      
                      
                      
                      2
                      
                      
                      
                      881Total
      long-term debt
                      
                      
                      1,092
                      
                      
                      
                      80
                      
                      
                      
                      21
                      
                      
                      
                      1,193
                      
                      
                      
                      9,408
                      (5)
                      
                      
                      10,601
 
 Segment
Reporting for the Quarter Ended June 30, 2009
 Nuclear
                      
                      
                      Industrial
                      
                      
                      Engineering
                      
                      
                      SegmentsTotal
                      
                      
                      Corporate
      (2)
                      
                      
                      ConsolidatedTotalRevenue
      from external customers
                      
                      $
                      20,732
                      (3)
                      
                      $
                      1,962
                      
                      
                      $
                      1,004
                      
                      
                      $
                      23,698
                      
                      
                      $
                      3⁄4
                      
                      
                      $
                      23,698Intercompany
      revenues
                      
                      
                      690
                      
                      
                      
                      187
                      
                      
                      
                      52
                      
                      
                      
                      929
                      
                      
                      
                      3⁄4
                      
                      
                      
                      929Gross
      profit
                      
                      
                      4,872
                      
                      
                      
                      300
                      
                      
                      
                      282
                      
                      
                      
                      5,454
                      
                      
                      
                      3⁄4
                      
                      
                      
                      5,454Interest
      income
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      41
                      
                      
                      
                      41Interest
      expense
                      
                      
                      165
                      
                      
                      
                      34
                      
                      
                      
                      1
                      
                      
                      
                      200
                      
                      
                      
                      268
                      
                      
                      
                      468Interest
      expense-financing fees
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      63
                      
                      
                      
                      63Depreciation
      and amortization
                      
                      
                      1,073
                      
                      
                      
                      110
                      
                      
                      
                      9
                      
                      
                      
                      1,192
                      
                      
                      
                      9
                      
                      
                      
                      1,201Segment
      profit (loss)
                      
                      
                      2,718
                      
                      
                      
                      (141
                      )
                      
                      
                      159
                      
                      
                      
                      2,736
                      
                      
                      
                      (1,743
                      )
                      
                      
                      993Segment
      assets(1)
                      
                      
                      97,508
                      
                      
                      
                      5,246
                      
                      
                      
                      2,221
                      
                      
                      
                      104,975
                      
                      
                      
                      18,875
                      (4)
                      
                      
                      123,850Expenditures
      for segment assets
                      
                      
                      176
                      
                      
                      
                      64
                      
                      
                      
                      2
                      
                      
                      
                      242
                      
                      
                      
                      6
                      
                      
                      
                      248Total
      long-term debt
                      
                      
                      1,938
                      
                      
                      
                      130
                      
                      
                      
                      25
                      
                      
                      
                      2,093
                      
                      
                      
                      18,670
                      (5)
                      
                      
                      20,763
 
 Segment
Reporting for the Six Months Ended June 30, 2010
 Nuclear
                        
                        
                        Industrial
                        
                        
                        Engineering
                        
                        
                        SegmentsTotal
                        
                        
                        Corporate
      (2)
                        
                        
                        ConsolidatedTotalRevenue
      from external customers
                        
                        $
                        48,073
                        (3)
                        
                        $
                        4,542
                        
                        
                        $
                        1,340
                        
                        
                        $
                        53,955
                        
                        
                        $
                        3⁄4
                        
                        
                        $
                        53,955Intercompany
      revenues
                        
                        
                        1,568
                        
                        
                        
                        286
                        
                        
                        
                        347
                        
                        
                        
                        2,201
                        
                        
                        
                        3⁄4
                        
                        
                        
                        2,201Gross
      profit
                        
                        
                        11,627
                        
                        
                        
                        253
                        
                        
                        
                        199
                        
                        
                        
                        12,079
                        
                        
                        
                        3⁄4
                        
                        
                        
                        12,079Interest
      income
                        
                        
                        3⁄4
                        
                        
                        
                        3⁄4
                        
                        
                        
                        3⁄4
                        
                        
                        
                        3⁄4
                        
                        
                        
                        37
                        
                        
                        
                        37Interest
      expense
                        
                        
                        90
                        
                        
                        
                        3
                        
                        
                        
                        1
                        
                        
                        
                        94
                        
                        
                        
                        333
                        
                        
                        
                        427Interest
      expense-financing fees
                        
                        
                        3⁄4
                        
                        
                        
                        1
                        
                        
                        
                        3⁄4
                        
                        
                        
                        1
                        
                        
                        
                        205
                        
                        
                        
                        206Depreciation
      and amortization
                        
                        
                        2,195
                        
                        
                        
                        129
                        
                        
                        
                        15
                        
                        
                        
                        2,339
                        
                        
                        
                        10
                        
                        
                        
                        2,349Segment
      profit (loss)
                        
                        
                        6,655
                        
                        
                        
                        (607
                        )
                        
                        
                        (10
                        )
                        
                        
                        6,038
                        
                        
                        
                        (3,742
                        )
                        
                        
                        2,296Segment
      assets(1)
                        
                        
                        92,392
                        
                        
                        
                        5,916
                        
                        
                        
                        2,004
                        
                        
                        
                        100,312
                        
                        
                        
                        22,896
                        (4)
                        
                        
                        123,208Expenditures
      for segment assets
                        
                        
                        1,063
                        
                        
                        
                        382
                        
                        
                        
                        2
                        
                        
                        
                        1,447
                        
                        
                        
                        20
                        
                        
                        
                        1,467Total
      long-term debt
                        
                        
                        1,092
                        
                        
                        
                        80
                        
                        
                        
                        21
                        
                        
                        
                        1,193
                        
                        
                        
                        9,408
                        (5)
                        
                        
                        10,601
 
 Segment
Reporting for the Six Months Ended June 30, 2009
 Nuclear
                      
                      
                      Industrial
                      
                      
                      Engineering
                      
                      
                      SegmentsTotal
                      
                      
                      Corporate
      (2)
                      
                      
                      ConsolidatedTotalRevenue
      from external customers
                      
                      $
                      39,846
                      (3)
                      
                      $
                      4,071
                      
                      
                      $
                      1,783
                      
                      
                      $
                      45,700
                      
                      
                      $
                      3⁄4
                      
                      
                      $
                      45,700Intercompany
      revenues
                      
                      
                      1,441
                      
                      
                      
                      374
                      
                      
                      
                      223
                      
                      
                      
                      2,038
                      
                      
                      
                      3⁄4
                      
                      
                      
                      2,038Gross
      profit
                      
                      
                      8,792
                      
                      
                      
                      756
                      
                      
                      
                      477
                      
                      
                      
                      10,025
                      
                      
                      
                      3⁄4
                      
                      
                      
                      10,025Interest
      income
                      
                      
                      1
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      1
                      
                      
                      
                      92
                      
                      
                      
                      93Interest
      expense
                      
                      
                      525
                      
                      
                      
                      38
                      
                      
                      
                      3
                      
                      
                      
                      566
                      
                      
                      
                      449
                      
                      
                      
                      1,015Interest
      expense-financing fees
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      76
                      
                      
                      
                      76Depreciation
      and amortization
                      
                      
                      2,129
                      
                      
                      
                      213
                      
                      
                      
                      19
                      
                      
                      
                      2,361
                      
                      
                      
                      20
                      
                      
                      
                      2,381Segment
      profit (loss)
                      
                      
                      4,472
                      
                      
                      
                      (87
                      )
                      
                      
                      245
                      
                      
                      
                      4,630
                      
                      
                      
                      (3,388
                      )
                      
                      
                      1,242Segment
      assets(1)
                      
                      
                      97,508
                      
                      
                      
                      5,246
                      
                      
                      
                      2,221
                      
                      
                      
                      104,975
                      
                      
                      
                      18,875
                      (4)
                      
                      
                      123,850Expenditures
      for segment assets
                      
                      
                      428
                      
                      
                      
                      113
                      
                      
                      
                      2
                      
                      
                      
                      543
                      
                      
                      
                      9
                      
                      
                      
                      552Total
      long-term debt
                      
                      
                      1,938
                      
                      
                      
                      130
                      
                      
                      
                      25
                      
                      
                      
                      2,093
                      
                      
                      
                      18,670
                      (5)
                      
                      
                      20,763




(1)
            Segment
      assets have been adjusted for intercompany accounts to reflect actual
      assets for each segment.




19




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





(3)
            The
      consolidated revenues within the Nuclear Segment include the CH Plateau
      Remediation Company (“CHPRC”) revenue of $12,276,000 or 43.7% and
      $24,001,000 or 44.5% of our total consolidated revenue for the three and
      six months ended June 30, 2010, respectively, as compared to $11,624,000
      or 49.1% and $22,371,000 or 49.0% of our total consolidated revenue for
      the three and six months ended June 30, 2009, respectively.  Our
      M&EC facility was awarded a subcontract by CHPRC, a general contractor
      to the Department of Energy (“DOE”), in the second quarter of
      2008.  See “Known Trends and Uncertainties – Significant
      Customers” in “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations” for the revenue transition
      discussion.





(4)
            Amount
      includes assets from discontinued operations of $746,000 and $724,000 as
      of June 30, 2010 and 2009,
respectively.





(5)
            Net of debt discount of
      ($284,000) and ($617,000) as of June 30, 2010 and June 30, 2009,
      respectively, based on the estimated fair value of two Warrants and
      200,000 shares of the Company’s Common Stock issued on May 8, 2009 in
      connection with a $3,000,000 promissory note entered into by the Company
      and Mr. William Lampson and Mr. Diehl Rettig.  See Note 6 -
      “Promissory Note and Installment Agreement” for additional
      information.





10.  Income
Taxes





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





The
Company’s effective tax rates were approximately 42.1% and 8.4% for the three
months ended June 30, 2010 and 2009, respectively, and approximately 40.1% and
7.5% for the six months ended June 30, 2010 and 2009,
respectively.  The higher income tax for the three and six months
period ended June 30, 2010, as compared to the corresponding period of 2009, was
due to less valuation allowance in 2010 on our deferred tax asset related to
federal and state net operating loss (NOL) carryforwards.  We have
full valuation allowance on all of our deferred tax assets in 2009.





