SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549











Form
10-Q





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


For
the quarterly period
ended               September 30, 2009





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





(770)
587-9898


(Registrant's
telephone number)





N/A


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





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


Yes T    No
£





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


Yes £    No
£





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


Large
accelerated filer £        Accelerated
Filer T        Non-accelerated
Filer £        Smaller
reporting company £





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





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





Class
              
              Outstanding at November 2, 2009Common Stock, $.001 Par Value
              
              54,529,415shares of registrant’sCommon Stock













PERMA-FIX
ENVIRONMENTAL SERVICES, INC.





INDEX





Page
      No.PART
      I
                                        FINANCIAL
      INFORMATIONItem
      1.
                                        Condensed
      Financial StatementsConsolidated
      Balance Sheets -September
      30, 2009 (unaudited) and December 31, 2008
                                        
                                        1Consolidated
      Statements of Operations -Three
      and Nine Months Ended September 30, 2009 and 2008
    (unaudited)
                                        
                                        3Consolidated
      Statements of Cash Flows -Nine
      Months Ended September 30, 2009 and 2008 (unaudited)
                                        
                                        4Consolidated
      Statement of Stockholders’ Equity -Nine
      Months Ended September 30, 2009 (unaudited)
                                        
                                        5Notes
      to Consolidated Financial Statements
                                        
                                        6Item
      2.
                                        Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
                                        
                                        26Item
      3.
                                        Quantitative
      and Qualitative DisclosuresAbout
      Market Risk
                                        
                                        53Item
      4.
                                        Controls
      and Procedures
                                        
                                        54PART
      II
                                        OTHER
      INFORMATIONItem
      1.
                                        Legal
      Proceedings
                                        
                                        56Item
      1A.
                                        Risk
      Factors
                                        
                                        56Item
      4.
                                        Submission
      of Matters to a Vote of Security Holders
                                        
                                        56Item
      6.
                                        Exhibits
                                        
                                        58





PART
I – FINANCIAL INFORMATION


ITEM
1. – FINANCIAL STATEMENTS





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
BALANCE SHEETS





September 30,2009
                  
                  
                  December 31,(Amount in Thousands, Except for Share Amounts)
                  
                  (Unaudited)
                  
                  
                  2008ASSETSCurrent
      assets:Cash
                  
                  $
                  73
                  
                  
                  $
                  129Restricted
      cash
                  
                  
                  55
                  
                  
                  
                  55Accounts
      receivable, net of allowance for doubtfulaccounts
      of $218 and $333, respectively
                  
                  
                  18,275
                  
                  
                  
                  13,416Unbilled
      receivables – current
                  
                  
                  9,746
                  
                  
                  
                  13,104Inventories
                  
                  
                  335
                  
                  
                  
                  344Prepaid
      and other assets
                  
                  
                  3,315
                  
                  
                  
                  2,565Current
      assets related to discontinued operations
                  
                  
                  74
                  
                  
                  
                  110Total
      current assets
                  
                  
                  31,873
                  
                  
                  
                  29,723Property
      and equipment:Buildings
      and land
                  
                  
                  26,718
                  
                  
                  
                  24,726Equipment
                  
                  
                  31,561
                  
                  
                  
                  31,315Vehicles
                  
                  
                  650
                  
                  
                  
                  637Leasehold
      improvements
                  
                  
                  11,455
                  
                  
                  
                  11,455Office
      furniture and equipment
                  
                  
                  1,929
                  
                  
                  
                  1,904Construction-in-progress
                  
                  
                  2,003
                  
                  
                  
                  1,15974,316
                  
                  
                  
                  71,196Less
      accumulated depreciation and amortization
                  
                  
                  (27,287
                  )
                  
                  
                  (23,762
                  )Net
      property and equipment
                  
                  
                  47,029
                  
                  
                  
                  47,434Property
      and equipment related to discontinued operations
                  
                  
                  651
                  
                  
                  
                  651Intangibles
      and other long term assets:Permits
                  
                  
                  17,286
                  
                  
                  
                  17,125Goodwill
                  
                  
                  12,054
                  
                  
                  
                  11,320Unbilled
      receivables – non-current
                  
                  
                  2,896
                  
                  
                  
                  3,858Finite
      Risk Sinking Fund
                  
                  
                  15,457
                  
                  
                  
                  11,345Other
      assets
                  
                  
                  2,429
                  
                  
                  
                  2,256Total
      assets
                  
                  $
                  129,675
                  
                  
                  $
                  123,712





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


1





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
BALANCE SHEETS, CONTINUED





September 30,2009
                          
                          
                          December 31,(Amount in Thousands, Except for Share Amounts)
                          
                          (Unaudited)
                          
                          
                          2008LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                          
                          $
                          5,423
                          
                          
                          $
                          11,076Current
      environmental accrual
                          
                          
                          187
                          
                          
                          
                          186Accrued
      expenses
                          
                          
                          7,564
                          
                          
                          
                          8,896Disposal/transportation
      accrual
                          
                          
                          3,129
                          
                          
                          
                          5,847Unearned
      revenue
                          
                          
                          8,624
                          
                          
                          
                          4,371Current
      liabilities related to discontinued operations
                          
                          
                          1,188
                          
                          
                          
                          1,211Current
      portion of long-term debt
                          
                          
                          3,064
                          
                          
                          
                          2,022Total
      current liabilities
                          
                          
                          29,179
                          
                          
                          
                          33,609Environmental
      accruals
                          
                          
                          466
                          
                          
                          
                          620Accrued
      closure costs
                          
                          
                          12,136
                          
                          
                          
                          10,141Other
      long-term liabilities
                          
                          
                          492
                          
                          
                          
                          457Long-term
      liabilities related to discontinued operations
                          
                          
                          1,040
                          
                          
                          
                          1,783Long-term
      debt, less current portion
                          
                          
                          17,794
                          
                          
                          
                          14,181Total
      long-term liabilities
                          
                          
                          31,928
                          
                          
                          
                          27,182Total
      liabilities
                          
                          
                          61,107
                          
                          
                          
                          60,791Commitments
      and ContingenciesPreferred
      Stock of subsidiary, $1.00 par value; 1,467,396 sharesauthorized,
      1,284,730 shares issued and outstanding, liquidationvalue
      $1.00 per share
                          
                          
                          1,285
                          
                          
                          
                          1,285Stockholders'
      equity:Preferred
      Stock, $.001 par value; 2,000,000 shares authorized,no
      shares issued and outstanding
                          
                          
                          —
                          
                          
                          
                          —Common
      Stock, $.001 par value; 75,000,000 shares authorized,54,502,037
      and 53,934,560 shares issued and outstanding, respectively
                          
                          
                          54
                          
                          
                          
                          54Additional
      paid-in capital
                          
                          
                          99,107
                          
                          
                          
                          97,381Accumulated
      deficit
                          
                          
                          (31,878
                          )
                          
                          
                          (35,799
                          )Total
      stockholders' equity
                          
                          
                          67,283
                          
                          
                          
                          61,636Total
      liabilities and stockholders' equity
                          
                          $
                          129,675
                          
                          
                          $
                          123,712





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


2





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,(Amounts in Thousands, Except for Per Share Amounts)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      revenues
                  
                  $
                  26,534
                  
                  
                  $
                  15,989
                  
                  
                  $
                  72,234
                  
                  
                  $
                  51,961Cost
      of goods sold
                  
                  
                  18,846
                  
                  
                  
                  11,884
                  
                  
                  
                  53,433
                  
                  
                  
                  37,536Gross
      profit
                  
                  
                  7,688
                  
                  
                  
                  4,105
                  
                  
                  
                  18,801
                  
                  
                  
                  14,425Selling,
      general and administrative expenses
                  
                  
                  4,486
                  
                  
                  
                  4,648
                  
                  
                  
                  13,290
                  
                  
                  
                  13,704Asset
      impairment recovery
                  
                  
                  —
                  
                  
                  
                  (507
                  )
                  
                  
                  —
                  
                  
                  
                  (507
                  )(Gain)
      loss on disposal of property and equipment
                  
                  
                  (3
                  )
                  
                  
                  (2
                  )
                  
                  
                  (15
                  )
                  
                  
                  139Income
      (loss) from operations
                  
                  
                  3,205
                  
                  
                  
                  (34
                  )
                  
                  
                  5,526
                  
                  
                  
                  1,089Other
      income (expense):Interest
      income
                  
                  
                  29
                  
                  
                  
                  52
                  
                  
                  
                  121
                  
                  
                  
                  170Interest
      expense
                  
                  
                  (331
                  )
                  
                  
                  (294
                  )
                  
                  
                  (1,346
                  )
                  
                  
                  (1,031
                  )Interest
      expense-financing fees
                  
                  
                  (104
                  )
                  
                  
                  (14
                  )
                  
                  
                  (180
                  )
                  
                  
                  (124
                  )Other
                  
                  
                  (5
                  )
                  
                  
                  —
                  
                  
                  
                  5
                  
                  
                  
                  (5
                  )Income
      (loss) from continuing operations before taxes
                  
                  
                  2,794
                  
                  
                  
                  (290
                  )
                  
                  
                  4,126
                  
                  
                  
                  99Income
      tax expense (benefit)
                  
                  
                  165
                  
                  
                  
                  (14
                  )
                  
                  
                  265
                  
                  
                  
                  3Income
      (loss) from continuing operations
                  
                  
                  2,629
                  
                  
                  
                  (276
                  )
                  
                  
                  3,861
                  
                  
                  
                  96(Loss)
      income from discontinued operations, net of taxes
                  
                  
                  (7
                  )
                  
                  
                  (159
                  )
                  
                  
                  60
                  
                  
                  
                  (1,218
                  )Gain
      on disposal of discontinued operations, net of taxes
                  
                  
                  —
                  
                  
                  
                  94
                  
                  
                  
                  —
                  
                  
                  
                  2,309Net
      income (loss) applicable to Common Stockholders
                  
                  $
                  2,622
                  
                  
                  $
                  (341
                  )
                  
                  $
                  3,921
                  
                  
                  $
                  1,187Net
      income (loss) per common share – basicContinuing
      operations
                  
                  $
                  .05
                  
                  
                  $
                  (.01
                  )
                  
                  $
                  .07
                  
                  
                  $
                  —Discontinued
      operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (.02
                  )Disposal
      of discontinued operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  .04Net
      income (loss) per common share
                  
                  $
                  .05
                  
                  
                  $
                  (.01
                  )
                  
                  $
                  .07
                  
                  
                  $
                  .02Net
      income (loss) per common share – dilutedContinuing
      operations
                  
                  $
                  .05
                  
                  
                  $
                  (.01
                  )
                  
                  $
                  .07
                  
                  
                  $
                  —Discontinued
      operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (.02
                  )Disposal
      of discontinued operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  .04Net
      income (loss) per common share
                  
                  $
                  .05
                  
                  
                  $
                  (.01
                  )
                  
                  $
                  .07
                  
                  
                  $
                  .02Number
      of common shares used in computingnet
      income (loss) per share:Basic
                  
                  
                  54,281
                  
                  
                  
                  53,844
                  
                  
                  
                  54,130
                  
                  
                  
                  53,760Diluted
                  
                  
                  54,954
                  
                  
                  
                  53,844
                  
                  
                  
                  54,412
                  
                  
                  
                  54,149





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


3





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





September 30,(Amounts in Thousands)
                    
                    2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      income
                    
                    $
                    3,921
                    
                    
                    $
                    1,187Less:
      Income on discontinued operations
                    
                    
                    60
                    
                    
                    
                    1,091Income
      from continuing operations
                    
                    
                    3,861
                    
                    
                    
                    96Adjustments
      to reconcile net income to cash provided by operations:Depreciation
      and amortization
                    
                    
                    3,569
                    
                    
                    
                    3,817Asset
      impairment recovery
                    
                    
                    ―
                    
                    
                    
                    (507
                    )Non-cash
      financing costs
                    
                    
                    133
                    
                    
                    
                    ―Provision
      for bad debt and other reserves
                    
                    
                    274
                    
                    
                    
                    33(Gain)
      loss on disposal of plant, property and equipment
                    
                    
                    (15
                    )
                    
                    
                    139Issuance
      of common stock for services
                    
                    
                    189
                    
                    
                    
                    201Share
      based compensation
                    
                    
                    390
                    
                    
                    
                    335Changes
      in operating assets and liabilities of continuing operations, net
      ofeffect
      from business acquisitions:Accounts
      receivable
                    
                    
                    (5,134
                    )
                    
                    
                    6,387Unbilled
      receivables
                    
                    
                    4,320
                    
                    
                    
                    (742
                    )Prepaid
      expenses, inventories and other assets
                    
                    
                    1,052
                    
                    
                    
                    2,367Accounts
      payable, accrued expenses and unearned revenue
                    
                    
                    (8,460
                    )
                    
                    
                    (7,720
                    )Cash
      provided by continuing operations
                    
                    
                    179
                    
                    
                    
                    4,406Cash
      used in discontinued operations
                    
                    
                    (679
                    )
                    
                    
                    (3,306
                    )Cash
      (used in) provided by operating activities
                    
                    
                    (500
                    )
                    
                    
                    1,100Cash
      flows from investing activities:Purchases
      of property and equipment
                    
                    
                    (1,016
                    )
                    
                    
                    (810
                    )Proceeds
      from sale of plant, property and equipment
                    
                    
                    16
                    
                    
                    
                    31Payment
      to finite risk sinking fund
                    
                    
                    (4,112
                    )
                    
                    
                    (4,704
                    )Payment
      of earn-out to Nuvotec shareholders
                    
                    
                    (734
                    )
                    
                    
                    ―Cash
      used for acquisition considerations, net of cash acquired
                    
                    
                    ―
                    
                    
                    
                    (14
                    )Cash
      used in investing activities of continuing operations
                    
                    
                    (5,846
                    )
                    
                    
                    (5,497
                    )Proceeds
      from sale of discontinued operations
                    
                    
                    ―
                    
                    
                    
                    6,620Cash
      provided by discontinued operations
                    
                    
                    11
                    
                    
                    
                    42Net
      cash (used in) provided by investing activities
                    
                    
                    (5,835
                    )
                    
                    
                    1,165Cash
      flows from financing activities:Net
      borrowing (repayments) of revolving credit
                    
                    
                    4,136
                    
                    
                    
                    (3,483
                    )Principal
      repayments of long term debt
                    
                    
                    (2,073
                    )
                    
                    
                    (6,658
                    )Proceeds
      from issuance of long term debt
                    
                    
                    2,982
                    
                    
                    
                    7,000Proceeds
      from issuance of stock
                    
                    
                    481
                    
                    
                    
                    184Proceeds
      from finite risk financing
                    
                    
                    753
                    
                    
                    
                    878Repayment
      of stock subscription receivable
                    
                    
                    ―
                    
                    
                    
                    25Cash
      provided by (used in) financing activities of continuing
      operations
                    
                    
                    6,279
                    
                    
                    
                    (2,054
                    )Principal
      repayment of long-term debt for discontinued operations
                    
                    
                    ―
                    
                    
                    
                    (238
                    )Cash
      provided by (used in) financing activities
                    
                    
                    6,279
                    
                    
                    
                    (2,292
                    )Decrease
      in cash
                    
                    
                    (56
                    )
                    
                    
                    (27
                    )Cash
      at beginning of period
                    
                    
                    129
                    
                    
                    
                    118Cash
      at end of period
                    
                    $
                    73
                    
                    
                    $
                    91Supplemental
      disclosure:Interest
      paid, net of amounts capitalized
                    
                    $
                    3,832
                    
                    
                    $
                    1,032Income
      taxes paid
                    
                    
                    261
                    
                    
                    
                    29Non-cash
      investing and financing activities:Long-term
      debt incurred for purchase of property and equipment
                    
                    
                    125
                    
                    
                    
                    20Issuance
      of Common Stock for debt
                    
                    
                    476
                    
                    
                    
                    ―Issuance
      of Warrants for debt
                    
                    
                    190
                    
                    
                    
                    ―





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


4





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


(Unaudited,
for the nine months ended September 30, 2009)





(Amounts in thousands,
                  
                  CommonStock
                  
                  
                  Additional
                    Paid-In
                  
                  
                  Accumulated
                  
                  
                  Total
                    Stockholders'exceptforshareamounts)
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  EquityBalance
      at December 31, 2008
                  
                  
                  53,934,560
                  
                  
                  $
                  54
                  
                  
                  $
                  97,381
                  
                  
                  $
                  (35,799
                  )
                  
                  $
                  61,636Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,921
                  
                  
                  
                  3,921Issuance
      of Common Stock for debt
                  
                  
                  200,000
                  
                  
                  
                  —
                  
                  
                  
                  476
                  
                  
                  
                  —
                  
                  
                  
                  476Issuance
      of Warrants for debt
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  190
                  
                  
                  
                  —
                  
                  
                  
                  190Issuance
      of Common Stock for services
                  
                  
                  109,144
                  
                  
                  
                  —
                  
                  
                  
                  189
                  
                  
                  
                  —
                  
                  
                  
                  189Issuance
      of Common Stock uponexercise
      of Options
                  
                  
                  258,333
                  
                  
                  
                  —
                  
                  
                  
                  481
                  
                  
                  
                  —
                  
                  
                  
                  481Share
      Based Compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  390
                  
                  
                  
                  —
                  
                  
                  
                  390Balance
      at September 30, 2009
                  
                  
                  54,502,037
                  
                  
                  $
                  54
                  
                  
                  $
                  99,107
                  
                  
                  $
                  (31,878
                  )
                  
                  $
                  67,283





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


5





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





September
30, 2009


(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, 2008.





1.    Basis of
Presentation





The
consolidated financial statements included herein have been prepared by the
Company (which may be referred to as we, us or our), without an audit, pursuant
to the rules and regulations of the Securities and Exchange Commission
(“SEC”).  Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
the disclosures which are made are adequate to make the information presented
not misleading.  Further, the consolidated financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
and results of operations as of and for the periods indicated.  The
results of operations for the nine months ended September 30, 2009, are not
necessarily indicative of results to be expected for the fiscal year ending
December 31, 2009.





It is
suggested that these consolidated financial statements 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,
2008.





The
Company evaluated subsequent events through the time of filing this Quarterly
Report on Form 10-Q on November 6, 2009.  We are not aware of any
significant events that occurred subsequent to the balance sheet date but prior
to the filing of this report that would have a material impact on our Condensed
Consolidated Financial Statements.





2.    Summary of Significant
Accounting Policies





Our
accounting policies are as set forth in the notes to consolidated financial
statements referred to above.





Recently
Adopted Accounting Pronouncements


In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
guidance now codified as FASB Accounting Standards Codification (“ASC”) 105,
“Generally Accepted Accounting Principles,” as the single source of
authoritative nongovernmental U.S. GAAP.  ASC 105 is now the single
source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with U.S. GAAP.  Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants.  All guidance contained in the
Codification carries an equal level of authority.  The Codification
superseded all existing non-SEC accounting and reporting
standards.  All other non-grandfathered, non-SEC accounting literature
not included in the Codification is non-authoritative.  The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts.  Instead, it will issue
Accounting Standards Updates (“ASUs”).  The FASB will not consider
ASUs as authoritative in their own right.  ASUs will serve only to
update the Codification, provide background about the guidance and provide the
bases for conclusions on the changes in the Codification.  These
provisions of FASB ASC 105 are effective for interim and annual periods ending
after September 15, 2009 and, accordingly, the Company adopted ASC 105 in
the third quarter of 2009.  References made to FASB guidance
throughout this document have been updated for the Codification.  The
adoption of ASC 105 did not have an impact on the Company’s financial condition
or results of operations.


6




In
April 2009, the FASB issued guidance now codified as FASB ASC 320,
“Investments-Debt and Equity Securities”, which is designed to create greater
clarity and consistency in accounting for and presenting impairment losses on
securities. The guidance is effective for periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. The
adoption of ASC 320 did not materially impact the Company’s financial position,
result of operations, or its disclosure requirements.




In
April 2009, the FASB issued guidance now codified as FASB ASC 820, “Fair
Value Measurement and Disclosures”, which provides additional guidance for
estimating fair value in accordance with ASC 820 when the volume and level of
activity for an asset or liability have significantly decreased.  ASC
820 also includes guidance on identifying circumstances that indicate a
transaction is not orderly.  The guidance is effective for periods
ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. The adoption of ASC 820 did not materially impact
the Company’s financial position, result of operations, or its disclosure
requirements.




In
April 2009, the FASB issued guidance now codified as FASB ASC 825,
“Financial Instruments - Overall,” which amends previous ASC 825 guidance to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements and also amends
ASC 270, “Interim Reporting”, to require those disclosures in all interim
financial statements.  This guidance is effective for periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. The adoption of ASC 825 did not materially impact the Company’s
financial position, result of operations, or its disclosure
requirements.





In May
2009, the FASB issued guidance now codified as FASB ASC 855, “Subsequent Events
- Overall”, which modifies the definition of what qualifies as a subsequent
event, those events or transactions that occur following the balance sheet date,
but before the financial statements are issued, or are available to be issued,
and requires companies to disclose the date through which it has evaluated
subsequent events and the basis for determining that date.  This
standard is effective for interim and annual financial period ending after June
15, 2009.  This standard did not have a material effect on our results
of operations or financial position.




In
August 2009, the FASB issued ASU 2009-05, “Fair Value Measurements and
Disclosures (Topic 820)”. The purpose of this ASU is to clarify that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using a valuation technique that uses either the quoted price of the identical
liability when traded as an asset or quoted prices for similar liabilities or
similar liabilities when traded as assets. This guidance is effective upon
issuance.  ASU 2009-05 did not materially impact the Company’s
financial position, result of operations, or its disclosure
requirements.





Recently
Issue Accounting Standards


In
April 2009, the FASB issued updated guidance related to business
combinations, which is included in the Codification in ASC 805-20, “Business
Combinations – Identifiable Assets, Liabilities and Any Non-controlling
Interest” (“ASC 805-20”).  ASC 805-20 amends and clarifies ASC 805 to
address application issues regarding initial recognition and measurement,
subsequent measurement and accounting, and disclosures for assets and
liabilities arising from contingencies in business combinations.  In
circumstances where the acquisition date fair value for a contingency cannot be
determined during the measurement period and it is concluded that it is probable
that an asset or liability exists as of the acquisition date and the amount can
be reasonably estimated, a contingency is recognized as of the acquisition date
based on the estimated amount.  ASC 805-20 is effective for contingent
assets and contingent liabilities acquired in business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  The Company
expects ASC 805-20 may have an impact on its consolidated financial statements
when effective, but the nature and magnitude of the specific effects will depend
upon the nature, term and size of the acquired contingencies.


7





In
June 2009, the FASB issued new guidance on the accounting for the transfers
of financial assets.  The new guidance, which was issued as Statement of
Financial Accounting Standards No. 166, “Accounting for Transfers of
Financial Assets, an Amendment of FASB Statement No. 140”, has not yet been
adopted into Codification.  The new guidance requires additional
disclosures for transfers of financial assets, including securitization
transactions, and any continuing exposure to the risks related to transferred
financial assets.  There is no longer a concept of a qualifying
special-purpose entity, and the requirements for derecognizing financial assets
have changed.  The new guidance is effective on a prospective basis for the
annual period beginning after November 15, 2009 and interim and annual
periods thereafter.  The Company does not expect that the provisions of the
new guidance will have a material effect on its results of operations, financial
position or liquidity.




In June
2009, the FASB issued revised guidance on the accounting for variable interest
entities.  The revised guidance, which was issued as Statement of
Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No.
46(R)”, has not yet been adopted into Codification.  The revised
guidance reflects the elimination of the concept of a qualifying special-purpose
entity and replaces the quantitative-based risks and rewards calculation of the
previous guidance for determining which company, if any, has a controlling
financial interest in a variable interest entity.  The revised guidance
requires an analysis of whether a company has: (1) the power to direct the
activities of a variable interest entity that most significantly impact the
entity’s economic performance and (2) the obligation to absorb the losses
that could potentially be significant to the entity or the right to receive
benefits from the entity that could potentially be significant to the
entity.  An entity is required to be re-evaluated as a variable interest
entity when the holders of the equity investment at risk, as a group, lose the
power from voting rights or similar rights to direct the activities that most
significantly impact the entity’s economic performance.  Additional
disclosures are required about a company’s involvement in variable interest
entities and an ongoing assessment of whether a company is the primary
beneficiary.  This guidance is effective for fiscal years beginning
after November 15, 2009.  The Company does not expect this guidance to
materially impact its operations, financial position, and disclosure
requirement.





In
September 2009, the FASB issued ASU No. 2009-12,“Fair Value
Measurements and Disclosures (Topic 820) – Investments in Certain Entities that
Calculate Net Asset Value per Share (or its Equivalent)”.  This ASU
permits, as a practical expedient, a reporting entity to measure the fair value
of an investment that is within the scope of the amendments in this ASU on the
basis of the net asset value per share of the investment (or its equivalent) if
the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of Topic 946 as of the
reporting entity’s measurement date.  The ASU also requires
disclosures by major category of investment about the attributes of investments
within the scope of the Update.  ASU 2009-12 is effective for interim
and annual periods ending after December 15, 2009.  The Company does
not expect ASU 2009-12 to materially impact our financial condition, results of
operations, and disclosures.





In
October 2009, the FASB issued ASU 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 year beginning on or after June 15, 2010, with
early adoption permitted.  The Company is currently evaluating ASU
2009-13 on its financial positions and results of operations.


8





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 establishes accounting standards
for entity exchanges of equity instruments for goods or services.  It
also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity
instruments.  ASC 718 requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values.





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





On July
29, 2009, we granted 84,000 options from the Company’s 2003 Outside Directors
Stock Plan to our seven outside directors as a result of the re-election of our
board members at our Annual Meeting of Stockholders held on July 29,
2009.  The options granted were for a contractual term of ten years
with vesting period of six months.  The exercise price of the options
was $2.67 per share which was equal to our closing stock price the day preceding
the grant date, pursuant to the 2003 Outside Directors Stock Plan.  We
granted 84,000 options from the same stock plan on August 5, 2008 to our seven
outside directors as a result of the re-election our board members at our August
5, 2008 Annual Meeting of Stockholders.  The options granted were for
a contractual term of ten years with vesting period of six
months.  The exercise price of the options was $2.34 per share which
was equal to our closing stock price the day preceding the grant date, pursuant
to the stock plan.





For the
nine months ended September 30, 2009, we granted a total of 145,000 Incentive
Stock Options (“ISO”) to our Chief Financial Officer (“CFO”) and certain
employees of the Company on February 26, 2009 which allows for the purchase of
145,000 shares of Common Stock from the Company’s 2004 Stock Option
Plan.  The options granted 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.  For
the nine months ended September 30, 2008, we granted 918,000 ISO’s to certain
officers and employees of the Company on August 5, 2008 from the 2004 Stock
Option Plan.  The options granted were for a contractual term of six
years with vesting period at one-third increments per year.  The
exercise price of the options granted was $2.34 per share.





As of
September 30, 2009, we had 2,555,014 employee stock options outstanding, of
which 1,794,681 are vested.  The weighted average exercise price of
the 1,794,681 outstanding and fully vested employee stock option is $1.92 with a
remaining weighted contractual life of 2.71 years.  Additionally, we
had 714,000 outstanding director stock options, of which 630,000 are
vested.  The weighted average exercise price of the 630,000
outstanding and fully vested direction stock option is $2.21 with a weighted
remaining contractual life of 5.57 years.





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 employee and director stock options
granted above and the related assumptions used in the Black-Scholes option
pricing model used to value the options granted as of September 30, 2008 and
September 30, 2009 were as follows.


9





Employee Stock Options GrantedSeptember 30, 2009
                      
                      
                      September 30, 2008Weighted-average
      fair value per share
                      
                      $
                      .76
                      
                      
                      $
                      1.17Risk -free interest
      rate (1)
                      
                      2.07%
      - 2.40
                      %
                      
                      
                      3.28
                      %Expected volatility
      of stock (2)
                      
                      59.16%
      - 60.38
                      %
                      
                      
                      55.54
                      %Dividend
      yield
                      
                      None
                      
                      
                      NoneExpected option life
      (3)
                      
                      4.6
      years - 5.8 years
                      
                      
                      5.1
      years





Outside Director Stock Options GrantedSeptember 30, 2009
                      
                      
                      September 30, 2008Weighted-average
      fair value per share
                      
                      $
                      1.97
                      
                      
                      $
                      1.79Risk
      -free interest rate (1)
                      
                      
                      3.69
                      %
                      
                      
                      4.04
                      %Expected
      volatility of stock (2)
                      
                      
                      63.37
                      %
                      
                      
                      66.53
                      %Dividend
      yield
                      
                      None
                      
                      
                      NoneExpected
      option life (3)
                      
                      10.0
      years
                      
                      
                      10.0
      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 share based compensation expense recognized for the
three and nine months ended September 30, 2009 and 2008 for our employee and
director stock options.





Three Months Ended
                      
                      
                      Nine Months EndedStock Options
                      
                      September 30,
                      
                      
                      September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Employee
      Stock Options
                      
                      $
                      110,000
                      
                      
                      $
                      106,000
                      
                      
                      $
                      304,000
                      
                      
                      $
                      247,000Director
      Stock Options
                      
                      
                      56,000
                      
                      
                      
                      45,000
                      
                      
                      
                      86,000
                      
                      
                      
                      88,000Total
                      
                      $
                      166,000
                      
                      
                      $
                      151,000
                      
                      
                      $
                      390,000
                      
                      
                      $
                      335,000





We
recognized share 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.  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.  Of the $110,000 in share
based compensation recorded for the employee stock options for the three months
ended September 30, 2009, approximately $18,000 was the result of the difference
between our estimated forfeiture rate and the actual forfeiture rate for the
first year vesting of our August 5, 2008 employee option grant. We have
generally estimated forfeiture rate based on historical trends of actual
forfeiture.  We reduced our estimated forfeiture rate for the second
year vesting of our August 5, 2008 employee option grant by approximately 1.9%
as result of our re-evaluation of this forfeiture rate.  As of
September 30, 2009, we have approximately $729,000 of total unrecognized
compensation cost related to unvested options, of which $163,000 is expected to
be recognized in remaining 2009, $345,000 in 2010, $216,000 in 2011, and $5,000
in 2012.


10





4.    Capital Stock, Stock Plans,
and Warrants





During
the nine months ended September 30, 2009, we issued 258,333 shares of our Common
Stock upon exercise of employee stock options, at exercise prices of $1.86,
resulting in total proceeds received of approximately $481,000.  We
issued a total of 109,144 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, with 50,559 shares, 34,205 shares, and 24,380 shares issued
in the first, second, and third quarter of 2009, respectively.  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 attended 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.





In the
second quarter of 2009, the Company issued in a private placement an aggregate
of 200,000 shares of the Company’s Common Stock (“Shares”) and two Warrants to
purchase up to an aggregate of 150,000 shares of the Company’s Common Stock
(“Warrant Shares”) as consideration of a $3,000,000 loan received by the Company
from Mr. William N. Lampson and Mr. Diehl Rettig, the Lenders, pursuant to a
Loan and Securities Purchase Agreement (“Agreement”) dated May 8,
2009.  Mr. Lampson was formerly a major shareholder of Nuvotec usa,
Inc. (n/k/a Perma-Fix Northwest, Inc. (“PFNW”)) and its wholly owned subsidiary,
Pacific EcoSolution, Inc. (n/k/a Perma-Fix Northwest Richland, Inc. (“PFNWR”))
prior to our acquisition of PFNW and PFNWR, and Mr. Rettig was formerly a
shareholder of, and counsel for, Nuvotec usa, Inc. and its subsidiaries at the
time of our acquisition and after our acquisition Mr. Rettig has continued to
perform certain legal services for PFNWR.  The Lenders are also
stockholders of the Company having received shares of our Common Stock in
connection with our acquisition of PFNW and PFNWR.  Under the
Agreement, Mr. Lampson received 180,000 Shares and a Warrant to purchase up to
an aggregate of 135,000 Warrant Shares and Mr. Rettig received 20,000 Shares and
a Warrant to purchase up to an aggregate of 15,000 Warrant
Shares.  The Warrants are exercisable six months from May 8, 2009 and
expire two years from May 8, 2009.  The fair value of the 200,000
shares of Common Stock was determined to be approximately $476,000 which was
based on the closing price of the stock of $2.38 per share on May 8,
2009.  The fair value of the Warrants was estimated to be
approximately $190,000 using the Black-Scholes option pricing
model.  The fair value of the Common Stock and Warrants was recorded
as a debt discount to the loan and is being amortized over the term of the loan
as interest expense – financing fees.  (See Note 6 – “Long Term Debt –
Promissory Note and Installment Agreement” for accounting treatment of the
Common Stock and Warrants).


11





The
summary of the Company’s total Plans as of September 30, 2009 as compared to
September 30, 2008, 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, 2009
                
                
                3,417,347
                
                
                $
                2.03Granted
                
                
                229,000
                
                
                
                1.88Exercised
                
                
                (258,333
                )
                
                
                1.86
                
                
                
                
                
                $
                152,750Forfeited
                
                
                (119,000
                )
                
                
                2.14Options
      outstanding End of Period (1)
                
                
                3,269,014
                
                
                
                2.03
                
                
                
                4.0
                
                
                $
                1,124,662Options
      Exercisable at September 30, 2009 (1)
                
                
                2,424,681
                
                
                $
                1.99
                
                
                
                3.5
                
                
                $
                922,992Options
      Vested and expected to be vested at September 30, 2009
                
                
                3,231,231
                
                
                $
                2.03
                
                
                
                4.0
                
                
                $
                1,122,395





Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term
                
                
                Aggregate
                  Intrinsic
                  ValueOptions
      outstanding Janury 1, 2008
                
                
                2,590,026
                
                
                $
                1.91Granted
                
                
                1,002,000
                
                
                
                2.29Exercised
                
                
                (111,179
                )
                
                
                1.66
                
                
                
                
                
                $
                95,103Forfeited
                
                
                (81,001
                )
                
                
                1.80Options
      outstanding End of Period (2)
                
                
                3,399,846
                
                
                
                2.03
                
                
                
                4.6
                
                
                $
                572,397Options
      Exercisable at September 30, 2008 (2)
                
                
                2,138,013
                
                
                $
                1.94
                
                
                
                4.0
                
                
                $
                511,727Options
      Vested and expected to be vested at September 30, 2008
                
                
                3,336,346
                
                
                $
                2.03
                
                
                
                4.6
                
                
                $
                568,341





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


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





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.  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.


12


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 nine months ended September 30,
2009 and 2008:





Three Months Ended
                                                      
                                                      
                                                      Nine Months EndedSeptember 30,
                                                      
                                                      
                                                      September 30,(AmountsinThousands,ExceptforPerShareAmounts)
                                                      
                                                      2009
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      2009
                                                      
                                                      
                                                      2008Income (loss) per share from continuing
      operationsIncome
      (loss) from continuing operations applicable toCommon
      Stockholders
                                                      
                                                      $
                                                      2,629
                                                      
                                                      
                                                      $
                                                      (276
                                                      )
                                                      
                                                      
                                                      3,861
                                                      
                                                      
                                                      $
                                                      96Basic
      income (loss) per share
                                                      
                                                      $
                                                      .05
                                                      
                                                      
                                                      $
                                                      (.01
                                                      )
                                                      
                                                      
                                                      .07
                                                      
                                                      
                                                      $
                                                      —Diluted
      income (loss) per share
                                                      
                                                      $
                                                      .05
                                                      
                                                      
                                                      $
                                                      (.01
                                                      )
                                                      
                                                      
                                                      .07
                                                      
                                                      
                                                      $
                                                      —(Loss) income per share from discontinued
      operations(Loss)
      income from discontinued operations
                                                      
                                                      $
                                                      (7
                                                      )
                                                      
                                                      $
                                                      (159
                                                      )
                                                      
                                                      
                                                      60
                                                      
                                                      
                                                      $
                                                      (1,218
                                                      )Basic
      loss per share
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      $
                                                      (.02
                                                      )Diluted
      loss per share
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      $
                                                      (.02
                                                      )Income per share from disposal of discontinued
      operationsGain
      on disposal of discontinued operations
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      94
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      $
                                                      2,309Basic
      income per share
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      $
                                                      .04Diluted
      income per share
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      $
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      $
                                                      .04Weighted
      average common shares outstanding – basic
                                                      
                                                      
                                                      54,281
                                                      
                                                      
                                                      
                                                      53,844
                                                      
                                                      
                                                      
                                                      54,130
                                                      
                                                      
                                                      
                                                      53,760Potential
      shares exercisable under stock option plans
                                                      
                                                      
                                                      614
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      243
                                                      
                                                      
                                                      
                                                      389Potential
      shares upon exercise of Warrants
                                                      
                                                      
                                                      59
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      39
                                                      
                                                      
                                                      
                                                      —Weighted
      average shares outstanding – diluted
                                                      
                                                      
                                                      54,954
                                                      
                                                      
                                                      
                                                      53,844
                                                      
                                                      
                                                      
                                                      54,412
                                                      
                                                      
                                                      
                                                      54,149Potential
      shares excluded from above weighted average share calculations due to
      their anti-dilutive effect include:Upon
      exercise of options
                                                      
                                                      
                                                      241
                                                      
                                                      
                                                      
                                                      157
                                                      
                                                      
                                                      
                                                      1,785
                                                      
                                                      
                                                      
                                                      1,172Upon
      exercise of Warrants
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      —


13




6. Long Term Debt


Long-term
debt consists of the following at September 30, 2009 and December 31,
2008:




(Amounts in Thousands)
                                            
                                            September
                                              30,2009
                                            
                                            
                                            December 31,
                                              2008Revolving
      Credit facility dated December 22, 2000, borrowings
      basedupon
      eligible accounts receivable, subject to monthly borrowing
      basecalculation,
      variable interest paid monthly at option of prime rate(3.25%
      at September 30, 2009) plus 2.0% or minimum floor base
    LondonInterBank
      Offer Rate ("LIBOR") of 2.5% plus 3.0%, balance due inJuly 2012. (1)
      (3)
                                            
                                            $
                                            10,652
                                            
                                            
                                            $
                                            6,516Term
      Loan dated December 22, 2000, payable in equal
      monthlyinstallments
      of principal of $83, balance due in July 2012, variableinterest
      paid monthly at option of prime rate plus 2.5% or minimum
      floorbase LIBOR of 2.5%
      plus 3.5%. (1)
      (3)
                                            
                                            
                                            5,917
                                            
                                            
                                            
                                            6,667Installment
      Agreementin the Agreement and Plan of Merger
      withNuvotec
      and PEcoS, dated April 27, 2007, payable in three equal
    yearlyinstallment
      of principal of $833 beginning June 2009.  Interest accrues
      atannual
      rate of 8.25% on outstanding principal balance startingJune
      2007 and payable yearly starting June 2008
                                            
                                            
                                            1,667
                                            
                                            
                                            
                                            2,500Promissory
      Notedated May 8, 2009, payable in monthly installments
      ofprincipal
      of $87 starting June 8, 2009, balance due May 8, 2011,
      variableinterest paid
      monthly at LIBOR plus 4.5%, with LIBOR at least 1.5%.(2)
                                            
                                            
                                            2,117
                                            
                                            
                                            ──Various
      capital lease and promissory note obligations, payable 2009
      to2013,
      interest at rates ranging from 5.0% to 12.6%.
                                            
                                            
                                            505
                                            
                                            
                                            
                                            52020,858
                                            
                                            
                                            
                                            16,203Less
      current portion of long-term debt
                                            
                                            
                                            3,064
                                            
                                            
                                            
                                            2,022$
                                            17,794
                                            
                                            
                                            $
                                            14,181





(1)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.





(2)Net of debt discount recorded
($666,000) and amortized ($133,000) 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.





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





Revolving
Credit and Term Loan Agreement


On
December 22, 2000, we entered into a Revolving Credit, Term Loan and Security
Agreement ("Agreement") with PNC Bank, National Association, a national banking
association ("PNC") acting as agent ("Agent") for lenders, and as issuing bank,
as amended.  The Agreement provided for a term loan ("Term Loan") in
the amount of $7,000,000, which requires monthly installments of
$83,000.  The Agreement also provided for a revolving line of credit
("Revolving Credit") with a maximum principal amount outstanding at any one time
of $18,000,000, as amended.  The Revolving Credit advances are subject
to limitations of an amount up to the sum of (a) up to 85% of Commercial
Receivables aged 90 days or less from invoice date, (b) up to 85% of Commercial
Broker Receivables aged up to 120 days from invoice date, (c) up to 85% of
acceptable Government Agency Receivables aged up to 150 days from invoice date,
and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less (e)
reserves the Agent reasonably deems proper and necessary.  As of
September 30, 2009, the excess availability under our Revolving Credit was
$7,560,000 based on our eligible receivables.