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





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





20




Item
2.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations





Forward-looking
Statements


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





·
            cash
      flow from operations and our available liquidity from our line of credit
      are sufficient to service our current
  obligations;


·
            we
      expect to meet our financial covenants in
2010;


·
            we
      believe government funding made available for DOE project under the
      government economic stimulus plan in February 2009 should continue to
      positively impact our existing government contracts within our Nuclear
      Segment;


·
            higher
      government funding made available through the economic stimulus package
      (American Recovery and Reinvestment Act) enacted by Congress in 2009,
      could result in larger fluctuations in
2010;


·
            demand
      for our service will continue to be subject to fluctuations due to a
      variety of factors beyond our control, including the current economic
      conditions, and the manner in which the government will be required to
      spend funding to remediate federal
sites;


·
            significant
      reductions in the level of governmental funding or specifically mandated
      levels for different programs that are important to our business could
      have a material adverse impact on our business, financial position,
      results of operations and cash
flow;


·
            with
      much of our Nuclear Segment customer base being government or prime
      contractors treating government waste, we do not believe economic upturns
      or downturns have a significant impact on the demand for our
      services;


·
            we
      plan to fund any repurchases under the common stock repurchase plan
      through our internal cash flow and/or borrowing under our line of
      credit;


·
            no
      immediate plans or current commitments to issue shares under the
      registration statement;


·
            ability
      to remediate certain contaminated sites for projected
    amounts;


·
            no
      further impairment of intangible or tangible
  assets;


·
            despite
      our aggressive compliance and auditing procedures for disposal of wastes,
      we could, in the future, be notified that we are a Partially Responsible
      Party (“PRP”) at a remedial action site, which could have a material
      adverse effect;


·
            we
      make every reasonable attempt to maintain complete compliance with these
      regulations; however, even with a diligent commitment, we, along with many
      of our competitors, may be required to pay fines for violations or
      investigate and potentially remediate our waste management
      facilities;


·
            ability
      to generate funds internally to remediate
sites;


·
            ability
      to fund budgeted capital expenditures of $2,000,000 during 2010 through
      our operations or lease financing or a combination of
  both;


·
            we
      believe full operations under the CHPRC subcontract will result in
      revenues for on-site and off-site work of approximately $200,000,000 to
      $250,000,000 over the five year base
period;


·
            in
      the event of failure of AIG, this could significantly impact our
      operations and our permits;


·
            although
      we have seen smaller fluctuation in government receipts between quarters
      in recent years, nevertheless, 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;


·
            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;




21




·
            we
      believe we maintain insurance coverage adequate for our needs and which is
      similar to, or greater than the coverage maintained by other companies of
      our size in the industry;


·
            due
      to the continued uncertainty in the economy, changes within the
      environmental insurance market, and the financial difficulties of AIG,
      whose subsidiary Chartis, is the provider of our financial assurance
      policies, we have no guarantees as to continued coverage by Chartis, that
      we will be able to obtain similar insurance in future years, or that the
      cost of such insurance will not increase
  materially;


·
            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;


·
            we
      believe certain critical accounting policies affect the more significant
      estimates used in preparation of our consolidated financial
      statements;


·
            once
      funds from the small contributors are exhausted, if additional funds are
      required, we believe that they should be provided by the members of the
      PRP group;


·
            pending
      legislative and regulatory proposals which address greenhouse gas
      emissions, if and when enacted, could increase costs associated with our
      operations;


·
            we
      anticipate paying the earn-out amount in the third quarter of 2010,
      subject to finalization of the Offset Amount;
  and


·
            we
      do not expect ASU 2010-6 to have a material impact on our consolidated
      financial statements;





While the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to have
been correct.  There are a variety of factors, which could cause
future outcomes to differ materially from those described in this report,
including, but not limited to:





·
            general
      economic conditions;


·
            material
      reduction in revenues;


·
            ability
      to meet PNC covenant requirements;


·
            inability
      to collect in a timely manner a material amount of
      receivables;


·
            increased
      competitive pressures;


·
            the
      ability to maintain and obtain required permits and approvals to conduct
      operations;


·
            the
      ability to develop new and existing technologies in the conduct of
      operations;


·
            ability
      to retain or renew certain required
permits;


·
            discovery
      of additional contamination or expanded contamination at any of the sites
      or facilities leased or owned by us or our subsidiaries which would result
      in a material increase in remediation
  expenditures;


·
            changes
      in federal, state and local laws and regulations, especially environmental
      laws and regulations, or in interpretation of
  such;


·
            potential
      increases in equipment, maintenance, operating or labor
    costs;


·
            management
      retention and development;


·
            financial
      valuation of intangible assets is substantially more/less than
      expected;


·
            the
      requirement to use internally generated funds for purposes not presently
      anticipated;


·
            inability
      to continue to be profitable on an annualized
  basis;


·
            the
      inability of the Company to maintain the listing of its Common Stock on
      the NASDAQ;


·
            terminations
      of contracts with federal agencies or subcontracts involving federal
      agencies, or reduction in amount of waste delivered to the Company under
      the contracts or subcontracts;


·
            renegotiation
      of contracts involving the federal
government;


·
            disposal
      expense accrual could prove to be inadequate in the event the waste
      requires re-treatment;


·
            Risk
      Factors contained in Item 1A of our 2009 Form 10-K;
  and


·
            factors
      set forth in “Special Note Regarding Forward-Looking Statements” contained
      in our 2009 Form 10-K.




22




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





Overview


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





The
second quarter of 2010 reflected a revenue increase of $4,398,000 to $28,096,000
or 18.6% from revenue of $23,698,000 for the same period of 2009.  Within
our Nuclear Segment, we generated revenue of $25,181,000 in the second quarter
of 2010, an increase of $4,449,000 or 21.5% from the corresponding period of
2009.  Of the $4,449,000 increase in revenue, approximately $2,471,000
was attributed to the increase in revenue generated from the subcontract awarded
to our M&EC subsidiary by CH Plateau Remediation Company (“CHPRC”), a
general contractor to the Department of Energy (“DOE”), in the second quarter of
2008, to perform a portion of facility operations and waste management
activities for the DOE Hanford Site.  The remaining increase was
attributed to higher activity waste streams.  Our Industrial Segment
generated $2,249,000 in revenue in the second quarter of 2010, as compared to
$1,962,000 for the corresponding period of 2009, or 14.6%
increase.  The increase was primarily the result of higher volume and
increased pricing in certain waste streams as well as increased average pricing
per gallon in used oil sales.  Revenue from the Engineering Segment
decreased $338,000 or 33.7% to $666,000 from $1,004,000 for the same period of
2009.





The
second quarter 2010 gross profit increased $1,286,000 or 23.6% from the
corresponding period of 2009 due primarily to higher priced wastes and the CHPRC
subcontract at M&EC.  The gross profit for the quarter also
included an increase to the environmental reserve of approximately $844,000 for
remediation expenditure for our Perma-Fix of South Georgia, Inc. facility
(“PFSG”).





SG&A
for the second quarter of 2010 decreased 1.5% to $3,829,000 from $3,889,000 in
the corresponding period of 2009.





Our
income from continuing operations was $1,515,000 for the second quarter 2010, as
compared to $993,000 for the corresponding period of 2009.  Our income
from continuing operations for the second quarter of 2010 included income tax
expense of $1,101,000 as compared to income tax expense of $91,000 for the
corresponding period of 2009.





We had a
working capital deficit of $663,000 (which includes working capital of our
discontinued operations) as of June 30, 2010, as compared to a working capital
of $1,490,000 as of December 31, 2009.  Our working capital deficit
was primarily the result of $2,885,000 in earn-out amount payable recorded in
connection with the acquisition of our PFNWR facility in June 2007.




23




Outlook


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





Results
of Operations


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





Three
      Months Ending
                      
                      
                      Six
      Months EndingJune
      30,
                      
                      
                      June
      30,Consolidated
      (amounts in thousands)
                      
                      2010
                      
                      
                      %
                      
                      
                      2009
                      
                      
                      %
                      
                      
                      2010
                      
                      
                      %
                      
                      
                      2009
                      
                      
                      %Net
      revenues
                      
                      $
                      28,096
                      
                      
                      
                      100.0
                      
                      
                      $
                      23,698
                      
                      
                      
                      100.0
                      
                      
                      $
                      53,955
                      
                      
                      
                      100.0
                      
                      
                      $
                      45,700
                      
                      
                      
                      100.0Cost
      of goods sold
                      
                      
                      21,356
                      
                      
                      
                      76.0
                      
                      
                      
                      18,244
                      
                      
                      
                      77.0
                      
                      
                      
                      41,876
                      
                      
                      
                      77.6
                      
                      
                      
                      35,675
                      
                      
                      
                      78.1Gross
      profit
                      
                      
                      6,740
                      
                      
                      
                      24.0
                      
                      
                      
                      5,454
                      
                      
                      
                      23.0
                      
                      
                      
                      12,079
                      
                      
                      
                      22.4
                      
                      
                      
                      10,025
                      
                      
                      
                      21.9Selling,
      general and administrative
                      
                      
                      3,829
                      
                      
                      
                      13.6
                      
                      
                      
                      3,889
                      
                      
                      
                      16.4
                      
                      
                      
                      7,653
                      
                      
                      
                      14.2
                      
                      
                      
                      7,707
                      
                      
                      
                      16.9Loss
      (gain) on disposal of propertyand
      equipment
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      2
                      
                      
                      
                      ―
                      
                      
                      
                      (12
                      )
                      
                      
                      ―Income
      from operations
                      
                      $
                      2,911
                      
                      
                      
                      10.4
                      
                      
                      $
                      1,565
                      
                      
                      
                      6.6
                      
                      
                      $
                      4,424
                      
                      
                      
                      8.2
                      
                      
                      $
                      2,330
                      
                      
                      
                      5.0Interest
      income
                      
                      
                      16
                      
                      
                      
                      ―
                      
                      
                      
                      41
                      
                      
                      
                      .2
                      
                      
                      
                      37
                      
                      
                      
                      ―
                      
                      
                      
                      93
                      
                      
                      
                      .2Interest
      expense
                      
                      
                      (208
                      )
                      
                      
                      (.7
                      )
                      
                      
                      (468
                      )
                      
                      
                      (2.0
                      )
                      
                      
                      (427
                      )
                      
                      
                      (.8
                      )
                      
                      
                      (1,015
                      )
                      
                      
                      (2.2
                      )Interest
      expense-financing fees
                      
                      
                      (103
                      )
                      
                      
                      (.4
                      )
                      
                      
                      (63
                      )
                      
                      
                      (.2
                      )
                      
                      
                      (206
                      )
                      
                      
                      (.3
                      )
                      
                      
                      (76
                      )
                      
                      
                      (.1
                      )other
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      9
                      
                      
                      
                      ―
                      
                      
                      
                      5
                      
                      
                      
                      ―
                      
                      
                      
                      10
                      
                      
                      
                      ―Income
      from continuing operationsbefore
      taxes
                      
                      
                      2,616
                      
                      
                      
                      9.3
                      
                      
                      
                      1,084
                      
                      
                      
                      4.6
                      
                      
                      
                      3,833
                      
                      
                      
                      7.1
                      
                      
                      
                      1,342
                      
                      
                      
                      2.9Income
      tax expense
                      
                      
                      1,101
                      
                      
                      
                      3.9
                      
                      
                      
                      91
                      
                      
                      
                      .4
                      
                      
                      
                      1,537
                      
                      
                      
                      2.8
                      
                      
                      
                      100
                      
                      
                      
                      .2Income
      from continuing operations
                      
                      
                      1,515
                      
                      
                      
                      5.4
                      
                      
                      
                      993
                      
                      
                      
                      4.2
                      
                      
                      
                      2,296
                      
                      
                      
                      4.3
                      
                      
                      
                      1,242
                      
                      
                      
                      2.7Preferred
      Stock dividends
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―
                      
                      
                      
                      ―


24


Summary –
Three and Six Months Ended June 30, 2010 and 2009





Consolidated
revenues increased $4,398,000 for the three months ended June 30, 2010, compared
to the three months ended June 30, 2009, as follows:




(In thousands)
                          
                          2010
                          
                          
                          %
                            Revenue
                          
                          
                          2009
                          
                          
                          %
                            Revenue
                          
                          
                          Change
                          
                          
                          %
                            ChangeNuclearGovernment
      waste
                          
                          $
                          9,115
                          
                          
                          
                          32.4
                          
                          
                          $
                          5,198
                          
                          
                          
                          21.9
                          
                          
                          $
                          3,917
                          
                          
                          
                          75.4Hazardous/Non-hazardous
                          
                          
                          929
                          
                          
                          
                          3.3
                          
                          
                          
                          894
                          
                          
                          
                          3.8
                          
                          
                          
                          35
                          
                          
                          
                          3.9Other
      nuclear waste
                          
                          
                          2,861
                          
                          
                          
                          10.2
                          
                          
                          
                          3,016
                          
                          
                          
                          12.7
                          
                          
                          
                          (155
                          )
                          
                          
                          (5.1
                          )CHPRC
                          
                          
                          12,276
                          
                          
                          
                          43.7
                          
                          
                          
                          11,624
                          
                          
                          
                          49.1
                          
                          
                          
                          652
                          
                          
                          