14





Pursuant
to the Agreement, as amended, we may terminate the 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 March
5, 2009, we entered into an Amendment to our PNC Agreement.  This
Amendment increased our borrowing availability by approximately an additional
$2,200,000.  In addition, pursuant to the Amendment, monthly interest
due on our revolving line of credit was amended from prime plus 1/2% to prime
plus 2.0% and monthly interest due on our Term Loan was amended from prime plus
1.0% to prime plus 2.5%.  The Company also has the option to pay
monthly interest due on the revolving line of credit by using the LIBOR, with
the minimum floor base LIBOR rate of 2.5%, plus 3.0% and to pay monthly interest
due on the Term Loan using the minimum floor base LIBOR of 2.5%, plus
3.5%.  In addition, pursuant to the Amendment, the fixed charge
coverage ratio was amended to reduce the availability monthly by
$48,000.  The Amendment also allowed us to retain funds received from
the sale of our PFO property which was completed in the fourth quarter of
2008.  All other terms and conditions to the credit facility remain
principally unchanged.  As a condition of this Amendment, we paid PNC
a fee of $25,000.  Funds made available under this Amendment were used
to secure the additional financial assurance coverage needed by our DSSI
subsidiary to operate under the PCB permit issued by the EPA on November 26,
2008.





Promissory
Note and Installment Agreement


In
acquiring Perma-Fix Northwest, Inc. (“PFNW”- f/k/a Nuvotec) and Perma-Fix
Northwest Richland, Inc. (“PFNWR” – f/k/a Pacific EcoSolutions, Inc. (“PEcoS”)),
we agreed to pay former shareholders of Nuvotec who qualified as accredited
investors, including Robert Ferguson, a current director, 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.  In June 2009, we paid the
first principal installment of $833,333, along with accrued
interest.  As of September 30, 2009, interest paid totaled
approximately $422,000.  Interest accrued as of September 30, 2009
totaled approximately $34,000.  See Note 7 – “Commitments and
Contingencies - Earn-Out Amount - PFNW and PFNWR” and Note 12 – “Related Party
Transaction” in this section for information regarding Mr. Robert
Ferguson.





As
discussed in Note 4 – “Capital Stock, Stock Plans, and Warrants”, on May 8,
2009, the Company entered into a promissory note with William N. Lampson and Mr.
Diehl Rettig, the Lenders, for $3,000,000.  Mr. Lampson was formerly a
major shareholder of Nuvotec usa, Inc. (n/k/a Perma-Fix Northwest, Inc.
(“PFNW”)) and its wholly owned subsidiary, Pacific EcoSolution, Inc. (n/k/a
Perma-Fix Northwest Richland, Inc. (“PFNWR”)) prior to our acquisition of PFNW
and PFNWR, and Mr. Rettig was formerly a shareholder of, and counsel for,
Nuvotec usa, Inc. and its subsidiaries at the time of our acquisition and after
our acquisition Mr. Rettig has continued to perform certain legal services for
PFNWR.  Both of the Lenders 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 to pay off
approximately $2,225,000 (which consisted of interests only) in the second
quarter of 2009 due on a promissory note, dated June 25, 2001, as amended on
December 28, 2008, entered into by our M&EC subsidiary with PDC, with the
remaining proceeds 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 terms 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 in a private placement 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 two years from
May 8, 2009.  We estimated the fair value of the Warrants to be
approximately $190,000 using the Black-Scholes option pricing model with the
following assumption:  70.47% volatility, risk free interest rate of
1.0%, an expected life of two years and no dividends.  We also issued
an aggregate of 200,000 shares of the Company’s Common Stock during the second
quarter of 2009 with Mr. Lampson receiving 180,000 shares and Mr. Rettig
receiving 20,000 shares of the Company’s Common Stock.  We determined
the fair value of the 200,000 shares of Common Stock to be $476,000 which was
based on the closing price of the stock of $2.38 per share on May 8,
2009.  The fair value of the Warrants and Common Stock was recorded as
a debt discount and is being amortized over the term of the loan as interest
expense – financing fees.  Debt discount amortized as of September 30,
2009 totaled approximately $133,000, of which approximately $83,000 was
amortized in the third quarter of 2009.


15





The
promissory note includes an embedded Put Option (“Put”) that can be exercised
upon default.  We concluded that the Put should have been bifurcated
at inception; however, the Put Option had and continues to have nominal value as
of September 30, 2009.  We will continue to monitor the fair value of
the Put on a quarterly basis.





7.    Commitments and
Contingencies





Hazardous
Waste


In
connection with our waste management services, we handle hazardous,
non-hazardous, and low level radioactive and mixed waste (waste containing both
hazardous and radioactive waste), which we transport to our own, or other
facilities for destruction or disposal.  As a result of disposing of
hazardous and radioactive 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
litigations.





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.





As of the
date of this report, the Louisiana Department of Environmental Quality (“LDEQ”)
has collected approximately $8,400,000 for the remediation of the site and has
completed removal of above ground waste from the site.  The EPA’s
unofficial estimate to complete remediation of the site is between $9,000,000
and $12,000,000; however, based on preliminary outside consulting work hired by
the PRP group, which we are a party to, the remediation costs could be below
EPA’s estimation.  As a result of negotiations with LDEQ and EPA,
further remediation work by LDEQ has been put on hold pending completion of a
site assessment by the PRP Group.  This site assessment could result
in remediation activities to be completed within the funds held by
LDEQ.  As part of the PRP Group, we have paid an initial assessment of
$10,000 in the fourth quarter of 2007, which was allocated among the facilities.
In addition, we accrued approximately $27,000 in the third quarter of 2008 for
our estimated portion of the cost of the site assessment, which was allocated
among the facilities.  As of September 30, 2009, $18,000 of the
accrued amount has been paid, of which $9,000 was paid in the fourth quarter of
2008 and $9,000 was paid in the second quarter of 2009.  We anticipate
paying the remaining $9,000 in the fourth quarter of 2009.  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.


16





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 assumed certain debts and obligations of PFTS.  We have sued
the buyer of the PFTS assets regarding certain liabilities which we believe the
buyer assumed and agreed to pay under the Agreement but which the buyer has
refused to pay.  The buyer has filed a counterclaim against us and is
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 has been ordered to
arbitration.





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


Pursuant
to the merger agreement relating to our acquisition of PFNW and PFNWR in June
2007, we are required to pay to those former shareholders of PFNW immediately
prior to our acquisition, which includes Robert L. Ferguson (“Ferguson”), a
current member of our Board of Directors, an earn-out amount upon meeting
certain conditions for each fiscal period ending June 30, 2008, June 30, 2009,
June 30, 2010, and June 30, 2011, with the aggregate earn-out amount to be paid
by us not to exceed the sum of $4,552,000 (See Note 12 – “Related Party
Transaction” in this section for information regarding Mr.
Ferguson).  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 of our nuclear business (as defined) for such fiscal year exceeds
the budgeted amount of revenues for our nuclear business for that particular
period, with the first $1,000,000 being placed in an escrow account for a period
of two years from the date that the full $1,000,000 is placed in escrow for
losses suffered or to be suffered by us, PFNW and PFNWR under the sellers’ and
its shareholders’ indemnification obligations.  No earn-out was
required to be paid for fiscal 2008, and for 2009 we were required to pay an
earn-out of approximately $734,000, which was recorded as an increase to
goodwill for PFNWR in the second quarter of 2009.  Under the merger
agreement, the former shareholders established a liquidating trust in which
Ferguson and William Lampson (“Lampson”) were appointed trustees and were
further appointed as representatives of the former shareholders in connection
with matters arising under the merger agreement.  Prior to payment of
the earn-out amount of approximately $734,000 for fiscal year 2009, we
negotiated an amendment to the merger agreement with Ferguson and Lampson (as
representatives for the former shareholders and as trustees under the
liquidating trust) and the paying agent for the former shareholders and entered
into an amendment that provides as follows:





·
            The
      termination of the escrow arrangement.  As a result, the
      earn-out amount for the fiscal period ended June 30, 2009 in the amount of
      approximately $734,000 was deposited by us on September 30, 2009, with the
      paying agent in full and complete satisfaction of our obligations in
      connection with the earn-out for the fiscal period ended June 30,
      2009.





·
            Any
      indemnification obligations payable to us under the merger agreement will
      be deducted (“Offset Amount”) from any earn-out amounts payable by us for
      the fiscal periods ended June 30, 2010, and June 30, 2011.  The
      Offset Amount for the fiscal year ended June 30, 2010, will include the
      sum of approximately $93,000, of which approximately $60,000 represents
      excise tax assessment issued by the State of Washington for the annual
      periods 2005 to 2007, with the remaining representing a refund request
      from a PEcoS customer in connection with service for waste treatment prior
      to our acquisition of PFNWR and PFNW.  The Offset Amount may be
      revised by us by written notice to the representatives pursuant to the
      merger agreement.


17





·
            We
      may elect to pay any future earn-out amounts payable under the merger
      agreement for each of the fiscal periods ended June 30, 2010, and 2011,
      less the Offset Amount, in excess of $1,000,000 by means of a three year
      unsecured promissory note bearing an annual rate of 6.0%, payable in 36
      equal monthly installments.





Insurance


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





In June
2003, we entered into a 25-year finite risk insurance policy with 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 March 2009, we paid our sixth of the eight required
remaining payments.  In March 2009, we secured additional financial
assurance coverage of approximately $5,421,000 with AIG which enabled our
Diversified Scientific Services, Inc. (“DSSI”) facility to receive and process
wastes under a permit issued by the U.S. Environment Protection Agency (“EPA”)
Region 4 on November 26, 2008 to commercially store and dispose of
Polychlorinated Biphenyls (“PCBs”).  We secured this additional
financial assurance coverage requirement by increasing our initial 25-year
finite risk insurance policy with AIG from maximum policy coverage of
$35,000,000 to $39,000,000, of which our total financial coverage amounts to
$35,869,000 as of September 30, 2009.  Payment for this additional
financial assurance coverage 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 AIG.  In
addition, we are required to make three yearly payments of approximately
$1,073,000 starting December 31, 2009, of which $888,000 will be deposited into
a sinking fund account, with the remaining to represent fee payable to
AIG.





As of
September 30, 2009, we have recorded $9,623,000 in our sinking fund related to
the policy noted above on the balance sheet, which includes interest earned of
$789,000 on the sinking fund as of September 30, 2009.  Interest
income for the three and nine months ended September 30, 2009 was $16,000 and
$59,000, respectively.  On the fourth and subsequent anniversaries of
the contract inception, we may elect to terminate this contract.  If
we so elect, the Insurer 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.


18





In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with AIG.  The policy
provides an initial $7,800,000 of financial assurance coverage with annual
growth rate of 1.5%, which at the end of the four year term policy, will provide
maximum coverage of $8,200,000.  The policy will renew automatically
on an annual basis at the end of the four year term and will not be subject to
any renewal fees.  The policy requires total payment of $7,158,000,
consisting of an 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
both of the annual payments of $1,520,000, of which one annual payment was made
in the third quarter of 2009.  For each of the $1,520,000 payments,
$1,344,000 was deposited into a sinking fund account and the remaining
represented premium.   We have made all of the five quarterly
payments which were deposited into a sinking fund.  As of September
30, 2009, we have recorded $5,834,000 in our sinking fund related to this policy
on the balance sheet, which includes interest earned of $134,000 on the sinking
fund as of September 30, 2009.  Interest income for the three months
and nine months ended September 30, 2009 totaled $12,000 and $62,000,
respectively.





8.    Discontinued Operations and
Divestitures


Our
discontinued operations encompass our PFMD, PFD, and PFTS facilities within our
Industrial Segment as well as two previously shut down locations, PFP and PFMI,
two facilities which were approved as discontinued operations by our Board of
Directors effective November 8, 2005, and October 4, 2004,
respectively.





On
January 8, 2008, we sold substantially all of the assets of PFMD, pursuant to
the terms of an Asset Purchase Agreement, dated January 8, 2008.  In
consideration for such assets, the buyer paid us $3,811,000 (purchase price of
$3,825,000 less closing costs) in cash at the closing and assumed certain
liabilities of PFMD.  The cash consideration was subject to certain
working capital adjustments after closing.  Proceeds received from the
sale were used to pay down our term loan, with the remaining funds used to pay
down our revolver.  We recorded $1,786,000 (net of taxes of $71,000)
in final gain on the sale of PFMD which was recorded separately on the
Consolidated Statement of Operations as “Gain on disposal of discontinued
operations, net of taxes” for the year ended December 31, 2008.





On March
14, 2008, we completed the sale of substantially all of the assets of PFD,
pursuant to the terms of an Asset Purchase Agreement, dated March 14, 2008, for
approximately $2,143,000 in cash, subject to certain working capital adjustments
after the closing, plus the assumption by the buyer of certain of PFD’s
liabilities and obligations.  We received cash of approximately
$2,139,000 at closing, which was net of certain closing costs.  The
proceeds received were used to pay down our term loan.  Our final gain
on the sale PFD totaled $256,000, net of taxes of $0, which was recorded on the
Consolidated Statement of Operations as “Gain on disposal of discontinued
operations, net of taxes”, for the year ended December 31, 2008.





On May
30, 2008, we completed the sale of substantially all of the assets of PFTS,
pursuant to the terms of an Asset Purchase Agreement, dated May 14, 2008 as
amended by a First Amendment dated May 30, 2008.  In consideration for
such assets, the buyer paid us $1,468,000 (purchase price of $1,503,000 less
certain closing/settlement costs) in cash at closing and assumed certain
liabilities of PFTS.  The cash consideration was subject to certain
working capital adjustments after closing.  The proceeds received were
used to pay down our term loan with the remaining funds used to pay down our
revolver.  We recorded a final gain on the sale of PFTS of $281,000,
net of taxes of $0, which was recorded on the Consolidated Statement of
Operations as “Gain on disposal of discontinued operations, net of taxes”, for
the year ended December 31, 2008.  We have sued the buyer of the PFTS’
assets regarding certain liabilities which we believe that the buyer assumed and
agreed to pay under the Asset Purchase Agreement but which the buyer has refused
to satisfy as of the date of this report.   The buyer has filed a
counterclaim against us and is 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 has been ordered to
arbitration.


19





The
following table summarizes the results of discontinued operations for the three
and nine months ended September 30, 2009 and 2008.  The gains on
disposals of discontinued operations, net of taxes, were reported separately on
our Consolidated Statements of Operations as “Gain on disposal of discontinued
operations, net of taxes”.  The operating results of discontinued
operations are included in our Consolidated Statements of Operations as part of
our “Income (loss) from discontinued operations, net of taxes”.





Three Months Ended
                
                
                Nine Months EndedSeptember 30,
                
                
                September 30,(Amounts in Thousands)
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      revenues
                
                $
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                3,195Interest
      recovery (expense)
                
                $
                95
                
                
                $
                (28
                )
                
                $
                (64
                )
                
                $
                (99
                )Operating (loss) income from
      discontinued operations(1)
                
                $
                (7
                )
                
                $
                (159
                )
                
                $
                60
                
                
                $
                (1,218
                )Gain
      on disposal of discontinued operations (2)
                
                $
                —
                
                
                $
                94
                
                
                $
                —
                
                
                $
                2,309(Loss)
      income from discontinued operations
                
                $
                (7
                )
                
                $
                (65
                )
                
                $
                60
                
                
                $
                1,091





(1)Net
of taxes of $0 for all periods noted.





(2)Net of
taxes of $35,000 and $78,000 for three and nine months ended September 30, 2008,
respectively.





Our
“(Loss) income from discontinued operations, net of taxes” on the Consolidated
Statement of Operations for the three and nine months ended September 30, 2009
included approximately $115,000 in abated interest in connection with an excise
tax audit for fiscal years 1999 to 2006 for PFTS.  In the second
quarter of 2009, we recorded approximately $119,000 in interest expense in
connection with this excise tax audit.  Our “income from discontinued
operations, net of taxes” for the nine months ended September 30, 2009 also
included a recovery of approximately $400,000 in closure cost for PFTS recorded
in the first quarter of 2009.  In connection with the divestiture of
PFTS above, the buyer of PFTS’s assets was required to replace our financial
assurance bond with its own financial assurance mechanism for facility
closures.  Our financial assurance bond for PFTS was required to
remain in place until the buyer has provided replacement coverage.  On
March 24, 2009, the appropriate regulatory authority authorized the release of
our financial assurance bond for PFTS which resulted in this recovery this
closure costs.





Assets
and liabilities related to discontinued operations total $725,000 and $2,228,000
as of September 30, 2009, respectively and $761,000 and $2,994,000 as of
December 31, 2008, respectively.





The
following table presents the Industrial Segment’s major classes of assets and
liabilities of discontinued operations that are classified as held for sale as
of September 30, 2009 and December 31, 2008.  The held for sale asset
and liabilities balances as of December 31, 2008 may differ from the respective
balances at closing:


20





September30,
                  
                  
                  December31,(Amounts in Thousands)
                  
                  2009
                  
                  
                  2008Account
      receivable, net
                  
                  $
                  —
                  
                  
                  $
                  —Inventories
                  
                  
                  —
                  
                  
                  
                  —Other
      assets
                  
                  
                  —
                  
                  
                  
                  22Property,
      plant and equipment, net (1)
                  
                  
                  651
                  
                  
                  
                  651Total
      assets held for sale
                  
                  $
                  651
                  
                  
                  $
                  673Account
      payable
                  
                  $
                  —
                  
                  
                  $
                  —Accrued
      expenses and other liabilities
                  
                  
                  —
                  
                  
                  
                  5Note
      payable
                  
                  
                  —
                  
                  
                  
                  —Environmental
      liabilities
                  
                  
                  —
                  
                  
                  
                  —Total
      liabilities held for sale
                  
                  $
                  —
                  
                  
                  $
                  5





(1)net of accumulated depreciation of $13 for as of September 30, 2009
      and December 31, 2008.





The
following table presents the Industrial Segment’s major classes of assets and
liabilities of discontinued operations that are not held for sale as of
September 30, 2009 and December 31, 2008:





September30,
                  
                  
                  December31,(Amounts in Thousands)
                  
                  2009
                  
                  
                  2008Other
      assets
                  
                  $
                  74
                  
                  
                  $
                  88Total
      assets of discontinued operations
                  
                  $
                  74
                  
                  
                  $
                  88Account
      payable
                  
                  $
                  2
                  
                  
                  $
                  15Accrued
      expenses and other liabilities
                  
                  
                  1,348
                  
                  
                  
                  1,947Deferred
      revenue
                  
                  
                  —
                  
                  
                  
                  —Environmental
      liabilities
                  
                  
                  878
                  
                  
                  
                  1,027Total
      liabilities of discontinued operations
                  
                  $
                  2,228
                  
                  
                  $
                  2,989





The
Industrial Segment includes two previously shut-down facilities which were
presented as discontinued operations in prior years.  These facilities
include Perma-Fix of Pittsburgh (“PFP”) and Perma-Fix of Michigan
(“PFMI”).  Our decision to discontinue operations at PFP was due to
our reevaluation of the facility and our inability to achieve profitability at
the facility.  Our decision to discontinue operations at PFMI was
principally a result of two fires that significantly disrupted operations at the
facility in 2003, and the facility’s continued drain on the financial resources
of our Industrial Segment.  As a result of the discontinued operations
at the PFMI facility, we were required to complete certain closure and
remediation activities pursuant to our RCRA permit, which were completed in
January 2006.  In September 2006, PFMI signed a Corrective Action
Consent Order with the State of Michigan, requiring performance of studies and
development and execution of plans related to the potential clean-up of soils in
portions of the property.  The level and cost of the clean-up and
remediation are determined by state mandated requirements.  During
2006, based on state-mandated criteria, we began implementing the modified
methodology to remediate the facility.  We have spent approximately
$817,000 for closure costs since discontinuation of PFMI in October 2004, of
which approximately $72,000 was spent during the nine months ended September 30,
2009 and $26,000 was spent during 2008.  We have $466,000 accrued for
the closure, as of September 30, 2009, and we anticipate spending $18,000 in the
remaining three months of 2009, with the remainder over the next five
years.  Based on the current status of the Corrective Action, we
believe that the remaining reserve is adequate to cover the
liability.