                          5.6Total
                          
                          
                          25,181
                          
                          
                          
                          89.6
                          
                          
                          
                          20,732
                          
                          
                          
                          87.5
                          
                          
                          
                          4,449
                          
                          
                          
                          21.5IndustrialCommercial
                          
                          $
                          1,439
                          
                          
                          
                          5.1
                          
                          
                          $
                          1,238
                          
                          
                          
                          5.2
                          
                          
                          $
                          201
                          
                          
                          
                          16.2Government
      services
                          
                          
                          173
                          
                          
                          
                          0.6
                          
                          
                          
                          131
                          
                          
                          
                          0.6
                          
                          
                          
                          42
                          
                          
                          
                          32.1Oil
      Sales
                          
                          
                          637
                          
                          
                          
                          2.3
                          
                          
                          
                          593
                          
                          
                          
                          2.5
                          
                          
                          
                          44
                          
                          
                          
                          7.4Total
                          
                          
                          2,249
                          
                          
                          
                          8.0
                          
                          
                          
                          1,962
                          
                          
                          
                          8.3
                          
                          
                          
                          287
                          
                          
                          
                          14.6Engineering
                          
                          
                          666
                          
                          
                          
                          2.4
                          
                          
                          
                          1,004
                          
                          
                          
                          4.2
                          
                          
                          
                          (338
                          )
                          
                          
                          (33.7
                          )Total
                          
                          $
                          28,096
                          
                          
                          
                          100.0
                          
                          
                          $
                          23,698
                          
                          
                          
                          100.0
                          
                          
                          $
                          4,398
                          
                          
                          
                          18.6





Net
Revenue


The
Nuclear Segment realized revenue growth of $4,449,000 or 21.5% for the three
months ended June 30, 2010 over the same period in 2009.  Revenue from
CHPRC totaled $12,276,000 or 43.7% and $11,624,000 or 49.1% of our total revenue
from continuing operations for the three months ended June 30, 2010, and 2009,
respectively.  Revenue from CHPRC included approximately $10,298,000
and $7,827,000 generated for the three months ended June 30, 2010 and the
corresponding period of 2009, respectively, from the subcontract awarded by
CHPRC in the second quarter of 2008, to our M&EC subsidiary to perform a
portion of facility operations and waste management activities for the DOE
Hanford, Washington Site .  This subcontract (“CHPRC subcontract”) is
a cost plus award fee subcontract.  The increase of $2,471,000 or
31.6% from this subcontract was primarily due to increase in labor hours from
increased headcount working under this subcontract.  Remaining revenue
generated from CHPRC of approximately $1,978,000 and $3,797,000 for the quarter
ended June 30, 2010 and the corresponding period of 2009, respectively, was from
three existing waste processing contracts we have with CHPRC.  Revenue
from government generators (which includes revenue generated from the three
waste processing contracts from CHPRC noted above) increased by total of
$2,098,000 or 23.3% due primarily to higher activity waste streams processed
during the quarter.  Revenue from hazardous and non-hazardous waste
was up by $35,000 or 3.9% primarily due to higher average pricing increase of
approximately 5.5% which was mostly reduced by volume reduction of approximately
34.1%.  Other nuclear waste revenue decreased approximately $155,000
or 5.1% primarily due to lower waste volume.  Revenue from our
Industrial Segment increased $287,000 or 14.6% due primarily to both higher
waste volume and better pricing from certain waste streams in commercial
revenue.  We saw an increase in oil sales revenue due primarily to
increase in average price per gallon of approximately 6.7% with volume remaining
constant.  Revenue in our Engineering Segment decreased approximately
$338,000 or 33.7% due primarily to decreased billable hours of 31.6% with
average billing rate remaining flat.


25


Consolidated
revenues increased $8,255,000 for the six months ended June 30, 2010, as
compared to the six months ended June 30, 2009, as follows:





(In thousands)
                      
                      2010
                      
                      
                      %
                        Revenue
                      
                      
                      2009
                      
                      
                      %
                        Revenue
                      
                      
                      Change
                      
                      
                      %
                        ChangeNuclearGovernment
      waste
                      
                      $
                      16,848
                      
                      
                      
                      31.2
                      
                      
                      $
                      9,876
                      
                      
                      
                      21.6
                      
                      
                      $
                      6,972
                      
                      
                      
                      70.6Hazardous/Non-hazardous
                      
                      
                      1,820
                      
                      
                      
                      3.4
                      
                      
                      
                      1,853
                      
                      
                      
                      4.0
                      
                      
                      
                      (33
                      )
                      
                      
                      (1.8
                      )Other
      nuclear waste
                      
                      
                      5,404
                      
                      
                      
                      10.0
                      
                      
                      
                      5,746
                      
                      
                      
                      12.6
                      
                      
                      
                      (342
                      )
                      
                      
                      (6.0
                      )CHPRC
                      
                      
                      24,001
                      
                      
                      
                      44.5
                      
                      
                      
                      22,371
                      
                      
                      
                      49.0
                      
                      
                      
                      1,630
                      
                      
                      
                      7.3Total
                      
                      
                      48,073
                      
                      
                      
                      89.1
                      
                      
                      
                      39,846
                      
                      
                      
                      87.2
                      
                      
                      
                      8,227
                      
                      
                      
                      20.6IndustrialCommercial
                      
                      $
                      2,991
                      
                      
                      
                      5.6
                      
                      
                      $
                      2,466
                      
                      
                      
                      5.4
                      
                      
                      $
                      525
                      
                      
                      
                      21.3Government
      services
                      
                      
                      343
                      
                      
                      
                      0.6
                      
                      
                      
                      258
                      
                      
                      
                      0.6
                      
                      
                      
                      85
                      
                      
                      
                      32.9Oil
      Sales
                      
                      
                      1,208
                      
                      
                      
                      2.2
                      
                      
                      
                      1,347
                      
                      
                      
                      2.9
                      
                      
                      
                      (139
                      )
                      
                      
                      (10.3
                      )Total
                      
                      
                      4,542
                      
                      
                      
                      8.4
                      
                      
                      
                      4,071
                      
                      
                      
                      8.9
                      
                      
                      
                      471
                      
                      
                      
                      11.6Engineering
                      
                      
                      1,340
                      
                      
                      
                      2.5
                      
                      
                      
                      1,783
                      
                      
                      
                      3.9
                      
                      
                      
                      (443
                      )
                      
                      
                      (24.8
                      )Total
                      
                      $
                      53,955
                      
                      
                      
                      100.0
                      
                      
                      $
                      45,700
                      
                      
                      
                      100.0
                      
                      
                      $
                      8,255
                      
                      
                      
                      18.1





The
Nuclear Segment realized revenue growth of $8,227,000 or 20.6% for the six
months ended June 30, 2010 over the same period in 2009.  Revenue from
CHPRC totaled $24,001,000 or 44.5% and $22,371,000 or 49.0% of our total revenue
from continuing operations for the six months ended June 30, 2010, and 2009,
respectively.  Revenue from CHPRC included approximately $20,345,000
and $15,365,000 generated for the six months ended June 30, 2010 and the
corresponding period of 2009, respectively, from the CHPRC subcontract at our
M&EC subsidiary as mentioned previously.  The increase of
$4,980,000 or 32.4% from this subcontract was primarily due to increase in labor
hours from increased headcount working under this
subcontract.  Remaining revenue generated from CHPRC of approximately
$3,656,000 and $7,006,000 for the six months ended June 30, 2010 and the
corresponding period of 2009, respectively, was from three existing waste
processing contracts we have with CHPRC.  Revenue from government
generators (which includes revenue generated from the three waste processing
contracts from CHPRC noted above) increased by total of $3,622,000 or 21.5% due
primarily to higher activity waste, which was partially offset by reduced
volume. Revenue from hazardous and non-hazardous waste was down $33,000 or 1.8%
primarily due to a reduction in volume of approximately 29.7%, which was
partially offset by higher average pricing increase of 32.1%. In addition, we
saw an increase in remediation revenue.  Other nuclear waste revenue
decreased approximately $342,000 or 6.0% primarily due to lower waste
volume.  Revenue from our Industrial Segment increased $471,000 or
11.6% due to both higher waste volume and better pricing from certain waste
streams, such as in field services, in commercial revenue.  Oil sales
revenue was lower resulting from both decreased volume and average price per
gallon of 5.9% and 4.1%, respectively. Revenue in our Engineering Segment
decreased approximately $443,000 or 24.8% due primarily to decreased billable
hours of 22.2% with average billing rate remaining flat.


26


Cost
of Goods Sold


Cost of
goods sold increased $3,112,000 for the quarter ended June 30, 2010, as compared
to the quarter ended June 30, 2009, as follows:





(In
      thousands)
                
                2010
                
                
                %
                  Revenue
                
                
                2009
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                18,145
                
                
                
                72.1
                
                
                $
                15,860
                
                
                
                76.5
                
                
                $
                2,285Industrial
                
                
                2,585
                
                
                
                114.9
                
                
                
                1,662
                
                
                
                84.7
                
                
                
                923Engineering
                
                
                626
                
                
                
                94.0
                
                
                
                722
                
                
                
                71.9
                
                
                
                (96
                )Total
                
                $
                21,356
                
                
                
                76.0
                
                
                $
                18,244
                
                
                
                77.0
                
                
                $
                3,112





The
Nuclear Segment’s cost of goods sold for the three months ended June 30, 2010
were up $2,285,000 or 14.4% from the corresponding period of
2009.  The cost of goods sold within our Nuclear Segment includes
approximately $8,413,000 and $6,276,000 in cost of goods sold for the three
months ended June 30, 2010, and 2009, respectively, related to the CHPRC
subcontract.  This increase of $2,137,000 or 34.1% was consistent with
the increase in revenue for the CHPRC subcontract.  Excluding the cost
of goods sold of the CHPRC subcontract, the Nuclear Segment costs increased
approximately $148,000 or 1.5% primarily due to higher payroll and healthcare
related costs, higher regulatory costs, and higher consulting
expense.  However, cost as a percentage of revenue decreased
approximately 8.9% due to revenue mix with treatment and disposal of higher
margin wastes.  In the Industrial Segment, cost of goods sold
increased $923,000 or 55.5%.  The cost of goods sold included an
increase to the environmental reserve of approximately $844,000 recorded in the
second quarter for remediation expenditure for our Perma-Fix of South Georgia,
Inc. facility (“PFSG”).  We increased our environmental reserve by the
$844,000 due to a change in the scope of the remediation requirements mandated
by the Georgia Environmental Protection Division (“GEPD”) for our PFSG
facility.  As part of our acquisition of PFSG in 1999, we recognized
an environmental reserve which represented our estimate at that time of the
long-term costs to remove contaminated soil and to undergo groundwater
remediation activities at the facility.   Excluding this increase
to the reserve, the remaining cost of goods sold increased $79,000 or 4.8% due
primarily to the increase in revenue.  We saw increases in materials
and supplies, outside service costs, and regulatory costs, which was offset by
lower transportation, disposal, and lab costs.   Excluding the
reserve of $844,000, cost as a percentage of revenue was down approximately 7.3%
due to revenue mix and higher margin used oil sales revenue. Engineering Segment
costs decreased approximately $96,000 due primarily to the reduction in revenue
resulting from decreased billing hours.  Included within cost of goods
sold is depreciation and amortization expense of $1,205,000 and $1,123,000 for
the three months ended June 30, 2010, and 2009, respectively.





Cost of
goods sold increased $6,201,000 for the six months ended June 30, 2010, as
compared to the six months ended June 30, 2009, as follows:





(In
      thousands)
                
                2010
                
                
                %
                  Revenue
                
                
                2009
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                36,446
                
                
                
                75.8
                
                
                $
                31,054
                
                
                
                77.9
                
                
                $
                5,392Industrial
                
                
                4,289
                
                
                
                94.4
                
                
                
                3,315
                
                
                
                81.4
                
                
                
                974Engineering
                
                
                1,141
                
                
                
                85.1
                
                
                
                1,306
                
                
                
                73.2
                
                
                
                (165
                )Total
                
                $
                41,876
                
                
                
                77.6
                
                
                $
                35,675
                
                
                
                78.1
                
                
                $
                6,201




27


Cost of
goods sold for the Nuclear Segment increased $5,392,000 or 17.4%, which included
the cost of goods sold of approximately $16,555,000 related to the CHPRC
subcontract. Cost of goods sold for the CHPRC subcontract was approximately
$12,302,000 for the six months ended June 30, 2009. The increase in cost of
goods sold for the CHPRC subcontract of $4,253,000 or 34.6% was consistent with
the increase in revenue for the CHPRC subcontract. Excluding the CHPRC
subcontract, the remaining Nuclear Segment cost of goods sold increased
$1,139,000 or approximately 6.1% throughout various categories due primarily to
the increase in revenue.  Cost as a percentage of revenue decreased by
4.9% due to revenue mix.  In the Industrial Segment, cost of goods
sold increased $974,000 or 29.4%.  The cost of goods sold included an
increase to the environmental reserve of approximately $844,000 recorded in the
second quarter of 2010 for remediation expenditure for our PFSG facility
mentioned above.  Excluding this increase to the reserve, cost of
goods sold increased $130,000 or 3.9% due to higher transportation costs,
outside service costs, and higher regulatory costs for permit
matters.  Excluding the environmental reserve increase of
approximately $844,000, cost as a percentage of revenue decreased to 75.8% from
81.4% due to revenue mix and our continued effort to reduce costs. The
Engineering Segment’s cost of goods sold decreased approximately $165,000 due
primarily to lower revenue resulting from reduced billing
hours.  Included within cost of goods sold is depreciation and
amortization expense of $2,291,000 and $2,246,000 for the six months ended June
30, 2010, and 2009, respectively.





Gross
Profit


Gross
profit for the quarter ended June 30, 2010, increased $1,286,000 over 2009, as
follows:





(In
      thousands)
                
                2010
                
                
                %
                  Revenue
                
                
                2009
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                7,036
                
                
                
                27.9
                
                
                $
                4,872
                
                
                
                23.5
                
                
                $
                2,164Industrial
                
                
                (336
                )
                
                
                (14.9
                )
                
                
                300
                
                
                
                15.3
                
                
                
                (636
                )Engineering
                
                
                40
                
                
                
                6.0
                
                
                
                282
                
                
                
                28.1
                
                
                
                (242
                )Total
                
                $
                6,740
                
                
                
                24.0
                
                
                $
                5,454
                
                
                
                23.0
                
                
                $
                1,286





The
Nuclear Segment gross profit increased $2,164,000 or 44.4% in the three months
ended June 30, 2010 from the corresponding period of 2009.  The
Nuclear gross profit included $1,885,000 and $1,551,000 in gross profit for the
three months ended June 30, 2010 and 2009, respectively, for the CHPRC
subcontract.  Gross margin on the CHPRC subcontract of approximately
18.3% and 19.8% for the three months ended June 30, 2010 and 2009, respectively,
was in accordance with the contract fee provisions.  Excluding the
gross profit of the CHPRC subcontract, gross profit increased $1,830,000 and
gross margin increased approximately 8.9% to 34.6% from 25.7% primarily due to
higher revenue and higher margin wastes received and processed in the
quarter.  The Industrial Segment had a negative gross profit of
$336,000.  The negative gross profit was attributed to the $844,000
increase in environmental reserve recorded in the second quarter for remediation
expenditure for our PFSG facility.  Excluding this increase to the
reserve,the increase in
gross profit of $208,000 and gross margin of approximately 7.3% was the result
of higher volume and higher pricing in certain waste streams.  We saw
an increase of approximately 6.7% in the average price per gallon in used oil
sales, which is a higher margin waste stream. The decrease in gross profit and
gross margin in the Engineering Segment was due primarily to lower revenue
resulting from decreased external billable hours.





Gross
profit for the six months ended June 30, 2010, increased $2,054,000 over 2009,
as follows:





(In
      thousands)
                
                2010
                
                
                %
                  Revenue
                
                
                2009
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                11,627
                
                
                
                24.2
                
                
                $
                8,792
                
                
                
                22.1
                
                
                $
                2,835Industrial
                
                
                253
                
                
                
                5.6
                
                
                
                756
                
                
                
                18.6
                
                
                
                (503
                )Engineering
                
                
                199
                
                
                
                14.9
                
                
                
                477
                
                
                
                26.8
                
                
                
                (278
                )Total
                
                $
                12,079
                
                
                
                22.4
                
                
                $
                10,025
                
                
                
                21.9
                
                
                $
                2,054





The
Nuclear Segment gross profit increased $2,835,000 or 32.2%, which included gross
profit of approximately $3,790,000 and $3,063,000 in gross profit for the six
months ended June 30, 2010 and 2009, respectively, for the CHPRC
subcontract.  Gross margin on the CHPRC subcontract of approximately
18.6% and 19.9% for the six months ended June 30, 2010 and the corresponding
period of 2009, respectively, was in accordance with the contract fee
provisions. Excluding the CHPRC subcontract, Nuclear Segment gross profit
increased $2,108,000 or 36.8%.  The increase in gross margin of 4.9%
from 23.4% to 28.3% was primarily to due higher margin waste.  Gross
profit for the Industrial Segment decreased $503,000 or 66.5%.  Gross
profit for the six months ended June 30, 2010, included an $844,000 increase to
the environmental reserve recorded in the second quarter of 2010 for remediation
expenditure for our PFSG facility mentioned above.  Excluding this
increase to the reserve of approximately $844,000, gross profit for the
Industrial Segment increased $341,000 due to the increase in
revenue.  The increase in gross margin of 5.6%, excluding the $844,000
increase to the environmental reserve, was attributed to revenue mix, in
addition to volume increases in certain waste streams.  The
Engineering Segment gross profit decreased approximately $278,000 or 58.3%
primarily due to reduction in external labor hours.


28


Selling,
General and Administrative


Selling,
general and administrative ("SG&A") expenses decreased $60,000 for the three
months ended June 30, 2010, as compared to the corresponding period for 2009, as
follows:





(In
      thousands)
                  
                  2010
                  
                  
                  %
                    Revenue
                  
                  
                  2009
                  
                  
                  %
                    Revenue
                  
                  
                  ChangeAdministrative
                  
                  $
                  1,643
                  
                  
                  
                  3⁄4
                  
                  
                  $
                  1,431
                  
                  
                  
                  3⁄4
                  
                  
                  $
                  212Nuclear
                  
                  
                  1,722
                  
                  
                  
                  6.8
                  
                  
                  
                  1,930
                  
                  
                  
                  9.3
                  
                  
                  
                  (208
                  )Industrial
                  
                  
                  380
                  
                  
                  
                  16.9
                  
                  
                  
                  405
                  
                  
                  
                  20.6
                  
                  
                  
                  (25
                  )Engineering
                  
                  
                  84
                  
                  
                  
                  12.6
                  
                  
                  
                  123
                  
                  
                  
                  12.3
                  
                  
                  
                  (39
                  )Total
                  
                  $
                  3,829
                  
                  
                  
                  13.6
                  
                  
                  $
                  3,889
                  
                  
                  
                  16.4
                  
                  
                  $
                  (60
                  )





Our
SG&A for the three months ended June 30, 2010 decreased $60,000 or 1.5% over
the corresponding period of 2009.  The increase in administrative
SG&A was primarily the result of higher outside service expense relating to
corporate business and legal matters, consulting initiatives, and information
technology issues.  In addition, we incurred higher Management
Incentive Plan (“MIP”) bonus resulting from higher revenue, higher travel
expense, and certain healthcare related expense.  The decrease in
Nuclear Segment SG&A was due mainly to significant lower bad debt expense of
$142,000, payroll related expense, and lower general expenses as we continue to
streamline our costs.  This decrease was partially offset by higher
bonus/commission resulting from higher revenue.  Industrial Segment
SG&A decreased approximately $25,000 due primarily to lower outside service
expense, lower general expense, and lower depreciation expense resulting from
the fully depreciated waste tracking Enviroware system in January
2010.  This decrease in SG&A was partially offset by higher
salaries and payroll related expense resulting from increased sales force and
higher bad debt expense. The reduction in Engineering Segment’s SG&A was
primarily due to lower bad debt expense, lower general expense (trade
show/convention), and lower salaries and payroll related expenses. Included in
SG&A expenses is depreciation and amortization expense of $8,000 and $78,000
for the three months ended June 30, 2010, and 2009, respectively.





SG&A
expenses decreased $54,000 for the six months ended June 30, 2010, as compared
to the corresponding period for 2009, as follows:





(In
      thousands)
                  
                  2010
                  
                  
                  %
                    Revenue
                  
                  
                  2009
                  
                  
                  %
                    Revenue
                  
                  
                  ChangeAdministrative
                  
                  $
                  3,241
                  
                  
                  
                  3⁄4
                  
                  
                  $
                  2,934
                  
                  
                  
                  3⁄4
                  
                  
                  $
                  307Nuclear
                  
                  
                  3,462
                  
                  
                  
                  7.2
                  
                  
                  
                  3,732
                  
                  
                  
                  9.4
                  
                  
                  
                  (270
                  )Industrial
                  
                  
                  746
                  
                  
                  
                  16.4
                  
                  
                  
                  811
                  
                  
                  
                  19.9
                  
                  
                  
                  (65
                  )Engineering
                  
                  
                  204
                  
                  
                  
                  15.2
                  
                  
                  
                  230
                  
                  
                  
                  12.9
                  
                  
                  
                  (26
                  )Total
                  
                  $
                  7,653
                  
                  
                  
                  14.2
                  
                  
                  $
                  7,707
                  
                  
                  
                  16.9
                  
                  
                  $
                  (54
                  )


29


SG&A
decreased $54,000 or 0.7% for the six months ended June 30, 2010 as compared to
the corresponding period of 2009.  The increase in administrative
SG&A of approximately $307,000 was primarily the same reasons as mentioned
above for the three months ended June 30, 2010.  Nuclear Segment
SG&A was down approximately $270,000 or 7.2% due mainly to reduction in bad
debt expense of approximately $188,000, with the remaining due primarily to
lower payroll and healthcare related expenses and lower
bonus/commission.  The decrease was partially offset by higher outside
services related to business development/consulting.  The decrease in
SG&A for the Industrial Segment was primarily due to the same reason as
noted above for the second quarter. The Engineering Segment’s SG&A expense
decreased approximately $26,000 primarily due to lower salaries and payroll
related expenses, lower general expense, and lower outside
services.  Included in SG&A expenses is depreciation and
amortization expense of $58,000 and $135,000 for the six months ended June 30,
2010 and 2009, respectively.





Interest
Expense


Interest
expense decreased $260,000 and $588,000 for the three and six months ended June
30, 2010, respectively, as compared to the corresponding period of
2009.