21





As of September 30, 2009,
PFMI has a pensionpayable of
$958,000.The pension plan withdrawal liability is a result of
the termination of the union employees of PFMI.  The PFMI union
employees participate in the Central States Teamsters Pension Fund ("CST"),
which provides that a partial or full termination of union employees may result
in a withdrawal liability, due from PFMI to CST.  The recorded
liability is based upon a demand letter received from CST in August 2005 that
provided for the payment of $22,000 per month over an eight year
period.  This obligation is recorded as a long-term liability, with a
current portion of $184,000 that we expect to pay over the next
year.





9.
              Change in Estimate -
      Legacy Waste Accrual - Perma-Fix Northwest, Inc. (“PFNW”) and Perma-Fix
      Northwest Richland, Inc.
(“PFNWR”)





In
acquiring PFNWR and PFNW in June 2007, the Company allocated the cost of the
acquisition to the specific tangible and intangible assets acquired and
liabilities assumed based upon their fair values at the date of acquisition as
required by FASB ASC 805, “Business Combination”.  Judgment and
estimates were made to determine these values using the most readily available
information at the time of acquisition.  During the quarter ended June
30, 2008, we finalized the cost of the acquisition to the assets acquired and
liabilities. Adjustments to assets acquired or liabilities assumed during the
purchase allocation period, which is generally one year, was recorded to
goodwill.





During
the third quarter of 2009, as result of a change in estimate related to accrued
costs to dispose of legacy waste that were assumed as part of our acquisition of
PFNWR and PFNW in June 2007, we reduced our disposal/transportation accrual by
approximately $787,000 which was recorded as a reduction to our
disposal/transportation expense in our cost of goods sold for the quarter ended
September 30, 2009.  The change in estimate was necessary due to our
accumulation of new information that has resulted in our identifying more
efficient and cost effective ways to dispose of this legacy waste.





10. Operating
Segments





In
accordance to FASB 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 segment president 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 and Divestitures” 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 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, and wastewater through our three facilities:
Perma-Fix of Ft. Lauderdale, Inc., Perma-Fix of Orlando, Inc., and Perma-Fix of
South Georgia, Inc.


22





The table
below presents certain financial information of our operating segment as of and
for the three and nine months ended September 30, 2009 and 2008 (in
thousands).





Segment
Reporting for the Quarter Ended September 30, 2009


Nuclear
                
                
                Industrial
                
                
                Engineering
                
                
                Segments
                  Total
                
                
                Corporate(2)
                
                
                Consolidated
                  TotalRevenue
      from external customers
                
                $
                23,518
                (3)
                
                $
                2,128
                
                
                $
                888
                
                
                $
                26,534
                
                
                $
                —
                
                
                $
                26,534Intercompany
      revenues
                
                
                366
                
                
                
                150
                
                
                
                91
                
                
                
                607
                
                
                
                —
                
                
                
                607Gross
      profit
                
                
                6,689
                
                
                
                741
                
                
                
                258
                
                
                
                7,688
                
                
                
                —
                
                
                
                7,688Interest
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                29
                
                
                
                29Interest
      expense (recovery)
                
                
                67
                
                
                
                (25
                )
                
                
                1
                
                
                
                43
                
                
                
                288
                
                
                
                331Interest
      expense-financing fees
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                104
                
                
                
                104Depreciation
      and amortization
                
                
                1,066
                
                
                
                107
                
                
                
                8
                
                
                
                1,181
                
                
                
                7
                
                
                
                1,188Segment
      profit (loss)
                
                
                4,220
                
                
                
                266
                
                
                
                74
                
                
                
                4,560
                
                
                
                (1,931
                )
                
                
                2,629Segment
      assets(1)
                
                
                100,642
                
                
                
                5,322
                
                
                
                2,222
                
                
                
                108,186
                
                
                
                21,489
                (4)
                
                
                129,675Expenditures
      for segment assets
                
                
                425
                
                
                
                14
                
                
                
                1
                
                
                
                440
                
                
                
                24
                
                
                
                464Total
      long-term debt
                
                
                2,032
                
                
                
                116
                
                
                
                24
                
                
                
                2,172
                
                
                
                18,686
                (5)
                
                
                20,858





Segment
Reporting for the Quarter Ended September 30, 2008


Nuclear
                
                
                Industrial
                
                
                Engineering
                
                
                Segments
                  Total
                
                
                Corporate(2)
                
                
                Consolidated
                  TotalRevenue
      from external customers
                
                $
                12,519
                (3)
                
                $
                2,624
                
                
                $
                846
                
                
                $
                15,989
                
                
                $
                —
                
                
                $
                15,989Intercompany
      revenues
                
                
                802
                
                
                
                213
                
                
                
                200
                
                
                
                1,215
                
                
                
                —
                
                
                
                1,215Gross
      profit
                
                
                3,168
                
                
                
                590
                
                
                
                347
                
                
                
                4,105
                
                
                
                —
                
                
                
                4,105Interest
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                52
                
                
                
                52Interest
      expense
                
                
                134
                
                
                
                4
                
                
                
                1
                
                
                
                139
                
                
                
                155
                
                
                
                294Interest
      expense-financing fees
                
                
                2
                
                
                
                —
                
                
                
                —
                
                
                
                2
                
                
                
                12
                
                
                
                14Depreciation
      and amortization
                
                
                1,073
                
                
                
                485
                
                
                
                8
                
                
                
                1,566
                
                
                
                13
                
                
                
                1,579Segment
      profit (loss)
                
                
                782
                
                
                
                309
                
                
                
                170
                
                
                
                1,261
                
                
                
                (1,537
                )
                
                
                (276
                )Segment
      assets(1)
                
                
                93,044
                
                
                
                6,021
                
                
                
                2,110
                
                
                
                101,175
                
                
                
                16,984
                (4)
                
                
                118,159Expenditures
      for segment assets
                
                
                207
                
                
                
                3
                
                
                
                3
                
                
                
                213
                
                
                
                5
                
                
                
                218Total
      long-term debt
                
                
                4,655
                
                
                
                171
                
                
                
                —
                
                
                
                4,826
                
                
                
                10,283
                
                
                
                15,109





Segment
Reporting for the Nine Months Ended September 30, 2009


Nuclear
                
                
                Industrial
                
                
                Engineering
                
                
                Segments
                  Total
                
                
                Corporate(2)
                
                
                Consolidated
                  TotalRevenue
      from external customers
                
                $
                63,364
                (3)
                
                $
                6,200
                
                
                $
                2,670
                
                
                $
                72,234
                
                
                $
                —
                
                
                $
                72,234Intercompany
      revenues
                
                
                1,807
                
                
                
                525
                
                
                
                314
                
                
                
                2,646
                
                
                
                —
                
                
                
                2,646Gross
      profit
                
                
                16,281
                
                
                
                1,723
                
                
                
                797
                
                
                
                18,801
                
                
                
                —
                
                
                
                18,801Interest
      income
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                121
                
                
                
                121Interest
      expense
                
                
                592
                
                
                
                14
                
                
                
                3
                
                
                
                609
                
                
                
                737
                
                
                
                1,346Interest
      expense-financing fees
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                180
                
                
                
                180Depreciation
      and amortization
                
                
                3,196
                
                
                
                320
                
                
                
                27
                
                
                
                3,543
                
                
                
                26
                
                
                
                3,569Segment
      profit (loss)
                
                
                8,682
                
                
                
                180
                
                
                
                319
                
                
                
                9,181
                
                
                
                (5,320
                )
                
                
                3,861Segment
      assets(1)
                
                
                100,642
                
                
                
                5,322
                
                
                
                2,222
                
                
                
                108,186
                
                
                
                21,489
                (4)
                
                
                129,675Expenditures
      for segment assets
                
                
                867
                
                
                
                113
                
                
                
                3
                
                
                
                983
                
                
                
                33
                
                
                
                1,016Total
      long-term debt
                
                
                2,032
                
                
                
                116
                
                
                
                24
                
                
                
                2,172
                
                
                
                18,686
                (5)
                
                
                20,858





Segment
Reporting for the Nine Months Ended September 30, 2008


Nuclear
                
                
                Industrial
                
                
                Engineering
                
                
                Segments
                  Total
                
                
                Corporate(2)
                
                
                Consolidated
                  TotalRevenue
      from external customers
                
                $
                41,510
                (3)
                
                $
                7,914
                
                
                $
                2,537
                
                
                $
                51,961
                
                
                $
                —
                
                
                $
                51,961Intercompany
      revenues
                
                
                2,086
                
                
                
                457
                
                
                
                466
                
                
                
                3,009
                
                
                
                —
                
                
                
                3,009Gross
      profit
                
                
                11,279
                
                
                
                2,215
                
                
                
                931
                
                
                
                14,425
                
                
                
                —
                
                
                
                14,425Interest
      income
                
                
                2
                
                
                
                —
                
                
                
                —
                
                
                
                2
                
                
                
                168
                
                
                
                170Interest
      expense
                
                
                569
                
                
                
                14
                
                
                
                2
                
                
                
                585
                
                
                
                446
                
                
                
                1,031Interest
      expense-financing fees
                
                
                3
                
                
                
                —
                
                
                
                —
                
                
                
                3
                
                
                
                121
                
                
                
                124Depreciation
      and amortization
                
                
                3,276
                
                
                
                486
                
                
                
                22
                
                
                
                3,784
                
                
                
                33
                
                
                
                3,817Segment
      profit (loss)
                
                
                3,521
                
                
                
                609
                
                
                
                433
                
                
                
                4,563
                
                
                
                (4,467
                )
                
                
                96Segment
      assets(1)
                
                
                93,044
                
                
                
                6,021
                
                
                
                2,110
                
                
                
                101,175
                
                
                
                16,984
                (4)
                
                
                118,159Expenditures
      for segment assets
                
                
                752
                
                
                
                52
                
                
                
                12
                
                
                
                816
                
                
                
                14
                
                
                
                830Total
      long-term debt
                
                
                4,655
                
                
                
                171
                
                
                
                —
                
                
                
                4,826
                
                
                
                10,283
                
                
                
                15,109





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


23





(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 $10,680,000 or 40.3% and
      $33,051,000 or 45.7% of our total consolidated revenue for the three and
      nine months ended September 30, 2009, respectively, as compared to
      $127,000 or 0.8% or $127,000 or 0.2% of our total consolidated revenue for
      the three and nine months ended September 30, 2008,
      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.  The subcontract provided a transitional
      period from the August 11, 2008 to September 30,
      2008.  Operations of this subcontract commenced at the DOE
      Hanford Site on October 1, 2008.  The consolidated revenues
      within the Nuclear Segment also include the Fluor Hanford revenue of $0
      for both the three and nine months ended September 30, 2009 as compared to
      $2,787,000 or 17.4% and $6,662,000 or 12.8% for the three and nine months
      ended September 30, 2008, respectively.  Effective October 1,
      2008, CHPRC began management of waste activities previously under Fluor
      Hanford, DOE’s general contractor prior to CHPRC.  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 $725,000 and $843,000 as
      of September 30, 2009 and 2008,
respectively.





(5)
            Net of debt discount recorded
      ($666,000) and amortized ($133,000) 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 Note 6 - “Promissory Note and Installment
      Agreement” for additional
      information.





11. Income
Taxes





The
provision for income taxes is determined in accordance with FASB ASC 740,
“Income Taxes” (“ASC 740”).  Deferred 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 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 tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.





ASC 740
requires that deferred income tax assets be reduced by a valuation allowance if
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized. We evaluate the realizability of our deferred
income tax assets, primarily resulting from impairment loss and net operating
loss carryforwards, and adjust our valuation allowance, if necessary. Once we
utilize our net operating loss carryforwards, we would expect our provision for
income tax expense in future periods to reflect an effective tax rate that will
be significantly higher than past periods.





ASC 740
sets out a consistent framework for preparers to use to determine the
appropriate level of tax reserve to maintain for uncertain tax
positions.  ASC 740 uses a two-step approach wherein a tax benefit is
recognized if a position is more-likely-than-not to be sustained. The amount of
the benefit is then measured to be the highest tax benefit which is greater than
50% likely to be realized.  ASC 740 also sets out disclosure
requirements to enhance transparency of an entity’s tax reserves. The Company
has concluded that we have not taken any material uncertain tax positions on any
of our open tax returns filed through December 31, 2008.





We
reassess the validity of our conclusions regarding uncertain income tax
positions on a quarterly basis to determine if facts or circumstances have
arisen that might cause us to change our judgment regarding the likelihood of a
tax position’s sustainability under audit.  As we believe that all
such positions are fully supportable by existing Federal law and related
interpretations, there are no uncertain tax positions to consider in accordance
with ASC 740.  The impact of our reassessment of our tax positions in
accordance with ASC 740 for the third quarter of 2009 did not have any impact on
our result of operations, financial condition or liquidity.


24


12. Related Party
Transaction





Mr.
Robert L. Ferguson


Mr.
Robert Ferguson, was nominated to serve as a Director in connection with the
closing of the acquisition by the Company of Nuvotec (n/k/a Perma-Fix Northwest,
Inc. (“PFNW”)) and its wholly owned subsidiary, Pacific EcoSolutions, Inc.
(“PEcoS”) (n/k/a Perma-Fix Northwest Richland, Inc. (“PFNWR”)) in June 2007 and
subsequently elected as a Director at our Annual Meeting of Shareholders held in
August 2007 and each Annual Meeting of Shareholders since August
2007.  At the time of the acquisition, Mr. Ferguson was the Chairman,
Chief Executive Officer, and individually or through entities controlled by him,
the owner of approximately 21.29% of Nuvotec’s outstanding Common
Stock.  See Note 6 “Long Term Debt – Promissory Note and Installment
Agreement” and Note 7 “Commitments and Contingencies – Earn-Out Amount – PFNW
and PFNWR” and for a discussion of Mr. Ferguson’s interest in the consideration
paid and to be paid by us in connection with our acquisition of PFNWR and
PFNWR.





13. Subsequent
Event





Larry
McNamara resigned as Vice President and Chief Operating Officer of our Company
effective September 1, 2009, and as an employee effective September 30,
2009.  When Mr. McNamara’s resignation as Vice President and Chief
Operating Officer became effective, his employment agreement and management
incentive plan with the company also terminated, except for certain covenants
that Mr. McNamara had agreed to under the employment agreement.  After
Mr. McNamara’s resignation as an executive officer of the Company, but prior to
his termination as an employee, we entered into a six months consulting
agreement with Mr. McNamara, subject to the consulting agreement being renewed
upon agreement by Mr. McNamara and us, and amended his fully vested outstanding
non-qualified stock options (“NQSOs”) covering purchase up to 270,000 shares of
the Company’s Common Stock until the earlier of:





·
            5:00
      p.m. on March 31, 2010; or


·
            Termination
      of Mr. McNamara as a consultant under the consulting
      agreement.





The
amendment and extension of the NQSOs held by Mr. McNamara became effective as of
October 1, 2009, and was approved by our Compensation and Stock Option Committee
and our Board.  The exercise price of the NQSOs extended range from
$1.25 to $2.19 per share.  We valued the NQSOs extended to Mr.
McNamara using the Black-Scholes valuation model and determined that we will
expense approximately $144,000 related to these NQSOs during the fourth quarter
of 2009 as a result of this extension.


25


PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS


PART
I, ITEM 2





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;


·
            government
      funding and economic stimulus package will provide substantial funds for
      DOE to remediate its sites and should positively impact our existing
      government contracts;


·
            demand
      for our service will continue to be subject to
    fluctuations;


·
            effect
      on us due to reductions in the level of government
  funding;


·
            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;


·
            the
      Company does not have any immediate plans or current commitments to issue
      shares under the registration
statement;


·
            ability
      to generate sufficient cash flow from operations to fund all costs of
      operations;


·
            ability
      to remediate certain contaminated sites for projected
    amounts;


·
            ability
      to borrow under our credit
facility;


·
            we
      expect to meet to our financial covenants in the fourth quarter of 2009
      and beyond;


·
            consideration
      of alternatives to our credit facility which could provide terms more
      favorable to us than under our existing credit
  facilities;


·
            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 Potentially Responsible
      Party (“PRP”) at a remedial action site, which could have a material
      adverse effect;


·
            we
      anticipate paying the remaining $9,000 of our estimated portion of the
      cost of the site assessment for the PRP at the Marine Shale Superfund in
      the fourth quarter of 2009;


·
            ability
      to generate funds internally to remediate
sites;


·
            ability
      to fund budgeted capital expenditures of approximately $2,300,000 during
      2009 through our operations or lease financing or a combination of
      both;


·
            growth
      of our Nuclear Segment;


·
            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;


·
            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;


·
            although
      we have seen smaller fluctuation in government receipts between quarters
      in recent years, as government spending is contingent upon its annual
      budget and allocation of funding, we cannot provide assurance that we will
      not have larger fluctuations in the quarters in the near
      future;


·
            we
      anticipate spending $18,000 in the remaining three months of 2009 to
      remediate the PFMI site, with the remainder over the next five
      years;


·
            based
      on the current status of Corrective Action for PFMI, we believe that the
      remaining reserve is adequate to cover the
  liability;


·
            we
      expect to pay $184,000 in pension liability for PFMI over the next
      year;


26





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


·
            implementation
      of certain controls at our certain of our Industrial Segment facilities
      and our PFNWR facility to remediate material control weaknesses by the
      fourth quarter of 2009;


·
            we
      will complete testing of the final control in the fourth quarter of 2009
      for our CHPRC subcontract,  at which time, we believe the
      material weakness for our CHPRC subcontract will be fully
      remediated;


·
            we
      plan to integrate a Purchase Order System to certain of our facilities by
      year end;


·
            potential
      for fines and remediation of our waste management
    facilities;


·
            we
      will continue to monitor the fair value of the Put on a quarterly
      basis;


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


·
            we
      will expense approximately $144,000 during the fourth quarter of 2009 as
      result of extension of approximately 270,000 Non-Qualified Stock Options
      to Larry McNamara;


·
            the
      Company expects ASC 805-20 will have an impact on its consolidated
      financial statements when effective, but the nature and magnitude of the
      specific effects will depend upon the nature, terms and size of
      acquisitions it consummates after the effect
  date;


·
            the
      Company does not expect ASU 2009-12 to materially impact our financial
      condition, results of operations, and
  disclosures;


·
            the
      Company does not expect the guidance issued as SFAS No. 166 and No. 167 to
      have a material  impact our financial condition, results of
      operations, and disclosures; and


·
            the
      remaining amount of the earn-out that we may be required to pay in
      connection with the acquisition of PFNWR and
  PFNW.





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;


27





·
            renegotiation
      of contracts involving the federal
government;


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


·
            Risk
      Factors contained in Item 1A of our 2008 Form
  10-K.





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





Overview


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





The third
quarter of 2009 reflected a revenue increase of $10,545,000 to $26,534,000 or
66.0% from revenue of $15,989,000 for the same period of 2008.  Within our
Nuclear Segment, we generated revenue of $23,518,000 in the third quarter of
2009, an increase of $10,999,000 or 87.9% from the corresponding period of
2008.  The increase in revenue within our Nuclear Segment was
primarily due to $9,083,000 in revenue generated from the subcontract awarded to
our East Tennessee Materials and Energy Corporation (“M&EC”) subsidiary by
CH Plateau Remediation Company (“CHPRC”), a general contractor to the Department
of Energy (“DOE”), in the second quarter of 2008.  This subcontract
officially commenced on October 1, 2008.  The remaining increase in
revenue in our Nuclear Segment was due to higher priced waste which offset the
impact of lower volume of waste.  Our Industrial Segment generated
$2,128,000 in revenue in the third quarter of 2009, as compared to $2,624,000
for the corresponding period of 2008, or 18.9% decrease.  This
decrease was primarily the result of lower oil sales revenue resulting from both
decreased volume and lower average price per gallon.  Revenue for the
third quarter of 2009 from the Engineering Segment increased $42,000 or 5.0% to
$888,000 from $846,000 for the same period of 2008.





The third
quarter 2009 gross profit increased $3,583,000 or 87.3% from the corresponding
period of 2008 due primarily to increase in revenue from our CHPRC subcontract
and increase in revenue from other generators in our Nuclear
Segment.