Three
      Months
                
                
                Six
      Months(In
      thousands)
                
                2010
                
                
                2009
                
                
                Change
                
                
                2010
                
                
                2009
                
                
                ChangePNC
      interest
                
                $
                110
                
                
                $
                221
                
                
                $
                (111
                )
                
                $
                237
                
                
                $
                383
                
                
                $
                (146
                )Other
                
                
                98
                
                
                
                247
                
                
                
                (149
                )
                
                
                190
                
                
                
                632
                
                
                
                (442
                )Total
                
                $
                208
                
                
                $
                468
                
                
                $
                (260
                )
                
                $
                427
                
                
                $
                1,015
                
                
                $
                (588
                )





The
decrease in interest expense for the three and six months ended June 30, 2010,
as compared to the corresponding period in 2009 was due primarily to lower
interest on our revolver and term note resulting from lower average balances and
lower interest rate from an amendment entered into with PNC on January 25, 2010
(see “Liquidity and Capital Resources of the Company - Financing Activities” for
information regarding this Amendment).  In addition, we incurred lower
interest expense resulting from payoff of the PDC note in May 2009 at our
M&EC facility.  Also, interest expense related to certain vendor
invoices was lower throughout 2010 as compared to the corresponding period of
2009.





Interest
Expense - Financing Fees


Interest
expense-financing fees increased approximately $40,000 and $130,000 for the
three and six months ended June 30, 2010, respectively, as compared to the
corresponding period of 2009.  The increase for both periods was due
primarily to debt discount amortized as financing fees in connection with the
issuance of 200,000 shares of the Company’s Common Stock and two Warrants for
purchase up to 150,000 shares of the Company’s Common Stock as consideration for
the Company receiving a $3,000,000 loan from Mr. William Lampson and Mr. Diehl
Rettig in May 2009.





Interest
Income


Interest
income decreased approximately $25,000 and $56,000 for the three and six months
ended June 30, 2010, as compared to the corresponding period of 2009,
respectively.  The decrease for the three and six months is primarily
the result of lower interest earned on the finite risk sinking fund due to lower
interest rates.





Income
Tax Expense


Income
tax expense for continuing operations was $1,101,000 for the three months ended
June 30, 2010, as compared to $91,000 for the corresponding period of 2009 and
$1,537,000 for the six months ended June 30, 2010, as compared to $100,000 for
the corresponding period of 2009.  The Company’s effective tax rates
were approximately 42.1% and 8.4% for the three months ended June 30, 2010 and
2009, respectively, and 40.1% and 7.5% for the six months ended June 30, 2010
and 2009, respectively.  The higher income tax for the three and six
months period ended June 30, 2010, as compared to the corresponding period of
2009, was due to less valuation allowance on our deferred tax asset related to
federal and state net operating loss (NOL) carryforwards.  We have
full valuation allowance on all of our deferred tax assets in
2009.


30


Discontinued
Operations and Divestitures


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





We had
net loss of $69,000 and $213,000 for our discontinued operations for the three
and six months ended June 30, 2010, respectively, as compared to net loss of
$242,000 and net income of $57,000 for the three and six months ended June 30,
2009, respectively.  The net income for the six months ended June 30,
2009 included a recovery of approximately $400,000 in closure costs for PFTS
recorded in the first quarter of 2009 resulting from the release of our
financial assurance bond for PFTS by the appropriate regulatory authority after
the buyer of PFTS acquired its financial assurance.  The net loss for
the three months ended June 30, 2009, included approximately $119,000 in
interest expense related to a certain excise tax audit for fiscal years 1999 to
2006 for PFTS.





Assets
and liabilities related to discontinued operations total $746,000 and $2,076,000
as of June 30, 2010, respectively and $825,000 and $2,426,000 as of December 31,
2009, respectively.





Liabilities within our
discontinued operations include apension payable at PFMI of
$817,000 as of June 30, 2010.The pension plan withdrawal
liability is a result of the termination of the union employees of
PFMI.  The PFMI union employees participated in the Central States
Teamsters Pension Fund ("CST"), which provides that a partial or full
termination of union employees may result in a withdrawal liability, due from
PFMI to CST.  The recorded liability is based upon a demand letter
received from CST in August 2005 that provided for the payment of $22,000 per
month over an eight year period.  This obligation is recorded as a
long-term liability, with a current portion of $199,000 that we expect to pay
over the next year.





Liquidity
and Capital Resources of the Company


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 June
30, 2010, we had cash of $68,000.  The following table reflects the
cash flow activities during the first six months of 2010.





(In
      thousands)
                  
                  2010Cash
      provided by continuing operations
                  
                  $
                  4,578Cash
      used in discontinued operations
                  
                  
                  (520
                  )Cash
      used in investing activities of continuing operations
                  
                  
                  (3,383
                  )Cash
      provided by investing activities of discontinued
operations
                  
                  
                  37Cash
      used in financing activities of continuing operations
                  
                  
                  (785
                  )Decrease
      in cash
                  
                  $
                  (73
                  )





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 June 30, 2010, primarily represents
minor petty cash and local account balances used for miscellaneous services and
supplies.


31


Operating
Activities


Accounts
Receivable, net of allowances for doubtful accounts, totaled $10,078,000, a
decrease of $3,063,000 over the December 31, 2009, balance of
$13,141,000.  The Nuclear Segment experienced a decrease of
approximately $3,019,000 due primarily to improved collection
effort.  The Industrial Segment experienced an increase of
approximately $101,000 due primarily to increase in revenue.  The
Engineering Segment experienced a decrease of approximately $145,000 due mainly
to reduction in revenue.





Unbilled
receivables are generated by differences between invoicing timing and our
performance based methodology used for revenue recognition
purposes.  As major processing phases are completed and the costs
incurred, we recognize a 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. These delays usually take several months to
complete.  As of June 30, 2010, unbilled receivables totaled
$10,785,000, a reduction of $1,575,000 from the December 31, 2009, balance of
$12,360,000.  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 June 30, 2010 is $8,166,000, a reduction of $1,692,000 from
the balance of $9,858,000 as of December 31, 2009.  The long term
portion as of June 30, 2010 is $2,619,000, an increase of $117,000 from the
balance of $2,502,000 as of December 31, 2009.





As of
June 30, 2010, total consolidated accounts payable was $4,097,000, a decrease of
$830,000 from the December 31, 2009, balance of $4,927,000.  The
decrease was due primarily to payments of our vendor invoices using cash
generated from our operations.  We continue to negotiate and manage
payment terms with our vendors to maximize our cash position throughout all
segments.





Accrued
Expenses as of June 30, 2010, totaled $9,180,000, an increase of $2,702,000 over
the December 31, 2009, balance of $6,478,000.  Accrued expenses are
made up of accrued compensation, interest payable, insurance payable, certain
tax accruals, and other miscellaneous accruals.  The increase was
primarily due to approximately $2,885,000 recorded in earn-out amount payable
for fiscal year ending June 30, 2010 in connection with the acquisition of our
PFNWR facility in June 2007 (see “Liquidity and Capital Resources of the Company
– Financing Activities” for further information regarding this earn-out
amount).





Disposal/transportation
accrual as of June 30, 2010, totaled $2,275,000, a decrease of $486,000 over the
December 31, 2009 balance of $2,761,000.  The decrease was mainly
attributed to the reduction of the legacy waste accrual at PFNWR
facility.





We had a
working capital deficit of $663,000 (which includes working capital of our
discontinued operations) as of June 30, 2010, as compared to a working capital
of $1,490,000 as of December 31, 2009.  The pay down of our accounts
payable and the reduction of our unearned revenue have positively impacted our
working capital; however, our working capital was negatively impacted by the
$2,885,000 in earn-out amount payable recorded in 2010 in connection with the
acquisition of our PFNWR facility in June 2007.


32


Investing
Activities


Our
purchases of capital equipment for the six months ended June 30, 2010, totaled
approximately $1,467,000.  These expenditures were for improvements to
operations primarily within the Nuclear and Industrial
Segments.  These capital expenditures were funded by the cash provided
by operations. We have budgeted capital expenditures of approximately $2,000,000
for fiscal year 2010 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 Chartis, a
subsidiary of American International Group, Inc. (“AIG”), which provides
financial assurance to the applicable states for our permitted facilities in the
event of unforeseen closure.  Prior to obtaining or renewing operating
permits, we are required to provide financial assurance that guarantees to the
states that in the event of closure, our permitted facilities will be closed in
accordance with the regulations.  The policy provided an initial
maximum $35,000,000 of financial assurance coverage and has available capacity
to allow for annual inflation and other performance and surety bond
requirements.  Our initial finite risk insurance policy required an
upfront payment of $4,000,000, of which $2,766,000 represented the full premium
for the 25-year term of the policy, and the remaining $1,234,000, was deposited
in a sinking fund account representing a restricted cash account.  We
are required to make seven annual installments, as amended, of $1,004,000, of
which $991,000 is to be deposited in the sinking fund account, with the
remaining $13,000 represents a terrorism premium.  In addition, we are
required to make a final payment of $2,008,000, of which $1,982,000 is to be
deposited in the sinking fund account, with the remaining $26,000 represents a
terrorism premium.  In February 2010, we paid our seventh of the eight
required remaining payments.  In March 2009, we increased our maximum
allowable policy coverage from $35,000,000 to $39,000,000 in order for our
Diversified Scientific Services, Inc. (“DSSI”) facility to receive and process
Polychlorinated Biphenyls (“PCBs”) wastes. Payment for this policy increase
requires a total payment of approximately $5,219,000, consisting of an upfront
payment of $2,000,000 made on March 6, 2009, of which approximately $1,655,000
was deposited into a sinking fund account, with the remaining representing fee
payable to Chartis.  In addition, we are required to make three yearly
payments of approximately $1,073,000 payable starting December 31, 2009, of
which $888,000 is be deposited into a sinking fund account, with the remaining
to represent fee payable to Chartis.  In February 2010, we paid our
first of the three $1,073,000 required payments.





As of
June 30, 2010, our total financial coverage amount under this policy totaled
$36,345,000.  We have recorded $11,541,000 in our sinking fund related
to the policy noted above on the balance sheet, which includes interest earned
of $828,000 on the sinking fund as of June 30, 2010.  Interest income
for the three and six months ended June 30, 2010, was approximately $9,000, and
$23,000, respectively.  On the fourth and subsequent anniversaries of
the contract inception, we may elect to terminate this contract.  If
we so elect, Chartis is obligated to pay us an amount equal to 100% of the
sinking fund account balance in return for complete releases of liability from
both us and any applicable regulatory agency using this policy as an instrument
to comply with financial assurance requirements.





In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility with Chartis.  The policy provides an initial $7,800,000 of
financial assurance coverage with annual growth rate of 1.5%, which at the end
of the four year term policy, will provide maximum coverage of
$8,200,000.  The policy will renew automatically on an annual basis at
the end of the four year term and will not be subject to any renewal
fees.  The policy requires total payment of $7,158,000, consisting of
an initial payment of $1,363,000, and two annual payments of $1,520,000, payable
by July 31, 2008 and July 31, 2009, and an additional $2,755,000 payment to be
made in five quarterly payments of $551,000 beginning September
2007.  In July 2007, we paid the initial payment of $1,363,000, of
which $1,106,000 represented premium on the policy and the remaining was
deposited into a sinking fund account.  We have made each of the
annual payments of $1,520,000, of which $1,344,000 was deposited into a sinking
fund account and the remaining represented premium. We have also made all of the
five quarterly payments which were deposited into a sinking fund.  As
of June 30, 2010, we have recorded $5,855,000 in our sinking fund related to
this policy on the balance sheet, which includes interest earned of $155,000 on
the sinking fund as of June 30, 2010.  Interest income for the three
and six months ended June 30, 2010 totaled approximately $7,000 and $14,000,
respectively.


33


It has
been previously reported that AIG, parent company of Chartis, has experienced
financial difficulties and is continuing to experience financial difficulties.
In the event of failure of AIG, this could significantly impact our operations
and our permits.