SG&A
for the third quarter of 2009 decreased 3.5% to $4,486,000 from $4,648,000 in
the corresponding period of 2008.





Net
income applicable to Common Stockholders for the quarter ended September 30,
2009 was $2,622,000 or $.05 per share as compared to net loss applicable to
Common Stockholders of $341,000 or ($.01) per share for the corresponding period
of 2008.  Our net income applicable to Common Stockholders for the
quarter ended September 30, 2009 included a reduction of approximately $787,000
in costs of goods sold in our Nuclear Segment resulting from a change in
estimate related to accrued costs to dispose of legacy waste that were assumed
as part of the acquisition of our PFNWR facility in June 2007 (see “Cost of
Goods Sold” in this section for further information regarding this
reduction).   In addition, our loss from discontinued operations
for the quarter ended September 30, 2009 included approximately $115,000 in
abated interest that was previously expensed in the second quarter of 2009 in
connection with an excise tax audit for fiscal years 1999 to 2006 (see
“Discontinued Operations” in this section for further information on the abated
interest).


28


Our
working capital position at September 30, 2009 was $2,694,000, which includes
working capital of our discontinued operations, as compared to a negative
working capital of $3,886,000 as of December 31, 2008.  The
improvement in our working capital was attributed by the reduction of our
account payables using funds generated by our operations.
 
 Outlook
 We
believe that the increase in government funding made available to remediate
Department of Energy (“DOE”) sites under the 2009 federal government budget
along with the economic stimulus package (American Recovery and Reinvestment
Act), enacted by the Congress in February 2009, will provide substantial funds
to remediate DOE sites and thus should positively impact our existing government
contracts within our Nuclear Segment.  We also believe we are
beginning to see this impact with increased waste receipts toward the end of the
third quarter of 2009.  However, we expect that demand for our
services will continue to fluctuate due to a variety of factors beyond our
control, including the current economic conditions, the federal deficit, and the
manner in which the federal 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.  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
                        
                        
                        Nine
      Months EndingSeptember
      30,
                        
                        
                        September
      30,Consolidated (amounts in thousands)
                        
                        2009
                        
                        
                        %
                        
                        
                        2008
                        
                        
                        %
                        
                        
                        2009
                        
                        
                        %
                        
                        
                        2008
                        
                        
                        %Net
      revenues
                        
                        $
                        26,534
                        
                        
                        
                        100.0
                        
                        
                        $
                        15,989
                        
                        
                        
                        100.0
                        
                        
                        $
                        72,234
                        
                        
                        
                        100.0
                        
                        
                        $
                        51,961
                        
                        
                        
                        100.0Cost
      of goods sold
                        
                        
                        18,846
                        
                        
                        
                        71.0
                        
                        
                        
                        11,884
                        
                        
                        
                        74.3
                        
                        
                        
                        53,433
                        
                        
                        
                        74.0
                        
                        
                        
                        37,536
                        
                        
                        
                        72.2Gross
      profit
                        
                        
                        7,688
                        
                        
                        
                        29.0
                        
                        
                        
                        4,105
                        
                        
                        
                        25.7
                        
                        
                        
                        18,801
                        
                        
                        
                        26.0
                        
                        
                        
                        14,425
                        
                        
                        
                        27.8Selling,
      general and administrative
                        
                        
                        4,486
                        
                        
                        
                        16.9
                        
                        
                        
                        4,648
                        
                        
                        
                        29.1
                        
                        
                        
                        13,290
                        
                        
                        
                        18.4
                        
                        
                        
                        13,704
                        
                        
                        
                        26.4Asset
      impairment recovery
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        (507
                        )
                        
                        
                        (3.2
                        )
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        (507
                        )
                        
                        
                        (1.0
                        )Loss
      (gain) on disposal of propertyand
      equipment
                        
                        
                        (3
                        )
                        
                        
                        ―
                        
                        
                        
                        (2
                        )
                        
                        
                        ―
                        
                        
                        
                        (15
                        )
                        
                        
                        ―
                        
                        
                        
                        139
                        
                        
                        
                        .3Income
      (loss) from operations
                        
                        $
                        3,205
                        
                        
                        
                        12.1
                        
                        
                        $
                        (34
                        )
                        
                        
                        (.2
                        )
                        
                        $
                        5,526
                        
                        
                        
                        7.6
                        
                        
                        $
                        1,089
                        
                        
                        
                        2.1Interest
      income
                        
                        
                        29
                        
                        
                        
                        .1
                        
                        
                        
                        52
                        
                        
                        
                        .3
                        
                        
                        
                        121
                        
                        
                        
                        .2
                        
                        
                        
                        170
                        
                        
                        
                        .3Interest
      expense
                        
                        
                        (331
                        )
                        
                        
                        (1.3
                        )
                        
                        
                        (294
                        )
                        
                        
                        (1.8
                        )
                        
                        
                        (1,346
                        )
                        
                        
                        (1.9
                        )
                        
                        
                        (1,031
                        )
                        
                        
                        (2.0
                        )Interest
      expense-financing fees
                        
                        
                        (104
                        )
                        
                        
                        (.4
                        )
                        
                        
                        (14
                        )
                        
                        
                        (.1
                        )
                        
                        
                        (180
                        )
                        
                        
                        (.2
                        )
                        
                        
                        (124
                        )
                        
                        
                        (.2
                        )other
                        
                        
                        (5
                        )
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        5
                        
                        
                        
                        ―
                        
                        
                        
                        (5
                        )
                        
                        
                        ―Income
      (loss) from continuing operations before taxes
                        
                        
                        2,794
                        
                        
                        
                        10.5
                        
                        
                        
                        (290
                        )
                        
                        
                        (1.8
                        )
                        
                        
                        4,126
                        
                        
                        
                        5.7
                        
                        
                        
                        99
                        
                        
                        
                        .2Income
      tax expense (benefit)
                        
                        
                        165
                        
                        
                        
                        .6
                        
                        
                        
                        (14
                        )
                        
                        
                        (.1
                        )
                        
                        
                        265
                        
                        
                        
                        .4
                        
                        
                        
                        3
                        
                        
                        
                        ―Income
      (loss) from continuing operations
                        
                        
                        2,629
                        
                        
                        
                        9.9
                        
                        
                        
                        (276
                        )
                        
                        
                        (1.7
                        )
                        
                        
                        3,861
                        
                        
                        
                        5.3
                        
                        
                        
                        96
                        
                        
                        
                        .2Preferred
      Stock dividends
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
  29
  Summary –
Three and Nine Months Ended September 30, 2009 and 2008
 
 Consolidated
revenues increased $10,545,000 for the three months ended September 30, 2009,
compared to the three months ended September 30, 2008, as follows:
 
 (In
      thousands)
                          
                          2009
                          
                          
                          %
                            Revenue
                          
                          
                          2008
                          
                          
                          %
                            Revenue
                          
                          
                          Change
                          
                          
                          %
                            ChangeNuclearGovernment
      waste
                          
                          $
                          9,697
                          
                          
                          
                          36.6
                          
                          
                          $
                          5,900
                          
                          
                          
                          36.9
                          
                          
                          $
                          3,797
                          
                          
                          
                          64.4Hazardous/Non-hazardous
                          
                          
                          802
                          
                          
                          
                          3.0
                          
                          
                          
                          1,084
                          
                          
                          
                          6.8
                          
                          
                          
                          (282
                          )
                          
                          
                          (26.0
                          )Other
      nuclear waste
                          
                          
                          2,339
                          
                          
                          
                          8.8
                          
                          
                          
                          2,621
                          
                          
                          
                          16.4
                          
                          
                          
                          (282
                          )
                          
                          
                          (10.8
                          )Fluor
      Hanford
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2,787
                          
                          
                          
                          17.4
                          
                          
                          
                          (2,787
                          )
                          
                          
                          (100.0
                          )CHPRC
                          
                          
                          10,680
                          
                          
                          
                          40.3
                          
                          
                          
                          127
                          
                          
                          
                          0.8
                          
                          
                          
                          10,553
                          
                          
                          
                          8,309.4Total
                          
                          
                          23,518
                          
                          
                          
                          88.7
                          
                          
                          
                          12,519
                          
                          
                          
                          78.3
                          
                          
                          
                          10,999
                          
                          
                          
                          87.9IndustrialCommercial
                          
                          $
                          1,405
                          
                          
                          
                          5.3
                          
                          
                          $
                          1,249
                          
                          
                          
                          7.8
                          
                          
                          $
                          156
                          
                          
                          
                          12.5Government
      services
                          
                          
                          160
                          
                          
                          
                          0.6
                          
                          
                          
                          166
                          
                          
                          
                          1.0
                          
                          
                          
                          (6
                          )
                          
                          
                          (3.6
                          )Oil
      Sales
                          
                          
                          563
                          
                          
                          
                          2.1
                          
                          
                          
                          1,209
                          
                          
                          
                          7.6
                          
                          
                          
                          (646
                          )
                          
                          
                          (53.4
                          )Total
                          
                          
                          2,128
                          
                          
                          
                          8.0
                          
                          
                          
                          2,624
                          
                          
                          
                          16.4
                          
                          
                          
                          (496
                          )
                          
                          
                          (18.9
                          )Engineering
                          
                          
                          888
                          
                          
                          
                          3.3
                          
                          
                          
                          846
                          
                          
                          
                          5.3
                          
                          
                          
                          42
                          
                          
                          
                          5.0Total
                          
                          $
                          26,534
                          
                          
                          
                          100.0
                          
                          
                          $
                          15,989
                          
                          
                          
                          100.0
                          
                          
                          $
                          10,545
                          
                          
                          
                          66.0
  Net
Revenue
 The
Nuclear Segment realized revenue growth of $10,999,000 or 87.9% for the three
months ended September 30, 2009 over the same period in 2008, due primarily to
the increase in revenue as a result of the CHPRC subcontract awarded to M&EC
during the second quarter of 2008 to perform a portion of facility operations
and waste management activities for the DOE Hanford, Washington
Site.  Operations under this subcontract officially commenced at the
DOE Hanford Site on October 1, 2008 and provided for a transitional period from
August 11, 2008 to September 30, 2008.  This CHPRC subcontract is a
cost plus award fee subcontract.  Revenue from CHPRC totaled
$10,680,000 or 40.3% of our total revenue from continuing operations for the
quarter ended September 30, 2009, which included approximately $9,083,000 of
revenue under the CHPRC subcontract at M&EC.  We had revenue of
approximately $127,000 or 0.8% in the quarter ended September 30, 2008 under the
CHPRC subcontract.  Effective October 1, 2008, CHPRC also began
management of waste activities under previous subcontracts with Fluor Hanford,
DOE’s general contractor at the Hanford Site prior to CHPRC.  Our
Nuclear Segment had three previous subcontracts with Fluor
Hanford.  These three subcontracts have since been renegotiated by
CHPRC to September 30, 2013.  Revenue from government generators,
excluding CHPRC and Fluor Hanford as discussed above, increased $3,797,000 or
64.4% due primarily to receipt of higher priced
waste.    Revenue from hazardous and non-hazardous waste was
down $282,000 or 26.0% due primarily to reduction in remediation
revenues.  Revenue from our Industrial Segment decreased $496,000 or
18.9% primarily due to lower oil sales revenue resulting from decrease in
average price per gallon of 52.1% and decreased volume of 3.0%.  This
decrease was partially offset by higher volume of commercial
revenue.   Revenue in our Engineering Segment increased
approximately $42,000 or 5.0% due to an increase in average billing rate of
15.4%.  This increase was partially offset by a decrease in billable
hours of 9.3%.
 
 Consolidated
revenues increased $20,273,000 for the nine months ended September 30, 2009, as
compared to the nine months ended September 30, 2008, as
follows:
  30





(Inthousands)
                      
                      2009
                      
                      
                      %
                        Revenue
                      
                      
                      2008
                      
                      
                      %
                        Revenue
                      
                      
                      Change
                      
                      
                      %ChangeNuclearGovernment
      waste
                      
                      $
                      19,572
                      
                      
                      
                      27.1
                      
                      
                      $
                      21,418
                      
                      
                      
                      41.2
                      
                      
                      $
                      (1,846
                      )
                      
                      
                      (8.6
                      )Hazardous/Non-hazardous
                      
                      
                      2,655
                      
                      
                      
                      3.7
                      
                      
                      
                      2,861
                      
                      
                      
                      5.6
                      
                      
                      
                      (206
                      )
                      
                      
                      (7.2
                      )Other
      nuclear waste
                      
                      
                      8,086
                      
                      
                      
                      11.2
                      
                      
                      
                      10,442
                      
                      
                      
                      20.1
                      
                      
                      
                      (2,356
                      )
                      
                      
                      (22.6
                      )Fluor
      Hanford
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      6,662
                      
                      
                      
                      12.8
                      
                      
                      
                      (6,662
                      )
                      
                      
                      (100.0
                      )CHPRC
                      
                      
                      33,051
                      
                      
                      
                      45.7
                      
                      
                      
                      127
                      
                      
                      
                      0.2
                      
                      
                      
                      32,924
                      
                      
                      
                      25,924.4Total
                      
                      
                      63,364
                      
                      
                      
                      87.7
                      
                      
                      
                      41,510
                      
                      
                      
                      79.9
                      
                      
                      
                      21,854
                      
                      
                      
                      52.6IndustrialCommercial
                      
                      $
                      3,871
                      
                      
                      
                      5.4
                      
                      
                      $
                      3,880
                      
                      
                      
                      7.5
                      
                      
                      $
                      (9
                      )
                      
                      
                      (0.2
                      )Government
      services
                      
                      
                      418
                      
                      
                      
                      0.6
                      
                      
                      
                      706
                      
                      
                      
                      1.3
                      
                      
                      
                      (288
                      )
                      
                      
                      (40.8
                      )Oil
      Sales
                      
                      
                      1,911
                      
                      
                      
                      2.6
                      
                      
                      
                      3,328
                      
                      
                      
                      6.4
                      
                      
                      
                      (1,417
                      )
                      
                      
                      (42.6
                      )Total
                      
                      
                      6,200
                      
                      
                      
                      8.6
                      
                      
                      
                      7,914
                      
                      
                      
                      15.2
                      
                      
                      
                      (1,714
                      )
                      
                      
                      (21.7
                      )Engineering
                      
                      
                      2,670
                      
                      
                      
                      3.7
                      
                      
                      
                      2,537
                      
                      
                      
                      4.9
                      
                      
                      
                      133
                      
                      
                      
                      5.2Total
                      
                      $
                      72,234
                      
                      
                      
                      100.0
                      
                      
                      $
                      51,961
                      
                      
                      
                      100.0
                      
                      
                      $
                      20,273
                      
                      
                      
                      39.0





The
Nuclear Segment experienced approximately $21,854,000 or 52.6% increase in
revenue for the nine months ended September 30, 2009 over the same period of
2008.  Revenue from CHPRC totaled $33,051,000 or 45.7% of our total
revenue from continuing operations for the nine months ended September 30, 2009,
including approximately $24,448,000 of revenue under the CHPRC subcontract
previously discussed.  We had revenue of approximately $127,000 from
the CHPRC subcontract in the nine months ended September 30, 2008, representing
approximately 0.2% of our revenue from continuing operations due from the
transitional period of this subcontract. Revenue from CHPRC also included
revenue from three subcontracts previously managed by Fluor Hanford, DOE general
contractor at the Hanford Site prior to CHPRC.  CHPRC has since
renegotiated these three subcontracts to September 30, 2013.  Revenue
from government generators, excluding CHPRC and Fluor Hanford as discussed
above, decreased $1,846,000 or 8.6% due primarily to reduction in volume of
waste shipped.  The reduction in volume was partially offset by higher
priced waste received especially in the third quarter of
2009.  Revenue from hazardous and non-hazardous waste was down
$206,000 or 7.2% due primarily to reduction in volume of approximately 4.2% and
reduction in average pricing of 9.0%.  Other nuclear waste revenue
decreased $2,356,000  or 22.6% due primarily to a shipment of high
activity and high margin waste of approximately $2,700,000 received in the first
quarter of 2008 which we did not repeat in the first nine months of
2009.  Revenue from our Industrial Segment decreased $1,714,000 or
21.7% due primarily to significant reduction in oil sales revenue resulting from
both decreased volume and decreased average price per gallon of 9.9% and 36.0%,
respectively.  Revenue from government generators was down primarily
due to lower volume.  Revenue in our Engineering Segment increased
approximately $133,000 or 5.2% due primarily to increased average billing rate
of 7.1% with small decrease in billable hours of approximately
2.7%.


31


Cost
of Goods Sold


Cost of
goods sold increased $6,962,000 for the quarter ended September 30, 2009, as
compared to the quarter ended September 30, 2008, as follows:





%
                
                
                
                
                
                %(Inthousands)
                
                2009
                
                
                Revenue
                
                
                2008
                
                
                Revenue
                
                
                ChangeNuclear
                
                $
                16,829
                
                
                
                71.6
                
                
                $
                9,351
                
                
                
                74.7
                
                
                
                7,478Industrial
                
                
                1,387
                
                
                
                65.2
                
                
                
                2,034
                
                
                
                77.5
                
                
                
                (647
                )Engineering
                
                
                630
                
                
                
                70.9
                
                
                
                499
                
                
                
                59.0
                
                
                
                131Total
                
                $
                18,846
                
                
                
                71.0
                
                
                $
                11,884
                
                
                
                74.3
                
                
                
                6,962





The
Nuclear Segment’s cost of goods sold for the three months ended September 30,
2009 were up $7,478,000 or 80.0%, which included the cost of goods sold of
approximately $7,226,000 related to the CHPRC subcontract.  Cost of
goods sold related to the CHPRC subcontract during the transitional period for
the quarter ended September 30, 2008 was approximately $72,000.  The
cost of goods sold for the quarter ended September 30, 2009 for our Nuclear
Segment included a reduction of approximately $787,000 in
disposal/transportation costs resulting from a change in estimate related to
accrued costs to dispose of legacy waste that were assumed as part of the
acquisition of our PFNWR facility in June 2007.  The change in
estimate was necessary due to our accumulation of new information that has
resulted in our identifying more efficient and cost effective ways to dispose of
this waste.  Excluding the cost of goods sold of the CHPRC subcontract
and the legacy waste adjustment, the Nuclear Segment costs increased
approximately $1,111,000 primarily in lab services, disposal/transportation,
bonus and certain other payroll related expenses due to increases in
revenue.  In the Industrial Segment, cost of goods sold decreased
$647,000 or 31.8% due to reduction in depreciation expense and throughout all
other areas resulting from reduced revenue primarily in oil sales.  In
the third quarter of 2008, we incurred approximately $356,000 in depreciation
expense as result of the reclassification of Perma-Fix of Fort Lauderdale, Inc.
(“PFFL”), Perma-Fix of Orlando, Inc. (“PFO”), and Perma-Fix of South Georgia,
Inc. (“PFSG”) back into continuing operations from discontinued
operations.  The Engineering Segment cost of goods sold increased
approximately $131,000 or 26.3% due primarily to reduced allocation of internal
labor hours to the Company’s Nuclear Segment. During the third quarter of 2008,
the Engineering Segment had two large projects for our PFNWR facility which did
not exist in the third quarter of 2009. Included within cost of goods sold is
depreciation and amortization expense of $1,107,000 and $1,423,000 for the three
months ended September 30, 2009, and 2008, respectively.





Cost of
goods sold increased $15,897,000 for the nine months ended September 30, 2009,
as compared to the nine months ended September 30, 2008, as
follows:





%
                
                
                
                
                
                %(Inthousands)
                
                2009
                
                
                Revenue
                
                
                2008
                
                
                Revenue
                
                
                ChangeNuclear
                
                $
                47,083
                
                
                
                74.3
                
                
                $
                30,231
                
                
                
                72.8
                
                
                
                16,852Industrial
                
                
                4,477
                
                
                
                72.2
                
                
                
                5,699
                
                
                
                72.0
                
                
                
                (1,222
                )Engineering
                
                
                1,873
                
                
                
                70.1
                
                
                
                1,606
                
                
                
                63.3
                
                
                
                267Total
                
                $
                53,433
                
                
                
                74.0
                
                
                $
                37,536
                
                
                
                72.2
                
                
                
                15,897





Cost of
goods sold for the Nuclear Segment increased $16,852,000 or 55.7%, which
included the cost of goods sold of approximately $19,528,000 related to the
CHPRC subcontract.  Cost of goods sold for the CHPRC subcontract
during the transitional period for the nine months ended September 30, 2008 was
approximately $72,000.  Excluding the cost of goods sold for the CHPRC
subcontract and the $787,000 reduction in disposal/transportation costs related
to the legacy waste as discussed previously, the Nuclear cost of good sold
decreased approximately $1,817,000.  The decrease was primarily in
material and supplies, payroll, and other payroll related expenses as we
continue our efforts to reduce costs due to reduced revenue.  In the
Industrial Segment, the decrease of $1,222,000 or 21.4% in cost of goods sold
was reflected in all areas due to reduced revenue, in addition to significant
reduction in depreciation expense due to the reclassification of PFFL, PFO, and
PFSG back into continuing operations in September 2008 as discussed above. The
Engineering Segment’s cost of goods sold increased approximately $267,000 or
16.6% due primarily to the reduced allocation of internal labor hours to the
Company’s Nuclear Segment as discussed above for the quarter ended September 30,
2009.   Included within cost of goods sold is depreciation and
amortization expense of $3,353,000 and $3,608,000 for the nine months ended
September 30, 2009, and 2008, respectively.


32


Gross
Profit


Gross
profit for the quarter ended September 30, 2009, increased $3,583,000 over 2008,
as follows:





(Inthousands)
                
                2009
                
                
                %
                  Revenue
                
                
                2008
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                6,689
                
                
                
                28.4
                
                
                $
                3,168
                
                
                
                25.3
                
                
                $
                3,521Industrial
                
                
                741
                
                
                
                34.8
                
                
                
                590
                
                
                
                22.5
                
                
                
                151Engineering
                
                
                258
                
                
                
                29.1
                
                
                
                347
                
                
                
                41.0
                
                
                
                (89
                )Total
                
                $
                7,688
                
                
                
                29.0
                
                
                $
                4,105
                
                
                
                25.7
                
                
                
                3,583





The
Nuclear Segment gross profit increased $3,521,000, which included gross profit
of approximately $1,857,000 on the CHPRC subcontract at our M&EC facility in
addition to a reduction of approximately $787,000 in disposal/transportation
costs recorded in the third quarter of 2009 resulting from a change in estimate
related to accrued costs to dispose of legacy waste that were assumed as part of
the acquisition of our PFNWR facility in June 2007 (see “Cost of Goods Sold” in
this section for further information regarding this reduction).  Gross
profit related to theCHPRC subcontract during the transitional period for the quarter ended
September 30, 2008 was approximately $55,000.  Excluding the gross
profit from the CHPRC subcontract and the legacy disposal adjustment in the
quarter, Nuclear Segment gross profit increased approximately $932,000 due to
increase in revenue.  Gross margin also increased primarily due to
revenue mix resulting from receipt of higher margin wastes.  In the
Industrial Segment, gross profit and gross margin both increased due primarily
to lower depreciation expense and reduction in all other areas within cost of
goods sold from reduced revenue.  In the third quarter of 2008, we
incurred approximately $356,000 in depreciation expense as result of the
reclassification of PFFL, PFO, and PFSG facilities back into continuing
operations from discontinued operations.  The decrease in gross profit
in the Engineering Segment was due primarily to reduced allocation of internal
labor hours to our Nuclear Segment facilities.  In the third quarter
of 2008, the Engineering Segment had two large projects for our PFNWR facility
which did not occur in the third quarter of 2009.





Gross
profit for the nine months ended September 30, 2009, increased $4,376,000 over
2008, as follows:





(Inthousands)
                
                2009
                
                
                %
                  Revenue
                
                
                2008
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                16,281
                
                
                
                25.7
                
                
                $
                11,279
                
                
                
                27.2
                
                
                $
                5,002Industrial
                
                
                1,723
                
                
                
                27.8
                
                
                
                2,215
                
                
                
                28.0
                
                
                
                (492
                )Engineering
                
                
                797
                
                
                
                29.9
                
                
                
                931
                
                
                
                36.7
                
                
                
                (134
                )Total
                
                $
                18,801
                
                
                
                26.0
                
                
                $
                14,425
                
                
                
                27.8
                
                
                $
                4,376





The
Nuclear Segment gross profit increased $5,002,000 or 44.3%, which included gross
profit of approximately $4,920,000 for the CHPRC subcontract.  Gross
profit related to the CHPRC subcontract during the transitional period for the
nine months ended September 30, 2008 was approximately $55,000. Excluding the
gross profit of the CHPRC subcontract and the $787,000 reduction in
disposal/transportation costs related to the legacy waste as discussed
previously, the Nuclear Segment gross profit decreased approximately $650,000
due to reduced revenue.  Gross margin remained constant, excluding
CHPRC and the legacy adjustment, due to revenue mix.  Gross profit for
the Industrial Segment decreased $492,000 or 22.2% due primarily to decrease in
revenue.  The Engineering Segment gross profit decreased approximately
$134,000 or 14.4% primarily due to increased cost of goods sold from reduced
allocation of internal labor hours to our other Nuclear Segment
facilities.


33


Selling,
General and Administrative


Selling,
general and administrative ("SG&A") expenses decreased $162,000 for the
three months ended September 30, 2009, as compared to the corresponding period
for 2008, as follows:





(Inthousands)
                
                2009
                
                
                %
                  Revenue
                
                
                2008
                
                
                %
                  Revenue
                
                
                ChangeAdministrative
                
                $
                1,538
                
                
                
                —
                
                
                $
                1,423
                
                
                
                —
                
                
                $
                115Nuclear
                
                
                2,286
                
                
                
                9.7
                
                
                
                2,248
                
                
                
                18.0
                
                
                
                38Industrial
                
                
                500
                
                
                
                23.5
                
                
                
                801
                
                
                
                30.5
                
                
                
                (301
                )Engineering
                
                
                162
                
                
                
                18.2
                
                
                
                176
                
                
                
                20.8
                
                
                
                (14
                )Total
                
                $
                4,486
                
                
                
                16.9
                
                
                $
                4,648
                
                
                
                29.1
                
                
                $
                (162
                )





Our
SG&A for the three months ended September 30, 2009 decreased approximately
$162,000 or 3.5% over the corresponding period of 2008.  The increase
in administrative SG&A was primarily the result of higher outside service
expense resulting from usual corporate consulting matters, audit fees in
connection with various company filings, and subcontract services for
information technology matters.  Also, administrative SG&A was
higher due to higher salaries and other payroll related expenses resulting from
additional headcount at our corporate office as we continue to centralize
accounting function.  The increase in salaries at our corporate office
was offset by decrease in payroll expenses in certain of our other segments.
Nuclear Segment SG&A was up approximately $38,000 due mainly to higher
bonus/commission resulting from higher revenue and higher bad debt
expense.  This increase was partially offset by lower salaries and
other payroll related expense, lower travel expense, and lower outside services
as we continue to streamline our costs.  Industrial Segment SG&A
decreased approximately $301,000 due primarily to lower bad debt expense,
certain payroll related expense, and lower outside services expenses as we had
certain permit compliance/renewal and legal matters in 2008 which did not occur
in 2009.  In addition, depreciation expense was lower in the third
quarter of 2009 as we incurred incremental depreciation expense of approximately
$130,000 during the third quarter of 2008 resulting from reclassification of
PFFL, PFO, and PFSG back into continuing operations from discontinued
operations.  The Engineering Segment’s SG&A expense decreased
approximately $14,000 primarily due to decrease in salaries and other payroll
expenses.  This decrease was partially offset by higher bad debt
expense.  Included in SG&A expenses is depreciation and
amortization expense of $81,000 and $156,000 for the three months ended
September 30, 2009, and 2008, respectively.





SG&A
expenses decreased $414,000 for the nine months ended September 30, 2009, as
compared to the corresponding period for 2008, as follows:





%
                
                
                
                
                
                %(Inthousands)
                
                2009
                
                
                Revenue
                
                
                2008
                
                
                Revenue
                
                
                ChangeAdministrative
                
                $
                4,472
                
                
                
                3⁄4
                
                
                $
                4,075
                
                
                
                3⁄4
                
                
                $
                397Nuclear
                
                
                6,827
                
                
                
                10.8
                
                
                
                7,029
                
                
                
                16.9
                
                
                
                (202
                )Industrial
                
                
                1,537
                
                
                
                24.8
                
                
                
                2,104
                
                
                
                26.6
                
                
                
                (567
                )Engineering
                
                
                454
                
                
                
                17.0
                
                
                
                496
                
                
                
                19.6
                
                
                
                (42
                )Total
                
                $
                13,290
                
                
                
                18.4
                
                
                $
                13,704
                
                
                
                26.4
                
                
                $
                (414
                )


34


SG&A
decreased $414,000 or 3.0% for the nine months ended September 30, 2009 as
compared to the corresponding period of 2008.  The increase in
administrative SG&A of approximately $397,000 was primarily the result of
reasons discussed in the third quarter.  In addition, stock option
expense was higher due to 1,228,000 options granted to certain company officers
and employees since August 2008.  Such options were not granted in
2007.  Also, 401k match expense was higher as certain Industrial
Segment employees forfeited the Company’s match portion following the divestures
in 2008.  Nuclear Segment SG&A was down approximately $202,000 due
mainly to lower salaries, other payroll related expenses, travel expenses, and
consulting expenses.  The decrease was partially offset by bad debt
expense.  SG&A for the Industrial Segment decreased $567,000 due
primarily to lower bad debt expense, lower bonus/incentive due to reduced
revenue, certain payroll related expense, and lower outside services expenses as
we had certain permit compliance/renewal and legal matters in 2008 which did not
occur in 2009.  The Engineering Segment’s SG&A expense decreased
approximately $42,000 primarily due to decrease in payroll, travel, and outside
service expenses.  This decrease was partially offset by higher bad
debt expense.  Included in SG&A expenses is depreciation and
amortization expense of $216,000 and $209,000 for the nine months ended
September 30, 2009, and 2008, respectively.





Interest
Expense


Interest
expense increased $37,000 and $315,000 for the three and nine months ended
September 30, 2009, respectively, as compared to the corresponding period of
2008.





Three Months
                                
                                
                                Nine Months(In thousands)
                                
                                2009
                                
                                
                                2008
                                
                                
                                Change
                                
                                
                                2009
                                
                                
                                2008
                                
                                
                                ChangePNC
      interest
                                
                                $
                                232
                                
                                
                                $
                                127
                                
                                
                                $
                                105
                                
                                
                                $
                                615
                                
                                
                                $
                                348
                                
                                
                                $
                                267Other
                                
                                
                                99
                                
                                
                                
                                167
                                
                                
                                
                                (68
                                )
                                
                                
                                731
                                
                                
                                
                                683
                                
                                
                                
                                48Total
                                
                                $
                                331
                                
                                
                                $
                                294
                                
                                
                                $
                                37
                                
                                
                                $
                                1,346
                                
                                
                                $
                                1,031
                                
                                
                                $
                                315





The
increase in interest expense for the three months ended September 30, 2009, as
compared to the corresponding period of 2008 was due primarily to higher
interest on our revolver and term note resulting from higher balances in
addition to interest incurred on the $3,000,000 loan we entered into in May 2009
with Mr. Lampson and Mr. Rettig.  Our monthly average term loan
balance was significantly higher throughout the first nine months of 2009
resulting from the reload of our term note in August 2008 to
$7,000,000.  During the first nine months of 2008, our average monthly
term loan balance was significantly lower resulting from payments against the
term note from proceeds received from the sale of certain of our Industrial
Segment facilities.  In addition, our average monthly revolver balance
was higher throughout the first nine months of 2009 as compared to 2008 due to
funding of our finite insurance policies. The increase in interest expense for
the three months ended September 30, 2009, was partially offset by lower
interest resulting from payoff of the KeyBank note in December 2008 at our PFNWR
facility, payoff of our PDC note in May 2009 at our M&EC facility, as well
as an abatement of interest of approximately $28,000 related to excise tax audit
for years 1999 to 2006 at our PFO facility.  The increase in interest
expense for the nine months ended September 30, 2009 was due primarily to the
same reasons above in addition to higher interest expense relating to certain
vendor invoices.  The increase was partially offset by the same
reasons noted above for the three months.





Interest
Expense - Financing Fees


Interest
expense-financing fees increased approximately $90,000 and $56,000 for the three
and nine months ended September 30, 2009, respectively, as compared to the
corresponding period of 2008.  The increase for the three months 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.  The increase for the nine months was due
primarily to the debt discount amortized as noted above.  The increase
was partially offset by the reduction of monthly amortized financing fees
associated with our original credit facility and subsequent amendments which
became fully amortized in May 2008.


35


Interest
Income


Interest
income decreased approximately $23,000 and $49,000 for the three and nine months
ended September 30, 2009, as compared to the corresponding period of 2008,
respectively.  The decrease for the three and nine months is primarily
the result of lower interest earned on the finite risk sinking fund due to lower
interest rates.





Asset
Impairment Recovery


The asset
impairment recovery for the three and nine months ended September 30, 2008 was
the result of the re-evaluation of the fair value of Perma-Fix of Orlando,
Inc.’s assets from the reclassification of the facility back into continuing
operations from discontinued operations.





Loss
(gain) on disposal of Property and Equipment


The loss
on disposal of fixed assets for the nine months ended September 30, 2008 was
primarily due to disposal of idle equipment at our DSSI facility.





Income
Tax Expense


Our
income tax expense for the quarter ended September 30, 2009 was $165,000 as
compared to income tax benefit of $14,000 for the corresponding period of
2008.  Our income tax for the nine months ended September 30, 2009 was
$265,000 as compared to $3,000 for the corresponding period of
2008.  In determining our interim income tax provision from continuing
operations, we have used the projected full year income as a basis for
determining the Company’s overall estimated income tax expense.





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 two previously
shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), and Perma-Fix of
Michigan, Inc. (“PFMI”), two facilities which were approved as discontinued
operations by our Board of Directors effective November 8, 2005, and October 4,
2004, respectively.





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.





Our
discontinued operations had no revenues in 2009.  Revenues for the
three and nine months ended September 2008 were $0 and $3,195,000,
respectively.  The Industrial Segment had net operating loss of $7,000
and net operating income of $60,000 for the three and nine months ended
September 30, 2009, respectively, as compared to net operating loss of $159,000
and $1,218,000 for the corresponding period of 2008.  Our “(Loss)
income from discontinued operations, net of taxes” on the Consolidated Statement
of Operations for the three and nine months ended September 30, 2009 included
approximately $115,000 in abated interest in connection with an excise tax audit
for fiscal years 1999 to 2006 for PFTS.  In the second quarter of
2009, we recorded approximately $119,000 in interest expense in connection with
this excise tax audit.  Our “income from discontinued operations, net
of taxes” for the nine months ended September 30, 2009 also included a recovery
of approximately $400,000 in closure cost for PFTS recorded in the first quarter
of 2009.  In connection with the divestiture of PFTS above, the buyer
of PFTS’s assets was required to replace our financial assurance bond with its
own financial assurance mechanism for facility closures.  Our
financial assurance bond for PFTS was required to remain in place until the
buyer has provided replacement coverage.  On March 24, 2009, the
appropriate regulatory authority authorized the release of our financial
assurance bond for PFTS which resulted in this recovery this closure
costs.





We had a
“gain on disposal of discontinued operations, net of taxes” of $94,000 and
$2,309,000 for the three and nine months ended September 30, 2008.





Assets
and liabilities related to discontinued operations total $725,000 and $2,228,000
as of September 30, 2009, respectively and $761,000 and $2,994,000 as of
December 31, 2008, respectively.


36


Non
Operational Facilities


The
Industrial Segment includes two previously shut-down facilities which were
presented as discontinued operations in prior years.  These facilities
include Perma-Fix of Pittsburgh (“PFP”) and Perma-Fix of Michigan
(“PFMI”).  Our decision to discontinue operations at PFP was due to
our reevaluation of the facility and our inability to achieve profitability at
the facility.  Our decision to discontinue operations at PFMI was
principally a result of two fires that significantly disrupted operations at the
facility in 2003, and the facility’s continued drain on the financial resources
of our Industrial Segment.  As a result of the discontinued operations
at the PFMI facility, we were required to complete certain closure and
remediation activities pursuant to our RCRA permit, which were completed in
January 2006.  In September 2006, PFMI signed a Corrective Action
Consent Order with the State of Michigan, requiring performance of studies and
development and execution of plans related to the potential clean-up of soils in
portions of the property.  The level and cost of the clean-up and
remediation are determined by state mandated requirements.  During
2006, based on state-mandated criteria, we began implementing the modified
methodology to remediate the facility.  We have spent approximately
$817,000 for closure costs since discontinuation of PFMI in October 2004, of
which approximately $72,000 was spent during the nine months ended September 30,
2009 and $26,000 was spent during 2008.  We have $466,000 accrued for
the closure, as of September 30, 2009, and we anticipate spending $18,000 in the
remaining three months of 2009, with the remainder over the next five
years.  Based on the current status of the Corrective Action, we
believe that the remaining reserve is adequate to cover the
liability.





As of September 30, 2009,
PFMI has a pension payableof
$958,000.The pension plan withdrawal liability is a result of
the termination of the union employees of PFMI.  The PFMI union
employees participate in the Central States Teamsters Pension Fund ("CST"),
which provides that a partial or full termination of union employees may result
in a withdrawal liability, due from PFMI to CST.  The recorded
liability is based upon a demand letter received from CST in August 2005 that
provided for the payment of $22,000 per month over an eight year
period.  This obligation is recorded as a long-term liability, with a
current portion of $184,000 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
September 30, 2009, we had cash of $73,000.  The following table
reflects the cash flow activities during the first nine months of
2009.





(In thousands)
                  
                  2009Cash
      provided by continuing operations
                  
                  $
                  179Cash
      used in discontinued operations
                  
                  
                  (679
                  )Cash
      used in investing activities of continuing operations
                  
                  
                  (5,846
                  )Cash
      provided by investing activities of discontinued
operations
                  
                  
                  11Cash
      provided by financing activities of continuing operations
                  
                  
                  6,279Decrease
      in cash
                  
                  $
                  (56
                  )





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, 2009, primarily represents
minor petty cash and local account balances used for miscellaneous services and
supplies.


37


Operating
Activities


Accounts
Receivable, net of allowances for doubtful accounts, totaled $18,275,000, an
increase of $4,859,000 over the December 31, 2008, balance of
$13,416,000.  The Nuclear Segment experienced an increase of
approximately $5,319,000 due primarily to high priced waste receipts which
occurred in the last few weeks of the third quarter 2009.  The
Industrial Segment experienced a decrease of approximately $627,000 due
primarily to a decrease in revenue.  The Engineering Segment
experienced an increase of approximately $167,000 due mainly to increases in
revenue.





Unbilled
receivables are generated by differences between invoicing timing and the
percentage of completion methodology used for revenue recognition
purposes.  As major processing phases are completed and the costs
incurred, we recognize the corresponding percentage of revenue.  We
experience delays in processing invoices due to the complexity of the
documentation that is required for invoicing, as well as the difference between
completion of revenue recognition milestones and agreed upon invoicing terms,
which results in unbilled receivables.  The timing differences occur
for several reasons:  partially from delays in the final processing of
all wastes associated with certain work orders and partially from delays for
analytical testing that is required after we have processed waste but prior to
our release of waste for disposal.   The difference also occurs
due to our end disposal sites requirement of pre-approval prior to our shipping
waste for disposal and our contract terms with the customer that we dispose of
the waste prior to invoicing.  These delays usually take several
months to complete.  As of September 30, 2009, unbilled receivables
totaled $12,642,000, a decrease of $4,320,000 from the December 31, 2008,
balance of $16,962,000, which reflects our continued efforts to reduce this
balance.   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 September 30, 2009 is $9,746,000, a decrease of $3,358,000
from the balance of $13,104,000 as of December 31, 2008.  The long
term portion as of September 30, 2009 is $2,896,000, a decrease of $962,000 from
the balance of $3,858,000 as of December 31, 2008.





As of
September 30, 2009, total consolidated accounts payable was $5,423,000, a
decrease of $5,653,000 from the December 31, 2008, balance of
$11,076,000.  The decrease was due primarily to improvements to
payment of our vendor invoices as a result of improved cash from operations and
our revolver.  We continue to increase our invoicing as we work toward
reducing our unbilled revenue targets to pay down our accounts payable, in
addition to manage payment terms with our vendors to maximize our cash position
throughout all segments.