Financing
Activities


On
December 22, 2000, we entered into a Revolving Credit, Term Loan and Security
Agreement ("Loan Agreement") with PNC Bank, National Association, a national
banking association ("PNC") acting as agent ("Agent") for lenders, and as
issuing bank, as amended.  The Agreement provided for a term loan
("Term Loan") in the amount of $7,000,000, which requires monthly installments
of $83,000.  The Agreement also provided for a revolving line of
credit ("Revolving Credit") with a maximum principal amount outstanding at any
one time of $18,000,000, as amended.  The Revolving Credit advances
are subject to limitations of an amount up to the sum of (a) up to 85% of
Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of
Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to
85% of acceptable Government Agency Receivables aged up to 150 days from invoice
date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less
(e) reserves the Agent reasonably deems proper and necessary.  As of
June 30, 2010, the excess availability under our Revolving Credit was $8,100,000
based on our eligible receivables.





Pursuant
to the Loan Agreement, as amended, we may terminate the Loan Agreement upon 90
days’ prior written notice upon payment in full of the obligation.  No
early termination fee shall apply if we pay off our obligations after August 5,
2010.





On
January 25, 2010, we entered into an Amendment to our PNC Loan
Agreement.  This Amendment amended the interest rate to be paid under
the LIBOR option.  Under the terms of the Loan Agreement, we are to
pay interest on the outstanding balance of the term loan and the revolving line
of credit, at our option, based on prime plus 2.5% and 2.0%, respectively, or
LIBOR plus 3.5% and 3.0%, respectively.  Under the Loan Agreement
prior to this Amendment, the LIBOR option included a 2.5% floor, which limited
the minimum interest rates on the term loan and revolving line of credit at 6.0%
and 5.5%, respectively.  Under this Amendment, we and PNC agreed to
lower the floor on the LIBOR interest rate option by 150 basis points to 1.0%,
allowing for minimum interest rate floor under the LIBOR option on the
outstanding balances of our term loan and revolving line of credit of 4.5% and
4.0%, respectively.  The prime rate option of prime plus 2.5% and 2.0%
in connection with our term loan and revolving line of credit, respectively, was
not changed under this Amendment.  All other terms of the Loan
Agreement, as amended prior to this Amendment, remain substantially
unchanged.  As result of this Amendment, the effective rate for our
revolving line of credit and Term note was approximately 4.43% and 4.81%,
respectively, for the six months ended 2010, resulting from the combination of
the prime rate and LIBOR options.




Our
credit facility with PNC Bank contains certain financial covenants, along with
customary representations and warranties.  A breach of any of these
financial covenants, unless waived by PNC, 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.  We met our financial covenants in each of the
quarters in 2009, and we expect to meet our financial covenants in
2010.  The following table illustrates the most significant financial
covenants under our credit facility and reflects the quarterly compliance
required by the terms of our senior credit facility as of June 30,
2010:


34




Quarterly
                                  
                                  
                                  1st
      Quarter
                                  
                                  
                                  2nd
      Quarter(Dollars
      in thousands)
                                  
                                  Requirement
                                  
                                  
                                  Actual
                                  
                                  
                                  Actual(dollares
      in thousands)
                                  
                                  
                                  (dollares
      in thousands)
                                  
                                  
                                  (dollares
      in thousands)PNC
      Credit FacilityFixed
      charge coverage ratio
                                  
                                  1:25:1
                                  
                                  
                                  2:72:1
                                  
                                  
                                  2:45:1Minimum
      tangible adjusted net worth
                                  
                                  $30,000
                                  
                                  
                                  $61,900
                                  
                                  
                                  $61,067





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





In
connection with the acquisition of PFNW and PFNWR, we are required to pay to
those former shareholders of PFNW immediately prior to our acquisition, an
earn-out amount upon meeting certain conditions for each fiscal year ending June
30, 2008, to June 30, 2011, with the aggregate of the full earn-out amount not
to exceed $4,552,000, pursuant to the Merger Agreement, as amended
(“Agreement”).  Under the Agreement, the earn-out amount to be paid
for any particular fiscal year is to be an amount equal to 10% of the amount
that the revenues for our nuclear business (as defined) for such fiscal year
exceeds the budgeted amount of revenues for our nuclear business for that
particular period.  No earn-out was required to be paid for fiscal
year 2008 and we paid $734,000 in earn out for fiscal year 2009 in the third
quarter of 2009.  Pursuant to the Agreement, any indemnification
obligations payable to the Company by the former shareholders Nuvotec will be
deducted (“Offset Amount”) from any earn-out amounts payable by the Company for
the fiscal year ending June 30, 2010, and June 30, 2011.  Pursuant to
the Agreement, the aggregate amount of any Offset Amount may total up to
$1,000,000, except an Offset Amount is unlimited as to indemnification relating
to liabilities for taxes, misrepresentation or inaccuracies with respect to the
capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation
of any representation, warranty or covenant.  At this time, we have
identified certain Offset Amounts against the earn-out for the twelve month
period ending June 30, 2010.  The Offset Amount includes the sum of
approximately $93,000 relating to an excise tax issue and a refund request from
a PEcoS customer in connection with services for waste treatment prior to our
acquisition of PFNWR and PFNW.  A potential Offset Amount is in
connection with the receipt of nonconforming waste at the PFNWR facility prior
to our acquisition of PFNWR and PFNW (“Nonconforming Waste
Issue”).  We are currently reviewing this potential Offset Amount
relating to the Nonconforming Waste Issue.  We are currently involved
in litigation with the party that delivered the nonconforming waste to the
facility prior to our acquisition of PFNWR and PFNW.  See “Known
Trends and Uncertainties—Certain Legal Matters” of this Management’s Discussion
and Analysis. The Company may elect to pay any future earn-out amounts in excess
of $1,000,000 after any Offset Amount, for each fiscal year ended June 30, 2010,
and 2011 by means of a three year unsecured promissory note bearing an annual
rate of 6.0%, payable in 36 equal monthly installments due on the 15th day of
each months.  As of June 30, 2010, we have calculated that $2,978,000
in earn-out amount has been earned for fiscal year ended June 30, 2010, less any
Offset Amounts.  The earn-out amount payable includes the Offset
Amount of $93,000 as mentioned above but does not include the potential Offset
Amount in connection with the Nonconforming Waste Issue as we are still
reviewing such potential Offset Amount.  Accordingly, as of June 30,
2010, we have recorded the $2,978,000 in earn-out as an increase to goodwill for
PFNWR, with an increase to accrued expense payable of $2,885,000 and a reduction
to receivable of $93,000, which represents the Offset Amount previously
recorded.  This Offset Amount of $93,000 may be increased should we
determine the amount of offset for the Nonconforming Waste Issue. We anticipate
paying the earn-out amount in the third quarter of 2010.


35


On May 8,
2009, the Company entered into a promissory note with William N. Lampson and
Diehl Rettig (collectively, the “Lenders”) for $3,000,000. The Lenders were
formerly shareholders of PFNW and PFNWR prior to our acquisition of PFNW and
PFNWR and are also stockholders of the Company having received shares of our
Common Stock in connection with our acquisition of PFNW and PFNWR.  We
used the proceeds of the loan primarily to pay off a promissory note entered
into by our M&EC subsidiary with PDC in June 2001, with the remaining funds
used for working capital purposes. The promissory note provides for monthly
principal repayment of approximately $87,000 plus accrued interest, starting
June 8, 2009, and on the 8th day of each month thereafter, with interest payable
at LIBOR plus 4.5%, with LIBOR at least 1.5%.  Any unpaid principal
balance along with accrued interest is due May 8, 2011.  We paid
approximately $22,000 in closing costs for the promissory note which is being
amortized over the term of the note.  The promissory note may be
prepaid at anytime by the Company without penalty.  As consideration
of the Company receiving this loan, we issued a Warrant to Mr. Lampson and a
Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares, respectively,
of the Company’s Common Stock at an exercise price of $1.50 per
share.  The Warrants are exercisable six months from May 8, 2009 and
expire on May 8, 2011.  We also issued an aggregate of 200,000 shares
of the Company’s Common Stock with Mr. Lampson receiving 180,000 shares and Mr.
Rettig receiving 20,000 shares of the Company’s Common Stock.  We
estimated the fair value of the Common Stock and Warrants to be approximately
$476,000 and $190,000, respectively.  The fair value of the Common
Stock and Warrants was recorded as a debt discount and is being amortized over
the term of the loan as interest expense – financing fees.  Debt
discount amortized as of June 30, 2010 totaled approximately
$382,000.   Mr. Rettig is now deceased; accordingly, the
remaining portion of the note payable to Mr. Rettig and the Warrants and Stock
issued to him is now payable to and held by his personal representative or
estate.





During
the six months ended June 30, 2010, we issued an aggregate of 350,000 shares of
our Common Stock upon exercise of 350,000 employee stock options, at exercise
prices ranging from $1.25 to $2.19.  As previously disclosed in the
first quarter of 2010, an employee used 38,210 shares of personally held Company
Common Stock as payment for the exercise of 70,000 options to purchase 70,000
shares of the Company’s Common Stock at $1.25 per share, as permitted under the
1993 Non-Qualified Stock Option Plan.  The 38,210 shares are held as
treasury stock.  The cost of the 38,210 shares was determined to be
approximately $88,000 in accordance with the Plan.  As of June 30,
2010, we received $509,000 in total proceeds from stock option
exercise.





On July
28, 2006, our Board of Directors 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.





On April
8, 2009, the Company filed a shelf registration statement on Form S-3 with the
U.S. Securities and Exchange Commission (“SEC”), which was declared effective by
the SEC on June 26, 2009.  The shelf registration statement gives the
Company the ability to sell up to 5,000,000 shares of its Common Stock from time
to time and through one or more methods of distribution, subject to market
conditions and the Company’s capital needs at that time.  The terms of
any offering under the registration statement will be established at the time of
the offering.  The Company does not have any immediate plans or
current commitments to issue shares under the registration
statement.




In
summary, we continue to take steps to improve our operations and liquidity and
to invest working capital into our facilities to fund capital additions our
Segments.  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.


36


Contractual
Obligations


The
following table summarizes our contractual obligations at June 30, 2010, and the
effect such obligations are expected to have on our liquidity and cash flow in
future periods, (in thousands):





Payments due by periodContractual Obligations
                
                Total
                
                
                2010
                
                
                
                2011-
                  2013
                
                
                
                2014 -
                  2015
                
                
                After
                  2015Long-term
      debt (1)
                
                $
                10,885
                
                
                $
                1,101
                
                
                $
                9,765
                
                
                $
                19
                
                
                $
                3⁄4Interest
      on fixed rate long-term debt (2)
                
                
                69
                
                
                
                3⁄4
                
                
                
                69
                
                
                
                3⁄4
                
                
                
                —Interest
      on variable rate debt (3)
                
                
                648
                
                
                
                187
                
                
                
                461
                
                
                
                3⁄4
                
                
                
                3⁄4Operating
      leases
                
                
                2,606
                
                
                
                456
                
                
                
                1,507
                
                
                
                335
                
                
                
                308Finite
      risk policy (4)
                
                
                4,154
                
                
                
                1,073
                
                
                
                3,081
                
                
                
                3⁄4
                
                
                
                3⁄4Pension
      withdrawal liability (5)
                
                
                817
                
                
                
                69
                
                
                
                698
                
                
                
                50
                
                
                
                3⁄4Environmental
      contingencies (6)
                
                
                2,255
                
                
                
                245
                
                
                
                1,494
                
                
                
                212
                
                
                
                304Earn
      Out Amount - PFNWR (7)
                
                
                2,885
                
                
                
                2,885
                
                
                
                —
                
                
                
                —
                
                
                
                —Purchase
      obligations (8)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
      contractual obligations
                
                $
                24,319
                
                
                $
                6,016
                
                
                $
                17,075
                
                
                $
                616
                
                
                $
                612





(1)
            Amount
      excludes debt discount of approximately $81,000 for the two Warrants and
      $203,000 for the 200,000 shares of the Company Stock issued in connection
      with the $3,000,000 loan between the Company and Mr. William Lampson and
      Mr. Diehl Rettig.  See “Liquidity and Capital Resources of the
      Company – Financing Activities” earlier in this Management’s Discussion
      and Analysis for further discussion on the debt
  discount.





(2)
            In
      conjunction with our acquisition of PFNWR and PFNW, 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.





(3)
            We
      have variable interest rates on our Term Loan and Revolving Credit of 2.5%
      and 2.0% over the prime rate of interest, respectively, or variable
      interest rates on our Term Loan and Revolving Credit of 3.5% and 3.0%,
      respectively, over the minimum floor base LIBOR of 1.0%, as
      amended.  Our calculation of interests on our Term Loan and
      Revolving Credit was estimated using the more favorable LIBOR option in
      years 2010 through July 2012.  In addition, we have a $3,000,000
      promissory note with Mr. William Lampson and Mr. Diehl Rettig which pays
      interest at LIBOR plus 4.5%, with LIBOR of at least
  1.5%.





(4)
            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.





(5)
            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.





(6)
            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.


37


(7)
            In
      connection with the acquisition of PFNW and PFNWR in June 2007, we are
      required to pay to those former shareholders of PFNW immediately prior to
      our acquisition, if certain revenue targets are met, an earn-out amount
      for each fiscal year ending June 30, 2008, to June 30, 2011, with the
      aggregate of the full earn-out amount not to exceed $4,552,000, pursuant
      to the Merger Agreement, as amended.  No earn-out amount was
      required to be paid for fiscal year 2008 and we paid $734,000 in earn-out
      amount for the fiscal year 2009 in the third quarter of
      2009.  For fiscal year ended June 30, 2010, we have calculated
      that we are required to pay $2,885,000 in earn-out amount at this time,
      which was net of a $93,000 Offset Amount, representing indemnification
      obligations payable to the Company by Nuvotec, PEcoS, and the former
      shareholders.  We are currently reviewing a potential Offset
      Amount in connection with the receipt of nonconforming waste at the PFNWR
      facility prior to our acquisition of PFNWR and PFNW.  See
      “Liquidity and Capital Resources of the Company - Financing Activities” in
      this “Management and Discussion and Analysis of Financial Condition and
      Results of Operations” for further information on the earn-out
      amount.





(8)
            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 performance based 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 a performance based methodology 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 0.3% of revenue for
2009, and 2.2% of accounts receivable, as of December 31, 2009.  This
allowance was approximately 0.6% of revenue as of June 30, 2010, and 2.9% of
accounts receivable as of June 30, 2010.


38


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, 2009 and 2008 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.  Intangible assets that have definite useful
lives are amortized using the straight-line method over the estimated useful
lives and are excluded from our annual intangible asset valuation review
conducted as of October 1.





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.





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 (for 2010, the average
inflationary factor was approximately 1.02%) and for approved changes or
expansions to the facilities. 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.





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.  In connection with the
sale of our PFD facility in March 2008, the Company retained the environmental
liability for the remediation of an independent site known as Environmental
Processing Services (“EPS”).  This liability was assumed by the
Company as a result of the original acquisition of the PFD
facility.  The environmental liabilities of PFM, PFMI, PFSG, and PFD
remain the financial obligations of the Company.


39





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.





Stock-Based Compensation.We
account for stock-based compensation in accordance with ASC 718, “Compensation –
Stock Compensation”. ASC 718 requires all stock-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values.  The Company uses the
Black-Scholes option-pricing model to determine the fair-value of stock-based
awards which requires subjective assumptions.  Assumptions used to
estimate the fair value of stock options granted include the exercise price of
the award, the expected term, the expected volatility of the Company’s stock
over the option’s expected term, the risk-free interest rate over the option’s
expected term, and the expected annual dividend yield.  The Company’s
expected term represents the period that stock-based awards are expected to be
outstanding and is determined based on historical experience of similar awards,
giving consideration to the contractual terms of the stock-based awards, vesting
schedules, and post-vesting data.  Our computation of expected
volatility is based on the Company’s historical volatility from our traded
Common Stock over the expected term of the option grants.  The
interest rate for periods within the expected term of the award is based on the
U.S. Treasury yield curve in effect at the time of grant.





We
recognize stock-based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant.  ASC 718 requires that stock-based compensation expense
be based on options that are ultimately expected to vest.  ASC 718
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.  We have generally estimated forfeiture rate based on
historical trends of actual forfeiture. When actual forfeitures vary from our
estimates, we recognize the difference in compensation expense in the period the
actual forfeitures occur or when options vest. Forfeiture rates are evaluated,
and revised as necessary.





Income Taxes.The
provision for income tax is determined in accordance with ASC 740, “Income
Taxes”, and ASC 270, “Interim Reporting”.  As part of the process of
preparing our consolidated financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. We record this
amount as a provision or benefit for income taxes.  This process
involves estimating our actual current income tax exposure, including assessing
the risks associated with income tax audits, and assessing temporary differences
resulting from different treatment of items for tax and accounting purposes.
These differences result in deferred income tax assets and liabilities. We
periodically assess the likelihood that our deferred income tax assets will be
recovered from future taxable income and, provide valuation allowance to the
extent that we believe recovery is not likely.





Known
Trends and Uncertainties


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 generally slows down, as the
government budgets are still being finalized, planning for the new year is
occurring, and we enter the holiday season.  This trend generally
continues into the first quarter of the new year as government entities evaluate
their spending priorities.  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, nevertheless, 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.  In addition, higher government (specifically DOE) funding
made available through the economic stimulus package (American Recovery and
Reinvestment Act) enacted by Congress in February 2009, could result in larger
fluctuations in 2010.


40


Economic Conditions.With
much of our Nuclear Segment customer base being government or prime contractors
treating government waste, we do not believe that economic upturns or downturns
have a significant impact on the demand for our services.  With our
Industrial Segment, economic downturns or recessionary conditions can adversely
affect the demand for our industrial services.  Although we continue
to experience economic slowdown due to the current uncertain economic
environment, we continue to review contracts and revenue streams within our
Industrial Segment in efforts to replace those that are not profitable with more
profitable ones.  Our Engineering Segment relies more on commercial
customers though this segment makes up a very small percentage of our
revenue.





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





Certain
Legal Matters:


Perma-Fix
of Dayton (“PFD”), Perma-Fix of Florida (“PFF”), Perma-Fix of Orlando (“PFO”),
Perma-Fix of South Georgia (“PFSG”), and Perma-Fix of Memphis
(“PFM”)


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





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


41


Industrial
Segment Divested Facilities/Operations


As
previously disclosed, our subsidiary, Perma-Fix Treatment Services, Inc.
(“PFTS”), sold substantially all of its assets in May 2008, pursuant to an Asset
Purchase Agreement, as amended (“Agreement”).  Under the Agreement,
the buyer, A Clean Environment, Inc. (“ACE”) assumed certain debts and
obligations of PFTS.  We sued ACE regarding certain liabilities which
we believed ACE assumed and agreed to pay under the Agreement but which ACE
refused to pay.  ACE filed a counterclaim against us alleging that
PFTS made certain misrepresentations and failed to disclose certain
liabilities.  The pending litigation is styled American Environmental
Landfill, Inc. v. Perma-Fix Environmental Services, Inc. v. A Clean Environment,
Inc., Case No. CJ-2008-659, pending in the District Court of Osage
County, State of Oklahoma.  This matter was ordered to arbitration,
which was heard in April 2010.  On May 11, 2010 the Arbitrator ruled
in favor of PFTS on all but one issue of contention.  More
specifically, the Arbitrator (i) ruled in favor of the Company and PFTS on each
of the claims asserted by ACE with the exception of a single claim in the amount
of approximately $4,000; and (ii) ruled in favor of the Company and PFTS (a) in
the amount of approximately $57,000 representing liabilities assumed by ACE but
paid by PFTS, together with an order directing ACE to indemnify and hold
harmless the Company and PFTS from any damages, costs or expenses, including
reasonable attorney’s fees, associated with other unpaid accounts payable
totaling approximately $44,000; and (b) in the amount of approximately $114,000
on a claim relating to an equipment lease, together with an order directing ACE
to indemnify and hold harmless the Company and PFTS from any damages, costs or
expenses, including reasonable attorney’s fees associated with any future
liability or loss arising out of the equipment lease.The Arbitrator’s award has
been entered as a judgment by the court.  ACE has challenged the
confirmation of award and the entry of a final judgment based on the award, and
has indicated that they may appeal the Arbitrator’s award and any judgment
entered thereon.





Perma-Fix
of Northwest Richland, Inc. (“PFNWR”)


PFNWR has
filed a complaint alleging breach of contract and seeking the Court to direct
specific performance of the “return-of-waste clause” contained in the brokerage
contract between a previous owner of the facility now owned by PFNWR and
Philotechnics, Ltd. (“Philo”), with regard to a quantity of non-conforming waste
Philo delivered to the PFNWR facility prior to the acquisition of the facility
by PFNWR for treatment on behalf of Philo’s customer El du Pont de Nemours and
Company (“DuPont”).  In the complaint, we asked the Court to either:
(A) order Philo to specifically perform its obligations under the
“return-of-waste” clause of the Contract by physically taking custody of and by
removing the nonconforming waste, and order that Philo pay PFNWR the additional
costs of maintaining and managing the waste or, (B) order Philo to pay PFNWR the
cost to treat and dispose of the nonconforming waste so as to allow PFNWR to
compliantly dispose of that waste offsite.




Significant Customers. Our
revenues are principally derived from numerous and varied customers. However,
our Nuclear Segment has a significant relationship with the federal government
and has continued 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 on 30
days notice or renegotiate the contracts, 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 CHPRC as discussed below)
to the federal government, representing approximately $21,391,000 or 76.1%
(within our Nuclear Segment) and $40,849,000 or 75.7% of our total revenue from
continuing operations during the three and six months ended June 30, 2010,
respectively, as compared to $16,822,000 or 71.0% and $32,247,000 or 70.6% of
our total revenue from continuing operations during the corresponding period of
2009.


42


During
the second quarter of 2008, our M&EC facility was awarded a subcontract by
CHPRC, a general contractor to the DOE, to participate in the cleanup of the
central portion of the Hanford Site.  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 provided above, M&EC’s subcontract is terminable
or subject to renegotiation, at the option of the government, on 30 days
notice.  Effective October 1, 2008, CHPRC also assumed responsibility
for three existing Nuclear Segment waste processing contracts that were
previously managed by DOE’s general contractor prior to CHPRC.  These
three contracts were renegotiated and extended through September 30,
2013.  Revenues from CHPRC totaled $12,276,000 or 43.7% and
$24,001,000 or 44.5% of our total revenue from continuing operations for three
and six months ended June 30, 2010, respectively, as compared to $11,624,000 or
49.1% and $22,371,000 or 49.0% of our total revenue from continuing operations
during the corresponding period of 2009.





Insurance. We believe we
maintain insurance coverage similar to, or greater than, the coverage maintained
by other companies of the same size and industry, which complies with the
requirements under applicable environmental laws. We evaluate our insurance
policies annually to determine adequacy, cost effectiveness and desired
deductible levels. Due to the continued uncertainty in the economy, changes
within the environmental insurance market, and the financial difficulties of
AIG, whose subsidiary Chartis, is the provider of our financial assurance
policies, we have no guarantees as to continued coverage by Chartis, that we
will be able to obtain similar insurance in future years, or that the cost of
such insurance will not increase materially.