Accrued
Expenses as of September 30, 2009, totaled $7,564,000, a decrease of $1,332,000
over the December 31, 2008, balance of $8,896,000.  Accrued expenses
are made up of accrued compensation, interest payable, insurance payable,
certain tax accruals, and other miscellaneous accruals.  The decrease
was primarily due to monthly payments for the Company’s general insurance
policies and closure policy for PFNWR facility and payoff of approximately
$2,225,000 in interest on the PDC note in May 2009.  This decrease was
offset by the renewal of the Company’s general insurance policy in September
2009.





Disposal/transportation
accrual as of September 30, 2009, totaled $3,129,000, a decrease of $2,718,000
over the December 31, 2008 balance of $5,847,000.  The decrease was
mainly attributed to the processing of legacy waste at PFNWR
facility.  In addition, we reduced the disposal/transportation accrual
by approximately $787,000 in the third quarter of 2009 as a result of our
re-estimate of the cost to dispose of the legacy waste which was part of our
acquisition of PFNWR and PFNW in June 2007.





Our
working capital position at September 30, 2009 was $2,694,000, which includes
working capital of our discontinued operations, as compared to a negative
working capital of $3,886,000 as of December 31, 2008.  The
improvement in our working capital was attributed primarily to the reduction of
our account payables from funds generated by our operations.


38


Investing
Activities


Our
purchases of capital equipment for the nine months ended September 30, 2009,
totaled approximately $1,141,000, of which $125,000 was financed, resulting in
net purchases of $1,016,000.  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 initially budgeted capital expenditures of approximately
$1,300,000 for fiscal year 2009 for our operating segments to 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.  On October 29, 2009, our Board of Directors approved an
additional $1,000,000 in capital expenditures for new business requirements and
sustenance, primarily within our Nuclear Segment.  Certain of these
budgeted projects are discretionary and may either be delayed until later in the
year or deferred altogether.  We have traditionally incurred actual
capital spending totals for a given year less than the initial budget
amount.  The initiation and timing of projects are also determined by
financing alternatives or funds available for such capital
projects.   We anticipate funding these capital expenditures by a
combination of lease financing and internally generated funds.





In June
2003, we entered into a 25-year finite risk insurance policy with American
International Group, Inc. (“AIG”), 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 March 2009, we paid our sixth of the eight required
remaining payments.  In March 2009, we secured additional financial
assurance coverage of approximately $5,421,000 with AIG which enabled our
Diversified Scientific Services, Inc. (“DSSI”) facility to receive and process
wastes under a permit issued by the U.S. Environment Protection Agency (“EPA”)
Region 4 on November 26, 2008 to commercially store and dispose of
Polychlorinated Biphenyls (“PCBs”).  We secured this additional
financial assurance coverage requirement by increasing our initial 25-year
finite risk insurance policy with AIG from maximum policy coverage of
$35,000,000 to $39,000,000, of which our total financial coverage amounts to
$35,869,000 as of September 30, 2009.  Payment for this additional
financial assurance coverage 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 AIG.  In
addition, we are required to make three yearly payments of approximately
$1,073,000 starting December 31, 2009, of which $888,000 will be deposited into
a sinking fund account, with the remaining to represent fee payable to
AIG.





As of
September 30, 2009, we have recorded $9,623,000 in our sinking fund related to
the policy noted above on the balance sheet, which includes interest earned of
$789,000 on the sinking fund as of September 30, 2009.  Interest
income for the three and nine months ended September 30, 2009 was $16,000 and
$59,000, respectively.  On the fourth and subsequent anniversaries of
the contract inception, we may elect to terminate this contract.  If
we so elect, the Insurer 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.


39


In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with AIG.  The policy
provides an initial $7,800,000 of financial assurance coverage with annual
growth rate of 1.5%, which at the end of the four year term policy, will provide
maximum coverage of $8,200,000.  The policy will renew automatically
on an annual basis at the end of the four year term and will not be subject to
any renewal fees.  The policy requires total payment of $7,158,000,
consisting of an 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
both of the annual payments of $1,520,000, of which one annual payment was made
in the third quarter of 2009.  For each of the $1,520,000 payments,
$1,344,000 was deposited into a sinking fund account and the remaining
represented premium.   We have made all of the five quarterly
payments which were deposited into a sinking fund.  As of September
30, 2009, we have recorded $5,834,000 in our sinking fund related to this policy
on the balance sheet, which includes interest earned of $134,000 on the sinking
fund as of September 30, 2009.  Interest income for the three months
and nine months ended September 30, 2009 totaled $12,000 and $62,000,
respectively.





It has
been previously reported that AIG 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.





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





Our 2004
Stock Option Plan (“2004 Option Plan”), which was approved by our stockholder at
our 2004 Annual Meeting of Stockholders on July 28, 2004, provides grants of
stock options to employees to enhance the Company’s ability to attract, retain,
and reward qualified employees, and to provide incentive for such employees to
render outstanding service to the Company and its stockholders.  The
2004 Option Plan allows for the issuance of 2,000,000 shares of our Common
Stock.  On May 1, 2009, our Board of Directors approved a First
Amendment to the 2004 Option Plan to increase from 2,000,000 to 3,000,000 the
number of shares of our Common Stock reserved for issuance under the 2004 Option
Plan, subject to the approval by our stockholders.  At the time of the
approval of the First Amendment by our Board of Director, 166,502 shares of our
Common Stock had been issued under the 2004 Option Plan and 1,832,499 shares
were issuable under outstanding options.  As a result, only 999 shares
of our Common Stock remained available for issuance under the 2004 Option
Plan.  On July 29, 2009, our shareholders did not approve the First
Amendment to the 2004 Option Plan at our Annual Meeting of
Stockholders.





Financing
Activities


On
December 22, 2000, we entered into a Revolving Credit, Term Loan and Security
Agreement ("Agreement") with PNC Bank, National Association, a national banking
association ("PNC") acting as agent ("Agent") for lenders, and as issuing bank,
as amended.  The Agreement provided for a term loan ("Term Loan") in
the amount of $7,000,000, which required 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 Term Loan and Revolving Credit matures in July,
2012.  The Revolving Credit advances are subject to limitations of an
amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days or
less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up
to 120 days from invoice date, (c) up to 85% of acceptable Government Agency
Receivables aged up to 150 days from invoice date, and (d) up to 50% of
acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent
reasonably deems proper and necessary.  As of September 30, 2009, the
excess availability under our Revolving Credit was $7,560,000 based on our
eligible receivables.


40


Pursuant
to the Agreement, as amended, we may terminate the 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 March
5, 2009, we entered into an Amendment with PNC Bank to our
Agreement.  This Amendment increased our borrowing availability by
approximately an additional $2,200,000.  In addition, pursuant to the
Amendment, monthly interest due on our revolving line of credit was amended from
prime plus 1/2% to prime plus 2.0% and monthly interest due on our Term Loan was
amended from prime plus 1.0% to prime plus 2.5%.  The Company also has
the option to pay monthly interest due on the revolving line of credit by using
the LIBOR, with the minimum floor base LIBOR rate of 2.5%, plus 3.0% and to pay
monthly interest due on the Term Loan using the minimum floor base LIBOR of
2.5%, plus 3.5%.  In addition, pursuant to the Amendment, the fixed
charge coverage ratio was amended to reduce the availability monthly by
$48,000.  The Amendment also allowed us to retain funds received from
the sale of our PFO property which was completed in the fourth quarter of
2008.  All other terms and conditions to the credit facility remain
principally unchanged.  As a condition of this Amendment, we paid PNC
a fee of $25,000.  Funds made available under this Amendment were used
to secure the additional financial assurance coverage needed by our DSSI
subsidiary to operate under the PCB permit issued by the EPA on November 26,
2008.




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 have met our financial covenants in each of
the first three quarters in 2009 and we expect to meet our financial covenants
in the fourth quarter of 2009 and beyond.  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 September 30, 2009:





Quarterly
                    
                    
                    1st Quarter
                    
                    
                    2nd Quarter
                    
                    
                    3rd QuarterRequirement
                    
                    
                    Actual
                    
                    
                    Actual
                    
                    
                    ActualSenior Credit Facility
                    
                    (dollars in thousands)
                    
                    (dollars in thousands)
                    
                    (dollars in thousands)
                    
                    (dollars in thousands)Fixed
      charge coverage ratio
                    
                    1:25:1
                    
                    
                    2:01:1
                    
                    
                    1:63:1
                    
                    
                    2:11:1Minimum
      tangible adjusted net worth
                    
                    $
                    30,000
                    
                    
                    $
                    51,065
                    
                    
                    $
                    51,878
                    
                    
                    $
                    55,229




In
connection with our review of our financing activities, from time to time we
consider alternatives that could provide terms more favorable to us than under
our existing credit facilities, including increasing the amount of our existing
credit facilities to provide us with additional liquidity.  We have
been negotiating with a commercial lender (the “Potential Lender”) a proposal
for a new term and revolving credit arrangement, which proposal is non-binding
and subject to customary contingencies.  Under the proposal, the
Potential Lender would provide us with an increase to our term loan and provide
us with a revolving credit facility.  We are also negotiating with our
current lender, PNC, as to possible changes to our current term and revolving
credit facilities.  As discussed above, if we decide to change
lenders, we are required to give PNC 90 days prior written notice, pay a
prepayment fee equal to 1/2 % of the total $25,000,000 financed with PNC, and to
pay the full amount due and owing to PNC under our term and revolving credit
facilities, which has a balance of approximately $5,917,000 and $10,652,000,
respectively, as of September 30, 2009, no later than the expiration of the 90
day notice period.





In
acquiring Perma-Fix Northwest, Inc. (“PFNW”- f/k/a Nuvotec) and Perma-Fix
Northwest Richland, Inc. (“PFNWR” – f/k/a Pacific EcoSolutions, Inc. (“PEcoS”)),
we agreed to pay former shareholders of Nuvotec who qualified as accredited
investors, (including Mr. Ferguson, a current director of the Company), 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.  In
June 2009, we paid our first principal installment of $833,333, along with
accrued interest.  As of September 30, 2009, interest paid totaled
approximately $422,000.  Interest accrued as of September 30, 2009
totaled approximately $34,000.


41


Pursuant
to the merger agreement relating to our acquisition of PFNW and PFNWR in June
2007, we are required to pay to those former shareholders of PFNW immediately
prior to our acquisition, which includes Mr. Ferguson, a current member of our
Board of Directors, an earn-out amount upon meeting certain conditions for each
fiscal period ending June 30, 2008, June 30, 2009, June 30, 2010 and June 30,
2011, with the aggregate earn-out amount to be paid by us not to exceed the sum
of $4,552,000 (See – “Related Party Transaction” in this section for information
regarding Mr. Ferguson).  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 of our nuclear business (as defined) for such fiscal
year exceeds the budgeted amount of revenues for our nuclear business for that
particular period, with the first $1,000,000 being placed in an escrow account
for a period of two years from the date that the full $1,000,000 is placed in
escrow for losses suffered or to be suffered by us, PFNW and PFNWR under the
sellers’ and its shareholders’ indemnification obligations.  No
earn-out was required to be paid for fiscal 2008, and for 2009 we were required
to pay an earn-out equal to approximately $734,000, which was recorded as an
increase to goodwill for PFNWR in the second quarter of 2009.  Under
the merger agreement, the former shareholders established a liquidating trust in
which Ferguson and William Lampson (“Lampson”) were appointed trustees and were
further appointed as representatives of the former shareholders in connection
with matters arising under the merger agreement.   Prior to
payment of the earn-out amount of approximately $734,000 for fiscal year 2009,
we negotiated an amendment to the merger agreement with Ferguson and Lampson (as
representatives for the former shareholders and as trustees under the
liquidating trust) and the paying agent for the former shareholders and entered
into an amendment that provides as follows:





·
            The
      termination of the escrow arrangement.  As a result, the
      earn-out amount for the fiscal period ended June 30, 2009 in the amount of
      approximately $734,000 was deposited by us with the paying agent on
      September 30, 2009, in full and complete satisfaction of our obligations
      in connection with the earn-out for the fiscal period ended June 30,
      2009.





·
            Any
      indemnification obligations payable to us under the merger agreement will
      be deducted (“Offset Amount”) from any earn-out amounts payable by us for
      the fiscal periods ended June 30, 2010, and June 30, 2011.  The
      Offset Amount for the fiscal year ended June 30, 2010, will include the
      sum of approximately $93,000, of which approximately $60,000 represents
      excise tax assessment issued by the State of Washington for the annual
      periods 2005 to 2007, with the remaining representing a refund request
      from a PEcoS customer in connection with service for waste treatment prior
      to our acquisition of PFNWR and PFNW.  The Offset Amount may be
      revised by us by written notice to the representatives pursuant to the
      merger agreement.





·
            We
      may elect to pay any future earn-out amounts payable under the merger
      agreement for each of the fiscal periods ended June 30, 2010, and 2011,
      less the Offset Amount, in excess of $1,000,000 by means of a three year
      unsecured promissory note bearing an annual rate of 6.0%, payable in 36
      equal monthly installments.





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.


42


On May 8,
2009, the Company entered into a promissory note with Lampson and Mr. Diehl
Rettig, the Lenders, for $3,000,000.  Lampson was formerly a major
shareholder of Nuvotec usa, Inc. (n/k/a Perma-Fix Northwest, Inc. (“PFNW”)) and
its wholly owned subsidiary, Pacific EcoSolution, Inc. (n/k/a Perma-Fix
Northwest Richland, Inc. (“PFNWR”)) prior to our acquisition of PFNW and PFNWR,
and Mr. Rettig was formerly a shareholder of, and counsel for, Nuvotec usa, Inc.
and its subsidiaries at the time of our acquisition and after our acquisition
Mr. Rettig has continued to perform certain legal services for
PFNWR.  Both of the Lenders 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 to pay off
approximately $2,225,000 (which consisted of interests only) in the second
quarter of 2009 due on a promissory note, dated June 25, 2001, as amended on
December 28, 2008, entered into by our M&EC subsidiary with PDC, with the
remaining proceeds 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 terms 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 in a private placement a Warrant to 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 two years from May 8,
2009.  We estimated the fair value of the Warrants to be approximately
$190,000 using the Black-Scholes option pricing model with the following
assumption:  70.47% volatility, risk free interest rate of 1.0%, an
expected life of two years and no dividends.  We also issued an
aggregate of 200,000 shares of the Company’s Common Stock during the second
quarter of 2009 with Mr. Lampson receiving 180,000 shares and Mr. Rettig
receiving 20,000 shares of the Company’s Common Stock.  We determined
the fair value of the 200,000 shares of Common Stock to be $476,000 which was
based on the closing price of the stock of $2.38 per share on May 8,
2009.  The fair value of the Warrants and Common Stock was recorded as
a debt discount and is being amortized over the term of the loan as interest
expense – financing fees. Debt discount amortized as of September 30, 2009
totaled approximately $133,000, of which approximately $83,000 was amortized in
the third quarter of 2009.




In
summary, funds generated from our operations have positively impacted our
working capital in the first nine months of 2009.  We continue to take
steps to improve our operations and liquidity and to invest working capital into
our facilities to fund capital additions for 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.


43





Contractual
Obligations


The
following table summarizes our contractual obligations at September 30, 2009,
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
                      
                      
                      2009
                      
                      
                      
                      2010-
                        2012
                      
                      
                      
                      2013 -
                        2014
                      
                      
                      After
                        2014Long-term
      debt (1)
                      
                      $
                      21,391
                      
                      
                      $
                      568
                      
                      
                      $
                      20,767
                      
                      
                      $
                      56
                      
                      
                      $
                      —Interest
      on long-term debt (2)
                      
                      
                      206
                      
                      
                      
                      —
                      
                      
                      
                      206
                      
                      
                      
                      —
                      
                      
                      
                      —Interest
      on variable rate debt (3)
                      
                      
                      2,306
                      
                      
                      
                      276
                      
                      
                      
                      2,030
                      
                      
                      
                      —
                      
                      
                      
                      —Operating
      leases
                      
                      
                      2,069
                      
                      
                      
                      230
                      
                      
                      
                      1,545
                      
                      
                      
                      294
                      
                      
                      
                      —Finite
      risk policy (4)
                      
                      
                      6,231
                      
                      
                      
                      1,073
                      
                      
                      
                      5,158
                      
                      
                      
                      —
                      
                      
                      
                      —Pension
      withdrawal liability (5)
                      
                      
                      958
                      
                      
                      
                      —
                      
                      
                      
                      635
                      
                      
                      
                      323
                      
                      
                      
                      —Environmental
      contingencies (6)
                      
                      
                      1,531
                      
                      
                      
                      100
                      
                      
                      
                      1,025
                      
                      
                      
                      296
                      
                      
                      
                      110Earn
      Out Amount - PFNWR (7)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Purchase
      obligations (8)
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Total
      contractual obligations
                      
                      $
                      34,692
                      
                      
                      $
                      2,247
                      
                      
                      $
                      31,366
                      
                      
                      $
                      969
                      
                      
                      $
                      110





(1)
            Amount
      excludes debt discount recorded and amortized of approximately $152,000
      for the two Warrants and $381,000 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 – 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, as amended, 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 2.5%, and as such
      we have made certain assumptions in estimating future interest payments on
      this variable interest rate debt. Our calculation of interests on our Term
      Loan and Revolving Credit was estimated using the more current favorable
      prime rate method and we assumed an increase in prime rate of 1/2% in each
      of the years 2009 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%.  We also assumed an increase of 1/2% over the minimum
      LIBOR of 1.5% in calculating interests on the
  loan.





(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.


44


(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.





(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 was required
      to be paid for fiscal 2008 and we paid $734,000 in earn out for the fiscal
      2009 in the third quarter of 2009.  Pursuant to the amended
      Merger Agreement, any indemnification obligations payable to the Company
      by Nuvotec, PEcoS, and the former shareholders 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.  The Offset Amount
      for the twelve month period ending June 30, 2010 will include the sum of
      approximately $93,000, of which approximately $60,000 represents excise
      tax assessment issued by the State of Washington for the annual period
      2005 to 2007, with the remaining representing a refund request from a
      PEcoS customer in connection with service for waste treatment 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 the 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.  See “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 percentage of completion methodology
for purposes of revenue recognition in our Nuclear Segment.  As we
accept more complex waste streams in this segment, the treatment of those waste
streams becomes more complicated and time consuming.  We have
continued to enhance our waste tracking capabilities and systems, which has
enabled us to better match the revenue earned to the processing phases
achieved.  The major processing phases are receipt,
treatment/processing and shipment/final disposition.  Upon receiving
mixed waste we recognize a certain percentage (ranging from 20% to 33%) of
revenue as we incur costs for transportation, analytical and labor associated
with the receipt of mixed wastes.  As the waste is processed, shipped
and disposed of we recognize the remaining revenue and the associated costs of
transportation and burial.  The waste streams in our Industrial
Segment are much less complicated, and services are rendered shortly after
receipt, as such we do not use percentage of completion estimates in our
Industrial segment.  We review and evaluate our revenue recognition
estimates and policies on a quarterly basis.  Under our subcontract
awarded by CHPRC in 2008, we are reimbursed for costs incurred plus a certain
percentage markup for indirect costs, in accordance with contract
provision.  Costs incurred on excess of contract funding may be
renegotiated for reimbursement.  We also earn a fee based on the
approved costs to complete the contract.  We recognize this fee using
the proportion of costs incurred to total estimated contract
costs.


45


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





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





Property
and Equipment


Property
and equipment expenditures are capitalized and depreciated using the
straight-line method over the estimated useful lives of the assets for financial
statement purposes, while accelerated depreciation methods are principally used
for income tax purposes.  Generally, annual depreciation rates range
from ten to forty years for buildings (including improvements and asset
retirement costs) and three to seven years for office furniture and equipment,
vehicles, and decontamination and processing equipment.  Leasehold
improvements are capitalized and amortized over the lesser of the term of the
lease or the life of the asset.  Maintenance and repairs are charged
directly to expense as incurred.  The cost and accumulated
depreciation of assets sold or retired are removed from the respective accounts,
and any gain or loss from sale or retirement is recognized in the accompanying
consolidated statements of operations. Renewals and improvement, which extend
the useful lives of the assets, are capitalized.  We include within
buildings, asset retirement obligations, which represents our best estimates of
the cost to close, at some undetermined future date, our permitted and/or
licensed facilities.