Climate Change. Climate
change is receiving ever increasing attention worldwide. Many scientists,
legislators and others attribute global warming to increased levels of
greenhouse gases, including carbon dioxide, which has led to significant
legislative and regulatory efforts to limit greenhouse gas emissions. There
is a number of pending legislative and regulatory proposals to address
greenhouse gas emissions. For example, in June 2009 the U.S. House of
Representatives passed the American Clean Energy and Security Act that would
phase-in significant reductions in greenhouse gas emissions if enacted into law.
The U.S. Senate has been considering a different bill, and it is uncertain
whether, when and in what form a federal mandatory carbon dioxide emissions
reduction program may be adopted. These actions could increase costs associated
with our operations.  Because it is uncertain what laws will be
enacted, we cannot predict the potential impact of such laws on our future
consolidated financial condition, results of operations or cash
flows.





Environmental
Contingencies


We are
engaged in the waste management services segment of the pollution control
industry. As a participant in the on-site treatment, storage and disposal market
and the off-site treatment and services market, we are subject to rigorous
federal, state and local regulations.  These regulations mandate
strict compliance and therefore are a cost and concern to us.  Because
of their integral role in providing quality environmental services, we make
every reasonable attempt to maintain complete compliance with these regulations;
however, even with a diligent commitment, we, along with many of our
competitors, may be required to pay fines for violations or investigate and
potentially remediate our waste management facilities.





We
routinely use third party disposal companies, who ultimately destroy or secure
landfill residual materials generated at our facilities or at a client's
site.  We, compared to certain of our competitors, dispose of
significantly less hazardous or industrial by-products from our operations due
to rendering material non-hazardous, discharging treated wastewaters to
publicly-owned treatment works and/or processing wastes into saleable
products.  In the past, numerous third party disposal sites have
improperly managed waste and consequently require remedial action; consequently,
any party utilizing these sites may be liable for some or all of the remedial
costs.  Despite our aggressive compliance and auditing procedures for
disposal of wastes, we could further be notified, in the future, that we are a
PRP at a remedial action site, which could have a material adverse
effect.


43


We have
budgeted for 2010, $526,000 in environmental remediation expenditures to comply
with federal, state and local regulations in connection with remediation of
certain contaminates at our facilities.  Our facilities where the
remediation expenditures will be made are the Leased Property in Dayton, Ohio
(EPS), a former RCRA storage facility as operated by the former owners of PFD,
PFM's facility in Memphis, Tennessee, PFSG's facility in Valdosta, Georgia, and
PFMI's facility in Detroit, Michigan.  The environmental liability of
PFD (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.  All of the reserves are
within our discontinued operations with the exception of PFSG.  While
no assurances can be made that we will be able to do so, we expect to fund the
expenses to remediate these sites from funds generated internally.





At June
30, 2010, we had total accrued environmental remediation liabilities of
$2,255,000 of which $310,000 is recorded as a current liability, which reflects
an increase of $528,000 from the December 31, 2009, balance of
$1,727,000.  The net increase represents an increase in our reserve of
approximately $844,000 recorded in the second quarter of 2010, due to a change
in the scope of the remediation requirements mandated by the Georgia
Environmental Protection Division (“GEPD”) for our PFSG facility, as well as
payment of approximately $316,000 on remediation projects.  The June
30, 2010, current and long-term accrued environmental balance is recorded as
follows (in thousands):





Current
                      Accrual
                    
                    
                    Long-term
                      Accrual
                    
                    
                    TotalPFD
                    
                    $
                    116
                    
                    
                    $
                    142
                    
                    
                    $
                    258PFM
                    
                    
                    67
                    
                    
                    
                    296
                    
                    
                    
                    363PFSG
                    
                    
                    75
                    
                    
                    
                    1,497
                    
                    
                    
                    1,572PFMI
                    
                    
                    52
                    
                    
                    
                    10
                    
                    
                    
                    62Total
      Liability
                    
                    $
                    310
                    
                    
                    $
                    1,945
                    
                    
                    $
                    2,255





Item
      3.
            Quantitative
      and Qualitative Disclosures about Market
Risks




The
Company is exposed to certain market risks arising from adverse changes in
interest rates, primarily due to the potential effect of such changes on our
variable rate loan arrangements with PNC and with Mr. William Lampson and Mr.
Diehl Rettig (who is now deceased and the loan is payable to his representative
or estate) .  The interest rates payable to PNC are based on a spread
over prime rate or a spread over a minimum floor base LIBOR of 1.0% and the
interest rates payable on the promissory note to Mr. Lampson and Mr. Rettig is
based on a spread over a minimum floor base LIBOR of 1.5%.  As of June
30, 2010, the Company had approximately $9,692,000 in variable rate
borrowing.  Assuming a 1% change in the average interest rate as of
June 30, 2010, our interest cost would change by approximately
$96,920.  As of June 30, 2010, we had no interest swap agreement
outstanding.


Item
      4.
            Controls
      and Procedures





(a)
            Evaluation of disclosure
      controls, and procedures.





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission (the "SEC") is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC and that such information is accumulated and communicated to our
management, including the Chief Executive Officer (principal executive officer)
and Chief Financial Officer (principal financial officer), as appropriate to
allow timely decisions regarding the required disclosure.  Based on
the most recent assessment, which was completed as of the end of the period
covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and
Chief Financial Officer believe that our disclosure controls and procedures (as
defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as
amended) are effective, as of June 30, 2010.


44




(b)
            Changes in internal control
      over financial reporting.




There was
no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





PART
II – OTHER INFORMATION





Item
      1.
            Legal
      Proceedings




There are
no additional material legal proceedings pending against us and/or our
subsidiaries not previously reported by us in Item 3 of our Form 10-K for the
year ended December 31, 2009, and Item 1, Part II of our Form 10-Q for the
period ended March 31, 2010, which are incorporated herein by reference, except
for the legal proceeding as noted below relating to Perma-Fix of Northwest
Richland, Inc.  In addition, the following developments have occurred
with regard to the Perma-Fix Treatment Services, Inc. proceeding noted
below:





Industrial
Segment Divested Facilities/Operations


As
previously disclosed, our subsidiary, Perma-Fix Treatment Services, Inc.
(“PFTS”), sold substantially all of its assets in May 2008, pursuant to an Asset
Purchase Agreement, as amended (“Agreement”).  Under the Agreement,
the buyer, A Clean Environment, Inc. (“ACE”) assumed certain debts and
obligations of PFTS.  We sued ACE regarding certain liabilities which
we believed ACE assumed and agreed to pay under the Agreement but which ACE
refused to pay.  ACE filed a counterclaim against us alleging that
PFTS made certain misrepresentations and failed to disclose certain
liabilities.  The pending litigation is styled American Environmental
Landfill, Inc. v. Perma-Fix Environmental Services, Inc. v. A Clean Environment,
Inc., Case No. CJ-2008-659, pending in the District Court of Osage
County, State of Oklahoma.  This matter was ordered to arbitration,
which was heard in April 2010.  On May 11, 2010 the Arbitrator ruled
in favor of PFTS on all but one issue of contention.  More
specifically, the Arbitrator (i) ruled in favor of the Company and PFTS on each
of the claims asserted by ACE with the exception of a single claim in the amount
of approximately $4,000; and (ii) ruled in favor of the Company and PFTS (a) in
the amount of approximately $57,000 representing liabilities assumed by ACE but
paid by PFTS, together with an order directing ACE to indemnify and hold
harmless the Company and PFTS from any damages, costs or expenses, including
reasonable attorney’s fees, associated with other unpaid accounts payable
totaling approximately $44,000; and (b) in the amount of approximately $114,000
on a claim relating to an equipment lease, together with an order directing ACE
to indemnify and hold harmless the Company and PFTS from any damages, costs or
expenses, including reasonable attorney’s fees associated with any future
liability or loss arising out of the equipment lease.The Arbitrator’s award has
been entered as a judgment by the court.  ACE has challenged the
confirmation of award and the entry of a final judgment based on the award, and
has indicated that they may appeal the Arbitrator’s award and any judgment
entered thereon.





Perma-Fix
of Northwest Richland, Inc. (“PFNWR”)


PFNWR has
filed a complaint in the U.S. District Court, Eastern District of Tennessee at
Knoxville, styled Perma-Fix Northwest
Richland, Inc. v. Philotechnics, Inc. alleging breach of contract and
seeking the Court to direct specific performance of the “return-of-waste clause”
contained in the brokerage contract between a previous owner of the facility now
owned by PFNWR and Philotechnics, Ltd. (“Philo”), with regard to a quantity of
non-conforming waste Philo delivered to the PFNWR facility prior to the
acquisition of the facility by PFNWR for treatment on behalf of Philo’s customer
El du Pont de Nemours and Company (“DuPont”).  In the complaint, we
asked the Court to either: (A) order Philo to specifically perform its
obligations under the “return-of-waste” clause of the contract by physically
taking custody of and by removing the nonconforming waste, and order that Philo
pay PFNWR the additional costs of maintaining and managing the waste or, (B)
order Philo to pay PFNWR the cost to treat and dispose of the nonconforming
waste so as to allow PFNWR to compliantly dispose of that waste
offsite.




45




Item
      1A.
            Risk
      Factors




There has
been no other material change from the risk factors previously disclosed in our
Form 10-K for the year ended December 31, 2009.





Item
      6.
            Exhibits





(a)
            Exhibits





4.1
                
                Revolving
      Credit, Term Loan and Security Agreement, dated as of December 22, 2000
      between PNC Bank, National Association (As Lender, Issuing Bank and Agent)
      and Perma-Fix Environmental Services, Inc. (As Borrower), along with all
      Schedules and Exhibits.4.2
                
                Amendment
      No. 1 to Revolving Credit, Term Loan and Security Agreement, dated as of
      June 10, 2002, between the Company and PNC Bank, National
      Association.4.3
                
                Amendment
      No. 5 to Revolving Credit, Term Loan and Security Agreement, dated as of
      June 29, 2005, between the Company and PNC Bank, National
      Association.4.4
                
                Amendment
      No. 12 to Revolving Credit, Term Loan and Security Agreement, dated as of
      August 4, 2008, between the Company and PNC Bank, National Association, as
      incorporated by reference to Exhibit 99.1 to the Form 8-K filed on August
      8, 2008.4.5
                
                Letter
      from PNC Bank, National Association, dated March 24, 2006, regarding
      intent to waive technical default on the Revolving Credit, Term Loan and
      Security Agreement with PNC Bank due to resignation of Chief Financial
      Officer.10.1
                
                First
      Amendment to the Company’s 1992 Outside Directors Stock Option
      Plan.10.2
                
                Second
      Amendment to the Company’s 1992 Outside Directors Stock Option
      Plan.10.3
                
                1993
      Non-Qualified Stock Option Plan.10.4
                
                Subcontract
      between CH2M Hill Plateau Remediation Company, Inc. (“CHPRC”) and East
      Tennessee Materials & Energy Corporation, dated May 27,
      2008.31.1
                
                Certification
      by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
      pursuant to Rule 13a-14(a) or 15d-14(a).31.2
                
                Certification
      by Ben Naccarato, Chief Financial Officer of the Company pursuant to Rule
      13a-14(a) or 15d-14(a).32.1
                
                Certification
      by Dr. Louis F. Centofanti, Chief Executive Officer of the Company
      furnished pursuant to 18 U.S.C. Section 1350.32.2
                
                Certification
      by Ben Naccarato, Chief Financial Officer of the Company furnished
      pursuant to 18 U.S.C. Section
1350.


46


SIGNATURES


Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.






PERMA-FIX
      ENVIRONMENTAL SERVICESDate:  August
      6, 2010
                  By:
                  /s/
      Dr. Louis F. CentofantiDr.
      Louis F. CentofantiChairman
      of the BoardChief
      Executive OfficerDate:  August
      6, 2010
                  By:
                  /s/
      Ben NaccaratoBen
      NaccaratoChief
      Financial Officer and Chief AccountingOfficer


47