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 2009, the average
inflationary factor was approximately 2.4%) 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.  Except for the Michigan and Pittsburgh facilities, we
have no current intention to close any of our facilities.


46


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 has retained the
environmental liability for the remediation of an independent site known as
EPS.  This liability was assumed by the Company as a result of the
original acquisition of the PFD facility.  The environmental
liabilities of PFM, PFMI, PFSG, and PFD remain the financial obligations of the
Company.





Disposal/Transportation
Costs. We accrue for waste disposal based upon a physical count of the
total waste at each facility at the end of each accounting
period.  Current market prices for transportation and disposal costs
are applied to the end of period waste inventories to calculate the disposal
accrual.  Costs are calculated using current costs for disposal, but
economic trends could materially affect our actual costs for
disposal.  As there are limited disposal sites available to us, a
change in the number of available sites or an increase or decrease in demand for
the existing disposal areas could significantly affect the actual disposal costs
either positively or negatively.





Share-Based Compensation.We
account for stock-based compensation in accordance with FASB ASC 718,
“Compensation – Stock Compensation” (“ASC 718”).  ASC 718 establishes
accounting standards for entity exchanges of equity instruments for goods or
services.  It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity’s equity instruments or that may be settled by the issuance of
those equity instruments.  ASC 718 requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values.





We
estimate compensation expense based on the fair value at grant date for our
employee and director options using the Black-Scholes valuation model and
recognize compensation expense using a straight-line amortization method over
the vesting period.  As ASC 718 requires that stock-based compensation
expense be based on options that are ultimately expected to vest, our
stock-based compensation is reduced for estimated forfeiture rates 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.





Our
computation of expected volatility used to calculate the fair value of options
granted using the Black-Scholes valuation model is based on historical
volatility from our traded Common Stock over the expected term of the option
grants.  For our employee option grants made prior to 2008 (we had no
option grant to employees in 2007), we used the simplified method to calculate
the expected term.  For our employee option grants made since 2008, we
computed the expected term based on historical exercises and post-vesting
data.  For the December 2008 and February 2009 option grants made to
employees working under the CHPRC subcontract, we computed the expected term
using the subcontract term of five years as our basis.  For our
director option grants, the expected term is calculated based on historical
exercise and post-vesting data.  The interest rate for periods within
the contractual life of the award is based on the U.S. Treasury yield curve
in effect at the time of grant.


47


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 Department of Energy (“DOE”) and Department of Defense
(“DOD”) represent major customers for the Nuclear Segment.  In
conjunction with the federal government’s September 30 fiscal year-end, the
Nuclear Segment historically experienced seasonably large shipments during the
third quarter, leading up to this government fiscal year-end, as a result of
incentives and other quota requirements.  Correspondingly for a period
of approximately three months following September 30, the Nuclear Segment is
generally seasonably slow, as the government budgets are still being finalized,
planning for the new year is occurring, and we enter the holiday
season.    Over the past years, due to our efforts to work
with the various government customers to smooth these shipments more evenly
throughout the year, we have seen smaller fluctuations in the
quarters.  Although we have seen smaller fluctuation in the quarters
in recent years, as government spending is contingent upon its annual budget and
allocation of funding, we cannot provide assurance that we will not have larger
fluctuations in the quarters in the near future.  In addition, higher
government (specifically DOE) funding made available to remediate DOE site than
in past years under the 2009 federal budget, along with the economic stimulus
package (American Recovery and Reinvestment Act) enacted by Congress in February
2009, could result in larger fluctuations in the remaining quarter of 2009 and
future quarters beyond 2009.





Economic Conditions.With
much of our Nuclear Segment customer base being government or prime contractors
treating government waste, economic upturns or downturns do not usually 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 believe we
are currently experiencing an economic downturn due to the recessionary 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
than past years under the 2009 federal budget along with the economic stimulus
package (American Recovery and Reinvestment Act), enacted by the Congress in
February 2009, will provide substantial funds to remediate DOE sites and thus
should positively impact our existing government contracts within our Nuclear
Segment.  However, we expect that demand for our services will be
subjected 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.


48


As of the
date of this report, the Louisiana Department of Environmental Quality (“LDEQ”)
has collected approximately $8,400,000 for the remediation of the site and has
completed removal of above ground waste from the site. The EPA’s unofficial
estimate to complete remediation of the site is between $9,000,000 and
$12,000,000; however, based on preliminary outside consulting work hired by the
PRP group, which we are a party to, the remediation costs could be below EPA’s
estimation.  As a result of negotiations with LDEQ and EPA, further
remediation work by LDEQ has been put on hold pending completion of a site
assessment by the PRP Group.  This site assessment could result in
remediation activities to be completed within the funds held by
LDEQ.  As part of the PRP Group, we have paid an initial assessment of
$10,000 in the fourth quarter of 2007, which was allocated among the facilities.
In addition, we accrued approximately $27,000 in the third quarter of 2008 for
our estimated portion of the cost of the site assessment, which was allocated
among the facilities.  As of September 30, 2009, $18,000 of the
accrued amount has been paid, of which $9,000 was paid in the fourth quarter of
2008 and $9,000 was paid in the second quarter of 2009.  We anticipate
paying the remaining $9,000 in the fourth quarter of 2009.  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.





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 assumed certain debts and obligations of PFTS.  We have sued
the buyer of the PFTS assets regarding certain liabilities which we believe the
buyer assumed and agreed to pay under the Agreement but which the buyer has
refused to pay.  The buyer has filed a counterclaim against us and is
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 has been ordered to
arbitration.





Significant Customers. Our
revenues are principally derived from numerous and varied customers. However, we
have a significant relationship with the federal government within our Nuclear
Segment, and have 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 Fluor Hanford and CHPRC as
discussed below) to the federal government, representing approximately
$20,377,000 or 76.8% and $52,623,000 or 72.8% (within our Nuclear Segment) of
our total revenue from continuing operations during the three and nine months
ended September 30, 2009, respectively, as compared to $8,814,000 or 55.1% and
$28,207,000 or 54.3% of our total revenue from continuing operations during the
corresponding period of 2008.


49


In 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, which once housed certain chemical
separation building and other facilities that separated and recovered plutonium
and other materials for use in nuclear weapons.  This subcontract
became effective on June 19, 2008, the date DOE awarded CHPRC the general
contract.  DOE’s general contract and M&EC’s subcontract provided
a transition period from August 11, 2008 through September 30, 2008, a base
period from October 1, 2008 through September 30, 2013, and an option period
from October 1, 2013 through September 30, 2018.  M&EC’s
subcontract is a cost plus award fee contract.  On October 1, 2008,
operations of this subcontract commenced at the DOE Hanford Site.  We
believe full operations under this subcontract will result in revenues for
on-site and off-site work of approximately $200,000,000 to $250,000,000 over the
five year base period.  As 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 began management
of waste activities previously managed by Fluor Hanford, DOE’s general
contractor prior to CHPRC.  Our Nuclear Segment had three previous
subcontracts with Fluor Hanford which have been renegotiated by CHPRC to
September 30, 2013.  Revenues from CHPRC totaled $10,680,000 or 40.3%
and $33,051,000 or 45.7% of our total revenue from continuing operations for the
three months and nine months ended September 30, 2009, respectively, as compared
to $127,000 or 0.8% and $127,000 or 0.2% of our total revenue from continuing
operations for the corresponding period of 2008.  As revenue from
Fluor Hanford has been transitioned to CHPRC, revenue from Fluor Hanford totaled
$0 of our total revenue from continuing operations for both the three and nine
months ended September 30, 2009, as compared to $2,787,000 or 17.4% and
$6,662,000 or 12.8% for the three and nine months ended September 30, 2008,
respectively.





Insurance. 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 downturn in the economy, changes within the
environmental insurance market, and the financial difficulties of AIG, the
provider of our financial assurance policies, we have no guarantees as to
continued coverage by AIG, that we will be able to obtain similar insurance in
future years, or that the cost of such insurance will not increase
materially.





Profit
Sharing Plan


The
Company adopted its 401(k) Plan in 1992, which is intended to comply with
Section 401 of the Internal Revenue Code and the provisions of the Employee
Retirement Income Security Act of 1974.  All full-time employees who
have attained the age of 18 are eligible to participate in the 401(k)
Plan.  Eligibility is immediate upon employment but enrollment is only
allowed during two yearly open periods of January 1 and July
1.  Participating employees may make annual pretax contributions to
their accounts up to 100% of their compensation, up to a maximum amount as
limited by law.  We, at our discretion, may make matching
contributions based on the employee’s elective contributions.  Company
contributions vest over a period of five years.  We matched 25% of our
employees’ contributions.  We contributed $401,000 in matching funds
during 2008.  Effective March 1, 2009, the Company suspended its
matching contribution in an effort to reduce costs in light of the recent
economic environment.  The Company will evaluate the reversal of this
suspension as the economic environment improves.





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.  Compared with certain of our competitors, we 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 wastes 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, in the future, be notified that we
are a Potentially Responsible Party (“PRP”) at a remedial action site, which
could have a material adverse effect.


50


We have
budgeted for 2009, $776,000 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.  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
September 30, 2009, we had total accrued environmental remediation liabilities
of $1,531,000 of which $798,000 is recorded as a current liability, which
reflects a decrease of $302,000 from the December 31, 2008, balance of
$1,833,000.  The decrease represents payments on remediation
projects.  The September 30, 2009, current and long-term accrued
environmental balance is recorded as follows (in thousands):





Current
                        
                        
                        Long-termAccrual
                        
                        
                        Accrual
                        
                        
                        TotalPFD
                        
                        $
                        197
                        
                        
                        $
                        215
                        
                        
                        $
                        412PFM
                        
                        
                        68
                        
                        
                        
                        108
                        
                        
                        
                        176PFSG
                        
                        
                        119
                        
                        
                        
                        358
                        
                        
                        
                        477PFMI
                        
                        
                        414
                        
                        
                        
                        52
                        
                        
                        
                        466Total
      Liability
                        
                        $
                        798
                        
                        
                        $
                        733
                        
                        
                        $
                        1,531





Related
Party Transactions


Mr.
Robert L. Ferguson


As
already discussed in this Management’s Discussion and Analysis of Financial
Condition and Results of Operations, Mr. Robert Ferguson, was nominated to serve
as a Director in connection with the closing of the acquisition by the Company
of PFNW and PFNWR in June 2007 and subsequently elected as a Director at our
Annual Meeting of Shareholders held in August 2007 and each Annual Meeting of
Shareholders since August 2007.  At the time of the acquisition, Mr.
Ferguson was the Chairman, Chief Executive Officer, and individually or through
entities controlled by him, the owner of approximately 21.29% of PFNW’s
outstanding Common Stock immediately prior to our acquisition.  See
discussion under “Liquidity and Capital Resources of the Company – Financing
Activities”, of this “Management Discussion and Analysis of Financial Condition
and Results of Operations” as to payments that have been made or are required to
be made as a result of the acquisition to the former shareholders of
PFNW.  In addition, see a recent amendment to the Merger Agreement as
Mr. Ferguson, a former shareholder, will participate in such considerations and
effect of such amendment.





Subsequent
Event


Larry
McNamara resigned as Vice President and Chief Operating Officer of our Company
effective September 1, 2009, and as an employee effective September 30,
2009.  When Mr. McNamara’s resignation as Vice President and Chief
Operating Officer became effective, his employment agreement and management
incentive plan with the company also terminated, except for certain covenants
that Mr. McNamara had agreed to under the employment agreement.  After
Mr. McNamara’s resignation as an executive officer of the Company, but prior to
his termination as an employee, we entered into a six months consulting
agreement with Mr. McNamara, subject to the consulting agreement being renewed
upon agreement by Mr. McNamara and us, and amended his fully vested outstanding
non-qualified stock options (“NQSOs”) covering purchase up to 270,000 shares of
the Company’s Common Stock until the earlier of:





·
            5:00
      p.m. on March 31, 2010; or


51


·
            Termination
      of Mr. McNamara as a consultant under the consulting
      agreement.





The
amendment and extension of the NQSOs held by Mr. McNamara became effective as of
October 1, 2009, and was approved by our Compensation and Stock Option Committee
and our Board.  The exercise price of the NQSOs extended range from
$1.25 to $2.19 per share.  We valued the NQSOs extended to Mr.
McNamara using the Black-Scholes valuation model and determined that we will
expense approximately $144,000 related to these NQSOs during the fourth quarter
of 2009 as a result of this extension.


52


PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





PART
I, ITEM 3





For the
nine months ended September 30, 2009, we were 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.  The interest rates payable
to PNC are based on a spread over prime rate or a spread over a minimum floor
base LIBOR of 2.5% 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%.  If our floating rates of interest experienced an upward
increase of 1%, our debt service would have increased by approximately $129,000
for the nine months ended September 30, 2009.  As of September
30, 2009, we had no interest swap agreement outstanding.


53


PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONTROLS
AND PROCEDURES





PART
1, ITEM 4





(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.  Based on their most recent evaluation, which was
completed as of the end of the period covered by this Quarterly Report on Form
10-Q, we have evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934, as amended) and believe that such are not effective as a result of the
identified material weaknesses in our internal control over financial reporting
as set forth below (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)):





·
            The
      monitoring of pricing, invoicing, and the corresponding inventory for
      transportation and disposal process controls at facilities within our
      Industrial Segment were ineffective and were not being applied
      consistently.  This weakness could result in sales being priced
      and invoiced at amounts, which were not approved by the customer or the
      appropriate level of management, and inaccurate corresponding
      transportation and disposal
expense.





We
      are in the process of implementing controls which we believe will
      remediate this material weakness in the fourth quarter of
      2009.





·
            The
      design and operation of payroll, pricing and invoicing controls for our
      subcontract awarded to our East Tennessee Materials & Energy
      Corporation (“M&EC”) subsidiary by the Department of Energy’s (“DOE”)
      general contractor, CH Plateau Remediation Company (“CHPRC”) were
      ineffective and were not being applied consistently.  This
      weakness could result in invoices, expenses, and revenue recognized at
      amounts that were not validated and approved by the customer and the
      appropriate level of management.





As
disclosed in the second quarter of 2009, we implemented the following controls
and had begun testing of these controls to remediate the material weakness above
for our CHPRC subcontract.  We completed testing of the second and
third controls noted below during the third quarter of 2009 and as a result, we
believe we have substantially remediated this material weakness.  We
will complete testing of the first control in the fourth quarter of 2009 at
which time, we believe the material weakness for our CHPRC subcontract will be
fully remediated.





1.
              Appropriate
      management review and approval on various critical processes such as
      invoicing, contract rate changes, and employee and pay rate
      changes.


2.
            Reasonableness
      tests to validate actual hours produced by certain time management systems
      through the use of an established utilization
  matrix.


3.
            Preparation
      and management review of monthly financial statements and
      reconciliations.





·
            The
      control for the recognition of processed/disposed revenue at our Perma-Fix
      Northwest Richland, Inc. (“PFNWR”) subsidiary was ineffective and not
      being applied consistently.  This weakness could result in a
      material amount of revenue being recognized in an incorrect financial
      reporting period.





54




We have
designed and substantially completed implementation of certain monthly revenue
and related account reconciliations, test samples, and analytic review
procedures which we believe will remediate this material weakness in the fourth
quarter of 2009.





(b)
            Changes in internal control
      over financial reporting.




In
addition to the above, the following are changes in our internal control over
financial reporting during the nine months ended September 30,
2009:





·
            We
      have centralized the following financial functions and processes to the
      Corporate Office during the nine months ended September 30,
      2009:





1.
            Reduction
      of facility level bank accounts to one centralized bank account and
      lockbox.  All accounts payable checks are now written and issued
      at the Corporate Office.


2.
            Transition
      to centralized Accounts Payable from facility level to the Corporate
      Office.


3.
            A
      Purchase Order System integrated with our accounting software was
      implemented for our Corporate Office during the second quarter of
      2009.  We plan to integrate the same system to certain of our
      facilities by year end.


4.
            We
      have centralized certain accounting entries and reconciliations, such as
      payroll, bank, fixed assets, accounts payable, and various non-operating
      accounts into our Corporate
Office.


55





PERMA-FIX ENVIRONMENTAL SERVICES,
INC.




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, 2008, and Item 1, Part II of our Form 10-Q for the
period ended March 31, 2009 and June 30, 2009, which are incorporated herein by
reference.  However, the following developments have occurred with
regard to the following legal proceedings:





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 assumed certain debts and obligations of PFTS.  We have sued
the buyer of the PFTS assets regarding certain liabilities which we believe the
buyer assumed and agreed to pay under the Agreement but which the buyer has
refused to pay.  The buyer has filed a counterclaim against us and is
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 has been ordered to
arbitration.





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, 2008.





Item
4.      Submission of Matters to a
Vote of Security Holders




At the
Company’s Annual Meeting of Stockholders on July 29, 2009, the following matters
were voted on by the stockholders.  All directors were re-elected by
the stockholders and BDO Seidman, LLP was ratified as the registered auditors of
the Company.  The First Amendment to the Company’s 2004 Stock Option
Plan was not approved by the stockholders as it was not approved by a majority
of shareholders voting at the Annual Meeting.





1.
            Election
      of eight directors to serve until the next annual meeting of stockholders
      or until their respective successors are duly elected and
      qualified.


2.
            Approval
      to the First Amendment to the Company’s 2004 Stock Option
      Plan.


3.
            Ratification
      of the appointment of BDO Seidman, LLP as the registered auditors of the
      Company for fiscal year 2009.


56


Directors
were elected and votes cast for and against or withheld authority for each
director are as follows:





Against or WithholdDirectors
                  
                  For
                  
                  
                  AuthorityDr.
      Louis F. Centofanti
                  
                  
                  41,565,456
                  
                  
                  
                  791,154Jon
      Colin
                  
                  
                  34,160,561
                  
                  
                  
                  8,196,049Robert
      L. Ferguson
                  
                  
                  33,575,825
                  
                  
                  
                  8,780,785Jack
      Lahav
                  
                  
                  40,777,672
                  
                  
                  
                  1,578,938Joe
      R. Reeder
                  
                  
                  35,111,214
                  
                  
                  
                  7,245,396Larry
      Shelton
                  
                  
                  33,990,719
                  
                  
                  
                  8,365,891Dr.
      Charles E. Young
                  
                  
                  35,113,634
                  
                  
                  
                  7,242,976Mark
      A. Zwecker
                  
                  
                  33,995,336
                  
                  
                  
                  8,361,274





The votes
for, against, abstentions and non-votes for the approval of the First Amendment
to the Company’s 2004 Stock Option Plan and Ratification of the Appointment of
BDO Seidman,  LLP as the Registered Auditors are as
follow:





For
                  
                  
                  Against or
                    Withhold
                    Authority
                  
                  
                  Abstentions
                    and Broker
                    Non-VotesApproval
      of the First Amedment tothe
      Company's 2004 Stock OptionPlan
                  
                  
                  19,083,504
                  
                  
                  
                  10,258,008
                  
                  
                  
                  13,015,098Ratification
      of the Appointment of BDO Seidman, LLP as the Registered
      Auditors
                  
                  
                  41,861,541
                  
                  
                  
                  473,563
                  
                  
                  
                  21,506


57


Item
6.       Exhibits





(a)       Exhibits





10.1
              Third
      Amendment to Agreement and Plan of Merger; Second Amendment to Paying
      Agent Agreement, and Termination of Escrow Agreement, dated September 29,
      2009 by and among Perma-Fix Northwest, Inc. (f/k/a Nuvotec USA, Inc.);
      Perma-Fix Northwest Richland, Inc. (f/k/a Pacific EcoSolutions, Inc.);
      Perma-Fix Environmental Services, Inc.; Nuvotrust Liquidation Trust;
      Nuvotrust Trustee, LLC; Robert L. Ferguson, William N. Lampson; Rettig
      Osborne Forgette, LLP; and The Bank of New York Company, Inc., which is
      incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K
      filed October 5, 2009.31.1
              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.


58


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:  November
      6, 2009
              By:
              /s/ Dr. Louis F.
  CentofantiDr.
      Louis F. CentofantiChairman
      of the BoardChief
      Executive OfficerDate:  November
      6, 2009
              By:
              /s/ Ben NaccaratoBen
      NaccaratoChief
      Financial Officer


59